#IncomeBlitz Positions & Summary

Temporary table till I move this to a widget hosted on AWS.

Trade Status Start Price Close Price Profit/Loss Notes
$AAPL Wrote Aug Week1 $105 Puts Closed $0.19 $0 +$500
$TWTR Wrote 50 Aug Week1 $29 1

Puts

Closed $0.18 Assigned shares at $29. Sold at $28.87. ~$0 Assigned shares. Sold a bit too early for BE. Could have made big on the trade.
$TWTR Wrote 40 Aug 22 $26 Puts Closed $0.23  Assigned at $26, sold at $26. Keep premium as profit. +$900
$TWTR Wrote 35 Aug 14 $26 Puts Closed $0.13 $0  +$490
$JUNO Wrote 13 Aug 22 $40 Puts Closed $0.54  Assigned at $40. Sold shares at $39  -$600  $-1.3K on assigned but +$700 premium. Net loss -$600
$BABA Wrote 10 Aug 22 $68 Puts Closed $0.43  $0  +$430
$BABA Wrote 10 Sep 19 $65 Puts Closed $0.65  $0  +$650
$BABA Wrote 10 Sep 19 $72.5 Puts Assigned/Open $1.83  Closed at $68.8  –$3700  Assigned 1000 shares at $72.5.

Closed at $68.8

$TWTR Wrote 30 Aug 28 $26 Puts Closed  $0.23  $0  +$700
$USO Wrote 50 Aug 22 $13.5 Puts Closed  $0.14 Assigned at $13.5. Closed at $13.8  +$1500
$TWTR Wrote 10 Sep 25 $24 Puts Closed  $2.25  Closed at $1.27  +$950
$TWTR Wrote 7 Sep 11 $22 Puts Closed  $0.63  $0  +$425
$TWTR Wrote 20 Sep 19 $22 Puts Closed  $0.64  $0 +$1250 
$TWTR Bought 1500 common Closed  $25.44  $26.77  +$2000
$JUNO Bought 1000 common, Sold 10 SEP 18 $40 Calls at $1.6 Closed  +$5000
$TWTR Wrote 7 SEP 18 $25.50 Puts Closed  $0.47  $0  +$310
$BABA Wrote 8 SEP 18 $58 Puts Closed  $0.88  $0  +$700
$YELP Wrote 6 SEP 18 $22.5 Closed  $0.5  $0 +$285 
$TWTR Wrote 6 SEP 11 $24.5 Closed  $0.33  $0  +$190
$BOX Wrote 6 SEP 18 $11 Puts Closed  $0.30  $0.35  -$100
$BABA Wrote 10 SEP 11 $58.5 Puts Closed  $0.38  $0  +$360
$BABA Wrote 10 SEP 11 $56.5 Puts Closed  $0.22  $0  +$90
$BABA Wrote 25 SEP 18 $70 Calls Closed  $0.18  $0  +$450
$BABA Wrote 21 SEP 25 $58 Puts Closed  $0.39  $0  +$800
$TWTR Wrote 10 OCT 3 $25 Puts Closed  $0.56  $0  +$530
$TWTR Wrote 20 OCT 3 $25 Puts Closed  $0.28  $0  +$525
$YELP Wrote 14 SEP 25 $22.5 Puts Closed  $0.15  Closed at $22.3  -$270  Assigned 1400 shares at $22.5. Closed at $22.3
$YELP Wrote 7 SEP 25 $23 Puts Closed  $0.2  Closed at $23.66  +$450 Assigned 700 shares at $23. closed at $23.66
$YELP Wrote 5 OCT 3 $21.5 Puts Closed  $0.6  $0  +$285
$YELP Wrote 10 OCT 9 $22 Puts Closed  $0.83  $0  +$810
$BABA Wrote 10 OCT 17 $65 Calls Open  $0.35
$TWTR Wrote 10 OCT 9 $24 Puts Closed  $0.29  $0  +$275
$BOX Wrote 10 OCT 16 $11 Puts Open  $0.3
$GPRO Wrote 10 OCT 09 $28 Puts Closed  $0.3 $0  +$300
$GPRO Wrote 20 OCT 24 $25 Puts Open  $1.13

Realized PnL = N/A

Unrealized PnL = N/A

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Why I am speculating on BitCoin & BlockChain in pictures ?

