Stock Option Investment Advice

United Bankshares Short Squeeze & Misc.


The U.S. GDP (Gross Domestic Product) was announced as 5.7% for the fourth quarter of 2009 and the stock market immediately celebrated the good news by jumping up and then back down.

A GDP of 5.7% sounds real good, but in reality, the increase in the GDP was more a result of an inventory build-up, than the economy taking off. A more realistic GDP is probably around 2% which is OK, but no reason for high-fives.

Stock Market…

The stock market has been in a real foul mood lately, which is what we’ve been expecting for a couple of months and why we’ve been posting collar positions to PowerOptionsApplied‘s Palladium TradeFolioTM. So far the indexes have remained above their previous support levels and as long as this is the case, it would be expected to see the market recover over the next couple of weeks. But, if the previous support levels are breached, then there will probably be some more downside action.

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Bare Escentuals…

In a recent email and also highlighted in one of our blog articles, Spike in Bare Escentuals Call Option Volume, we analyzed Bare Excentuals (BARE) and its high call option volume. Turns out Bare Escentuals is going to be acquired by Shiseido. Shiseido is Japan’s largest cosmetic company and announced their plan to acquire Bare Escentuals on January 14, 2010, almost exactly one month after the large spike in call option volume occurred. In the article, we recommended a covered call which made a nice return, but for investors seeking to take a long position, Bare Escentuals closed at $12.31 on December 15, 2009 and at $18.07 on January 15, 2010 and resulted in a nice return of 47%.

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With the beaten down U.S. dollar and stock prices of U.S. companies, it would not be surprising to see a few more acquisitions of U.S. companies, like Bare Escentuals, by foreign companies, as U.S. companies are valued at quite a discount from what they were a few years ago.

Short Squeeze…

In a previous couple of articles, Short Squeeze and Stock Options and Short Squeeze and Stock Options part II, we discussed the topic of short squeezes and a couple of companies which appeared to be in a short squeeze. One correction, in the articles, it was mentioned that the quantity of short positions for stocks are updated monthly, but for a year or so now, short position are actually updated twice a month.

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On October 29th, 2009, we discussed Bank of the Ozarks (OZRK) and its apparent short squeeze situation. Bank of the Ozarks stock price is up about 30% since we highlighted the company.

OZRK Chart

On November 10th, 2009 we analyzed Stratasys (SSYS) and that company’s short squeeze situation. Stratasys’s stock price is up about 50% since we published the article. But, a large part of Stratasys’s stock increase is a result of an agreement with Hewlett Packard (HPQ) for Stratasys to manufacture HP’s 3D printers. You’ll notice a large spike in Stratasys’s stock price at the time of the HP/SSYS announcement and then a subsequent drop in price. Well I’m guessing the big spike was the shorts losing their shorts after receiving their margin calls and having to cover.

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SSYS Chart

This month we used PowerOptions powerful search tool to find companies which are potentially in a short squeeze. The company that popped up on the radar this month was United Bankshares (UBSI). United Bankshares provides banking services in West Virginia, Virginia, Maryland, Ohio and Washington D.C. United Bankshares # Days of Short Interest is at 30.1 and its % Short Interest is at 21.7%. That’s a heap of short interest. At current market volumes, it would take the shorts 30 days to close their positions.

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I don’t think United Bankshares deserves all of this short interest attention, they just hiked their dividend and their %dividend yield is very nice at around 5% or so. The company has banking retail centers in some prime locations and has faired rather well considering the economic climate.

United Bankshares stock price has also performed fairly well over the last couple of months.

UBSI Chart

Unfortunately, there aren’t any attractive covered calls or collars for United Bankshares, but there is a pretty nice naked put position for March with a potential return of 3.7% with a time frame of 47 days for potentially realizing the return. The naked put position is entered by selling a put option. The naked put trade has the same risk/reward as a comparable covered call. The put option of interest to sell would be the March 25.

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Optium Stop-Loss…

We experienced a stop-loss for one of PowerOptionsApplied‘s Optium positions today. It’s been about 15 months since we experienced a stop-loss for Optium. We really appreciate when customers call in and let us know how much money they’ve made over the last year or so by trading our recommendations. Not sure if any customers actually experienced today’s stop-loss, as we never were able to enter the position for the amount of net credit we were seeking. But, even when we are not able to execute a trade, we continue to manage a position. There’s still three other positions currently open for Optium, so Optium might still end up being profitable this month.

For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions’ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.

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PowerOptions’ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.

[tags] GDP, Gross Domestic Product, Shiseido, U.S. dollar, acquisitions, OZRK, Bank of the Ozarks, BARE, Bare Escentuals Inc., HPQ, Hewlett Packard, SSYS, Stratasys Inc., UBSI, United Bankshares Inc. [/tags]

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