The following article appeared in Thursday's Options Investor Newsletter. It was written by a friend who is an ex-SIer, and gives an interesting look at Q from a short term trader's point of view:
Time on Target
Earlier this year, I was in a job interview with a firm in San
Diego. Out one side of the high rise, I could look south towards
the city, the harbor, and Coronado, where, as a Marine Lieutenant,
I spent many a weekend getting away from my base at Twentynine
Palms, 200 miles into the Mojave Desert. To the east, I looked
out on Miramar Naval Air Station, where F/A-18s and F-14s were
taking off to conduct air combat manuevers (read: dog fights) as
part of the Top Gun training program. I knew those aircraft well
from serving as a Rifle Company Fire Support Coordinator. We would
ride around in the high desert, and perch on a cliff overlooking
some long dead tank that served as a training target. The artillery
forward observers would set up their radios while a Marine Captain/
Pilot would make contact with the aircraft off in the distance.
We would set up a "time on target" mission, in which the artillery
marked the target with a white phosperous round 30 second before
the appointed time hack, and the "fast movers" would streak in
upside down to acquire the mark, roll over, and drop bombs on the
mark. The idea was to get good at these procedures so that amidst
chaos, it would be second nature. A few Recon Marines with a radio,
trapped on a roof during the Battle of Khafgi during the Gulf War,
used similar procedures to destroy the better part of an Iraqi
mechanized regiment that had attempted a preemptive attack on the
Saudi border town on the eve of the ground war.
A year after that interview, I now recall the view to the west
towards the ocean from that La Jolla office tower. Near the ocean,
a cluster of white buildings nestled near the University of
California campus -- the headquarters of Qualcomm. I recall
talking to an interviewer about the importance of CDMA technology,
since QCOM was an important client of the firm. A few weeks later,
I would get my first CDMA phone. Over the past year, like a F/A-18
climbing on afterburner, QCOM has streaked into the stratosphere.
But, upon further analysis, I tend to think that it is still very
early in its ascent. In the past few days, I have read about a CDMA
deal in China, a glowing report on the quality of Globalstar satellite
phone handsets using CDMA technology, set top boxes using CDMA,
delivery of movies to theaters using CDMA, and a trial run of 2000
wireless lap top computers using CDMA. Since I am writing this
article from a coffee shop over looking the Golden Gate (family
owned since 1937, great minestrone!) on a wireless modem equipped
laptop (on which I have watched an awesome close!), I am well
aware of the potential for the adoption of such devices.
The potential for adoption of cell phone handsets with CDMA alone
is staggering. On Tuesday night, while thinking over the importance
of the Nasdaq's precipitous decline over a late night meal in a
Chinese restaurant, I started reading The Gorilla Game, which
argued that the dynamic effects of the adoption of a standard
(eg, Windows) could drive a company's price (eg, MSFT, 1989 - 1998)
far faster than any usual metrics of stock valuation. In short,
that cluster of white buildings at the southern end of the Pacific
seaboard could represent an opportunity similar to another
nondescript cluster of buildings at the northern end of the West
Coast up in Redmond, Washington. All of this thinking, along with
the fact that I am getting fatigued by trading and am making bad
decisions, has lead me to set up one final "time on target" mission
in my 1999 option trading. The simple plan is to put all of my
remaining ST Options capital into QCOM January Calls, and to let
them ride through Jan 3 or 4.
Sound audacious? Sound risky? It sure is. The stock is trading
at 423, with a PE north of 300. By any normal metrics, the stock
is grossly overvalued. But this is not a normal time. Fundamental
to my decision is that both the Fed and financial institutions
are pumping liquidity into the market to avoid any glitches in
the face of Y2K. We had a dip Wednesday, and it was met by buying.
I believe other dips will be too as individual mutual fund managers
cannot afford to be underinvested in the face of a likely January
rally. Add to this the wall of worry that Y2K represents. Yes,
hospital records, financial records, and voting records in small
countries will be lost. By in large, things will work in the
United States. When they do, even more money will flood the
markets on the first few days of the New Year. And, on the eve
of the new millennium, Qualcomm is audaciously splitting its
stock 4:1. If it is at $500 by then, shares at $125 will seem
cheap. My options (and I already hold January contracts and as
well as a Jan02 LEAP position) will split 4:1. Normally, it is
wise to exit plays before a split, but this time, I will probably
hold over the split because of the unprecedented power of a 4:1,
the real wall of worry that Y2K represents, and the recent
post-split performance of stocks like SUNW, VRSN, and CMGI after
splits. Finally, I want to heavy barrel this play now because of
the upcoming shareholder meeting on 12/20, which will also confirm
the split date, and may be a good venue to announce the sale of the
handset division. Working against me, of course, will be time decay
on options with enormous premiums. I will buy in the money, so at
least a good chunk of the value is represented by intrinsic value.
If, however, QCOM starts to run into its split, I should see a
pretty good delta in the appreciation of my plays.
My trading this week has been fair to poor (though, as I revise
this piece after the close on Thursday, my profit/loss is
absolutely rockin', largely due to QCOM and a renewed NOK!).
There have been 3 terrific entries into the December Rally
(11/30 - 12/1; 12/9; and 12/15). I absolutely crushed the first
one, but, in retrospect it was because I was fresh, coming off of
a week and a half Thanksgiving break. I entered plays too early
on 12/8, in part because I had held a QCOM play over from the
first entry, and I was distracted. I also made a undisciplined
entry into call plays on JDSU, AOL, and INKT on 12/14, again, a
day too early. One potential lesson to draw from this is to have
a bias to be in cash (ie, sell too soon) so that you can make
sound decisions for your next entry. Based on the overall market
conditions, and my assumptions about a continued Christmas/ New
Years liquidity driven rally, I am taking a highly risky course
of action. I am staying in all of my plays, and adding all of my
remaining capital to the QCOM Jan play also. I expect some
volatility, but I also expect a steady run up to the 4:1 split.
JDSU and INKT are also splitting right before the New Year. Of
course, all of my plays have not been bad. I bought 100 SCH Jan45
Calls for 1.5 last Thursday on a report about trading volumes. I
sold those contracts at 2.25 on Monday. I bought MSFT Jan100 Calls
at 5.75 (thanks, Preferred Trade, for a clutch fill on that one)
on the breakout above its all time high of 100 3/4 yesterday, and
sold half of the position for 8.125 today, and will hold the other
half for a January earnings run.
On the downside, my NOK Jan160 position has crumbled with the
stock bouncing off of 150 today after a several day decline.
NOK, too, may benefit from the QCOM situation, especially if it
aquires the handset division (Thus, though, NOK is bouncing back
nicely). By January, I expect a pretty strong rebound for NOK,
a company that one analyst noted may become the largest PC
manufacturer in a few years. In my LT Stock Portfolio, I bought
QCOM Jan02 410 LEAPS, GSTRF Jan02 30 LEAPS, NOK Jan02 200 LEAPS
(Roth IRA) to augment my purchases of CSCO and GE Jan 02 LEAPS
earlier in November/ December. I'll take some 25 - 50% profits
on part of my positions with limit sells and will put that cash
to work when I dial back into the markets on December 29.
Anyway, the mission is called in and the fast movers are running.
Now, I just need to get a good view and get ready for the fireworks.
Janar Joseph Wasito |
