Ansys Correction

I noted some incorrect math in my previous post that I wanted to correct. William Trent in his blog correctly used market cap to analyze what investors think of the deal. His numbers are different than mine, but the outcome is the same (it may be because of what time we are posting this).

Assuming Friday's closing price for ANST of $23.42, provides a previous market cap valuation of $546 million. Friday's ANSS closing price of $37.92 provides a previous market cap for ANSS of $2.97 billion for a combined total of $3.52 billion for the two companies. This compares to a new market cap of $3.09 billion for the "new" ANSS at today's close, after including the 11.1 million new shares dilution as proposed by the company.

It is fairly evident that the market has clipped about $400 + million in market cap off the combined value. That is not positive, but I still expect good things from this management team. I am also willing to give them the benefit of the doubt, given their track record and what this says about the company's perceived health given the economy.

On another topic, my remaining GS calls are looking a little long in the teeth. Any catalyst for the trade is gone and the stock is trading with the sector. Not a good position for an options position and there are many other ways to play the sector with less risk. I am looking to exit the position on a good upside day or to cut losses if the price action looks severe this week.

Ansys Buys Ansoft

Ansys (ANSS) announced this morning that it acquired Ansoft (ANST) for a deal valued at $832 million in cash and stock. This translates to $16.25 in cash and 0.431882 shares of ANSS for each one share of ANST stock for existing ANST.

In order to fund this acquisition, ANSS is diluting by 11.1 million shares and borrowing against a credit line (as well as cash on hand from both companies) to the tune of $414 million dollars. This gives ANST holders a 39% premium to Friday's price and represents a 12% dilution to ANSS.

For investors of ANSS, like myself, the stock is off about 9% in premarket. In a warped way, this actually means the Street likes the deal, netting 3% on the 12% dilution. For ANST investors, they really don't have to change their location for reading the stock tables - just moving up one name to ANSS.

For ANSS, this represents entry into the electronic-design automation segment, and one look at ANST's chart, and it appears that their investors have liked that company's results. Whether ANSS overpaid or got a bargain is something I don't know at the moment, not being familiar with ANST, but I am willing to give management a vote of confidence in the short term.

ANSS did say that they expect the deal to be modestly accreditive within the 1st full year and the deal is expected to be closed sometime in the 2nd quarter.

Calling Out the Other Team

I figured a sports analogy is appropriate because it is March Madness. Most players have been coached to never call out the other team. It usually just makes the headlines and motivates the other team with bulletin board fodder. However, sometimes it also motivates your own team and sometimes it is just responding to untruths.

That scenario comes to mind when the Bank of America Apple analyst and a few others started to publicly question AAPL's goal of selling 10 million iPhones this year. I thought they looked pretty dumb when Steve Jobs and Apple's CFO both then came out and politely refuted the analyst's concerns. In corporate speak, they "called out" the "Doubting Thomas" analysts and told the world that 10 million iPhones "will happen". The stock moved down on the analyst's concerns, but never really responded to the company's call out.

That is why I am enjoying what came off the wires at lunch today:

12:01 (Dow Jones) Banc of America's channel checks point to Apple (AAPL) beginning significant production of 3G versions of iPhone in June -- 3G being crucial for international sales. Since this likely implies a launch announcement in calendar 2Q, firm says its estimate of 8M iPhones sold this year is starting to look too conservative. BofA now believes AAPL will build more than 11M iPhones by end of CY 3Q. For every 1M extra iPhones sold, BofA says implied upside is up to $400M in revenue and 12c EPS. AAPL's stated goal is to sell 10M by year end. Shares up 2.8% at $144.18. (EBW)

Now don't they look stupid? AAPL is up and still fighting to close the gap and continue what could be the mother of all cup-with-handle patterns.

P.S. My GS calls are looking in trouble. I may add to the position with a pair trade with LEH. I may also cover and buy again lower. I made a huge profit on the run-up, but should have sold it all instead of keeping 30%. I am playing with the house's money, but I still hate giving it all back.

