Timing is Everything

On Realmoney today there was a discussion about the probability of 0% economic growth in Q4 -- two contributors that are very smart and have a good track record actually believe there is a strong chance of that kind of outcome. wow.

Many people are looking at September data that they believe was weak and that this shows the economy is not going to recover -- they are delusional and NEED the market lower because they are either short or they are not long and therefore having performance challenges that will lead to clients leaving.

My way of playing this disconnect between growth forecasts is to be long semiconductors -- one of the most cyclical and global of industries. They rallied hard off the bottom true but they have been flattish since early August -- once investors recognize the strength in the recovery I suspect semi's should do quite well. The question is will I be proven right before my calls expire? hard to say but since I have Oct, Nov and Dec contracts on different stocks/ETFs, I figure at least some of it will work and potentially all of them.

In general that's my question -- will the market pull back again before people realize the strength of the recovery -- especially with option expiration next week. can we stay strong through next week? depends on how folks are positioned. sometimes they need the market to not go any higher -- which forces it up. Sometimes they need it higher which means the market will consolidate.

TSRA -- Cramer touted them last night due to their new product cycles -- one is the camera modules and the other is a new cooling technology that does not use fans -- so its more energy efficient and less noisy and allows for smaller devices. Cool stuff but its going to take a couple of years before material revenues. This is by far and away my largest holding but I am trying to manage the position a bit through options. I chose to try an interesting strategy -- sell a strangle, while buying protective puts -- so I'm short 30 calls, 25 puts and long 20 puts. Effectively its a covered call at $30 combined with a 25/20 bull put spread.

Just looking at the options trade my break even points are $32 and $23 -- put this on when the stock was about $27.75 so today's ramp to over $29 didn't help but if the stock keeps going the worst case is I sell half my holdings at $32. That would be a 15% return for the 45 days till expiration at the time of sale. I decided that wasn't bad. I can always choose to roll the position to December too. selling the put spreads helps to increase the upside but it also magnifies the downside. Overall its a slightly negative delta trade due to the proximity of the calls.

CY -- this is another of my semi play's -- so far the stock has dropped and is seriously testing the low end of the recent range. I think they have a winner in their PSOC business -- my bet is that analysts have under estimated the strength of the recovery so as the stock is at the low end of the range I would take a look at it.

FLIR -- longer term this is a big winner but near term I worry because their largest US gov contract is ending -- they need to replace about $140 mill in revenue next year -- will they do it? depends on the economy and if they win any other contracts. So the economy should help but with the stock up from 21 to 27 since they reported last quarter I wonder if there is a lot of upside in the mean time. so once again its a bit of a game of chicken -- near term squishy but long term huge so best time to buy a bunch was at $21 -- I was caught napping figuring there was no hurry -- everyone was waiting for them to lower guidance and once they did the stock was now "safe". in retrospect the lowering of guidance was an obvious buying time.

good luck