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Which Way Wednesday – Hedging for Disaster

We got our sell-off, now what?

Despite generally failing our levels yesterday (see Fibozachi review), the Dow held 10,250 and the SOX were green so we wrangled ourselves back to neutral into the close.  Over and over again my best advice to bears in this rally has been to take profits off the table quickly as we rarely string more than 2 days in a row together of downward movement.  With that in mind, we moved to lock in our bearish profits ahead of the 3pm stick save which, though disappointing yesterday, at least was predictable as ever

We even went long on oil futures at $72.50 (after a failed attempt to go long at $73) and we came just short of our goal of $74 this morning at $73.88, which is close enough to take the money and run in the futures (pays $10 per penny per contract).  So we’re looking for a small retrace today (up about 0.5%) to retest our levels and then we’ll see how we’re going to play into the afternoon depending on what holds up. 

Meanwhile, I think it’s time to revisit the concept of hedging for disaster, something I advocated during another "recovery," in October of last year, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – "just in case."  The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn.  That way, 10% allocated of your virtual portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a buying opportunity

At the time, I advocated SKF Jan $100s at $19.  SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting just 5% of your virtual portfolio into that financial hedge would give you back 90% of your virtual portfolio when you cash out.  Keep in mind these are INSURANCE plays – you expect to LOSE, not win but if you need to ride out a lot of bullish positions through an uncertain period, this is a pretty good way to go. 

Another play we picked at the time was DXD Apr $55s at $14.20.  DXD doubled that same month, went back down to $50 and was back at $90 in March.  The nice thing about playing options rather than the stock is the Apr $55s were $65, up 350% rather than "just" the double for holding the ETF.  SDS March $77 calls at $9.95 were my 3rd pick and SDS flew to $130 in November and then to $115 again in early March, a 500% profit on the calls.  I would urge you to read the original post to get an idea of our mindset at the time, where I said:

As far as hedging goes, if you are 50% invested and 50% in cash and you are worried about losing 20% on the stock side in a major sell-off, then the logic of these hedges is to take 40% of your cash (20% of your total) and put it on something that may double while the other positions lose.  If things go down, your gains on the hedge offset some of the losses on your longer positions.  If things go up, you can stop out with a 25% loss, which will "only" be a 5% hit on your total virtual portfolio but it means we are breaking through resistance and your upside bets are safe and doing well.  That is not a bad trade-off for insurance in this crazy market.  Also, be aware that these are thinly traded contracts with wide bid/ask spreads and you need to use caution establishing and exiting positions.

As we are now, we were very keyed on watching our levels, which were at the time:  Dow 10,650, S&P 1,135, Nasdaq 2,000, NYSE 7,400 and Russell 700 – all marks we are currently far short of other than the Nasdaq, who has been our leader this year.  Today we are looking to retake ALL of our lower levels at Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 and anything less than holding them into the close is going to put us back to bearish. 

We had a very happy Thanksgiving because we were prepared for a nice correction and I want people to be able to enjoy Christmas and New Year’s the same way so that is the goal of our new protectors.  Here’s a few ideas I have to ride out a possible downturn over the next few months:

  • DXD Apr $26 calls at $5.40, selling Apr $33 calls for $2.40.  This is a net $3 entry on a $7 spread so your upside is limited to a 233% return but I like this play because DXD is currently $30.41 so you are starting out $4.41 in the money on your spread.  If the Dow breaks over 10,500 and holds it, there’s a good chance you can kill this cover with a $1 loss (33%).  Under 10,500 you stand an excellent chance of at least getting your money back, which makes this very cheap insurance! 
  • FAZ July $20 calls at $5.70, selling July $35 calls for $2.90 and selling July $14 puts for $2.10.  This one is risky as you can end up owning FAZ for net $14.70 but it’s currently trading at $20.73 so that’s a 29% discount off the current price and FAZ is always a good hedge against your financial longs.  The net entry on the $15 spread is .70 so it’s a phenomenal 2,000% return at $35.  The premise of this trade is the financials may collapse again and, if not, we don’t think they are going to be rocketing up from here either. 

When you are entering a trade like this, assume you will have FAZ put to you at $14.70 and allocate how much you are willing to own.  Say that’s $30,000, which would be 2,000 shares and that means you can make this trade with 20 contracts at a net outlay of $1,400 and they will return $30,000 at $35 but even $22 would give you $4,000 back on your 20 July $20s.  On the risk side, imagine FAZ falls 50% to $10 then you are assigned at $14.70 and have a $4.70 loss x 2,000 shares = $9,400.  If that represents 10% of your virtual portfolio and you are fairly confident that your bullish financials will make at least $1,000 a month if the they finish flat to higher – this is a very cheap hedge

  • SDS March $38 at $3.20, selling March $50 calls for $1.10.  Here we are in a $12 spread for net $2.10.  This trade is out of the money and we would expect to lose the $2.10 but the payoff on a big drop is 6:1 so allocating 2% to a trade like this gives you 14% of your virtual portfolio in cash on a steep drop. 
  • SMN (ultra-short materials) Apr $11 calls at $1.  This is a bet that the commodity bubble will collapse or the economy will slow and the materials sector will sell off.  SMN was $82 last November (coming off $15 in June) so figure they can go up about 5x on a good run.  Currently at $9.37, that gives us a max expected upside (in a disaster) of about $45 and, of course, we’d be thrilled to see half of it at $27, which would be a $1,600% pay-off on this play. 

As with all of our protection plays, if we become more confident that the market will NOT collapse, then we simply take them off the table with a small loss and that makes us more bullish but having a few hedges like this in your virtual portfolio can do a lot to cushion the blows from any major market sell-offs.  There are 6 more plays I’ll be reviewing for Members later this week as we focus on certain sector plays that can give us a very nice return – even if it’s only a little rotation! 

We didn’t do a lot of bottom fishing yesterday as we need to see that we have a bottom but we did grab a couple of gold longs as they bottomed out at $1,130 as our gold shorts are well in the money and need protection.  Today we’ll be focusing on the 2.5% line (off last week’s highs) and their expected bounces at:  Dow 10,285 (10,336) S&P 1,090 (1,095), Nas 2,158 (2,168), NYSE 7,095 (7,130) and RUT 590 (593).  So it’s the bracketed retrace lines we’ll be watching this morning and if we fail to get over those levels, we likely have a 1.25% leg down coming today, giving us a very critical test of NYSE 7,000 and Russell 585.  The Russell has saved us from many trading mistakes in this cycle and we’ll be taking it’s lead very seriously.

I expected a squeeze play in the dollar to form by now and it hasn’t, that’s what’s keeping me "bullish" on equities and commodities for the moment but Forex is very complicated and it’s possible we just need to be patient.  $1.45 to the Euro and $1.60 to the Pound are our key watch levels.  What’s been holding the dollar back has been a weakness against the Yen, which makes little sense as their government officials have taken to openly fighting about monetary policy as the GDP has been revised lower, down to 1.3% from the 4.8% reported last month.  The revision, which was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News, also showed that price declines accelerated.

Investor sentiment is worsening because of the reignited uncertainty about credit,” said Naoteru Teraoka, who helps oversee $16 billion in Tokyo at Chuo Mitsui Asset Management Co. “There’s uncertainty about the future and companies are cautious.”  The Nikkei pulled back another 135 points (1.34%) and finished right at the 10,000 line while the Hang Seng dropped 318 points (1.44%), after failing to hold the critical 22,000 mark and wound up at 21,741 and the Shanghai Composite also dropped 1.4%, failing to hold support at 390 and looking more like a double top here than an index that’s consolidating below 400

[Rising Worries]Europe is holding on to small gains ahead of our open (8:30) as German Exports continue to do well and the UK declares they will keep their stimulus plans (and presumably, easy money policies) in place through 2010.  No news coming out of Europe is going to impress us at the moment as the FTSE failed our 5,250 watch line and the DAX failed at 5,750 as well so those are bearish signals for the global economy.  Certainly this is a reflection of default concerns from both Greece and Dubai, who have both had their ratings cut to near junk status this week.  Russia’s finance minister added to the chorus of concerns Tuesday. He said Russia is "still a weak link" in the global economy and would be vulnerable in case of a reversal of the tide of money now flowing in, partly because of higher oil prices.

Greece’s case could present the European Central Bank and the European Union with a dilemma: whether to bail out the country or possibly see a euro-zone member face a debt crisis. The first course could reduce the pressure for fiscal discipline, while the second could damage the credibility of Europe’s great single-currency experiment.  The real danger here is triggering a rapid rise in interest rates before international banks have a chance to stabilize their balance sheets. 

Mario Draghi, the governor of the Bank of Italy, highlighted the danger posed by a "huge wall" of corporate and public debt. He cited estimates of around $4 trillion in non investment-grade and commercial-real-estate-based debt coming due over the next five years, "trillions" of dollars of bank debt and public debt on top of all that.  "We are actually seeing sovereign risks that materialize," Mr. Draghi noted, referring to Fitch’s downgrade of Greece’s sovereign debt Tuesday. "All of this will certainly increase the risk premium in an otherwise safe asset, and may bring in sometime higher interest rates," he added.

We’re already well short on CRE but that sector never ceases to amaze us by staying up despite all news to the contrary.  At the moment, we are resigned to be patient until Jan earnings announcements give us a better look under the hood of these players and, until then – we have our disaster protection – just in case things go south faster than we thought they would.

Keep in mind that this morning we are playing for our bounces but by no means bullish overall.  Goldman’s market goose of the day is to announce that there will be no Fed hike until 2012 so all aboard the free money express.  Of course, someone should tell GS that the money train left the station a long time ago and, unless the Fed is going to start paying us to borrow money, rates aren’t going any lower.  Today is not a big data day with Wholesale Inventories at 10 and Oil Inventories at 10:30, where we may finally get a draw after 2 weeks of builds.  Since a 2Mb build is being forceast by crooks in the pockets of Big Oil analysts, it will be very easy to beat and move oil higher. 

