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Options

Barron's - Picking Winners and Losers in Trade Wars - By Gunjan Banerji


Betting on—or against—trade wars is tougher than it seems.

Talk of escalating conflicts between the world’s biggest economies has jolted investors, sending major stock indexes into tailspins. On Tuesday, U.S. stocks saw steep declines before rebounding the next day.

The mixed reactions indicate just how challenging it is to pick eventual winners and losers of multinational political struggles over tariffs. “Markets are very good at pricing risk, not so good at pricing uncertainty,” says Steve Sosnick, the chief options strategist at Interactive Brokers.

Investors are more skilled at dealing with probabilities—for instance, calculating whether or not portfolios are hedged if a stock loses almost half of its value—than tackling more nebulous signals like saber-rattling, Sosnick says. The winners and losers of trade policies can be random and specific, with the future path of negotiations difficult to quantify.

This could explain why market volatility ebbed lower recently and some stocks and sectors have darted in different directions. For example, this month shares of Canadian companies have rallied, while Chinese stocks have plummeted—but both countries could be hit by U.S. tariffs. And shares of small companies and the tech-heavy Nasdaq Composite have swept to new highs while larger companies haven’t kept up.

Trade proposals can be hyperspecific, which makes it difficult to make a generalized bet covering different groups, Sosnick says. For example, even though not all industrial companies may be hurt by tariffs, an exchange-traded fund tracking industrials has lost 3% of its value this month.

Even small-cap stocks—which have remained insulated from trade fears—could quickly see their fortunes turn if geopolitical tensions intensify, analysts say. Small-company shares are thought to be under less of a threat from a trade war because they generate fewer of their revenues from abroad.

However, because many supply larger U.S. companies, which are exposed, they could be sucked into the trade drama, analysts say. Shares of small companies have run up 10% this year, racing past the S&P 500’s 3% gain. The small-cap Russell 2000 hit a record on Wednesday, though it edged lower along with other major stock indexes on Thursday.

Some believe investors are overestimating the degree to which small-caps will remain protected from trade tensions. “If this all goes bonkers, small-caps don’t provide you any protection,” says Sosnick.

Shares of small-cap companies can be volatile. They rallied after the 2016 election, then faded last year. Investors seeking protection from a selloff in this sector—banking that it may not be as immune to trade tensions as it appears—could tap so-called options put spreads on the iShares Russell 2000 exchange-traded fund (ticker: IWM), says broker Cantor Fitzgerald. The $49 billion ETF—which counts companies like GrubHub (GRUB) and Sarepta Therapeutics(SRPT) among its biggest holdings—is currently trading around $168.

The trade entails buying one put option contract below where the ETF is currently trading, and simultaneously selling one at an even lower price. Investors could do this for the ETF hitting $162 and $150, respectively, Cantor Fitzgerald says. Selling an option with a lower strike price, or the level at which the contracts can be executed, can help finance the entire trade. (A put option gives holders the right to sell a stock at a certain price and time. Each option contract allows investors to exercise 100 shares.)

For example, an investor could buy 100 put option contracts and sell 100 contracts with an expiration date of Aug. 17, betting that the ETF will trade at $162 or lower, roughly 4% below its current price, and sell 100 put option contracts tied to the $150 level. If the fund crosses $162, investors could sell the shares and protect themselves against further downside, until the fund reaches the $150 level. If the fund continues to rally, the entire investment of about $12,200 would be lost.


Gunjan Banerji covers options for The Wall Street Journal.

Get investing analysis that moves stocks and markets—Subscribe to Barron’s for just $1 a week.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


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Stocks

Finimize - Don't Cry For Me, Argentina (And Saudi Arabia)


 

What's going on here?

Stocks of companies in Argentina and Saudi Arabia are set to be added to a major benchmark of emerging markets (EM) stocks by MSCI. The news sent stocks in these markets soaring by as much as 5%.

What does this mean?

Well, it’s a pretty big deal. Passive investments – often made by firms which look after your pension money, or robo advisors – in groups of companies compiled by MSCI and others amount to $14 trillion. This new inclusion, starting next summer, will make it much easier for foreign investment to go into Argentina and Saudi Arabia.