Current BTC Chart – Down more than 80% since the ‘bubble’ high of ~$1200 in end of 2013. It is impossible to determine a fair value for this currency because there are no fundamentals you can measure this against. While it is impossible to tell where this is headed, the currency has become less volatile than it used to be. Moreover, the chart tells us the potential for large moves if BitCoin turns bullish again. If BitCoin was to get back to the previous highs, it would deliver 4-5X gains.

Screen Shot 2015-05-21 at 7.09.45 PM

BitCoin started of with a bad reputation. It was often attributed to a pyramid scheme scam, used mostly for sketchy activities such as buying and selling drugs. Many, including yours truly, thought Bitcoin wouldn’t make it past the Mt. Gox incident. Yet Bitcoin has continued to survive and is now making splashes in both the Private Markets as well as Public Markets. In the below picture, you can see that the trust in BitCoin and VC investments has really taken off. In Q1 of 2015, BitCoin VC investments hit a record high and is on pace for a record $1B in investments this year.

Some big credible private Venture investors include:

Andreessen Horowitz: Top 5 VC w/ extremely profitable early investments in Facebook, Twitter etc. They have already invested more than $50M and plan to double that number.

Billionaire LinkedIn co-founder Reid Hoffman has invested in BitCoin startups like BlockChain. He calls BitCoin his 5 year investment.

      

Goldman Sachs drops $50M in to BitCoin & says : “Bitcoin Could Shape ‘Future of Finance'”

Google Chairman Eric Schmidt, Yahoo founder Jerry Yang, Khosla Ventures & many reputed venture firms have pumped money in to companies like Blockstream.

Last but not least, here are some example logos that actually accept bitcoins for payments. Talk about getting too big to fail.

   

  

The strong support for bitcoin coupled with the fact that bitcoin price has taken a significant hit recently, makes it a very interesting addition to my portfolio with a great risk/reward ratio. I have started investing in BitCoin using a diversified strategy that involves buying crypto-currency (directly & indirectly) as well as investing in private BlockChain startups through investment firms. My BitCoin investments remains smaller speculative positions with money I am willing to lose. I will share the details & methods of speculating on BitCoin in a separate post.

Hope you guys found this post useful.

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

$YELP over coffee

There is never a dull moment when you talk markets, economics, and stocks over coffee ! Last month, I drove up to SF downtown to meet a good friend of mine who is one of the smartest tech analysts out there. The same guy whose insights I have tweeted before on companies such as Nimble, ServiceNow, Oracle etc. This time, we had a great conversation about YELP.

As you all know, I have been adding to $YELP big time after the recent pullback for a long-term trade. It is a big #BottomPlay position in my portfolio after JIVE and TWTR.

I spent a lot of time Jan/Feb studying $YELP. Putting aside from all the “theoretical” bullshit thesis & documentaries you hear on their business practices, my “factual” thesis is straightforward –>

Back when YELP IPOed, it was a shaky story with Google & Facebook being its biggest threats. Google had launched Google+ platform and had an opportunity integrating it with Goole Reviews along with Google Maps. This to me was one of the biggest threat to YELP and I stayed away from the stock. There was also a lot of paranoia surrounding Facebook launching a Review service. Fast forward 2015, Google+ is a disaster, Google Reviews looks like a ghost town. Facebook reviews came but quickly became an un-searchable, tab hidden inside a Company/Business Page. Facebook has its own use case and Yelp has it own. Yelp and its user base continued to gain strong traction beating out both Google and Facebook.

