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EXPERT SPOTLIGHT
Chris Borgmeyer
Director of Live Analysis
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Chris is responsible for all market coverage
on Briefing.com’s popular Live In Play page, and oversees the options market coverage on the Special Reports page.
He joined Briefing.com in 2005 after working on the floor of the
Chicago Board Options Exchange (CBOE) where he was an equity options
Market Maker for an independent trading firm.
Chris received a degree in Finance from the University of Nebraska,
an MBA from the University of Chicago Booth School of Business, and is
a CFA Charterholder.
Get the inside scoop on Chris Borgmeyer. This expert spotlight features:
• Q&A
• Analysis
• Maximize Your Service For Earnings Season
• Chris Borgmeyer Featured in CFA Magazine |
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Q & A
Q:
As Briefing.com’s Director of Live Analysis, what trends or themes
are you currently seeing in today’s market environment?
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A:
A few key trends/themes in the current market are the recent
reduction in volatility and an attractive relative valuation
for equities, which is reflective of the elevated risks
investors are facing.
Following the period of extremely high volatility we
experienced in the latter half of 2011, the new year has
started with a much rosier tone. With the S&P up more than
4% in the first three weeks of 2012, it has been the
strongest start to a new year in over 20 years.
Additionally, the VIX volatility index has moved back into
“normal” territory, indicating that the elevated fears of
last year are subsiding. This decline in volatility has
alleviated some of the pressure on stock prices as investors
take advantage of attractive equity valuations in light of a
reduction in risk perceptions.
Although stocks have moved higher since last fall, the
relative valuation argument remains strong for U.S.
equities. The S&P 500 earnings yield of roughly 8% is very
attractive when compared to a roughly 2% yield on 10-year
treasuries. Additionally, U.S. corporate balance sheets are
strong with record levels of cash. While these factors argue
for an investment in equities, the attractive valuations are
still a reflection of the continued uncertainty in the
market.
The concerns about sluggish economic conditions around the
world remain, although U.S. data continues to paint a
picture of relative strength versus the rest of the world.
An improvement in economic data has also helped ease some of
the anxiety about the impact of ongoing problems in Europe
and the expectation for a recession there.
While the European situation is the biggest potential risk
for 2012, it is a known variable the market has been dealing
with for quite some time now. The current situation is
factored in to market values. Other variables that are
likely to play a part in market valuations and volatility
include the trajectory of China’s economy, the political
dynamics ahead of the 2012 U.S. presidential election, and
geopolitical issues that crop up around the world (North
Korea, Iran seem like potential areas of concern).
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Q: One
of the most frequently asked questions you get from our readers
is “what names do your analysts like?” How do you respond to this?
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A:
Right now that’s a tough question to answer.
As the market has dropped and volatility expanded, the potential
returns on equities have risen, making equities more attractive
relative to other assets for a long-term investor.
I can’t predict where we’ll go tomorrow, but I try to take the
market conditions and look at the strategies that have become
more attractive from various angles.
For example, with the recent increase in volatility, options
prices have risen, so I looked for conservative way to take
advantage of this via covered calls. Rather than just screening
for attractive covered calls, I screen for stocks with healthy,
growing dividends that were also good covered call candidates.
This allows investors to generate a healthy yield in a blue-chip
stock, while enhancing that yield with the sale of calls against
the long stock. These reports can be found on our Special Reports
section of our Briefing InPlay Plus offering, in the Trading
Ideas/Fundamental section.
See our October Covered Calls Report here.
Additionally, the market as a whole has gotten more attractive
from a long-term perspective, as valuations declined to historically
cheaper levels. However, for those with concerns about a near-term
volatility or return to the summer/fall lows, I like to point
out portfolio hedges that can ease one’s anxiety amid the near-term
volatility. I pointed out two such hedges prior to the messy
debt negotiations of the summer, specifically pointing out SPY
Puts and GLD calls – both worked out quite well as hedges against
the broad market declines.
See that report here and
the follow-up here.
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Q: You
are mainly known for your live analysis found on the Live In Play
page, but you also provide in-depth analysis. What type of in-depth
analysis do you cover and where can our readers find it?
