WASHINGTON, March 27, 2017 – Short column today as we really didn’t do much today except stare at the ongoing nonsense that’s marked the current, naggingly negative thinking on Wall Street. In a belated reaction to Friday’s Obamacare Repair Fiasco, stocks opened horribly down Monday morning and spent the rest of the day trying to recover, without much conviction, alas.
Reminds us of that signature song from the Gershwins’ “Porgy and Bess.” The one where Porgy, that eternal American optimist, sings:
I got plenty o’ nuttin’,
And nuttin’s plenty for me
I got no car – got no mule
I got no misery
The Dow and the S&P 500 averages closed modestly off, while the NASDAQ and its beloved tech stocks notched a feeble yet significant win. But all in all, “plenty o’ nuttin’” in Monday action.
Perhaps foolishly, we added significantly to our holdings of Cliffs Industries (symbol: CLF), a major American iron ore miner on a huge dip in the stock, based on reasonable intelligence that the Chinese have been lying about reducing their massive overproduction of steel. If it’s true, that could clobber the last several months’ rally in steel and iron ore mining stocks as Chinese overproduction has already badly hurt the price of that commodity.
CLF, which resides in our smaller account, snapped back nicely from the low where we did pick up more shares, building what’s probably a rather too large position in the materials and/or industrial sectors. We’ll likely soon see whether this was a bold move or a stupid one.
We also invoked a predictable retaliation from the Trading gods Thursday when we bought a single put to protect our endangered position in Snapchat parent Snap, Inc. (SNAP), which IPO’d over a week ago, popped smartly for its first few trading days and then tanked as flippers, sellers and short-sellers rushed in to destroy investors quick and apparently mirage-like initial 40-50% profit on the issue.
As the stock was rapidly approaching its IPO breakeven point last week–$17 was the IPO price—we decided to take advantage of newly-available puts on this brand new stock by picking up precisely one April 20 put at an absurdly high price, mainly because all we got in the IPO were 100 shares of SNAP.
Normally, dealing with call or put options in such a small quantity verges on the foolish, something we’ll readily admit. However, we were damned if we were going to let the bears force us to sell in read ink territory when our broker’s “voluntary” 30-day hold the IPO rule was forcing us to hold onto this profitless tech sinker.
But, calculating that the cost of the single put—which gives us the opportunity to sell our measly 100 shares of SNAP to someone else at $20 per share no matter where the price is at the time of the transaction—justified the exercise, as we’d make a net profit (a small one) on the whole transaction even if the roof fell in on the stock.
This looked like a minor genius move when we executed it, and maybe it actually will be. It looked even smarter as brokerage houses started issuing research non-recommendations, naming SNAP a “hold” at best whose IPO price itself had perhaps been more than a tad too high.
So, we grabbed the put for insurance. And sure enough, a number of brokerage houses promptly came out with “buy” recommendations, stating confidently that SNAP would end up around $28-30 per share within a reasonable time period.
BAM! In came the buyers again, so intensely that they may have started blowing out some cocky short-sellers in last Friday’s trading action. The buyers came in again today and promptly put SNAP back on the rocket sled once again. Shares closed up $1.23 per share today and now stand at $23.83, bringing our small holding back to a current 40.18% gain. The put, of course, is now nearly worthless, but what the heck, we’re still way ahead on the whole shebang. At least at the moment.
But as we noted, the simple defensive move of buying that protective put initiated another corollary of Murphy’s Law, clearly initiating SNAP’s current up-move. Of course, if we hadn’t done this, SNAP would be headed toward penny stock territory. Like Roseanne Roseannadanna often said, “It’s always something.”
Aside from these minor adventures, nothing else much doing today. The market is confused and so are we, and times like these are better off spent doing spring cleaning rather than making mistakes trading stocks and sectors that don’t know where they want to go.