The bears will quickly point to the recent slowdown which was caused by Google’s search tweaks. I certainly think this impact is temporary because many people still use Google Search to get to their information including YELP. YELP has confirmed that most of their traffic currently comes from Google. But as mobile markets including wearables grow larger and larger, there will be a higher dependence on niche Apps vs. today’s dependence on generalized search engines. Markets adapt fast and it will not take much time for the markets to swing in favor of niche apps which specialize in user’s needs rather than generalized search engines like Google.

In all honesty, there is nothing too complicated about the YELP story – Strong IP, huge TAM, market leader w/ weak competition, large international market growth opportunity. If one of the larger competitor becomes a threat, other larger competitor will have no problem buying YELP for pocket change. And I do acknowledge the possibility of YELP shares remaining weak in the short-term including upcoming results given the impact of Google tweaks, but in the long term, it is a strong buy.

And now back to my coffee table discussion. Back in Feb when I initiated my position, YELP had not announced their acquisition of Eat24. Thus, my thesis did not include the TAM (Total Addressable Market) from the Food Takeout business. My friend simply asked me to go home and start reading up on GrubHub ($GRUB). I went home that night and pulled out all their recent public documents and filings and I was pretty stunned at the opportunity ahead. If you are a YELP long, I will give you the same advice my friend did and you can start with this:

http://investors.grubhub.com/files/doc_presentations/2014/GrubHub%20Investor%20Deck%20June%202014.pdf

DISCLOSURE: Long YELP

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

Jive Q3 FY14 Highlights

Below are some quick notes from Jive Q3 conference call. There were certainly a lot of good news in the call which point to a turnaround. I expect the groundwork layed by the company this year to reap big benefits in 2015 and beyond.

> Zingale retires but now becomes takes up the position of Executive Chairman of the Board.

> Elisa Steele becomes the interim CEO & president of Jive.

– This is certainly a positive move because Jive no longer wants to sell itself. Tony Zingale brought his experience of building out small enterprise businesses to billion dollar businesses before selling them to larger companies. Clarify and Mercury which were sold at $2B and $5B respectively which is quite impressive. However, Jive is now moving back its focus onto GTM strategies which Elisa Steele has been a major part of this year. Elisa Steele has done a great job designing the GTM strategy and brand which is evident in the net new logos and numbers reported in Q3. With that being said, Zingale will stay on board as Chairman and focus on partnerships and customer relationships which is his area of strength. This also leaves room for potential acquisitions given his track record in M&A.

– Lastly I want to note that Jive has already built out a powerful platform that is no doubt the best in its class. Jive’s IP/technology is well ahead of competition so now the focus is more on marketing and sales execution which has been a problem for Jive until recently. With Elisa taking up the top job, Jive’s attention will turn to this.

> Jive handily beat top and bottom line.

> Revenue was $46.6 million, up +25% yoy vs $44.3 million estimates

> 4 cents loss per per share vs. 9 cents loss per share estimates.

> ST billing was $45.2 million, up +16% YoY

> Total billings up $50.2 million up 36%

> Smallest quarterly loss in 5 years

> $129.1 million cash compared to $139.2M in Q2

> Raised total FY14 revenue guidance to $177.5 million to $178.5 million from $172 million to $176 million, 22% yoy growth.

> Expect FY14 non-GAAP loss from operation between $18.7 million to $20.7 million compared to our prior guidance of a loss $24 million to $28 million.

> ST Billings growth guidance remain the same – mid to high teens.

> FY14 Non-GAAP loss per share of $0.28 to $0.30 vs prior guidance of $0.35 to $0.43.

– I am definitely impressed by these numbers. Special attention to quarterly loss which has been coming down significantly. The ST billings were decent too and hope to see +20% in the coming quarters. According to my estimates, Jive will bring in at least $205M or more in revenue for FY15. This means Jive is currently trading at only 2X FY15 sales which is among the lowest in the sector. Given the current trajectory & Jive’s dominance in the market, Jive is clearly undervalued. Jive customer count is nearing 1000 which includes quality name like Deutsche Bank, Apple, Google, Genentech, Citi, VMWare, EMC, Akamai, Eli Lilly, Oracle, ADP, etc. Also important to note is the adoption rate, premium, and margin. Therefore, even when competitors like Yammer, Chatter, and IBMConnections claim large user base, they are no way close to ~$200M in revenue. Most adopters of such internal and external solutions are willing to pay a premium which is great news for Jive.

