Protecting your Downside in Greece

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
You have two positions in European banks, Bank of Ireland (IRE) and National Bank of Greece (NBG). I always have noted that these positions are best treated as “options without expiration.” If Europe gets its act together, these positions have the potential to be big winners.
 
As it stands today, of the two banks, I think that Ireland is the better bet. The Irish economy is now the second-fastest growing economy in Europe. The Bank of Ireland (IRE) has attracted serious private equity investment. And the Irish economy is steadily re-establishing itself as the most attractive market for foreign investment in Europe. The Irish aren’t out of the woods yet. But they are on their way.
 
Although I think National Bank of Greece (NBG) itself is a viable institution, I am less certain of Greece as a country. With the crisis spreading to Italy, the banking crisis has been taken to a new level. And with the prospect of Greece leaving the euro now openly discussed by German and French leaders, the downside for Greek banks has grown.
 
Instead of closing your position,  I am recommending that you hedge your position in National Bank of Greece (NBG) with options — specifically, buying put options which go up in value, even as the share price goes down. Put another way, "bad news" out of Greece will be "good news" for this position.
 
So this week, I am recommending that you buy the National Bank of Greece (NBG) May 2012 $0.50 put options (NBG120519P00000500). 
 
Here are a couple of important words about position sizing.
 
Each single option contract is worth 100 shares. So if you buy the NBG May 2012 put options at $0.15, it will actually cost you 100x that amount, $15.00.
And you want to buy 1 contract for each 100 shares of NBG that you own. So if you hold 1,000 shares of National Bank of Greece (NBG), you will want to buy 10 option contracts to hedge your position of 1,000 shares completely.
 

Portfolio Update

Alexion Pharmaceuticals (ALXN) dipped 2.71% last week. Goldman Sachs recently placed Alexion on its “America’s Buy” list. According to the report, Alexion’s upcoming drug Soliris is showing extremely positive test results and Goldman sees it as a potential $100 million-plus opportunity. ALXN spent the past three trading sessions hovering just below its 50-day moving average and is currently a HOLD.
 
Bank of Ireland (IRE) fell 8.58%. IRE is the only lender in Ireland to secure funding from a private sector source, and escape nationalization. IRE officials released an “interim management statement” on Friday and reported that they are seeing “stabilization” at their bank. IRE is currently a HOLD.
 
National Bank of Greece SA (NBG) gained 3.64% over the past five trading days. Positive political news out of Greece helped NBG end the week on an upswing. The Greek prime minister agreed to step down on Monday, and Thursday saw the naming of a new prime minister. This restored investor confidence and hopes for the future of Greece’s banks brightened. We’ll see if it lasts. NBG remains a HOLD.
 
Spreadtrum Communications, Inc. (SPRD) advanced another 3.38% last week. SPRD announced earnings on Nov. 9 and reported earnings-per-share of $0.83 vs. a $0.67 estimate. Also beating estimates, revenues came in at $184.8 million versus the estimate of $178.45 million. This positive news drove SPRD’s stock price back up to just a few cents shy of its all-time high on Friday. SPRD is a BUY.
 
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) lost 2.09%. COW retested its 50-day moving average last week, stopping just below it. The United Nations (UN) projects demand for livestock products to grow globally and add further pressure to an already over-burdened supply chain. The UN also expects developing countries to be the largest growth component, with demand overtaking that of developed countries. The future demand for livestock is very robust and COW should continue to rise. Now above its 50-day and 200-day moving averages, COW is a BUY.
 
Companhia de Bebidas Das Americas (ABV) rose 1.77% last week. AmBev released a positive earnings report on Wednesday and stated net sales grew 10.6% due mainly to price increases. New revenue growth hit 7.5%; earnings growth (EBITDA) reached 13.5% and margins expanded to 46.3%. As it holds the bulk of the market share in the region, ABV is nearly unchallenged in its ability to expand. ABV bounced off of its 50-day moving average, due to its positive earnings report, and is a BUY.
 
Cellcom Israel Ltd. (CEL) remained nearly flat, giving back 0.47% last week. CEL has been recovering nicely after hitting its 52-week low and getting a new CEO last month. Its whopping $12.86 dividend has been a big help, as well. Traders spent the week pushing the stock up and down as they position for CEL’s Tuesday earnings report. This report will give some much-needed clarity on the future of this stock. Based upon its recent hard times, even a moderate earnings beat may spell big upside for CEL’s stock price. CEL is just above its 50-day moving average and is a BUY.
 
ProShares Ultra S&P500 (SSO) gained 1.75% as markets ended the week in the black. SSO tracks the S&P 500 Index (SPX), moving at roughly 2x its daily gain/loss. This subjects SSO to the same relative support and resistance that the S&P 500 encounters. Buy this position, when SPX trades down off of its 200-day moving average, as this juncture is the tipping point traders are currently watching closely. SSO is a BUY.
 

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For the week, the S&P 500 dropped 2.5%, snapping a four-week winning streak. The Dow pulled back 2%, after five straight up weeks. The Nasdaq shed 1.9%.
 
Your position in Spreadtrum Communications, Inc. (SPRD) bucked the trend, gaining another 7.30%, and is now up a whopping 38.09% since you entered it. Your position in livestock through the iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) rose 2.67%.
 

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