A friend was talking aloud and I happened to overhear him, “What am I going to short on Monday?” As I looked at him he asked me what I was going to short as well.
To tell you the truth, for a short play, it may be worth looking into. This particular week will have the beginning of a lot of quarterly and annual earnings for some big companies. The question isn’t how badly did a lot of these companies do, that already to a certain degree has been leaked through press releases, trade shows, etc. The question is how low are they going to go with their guidance for the upcoming year. They may have some nasty news that for at least a short period of time may create a bounce. Will the bounce hold long enough till options expiration date in about a week’s time? It might depending on the timing of the news releases.
In the case of Intel (and I own shares and have covered calls on them), their news release will be coming out on Thursday. That is one day away from the options expiration madness and for the weekend there may be a dip and it may be a big one. We are talking short term here and whatever dip happens can be changed depending on how the nation and world react to the Inauguration. There may be a week of good feelings till the reality sinks in that it still may be a month till more incentives pass Congress.
Marketmakers may also play with the options and stocks knowing that people who are shorting stock won’t have the stock or money to cover it if they drive the prices up instead of down. Depends on the pressure and programmed trading. I have protected my covered calls myself last week with a few out of the money puts, just to play it safe. As some people have said on the Internet, if you are breaking even and holding onto your money sometimes that is better than losing money. I talk about covered calls in my book that is listed below.
I still stand by my position that the market will probably go sideways. Once earnings are out and a stock drops, especially one that still makes billions in income each quarter, they become very attractive as a buy and there is a possible that the stock may bounce back after a week or two and start taking off. People have short term memory when it comes to their money and random reinforcement when it comes to remembering only how things go their way.
So to answer my friend, I may go for some short term puts myself or look at an ETF. Please do your own due diligence and be careful. Remember that the price of a stock can go to zero as easily as it can reach for the stars. Keep in mind that there is a lot of international tension going on right now and different groups may use the Inauguration time period for doing things that will advance their own agenda and cause chaos in the stock market. That is great if you were lucky to short something but if there is no chaos and the market slingshots up, you can have unlimited loss potential there as well if you were shorting the stock or ETF. Good luck and good analysis!
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Kim Isaac Greenblatt
Short Stock Monday
Tags: Business, covered calls, market, options, short, stock