High oil was a big factor in killing consumer confidence in last night’s poll with half of those polled saying they feel LESS financially secure than they did last year and just 1 in 3 people saying they think the economy will improve in the next 6 months.  Mortgage Applications came in mixed but the numbers can easily be spun positively and that’s all that will count this morning on that report.

We’ll try to be agnostic and watch our levels but let’s all be careful out there, I’ll feel much better with a little more disaster protection depsite the fact that we are mostly cash and bearish since taking it off at the top over the past couple of weeks.  As I said above, we were so bearish we had to sell DIA puts to lock in gains but we’ll be happy to buy them back if our lower levels start failing and we’re on the way to that 1.25% sell-off for the day

 


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  1. Phil:
     
    Are these hedges basically an alternative to DIA mattresses? It’s all good, but it seems to me they both accomplish the same goal.


  2. Yesterday, when I wrote tongue in cheek that I’ve yet to experience the "dilemma" of having all my trades go  the right way at once you, you responded:
    "If you set up a balance of bearish plays that pay off if we go down or flatline and you set up bullish plays that pay off or flatline and the bears and bulls pretty much balance out then on up days you are neutral and down days you are neutral and on flat days you make money on both sides.  The nice thing is that when you don’t touch them (because you are balanced) and the up days and down days cancel each other out over a month, then that’s just as good as flatlining every day.  If your tolerance is 10% up and 10% down (well within a buy/write) to make money on both ends, then you should make money most months and the ones you don’t you just adjust."
    I just thought I’d let you know that’s exactly why I joined this site.  I’ve been banging my head against the wall for years with directional bets and paying premium, so I thought I’d try a more balanced approach.  I think I’m getting there.  I have about 15 positions on right now and the delta seems to be pretty low but they seem well positioned to generated 10% or more over the next three months even with 200 point moves in either direction.  (i hope!)


  3. Eric, Peter – When you get a chance tell me what you think of a Jan 20/26 short strangle on GNK for 1.52 credit.  Breakeven points are 18.47 and 27.51.  The stock currently is 22.69 and has mainly stayed between the BE points since May of this year.  The volatility is high on this stock so the premiums are nice.


  4. Phil, same stock different angle.  What do you think of a buy/write on GNK now 22.69 selling the Jan 22.50’s for 3.70 with net entry of 18.99/20.75.  Or selling the Apr 22’s for 6.85 with net entry of 15.84/18.92.  Also, is it feasible to combine a buy/write with a short strangle?


  5. Phil, Re insurance, you quoted your post from last year that if you hold 50% cash and 50% equities, then use 40% of the cash for insurance plays.  Are you in a similar frame of mind now--I’ve gotten the impression from other posts that you are now holding more than 50% cash.  Or is the more general point to be using about 20% of one’s portfolio for insurance?


  6. anyone on the drop in futures??


  7. dollar pump – looks like


  8. SPAIN downgraded; others on watch.


  9. Phil: are you recommending these hedges instead of DIA protective PUTS ?


  10. Hedges/Chaps – The mattress plays are meant to pay 2:1 on a Dow drop of 500 and I like them because, day to day, they make it easy to flip your bull/bear percentage.  The disaster hedges are meant to act more like life insurance, giving you a substantial pay-off if they hit but pretty much a loss otherwise.  We don’t sell front-months against them, they are pretty much set and forget – just in case the market turns sharply lower.  Since we don’t think the Dow or the S&P will drop 20% overnight, you do not need to be fully loaded on the hedges.  You can start with 2%, that looks like it will pay 10% and, as it gets to 10%, you can DD to have 2x at 6% (of what you started with), now with a 20% upside (2x 10%) and at 6% you can DD again and you have 18% of your starting portfolio committed already valued at 24% with a possiblility of 40% if the move completes. 

    Of course the trick is to have cash to add along the way etc but mainly it’s about finding a compfortable number.  If I have a dozen buy/wites at about $8,000 each and I expect them to return 10% per month if the markets hold up, that’s about $10,000 a month on $96K in positions.  So if I take an April protector I’m not worried about dropping 10%, as that’s my cover on the buy/writes so I’m really worried about a 20-30% drop, which I can assume would hit me for a 30% loss of $30K.  If my protective play pays 5:1 on a 20% index drop then I only need $6,000 to cover my entire loss between now and April or just about 10% of my expected monthly gains over 5 months.  That’s all it takes to be well covered. 

    Balance/Jcm – That’s great.  It does take practice though.  Think of it like learning to surf – you have to get the feel for your board and your body before you are ready to ride the big waves and you WILL make many mistakes along the way until you get proficient.  There is nothing natural about balancing a portfolio as you have to bet against yourself all the time.  The real trick is to bet against yourself without making trades that cancel each other out. 

    GNK/SS – I’d stay out of the shipping for now.  All you have is a weak bounce off the 50 dma yesterday – not very inspiring.  The BDI has been pulling back hard and probably isn’t done yet.

    %/Judah – We were very bearish last year.  I’m pretty bearish now but not that bearish.  This is just about covering for if the pullback is worse than we expect (we expect 9,100 on the Dow, 880 on S&P).  As I mentioned above, it’s not where you should be trying to get rich, just a nice return that you can allocate a little cash to to get a lot of protection.

    Dollar snapped back hard and dropped the futures on Spain news.  Big yawner for us as I said Spain would fail a year ago but I guess it’s a surprise to some people. 

    Today we’ll be focusing on the 2.5% line (off last week’s highs) and their expected bounces at:  Dow 10,285 (10,336) S&P 1,090 (1,095), Nas 2,158 (2,168), NYSE 7,095 (7,130) and RUT 590 (593) – anything less than those retrace numbers is very bearish.

    If we fail to retake our bounce levels (and only the RUT is over), then we follow-through on the 2.5% rule to be down 1.25% for the day. 

    Watch that 10,336 line on the Dow to possibly go back to naked on the March puts, especially if the other indexes aren’t confirming.  If they hold up until 10:30, then they may get a pop off the oil report (assuming it’s a draw).


  11. Would you dd here on shorting the Dec 103 puts?  Balanced out by the March 101′s so I’m not worried, just wondering if there’s a st play?


  12.  Phil,
    Need advise on ANF, short Jan 36P and 37C. ANF dropped too fast and judging from their last month sale store sales %, Jan does not look good. Roll the 36P further out? 


  13. Watch the $3.15 line on copper – that will be a bad signal if they fail there. 

    AMZN $131! 

    GS found some buyers.  T and VZ still hanging on. 

    Mostly looking like we’re getting our break-down below the 2.5% line now.  NYSE 7,000 is the last straw but they are holding at the moment. 

    Upside DIA calls have ridiculous premiums but $1 for the $103 calls with a stop at .90 isn’t a bad upside mo play.  


  14. $103s/Jcm – That’s new from yesterday right?  Don’t worry yet, as long as the NYSE is holding 7,000 that play makes sense and especially if the Dow is holding 10,250. 


  15. Dollar is getting taken down seriously.


  16. $103s/Jcm – That’s new from yesterday right?  Don’t worry yet, as long as the NYSE is holding 7,000 that play makes sense and especially if the Dow is holding 10,250.
    Yes.  I shorted that yesterday and bought the March 101′s to cover.  I;ll sit tight for now.  Just spooked to be short an ITM put in a declining market.


  17.  Peter D,
    A couple of days ago in one of your comments on SPX overall strategy, you said "I usually reserve 75-90% buying power for doubling down."
    You also mentioned normally you deploy the SPX strangle around 6-7 weeks ahead. Can you give a case where you do DD? I’d imagine when the market behaves well in your original strangle target and no threat to the margin then you’ll deploy more? 
    thanks. 


  18. ANF/Balance – You can roll the Jan $36 put all the way down to May $31 puts even so hardly anything to panic over, especially as they still have .80 in premium (25%) and you still $1 in premium on the call side.  So you KNOW you will gain $1.80 out of $4 in positions by being patient.  The longer premiums will still be there and you can still roll lower so only if the roll to the May $31 put starts to go against you (gets more expensive) should you really be concerned.

    Dollar/Nol – It’s still strong.  They are at a huge breakout point where a squeeze can occur so a lot of firepower is being tossed in to stop that from happening. 

    Whee – and up we go again!  Hopefully this time we can get a proper level test. 

    DIA/Jcmn – The idea is to let the premium burn off and adjust when we have to.  Generally we’re playing for a move up that wipes out those putters and gives you cheap rolls to higher strikes. 


  19. Good Morning Phil, Holding BCRX dec 10c short @ 1.72 now .07 10p 1.29 now 3.20 shall I roll to Jan 7.5 or 10 ? or what else


  20. Phil.
    Russell 593.3, TNA here ?


  21. Phil,
    I own CTL at 35.60. What do you think of writing P’s + C’s against it?
    Thanks


  22. This FBR guy is a riot on AMZN.
    AMZN is "absolutely" a buy at 130 despite rich valuation.
    Kindle is "absolutely" on the top of "every wish list" for gift.
    He has heard on "no one" who isn’t in love w/ the Kindle  (I know I heard a lady at B&N complaining about how her Kindle sucks and should have waited to buy the Nook and would love to return the Kindle — no joke).
     
    Let’s remember this piece on CNBC when AMZN ultimately crashes; like RIMM did.


  23. Emptied out my harem of gold-diggers yesterday, damn, gold goes up today. It is getting tough to pick a direction. I feel like Tiger today.


  24. BCRX/Yodi – Do you have the stock?  Just roll them out to the March $7.50 puts and calls at $3.50 WHEN you have to.  There’s still a little premium and they may bounce. 

    Ha, oil scam exactly as expected with a draw on crude of 3.8Mb but a huge build in gas of 2.2Mb and distillates 1.6M is offseting it as that’s the actual demand and oil is falling back to $72.  Watch OIH, who have to hold $110 and XLE, who have to hold $55 (already below it) as that can really hit the markets hard.  On the whole, I think it’s supportive of $72.50 oil but not so much that I want to play the oil futures here. 

