Thank you to those members who have been giving us feed back. We have not heard from all of you though and would like to get your input. Remember, the whole idea of a beta test is to discuss what is going right and what may need to improve. We can only do this effectively if we receive your thoughts.
NEW LESSON: Last week we discussed the pros and cons of legging in and out of these spreads as opposed to executing these trades as a one trade or straddle. Carrying on with this discussion, this week both MATK and JOSB required that we have an unequal amount of contracts between the CALL and the PUT to give the play an even chance of winning up or down. So we had to enter each spread as two separate orders - one for the CALL and one for the PUT. This worked out well for us this week as we were able to watch and take advantage of the up and down moves in the stock. When the stock dipped some, the CALL price became more attractive so we quickly entered the trade at that point. When the stock came up some, we did the same thing for the PUT. The result is, we got a better price on both options. The same principle can be used when you are ready to exit the trade. This may not always work as a stock may continue in one direction and not bounce around so you do have to be quick. But very often, you can take advantage.
We can get really creative and take this idea a step further on the exit of the plays. Let's suppose you bought the CALL for $3 and the PUT for $2.50. Now say the stock took off after the announcement and shot up $6 making the CALL worth $7. That is a $4 profit on the CALL. Since the PUT cost you $2.50 it means that the profit from the CALL completely paid for the PUT plus leaves $1.50 pure profit over and above. So basically, you own the PUT for FREE. Even if the PUT becomes worth zero, you have a $1.50 profit. In this case, why not close out the CALL and take the profit but hang on to the PUT. WHY??? Because if the stock turns around and goes down what happens to the price of the PUT? That's right, it increases and your overall profit will be even more. If that does not happen so what? You have everything to gain and nothing to lose. Remember, you own the PUT for free. Plus, if expiration is say 25 or 30 days away, you have all that time to have that stock go in your direction. And the way this market has been, the odds are pretty good things will swing your way within that time.
OK. That is enough for this week. I hope that was clear but send us your questions if you would like more clarification.
Chart Indicator---
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Even tho the markets were down for the week, and our Basic play was up almost 3 points, we saw that the CI passed a little test. We did not go negative--We came within about 8 Nas points of being right at the Positive/Negative line, but we expanded back to being 17 points above the line. Ending up the 3rd quarter on a positive note is a definite goal we would like to see reached.
Stock Split Comments---
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The split announcements are still pretty quiet, but looking ahead, we believe we are going to see quite an increase in announcements. There are many stocks with good earnings and we expect that they will be the group that furnishes more split announcements.
The Economy and comments---
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When talking about the economy, we see that wages are a sector that is closely looked at, from time to time. This past week we saw the markets take a good tumble when the report came out that wages had increased more than expected. It seems to us that wages and employment lag the rest of the production schedule. Companies get as lean as they can, and then hire. I hate to tell some people, but if you work and don't make enough to pay your bills, due in large part to inflation--and they don't count energy and food in the inflation table (we don't eat or drive, I guess)--then the country is not getting better, it is declining. The middle class is getting squeezed and squeezed and if we are not careful, we will only be reading about it in history books. There is a whole lot of money in this country, but where is it? More rich getting richer--Last week we mentioned how appraisers of real estate are getting rich on crooked appraisals, with practically no penalties. We turn this week to another area we haven't mentioned in a while. This is the comparison between what CEO's are paid and what the average worker is being paid. We put in a search term of "CEO pay compared to workers' pay" and we came up with some very eye-opening statistics--even tho they varied a bit, depending on who did the study. Eye-opening to say the least, no matter if you take the best numbers in favor of the CEO's. Here are a couple of the studies------
1."Pay for Performance
According to Business Week, the average CEO of a major corporation made 42 times the average hourly worker's pay in 1980. By 1990 that had doubled to 85 times. In 2000, the average CEO salary reached an unbelievable 531 times that of the average hourly worker. "...."What CEO honestly believes that all or most of the appreciation in value of their company is due to their own talent? ZD Net's Total Compensation Vs. Total Return To Shareholders chart (no longer online), shows that total return to shareholders was higher for many companies whose CEO compensation was under $500,000 than for companies who paid their CEOs multi-million dollar compensation."
