By Andrew Giovinazzi
The dashing of early bailout hopes for Spain are causing some ruffles in our equity markets. Mario Draghi presents some guidelines in Berlin this week, but most of his effect has been successful jawboning about what the ECB will do. That action has lifted the euro to 129+ from 119, but the back and forth still causes disruption.
If you think about how efficient TARP was, the U.S. equity market bottomed five months after the TARP and never looked back. While the ball is rolling downhill in Europe now, it is still hitting bumps (if you don't believe this thesis, look at the long-term VIX future prices from one month ago).
When combined with a string of weaker earnings that sends our markets into a quick tailspin. I had the VIX backward (VIX cash over VIX Nov and Dec futures) Tuesday as the short-term selling jacked up the implied volatility everywhere. With realized volatility up it pays to be more careful.
As I write this, I was waiting for Facebook /zigman2/quotes/205064656/composite FB +1.17% earnings. The $19 level is a good entry point, and I wanted to wait for earning to go by before making a recommendation. I am looking at a $24 opening now and all I can say is "mobile revenue." The tougher part is creating a trade. I expected a little higher but I did not expect 20% higher. I still like selling put spreads around the $20 level it is just that there is not a lot of money in them today. So I will put FB on hold even though I still like the trade on any weakness.
My next internet property is Yahoo . Yahoo reported better than expected and is going to refashion itself as a mobile property, as it is seeing an uptick there. Besides the giant cash position, the company is relatively cheap. If you look at the chart below, 90-day realized volatility is around 20%.
See graphic image here
Yahoo has been a reliable plodder. The earning gap aside, the stock has been moving so slow that it is hard to buy calls in here to make enough money to pay for decay. Your timing has to be great. The easier way would be to sell the Yahoo Dec 15/16 put spread for .20. That would be a 20% return on risk if Yahoo keeps it plodding course. When the market volatility kicks up, plodding is fine with me.
Read more content in our Free Blog