Today's Opposites

Watch for AMD, Advanced Micro Devices, to tank today. Moody's Investors Service released a statement saying that they "believe that AMD will remain challenged to internally fund the advancement of its process capability and production capacity, which is essential to keep pace with competitor manufacturing cost reduction and process node advances." Also the corporate family ratings of AMD was downgraded to B2 from B1 because of operating losses. In addition to that, Moody's also cut the rating of a $390 million senior note, which is due in 2012, to B3 from B2. Bad news all around, except for the rushed a.m. press release of their new graphics card which actually looks like a future positive, but shouldn't stop the bleeding for today.

Look for a sharp upward turn from FLR, Fluor Corporation, as it looks at the 70's price range and kisses it goodbye. FLR second-quarter net income more than doubled from a year ago. Second-quarter results include a pre-tax gain of 26 cents a share from the sale of a joint venture interest in a wind farm project. FLR also lifted 2008 profit view to range far above the expectations of Wall Street. Watch this one soar today.

Fixed Return Options (FRO)

Fixed Return Options or FROs are a U.S. investment product which debuted in May 2008. They are also known as "binary options" because there are only two possible outcomes at expiration. FROs are all-or-nothing options that pay a fixed amount of $100 if exercised in-the-money or pay absolutely nothing if they expire out-of-the money. Binary options have been available in the over the counter market but this marks the first orientation to the retail investor. Fixed Return Options were invented by a group of financial services executives, guided by an executive team at the American Stock Exchange and Donato A. Montanaro, CEO and Chairman of the online brokerage firm Tradeking.


The standardization of binary options in this FRO format allows them to be exchange traded with continuous quotations. The underlying securities FROs can include both stocks and ETFs (Exchange Traded Funds). There are two types of FROs: Finish High and Finish Low. Finish high would mean to finish in-the-money if the settlement value of the underlying security is greater than the Strike Price ($.01 or more above) at expiration. They are out of the money if the settlement value of the underlying security is lesser than the Strike Price at expiration. Finish low would mean to finish in-the-money if the settlement value of the underlying security is lesser than the Strike Price ($.01 or more below) at expiration.


Fixed Return Options are listed on the American Stock Exchange (AMEX) and can be bought or sold at any time during the life of the contract. The pricing of the FRO will change over time based on the movements in price of the underlying security. FROs have expiration months for trading that are the same as standard listed options for the same underlying security. While these instruments may be easier to understand compared to buying or selling "regular" options (calls and puts), beginning investors should always research the many risks before participating in the options market.


Whether a FRO is in-or out-of-the-money is based on calculating the stock or ETFs AMEX FRO Settlement Index value. This is considered the Volume Weighted Average Price (VWAP) on the day in which the option expires. This is calculated by adding up the dollar value of all trades of a given stock or ETF on a given day and dividing that sum by the total number of shares traded. Basically VWAP could be explained by stating the average dollar price of a stock or ETF on a particular trading day. The reason this method is used for settlement at expiration (instead of closing price for the underlying stock or ETF) is to prevent price manipulation, considering the difference in a one cent increase or decrease could potentially change the outcome between receiving $100 per contract and absolutely nothing.


FROs are available on a variety of equities and ETFs:

Symbol FRO Symbol


APPL AXO
CSCO CMQ
C EFH
DIA DCQ
GE DOC
GS TLG
GOOG TBA
HD HEM
IBM TSB
INTC IDP
EEM PTT
IWM DNZ
JPM LIV
MSFT RIS
OIH HKT
QQQQ NKN
SPY SQY
XLE LPA
XLF RZP
WB BWK

BEA Systems: Screaming Buy

Takeover rumors have been flying around BEAS. Business software and services have been receiving substantial attention as of late. If there is speculative money to invest, it might pay to examine this one. Recently Credit Suisse lowered its rating to "neutral" from "outperform", stating that recent thoughts of a takeover from Hewlett-Packard Co.(HPQ) "was more wishful thinking than reality." They went on to reiterate their $14 price target on BEAS. In my opinion, Hewlett isn't the only prospective buyer. At this time, this company is in a great position for its shareholders. If they continuously beat estimates, they should have no problem standing on their own and meeting that $14 price target. If BEAS misses estimates in the future, they become a more attractive takeover target, enabling another company to possibly make a purchase at a discounted price. It's not that often, within an investment, that something can be perceived as a win-win situation.

