Earnings season is in full swing, and unfortunately, our latest pick, Starwood (NYSE: HOT) reported numbers today and they weren’t pretty. They made money, but not very much, especially when you consider the lofty price of the shares.
Starwood reported 20 cents per share, and this is for the busiest summer season. Even on an annualized basis this puts the shares at 40 times earnings, for a company that is facing declining revenues per room and a continued uncertain business climate.
As you’ve seen, Starwood is a very volatile stock with actively traded options. Our target remains unchanged. We are looking for a move into the mid to low $20s as our downside target, and a sell-stop if the shares trade above $40.
Fifth Third Bank also reported earnings today. The thing with these bank stocks is that things are not getting any better. FITB reported higher delinquencies and continued asset sales. And then just yesterday, Wells Fargo reported what many considered blow out numbers, but their loan portfolio suffered as well and now delinquencies have spread from the sub prime sector to the prime sector.
It looked like FITB was ready to fold last week, but it has since recovered. The market in general looks ripe for a correction, and the financial sector will be a prime target for sellers. Sit tight with this one; we have a lot of time left.
Most of our other positions are very profitable riding the wave of a strong sector moves in technology (Motorola, Akamai), construction (Manitowoc), transportation (Dryships) and even in the airline sector (USAir).
My bent is still to the short side right now and once earnings season is over, things may start moving lower as investors will have little to focus on something other than economic news, which continues to be uncertain. We will pick our points and invest according to the opportunities presented to us.
Right now I am waiting on some 2012 LEAPs to be released for a couple of tech stocks that will benefit from inventory build-ups and new product introductions.
Karim
Current Portfolio:
Company / Option: Starwood Jan. 2011 $20 puts
Option Symbol: VVO MD
Current Price: $2.33
Comments: Hold.
Company / Option: Fifth Third Bank Jan. 2011 $7.50 puts
Option Symbol: OJH MU
Current Price: $1.20
Comments: Hold.
Company / Option: US Air Jan. 2011 $7.50 calls
Option Symbol: ZTG AU
Current Price: $.75
Comments: Hold.
Company / Option: Bank of America Jan. 2011 $7.50 puts
Option Symbol: VBA MQ
Current Price: $0.37
Comments: Hold.
Company / Option: Dryships – bull spread
Jan. 2011 $7.50 call (bought)
Jan. 2011 $12.50 call (bought)
Option Symbol: ZDU AU
Option Symbol: ZDU AV
Current Price: $2.25
Current Price: $1.21
Comments: Hold
Company / Option: Pulte Homes – strangle
Jan. 2011 $7.50 put (bought)
Jan. 2011 $15 call (bought)
Option Symbol: OPN MU
Option Symbol: OPN AC
Current Price: $1.15
Current Price: $0.85
Comments: Hold
Company / Option: Manitowoc – strangle
Jan. 2011 $2.50 put (bought)
Jan. 2011 $7.50 call (bought)
Option Symbol: VMT MZ
Option Symbol: VMT AU
Current Price: $0.05
Current Price: $5.00
Comments: Hold.
Company / Option: United States Natural Gas (UNG) – bull spread
Jan. 2011 $20 call (bought)
Jan. 2011 $25 call (sold)
Option Symbol: ZZM AT
Option Symbol: ZZM AY
Current Price: $0.90
Current Price: $0.60
Comments: Hold.
Company / Option: Yamana Gold – bull spread
Jan. 2011 $10 call (bought)
Dec. 2011 $12.50 call (sold)
Option Symbol: VPP AB
Option Symbol: VPP AV
Current Price: $3.90
Current Price: $2.60
Comments: Hold
Company / Option: Akamai – bull spread
Jan. 2011 $15 call (bought)
Dec. 2011 $20 call (sold)
Option Symbol: OMU AC
Option Symbol: OMU AD
Current Price: $8.30
Current Price: $5.60
Comments: Hold
Company / Option: Motorola – bull spread
Jan. 2010 $7.50 call (bought)
Dec. 2010 $10.00 call (sold)
Option Symbol: MOT AU
Option Symbol: MOT AB
Current Price: $1.29
Current Price: $0.26
Comments: Hold