Forex Investment

Ahead of the week’s most closely watched economic report, traders did a fair job of trimming and maybe adding in some cases, to existing positions in very orderly fashion. One place, though, which the outcome is already being decided and likely due for some hard-hitting T’RIMMing of premiums is IBD 100 heavyweight Research In Motion (). In the following two-part piece, I’d like to delve into the world of earnings plays and options pricing and illustrate the process with RIMM and a side-by-side comparison of sorts.

This evening and on the heels of strong fiscal Q2 results, shares of RIMM have been volatile by many investors’ standards. With a closing price just above 100 and the stock up roughly 4 points on the session, the report sent RIMM plunging initially by more than 7 points. However, that apparent momentary lapse of good judgment was quickly reversed into the plus column with current activity near its official 4:00 PM ET closing price. With that said, while “sell the news” artists, bargain-hunters, bulls and regular bears go at it in a tug-o-war in the after-hours session, one near-certainty at the opening bell will be RIMM’s option premiums doing one of those phantom gaps, otherwise known as the “vol crush.”

Leading into this evenings close, premiums as seems to be always the case with RIMM, have soared. For instance, over the last five trading days the implieds have increased from roughly 72% for the ATM front month to this evening’s roughly 92% IV reading. At the same time, one month out, the November ATM premium has gone from 59% to about 70%. While both months went up handily, which would have done better for traders? I’m glad you asked, as it’s the type of opportunity which many seasoned options strategists look for when making earnings-related plays.

For those unfamiliar with the Greeks or the components which make up the pricing of an option, doing a simple math comparison, like the numbers shown above for RIMM, could very well result in the wrong answer. Somewhat unfortunate, but not really, option traders can’t just blindly perform a side by side comparison of which set of implieds went up the most or take the larger implied volatility reading and come up with the correct answer. Of course, sometimes that will lead to the correct choice. Quite often though, the trader would be both wrong and uninformed as to why they lost or made money in the options market.

The reason for this puzzle is that it’s necessary, at a minimum, to evaluate the Vega (volatility risk) and Theta (time decay) factors in order to find a much more informed answer. The Greek Delta is also very important. However, its impact on the price of the options over the said period will be related to how the stock moves during that time. In the case of RIMM, we have a very good illustration of prices staying mostly unchanged (closing basis), so it offers the opportunity for us to focus almost exclusively on the two fore-mentioned Greek factors. With that said, tomorrow evening I’d like to move into the actual nitty gritty specifics by illustrating the “How’d that happen” reality with a five-day Straddle comparison. The report will use the fore-mentioned optionable months and the ATM Straddles to find our answer and maybe; a fresh way for some traders to make an earnings play down the road

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Updated from 2:51 p.m. EST

Colder weather in the U.S. helped oil prices rebound from an early decline and close higher Wednesday — a rare reprieve from the downturn of recent weeks.

Near-dated contracts for light, sweet crude ended up $1.03 at $52.24 a barrel on the Nymex.

Meanwhile, other products in the energy complex were mixed. Natural gas futures were off 41 cents at $6.23 per million British thermal units. Gasoline was up a penny at $1.38 a gallon, and heating oil tacked on 2 cents at $1.50 a gallon.

Bullish sentiment from veteran investor T. Boone Pickens also aided oil in putting the brakes on its slump. Pickens was quoted in The Wall Street Journal as repeating his forecast for an average price of $70 a barrel in 2007.

Crude finished 2006 at $61.05. Since then, it has fallen 14% as unusually warm temperatures settled over much of the country. This week that’s changing, but not everyone is convinced the more seasonable weather of the past few days will have much of a sustained buoying effect.

“From a heating standpoint, the current cold snap won’t be that helpful unless we have a really brutal winter,” says Evan Smith, co-manager of San Antonio-based U.S. Global Investors Global Resources Fund. Smith points to relatively high inventory levels as a bearish factor. He sees oil prices remaining in the $50 to $60 a barrel range in the first half before trending up toward $65 later in the year.

In terms of long-term stock picks, he likes Canada’s Suncor Energy (SU) because of low political risk and its location next door to the U.S. market. An added bonus is that the company has oil sands interests, he says.

From a technical analysis viewpoint, one chart watcher sees another price dip as a possibility.

“The daily and weekly charts show a steady downtrend,” says Deron Wagner, founder of Cooper City, Fla.-based Morpheus Capital. Using Fibonacci retracement analysis, a form of chart interpretation, he can see support kicking in between $45 and $50 a barrel.

Turning to the energy patch, Friedman Billings Ramsey upped its rating on Tesoro Petroleum (TSO) to outperform from market-perform and increased its stock price target to $83 a share from $74. The stock was recently trading up 3.2% at around $71.