As an example, SideCar had 60% adoption in just the first month of launch. Another example that was highlighted at JW14 was FICO w/ 97% adoption. Factors such as high adoption rate explains the margin & strong upsell numbers that Jive has over other competitors.

Clearly, there is an opportunity for Jive to take over the ESN market and it is doing so. I suspect Jive will remain an important acquisition target with large Enterprise Software vendors like Oracle who can get and give a huge boost by selling Jive on to their massive customer base backed by quality brands & adoption that Jive already has.

>Jive added 33 net new customers which is the highest in the past 7 quarters.

>936 customers compared to 903 customers in Q2

>Jive is singing a lot of multi-year deals incl w/ Thomson Reuters, US Department of Veterans Affairs

– 33 new logos is a great progress for Jive’s GTM strategy. Jive already has a great history with customer retention and upsell. The key factor I have been watching is the net new customers as well as the quality of the customer (size, brand name). Just in Q3 alone we got to see some great high quality logos – Barnes and Noble, BG Group, Burger King, Carestream Health, Chesapeake Energy, Deutsche Lufthansa AG, Ellucian, HGST, Lebara Mobile, Marketo, Medidata Solutions, MGM Resorts, Silicon Valley Bank, Thomson Reuters, Trinity Health, The US Department of Veterans Affairs, and one of the largest life insurance companies in the United States (Prudential is my guess), among others.

– Another point to note is that Jive is not just being used as a social tool, it is a platform on which companies are building their businesses on. For example, Pulse VA will be built on Jive to power 300,000 dedicated clinicians and specialist across 1,700 geographically dispersed medical locations to server millions of patients. Sidecar, Akamai, and Penn Foster are great examples of a growing market for JiveX which none of the competitors current have (except Lithium to a small extent). I believe Jive’s recent focus on Jive External Communities market is starting to pay off & I expect it to be a critical part of the turnaround story.

Closing notes: Most analyst reports haven’t factored in any data from Cisco Sales Channels yet which can add more firepower to this momentum. Jive does not have control over what Cisco does but if Cisco does it correctly, both the companies can each get a huge boost to their product portfolio given the strong value proposition that already exists & is proven.

DISCLOSURE: Long Jive

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

Short Bull Thesis on JIVE

Below is my take on why I’m bullish on Jive and why I am adding on weakness. Please excuse any spelling mistakes as I dumped my thoughts out in to this blog quickly without much proof-reading.

Jive took a beating after its earnings release in July. Since then the stock has been range bound in the $6.5-$7 range. Although the company did beat WallStreet consensus on most metrics, it missed a very important metric – Billings Growth. Jive’s short-term billings growth was only +10% year over year vs. Wall Street estimates in the range of 13-19%. After Q1 14, it looked like Jive was back in swing with management and Wall Street guiding 20%+ ST billings growth for the year but Q2 came as bit of a surprise to everyone including management themselves. The management claimed that there were several large deals that did not close in Q2 and slipped to Q3. This definitely contributed to an exaggeration in the slowdown in billings growth for Q2 and the overflow of deals may boost Q3 billings. However, management also did acknowledge that they are likely to face sales headwinds ahead and cut the ST billings growth for FY14 from 20% to mid to upper teens. They did not provide guidance for FY15 which will be interesting to watch given the miss in billings.