    EIA Petroleum Inventories: Crude -3.8M vs. +0.6M consensus. Gasoline +2.25M vs. +1.5M. Distillate +1.6M vs. -0.5M. Utilization 80% vs. 79.7% last week. Crude futures -0.6% to $72.20.

    TNA/JRW – Super risky down here but a fun play for bottom fishing. You can sell $35 puts for $1.20, that’s not a bad way to start as they will roll way lower in Jan.

    CTL/Jomp – Nice, boring dividend player (7%) so I like them.  They are a bit up in the range and I assume you are covering gains somewhat so how about Apr $35 puts and calls at $4.30 as that gives you support pretty much down to the 200 dma at $30 but still has $3.50 in upside (10%) if you are called away.

    Kindle/Cap – They have to push it hard because AAPL is going to announce book reader in Jan last I heard.  That’s a lot of very expensive bags that need to be held.

    Gold/Gel – Watch those dollar levels, if they break then gold dies hard. 

    Philly Fed’s Livingston Survey: Forecasters see GDP growth of 2.6% in H1 2010, and 3% in H2. Panelists expect more slack to appear in the labor market prior to a gradual recovery, with unemployment at 10.3% in both December 2009 and June 2010. 2010 CPI seen at +2.2% vs. a previous 1.7%.

    The U.S. will grow at just 2% for much of 2010, but growth should accelerate to 3% in 2011, as low interest rates prevail and unemployment remains stuck in double digits, UCLA Anderson Forecast says. Survey sees unemployment peaking at 10.5% in Q1, and remaining at or above 10% for almost all of 2010.

    American homeowners will have lost nearly $500B in home value by year-end, according to a report by real-estate website Zillow. Still, that’s a big improvement over 2008 when values fell by $3.6T. "Home values stabilized significantly during the second half of 2009, with the total dollar value of U.S. homes increasing since June," the report said.

    Oct. Wholesale Inventories: +0.3% vs. -0.6% expected and -0.9% in September, the first rise since Aug. 2008. Wholesale sales +1.2% vs. +1.3% last month.

    S&P drops its outlook on Spain (ETF: EWP) to Negative, saying it "now believes Spain will experience a more pronounced and persistent deterioration in its public finances, and a more prolonged period of economic weakness" vs. its peers. "In our opinion, reducing Spain’s sizable fiscal and economic imbalances requires strong policy actions, which have not yet materialized."


  25. Gel/Gold  Are you sure you don’t feel like his mother-in-law?  ;)


  26. Phil,
    Out of TNA at Russell 597.8


  27. Phil: I am still fully covered with DIA 105 putters ? whats the move ?
    cannot get a roll for 50 cents or a $ on march 105 up.


  28. RIMM up another 2.5%!

    VLO liked the inventories despite the huge build in gasoline (or maybe they are just too cheap down here). 

    SRS getting whacked again as everything is good for IYR.

    AGU making 52-week high, that makes an interesting short.  $65 calls can be sold naked for $1 and can be rolled to Jan $70s.

    Right at 1,095 on S&P with NAS (2,168) and Rut (593) already over our bounce levels.  Dow level is 10,336 and NYSE is 7,130 – that’s a tall order for both but a big break if they make it. 

    Volume is about 60M at 11 so slightly aggressive this morning but I think we’re running out of steam unless they can beat down the dollar some more.  Copper printed a spike of $3.31 (year high) before falling back to $3.19 so you know "they" are pulling out all the stops to pump things back up (and this is why hard stops suck). 

    I’m inclined to take .25 and run on the DIA $103 puts we sold as we get near 10,336 on the Dow (buying them back for $1.05), we can always sell $105 puts if they get over that line as they are a higher delta cover.


  29. DIA/RMM – If we break over the levels I just mentioned above, the $105 putters are fine for the move up.  If we fail those levels, you may want to take at least 1/2 off and see how we do on the next pullback to this morning’s lows. 


  30. Anyone knows how I can identify the stock for pUT option FVWXH ?? TXs


  31. AMZN: Phil, luckily I never had a chance to adjust my AMZN position last week before it turned down so I am still short lots of the April 125 calls left over from the old 100KP. I am at about break even on those now. Do you think it makes sense to roll down to something like the April 110s at this point or wait?


  32. RMM/FVWXH – It is the FXP Dec 8 put


  33. Good morning folks! 
     
    I missed almost all of the trading day yesterday, but my portfolios are pretty much flat, surviving the surge in VIX.  They are showing gains today as the VIX drops.  However, looking at SPX Jan 1190 CALLs, they are down to $1.6 that doesn’t provide much downside hedge, so it’s time to consider rolling these down IF you also have the Short PUTs.  Imagine another 2.5% drop in the market, the Jan 1190 CALL would be down to $0.75, and the 980 or 950 short PUT would gain at least $2.   We’d have a paper loss of approx $1.15 with a 2.5% drop (not including effects of increased VIX).   Although these are paper loss as the PUT strike is a long way away, we have the option of rolling the CALL down for more premium to counter the paper loss.  It’s a double dip on the short CALLs, so we need to be prudent here as it’s still a buy on dips market.  So I’d roll 1/4 of the 1190 short CALLs to 1160.  It’s a little aggressive bearish roll, but we’ll see how it plays out.
     
    Check your Position Delta to see if it has turned positive.  That would mean your spread is now bullish and would suffer on any downside moves.


  34. ssdirk: great, txs, I tried numerous ways to identify, how did you find it ?


  35. Holy crap AGU went vertical the second you said possible short.


  36. Phil, what do you think about a ORCL JAN 2011 vertical.  Buy 20′s and sell 22.5′s for a net debit of 1.28.  Risks – Sap earnings sucked, java garbage.  positives – market share from sap? currency?


  37. Peter, good to have you back.  Would buying a put vertical turning it into a wild play also accomplish turning your position delta negative work?


  38. RMM – I use a program called QuoteTracker that I put the symbol into.  I use QT for charting, managing accounts and placing trades.  It links directly into my accounts at TDA and TOS.


  39. RMM – if you type FXVWH into google the first result tells you what the option is – Steve


  40. Phil:
    is FXP putter dec 8 a roll to what ?


  41. John Harwood showing his true colors.


  42. ssdirk/AMZN wild play,
     
    If you didn’t take profit yesterday, you should today with AMZN dropping $3.  Hihihihi.  It can be hard to fight being greedy (trying to get full value with the spread) versus the implied risks.  It’s a long way to go to Jan expiration, so if you are up 25%, 50%, then take half off.  I’d take everything off the table if I’m up 75% with 5.5 weeks to expiration.
     
    Judah/SPX,
    Yeah, the past 3 months were excellent for short strangles and buy/write scheme, but it may not last forever.  We’ve been in January for a couple of weeks now.  I have minimal Dec positions left.  I didn’t have that many Dec position to start with either.
     
    Thanks for answering questions from bord!  You’re a quick learner.
     
    ssdirk/GNK,
    Hey, I should be refrained to give suggestion to use the short strangle on individual stocks as it’s a lot more dangerous than applying it on indices.  For instance, the 20 and 26 strikes on GNK were reached only a few weeks ago, so you’d be in a panic mode when it gets there again in a few weeks.  10% on indices are huge, but 15% on individual stocks are not much of a cushion.


  43. balancenv/doubling down,
     
    I think you got in backward, hihihi.  If it goes well, I’d take some off the table, rather than doubling down.  I’d double down when the VIX surges, or when the market threatens the short strikes.  We usually doubling down to get out of trouble, rather than getting more profit.


  44. ssdirk,  sure, buying the PUT vertical also works as there are 5.5 weeks to Jan expiration and we might have a big dip. 


  45. Peter – glad I waited for your answer before I made the play.  Thanks.  Phil also advised avoiding the sector as a whole.


  46. AMZN/Allen – If you mean even like get out even and be done with it, why not do that?  It’s still going to be a yanked around momo stock going forward and you should just be thrilled to be on track for April at best.  No way would I reposition more bearish, depsite the fact that they deserve it. 

    AGU/Jimmy – That’s nice and crazy! 

    ORCL/Jo – I like them long-term for sure.  I’d rather have the 2012 $15s for $8.10 and sell the March $22 calls for $1.30 and $20 puts for .70 for a net $6.10 on the $7 spread and make the money that way as they are up in a range I’m not sure won’t correct.  You can always turn the 2012 into a vertical over time by selling the $20  when it gets to $6 (now $5) and then you have a free $5 vertical with a lower b/e point.

    FXP/RMM – That was sold for .70 and should expire worthless, I doubt I’ll chase it to a higher put if China heads lower but I would sell the Jan $8s for .70 as I still like the $7.30 entry on FXP. 

    Harwood/Jo – What true colors?   I missed him.

    Damn, just missed getting my DIA $103 puts bought back at $1.05 ($1.08 was best price).  I’m kind of torn now but I’m leaving that offer in. 

    Sector ETF strength: Gold Miners– GDX +2.8%. Steel– SLX +1.8%. Coal– KOL +1.6%. Oil Services– OIH +1.4%. Silver– SLV +1.3%. Gold– GLD +1.2%.
    Weakness: Solar– KWT -1.1%. Internet– HHH -1.1%. Retailers– XRT -1%. Solar– TAN -1%.

    Dow leaders: MMM +2.8%. PFE +2.2%. AA +1.2%. MRK +0.9%.
    Laggards: UTX -1.4%. DD -0.9%. INTC -0.9%.

    So Nakheel’s artificial Dubai island development Palm Jumeirah is (literally) sinking into the sea a bit – but in line with expectations.

    Research in Motion (RIMM +3.5%) on the move, as bulls drive calls to a two-to-one ratio over puts. The company has increased inroads into China for its Blackberry handset, suggesting more international growth potential than was hinted at in September.

    Stephen Colbert destroys the Fed "Dr. Blankcheck von Moneypants.


