Transcript from this week’s chat: Drivers, earners, winners, losers and more…

Here’s the transcript of today’s chat.  We broke the questions and answers down into two sections as usual — Economy/markets/trading/strategy and Stocks.  See you next week at 2pm EST at for more Q&A where you can ask me anything.


Q: Do you think that market could up into next year? Or we might have a recession soon?
A: I think the market will likely be up from DJIA 11300 it’s at today this time next year. I don’t think we are going into a “typical recession” because the corporations will remain incredibly profitable. And I should note, though, that there are many examples of year-long stretches and even multi-year-long stretches of the markets going up even during recessionary times. Bull markets and recessions are not mutually exclusive.

Q: Do you ever sell put options in any of these stocks that you expect to go up, or do just think buying common and call options is the way to go?
A: I rarely short options. What’s the point? You can lose infinite if the trade goes against you and you can only make up to 100% if the trade works out. That said, there are times when I do think it makes sense because the set up is steady-betty action but you don’t think there could be much upside from the levels you’re looking at.

Q: When looking to buy calls/common do you ever consider how much they have changed that day before pulling the trigger? For example RVBD is up 5% today. Would you wait for a pullback or jump in? I think you said last week you liked the stock anytime it’s under $25, which it is although up 5+% today.
A: Great question. I do like Riverbed a lot below $25 and whether or not I’d pull a trigger on the trade today has more to do with my own portfolio’s positioning and whether or not I’ve been buying Riverbed near these levels already and whether or not I like the action in the broader set up and whether or not…well, my point is that there are a ton of other factors that would weigh more on my decision than today’s particular 5% move in the stock.

Q: Business confidence starts to weaken the longer these gyrations last – losing 20% freaks anybody out, business people included, and thus the longer its duration at the lows people start to pull back on orders and outlooks. If they see spending curtail as a result of the fear and lack of any leadership anywhere in the US or EU then everybody pulls back spending on the individual level and then business begin to feel it too.
A: I’d simply argue that the stock market action of 20% declines is more indicative of a potential problem than the cause of the problem. It also might be a false indicator, which is what I do think it is, and therefore is likely a good opportunity to buy your favorite names cheaper than you would otherwise be able to.

Q: I don’t have any questions, but would like to thank you for the CIEN options trade before earnings and selling them quickly when it’s up nicely the next day, which I originally did not intended to sell them the next day.
A: Rock on! Thanks for letting us know how the trade worked out for you. And yeah, I have been thankful that I sold almost all of those calls after that big pop for a big gain. Let’s try to nail the next one too. Won’t be easy and we might blow it though.


Q: What do you think of AVAV?
A: AeroVironment, Inc. designs, develops, produces, and supports unmanned aircraft systems (UAS), and efficient energy systems for various industries and governmental agencies. I don’t want to invest in companies that are dependent upon expanding wars for growth. In the next five to ten years, I expect our war expenditures to drastically decline one way or another. I’d look to eventually get short AVAV.

Q: Cody, great job so far. Been with you for 4 months or so and have been very pleased. On August 17, we bought near term ADSK calls–actually the only near term calls we have ever bought. They are well out of the money at this point and was wondering what your thoughts were on this equity.
A: Oh, the ADSK — that thing has been wildly volatile lately. The fundamentals, barring a complete collapse in the macroeconomy, are fine. I plan on holding ADSK for a couple years, but I don’t know if you’ll get lucky enough to get those near-term calls profitable in the next few weeks.

Q: What is your thought on ORCL?
A: I like Oracle and think they’re one of the best positioned companies in the world these days. That said, I don’t own it.

Q: Any views on INFN?
A: The company’s only valued at $800MM total. They’ve got nearly $300MM in net cash in the checking account. That means you can buy the company at essentially $500MM enterprise value. The problem is that they aren’t profitable last year and will probably break even next year or so….so what’s the catalyst? I like the stock at these levels as a value investment, but I’m not pulling any triggers on it personally.

Q: Hi Cody, I have been a subscriber for two months and I am extremely happy with the service. I missed the entire LPS trade, and I would like to get into it. Do you think LPS is a short at this level, or shall we wait for a bounce above 19.00?
A: Thanks for the kind words. I was just looking at LPS’ chat and also doing a bunch of homework on just how badly they really look to be screwed…I don’t see how that stock ever gets legs again, frankly. I might add to the short or buy some more puts in this one this week no matter where the stock is.

Q: Do you think we can do any trades, not investments, on RIMM earnings coming soon?
A: I don’t like the RIMM much from the short or the long side right now at $31. When it hit $24 or so, I answered a question in this chat room saying something like “RIMM’s too low to short now” and it popped big since then. I don’t see any particular upside catalysts for the stock in the near-term, but the chart itself has turned up nicely and maybe just some tradeable action there. Not for me though.

