H&R Block (HRB) Sees Put Spreads in October, January (Chart Analysis)

HRB Oct 17 Puts (Yahoo Finance)
Interesting option activity occurred in H&R Block's (HRB) out-of-the-money put options in October 2011 and January 2012. I got the alert from CBOE on Twitter. I follow their feed (@CBOE).
"H&R Block- $HRB January 12.50 and Jan 17 puts active on 36K contracts into April 18 tax deadline" (source)

It was also featured on CrimsonMind.com's Unusual Option Activity Feed in detail:
"9,000 Oct 17 puts were purchased for $1.73, 9,000 Jan 12 puts were sold for $0.66, 7,500 Jan 15 puts were purchased for an average premium of $1.425 and 7,500 Jan 10 puts were sold for $0.35. Total of 33557 puts traded compared to the 10 day average volume of 3030." (courtesy of CrimsonMind.com)

HRB Jan 15-12.5-10
The trades look like put spreads. Find more information on the trades at WSJ and the blog Sea Change of Opportunity, which said 500k shares were bought at $17.60.

$HRB capitulated in October of last year (2010) when news dropped that HSBC wouldn't fund "refund anticipation notes" anymore due to new IRS rules. On April 7, 2011, HRB warned that the loss of clients would lower EPS by $0.05. From Reuters:
HRB (FreeStockCharts.com)
"H&R Block Inc said it would take a charge in the fourth quarter, as it lost some clients due to its inability to offer refund anticipation loans, sending its shares down 2 percent in extended trade.

The top U.S. tax preparer will incur a charge of about 5 cents a share in the quarter ending April 30."
The stock is trading inside of a 3-year descending channel which started in 2008. Since the "RAL" scare in October, HRB is up 80% off of its low. You can see the two near-term trend lines HRB must hold in order to test descending channel resistance ($18.50-19.30). The yellow circle shows where the put spreads would profit, whether as a hedge against shares or a play on downside volatility. HRB implied volatility is at 35 and historical volatility is at 24.65 on the ISE. I don't know the exact nature of these trades if they were based solely on implied volatility. Please comment if you do. Interesting trades.


More analysis (free)

Oppenheimer Discusses H&R Block (HRB) - Benzinga

Early Dip Puts Market on Notice 04-14-2011 - Xpound Blog via Benzinga

The Returns Have Already Been Filed On H&R Block by Steve Alexander - iStockAnalyst

H&R Block: The Panic's Over - Seeking Alpha

Macro, Sovereign and Sector Upgrades/Downgrades (Ending 4/15/2011)

Analyst calls - week ending 4/15/2011

*Goldman's Jan Hatzius downgraded real GDP growth to 1.75% from 2.5% (Zero Hedge)

*Goldman's Latest EURUSD Outlook (Zero Hedge)

Moody's cut Ireland's credit rating to Baa3, 1 notch above junk (AP)

Fitch affirms Ireland rating at BBB-plus (MarketWatch)

Goldman Sachs says underweight commodities (Zero Hedge)

Goldman Sachs Cuts View Of Financial Stocks (Dow Jones Newswire)

Citi's US Dollar warning, debt ceiling risks (Zero Hedge)

Goldman Sachs Expects ‘Substantial Pullback’ in Oil Market; Sees $105 Brent Crude (Bloomberg)

Joe LaVorgna (Deutsche Bank) Cuts Q2 GDP Ahead Of Everyone (Zero Hedge)

Moody's downgrades China property sector (Reuters)

Moody’s cuts China’s property outlook (MarketWatch)

Btw, Beijing March New House Prices Plunge 26.7% M/M: Press (MarketNews)

Fitch downgrades China's yuan debt outlook to negative (ChinaPost)

How Would Raising Debt Ceiling Impact U.S. Bond Market? (PBS Video featuring Jamie Dimon, Nouriel Roubini, Nomura Strategists and Ben Bernanke)

Investment Manager Outlooks

"Deja Vu All Over Again" - Jeff Gundlach's (DoubleLine Capital) Latest Set Of Contrarian Observations (report at Zero Hedge)

[Video] Bond Guru (Jeff Gundlach) Bets Against PIMCO's Bill Gross (and Conventional Wisdom) on What Happens After QE2 Ends (Trader Mark at International Business Times)

*John Paulson Cautious On U.S. Real Estate (GuruFocus) he was interviewed by Les Echos in France

Update on Bullish Sentiment Indicators (AAII, Investors Intelligence)

Elliott Wave International has an article out titled Bullish Sentiment: Turning into a Stampede?, which addresses current market psychology and sentiment extremes. Hat tip to Business Insider and Mish.

