On a question on why most of his examples are on Put BWB, Scott Answers:
I have not done any call BWB’s for several reasons
1.I have been trying to keep them consistent for learning purposes. Had I done them with calls I would be hearing “why didn’t I do them with puts?”
2.During periods of low volatility it is harder (because of skew) to split the strikes further apart with calls than puts.
By Scott Kramer, Optionetics.com
Published: November 15, 2006 12:30 PM EST
Many, many people have been asking about the difference between a butterfly spread and a broken wing butterfly. Others have also written that they understand the difference in theory but not practice. In an attempt to clarify the matter, something I am not particularly good at, I will explain the two trades’ similarities and differences. First, let me begin with the definitions. At first glance, the two positions will sound very similar in construction, and they are, but that is where the similarities conclude as they operate dramatically different in real-world application and execution.
Whats up with this recent IPO? Heard from a friend who got 1 lot of this and he is sitting on a tidy profit from this. Why is it so hot?
UBS Writes:
Sailing to the top [EXTRACT]
Niche player on the cusp
Chinese shipbuilders are rising and gaining market share, and Yangzijiang
Shipbuilding (Holdings) Ltd. (YZJ) is leading the trend. New orders received in the
first four months of 2007 (4M07) have already hit 58% of the full 2006 figure,
compared with China’s 39% and South Korea’s 23%. We expect YZJ to continue
distancing itself from the crowd and deliver 63% sales CAGR and 53% earnings
CAGR in 2007-09.
Well defined strategy and solid execution
YZJ’s industry-leading gross margin of 21% in 2006 highlights management’s
strategy and execution. In addition to an expanding market share in containership,
the company recently secured 4% of the global share in Panamax bulker. We
believe YZJ is likely to explore more ways to strengthen its leadership position.
Risks
A dramatic industry slowdown and capacity glut would take their toll on all
players. We believe currency fluctuation and raw material prices are two
operational risks and gauge that a 1% change in the renminbi/US dollar exchange
rate and steel cost could swing the company’s earnings by 3.4% and 0.6%,
respectively.
Valuation: initiate coverage with Buy 2; price target of S$2.35
We derive our price target of S$2.35 from a DCF method, assuming a WACC of
8.9% and terminal growth of 3%. Our price target implies an estimated 2008 PE of
30.1x and EV/EBITDA of 23.8x. We foresee 29% upside potential from the
current level and initiate coverage with a Buy 2 rating.
By Ambrose Evans-Pritchard
Last Updated: 1:34am BST 06/06/2007
Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a “Full House” sell signal for the first time since the dotcom bust.
Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a sell signal
Morgan Stanley warns the ‘mid-cycle rally is over’
Teun Draaisma, chief of European equities strategist for the US investment bank, said the triple warning was a “very powerful” signal that had been triggered just five times since 1980.
“Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over. Our model is forecasting a 14pc correction over the next six months, but it could be more serious,” he said. Mr Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2pc over six months after each “Full House” signal, with falls of 25.2pc after September 1987 and 26.2pc after April 2002. “We prefer to be on the right side of these odds,” he said.
The first of the three signals Morgan Stanley monitors is a “composite valuation indicator” that divides the price/earnings ratio on stocks by bond yields. It measures “median” share prices that capture the froth of the merger boom, rather than relying on a handful of big companies on the major indexes.
“If you look at all shares, the p/e ratio is at an all-time high of 20,” he said.
The other two gauges measure fundamentals such as growth and inflation, as well as risk appetite. “Investors are taking far too much comfort from global liquidity. Markets always return to fundamental value, so people could be in for a rude awakening. This is the greater fool theory,” he said. “The trigger may be rate rises by the Bank of Japan, or a widening of credit spreads. There are lots of little triggers.”
Morgan Stanley is not predicting a recession, believing bond yields will fall during a correction and act as an “automatic stabiliser” for the world economy. Once the market shakes off the latest excesses, it’s back to the races.