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Monday Market Momentum – Can We Keep It Up?

Since 3:30 on Friday the Dow futures are up 100 points!

Isn’t that fantastic?  As we are forced to do in the face of positive market movement, we will try to find a story to justify, to "fit" the move, because human beings like for things to make sense - even when they don’t.  Casting our market bones and reading the news entrails (as we did extensively in this Weekend’s Ramblings) I’d have to credit rumors of additional job stimulus as well as Surging Chinese Imports (quick, he said CHINA – BUYBUYBUY!), which were up 57% in December for giving us this Monday’s boost.

I mean, we’re back to paying $3 for gas this weekend and oil is up to $84 a barrel as Rent-A-Rebel attacked another Nigerian pipeline where they couldn’t afford $5 a day for a Nigerian Security guard to protect 100,000 barrels a day of $80 oil ($8M).  Of course, if they stop the rebels from attacking the pipeline then oil would be $82 or less today (where it closed on Friday) and not $84 and CVX and RDS.A would make $200,000 less selling that oil today, not to mention what they make on the other 8.5M barrels those two companies alone sell around the globe (OK, I’ll mention it, it’s $17M a day) as a bonus for NOT securing their pipelines. 

As we discussed in Member Chat this weekend, the system is designed to make it not just economically foolish but downright dangerous for the Officers and Directors of an oil company to insure a safe, reliable and inexpensive supply of oil to the public  THERE’S NO PROFIT IN THAT and, as a shareholder, you should be outraged at the very suggestion that they put an end to these Nigerian Rebel Attacks, which are a reliable 2.5% boost to the price of global oil (even though Nigeria is only 3% of global supply) about 20 times a year.  Business Week had a great article about the global oil glut – pointing out that just 32% of the World’s proven reserves are tapped for production – an artificial shortage that keeps prices so ridiculously high.   

But I digress.  Let’s just focus on the fact that Americans were only spending $1.25 for a pound of copper last December (now $333) and $38 for a barrel of oil (now $84) and $2 for natural gas to heat our homes (now $5.50) so we must be rich, Rich, RICH to afford those things now which means, drum roll please, that our economy is recovering!  Oh, I’m sorry, I meant OUR economy (at this point, if you are not in the top 10%, please leave the room).  Ah, that’s better – so OUR economy is recovering very nicely and our energy companies and commodity companies should once again be able to print money faster than the Treasury, which make XOM (a 2.4% dividend payer) pretty darned attractive at $69.50. 

The low VIX makes for cheap leaps and the XOM 2012 $60 calls are just $13.30 (a $3.80 premium) which is a nice way to play them long-term.  Since you can sell the Feb $70s for $1.55, covering just 1/2 of the leaps each month for 24 months would pay off the entire leap and give you free upside above $60.  Those are the kinds of plays we’ve been discussing in our updated Buy List, as we look to take advantage of quality stocks that are still trading to the low side while setting up sensible hedges to ride out what we still expect to be a choppy market.  Also in our weekend post is an update of our disaster hedges – VERY important reading!   

With 7M jobs "officially" lost since mid 2007 we are all set to celebrate to addition of a projected 2.3M jobs in 2010 as corporations are expected to hire 1.1M new workers and the government has a budget to hire another 1.2M census workers (3 times more than the last census).  With all that government hiring slated for the first half of this year, we can expect some very robust job numbers coming up – maybe enough to keep our momentum going through the summer

Robert Barbera and Charles Weise argue for a job-rich recovery, saying "jobless recovery" adherents misunderstand why employment collapsed: "The drastic reduction in inventories and payrolls was not a result of restructuring: it was symptomatic of panic, the same panic that caused the massive sell-off in equities, corporate bonds and mortgage-backed securities."

With even more green shoot news on a Monday, our friends at AIG effectively call a bottom to the housing market by removing 45 geographic areas from its riskiest underwriting category.  This gives the green light to investors to put more money into Real Estate in those markets.  Ordinarily I would mention that AIG cost the taxpayers $185Bn (so far) the last time they though housing was a solid investment but now I’m bullish so I’m going to pretend that all this news should be taken at face value.  Speaking of face value:  The cost to protect against defaults on North American Corporate Bonds fell half a point to 77.25 last week – a 2-year low!  Why?  Because 85,000 people lost their jobs and that is GREAT for corporate America (that’s US as long as those bottom 90%’ers have stayed away) as it keeps new hires cheap and the existing labor force scared and productive! 

Speaking of AIG:  Did Goldman Sachs engineer the ouster of Hank Greenberg as early as 2005 in order to remove an oppenent who was unlikely to put up with the CDS games they were playing with the insurance company?  It was former GS Alumni Jim Cramers "friendbuddypal" Elliot Spitzer who drove Greenberg out of office and the subsequent destruction of the company cost Greenberg the majority of his fortune.  According the the WSJ – AFTER Greenberg was foced out, AIG ramped up it’s housing market bets by writing insurance policies on sub-prime derivatives, something Greenberg had been against and the chief beneficiary of those polices was GS.  AIG had committed not only to insure them again eventual loss, but to make cash payments in the meantime to compensate for any drop in price or downgrade of their Triple-A ratings by credit agencies—both of which promptly happened as housing collapsed and panic spread about the possible failure of large financial institutions.

How did it all come apart so quickly? Here are the pieces Mr. Greenberg says he sees falling into place. In 2005, a trade group called the International Swaps and Derivatives Association got together and drafted new standards for the kinds of credit default swaps AIG had been writing. Previously, Mr. Greenberg explains, losses to the underlying securities were paid off at maturity. Now, cash payments would have to be forthcoming to cover any drop in value or credit downgrades even before any losses were realized.  "I don’t know whether Goldman Sachs was the force behind the ISDA change or Deutsche Bank," Mr. Greenberg concedes. "That’s something investigative reporters are going to have to spend time digging out."  This is a great article I strongly suggest reading

Speaking of repeating the same old financial idiocy:  Banks are boosting their lending to hedge funds and private-equity firms to levels unseen since before the financial crisis, raising their risk levels and adding fuel to the buying power of key players across the stock, debt and buyout markets.  Banks and investment banks, including Citigroup Inc., Bank of America Corp., J.P. Morgan Chase & Co. and Morgan Stanley are offering levels of borrowing—known as leverage—that they haven’t provided in more than two years, according to people familiar with the banks and funds. 

Speaking of brand new financial idiocy:  Fitch warns us that Chinese banks are creating "a growing pool of hidden credit risk" through financial moves that shift loans off balance sheets.  The ratings agency said in a report the practice could lead to conditions similar to those that triggered the US subprime crisis, in which banks suffered big losses on mortgage-backed securities when housing prices fell.  "These transactions, which free up space to extend new loans and lessen the pressure on capital and liquidity, can lead to a noticeable reduction in a bank’s outstanding loans," analysts Charlene Chu and Wen Chunling said.  Fitch said banks were selling loans to financial institutions or repackaging them into wealth-management products in largely unreported transactions. 

Gosh I hate to point out this kind of stuff when I’m trying to be bullish but China also JUST approved short selling AND margin trading but don’t worry WE are not going to let THEM use it for protection as average investors (not us!) will need to spend 105,000 Yuan ($15,379) to by a single futures contract, which will effectively shut out retail investors from protecting their virtual portfolios against a correction but will be FANTASTIC for OUR Chinese investments.  Chinese banks lent out over $88Bn in the first week of January, a pace of $4.5Tn for the year or the entire GDP of China.  Last year banks lent out roughly $1.4Tn, spurring record demand for autos and appliances as the public lined up for the low-interest loans.  What could possibly go wrong?

BCS won the first ever foreclosure case in Dubai this weekend, clearing the way for lenders holding about $16 billion of Dubai home loans to take action when borrowers don’t pay.  Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice.  Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.  

