I’m very glad our first few trades in the $10KX porfolio have worked out. 

Currently we have just the QQQQ calls from this morning’s post open along with the very sad SGP calls.  We’ll give SGP until next week and then try to get a dime back, that one was a mistake as I got mixed up and made what should have been an intra-day momentum trade, not an overnight. 

Our goal in the $10KX is to take Day Trades that span more than one day so we can avoid day trading restrictions in small accounts.  It’s very tricky and I will be working hard to get used to it, it requires a lot more thought than the DTP, especially as we are "stuck" once we make the trade.  My goal is not to hold things for long - just hit, wait a day or two, and run.  When we build up cash we may do more but for now, we are trying to stick to Buffett Rule #1:  "Don’t lose money."

These trades are RISKY though, they are NOT trades that should be made with $10,000 you expect to see again as we are aming for high returns, not safety and we’re not really hedging, just picking a play and going for it.  In the DTP we have the luxury of bailing out when we’re wrong, not so much here.  Still we’ve got 5 trades under our belt and a nice 18% return in 3 days so we’re off to a good start:

My goal in starting these portfolios was to get people excited about safer investments.

I was very upset to see so many people losing money on the downturn and I’m doing these new portfolios to emphasize that you do not have to take big risks to make good money.  So far this week we’ve concentrated on the $10KX and the Butterflies and now that those are moving we’re ready to buy some very dull stocks (or at least sell some puts that may make us buy stocks if we are unlucky). 

Note that we were totally blown out of our range on AAPL yet we still made good money, and the trade isn’t over yet…  Of course they had a nice bounce back but we make our own luck with these trades and the best thing about butterflies and condors is you can go away for a week and nothing happens so they are the ideal summer fun plays. 

BIDU will head up to the top of our range in the morning and may break higher, I’m inclined to take out the $290 putter, probably for $5 and hang tight for a pullback - sort of the reverse of what we did with Apple, who blew down on us.  The difference is that Apple went down for no good reason while BIDU is up for great reasons so we’ll have to play it by ear:

We will start a new, clean portfolio with only open trades tomorrow. So I thought I would post a recap of all closed trades up-to-date. We are now up 585% since the beginning of portfolio, up 185.49% in the last month, for 3% risk per trade. Please don’t hesitate to ask me any questions about the closed trades below.

All trades were posted live in the comments and in the portfolio and most of them were simple calls or puts. Our expectancy per trade is still around 1.85R and our winning rate is between 65% and 70%.In the last 2 weeks we also played a couple of straddles, on GOOG and C, with more than 100% profit on each. We also did a modified butterfly for AAPL’s earnings that went very well. I am planning on doing more of those, and am working on a spreadsheet to record them.

Again, I want to thank everyone who has been participating in the comments. It is very rewarding to see everyone making such good progress and booking profits.

To learn more about the swing trading portfolio, please click here

- Optrader

Today’s tickers: CTXS, ICO, BJ, XHB, DTV, SGMS, NRG, AET, WFC

CTXS- In a week that has brought a fairly relentless drumbeat of bad news from tech stocks, Citrix shares are down 2% at $27.23 ahead of its own after-the-bell earnings. Oddly enough, however, option traders have sent call volume to a three-month high in Citrix, with heavy buying in August 30, 35 and 40 calls on volumes well in excess of open interest. Buying pressure in calls extended through September and into the December contract at the 35 strike – a position which, factoring in the 90-cent premium on the contract, requires a 31% advance from current levels to break even. While the options activity is what you’d expect from a stock trading on some kind of bullish rumor – it is unusual that the scuttle hasn’t budged the stock price any higher. Implied volatility at 57.5% compares to a historic reading of 42.8% on Citrix stock.

ICO- One day after we reported an unusual ratio put backspread in Peabody Energy that would seem to indicate a precipitous fall for coal later in the autumn. Today the pullback in coal stocks continued today with quirky options activity apace. Shares in International Coal Group, which is due to report earnings today after the bell, are down 4.4% at $48.96 as our option scanners pick up a 7-fold increase in option trading volume. Today it appears that option traders are eschewing the front month contract which is under sway of earnings report and the current sector-wide down-drift and looking to lock in upside call positions at the September 10 strike for 80 cents apiece – options traders pricing in a 44% probability of that strike landing profitably by September 19 – and even further afield in the December 15 calls at 40 cents apiece. The delta on that position indicates a 21% chance that International Coal Group shares can make the 66% upward trek to $15 by mid-December – a climb that would certainly be hastened by continued consolidation in the space that might see ICO as a attractive target.