  47. The market "feels" as there may be no more gas in the tank……


  48. AMZN/Allen – If you mean even like get out even and be done with it, why not do that?  It’s still going to be a yanked around momo stock going forward and you should just be thrilled to be on track for April at best.  No way would I reposition more bearish, depsite the fact that they deserve it.

    Phil, I am only at break even on that last roll to the April 125′s. I am still way deep in the hole from the original Nov 95′s and then the first roll to the Dec 110′s last month.


  49. Oh, done with DIA $103 calls obviously (stopped at $1.15).

    Turning ugly again, all about whether or not they can hold the dollar down so watch oil at $72.50 (below it) and gold at $1,140 (above it) and copper $3.15 (now $3.17) so 2 of 3 is not too bad yet. 

    Notice all we did is get back to yesterday’s morning bounce and now we have plenty of sellers again.  That’s what the 5% rule bounce rules are all about as we pretty much called this move on the nose.  Now they have about 90 minutes to make progress or we probably start getting volume selling again as they flip the machines to sell mode. 

    Gotta love CNBC - A snowstorm in Indiana disproves global warming for the anchor girl.

    AMZN/Allen – Then don’t be greedy, just be glad we’re on target.  Back when they were at $145 I avocated rolling to the Jan $100s to take max advantage of the sell-off (much higher delta) but now that we got $15 in sell-off it’s time to get back to our target of Apr $125 short calls


  50. 1020/mother in law    .well put – with my harem gone, I am just a little lonely – Geez, she is heartbroken! Tiger needs to worry about keeping his income base from product endorsements… Oh well, Viagra might be looking a spokesman.


  51. Phil, I would seriously like to see some scientific unbiased data on global warming.  Do you have any links?


  52. Phil,
    AMZN- I am short 6 Jan 120′s from earlier rollups. I can roll out/up to only 5 April 125′s for about even which helps reduce my margin . Good move at this time or hang with what I have?


  53. Gel/Tiger  Tiger – TROJAN MAN!!!    That was/is an old commercial on sports radio……


  54. Peter D
    TBT- a while back I inquired re: short stangle on TBT and you indicated that premiums where not attractive due to low VIX.
    Any change in your opinion and if not, what are watching for?
    Thanks,


  55. There goes oil with a beatdown.


  56. Warming/Jo – Barry had a nice chart today.  The entire argument against doing something about global warming is pretty silly.  It’s like saying that, sure there are poisons that will kill you but, since you are not dead and you don’t know for a FACT that things will kill you, there’s no sense in avoiding them.  Or perhaps you could look at the whole logic to not over-eating until you weigh 1,000 pounds or not cutting down every tree on earth  – until you do it, you don’t really know if there will be very bad effects so why not?   We do actually know what happens when a planet with a similar atmosphere to ours has more CO2 in it – it’s called Venus – how far do we have to go before it’s OK to do something?  It may already be too late but, assuming it isn’t – shouldn’t we at least try to cut back a bit WHILE more studies are done rather than barrel ahead and compound the problem until the evidence is so overwhelming that it can’t be denied (and far too late to do anything by then).  Put 1,000 ants on a ball and blast the ball with 150 degree steam for a few seconds (the amount of relative time man has been industrialized) and you’ll have 1,000 dead ants – the ball will eventually cool of and survive most likely but that’s small consolation to the ants. 

    Oil $71.50 – not going well, gold should be next to fall.  Copper back at the $3.15 line so failing a strong possibility!

    AMZN/Pstas – If they fail $130 they can fall fast so no need to change unless they break higher (with the Nas back over 2,187). Also, if we dive VIX goes up and your roll gets better.


  57. Phil, several days back we bought EDZ Apr 3 calls at 2.20 with the plan of possibly selling a Jan spread against them. Have you done that yet? If not, what signal should we be looking for…maybe on the next market pull back?


  58. State revenues fell 16% in fiscal 2008 to almost $1.7T, even as spending increased 6.2%, the Census Bureau says. The biggest drop (73%) came in "insurance trust" revenue – public employee retirement systems, unemployment and worker compensation mostly financed with payroll taxes and worker contributions.

    I’m counting on Obama to take out my DIA putters – he’d better deliver! 


  59. Phil, no one has really presented the Global warming evidence/research in a cogent, unbiased way that is devoid of emotional nonsense in my opinion.  I do appreciate the link.


  60. still confused about these DIA put, call, sell, buy or roll here. Maybe I should go back to read about what mattress play is again. but i want to ask:
    where does one find levels in copper, gold, crude oil that you talked about everyday here. (i only check GLD, FCX , USO to see if they are up or down relatively)?


  61. Phil,
    In light of the fact that many have emotional and political opinions as to whether or not anthropogenic global warming exists it might be better to avoid the issue entirely and stick to what the members of Phil’s Stock World do best … give investment advise. 


  62. The Phil
    December 9th, 2009 at 9:34 am | Permalink   Hedges/Chaps -
    I don’t think I should copy the whole thing here but how do one calculate all these % you are explaining to Chaps? Should I even bother to know them? I just hope I can follow.
     
    If this service is not for "following blindly" then I have to figure out what’s going on to hopefully someday be able to figure out…., right?
    When you say a draw for oil, does it mean a drop in inventory? When you say a "build", it is obviously increase in inventory, right?


  63. Peter, I am finding I am not managing the strangles as best I could. Don’t get me wrong as I am happy for any profits.  Yesterday I closed the put vert on AMZN changing the wild play into a short strangle.  And, as you pointed earlier my delta has now become positive with AMZN continuing to weaken.  I have the Jan 110/160.  Suggestions?  Thanks.


  64. YAY Obama!! This has become my favourite pretend its reality show…YAY Obama!!

     


  65. Hi Phil, I sold AMZN Apr $125 calls @17.65 and Apr $115 puts @$6.35. Now AMZN is down to $130.  Do I need to do anything in case it goes back up?
    thanks


  66. When u say "TNA/JRW – Super risky down here but a fun play for bottom fishing. You can sell $35 puts for $1.20, that’s not a bad way to start as they will roll way lower in Jan"
    bottom fishing by selling the put to hope that it was put to u to establish TNA position? and if u have to roll in Jan, why not sell Jan put instead?


  67. Oil, copper, gold down hard in the last 1.5 hours.  Can AGU be far behind?


  68. "DIA/RMM – If we break over the levels I just mentioned above, the $105 putters are fine for the move up.  If we fail those levels, you may want to take at least 1/2 off and see how we do on the next pullback to this morning’s lows. "
    $105 putter good for move up—-do you mean to sell the $105 put?


  69. "Damn, just missed getting my DIA $103 puts bought back at $1.05 ($1.08 was best price).  I’m kind of torn now but I’m leaving that offer in. " but you are talking about buying $103 out?


  70. sorry for typo, you are talking about buying DIA $103 put (not out) —-this vs "105 putter good for the move up" is what i want to figure out
    sorry for phrasing my q so incoherently


  71. Energy taking a beating … lots of good buying ops here.
     
    HK
    SD
    SWN
    others.
     
    Buying SWN here….


  72. Phil/RMBS,  A few weeks ago when I asked you for strategies about RMBS, I told you why I liked the stock but I neglected to tell you that I hold 3,500 shares I got about 6 weeks ago with a basis just south of $14 that I sold $20 calls against.   It’s about 2% of my portfolio and I’m pleased to have made 50% on the stock, but I’m really playing it for the upcoming antitrust trial.  My plan is to use the cash from the sale of the shares for one of the strategies you had recommended, such as a 2011 bull call spread.  So, before I let my shares get called away, I thought I’d at least ask you if you would do anything differently. 


  73. Peter, went with my gut instinct and 1) took the money and 2) ran.  Can look to reenter later as I have enough bearish plays.


  74. EDZ/Ajay – I haven’t found them to be in any danger yet so we’re just enjoying the ride up.  Another weak day in the US and we could get a nasty emerging market sell-off.  THEN maybe a cover. 

    AGU still acting like a biotech.  MMM with huge reversal of yesterday’s drop.

    DIA/Lynn – If you are not into day-trading to scalp quarters, don’t even worry about it.  There is no need to constantly change the position.  My attitude is, since I HAVE to have the insurance, I may as well have fun day trading the covers but it’s not essential.  As to the Futures, sign up for a trial account on TOS and you’ll see all sorts of cool futures charts.

    Warming/Ribat – Well my opinion on warming does color my long-term investing outlook so pretending it doesn’t exist may not be all that helpful.  If I didn’t think global warming was real I wouldn’t have shorted the Transports on Monday at the start of the conference…

    %/Lynn – Chaps is much further along than you are so we are having a conversation based on his full year of membership and hundreds of back and forth comments in between.  You can’t expect to understand everything that is said to everybody in your first month.  Those numbers are just the expected % gains based on % of the portfolio invested but it may help if you write down the actual dollar amount of the trade and your expected returns at each strike (there are programs that do this for you).  As to oil – yes, draw is drop, build is increase – those are industry standard terms, not something I made up…

    AMZN/Jlui – It depends how committed you are.   You can use the $131 line to buy Jan $135 calls, now $4.85 as a momentum play to capture short-term gains or you can set up a 2011 $125/150 bull call spread for $10 as that helps limit the upside from getting away from you (you make $15 at $150) and figure is should have $5 left in April even if AMZN does get wiped out.

    TNA/Lynn – Because the Dec $35 puts makes $1.20 profit in 7 sessions if TNA holds $35 AND I can still roll to Jan if they fall lower.  If I sell the Jan $35 puts for $2.90 I’m waiting 6 weeks (.50 per week decay vs. .60) to get paid and they have a higher downside delta (.37 vs .33) so they do even more damage to me if TNA heads lower but offer no major benefit at all if TNA moves up. 

    DIA/Lynn – Yes and yes to the 2nd DIA question where I offered $1.05 to buy back the $103 puts I sold as a cover at $1.30 yessterday.  AFTER and IF I take out the $103 putter at my price (.25 profit) THEN if DIA breaks back over 10,300 I will use that line as a stop for selling the DIA $105 puts, which are now $2.47, probably for about $2.25. 