China’s two major markets were up about half a point today, trailing the Nikkei, who jumped 1% back to just under 10,800 where they are waiting for the Dow to catch up.  Japan was loving the fact that China has officially passed the US as the World’s largest car market with 13.6M sales vs. 10.4M in the US, ending our 110-year winning streak as the world’s biggest buyers of automobiles.  You would think someone would question how China’s consumption of autos could jump 46% in a single year and perhaps question the economics of what might happen when the artificial stimulus is removed and China can no longer artificially keep gas prices down below an average worker’s daily wage ($2) per gallon but not me – I’M BULLISH so I don’t think about that stuff anymore….

We’re actually not THAT bullish yet but we are starting to buy.  This weekend is a holiday weekend and THEN we get major earnings next week and that will be a good time to start picking things up but it’s fun to be a bull in a market that goes up 100 points in 20 minutes of actual trading so let’s enjoy it while it lasts.

 


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  1. aclend

    Phil,
    What do you think of THC? It looks like GS added them to the CL sometime over the past week with a $9 6-month target.

  2. ssdirk

    JRW – How we looking today?  Seems like there is a whole lot of upside above 65.

  3. Phil

    A lot of selling into the open so be careful!

    We’ll see what holds today with our upside still at:  Dow 10,549, S&P 1,135, Nasdaq 2,314, NYSE 7,389 and Russell 638 – If they can hang onto that this week, it will be very impressive.

    Now that we are up this high, ANY breakdowns should be looked at with grave concern so be cautious until we see earnings confirm these values. 

    Short DIA positions held value better than expected over the weekend and the DIA $105 puts are a good mo play at .33 with a stop at .30, just in case we head back to Friday’s lows but keep in mind it’s expiration week and we’re happy to make nickels.

  4. JRW III

    ss
    I’m watching 64.47 for a buy in.

  5. tradansh

    SONC / Phil – What about SONC? Didnt see them on the buy list. I thought you liked them long term.

  6. llorens

    phil – any short day trades you like at these morning levels or do you prefer some bounce plays after this morning’s early mini-selloff?  Considering going short F, COF, FCX or POT this morning as a day trade.

  7. llorens

    Also – what positions have the most potential to gain if the dollar continues to rally?  EDZ? any of the tech companies with strong intl sales like IBM?

  8. Pharmboy

    AA earnings are after the bell….I am gonna take a shot at a few 17. 5 P here…feeling a bit like MrM! 

  9. Phil

    On the upside, refer to the Buy List and let’s look for opportunities if we do get a sell-off to sell some puts as early entries. 

    The dollar is down but not looking weak so far.  Copper was rejected at $3.50, now $3.47 but silver is $18.75 and gold is $1,155 so we’re a long way from trouble in metals.  Oil is $83.20, down from $84 and nat gas is still weakening at $5.57 so that sector bears watching for signs of weakness. 

    The Nasdaq is racing to test 2,314 but that’s the only index in real danger of a pullback.  AMZN is taking a dive and others are selling off but, after such a great week – who can blame them?

    Volume is a healthy 22M at 9:45, we’ll see if that stays strong.  We still haven’t had a proper test of my theory that the market cannot susstain itself on real volume (more than 250M for the day on the Dow) – maybe this week we’ll see some real action. 

    THC/AC – They are in a space I like so yes.  At $6.32 they are already up 20% from last Monday on the upgrade(s) so I’d want to go artificial here with the 2012 $5s at $2.40, selling May $7 calls for .55 and May $6 puts for .65 for a net $1.30 entry on the $1 spread with lots of time to roll.  With a play like this, you want to add to the leaps (maybe 1/2x) at $7 to make the rolling easier

    SONC/Trad – I like them but the premiums aren’t that good so they don’t make a good new entry.  Hopefully when they come out with calls longer than June or when they move back to $10 because sitting between the $7.50 and $10 strikes is not a good spot for us. 

    Day trades/Llorens – Well if you see something specific, feel free to let me know but none of those guys are up very big so no easier to short than they were on Friday so far.  Mostly I’m watching this sell-off to see what holds up.  If 10,600 provides solid support on the Dow and 2,324 holds on the Nas then shorting is futile. 

    Dollar rally/Llorens – If we have a dollar rally then people who use commodities and sell domestically like DOW and VLO do very well. 

  10. judahbenhur

    JRW, Curious about what you’re looking for that would turn you to a TZA play, instead of a TNA play?  IWM breaking below 64.10?

  11. Phil

    AA/Pharm – I don’t know, China demand numbers are up so sales are getting made somehow. 

    Woo-hoo on those $105 puts – past .38 already so don’t let that nickel get away if 10,600 refuses to die.

  12. kustomz

    Very interesting
    "There isn’t anything out there," said Yuuji Takashi, 53, who lost his job at an auto parts plant early last year. "They’re sending it all to China."

    http://search.japantimes.co.jp/cgi-bin/nb20100111n2.html
     

  13. llorens

    Thanks Phil. I moved everything to cash last week waiting for the big crash/fall/apocalypse that didn’t materialize. Remembering the point you made that with low volume and lack or retail participation a big drop is very unlikely, so I’m looking to do short term stuff until a substantial correction does takes place.

  14. ssdirk

    JRW, Judah,
    I was in TZA from 64.80 down to 64.36.  That appears to be the range of what remains of the flag.  I am out now and seeing if we can hold this level.  Below 64 is bad.

  15. llorens

    POT falling fast.

  16. mrmocha

    Hi Pharmboy, thanks for the plug, but my OpEx plays are usually in the .05-.10 range, .70 is too rich for my Hail Mary strategy!  I’ve been mostly away from the market for a month and my bearish portfolio did not do well in December, but it sounds like Phil is slowly capitulating on the bearish positions, is that correct?  (Don’t have time to read the weekend missives right now…)

  17. JRW III

    judah,
    Just playing the range either way or a break out or break down. I was in TNA for about 8 min but out now; will get back in at 64.08 one way or the other.

  18. Peter D

    Whee, what a gift.  RUT is dropping and VIX is till down 4-5%, meaning the RUT long calls get killed.  Great chance to close out or move the last few of my RUT Jan 650 and 660 short calls. 

  19. qcmike

     
    Any thoughts on Lawson LWSN health Care software?
     
    Thanks
    Pharmboy

  20. Phil

    JAL will most likely file for bankruptcy in the next two weeks as Japan’s finance ministry and JAL’s major lenders all favor a court restructuring. The turnaround plan would probably see JAL cut around 15,600 jobs, or a third of its workforce.

    The government is set to launch its biggest TIPS offering in five years by selling $10B in 10-year notes today. The move is a nod to major creditors, such as China and Japan, who are concerned about inflation amid federal stimulus spending and ultra-low interest rates.

    "Markets are still thinking of monetary policy strictly as changes in interest rates," says a disappointed James Bullard, when they "should be focusing on quantitative monetary policy." The St. Louis Fed chief says the biggest challenge will be adjusting the asset-purchase program without pushing up inflation too much and while continuing to support the economy.

    A new wave of money is entering the U.S. commercial real estate sector, but industry players warn the inflows are "bottom-feeding" by opportunistic investors who will get burned if interest rates rise. Even so, the growing investments are a good sign of sector stabilization.

    Chinese banks lent a whopping 600B yuan ($88B) in the first week of January, more than the combined loans of October and November, ahead of possible policy changes aimed at curbing inflation.

