Update to World #11 Sugar

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

Last September 21st, CRI issues an OnlyDoubles trading alert on Sugar #11. Specifically, buying the October, 2014 $.20 call options at 46 cents or better. That translated to roughly $515.20 ($11.20/pt) plus commissions. Considering the time value alone I thought this was a good idea. Add in some realistic technical targets and this was a veritable 'no-brainer'. Those Calls initially zoomed higher and I was looking like a genius. However, the option price never did double so as the market slowly melted back down to our purchase price and then even lower, I was looking rather foolish. In very typical commodity fashion, this market had one more push lower up its sleeve. This is one specific reason why I like options trading rather then futures or stocks. Since the premium paid is the maximum liability an option purchaser can incur, it really didn't matter if the price of the underlying went lower, I was more than happy to consider the $500 as the entire invested capital and whatever happens happens – October, 2014 was a very long way away. Indeed, that feature of options purchases seems to have paid off because prices of late have come storming back. So much so, that our long outstanding open order to sell half the position at double our purchase price (in this case $.92) was recently hit. Those that did do the trade should be sitting in a 'free' position. You should have sold half the position at that double level and have all your original $500 invested back in your hands. Who knows where the market will take Sugar prices over the next six months but my hunch is somewhere above $.20. 

That's all for this post, 
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca/RI_Tradents.php#ODNTbloglink
therationalinvestor.ca

Update to World #11 Sugar

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

I thought I would make a quick comment on Sugar's explosive move higher of late. Indeed, those October, 2014 $20 Calls suggested at or near $.46 are currently well into the .70 area (quote link).

As previously suggested too, if one were fortunate enough to have done the trade you would be wise to have an order working to sell half of the position at double your purchase price. In the original blog post write up I mentioned the low .90 area and I still like that as an exit point.

While I myself was unable to do the trade (no fill) I hope to see a pullback in price so I get a chance to get in on the long side before this move is done. A 50% retracement of this current run (on the daily charts) would bring prices back into the low 18 area and that is where I will be watching to trying to get in.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca/RI_Tradents.php#ODNTbloglink
therationalinvestor.ca

New Position Initiated - #11 World Sugar - October, 2014 $20 Calls around $500 look very interesting

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

While the stock market has done well over the past few years, not all assets have been in bull markets. Many of the 'soft' markets have been just that. But those days may soon be behind us as one by one, the sector looks to be turning the corner. While it is still very early, there are some signs of life within the international sugar market. Considering the substantial potential gain of a move back to the OTE short sweet spot of this bear market, I am more than happy to entertain the idea of long dated call option purchases and even a bit of bottom hunting within the futures pits. 17.29 seems to stand out and should be an interesting level to keep an eye on going forward.


After some thought, it occurred to me that this is a classic CRI's OnlyDoubles Trade Idea. Indeed, one can go and buy a 1 year call option on #11 Sugar and literally 'lock in' a position on this commodity for relatively little money. 

For OnlyDoubles blog purposes, I like the October, 2014 $20 call options currently at 46 points (at $11.40/ point that equates to $524.40). The October, 2014 Sugar futures contract is current $17.84 so a 10% move on a futures contract over the next year isn't too out of the question. Indeed, should the market go back to our '1st stop' target (38.2% fib at $22.50) this option will have an intrinsic value of 250 points (or $2850). Considering too, this is a one year option, there is lots of time for this idea to play out.... 

One should always follow CRI's 2nd rule of investing - that being never risk more than 5% of your stake on any one single trading idea. So with that in mind, your trade size should calculate itself. Ideally I would like to put $1000 to work here (so you should know how big of an account I need to consider this trade idea) and buy 2 contracts, I will consider the entire $1000 risk capital (which means I can afford to lose it) and will have an open order to sell half the position at double our purchase price (open order to sell 1 contract at 92 points or better).....hence the blog's name....OnlyDoubles

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
therationalinvestor.ca

Of course, all legal disclaimers are relevant. Consult your financial adviser as to the appropriateness of any strategies mentioned here. And none of you are ever going to consider a trade unless it is with money you can afford to lose - right!

New Position Initiated - TLT - 20 Yr. US Treasury Bond ETF June, 2013 120 Puts, December 1st, 2012

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

While totally absorbed in the very difficult task of day trading the crude oil market, I must admit I have let this blog slide a little of late. Having said that, whenever I do my weekly commodity trend survey and I see a particularly appealing trade I will make a note of it, take a look at current option premiums and see if there might be an OnlyDoubles Trade in the making. While doing my weekly review yesterday I did indeed stumble upon what I consider to be a very attractive investment/speculation opportunity. Specifically I am referring to the TLT (iShares Barclays 20+ Year Treas Bond. This is an excellent proxy for the longer dated US Federal Government bond market and a great trading vehicle. Daily volume is very high and it correlates well with the futures markets. 

