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Will We Break Out Wednesday? No.

So close but yet so far!

As you can see from David Fry’s chart of the QQQQ’s, the Nasdaq is looking to boldly go where no index has gone since last October, back through the September highs!  If you look at the chart pattern, we have a nice "W" bottom already in and a breakout here at 40 on the Qs could mean we’re heading back to where the drop began – way up at 47.5.  That’s a neat 20% gain from here and that would give us Dow 11,160, S&P 1,200, Nas 2,400, NYSE 7,800 and Russell 700.  

What?  Do you think that sounds like a bit much?  Well, if you question the resulting trend of a breakout then perhaps you should get ahead of the curve and question the breakout in the first place…    

Does it strike you as strange that a breakout here and a move up to the top of that "W" would put stocks back to where they were valued last June, when the average company earned twice as much on 35% more revenues?  Do you really consider MRO a value because they beat expectations of .53 by earning .58, "just" 39% below last Q2.  MGM is down 21%, TAP down 54%, RRI down 61%, APC down 37%, CTX down 49%, FST – 64%, LF -27%, PHM – 57%, VMC -29%, ADM – 24%….  Well you can look them up yourself here and I’m not saying there aren’t winners in this market, but they are few and far between yet the rally is indiscriminate – as if the whole market is spectacularly undervalued. 

While I have long been in the camp of those saying "The economy is not that bad," I do have to, at this juncture, point out that the economy is not THAT good either.  Keep this in mind when you are buying stocks.  How far away are we from your company earning what it earned last year?  What is your expected growth rate.  Keep in mind that last June, your company had positive guidance and was projecting revenues and earnings 10-20% higher than that by 2010 and all we are saying here is how long will it take your company to get back to what it was earning in 2008?  If you say 2 years – then look at the price of your stock in 2006 – THAT is probably a fair value for your stock! 

XOM, for example, made $8.47 per share last year but made just $1 last quarter and projects making $4 for all of 2009.  In 2010, XOM projects to make $6 per share.  That’s still 25% less than last year, when XOM topped out at $90 with oil at $140 a barrel and gas at $4 per gallon.  XOM is now trading at $70, just 22% lower than last year on 50% less earnings with oil at $70 and gas at $2.50 a gallon.  On what fantasy world do investors imagine XOM can possibly get back to last year’s value in 2 years?  What would it do to the global economy IF XOM were able to charge us $140 for a barrel of oil and $4 for gas again?  Where would the money possibly come from?  Over 100M more global workers had jobs last year than currently do – some of those people must have been XOM customers.  So $70 for XOM now is silly – a ridiculous valuation based on a recovery not even the pump monkeys at CNBC would have the gall to project.

We are seeing too many earnings misses being "forgiven" this season, as if we are in such a bull-run market that a few peccadilloes along the way are simply ignored by investors and even companies with both earnings misses and lowered guidance are finding buyers (especially if they are in, of all things, the real estate sector).  This is madness, MADNESS I tell you and it’s the same madness we had when the Dow went from 11,500 to 14,000 in 2007, even as the evidence of a massive housing and lending crisis was mounting and retail sales were plummeting as more and more discretionary dollars were being pumped into gas tanks.  The last time XOM earned "just" $4 per share was 2004, when they earned 3.89 per share (up from $3.23 the prior year) and were on the way to earning $5.71 per share in 2005.  What was XOM’s stock price in August of 2004?  $45 a share!  What was XOM’s stock price in Aug of 2005, AFTER they posted a 50% ACTUAL increase in per share earnings?  $65 per share!  How much are "investors" paying for the 2009 version of XOM that HOPES to make $4 per share this year?  $70. 

If all this seems fine to you – then by all means BUYBUYBUY but it seems to me a little caution would be advisable as some stocks – many stocks, have now gotten so far ahead of themselves as to be dangerous.  We are going to give the indexes until Friday to show us the levels but, on August 7th, like our man Clint, we will begin hunting for stocks that should be "unforgiven."  In contemplating the safest way to invest in our new $100K Virtual Portfolio, that will begin after August expirations, I found that there were few bargains out there to go long on but the opportunities to take short positions, in what is effectively a "Sell/Write" position, were simply everywhere.  In the short run, the market can do whatever it wants but, when we look at long-term investing, fundamentals do kick in and I can promise you that no one is going to pay $90 for an XOM that makes $6 per share – not for very long at least.  That means XOM meets our criteria for a sell/write as a stock that is NOT going to gain 20% in the foreseeable future and is more likely to turn down over time.  These are the kind of opportunities we’ll be looking for to balance out our long market plays

Asia finally saw some red this morning with the Hang Seng falling about 500 points from an opening run up, down 300 for the day but giving up the last 3 days of gains (one could say just filling a gap if they bounce back).  The Nikkei dropped from the opening bell to the close but just 1.2% in the end and the gap was not filled but 3 days of gains were also erased.  "Players are worried that markets are becoming increasingly immune to positive cues, while any negative cues may trigger profit-taking," said Investrust chief executive Hiroyuki Fukunaga.  "A technical correction seems to be needed, to cool down the overheated market," said So Jang-ho at Samsung Securities in Seoul. "Better-than-expected earnings are already priced in, so players are now quietly waiting for U.S. jobs data (due Friday)," said Mizuho Securities market analyst Yukio Takahashi in Tokyo.

Europe is trending just over flat at 9am despite a 0.2% drop in June retail sales from May’s report (and off 2.4% from last June).  Economists had expected a RISE of 0.2% and that sales would be off just 0.4% from last year so they missed it by a mile but – oh well!  Retail sales for meay were revised lower as well.  German retail sales were hit hardest, with a 1.8% decline from the previous month.  As I said to members this morning: "At this point, it’s important to keep an eye on the MSM as there is virtually no negative news at all and sentiment is very, very bullish."  This market will not turn down on bad news – there is plenty of that already, this market will turn down when the media turns on it and they will do that once cheerleading stops drawing ratings (something Tyler noted last week).  Both the BOE and the ECB have rate meetings tomorrow but it’s doubtful there will be any changes. 

We got our ADP report this morning and 371,000 jobs disappeared in July, just a tad higher than the 365,000 losses expected and quite a bit better than June’s 473,000 losses.  So that’s "only" 844,000 less people working on August 1st than there were on June 1st – it’s a slow march to victory I guess….  We have June Factory Orders (expected down 0.5%) and July ISM Services (expected 48.5, up from 47 but still contraction) at 10 and crude inventories at 10:30, which will be interesting as we had a 5.1Mb build last week and this week there will be a draw in crude (refineries upped capacity) but a probable build in gasoline in what should be the very height of summer demand.  Forecasters disagree with me and are looking for an 800,000 barrel build in oil and a 1M barrel draw in gasoline but they agree with me that distillates should build by about 1.2Mb as well.  We’ll see if oil can break over the magical $72 mark.  We’d actually like them to so we can short them again but for now, we are sidelined on energy trading.

For now we will watch and wait.  We are still slightly bearish in our index covers as nothing that happened yesterday really impressed us.  While 40 is our key break out line on the Qs, SMH is already over 25, XLF is over 13.50, RKH is right at 75, XLB right at 30, XHB is right at 15 and, as I mentioned in yesterday’s post, our dollar is right at 78 and $1.70 to the Pound is still key there.  If the dollar comes back, the market will drop hard (especially commodities) and, meanwhile, we’ll be keeping an eye on these key levels to show us the direction.  You can be skepical and still go with the flow – it just makes your brain hurt a little if you haven’t switched it off yet

 


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  1. DB

    Pump the numbers – bad reporting. Dow Jones says :
    "NEW YORK — The pace of layoffs may be easing. Private-sector jobs in the U.S. fell 371,000 in July, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers. The expected loss was about on par with the 350,000 drop in the ADP survey projected by economists in a Dow Jones Newswires survey. "
     
    So a 6% miss is "On Par" with projections ? Tell you what – I’ll give them $350K if they give me back a par $371K :-)

  2. where

    DB!  Haha!  I’ll take your 6% too.

  3. smasher

    Anyone see the 5 minute advertising job CNBC just gave to Office Depot?  There were no questions about the companies balance sheet, future plans, ideas about the stressed consumer, nothing.  It was their rep (I missed if he was the CEO) telling them "we’re ready with everything the consumer could want to buy for back to school".
    Does GE own a big portion of Office Depot?  Did Office Depot pay big money for that segment?

  4. matt1966

    Phil, how will the pullback manifest itself?  Will it be sudden or sneaky?  Guess I should look at June for the answer..

  5. jomama

     smasher, he didn’t even answer the one "psedo real question"…how will all of these promotions and discounts effect your margins.  the answer is of course obvious but magnified by his avoidance of the issue.

  6. jomama

     who goes to Office Depot for their "technology needs" anyways.  Are you freaking kidding me.  I would rather have the geek squad before i asked these idiots about a computer, connection, etc.

  7. EricL

    Crude futures going up ahead of inventories. /CL bottomed at 62.75 last Wednesday after a very bearish inventory report. They subsequently jammed it up nearly $9/barrel. Today they aren’t even pretending to be worried, and why should they be, really?

  8. Cap

    The market looks good it really really does; guys want to get in; its safe now; I want to put all my money in it
     
    Who is this doofus trader ?

  9. ephmen85

    WFMI   I’m going to get smacked.  I need help on adjusting this position.  + 6 Jan 10 17.5 Calls, + 3 Jan 11 20 Calls / -6 Aug 22 Calls, -6 Sep 22 Calls.   That hairball is somewhat offset by some short puts that are on their way to expiring, but I still have -200+ delta even before the +$3 opening jump we’re about to have.

  10. smasher

    Morning futures off, pump into the open.  Good to see the market is behaving like normal.

  11. confizzled

    How can OIH drop 4 points from yesterday’s high while USO actually goes up during the same time?

  12. smasher

    So they’re pumping the REITs again.  SRS has become a nightmare

  13. matt1966

    If  you look at the homebuilder stocks and their crazy rise.. one can only assume that the market has AGAIN taken on a bubble mentality.  Some of these companies, who have been losing money for a year now, have been so bid up there is no other way to explain it.  They are NOT coming back to where they were.  Probably ever.  At least not in the next 15 years.  So WTF??

  14. oldgoat

     Who will buy these new houses???? This is insane!

  15. bigs

    SRS – Phil what is the escape plan on that roll down?

  16. matt1966

    Actually, alot of it is simply short covering.  We have to factor that in now.. in addition to new money chasing the market.  That’s alot of stimulus.  Might as well just let it run its course.  Cash is fine.

  17. smasher

    Market Stories on Google
    ADP at -371000
    Polo Ralph Lauren profit drops 19%
    P&G 4th quarter profit falls, sales light, shares skid
    Baker Hughes 2Q profit falls 77%
    Mortgage Rescue – only 9% getting help
    with a couple of so-so earnings sprinkled in.