"Keep that in mind as you read this recent market sentiment news from CNBC (4/6) about the latest Investors Intelligence survey:

"The number of investors with a bearish outlook plunged by more than a third in one week according to a widely followed investor survey released Wednesday, the largest amount of bears to throw in the towel in this poll since 2003."

The bears in that survey dropped from 23.1 percent to 15.7 percent in just one week. Apparently, the market's two-year rally has survey respondents feeling more optimistic -- not more cautious.

Many other groups also feel exceptionally bullish. The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:

Individual investors (AAII poll)—most bullish in six years
Newsletter advisors (I.I. poll 20-week average)—most bullish in seven years
Futures traders (trade-futures.com poll)—most bullish in four years
Mutual fund managers (% cash)—most bullish ever
Hedge fund managers (BoAML survey)—most bullish ever
Economists (news-org polls)—unanimously bullish
Top global strategists (three national year-ahead panels)—unanimously bullish
Even most 'bears' on the economy are bullish on stocks because of inflation!" 
(continue reading at ElliottWave.com)

Karl Denninger, author of the Market-Ticker blog, responded to this and said there were higher bullish AAII readings in December (2010) and January, which coincided with a higher market. He's right (look at the table), but I wonder what he thinks of the "Investors Intelligence Bull/Bear Ratio" chart that dates back to April 2007. Bullishness is at or above the 2007 highs, and the market peaked in October 2007. Robert Prechter, founder of Elliott Wave International, mentioned these sentiment comparisons on The Ticker (Yahoo Finance) in late February.

$UUP June Call Options Active, US Dollar Trending Down (UUP, $USD, UUP/SPY Technicals - 4/13/2011)

Chart 1: DXY0 (U.S. Dollar Index) - FreeStockCharts.com
First off, UUP June 2011 $21 call options were active yesterday. 38,231 calls traded with 8,333 contracts open. It closed at 0.68. This morning open interest rose to 34,555. Here is more information: "Some UUP option traders expect dollar rebound" (CNBC). This activity could insuring short UUP exposure or speculating on a Dollar (UUP) rally by June expiration (6/17/2011).

The US Dollar Index (DXY) is clearly trending down. DXY (74.88) broke through a symmetrical triangle in March and is looking for support. The first support level is 74.23 or the 2009 low. If that level fails, 70.70 will be in play or the 2008 low. You can also see the yellow downtrend line DXY must break.

$UUP, the US Dollar Index ETF, broke through the 2009 and 2010 lows in mid-March. UUP needs to break above $22 resistance and take out that downtrend line to save the Dollar. It is interesting that DXY broke the symmetrical triangle right when UUP broke the lows.

The third chart is UUP/SPY(US Dollar ETF/S&P 500 ETF). The ratio is at 0.1634, which is right below May 2008 support (0.167). It will soon test the downtrend line from early 2009 and perhaps re-test 0.167 resistance. If UUP/SPY breaks above ceiling resistance and the downtrend line, it could either mean there is a flight out of risky assets (Dollar up/S&P down), or the market falls faster than the Dollar. The next few months will be interesting; QE2 is ending and the debt ceiling is in play.

The Next Housing Shock (60 Minutes Video, 4/3/2011)

Two weeks ago, 60 Minutes did a special on the ongoing foreclosure crisis, which was driven by mortgage document fraud during the housing bubble.

Mark Mobius, George Soros on India's Economy, Equities, Copper (Videos)

MarkMobius (Twitter)
Mark Mobius, executive chairman of the Templeton Emerging Market Group, and George Soros, founder of Soros Fund Management, were featured on India's ET Now (The Economic Times) a few days ago. Watch the videos after the jump. As expected, Mr. Mobius said he is bullish on emerging markets and inflation hedges, and favors India's natural resources, copper, equities (which adjust to inflation), Indian small-cap stocks, information technology and banks. "The trend will continue to be up for commodities, in Dollar terms", he said.

When asked to give his big global prediction, Mr. Mobius said, "volatility will increase" and "the perception of emerging markets is changing to become more positive; it's becoming an important asset class for investors, and that's a sea change. Ten years ago it was considered to be a very risky arena." He made sure to mention that corrective mechanisms still exist (regarding Central Banks tightening).
George Soros via Wikimedia

George Soros mentioned how the developing world is doing exceptionally well compared to the developed world ("which is sinking"), and India is one of the beneficiaries. "India is actually unusual because its growth is mainly domestically generated, so it is less exposed to the global situation; less exposed but still exposed."