    China could grow as much as 16% this year, say state researchers, with accompanying risk of rapid inflation and a potential property bubble. "If the government continues with the same strength of macroeconomic stimulus as in 2009, there will be notable economic overheating in 2010." (ETFs: PGJ, FXI)

    China is expected to rev up its steel output this year, producing a record 600M metric tons, or about half the world’s total output, and reshaping the steel industry in the process

    Germany could see its Q1 economic growth slashed by more than half as record snowfall and frigid temperatures slam the construction and shipping industries. (ETF: EWG)

    Fitch affirms the United States’ AAA rating with a stable outlook, "given its exceptional financing and economic flexibility and the US dollar’s role as the world’s predominant reserve currency," but warns "difficult decisions" will have to be made for long-run sustainability.

    With Q4 earnings reports kicking off this week, we may finally have reached the end of the earnings recession.

    Nexus One (GOOG) may be the "bold new face in super-smartphone," but Google’s experiment in direct retailing will flop unless it hires some customer service representatives, fast, to respond to a deluge of user complaints.

    Dec. Employment Trends Index: +1.7% to 91.8 vs. 90.8 in Nov., the sixth straight month of increase. "The relatively strong economic recovery in the second half of 2009 suggests that the employment trend should reach a turning point in the very near future," Conference Board says.

    Sector ETF strength: Gold Miners– GDX +1.6%. Solar– TAN +1.6%. Gold– GLD +1.6%. Solar– KWT +1.5%. Silver– SLV +1.4%.
    Sector ETF weakness: Internet– HHH -1%. Regional Banks– KRE -1%. Retailers– RTH -0.6%.

    Dow leaders: AA +2.4%. CAT +1.8%. CVX +1.4%. BAC +1.2%. DD +1%.
    Dow laggards: DIS -1.25%. IBM -1.2%. AXP -1.1%. PG -1%.

    DIA $105 puts at .44 – DO NOT BLOW A DIME!!!  When in doubt, sell half and all that nonsense….  We can use 10,600 as a stop line now if you want to be aggressive but taking a dime off now and setting a .05 stop (.38) on the rest is prudent.

  21. gilmdjd

     Any idea what happened with IOC?? Down 10% today…that one was one I was watching to short but such big moves down scare me….

  22. Pharmboy

    LWSN/qc – sorry, never heard of them.  Will have to look into the books and see what they are made of.  Looks like the did just make an acquisition and the market doesn’t like it, but they want to grow revenue.

  23. bord

    Phil, Question on rolling as I am still new to it. I have short ratio spread on FCX — Long 10 Feb 85 calls and short 20 Jan 85 calls that currently is going terribly wrong. Deep in the red on it. My question is when/where do I roll those short 85 calls, and should I roll out and up on the long calls? Thx.
     
     

  24. balancenv

    Phil,
    I have short OIH 125 Jan Calls. Need your advise on rolling. I was thinking, to Feb 135 calls and sell Feb 125 Puts to cover the cost? Or wait a few more days?  

  25. judahbenhur

    Peter D,  I’m surprised that the RUT Feb 680 calls I sold in December are now trading for about the same price as my December sell price, even though the RUT movement has been nearly 5% up since then (while the short PUTs are safer and safer).  I had been itching to roll the 680 calls, but I can see how just a little bit of time decay makes this easier and easier, and the roll is a nice psychological safety valve even if I don’t have to use it yet.  Very instructive for my first go around with the strangle/crazy plays.

  26. kustomz

    Amazing.. they had the firepower to absorb all the selling and send the trans higher in the face of 83 dollar oil

  27. Phil

    Jobs/Kustomz – Yes, life is really sucking for the bottom 90% of all countries…

    Short-term/Llorens – That’s a great position to be in but be patient.  Plenty of opportunities will come along (it’s sort of like poker – hold onto your cash until you have cards that give you a high percentage chance of winning). 

    Great way to take advantage of RUT and VIX Peter!

    LWSN/QC – They already had earnings, which were a beat without thrilling outlook and they acquired Healthvision which will take time to digest but you can sell the Aug $7.50 puts for $1.50 and get a $6 entry with maybe a $140 net margin requirement (according to TOS) per contract so not a bad way to initiate a small position

    IOC/Gil – They are heavy on nat gas, which is looking weak.  That may be it or it may be just normal profit taking after a run from $25 to over $75 in 6 months.

    FCX/Bord – That is not a very good ratio spread as it was ultra-bearish with no time to roll your callers.  Jan $85 calls are $5 and Feb $85 calls are $7.15 and you have some huge margin with a 20:10 ratio so I’d roll out to the May $90s for $8.10 (+ about $1) and roll the Jan $85s to the Feb $90 calls at $4.25 and the Feb $85 puts at $2.55 so $6.80 and that means you can reduce the number sold from 20 to 15.  The Feb $85 puts can be rolled to the May $75 puts (now $3) so no worries there and the May $85 calls can be rolled into a veritical as the May $100s are $4.15 so lots of ways to win on this adjustment.

    OIH/Balance – Well .25 is not much left on the OIH puts but that’s a good strategy.  No need to wait on the roll as you have a better delta, even if you do cover, in Feb than you do now (.10).  Maybe start with a 1/2 cover if you can afford it and add if OIH gets back over $132…

  28. stevenparker

    Market Internals update at 10:30amET – NYSE volume 235M shares, about 6% below its three-month average; advancers lead decliners by 1.2:1. – NASDAQ volume 565M shares, about 17% above its three-month average; decliners lead advancers by 1.1:1. – VIX index -4.25% to just over 17.00

  29. emcginley

    Is it normal for the S&P futures to e 3pt higher than SPX?

  30. bord

    well, we were bearish on FCX….;)

  31. Peter D

    Judah, yeah, these slow moves are great for short strangles.   While we are even on the RUT Feb 680 short calls, the Feb 480 putters are down to $0.5 (a win there).  As the run up has been relentless, I was looking in the weekend to see which strikes that I can roll to, besides the 520-540 we talked about last week, and came up with 560, which is 10% down.  I also know that when we capitulate on the bearish position is when the market turns down usually, so when in doubt roll half is a good rule of thumb.
     
    Looking to shift the PUT vertical to 590/580 for $1 (currently $1.1), to protect the 560 putters.

  32. bord

    Phil,
    Back on FCX, I mean I’m not trying to be a smart ass or anything, but I am trying to find a smart rule on when to roll losing short calls. I can’t be chastised too much for this position because remember last week about Wednesday I asked on these exact same FCX Jan short 85 calls and what to do, and I was told to "hold, hold, hold." So in general,  is there a rule like roll when the premium remaining drops below x percent of value or something like that?

  33. samz3700

    Phil -
    I am short spy 114 calls – sold for .85 where would you stop them out – now 1.25

  34. ssdirk

    JRW – Are you in TNA? If so till when?

  35. Phil

    Market still refusining to lose – check out JOYG chart. 

    Volume fell right off to just 55M at 10 to 11 so back to lame and back to going up and up.   That’s why you need to take profits on the short side IMMEDIATELY!  There’s always another chance to short the next morning!

    SPX/EMC – Usually they are a little lower (the /ES futures contract). 

    FCX/Bord – Yes, we were (are) but that was a little aggressive.  I still like that play with the adjustments though.

    Dollar below 92 Yen for the first time in a week (turns out Japan was closed this morning).  Now $1.455 to the Euro and $1.617 to the Pound sow we are WAY down from Friday

    TASR looking good!

    ZION bouncy this morning.

  36. jlui_tx

    Phil, I had sold ERY JAN $11 puts@ 0.70, should I roll or should I let it put to me?
    thanks

  37. JRW III

    ss
    Yes, bought 10,000 at 46.28 when IWM hit 64.08; I think we may go back to 64.66 but I’m just watching. If this gets legs i’ll double.

  38. mrmocha

    Pharmboy – first Hail Mary play of the week – bot some HK 27 calls at .20.

  39. Phil

    Back in the DIA $105 puts at .35, still stop at .30 and still playing for nickels.