  18. EricL

    TKLC had a small beat and guided in-line. Market didn’t like it and stock is off over 10% but is sitting on nice support at around 16.40. I’m not doing anything yet, but I’ll consider buying Feb 10 calls selling the Sept. 17.5s later this week.

  19. Fabregas

    SRS – PSA VNO BXP EQR all on fire

  20. EricL

    IYR moving explosively higher again. Amazing. TKLC (with a beat) gets smashed. LOL

  21. Phil

    And up we go (of course!). 

    Same old leves to watch as yesterday: Dow 9,297, S&P 1,000, Nas 2,017, NYSE 6,438, Rut 562 and SOX 308.  All over now except the Nas but the Qs just punched through 40 so my prediction is looking like it may be wrong with just 5 Nas points to go.  Who’d have thought that the Nas would be the drag after all that leadership?

    The indexes that are at key levels are: SMH 25, XLF 13.50, RKH 75, XLB 30 and XHB 15 - if those can stay over their lines, that’s rally fuel but this morning feels a little pumpy with 30M shares jammed into the first 15 minutes so it is still possible we get a big pullback from here. 

  22. merkhava

     GOOG opened near 457 and has been selling off…. back to 450 in first 20 mins…. git er dun… chuckle

  23. tradansh

    Phil – SIRI / took your advice and sold the majority of my positions and got some calls. SIRI now at .60

  24. spider

    Conf:  OIH is heavy loaded with RIG (16%+)  and today earnings was not good.. Rig down 3%+

  25. lafitu

    David,
    OSG gives me a good profits…just sell if for a 25% profits.

  26. ephmen85

    WFMI  I cleaned up the worst of my position (9:28 post) via + 6 Aug 22 Call / – 4 Jan 10 17.5 call) for a $2 credit.    I’m thinking of roll up my longs next and then adjusting my shorts with a 2X roll.   Where should I move my longs: 2 Jan 17.5s and 3 Jan 11 20s?

  27. where

    David R – Thanks for the gamble pick yesterday!  Picked up a few calls yesterday at close and sold this morning into tthe excitment.

  28. where

    Oil back under $70

  29. matt1966

    FINALLY some sanity!  But how long will it last?  I give it till 11:30.

  30. Phil

    WTF?  I just wrote that last comment and already the markets whipped negative?  That was beyond strange. 

    Par/DB – LOL!

    Office Depot/Smasher – Doesn’t that just smack of desperation anyway?  Back to School at Office Depot – certainly couldn’t have been their key demographic when they made their first business plan.  I don’t know if GE owns ODP but BCS, who own a lot of GE, are major holders of ODP too so you can see how that deal might get done.  And, of course, ODP carries many fine GE products…

    Pullback/Matt – June was started with a Monday – Tuesday dump that was so harsh we thought that may have been "it" at the time.  This fall is likely to be slower as there are going to be many, many dip buyers who don’t want to miss out on the "bargains" if we fall just 2.5% from here.

    ODP/Jo – Good point.  Yes, you can increase sales by giving things away for free – it just doesn’t bode well for earnings.

    June Factory Orders up 0.4%, last month revised down from 1.2% to 1.1%.   ISM, on the other hand, is way off at 46.4 vs 48.5 expected and that’s lower than last month’s 47 too.

  31. merkhava

    And the roulette ball lands on red…. chuckle
     
    Finally markets are giving up some downside action… can SPY 100 puts go deep in the money…. pretty please?

  32. David Ristau

    Latifu and Where – Glad to help out. Try to keep it going tonight with another underrated company going into tomorrow. For now, let’s see some more selling of Noble and Orbitz.

    David

  33. Pharmboy

    Phil – Nice little gain on CHSI!  Now the 4/5 C will need some adjusting.  We have 4 25 Aug09 C covering 5 20 Dec09 C.  Would you suggest rolling 2X 20 Dec to 25 Dec and then moving the covers 2X as well up or waiting?  I see them moving higher in the short term as they are picked up by more analyst.

  34. Pharmboy

    CIT really wants to move up. In at 1.21. Let’s see if it goes.

  35. ssdirk

    Why would AIG be going up like this? Any news?

  36. ssdirk

    SIRI – FWIW, my $0.02 from purely a consumer (ie. NOT investor) point of view…I think their time is limited.  I felt like I was one of sat. radio’s biggest cheerleaders and have made a lot of money trading both XM & SIRI along the way, but now I think the combined company sucks.  Other than listening to CNBC on my commute (I get more laughs than the comedy channels), I don’t even turn mine on, and one of the things I enjoyed most about it – the sports – is now a "premium" feature.  
    If you listen to them for the music, I highly recommend the "Pandora Radio" app for the iPhone…I haven’t even listed to my iPod since downloading it.

  37. DB

    US treasury to auction a record $75 billion next week. You guys dont do things by halves !

  38. EricL

    DB, we taxpayers need that auction money to finance the AIG credit-default swap settlements (at 100 cents on the dollar) we gave to GS, BAC, and other banks for their failed risk management in originally buying the CDSes from AIG.
     
    So try to be a little more understanding, o.k.?

  39. confizzled

    Phil-  What is the best (most bang for the buck) way to short oil?  Can’t do it right now as all my money is tied up in SRS but for future reference…OIH puts?  DUG calls?  USO puts?
     
    Along the same lines, what do you think of this OIH trade?  Selling one OIH Aug $105 call (delta of .46-.48) for $3.10 and buying 4 OIH Aug $115 calls (delta of .11-.12) for $.47 each.  The four cheaper calls add up to almost the same delta as the call we’re selling so if OIH starts shooting up, it seems like I’d be covered…meaning my 4 calls combine would gain enough value to offset the value increase of the call I sold.  I walk away with a dollar from the trade and if OIH stays down, I get to keep the dollar.  If I spend $2K buying those $115 calls and take in $3.1K by seling the $105 call, I can make an $1100 profit….50% return in less than three weeks.  Sounds too good to be true so there must be a hole in my theory somewhere right?

  40. Phil

    Crude/Eric – It’s critical they hold $70 after inventories if they are going to make progress this week so they need as much buffer as they can ahead of what may not be great numbers. 

    WFMI/Eph – Wow, in that whole slow, steady rise you did nothing?  No following the stop out 1/4 if they gain 25% rule, no buying more longs, no rolling the callers up when they ran out of premium — nothing?  Oh well, it’s not so bad really, the Jan $17.50s are $12.43 and can be rolled to 12 Feb (may as well take the month) $25s at $6.70 ($2 in premium).  The 3 2011 $20s at $12 can also be rolled to 6 Feb $25s and that leaves you with 21 Feb $25s at $4.70 with 12 callers at $7.75 and those can be rolled to 18 Nov $28s at $4.   Overall, you are moving from $11,058 in longs against $9,300 in sold calls (all intrinsic) to $12,060 of Feb $25s that are $3 ($4,800) in the money to $7,200 in callers who have $3,600 in premium and you still have 2 more months to roll.  It’s not a great save but it’s a pretty deep hole you were in.  You can also offset a little by selling puts, as long as you don’t mind that risk.

    Now we’re moving!

    OIH/Conf – Oh we were saying they were silly at $108 for days…

    SRS still can’t get it going, a lot of firepower is still going to save that sector (DHI too!).

    SRS/Bigs – I’m not on the escape just yet.  So far, things are more or less according to plan but if we turn up again, maybe throwing in the towel.

    SIRI/Trad – Good job, much more relaxing way to play!

    CHSI/Pharm – Sadly, there are no $27.50s to roll callers to.  As long as you love them long-time, you may as well go from 5 $7.75 Dec $20s to 8 March $25s at $4.70.   Then you have a 1/2 cover with the Aug $25s and you are well in the money to them.  If we head higer, then you should get a closer to even roll to 2x the Sept $30s (now .60) or you can just roll the 1/2 cover forward to Sept $25s if you don’t like the offerings and we wait for October to print.  Obviously, if things head south, you can add 2 or 4 more $25s and you would be excellently protected. 

    AIG and CIT are both crazy but people think they will get something if the companes split into good and bad assets.

    Pandora/SS – Yeah, me too but SIRI has major momentum as it’s included in so many cars so a resurgence of auto sales is almost and automatic win for them.  Long-term, WiMax (if it ever comes) should put them right out of business.

    $75Bn/DB – Sure we do, that’s HALF of what we need for the month!  8-)

    Oil testing $70 but I missed the inventory numbers but I take it they weren’t too bullish as oil tested $70.

  41. maxt1234

    pharmboy,
    what’s your stop loss on CIT?

  42. Phil

    Oil inventories:  Crude up 1.7Mb, Gasoline up 0.2Mb and Distillates down 1.1Mb so actually a farily neutral overall report but we’ll have to wait until 1pm to see what the import numbers were.

    Shorting oil/Conf – Well ERY gives you the most bang for your buck as it’s a 3x ultra bear on oil.  Since oil has barely budges so far, I do sort of like the Oct $19s at $2.50, selling the Aug $17.50s for $1.50.  They should both gain about .50 per $1 but you have a roll-up to the Sept $20s (now $1.40) at least so you would be in for $1 on a $1 spread with a month advantage.  If you are more bullish, buy a few extra Octobers or stop out a few callers on the way up.

    OIH/Conf – Why buy 4 when they will only gain .22 more than 2.  AFTER it goes up $1, then you can give up and buy 2 more but no sense in laying the money out for no reason (unless you get worried about the overnights).   Also, I would like the trade much better if you weren’t chasing a $5 drop….

    And SRS goes LOWER while the market drops 100 points.  At this point you have to call shenanigans…  I still like the $13s for $1 as this is just nuts!

  43. mindeyes

    Hi Mr. Phill,  I am a Venezuelan lady tormented by our politicall situation, who use to be an emerging market trader, and many other executive positins in the finance "arena" and now is trying to built a new concept and service for asset management for clients on my own, I am in the trial and learning process at the moment, I also invest for some friends and myself. I want to congratulate you , because reading you fill my days with a touch of irony (besides ,of course the spectacular market insight) that happens to give me energy, its a joy the remarks and comments even the pictures used, sometimes I just read it for the fun, I completily agree with your thouhts, though we belong to totally different cultures and enviorements and certanly realities Your readings is like a little hand helping me out to be in the market and fight for my devastated country where every single day we looe inches and yards of liberty. You shoul try to writte a book!

  44. confizzled

    NEW YORK (MarketWatch) — Oil futures extended their decline to trade below $70 a barrel Wednesday after the Energy Information Administration reported that crude supplies rose by 1.7 million barrels during the week ended July 31. The EIA also said that gasoline stocks fell by 200,000 barrels and distillate inventories dropped by 1.1 million barrels last week. Analysts surveyed by Platts expected the EIA data to show a rise of 1.5 million barrels in crude stocks and a decline of 2 million barrels in gasoline supplies. They also projected a build of 1.1 million barrels in distillate stocks. After the data, crude for September delivery was last down $1.65 to $69.78 a barrel on Globex. Before the data, crude was trading near $70.73 a barrel.

