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Fed Day Random Thoughts: Hovnanian, St. Jude, Emcor...


Making sense of big, bad events, strange St. Jude stock behavior and Spanish real estate...

  • Buying index options before a "big, bad event" is usually not a good idea as volatilites tend to be even higher than usual. The reverse, of course, is that it helps if you want to set up positions where options are bought and sold on a ratio.

    I bring this up because I just got filled on such a trade (a 3 leg-spread or "butterfly spread") on S&P 500 (SPX) calls, and I got it done at very favorable - outright strange - prices, i.e. two legs got done at the midpoint of the bid/ask or better and the third leg just above the mid-point. Since market makers are not in the business of making money for other people, the fill I got raises two flags in my head:

    • 1. Do they view the net premium they collected as "free money" because they expect prices to head south? Or...
    • 2. Do they foresee a sharp contraction in volatilities, suggesting a rip higher? Are there other reasons which our option experts may wanna address? Does it mean anything at all other than I got lucky?

  • A Minyan asked what I think a decent entry price would be for St. Jude Medical (STJ). I've owned it for a long time (stock and/or calls) and I've suggested recently that the stock has been trading weird; that was the case even before rumors of a Johnson & Johnson (JNJ) bid resurfaced yet again.

    The stock has been behaving well and the company is putting up decent numbers, but at current prices is not cheap. I'm not putting fresh money in the name, and I've actually bought some insurance just in case it decides to peel off some of the premium from the buy-out chatter. Then again, I do believe that there's probably some truth to the rumors, and I would guess that STJ could fetch mid to high $50's in a buyout. That's about the best non-opinion I can offer.

  • I know nothing about Spanish real estate, but when a bureaucrat starts running his mouth in this fashion my "dark side" antennae go up fast.

  • I dipped a toe in Emcor (EME) as a better valued play in the infrastructure space. Of course the reason it's cheaper is that it's not nearly in as sweet a spot as McDermott (MDR) or Foster Wheeler (FWLT).

  • So Hovnanian's (HOV) efforts to give away homes this past weekend
    resulted in 2,100 gross sales, including 1,700 contracts and 400 deposits. Does it mean that the other 1,700 buyers signed a contract but did not put down a deposit? If not a deposit, what was the consideration exchanged to create a legally
    binding contract?

  • Is your portfolio stress-tested or stressing?

  • Watch SPX 1490 before and after the Fed. That's a mucho biggo level in my opinion.

  • Personally, I am writing so that I am not trading.
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Positions in MDR, STJ, EME and SPX.
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