Got Milk? Got Problems

Dairy economists predict the retail price of milk could rise as much as 30 cents per gallon by this fall. Is that a big deal? Maybe not to the average consumer, but for businesses which use dairy in the production of their goods; it is a big deal. The latest company impacted by the increase in price is Hershey Co. They cut their earnings expectations because of the rising demand for ethanol. Fuel and feed costs for farmers and the need for milk products around the world are the main reason for the increase in price. Take notice of organizations that are not easily able to adjust for the adverse effect of the rise in dairy pricing.

Short And Sweet: Don't Be Surprised

Here is a chart of the performance of Darden Restaurants vs. California Pizza Kitchen (CPKI) over the last three months.


Darden owned Olive Garden, saw same unit sales rise 3 to 4 percent higher in March after posting positive comps in consecutive quarters. California Pizza Kitchen reports later today. Their preliminary report had comps climbing higher for the same period. There has not been any downturn in stock price over the last few days. However, there has been some weakness throughout the sector. California Pizza Kitchen might be able to meet the estimates for the first quarter (.18/share on $149.87 million in revenue), but with uncertainty throughout the sector; don't be surprised if they fall short.
(Chart courtesy of Yahoo.com)
Update: 05/11/07 CPKI reported .18/share on 149.4 million. Profit dropped 22% as labor and food costs rose.

The Federal Open Market Committee (The Fed) Will Release Their Statement At Approx. 2:20 P.M. ET; Also, Featured Earnings For Today

Investors will be awaiting the words of Chairman Ben Bernanke today. The Fed is expected to leave interest rates unchanged and to address both moderate economic growth and inflationary pressures. Any difference in the statement's phrasing will be examined "under a microscope" and could lead to price fluctuation in the major indexes. Today, this is the major story in focus throughout the investment world. However, there are other affairs to speak of concerning earnings. DirecTV Group Inc. (DTV) reports today. Analysts are expecting earnings of .30/share on $3.9 billion in revenue. With increased competition encompassing the market, it should be interesting to hear their guidance/outlook. It will be possible to further gauge the strength/weakness of the housing market when Toll Brothers Inc.(TOL) reports. Analysts estimate earnings per share of 41 cents, with revenue coming in at $1.10 billion. Whole Foods Market(WFMI) also reports today. WFMI began the quarter by announcing the planned acquisition of rival, Wild Oats Markets, Inc. Analysts expect earnings of .36/share on $1.49 billion of revenue. Operating margins have been pressured by the opening of large format stores and labor costs. Regardless of the possible (near-term) asperity, the future looks promising. WFMI reports later today.
Note: To see the company earnings calendar for today, scroll down to the link on the bottom (right side) of the page.

Comcast vs. Verizon: Why The Battle?

For market share, of course. There are many people who believe that these two companies will have to share customers and that there will be one clear "winner" between the two. While that may be somewhat true(the sharing of the customers part), I believe that both of these companies can be successful distributing their products throughout the market. Verizon has done an outstanding job positioning themselves as the best wireless network/provider. Comcast has focused on being the #1 cable provider. With services overlapping(phone, internet, cable, and video), I believe that Comcast is taking the lion's share. They expect to have 20% of households subscribing to digital phone service, which has helped drive subscriber additions in recent quarters. In certain locations, Verizon's services are not available; however, they will probably take share from other wireless providers(having such a positive reputation concerning their network). Sometimes there isn't a clear cut winner in the battle for market share. These companies can(and should)coexist and both be successful. The consumer is the one who wins, concerning this type of competition.
Note: The cable industry(National Cable and Telecommunications Association)gathers this week in Las Vegas for their annual summit. Expect subscriber growth and bandwidth to be in focus. Look for new developments in technology to be mentioned.