    Energy/Cap – Be careful with copper at $3.12, the dollar can squeeze up soon and that could knock oil back to $60 and send all these guys down 10-20%. 

    Just 1/2 hour left to make our levels or I think we’re heading lower.

    You might have missed something in the jobs report, says Paul Vigna – not nonfarm payrolls, but the openings/turnover numbers, with a steady rate since March. Which means if you bought into Friday’s lower-than-expected unemployment figure, it’s still true that hiring hasn’t picked up: Long-term unemployment is still rising. And if you didn’t buy into it, you’re not alone.

    Ow, gold goes to $1,123!  Oil back at $70.50 after 10-year note sale was not good at all.  $21Bn was sold at 3.448%, much higher than expected.  TBT is flying! 

    FTSE could not crack 5,250 today and finished at 5,203 on a stick save.  DAX dropped 40 to 5,647.


  75. Phil – like the DXD play, but what about shorting SSO, say 35/30 put vertical for 1.75?  A bit cheaper and if we do head up, they should hold as well.


  76. Hi ssdirk, Where do you find the QT program ???
    ssdirk
    December 9th, 2009 at 11:21 am | Permalink  
    RMM – I use a program called QuoteTracker that I put the symbol into.  I use QT for charting, managing accounts and placing trades.  It links directly into my accounts at TDA


  77. Yodi – download it free at http://www.quotetracker.com.  I have been using this program for over 5 years and In my opinion it is awesome.  Feel free to ask any questions about it.


  78. RMBS/Judah – You are playing for a big up move right?  Your 3,500 shares is $70K (about) and you have your $7K caller.  You can roll caller better than even to Feb $22.50 calls ($3.30) and buy 35 Feb $18 calls atr $5.50, which is net $2.20 or about $7K, which beats buying out your caller for the same since you have a $4.50 upside potential.  I would be happy with that (making another 20% if it hits $22.50) and taking the stock off the table with a plan on selling Feb or May $15 puts for $2.20 - IF the stock drops so low as to endager the spread and IF, of course, I want to stick with it.  You can be more aggressive and also take the 2011 $12.50/20 spread at net $3.50, which has another $4 upside if RMBS simply doesn’t go lower.  That costs you $12,250 and the two plays will make $8.50 if things go well (29,750), even after taking about $50K off the table.

    The Treasury sells $21B in reopened 10-year notes at 3.448% (.pdf). Bid-to-cover ratio of 2.62, compared with 2.92 at recent reopenings; indirect bidders take 34.9%; direct bidders take 9%. Treasurys moved lower across the board: the 30-year yield +0.06 to 4.44%; 10-year +0.05 to 3.44%; 5-year +0.03 to 2.14%; 2-year +0.02 to 0.74%.


  79. Phil/C
    do you plan to DD somewhere here?


  80. so whenever u say "cover", it means you are buying back the option (be it call or put) you sold?
    Haha, Phil, someday I’m going to scalp quarters with you when i am totally comfy. just u watch.


  81. Also, "AFTER and IF I take out the $103 putter at my price (.25 profit) THEN if DIA breaks back over 10,300 I will use that line as a stop for selling the DIA $105 puts"
    To me, it means that u will turn bullish again (o daytrade) by selling DIA 105 puts if dow is about 10300


  82. Nice job calling the moves in oil today Phil. You’ll have us all trading /CL futures if you keep it up.


  83. Why did the person that owns the commentary for the CO2 level vs temperature chart completely ignore the fact that if you look at the dips 4/5 times the temperature doesn’t start to go up UNTIL AFTER the CO2 levels go up??
    Furthermore, if you do look at the peaks that person chose to zoom in on, it actually says CO2 levels are increasing FASTER than the temperature is because the slope of the line for CO2 is steeper than the one is for temperature. 
    Now go all the way back to the lowest dip on that graph and *gasp*! CO2 levels do actually start to go up before the temperature follows suit. It amazes me how someone can pick one small region from an entire set of data points to prove their point while simultaneously ignoring everything else that points to the contrary.
    W.T.F. And I’m actually a scientist – you wouldn’t get ten seconds into a talk in front of a bunch of people that can actually read a graph with that kind of ill-based logic.


  84. Warming — help me profit from it and you can have any opinion you want!


  85. This lack of going up is becoming notable…….


  86. Phil, looking at scaling into either C or BAC at these levels. Which one, if either, has the better shot of providing short-term returns, say 1-3 months? My opinion is that C has the better chance to pop sooner since they still haven’t made their "We’re gonna repay TARP" announcement and the govt stake withdrawal timing is still TBD. I like BAC longer term especially when their Merrill Lynch investment starts to pay off handsomely.


  87. After 3 months of watching GLD go up (and rolling, rolling, rolling my spread ever higher) I finally got out of my GLD spread (with a $70 profit even).  Thanks Phil


  88. "Down goes Frazier-AGU, Down goes Frazier-AGU!"


  89.  jcmcn – i think the answer to that is go long on sunpower corp :)


  90. Phil,
    Are you currently fully covered on your DIA puts ?


  91. For me I think what that link on global warming highlights is that twaddle is being spoken on both sides of the debate, and we have no consensus whether global warming even exists let alone how it is caused or if we can stop it or how.
    While I have to accept the defensive sentiment of "first aim to do no harm" it does make me uneasy that a potentially huge portion of global output may be devoted to solving a problem that may or may not exist using techniques that may or may not benefit.


  92. Phil, Thanks. Yes, I’m playing for a big run up into the antitrust trial that begins Jan. 11 and a good outcome for RMBS.  There is a possibility that something screwy could happen now that the Tessera case has been consolidated with the RMBS case.  Theoretical, for example, that Tessera could ask that a new judge be assigned, which would delay the case (the current judge is viewed as favorably disposed to RMBS), but I don’t think that will happen.  As you may have noticed from previous questions, I follow legal cases.  I have done well predicting outcomes and I joined this board in part to learn how better to trade around the cases.  Thanks again for the advice.


  93. Phil/DIA
    I stay naked with my puts, do you expect a stick at the end of the day?


  94. SP its eerie, like being on the deck of the Titanic just before……hey speaking of the Titanic can we blame global waring for that disaster…certainly cant blame it on inferior Chinese steel

    LQD taking  beating


  95. teeee heee  Kustomz maybe we can’t blame chinese steel but there is little question the Titanic was built with Socialist Steel!
     
    :P


  96. tchayipov, 
    what does it mean when u say "I stay naked with my puts, do you expect a stick at the end of the day?"
    the Sage book says ‘naked put’ is selling put without underlying stock. Is there such thing as naked put? is it buying put only or selling put only without any other strategy combined.


  97. With all this non-sense, down goes the DOW, up goes my little biotechs….(yeah)….  ITMN is moving over 12, CRIS is holding 2.8 (might retrace a bit), GNBT is up today 10%, and ARIA is holding 2.5 (again, might retrace a bit).  Now if ARNA would announce a buyout, I would be set!


  98. lynn
    naked mean I have only Long March puts (without covered short Dec puts)
    ” stick” is when market going up
    so if you expecting a ”stick” at the end of day – better cover your long march puts to sell dec puts


  99. Steven, there’s almost never a perfect consensus in science, but the near-consensus on global warming among climate experts (as opposed to t.v. reporters, weblog authors, etc.) is about as good as it gets:
     
    http://www.sciencemag.org/cgi/content/full/306/5702/1686
     
    I know this article is old, but I don’t think things have changed much in this respect.


  100. Global warming- Hey, all you scientists out there, is there any way to determine that that white stuff piling up in my driveway today contains "trapped CO2" or something? That way I figure I can declare it a hazardous waste and call the EPA to shovel? :)


  101. Lynn
    our matrass strategy is buying ITM puts which are couple of month ahead, and cover it with ATM short puts of closest month
    we can stay ”naked” (without coverage) if we are bearish short term
    we can stay 1/2 covered
    or if you bullish short term you can be full cover


  102. Ahh, pstas…Chi town…how I don’t miss it.  San Diego, San Diego, San Diego…. !vamos!


  103. SP no you didnt!!

    LMAO pstas

    Wonder how long short the Tiger trade stays on take a look a NKE

    Strong dollar weak commodities, less profitable to dig it out of the ground…
     


  104. Tchay,
    when u long march put and sell dec put. is it a calendar put spread trade or just part of the mattress? I wonder: if its a mattress, its for insuring market drop, right? why do that need so much maintenance day to day.
    or is it a day trading thing again?


  105. wow,
    RUT got todays low


  106. kustomz – AP is reporting that Tiger changed his name today to Cheetah.


  107. Well, here we are, 1:30 and they couldn’t take us higher – let the punisments begin!

    C/Tcaha – Yes I’d like to DD but more like at .38 than .48 as all that does is drop my basis a dime. 

    Quarters/Lynn – I’m sure you will, you’ve learned a lot in a month.  Cover doesn’t always mean anything.  If I have an open long-term position and I sell something against it, that’s a cover.  If I have a naked caller or putter and we buy it back, that’s a cover too but I don’t generally refer to them that way as it gets confusing so when I say cover, I am usually talking about hedgeing a position we already have. 

    DIA/Lynn – Not so much bullish as taking advantage of any momentum over 10,300 as a move to 10,340 should net another .25 on the higher delta $105 puts.  If you know where your resistance lines are, you can use them to set up your entry and exit points for day trades.

    Oil/Eric – No reason we shouldn’t make money on all this theivery at the NYMEX.  $70.19 was the low, I’d love to see them test and hold $70 for a quick buy.

