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quote:

Originally posted by Nrg2Nfinit Insiders have bought and are holding the stock as well which is a good sign. Analysts also say the market price is valued at 2.51 per share. I'm assuming this is relative to other companies in the industry. I can only speculate thats how they come up with that number.

You mean analysts have a target price of $2.51/share?
I don't know much about coal company valuation methodologies but I would think the valuation is based on some sort of price to cash flow multiple, based on both relative valuation and historical trading ranges for the company.

quote:

Originally posted by Skipper You mean analysts have a target price of $2.51/share? I don't know much about coal company valuation methodologies but I would think the valuation is based on some sort of price to cash flow multiple, based on both relative valuation and historical trading ranges for the company.

yes target price (excuse my terminology).

Financials down = markets down = energy down = coal down, most of the week. Only solar and shipping did well yesterday. I wouldn't worry about WTN specifically just yet.

If you're looking at Patriot, note the >15% short interest. Make up your own mind whether that means it's overbought or about to get short-squeezed. It's definitely a risk.

This was the first week since March where the Dow, S&P, and NASDAQ all went down. Maybe it's a trend reversal - maybe Skipper's right and it's a bear market rally - I'm hoping next week is a recovery. Actually I sort of agree that it's a bear rally, but I don't think it's run out of steam yet.

Hrmm i'm looking at partriot right now and it seems they jumped big after their Q1 profits and only dipped down a bit. I dont know what kind of news can bring them up even higher at this point. They still are a bit undervalued relative to the industry so that can be taken a a good sign. I might give BNN a call next week and get an opinion on WTN. See what they have to say lol.

I'm not too sure what you mean by the >15% short intrest. Maybe you could point that out for me.



On a side note. I was reading up on naked shortselling and how its illegal pretty much everywhere except canada. Basically shortsellers skip the borrowing process, or havent confirmed a borrowing. Then they get the "phantom shares" sold (as they are not aquired yet). Profits are then collected after returning the lower price shares to the original shareholder. I think what ends up happening is that the buyer, who gets the sold phantom shares, has to settle to get the shares at a lower price as by the time the borrowing goes through, the share price has already gone down and the transfer occurs at a lower share price.

Is this actually what happens? or are the original borrowed shares sold filed as a failure to deliver? meaning the transaction is canceled and the market is diluted as the shortseller doesnt have to return his profits from the sale.

Or is a "buy in" called where the buyer from the shortseller aquires the lower price shares and the responsiblity lies on the shortseller to make up the difference between the lower and higher price shares ?

Its a bit confusing as i don't know the regulations here in canada with regards to this and if failures to deliver actually occur.

That's a good point, but also keep in mind that Patriot is down from a 52-week high of $82 a share. So from my perspective, the question is not what can bring them higher, but why were they so low in the first place? Peabody, the company that they split from, also had a 52-week high of about $88, and they're at almost $30. Higher EPS, but not enough to explain the gap.

The short interest is simply the number of shares being sold short. People generally look at the short interest ratio, which is shares short as a percentage of shares float (i.e. shares available for public trading). So a 15% short interest means that 15% of all publicly-traded shares have been sold short. A more normal short interest is 5% of float or less (MSFT 1%, RIMM 3.5%, TD 2.5%, BTU 4.5%, you get the idea).

My understanding of naked shorts (somebody correct me if I'm wrong) is that for a short, in order to settle the trade, you need to provide the shares, same way you need to provide the cash when buying. If you don't, it's failure to deliver, and normally your trade gets canceled. I think with naked shorting, you obviously never deliver, but are allowed to hold and eventually close your position without ever settling (or settling at some totally arbitrary time), which is a bit similar to to free-riding in the U.S. which is also banned, unless you're a PDT.

That's the legal argument, anyway - you're opening and closing a position without ever settling it, and that's why it's banned in the U.S. But we don't really have that rule in Canada, or at least it's not exactly the same - it seems to be mostly at the discretion of the brokers, who would have to accept liability for the trade.

So yes, a naked short does dilute the shares and create downward pressure on the stock. I think that's kind of the point. Naked shorting could theoretically be used to do a bear raid and manipulate the price of the stock downward, but it's also the only real protection against pump-and-dump scams that don't have enough shares float for covered shorts. It seems that most of the people who truly despise naked shorts are CEOs of microcap biotechs and other OTC penny stocks, and it's no wonder why, every week there's a new pump-and-dump.

