Today was a day on Wall Street that was well, strange. There was a nice little rally in the NASDAQ as it teetered near even most of the day and ended with a little move up. For the most part the other indexes were lower including the VIX, as there was little good news to really lift things. I think, at this point, the markets are at the end of cheap credit. Negative interest rates for TIPS anyone? That is not the kind of thing markets want to see. There feels like there is some serious confusion as to what money managers will put money into. Does anyone really want to buy an Italian Bond yielding 3.5 after the bond holders are about to take a haircut for Greece? Governments need to start feeling the heat of higher interest rates to change behavior. Borrowing money for free, in the US that is, is not instilling confidence. While I cannot solve this here, I can point to a spot where some money is going.
Look at RIMM, left for dead for sure, as the name basically plummeted from the lofty heights it enjoyed prior to the launch of the iPhone and Android powered smart phones. For now RIMM just bounces around the $16 level as the company looks to regain some footing. Note the skew chart from LiveVol below. The upside calls show a remarkable amount of skew no doubt due to the takeover rumors that keep swirling around the company. The put skew is pretty flat for the 3 strikes close to the money.
Livevol (r) www.livevol.com
Nice upside call skew equal’s cheap call spreads (similar to how the VIX trades). The fact that this skew has not really gone away since mid-December tells me that the takeover rumors are here for a bit longer. Also, RIMM has had a hard time staying below $14 (that might be something to do with the $19.77 book value). Either way, playing dips in the name with call spreads make some sense. On a decent down move short put spreads create a nice way to finance the call spreads. There could be worse places to put your money.
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