    Warming/Jcm – Short any REIT that has a lot of Florida beachfront property as well as the city of Houston.  I’d say about 20 years before we have a catastrophe from rising waters.  Just fill a wide glass container with water and 10% ice to about 7" to reflect the 7 mile depth of the ocean and draw a line there.  Let the ice melt and see where the water is.  Probably we’re looking at 3 more feet of water but places like Houston and Florida don’t have 3 feet to play with.  That’s nothing really of course because if the earth gets warm enough (about 5 degrees warmer) to melt Greenlands ice mass, that would add 20 feet to the ocean.  And, of course, that may be an understatement as the average temperature of the ocean is 4 degrees celcius and that’s the temperature at which water is most dense.  ANY chang in temperature away from that level will cause the oceans to expand.

    C,BAC/Llorens – Neither is a good short-term play.  My leap on C is based on the assumption that they survive the next 2 Qs and get a bit of a relief rally but there’s no short-term play in that.  With BAC, you can look to accumulate a position when it’s cheap – perhaps buying the 2012 $10s at $7 and covering with Jan $16s at .51.  Once you work it down a bit, you can flip to a vertical and have a free ride to the upside (2012 $15s are $4.30 so if you can get your basis down to $4.30 selling calls for a  few months, you have a free $5 spread).

    GLD/Daveo – Cool, nice job!

    AGU/Llorens – That was a pretty easy one…

    DIA/JRW – Yes, full cover as I can’t justify buying back the $103 puts with $1 in premium and 7 days left.  Hopefully I won’t get burned.  Plan is, of course, to buy more long puts and roll if I have to.  $100KP is at $104,774 ($1,774 ahead of schedule) and still with a bearish bias despite the full cover so not good reason to take them off. 

    Warming/Steve – I agree that it may be a waste but there’s no backsies on this one if we screw it up so I say cut back and keep studying.  The anti-warming crowd has no shortage of capital to fund research to "discover" that carbon emissions do no harm so let them take some of the money they are paying to 2,340 lobbyists and fund a couple of serious studies on the subject, rather than cherry pick crack-pot naysayers who have done no studies but make fun of the studies done by others. 

    RMBS/Judah – I like your premise on that one and I like the whole idea of following legal actions.  They can cause some nice volatility!

    NYSE still holding 7,000 – they are our hero!  Transports still over 4,000 so not too bad there either. 

    DIA/Tcha – Well I’m fully covered with $103 puts so I don’t think much of staying naked – especially when you can get $1 in premium for selling 1/2 the $103 puts and that pays for a whole roll up in March. 

    Sector ETF strength: Coal– KOL +0.8%. Steel– SLX +0.8%. Pharma– PPH +0.3%. Gold Miners– GDX +0.5%. Basic Materials– IYM +0.3%. Broker/Dealers– IAI +0.2%.
    Sector ETF weakness: Heating Oil– UHN -3.3%. Gasoline– UGA -3%. Oil– USO -2.9%. Silver– SLV -2.6%. Commodities– DBC -2.1%.

    TCW Group has reportedly sold $450M in mortgage securities, possibly to raise cash for redemptions – as investors have pulled $1.7B from funds after Friday’s firing of investment chief Jeffrey Gundlach. The Treasury used a "key person" clause to suspend TCW’s participation in toxic-asset program PPIP.

    Volume died, just 105M at 2pm so I believe in the stick man


  108. Lynn
    yes it is day trading thing, but part of mattress (protection) strategy,
    if you are not ready to day trade, may be probably stay 1/2 covered


  109. tchayipov HI ,
     
    Your short DIA dec is it not if the market goes up your dec short gets cheaper and you will buy the same back and if the market goes down your dec short put gets more expencive and you sell the same ? pls explain


  110. SPG is so relentless that I’ve sold more 75 strike straddles, just to dare it to hold up here.


  111. Phil,  I was scanning the list of your $100k portfolio picks and noticed that FTR went down big time today.  Is it a good entry point for a buy/write or would you recommend waiting for a further pullback?
    Also, I didn’t manage to buy back the DIA $103 putter this morning.  I sold it for $1.36 yesterday.   Should I close it out now?


  112. Selling some Jan 75 puts against my April ESS puts, which are now up nicely, to protect gains.


  113. Phil
    Having downsized my portfolio, I am looking for some buy/writes for late December trades – are you favoring anything at the moment?


  114. tchayipov
     I didnt see you further explain the mattress till now. thanks for explaining


  115. Pstas
    Chicago??? Come on out here to California and help us with our tax problem. After a few days in the sun, it becomes easy! 


  116. ssdirk/AMZN – good man.  With the shorts, both CALLs (bearish) and PUTs (bullish), we can and should take the money and run when we have profit, as you said, we can always sell short again.
     
    pstas/TBT – I still don’t have positions in TBT.  The premium are not there.  As mentioned a while back, I’m looking to get into the 42 short PUT when it’s $1.2 to $1.5 range.  With the current premium, TBT Jan 45 is only $0.47, which gives us only a 5% cushion on an ultra, no way near enough to play it.


  117. qs again, tchayipov

    ‘our matrass strategy is buying ITM puts which are couple of month ahead, and cover it with ATM short puts of closest month.’
    I thought there’s only ATM and out of the money, what is ITM?


  118. oops, what happened? such long msg. can it be deleted?


  119. SS/Cheetah  LMFAO!!! :)


  120. Lynn,
     
    DIA Mattress is here….ITM is in the money.


  121. Google’s (GOOG) share of online search increased in November to 71.6% from 70.6%, according to Experian Hitwise. The gains came at the expense of Yahoo (YHOO), slipping to 15.4% to 16.1%, and Bing (MSFT), which dropped to 9.3% from 9.6%.

    FTR/Leon (thanks for catching that) – They went ex-dividend on the 7th and do seem a bit oversold.  I like the May $5 calls at $2.80, selling May $7.50 puts and calls for $1.30 for net $1.50 on $2.50 spread (66% upside) and break-even at $6.50.

    DIA/Leon – I’ve offered to buy back all the putters at $1.05 but into the close I think I’d rather keep them so we’ll just have to see what happens in the next 90 mins (but I’m leaving the offer out, the question is what I do once it’s filled, probably 1/2 cover on $104 puts).

    Buy/writes/Gel – Well the FTR above.  I sill like VLO and WFR down here, BAC we just discussed, GE still not bad (as long as you have some SRS to hedge), FXP still works, EDZ, XLF is interesting…

    Message/Lynn – No big deal.  Happens when you paste from word usually. 


  122. 2:30 Level Check:   Dow 10,285 (10,336) S&P 1,090 (1,095), Nas 2,158 (2,168), NYSE 7,095 (7,130) and RUT 590 (593) – Not the best looking list is it?  3 of 5 total failures with both the RUT and then Nas on the cusp of failing their retrace. 

    If the volume weren’t so low, I’d go naked short on the March DIA puts but realistically we’re consolidating on the 2.5% line for 2 days and that’s not too bearish. 

    AAPL getting some love, up at 2.5% line. 

    Nice in yesterday’s NYX play!  Raymond James upgrades NYSE Euronext (NYX +2.5%) to outperform, on an attractive price point. "Market-share gains in its U.S. options businesses, as well as rebounding futures volumes, should improve the earnings picture."


  123. Love to be coddled by Cramer, hes my hero

    I think its safe to say AAPL back to 197/200 in the near future…196 has some resistance
     


  124. Lynn
    ITM mean in the money
    Yodi
    our main part or mattress strategy is long ITM puts which protect our portfolio
    when we sell (cover) with ATM puts we trying to achive couple of goals:
    1. Theta of short puts is higher because it is closer to exparation and we get advantage of time decay
    2. if market continue to go higher, your short puts will make money and pay (partially) to roll your long puts higher
    3. if you confortable to trade against support/ resistance levels, you can day trade:
    if you expecting that market will go higher – be fully covered ( sell same amount of dec puts against your long march puts)
    if you expecting that market will drop – buy your short puts back and allow your long puts make a work
    if you are not sure – stay 1/2 covered


  125. Nice in yesterday’s NYX play!  Raymond James upgrades NYSE Euronext (NYX +2.5%) to outperform, on an attractive price point. "Market-share gains in its U.S. options businesses, as well as rebounding futures volumes, should improve the earnings picture."

    Nice to be ahead of the call 8-)


  126. Gel- CA- I’m trying. The sunshine, shorts and flip- flops works for me. . Just need a way to make a living. Maybe you need some yard work done?:)
    In the meantime? Global warming- bring it on. Zero wind chill forecast for tonight and more snow.


  127. THX Pharmboy—printed out for more reading on mattress later
    on the buy/write strategy (re-reading http://www.philstockworld.com/2009/04/22/how-to-buy-a-stock-for-a-15-20-discount):
    "With a basis of $6.42, we don’t mind being called away at $7.50 (up 17%) and, if we sell just .10 12 times during the year, that’s an ADDITIONAL $1.20 return per share or a 18.7% return on our $6.42 investment while we wait (profitably) for BAC to come back in value."
    isn’t danger to keep selling more calls (BAC $7.5 call in this example for 12 times).  I thought you have to own the shares to sell calls, otherwise its naked call. say if you only have 100 or 200 shares and u sold 12 times the calls, do you need 12 times the number of shares in case you get called away?

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  128. DIA- lost the thread here. In and out dealing with the snow. I am 1/2 covered on the March longs with Jan 103′s. I am to understand you are also covering the other 1/2 with Dec 103′s ?


  129. What’s a good site to look up the daily analyst upgrades/downgrades along with some color for the rating change?


  130. Thanks Yodi,
    so In the money is not the same as At the money?


  131. tchayipov  thanks ! This is the way I learned to play this game of DIA


  132. Hi Phil,
    FTR is making a risky purchase of phone lines from Verizon that will triple the size of the company.  This might be one to tread on very lightly
    http://www.usatoday.com/money/industries/telecom/2009-05-13-verizon-wireline-frontier_N.htm


  133. DIA/Pstas – I have a full cover of Dec $103 puts with an offer to buy them back at $1.05, which should be the top of the bounce zone.  I’m waiting to see if that happens, otherwise I don’t mind going full cover on those overnight as they have $1 in premium that dies in a week. 