Also, people talk about naked shorts as though people can short infinite amounts, but in reality the amount you can short is limited by your margin. I don't short at all but I know that for a 50% marginable stock you need to maintain a 150% excess margin at all times - that's 100% of the short sale proceeds and 50% of the share price. A lot of the hype about short selling, including infinite naked shorts, unbounded losses, that sort of thing, isn't really an issue in reality because of margin requirements.

fair enough.. but who takes responsibility for a failure to deliver?

The original buyer from the short seller requires their shares. So they put a "buy in" notice from the short seller to which a broker responds. The broker then has to buy the shares at whatever price they are at at the time and the short seller is responsible to pay the difference in the share price from the original selling and the purchase from the broker.



here is an example that i found:

quote:

Here's an example. Say Dan bought 10,000 shares on XPY for $1.00 each from John. John claimed to borrow the shares from FRD but did not. When Dan does not get his shares, he puts in a buy-in notice. John does not answer this buy-in notice which means his broker, Ben must pay. Dan purchases 10,000 shares from Ben at $1.10 per share. John will be forced to pay this difference.

from

http://ezinearticles.com/?Buying-In...iver&id=1580516




So if a buy in doesnt occur basically the buyer from the shortseller is out of luck without their shares that they paid for? This doesnt make sense. Is this what happens in canada?

Maybe skipper can help us out with this.

Also the idea about margin and having 100% extra funds to cover that margin doesn't really give resolution to the matter unless a buy-in is declared. This is since someone has to be accountable for the borrowed shares being sold to the buyers. This obviously is a big deal in a non liquid market setting.

So What your saying Digi is that essentially the short sellers will be held responsible for a failure to deliver and must pay back any difference in the share price if the borrowed share sold is given to its recipient after the completed shortsale. (This is where the 100% extra margin comes into play)

So in the end Naked shortsellers are held accountable in the states. So what happens in canada?

Yesterday, I traded a pack of Dentine Ice for a Kit Kat bar.

quote:

Originally posted by rabbitjoker Yesterday, I traded a pack of Dentine Ice for a Kit Kat bar.

Score!

quote:

Originally posted by Skipper Score!

lol can you read my last post and give your input on naked short selling in canada ?

I did read it, I just don't have an answer for you.
I'm not that big of an investor personally to be honest - my money goes to paying off student debt....the return on which has actually been better than in the market by a landslide since I graduated!

fair enough

Interesting commentary from Brian Milner in this week's ROB about the market rally.

quote:

The market rally is missing something big: U.S. consumers BRIAN MILNER E-mail Brian Milner | Read Bio | Latest Columns May 16, 2009 [email protected] In the latest example of what qualifies as good economic news these days, we learned yesterday that U.S. industrial output fell last month by a mere 0.5 per cent, the best showing since last October. And the New York Fed's manufacturing index, a measure of how operators in the region are feeling about conditions, shot up to minus 4.6, its best reading in eight months. Wow! Break out the champagne. Just a few days ago, these latest hints of a coming bottom - at least on the output side - would have been enough to spark another shopping spree by investors worried about being left behind at base camp while more intrepid climbers scale new equity peaks. But the impressive rally that enabled benchmark indexes to erase all or most of their losses this year appears to have hit a snag or two. The upswing plainly had more than one pilot steering the plane, including institutions eager to boost meagre returns on their piles of idle cash, short sellers forced to cover enormous positions and pension funds doing a little rebalancing. But a market driven by nervous investors making their bets on slightly improved production gauges, early hints of a recovery in China, a better outlook for commodity prices and signs of government-imposed stability in the U.S. banking system does not seem like one destined to settle into a long bull run. The jury is still out on whether those green shoots everybody is searching for amid the economic ruins will grow into hardy perennials or dandelions. In any case, the most crucial piece of the turnaround puzzle, the American consumer, is in no condition to join in the fun. That's why David Rosenberg, the former Merrill Lynch economist who made his formidable reputation as an early and consistent bear on Wall Street, leans to the dandelions. "The only thing holding the [U.S.] economy together, and the capital markets, for that matter, is a lot of tape and glue from the federal government," Mr. Rosenberg said this week from his new Bay Street perch as chief economist/strategist with Gluskin Sheff. "It's very rare that you embark on a sustained bull market when the economy is extremely fragile." The U.S. suffered three enormous shocks, starting with the housing collapse. That led directly to the other two - in credit and employment. Credit conditions have improved, thanks to unprecedented global intervention. "But the other two shocks are lingering and still very significant," Mr. Rosenberg said. And until they're fixed, the other green shoots are only so many weeds. He has been singing from this hymn book for some time. When other economists were focused on GDP and other spending numbers, he was sifting through income stats. For three years, Mr. Rosenberg warned of a widening gulf between income and spending data that was not sustainable. By 2005, he was predicting a deflation in U.S. housing that would have a huge impact on the mortgage market and, with it, the heavily leveraged economy. He forecast a 5- to 10-per-cent drop in prices, which seems modest now, but was viewed as apocalyptic. "As bad as I thought it was going to be, it turned out to be far worse," said Mr. Rosenberg, who is more bullish on Canada's prospects, thanks to its healthier fiscal house, stronger banks and ideal position as a supplier of key commodities. American households have taken a $20-trillion (U.S.) hit to their collective balance sheet, and the accompanying dramatic changes to their savings and consumption habits are likely to be deep and long lasting, he said. So the only green shoots that should matter to investors are related to U.S. housing. Because until that's fixed, consumers won't spend and an economic recovery isn't going to be sustainable. "It doesn't mean that we're not going to get the odd flashy GDP quarter," Mr. Rosenberg said. "It doesn't mean that we're not going to get the odd flashy bear market rally. But I think that what investors are ultimately going to be paying for is sustainability. You can trade these bear market rallies. You can rent them, but you can't own them." Mr. Rosenberg claims, justifiably, to base his outlook solely on what he finds in the data, which he has always mined with considerable skill. In one of his last missives for his former employer, he said it all. "The data just don't square with the conventional wisdom permeating the investment landscape."