  45. Pharmboy

    CIT stop is 1.16.

  46. merkhava

      Hey Phil…. here is what I’ve got on my charts
     

    Naz resistance at 2050 and support at 1930
    RUT support is 560, if we test and hold 560, then it’s an air pocket all the way up to 640
    DJIA support at 9220 and hard support below that at 9030…. and there is an upside air pocket all the way up to 9900
    S&P500 support at 988 and an upside air pocket all the way up to minor resistance at 1050, then firm resistance at 1098
     
    GOOG is having a hard time breaking down thru 448.5… that’s frustrating to see it bounce on that line
     
    Cramer last night said the "pros" are buying the dip because they have no choice…. LOL… down we goooooooo

  47. Highlander

    phil,
    actually office depot (odp) is just trying to copy office max (omx) which i think has turned into a real back-to-school leader over stores such as target and walmart. for example, when looking for ‘locker kits’ for my young daughter entering middle school (private catholic) and getting a locker for the first time, walmart and target completely struck out but then we went to my office supplyer of choice (i.e. office max ) we had a huge varity of ‘locker stocker items and kits’  to choose from which ended up costing me overt $100 but my kid was happy and excited. She is still looking our purchases over and making plans for her ‘locker’  and school still does not open for two more weeks. it is also important to note that the more mundain pencil/paper/organizer type items are now available for purchase through the schools at highly discounted prices and also allow parents to skip the crazy process of trying to match store items to a school’s highly specific lists. but not so for descretionary items such as much more profitabe items such as locker items.

  48. Pharmboy

    Option movement on CIT looks like it wants to go to 1.3 – 1.5 (C out number P 6:1 @ 1).  Big spread, but I may cover with $1 Sept at .5 just to let it ride.

  49. DB

    EricL/Treasury – I’m understanding, honest, In fact6 I’m being made to understand lots as my dollars get weaker against the pound I’ll eventually want them in :-( We both deserve my sympathies.

  50. Pharmboy

    Sorry, that is 3:1 C:P.

  51. dstillwe

     PD – David is hesitant to reco option plays on his day trades (he’s honest about options not being his bag.)  My question:  looking at OWW as an example (his shortie for the day), what’s the best way to choose the appropriate put (price and date) to make the short rather than going with the stock? Thx.

  52. dstillwe

     QQQQ – I’ve got Aug 41 puts that cost me $1.54.   Up 6% in short order, but worth riding out a bit?  

  53. matt1966

    Phil, maybe we’re jumping the gun on SRS.  I think maybe we need to be more patient for the payout on them.  As you’ve said before, this Christmas will be so critical for many many businesses.  And I just don’t see how we’re going to have a good one.  Therefore, I see alot of businesses, smaller ones, folding January/ February of next year.  The impact of that will hit commercial real estate hard.  Alot harder then what they’re up against now.  Does this sound reasonable to you or do you think there needs to be a snap back sooner then that?  I know with options time is money.. but holding the actual etf, despite the deterioration, could be the way to go on them.  I just think the banks are behind alot of this because its in their best interest to put the best possible light on the sector in that they are holding so many of the underlying assets.  It’s definately a time bomb on their books.. but the fuse is longer then we would initially think.  Of course if the accounting board gets their way and changes the way long term assets are valued, it will happen alot sooner.  But I’m not sure how they are going to sell that one.

  54. joebaseballsr

    Phil
    Good Morning.  Doesnt MOS look like a good short here up 1.41 at 55.10.
    thanks

  55. where

    Distillwe – not alot of choice there, basically straight up 5P if you hope to get any real return.  I grabbed 2 just to see what happens.

  56. confizzled

    "OIH/Conf – Why buy 4 when they will only gain .22 more than 2.  AFTER it goes up $1, then you can give up and buy 2 more but no sense in laying the money out for no reason (unless you get worried about the overnights).   Also, I would like the trade much better if you weren’t chasing a $5 drop…"

    So I’m not missing anything in my equation (i.e. the deltas might drop faster or the thetas might rise faster on my cheaper calls vs. the call I sold)?  This type of trade (ratio backspread?) seems too simple and profitable.  I feel like I’m not taking all the possibilities into consideration.
     
    In regards to chasing the $5 drop, understood.  Maybe I’ll try it on USO which hasn’t lost nearly as much value as I felt it should have.

  57. where

    Well there goes oil up again. Up a $1 in less than 30 min.  Maybe cheap oil is a thing of the past?

  58. dstillwe

     Thx, where.  August?

  59. ssdirk

    WTF – AIG up 24%, RDN up 54%, ABK up 24%, PMI up 20%, CIT up 19% – just today!!

  60. where

    Dstillwe – yup Aug.  This falls under a "gamble" play, so treat it as such.
     
    Oh, and SRS is the sweet, sweet girl next door that lures you in with promises of untouched delight only to chop your gentleman’s vegtables off forthright.  (no offense to women in the room, you may substitute cabana boy or stable hand as required)

  61. confizzled

    70% of my portfolio is in SRS calls and another 20% is in USO puts…….all down more than 50%.  As Forest Gump’s momma said, stupid is as stupid does :( .
     
    This cannot be be happening.  The oil inventories come in 20% higher than expected and USO shakes it off while SRS is getting murdered despite evidence that the economy sucks. 

  62. matt1966

    HOV with new high for the day.  I don’t get it.  I guess it’s just folks that think the worst in the residential market is behind us.  Can’t fight the insanity.  But they are wrong.

  63. ephmen85

    WFMI/Eph – Wow, in that whole slow, steady rise you did nothing?  No following the stop out 1/4 if they gain 25% rule, no buying more longs, no rolling the callers up when they ran out of premium — nothing? 
     
    Actually I did add more and roll callers, etc.  I think the position started out as 2 long contracts.  In any event, I have not been able to keep as close an eye on things since I started working.  Thanks for the suggestions, though.

  64. smasher

    Matt, I had a similar feeling yesterday about "jumping the gun" on SRS.  It was painfully obvious the last earnings season the banks were jacking up the REITs and pumping them up to do stock offerings….so they could get their bonds back.  ZeroHedge did an entire series about all this.  We should have learned the last time around that the REITs are going to be gamed even more than oil because the banks have more to lose.  Any sane person knows that housing will merely stabilize over the next 2 years before any real organic growth begins.  Calc Risk has been beating this drum forever.  Yet, REITs have been on a steady climb for  a couple months now, up 100% off their March lows and only 30-35% off their pre crash levels.
    I’m going to hold on for a few days and on any reasonable pull back I’m just going to take my SRS medicine (for the third time now) and wipe my hands clean of anything REIT until reality starts to set in – which may be never.

  65. Phil

    Dow with a big gap to fill if we break below 9,200, it could be a very fast 50 lower.  That would be the 1.5% line and then very critical as 100 points more (2.5% total) would fill the gap from last Monday. 

    Of course it is technically more likely that we hold the 1.25% lines, which are right about here, as we wait for tomorrow’s Non-Farm Payroll report, which can then move us one way or the other past resistance.  We’re going to see an unemployment number of no less than last months 9.5% and very possibly 9.7% which you would imagine is a bad thing but a beat of the 370K job losses expected would trump the bigger indicator. 

    Volume is now 70M at 11 and that’s back to average and supports my theory that the opening 15 mins were a pump job. 

    CNBC just pretty much said:  "We will be discussing the ISM numbers as soon as we can figure out how to put a positive spin on it."

    Charts/Merk – That’s RUT 460 I imagine.  I don’t know about an upside air pocket though…  There’s an "upside air pocket" between here and space but I rarely wake up to find myself floating out of bed…  Up moves in the market must have thrust (money flowing in).  You can judiciously apply small amounts of thrust at the right time (sticks) to get the desired effect but somebody, somewhere, needs to put money in to move the markets higher. 

    ODP/High – That’s interesting.  It wouldn’t occur to me to take the kids to OMX or ODP but we do go to staples.  I was just in ODP last week and didn’t see any back to school stuff so what the CEO said just seemed odd to me.

    Oil just jumped back over $71 in one mighty round of buys as if a hurricane was just announced or maybe someone at GS made a phone call…

    Markets getting goosed too, must be this news that Junk debt defaults rose to 9.4% with the "green shoot" being that the S&P now forecasts that defaults will peak at 13.9%, down from 14.3% estimated.

    OWW/Dstill – It’s not always appropriate to play options for day trades.  You don’t get the full thrust of the move and you pay a spread on each end which, in a $5 stock especially, could wipe out most of your profits, especially in a thinly traded stock.  If it were XOM, I’d say you could short them with the $75 puts at $5.40 because they are very liquid and have just .50 (10%) of premium and should pick up about 75% of any move, which would more than cover the .10 you are likely to lose entering and exiting the very liquid position.  OWW, on the other hand, has a $5 put with a .50 ask (to sell) and a .70 bid, that’s a 40% spread!  Only 71 contracts have been traded all day and buying the $7.50 puts for $2.90 is just a .10 premium but so thinly traded that you could get very screwed moving in and out of the contract.   I think OWW was a great pick for a short by the way, especially on that opening spike.

    QQQQ/Dstill - I’m always for taking 1/2 and letting the rest ride.  You lock in 3% if they head back to even and maybe you decide to buy more there but locking in a win is always nice. 

    SRS/Matt – Very reasonable.  I have grave concerns about this holiday season but this run-up on the kind of earnings we’re seeing in the commercial sector is already out of control.  My plan is to roll back in time and wait on SRS – as you say, the fuse may be longer than we think but there is certainly a bomb at the end of it unless we have a miraculous turnaround in the next 3 months and people flood to the malls, buying so much stuff that CC and BBBY decide to reopen in January before they miss all of the excitement. 

    MOS/Joe – Don’t forget they have a buyout rumor so we like to see them get really ridiculous before shorting.  CAT’s outlook is boosting the sector but CAT is benefitting from government stimulus, not from a resurgence in Farming…  Keep in mind that if they do get bought, puts become worth zero overnight with no chance of recovery, which makes it a very dangerous play.  Still, up here, I do like the $60 puts at $5.85 as a mo trade but out if they break $55.50.

    Deltas/Conf – Well the thing you are missing is your deltas will deteriorate each day so you have to keep a close eye on the play but, as a day trade – it’s a very valid strategy, you just need to be nimble so I’d recommend starting with very small amounts as practice. 

  66. EricL

    "Junk debt defaults rose to 9.4% with the "green shoot" being that the S&P now forecasts that defaults will peak at 13.9%, down from 14.3% estimated."
    LMAO
     
    You guys playing with SRS might instead consider some IYR diagonals, e.g., buying JAN 2011 50 puts and selling, say, Sept. 36s, which gets you in the game with a -36 delta per spread, plenty of time to wait, and a nice, steady income while you do. Much less stressful, IMO.