    Upgrades/Pyern – I never look as most of these analysts are idiots but briefing.com has a good section.

    FTR/Bill – I think buying phone lines is kind of a math game for them.   They know the ROI and I’m sure they consider this a good opportunity to get some cheap.  With the coverage down to $6.50 I like them here – better than $8.50 2 days ago!   The only worry is will they still pay the dividend?


  134. common Lynn,
    if stock XYZ trading at $30
    $28s Call will be ITM (in the money)
    $30s Call will be ATM (at the money)
    $32s Call will be OTM (out of the money)


  135. Pstas… You would not like my yard…. like my portfolio – too many weeds!


  136. Tried a Buy/Write on GLW (Corning), buying stock and selling Jan 19 P & C. Just a 10% discount, but looking for stock appreciation.


  137. Phil id you say you will stay with the short DIA dec until exp as it is going down again to 1.10 ?


  138. never notice there’s ITM, only OTM or ATM (i always thought ITM is a diff way of saying ATM)
    ok, let me see if I get it right this time:
    At the money, option strike is at the current price
    out of the money, call option strike is above current price, put option strike is below current price
    in the money, call option strike is below current price and put option stike is above current price
    ??? right???


  139. Phil…what about GLL…I’ve got Apr 10 calls.


  140. DIA — Now I remember why I don’t day trade the DIA putters. I protected my DIAs by selling Dec 103s for 1.37 yesterday. Todayi I had a standing order at 1.12 that I moved around a bit, but never executed. Next thing I knew, DIA Dec 103 puts were back to 1.33 so I jumped out and went uncovered. And now they’re back to 1.05! Aaargh.


  141. Hi Phil!  Any thoughts on SYNM?  Thanks.


  142. Lynn
    yes, correct


  143. Just taken out of the dec 103′s at 1.05.  round tripped them twice today.  that’s a first.  stay or do something else on this move up?


  144. well now I’m naked DIA ( bot back at 1.05) hope Phil at the same position


  145. tchayipov thanks

    just noticed your answer. I know it sounds dumb.
    I keep finding missing part despite gradually understanding about option trading/investing. I know its pretty basic and maybe I will understand those mattress, buy/write better. I am reading over and over.
    Thx for bearing with me


  146. Finally bought back the damn $103 puts for $1.05!  Hope I don’t regret it but we’re at the exact spot I expected to top out on a bounce so this should be the top of the stick and that means I’ll want to stay a bit bearish overnight. 

    DIA/Jam – Now is the hard part, you have to watch and wait for clarity. 


  147. Phil – are you staying with the AGU short call overnight?


  148. OK Phil you answered my question bought back at 1.01 we will see


  149. I have never heard anyone on this board speak of exercising a put or call. Do any of you ever do that or is it better to just get in & out & forget about it?


  150. our AIR plane crushed today


  151. Phil,
    Out of TNA for the second time today, $14K each, so what’s the % overnite ?


  152. JRW – Nice.  How did you play it?


  153. AGU back on the march!  Looks like they may test $65 now, maybe a DD at $1.70 on the short $65 calls.

    AGU/SS – Yes, the plan is to roll to Jan $70s if the $65s don’t work.  $70 is up 100% from June dip so should have good resistance. 

    Dollar got whacked for about 0.75% on EU currencies so that accounts for whole market move.  Copper is still $3.14, oil is $71 and gold is $1,130 so what justifies the markets acting like something great happened?  On that basis, I’m standing pat with the naked March DIA puts (60% bearish) but I will likely 1/2 cover with $104 puts into the close, unless we get a nice dip, then back to the $103s at $1.25+.

    Exercise/Morx – Take money and run.  Cash is king…

    AIR/Tcha – Yeah, they went downhill fast.  I’ve seen no news either.

    TNA/JRA – I have no position on TNA.


  154. morx,
     
    I’ve requested assignment in cases where it makes more sense to take the stock than to try to pay through a wide bid-ask spread on some illiquid option. I remember some ERJ calls that had a spread of like .50 near opex, and I said ‘screw this’ and took the stock.
     
    With ToS you pay $15 to exercise, as I recall, so it’s normally not worth it, except in a case like that one. It’s kind of ridiculous when you think about it — we have the stock options, but between the bid-ask spread and the comissions, it normally makes more sense to buy/sell the option and then sell/buy the stock.


  155. For a starting DIA position, are the March 103 puts what you’d recommend?


  156. I’m standing pat with the naked March DIA puts (60% bearish) but I will likely 1/2 cover with $104 puts into the close, unless we get a nice dip, then back to the $103s at $1.25+.
     
    Which 104′s?  December, right?


  157. 3:30 Level Check:   Dow 10,285 (10,336) S&P 1,090 (1,095), Nas 2,158 (2,168), NYSE 7,095 (7,130) and RUT 590 (593)

    So we flippped from 6 Red, 2 black and 2 green to 5 Green 1 black and 4 red – not decicive yet, especially when we are SUPPOSED to bounce to those bracketed levels and any failure to do so is VERY WEAK.  S&P stopping on the mark is not a good thing for our most important index.  NYSE is our broadest index and they are having none of this so – unless this changes into the close, the odds favor more downturn tomorrow. 

    If we open low and hold today’s lows, then we’ll get bullish. 

    The closer it gets to 4pm, the less stock I put into a move up of course.  3:30 volume is 140M and we’ve seen Mr Stick add 100 points on that kind of volume so running us up to our bounce points and choking there is not very impressive at all. 

    The SMART play is to 1/2 cover with the $104 puts and be fairly neutral but I’m going with my gut and staying naked on the DIA play.


  158. Phil/VLO… I really like this one for the B/W… oil cost dropping should help them.


  159. Phil: i have still full cover on protection DIA mar 105 puts: is that to keep????


  160. morxlntway
     
    I take it this would be an individual decission If I like a stock with good div. payments I sell a put one month ahead or so ITM or ATM with a good premium So here you receive the premium and if the stock stays above the put strike price you just stuck with the premium only and no stock If the stock goes below the strike price you got the cash and the stock  at a discount = to the premium. So simple it depends how much you like the stock.


  161. Nice runs in momentum names: AAPL, GS, ag stocks, MA, etc. Still plenty of traders willing to keep the game going here.


  162. DIA/Daveo – Yes, the March $103 puts are good and I’d hold those naked and just plan to roll up cheaply if you get burned in the morning (or just wait until the morning). 

    DIA/Jcm – Yes, if I don’t specify the month, it’s the front-month (unless I forgot so ask if the money doesn’t make sense of course.

    VLO/Gel – They are a great company long-term and they always figure out how to make money eventually. 

    DIA/RMM – I’d go 1/2 at most.


  163. Anyone have an opinion on BX (Blackstone Group)?


  164. Judahbenhur
    I was just catching up and saw that you follow litigations.  Just thought I’d ask if you were following the price fixing case against Cemex & more in Florida.  I understand the class is likely to go national soon & some of my sources think they will get whacked pretty good.


  165. SS / TNA
    I day trade TNA / TZA as well as my longer term possitions. Bought the stock at 10:30, sold it at 10:50; then did it again at 1:50 and 3:20


  166. Phil, any advice on how to do better with the DIA putters next time? (see my last post). I kinda missed the boat.


  167. This is the stick we expected yesterday when we were well covered for it, back to the bounce lines.  Just because it’s a day late doesn’t make it mean any more than it would have then but overnights are very scary times to be bearish..

    BX/Pharm – They are such a black box – you can’t even tell how they make money but they are a solid company I think, just no way to assess their outlook so I tend to stay away. 

    Now BIDU moving up too.  AAPL going nuts at $197.  S&P broke over 1,095 which worries me.  1/2 cover is MUCH smarter than naked! 

    This is punching up the market:  Bank of America says it has repaid the $45B it owed taxpayers through the Troubled Asset Relief Program, after raising more than $19B in common-equivalent securities, and paid $190M in accrued dividends on preferred shares it had issued the Treasury. And CNBC reports Citigroup (C) plans to follow BofA’s model and repay TARP with a similar offering.


  168. BX / Pharmboy: DO NOT touch the stock itself!  Always play with options, if you like to trade it.
    I did the stupid thing of buying BX stock.  Holy cow!  The K-1 statement at the end of the year is a disaster!  It has TONS of numbers you have to put into your tax returns.  If you do your returns yourself, it’ll take hours.  If you hire an accountant, he/she will charge your more than your profits from the trade!  I lost money on that trade, and THEN I had to do the tax returns!  Oh man, that’s …. (fill any 4-letter word here.)
    Do a search on TraderMark in seeking alpha.  I recall he likes it if it goes down to $13-ish or below.


  169. Pharmboy
    BX  holding the stock entered at 13.00 now trading at 13.39 with a div payment of 8.96 % planning to sell more put options Jan 14 @1.15


  170. DIA/Ajay – Be more patient.  It didn’t matter of the Dow dropped to $101 and you owed your putters $2 as you already collected $1.30 and that’s plenty to roll your March puts up $2, so no loss at all and then you can roll the Dec $103 puts to whatever Jan puts are $3 and you put another $1 in your pocket and your big gains are well protected – that’s what you panicked out of…


  171. Pharm
    BX has good potential IMO. I sold the June 15 puts for what I believe is a profitable, safe position.


  172. If C breaks 3.79 – Look out below….


  173. TOS-waiting for my ACAT transfer to complete this week for new TOS a/c. Anyone have handy  the email for contact @ TOS re: PSW commission discount? What are you guys paying currently?


  174. Well that was exciting! 

    Ended up naked into the close but 50 Dow points may look impressive to Asia and that would suck.  Still, with the FTSE and DAX finishing below the lines, it’s not like I think we’re gapping up 100 (at least I hope not). 

    Dow leaders were MMM (bounce of yesterday) PFE & MRK (safety stocks) and HPQ (good TXN report)  so pretty narrow rally there.