Indeed, when one looks at the chart above it is very clear that this has been a one way trade now for more than a couple years. As savvy technicians, of course, that always spells opportunity. Simply using our time tested 50% rule we see that prices could easily correct more than 10% in the not too distant future. Additionally, long term support (trendline) currently sets well below even that target. From a Fib retracement perspective, the corresponding OTE Long SS to this at-the-present OTE Short SS is more than $20 lower than current prices. 

When I look at option premiums, I ideally want to find a situation where I can give the market a good six months to work towards my target. As well, I only want to go fishing where the current option premium is less than half what I expect the intrinsic value of the option will be when the price of the underlying hits my target. Considering our 50% level ($105) I find the June, 2013 option premiums to be extremely compelling at the moment. For instance, I can buy a June, 2013 120 put on TLT (that gives me the right but not the obligation to sell 100 shares of the TLT at $120 until the 3rd week of June) for $430. Should the market go to the 50% level any time over the coming six months that option will have an intrinsic value of more than $1500. That is more than 300% higher than current prices and represents a very interesting investment proposition. Should the market move back down into long term support (as outlined on the chart) this option will have an intrinsic value of more than $2500! 

While these crazy returns are not my expectation, I believe a buy at $4.30 could easily see $8.60 over the coming months. Indeed, upon my fill I will enter a corresponding sell order to liquidate half the position at $8.70. That should get all my original capital back in my hands and leave me with a free ride on the remaining position. Should the market move the way many are expecting over the coming year, that $25.00 on the remaining freebie might not be too outrageous of a proposition.

Order:
Buy 2 June, 2013 TLT 120 Put Options (opening transaction) at $4.30 or better gtc. Once filled, place open order to sell 1 June, 2013 TLT 120 Put Option (closing transaction) at $8.70....

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
therationalinvestor.ca

p.s. found this chart of the option itself.......adds to my interest

 Big Charts link

UPDATE May 26th, 2013
 











We have been working an open Put position in the US Gov't bond market ETF (TLT) for six months. The trade has come close to profit objectives but has yet to hit a level where we are to act according to our trading plan (where we sell at least 1/2 our position at double our purchase price).  There have been brief windows were our Put's price has gone up materially but alas, no double. Because we are option position players, time works against us and at some point we are simply forced to act. I have a general rule not to be in an option 'position' trade with less than 30 days of life left and so the time has come to act.

CRI is going to roll out of this June, 2013 $120 Put and try to enter into the January, 2014 $120 Put.

Here is the current chart for the June, 2013 120 put (Yahoo quote link):

 

Here is the current chart for the January, 2014 120 put (Yahoo quote link): 

Since the January, 2014 option is more than $9.00 I am going to sit for a bit and let this settle down. Should we get a counter trend rally (in TLT) that brings this option's price back down into the $4.00 to $5.00 area I will simply move the capital taken out of the June options and put it into January. I will post an update to this trade should price come back down into our buying widow...

Order:
Sell 2 June, 2013 TLT 120 Put Options (closing transaction) at $4.30 or better gtc. 

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
therationalinvestor.ca

Tues. May 27th,

Filled today on this open order - sold 2 June 2113 TLT 120 Put Options (closing transaction) at $4.60 (day's opening price)...this equates to a .30 profit on the trade or about 7%. At this point I am waiting for a counter trend rally and will at that point look at the December, 2013 or January, 2014 put options and see if there is enough risk/reward in the position to justify the trade idea.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
therationalinvestor.ca

New Position Initiated - NXY (Nexen Inc.) October 25th, 2011

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

It has been about six months since I last posted a trade in the OnlyDoubles Blog. There have been many trades that have come and gone in the interim but because of my family's crisis I took a pause from posting. I am pleased to announce that I have resumed the service and will post when-ever I see a trade that couple double in value come along. The junior stock market has been horribly hit over the summer and as a result, many of my picks are sitting at or near entry levels. Should we get a move to a double point on any of these names I will post an exit blog entry. 

This post, as I expect will be the case for some time, revolves around options. Specifically, Call Options (which make money when an underlying asset goes up in price) are today's trade. 

While doing our 'First two weeks of the Quarter analysis' in the middle of the month, one specific trend jumped out at me. The Energy and Basic Materials sectors were going to outperform the broader market for Q4'11. The XLE (Oil sector ETF) rallied almost 14% over the study period and far exceeded every other sector measured. Indeed, since that report, Crude Oil itself has moved another 6% higher (as measured by the oil ETF, USO) and looks to be trying to compete a short term bullish flag pole formation which ought to take prices up into the $37 area (which happens to be right around the 200 day SMA). To back up this notion, a report was issued today suggesting funds are buying commodities in size (news link).

