The RealMoney contributors are in the business of trading and investing all day on the basis of ongoing news flow. Below, we offer the top five ideas that RealMoney contributors posted today and how they played those ideas.TheStreet.com brings you the news all day, and with RealMoney's "Columnist Conversation," you can see how the pros are playing it on a real-time basis. Here are the top five ideas played today. To see all that RealMoney offers, click here for a free trial. 1. Better Way to Straddle/Strangle?
By Timothy Collins
12:27 a.m. EDT After a week of back and forth, I get the sense of a big move coming in the market soon. The typical way to play this would be with a straddle or a strangle on the SPDR ( SPY). What if there were a there was a higher-probability way of playing this same concept? I compared the SPY $103 & $104 straddles, along with the 102,103, or 104 calls paired with the 105, 104, and 103 puts, respectively, with the idea of buying Direxion Daily Large Cap Bull 3x ( BGU) puts along with Direxion Daily Large Cap Bear 3x ( BGZ) puts. I used the BGU 48 puts with the BGZ 24 puts (0.73 BGU contracts/1.45 BGZ contracts) and the BGU 50 puts along with the BGZ 25 puts. After applying our drag coefficient model to the worst-case price movements of the SPY for straddles, it was evident to see that the effects of volatility decay significantly improved your odds of making a profit using the BGU-BGZ pairing than any of the SPY pairings tested. The BGU $48 - BGZ $24 put pairing showed potential profits in two of the three worst-case scenarios, while showing a loss that was in line with the SPY possibilities in the other. The SPY setups only showed a profit in 1 out of 15 cases, and in that case, either of the BGU-BGZ setups showed a higher profitability projection. Furthermore, if you take the BGU $48 - BGZ $24 put setup as a long and sell the SPY 104 call and 103 put against it, the result was a profit in all three of the worst-case scenarios. With three weeks until expiration, time is starting to move against you in any straddle/strangle; however, volatility in a rangebound format can work for you instead of hindering performance. Long BGU and BGZ puts.
2. Disney/Marvel and BJS/BHI
By Jim Cramer
10:13 a.m. EDT This is an incredibly sleepy Monday and a vacation week, and we had huge mergers today. Quite surprising, in areas where we have been waiting for consolidation. BJ Services ( BJS)/ Baker Hughes ( BHI) is immediately additive, and Disney ( DIS)/ Marvel ( MVL) gets Disney much less ad-dependent. Very smart. When you consider how good the purchasing managers index (PMI) is, you know we are just too focused on China. A lot of good news out there in our markets! No positions.
3. Small Banks
By Tim Melvin
10:30 a.m. EDT I was berated this morning as being too bearish on community banks. I was informed that there were just as many small banks hitting new highs as there were new lows. I was intrigued by the possibility that this was true and went looking at daily new highs for the past week or so. Sorry, but it does not hold water. There are new lows in bunches of small bank stocks every day while very few new highs. There was a few but only one or two a day as I scanned the lists. Then I went to the American Bankers Association Web site to check historical pricing of the community bank stock index. It is trading at half of where it was when the credit crisis and down about 9% for the year. By comparison, The KBW Bank Index is slightly up on the year. I think this is going to be one of the most lucrative sectors in which to invest for the long term. But it still is not time. No positions.
4. Inventory Support?
By Robert Marcin
1:01 p.m. EDT The talking heads continue to maintain that inventory building will support economic growth in the quarters ahead. This just seems incorrect to me. Looking at the inventory-sales chart, we clearly have too much, not too little inventory in the retail and manufacturing system. Can anyone espousing that point explain to me what's wrong with my inventory-sales picture?
5. Energy Bonds Bucking the Trend
By Tom Graff
1:52 p.m. EDT Energy stocks are among the worst performers today, but it looks like energy bonds are overwhelmingly tighter vs. Treasuries. Apache ( APA), Anadarko ( APC) and Devon ( DVN) all look 5-10 tighter. ConocoPhillips ( COP) is 2 tighter. Another commodity-oriented issuer, Republic Services ( RSG), is the only large new bond issuer to come today, selling $650 million 10-year notes at +220. Overall, spreads are generally wider by a margin of about 3/2. Hearing volume is extremely low in general. What this tells you is that the weakness isn't due to investors looking to lighten up so much as it is a lack of buyers. Long COP bonds.
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