The explosion, sinking, and leaking from a Transocean owned and operated oil rig in the Gulf of Mexico will have lasting impact. The Transocean rig, called the Deep Water Horizon, was drilling in a BP GOM (Gulf of Mexico) oil field when it experienced some sort of catastrophic failure during a likely blow-out. At this point it is fairly apparent that at least 11 people lost their life in this tragedy, I don't want that point lost on anyone while I discuss financial implications.
I currently own BP, which is in what appears to be a very strong downward movement. As I have recommended it over and over again in this blog, I feel the need to tell anyone owning this stock for the short-term to sell. I also want to cation long-term holders that there is a large potential for loss on this stock too. Anyone holding Transocean (RIG) should sell now.
Internal to the industry it is well known that Transocean was operating the Horizon rig when the incident occurred, however the company is not a household name and the field is owned by BP. Most people know of the company BP. In the court of public opinion the aftermath of this explosion, a giant oil leak in the GOM, is a BP problem. Indeed BP has jumped to action quickly to try to contain this leak, in fact they acknowledge that they are spending over $6M a day trying to contain the leak.
I am not sure how the legal part of this will play out, and I'm not sure who is legally responsible for this incident. However I do know that both companies will suffer tremendously from this incident. I do not expect that this is the kind of thing either of these two companies will be able to recover from this year. If I still owned RIG (which I do not) I would certainly sell now, I suspect that many lawsuits will be filed against them. As I do own BP, I am still trying to evaluate what this will mean for a long-term investor like me. If I was a short-term investor with BP stock I would sell immediately.
The potential environmental impact of this is hard to fathom, and it hurts me to think about the irrefutable impact this will have. Whether or not you consider yourself to be "green" or not, this impact will be devastating, and should make you stop to think about the impact we are having on this planet. It is a hypocrisy I face every time I invest in this industry.
Thursday, April 29, 2010
Friday, April 23, 2010
Options 101
Options 101 - High Premium (up front money)
Some of the best options premiums in the market right now seem to be Hecla Mining Company (HL). I have been buying and selling covered calls on HL for the last +12-months.
Here is an example of buying the stock today at market, and selling a covered call at market:
If you buy HL today at $5.88 and sell options with $6 strike in June (57 days) for $0.42, you will make 7% today. If the stock hits the strike price of $6 and the option is actioned you will make an additional 2% profit on the stock.
Some of the best options premiums in the market right now seem to be Hecla Mining Company (HL). I have been buying and selling covered calls on HL for the last +12-months.
Here is an example of buying the stock today at market, and selling a covered call at market:
If you buy HL today at $5.88 and sell options with $6 strike in June (57 days) for $0.42, you will make 7% today. If the stock hits the strike price of $6 and the option is actioned you will make an additional 2% profit on the stock.
Drugs, Banks, and Miners
Earlier this week I pulled the trigger on a couple of stocks that I have been eying for quite a while. I have very little exposure to the health-care sector, and have wanted to broaden that exposure. After looking at several drug makers, I settled on Eli Lilly (LLY). Year to date LLY is ahead of both Pfizer (PFE) and Bristol Myers Squibb (BMY). Its also ahead of Merk (MRK) and GlaxoSmithKline (GSK). When expanded out to a 1-yr chart, you see it is the lagger of the group, behind all four of the others.
I bought LLY based on two points, first the ~5.5% dividend, and second the fact that LLY has the lowest P/E ratio of the bunch. I think this means that the stock should pull back in with the other four. I think this is the reason that it is the strongest year to date, and I think that trend will continue. Since I bought LLY at the beginning of the week I am down 4.2%, which is about middle of the pack for the Pharma stocks in this off week. Time will tell if LLY is a lagger dog, or swinging back into the pack.
Worse than my timing on Eli Lilly was my timing on Banco Santander (STD). The Spanish bank is down 5.3% since I bought it. This was a play on several fronts; Brazil, where Banco Santander is a big player. The banking industry in general, which is coming out of a severe down cycle. Europe, which has been hit very hard by monetary problems in the Euro Zone (problems that are far from over by the way). And finally a sizable dividend, which is important because I expect this stock to have lots of pull backs on a very long very slow climb back to its 2007 levels. From 2005 - 2007 STD paid over 3% dividend annually while climbing from $11.75 a share to over $20 a share. I hope to see a move from today's levels (~$13.40) back to the +$15 a share by years end. If the recovery is slower than I expect I will count on the nearly 9% dividend STD pays to pad my time commitment.
Last on my list of buys at the beginning of the week was my purchase of Vale (VALE), the Brazilian based mining company. I was debating between Vale or BHP Billiton (BHP). BHP pays a dividend while VALE does not. Year to date VALE is up +11% while BHP is only even. Expanded out for a 1-yr chart you can see BHP up +47% compared to VALE +75%. Vale earns less per share than BHP, has a higher P/E ratio than BHP, and pays no dividend. BHP may be the logical safer play here, but Brazil is an extremely fast growing economy and Vale is reaping those rewards.
I bought LLY based on two points, first the ~5.5% dividend, and second the fact that LLY has the lowest P/E ratio of the bunch. I think this means that the stock should pull back in with the other four. I think this is the reason that it is the strongest year to date, and I think that trend will continue. Since I bought LLY at the beginning of the week I am down 4.2%, which is about middle of the pack for the Pharma stocks in this off week. Time will tell if LLY is a lagger dog, or swinging back into the pack.
Worse than my timing on Eli Lilly was my timing on Banco Santander (STD). The Spanish bank is down 5.3% since I bought it. This was a play on several fronts; Brazil, where Banco Santander is a big player. The banking industry in general, which is coming out of a severe down cycle. Europe, which has been hit very hard by monetary problems in the Euro Zone (problems that are far from over by the way). And finally a sizable dividend, which is important because I expect this stock to have lots of pull backs on a very long very slow climb back to its 2007 levels. From 2005 - 2007 STD paid over 3% dividend annually while climbing from $11.75 a share to over $20 a share. I hope to see a move from today's levels (~$13.40) back to the +$15 a share by years end. If the recovery is slower than I expect I will count on the nearly 9% dividend STD pays to pad my time commitment.
Last on my list of buys at the beginning of the week was my purchase of Vale (VALE), the Brazilian based mining company. I was debating between Vale or BHP Billiton (BHP). BHP pays a dividend while VALE does not. Year to date VALE is up +11% while BHP is only even. Expanded out for a 1-yr chart you can see BHP up +47% compared to VALE +75%. Vale earns less per share than BHP, has a higher P/E ratio than BHP, and pays no dividend. BHP may be the logical safer play here, but Brazil is an extremely fast growing economy and Vale is reaping those rewards.
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