So that brings us to today's trade. Nexen Inc. is one of Canada's leading integrated oil companies. It has major operations world wide and follows the broader energy market closely. 

Fundamental analysis: The whole market went into free fall over the late summer and I believe this is one company that is trading at ridiculously low valuations. From the July peak to the October trough the company fell by almost 45% [(25-.13.88)/25] of its value. Indeed, the company has been so hard it that it currently trades at a paltry 1.05 times book value. This literally means you are buying the company's assets at cost. Considering the substantial rise in energy prices themselves (over the past few weeks) is it realistic that this company should see a bump too? Insiders seem to agree considering they bought more than 20 million shares, or about 4% of the companies outstanding stock, over the past few months (news link) . Additionally, JP Morgan recently came out with a research note (news link) on October 6th (stock closed that day at $15.85) suggesting Nexen offers "the most attractive combinations of upside to price targets, downside protection, upcoming catalysts and growth in production." Earnings for Q3 are due out on the 28th and it is interesting, as one analyst put it, "The EPS estimate for the company's current year increased from 2.02 to 2.07 over the last 30 days, an increase of 2.48%. This increase came during a time when the stock price changed by -23.54% (from 20.26 to 15.49 over the last 30 days)." (news link). One has to argue that fundamentally, this company is ok. It is trading at the intrinsic value of the company, It is growing its earnings and insiders are are buying.

Technical analysis: A technician often looks at a horible price chart and sees opportunity. A stock that is sitting near its 52 week high seems dangerous to the technician while a stock sitting near its 52 week low seems potentially attractive. This I think is the case with NXY. The stock that was trading at $28 in March and they cut it in half over the period of six months. While I am not screaming BOTTOM, the stock is putting in higher highs and higher lows and momentum has confirmed the price action. But a trending higher market isn't enough for us to justify risking our hard earned money. The next question is of targets going forward. The 1 year 50% level currently is $20.91 (27.94+13.88)/2. More recently, the free-fall from the broader market late-summer sell-off cut the stock by 45%. A 50% retracement of that move would bring prices back into the $19.40 area. And lastly (which further bolsters my believe we will see higher prices in the not too distant future) there is a gap that ought to be filled at $19.10 that was left during the panic selling just a month ago. These then will be my targets going forward ($20.91 to $19.10).

The Trade: The issue for us short term traders is always one of time, or lack of it. To get the biggest bang for our speculative buck we have to limit our time of ownership. Since Options have monthly expiry's, we can buy a short amount of time in the hopes that our target will be hit before expiry. This then is what I have done today. Since we know there are catalysts coming for the company (earnings/exploration/crude prices moving) I am willing to get into the November calls in the hopes that the trade will develop over the coming month. These options expire the Third Friday of November so at the latest I will be out by the end of the first week beginning of the second week of November. If the trade is working I may just roll the position out into a later month.

I have bought 10 of the November $18 calls on NXY (US listed) at $.30. This works out to a risk of just over $300 on the trade. Upon notification of my fill, I placed an order to sell half of the trade (5 contracts) at $.60 to get my original money back in my pocket as quickly as possible. I will let the remianing position ride until either just before expiry (and I have to roll the position out to a later month) or the upside target is hit. I will risk 50% on the trade ($150) or down to $.15 on the option.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Read more:

New Position Initiated - COD.V (Chalice Diamond Corp.) April 27th, 2011

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

New trade for April 27th, 2011.

The cliche is so hard to resist...today's pick is literally a diamond in the rough - and an interesting story in itself. The company is a diamond in the rough in that it, Chalice Diamonds, is in the diamond mining business, because I feel that this company is trading at ridiculous valuations and finally because, technically, it looks ready to go. So lets get right to the good stuff...

Fundamental Background (VCIM screen)

COD first came up on our screens back in late 2010 when the stock meet our first criteria in VCIM - that being a recently 'rolled-back' stock (newslink). The company now has a little more than 10.9 million shares outstanding. While I haven't seen specific news about insider positions I thought it was very interesting to see the company has made dramatic changes to its board of late (newslink)- are options to directors soon to follow? While not a text-book test of intrinsic value -  there still exists a relatively high insider option position (a little over 1.4 million shares - 14 million shares on the pre-rolled back stock) that may be forced-to-exercise at $.15 if the current operators of the stock can run it above $.185 for 10 consecutive days before the end of June (newslink). That option will expire worthless at the end of 2011 regardless. Our last compelling reason to own this company from a fundamental perspective is in it's current price to book value per share. Currently, the company is trading at .30 price/book. In essence, for every dollar you spend in the marketplace right now (at $.15) you are buying more than $3 worth of assets......Not bad......Not bad at all......