Elsewhere, Lehman Brothers trimmed its price target on coal producer Peabody Energy (BTU) to $55 a share from $65. The stock was moving down 0.1% at about $39.

Bear Stearns initiated coverage in Aegean Marine Petrol (ANW) with an outperform rating and a target price of $22 a share. The shares were rallying 1.9% at $15.82.

The U.S. Oil (USO) ETF was gaining 1.8% in recent action.

Strikes at parts suppliers are forcing General Motors and Chrysler to put the brakes on production at two Canadian assembly plants.

General Motors’ Oshawa, Ont. truck plant will temporarily shut down because a strike at a supplier is causing a parts shortage.

The Oshawa plant, along withGM pickup truck plants in Flint, Mich., and Fort Wayne, Ind., are slated to halt production following the end of the second shift on Friday night, a GM spokesperson said Friday.

A GM plant in the Detroit suburb of Pontiac shut down Thursday.

All four of the idled GM plantsproduce the Chevrolet Silverado and the GMC Sierra.

The parts shortage is due to a strike at American Axle and Manufacturing Holdings Inc. The New York Times reported that GM is American Axle’s biggest customer, accounting for 80 per cent of its business.

In Windsor, Ont., a Chrysler plant is already shut down due to a strike at one of its suppliers.

Chrysler’s minivan plant shut down after about 175 workers at TRW Automotive, represented by the Canadian Auto Workers, walked off the job Thursday afternoon.

TRW makes suspension frames for Chrysler. Within three hours of the start of the strike, Chrysler stopped production at its minivan plant.

Wages are at the centre of the TRW contract dispute.

Toy stocks have rolled up gains year to date, the industry popping up 7% even as the indexes corrected.

Analysts are split on where toys go from here. Some fear inventories have built up at the retail level. If so, that could hurt first-quarter sales and margins.

Others say toy stocks are poised for growth, particularly as the market looks ahead to 2009.

Income investors don’t really have a dog in this fight.

It’s enough to know that the group has some long-term players with solid fundamentals.

Besides, an answer will come soon enough: The two biggest players will report Q1 results Monday.

Hasbro () sports a Composite Rating of 98, indicating it is stronger than all but 2% of the market.

Its EPS Stability Rating is 10, a respectable mark on a gauge that runs from 1 (the most stable) to 99 (the most erratic).

While analysts expect a 1% dip in earnings this year, they see a 9% gain in 2009.

Pretax margin was 13% in 2007, the best in at least nine years.

Hasbro’s dividend yield is 2.6%, which represents about 40% of projected 2008 earnings.

The midcap company holds strong brands, including Play-Doh, Transformers and Monopoly.

Mattel () carries an EPS Stability Rating of 7.

The three-year earnings growth rate is 10%, and the Street expects 16% this year.

The dividend yield is 3.6%, about 45% of projected 2008 earnings.

Pretax margin was 11.8% in ‘07. In eight previous years, four had higher margins (up to as much as 15.5%) and four had lower margins (as low as 8.7%).

Mattel has licenses and brands with legs, including Hot Wheels, American Girl, Barbie, High School Musical and Dora the Explorer.

Recalls of some toys over safety concerns bumped up its costs.

A who’s who of powerful companies and business associations have banded together to push for less restrictive copyright reform, driving a stake into the heart ofthe federal government’s argument forits new copyright bill.

The Business Coalition for Balanced Copyright, a group that includes Google, Yahoo, Rogers, Telus, the Canadian Alliance of Broadcastersand the Retail Council of Canada, among others, on Tuesday sent its stance on seven key copyright principles to Industry Minister Jim Prentice, Canadian Heritage Minister Jose Verner and several other cabinet ministers. Industry Minister Jim Prentice has come under fire for his lack of consultation on copyright reform.
(CBC)

According to the document obtained by CBCNews.ca, the coalition wants any new copyright legislation to include measures thatenshrine the rights of consumersto use in different ways the copyrighted material they buy, as well as companies in their daily business practices.

The group also said internet service providers should not be held liable for copyright violations that occur on their networks, and that Canada should put into place measures that prevent the highly punitive lawsuits seen in the United States.

“We’re looking for a balanced approach between the rights of the users and the rights of the copyright holders,” said Pam Dinsmore, vice-president of regulatory affairs for Rogers.”Our concern would be that the government would err too much on the side of the copyright holders.”

Google’s Canada policy counsel Jacob Glick said harsh copyright rules would limit innovation on the internet by preventing users from engaging in acts such as parody, or making the mash-up videos that have become popular on its YouTube website.