  67. confizzled

    CBL being up 17% is not helping SRS.  How is CBL up 17% today you ask?  Well, they just reported their earnings and Net income available to common shareholders (not mentioned in the article below) was $8.1 million or $0.10 per share, compared to net income of $9.7 million or $0.14 per share for in the same quarter last year.  Moral of the story, dilute your stock, decrease your net income and your stock will go up 17%. 

    "Shopping center developer CBL & Associates Properties Inc. posted higher second-quarter earnings even as revenues dropped, and it beat the consensus analyst estimate.
    Total funds from operations for the Chattanooga-based real estate investment trust were $59.2 million, or 71 cents per share. That’s compared with $54.5 million, or 77 cents per share a year ago.
    Analysts had estimated the company would earn 63 cents per share in the quarter.
    CBL sold 66.6 million shares of newly issued common stock in the period, raising about $382 million and shoring up its balance sheet along with extensions and modifications to its secured and unsecured lines of credit.
    Charles B. Lebovitz, CBL’s chief executive officer, said the resiliency of its properties was evident in the quarter.
    "In the face of a deteriorating retail environment, we posted an increase in net operating income in the mall portfolio, signed over 1 million square feet of leases and maintained the sequential stabilized mall occupancy rate," he said.
    CBL reported that occupancy in its portfolio as of June 30 dipped to 88 percent compared to 91.4 percent a year earlier.
    The company maintained its FFO guidance for the year at $2.28 to $2.39 per share.
    In the quarter, CBL posted a 2.2 drop in revenues to $266.5 million.
    Katie Reinsmidt, CBL’s vice president of corporate communications and investor relations, said a lot of the company’s focus is on trying to maintain revenue and rent levels, watching expenses and keeping costs under control.
    While revenues dipped, "we were able to offset that with expense savings," she said.
    Same-store sales for mall tenants of 10,000 square feet or less for stabilized malls fell 6 percent, the company said.
    The National Retail Federation expects back-to-school spending to fall by 7.7 percent from 2008 amid the recession.
    "The economy has clearly changed the spending habits of American families, which will likely create a difficult back to school season for retailers," said Tracy Mullin, the association’s chief executive.
    As shoppers focus primarily on price, strong promotions and deep discounts will ultimately win over shoppers, he said."

  68. javaben

    Phil, I did a search on your site, but other then today’s post, I can’t find an entry for "sell/write", so not sure what it entails.  Can you elaborate a little as to the specifics?

  69. dstillwe

     OWW – Hmm.  ET not letting me short Orbitz.  

  70. microflux

    Hello Phils;
     
    The banks seem to be happey today. I have some of the 2011 C spreads which are doing well, its tempting to sell some here with %30 gains.
     
    Also most of the but/write things that we did ran thier coarse and now (%10 gain in total portfolio, by deploing only %50 of the cash), back to mainly cash. so we sit and wait again i suppose ?

  71. confizzled

    "Deltas/Conf – Well the thing you are missing is your deltas will deteriorate each day so you have to keep a close eye on the play but, as a day trade – it’s a very valid strategy, you just need to be nimble so I’d recommend starting with very small amounts as practice. "
     
    Phil-  Will the deltas in my cheaper, further out of the money calls (the ones that would have a delta of .11 to start) fall faster than the delta of the slightly-out-of the money call (which has a starting delta of .44) that I’d sell?

  72. merkhava

    Market bouncing around sideways since 10am data… basically channelling where we were most of the day on 7/30…. today’s market action seems to be acting "supportish" to me and giving me that nervous feeling…
     
    if this were gonna be the start of a big correction, I’d expect more intraday selling momentum instead of this wouldn’t you Phil?

  73. b1ll

    Hey Phil, how do you see FLR and BHI long term?

  74. Cap

    mindeyes … I feel for you having to live under that maniac Chavez.
     
    Hopefully your country can figure out how to rid yourselves of that tyrant.

  75. Cap

    if you can deal with the manipulation, spg still a good short ….
     
    WFC also looks ripe …

  76. Cap

    oh, here comes obama to shovel some more manure our way !

  77. merkhava

    Phil… RUT…. 640 resistance is what I got marked not 460…
    February, March and July 2008 is that area which acted as a strong support level until it was smashed on 10/3/2008
     
    If this market does make a bull run to take back the pre-crash 2008 levels… RUT 640 is my chart target on that index

  78. Pharmboy

    Out of CIT @ 1.31.

  79. Pharmboy

    CIT now decides to fly.  Should of kept with my premis on the upper end….

  80. maxt1234

    Pharm,
    Thanks, CIT was a nice call.

  81. Pharmboy

    MTXX – doubling down on my holdings.  I think they are gonna pop.  More at 5.74.

  82. maxt1234

    Phil,
    I’m short term bearish on GE, I had a covered call on it so I just sold my stock. Do you agree it’s going to have tough time holding $14?

  83. Pharmboy

    Wow, AIG, U go.

  84. Phil

    RDN:

    Radian Group Inc (RDN.N) shares witnessed their sharpest percentage rise as investors cheered the mortage insurer’s return to profitability and the Obama administration’s push to ramp up its program to keep home owners in their homes.  Shares of rival MGIC Investment Corp (MTG.N) and PMI Group Inc (PMI.N) also rose as market built expectations around the government’s loan modification program, which will lower claims for these companies.  For 2009, Radian now sees claims in the $1.1 billion range from its prior view of $1.2 billion to $1.4 billion.

    So a 10% drop in estimated claims yeilds a 50% boost in the stock price.  Don’t get excited bears – the bargain hunters are out in full force.  This is giving the IYR legs and tanking SRS (now down 3%) as well! 

    WFMI/Eph – Ah so this was the fallback!  I’m not trying to dig at you, it’s just important that you know where things went wrong and,hopefully, do a little better next time.

    CBL/Conf – It would be LOL if not so tragic….  Still, if they are really going to earn $2.30 per share, $7 is not very expensive. 

    Sell/Write/Java – I just made that up today so nothing to find.  It’s the same as a buy/write, where we buy a stock and sell puts and calls to produce an income.  The worst case in a buy/write is a stock dips below our net entry and we are forced to buy more (from our puts) at a higher price.  A sell/write, in the case of XOM would be shorting XOM at $70 and selling the Sept $70 puts and calls for $4.75 for a net short entry of $74.75/72.38 so we make a profit as long as XOM doesn’t end up over $72.38 on September expiration.  We are short the stock so we are obligated to buy it back and by selling the puts we are obligated to buy more at $70 if it heads lower so that limits our profit to the downside.  If the stock goes to $75, our putter expires worthless but we have to pay our caller $5 or we will get called at $70 and end up being short another round at $70 with the stock at $75 (making our average net short entry $72.38).  If you are not used to shorting, this stuff can give you headaches..,..

    Buy/Writes/Mirco – Yes, that whole round is DITM and not worth rolling unless we get a huge correction, especially as we don’t really believe in the rally.  There are still things, like C, that seem pretty cheap if we’re really taking off long-term.

    Obama!!!  That was good for 30 points while he was talking.  Now we’ll see how much those good feelings carry through

  85. DB

    Who cares about jobs and manufacturing and boring stuff. Lets see if we can go Green. (Volumes gone so they’re trying  a pump)

  86. smasher

    Someone convince me not to book these SRS and DIA losses and revisit the stock market when it starts to make more sense?  This is getting to be more annoying than I care to play with.

  87. MrMocha

    Cap, any thoughts on the HK earnings report from last night?  I just bought back all my covers for a nice gain, watching to see which way they pop…

  88. javaben

    Phil, thanks for the sell/write explain.  I’m familiar with shorting; I just didnt’ think you employed shorting in the $100KP, so thought it was referring to something different.

  89. maxt1234

    In keeping with my premise that: whatever becomes a focus for the market as a catalyst for a move down is made to disappear, I’m guessing there is a fix in the works for the commercial real estate sector that we will only find out about when it’s too late.

  90. Pharmboy

    MrM – I bought back 1/2 of ‘em (HK)…JIC.

  91. MrMocha

    Clearly yesterday was not the right day for me to buy BAC puts, what a monster!

  92. Pharmboy

    With AIG moving today, GNW might be a lagging candidate to pop as well.  It has moved above the last 3 mo highs.  There is little resistance here to 14.  I am gonna take a flier on a few hundred shares at 7.39. 

  93. Phil

    Deltas/Conf – it depends on the VIX – it’s more a trouble if the stock moves against you as the closer callers will gain faster.

    Correction/Merk – Don’t forget we weren’t expecting a big sell-off until Monday, this is just a rejection off the breakout levels so far (and not a very big one).

    FLR/B1 – I think there will be winners and losers in that sector.  SLB or someone is bound to get aggressive on pricing and start shoving some little gus out of business.  FLR is heavy with the government though and would be hard to push around (although look what happened to HAL).   I think in the fall, if oil collapses again, then you can buy up the OIH plays for a very long-term hold.  BHI is pretty much the same deal, we are always going to need oil service cos but they are no likely to be the gold-mine they were when the money was flying in that industry as oil shot up.   The majors failed to watch their costs (coming from OIH) as the price of  oil rose and now they are winding down a lot of contracts they regret.  I don’t think they’ll make that mistake twice. 

    Dollar broke $1.70 to the Pound by the way – that’s what’s floating the market right now.   Oil just under $71 and gold having trouble breaking $970.

    640/Merk – Oh, I thought you were looking at a downside target there.

    GE/Maxt – They shouldn’t really as the thing that’s holding them back is their commercial finance unit.  If the IYR is right, GE could be undervalued by $200Bn or so.  I’m not saying that’s the case but it is interesting that GE doesn’t reflect the enthusiasm of the rest of the market and I do still like them as a long-term hold.

    AIG and CIT very tempting shorts here.  I need a sticky note on my montior that says: "Stop being logical!"

    SRS/Smasher – We have not broken out of our levels.  Go read the week of June 10th (click on my tab and page back), especially the 11th (Thursday) and 12 (Friday) as those were also days, 8 days into the top that seemed like it would never end which came just before the 20 day of relentless downturn that had all the bulls capitulating into the "certain" head and shoulders pattern that had formed. 

    Shorting/Java – Ordinarily I prefer not to but I can’t buy many things here with confidence they won’t fall 20% but there are plenty of things where a 20% gain would have me happily doubling down. 

  94. merkhava

     AIG is squeezing the hell out of the bears today !!!  yeeeeee-ouch
    Man, I’m glad I got out of that one a while ago

  95. confizzled

    Smasher-  Bailing might makes sense but everytime I broke it off with the girl next door (SRS), she always lost weight, got implants and started working for a non-profit to improve the environment.  The last time was in May.  I had promised myself that if SRS went under $20 ($19.95 to be exact), I’d sell all my options at a huge loss.  I did.  In less than a week, SRS was in the mid $24′s. 
     