  40. ssdirk

    Phil – Are you surprised at the lack of buying this morning after they way they pumped the futures since Friday?  Seems a bit odd.

  41. gel1

    Does anybody know of a biotech (exclusive) etf that offers options?  Would like to buy leaps or sell puts.

  42. ssdirk

    Gel, check out this link from SA on Healthcare ETF’s: http://seekingalpha.com/article/30069-healthcare-pharma-and-biotech-etfs

  43. ssdirk

    Gel – Try IBB

  44. mrmocha

    MNKD just earned itself a Bullish Engulfing candle for the day.

  45. bord

    For the AAPL watchers, scuttlebutt is the tablet will have a webcam…for what it’s worth…
    http://sanjose.bizjournals.com/sanjose/stories/2010/01/11/daily1.html?ana=yfcpc

  46. JRW III

    gel,
    IBB options have good liquidity.

  47. Phil

    FCX/Bord – You can be a smart-ass, it makes life more interesting!  The real "rule" here is that a 1-month spread like that is no better than a vertical as you are backed into a corner with very little room to adjust so they should be used sparingly.  I do remember the calls and that’s not at all the same as when you are the sucker who paid the premium.  The  $85 calls were sold for $2.55 and, even on this crazy run, FCX is just $88.50 so down $1 but an even roll to the Feb $90 calls.  The difference is that we SOLD premium which keeps us in control and we have a clear path to roll them along because we’re not encumbered by hedges we bought against them.  When you do a backspread, you give up flexibility and those plays are all about the math (the difference between the net deltas) and managing your risk/reward.  But, in any case, at least you did have the Feb covers and at least you did sell a lot of premium so it’s not a catastrophe to fix – just  apain in the ass…

    SPY/Samz – Luckily I didn’t answer that yet and they are down to $1.03 again.   The answer to those is usually no as you can just roll them along to the Feb $117s, then the March $121s etc so unless you think the S&P will be up more than 30% for the year, then you can just keep rolling them along until you win.  The only reason you want to kill a trade like that is if you need the margin back or you have a serious reason to change your outlook. 

    ERY/Jlui – I’d offer to do an even roll to the Feb $10s (last sold for .93) which you’d only get on a good spike but worth waiting for this week.  If not, then we need to look at what you really want to do long-term but the net $10.70 entry is a bit much if we’re starting 10% down and, worst case, the Apr $10 puts are .20 more than your $11 putter so that drops you from net $10.70 to net $9.10 and that’s "making" 15% in 3 months so it doesn’t really make sense not to do that.

    Lack of buying/SS – No, I’m still very cynical and it doesn’t surprise me at all that the totally BS pre-market pump isn’t followed through and is, in fact, met by waves of sellers.  It’s the same pattern as we get pretty much every day.  What surprises me is how long it can go on but, as I said last week when we looked at it – it’s a game with no end in sight, a giant ponzi shceme that will run until it’s uncovered and then, pretty much like last time, the retail shareholders will suddenly find out the stocks in their portfolios are worth about 2/3 of what they thought they were and there will be pretty much no chance for them to get out. 

    Biotech/Gel – IBB is worth looking at but already way up and near old highs. 

    Goldman Sachs turns positive on the IT sector, and upgrades Amdocs (DOX +2%) and Sapient (SAPE +4.3%) to Buy from Neutral.

    Fuel for a junk rally? The global speculative-grade default rate declined to 12.5%, its first drop in two years, Moody’s says. The rate was at 1.1% in January 2008. Time will tell if it’s a credit-cycle peak, but Moody’s expects the rate to fall sharply to 3.3% by year-end.

    Tales from the Buy List:   Corning (GLW) +2.4% on a pair of upgrades. Deutsche Bank boosted shares to Buy, predicting "robust" TV and PC demand in 2010, coupled with tight capacity. And Goldman raised GLW to Buy, saying the LCD TV market will have bottomed in Q4, and not early 2010 as previously expected.

  48. 2a3tube

    Speaking of China ,  a  friend just came back from architectural contract work there , his employer just bought a small car , financed with a 17 year maturity loan . Need to have " face " more important than Bubbles ?

  49. gel1

    ssdirk/JRW/Phil
    Thanks for the IBB lead and guidance. I have a hedge fund friend that is attending the big Pharma pow-wow this week in SF. Hope to get some good leads when he returns and will share. 

  50. aclend

    Can you explain how the dividend is captured through options on the LMT pick? I’m not familiar with that concept. Thanks

  51. bord

    Thanks for the follow up Phil…. the follow ups really help (me, at least) to reveal and clarify the theories behind the trades… and that gives us all lessons we can use over a lifetime and not just be trade monkeys grasping at bananas willy nilly (Pharmboy keep that image in mind when hunting for your video of the day).  The irony here is that I have made good money over the last year going long on FCX, it’s been only the past month that I had gone short on it.
    FYI for everyone, I watch FCX very closely and it’s a tough one to short (although logic says a pullback is way overdue). MSM loves the stock and In have seen it spin by MSM 4 different ways (gold, copper, China and industrial recovery). So even if gold/copper stay flat, MSM may spin it as a recovery stock and you could still have your lunch money stolen. Plus, last week or so it reinstated a partial dividend. When they suspended the dividend the stock tanked, It would not surprise me if the dividend reinstatement sent it on an upward trajectory . A tricky one to short, but aren’t they all these days.

  52. thatway

    Is Europe about to close down, say it ain’t so. Open up near 1% and distribute all day. Dollar is still taking it’s normal beat down and markets have not rallied. Which one will win? It seems they have been distributing large caps last week goog / msft / IBM / aapl. But will wait for Phils call on the fake fake fake direction.

  53. llorens

    MA at $248-ish. That’s a big pullback from it’s recent $258 range. V not getting beat up as much but in the low $86 range.

  54. Pharmboy

    MrM – thanks for the heads up on HK!  Now That is a BEARISH engulfing for today on them. With the hangman from Thursday, looks like a trace down for a bit…..gotta wait for follow thru tomorrow.
     
    MNKD – Delayed FDA decision until further notice due to a manufacturing inspection at MRK’s Organon unit.  Decision was due this Saturday…. I LOVE manufacturing in Pharma!

  55. mrmocha

    Pharm, Hail Mary #2 – bot some NAK 10 calls for a nickle, I need to offset my losing commodity shorts!

  56. Phil

    Cars/2a3 – That’s interesting.  There certainly will be people who WILL have a car, whatever it takes.  Imagine not having one at all and it’s the coolest status symbol in your country…  So people will mortgage cars and that will last until the next wave of newly affluent comes along.  The real quesiton is, how big is that market really?  14M cars in a year is a lot and, if you adjust for GDP, that’s like 45M cars sold in the US in one year – how long can that be sustained? 

    LMT/Ac – You are not capturing the dividends.  I was saying that the amount you expect to make is a fine trade-off for the dividends you WON’T get by sacrificing ownership.  A lot of dividend/paying stocks are dead boring to invest in but you can take advantage of the low leap premiums to set up an artificial buy/write that pays so much better than the real thing that the dividend is no longer important. 

    Orange juice futures tumbled in early trading as a freeze did only 5% damage to the orange crop, and temperatures were expected to moderate during the rest of the week.   Darn those disasters that don’t happen!

    CMBS default rate now up to 4.7%.

    Europe/That – Could be our selling pressure was coming from over these and now that they have shut down, our trade-bots can take over and crank us back up.   Actually, it’s a nice scam for Europeans, buying into our futures at their open and then selling as soon as our markets open up in the mornings.  You can sell ALL of the futures volume in the first few minutes of trading and look how many times that’s a winning trade.  That would also explain the large-cap distributions as they are relatively easy to trade overseas in pre-markets. 