There are many reasons why I am not concerned about this and added significantly on the dip. First, let us understand what these sales challenges are and why this should not be a worry. Jive’s revenue is currently a 70-30 mix of internal ESN software vs external ESN software revenue. The internal collab software is their Social Intranet software that the companies get for their employees to collaborate. When Jive went IPO, “Facebook-for-companies” was the motto and it helped Jive grow from <40M in revenue to close to $200M estimated for FY15. Something most don’t know about Jive is that they are also the largest External Community Software provider. Jive’s external collar software is currently being used by large corporations such as Apple, EMC, Humana to create communities for customer support, marketing and other customer engagements. Unfortunately, Jive management, until recently, had done a bad job at marketing their external offerings and most people still only think of Jive as an Internal ESN.

Let us dig deep in to understanding Jive’s Billings growth slowdown. Jive’s sales challenges are exclusive to Social Intranet; software for employees to collaborate. According to my in depth research, growth in this market for Jive has significant slowed down mostly due to competition coming from Salesforce and Microsoft. Salesforce introduced their own ESN software called Chatter which they are giving away free to many customers. Salesforce is at a significant advantage thanks to their CRM software which is considered the gold standard in the CRM market. Salesforce made a smart move of leveraging their lead in CRM to integrate Chatter as a platform and gave it away free to many customers. Sales employees were able to collaborate easily within their CRM software using Chatter, throwing pure ESN plays like Jive at a significant disadvantage. Similarly, Microsoft has been integrating their Office 365 solution with Yammer and giving away Yammer free to customers. This has suddenly slowed down Jive’s growth in the Internal collab market. The company pointed out in the conference call that this evaluation of the entire Enterprise Software Packages by companies is taking longer because companies have started seeing Internal Collab software as part of ERP suite. Prospects are questioning if they need Jive in addition to Salesforce CRM or Office 365. The Jive go-to-market strategy team has been working to help customers understand the advantages of adopting pure-play ESN software by integrating with best of breed Enterprise software from Productivity tools such as Office 365 to transactional systems such as Workday, Salesforce CRM to high-tech conferencing tools such as WebEx. Obviously, Jive’s offerings are miles ahead of other ESN software vendors such as Salesforce, Oracle, SAP, and IBM. Jive’s latest “summer release” has been a testimony to this focus on integration. Moreover, according to my independent research, Chatter adoption has mostly been limited to Sales personnels. Chatter adoption by other departments in companies have been slow for most Chatter customers. Most companies are yet to realize the important of collab software within the context of the entire company. As companies start to realize the importance of collaboration software beyond Sales teams, I believe Jive will start to realize the return on investments esp in the area of integration (aggregation across ERP offerings).

What if Jive’s GTM strategy does not work ? Believe it or not, it is still a win-win situation for Jive. Salesforce’s secret sauce has always been their platform and their huge developer community that has been hacking away applications to meet the various business challenges of its customers. Salesforce first took over the CRM software sector. Next it took over the Marketing software sector. Salesforce along with it’s “platform friends”, such as FinancialForce.com, ServiceMax are now read to take on other sectors. I predict that Salesforce will enter in to other territories such as Supply Chain, Hospitality and Healthcare software next with the blessing from their Force.com platform and MASSIVE developer community backing. Salesforce also has a great partnership in the HR market with Workday using Salesforce platform including Chatter platform. This leaves the likes of SAP, Oracle, IBM, and Microsoft in the battle zone to defend their market share. As these incumbents battle to build out similar platforms, a collaboration platform will become a key part of the platform. The only cloud ESN product in the market that matches and beats Chatter’s capabilities is Jive. The rest of the companies’ offerings are years behind in capabilities and most importantly brand name that Jive has building. This is why I think there is a good chance Jive will get bought out as Salesforce becomes a bigger competitive threat in the ERP market beyond just CRM.

