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Fa La La Friday – Scroogy Swap Prices Blacken Christmas

Where is our Santa Clause rally?

We usually have one.  Even last year the Dow went from 8,149 on Dec 1st to finish at 8,776 on Dec 31st.  This year, we’re lower than we were on Thanksgiving and challenging the 10,200 line, the lowest we’ve been since Nov 9th.  Why has Santa Clause forsaken us?  Most likely, it’s because we already got our Christmas present in November, when the Dow ran from 9,712 on the 2nd to 10,406 on the 16th.  That was when we threw in our bullish towel as it was way over our 2009 target (9,850), which is based on fundamental market valuations, rather than Christmas wishes.

We still face serious headwinds in the economy and, as I’ve said many times this year, the current market valuations are ignoring the risk factors of owning equities – an amazing thing considering how recently those risk factors showed up and bit people’s faces off both last fall and this spring.  For example, according to the NYTimes this morningAmerican International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.  The total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.  

While some banks are repaying TARP funds, these wards of the state need MORE money or we are right back to the default risk that sent the market plunging last year.  What else sent the market plunging last year?  Oh yes, it was credit default swaps.  We still have many hundreds of Trillions of those nasty little suckers outstanding and now the cost of insuring sovereign debt against default in Europe is right back to where it was in March, when we thought the World was ending.  “It’s going to prove extraordinarily difficult for countries to cut back on budget deficits,” said Ciaran O’Hagan, a fixed-income strategist at Societe Generale SA in Paris. “Many countries are facing severe difficulties in coping with the economic downturn.”    

 

Credit-default swaps on Portugal’s debt jumped 6.5 basis points to 80 today, CMA prices show. Hungary climbed 13 basis points to 243, Spain increased 5 to 98 and Germany rose 1 to 23.  The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to debt agreements. An increase signals deterioration in perceptions of credit quality. The cost of default protection on corporate bonds also rose with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 4 basis points to 475, according to JPM.  The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1 basis point to 80.5, JPM prices show.  A basis point on a contract protecting 10 million euros ($14.4 million) of debt from default for five years is equivalent to 1,000 euros a year.  THIS IS NOT GOOD PEOPLE, THIS IS THE OPPOSITE OF GOOD, ie. BAD!

Here’s a nice case study of how Credit Default Swaps caused a crisis at Harvard last year as JPM and GS were able to put the squeeze on the university for a cool Billion as swap rates spiked.  That is how quickly things can get out of control again because NOTHING has been done to fix this problem – all we have done is concentrate the risk in fewer and fewer banks that are now WAY too big to fail!

Not only are we no better off than we were last year but, should any of these potentially catastrophic events turn out to be an actual problem, our government will have to deal with them from a position of being 33% more in debt than we were last November – think we can make it 50%?  How long before CDS bets begin to rise on a US default?  Germany went up 5% yesterday – do we really think we’re stronger than them? 

Obviously Main Street America doesn’t think so as Obama’s approval rating is plunging as our citizens are sick and tired of hearing about how the Wall Street economy is improving while the average American sinks further and further into debt.  The LAST thing people want to hear as they cut back on their holiday shopping budgets is that the Banks have paid back TARP so they can all get their massive bonuses this year.   

I know you want to think this is just me ranting and ignore all these worries and try to have a nice Christmas but I feel it is imperative to at least get you thinking about moving to more cash.  I want you to go into the last 7 days before Christmas either in cash or well protected or even (dare I say it?) short on the market (see last Wednesday’s Hedging for Disaster article) so that you CAN have a merry little Christmas, without worrying about the silly thin-market trading we’ll have in the last 2 weeks of the year. 

Because it’s not just me.  Bill Gross, who runs the world’s biggest bond fund ($200Bn), cut government debt holdings and boosted cash to the most since Lehman Brothers Holdings Inc. collapsed in 2008 amid increasing speculation that interest rates will rise (see our 150% return TBT play at the end of yesterday’s Member chat).  Gross also reduced government-related securities to 51 percent from a five-year high of 63 percent in October.  Gross also cut holdings of mortgage securities to 12 percent, the lowest since Pimco’s figures started in 2000, from 16 percent, according to the Web site.  Are you starting to get the picture?

As I said in yesterday’s post, I hate to be Chicken Little but I would also hate to be a media sell-out who tells you what you want to hear instead of what you need to hear.  Yes, there are good things going on in the markets.  Companies are figuring out how to make more money on less revenues but that doesn’t solve the global problem that can still drag down the good with the bad

If we don’t plunge into January earnings and we do finally break over our levels, I’d be thrilled to buy some things but, for now, cash is much more comfortable, wifh a few short plays – just in case…  Asia pulled back this morning as the Nikkei failed to retake 10,200 despite the BOJ leaving rates at 0.1% and a huge run into the close.  The Hang Seng fell another 171 points, all the way down to 21,175 and looking very weak as the Markit iTraxx Australia index of credit- default swaps jumped 4.5 basis points to 91 basis points (the 5% rule!).  “This correction mode may last until the end of the year,” said Lim Chang Gue, a fund manager at Samsung Investment Trust Management Co. in Seoul, which manages $42 billion. “Investors expect the recovery in consumption to take a while and the U.S. job market data has reaffirmed it’s a tough road.”     

China’s asset markets are a ponzi scheme,” according to former Morgan Stanley Chief Asian Economist Andy Xie, now an independent economist based in Shanghai, “Property is heading for one huge bust that will take a year and a half to unfold.”  China’s property and stock markets are a “bubble” that will burst when inflation accelerates in 2011.  “It’s a less glamorous version of the Greenspan bubble and the story will end with inflation,” Xie said.  Hong Kong stocks are also about 30 percent “overvalued” and may face a “major correction” in the next four to five months as the market factors in a possible stimulus exit by the Fed. The market may recover in the second half, he predicted.  

Europe got a big boost early this morning but gave back most of those gains by 9am.  German Business Confidence rose to the higherst level in 17 months but investors are following Bill Gross’ lead and cashing in their chips. “Prospects for the euro-zone economy are growing murky, given sovereign debt woes and banking sector issues,” said Keiji Matsumoto, a currency strategist in Tokyo at Nikko Cordial Securities Inc. “The euro may stretch its decline both against the dollar and the yen.”

Spanish Credit Default Swaps jumped 20% to 103.5 this month while the UK was up 20%, climbing 14 points to 84 and Greek bonds have jumped 130% since August.  “There is definitely a potential danger to credit in sovereign CDS,” said Martin at Bank of America. “When sovereign CDS spreads widen, they act as a lower boundary for credit spreads.”  That, in turn, puts pressure on corporate bond rates, which have been trading this year at about 3.8%, down from 6.97% last year.  Low borrowing costs account for pretty much ALL of this year’s increased corporate profits with favorable exchange rates accounting for the rest.  As we learned last Fall – all those factors can pretty much reverse overnight.  “Our key risk for markets next year is higher bond yields,” said Jim Reid, head of strategy at Deutsche Bank AG in London. That may be “due to government supply starting to overwhelm demand, or because of inflation fears starting to mount,” he said.  

Oil is being boosted this morning by RUMORS that Iranian forces have occupied an oil well site in Iraq.  The timing of this is absolutely amazing as it’s coming on the day before NYMEX contracts have to be rolled over so the nice $2 boost we’re seeing in oil, back to $75.50 is saving NYMEX traders billions of dollars today as they roll the contracts they pretended they wanted for January Delivery into contracts they will pretend to want for February delivery.  Keep in mind that in order to create this kind of "news" and make Billions, all you have to do is give $100 each to 5 guys with a jeep and some guns in Iraq and tell them to drive 5 miles over the boarder to the closest oil field, fire a few shots in the air and raise a flag  It may not be legal but it happens every time the commodity crooks need a boost, yet our government does nothing to reign in the speculators.  We are speculating oil short at $75.50, in futures and with USO puts.   

So play at your own risk.  We’ll be mostly watching from the sidelines as we roast our chestnuts on an open fire and maybe even do some last-minute shopping – doing our part to boost the struggling economy.