    Volume at 11:55 is 75M on the Dow, right back to pathetic to start the week.  This is great for our buy premise – there is no one to sell-off anything and it’s very clear the buys are protected.  Nas is still down half a point but Transports are up half a point on CHINESE DEMAND so that’s their story and they’re sticking to it. 

    My cynical upside play is the QQQQ $46 calls at .57, looking for .65 on a move up with a stop at $46.25 (now $46.30).

  57. stevenparker

    Market Internals update at 12:00pmET – NYSE volume 405M shares, about 8% below its three-month average; advancers lead decliners by 1.1:1. – NASDAQ volume 990M shares, about 10% above its three-month average; decliners lead advancers by 1.1:1. – VIX index -4.25% to just over 17.00

  58. tradansh

    VZ / Phil – Looks like they will be bouncing now. Can you recommend good long term trade? Was thinking of buying the stock here and selling Jan 11 35 C/30 Ps for $4 or more.

  59. dmankoff

    Hi, Phil, so maybe we go sideways for awhile, that is possible, instead of straight up in the markets.
    with new money, if you looked fresh at everything, what would you put on today as a few good trades?
    SRS,  EDZ,  BGZ,  TZA,,  FAZ   your thoughts?
    and by the way, IOC was a news event, problem with one of their drillings, that dropped it so much

  60. Phil

    Oops, not liking the Q trade already, now we can use 2,310 as a stop, maybe $46.30 so we can move the stop up .05 each time it moves .05.

  61. craigzooka

     Hey guys, a friend of mine works as a software developer at amazon and I had an interesting conversation with him yesterday.  He mentioned a couple of things I want to share.
    1.  He expects Amazon to beat earnings again.
    2.  The Amazon store has a few interesting things which are starting to pick up.  Suppose I have a business and I want to sell stuff online.  Previously I could sell through Amazon and they would just take a little piece but I was still responsible for packaging and shipping and returns and all that.  Now Amazon is begining to handle those pieces as well.  I can send stuff to them, they will inventory it and store it in their warehouse free for 1 month.  They also take care of handling all the shipping details, for instance people can use Amazon Prime to get free shipping on my products.  So now all I have to worry about is selling my products and collecting my check from amazon.  Everything else is taken care of for me.  If my stuff sits in their wharehouse for more than a month, I was told they rent out space for $0.10 a cubic foot per month (not sure how accurate that price is).  So it looks like Amazon wont be directly buying and selling stuff but allowing other people to sell stuff in their store and handling all the details and taking a percentage.  
     
    3.  He said that the most growth percentage wise is coming from Amazon Web Services.  Here is my best attempt at explaining what they are rolling out.  The amount of computing power it takes to run the Amazon store fluctuates wildly throughout the course of the day as well as from season to season.  So they need to have enough computing power on hand to handle the Christmas season so the store doesnt go down.  The rest of time all that computing power sits around not being used.  So they are starting to sell the extra computing power.  For example, if you run a website and the traffic suddenly goes from 1000 users per day to 10,000,000 then your website crashes because whoever is hosting it cant respond fast enough to change is usage.  If you host your stuff at Amazon they have all the infrastructure in place to handle that spike in traffic without blinking an eye.  Also, they only bill you for the amount of computing power you use.  So if you host your website with them it can automatically scale pretty much indefinately in size without you having to do anything.  Another application of this is the ability for businesses to rent computing power for whatever needs they might have (not neccessarily internet related).  I dont know exactly which businesses need this kind of stuff, but he says they are selling computing power like its no tomorrow.  Unfortunately I also dont have any revenue information or exact growth percentages for you.  All I know is that they are selling most of the spare computing power that they have.
     
    If you guys have any questions you want me to ask him post them here and I will ask this weekend. 

  62. samz3700

    Phil -
    Spy calls – sorry I should have asked "when would you roll the spy 114 calls – not stop out"

  63. mrmocha

    Craig – I haven’t been on this board much lately because I’ve actually been developing a large Web farm on the Amazon Web Services cloud for a client.  I can say definitively that they have their act together, they already have more than 500,000 customers and my experience was that their service is easy to use, well managed, reliable, and almost infinitely scalable.  It will certainly be a solid ongoing revenue engine for them.

  64. ssdirk

    JRW – How are you feeling about tomorrow?  You still think it is a breakout day either way?

  65. JRW III

    ss
    It would appear from today’s action that it will resolve to the upside unless some geopolitical event interrupts Hal.

  66. EricL

    Major REITs are still sitting on support, except for SLG which is up today on a debt refinancing and upgrade. If they break down from here they will likely have a fair bit to fall and pull broader indexes down, and if they can hold on to support we’re probably good to go higher.
     
    So they’re still the ones to watch, IMO.

  67. ssdirk

    JRW – These charts that we are looking at are certainly not exclusive to us.  THEY are well aware of the chart patterns being set up just like when head and shoulder patterns were being setup in the recent past.  THEY quickly negated those H&S patterns to the upside.  THEY also know that breaking the current lower channel to the downside would be bad, so, you are probably rigtht.  Sadly enough.

  68. pstas

    Craig/AMZN- If I were  a retail merchant, I would be leery of giving my customer info to anyone , much less AMZN. What controls exist if any? Without some real protection for the vendor, AMZN is getting paid to develop a qualified list of real buyers. Nice work if you can get it.

  69. mSquare

    TASR – Up over 10% today after jumping last week on heavy volume.
    Sold March calls against half of stock held to provide some downside protection. Have been long for a long time (perhaps too long!) – unfortunately cost much higher than the current $6-ish). Will buy more
    Will cover calls or buy more TASR in mid $5s…

  70. Phil

    CAT is just flying today.   Good for 16 Dow points.  UTX adding 8 points and no one else very strong with IBM and BA leading the downside. 

    Volume/Steve – Those 3-month averages just keep getting lower and lower don’t they?

    Done with the Qs, in the DIA $105 puts, now .32

    VZ/Trad -  Looks like a good spot but very possible they test $30 (where I always like them) so I’d go for the 2012 $25s for $7.15 and sell the Apr $32s for $1.08 and the Apr $30 puts for .72 for net $5.35 on the $7 spread with 2 years to roll.  TOS says the margin on the naked puts is $458 so that plus $607 for the spread is way cheaper than buying 100 shars for $3,180 to play for the 6% dividend ($60 by April).  If you take this as an initial entry and it drops, you can just pay whatever to roll down to the 2012 $20s (now + $4.50 but maybe + $3.50 on a drop) and then you are as good as owining the stock and can sell premium for 18 more months.

    Sideways/Dman – Thanks on IOC!  Didn’t I just put up those comparison charts to Jan 2004?  If we follow that pattern we’ll be flat to down through the summer. That means that most of our downside protection will be money out the window this year but I still like EDZ the best because the emerging markets can tank without us but if we tank they will tank too so 2 ways to win with EDZ. 

    Since you can sell the Apr $4 puts for .50, collecting $500 against what TOS says is $500 in net margin on 10 sold, I like them a lot for coverage as we’re happy to roll them along to the Sept $3 puts or whatever so selling 100 gives me $5K protection for the year (assuming I have to roll it), setting aside just $5K in margin – that’s a good deal.  SRS is another one I like, those are in the Weekend post but the others I would wait for a break up to get them real cheap.  S&P 1,150 is the next big test and we’re just about there.

    AMZN/Craig – Great info, thanks!  I’m a lot more into the fact that AMZN is taking over all this back-door retailing (this may not be good for CRE but, then again, what does that matter?) as a growth model as I think the computer stuff, although a great idea, won’t be a hugely significant source of profits, especially as it’s pretty high-touch from the client side compared to just dumping more items into their distribution system but Mr. M does make it sound a little more exciting than I was thinking. 