The new inclusions will also mean the EM group of companies (a.k.a. index) is less skewed to potentially volatile sectors like technology (which is big in Asia) – providing likely welcome diversification for those investing in high-growth economies.

Why should I care?

For markets: A potential boon for the biggest ever IPO.

Saudi Arabia has been increasing diversification of its economy in order to boost investment into the country, which offers access to substantial natural resources and potential for high economic growth. Inclusion in the MSCI opens the floodgates to a new wave of potential investors, who may potentially be interested in the biggest IPO ever in 2019.

The bigger picture: Argentina rises from the ashes.

The MSCI inclusion could help to bring Argentina’s recent economic troubles to a close – its stock index has sunk by 37% and the value of its currency has fallen 33% in 2018. The country recently got a $50 billion financing deal from the International Monetary Fund (IMF, the bank for countries) to help stabilize its economy. The MSCI inclusion will see more money coming into the country, helping it to balance the ship.

 

                                                              Thu June 21, 2018 • Image source: Ali Al-Awartany / Shutterstock.com

Finimize is the daily email that everyone in finance secretly reads. It's the perfect 3-minute cheat sheet on what happened in the financial news: it's free and without any jargon or as Forbes puts it “Super digestible and well-written. A+”. All content is created by the Finimize team, formerly @Goldman Sachs, Barclays, etc. Join more than 200,000 daily readers.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This article is from Finimize and is being posted with Finimize 's permission. The views expressed in this article are solely those of the author and/or Finimize and IBKR is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Options

PIMCO - Rapid Fire: Fixed Income, Currencies and Commodities


Andrew Balls, CIO Global Fixed Income, and Joachim Fels, global economic advisor, discuss PIMCO’s view on rates, credit, the U.S. dollar, commodities and emerging markets.

PIMCO is one of the world’s premier fixed investment managers. Since our founding in 1971 in Newport Beach, California, we have grown into a global organization with more than 2,150+ professionals united in a single purpose: creating opportunities for our clients in every environment. Our focus on excellence and our short- and long-term track record has encouraged institutions, financial advisors and millions of individual investors to entrust us with their assets. Visit PIMCO’s blog.

Subscribe To Get PIMCO Insights Delivered Directly to Your Inbox.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. © 2018 PIMCO PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY 10019, is a company of PIMCO.

This video is from PIMCO and is being posted with PIMCO’s permission. The views expressed in this video are solely those of the author and/or PIMCO and IB is not endorsing or recommending any investment or trading discussed in the video. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Futures

Blue Line Futures - Midday Market Minute


The market is rallying after holding key technical support. Will it continue into the weekend? 

Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

Visit our website at www.bluelinefutures.com to open an account and stay up to date with our research.

Bill Baruch is President and founder of Blue Line Futures. Bill has more than a decade of trading experience. Working with clients he focuses on developing trading strategies that present a clear objective for both long and short-term trading approaches. He believes that in order to properly execute a trading strategy, there must be a well-balanced approach to risk and reward.

Prior to Blue Line, Bill was the Chief Market Strategist at iiTRADER which followed running a trade desk at Lind Waldock and MF Global.

Bill is a featured expert on CNBC, Bloomberg and the Wall Street Journal as well as other top tier publications. 

Blue Line Futures is a leading futures and commodities brokerage firm located at the Chicago Board of Trade. We work with clients that range from institutional to professional to novice and from self-directed to broker-assisted. No matter what type of trader you are, our mission is simple; to put the client first. This means bringing YOU strong customer service, consistent and reliable research and state of the art technology. 

This video is from Blue Line Futures and is being posted with Blue Line Futures’ permission. The views expressed in this video are solely those of the author and/or Blue Line Futures and IB is not endorsing or recommending any investment or trading discussed in the video. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


18676




Options

Option Matters - Taking Advantage of a Bull Triangle


As the following graph shows, the price of shares in Colliers International Group (CIGI) has clearly been on a bullish trend since the stock bottomed out at $58.51 on September 19, 2017. We can see that the 200-day moving average (in red) provided support when the price fell in February 2018, and that, throughout the series, the 50-day moving average (in blue) appears to act as a support level. In addition, the RSI (5) (the Relative Strength Index over 5 trading sessions) is on the rise. At the same time, the stochastic oscillator clearly has upward momentum, staying above 75 since February 2018. At this point in time, we have reached a major inflection point, with prices very close to their 50-day moving average while a bull triangle formation takes shape. The bull triangle is a technical formation representing a short pause in a prevailing trend. In this case, we expect prices to break out on the upside and head toward a target price of $105, if we apply the width of the triangle at its narrowest end.