Q: CSCO – I am holding January 17.50 calls which are slightly in the green again. Do you see upside for CSCO toward YE or is it best to close out? I also hold January 13 calls so I am optimistic–thanks for your stock and market strategies.
A: I’m also holding a wide array of Cisco calls. I wouldn’t own them at all if I didn’t think the stock was about to go higher into year end. I hope/pray it will. But hoping and praying isn’t an invest-able strategy. That said, I do think Cisco is trying to bottom here near $15 or so and I’ll probably continue to be a buyer. Going back to an earlier question about shorting puts….Shorting Cisco out-of-the-money puts wouldn’t be the worst idea ever. But I’m sticking with Cisco common and calls (though as I recall I was a seller of some of my calls when the stock popped after I’d been buying the calls before its earnings report even though I still have a wide array of those calls left).

Q: Cody, thoughts on ZAGG? I’ve had good results writing put options as they provide a decent return and the stock has been stable during the downturn. Potential upside for calls/common as the iPhone5 is due to be released?
A: ZAGG’s a tough one. I spooked myself out of it when a colleague asked me about it a few months ago and I’m still not comfortable with it. Be careful with that one. My “spidey senses” go off when I study ZAGG and I can’t tell you why.

Q: Think LPS might get a pop if Obama recommends some mortgage problem help in his speech? If it does move then, would Friday be a good time to consider buying the puts? Buy the way, I have doubled three positions on calls based on your recommendations. I was an original subscriber and it has been worth every penny – not just for your recommendations but for the educational value of your posts.
A: You just made my day with those kind words. Thanks for subscribing from the beginning! Yes, LPS could pop on something like Obama saying he’s going to prop up housing prices and try to brush under the rug the fraud in the industry. Indeed, the only catalyst I can see to the upside for LPS at all is political favoritism somehow coming into help them. In five years though (two years?), I think LPS will be gone. Hasta la vista. Zero.

Q: Is ADTRN in the $30 area a good place to buy some stock?
A: I like Adtran at $30, yeah. But I’ve not added to it lately, I don’t think. I bought some near these levels already.

Q: When do you think it is it time to short GLD and SLV?
A: I think the big 4% drop in gold today might be a good indicator that the shorting time is nigh. But I’m not pulling any triggers til I really see the gold bugs start to cry.

Q: I had a question about Micron. It seems to be trading at a 30% discount to book value. Is this undervalued enough to buy, or do you not like the company enough?
A: I don’t look at “book value” in my investment strategies much at all. I look at net cash, earnings, cash flows, EBITDA, margins…and also top down analysis like market positioning, sector growth, etc. I do like MU near $6, but I’d rather own SNDK at $37.

Q: Cody, I am a new subscriber, have been following you for a couple of months and I am really enjoying the service and your sense of humor. What is your take on RIMM? I bought a couple of put options a few weeks ago when the stock was around $33 a share. Interested to get your take on RIMM.
A: Thanks for the kind words and thanks for subscribing! Did you see my earlier analysis on RIMM? Does this answer your question: I don’t like the RIMM much from the short or the long side right now at $31. When it hit $24 or so, I answered a question in this chat room saying something like “RIMM’s too low to short now” and it popped big since then. I don’t see any particular upside catalysts for the stock in the near-term, but the chart itself has turned up nicely and maybe just some tradeable action there. Not for me though.

Q: Do you ever trade AIG? Because today’s 10% pop is beginning for something. I know it is trash stock but for trade? What do you think?
A: I wouldn’t gamble on AIG with my worst ex-girlfriend’s money. It is a, IMHO, totally insolvent, criminal enterprise that needs to be shut down immediately but continues to thrive using welfare funds. Game it at your own risk!

Q: Any view on APKT?
A: APKT — good company, gotten cheaper lately. I don’t own it so I’m not as on top of its fundamentals and expectations as I could be, so that’s all I have as an answer for that one now.

Q: Do you see all the cheaper tablet alternatives, especially in Asia (where there is an expectation for APPL to take off), affecting APPL’s margins, and hence growth plans, significantly?
A: Great question about the margins at Apple and how they could be affected by mass cheap tablets…but the iPad is so much better and still ain’t exactly “expensive”…and further, I expect Apple will someday start selling iPad 2 for $200 or so after iPad 3 comes out at full price. Or maybe they’ll wait for iPad 4. Who knows. But Apple will likely have some very cheap iPads out there for you to buy in a few years just like they did with the iPhone after a few years.

Q: Do you have any expectations for Apple/Google stock prices after their next earnings release?
A: We’re still a couple months away from the next round of earnings. I have no idea what the set up will be like when we finally get there.

Q: Great call on the RVBD calls. I loaded up yesterday and they’re nicely profitable! Would you consider our latest downturn a triple bottom? If so, we have rebounded very nicely. How long is your gut telling you the rally might run for? Would it make sense to slap some out of the money puts on RVBD if it gets up around $27-$28?
A: I do think we are trying to put in bottoms, but that doesn’t mean we have for sure. I’d like to see some of these stocks get back to where they were a few months ago before the next rally is truly over. But that’s a tall order.

Okay, guys, that’s it! What a blur! Thanks for reading, thanks for subscribing. And hey, if you’re one of the free one-week trial folks, you better sign up for a permanent account right here on the site using PayPal or your credit card so you don’t lose access. Thanks again and see you guys in a bit. Please continue to spread the word about