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Tonight’sAgenda • State of the Union • Market Recap/ Earnings Results • Retail Sales Numbers • Options 101: Buying a call/put
Obama SOTU Highlights • A balanced approach to deficit reduction that includes reforming tax code, closing loopholes, and Medicare reforms. • A boost of manufacturing in America, called for greater investments in housing, infrastructure, alternative energy, scientific research, and technology. • Comprehensive immigration reform • 34,000 U.S. troops withdrawn from Afghanistan by the end of 2013 • Modest gun control measures to reduce violence. • Raising minimum wage 27% to $9/hr.
Minimum Wage: Pros • 60% of job losses since recession have been mid-wage positions, 58% of growth has been low-paying jobs • Min. wage is below living wage: • $15,080 annually. • poverty threshold for a single individual was $11,702 and the poverty threshold for a family of 4 with two children under 18 was $22,881. • More consumer spending • +$1 to min. wage=$2,800 additional spending for household yearly • Upping min. wage to $9.50=$60 billion over 2 years • Increased earnings for those above min. wage
Minimum Wage: Cons • Company’s can’t afford to hire as many workers as before at the lower levelso they either hire less people or pass the costs on the consumers and raise prices. • Leaves min. wage worker in same situation. • Lower incentives to move up: Increasing the likelihood and duration of unemployment for low-wage workers, particularly during economic downturns.
Would raising minimum wage to $9 an hour help or hurt our economy? DEBATE:
Markets Pause after rally, end week flat
Dow at Historic Territory 14,091 13,981
Retail Sales Report- January • Definition: Retail sales measure the total receipts at stores that sell merchandise and related services to final consumers. Sales are by retail and food services stores.
Retail Sales Numbers • Why is this important? -Consumer spending typically accounts for about two-thirds of GDP and is therefore a key element in economic growth.
Retail Sales Numbers Strengths Weaknesses Misc. store retailers down 2.6% Health and personal care down 1% Clothing and accessories down 0.3% • Gasoline sales up 0.2% • General merchandise up 1.1% • Nonstore retailers up 0.9% • Bldn. Material and garden supplies 0.3%
What the report means • Retail numbers were generally positive which means that the size of the economy grew. • The small numbers indicate that sales grew marginally compared to prior months. • Clearly the pace of spending slowed in January. However, it is hard to discern the impact of higher taxes given that January came off a strong December. • Pullback is normal after a strong month. It is going to take additional reports to determine the impact of higher payroll and income taxes on retail sales.
Twitter Contest • Follow @Hawktrade on twitter • Go to Bloomberg Economic calendar and look at estimates for next weeks CPI number. • Starting at 8AM tomorrow morning, tweet your guess for either CPI/ or CPI less food and energy. • Winner gets $15 Starbucks gift card next meeting.
What to look for in Earnings Top Line Number Bottom Line Number Bottom line = Net Income Accounts for a company's income after all expenses have been deducted from revenues. A company's bottom line can also be referred to as net profits. Bottom line describes how efficient a company is with its spending and operating costs E.P.S.= Net Income-Dividends # Shares outstanding • Top Line = Gross Sales or Revenue • Only indicates how effective a company is at generating sales • Doesn’t account for any costs. • Determines how fast a company is “growing”
Pepsi Earnings Top Views, Helped by Price Increases • E.P.S. slightly beat estimates • Revenue slightly higher than expected, 5% organic revenue growth. • EPS growth in 13’ expected to be 7% due to increased prices and higher worldwide sales. • Raised its dividend to $2.27 per share from $2.15.
McGraw-Hill • Reported earnings on Tuesday • EPS of $.72 in line with analyst’s estimates • Revenue ($1.23 billion) did not meet 4th quarter expectations • Stock ($44.95) movement was limited based off earnings, no surprises
McGraw-Hill • Parent of credit rating agency Standard & Poor’s Corp. • Facing a $5 Billion fraud lawsuit by the U.S. government • Claiming S&P gave too high of ratings to mortgage investments during the 2008 Financial crisis
Inside Job documentary showing at 4:00pm next Sun. before meeting • Clearly and simply explains what happened in 2008 and yrs. before to cause housing crisis. Popcorn provided (OBV)
DirecTV • Earnings of $942 mil Up 31% from $718 mil • Focusing on growth in Latin America up $22% • 658,000 new subs Compared with 590,000 Last year there
What is Zipcar? • A company allowing families, businesses and mainly college students to borrow a car • You register for $25 and pay their annual $50 fee then pay to drive. • Rates: Mon-Thurs Hourly from $8, Daily from $66 Friday - Sunday Hourly from $9, Daily from$72
Zipcar Earnings • Avis is buying Zipcar at $500 million- $12.25 per share • Announced earlier this year • Profit for the quarter was $13.8 million compared with $3.9 million a year ago • $.09 a share to $.34 a share
Options 101 • Options are a financial contract that allows an investor to speculate in assets that he/she doesn’t own. • Options can be used to predict the direction of stocks, currencies, commodities, or stock indexes as a whole.
Options 101- Option Features • Strike Price- The price the trader thinks the stock will go to, either above, below, or at the current market price. • Expiration date- How long the option contract is good for; anywhere between a week to over a year.
Types Of Options There are 2 positions you can take with options: • Buy a Call (Bullish on stock) • Buy a Put (Bearish on Stock)
Options 101 • One option contract= right to buy 100 shares of company at some point in the future at a certain price. • Ex: CMG- current price= $314 • June 13th call at strike price of $340 costs $11.40 • $11.40= 100 shares times $11.40 • So = $1,140 for one option contract.
Options 101- Option Prices • Options are priced based on their intrinsic value (how close to the strike price they are) plus their time value (How long do they have until they expire) • The farther away the expiration date the more expensive the time value aspect is. • The farther away (either up or down) the strike price is from the current (spot) price the less it costs b/c the stock is less likely to move that much before the expiration date.
Option Greeks Delta, Gamma, Vega, Theta Delta: The effect of a one dollar increase in a stock price to the price of the option.
Option Greeks- Delta Buying stock has D=1 ATM: D=.50 ITM= the more in the money the closer to D=1 Farther OTM you go, the closer to D=0
Option Greeks- Delta CBOE options Calculator *put in stock symbol to get Delta for option. http://www.cboe.com/framed/IVolframed.aspx?content=http%3a%2f%2fcboe.ivolatility.com%2fcalc%2findex.j%3fcontract%3dA8DAC572-AD45-4641-A7A8-FCA56A76BE34§ionName=SEC_TRADING_TOOLS&title=CBOE%20-%20IVolatility%20Services