Buying the Dip

In true trader fashion today, I decided to buy the dip this afternoon and added back a significant number of AAPL call contracts and a few GS calls. The volume just doesn't suggest a distribution day, there is just some buyer exhaustion and the market is building a base. Failure to close the gap and clear resistance from the $145 area does weigh on my mind, but I am willing to put down a bet that the stock rebounds shortly.

The AAPL calls that I purchased are May150's.

Island Paradise or Island Reversal?

Anyone who has been to the north shore of Kauai (one of the main eight Hawaiian Islands) can attest to some of the most beautiful natural scenery in the world - a paradise worth seeing. However, the Napali Coast area of the North Shore also has some breathtaking cliffs that dramatically rise 4000 feet from the surf that, though beautiful, look very dangerous.

I digress from my Travel Channel plug to relate this story to the technical situation that AAPL finds itself in. The daily chart shows a gap from $146-$140 that occurred on January 22nd during the sell off. Today, we almost closed that gap (today's high was $145.74), a move that is very bullish for AAPL's future technically.

It is why I have stubbornly held onto my AAPL calls, even after they have more than doubled, and why I have sold no AAPL stock from my core position after it is up more than 16%. That gap has been like a magnet and filling this gap is what traders have been looking for.

However, Oracle's earnings this evening may stop this from happening tomorrow. Failure to close the gap (it doesn't HAVE to happen tomorrow) often leads to a negative island reversal, something that I don't think will happen, but we all should be aware of.

Once the gap is closed, a stock may often rest here before another leg up. This rest may provide me the opportunity to roll over my calls towards out-of-money strikes on weakness. What I see in that daily chart is a nice rounded bottom, something most of us can be very happy about.

If we see an island reversal, holding calls will be very expensive. The rest of the week should tell us a lot about AAPL. As for the general market, the "back and fill" work that I predicted is happening, but the volume is pretty low and the trend is still in favor of the bulls. A consolidation here is healthy with 1390 on the S&P a major goal.

Back and Fill Day

A flat day like today is exactly what the market needs. We need to continue to build that base and a little "back and fill" work was accomplished today. Today's McClellan Oscillator has a reading of 42, indicating a near over bought market in the short term, so I expect some selling to happen this week.

If not, then hedging my long positions will make sense. Watching the VIX, we are once again approaching that lower trend line where I either expect another bounce in volatility or a real rally in the market.

The market indexes took a great first step towards developing an uptrend by clearing their 50-day moving averages. The next hurdle that I see is $28 on the XLF and 1370 on the S&P.

I made no trades today. I had a sell order on some of my GS calls, but they didn't execute.

Skimming the Fat

I learn something every day. I was thinking that what I did today with the market was "skimming" the milk off the coffee, but when I did a search on skimming, all I came up with was a surf thing.

Today gave me the opportunity to sell a little into today's strength. I took half my AAPL calls off the table and keep my focus on the VIX. If it breaks 22+ then I am long for a while, but right now, we are closing in on some resistance that I will wait and see if we make progress.

Still making money and happy to be long today.

How Does This End?

A good landing or another bad fall? That is the question for the market as Thursday's Follow Through days gives the bulls a glimmer of hope that a bottom is in again.

A follow through day on higher volume is significant. Tuesday's rally didn't have the volume that strongly suggested that a new uptrend would begin, but Thursday's follow through removed any doubts in my mind that it is very possible to move up from here.

Caution, however, is still prudent. This is the area where it gets important. We need a good week next week or the struggle will continue. Those folks that are skeptical of technical analysis may suggest that Thursday's volume was up because it was an options expiration day, but they can not dismiss that there were a lot of buyers willing to stay long over the long weekend.

I am still holding some cash, especially after getting out of a bad MON call trade early on Thursday, and will not add to my long position until the markets signals some more bullishness.

Taking a Big Swing and Missing

I hate the feeling - being up at the plate and taking a called 3rd strike. Oh! If I could just take it back! Being that we are about two weeks away from opening day, I thought a little baseball analogy would best describe today.

Yesterday was one of my best days as an investor ever. Today was one of my worst. MON was a big reason for the screw up today. I believed in yesterdays rally and lacked the discipline to cover or sell my long position this morning and take profits. I simply spent moments of the day starring in disbelief that an agricultural commodity play would go down 12% on no news.