Lastly, I wanted to highlight another important part of my bull thesis for Jive software – JiveX External Communities platform. As I have mentioned several times before, Jive is not known for their External Communities platform which the management has been working on with well defined use case for External Portals and Communities. This is one sector Jive has been leading with not much competition from other vendors. Salesforce launched Chatter Communities few years back but never really gained much traction. Just few hours ago, they re-launched Chatter Communities branded as SalesForce1 Communities but this is one area SalesForce hasn’t been able to crack. This is because, unlike the Internal ESN, the external communities has a well defined use case which doesn’t need to be forcefully plugged in to the ERP suite. Most support communities have no need to do that. Salesforce1 Communities might be able to win some customers which need integration with CRM, Marketing lead gen but this is do-able today in Jive External Communities Platform. Jive External Communities has a big markets share and is growing rapidly as companies are starting to use Online Communities as way to communicate with customers instead of traditional methods. Online communities is also a necessary tool for companies to market and meet their customers engaged in their products and services. Jive management has recognized this and have been putting in a lot of investment in this area including the new cloud version of this called JiveX. The only other company that is close to the offerings of JiveX is a startup called Lithium. They have been fighting head on with Jive in this market but according to my research, Jive is well ahead of Lithium in terms of customers, brand name, as well as the maturity of the Platform.

My prediction is that Jive will slowly but surely start to see a shift towards External Communities away from Internal Communities as the market for External ESN Communities is growing at a much faster pace than Internal ESN. As Jive focuses its go-to-market strategy on much larger, ESN for External communities market, it is bound to regain some of the momentum in new customer wins and achieve 20%+ ST billings growth. Management did note that they are getting a lot of deal activity in this space and it is exciting to see customers like Humana, Apple, EMC, VMWare, SAP building huge communities on Jive Platform to connect with their customers.

Another important point to note is that none of the larger Enterprise vendors – Oracle, SAP, IBM, Microsoft have ESN software for communities. In fact, Oracle and SAP are important Jive customer. Both these companies have thousands of community users active on Jive External Communities Platform. As Salesforce start to pitch Salesforce1 Communities in to their deals enhancing what they refer to as “Internet of Customers,” I definitely see Jive’s value as an M&A target increase by multiple folds with no such offering in place for these larger enterprise incumbents. IMO, the billings growth slowdown will only be a short term problem till we start seeing some deal activity in JiveX with references from customers like Verizon, Esri, EMC, ServiceMax etc.

Last point I want to note is with regards to the Cisco partnership which is also an important part of the bull thesis for Jive. As I have tweeted and blogged many times before, Jive’s solutions doesn’t just span across ERP applications but it is also an important part of the collaboration technology IP itself. Companies like Cisco, Microsoft, Google want to capture the market share in productivity tools such as Office, Web Meeting, Real-Time Collab etc. Obviously, these solutions become much more powerful and useful when packaged with ESN. Cisco is trying to fend off threats to their WebEx business – which is a significant part of its collaboration business- by ensuring WebEx has a social element attached to it. Cisco attempted to create ESN called Quad which failed to take off. Without a social element to WebEx, it become a simple replacement for enterprises which are looking for comprehensive collaboration packages. Salesforce has already been working on this for some time now with their acquisition of WebEx competitor DimDim. In short, these productivity tools are meant to provide a channel of communication with the user base coming from ESN systems. This is why Microsoft also bought Yammer so they can enhance Office 365 productivity with ESN software. Google tried to pitch Google+ for Businesses but that too has failed. Google has all the technologies including Google Hangout, Google for Business Apps (Gmail, Google Drive) but has failed to win over the Enterprise market. This is one area Microsoft can claim victory over Google. As the market for real-time collaboration technologies picks up, I expect Jive to benefit largely from the competition that is heating up in this market and possibly get acquired by Cisco or even Google !

Unfortunately, none of this is discussed or analyzed by analysts who are focused only on the immediate and very near term numbers. Most analyst reports I read did not model the leverage that Jive gets from Cisco’s reseller sales network. I think this can also lead to a surprise in FY15 and FY16 numbers which are not being modeled in all analyst reports I pulled out on my Bloomberg Terminal.

 

DISCLOSURE: Long Jive

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

VIX Buyers – We are not alone !

While the SPX was ripping higher, there was some sneaky activity going on at CBOE in the past couple weeks. I’m just speculating here & I could be totally wrong but why do I get a sneaky feeling that SPX is getting propped up only to get indirectly shorted via leveraged VIX which is trading at shockingly low levels of 12-13 ! Volume has died off on SPX with many funds in cash waiting for all of this to be over. Makes it almost very easy to artificially prop the SPX up. Food for thought.