Any trading ideas for the coming week.

I was thinking of playing with some FAZ/TZA/BGZ for the week, in Monday, out @ +/- 10%.

Any thoughts on the market this coming week?

quote:

Originally posted by Nrg2Nfinit fair enough.. but who takes responsibility for a failure to deliver?

As a disclaimer, I don't do any short selling - I decided it was too much work to watch the margin and was easier to just hold puts - so this is basically cobbled together from brokerage sites, investment sites, and conversations with investment advisors:

As a retail investor, when you put in a short sell order through your brokerage, you do not make any distinction between a covered short or naked short. Either the order gets filled or it doesn't. If it gets filled, your broker is asserting that the shares are available (probably through a pool or margin trades) and that the trade can settle. Therefore it would be their responsibility on a failure to deliver, because as the individual investor you had no knowledge of the naked short.

However, most of them will put conditions on your account disclaiming responsibility. For example, TD Waterhouse has this to say:

quote:

U.S. securities - If TD Waterhouse cannot borrow the security for you to sell at the time the order is placed, the order will be rejected. ... You can be forced to buy the shares you are short (a Buy-In) on two occasions: When TD Waterhouse is recalled on the equity they borrowed to protect your position. When TD Waterhouse is unable to borrow shares to protect the position. A Buy-In can happen without prior notice to you. Also, even if you repurchase the short position, you are still liable to a Buy-In until the settlement date.

What this says to me is that they won't allow a naked short on U.S. securities at all, and that they'll allow it on Canadian securities but you assume responsibility in case of FTD - or if the original lender sells his position, which is another annoying risk of short selling. If the price is lower when the buy-in is forced, then you still win. Sometimes all it takes is 3 or 4 days for the stock to crash and burn.

I think it's more or less the same with institutional investors, big hedge funds and the like, but I don't know the details. Institutional investing is still a bit of a mystery to me.

Ultimately whoever placed the short sell order will end up being held responsible, but the "problem" with naked shorts is not one of responsibility, it's that these traders can drive the price down with imaginary shares, perhaps enough to hit people's stops and create a chain reaction. They'll be forced to buy in eventually, but not until the price has been slashed. That's the theory; the reality seems to be that it just doesn't happen enough to justify the hype.

I could be wrong about any or all of this. To me it doesn't really seem like a big deal because everybody ultimately does get what they want - except the company being shorted, I guess, and having watched a number of pump-and-dumps in action, I think that's only fair as a counterbalance in the market.

quote:

Originally posted by DigiNut Institutional investing is still a bit of a mystery to me.

Really? In what way?

quote:

Originally posted by simms327 Any trading ideas for the coming week. I was thinking of playing with some FAZ/TZA/BGZ for the week, in Monday, out @ +/- 10%. Any thoughts on the market this coming week?

I think I'm going to buy puts on both FAS and FAZ. The decay on those is happening so fast that they'll likely both have declined by at least 25% at some point in the month.

Check out the chart - the RIFIN is up 3% from a month ago, and FAS is actually down 3%! And there was one day when FAS was down 25%, and another day when FAZ was down over 50% mid-month (that's almost a 100% return on a put). If you zoom out to 3 or 6 months it's even more volatile.

