Replacing stocks that you own with call options on the same names is the strategy from the derivative analysts at UBS. Investors are literally given a limited risk/ unlimited reward solution. Now it is important to note that this is a strategy for experienced investors as options have the potential to expire worthless. However, they would only be worthless if the stock you sold at a profit goes down.

Twice in the last two years investors have experienced sharp market sell offs when political lines are drawn in the sand. There is a chance that can happen again soon given the time deadlines. With low current volatility in the market, options prices are cheap. The UBS team searched their Key Call list for stocks with low implied volatility. They in turn recommended stock replacement trades on four top names.

Ross Stores Inc. (NASDAQ: ROST). The Wall Street consensus price target for this popular retailer is $67.50

Tesoro Corp. (NYSE: TSO). In the red hot refining sector the Thomson/First call estimate is $53.50

Time Warner Inc. (NYSE: TWX). The consensus Wall Street estimate for this premiere media and entertainment company is $56.50

U.S. Bancorp (NYSE: USB). The Thomson/First call estimate on this leading financial services firm is $37.

Other low volatility stocks like Exxon Mobil Corp. (NYSE: XOM), McDonald’s Corp. (NYSE: MCD), Altria Group Inc. (NYSE: MO) and AT&T Inc. (NYSE: T) may be good candidates for the strategy as well.

With the exception of Ross Stores all of the names on the UBS list are trading at or near the Wall St. price targets. By taking profits near the consensus targets and replacing the stock position with an option, investors can put capital back into their accounts and still have a position.

If an investor sold 1000 share of Ross Stores today and replaced it with the equivalent of ten 60 strike call options (each call option represents 100 shares of stock) that expire in August, the difference in capital staying in the investor account in cash is approximately $55,000. The maximum the investor could lose would be the price of the call options which would be $4600.

The stock market sold off dramatically after the election, and again in to the end of the year as investors feared large changes in the tax code. Should politicians again find a way to send the markets down 5 to 10% or more, the UBS option strategy may help preserve some big investor profits.

Chavez has changed the industry in the South American nation via a series of nationalizations of crude production. And the efficiency with which Venezuela finds and refines oil has slowed. Chavez has fed much of the region with cheap oil, which has helped some national economies — particularly that of Cuba.

By many measures, Venezuela is first among all nations based on proven oil reserves, just ahead of Saudi Arabia. That means any disruption of its exports could drive crude prices higher, at least temporarily. Alternatively, if a new government elects to export larger quantities of oil to fill the national treasury, global oil prices could drop substantially.

Chavez may be dead in a week, and with him Venezuela’s long-term oil strategy.

The recent AMR and Virgin Atlantic activities are part of a trend among U.S. airlines that has gone on for three years. Delta bought Northwest. United bought Continental, resulting in a new firm called United Continental Holdings Inc. (NYSE: UAL).

The consolidation has not been limited to America. British Airways is part of International Airlines Group that also owns Iberia. And Air France is part of Air France-KLM. Cross-border mergers have built carriers with scale similar to their U.S. counterparts.

The theory behind these consolidations is that they save money. Due in part by high fuel prices, airline managements believe that combinations allow for employee cuts, fewer routes flown and more leverage with suppliers, which include manufacturers Boeing Co. (NYSE: BA) and Airbus.

But the drawbacks of consolidation may trump the advantages. Reservation systems and the IT that supports them are not common carrier to carrier. Putting two such systems together is immensely complex and often disrupts the ability of consumers to do business with carriers. Layoffs hurt worker moral and unions walk out, disrupting flight schedules. Fewer routes add to customer dissatisfaction, at least for frequent travelers.

Against a growing number of giants, Southwest and JetBlue believe they can defend their turfs, even if they lack the leverage of size. Perhaps their managements have gambled that poor customer service among large carriers will send each of the two airlines business. Maybe they believe that they control a relatively small number of routes, but most of which are among the most profitable in the industry. Or, perhaps they believe that their customer-centric philosophies would be irreparably damaged by large marriages. So far, sailing into the wind has not hurt either at all.

Douglas A. McIntyre

The powers under question are the sacking of the equivalent of the Attorney General and also making decrees immune from legal oversight until Egypt’s new constitution takes hold. Riots have sent the markets south all over again even though the new powers are said be only temporary.