BJ- Costco’s profit warning earlier today showed the discount retailer left with the short end of the wishbone, having kept prices low on a bet that bargain-hungry shoppers would boost traffic at its store locations but finding that energy prices were causing shoppers to sharply economize store trips. The surprise move sent Costco shares down 10.7% and implied volatility on its options more than 24% higher on the session. Option traders turned shrewdly to volatility plays in its sector peer BJ’s Wholesale Club, whose shares lost 10.5% to $36.56 today. The Costco news sent implied volatility in BJ’s Wholesale Club options 12% higher to 51.5%, making it one of the day’s top implied volatility gainers. Options are trading at 5 times the normal level, adding up to the equivalent of nearly half of its open interest, concentrated mainly at the August 35 line, where we’re seeing what looks like buyers as well as sellers of this straddle, priced to reflect about 15% of BJ’s share price ($5.75) in the balance between now and August 15. Traders who think that’s overpriced are likely selling this position, while those who believe that there’s more choppiness to come in the weeks before its own August 20 numbers (or even a profit warning of its own) are buying into it. Option traders only hold about 19,000 total positions in BJ’s Wholesale Club, with more than twice the number of puts as calls.

XHB- President Bush announced earlier today a decision to rescind his opposition to a homeowners bill that would help struggling owners refinance their mortgages as well as extend authority to congress to infuse cash into Fannie Mae and Freddie Mac. The news appears to be behind the 5% gain we’re seeing in the value of the SPDR Homebuilders’ ETF, which reads $18.76 at present dispatch. Option traders, however, have put about 3 times as many puts in play as calls, with what looks like put spread activity going through between strikes 15 and 18 in the August contract, and again at the 11 and 12 strikes.

DTV - Shares in DirectTV are trading .83% higher at $26.70, but our interests were grabbed by a 10,000-lot put spread that spears to have gone through between strikes 20 and 25 in the January ’10 contract. The volume represented 9 times the normal level of interest that option traders normally show in DirectTV. Both ends of the spread traded to the middle of the market, so we can’t confirm the directionality of the activity here. A long player would be looking for restrained downside in Direct TV shares over the next 18 months, paying a $1.96 credit for a transaction that doesn’t begin generating profit for the buyer until Direct TV shares drop another 12% from current levels. A short player would take that $1.96 spread as a credit, wagering on shares remaining above the 25 level into 2010. DirectTV shares have in fact traded as high as $29.10 over the past 52 weeks.

SGMS- Unusual options activity this morning in a quirky stock – Scientific Games Corp, the maker of lottery systems and scratch-off tickers, which is due to report earnings on July 31. An increase in option trading volume to 18 times the normal daily average brought about the highest level of call trading activity in at least 52 weeks as shares read 1% higher at $30.53. Here it looks like a trader took a fresh 2,000-lot long position in August 30 calls for $2.30, but chose to limit his trade costs, reining in the break-even point on the trade by funding it with the sale of 2,000 lots at the October 40 call strike. Scientific Games is due to report earnings on August 1.

NRG- NRG Energy – A 4.6% drop for shares to $36.02 concurred with an increase in option trading volume to 2.3 times the normal level. This appeared in a 1-by-2 call spread, which may have involved the trader selling 10,000 lots of August 40-strike calls for 77 cents apiece, and buying 5,000 of the 37.50 calls for 1.83 apiece. The trader in this case is limiting his initial trade costs to just 29 cents apiece and playing against a break of $40 for NRG, the cost having consistently traded below that level since July 9. NRG shares have averaged $41.07 over the past 6 months. Implied volatility at 45.6% is elevated against the 30.7% historic reading on the stock.

AET- Aetna shares rallied 6.3% to $38.44 following Wellpoint’s earnings report and well ahead of its own July 31 release. Option volume stands at 7 times the normal level right now due to heavy buying and selling at more than twice the open interest at the August 40 call line.

WFC- Shares are 2% higher at $31.03 at present, but it looks like option traders are playing the other side of this one, scooping up put positions given that implied volatility has come off by one-third in the past two weeks. Put volume has picked up mightily this afternoon, outpacing calls by 2-to-1 on a sum volume of more than 300,000 lots. In addition to heavy front-month interest at strikes 25 and 30 (where the positioning is fresh), we saw what appeared to be heavy buying interest in 32.50-strike puts at $3.70 apiece, and long put spreads between strikes 22.50 and 27.50 – this position comes with a 95-cent net debit for the long player, which means the trade performs best if shares decline at least below $26.55 (14% off current levels) but not below $22.50.

Can it really be this easy?