“Canada’s current approach to fair dealing ossifies the tiny and exhaustive list of exceptions to copyright and as such stifles cultural and technological innovation,” Glick wrote on Google’s public policy blog. “Flexible exceptions and limitations, which encourage creativity and innovation, are integral to balanced copyright law.”

The coalition joins a long list of individuals and concerned partiesopposed to the proposed legislation, including teachers, librarians, musicians, privacy commissioner Jennifer Stoddart, and more than 40,000 members of a Facebook group devoted to the issue.

The proposed bill has not been made public yet, butPrentice’s silence on its contents and a lack of public consultation have led many to believe the new law will mirror the Digital Millennium Copyright Act passed in the United States in 1998. Critics say the U.S. rules have been overly restrictive, haven’t curbed copyright violations and have spawned a wave of excessive lawsuits, such as the one in which aMinnesota woman was ordered to pay $222,000 U.S. last year for sharing music online.

Prentice was to introduce the bill in December but shelved it after the public voiced its opposition. Hepromised to revisit it early this year.

Critics on Wednesday said the coalition’s stanceundermines oneof Prentice’s keyargumentsin favour ofthe bill that the business community has been demanding reforms.

“Those claims have now been completely undermined,” wrote University of Ottawa internet law professor Michael Geist on his blog. “With such an impressive list of backers, the Industry Minister must now surely recognize that his proposed bill is opposed by the very industries that he has promised to support.”

The coalition wants the following in any new copyright legislation:

- Expanded “fair dealing” provisions for users, which give a “large and liberal” interpretation of how consumers can use the copyrighted material they buy. The Copyright Act needs to be amended to accommodate long-standing and accepted uses, such as the copying of a song from one format to another for example, from a CD to a computer or the recording of a television program for later viewing, they say.A number of Canada’s major trading partners already allow such uses.
- A clause that prevents copyright owners from going after people or companies who circumvent for non-commercial reasons the technological protection measures placed on content. A record label, for example, should not be able to sue a consumer whogetsaroundcopy-protection measures in order to transfer a song to an iPod.
- No surcharges on downloadable content. Copyright owners have been pushing for downloads to be considered as “communications to the public,” and say they should therefore be subject to an additional fee. The coalition believes such a charge would unfairly double the delivery cost of online music, films, games and other software.
- A scrapping of the surcharge on recordable media, including CDs and MP3 players. The surcharge was originally introduced to compensate artists for revenue they were losing through illegal downloads, which were ending up on the recordable media. But with the proliferation of legal online stores, artists are being compensated for many downloads. The government should therefore consider getting rid of the tax or scaling it back, the coalition says.
- An exemption for violating copyright as part of legitimate business practices, such as when a broadcaster copies a show for its archives.
- No liability for internet service providers for the actions of their users.
- A limit on the damages that can be awardedto copyright holders in lawsuits against those infringing on their copyrights.

Prentice has also been criticized for listening to lobby groups, particularly in the United States, who want Canada toback upthe World Intellectual Property Organization treaty it signed in 1996 with strong laws. The U.S.-based International Intellectual Property Alliance this weekasked U.S. Trade Representative Susan Schwab to put Canada on its priority watch list, alongside Russia and China, becausethey say Canada is a top violator of U.S. copyrights.

The partiesthat make up the coalition, whichdoeswant to seecopyrightreform but withfewer restrictions first began talkingin December,whenthey realizedthey weren’tgoing to beconsulted, they said.

“With the lack of consultations, [we decided] we should come together and build a common position,” said Kim Furlong, vice-president of government relations for the Retail Council of Canada. “The ministers will now have something to look back on to see this is where the business community stands.”

Furlong said the coalition signatories which also include the Canadian Association of Internet Providers, a division of CATAlliance, the Canadian Cable Systems Alliance, the Canadian Wireless and Telecommunications Association, the Computer and Communications Industry Association, Third Brigade, Tucows, Cogeco Cable, EastLink, MTS Allstream and SaskTel hold the seven principles in varying levels of priority. The issues of fair dealing and media copying are of particular concern to the Retail Council, she said.

Telecommunications providerssuch as Rogers, on the other hand, are more concerned about being held liable for what their customers use the internet for, or for how services such as music downloads on cellphones are taxed, Rogers’Dinsmore said.

A spokesperson for Prentice could not be immediately reached for comment.

Furlong said it is unlikely the proposed legislation will be introduced in Parliament before the federal budget is tabled on Feb. 26. The Conservatives wouldn’t want the bill to die on the order paper, which could happen if the budget forces an election, and are therefore likely to hold off until afterward, she said.

“That would be wise,” she said.