"(India) is not growing as fast as China, but perhaps it is not as exposed to overheating as China is; so India is relatively very well situated"

Put a Music Store In Your Basement (Borders Liquidation Pic)

I went inside a Borders being liquidated and look what I found.

Reads: Bill Gross, Chris Wood, Soros, Hussman, Dalio, SPX Valuation, USD, Canada, Real Estate, MCDX

High powered link fest for 4/11/2011

CLSA's Chris Wood on a U.S. sovereign debt crisis - Business Insider

Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record - Zero Hedge

What Is Low Volume Telling Us? - Barron's

The Post-Crash: Wall Street Won - New York Magazine

JPMorgan Accused of Breaking Its Duty to Clients - New York Times at Yahoo Finance

Charles Plosser and the 50% Contraction in the Fed's Balance Sheet by John Hussman. Investors Intelligence Bull/Bear Sentiment, the Federal Reserve's balance sheet is leveraged 50/1, equities ("overvalued, overbought, overbullish, rising yields" syndrome"), bonds, silver and gold. - HussmanFunds.com

Is the Market Overvalued? (Yale's Robert Shiller vs. BofA Merrill Lynch strategist, David Bianco) - Wall Street Journal (h/t valuewalk)

Chart of MCDX 5Y (credit risk in muni bond market) tightened since January - Markit

US State and Local Government Finances: from Recession to Austerity (pdf) - BNP Paribas (h/t Dutch Book)

Signs point to a severe housing correction in Canada - The Globe and Mail. It looks at price/income, price/rents, etc. Would U.S. banks take a hit?

"So much for the ‘conservative’ Canadian consumer: Another look at Canada’s credit bubble" (mortgage debt/GDP, household debt/GDP) - Financial Insights (3/30/2011)

Side note, read: CMHC (Canada Mortgage and Housing Corporation) - Canada's Breaking Point - americaCanada (June 2009). Mortgage securitization in Canada (MBS) is insured by the CMHC (the Government).

Tata chief warns of India unrest over $39b Telecoms corruption scandal - Financial Times

Facing Default, Publisher Lee Enterprises Sells 'Junk' to Foil Distressed Investors - Wall Street Journal

Best Currency Forecasters See Dollar Weakness as QE2 End Looms - Bloomberg

U.S. Treasuries 'Ponzi scheme': ex-PBOC official - MarketWatch (h/t Zero Hedge)

China Inflation ‘Somewhat Out of Control,’ George Soros Says - Bloomberg (Bretton Woods Conference)

Greece Named as Riskiest Sovereign Debt for the Second Quarter in Succession (CMA)

I thought you might be interested in CMA's Q1 report on sovereign debt credit risk (credit default swaps):

Sovereign CDS (CMA Datavision)
"Embargoed until 8am GMT Thursday 7th April 2011

Greece named as riskiest sovereign debt for the second quarter in succession

CMA today published its Sovereign Debt Credit Risk Report for the first quarter in 2011, click here to read.

No change at the top
The report found no change in the six riskiest sovereign debts, with Greece retaining its position as the world’s most risky for the second quarter in succession, with a 58% chance of a debt restructuring occurring within five years. Despite a rally in January, Greece widened to reach a high of 1100bp following downgrades by Moody’s in early March. Egypt and Lebanon have replaced Spain and Hungary in the top 10, with unrest in the Middle East making it a testing quarter for the region. Scandinavian countries again dominate the least risky sovereign debts. The Netherlands is a new entry at five, and Chile has ousted Australia from the top 10, a result of the lower market recovery assumption for emerging markets. The best performers of the quarter all came from Western Europe.

Sharp rises in the Middle East and North Africa flatten out
It was an eventful quarter for the Middle East and North Africa, with sharp rises in CDS prices occurring in Egypt, Tunisia, Saudi Arabia, Morocco, Bahrain and Israel at the end of January, triggered by the Egyptian people’s call for democratic elections. Except for Bahrain, the initial rise was followed by a relatively stable period in March, albeit at higher levels from the start of the quarter, perhaps signalling that markets believe that the unrest will not affect the economies in the longer term.

Japan shows resilience
Japan CDS showed remarkable resilience first to a downgrade by Standard and Poors to AA- at the end of January in the face of concerns over the $12trillion debt, and then to the devastating earthquake where the cost of protection initially jumped 40bp. Despite these events, the CDS ended only 27bp wider on the quarter at 99bp."