Here are some interesting snapshots of numbers while many were led to celebrate a strong day in the market.

VIX P/C ratio of 0.266. 433K calls vs only 115K put activity.
Screen Shot 2014-05-09 at 3.44.34 PM

 

VIX trades for today.
Big June OTM Call buyers across the board today. Biggest buyer bought 10K June $18 C at $0.64. Tons of buyer flocking to pay up the premium. Talks about the confidence levels in this market. Even May with only 10 days left with expiration has some interesting vix buyers & put sellers betting on a spike.

Watch OptionMonster Summary Video here —> http://bit.ly/1j53lcU

Screen Shot 2014-05-09 at 4.15.39 PM

 

SPX had a similar tone. P/C ratio of 1.6. As mentioned on twitter yesterday, many Put buyers have been loading up on SPY puts this week.

Screen Shot 2014-05-09 at 4.25.53 PM

 

 

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

Market Notes – 4/27/2014

Last week was a very profitable week even with the markets getting smashed. Obviously I was shorting the markets but I also made money on the long side as well. All of these trades and strategies were based on the market plan highlighted last weekend on the blog. This is another example of why having a definite plan with a focus on Macro is very critical especially in these market conditions.

In the past two weeks, we were watching the key 1890 resistance level on SPX. I was net long with several long swing trades in to 1890 test. The trade was to go long till we approach 1890 to see if we break or get rejected. As we approached 1890 I started loosening up a bit taking profits on many long swings trades incl CRIS OREX BMRN VTUS CYTK etc. Holding through 1890 would have given me even more profits because we gapped up after breaking 1890. But trading is all about risk management surrounding probability of events. If we rejected 1890, I would have given back all my gains.

 

Screen Shot 2014-04-27 at 1.16.56 PM

 

I was also watching NDX key level of 3600 which obviously is the key for the markets as I have mentioned many times before. All of BioTechs can have blowout earnings and it will mean nothing till the market momentum favorites like GOOG, NFLX, CMG, AMZN turn bullish. The markets are bullish when these stocks are bullish and healthy. This is why I was shorting markets including IBB going in to GILD earnings because GILD and other BioTechs are a small component of the entire market let alone the Tech sector.

Trendline test

Screen Shot 2014-04-27 at 1.27.00 PM

 

 

1-year daily

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As NDX approached 3600 level, I started to scale in short to see if 3600 gets rejected again. Given that we had broke SPX 1870, if we broke 3600 on NDX, I was planning to cut my short trades and then go heavy long on the market. But on Tuesday we got a hard rejection. This gave us some nice exits on shorts and guidance on long exits as well. Thursday, AAPL provided NDX the much needed boost. AAPL single handedly created a huge candle stick aove taking NDX past 3600 but the pop was very briefly. By end of Thursday, it looked like another 3600 rejection was forming. I started shorting the markets again on this potential rejection theory. Friday, we confirmed the rejection with a big market #flush. As I have said many times before, NDX is the most market indicator because it contains important growth stocks.

On the fundamental front, the earnings were overall a disappointment. Many large cap “value” plays were an absolute mess as expected. Unfortunately, the Nasdaq earnings did not come in strong either. Several growth names met or slightly beat expectations but forward guidance remained a worry with guiding lower. Additionally, Ukraine-Russia news started heating up again with fresh new possibilities of Russia using military force to invade eastern Ukraine. Heavily armed pro-Russian rebels have seized buildings in towns and cities across eastern Ukraine. Ukraine is preparing and is already in the process of taking military action while Russia is building up force in Eastern border with Putin promising to protect Russian population in Ukraine. None of us know what Putin or Ukraine will do next but it is important to watch the developments on this front because any negative developments here accompanied by weak earnings fundamentals can cause the 10% SPX correction that many have been looking for since 2012. Obviously, 10% correction in SPX can be disastrous for high beta names esp in the BioTech sector. My view on the Fed monetary policies remain the same as I have highlighted in my tweets. Disclosure – I’m short treasuries via TBT (another good hedge against Fed noise).