    This is just ridiculous though.  What really, really irks me is that Obama is smart enough to know this facade is only a short-term fix and eventually, there will be a huge drop…and still letting it go on.  I could take it from Bush because he didn’t know any better but Obama acting this way…simply agregious.  He keeps feeding the banks (via bailouts, guaranteed losses, zero percent overnight rates, etc) lots of money and everytime you ask them to do anything even slightly helpful for the consumers (credit card fees/rates, mortgage modifications), they slap him in the face and yet, he keeps staying on path.  WTF?

  96. where

    Play along Peter D. lines – Short Sept IYR 42C/34P for a total of 1.50 credit.  70% chance of expiring but will need to keep an eye out for unusual market news.

  97. smasher

    Hi Phil, I went back and read the June posts.  I looked at the 170 drop days and the 100 drop days.  If anything, I think as light as the volume is, GS just keeps getting smarter and smarter about keeping the market up.  I’ll change my tune if today turns into another 100 points sold off before the close, but I’m not holding my breath that we don’t have another stick and tomorrow we pretend like nothing happened.  Corrections aren’t pullbacks anymore, they are hover at consolidation levels for another move higher.  They have a 1060 target to hit and thats a mere 3 points a week until the Christmas break.  So long as no data turns surprisingly worse between now and then, no reason to think the charade won’t continue.

  98. maxt1234

    I’m looking to buy UUP on a panic selloff down below $23. My premise is that they’ll let stocks drop in order to avoid the "disorderly" exit from the Dollar.

  99. spider

    MBI  – They reporting after market.  They are in same sector than ABK (+30% today) and RDN (+50% today). I see big call blocks in MBI options , but can be MM selling calls for the premium. MBI is red today, -6% There was a lot of insider trading BUY on MBI on march …  Any thoughts?  IV is just crazy above 120% …

  100. microflux

    Phil if you like GE as a long term hold, and we don’t have any of the stocks now because we have been called away how do we start buying in such a way that we own the stocks so we have them long term, and not loose them on written calls, or we keep taking new position each month with its own writes for that month ?
     
    thanks
    david

  101. drumkeerin

    Phil
    The100000K LYG stk and put is looking very good today.

  102. RMM

    Phil: with many stocks being at high levels, is this not the opportunity to sell puts on stocks which one does like to own ?
    any suggestions ?

  103. Phil

    GNW – Good thought Pharm.

    IYR/Where – They say 70% but IYR just moved $2 yesterday.  I’m not sure how safe a $4 spread is with 11 trading days left. 

    Charade/Smasher – The big difference is that the higher the market climbs, the harder it is to keep going.  Imagine that the markt started out in March as a lot with 100 cars and they were each priced at $10 and the consumers had $1,000 on the sidelines but weren’t buying.  Well each day someone buys 10 cars and someone sells 10 cars for about $10 and nothing happens to the overall value of the lot ($1,000) and $1,000 still sits on the side.  For a few days, Goldman Sachs (who own 10% of the lot) decide to use some of their $100 to jack up prices.  At the end of some key days, they buy a car for $1 over the day’s price and they try to sell it back the next day for the extra $1 but sometimes they get burned.  So they get the price up to $11, $12, $13 to $15 and maybe they lose $5 in all the back and forth.  This is totally worth it to them though because their 10% of the lot went up from $100 to $150. 

    Now the whole lot is "worth" $150 but perhaps 25% of the sidelined money is gone so there is only $750 at the side.  GS was very clever to pump up the apparent value of the lot but the reality is that ALL 100 cars could have been sold for $10 to real buyers but, after a 50% increase that sucked up just 25% of the sidelined cash, only 1/2 of the cars can possibly be sold for $15 for cash.  That means that any panic that leads to a high volume sale will quickly run out of buyers, even if there were great interest on the part of the buyers and prices could start dropping dramatically. 

    That is the problem with market rallies that outpace the growth of capital.  You haven’t increased the net value of the global economy, you have just sucked money out of bonds and banks and put it into the market and that creates problems somewhere else.  The only real market growth comes alongside real economic growth, not potential economic growth down the road…

    MBI/Spider – Certainly a good gamble.  You can buy them for $5.45 and sell Sept $5 puts and calls for $1.75 for net $3.70/4.35 so you have a 20% cushion with a 50% profit if called away.

  104. hatorade

    did someone say buy buy on AIG or what??? Holy crap….

  105. merkhava

     AIG levitating on helium now…. over 22

  106. maxt1234

    The way it’s going Faz will soon be in single digits again and we’ll be able to sell puts on it! :)

  107. David Ristau

    AIG – Wow. I just tested the waters. Bought at 21.50 and sold 1 minute later at 22.00. Unbelievable. Made a nice $50 return on 2000 investment. Haha

  108. EricL

    FAZ and SKF are almost the same price.
     
    Pharm, the GNW Aug 6 calls have only .065 extrinsic here, for some reason. I’d take those over stock, unless your stock commissions are much less than option commissions.

  109. smasher

    Interesting the volume on AIG, the volume peaks are spaced about 1:05-1:10 apart.  If the pattern follows, we should see it lull for the next 30 minutes or so with sideways movement in the price followed by another thrust higher.  Might be worth a gamble if its static for the next 30 minutes followed by what looks like building volume.  You can’t tell me that’s human trading.

  110. Phil

    GE/Micro – As an entry, there’s nothing wrong with buying the stock at $14 and selling the Sept $13 puts and calls for $1.85 as that’s $12.15/12.58.  "Just" .85 if called away is a 10% gain with 10% downside protection, not bad for 6 weeks and they have $1 incriments to roll.  Keep in mind, if you scale in, this is your first round, perhaps 25% of intended and you have a 10% discount so if GE goes up to $15.50 (10%) you are not called away, you simply buy more GE for $15.50 for an average entry of $14.75 and you would be half covered with the Sept $13s, which can be rolled up to (about) 2x the Dec $15s even and you could sell Dec $14 puts for about .60 which would put you in 2x at $14.05/14.03 with a call away up .95.  If GE goes up yet another 10% to $17 by December expiration, you can still buy more at $17 and sell March $20 puts and calls to average $15/15 with a call away at $20, which would give you a $5 profit on a full 4x position where, at no point did you leave yourself over-exposed.  Of course stocks don’t go up and up and up like this but no sense in worrying about the upside is there?

    LYG – Excellent!

    Selling puts/RMM – Not when we think things are overpriced.  It’s a very tough market – too scary to go long and it seems pointless to go short as someone is always saving things.  Still, selling puts is just not very appealing at the moment. 

    AIG – Remember when we got out of them at $1.67 with a .70 gain?  Oops!   They have earnings on Friday and are now expected to earn $1.31 a share.  If they miss – they could spark a massive financial sell-off.  People are well and truly insane here as they seem to have forgotten AIG reverse-split 1:10 and there’s only 120M shares now.  That means they are going to earn $156M (if they make it) against the $80,000,000,0000 they owe the government and the 192,000,000,0000 they still owe to other creditors.  Other than that – great numbers! 

    FAZ/Maxt – I can’t wait! 

  111. bassdad

    Phil,  When looking at Spider’s MBI trade, how does the short interest sitting at over 42% affect your view on whether it’s wise to make this trade now or not.

  112. Pharmboy

    Eric – Thx.  Will consider….

  113. newparadigmz

    Phil…AIG was 1:20 split

  114. spider

    AIG . I  think it was a 1:20 split (not 1:10)
     
    MBI = I dont know his company and cant say if its a crap will go BK or it will done good. But i make a small bet as you sugested. Bought 500 sh and sold sept $5 calls/puts.

  115. stevenparker

    Hey folks, our recent USU buy/write can now be taken out for break even
    Seems this companies fortunes are at the whim of the DoE and I don’t normally like to bet on the outcome of policitical debates.
    Any strong opinions please are others still holding?

  116. MrMocha

    PharmBoy - I re-covered HK here, which should stop it from going down 8)

  117. Phil

    MBI/Bass – On a bullish position we like a lot of shorts sitting on our stock – it’s rocket fuel on the way up and 45% short means it’s a little crowded there already so we can expect profit taking even if they do sell off. 

    SRS down 3.6% now – This is truly incredible! 

    AIG/New – Oh thanks, 1:20 split!  Well, it doesn’t change the current math – $1.20 per share would have been great when they had 24Bn shares but much less impressive now.

    USU/Steve – I still like that trade because USU is only having a loan reviewed, not permission to build.  Someone will eventually pay up so it’s a good long-term play. 

    Woo Hoo!  Oil jammed up to $72 into the NYMEX close – THE BOYS ARE BACK!  Dollar is now $1.7028 to the Pound and $1.4425 to the Euro and you get less than 95 Yen again (94.8) so it doesn’t matter what bank you invest in – better to put your money on the bank than in it!

  118. sthompson

    Is AIG a good short candidate now? I realize they were the short of the week earlier. Glad I didn’t jump on that one or I’d really be dead in the water.

  119. hinners6969

    So how would you play AIG before Friday earnings, Phil?

  120. DB

    The stick men are getting ready and they are ANGRY. They dont want all that pump yesterday wasted.

  121. newparadigmz

    Before the split, AIG’s shares closed Tuesday at $1.16 a share.

  122. Phil

    SRS – I’m watching the roll to the Sep $13s at $1.35 (+.50) and selling the Aug $14s, now .55 as the escape roll but I really don’t want to tie up the $5KP for a month. 

    JRCC is a fun energy play now that they are cheap again.  I’m thinking they hold $15 and you can buy the stock at $16.10 and sell the Sept $15 puts and calls for $3.30 for net $12.80/13.90 – not bad for a scale in

    SRS now down 5%! 

    At least FXP is having a good day…

  123. dstillwe

     ERY.  Poor, poor pitiful me.  Been sitting on this f***er since 7-22-2009 at an average of $19.59.   So I can’t get out!!!!!  Instead, I’m writing calls to close the gap.   Been in and out with same several times.  Now sitting on 1/2 Aug 21 @ .35 and 1/2 Aug 20 @ .50.  Of course, since I’m writing calls on a 3x short ETF, I could be bending over and doing myself.  Am I?  Or will these babies expire worthless?

  124. matt1966

    I can’t understand where all the sellers of SRS are coming from.  Is everyone who EVER bought the thing just bailing?  It is relentlesss and it’s been setting new lows repeatedly.  It seems like the MMs are just shorting it.  There simply can’t be this many sellers.  What rules do MMs for ETFs have to play by? 

  125. dstillwe

     YUM.  Well – those dopey Oct 37.50 calls are up 14% for me now, Phil.  If you promise not to abuse me (much), i might even share the other legs to this YUM YUM puzzle.

  126. Pharmboy

    GNW – you go girl…no more teasin’

  127. matt1966

    SRS is also clearly a target of high frequency traders.  Just look at the huge volume increase over the last year.  And right now the SQUEEZE IS ON!  They are viscious!!