Have a great weekend,

- Phil


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  1. ssdirk

    Speaking of credit default swaps, not sure if you saw this visualization, but it is a good presentation of how they work.
    http://www.crisisofcredit.com/

  2. terrapin22

    Phil – I’m a new member as of a few days ago and appreciate your answering my qustion last night regarding TBT.  I like the insights so far in your articles in addition to the specific recommendations.  Is the week-end review report the best place to see a list of your outstanding positions or does the link to the $100k portfolio cover all of them?  I’m trying to get up to speed on your outstanding recommendations.  I will start to review the last 30 days of articles/commentary shortly as you advised another beginner earlier this week.  Thanks!

  3. stevenparker

    LDK struggling. As I have pointed out before, this company has spent an absolute fortune on building out polysilicon production plant, but still cannot make polysilicon at a profit. I am giving up working my way out of the original loss taken on this, and bailing.
    Watch out below.

  4. Pharmboy

    Look at CELG after hours……holy moly.  The data there were due out after Xmas!

  5. David Ristau

    Hey everyone,

    I will be available most of today for answering questions if you have any about stocks, etfs, commodities, bonds, etc. You can leave comments here or on my story for today

    Just let me know.

    Thanks,

    David Ristau

  6. bord

    Question for Phil/everyone-- can wait until after market for reply, I have been studying very hard the archives, etc. and a question comes upon methodology and doubling down (DD). Bull call spread as example, let’s say I open a bull call at a debit (eg- call cost minus call sold) of $1. That long call position then drops 20%, decision is made to double down. When DD is made and more calls bought, do you correspondingly also sell more calls as part of the double down? I am just not clear from the posts how the  methodology addresses DDing the short calls in bull spread positions, whether you DD on the short calls or if they get covered or 1/2 covered. Thanks! 

  7. deano

     Morning Phil! I have VZ stock fully covered by Dec 30 calls, been awaiting the pullback that never came. They also go ex-div 1/6. I’m not sure how to make a roll that’s likely to stay in the stock & not get called away. Like to have them as a long term hold. Any suggestions? Thanks!

  8. chaps

    Phil:
    re:
    BAC is a much more sturdy bank than C (don’t forget they sucked up MER) but it’s a long-term play.  I only like the Leap bull call spreads BECAUSE of the ugly uncertainty but, if they get any cheaper, I’ll be liking the buy/writes too.
     
    I take it you prefer the bull call spreads on BAC now over the double diagonals we were doing a few months ago.

  9. doro165

    The plan for the RIMM earning trade is to hold as $70 is the sweet spot, or is there an adjustment to make better?
    short Jan 70c/ long Mar 75C

  10. Phil

    As I said in the post, I have now gotten to the point where I don’t really care what the market seems to do day to day - it’s over.   There are too many things that can go horribly wrong to risk capital taking a chance that they won’t – at least between now and when we get back from the holidays. 

    That little futures pump into the open has been met with so much selling volume that it’s crushing broker systems (Dow volume 175M in first 5 mins).  This isn’t a joke – it’s a rape of the retail consumers as the people who control the markets TRICK people into thinking it’s OK to buy and then dump all their pumped-up crap on anyone stupid enough to fall for it. 

    I’m sorry but I’m disgusted!

    Anyway, let’s keep an eye on our levels:  Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 to see what holds up today but I’m so glad I stayed naked on the DIA puts last night as I have zero confidence in this move up. 

    I did say yesterday that it would be good to have a spike down in the morning and we could possibly bottom fish off that but we’ll have to play it by ear so stay tuned as I’m sure not in a buying mood this morning.   Commodities are getting snapped up at the moment and that’s not the kind of rally I like anyway. 

    Again, sorry to be a downer but this is just getting to be too much…

  11. EricL

    POT is falling down through support. Let’s see if it recovers, if not, more downside.

  12. Pharmboy

    Feeling like its a MrM day, 103 DIA P for 19c….all or nothing….

  13. Cap

    Well this is an exciting day !   Not !

  14. stevenparker

    V being added to S&P 500 tonight. May be helping it run up.

  15. judahbenhur

    Lots of cash, nothing to buy. Maybe I’ll just go to a mall and see Avatar in 3D.

  16. stevenparker

    Judah I have no idea why but I am sooooooooooo looking forward to seeing that movie

  17. ssdirk

    Phil – Do individual stocks work off of the 5% rule as much as indexes do?

  18. samz3700

    phil
    tbt jun 42/46 bull cal spread – you still in it?
    I got in late so i never hit 20% profit

  19. Pharmboy

    AGU is finally moving with POT.  Those 60 Jan10s should pay off nicely.  Thx Phil.

  20. Phil

    Very good video SS – all should watch

    Welcome Terrapin!  I throw out trade ideas every day.  We have hundreds of members and new ones every day so it’s really a question of picking ones you like to balance your particular portfolio.  The $100K Portfolio is a very small sample of those but it reflects my mood (very bearish right now) as to what I feel is a good use of $100K, which is mostly cash at the moment.  Probably, over the next couple of weeks, we’ll be doing more quick trades than long-term positions.  I’m hoping we get a proper sell-off to establish a floor before we have to start buying again as I have a very hard time believing in things at these prices but, when you read back 30 days and find bullish plays you like that haven’t moved or went down like VLO or WFR – then those are ones you can ask about as to how could we set up a new play going forward.

    LDK/Steve – Agreed, they are just too annoying to keep.  I’m starting to think that next year may be the year INTC gets into solar and that will screw all the other panel makers.  INTC knows how to manage Moore’s law over time and it seems like that’s going to be the only way to win the solar game long-term so it’s a good extension for them.

    Welcome back David!

    DD/Bord – There’s no one answer as it depends.  Generally, to me, if you are on a spread and you feel it’s time (and just because it’s down 20% doesn’t make it the time) to DD, then it should also be a time when you are confident enough in a rebound not to want a full cover.  Also, on spreads, rolling is often preferable to doubling down.  The best thing to do is learn by example and just ask when the situation comes up.  I may give you a quick fix answer but remind me you want to learn the why’s and I’ll be happy to elaborate when there’s time.

    VZ/Deano – Well the ex-dividend will drop the stock of course and we’re a bit worried about a general market pullback BUT you need your caller to have some premiums or you’ll get called ahead of dividends so I thinik the $3 $30 call is best rolled to the $2.50 Apr $31 as you move up $1 for .50 and you’ll get your .50 dividend in Jan and April before you have to deal with it again.  At least if you get called away at $31 in April you’ll be spending .50 to collect $2 more. 

    BAC/Chaps – The double diags still work but now that BAC is back at $15, the 2101 $15/22.50 bull call spread at $1.25 is very attractive (possible 500% gain and b/e at 10% gain) as is the 2011 $12.50/17.50 bull call spread at $2.35 with a plan to sell the $10 puts (now .85) for $2 if we have a nice dip which would make the play just a .35 loss between $10 and $12.85 or BAC put to you at net $10.35 below $10.

    RIMM/Doro – Personally, I like taking the money and running on the March $75s at $4 and leaving the naked $70 call but that’s a margin issue for some.  That’s what ALWAYS selling into the initial excitement is about.  Otherwise, just ask for $1 to get out or you can be aggressive and roll caller to $65s where they have a much higher delta for a pullback but, of course, that can burn you to they upside

  21. EricL

    Bye bye POT. Next stop 104?

  22. bvar

    Phil:
    With MA up again today, did your position on the Jan $230 puts (now $1.59) change?  I’m flirting with them.

  23. jromeha

    Since you stated that you would be focusing on short-term plays, would you recommend any alt-energy plays for today? They’ve has a good run the past couple weeks but are down a little today and our president should be able to give them a boost at some point today right?

  24. JRW III

    Phil,
    Granted that the morning pump was BS, but today SHOULD be more about math than manipulation. With that in mind, any hunch on direction ?

  25. ssdirk

    Both Gold and SPX fighting with 1100. 

  26. Phil

    V/Steve – Was this a surprise addition?  I’d say add to shorts on that one.  Silly reason for it to go up, it’s not like it’s not widely held already. 

    Avatar/J, S – I don’t know why but I’m NOT looking forward to it.  And I love that kind of stuff.  Maybe it’s the hype and I’m worried I’ll be disappointed.  I do hope it does well because I want sci-fi to go more mainstream so they start putting budget money into big stories. 