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A:
On the Live In Play page, I produce a good
portion of our Floor Talk (TALKX) comments, which analyze market
fluctuations in real-time and discuss the biggest issues impacting
the market each day. I also post many of our TOPNX comments,
which alert our subscribers to major market events/news that
they could have a significant impact on the major averages.
Users can set up alerts to get these emailed to them or have
audio alerts generated so they don’t miss them.
Since earnings season has begun, I’ve resumed daily scans for options activity
ahead of earnings announcements. Although this activity isn’t
by any means a crystal ball into what will happen, it can show
interesting shifts in the options market that might not be apparent
in the activity of the underlying stock. Additionally, and just
as importantly, we use the implied volatility levels to illustrate
expectations for the magnitude of move around the earnings announcements.
These reports are also found on our Special Reports page.
Additionally, as mentioned above, I contribute to our Special Reports offering
which is focused on options trading activity and strategies.
Those reports can be found on our Special Reports section of
our Briefing InPlay Plus offering, in the Trading Ideas/Fundamental
section. Also, I contribute to various other premium reports
on occasion, such as Emerging Growth (GROWX), which is managed
by Jim Busch and is an extremely popular focus list of the leading
small- and mid-cap stocks in the market. Emerging Growth Stocks
is also part of our Briefing InPlay Plus offering, in the Trading
Ideas/Fundamental section. Finally, I contribute to other topical
reports such as the Best Ideas Focus List (FOCUS), which is
also part of our Briefing InPlay Plus offering, in the Trading
Ideas/Fundamental section.
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Covered Call and Put-Sale Strategies
In a down or flat market, it can be tough to invest or trade. One way to
raise cash in a slow market, without selling positions, is to sell covered
calls. If you are right about the overall market trend and the trend of your
particular stocks, you can generate a modest return while waiting for
overall conditions to recover.
The tactic is particularly useful when you already have a position in a
stock you intend to hold for some time (at least longer than you expect the
market down trend to be). Selling covered calls can take the sting out of
the paper losses you must endure while continuing to hold the stock.
The upside of a covered call tactic is immediate cash in your account. The
downside is that it ties up your position (until you close the call
position) and a possible assignment of your option, which means you must
deliver the stock.
However, if you feel that the market truly is headed down for a while, and
you are right, selling covered calls can put cash into your account
immediately (subject to clearing) without ever having to deliver the stock
to the person who buys the call option.
Meanwhile, you can continue to hold your stock position until the market
recovers.
Over the past year Director of Live Analysis, Chris Borgmeyer, has been
providing attractive covered call strategies on several stocks that already
have a healthy and safe dividend yield on their own.
He says that while volatility has pulled back from the June highs, it is
still elevated from the March lows, now around the mid-point of the 2012
range. Macro headline risk remains high as well, and while the short call
will provide some offset to a downside move in the stock, it will not
protect well against a substantial move lower.
These strategies will perform best in a choppy/sideways market, or in a
market that moves higher slowly. While volatility is likely to remain
elevated through the summer, the sale of calls can represent an attractive,
low-risk yield strategy to enhance returns on core positions.
Chris' reports below highlight several attractive covered call candidates
for the July and August expiration cycles, all which provide an attractive
call yield on top of an already strong dividend.
Additionally, the Summer Options Strategies report provides attractive
put-sale candidates, which also represent an income-generating strategy that
benefits from a choppy market.
Read Chris'
report for Laying out Covered Call and Put-Sale Ideas here.
Read Chris'
report for Enhancing Yield With Covered Calls here. |
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Maximize Your Service For Earnings Season
Chris Borgmeyer demonstrates how to maximize your
Briefing.com service for earnings season.
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Watch this short, step-by-step tutorial to:
- Learn about helpful tools to simplify your earnings season process
- Gain insight on identifying unique earnings investment ideas
Click here
to watch the full-size video in a separate browser window.
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Chris Borgmeyer Featured in CFA Magazine
Chris is featured in CFA Magazine's Point/Counterpoint column and makes his case for why, despite short-term upheaval, developments in the global investment industry and financial markets will not lead to more and better career opportunities for investment professionals in the intermediate and long-term.
Read the
full article now.
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