In hindsight, it appears to be really dumb, but being unfamiliar with the price action (it is a fairly new holding) caused me to stay with my call options. Holding options like you might a stock is a recipe for disaster. I know that, but broke the rules and paid for it.

I also did that on Monday with GS and it more than paid off yesterday for me when GS rocketed on positive news, but in that case I had a thesis about GS's earnings and how the Street and the stock would react. Here, with MON, I am holding because it a good investment play for a market sector that will continue to see demand and price increases and as a hedge against inflation. My plan was to hold the options for a month and exercise it to stock. Well, out-of-the-money options are worthless, so I need a better plan.

I don't know whether to be grateful that it closed above its lower trend line (Chart) or face reality that the chart looks less attractive this afternoon than it did this morning. So the question becomes: Was today profit taking or something different?

Something different means a multi-day move lower that I can't afford, even after today's losses. Profit taking means it may recover tomorrow. My pain threshold is now low and the position is one button click away from being sold. I can't sit on a mistake that is way past salvation, but this stock has recently demonstrated its ability to make sharp moves in both directions thereby stopping me from making a decision.

I took a big swing today expecting the rally to hold and MON to turn up. It didn't happen. I need to go to the batting cage.

GS Recovers

The Goldman tower in Jersey City may not fetch the real estate value that the BSC headquarters should fetch, but the foundation is a lot stronger according to the earnings chatter since GS posts earnings this morning.

The pre-market has GS trading above $164.00, putting my GS calls in good shape at open. So the question is do we take profits now, hedge for the 2:15 pm Fed announcement or let it ride a little because they are April call positions?

Well the CFO has been very upbeat, considering that the investment banking community has been shell shocked over the last week and quarter. They are even expecting to hire some in 2008. Their mortgage portfolio has fallen to $4 billion from $23 billion in the last quarter and their leveraged loans has fallen to $27 billion from $43 billion. This is a company that understands risk management.

I am therefore sticking with my position with the intent of potentially exercising the calls next month. Even if the market sells off after the Fed announcement, I think the market has ensured a ton and is still kicking, meaning that a bottom may have beed defined.

Pride Comes Before the Fall

I am glad I enjoyed the weekend, because my GS holdings look like a dumb trade at the moment. I have basically given back everything I gained with GS on Friday at the open. I sold my March calls into a mid-morning, mini-rally, figuring they are too out-of-the-money for a Thursday expiration at this point.

With GS and my April position, we will see what tomorrow's earnings brings us. It is not really the earnings that will move the stock, but what the company says about their holdings and outlook that is important.

I took this money and doubled my calls with MON.

What a Week!

I got this image from a friend who reads the blog more than a month ago, but I haven't had the chance to post it with a good enough week to celebrate a little. It is fairly "down market" and I apologize in advance to anyone sensitive to these kinds of images, but I figured that with what we all endured with "Client #9" this week that it was no longer "over the top".

What a day and what a week. I was able to double-up my GS calls three times today on every dip and sell the new position each time for about a 20% profit an hour later. I also got to work building a long portfolio. I purchased AAPL at $125.00 (average prices on each), GRMN at $57.45, BOLT at $15.75, and ANSS at $36.00. This deployed about 50% of my cash.

today) didn't take the market down technically. I have been closely watching the 1280 area on the S&P and every time that the market dropped there today a series of buy program went off. Mr. Market is clearly defending the double bottom put in on the S&P at that What am I thinking? Well, I am very bullish that a Fed move (like the one with BSCintraday low of 1270. My long positions are merely picking up some values at these levels.

I have also been watching the VIX (see charts - daily and weekly). You can clearly see that the market very often improves shortly after the VIX rises above 30. While this is also temporary in a lot of cases, the uptick that happens the following week is noticeable and significant enough for me to take a chance long.

Until today, most of my portfolio has been in cash. Most of my options plays were with only about 10% of my portfolio, but the out sized gains realized this week has been enough to basically overcome any February losses.

A trader's confidence goes in cycles and mine is coming back after hitting what I thought was a major low point for me in a couple of years last week when I had to cover my long positions only to be in cash when the Tuesday rally started. The point is that if you use discipline and stay in the game, you can often turn things around. Time to wander down to the wine cellar and pick out a good one for tonight.