I plan to remain overall market short in the short-term. Till the NDX really confirms a change in trend, I do not plan on going heavy on the long side. Since I am a swing trader, I will continue trading opportunistically taking profits on the short side as well as going small long periodically with tight stops. As I have highlighted in the previous post, the risk/reward to short already beaten down names such as NDX IWM/RUT or IBB is not as good as shorting undamaged charts such as SPX DIA IBM V INTC T etc.

For the next week ahead, I went in small long (including names like MKTO, WDAY, PCYC, IDRA etc) to see if we get a 50-MA SPX bounce on Monday/Tuesday on 1yr-daily. If we do get that bounce I will sell in to the bounce almost immediately still staying net short expecting the head and shoulders on NDX. If we go below that, I will exit the small longs & add more SPX and DIA/DJX short. If we approach the resistance around 1830 on SPX, I plan to start adding small long again to see if we get a small bounce at these levels. On NDX , if we approach 3400, I plan to lighten up short and start going long to see if we bounce of the 200-MA. As mentioned in my previous post, if NDX reverses the trend and go above 3600, then I plan to go heavy long till all-time market highs of 1910 on SPX where I will start shorting market again with 1830-1840 as my target (bullish channel). Unlike on the short side, I plan to go long on beaten down names including BioTech small caps, WDAY, MKTO, N, AMZN, GOOG et al because the risk/reward for going long on these names are much better than undamaged names. IMO, it is foolish to be shorting BioTechs and NDX names instead of undamaged charts at this stage – except for scalp trades – of the game because the risk/reward is not there. You can read more on a tweet where I highlighted this back in March –> http://bit.ly/1lneQx9

Another important indicator that I always watch is the “fear” indicator, VIX. IMO, VIX is still very low compared to the action that we are seeing in many names in NDX. As I have tweeted many times before, I am short market a bit heavy via VIX which I feel has a lot of upwards room. Currently, the VIX indicates no real fear in the markets. I am looking for durability in these short-lived spikes. Any durability in the VIX rise will make me lean strong towards a 10% market correction. I will tweet more details on this including key levels to watch this week.

Lastly, I wanted to briefly address biotech sector specifically with respect to these macro conditions. I have started noticing a lot of BioTech trader and investors are narrowly focused only on the sector often citing valuation and rarely peek their heads outside the sector which to me is very dangerous. In the past 10 years, BioTech sector has been in a straight bullish trend with minor correction but this correction is the first of its kind multi-year trend break correction. Even the 2007-08 crash was a minor correction compared to the correction we are going through. i.e. -35% 2-yr recession vs -25% >3-month correction !! While I still believe BioTechs will head back over the all-time highs again possibly by year end, it is important to note the impact market corrections are now starting to have on the BioTech sector. Many BioTech investors could have ignored the markets, bought every dip and profited nicely in the past decade but this is no longer true. While I don’t think we are going through anything close to a recession, I would argue that the next recession or “real” market crash can severely damage your BioTech portfolio if you are not paying attention to the macros. This is a great lesson that many of us should learn and apply to our portfolios especially when we get the next recession. On the side note, valuation-catalyst plays obviously will work in any market conditions but allocating large portions of your portfolio to such companies is risky and and is not sustainable way to generate returns.

Obviously, if you roll like Warren Buffett or Carl Icahn – who have deep pockets, big varied investments and can wait for years to collect their returns sitting on nice dividends – then you can probably ignore recessions, corrections, bear markets et al. For the smaller account investors, traders and fund managers who need to generate consistent returns/income, macro analysis should be an important part of your portfolio management. If you do not short or hedge your trades that is fine as long as you understand when to take chips of the table and go heavy cash. By doing this, when the markets turn around, you will have an opportunity to profit greatly.

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.