Apple Products Review: Making Money With Options

My guest on Hedge Fund Radio this week is penny stock trader and Internet entrepreneur, Tim Sykes. Every once in a while I run into a natural born trader, someone who crawls out of the crib quoting options spreads, price earnings multiples, and book values. His first spoken word was “Sell!” While other kids were practicing their ABC’s, Tim was pouring through prospectii.

During his college years, Tim skipped classes and turned a $12,415 Bar Mitzvah gift into $1.65 million by trading the market from his dorm room. By the time he graduated from Tulane in 2003, he was already running his own hedge fund. Barclays Bank rated it the number one short bias fund during 2003-2006.

Tim argues that if you cut through all the hype and manipulation in the penny stock market, it is clear that there are huge opportunities on the short side. Most of the companies trading there are frauds, and most will fail. Mini Enron’s and mini Madoff’s abound.

Defined as trading under $5 a share, these stocks are purchased mostly by individuals desperate for “get rich quick” success. Promoters buy lists of email addresses from major online publishers, sometimes paying millions of dollars, to launch a never ending onslaught of “pump and dump” schemes. Email barrages and Twitter spam have replaced the dinnertime telemarketing calls and junk mail of yore.

The SEC is so inundated with tips on Madoff copycats and competitors ratting out each other, they don’t have time to pursue gripes about $1,000 losses emanating from penny stock scams. It’s like expecting the FBI to pursue shoplifters of 99 cent items from Seven Eleven stores.

Some of the claims made by these bogus IPO’s boggle the imagination. Tim’s favorite was one company’s efforts to promote vitamins infused with stem cells. Another offered a solar spray that turned you house into an energy source. Then there was the BP Gulf oil spill that threw up innumerable crude eating forms of algae. As for my own experience, I’ll never forget the aquaculture farm in the middle of the Saudi Arabian desert. To separate out the obvious rip offs from the legitimate companies, Tim spends hours a day gleaning through voluminous SEC filings, some of which are blatant cut and paste jobs from earlier failed floatations.

Even though most of these companies are fake, prices can run away to the upside, wiping out the early short sellers. So some risk control discipline is required. When a stock truly rockets, “buy-ins” of shorts can also be a problem. A few hundred penny stocks are launched each year, but only about five a month catch on fire. And remember, Apple (AAPL), and True Religion (TRLG) jeans were once penny stocks.

To avoid being taken to the cleaners by unscrupulous con men, Tim offers some very basic advice. If it is too good to be true, it generally is. It also helps to read the SEC filings, which can be obtained online for free.

Tim claims to have a success rate with his short strategy of 75%, which has delivered a 56% return in 2010, proving he still has the golden touch. His problem is that the strategy is not scalable, and can only be executed with a small amount of money. No mega hedge fund for him.

That’s why Tim has turned to online education instead of ramping up a big hedge fund. Today, he is offering several subscription newsletters, trade alerts, chat rooms, along with a DVD course on making money in the penny stock market at his website at http://www.timothysykes.com/ .

To listen to my highly informative and entertaining interview with Time Sykes on Hedge Fund Radio, please click here at http://www.madhedgefundtrader.com/december-22-2010-time-sykes.html .

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

We had a good run, my friends.

Alternate headline: “All Pentagon budget cuts canceled.”

Decorated Navy fighter pilot Matthew “Whiz” Buckley, a Top Gun graduate of the Navy Fighter Weapons School who flew 44 combat missions over Iraq, says, “It’s probably leaps and bounds above where we are, and that’s terrifying.”

“As a former Navy fighter pilot, going up against something that’s stealthy, highly maneuverable and with electronic systems more capable than mine — that’ll keep me up at night,” said Buckley, now chief strategy officer at Fox3 Options LLC…

Richard Fisher, a senior fellow on Asian Military Affairs at the International Assessment and Strategy Center, a Washington-based security think tank, says Chinese officials have said that their program is aimed at competing with the F-22 Raptor.

“From what we can see, I conclude that this aircraft does have great potential to be superior in some respects to the American F-22, and could be decisively superior to the F-35,” said Fisher…

Experts say it’s hard to say exactly what the J-20’s capabilities are, especially in a fire fight — but offered a dire prediction: “With China having a fifth generation fighter, the U.S. will lose F-22s faster than previous estimates.”

Mitigating factors here? First, and most obviously, in an age of semi-austerity, defense specialists have a financial incentive to tout every threat as an existential one. With the GOP ready to slash budgets and Boehner insisting that Defense is on the table, a Chinese super-fighter is a sweet way to keep the money flowing. Second, even if this is a major advance, there are reasons to believe that it’s not — yet — a major issue for the Air Force. It’s one thing to design an advanced fighter, it’s another thing to equip it with the parts it needs and to get it ready for battle:

It’s not obvious from the grainy photos of the J-20 what engines the plane currently uses, but it’s probably safe to assume they’re Russian AL-31Fs—still the best engines China reliably has access to. However, the AL-31F is clearly inadequate for the apparently heavy J-20. Even the up-rated 117S version of the AL-31F ‘would likely not be sufficient to extract the full performance potential of this advanced airframe,’ Kopp and Goon wrote. To perform at its best, the J-20 will probably need purpose-designed motors. And developing those could take a long, long time.

Equally vexing to Beijing’s aerospace designers and military planners are the sophisticated electronic, conceptual and human systems required in and around a modern fighter aircraft in order for that aircraft to deliver a useful military effect.

Richard Aboulafia, an analyst with the US Teal Group, told the Internet trade publication Defense Tech that a modern fighter requires at least 11 supporting systems to be effective, including but not limited to sound mission planning, a talented and disciplined pilot, good maintenance personnel on the ground, accurate weapons, an advanced radar and other electronic systems inside the aircraft plus ‘off-board’ radar detection provided by purpose-built command-and-control planes and the reliable ministration of an aerial tanker.

Of all the systems required by a modern fighter, Beijing has mastered just one, Aboulafia said—and that’s the airplane’s physical structure itself, minus the engines.

That’s from defense specialist David Axe, making the case for skepticism. Even so, some military analysts tell him that if/when China figures out how to build the right engine, look out: “Any notion that an F-35 Joint Strike Fighter or F/A-18E/F Super Hornet (flown by the U.S. Navy and Australia) will be capable of competing against this Chengdu design in air combat, let alone penetrate airspace defended by this fighter, would be simply absurd.” Likewise, an LA Times survey of defense experts finds an “emerging consensus” that, at the very least, China has “closed the capabilities gap” enough to pose a threat to U.S. action in the Pacific. The silver lining here, if you can call it that, is that by the time the J-20 is ready to roll out for battle, it might be a minor weapon given the new realities of warfare. See this Danger Room piece from a few days ago about where the real action is: Cyberwarfare and space weapons and sharks with frickin’ laser beams on their heads.

Update: Needless to say, the “leaked” images of the fighter almost certainly weren’t leaked.

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måndag 10 januari 2011

Making Money With Options

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