  128. smasher

    Of course, this is what we already know:
    http://www.zerohedge.com/article/trimtabs-continues-throwing-sand-eyes-fake-economic-data
    TrimTabs Investment Research estimates that the U.S. economy lost 488,000 jobs in July, considerably more than the consensus estimate of a loss of 305,000 jobs. In addition, TrimTabs expects the Bureau of Labor Statistics to revise its job loss estimates sharply higher for the first half of 2009 based on the latest unemployment insurance survey results.
     

    “Two months ago, we asked BEA economists how they reconciled the huge declines in real-time tax deposits with their report of a modest decline in wages and salaries,” said Biderman. “They could not answer our question. We know now that by ignoring real-time data, the BEA was providing an inaccurate view of the economy’s health.”
     
    Either the folks at BLS and BEA are incompetent as hell or are having a tough time getting ahold of the data in an economy that is rapidly changing, or, they have an order to sugarcoat as much as possible.  I’m putting it at 50/50 for either.

  129. Phil

    AIG/Sthom – They sure are the short of the day at $22 but it’s too risky on the whole. 

    AIG/Hinner – I wouldn’t play them.  The premiums are ridiculous and all you can do is gamble.  Better off going with FAZ in case they miss as there are many ways to win with FAZ and an AIG miss is just one of them.  I like 4 FAZ Oct $25s at $6.20 ($2,480), selling 3 Aug $28s at $2.20 ($660) for net $4.55 on the spread where FAZ has to get to $30 just for the callers to get paid back, putting you $5 in the money on 3 with the 4th a freebie.  On the downside, the Oct $30s are $4.20 so it would take a pretty big move to catch you off guard

    Deliver us oh Lord our daily stick, with which we may erase all signs of a sell-off from thy sight….

    Oh silly me – It wasn’t the G-D it was, GS, who just RAISED their oulook for 2nd half economic growth by 200% from 1% to 3% GDP!

    Are they in control or desperately trying to keep things together?  It’s a thin line between madness and genius…

  130. dstillwe

    SIRI.  Dang.  Thought I played in at .47 to start.   Didn’t.   Still like them for the reasons u laid out for scale-in, PD.  Is there still a straight stock play here?  Or even a long option play?  (tho maybe a buck long is too much?)

  131. dstillwe

     JRCC.  Hmm.  Looks good.   Now that you (rightly) have me erring on the side of lesser cap investment, is there a long call to sub for the stock? (then i make ur option play on top of same)  

  132. DB

    The short squeeze on SRS and AIG and the like is just another attempt to prop up the market and draw cash in so the big boys can go short for the collapse that will surely come when all the job/economic reality finally gets reported by the MSM.

  133. dstillwe

    GS.  i think they are desperately in control.  As to thin lines, tho, thats only a hair better than desperately out of control – and prob looks the same on the EEG readout.

  134. EricL

    Matt, I think SRS is just faithfully tracking twice the inverse of IYR (or similar). IYR is up nearly 4% today, so it makes sense that SRS is down 8%, give or take (and it’s always ‘take’ because of slippage).

  135. matt1966

    Confizzled!  U still breathing?!

  136. Pharmboy

    Who needs Biotech when the Insurance/Banking is SOOO much more fun!  Just a lil’ bit more GNW.

  137. MrMocha

    Phil, what about this way to play rich AIG premiums:
      Buy 18 put
      Sell 20 put
      Sell 20 call
      Buy 22 call
    Risk $200, reward $1800 if AIG is at 20 at expiration.
     

  138. Phil

    ERY/Dstill – You have to be realistic about how much protection you are getting when you write a call.  With an Ultra, it’s often less than you think.  Why not just pick up $1.40 rolling them to the Sept $19s, which drops your basis to $18.50 less anything else you made off the callers .  As long as you can make $1 per month progress in your basis and still have a profitable call away, you can keep from having a major issue. 

    MMs/Matt – I don’t think they have rules.  If they did they would have all been arrested long ago!  I said yesterday, this is a very liquid ETF that gets plenty of action and I’m sure you can imagine there are no buyers right now, which means tough luck for the sellers. 

    YUM/Dstill – I’m so angry we got out of those the day before they popped but I’ll try to put it behind me and look at yours objectively. 

    SIRI/Dstill – It’s just a buy low, sell high kind of thing.  You can’t play the options, just too silly alhthough if you can get .20 for the March $1s it puts you in for .35 with a potential 200% gain – a nice play if they don’t go BK. 

    JRCC/Dstill – Well the March $12.50s are $5.70 and that’s $1.80 in premium but, unless you are going to use that extra $11 to make $1.80 between now and March (and it’s not even $11 if you have 50% margin, it’s just $2.30) then you are better off buying the no premium stock. 

    Remember when we were talking about using URE to stop the SRS bleeding early this week?  Check out URE – up over 20% since yesterday.

    More fun/Pharm – That’s what I’ve been saying since March!  That’s why the $100KP ended up being 75% financials, they are CRAZY FUN!  8-)

  139. allen060

    SRS – I’m watching the roll to the Sep $13s at $1.35 (+.50) and selling the Aug $14s, now .55 as the escape roll but I really don’t want to tie up the $5KP for a month.

     
    Phil,
    I just want to make sure this is not an actual trade in the 5KP yet but rather just  something you are considering.

  140. RMM

    dstillwe: this recenr recomendation has still not worked out as oil is not going down,
    I have the stock so no expiration, but need to sell calls against it

  141. EricL

    I told myself I’d consider SKF again in the 20s but, I really don’t want it right now.

  142. DB

    Really interesting article : Correlation between stockmarket crash of 1928-32 and today is a massive 0.8. It’s bearish , as you’d expect from me.

  143. dstillwe

    Thanks for devoting almost an entire block to my rapid-stream of questions.  I guess you haven’t seen my cranky email from this morn – which i quickly "qualified."  But don’t rush.  I’m calm now.  lol 
    ERY – roger that.   YUM – hmmm, I’ll think about sharing when I feel like I need a good slap. (Any moment now)
    And I think I may be recovering from those horrible LUV puts that buried me a few days ago.  How?  Join ‘em, man!  Cash for calls!  Yippee.  (tho a ways to go.)

  144. Phil

    AIG/Mr M – That’s a big IF but it is a good risk/reward ratio, I just think you may be focusing on the idea of the payoff but there’s no logical way to say that $20 is the right strike so you literally are taking a 1 in 10 chance of a 10 to one payoff. 

    BXP hitting the 5% rule.  I bet Zuckerman is on the phone right now looking to cash out! 

    SRS/Allen – No it’s something I am considering.  Notice the roll is still .50 but the Aug $14s have dropped to .45 so it was a sensible move but I’m getting closer to wanting to DD right now or possibly rolling to the $11s (+.60) and selling the $12s ($1.05) for a net .45 reduction and then just hope to make $1. 

    LOL Dstill! 

  145. RMM

    Phil: with this market holding up – unless it sells off during next 30 min -
    I plan to keep my aug puts on DIA for tomorrow ????????? ok

  146. dstillwe

    GS – I know we’re haters (me too).  But Sept 165 calls? Ca-ching.  And if the inglorious basterds can keep their johnsons in their shorts by staying under $190 thru September, then ca-ca-ca-ching.   (Still hate ‘em tho.)

  147. MrMocha

     Phil, since there appears to be little logic in this market, in the absence of it I agree with you that picking a strike price is just throwing a dart.  The alternative to logic is to simply assume that ‘THEY’ woke up this morning and said "AIG must close above 20 today".  If tomorrow THEY move on to a different shiny object, then perhaps the stock flattens.  We’ll see…

  148. cwan120

    Instead of buying SRS calls, I sold PUTs.  I’ve since rolled down and out 3 times, at about even for each roll.  Right now I have:
    Jan 2010 $13: premium received 0.8
    Jan 2010 $14 premium received 0.55
    If I have to roll out again, the only month left is Jan 2011!  Perhaps I should sit tight and wait & see?  Being short, time is on my side.

  149. merkhava

     Big down day this morning… now all gone as if it never happened… sheeeeesh

  150. MrMocha

    RMM, in looking at the 10 day chart, the market seems to open down pretty regularly lately.  So late yesterday I bought a bunch of DIA 91 puts and dumped them this morning up 20%, I plan to repeat this model.

  151. EricL

    Here comes 40 on IYR. This market is getting spooky, and it’s probably got more to run.

  152. RMM

    Phil: you sometimes say: premiums are ridiculous, does that mean just high but relative to what ??

  153. dstillwe

    YUM.   Ok.   Turning this cheek and ready for the other.   I look at this (ET Mobile Pro-based) mess of positions and can’t figure why I bothered to stop smoking dope.   [deep breath]  I have the $37.50 Oct calls at $1.30.  Against (I’m not going so far as to call these covers in any way shape or form – as much as errant shots in the dark that cover other shots in dark – some of which are history now) 2/3 sept 37 calls and 1/3 august 38 calls.   If, in fact, this is a spread of some sort, it has nothing to do with options.  Spread ‘em!  (I’ll do ur intro for you:  "Jesus, dstillwe, you have a tendency to …")

  154. dstillwe

    BPOP.  Who inspired me a bit ago to get into BPOP?   I’m in with $2.50 Oct calls for 15 cents and, by jove, I think we might make it!  Could be a cheap score.  

  155. RMM

    MrMocha: will follow you on DIA puts for domani, I have the same hunch.

  156. stevenparker

    Hi folks one more question on buy/writes pls. You would think they are simple but hey I am still learning.
    I entered ZIONS buy/write  buying Zion at 10.94 and sold Aug 11 puts/calls for $1.59. I deliberately did not adjust this position since as I just wanted the income from it.
    On the basis that both options have zero premium left in them I am now inclined to close this position entirely, take my marvellous $1.59 profit and redeploy the capital.
    Any concerns pls?

  157. Pharmboy

    Dstill – VVTV, FOE, HYC and WNC still all have legs to run.  I have a TOS portfolio of under $5 stocks, and they are all green today. OWW was on my list yesterday, just didn’t have the heart to pull the trigger.

  158. EricL

    I’m starting to think about some melt-down hedges here; things I can buy and forget about, but which would offer some protection if things get nasty fast. I’m basically bullish, but I’m really not liking this action: junk stocks getting jammed up in buying panics, quality stocks getting sold, fundamentals that suck.
     
    One possibility is 2011 SKF calls, but another that I like better is 2011 XLF puts. Maybe Jan 2011 12 strike XLF puts at 1.50? Just leave them uncovered. Even a few of these would make me feel better…

  159. jomama

    Eric how about ditm oih puts?

  160. dstillwe

    Thx, Pharm.   

  161. MrMocha

    PharmBoy, if you want a generic biotech long, I bought the IBB MAR 85/90 spread today for 1.40, just a crapshoot.

  162. MrMocha

    dstillwe, another cheap long Hail Mary is the CIT 2011 2.5/5 call spread, I’m in for 0.20.

