Enforcer Tuesday

From black Friday to cyber Monday to enforcer Tuesday, today’s news moves from the shopping mall to the regulatory milieu.

First, SAC Capital Advisors LP fund manager Mathew Martoma was released on $5 million bail on Monday after making his first appearance in a New York court on charges of making illegal trades that hedge fund titan Steven A. Cohen personally signed off on. Martoma was charged last week in what U.S. prosecutors called "the most lucrative" insider-trading scheme ever.

He was accused of helping Cohen's firm avoid losses and reap profits totaling $276 million in the summer of 2008 by using insider tips he obtained from a doctor about Elan Corp and Wyeth LLC. Martoma worked for CR Intrinsic, a unit of Cohen's SAC Capital.

Let’s see if Martoma actually does time. It certainly hasn’t been the case, but there may be an improvement in that arena as we also learned that Mary Schapiro will step down as chairman of the Securities and Exchange Commission next month after her tumultuous tenure. Schapiro’s critics, and yes I fall into that camp, claim that she failed to act aggressively to charge the fraud Street banksters for their role in the financial crisis of 2008.

For example, in 2010, Goldman agreed to pay $550 million to settle civil fraud charges that it misled investors about mortgage securities before the housing market collapsed in 2007. That is all of about two weeks of earnings at Goldman and no senior executives were singled out. Plus, Goldman was allowed to settle the charges without admitting or denying any wrongdoing, as were other large banks that faced similar charges.

President Obama named Elisse Walter as her replacement. We will see if she is anything more than a wrist slapper, but let’s not hold our breath.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.

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Volatility Commentary

GMCR Calendar Butterfly

Today in class, we analyzed a calendar butterfly call spread in GMCR. What is a calendar butterfly? A butterfly spread involves 3 strikes equal distance apart--either selling the outer strikes and buying the middle strike on a 1x2x1 ratio or the flipside, buying the outer strikes and selling the middle strikes on a 1x2x1 ratio. Butterfly spreads are conservative spreads by design.

However, we analyzed selling the middle strikes in December options while buying the outer strikes in January options. GMCR has an earnings announcement on 11/27 after market close and the December options are viewed as considerably expensive (high implied volatility) relative to January options.

Buying the Jan 24/Dec 28/Jan 32 call calendar butterfly for debit of 1.45 allows the spread to show an expected profit after earnings announcement with stock price between 22.75 & 34.30, a huge price cushion with limited risk, even with GMCR stock price expected to move considerably in either direction after earnings announcement. GMCR stock price closed today at 28.61.

Currency Spotlight

Next summer, Mark Carney, the head of the Bank of Canada, will take his talents to the U.K. and become the next governor of the Bank of England. The news initially helped the pound jump 50 pips against the U.S. dollar.

Canada is losing an important leader that helped implement the regulatory changes that made Canada’s financial system the envy of rest of the world. Mr. Carney’s success started at Goldman Sachs, continued at the Bank of Canada and will be tested for 5 years staring on July 1st.

With regulation changes approaching U.K. financial companies, Mr. Carney’s track record should prove helpful in leading a new committing replacing the FSA and addressing the risks across insurers, investment banks and clearing houses.

A strong central bank head may be supportive to that county’s currency. In the short-term, this does not shift most economists' bias to having a stronger pound over the loonie, but it does provide support for England being in a better position over the next few years in pushing through reform. Successfully implementing reform should help bolster the U.K. economy and its currency.

Watch List

On this first Monday after the holiday, we saw a lighter amount of volume in the markets then the previous week. The S&P 500 closed negative for the first time in 6 trading sessions. It looks to be a shift in the recent short term down trend and based off the technical signals, it can be setting up a nice run to the long side and to possibly end the year at new 2012 highs.

The Composite(NASDAQ) closed positive while the other 2 markets closed down, and the biggest reason is Apple(AAPL). These wide ranging days for AAPL is starting to be more and more common. Once it rebounded off the 505.00 number it has steadily climbed to 590.00 where it just brushed at one point today. I am looking at a state of recovery now that it closed above the 575.00 water mark. It could be primed for a strong push to 625.00 and if it breaks that price point, look at 650.00+ to be almost a sure thing.

Some may wonder why I speak so much about this particular stock. Really the answer is simple. It IS the Nasdaq!! AAPL is the driving force behind the market and can solely be responsible for the Composite being up or down any given day based off of what AAPL is doing. Hence the new name for the market should be "NASDAPPLE".

Focus was on retail stocks today in the market. While stocks like Target(TGT) and Walmart(WMT) took a slight hit, Ebay(EBAY) and Amazon(AMZN) made moves to the upside today. Pretty easy to see on a day like "Cyber Monday" where the traffic to these websites almost double, if not triple on this day, as people scramble to get the hot deals advertised by the 100+ emails that must have hit your inbox starting at 4am cst. It will be interesting to see if these are short term plays, or if these stocks can maintain the momentum for the holiday season. I am still Bullish on EBAY and bearish on AMZN, and only time will tell if I am right. Let's shake off the access weight we have all put on since last Thursday, and take advantage of the short term plays that are showcasing themselves this week. Open Position: IBM Stocks to Watch: IBM AMZN AAPL NFLX FB BAC C GMCR FSLR RIMM

Futures Data

Value Areas:

ES 1402.00 / 1397.50

POC… 1400.25

YM 12923 / 12881
NQ 2646.25 / 2629.75

Notes from the Pit

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