Technical Background (Double bottoms & 50% rules)

The stock has taken a pounding and is dead - or is it? This is a classical case of glass-half-empty vs. glass-half-full. 

Since we already understand that the stock (from a fundamental perspective) is actually quite good right now, it really shouldn't surprise anyone if this little guy has a nice rally from these levels. Our technical 'buy' signal has come in on a move through the February peak at $.14. (A-B-C-D Double bottom price pattern). Coupled with a very good looking double bottom in price has been a much improving momentum situation. you will notice that both the MACD Histogram and the (7)RSI have been moving higher of late even though the price hasn't. This 'bullish divergance' is exactly what chart readers want to see and implies that the internal momentum of the stock is a lot stronger than what the price is telling us. The last piece of the puzzle is volume. While not bullish yet, there are hints that a floor is trying to be established. It does look like the sellers have sold - can the buyers take over now???

As for technical targets going forward; initially I would expect the stock to run up to the one year 50% level. Currently, that level sits at $.27 ($.12 or 80% above current levels). While not a strict double, I don't think anyone could be unhappy with that return. Having said that, I do believe there is lots more room for that double. Indeed, If one looks back a couple years we see the high is actually at $.90. Using that high in our 50% rule calculation, we come up a target just under $.50. Should the stock go there, that would be well north of a triple from current levels. While the percentage moves seem large, I don't think its too unrealistic given the significant highs from late 2009 through early 2010 where in and around these levels.

Summary

This is one really good looking company. It is trading at a fraction of its intrinsic value. While we have yet to see significant insider positions taken we have a company with little to no stock outstanding and an option position (a little more than 10% of the company) that has performance incentives and will expire at the end of the year.  Technically speaking, there is both a bottom in price to work with and very realistically achievable upside targets. I am long from $.15 and would be more than happy to pick more up on any pullback. I would seriously re-examine the trade if we moved below the winter lows of $.09.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com

Reiteration of Existing Position - PRC.V (PanTerra Resource) February 17th, 2011

Hello and welcome back to CRI's OnlyDoubles New Trades blog.

This post has more to do with a reiteration of how much I like one company rather than an entirely new stock. The company specifically is PanTerra Resource (traded on the Cdn. Venture exchange, symbol PRC.V)  

Fundamental criteria

The stock first came to my attention when the company announced they were going to roll their stock back on a 1:15 basis in October, 2009. (news link). 

The company has recently announced substantial grant of options to directors at $.25 in November, 2009 (news link), $.24 in September, 2011 (news link) and again at $.21 here in January, 2011 (news link).

Currently (at $.25) the company is trading at a rediculous .325 price to tangible book value. Today they announced they have a 90% increase in NPV from a little over $6 million to now over $11 million (news link) 

Technical Criteria

 The charts really speak for themselves. It looks like there is a serious pivot on the stock at $.25. Considering the fact that so many directors are long from in and around that area, I am more than happy to go bottom fishing here.

Momentum looks text-book here. The market is working a double bottom from today's break above $.25. The last piece of the puzzle here is volume. Should buyers come along in size - look out...

Fortunatly or unfortuantly (I don't really know) many popular investment sites (like stockcharts.com) havn't taken into account the roll-back so their weekly charts are totaly wrong. This could work in our favor but I really don't know at this time. Anyway, the above chart is from the TSX themselves so I feel good it is ligit. As one can see, this stock tanked in the 2008 bear and never came back. While I am reluctant to suggest we are going back to $11/share, technically speaking, this stock will eventually want to get back to the multi-dollar area. As well, they always say, the longer the base, the bigger the run. If that is the case, this one has got a long way to run!!!!

Summary

Based on the fact that the company is trading at a huge discount to their asset base and the fact that the company has been slowly loading the insiders pockets with stock over the past year, I am more than comfortalble to suggest there is solid fundamental reason to be in PRC. Additionally, the technical picture supports higher prices going forward, with a near term target in the $.355 area and a long term target well north of that. 

I will submit that I have been buying this little one along the way for some time now and my cost is about $.21. Considering the double bottom breakout on the news today, I would be more than happy to add to that position. And while it is tough to make the technical argument for $.50 in the near term, I have no problem shooting for that some time over the coming spring rally. Similarly, if you consider yourself a slick trader, work open orders in and around that $.21 area and see if you can pick up some panic/month-end selling pressure stock.

Remember, make sure the system you are using is at least 66% accurate and for heavens' sake, don't put more than 5% of your risk capital into any one play.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com