Trading Strategy / Photon Close

How do you play this gyrating market!? Yesterday, I executed several small trades on Apple (Ticker: AAPL), Goldman Sachs (Ticker: GS), Financial Spiders (Ticker: XLF), Invitrogen (Ticker: IVGN) and the Nasdaq 100 (Ticker: QQQQ). I closed out all those trades yesterday and today with some small profits.

The good news is that Photon Dynamics (Ticker: PHTN) issued a press release this afternoon stating that the Committee on Foreign Investments in the US (CFIUS) has approved the merger with Orbotech (Ticker: ORBK). The deal is expected to close on Thursday, October 2nd. Orbotech will pay Photon Dynamics $15.60 in cash. My gain from this arb play will be ~ 14.30%.

Now with most of my arb plays winding down, it’s time to regroup and evaluate a new trading strategy in this type of volatile market. I’m going to revert back to the good old CANSLIM strategy developed by William O'Neil.

Bought Some BUD

As the Anheuser-Busch commercials say: “This Bud’s For You.” I initiated an arb position in Anheuser-Busch (Ticker: BUD) at ~ $66.29. As just about everyone knows, the company is being acquired by InBev for $70 per share. If this deal closes by year end, I’m looking at a 5.5% return or ~ 22% annualized. That’s a pretty good return for a fairly safe arb play.

It's The Final Count Down

Well, like the title says: It's the final count down... for Photon Dynamics (Ticker: PHTN). I entered into this arb play at ~ $13.65. There's been a lot of speculation that this deal may not close due to various reasons ranging from the small break up fee to financing issues. I agree there is risks in this deal falling apart, but each day that goes by without any news is good news. This company is being acquired by Orbotech for $15.60 in cash. The companies are just waiting for the OK from the Committee on Foreign Investments in the US (CFIUS). The expiration date for the CFIUS review is September 29th so we're getting very close. The acquirer is Orbotech (Ticker: ORBK) and you can see that the stock action of the acquiring company is going down compared to Photon Dynamics. I believe that the market is starting to bet that the deal goes through. We'll see next week...

Sold Financial Spiders

I was expecting some follow through rally with the financials, but that didn’t happen. I sold my Financial Spiders (Ticker: XLF) today at $21.51 generating a return of 23.7%. Right now, I’m going to sit back on the sidelines. I do not like the SEC restricting short sales on the financials. If financials can’t even go up with this restriction, what’s going to happen when they lift it?

Judge OK to Safeco + Liberty Mutual

Ok, here we go again… another arb play is set to close very soon. Today, the judge approved the acquisition of Safeco (Ticker: SAF) by Liberty Mutual so the closing should occur very shortly. Shareholders of Safeco will receive $68.25 per share. I loaded up on more Safeco during this market melt down and looks like the bet will pay off. I’ll be down to two remaining arb plays: Landry’s Restaurant (Ticker: LNY) and Photon Dynamics (Ticker: PHTN), which are the riskiest of the arb plays.

Buying Financials

In Finance 101, they always preach the Efficient Market hypotheses, but you just throw that theory into the toilet during times of panic. I’ve been day trading Goldman Sachs (Ticker: GS) and made some profitable trades. Today, it just got so ridiculous seeing Goldman, Morgan (Ticker: MS) and State Street (Ticker: STT) left out for dead. Sometimes, you just have to say screw it and just buy when there’s total panic. I loaded up on the Financial Spiders (Ticker: XLF) @ $17.39. I think today was a good retest of the lows for the financials.

ChoicePoint Close

Another one of my arb plays will be closing very soon. ChoicePoint (Ticker: CPS), which is being acquired by Reed Elsevier for $50 per share, received FTC clearance this morning. The company expects this deal to close on September 19. I entered into this arb play in July @ $48.18, which equates to a 3.78% gain over a ~ 3 month period or ~ 18% if you annualize it. I have a few more arb plays waiting to close: Safeco (Ticker: SAF), Landry’s Seafood (Ticker: LNY) and Photon Dynamics (Ticker: PHTN).

CHC Helicopter = Done Deal

Today, CHC Helicopter announced that they received the European approvals and will close on September 16. I sold my holdings in CHC Helicopters (Ticker: FLI) @ $30.56 yielding a gain of 3.9% over a 1.5 month period. The tricky part of this deal was that the buyout price is in Canadian dollars ($32.68). You need to keep an eye on the exchange rates to determine the buyout price. I probably left some tiny crumbs on the table, but I can’t be that greedy.