    5% Rule/SS – The more liquid something is traded, the closer it obeys.  Things as liquid as major indexes obey 5%, 2.5% and 1.25% along the way.  XOM, AAPL, GOOG will tend to act like indexes and the 2.5% rule is very reliable on them.  For most stocks, 2.5% is a very thinly obeyed line but 5% works on almost everything.  Look at RIMM, 10% up from $63.50 is $69.85 so that should be their support to the downside here if they are going to stay strong.  If that breaks, we look at the 5% line of $66.67 as the next support and, given the fundamental good news, that  would be our buy point on a pullback if it holds. 

    TBT/Samz – The downside to the bull call spreads is if you want all the money, you just have to wait.  That’s still a very good spread and we have no reason at all to think it won’t max out in June so, unless you have something better to do with the cash, it’s best to let it mature.  The spread is not $2.40 and pays $4 in June ($1.60/6 months) so we expect to make about .25 per month, which is about 10% – not too terrible for a spread that’s 100% in the money now.   Don’t forget we expect TBT to go down if the market falls – that will be an opportunity to roll our long call lower or even take out the $46s. 

    AGU/Pharm – Nice!

    200M Dow volume at 10:30(ish)

    MA/Bvar – Good time to roll up to the Jan $2.40 puts, now $3.20 for + $1.60.  They are running up right now on oil prices because that’s the best way they know to increase transaction revenues (FORCE consumers to pay more for things they must buy).  The oil price won’t last so they may be disappointed

    Alt-energy/Jrom – They have had a good run, I’m hoping for a pullback to get in again but I sure wouldn’t short them. 

    Direction/JRW – I think down is still right.  Maybe they keep us flat today to pin expirations but then what? 

    USO $37 puts are a fun way to play oil down at .20 but very likely you lose it with the possiblility of a doulbe so just a craps roll.  Dollar coming back strong is why I like this one now

  27. roaster

    I’m in CTCT Jun 15-17.50 bull spread for 1.40 and sold a Jun 15 put for 1.40 to pay for it. Same spread is about 1.00 now. Would you DD on the spread?

  28. Cap

    HAH !  Look at SLG drop as the phony bids behind it are pulled …. loving it !

  29. stevenparker

    Market Internals update at 10:30amET – NYSE volume 768M shares, about 190% above its three-month average; advancers lead decliners by 1.3:1. – NASDAQ volume 753M shares, about 41% above its three-month average; advancers lead decliners by 1.6:1. – VIX index -1.5% at 22.13.

  30. pstas

    Gel- TBT – I believe I saw a post from you the other day saying you were selling June puts on TBT? Curious, what strikes?

  31. 1020

    Phil/Disgust  Good Morning!  Thanks for reflecting the mood of some of your flock. Markets suck, Washington sucks, the decline of good manners sucks.  Thanks for having our backs and enjoy your family and the holidays!!!

  32. ephmen85

    CHK  My position is + 1 Jan 17.5, + 2 Jan 22.5/-3 Dec 25.   I need to roll my callers, but I’m thinking of closing the whole position.    You said earlier that CHK was great for day-trading, but you didn’t think it was great as a spread.  Do you still feel that way?  Now that I’m working I really only have time for long-term spreads so it might just be easier to cash out CHK on this run and be done with it.   Thoughts?

  33. Phil

    As expected, the Bank of Japan left its policy rate unchanged at 0.1%, but raised the tone of its rhetoric against deflation, saying it won’t tolerate on-year falls in consumer prices. "The bank recognizes that it is a critical challenge for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability," it said, but didn’t clarify what measures it might take if prices fall further.

    Sources say Citigroup (C) is irate with the Treasury for letting Wells Fargo (WFC) sell shares to back its TARP exit at the same time Citi planned to sell $17B in stock to pay for its own bailout exit, which it believes crimped demand for the sale. Meanwhile, Fed regulators are also reportedly unhappy with Treasury for pushing them to let banks leave TARP too quickly.

    Shares of Ryanair (RYAAY) +4% premarket after it terminated negotiations with Boeing (BA) for an order of up to 200 B737-800 series aircraft for delivery between 2013 and 2016, opting instead to "significantly reduce growth and capital expenditures, in order to maximize cash balances for distribution to shareholders." Ryanair was pushing Boeing for steep discounts. 

    In its twice-yearly Financial Stability Report, BOE warns U.K. banks to shore up their balance sheets and raise money while the going’s good, because banks "remain exposed to any future deterioration in macroeconomic and market conditions, which could substantially raise the cost of funding and capital raising in the future."

    Iraq’s deputy interior minister denies reports that Iranian troops crossed into Iraqi territory and briefly occupied an oilfield.

    GM could be relisted on the stock exchange by the second half of 2010, a top administration auto adviser said Thursday.

    November Regional and State Employment/Unemployment: Unemployment rates generally lower; 36 states and DC see sequential decreases in unemployment, 8 see increases. Nonfarm employment up month/month in 19 states, led by Alaska (+0.5%) and Iowa (+0.3%) in percentage terms and Texas (+17,300) in jobs; Hawaii (-1%) led percentage declines in employment, followed by Nevada (-0.7%).

    The battle for market share among e-book readers intensified after Amazon (AMZN) said Kindle sales for December to date are its best ever, barely halfway through the month. Amazon also announced it would begin selling Kindle with free expedited shipping, while Barnes & Noble (BKS) struggles to get its new Nook e-book reader into customers’ hands.

    Mostly bullish news overall.  Copper touched $3.10 again and is now back to $3.12, failing $3.10 is a big sign to get out.  FCX isn’t waiting as they stand to get whacked on copper and gold pricing. 

    The dollar is back to $1.429 to the Euro with $1.42 being a big deal (but I’m looking for $1.40 next week) and the Pound is at $1.6115 with $1.60 being my target before we get a real possible bounce.  We’re also over 90 Yen again, at 90.64 so that should cheer Japan up on Monday at least.  For some strange reason, EWJ Jan $10s are .15 and that’s a great way to cover the upside with EWJ at 9.87.  I like betting Japan as they do well on a strong dollar and they do well if the global economy heats up.  Keep in mind this is a cover to short positions, not a stand-alone bet.

    Oil crossing below $74.50 – Woo hoo on the futures shorts and USO doing well too!

  34. ephmen85

    DIA/DJX  Why the divergence?  Ones up one’s down

  35. josec

    Phil,
    You were on the money with POT last week 120 to 107. NIce call.
    Thanks

  36. jomama

     With low VIX, premiums on jan calls are really sucking (in regards to selling vs. leaps)  closing out a lot leaps – T, VZ, MYL.  Out of RIMM Leap Puts for nice profit – risk/reward is unfavorable. Building position in GILD & have various XTO/XOM plays with a bullish bias.

  37. judahbenhur

    Phil/Valero rule.  I was looking back at your Valero rule (from a post in 2006), especially in light of the differences between XOM and VLO over the past couple of weeks.  Do you think VLO is starting to do its thing as a leading indicator?

  38. jromeha

    BTW – great call with the USO puts Phil!

  39. ssdirk

    Cap – Yesterday and today have been FMD’s for the PSWers!!  Thanks Phil!!

  40. judahbenhur

    Phil, Are you planning to play for a bounce at Dow 10,250, or is your heart not in it this morning…Or is this the day we break through on our way back to 10,000.

  41. Phil

    CTCT/Roaster – You already have a big commitment to them so unless you intended to have a much bigger one, you are better off either waiting or, if you are going to spend money, roll the spread down to the $12.50/15 spread for about + .50 which puts you in for .50 with a $2.50 upside at $15 or the stock is put to you at net $15.50 if below less any gains above $13. 

    SLG/Cap – Very nice but don’t be greedy, I would think they will pin $50 and your premium will fade fast if it’s this month.  I’m going to be quick to pull the plug on those VNO puts too.

    Sucking/1020 – Yep, what can we do other than play the fiddle while Rome burns around us?