Initially it seems to soon to tell just how this will play out in the end. Still, this story sounds very familiar. Dictatorship, Muslim Brotherhood, riots and protests, and on.

With the Western powers not exactly being favorable to a new dictatorship that is under the Muslim Brotherhood, the sell-off should really be no real surprise.

The Market Vectors Egypt Index ETF (NYSEMKT: EGPT) closed down a whopping 7.6% at $13.02 today, with a 52-week range of $9.24 to $15.99. This drop would be the equivalent of drop in the DJIA of barely under 1,000 points in a day. We would advise that this ETF may trade like a closed-end fund when the markets are volatile. When this fund was trading last year during the Mubarek ouster the ETF lost its index and traded solely based upon supply and demand under a specialist or market maker.

JON C. OGG

Apotheker said,

I’m both stunned and disappointed to learn of Autonomy’s alleged accounting improprieties.  The developments are a shock to the many who believed in the company, myself included.  But I also share the sentiment of HP’s current leadership and continue to believe in Autonomy’s market potential, as its core software expertise remains sound.

Looking back on the acquisition, which closed in Sept. 2011, the due diligence process was meticulous and thorough, and included two of the world’s largest and most respected auditing firms working on behalf of HP.  Since Autonomy was a public company in the UK, much of the process relied on public financial reports — accounting statements approved, filed and backed by Autonomy’s leadership, board and auditors.

According to HP, the accounting issues it discovered pre-date its acquisition of Autonomy.  As such, it’s apparent that Autonomy’s alleged accounting misrepresentations misled a number of people over time – not just HP’s leadership team, auditors and directors.  In fact, the alleged improprieties apparently came to light only after an internal whistleblower raised the issue in the spring, well after my departure.

I will make myself available, however I can, to assist HP and the appropriate authorities get to the bottom of this.

What you just saw was a CYA move, a “cover your assets” move of sorts. Apotheker’s strategy as HP CEO failed and the current strategy is failing as of now. Even before today’s revelation, Meg Whitman said that it would be a turnaround story out to 2016.

JON C. OGG

The company now claims to have one of the strongest balance sheets in the independent power producers sector. The common stock and warrants are expected to be listed with and begin trading on the New York Stock Exchange today under the symbols DYN for the stock and DYNw for the warrants.

With Dynegy’s Chapter 11 process behind it, the company’s stated focus is “exclusively on executing our forward strategy.” In other words, the company message seems to be one that it wants to grow and retake position independently rather than being acquired by an outside player.

The unsecured creditors are receiving common equity representing a 99% stake in the reorganized company and $200 million in cash. Legacy stockholders under Dynegy Inc. (DYNIQ) are receiving a 1% stake in the reorganized company along with five-year warrants to purchase up to 13.5% of the reorganized common stock at an exercise price of $40 per share.

Dynegy previously said that it will initiate distributions of stock and cash to creditors and stockholders per the reorganization on October 2, 2012.

The reorganized Dynegy will have approximately 15.6 million warrants outstanding and approximately 6.1 million shares of common stock authorized and reserved for issuance under its employee incentive plan.

JON C. OGG

The pressure of Apple Inc. (NASDAQ: AAPL) is one thing, but Chanos alleges that the move is due to a decrease in its core operations if you start to back out the effect that the software and services acquisitions would look like if you just look at the core business.  This is despite what he calls a “cheap five-times earnings” story that is in a turnaround. Chanos calls it a cheap stock that will get even cheaper.

Today’s short selling news is certainly not good for H-P rival Dell Inc. (NASDAQ: DELL), and it probably only adds to outside pressure that Intel Corporation (NASDAQ: INTC) and Microsoft Corporation (NASDAQ: MSFT) are facing pressure as well.

H-P shares took it right on the chin based solely on “the Chanos bash” as shares had been up at about $19.50 before the Chanos bash around 12:30 PM EST as the stock then sank down to about $19.00 per share.  At 12:50 PM EST we have H-P shares still up about 2.4% at $19.33 and the average volume of 18 million shares has now just about been hit.

Dell shares are still up 1.1% at $12.26 on the day.
 