Catching A Falling Knife

I have to review my trading rules again. The first rule is to never try to catch a falling knife. I tried that with the China ETF recently and luckily got out without a scratch. Yesterday, I tried it again with Lehman Brothers (Ticker: LEH) and got out quickly when things didn’t feel right. I nibbled at some Lehman shares @ $7.847 and quickly sold out @ $7.89. I was very fortunate in these situations and I know my luck my not last. So I have to keep telling myself: “DO NOT TRY TO CATCH A FALLING KNIFE!”

More CHC Helicopter and Out Of China

I took some quick profits in my China play by selling the Xinhua China ETF 25 (Ticker: FXI) @ $39.41 generating a return of 1.67%. I decided to deploy the cash into CHC Helicopter (Ticker: FLI) @ $29.22. This deal is expected to close early next week. The company is waiting for some European approvals. The Europeans do tend to drag things out, out and out… But all signs are pointing to the company receiving the approvals. I’ll get back into China soon. The long term story is just too compelling to ignore.

Market Bull

You have to adapt in order to survive in this market. I’ve been a big proponent of the “buy and hold” strategy. It’s still a great strategy for the long term, but recently I’ve employed a more active trading approach. As you may have seen from my recent posts, I’ve been doing a lot of arb trading. This has proven to be quite profitable in this market. Many of my arb plays will be coming to an end soon. It’s time for me to shift back into growth stock mode and employ the “buy and hold” strategy. I’m very bullish on the market right now. Gloom and doom usually signals the bottom of the market.

Credit Card Arb Game / Credit Card Deals

I’ve been doing quite a bit of arb trading recently with proposed buyouts, but I’ve been also doing some credit card arb plays as well. For example, you can purchase the new $1 Presidential coins through their direct ship program from the US Mint. This program is to help circulate the $1 Presidential coins. The nice thing is that the shipping is free. You can order $500 worth of coins and place it on your credit card and earn some money with the float. The best play is if your credit card offers a nice rebate then you can earn some extra change. For example, my credit card is offering a special program where they are offering 3% cash back for a limited time period. There are various sites to look for the best credit card deals. Here’s one you can check out: www.BestCreditOffers.com and if you want to look for low rate balance transfer offers. These are good places to compare various credit card offers since they’re all consolidated at one spot. It’s not easy with all those credit offers out there, but these sites should be helpful in finding the good deals.

Tumbling To A Close

Tumbleweed Communications (Ticker: TMWD) is trading up ~12% in after hours action nearing its buyout price of $2.70. I just checked the SEC web site and they’re delisting their shares. This one is closing soon. I picked up a few shares @ ~ $2.48 for a return of ~ 8.8%. I’ll take it in this kind of market.

Closed Out Greenfield Online

I closed out my arb trade in Greenfield Online (Ticker: SRVY) @ $17.44 generating a return of 18.66%. This was one of those lucky ones where a higher bidder emerged. I’ve started nibbling back into Apria Healthcare Group (Ticker: AHG) , which is being acquired by Blackstone for $21. I’m expecting this to close in early December. I don’t think the accounting issue will be a big deal, but we’ll see.

Oh, by the way I also picked up some China ETF / Xinhua China 25 index (Ticker: FXI) @ $38.76. This is the time to start nibbling into China when it’s in the dumps.

ChoicePoint and Energy East Approval

It looks like there is some good news on the M&A front. Yesterday, CFIUS (Committee on Foreign Investment in the US) approved the acquisition of ChoicePoint (Ticker: CPS) by Reed Elsevier. The only hurdle left is the ok from the FTC, which I expect shortly. I’m looking for this deal to close by the end of this month.

My experiment with Energy East (Ticker: EAS) was a success. Iberdrola received the approval from the NYS regulators on the acquisition of Energy East. I added to my position through the morning as it became more likely that the NYS regulators were going to approve the merger. My average cost was $27.27 and sold at $28.10 for a quick 3% return.

Yea or Nea: Energy East

I decided to re-initiate a position in Energy East (Ticker: EAS) @ $27.16. This time, it’s just a tiny, tiny position. This is more like a little experiment for me. It looks like the market is starting to price in a yes vote. The vote is tomorrow so we’ll see… Either way (a yes or no vote); it’ll be a learning experience in evaluating various arb scenarios.