A Lot Going On

Yesterday was a very busy day and, for once lately, I played it rather well. I covered those XLF puts shortly after open and then went long GS, AAPL, and MON calls when the market was down more than 200 points. Yesterday (or today) was going to be the follow-through day for the rally Tuesday in my mind and the bulls had not even started to fight for the ground they had lost between Tuesday's close and yesterday's open.

Just like Tuesday's rally seemed too far, too fast, yesterday's morning decline seemed too fast as well. In the early afternoon yesterday, the up/down volume went from 3:1 in favor of the bears to more than 2:1 in favor of the bulls. That was not all short covering.

The bulls have a little more to hang their hat on this morning with better CPI inflation numbers than what we have seen in recent months, so I think I will be shopping a little more today. Thus far, I am still more than 80% in cash and only really have some positions in some call options and a few defensive stocks that I have held through the turmoil. There is no point trying to be a hero as the market decides if a double bottom on the S&P intraday low will hold or not and be the base to move higher.

If the market gets a footing there will be plenty of time to go long in a big way, but I will deploy some cash on ANSS and potentially GRMN today if the market gives me a bid.

This Jet Takes a While to Take Off

Anyone who thought the market would go to da' moon based on yesterday's wide rally needs to think again. Going short, for me, was a little bit of a no-brainer. Very few good rallies take off on a V-bounce. Going short is simply playing the statistics.

Monday may have been an S&P double bottom on the January intraday low. I simply don't know at this point. What I do know is that the market did not have any capitulation. The evidence of major fear always gives technicians a little more confidence in a rally attempt after it happens.

What it did have was volume. That was very positive. It was not just the Shorts that were covering; institutions were buying. Will it hold? I am in the "let's wait and see" camp and just playing the statistics and I will take that 50% appreciation in my XLF puts today.

The timing is good for a new uptrend, but new uptrend start out fairly tentative. That is why the rally "event" will be retested. I will be in cash when it retests looking to buy long positions again in AAPL, GRMN, GS, and ANSS.

Took Profits and Went Short

In the final hour of the day, with the DJI up 330 points, I took profits by covering the QID puts and reacquired XLF puts. The market may go up again tomorrow but I still think the trend is down. This is an oversold bounce and some base work needs to be put in place before we move significantly higher.

I just don't see that with the Fed's move.

Full Contact Sport

The trading game is a full contact sport. This is not "Go Fish", (A game that my boys are currently begging me to play) it is a game of high-stakes Poker. Since buying XLF puts on Friday, I have been watching the markets and looking for some of that capitulation that the experts talk about to try to find a bottom.

This morning's open, just caused me to more than double my XLF puts and to also buy SDS calls. I did this because I thought this morning's open was suspect. The mid day volume and the fact that the rally has mostly held up has caused me to abandon all my short positions and switch teams once again. I covered my XLF and SDS positions and bought QID puts (betting that a short fund will decline).

The QID put position was established because the QID screen was up and getting into QLD or another ultra long position with options would have taken more button clicks. Hopefully, the lack of volume in these derivatives won't bite me.

I have no conviction in the rally at the moment. I am just riding the daily trend, expecting the market to close near or above it's opening high. I will probably go entirely back to cash at close, however, not yet willing to bet either way until some additional signals are given.

Buying Puts

I bought some XLF puts around the 11 am hour. There were no buyers to be seen after the initial burst around 10 am.

I also noticed that APPY received a downgrade from Oppenheimer today that I need to research. Talk about confusing. Oppenheimer is the underwriter and holds warrants with APPY. It is like shooting yourself in the foot. I guess that is what the Chinese Wall is for.

In Cash

Sold everything but APPY and ROCM. They are defensive stocks, small caps, and not really driven by economic news.

Time to Run for the Cave

I was wrong with the numbers. The jobs report was dismal. A recession is now almost assured. Time to get to the sidelines. Going to cash this morning.

The VIX Wedge

If the market is building a base from which to move higher (as opposed to moving lower), one chart worth considering in the Volatility Index. The VIX has had a rising lower trend that has been in place for a year. My feeling is that this trend line needs to be broken for the market to recover.