Daily Chart for CIGI ($95.29, Friday, June 15, 2018)

An investor interested in profiting from this scenario could buy call options expiring on October 19, 2018, choosing the strike that would yield the best return if the price reaches $105.00 on expiration.

 

We will choose from among the following calls:

  • CIGI 181019 C 92 at $7.05
  • CIGI 181019 C 94 at $5.90
  • CIGI 181019 C 96 at $4.95
  • CIGI 181019 C 98 at $3.95

 

Position

Comparative table of call options

As the above table shows, given these four call options, it is CIGI 181019 C 94 at $5.90 that has the optimal combination of risk and return, offering a potential return of 86.44% if CIGI reaches the target price of $105.00 on October 19, 2018. We will therefore carry out the following transaction:

 

  • Purchase of 10 call options, CIGI 181019 C 94, at $5.90
    • Debit of $5,900

 

Profit and loss profile

Target price on the call options, CIGI 181019 C 94 = $11.00 ($105.00 – $94.00)

Potential profit = $5.10 per share ($11.00 – $5.90), for a total of $5,100

Potential loss = $5.90 per share (premium paid), or $5,900

 

Intervention

Even though the target price for CIGI is $105.00, our potential profit is tied to the $11.00 target price on the call options. Therefore, as soon as the price of the calls reaches $11.00, we will liquidate the position, even if CIGI has not yet reached the target price of $105.00.

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This article is from Bourse de Montréal Inc. and is being posted with its permission. Opinions expressed in this document do not necessarily represent the views of Bourse de Montréal Inc.

This document is made available for general information purposes only. The information provided in this document, including financial and economic data, quotes and any analysis or interpretation thereof, is provided solely for information purposes and shall not be construed in any jurisdiction as providing any advice or recommendation with respect to the purchase or sale of any derivative instrument, underlying security or any other financial instrument or as providing legal, accounting, tax, financial or investment advice. Bourse de Montréal Inc. recommends that you consult your own advisors in accordance with your needs before making decision to take into account your particular investment objectives, financial situation and individual needs.

Although care has been taken in the preparation of this document, Bourse de Montréal Inc. and/or its affiliates do not guarantee the accuracy or completeness of the information contained in this document and reserve the right to amend or review, at any time and without prior notice, the content of this document.

Neither Bourse de Montréal Inc. nor any of its affiliates, directors, officers, employees or agents shall be liable for any damages, losses or costs incurred as a result of any errors or omissions in this document or of the use of or reliance upon any information appearing in this document.

This article is from The Montreal Exchange and is being posted with The Montreal Exchange's permission. The views expressed in this article are solely those of the author and/or The Montreal Exchange and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Disclosures

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The material (including articles and commentary) provided on IB Traders' Insight is offered for informational purposes only. The posted material is NOT a recommendation by Interactive Brokers (IB) that you or your clients should contract for the services of or invest with any of the independent advisors or hedge funds or others who may post on IB Traders' Insight or invest with any advisors or hedge funds. The advisors, hedge funds and other analysts who may post on IB Traders' Insight are independent of IB and IB does not make any representations or warranties concerning the past or future performance of these advisors, hedge funds and others or the accuracy of the information they provide. Interactive Brokers does not conduct a "suitability review" to make sure the trading of any advisor or hedge fund or other party is suitable for you.

Securities or other financial instruments mentioned in the material posted are not suitable for all investors. The material posted does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before making any investment or trade, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice. Past performance is no guarantee of future results.

Any information provided by third parties has been obtained from sources believed to be reliable and accurate; however, IB does not warrant its accuracy and assumes no responsibility for any errors or omissions.

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