ISE (Intl Securities Exchange Hldg)

I got involved with this name just about a year ago as it was trading out of a consolidation not long after its IPO. The stock has been a great success both fundamentally and technically. The company is taking advantage of the push to electronic exchanges instead of pit-traded markets and has benefited from the proliferation of funds trading options. Earnings and sales continue to grow quarter after quarter and the stock has enjoyed a relatively high multiple while staying away from severe excesses.

I have managed to miss a good bit of the volatility in the name by selling calls from time to time and then buying in stock when necessary to keep from losing my position. I have worked into a large size position which has been a bit difficult as the stock is now experiencing one of the deeper corrections it has had since i got involved. It is still trading above the 200 day and the fundamentals still seem to be intact so i am not overly concerned. However, it is a little frustrating to have the stock up 50% from my original purchase but to only have a small gain on the books at the present time.

The company recently reported its volume numbers for the month of December and they left a bit to be desired. The total option volume was about at expectations (December is usually a light month) but the mix was a red flag. Apparently the company has been doing more "customer" business which has very low margins compared to "firm proprietary" and "market maker" volume. This is not something to be overly concerned with for the month of December but i need to watch that carefully going into the next few months.

February 6th is the scheduled day for the earnings release and the conference call.

Jan 23, 2007


The stock rebounded off the 200 day but volume was light and I didn't feel extremely comfortable although I like the position long term. The option premium is healthy so I sold 40 calls to hedge half of my position in the money (selling Feb 45 calls). This should help lower the volatility and still allow me to continue to rack up gains as the stock moves higher. If volume does not pick up over the next few weeks i will be more concerned and may have to start liquidating.

Feb 2, 2007

ISE made my day yesterday... and not in the good way. Now you have to keep in mind that for the past 2 months I have been faithfully holding onto this stock, trying to have conviction that my research is correct, that this name will continue its run after finding support, and on and on.

Wednesday when the stock traded down initially through the 200 day average I expected this to be the low and covered my hedge at a gain on the calls. However the stock didn't find support at the 200 day and finished at the low end of the range on strong volume. I decided to hold it a bit longer as I still had a break even trade and wasn't stopped out, i just didn't love the way it was trading.

Yesterday was discouraging for the stock. It traded down quickly in the morning and while the rest of my account was hanging in there this was definitely a problem so I swallowed my pride and went ahead and sold it even though it hurt. I didn't sell it at the low of the day but i got pretty @#%@#$ close. It then traded up throughout the rest of the day and finished 3 bucks higher. The strong volume and strong price movement looks like a reversal day - the thing i've been waiting 2 months to see. And today i gave up $3.00 times 8,000 shares - that's $24,000!!! that's enough to get me to a new high in my account! That's 30 basis points for my returns! That's frustrating!!!

When I grow up

Very few kids want to be a hedge fund manager when they grow up. I think when I grow up this is what I want to do...

if you can't read the writing, caption reads: "This is an actual fly by during deployment of the Nuclear Aircraft Carrier USS Stennis. The pilot was grounded for 30 days, but he likes the picture and thinks it was worth it. Yikes!

VAR (Varian Medical Systems)

Varian Medical Systems is a system and equipment manufacturer in the oncology market. The stock has been very successful for years as the company grew earnings throughout the bear market and also through the more beneficial markets we've been dealing with the last few years.

The stock has begun to experience more volatility in the last year or so which looks to me like a churn in the shareholder base and quite possibly a broad top in the stock. Beginning in March of last year the stock sold off over 30% where it found support just above $40 but below bot the 50 and the 200 day average. Since then the stock has made a significant summer run back up to the $55 area. The last 4 months, the stock has hung around the 50 and 200 day average without deviating too far in either direction.

Last week after announcing earnings, the stock gapped down 10% on the strongest volume in over a year. This type of action is often followed by more selling so I took notice. I waited 2 days after the announcement and the stock was not able to begin a significant rally back from its plunge which makes be believe the institutional investors are not too excited about plowing money into this name even at its discounted state. So I shorted 5,000 shares (roughly a 3% position) in anticipation of more liquidation.

I believe the overall market will be more important than company specific news in this trade. The market has shown some distribution, and is overdue for some selling. I will watch the AD line (advance decline line) and volume patterns to guage the general market backdrop and anticipate working into more short positions if we see more distributive action.