    TOS/Pstas – Scott at thinkorswim dot com


  175. Based on the S&P closing slightly over the 1095 level, I half covered with 104′s at 1.47.  Hope you concer with that.


  176. concur.


  177. Hello ssdirk,
    Possible missed my message here it is again thank you
    Hi ssdirk, Where do you find the QT program ???
    ssdirk
    December 9th, 2009 at 11:21 am | Permalink  
    RMM – I use a program called QuoteTracker that I put the symbol into.  I use QT for charting, managing accounts and placing trades.  It links directly into my accounts at TDA


  178. PharmBoy - you might look at KFN to contrast with BX, I think they’re more of a venture fund than a hedge fund.  I bought them in the spring and they’ve been slow and steady up.


  179. Yodi – previously posted.
    ssdirk
    December 9th, 2009 at 1:16 pm | Permalink  
    Yodi – download it free at http://www.quotetracker.com.  I have been using this program for over 5 years and In my opinion it is awesome.  Feel free to ask any questions about it


  180. Bassdad/Cemex.  The case is on my radar screen, though it is early days.  I tend to like cases like this one that are complex and in federal district court, since complexity usually scares investors and the federal court system is easy to follow for attorneys and it is possible to get real-time information about developments, which can let you beat the general dissemination of the information through the media.  I will let you know if I think the case could have a material effect on Cemex’s stock price as that is all I really care about when it comes to litigation.  Thanks for your note.


  181. Phil,
    Stick seemed a bit desperate today: sustained moves into the close among only selective names like AAPL and BIDU, but XLF struggled to stay in the green even after the BAC TARP repayment announcement and they couldn’t even knock SRS into the red. Struggling to keep portfolio from being too bearish, but glad to be mostly in cash as I think there’s more risk than reward in this market environment.


  182. QuoteTracker: I too have been using it for about 4 years.  It is amazing.  You will never learn all that it can do.


  183. Phil,
     
    Any stance (bullish or bearish) on MMM and VMC, and what smart plays could be used to profit from them?
     
    Also, what’s the deal on BAC?!?!?… seemingly good new on TARP et al but the stock refuses to budge or inkles up then retreats (15.40 close). Am I ass-backwards on a bull spread here? I took your advice and rolled the Feb BAC 18 calls down. I also rolled out, buying the May 16 calls, selling the 17. The February calls seemed to be getting a "big in the window" from a time decay standpoint, and I got in the May 16-17 for .40 debit, compared to .35 for the Feb…. 5 cents seemed to be worth the 3 extra months to give my thesis on BAC time to work. Thank you.


  184. Thanks all for BX feedback.  KFN and BX have options, so I like the ability to protect the underlying if it heads south (again).  I currently own a ton of CYE and HYV, which pay a nice dividend and bought a ton more in the spring at their lows, but with their slow and steady ascent, there is no way to protect the gains on them….so I was looking at alternatives.


  185. Now C could be paying all or part of their TARP back soon. The Govt. needs the cash and the banks get assurances……Stay short financials Phil?


  186. Lynn – Here is another link for options.  Good review on background, etc.


  187. thanks Pharmboy


  188. Phil,
    Peter publish a link where you give explanation of your mattress strategy and how you adjust it when market going down.
    it is very clear what you plan to do with your long puts:
    every 200 points drop you add new 1/2 layer of long puts and when market start bounce back you take out most profitable (deepest ITM puts) using trailing stop
    but it is not clear what you do with your short puts:
    when market drop what do you plan to do with them: roll down and add more? just roll them without adding? or just keep untouched you original shorts?
    and what do you plan to do with them when market start bouncing back up?


  189. Neat tool show how foreclosures are growing in the US
    http://www.msnbc.msn.com/id/33449976/ns/business-real_estate

    Countrywide (BAC) is the originator of a great number of foreclosures i have looked into down here in Florida.
    I am in the process of making a few short sale purchases. One property is on an acre with a beautiful brick building that was once a restaurant that sold for 1.4 million 2 years ago. Take the one off and minus that 4 by 1 and that’s what i can buy it for. Its amazing how much of a hit the banks are taking and think this will a major problem for some time. Townhouses that sold for 280k i can buy for 100k and rent for 1200 a month. I got to tell you the markets are becoming very attractive and with such low interest rates im going to leverage these buys and buy some more ;-)

    Phil i keep forgetting to ask, how is going with the title company endeavour you spoke about a few months ago?

    I’m meeting with the brothers that have that interesting patent this evening. I should have all the details by the end of the meeting.


  190. Phil/ mattress again
    do I understand it correctly:
    let’s say that dow will drop total 600 points.
    we start our position with 2 longs and 1 short
    after it’s drop 2 points we will add one more long and don’t touch short ( it will be 2 points ITM) so now we are 3 to 1
    after it’s dropped 2 more points we will add one more long and don’t touch short ( it will be 4 points ITM) so now we are 4 to1
    after it’s dropped another 2 points we will add one more long and if we think it is bottom we will roll our one short to two shorts ATM ( preferably without debit) now we are 5 longs and 2 shorts
    when market start go up we will take out one after one three our most profitable longs and use profit from our shorts during bouncing to pay for roll two remaining longs higher


  191. Phil Traveling w/ Kalos on East coast, but someone asked about Cephalon, their Chairman is tough to deal with, but here is a note from BioCentury:  Have an otion on Ception, which missed one of two end points on a Peds Trial, Peds are very tough to do, in house their NHL product and cll product look good. I’ll try to check tomorrow night.

     


  192. thanks for the insights as usual


  193. Pstas,
     
    I am transferring mine to TOS as we speak also……basically, I am told by Scott that $1.50 is the PSW price and it can be altered if you have mega volumes that you trade…….his hands are tied more by TD than they used to be….good luck.


  194. Colberg – the Cephalon miss in the Peds trial was small potatoes.  Looking around, GSK has a similar program for IL-5, and it failed in asthma.  This trade is more of a medium term one…but their cancer therapy looks very promising.  Then again, whose doesn’t….


  195.  Phil
    I have BMY fully covered by the Dec 23 Calls. would you roll to the Jan 24′s, or perhaps the Mar 24′s, or simply let them go given where we’re at?
    Thx


  196. Good morning!

    1/2 Cover/JCM – That was the proper way to go.  I took a chance naked and it looked good last night but the pump monkeys came out this morning and now it looks like I’m going to get burned.  Big change was JPM raising their oil forecast by 15% and PIMCO buying Abu Dhabi bonds, signaling that they think the Dubai crisis won’t spread.  That popped the Dow 60 points since 3pm and added 12 points to the S&P (they were near yesterday’s low).  Not even worth complaining about – just the normal nonsense…

    Stick/Chuaeu – I agree.  When we see a narrow-focused stick based on  a horesman rally it often means they are having trouble but they still managed to pop the Nas to a level that triggered other buyinig so mission accomplished.  That is why I prefer cash right now, too much nosense in very thin trading for the next few weeks.

    MMM,VMC/Bord – I don’t like MMM because they are nearly back to all-time highs so not a good entry and no way I short them (MMM was a buy for us at $60 when I picked them a stealth flu play (they make masks)) .   VMC, on the other hand I like because they are still beaten down and you would think they will eventually benefit from infrastucture spending.  I would play them with 2011 $50s at $7.20, selling Jan $50s for $1.30 and just try to work the basis down each month.  On
    BAC, payiing back the TARP leaves them with less cash and banks need cash to make money.  I think it’s going to be a slow grind for them to get back to $18, maybe late Jan, assuming earnings and outlook remain on target.

    Short finanicials/1020 – I’m only long on FAZ as disaster protection, not really short on financias as they are all too big to fail judging by the way our government has been supporting them.  Once our SRS play starts working, then we can start shorting financials as a collapse of CRE is the most likely way financial will fail again.  As you know, of course, that SRS play has been nothing but frustration for months so I wouldn’t say anything is imminent. 

    Speaking of Bank craziness, here’s a great article in the WSJ today:

    Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.  Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. "We’re saving lots of money," Ms. Richey says.

    Stiffing the bank is bad for peoples’ credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts. For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.

    Short puts/Tcha – That depends on what we think is going to happen next.  Usually we roll them down and out.  By adding a mattress layer at 200 points you keep your delta ahead of the short puts and usually, when you stop out on some of your long puts, you are then more bullish on the Dow and WANT to be full covered in the front-month.

    Title company/Kustomz – I have one VC willing to match $20M and we expect to get a $50M LOC against $40M in cash so now I need to raise $20M in angel financing, which is the hard part and it’s not going to happen until after the holidays, which is frustrating as the opportunity to buy is there now (the same kind of bargain basement deals as with houses only I’m buying businesses with good cash flow for less than 1/2 price) and I keep worrying some damn government program will jack up the industry and cost me some of the really big bargains I’m seeing.

    Mattress/Tcha – That’s about right!  Don’t forget the more the Dow drops, the higher the VIX gets and that gives you nice rolls on the short puts.  Also, that article was written for a time when the Dow took a month to drop 500 points, not 2 days but the logic is the same. 

    CEPH/Colberg – Thanks!


  197. Pstas,
    As a Apex or whatever they call it member at TD Ameritrade, I have bothered them down to $4 for stock trades and  for options $0 trade + .75 per contract. Exercise is like $10-15. Since I guess TOS is now owned by them, that you could get a comparable deal with TOS.


  198. BMY/Deano – It has been a nice run and we can expect some consolidation around $25 before going higher.   You could roll the caller to Jan $24s at $1.30 (-.80) and swap your stock for the 2011 $20s at $5.40 so you take about $20 off the table and stay in a well-covered spread.  If BMY breaks higher, say to $27, you’ll owe the caller $3 and you’d have $7 long calls and you can DD at $7 for an average of $6 and roll the callers to 2x the $27.50s so not much worry to the upside and, if they head lower, the caller pays for most of your roll to the $17.50 calls.


  199. Interesting volume on the MRK Jan11 30C today. Notional values are stagering.


  200. Sorry Jan10 30C and Jan10 27.5C