The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, April 13, 2007
Email – #262
Volatility Trader Update
Dear Subscriber,
There was some interesting news this week on the economy, which I would like to share with you.
The March employment report showed job growth, which at first glance is encouraging.
However, the report also means that with unemployment at a new cyclical low of 4.4%, the Fed now has one more “inflation card” to consider. What this means is that the Fed will most likely not be lowering rates anytime soon.
Thus, for the market to move higher, it will only do so on an optimistic economic outlook and stock-specific news. The markets will not move higher, in the short-term, on expectations of a rate cut.
And in my opinion, because of the aforementioned, this is a great time to be trading.
See, when wildcards like rate cuts are motivating investors, stocks sometimes move on macro market news, and not individual performance. It’s the old adage of a rising tide lifting all boats. However, when the boats aren’t subject to larger tidal movements, it creates a more “stock specific” trading environment, which we’re able to profit from handsomely.
And you may have noticed this in the Volatility Trader portfolio, as we have a mixture of puts and calls. Right now, we’re trading on individual stock stories and performance, not on expectations of macro movements in the broader market.
NEW TRADE
First, I want to tell you that I have a hot little uranium stock on the way, but can’t recommend it today. That’s because I like to speak to the actual companies themselves and have not been able to do so with this small miner yet. Assuming I am able to chat with the CFO over the weekend, or on Monday, you will see the recommendation shortly after.
In the meantime, there’s another industry that’s hot right now: Bluetooth.
If you’re not aware, Bluetooth links wireless devices like computers, phones, and other types of network devices over small areas. It’s perfect for things like cell phones, allowing users to have a wire-free head set in their ear, while their phone is in their pocket.
And that brings us to our trade today:
Plantronics (NYSE: PLT) is a global growth company engaged in creating communication equipment, like phones for business and consumer markets.
The company’s been around since 1961 to be exact. I’ve been aware of its products for some time, as I’ve had Plantronics headset phones for over a decade. Headsets are a must when working on a trading desk. Your hands have to be free to buy and sell in a moments notice.
But beyond the company’s normal phones and accessories, it’s been working hard to tap into the Bluetooth market over the past few years and is now establishing itself as a global leader in the new market.
In fact, according to Business 2.0 magazine, “Revenue from Bluetooth headsets jumped 80% after it [Plantronics] introduced a line of products incorporating former BMW designer Darrin Caddes’s design philosophy.”
And the fundamentals are solid to
The stock trades with a P/E just below 20, a very reasonable 1.4 times sales and it pays a 20-cent dividend to boot.
All in all, I like this company and think it’s a great addition to the Volatility Trader portfolio.
With all this in mind, we’re going to buy the November 2007 $22.50 calls (PLT-KX) at no more than $3.90. Right now, I will be watching the $22.50 area for a potential stop out point… and if it does hit this level, I will email you, telling you what to do with your positions.
Selected Portfolio Updates
We recently took a call position in Scientific Games (Nasdaq: SGMS), which makes lottery machines and lottery tickets.
The stock has fallen slightly since our entry, but I’m not discouraged yet. However, if the stock closes below $31, expect an e-mail from me advising you what you should do with your positions.
Don’t give up hope on Scientific Games yet because a blistering upward movement could surface at any moment.
We also have a straddle in place on the Intercontinental Exchange (NYSE: ICE).
The stock recently began moving up. This is exactly what we are looking for, and I expect this position to work out very nicely.
Have a wonderful weekend!
Exit is everything,
Mark Whistler
Current Portfoli
Plantronics Inc. (NYSE:PLT)
Nov 07 $22.50 calls PLT-KX
Purchased: NEW
Current Price: Buy at $3.90 or better.
Scientific Games (Nasdaq: SGMS)
Oct 07 $35 calls TUJ-JG
Purchased: 3/28/2007
Current Price: $1.50
InterContinental Exchange (NYSE: ICE)
Jun 07 $100 puts ICE-RT
Purchased: 3/21/2007
Current Price: $.95
June 07 $155 calls IHH-FK
Purchased: 3/21/2007
Current Price: $2.55
Digital Realty Trust (NYSE:DLR)
July 07 $40 puts DLR-SH
Purchased: 3/14/2007
Current Price: $1.70
Tyson Foods (NYSE:TSN )
Apr 07 $17.50 puts TSN-PW
Purchased: 12/18/2006
Current Price: $0.05