  163. EricL

    jomama, I like it. I may go OTM though, and long-dated for the leverage. I bought a handful of those XLFs so I can stop worrying.
     
    I know I’m just being silly and the voices in my head are my friends, lol.

  164. Cap

    Just got back from the dentist … this BS in the financials and REITs is insane.
     
    Not sure what is worse, my root canal today or what I am seeing w/ SPG … and all this crazy crap …

  165. Phil

    DIA/RMM – Same 1/2 cover with the $93 puts against Dec $94 puts would be right. 

    AIG/Mr M – I’m looking at it as earnings on Friday is not likely to "flatten" the stock.

    Puts/Cwan – Well that’s one way to go.  So you are in the Jan $13 puts, now $3.30 for a $2.50 loss?  That means there’s really no reason not to sell Jan $14 calls for $2.40 is there?  If it runs up, you can cover the calls with stock or with the 2011 $10s at $6 if they start heading higher, which would put you in the 2011 $10s for net $3.60 less the .80 you sold the puts for (which would be looking good by the time you are forced to cover), which would be $2.40 on the $4 spread with a year advantage and, once you establish that position, you can roll the caller down with impunity because it would be covered by the increasing value of the put. 

    Ridiculous/RMM – Too high relative to a realistic expectation of profit.  The AIG puts and calls are 15% of the stock in premium.  You need a 20% move in the stock in 11 days just to make 30% on the option so the implied volatility is 500% a year.  Maybe that’s right for AIG but you are not going to get rich making those bets over the long run. 

    YUM/Dstill – You need to give me entry prices but I’m not seeing a big problem here.    You own the Oct $37.50s at $1.30 and they are now $1.50.  You sold the Aug $38 calls for whatever and YUM is at $36.50 so hardly even in danger at .25 but I’d still put a stop at .40 on at least 1/2.  You sold the Sept $37 calls and they are .50 out of the money at $1.15 – also no big deal as they can be rolled to Oct $39 calls which are now .95 and have just .12 less upside delta.  I don’t know, this play doesn’t look even bad enough to change right now…

    BPOP/Dstill – I think it was that Hansen song…

    ZION/Steve – That’s just perfect.  A quick 15% and out, no worries.  I will point out though that you could buy another round at $15.20 ($12.28 net avg) and roll the Aug $11s at $4.30 to 2x the Aug $15s at 1.75, which raises your net to $12.58/13.79 so you make the same $1.42 except times 2 in two weeks.  OR, you don’t even have to commit to that – if that seems acceptable to you, just roll your current puts up to the $15s for .70 and pick up that extra money as your worst case is you do the 2x roll in Sept under the same circumstances. 

    SKF/Eric – How about Jan $25s at $7.20, covered with Jan $32s at $4, which is $3.20 on a $7 spread.  The nice thing about these kinds of spreads is you don’t get horribly mangled on a move up. For example, if you look at the net of the Jan $30s and $37s (if SKF fell $5) it’s still $1.75 so risking 50% to make 100% is not a bad ratio for a cover play

  166. dstillwe

     Thx, Mr. M.

  167. DB

    Bull or Bear it seems to me that with all the computers, the pre-market pump, the stick saves, the HFT and the "Look ahead trades" and GS trading $100s of million a day there is a possibilty that the market is going get unstable and break loose , one way or another.

  168. spider

    for the TRIN guru :  I see today was all day at 0.4  very smooth.  Its such behavior normal?  Dont we have to expect bigger oscillations, specially on the open and close?  

  169. barfinger

    with AIG and the outrageous premiums, SELL the option that matches your belief

  170. confizzled

    I’m pretty much wiped out.  Behavior is difficult to change and it seems like I keep making the same mistake….loading up on short positions.  I think I’m doing it because I don’t want to miss the elevator when it goes down to DOW 7500 or 7000…especially when it’s cost me so much going up.
    I would feel better if I lost money because I was betting against fundamentals but about half my friends are laid off and more than half of them are either walking out or renegotiating their mortgages (I live in the SF bay area) so I never seem to buy the upward momentum.
    Oh well, it’s only money.  Still got my health thank God.

  171. confizzled

    Great call on GNW Pharmboy.  Wish I’d put all my money into it when you mentioned it.  The $6 Aug calls have gone from $1.50 to ~$2 since your post about GNW.

  172. dstillwe

    Ha ha.   Mmm-Bop.   BTW, I saw Hansen on last week on on-demand – made my daughters watch – and damned if they didn’t play three bluesy folkie numbers and not the only sing that mattered.  Bye, bye, boys.  As Cracker said:  "What the world needs now, is another – folk [bluesy] singer – like i need – a – hole – in – my – head…"   
    YUM.  Alrighty then.  Only .20 on the Aug 38s and .74 on the Sept 37s.  Thanks.

  173. barfinger

    Sell AIG Aug20 puts for 2.95?
    If you like the stock, either you get it at 17.05 or you just get the 2.95.

  174. EricL

    That’s a good idea too Phil, and is in fact theta positive in the event SKF flatlines (which may sound crazy, but it held just above 40 for many weeks).

    I closed my naked index strangle positions today too. Even though they were working, they aren’t worth it if I’m not comfortable with them. It would now take one king-hell of a breakdown to really screw me up at this point, so I’m a lot less worried.

  175. smasher

    Per TBP, fed funds futures are starting to price a 25 bps hike in the Fed rate.  Doesn’t this help the dollar which could cause this rally to snap back with a quickness?
     
    http://www.ritholtz.com/blog/2009/08/rate-hike-odds-bonds-stocks/

  176. Pharmboy

    Bar – they will probably cut off UR finger if you sell that……

  177. smasher

    Market must already have this priced in, evidence by the move in REITs today
    http://www.bloomberg.com/apps/news?pid=20603037&sid=adBYDzUMt68k
    The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in a report today.
    As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank.

  178. cwan120

    SRS Puts/Phil – Thanks Al, er…, I mean Phil.  (Al = Albert Einstein).
    I’m on my fifth reading of your reco.  I think I am getting it.  Whoa, how do you get that kind of plays?  I am sure Al would’ve been impressed.

  179. blair

    Hi, I’m a new premium member, have been a reports member for a little while.
    MBI seems to have worked out pretty well.

  180. EricL

    CSCO bouncing wildly AH. Guess the CC isn’t going well.

  181. Phil

    These day’s are just flying, I can’t believe the bell rang already…

    CSCO beat by .02 (.31) so very nice.  Revs were in-line.  We’ll see if guidance supports the tech rally but CNBC says upbeat.

    Health/Conf – I’d give it until Monday.  This is so similar to what happened in June it’s crazy.  That next week, we dropped more than 5%.  Now if 5% doesn’t do it for you, then you have a problem but we’re up over 2,000 point since July 10th in just 30 days with NO pullback.  That’s not just unusual, that’s unheard of.  We have NOT broken over our levels.  In fact, after making all but the Nas this morning, we have closed below on the Dow, Nas and SOX and the Qs are, of course, below 40 and SMH, XLB and XHB are right on our lines (XLF and RKH went wild). 

    A lot depends on Asia this evening and then how Europe takes that tomorrow.  Like I said about the last time – every single level we watched at the 40% line broke out EXCEPT the NYSE, which touched 6,232 on the nose and then didn’t get it back.  That kept us bearish into that weekend, which was a huge winner but it was VERY painful all the way into Friday’s close with the relentless stick saves day after day….

    AIG/Barf – they could be a damned sight lower than $20 if they have losses and there won’t be a save very likely.  It’s like people who invested in GM pre-BK, they owe more money than XOM could pay back in 10 years and AIG made $14Bn in their best year but it turns out that was from writing derivative insurance that cost them $300Bn in losses (so far) so the reality is they simply do not have the ability to earn that kind of capital in a "real" business. 

    SKF/Eric – Yes, I much prefer covers that aren’t all or nothing plays when possible. 

    Fed/Smasher – A Fed hike is GOOD for the dollar but bad for stocks and commodities (and our exporters). 

    Underwater/Smasher – Glug, glug…

    SRS/Cwan – I save those for people who I think can handle them…

    Welcome Blair!  Those are called the buy/write plays and they are the BEST way to get used to trading options as they are a low-pressure way to transition from stock to options trading.  I think it’s already referenced in the new members guide and I’m planning to update it but the strategy is detailed in "How to Buy a Stock for a 15-20% Discount."

  182. matt1966

    Confizzled, if you can gut out another month, I think you could be richly rewarded before September option ex. 
     
    It is excruciating to watch the market this way.  But that’s exactly how it is supposed to be.

  183. Pharmboy

    Trading is difficult and day trading is brutal.  Trying to make up anentire loss with a one swing ain’t wise.  Being a bear is easy (and I am not convinced we are doing all that well on the whole as an economy), but one cannot fight the trend (didn’t Phil say that a while ago)?  Just cover, make 5-10-15-20% and move on.  It really does add up by chipping away.  All I can say is I am back to 2007 levels in my account b’f the crash with this run up and some very nice help on this board….so kudos to us (and me!!)…

  184. spider

    I see MBI posted $4.30 /sh profit at briefing.com
     
    Earnings has a (c) meaning "May not be comparable to consensus", but  the same happened with RDN, a $2.89 (c) profit. And was enough to skyrocket up 80% today. So we have to look into details. So far looks good, after-market isn’t moving in a explosive way…
     
    I don’t understand well the MBI business. I know they deal with bond insurance and they got killed with the financial tsunami (they and other like ABK).  The stock was in my radar for long time and bouncing between $4-$6 from december/2008.
     
    Link:  http://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/PagePopup.aspx
     
    Sadly i miss the post about GNW Pharmboy. great call. Even you are in "simpson green" color, I missed.
     
    Moved my SRS puts into sept $13. – its just insane. I think we are walking in the same path the URE guys where last year. And, if madness keep going we will end with a $5 SRS stock after 10 consecutive days like today.
     
    ATK: placed a bullish bet on this one. Since we saw big gov spent increase in GDP numbers, i think the money went into those kings of companies.  long 2X Sep $80 calls + short 1X Aug $80 calls.  Dunno if it will work.

  185. Peter D

    IYR/where – it was one of my favorite short strangles, but I haven’t been back to this one for a couple of months.  Look at the PUT volume today: 15,000, 10,000, 23,000 and 10,000 at Sep 30, 32, 34, 36 strikes.  This may got onto Andrew’s options scan.  Someone may have started a bearish position on IYR.  The August CALLS for SRS also got some attention today with 3,000 to 5,000 contracts each at strikes 13 to 18.  Maybe just us on SRS.

  186. dstillwe

     Amen, Pharm!!!!  Just little pots to make up for the bad beat.  Chip away.  Right on.   My middle name is now "Sell Calls Always".  LOL.