    CHK/Eph – You are getting squeezed by the startling discovery that it gets cold in the winter plus Cramer telling people that CHK is the next XTO-type acquisition.  On the whole, I’d say it’s nothing to worry about but unless you want to move into a longer spread, you probably are better off shutting it down.  To play long, I’d just roll out to the 2011 $25s at $4.85 (about even on your longs) and roll the caller to Jan $25s at $1.65 as that puts .75 in your pocked plus a little cash off your swap and if you can collect .50 a month in premiums for a year (and the roll in $1 incriments) then why not?  With Cramer on the warpath, you can count on a base beneath you.  Of course, a buy-out would suck with the callers – that’s the downside. 

    DIA/Eph – The DIA is more of a mood indicator and people are turning bearish on the Dow faster than is being reflected in the actual movement of the index.

    POT/Jose – Thanks!  Glad it worked. 

    Premiums/Jo – That’s why I’m for sitting out at the moment.  If they aren’t going to give us a nice VIX, why should we play?

    VLO/Judah – That worked fantastically when the energy sector made sense but that stopped happening a long time ago.   XOM is down because they may have bought XTO at the dead top of the move in nat gas and that’s being reflected in their price but all big oil has huge problems if they can’t keep oil propped up over $70 and I’m pretty sure they can’t.  That is not necc. bad for VLO, who make money off the spread so I like them better than any other energy play right now.

    USO $37 puts at .60 – I love it when a plan comes together! 

  42. ssdirk

    JRW(Money) – I know you are killing TZA today.

  43. gel1

    Pstas/TBT
    At the moment I am short puts sold – 150 contracts June 46. Over the weekend I am going to scope out some additional plays that I will add. – probably a bull spread position. I believe, that the move up in treasury rates will show some signs mid year, although it will be very small at the outset, maybe .25 to start. Like death, taxes and snow in Moscow, it is inevitable. With the amount of stimulus that has been deployed and soon to be deployed worldwide, inflation will definitely be in our future. The massive amount of treasury sales also will impact the competitiveness of this asset class (supply/demand ratio) forcing rates to move upwardly. Do you have any plays that could profit from this projection?

  44. gel1

    Have been paying more attention in class, giving respect to PSW rule # 1 – closed out CELG and RIMM options with big profit. Maybe will toss some of it against AAPL as they are sure to have a boost from RIMM

  45. gel1

    With the VIX down… I am looking at buying some Leap calls as not much cost for premium.

  46. Peter D

    This is a very calm expiration  for SPX this morning (not for SPY as we still have to end of day today), which notched the 9th consecutive up month from expiration to expiration.  Thanks to thinkorswim for the Opx plotting feature in the Chart!   The last 2 candles on the monthly OpX charts are doji, so the bulls say "bull flag", the bear say "spinning top" the short stranglers say "keep spinning" and "hedge for the downside".  US dollar continues to surge.  Hey, can we get a discount at the shops now that our dollars worth more.  So if the retailers bought the goods after August 1st (where the dollar was the same level as now) or bought on credit, they’d gain from the strong dollar.  Just a comment, no real expertise in currency exhange.

  47. JRW III

    ss / TZA
    I was in, but now I’m out. I’ll get back in probablly at 60.64 on IWM on the way back down, but they have to get there first.

  48. Phil

    Bounce/Judah – We should play for a bounce as it’s logical and the Nas is holding up freakishly well.  Actually the RUT hasn’t failed 600 either so that’s two indexes above, 2 below and the Dow right on the line.  I’m a little concerned though that this last sell-off has come on just 20M Dow volume since 10:30 so we could drop like a rock if we break lower and spark some real selling.   I think we need to wait and see what happens when Europe closed but they seem to be heading to the day’s lows.

    I’m watching my VNO closely for a turn, now $68.63.

    I suppose the DIA 12/31 $101 calls at $2.35 are the best way to play the upside as you can sell the $102 calls to cover if they fall below $1.50 (now $1.65) or just take the .15 loss on the $101s so that’s the way to play a bounce off 10,250 – let’s say an entry at $2.25 with a stop at $2 is the way to play a bounce.  If you are impatient, you can take some now and plan to DD at $2.15 for a $2.25 avg but still a stop at $2.

    Leaps/Gel – Good time to buy them if you REALLY like something.

  49. allen060

    Buy/write portfolio: Chaps, Tchai and others,
    I am following up on the long discussion from November about having a permanent buy/write portfolio that is hedged (I beta weighted with the SPY – trying to treat the portfolio as if it is an artificial bond so don’t really want the underlying stock called away or assigned). In almost all cases either the underlying will be called away or, in 2 cases, I will have stock put to me. Within this context of wanting to have a permanent portfolio:
    - Called away: when the stock looks like it will be called away, do you typically buy more of the underlying stock today or wait until Monday, or wait longer especially if you are bearish.
    - In at least 3 cases I will have stock put to me. These were "outliers" as most of the other stocks moved up, and the overall market was flat since I opened the portfolio, so my hedges showed a loss and did not compensate for these. Buying back the assigned stock at current prices will seriously impact the overall performance. I am thinking it makes sense to keep the stock and sell puts and calls against both new and old shares. Do you agree? Was there a better way to handle these earlier in the month?
    - Midway through the month i began experimenting with buying SDS and selling calls against it as the hedge (trying to overcome the theta loss of a regular SPY put or vertical hedge). I am thinking of doing this more next month, and selling out of the money puts as well.
    This is in a paper trading account as I am at the very beginning of the learning curve on this, and I want to make sure I can handle this strategy, especially in a down market. Comments would be welcomed. Thanks.

  50. pstas

    TBT/Gel- I am in a Jan11 45/55 call spread which got filled @$3.30 the other day. I may add to that if it comes in more with a general market correction as it should (if we ever get a meaningful correction that is). I was also looking at the June 46 Puts (must be great minds think alike) as I am guessing that that mid-year may be the time for some rattling from the FED on rates. Although I agree with the general premise of eventual increases being almost inevitable, however I still maintain that pressure will remain to keep rates down through the mid-term elections.

  51. jim123

    Still trying to recoup AMZN losses – would you recommend a temporary additional order  to SELL 10  contracts APRIL 110 call at 22.40 to take advantage of some of today’s losses?  we all ready have 10 contracts, but a mistake purchase has us holding 10 contracts of AMZN Jan 130 calls at 9 since last Friday. (today double downed this position at 4.1 and was working great for about 45 minutes)…suggestions welcome….
    FYI  be careful on TorS when reviewing an order before purchase – an accidental "double click of mouse" can cause much damage…

  52. jcmcn5

    Phil,
    Where are these 12/21 DIA calls you’re writing about? I don’t see them in a DIA option chain.

  53. jcmcn5

    meant to wrote 12/31 obviously

  54. tchayipov

    Gel/ LEAPS
    another good thing about LEAPS today: if interest rate start go up it should compensate time decay for LEAPS

  55. jromeha

    Hey Phil, did you change the survivorspy subscriptions? Im assuming it’s a problem on their end but thought Id ask anyways…

  56. tchayipov

    Phil/ EDZ
    I still holding naked Apr$3s calls, do you recommend to cover them with APR$4 now? (will be $0.25 for $1 potential if stay above $4)

  57. jomptien

    Phil, I’m looking for another long term bearish play. Thinking of artificial buy/write – buying long SDS leap calls maybe 2011 and selling some p + c against it. Can you recommend anything along those lines or some other long term play?
    Thanks

  58. Phil

    Discounts/Peter – Just wait until Dec 26th and there will be plenty of discounts in the stores. 

    Buy/Writes/Allen – If you put up the portfolio over the weekend, I’d be happy to comment on posiitons but there is no single answer to what do you do.  If you are going to get called away and you don’t want to be, you roll.  If you are going to get assigned and you don’t want to be – you roll.   The idea is to sell premium every month, the positions are just an excuse to make that happen for the most part but they should be positions in stocks you don’t mind owning long-term, if push comes to shove. 

    AMZN/Jim – Selling naked Apr $110 calls?  I don’t like that at all.  AMZN will have lots of good news for XMas and they could pop.  What are your existing positions and basis?

    DIA/JCM - The $101 calls are BQDLW and the $102 calls are BQDLX.