JON C. OGG

Now we have an SEC filing from P&G’s board of directors stating:

• “The Board is overseeing a plan to return P&G results to levels that produce the best long term value for shareholders; unanimously supports the plan and Chief Executive Officer, Bob McDonald, as he leads its implementation; and is monitoring its effectiveness.”

Some may take this as a key defense.  Others will say that it is just like a baseball teams issuing a defense of their failing managers saying “We had a vote of confidence and are in full support of our manager” that ends up coming days to weeks before that manager is fired.

We have asked our readers to play arm-chair activist here by telling us via our poll what is the best strategy to pursue to turn P&G back around.  We have some serious concerns about what an activist group can do here because of a $175+ billion market value.  Tell us what you think an activist should try to do at P&G to boost shareholder value:

P&G shares have pulled back and are currently down 0.3% at $64.57 so far on Wednesday.  Again, keep in mind that this is a DJIA component.

JON C. OGG

The deal is part cash and part spectrum swap that includes some of the spectrum included in Verizon’s deal with SpectrumCo. Financial details have not been revealed, but here’s what Verizon had to say about it:

The agreement includes a number of intra-market spectrum swaps that will result in better use of [spectrum] for both companies. The agreement also includes exchanges of spectrum between the companies in numerous markets which result in an overall net transfer of spectrum from Verizon Wireless to T-Mobile and a cash payment from T-Mobile to Verizon Wireless. Financial terms of the agreement are not being disclosed. The license transfers require FCC approval which is expected later this summer.

No word yet from AT&T Inc. (NYSE: T), Leap Wireless International Inc. (NASDAQ: LEAP), or MetroPCS Communications Inc. (NYSE: PCS) on their reaction, but Leap and MetroPCS are not likely to support it. AT&T will probably keep mum, considering that it too will need or want to acquire more spectrum in the future.

The Verizon/T-Mobile deal will silence one of the more vocal critics of Verizon’s acquisition of SpectrumCo. T-Mobile has opposed the acquisition on the grounds that Verizon wasn’t using all the spectrum it already owned so allowing the company to hoard more was essentially anti-competitive when companies like T-Mobile actually needed more spectrum in order to build out high-speed LTE networks.

T-Mobile along with Sprint Nextel Corp. (NYSE: S) had joined a group called ‘Alliance for Broadband Competition’ to oppose the Verizon-SpectrumCo deal. T-Mobile is not likely to contribute much either in the way of funds or moral support to the group any longer.

Verizon has effectively shut T-Mobile up. The issue now is whether or not the other wireless carriers will also shut up. The Federal Communications Commission still has to rule on the Verizon-SpectrumCo deal. Verizon is taking a net spectrum loss on today’s announced deal with T-Mobile and the company surely hopes that will sway the FCC vote. The devil is surely in the details.

Paul Ausick

Competitor AT&T Inc. (NYSE: T) is expected to launch something like the Verizon plans, while Sprint Nextel Corp. (NYSE: S) is likely to stick with its unlimited data plans at least for the time being. T-Mobile USA, the US wireless carrier owned by Deutsche Telekom AG (OTC: DTEGY), offers an unlimited data plan but throttles users who surpass a pre-set limit. Pre-paid carriers MetroPCS Communications Inc. (NYSE: PCS) and Leap Wireless International Inc. (NASDAQ: LEAP) are more vulnerable to Verizon’s new plans.

In general, the plans offer unlimited voice and text messaging along with a data plan. Each device costs a basic monthly connection fee, but all devices can share the same data plan. (Here’s a link to Verizon’s calculator.) For customers who don’t use all their voice minutes and text allowance, the plans cost somewhat more. For heavy data users, the costs will almost certainly rise because the intention of Verizon’s plan is to migrate all its subscribers to its 4G network using 4G devices that consume gobs of data. Heavy voice users get a bit of a break, provided they don’t also use a lot of data.

Essentially, the shared plans make voice calling and text messaging free and charge heavily for data. Verizon is expecting data usage to soar and the company is putting its money behind that bet. An added benefit, from Verizon’s and other carriers’ point of view, is that voice-over-IP users are now brought back into the tent,too. As time goes on and unlimited data plans disappear, the shared data plans will boost revenue for the carriers — and probably by quite a bit.

Paul Ausick