2."The United States long has had the industrialized world's largest gap in pay between chief executives and blue-collar workers. CEO compensation swelled from 85 times what workers earned in 1990, to 209 times in 1996, and 326 times the following year. In 1999, CEO pay surged to a record 419 times the average worker's wage, according to the U.S. Bureau of Labor Statistics. .....Survey"
3."2005, the average CEO in the United States earned 262 times the pay of the average worker, the second-highest level of this ratio in the 40 years for which there are data. In 2005, a CEO earned more in one workday (there are 260 in a year) than an average worker earned in 52 weeks."
4. When compared to minimum wage---"In 2005, an average Chief Executive Officer (CEO) was paid 821 times as much as a minimum wage earner, who earns just $5.15 per hour. An average CEO earns more before lunchtime on the very first day of work in the year than a minimum wage worker earns all year....The ratio wasn't always so extreme. As recently as 1978, CEOs were paid only 78 times as much as minimum wage earners....Economic Policy Institute, June 2006"
End quotes---
To me, it seems that we are past "out of control". Yet, when the topic comes up on CNBC, they go to one of their favorite people and get an answer something like "The CEO is the most important person in the company.", meaning he is entitled to whatever he can get--even if the company loses money. I guess the rationale could be extended out to say that it is ok to give the CEO 90% (or more) of the company profits, because he is the most important person. Of course, when evil deeds are discovered, the CEO says that he was unaware of what was going on. Sorry, you can't have it both ways. And--all I know is that when I go to a company or a store or wherever, the most important people to me are the ones that I personally come into contact with. How they treat me makes me decide what I think of the company. If you don't have good qualified and loyal people, it shows. We have a chain of grocery stores out here in southern California named Stater Bros. The LA Times just did a feature write-up on the company and told how they are able to stay even (or ahead) of the big boys, including Wal-Mart and Costco. The company stresses greatly the attitude of the employees as they deal with customers. Now let me stress that it is one thing to have a policy, but if it isn't carried out, then it is worthless. I can state that from my personal experience, the policy is being carried out. They are such a thorn to the bigger boys that one employee from a larger chain told me that if there is a Stater Bros. within "X" distance of their store, the prices on a number of items is lowered. Another one that requires good customer service is In-n-Out Burgers. It is not a publicly traded company, either. What is one secret to their success (they have several)? They pay their employees more than the going wage for the industry--and include good benefits. So, what is the result---a fabulous company. Note---Paris Hilton was arrested for DUI this week, including speeding. What was her reason? She said she hadn't eaten all day, was starved and was trying to get to an In-in-Out Burger location as quickly as she could.---Pretty good testimonial, don't you think?
Now don't get me wrong. This is America, the land of opportunity. Everyone has the right to be successful and wealthy including all of us. In fact, SplitMaster is all about helping the average guy increase her/his earning power. We are also not in any way saying that all CEO's are taking unfair advantage. There are a lot of decent well meaning CEOs. All we are saying is, we do not go along with those CEO's who are taking unfair advantage.
A quick sidenote---Re professionalism. Recently I was watching the news on TV and there was a story about 2 people and their battle against obesity. Three times during the story, the news reporter stated that the weight of the 2 of them "was almost 2 tons"--"was about 1500 lbs, about 1 1/2 tons" and "nearly 2 tons". I thought my mind had stopped functioning on basic measurements. One ton is still 2000 lbs., but it seems that the news station was not aware of it. Now, the news is written for the announcer to read. That means that the "professional" that wrote up the news didn't know what a ton was, but the announcer didn't know it, either--another "professional". Even if the news is written, a person with any memory of numbers would know that a ton is not 1,000 lbs. and could easily have corrected it. So it seems we need to put the word "professional" in quotes, to go along with "experts" and "analysts" in the stock market.
SPECIAL NOTE to MEMBERS---This week it was announced that a major broker, Morgan Stanley, was fined $2.9 million for widespread violations relating to stock and bond trading. The story said it "included a failure to report or the misreporting of thousands of stock and bond trades and a failure to execute hundreds of customer trades at the best prices." We bring this to your attention because periodically we see that option orders are not filled at prices that were reportedly done for others. Could it be that this article is touching on just one of the brokers and more are doing the same thing? We know that others have been found guilty of such activities before, and this might be the reason we don't get orders filled? I'm not accusing anyone, but it has happened, and it sure makes a person wonder.
Today's Thought---
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One important key to success is self-confidence. An important key to self-confidence is preparation.....Arthur Ashe
Mike
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