    Suvivor/Jrom – What do you mean?  I don’t know of any changes.

    Speaking of the $100KP – now it’s up to $106,454 but very imbalanced so a tough call over the weekend and I really don’t know what to do as I’m still beaish from here. 

    EDZ/Tcha – The smart move is to cover but I’m not.  Emerging markets can come tumbling down hard if we start to tilt lower.  They are jamming gold and oil up today but if those fail, Mother Russia will be leading the lemmings off a very steep cliff. 

    Bear hedges/Jomp – How about EDZ July $4/8 bull call spread for $1.10 with a 260% upside potential that’s already 150% in the money?  Since the Nas is stubbornly bullish, the QID July $18/24 bull call spread is a nice hedge at net $2.15 with 179% of upside potential and it’s .40 in the money now.

  59. Phil

    Covered $100KP DIA fully with sale of Dec 31 $103 puts at $1.40 so back to 55% bearish after all that fun with only the March $108 puts now long

  60. jromeha

    Phil – yesterday samz posted message below and I received the same message and have stopped receiving updates from them. Ive already contacted their customer support but was wondering if you had any additional info – no biggie though, Ill just harass the hell out of them :)

    samz3700
    December 17th, 2009 at 12:24 pm | Permalink  
    anyone just get an email from wall st. survivor saying their recurring order was cancelled?
     
    I

  61. jim123

    re:  amzn also carry a Apr 115 put (basis for put was 6.35/for aforementioned call 28.42)…thanks.

  62. thatway

    Any thoughts on drys? Was thinking buy / write for Jan but if the market swishes down in Jan then this guy could drop further than the current premium at 6 strike?

  63. gel1

    Tcha/Leaps
    You are right… the rise in the VIX as market turbulence arrives shoul help value – nice bonus. Phil is right – you have to love the stock. I have fallen in love with SLB (Schlumberger). I believe oil services companies have a very bright future – you might already know this well – Russia depends heavily on oil as it is 60% of its budget revenue from export. Russia will be depending more on outside technology to meet this export requirement in the future. The three largest OFS companies operating in Russia are SLB (my favorite) HAL and BHI, and they should benefit from this paradigm. I also believe oil will be in more demand as we move forward and eventually will be testing $100.I bought the SLB Jan ’11 Leap calls and will cover later.

  64. Phil

    Watch that Nas flirting with 2,200 – that’s a bullish sign for the stick if they make it.

    Bounce zone for Dow is about 50 points off bottom to 10,300 so that’s our key 5% rule bounce. S&P fell from 1,116 to 1,094 so about 1,098.50 is bounce for them.  NYSE was 7,220 to 7,030 so we’ll call that 200 and say 40 points for the bounce to 7,070 and the RUT fell 10 from 610 to 604 so 606 for sure is the spot to watch there. 

    So official 5% bounce lines are Dow 10,300, Nas 2,200, S&P 1,100, NYSE 7,070 and RUT 606 and 3 of 5 over means we need to get more bullish. 

    C is up 3% today and BAC hugging $15 with XLF just over $14 so I do like XLF as a an atificial buy write with the Jan $13s at $1.23, selling the Jan $14s for .50 and the Jan $14 puts for .42 for net .33 on the $1 spread.  This is an upside hedge and I’m starting by selling the Naked $14 puts in the $100KP (10 of them) and see how that goes.

  65. oncmed

    Phil
    I have the following positions on AMZN and would appreciate your advice:
    I started out with the 40 Nov 105 calls and have rolled, DD, etc to get to my current state
    20 Jan 125 Calls            sold for 12
    20 Jan 130 Call               sold for 9.50
    30 Jan 135 Call                sold for 6.90
    50 Dec 130 Puts            sold for 2
    20 Dec 135 puts            sold for 3.50
    I am thinking about rolling the Puts to Jan, and am wondering if I shoudl roll them down $5 or at the same strikes.
    Thanks,

  66. chaps

    allen:
     
    I’ve been trading this strategy w/ real money, hedging with Phil’s mattresses (hedging both my long stock positions and the puts I’ve sold.) It’s done well. I worked pretty hard to determine how many long puts to have in the mattress with a standard 50% short mattress cover, and adjust short mattress puts as day trades (as I do with all of my mattresses.) Since I use mattresses as a general hedge, there’s really no extra work.
     
    My current portfolio yields about 5.6% a month in extrinsic value + dividends on the underlying stocks and has a beta of about .87 of the DIA. When I factor in my permanent investment in mattresses, the yield is about 5.2% (on stocks plus mattresses). I also pay out money to roll up the mattresses when the market goes up: I figure I lose about .75% of stocks+mattresses for every % increase in the DIA. So I’m inclined to sell more DIA putters (more bullish on mattress position) if the DIA really zooms in a month (say, above 4%.) The standard 50% covered mattress is pretty much theta neutral, so my additional mattress investment is pretty much limited to rolling up the longs in the mattress.
     
    On a downturn, my estimate is that, after the long put mattress payout, I lose  about .33% (again, of stocks + mattresses) for every 1% drop in the DIA. Since I start with about 5.2% of yield at the start of a month, I’m covered a long way down.
     
    When any of my shorts are ITM at month’s end, I generally simply roll to next month w/ max premium. I’ll take assignment on short ITM puts if I’m building a position (like I’ve been doing lately with CMP.) Similarly, I’ll let something be called away if I’m not interested in it still being in the portfolio (like MO.)
     
    I don’t really care about dividends per se. What I care about is a balanced portfolio of quality stocks that have high monthly yield (premiums + dividends) "per beta." (Hence the 5.6% per month with a beta below the market.) So, for instance, I have NVO in the portfolio, which has a low dividend, good premiums, and low beta.

  67. tchayipov

    Gel
    I used to work for SLB – I hate this company, now I work for HAL – much better, if you value them from Russian business prospective – I think HAL has better potential

  68. sarahd

    "If you are going to get called away and you don’t want to be, you roll.  If you are going to get assigned and you don’t want to be – you roll. "
    The roll results in you buying back the option you sold for a loss and reselling a new option at a higher price.  On these rolls does the act of buying back the option trigger a loss for tax purposes or are you just adjusting your basis on each roll?  It seems like a wash sale and that the basis would be adjusted in the new sale. 
    For Example, if I sold the FAZ Dec 20 Call for .50 and it is now trading for .90 with FAZ trading at $21 I could buy back the Call for .90 and incur a .40 loss.  Then I sell the Jan 21 FAZ call for $1.65. Does my basis in the new Call become 1.25(1.65-.40 loss on prior Call) or do I clean the slate and incur a taxable loss for .40 and have a sales basis of $1.65 in the new call?  I know you are a trader and not an accountant so maybe someone else can chime in.  Thanks

  69. kustomz

    SOUDAN, Minn., Dec. 18 (UPI) -- U.S. scientists said their experiments in a abandoned iron mine in Minnesota may have uncovered evidence of "dark matter."

    Abandoned mine in Minnesota!! They should go to Washington, pretty evident plenty of dark matter there. Hey congressman you got a second?


    They’ll be pumping Steel stocks
    Looking ahead, UBS Securities, JP Morgan Securities and Goldman Sachs JBWere have predicted a 20% rise in Asian iron ore costs in 2010, which is higher than previous forecasts. Macquarie Bank now is predicting a 30% increase.

    Steel makers around the world are restarting blast furnaces shuttered as demand dived during the global economic slowdown. "This movement by steel makers is boosting ex-China demand for iron ore and causing the iron ore market to become tighter earlier than we expected," write JP Morgan analysts in a research note.
     

  70. tchayipov

    Gel
    quality of SLB work is quete poor ( at least in Russia) and clients (russian oil companies) stay in line to kick them out and give that job to HAL, we now cherry picking the best projects

  71. JohnC1

     Phil:  Pot has dropped significantly.  I effectively have a .17 per contract loss on my short January 125 calls (I rolled to them from the November 110s), but I am thinking of taking it.  We have had a really nice drop and I wonder how much more  downside I can hope for.  I can always reload if POT goes back up.  What are your thoughts on POT near-term and to expiration?  Thanks.