So I'm thinking, buy puts, cash out when the underlying share price has declined at least 25%, keep the profits and re-invest the original principal in another, at-the-money put. Historically it looks like you need at least 2-4 weeks to really see the magic, so I'd have to watch the expiry and flip to the next month after 2 weeks in.

This seems to be a pretty safe bet to me, but it's possible I missed something. Stupid or smart? Any comments?

The other main thing on my list is oil - want to ride the bear for another 5-10%, then start gradually buying into the bulls at 5% intervals down (assuming it continues to decline).

quote:

Originally posted by Skipper Really? In what way?

For straight buy and sell I guess it's pretty clear-cut, but I don't understand how they'd short, since short shares normally come from a broker's pool or from other investors' margin accounts. The selling part is easy enough, but where do they get the borrowed shares from?

Actually I've never totally understood even basic order fills, but I've inferred (never verified) that they just use the ECN directly.

Also never figured out what's to stop these hedge funds from just buying or selling massive quantities of shares to each other in order to drive the price up or down. Supposedly it's illegal but how is anybody supposed to find out...

quote:

Originally posted by DigiNut I think I'm going to buy puts on both FAS and FAZ.

I don't know enough about options to feel confident in trading them.

What are the fees like, i know TD charges $7 per contract, but what is that? Is a contract 1 share, or just a contract for a number of shares that I decide?

Also, i think options use up your margins, which I find odd, as an option is only an option, if i am losing money on it, or cant afford to go through with it, i just don't execute the option...

I understand the basic principle behind them, but when you get into rolling over, i get confused.

Know any good places to learn about the specific details?

So I put in a trial order to see what it was like, 100 contracts (i.e. 10,000 shares) of a put on FAZ in June @ $6.00.

Why is it costing me money? I thought i only pay the comission, and when I excercise the option, i have to buy the stock then sell it...



I thought that you only pay the commission, i.e. MINIMAL CAPITAL OUTLAY, as quoted from http://www.optiontradingpedia.com/#...20Put%20Option?

quote:

The Leverage effect of option trading also allows investors to participate in the move of a high priced stock using only a small capital outlay. This is because stock options cost only a fraction of the price of its underlying stock. Apple (AAPL) is trading at $93.65 today while it's call option costs only $1.70. Investors can participate in the gains on 100 Apple shares through buying its call options for only $170 exactly like an investor who spent $9365 buying the stock itself. That's another benefit of option trading.

quote:

Originally posted by simms327 So I put in a trial order to see what it was like, 100 contracts (i.e. 10,000 shares) of a put on FAZ in June @ $6.00. Why is it costing me money? I thought i only pay the comission, and when I excercise the option, i have to buy the stock then sell it... http://img34.**************/img34/3249/question.jpg I thought that you only pay the commission, i.e. MINIMAL CAPITAL OUTLAY, as quoted from http://www.optiontradingpedia.com/#...20Put%20Option?

What you are seeing is absolutely correct. Quoted price of your option is $1.10 per share. Since most contracts are 100 share moves, the total price of one contract is 1.10 x 100 = $110, since you bought 100 contracts, the total price of your purchase is 110 x 100 + brokerage fees ($166.50) = 11,166.50.

Don't get confused with what's displayed in your pic "estimated comission". The estimated comission here are the brokerage fees associated with making that purchase. This money dissapears. However, since your option is in the money (the put strike price is larger than the current price) there is some initial larger assiciated value of the option since you can immedeately exercise it to earn positive money.

For an example, if stock A is trading at $100, but I want to sell a strike price $150 put. The buyer can immedeately exercise the put to make $50 per share, or $5000, so that means that I should be charging at least $5000 total or $50 put option + a small amount of personal comission, which might be $0.5 per share, so the put would be listed on the market as a $50.50 price put with strike price $150. So now, if you exercise it immedeately I make $0.5 per share, and you lose $0.5 per share. In this case, you need to wait for it to fall to $99.5 to break even.

Hope that helps, I'm not good at explaining financial terms, but this could help you further. http://www.investopedia.com/terms/p/put.asp

quote:

Originally posted by Dr. Z

Thanks! I guess I should have googled

quote:

Originally posted by simms327 I don't know enough about options to feel confident in trading them. What are the fees like, i know TD charges $7 per contract, but what is that? Is a contract 1 share, or just a contract for a number of shares that I decide? Also, i think options use up your margins, which I find odd, as an option is only an option, if i am losing money on it, or cant afford to go through with it, i just don't execute the option... I understand the basic principle behind them, but when you get into rolling over, i get confused. Know any good places to learn about the specific details?