    SPY/Samz – I’d offer the roll for the price now and just wait until Thurs or Friday, when all the premium is gone and then take the roll I have to.  Don’t forget the VIX is so low and that’s working against you so you have much to gain from a sell-off.  If we do break 1,150 – that’s a cause for concern. 

    Saying breadth has been a better measure of performance than volume, Bank of America analysts see the S&P 500 going to 1,200-1,250 this year (another 9% rise). “Market breadth had been waning but that’s been reversed, confirming the current rally … It shows that if there’s a decline it will only be a correction.”

    Here’s a headline they won’t write in this country (from London):  "America Slides Deeper into Depresssion as Wall Street Revels" – "The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.  Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism."  Great Article! 

     Another great article, a critique of Ben’s current justifications for monetary policy

    UPS making new highs – straight up sice we grabbed them. 

    Dollar coming back a bit, oil trying to hold 82.50, Gold trying to hold $1,150, Nat gas FAILED to hold $5.50 (and $5.40), silver at $18.69 and copper at $3.44 (so sorry FCX).  Looks like those DIAs will be paying off again!

  71. samz3700

    Did someone say weeeeeee

  72. mrmocha

    Phil, the retail hosting and the Amazon Web Services discussion are apples and oranges.  Amazon Web Services is the leading ‘cloud computing’ provider.  For my client, I put up a Web site, data downloads, data uploads, database services, and data storage.  My client will eventually be paying Amazon several million dollars a year for all of these services when they fully scale up.  AWS is unrelated to the retail sales operations, it’s pure ‘ISP’-type revenue where they sell their unused capacity.

  73. stevenparker

    So they need to have enough computing power on hand to handle the Christmas season so the store doesnt go down. 
    Begs the question what they will do next christmas, unless they only take customers who don’t have a christmas rush.
     
    Ultimately in this kind of environment, I would think they need enough power to run their own store and that of all their customers under peak load, and that many of their clients will have load peaks the same time amazon do. I have to believe the "spare capacity" is therefore a bit of a red herring?
     
    That said, they clearly have a deep competence in this area, and so offering these services seems very smart.

  74. Phil

    Atlanta Fed President Dennis Lockhart: The economy’s on the mend but "it’s not free of drags or risk," including weak labor and tight credit. Near-term growth won’t be enough to substantially lower unemployment. Inflation will remain in check. "I talk to many business people who tell me they have little or no pricing power."

    Whee/Samz – That was no whee.  This is like when you are on a roller-coaster that’s not well designed and they have these poinless little dips too many times.  Now we want the thrill of the big drop or nothing!  It’s up to AA and other earners this week and, of course, this is a silly day with CAT up 6%, accounting for 25 of the 10 Dow points we gained today.   

    1 pm note sale couldn’t have gone well because CNBC isn’t covering it.

    AMZN/Mr. M – Several million?!?  Wow, maybe that will be a big source of revenue…

  75. gel1

    Here is a hot one for you…. BBBB (Blackboard, Inc.) – Software company who has a product that allows colleges and universities to set up on-line educational programs. Quarterly profits up 375% and Q sales up 18%. Institutions are rapidly moving into yhe stock. I sold naked April puts for a nice entry.

  76. tradansh

    VZ / Phil – Thanks. Much better play than what I was thinking (aiming for 20% return in a year). One more thing, if you noticed, the premiums for the Jan 2011 25 and 30 calls are almost the same is Jan 2012 calls right now. Any way of playing this to our advantage?

  77. chaps

    gel/BBBB: Good company. Have owned it for years.

  78. gel1

    Chaps…. Yep I am following you in your footsteps!

  79. humvee4me

    I’m of the feeling that China is due for a big break downwards, but who knows when, as these bubbles keep inflating.  I’m considering buying a FXI put leap spread, any thoughts or suggestions regarding china appreciated.

  80. humvee4me

    Cramer recommended BBBB a few ( or perhaps a couple)  years ago, as I recall. 

  81. judahbenhur

    Palm.  I thought this was a funny, Alfred E. Newman (What me worry?) type of quote:  In an interview, Palm CEO Jon Rubinstein remained relentlessly bullish, saying his investors realize "this is a long-term proposition." Rubinstein also said that Palm executives paid scant attention to Apple and its iPhone, adding, "I don’t have an iPhone. I’ve never even used one."

  82. gel1

    Phil
    AMZN is down a bit today. Do you have play on it going into earnings?

  83. gel1

    Judah?PALM
    I have a relative that has a top job there… whopee cushions are everywhere – good for morale I guess. They must know something more than we might.

  84. JRW III

    judah / PALM
    Sounds like a good SHORT to me !!

  85. diamond

    Phil – Do you have a guess regarding the Wednesday Oil Inventories?

  86. judahbenhur

    Gel, Maybe Apple never makes a CDMA phone, or Palm gets bought, or they’re all just happy to still be in business after their near-death experience. 
    On BBBB, I agree with you.  Institutions love them.  I did look at their intellectual property last year and was underwhelmed.  I couldn’t see why some college kid programmer didn’t just write some code for his school and take away BBBB’s business.  But BBBB is the market leader in that space and they seem to have secured a niche.

  87. Phil

    BBBB/Gel – I like that concept a lot.  I do hope that model takes off.

    VZ/Trad – Not really other than taking the 2012s.

    The Treasury sells $10B in 10-year TIPS at 1.430% (.pdf), in line with expectations. Bid-to-cover ratio is 2.65 vs. a recent 2.4. Indirect bidders take 40.7% vs. a recent 41.9%.  Sounds fine to me.

    FXI/Humvee – I find it cheaper to just keep selling naked FXP puts.  They’ve been a very slow grind lower as time goes by.  The March $7 puts sell for .35, net $784 in TOS margin to make $350 is a fair use of funds.  EDZ to the upside is how I play China down othewise as we get a bonus if Russia or India or Brazil blows up. 

    PALM/Judah – Yes, you can tell from PALM’s current phone designs that they didn’t even bother to look at an IPhone to see what people really wanted…

    AMZN/Gel – Well it will be shocking if they don’t beat as estimates are up just .10 even after their 30% beat last Q.  Sales are trending up about 33% and everything we heard about on-line shopping and Kindle sales was good.  I like the backspread of 5 Feb $140s at $4.25 ($2,125) sold against 4 Apr $145s at $5.45 ($2,180) to take advantage of the earnings volatility.  The Apr $150s are $4.10 so an even roll on 5 if they fly to the upside and as long as you add another call for less than $20, you are still in a good vertical spread.  To the downside or flat, it’s hard to lose as you are in for net $65.

    Oil/Diamond – Well they shut the refineries down again (below 80% operations) and tied up the ships at the same time people had pretty large heating demands so we may get a bit of a draw but gasoline demand is still super weak so I imagine it will be hard to sustain $82.50 without a 2Mb draw.  Keep an eye on nat gas as they are fading fast and that’s a more realistic indicator of demand than counting barrels. 

    Speaking of oil – They are on a run off $82, up to $82.70 with 45 mins to NYMEX close.  Dollar getting knocked down again, which is amazing with Venezuela devaluing by 27% but why should there be any logic there? 

    QQQQ Jan $45s have just .08 in premium at $1.32 and make a nice upside mo play if the Qs cross $46.25, using that as a stop line – still just looking for nickels.

  88. RMM

    Phil: so, any suggestions for an AMZN trade ?
     
    also: checking on MDT: have caller feb 41 and putter feb 39: any adjustments ?