Will the energy markets die not with a bang (or a pop as it were) but with a whimper?  While we would love for that to happen, we’ve had some other very nice drops that have turned back up on us but it’s very encouraging that oil fell under the 50 dma at $133.60 on Thursday and has had no luck getting back over and is gathering steam to the downside.  As Tom2oc said in his post, yesterday was a helluva great day for the markets and the tide is certainly turning, both technically and fundamentally.

We have our housing deal, oil is down (and NOW Cramer is starting to figure out the market’s inverse relationship to oil) and the dollar is strengthening - these are the three things I said we needed for a market turnaround and they are finally happening!  While we are not ready to go crazy just yet, this is the early stage of what we hope will be the post-earnings turnaround I predicted in our 2007 Index Round Up on New Year’s Eve.  At the time I said: "The best case scenario would be a commodity sell-off leading the index down while retail (probably consumer staples) and financials hold things together as that would address what’s wrong with the S&P at the moment."

We are miles below the 2,700 level we had on the Nasdaq back in December and I’m loving the QQQQs as a long-term play right now as well as the DIA calls (we’re done with puts for now).  If my theory holds up, which means oil needs to get below $100 again, then the March ‘09 $45 calls at $4 should prove a hell of a bargain and we can sell calls against them along the way, hopefully the Aug $47s for $1, now .35 but, if I were gambling with the short-term call I would choose the Sept $46s at $1.33 and we will take 10 of those for the $10KX Portfolio.

I hit it on the head yesterday at 10:04, when I said to members: "Qs held $44 nicely.  QID puts will be interesting if GOOG breaks up.  XXX"  Right at 2:30, GOOG took off and the QID’s started dropping like a rock, these are still our favorite momentum plays but very, very dangerous!  We are, of course, very heavy in Google and Apple, as I said at 9:50, with Apple at $151.15: "AAPL has certainly opened the discount window on their stock and if it wasn’t for the Jobs issue I’d be transferring much of my wealth to them today.  As it is I’m DD and rolled on my longs.  I guess we’ll have to pay $2 to take out the $165 caller in our Applefly, I thought we’d do better but I’d rather free up the spot than wait.  XXX"  While we were prepared for a long siege on AAPL, the speed of the turnaround caught us by surprise as we stopped out of our $155s early but, on the whole, we are thrilled with the comeback as it’s a very heavy position for us.

We need follow through to get fully out of the woods but we should be thrilled to cover at these levels after staring into the abyss in the morning yesterday and coming out in such good shape.  It’s still a very long way back to 13,000 (12%) and we are still in the middle of a huge earnings week.  We need the dollar to stay strong, we need oil to keep going down and we need meaningful action on housing.  A week ago, at 10,800 with oil at $145, that did not seem very likely and we still need the breaks to keep going our way to pick up some meaningful momentum.

Asia gained a little momentum today and the Nikkei followed through on that last minute buying yesterday with an early rally that took the index up another point to 13,300, but just barely at the close.  The Nikkei and the Dow usually run neck and neck but the Nikkei broke down last summer and has fallen far behind.  We already have TM (good news today) and SNE plays and the EWJ is a nice way to play a recovery over there with the March $12s very thinly traded at $1.15.  The Hang Seng jumped 2.7%, India picked up 6% as their government survived the no confidence vote and even Pakistan was up 2% this morning.  All this was despite the disappointments in the semis that are very big players in Asia.

Europe is up about a point ahead of our open as EU investors are a little pessimistic still and sending most of their investment money to Asia and America, taking advantage of the Euro’s relative strength while it lasts.  Volkswagen had a 35% jump in net profit as they are playing the BRIC market perfectly and investors may have been disappointed with VOD’s results but the board isn’t and the company will buy back $2Bn worth of shares (1.5%) that should put a nice floor on the stock at $26.

Our futures have fallen off as T came in with in-line earnings and BA missed, although, if you check out the advanced notes for the 10:30 Conference Call (way better than waiting to listen to it) you’ll see that they project an increase in cash flow to go from $2.5Bn this year to over $6Bn this year (thanks Fredrang!).  That means we buy out our callers, and pick up some cheap September $65s, maybe for $3 at the open while people panic over the headline miss.  With any luck, we may pick up 50% before lunch…

NWA had a huge miss but it’s not bothering pre-market investors nor is a miss from UIS (but it bothers me).   ATI had a nice beat but lowered guidance but APD, CNH, COP, ETH, EXC, GD, HSY, MCD, NYT, PEP, PFCB, PFE, PM, PX, R, SLM, SOV, TRV, WLP, WHR and WYE are the hits that keep on coming as generally low expectations are being beat in the vast majority.  Guidance remains very conservative across the board but, if oil falls below $110, then guidance is WRONG and we can place our bets accordingly. 

Things are certainly looking up let’s hope the oil inventory report doesn’t blow it for us!