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Entries in Discover Card (1)

Thursday
Jun302011

A Pretty Penny

What's in the Szelhamos Portfolio?



Find a pennyMost of us who grew up when cash actually exchanged hands for things other than drug transactions, probably remember the old saying "Find a penny, pick it up and all day long you'll have good luck."

Just as an aside, people who are accustomed to transacting their drug deals on the street rarely concurrently engage in reciting such pithy sayings.

Being somewhat analytical, I tried searching for any evidence that this old adage was actually data driven, but could find none.

In fact, I couldn't even find anectdotal evidence.

Somewhat nervous about what my internet searching history may say about me, I want to warn people not to seach for "Penny Pick-up".

In an age when absolutely everything is documented, videotaped and then posted on the internet you would think that the evidence would exist.

If not in the affirmative, maybe the data would exist to contradict the expression. But even a search through Tosh.0 archives could show no videos of someone picking up a penny from the ground and then getting flattened by a baby grand piano falling out of a window.

You also remember the old saying about how those pennies add up.

When I moved south of the Mason-Dixon line I first encountered the ubiquitous "take a penny, give a penny" dish in all of the 7-Eleven's that lined every thoroughfare. None of the cash register people could explaiin the concept to me, but that was because most had only been in the country for two weeks or less and I definitely have an INS look about me.

I still have no idea of how that works or what utility it carries. My paranoia tells me that if I take a penny out of the dish, I'll find out that it was all an FBI sting operation and I'll be going away for a long, long time.

Every few years as the price of copper fluctuates, we also hear talk about discontinuing production of the penny, which in everything but the world of old sayings, is thought to be pretty useless.

Of course, useless as it may be, talk of discontinuing its production brings out all sorts of characters and experts on both sides of the argument. Equally compelling are the counter arguments related to the role of the penny in either promoting inflation or promoting deflation.

Like most economic arguments, just take your pick. When they say "A penny for your thoughts" they're probably referring to the value placed upon financial and economic opinions.

But the value of those pennies, just like in the cult classic, Office Space, was really driven home today as trading was shortly halted in shares of both Visa and MasterCard.

I have a long history with both as an investor. MasterCard was actually the first stock that I sold call options on, probably some 5 years ago or so. For a while, I just concentrated on MasterCard, Apople and Google, all expensive stocks, as far as prices went, but all with great options premiums back at that time.

I'm still inappropriately seeking to exact revenge for not receiving an IPO allocation for Visa.

Bygones being what they are, I've almost continuously owned Visa shares since the IPO, but have not owned MasterCard in at least a year. In fact, my Twitter profile page is adorned with a Visa price chart as its wallpaper.

As with most everything I do these days in the markets, I don't really seek much in the way of capital gains on the underlying stock. To me, the stock is just a means of delivering income. When it's all said and done, I'm agnostic as to whether the stock moves up or down, just that it move somewhere and then eventually return near to where I got started with it.

Visa has been a great stock for behaving according to script.

Having just pocketed the premium for the options that expired on June 24 for Visa, which was a 1% gain, I sold $75 July 1 calls at about a 2.5% premium. My purchase price for the lot purchased on Jiune 20 was $74.06

Interestingly, the premium for the weekly July1st expiration was much better than for the end of cycle option on July 15th, due to the uncertainty that was being baked into the price related to the upcoming Federal Reserve rules decision on debit swipe fees.

Well, the rules came out today and trading was halted in both Visa and MasterCard as they gapped up significantly.

So while I'm on the hook for letting go of my Visa shares at $75, they closed the day at $87, up about $12, I won't tell you how many shares I own, because I don't want to short circuit my laptop with tears. Neither will I go to my Keurig and drown my sorrows in a nice hot cup of coffee, because the same thing happened not to long ago with Green Mountain Coffee Roasters, as Starbucks became a Kissing Cousin.

It seems that pennies really do add up in the case of debit cards. The final Federal Reserve rules on swipe fees sets the per transaction cap at 21 cents, higher than the expected 12 cents, but still much lower than the banks had previously enjoyed.

But it wasn't really clear why the stocks moved as they did, especially when JP Morgan released a statement that said that the won a battle in this decision, but lost the war.

That was a surprising kind of statement, because you don't usually lose a war if you won the final battle.

And the retailers don't seem to happy about the rules either.

But wait, if you order now, there's more.

Why did MasterCard rise as much as it did, albeit a litlle less on a percentage basis than Visa? Especially since Visa has a very significant debit side business, whereas MasterCard doesn't.

Why would American Express go up at all? Discover? really, Discover? Why did they go up? Did someone actually make a purchase?

In all, the reaction seemed overblown for all parties. But that seems to be par for the course. If I had some free cash right now, I would think about buying Visa puts, although i don't buy puts as a general rule.

I have no idea how those pennies will ultimately add up, but then I realized that sometimes I play for pennies, as well. One of my trading rules in Option to Profit is to not let a penny here or there make a difference between executing or missing a trade.

I rarely get bogged down because of that level of greed. I just want to make the trade.

But where the pennies come in is on a derivative play of the Option to Profit strategy, one that is implemented during the last two days of an options cycle.

In this case, the cycle is this Friday, July 1st.

With both Goldman Sachs and JP Morgan up nicely today, well in advance of the Federal Reserve news, I decided to sell options expiring in just 2 days. $0.10 premium on JP Morgan and $0.44 on Goldman.

In the case of Goldman, the sum total was pretty much in pennies, as well, as I'm at my lowest holding of those shares in years. The JP Morgan total was better than that as I had 8 times as many shares.

Still, no big whoop. But whoops are like pennies. They do add up.

With a couple of days now left to go until this Friday's expiration, I'm in the position of hoping for share prices to go down, not just on Visa, but on a few others after this past three day run-up.

But the nice thing is that even if they don't, one of my other old reliable stocks from the past is probably at a good enough place now to warrant its repurchase, knowing that someday Visa will shed a few thousand pennies and be ripe for the taking, once again..

Pennies may be from heaven, but on days like this I curse the rogue angel that showered them down.

No matter. Tomorrow, I will again be a slave to the man and cut off from my sea of information, but at least a few of those employment related pennies will come my way.

All the more to buy you, my pretty.

 

 

 



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George Acs - TheAcsMan. - I now spend my time at Option to Profit - OTP.