  89. bord

    humvee4me/China,
    I wish you luck in your trade but be careful shorting China. MSM loves that play, their market recovery is based on some real tangibles, whereas ours is largely Blankfein on peyote. If current PSW consensus is correct and we are long-ish now…. China may hurt you cause it’s hard to imagine the China market dropping while ours goes up. It is VERY hard to imagine a scenario where the world’s number one economy (US) grows, while the world’s third largest economy (and this year they will pass Japan and become the second largest) and the world’s largest exporter does not. I live in their hemisphere too, and every day I  encounter both analytical and anecdotal evidence that their recovery is for real. And oh yeah, we owe them a hell of a lot of money. I know there are a lot of China doubters here. They will focus on that a lot of their numbers are not real. But you have to ask yourself, do you thinks ours are real? In 2006 and  2007, when Chinese banks were exploding , I saw a lot of pundits in Asia and elsewhere talk about how you should stay away from them because they are not transparent, their numbers are cooked, they are controlled by the government, etc. They said you put your money in big American banks because the US financial system was so solid, transparent and free of corruption!!! What irony!

  90. ernest

    Phil,
    What’s up with AAPL?  Do you think it might be time to buy some Feb $200 calls?  It seems like everytime they dip a bit, they jump back up $3-$4 by the following morning.

  91. cwan120

    AMZN / Craig – The selling of computing power is called "Cloud Computing".  When IT people draw pictures, they usually draw a cloud-like blob to represent the Internet.  That’s where the term "cloud" comes from.  The computing power is somewhere in the "cloud" (internet).  As far as I know (I may be wrong here), Bezos (Amazon’s CEO) was the one who came up with that idea and pushed his IT people to make it happen. The basic idea is simple:  If AMZN has so much unused computing power, why not sell it, instead of leaving it idle?  The hard part is to make it happen.  From MrM’s comments above, it looks like AMZN has done a great job.  BTW, cloud computing is catching fire, MSFT, GOOG, as well as people in China, and everywhere, are investing in cloud computing.
     
    If you admire Steven Jobs, you must also respect Jeffrey Bezos.  Two greatest CEOs of our time.

  92. stockbern

    Phil, you said that AMAZ would probably pre announce and would be good for a  Nasdaq bounce.  I guess we’re just waiting for someone in GS to make that call to management saying "OK,  we need that announcement now, we’re ready"

  93. hanna5

    Two comments;
    1. BBBB/Gel : As an incidental note, I use Blackboard, have for years, and hate it. It’s cumbersome. Most students i talk to agree. This may or may not have any impact on their growth, as the university i work for has not responded to student critiscm of the product yet (5+ yrs)
    2. AMZN: Sounds great, but still a scary valuation. They are a great company. As they mature they may grow into this valuation, but to buy them now or even to short them now scares me. Seems they could go to 150 or down to 110 easily. Neither would really shock me.

  94. llorens

    Is AAPL about to complete a Head & Shoulders pattern or do I need to go back to chart school?

  95. ernest

    I also work for a university and I am in the group that supports the Oracle database that it resides on.  It’s a huge monster, performance is never as good as we hope it will be, and when there is a problem the technical support from Blackboard leaves a lot to be desired.  I think they are going to have to improve the product and the support if they are going to continue to grow.

  96. humvee4me

    Excellent comments Bord, I am taking them to heart and rethinking my plans.

  97. cwan120

    More on AMZN: On the other hand, with all that said, I still don’t think AMZN deserves that kind of valuation, in terms of P/E or whatever.  I still have some short positions in AMZN, still painfully waiting for a little more pullback to get even.

  98. judahbenhur

    Hanna, Ernest, Gel/BBBB.  Your comments are consistent with everything I discovered about BBBB.  But where’s the competition?  Doesn’t seem to be coming from Desire2Learn or any college-based, homegrown system. 

  99. mSquare

    AMZN trade. Kept it really very simple and bought the stock in the $129s. I fully agree with Phil as above (and most of others) , that no way their earnings will be ‘bad’ and my plan is to hold till before the earnings as it goes up on the hype of the earnings being nice (or very nice etc)
     http://stockcharts.com/h-sc/ui?s=AMZN&p=D&yr=0&mn=3&dy=0&id=p41779844624
    Watch and be cautious if it goes below $128.80 it set last Thu and keep a stop is in the 125-126 range (two levels of support down). Assuming market does not go into a general correction, AMZN should be a good play. If/when above $135 you can write calls against stock…

  100. Phil

    MDT/RMM – I’d go for the $44 putter at .85 and use the extra money to push the caller.   As to AMZN, see above.

    China/Bord – Be careful what you assume about China.  The stimulus they put into their economy dwarfs what our governemt has done as a % of GDP and they MADE their banks lend money so they droped multiple of the liquidity onto the public compared to the US.  They cannot keep that up forever (rumor is that up to 25% of the loans they’ve made are unrecoverable, costing about $600Bn a year to keep lending) and the "growth" that the US economy may or may not return to will take us 2-3 years just to get back to where we were in 2007.  Also, I still feel the reality is that the bottom 90% – the people who buy Chinese goods, are not recovering at all so China is the wrong kind of investment for a Top 10% rally.  The really good news about China is they haven’t got free press and they haven’t got free markets so the value of stocks is generally whatever the government says it is and it seems clear that they want to demonstrate a strong market (not unlike our own government).  The only time you’ll ever find out that the stocks aren’t worth anything is when a lot of people try to sell, like they did on ’08 and then the market can drop 75% like a rock but as long as you are smart enough to get out on a 20% dip – why worry?

    AAPL/Ernest – They are not on my buy list until $185 but you can do a nice 4/5 backspread on them with the Apr $220 calls at $10.10, selling the Feb $210 calls for $9.60 as long as you are willing to spend $5 to roll down $10 and roll the callers to Apr $220s or $230s if they fly up.  If you want to play AAPL for a bounce, you can start with 2 Apr and 1 Feb and work your way into the spread, trying to take advantage of bounces. 

    Clouds/Cwan – Everything is going that way, back to mainframe models essentially and it does make sense but it’s a little worrying how much is now riding on a single company’s reliablility.  The original idea of the Internet was to distribute our communications infrastructure in such a way that it could not be interrupted easily by attack – now we are concentrating everything back into a dozen companies and any one of them going down can turn 10% of US commerce dark – kind of crazy. 

    Speaking of the original cloud:  As AOL begins the layoffs that it detailed last month, Tim Arango gathers an oral history from execs on how the AOL-TWX merger – largest in American history – went so terribly wrong.

    Dow leaders: CAT +6.1%. KO +1.9%. CVX +1.7%. UTX +1.5%. PFE +1.3%.
    Dow laggards: HD -2.6%. DIS -2.2%. AXP -1.6%. MSFT -1.5%. BA -1.3%.

    Interesting that the Dow jumped 50 points since the lows but the Nas has barely budged (or the RUT).  S&P up about 1/2 as much as the Dow and NYSE around there too.  So do the other indexes play catch-up into the close or does the Dow dive?  I’ve got my money on the Dow diving at the moment because Oil was rejected at $83 and is back at $82.50 into the NYMEX close and OIH is dropping back – maybe XOM is next  with them up 1% and CVX up 1.6% (accounting for another 16 Dow points).

  101. Phil

    AMZN/Stock – Yep they are the #1 pump toy for the Nas, followed by RIMM and AAPL and they are all down, pushing that coiled spring and ready to rocket on a good word or two so be very careful on the short end. 

    It does seem a bit early, but Mark Zandi says retailers are "going to be pleasantly surprised by Christmas 2010." Moody’s chief economist also sounded a note of caution, saying the debt-to-GDP ratio of 65% is "barely manageable." Zandi’s pick-your-poison deficit solution: a value-added tax.

    AAPL/LLorens – It does look that way but it did in July too and look what happened there.

    PARD/Morx – I sure hope so!

    OJ limit down today – just like trading places!

  102. judahbenhur

    JRW, SS. The RUT run-up of the past weeks seems to be tiring.  Or maybe, like Friday, the train’s coming at 3 today.