The trend line forms, in my opinion, a kind of bearish wedge with the 30% line (in this case, the bearish wedge for the VIX is good for the market). Although the 30 line is broken during brief periods of extreme fear and market uncertainty (it was broken 3 times over the last year for very short durations), it really does act as a resistance line for the purpose of technical analysis.

This is a trend line that will be broken (they always are). The question is when? Given that this wedge is giving the index less and less room to maneuver before hitting the 30-resistance line or the 22-support line, I expect the break to happen soon and that there will be some follow through. This means to me that a very good week for the market is coming.

My thesis continues to be contrarian. Sooner or later the "write-downs" will become write-ups" and the market will stop going down on bad news. I think we are almost there (certainly within the next 6-weeks). The negativity is prevalent with bloggers, money managers, and politicians. That usually means a bottom is in.

Getting off the Mat

You have to give the market credit. Everything that the bears have thrown at it have been repelled. This market, thus far, is Rocky. This leads me to continue to have a bullish slant to the way I trade.

Trust me, I have that sick feeling whenever the market goes south, knowing what we all know about the economy and the credit situation, however, I also know that the best trades often happen when you are going against the herd.

Yesterday, I closed out my TIE puts. It was a great trade, but time to move on. I also added GRMN calls (April). The price of this stock is just too cheap. Selling the puts have allowed to raise some cash again. This is cash I will careful with.

Need a Little Protection

Yesterday's downgrade of AAPL by two analysts caused me to declare defeat on my AAPL Mar135 calls. Even with what I think will be good news today and Thursday, it will be hard for AAPL to ascend in a negative tape and getting out early in yesterday's negative price action was worth about five points of downside.

My TIE puts also did not act as the hedge against the tape that I had hoped. The MM was defending the stock price yesterday while AAPL got crushed. I still have them and expect the stock to give a little more today.

So I need a little more protection. Maybe SDS calls or SPY puts. I have 45 minutes to think about it.

On another note, I have misread GRMN completely, letting a 25% profit go. It is now at my original buy point. I will hold unless it breaks $55.00. I will also add calls 90 days out if it bounces off this number. If it breaks $55, then I will be able to re-buy much lower.

Finally, I bought some GS calls yesterday. I may be a little early on this one, but I do not see GS going below $155.00 and will add more if the price gets cheaper. They are April calls.

Good trading.

A Perfect Storm

Similar to what happened in the movie, The Perfect Storm, a series of events conspired to make owning TIE puts on Friday the perfect trade. TIE was the "Andrea Gail" caught up in a weather pattern that was deadly. Warner Brothers produced a blockbuster movie that was a must-see classic with George Clooney and Marc Wahlberg while ole' Sneak conspired with some very savvy TIE Message Board posters to lay out a put position that netted a major 4-bagger in a day.

It really could not have gone any better. TIE reported earnings late Thursday that were much worse than analysts (and even me) were expecting. Once $0.08 of special charges and credits were removed, TIE earned an EPS of $0.25, while the Street was expecting $0.36 (even the lowest estimate was $0.28). The bad tape on Friday added to the pressure and the stock never recovered, closing near its low at $20.62. This almost 17% loss in the stock price on Friday translated into a huge windfall for my Mar25 and Mar22.5 puts.

Not meaning to be too greedy, I sold all my Mar25 puts and 70% of my Mar22.5 puts, leaving 30% to hedge my long positions in the event the tape continues to deteriorate on Monday.

I know a lot of folks are wringing their hands about the economy and this market. I too am disheartened by the market's performance on Friday, but I still see the market holding and not taking out the January S&P lows.

Only a fool would charge in with buy orders after Friday's showing, however. Caution is the word and I also feel that being short the market is more risky. So I am re-looking at my list and may pick at a stock or two if we have a big sell off at open tomorrow.

There will be bargain hunters. There always are. I will cautiously pick away at some stock that I am willing to keep as an investment and maybe a call or two on snap back rallies. The TIE puts that I have remaining will hopefully hedge my existing long positions and I also hope to take advantage in any additional seller motivation after dismal earnings on the part of TIE.