  72. gel1

    tchayipov/SLB
    Thanks, much…. You more than paid for my membership here at PSW. I will switch them out. I also heard that there is a possibility of Eurasis Drilling and Integra Group might be acquired by one of the big guys who are trying to get a larger foothold in the Russian oilfields, in order to get around the limitation Russia allows (15%) from outsiders. My guess is one of the three largest US players might be on the hunt.

  73. Phil

    WSS/Jrom – I don’t know what’s going on with them.  They made a bunch of changes this week and made a big mess so far so I think annoying them is the answer.  I’ve started putting in market orders because the limit orders don’t fill, that really hurts too! 

    AMZN/Jim — I want to help but I don’t want to work this hard to figure out what you have.  Do you own 10 AMZN Jan $130 calls at $9 + 10 more at $4.1 for 20 with an avergage basis of $6.55?  I gather from your 12:26 comment that you also bought an Apr $115 put for $6.35.  Was that one put and is that even corrrect as I don’t see why you are betting agianst yourself.  It’s amazingly easy for me to help if you say "I have 20 AMZN Jan $130 calls at $6.55 and 1 Apr $115 put at $6.35, what can I do to get out of trouble?"  Playing detective first takes much longer….

    DRYS/Thatway – That BDI is going down and down and down and Jan isn’t usually a strong month so maybe wait a bit but I do like the shippers when they are low (see Watch List).

    AMZN/Oncmed – Wow, you rocked that!  Lot of puts though…  I’d kill the $135 calls at $2.45 as it will take you a month to get that last 30% and you should keep stops on the Jan $130s too at 50% ($4.75).  Why ride out moves up when you can always re-position later?  You have about $30K in puts sold and you can just roll them down to 50 Apr $105 puts, which lowers your margin and moves the putters to 100% premium, $22 out of the money.   Then you can just worry about getting those $125 puts to expire worthless in Jan and, if not, you can always roll up to the Apr $145s about even.  Since you have about $30K of exposure to AMZN over $135 (assuming you set the stops) you can also pick up the 2011 $115/145 bull call spread for $14, let’s say 15 of them for $21K and those pay back $45K if AMZN is over $145 (all the way to year’s end of course) and shouldn’t lose more than $10K if you wipe out your callers, probably much less than that. 

    Nice strategy Chaps!

    Taxes/Sarah – Sorry, not at all my thing but I do think it’s a wash.

    Rates are up about 0.2% today so our interest is creeping up too

  74. EricL

    Any gamblers in for selling the Dec MA 250/260 call vertical for a shot at a 250 pin today?

  75. ssdirk

    Eric – That’s tempting. 

  76. tchayipov

    gel/
    if anybody will be interested to buy them it probably be Whetherford
    I know Integra Group very well ( friends of mine are in management of this company)
    their assets is not good, they bot lots of russian junk drilling contractors with half of their rigs is not functional

  77. Phil

    POT/John – It does start to look like a good deal at $108 per ounce – er, I mean per share!  You can sell the Jan $95 puts for $1.50 and that’s a heck of an entry for them or you can take advantage of the low VIX and buy the 2011 $100s for $22.30 and sell the March $110 calls for $10.55 and the March $95 puts for $5 and you are in for $6.75 on the $10 spread with many months of happy rolling ahead.

    Talk of transactions taxes and tighter regulation has brought threats of a mass exodus of institutions from the U.K. – and that might be "a price worth paying," says Bank of England financial-stability chief Andrew Haldane. “Some of the downsides of carrying around a big financial system are now evident to all."  That will be nothing compared to having your country investing entirely in off-shore financials.

    Leveraged-loan returns hit an all-time high and speculative-grade companies are raising bank debt as investors tap into the rally. “Loans are among the most attractive assets out there,” says researcher Christopher Garman. Banks have arranged $61.3B in loans for junk-rated companies since Sept. 30.  Sure, what could possibly go wrong?

    That was not all that impressive of a bounce.  We pretty much stopped dead at the bounce levels and now look like we may roll back over.  As it’s 1:15 already, that means it’s going to be hard to save in the afternoon but we’ll still look for the stick at about 3 if 10,250 holds agaiin (assuming we do roll over)

    Dow volume at 1:20 is 255,000. 

    SBUX having a nice day. 

  78. Phil

    A Paris court ruled that Google is breaking French law with its policy of digitizing books, handing the U.S. Internet giant a $14,340-a-day fine until it rids its database of the literary extracts.

    Woops, so much for that!  Grabbed the DIA $102 calls to cover at $1.05 with very tight stop but now we can watch the bounce levels for failure warnings. 

  79. EricL

    Man, V is only pennies from an all time high. This market is so whacked, lol.

  80. gel1

    Have been in PKX (Posco) for a long time, and will be in it forever, as it really performs and their market is expanding. This is one of my best "yoyo" stocks as I sell covered calls against the stock and wait for it to drop. The close in calls fly upward and I buy them back that same day at a huge profit. The next day (usually) the stock flies back up and I sell more front month calls, and wait in the bushes for the next drop. It is like watching the same movie over and over as it becomes predictable.(and profitable)

  81. cwan120

    Looks like we’ve got a member that has expert opinions on oil service companies!
    Hi, Tcha, How about writing an extensive review on that space, just like Pharmboy’s posts on biotech?

  82. gel1

    tchayipov/HAL
    Thanks, I now have the "right" Leaps.. May the weather gods bless you with some nice Chinook winds over the holidays!

  83. diamond

     tchayipov - Thanks for the info!

  84. EricL

    Asking 3.80 for a few V short condors selling the Jan 85 line and long the surrounding strikes. Looking for the stock to pullback to the support at 80 and then bounce up to the 85 area in the days/weeks ahead.

  85. bord

    EricL/ V….that is nuts. Does Phil or anyone have a short play running on them?

  86. EricL

    bord,
     
    Those short condors are very conservatively bearish on V. If you wanted to be more aggressive I’d buy put verticals or put calendars and give yourself plenty of time (3 months or more).

  87. EricL

    I’m getting EWJ Jan 10 calls filled for .10 now, fwiw.

  88. bord

    Thanks EricL

  89. nolsrul

    DIRECTION--are we headed down from here?

  90. tchayipov

    Phil/100k
    question about V position: in website it shows that you r long jan $85 puts, but through e-mail it shows jan$80 put
    do you buy them both?

  91. kustomz

    Dylan Ratigan, flipped his wig on Fla politician.

    http://www.msnbc.msn.com/id/31510813/#34478515

  92. cswiger

    RIMM has nearly 80k call open interest at the 70 strike and the volume was growing by leaps and bounds this morning so I initiated a butterfly call spread at about 10:30 for 3.80.  The market downdraft from the morning popup was enough to drag it down to 68.90, and scared me out of the ‘bull’ side of the butterly, sold for 3.45.  Later the favorable market and pressure of all those calls brought it right back to 70, and I closed out the remaining short 70 calls for another loss of .39.  It’s been 70 +/- a few pennies for the past half hour.   Just too volatile a day for a scared newbie to be comfortable with!  

  93. tchayipov

    oops, sorry, it was my mistake, both of them put $85
    I just by mistake bot put$80, is it OK?

  94. stevenparker

    Market Internals update at 14:00ET – NYSE volume 1.24B shares, about 82% above its three-month average; advancers lead decliners by 1.1:1. – NASDAQ volume1.58B shares, about 12% above its three-month average; advancers lead decliners by 1.4:1. – VIX index -1.1% at 22.22

  95. cwan120

    Hi, Phil, how’s the volume so far, buyers vs sellers?
    And how do we want our DIA mistress dressed for the weekend?  Nude, bikinis, or full?  Which size (I mean which strike)?  Mine has been in nude for days!

  96. Phil

    I think we are holding the Dow down because we have too many calls and no one wants to pay us…

    Grabbed 10 V Jan $85  puts at $1.15 in $100KP.

    PKX/Gel – It is always good to have favorite stocks where you can get comfortable with the channel they are trading in. 

    Direction/Nolsrul – It looks like a stick save but it’s going to be wild into the close with the S&P rebalancing – always a wildcard.

