The Geiger Index
Thursday, December 23, 2008
By Keith Fitz-Gerald
Email – #2
** Let’s close our first trade…but only if we have to…
That didn’t take long.
Goldman Sachs downgraded Monsanto (MON) from a “buy” to a “hold” yesterday morning and the stock dropped $5.88 almost immediately. Never mind the fact that Monsanto’s earnings are projected to rise to $4.94~$6.10 per share by 2010. Or that other brokerage houses maintain strong buys on the stock. The damage was done.
Why?
All too often, major firms like Goldman issue reports knowing full well they will shake weak money from the markets even as they provide more favorable purchase prices for their private hedge fund clients, particularly those using so-called “structured” products. This is one of Wall Street’s nastiest little secrets and it’s yet another reason why straight stock ownership doesn’t cut it anymore.
While this is terrible for regular retail investors who didn’t see this coming, it’s actually not bad for us because we’re still have the potential to exit the trade for break even or a small gain because our break even at expiration is $61.50.
If Monsanto remains above that price in the next few days, do nothing. However, if Monsanto trades at $61.50 or lower, buy back the January $70 Monsanto calls (.monan) and simultaneously sell your Monsanto shares. We’ll call it scratch and move on to greener pastures.
Broadly speaking, the Geiger Index reflects more market mayhem ahead and that’s all the more reason to hedge our bets. I’m leery of pressing our luck with another trade this close to the holidays so if we have to exit, let’s plan on being in touch just after the first of the year with another trade.
In closing, may you and your family enjoy the very best holidays wherever this email finds you!
Keith
Current Portfolio
Current Portfolio
Recommendation
Rec Date
Cost
Return
Buy stock at market
12/18/2008
$ (74.48)
Sell Jan $70 covered calls
12/18/2008
$ 8.50
Sell stock at market if called
1/16/2009
$ 70.00
====
====
$ (74.48)
$ 78.50
Profit Potential If Called
$ 4.02
% Profit Potential If Called
5.40%
Annualized Profit Potential If Called
67.93%
Breakeven at Expiration
$ 61.50
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