  187. Peter D

    TNA bearish play + taking advantage of ultra’s decaying nature (this type of play was initially constructed by Phil, and I like it a lot):  Buy PUT vertical Aug 36/35 PUT for $0.35 debit (TOS has incorrect quote), and sell Aug 44 CALL for $0.35-0.5 credit.  The idea is that the credit from the short CALL would cover the cost of the PUT spread, so the loss is zero if TNA is below 44 in 2.5 weeks (about 5% upside cushion in the Russell 2000), and the profit is $1 ($100 per contract).  The margin requirement is 20% of 44 x 100 = $880 per contract.  That’s a 10% profit with a relatively low risk set up.  We can roll TNA to Sep if it’s higher than $44 then.
    Applying this to September, we can sell TNA Sep 50 for $0.575-0.8 (nice 33% cushion in TNA, 11% cushion in Russell 2000), and buy whatever PUT spreads that costs 30-40c.  If you just look for 3-5% profit a month, these are nice.

  188. confizzled

    Is anyone here familiar with a TOS rule about not being able to trade with funds from overnight holds?  To add insult to injury, they sent me a margin call email on the few dollars I do have left in my account based on my using funds from liquidation of options I"d bought the previous day.  How gay is that?  WTF are you supposed to do with funds from liquidation of a huge loss position…other than enter huge-er loss positions? 

    Seriously though, they claim this is a Finra rule but I don’t buy it because I did the same thing with Interactive Brokers many times and it was never an issue.

  189. matt1966

    PeterD, thanks for the info on SRS options activity.  I really think what we are seeing there is the flareout fire.  It’s action is almost exponential which is also almost a sure fire way to recognize a pullback.  I think the crappy real estate and bank sectors will lead us down again.  It makes sense that the squeeze would be the hardest on those secotrs right now.
     
    We, SRS fans, just have to get through the flareout before we can flareup.  8-)
     
    Will the Dow hit 9500 first? 

  190. matt1966

    Looks like the SEC is completely contradicting Sen Schumer about the ban on flash trading being eminent.  Sounds like it won’t happen before the end of the year!  What a nice set of messages to inspire confidence in our financial gov’t leaders.  This explanation of flash trading leaves one very important thing out,
     
    Flash trading gives certain members of exchanges—including Nasdaq, Direct Edge and BATS— the ability to buy and sell order information milliseconds before that information is made public. High-speed computer software can take advantage of that brief period to allow those members to get better prices and profits.
     
    The fact that these flash trades are used to signal change in market directions.  Which is the single most imporant thing a trader could know!  Who cares about the better price you might get,  As long as you know you are going in the right direction!  $hit, someone dropping a dime like that for me would be worth almost twice Phil’s fee!  It’s simply ludicrous they have to debate this. 
     
    They say flash trading provides valuable liquidity in the market.  Well, I thought that was what was good about high frequency trading?  Are they saying it comes from flash trading, too?  Or do the two go hand in hand?  Is there a point in high freq. trading if you can’t do flash trading?  I think that’s it.  The constant backing a forthing during the day is amplified by those in the know jumping on board.  Thus driving the point home to the rest of us that it’s time to follow them to the slaughter house.  F-ers.  I’m an idiot for putting myself at their advantage.

  191. Pharmboy

    Con – depends on the broker.  OXPS and Scottrade are the same way.  It is basically using unsettled funds for a transaction…or what they call a free ride….

  192. Phil

    Interesting:  The owner of the WSJ, Rupert Murdoch, says: "There are no clear signs of a fast recovery."  You sure wouldn’t know that from reading his paper!

    The Nikkei was celebrating the dollar getting jacked back over 95 Yen at their open but we’re barely holding that line now.  Euro not holding $1.44 and Pound still can’t hold $1.70 and that’s calming down commodities.  Big deal on EU rate decisions and their banks are 100% about inflation fighting – having gone through hyperinflation post WWI, it’s not something they want to see again. 

    SRS/Peter – $18 would be nice!  Of course, if SRS hits $18 in two weeks, we have other problems…  TNA is nice, I forgot about that one.

    TOS/Conf – Unfortunately, the rule is whatever they say the rule is.  You can go crazy trying to argue with compliance guys but sometimes they can waive something if you are nice to them.

    9,500/Matt – I think if we can hold 9,100 on a pullback we have an excellent chance of racing back to 9,500 for our next test.  Really though, once we break 9,300 with authority it’s game over for the bears and I’ll probably be bullish for a breakout over 9,500 as the technicals pointing to a major move up would be overwhelming.  As I said this morning (or is it yesterday now?) THIS is the critical juncture and if we are going to break out here, we’re going to break out big but, since I don’t see the underlying fundamentals for us to break out big – I can’t believe we are going to break out here.  If we do break out here – I would have to assume my assessment of the fundamentals is wrong and simply just start taking the "good news" on faith and adjust my assumptions accordingly. 

    What could be a different set of fundamentals?  Perhaps we expanded our economy from $10Tn to $13Tn in 5 years and doing so enriched enough people and left enough investment dollars chasing diversified returns that they created an asset bubble in commodities and real estate.  That led to an unhealthy amount of hiring in manufacturing and construction which led to even more demand for durable goods and real estate.  At the same time China was going through a rapid expansion  and business was so good for 5 years that US corporations forgot to do their jobs and get more efficient to compete globally.  So what we have now is a correction in the real estate market that has no real effect on business and a correction in the jobs market that is of great benefit to business as they pare back 10M workers and bring the wages of 150M more workers more in-line with the global competition. 

    This will allow America to be in great shape to do business over the next 5 years with a leaner, meaner work-force and (from the perspective of the business) screw those 10M excess worker and the banks that got caught up buying them homes.  US Business knows that they do need the remaining 150M workers and, once those workers regain some confidence in their own job secturity (something management does not want them to have while they are negotiating wages) they will turn back into good little consumers and things will be 95% back to normal with a "healthy" 10% unemployment rate that insures good productivity and low wages going forward as GE prepares to sell 100M washers, dryers, refrigerators, microwaves and air conditioners to China and India.

    I don’t think they can ban flash trading without study.  It’s massive and GS alumni are everywhere and they will be whispering in all the appropriate ears enough to at least delay this long enough for GS to set up the next scam that we’ll be having hearings about in 2012.  If you want the real, unhyped story of flash trading, read this article that was written for Traders Magazine before the media started spinning it

  193. Phil

    12:00 AM Thursday’s economic calendar:

    6:00 Chain Store Sales

    6:00 Monster Employment Index

    7:00 BoE Announcement

    7:45 ECB Announcement

    8:30 Jobless Claims

    9:00 RBC CASH Index

    10:30 EIA Natural Gas Inventory

    4:30 PM Fed Balance Sheet

    4:30 PM Money Supply

  194. DB

    Good Morning everyone
     
    Same old, Same old this morning. FTSE up about 1%. US futures picking up again after CSCO results seemed to drop everything overnight. S+P have been ramping up for the last 6 hours. I dont expect good job numbers so will be looking to go short after the announcement. Seemed to work until the stick yesterday. B****dy Stick !!!

  195. DB

    Bearish headlines for today (which will all be ignored)
    Warner Music loss 25c V 6c Revs down 9%
    Urban Outfitters same store comps -6%
    Sage Stores same stores comp -11.9%
    Big Lots same stores -2.9%
    Alliant Energy profit drops, cuts guidance
    MF global $38.2million loss
    Western Refining Q2 loss $4.2 v $0.12 !!!!
    Unilever 17% profit drop
    OK Bullls – hit me with some of your headlines :-)   – only fair ! Futures still up despite that lots so there must be some out there.

  196. Phil

    Good morning! 

    Gosh, no sooner do I put forth a bull case (previous comment) than the chief equity strategist at Citigroup runs with it:

    "The strength of quarterly numbers in 2Q ’09 and the probability of 2H ’09 earnings power (bolstered by production increases and tight restraint on corporate costs) are supportive of further gains, especially if investors chase the market as has often been the case," said Tobias M. Levkovich, chief equity strategist at Citigroup.

    UL beat – that’s like GE beating for Europe and there seem to be other good EU earnings.  The BOE just left rates as is and that just dropped the pound back to $1.68 so if the EU does the same it will be a Strong Dollar Day and that will have the oppositie effect of a Free Money Day for the market. 

  197. merkhava

     Good morning Phil & all,
     
    Things looking better in the semiconductor area…
     

    Q2 semiconductor sales up 17%, industry is ‘returning to normal seasonal growth patterns,’ SIA reports
     
    http://www.edn.com/article/CA6674463.html%3Fnid%3D3357%26rid%3D8679541&urlhash=1pKK&trk=news_discuss

  198. matt1966

    Great quotes from Alfred R. Berkeley head of Pipeline and former Nasdaq chairman, now ceo of a company that tries to optimize trades for institutional investors.
    On trying to hide institutional orders from the trading public:  (This is why level II data is pretty much worthless)
    In trying to defend themselves, one of the only tools available to institutions is to cut the size of their orders, to vanish into the river of small orders. But pattern-recognition software sees that. If I have 10 million shares to trade and I slice that into 300-share pieces, I’m leaving tracks in a huge way. Someone doesn’t have to see an order to know it’s there. I can give you a Pipeline commercial here--that our business is about confounding that pattern-recognition software. We have some of the smartest guys in the country figuring out how to make it hard to see customer orders either in our block facility or through our outbound switching engine [for algorithmic orders].
     
    On high frequency trading:
    All this front-running is a version of scalping.  (this is why flash trading needs to be banned)
    You must look through to the ultimate beneficiary. Do we want a handful of bright high-frequency traders front-running the citizen-savers in the country? It’s bad public policy to have tilted our markets so far in favor of speculators. We’ve created the greatest casino the world has ever seen in our equities markets, because we’ve got so many tilts in favor of speculation and against investment.

  199. merkhava

     AIG continues to explode up…. impressively over 28 now

  200. dstillwe

    Oxen.   Cuz I gotta run, I’m gonna give Ristau his props here this morn.   I got CSIQ in after-hours last night for $16.20 – it’s going to open at almost $20 this morning it seems.  Also, i converted his MDAS reco to a Dec 20 call – that’s up 10% going into open.  DHI sucks so far based on my timing perhaps, and we’ll see on OSG.  But CSIQ killed.   All – can I bracket CSIQ to protect and look for more this morn?  Or just cash?

  201. dstillwe

    CSIQ.  I guess my additional rookie question is whether I’m gonna see that bump at open.   It closed yesterday just over 16.  The current ask pre-open is $19.70.

  202. Phil

    PSW Alerts were down today but our backup system worked perfectly. 

    If you have not done so, PLEASE take the time to register here:  http://seekingalpha.com/author/philip-davis/stocktalk

    You just need to click on my picture where it says "follow" and you will have access to our back-up alerts, as well as access to FREE Alerts, like the $5,000 Portfolio moves live every day.  Also, in the event the site goes down for any reason, we will post updates here as well. 

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