    V/Tcha – I sure didn’t buy both on purpose!  I’m only showing the Jan $85 puts at $1.21 (10).  I may have made an offer on the $80 puts at one time that didn’t fill.   A lot of stuff doesn’t fill with that site.

  97. stevenparker

    Nice video Kustomz. I like the woman though "Dylan you could be your own guest!". I love Dylan  but he’s gonna struggle if no one will come on his show.
    I’m afraid she lost me when she said that women and men having different healthcare premiums is discrimination. What rot. That’s like legislating that a womans haircut must cost the same as a mans.

  98. tchayipov

    Gel/
    LOL, thanx, Chinook is already here, after -30C couple of day ago, now is +5C – fills like Florida

  99. roamer815

    Could this be a catalyst? 
    Iraqi official: Iranians seized Iraqi oil well

    http://hosted.ap.org/dynamic/stories/M/ML_IRAQ_IRAN_OIL?SITE=ALANN&SECTION=HOME&TEMPLATE=DEFAULT

  100. tchayipov

    Veeeeery good week for me, my portfolio is up 9% for week, thanx Phil for great picks

  101. Phil

    Dylan/Kustomz – You can post those anytime you find them, that guy is my favorite! 

    RIMM/CS – Better safe than sorry is a good strategy.  It’s very tough to play those pops though as the pricing is very unrealistic. 

    V/Tcha – It’s fine but you just need to be satisfied with very small gains on a dollar (penny) basis.  20% is 20% and, in your case, 8 cents is a winner – keep that in mind.

    Volume/Steve – Interesting, Nas up on regular low volume but NYSE down on real volume (although all repaired now). 

    Mattress/Cwan – March $108 puts full covered with Dec 31st $103 puts

    Dylan/Steve – I don’t know, they get people on O’Reilly for nothing but abuse, I think Dylan will do fine but he is confusing the hell out of guests, who are used to just saying whatever BS they prepared and having the anchor go "Wow, that’s great, thanks for coming on and informing us." 

    Uh oh, Iraq now says Iran violated their territory!   Oddly it’s not moving oil up (or gold) but the markets are falling.

    You are welcome Tcha!

  102. ssdirk

    Man I hope Dylan doesn’t have too many skeletons in the closet.  They may be forced out by a fat cat if he keeps it up.  I would hate to see him squelched.

  103. pirateinvestor

    Ho-Ho-Ho-Long on Imax & mat since the movie will probably outdo Titanic & every kid will want those action figures!!fwiw

  104. nolsrul

    SRS--why isnt SRS participating?

  105. Phil

    IMAX and MAT/Pirate – That’s a good buying premise.  Also, MAT makes low-cost toys (relatively) that should do well this year.  MAT July $17.50s are $3.35 and you can sell the Jan $20 puts adn calls for $1.30 for net $2.05 on the $2.50 spread

    SRS/Nols – They just won’t let CRE die, it’s so annoying! 

    AAPL just woke up and we’re still holding the bounce zone at 2:45 so Mr Stick is free to play.

  106. yodi

    Sarahd
    I am not a tax man but that is how I would look at it
    You received .50 by rolling to Jan 21c you leave the dec position with a net loss of .40  you start you new position Jan with a credit of 1.65  from a cash position you now actually holding 1.25 in your pocket hoping the stk goes not over 21 or you have the same dejavaux.
    For Example, if I sold the FAZ Dec 20 Call for .50 and it is now trading for .90 with FAZ trading at $21 I could buy back the Call for .90 and incur a .40 loss.  Then I sell the Jan 21 FAZ call for $1.65. Does my basis in the new Call become 1.25(1.65-.40 loss on prior Call) or do I clean the slate and incur a taxable loss for .40 and have a sales basis of $1.65 in the new call?  I know you are a trader and not an accountant so maybe someone else can chime in.  Thanks

  107. Pharmboy

    ARIA – nice entry point for a 1/4 position.  I know Phil is not in the buying mood for things, but this one is a nice little flier for those who have an appetite for a bit of risk.  Data are not due for a while, so it will swing around a bit, so scale in.  They have some support here at 2.05.

  108. Phil

    Oil finished the day at $74.40, gold is hovering around $1,110, Silver is $17.30 and copper is $3.14 so a win for the bulls holding everything up but the energy and mining sector looks pretty tired or nervous. 

    XOM is amazingly at $67.75, way better than we thought we’d do on the spread.  CVX is down too at $76.88 and OIH is laying around $117.75.  It’s a very strange market…

    I’m going to be surprised if they go to all this effort to support the market and don’t close the Dow over 10,320 so I’m playing for a move up with the DIA $102s but so far, no bites. 

    MA still going up.  AMZN moving, AAPL looking for $195..

  109. jcmcn5

    did you ever get that xlf spread off?  any other way to play a stick today?

  110. Phil

    LDK Solar (LDK -13.2%) down for a second day as it cut the size of a secondary ADS offering and priced it at an 11% discount to yesterday’s close. The company says the offering will help it face a cash crunch that threatens its survival.

    GM has made a $1B payment to the Treasury and $192M to Canada and says it plans to pay back loans from the U.S. and Canada in full by June, says CEO Ed Whitacre – provided there’s no downturn in the economy or the business.

    Goldman Sachs (GS) is quietly winding down its involvement in life settlements ("death bonds," where companies buy life insurance policies from aging Americans and hope to collect) – a $15B market, but among the exotic securitization markets that has faced pressure in the crisis.

    International majors are being shut out of Iraqi oil auctions, meaning that the fields that could outproduce Saudi Arabia will be developed with next to no U.S. participation – and signifying a shift in power to national oil firms.

     

     

  111. Phil

    XLF/JCM – Just sold the puts.  Will decide on the rest next week.

  112. 1020

    Dylan Ratigan – The sole reason for watching CNBS last year…… Even this congresswoman better know what causes a stock price to go up, but Dylan got her off her "feel good" talking points.

  113. Pharmboy

    MNKD just filled the gap.  Can’t remember who mentioned them here, so Kudos….they have some OH resistance here, otherwise they could eek out another 80c.

  114. JRW III

    jcmcn5
    TNA

  115. Cap

    boring day; still some shenanigans.
     
    I just shorted SPG ….

  116. Phil

    Selling XOM Apr $65 puts for $2.40 is a mellow bullish play on both oil and the market in general.

  117. stevenparker

    Cal looks manipulated, back to 16 next week? lol

  118. yodi

    Hi Phil I like to burn my fingers on POT I looked at you suggestion the only thing different is the March caller does not sell for 10.55 but only for 8.00 possible looked to late.
    December 18th, 2009 at 1:22 pm | Permalink  
    POT/John – It does start to look like a good deal at $108 per ounce – er, I mean per share!  You can sell the Jan $95 puts for $1.50 and that’s a heck of an entry for them or you can take advantage of the low VIX and buy the 2011 $100s for $22.30 and sell the March $110 calls for $10.55 and the March $95 puts for $5 and you are in for $6.75 on the $10 spread with many months of happy rolling ahead.

  119. cwan120

    I must have missed something.  (I think I was busy some day earlier this week and couldn’t read every comment.)
    Did you roll Mar DIA $106 to $108 by $1.00??  For days I’ve had a GTC order to roll from $106 to $107 for $0.50, and it never filled.

  120. cwan120

    Phil, so, I’m still at Mar $106.  What would you recommend?  Thanks!

  121. JRW III

    Phil,
    Are you still going Bearish into the weekend ( no cover ) or have these levels changed your mind ?

  122. nolsrul

    mother of all sticks?

  123. tchayipov

    very good bounce of C, good that we DD yesterday

  124. judahbenhur

    JRW, from earlier today:

    Phil
    December 18th, 2009 at 12:22 pm | Permalink  
    Covered $100KP DIA fully with sale of Dec 31 $103 puts at $1.40 so back to 55% bearish after all that fun with only the March $108 puts now long.

  125. nolsrul

    dollar headed down vs euro--pulling out all stops here

  126. cswiger

    No good setup for a GOOG pin but I managed to sell a 600/610 bear call spread for .25 – intending to make it a full butterfly if 600 was ‘magnetic’ enough, but no.  Just closed out the short 600 call for .05 for a, um, not totally disasterous, expiration day.

