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- Unusual Options Activity: Bank of America (BAC)
- Insider Activity: Beacon Roofing Supply (BECN)
- OPEC Nations Extend Production Cuts Through March 2020
- Trade War Truce Sends Stocks Soaring
| Unusual Options Activity: Bank of America (BAC) Posted: 02 Jul 2019 03:00 AM PDT
Traders betting on rally after Fed approves capital plans. Shares of Bank of America (BAC) could move up to 23 percent higher between now and February. That's based on a surge in volume on the February 21st 2020 $36 calls. Over 1,400 contracts traded on Monday, about a 12-fold increase in the existing open interest on the bank. Shares are currently around $29.50, so this out-of-the-money trade needs the big percentage move to lock in a profit by the expiration in February. Last week, the Federal Reserve approved plans from the big banks to allocate more capital to shareholders in the form of dividends and buybacks. So while the options bet seems risky, it may be an astute bet on higher prices, at least in the short-term. Action to take: With the option trading around $0.27, or $27 per contract, traders can make the bet on a higher share price of a 100 share lot for less than the cost of 1 share directly. That's the power of an options trade. With the Fed looking to cut interest rates, however, the upside in bank shares may be limited, making the call option better than owning shares of the bank right now. As long as traders look to a quick profit of 40-50 percent in the next few weeks, they can likely get out before any bad news sinks bank stocks.  |
| Insider Activity: Beacon Roofing Supply (BECN) Posted: 02 Jul 2019 03:00 AM PDT
Major fund holder adds 4.6 million shares. CD&R Investment Associates, already a 10 percent owner, has been adding to its stake in Beacon Roofing Supply (BECN). Typically, when large investment funds increase their stake, it's because they see the same value as other insiders. However, funds can also acquire board seats and otherwise push a company to make changes it might not otherwise—to the benefit of shareholders. On June 28th, the fund bought 4.6 million shares, a $158 million commitment. That increased its total stake to 10.5 million shares, a 78 percent increase over its prior stake. Beacon Roofing Supply manufactures and distributes residential and commercial roofing and other building materials. Action to take: Seasonally, roofing companies tend to do well during the summer hurricane season on the east coast. While the NOAA expects a near-normal amount of hurricane activity this year, the sheer amount of wealth on the Gulf and east coast means that even a minor strike can cause billions in damages. Investors should consider shares under $38.00, where they trade at less than 12 times earnings. Shares have a 52-week range between $25 and $44, with the low coming around the end of hurricane season in November/December (but also near last year's big drop in stocks). Patient investors may get a better price waiting until the end of the year, but a large fund buy could put this company in the buyout crosshairs before then.  |
| OPEC Nations Extend Production Cuts Through March 2020 Posted: 02 Jul 2019 03:00 AM PDT
Production set at current levels to keep prices up. At a group meeting in Vienna over the weekend, members of oil cartel OPEC agreed to extend their current production cuts through March 2020. This is at the long end of the 6-9 month extension in cuts that had been proposed last week. Non-OPEC members will also have to sign off on the deal by Wednesday, but key players Saudi Arabia, and non-member Russia is on board with the cuts. The goal behind production cuts is to ensure that oil prices don't fall too low. Most OPEC member nations are heavily dependent on oil exports, and low prices can adversely impact their economic performance. One country has been suspiciously absent from the meeting: The United States. Thanks to shale drilling, the U.S. led the world in production in 2018, just beating out Saudi Arabia. Action to take: While shale oil is currently helping to meet most U.S. supply, shale oil wells have a short life. Investors should focus on companies with more traditional drilling methods, and those that have a low amount of debt on their balance sheet. That will help ensure a successful investment no matter what oil prices do. Investors should look to add to their energy holdings under $60 per barrel, but should look to take some profits should prices get up to $75.  |
| Trade War Truce Sends Stocks Soaring Posted: 02 Jul 2019 03:00 AM PDT
Stocks rally and gold declines heavily on proposed truce. The Dow and S&P 500 Index hit record all-time highs during early trading on Monday. Stocks were fueled by reports over the weekend meeting between presidents Trump and Xi at the G20 meetings. The two leaders announced a truce in the current trade war, with a more detailed proposal to come in the near future. As a result, most sectors rallied. Technology companies, particularly in the semiconductor space, were some of the best performers on Monday. The big loser of the day was the fear trade, gold. The metal fell about 1.4 percent, dropping under $1,400. 10-year Treasury yields, also a sign of capital flowing out of stocks and into bonds, was little changed just around 2 percent. Cryptocurrencies, after their big volatile moves, were slightly down. While a truce has been declared, how long it will last is anyone's guess. China can wait for a new and more pliable American president. The truce also came with the concession that Huawei will be allowed to do business in the United States. As a concession on the other side, China agreed to massive purchases of U.S. agricultural goods. For the time being, the best certainty is continued uncertainty.  |
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