You Lika The Juice?

Yesterday on CNBC there was a segment about options where one of the guests suggested buying Matercard (MA) which was at $255 during the segment and selling the August 270 call for $12.

That's a lot of juice, baby!

When I looked after the close yesterday I saw the common at $253, the options bid at $10.30 and the volume in the call stood at 1562 compared to previous open interest of 1805 so maybe quite a few people liked that juice, eh?

Big call premiums are often a siren song that some cannot resist. One observation I would make is that often when there are big premiums, the premiums are big for a reason. There was a catalyst cited during the segment of an upcoming earnings report.

I seem to remember Adam saying it is better to buy increasing volatility than to sell it and according to iVolatility.com, volatility in the name has gone up quite a bit in the last couple of months. I may have that wrong from Adam but often with such a fat call premium the stock will either go down a lot or go rocketing past the strike. Although there are no absolutes to this sort of thing, changes in volatility usually happen for a reason.

Different subject; in this past weekends video I posited that last week's feel good rally might extend up to 1300 or 1310. One day out that looks very wrong but it is probably too early to know for sure that it is wrong. What I will say is that from the standpoint of lower highs, a high of 1282 after making a high of 1426 on May 19 might mean the market is weaker than many people thought.

The negative consequence of that would be more pain's a comin' soon the possible upside could be that the bear market processes through a little quicker than how it looks now. Probably too early to know but if 30% from the top (or pick your own number) is coming I'd rather get to it sooner rather than later.

Yet another subject; Indexuniverse reported that WisdomTree has filed for dollar hedged foreign stock ETFs. The basic idea is have foreign exposure with no consequence if the dollar goes up (if you own a foreign stock and the dollar goes up against that currency then there is a headwind to the position from the currency).

I find this to be fascinating in terms of the possibilities that this sort of fund offers. From the don't confuse genius with a bull market department a big part of the foreign stock story has been a very weak dollar. While I don't think there is a case for dollar strength lasting the fact is the dollar is much cheaper against just about everything than it was four or five years ago.

The possibilities include switching from no hedge to hedged and back again, blending the two together in some combo, changing the mix of that combo and probably some others.

Yet one more subject still; Merrill Lynch announced that it will be raising capital with a rather large share offering and Temasek is coming to the table for a big piece of the deal. I seem to remember Merrill CEO John Thain saying they would not need to do a capital raising yet here they are.

It is not too much of a stretch for me to conceive that the smart guys in the room are having trouble getting out in front of what the real magnitude will be and that things changed between April and now. Despite months and months of calls to buy financials the best thing has been to have zero weighting and and just wait. Zero is a big bet but underweight is not and waiting to buy is far from difficult.