  127. Pharmboy

    CAL/steve – Opt is playing for a downward move as well. I am in the 17.5 Jan10 P for a 1/2 position.

  128. Rich_

    URE soaring.  Why ???

  129. ssdirk

    CAL/Steve – It was down over 8% earlier today and now just 1.8%.  Almost a perfect V on the 15min chart.

  130. Pharmboy

    PODD just keeps on moving up.  Noted them a while ago at 8-9ish, as they are making an insulin pump that you place on your hip and it does real time monitoring of your glucose levels…..

  131. foss

    Phil, is it a good time to pick up SRS?

  132. Phil

    Dow Volume 281M at 3:10, way higher than normal and we are flat so not too bearish and we did hold 10,250.  The only question is how much of this is expiration day BS keeping things pretty?

    CAL/Steve – I never bet them down, only up when they get low.

    POT/Yodi – Well the 2011 $100s are stil $21.75 so no big drop there.  That is strange on the March $110s.  It’s possible I looked at the $105s by mistake. How about start with June $100s at $16 and sell March $110s for $7.80 and March 95 puts at $5.10 for net $3.10 on the $10 spread?  You have a bit more chance of being called away but it’s a lower basis so a nice profit if you do.  Also, keep in mind you are in POT at net $98.10 if it’s put to you so a small discount if put to you (but rollable to longer, lower puts).

    DIA/Cwan – I couldn’t get the fill so I bought $108 puts and then waited (until today finally) to sell the $106 puts.  Still in March $106 puts, I’d make the sale anyway and you’ll just have to spend $1.25 to roll up if we head lower. 

    Weekend/JRW – Not very, about 55% as we’re pretty much holding our levels and could easily gap up on Monday.  I’m surprised they aren’t getting more of a stick into the close but I guess there’s a lot of people selling into it

    URE/Rich – Because real estate is magical (that’s the most logical explanation we can come up with).

  133. EricL

    Man, tough to resist going crazy selling premium here (although I’m doing it). SPG Jan 75/80 strangles sold short for 4.55 just this week are now 3.55, similarly with VNO and SLG Jan 70 and 50 straddles. Only sheer fear keeps me from selling more (and I am long lots of puts on these too).

  134. Pharmboy

    Someone is shorting MS big time.  1K 30 Apr10 P just went through at 3.1.

  135. EricL

    Regional banks (KRE) with a big push higher today too, which worked out well for me being short the Dec. 22.5 puts against my long puts. If they were going to run, today was the ideal day from my perspective.

  136. JRW III

    Phil,
    That’s true, Monday is after all a MONDAY. Closing here is fine for them as they get a green candle on the weekly chart.

  137. Phil

    SRS/Foss – $7.80 has been a good buy point but right now you can sell the Jan $8 puts for .55 so that’s in at net $7.45.

    There’s a whole lotta shakin’ going on this afternoon – they are just trying to shove everyone out of positions before the stick save.

  138. EricL

    Really strange action, even by recent standards. Miners and metals catching a bid, but energy stocks mostly down. OIH down more even though NG keeps rising and oil is up. Regional banks soaring, big banks limping. Credit cards making spectacular moves on no apparent news. CRE pushing fresh highs again.
     
    I mean, WTF?

  139. gel1

    VIX will not stay in the basement forever. Sold May 27.5 puts in anticipation of some mid year anxiety

  140. EricL

    Fa-la-lalaland Friday.

  141. judahbenhur

    Phil, You did say 10,320 or better earlier. You may just stick the landing.

  142. stevenparker

    Thanks Pharm, joined you in CAL puts.

  143. foss

    Phil, V giving good profits. Selling half.

  144. tchayipov

    closed V with 20% profit in couple of hrs, it is my day today;)

  145. 1020

    THAT was a shot off a skate…..

  146. ephmen85

    WFMI   short Dec 27s and it closes on the number!  it’s pin-dalicious!

  147. judahbenhur

    EricL/V.  Thanks for highlighting it this afternoon. 

  148. Phil

    Wow, what a crazy day!  That was much fun, glad we bought those calls at 10,250 – that made it extra fun.

    10.320/Judah – Yeah the crooks just needed to get rid of all the people who bought those DIA calls first.

    Dow volume ended at 450M (so far) so a huge day with half of it in the first 5 minutes and the other half in the last hour.  Although the action was silly, bottom line is we did hold our levels and made our bounce levels so going into the close just a little bearish is prudent. 

    V off a cliff at the end – That’s a nice short! 

    Welll, I hope everyone had fun this week – couldn’t have gone much better than that.

    Have a great weekend!

  149. bord

    Question for all, what is the official "closing" price that is used for determining ITM? I have some short 15 BAC puts, BAC was above 15 as of 4pm, but now in after hours it’s bobbing back and forth.

  150. Cap

    Dang it !

  151. stevenparker

    Thanks Phil another great week of guiding us!
    Good weekend everyone

  152. tchayipov

    Thanx Phil, Have a great weekend

  153. pstas

    Phil and or Chaps – BAC
    I was looking at this from earlier:
    BAC/Chaps – The double diags still work but now that BAC is back at $15, the 2101 $15/22.50 bull call spread at $1.25 is very attractive (possible 500% gain and b/e at 10% gain) as is the 2011 $12.50/17.50 bull call spread at $2.35 with a plan to sell the $10 puts (now .85) for $2 if we have a nice dip which would make the play just a .35 loss between $10 and $12.85 or BAC put to you at net $10.35 below $10.
    Don’t see where the 15/22.50 spread can be had for $1.25?

  154. stevenparker

    Bord, it’s a question for your broker, give them a call and ask for the official BAC closing price.
    The closing price is established at the end of the main session, and is distributed around 4.30pm by the exchange to clearing houses and brokers. The OCC will auto exercise any position that is .01 in the money compared to this price, unless your broker has instructed otherwise. As far as I can tell, our brokers do not normally tell us the official closing price. Their screens etc usually contain their last traded price which is not necessarily the same.
     
     
     
     
     
     
     

  155. stevenparker

    Bord further note that if your account does not have sufficient equity to take exercise, your broker is perfectly entitled to have instructed no exercise even if your option closed in the money. This means you would simply lose any value that the expired option had.
     
    To avoid all this nonsense you can close your option positions before expiry.

  156. stevenparker

    Bard, oh sorry you said assignment (you are short), so losing ITM value on expiration does not apply.

  157. Cap

    tchayipov – if you don’t mind, would you post the trades that got you 9% for the week … that’s awesome; I want to go to school on that.
    Thx.

  158. llorens

    DD’ed my V short in AH. New basis is 87.54. Wish me luck.

  159. tchayipov

    Cap
    my long portfolio:
    buy/write:(long stock and short calls&puts) UYG, HOV, CROX
    covered LEAPS (long LEAPS and short calls&puts) WFR, VLO, SPWRA, LOW, BSX, AIR
    Short Puts: ABX, BRCD
    Long Calls: C
     
    My short plays:
    mattress DIA with 1/2 covered ( with some successful daytrade of shorts)
    DXD : short puts
    EDZ: short puts, buy/write, long calls
    ERY: short puts ( which expired worthless)
    SRS: short puts, buy/write
    when market was toppy couple of days ago – I add to my short plays
    all my longs, when price drop to much I short puts 50% more ( like SPWRA when it was at $20) or when they run up too much too fast – I short 50% more calls ( like AIR, LOW and SPWRA couple of days ago)
    by Delta weighting with DIA: my portfolio is 60/40 bearish ( and was whole week)
    my total Theta is +150

  160. yodi

    In 2010, U.S. stimulus spending on infrastructure will reach its highest level, with over $20 billion earmarked for various infrastructure projects around the country.
    There are three big firms that all stand to benefit as stimulus dollars lead to a pickup in infrastructure spending:
    ~ Manitowoc Company, Inc. (NYSE: MTW)
    ~ Harsco Corporation (NYSE: HSC)
    ~ Jacobs Engineering Group, Inc. (NYSE: JEC)

  161. aclend

    Yodi,
    HIL and BIP are smaller names that also stand to benefit from infrastructure spending.

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