I would agree, if you don't feel totally confident then you should not trade them. TD probably issued several dire warnings to you when you signed up. Some types of trades, such as writing naked calls, can be particularly dangerous, so you need to be careful.

I think of options as being a bit like the game Risk. There is still no small element of luck, but if you take the time to work on a strategy, you can often (not always) minimize any losses while taking in a hefty return. You may have to be patient - this is generally not day trading.

You need a margin account to be eligible for options because having the options option (...) also allows you to write options, which is like short selling and will indeed use up your margin. Holding options does not use margin.

An equity contract is almost always for 100 shares, although it doesn't have to be. TD's commission is actually $1.25 per contract, plus your normal trade commission - it's not really expensive, I think it's just to deter you from trying to sell options at $3 each if they expire (almost) worthless. And some options WILL expire worthless, it's an expected result of many different strategies.

Rollovers are normally spoken of in the context of funds, and they can cause funny things to happen. For example, in oil, DXO (long) is up today, and HOD (bear) is also up today. I can't totally explain this but I know it has something to do with options expiry last Friday and contract rollovers. For a retail investor, rolling over is just a colloquial term I'm using because I don't know a better one, and I'm referring to closing an existing options position and starting a new one because either (a) the original is about to expire, or (b) the "strategy" is over, profits have been made or losses have been taken, and you want to start over again.

I just want to point out for anybody reading this that I am not an options expert, just someone with a keen interest, and the best suggestion I can offer to anyone who's also interested is to start small, because you'll learn all sorts of weird intricacies about them in the process. I'm pretty sure that most of what I've said here is accurate, and I'm pretty sure that most people in this thread are going to do their own research anyway, but as always, when real money is on the line you want to make sure you know exactly what's happening with it and don't put too much faith in what some guy on the internet said.

So unrelated to the options thing, another one I've been swing-trading is Callon Petroleum (CPE). Last week I bought at $2.25 and sold at $3. Bought in again at $2.50, averaged down at $2.35, and sold again at $2.75 today (kept a few lots in case the green shoots continue this week).

This company owns and develops oil and gas reserves. Technically they seem to track oil futures - their chart is quite similar to something like DXO - but the return has been better recently. They surprised everyone by reporting an EPS of 11 when everybody was expecting -4. Still... they are down significantly from last year, so to me this is still a trading tool and not a "buy and hold", not yet.

Check it out. I'm actually surprised that it's been this volatile as opposed to showing steady growth, but it's good if you're like me and like to buy on dips and aim for a modest 5-10% return.

I've also been watching GRT (an American REIT that does malls and other retail) and have been afraid to actually trade it because I can't make sense of the trend, but there's a lot of price movement in that AND they're still paying a good dividend (they slashed it in March, share price climbed, and it's still 15%). I haven't completely made up my mind, but I think it could also turn out to be a winner. The only thing is, volume is kinda low, so factor in the usual liquidity concerns.

So i decided to give this FAZ/FAS option a try

into this:

30 x FAS P JUN 9.00
30 x FAY P JUN 5.00

The prices on these options are even more volatile than the ETF....

Looks like there Is a trading halt on wtn. Could be a Cambrian coal aquisition. That's the rumor anyways. U still holding diginut?

quote:

Originally posted by simms327 So i decided to give this FAZ/FAS option a try into this: 30 x FAS P JUN 9.00 30 x FAY P JUN 5.00 The prices on these options are even more volatile than the ETF....

Holy, you don't like to play small stakes eh? That's what, almost $10K invested? Careful!

Holding equal numbers of FAS and FAZ puts makes you pretty bearish at this price differential. Better watch carefully and not wait too long to take profits on some of the FAS puts if the value goes up.

You should expect the prices to be more volatile - after all, a single contract represents 100 shares at 20% of the price. That is why I prefer them to day trading; aside from tying up less capital, you can realize a 50% gain (or loss) on just a 10% movement of the shares.

quote:

Originally posted by Nrg2Nfinit Looks like there Is a trading halt on wtn. Could be a Cambrian coal aquisition. That's the rumor anyways. U still holding diginut?

Definitely the acquisition and I am still holding. It's interesting that Cambrian went up after trading resumed and Western went down. Rumours about staff cuts maybe, or just the share dilution.

I hope it turns out to be good news. It certainly looks like it on the surface.

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