  103. judahbenhur

    Phil/Trading Places. LOL.  Reminds me why I read your stuff--all those obscure pop culture references.

  104. ssdirk

    judah – Before today I showed the RUT in 2 intersecting flags.  It broke higher on one flag, but is still clearly in another tightening flag.  I know we have brokent through Phil’s levels, but I am still not convinced of market direction.  I think most people know that we have come too far too fast and are waiting near the exit for someone to yell fire.  It’s just that GS is in the room with a loaded gun daring anyone to speak up.

  105. Phil

    TXT making new highs – Hard to believe we were debating their value at $5 not even a year ago! 

    Oil closing below $82.50 selling off hard into close.   I guess they didn’t like my outlook for Weds…

    Volume is amazingly just 116M on the Dow at 2:40.  145M at 3pm is considered very "stickable" so keep an eye on that QQQQ trade to the upside and the DIA puts to the downside.

    Trading Places is not obscure, Judah! 

  106. bord

    Unkown: "Mortimer, your brother, I think he’s very sick we need to get him to the hospital."
    Mortimer: "F*** him, turn those G**D***** machines back on!!!"

  107. judahbenhur

    SS, Yeah, I thought 64-64.20 or so was going to be a real battle, then it smashed through at the end of the day Friday, and the futures seemed out of control early this morning.  I’m back to looking at that 64-64.20 range for direction.

  108. JRW III

    ss, judah / IWM
    We’re on the floor now, I’m looking for Mr Stick. But, we could break down like 12 / 31 for another Bear Trap !

  109. gel1

    Phil,Hanna/Judah/BBBB
    I was drawn to the investment primarily because of their recent earnings and anticipated full year expectations beat. They are expanding into K-12 school districts and government organizations, so growth is in their blood. Also with over 5000 customers and millions of end users, it seems they have a solid base. Based in DC, they should have an advantage, I believe. They should consult with Judah, in order to put a strong foundation under their IP.

  110. 1020

    Trading Places – A classic and back to when Eddie Murphy was funny……Murphy as Gumby on SNL… Damn Funny…

  111. ssdirk

    JRW – I am going to use TNA to hedge against my daily gains in my RUT strangle which I am positive on with a negative delta.  If we break higher TNA will hold my gains.  If we break lower my strangle will out perform my TNA loss.

  112. ssdirk

    JRW – I am going to use TNA to hedge against my daily gains in my RUT strangle which I am positive on with a negative delta.  If we break higher TNA will hold my gains.  If we break lower my strangle will out perform my TNA loss.

  113. foss

    Phil, any thoughts on CAT (selling into excitement)

  114. RMM

    Phil: what does it means: use the extra money to push the caller ?  MDT comment of 2.31.

  115. JRW III

    ss
    Nice work !!

  116. cwan120

    SS: You mentioned "flag" in your earlier post about RUT.  What is "flag"?  Is it a term in TA?  Sorry about the stupid question.  I’m not good at TA at all.

  117. ssdirk

    cwan – it’s when you have upper and lower channels that are not parallel and or either widening or narrowing.  In the case of the RUT, and most other indexes, it is narrowing which usually forces a big move in one direction or the other.

  118. ssdirk

    cwan – I use the word flag, but others may use pennant which would give you a better picture.

  119. yodi

    Hi Phil, Looking at BAC holding jan 11 put bought for 2.47 now down to 1.66 and sold 20c jan 11 for 1.68 now 1.48
    they were originally sold against short puts and long calls which are still making money. I feel BAC is going up and one can drop a bit the protection which was taken for the above move. So both puts and calls will only deteriorate obviously only if BAC get out of the wood.  Your thoughts pls. thks

  120. Phil

    VIX puts are finally starting to work out – Feb $22.50 puts are $2 but Feb $20 puts are still .70 – no one seems to believe the VIX can stay this low (now 17.50).

    Stick/JRW – You must have faith in the stick – the stick will set you free…

    CAT/Foss – I wouldn’t bet against them as they are a China + infrastructure story.  They were on our Buy List in the $20s but I can’t see playing them long at $63 – just a no touch now. 

    MDT/RMM – Sorry, I must have gotten distracted mid thought.  I meant to say push them up to the $43s or $44s or the March whatevers when they come out.  If you can conservatively gain $1 per month while keeping yourself well covered, it’s a nice little gain.

    Non-agency home-loan bonds are "leading the pack" in the new year’s debt rally, as Barclays notes senior option ARM-backed securities jumped 9 cents on the dollar to 58 cents. “It’s cash that was on the sidelines at the end of the year coming in,” says one analyst. “You’re seeing huge demand for assets.”

    Sector ETF strength: Gold– GLD +1.3%. Utilities– XLU +1.1%. Industrials– XLI +1%. Transports– IYT +0.9%. Solar– TAN +0.7%. Gold Miners– GDX +0.7%. Pharma– PPH +0.7%.
    Sector ETF weakness: Heating Oil– UHN -1.4%. Regional Banks– KRE -1.2%. Gasoline– UGA -1.2%. Oil Services– OIH -1.1%. Internet– HHH -1%. Livestock– COW -1%.

    NDX 100 Worst % Performers:  STLD -3.25%, CTXS -2.75%, AMZN -2.75%, FAST -2.25%, NTAP -2.25%, FWLT -2%, ESRX -2%, FLEX -2%, NVDA -1.75%, MSFT -1.5%
     

    STJ guided in-line for the Q, maybe a penny lower and got crushed for it.  Could be a tough grading curve this Q. 

    Dow is flying!  Nas way, way behind so far. 

    BAC/Yodi – I take it that is the 2011 $15 put with the 2011 $20 call.  I agree that it doesn’t seem like we need the put coverage so you can take the loss there or sell puts like the Feb $17 puts for .82, which is a lot to collect against $1.66 for a month. 

  121. Kwan

    hanna/BBBB – I agree, I hate it too. It’s unfriendly, buggy and just plain doesn’t work sometimes but universities are adopting it relentlessly even though the developers can’t respond to a lot of the criticisms people have about it. Unfortunately it’s the ‘best’ thing on the market that’s widely used. (There’s an alternative that’s supposed to be better, but I’m forgetting the name right now.)

  122. RMM

    Phil: have pgh stock,
    and july 7.5 putter, this needs adjustment ?

  123. RMM

    Phil: when do AMZN report earnings ?

  124. judahbenhur

    Gel/BBBB. Thanks for the vote of confidence! Appropos to my comment to you Friday that in DC everyone is 2 degrees of separation from everyone else, I know several people who are friends with the BBBB CEO.  I’m also friendly with fellow who has recently been offered the CEO position at a BBBB competitor. 

  125. Phil

    AIG is flying up – things must be going well!.    I find this funny as they are expected to announce they lost $4.80 per share this Q, which is as much as they project making in all of 2010 IF things go well.  I guess the Feb $34s for $1.06 make a fun upside play on them as they did run to $54 after last earnings – just a gamble though.

    PGH/RMM – Well the putter is toast and you can sell the $10 puts and calls for $2 to lock in some gains. 

  126. Pharmboy

    Holy Shmoly Batman, what IS going ON?  I feel like it is 1999.

  127. samz3700

    Phil -
    when rolling covers out – do you look for an even roll or do you roll to the strike where it would cost more than 50 cents to roll to for that month – seems like the latter – also seeming expensive

  128. gel1

    Foss/CAT
    I took advantage of the run-up by selling Feb 70 covered calls, and wait for the next drop to close out – maybe tomorrow!

  129. bord

    Does anyone know off top of their head when AIG reports?

  130. Phil

    San Fran Fed’s Reuven Glick and Kevin Lansing warn the unwinding of household leverage "could be a significant drag on consumption and bank lending going forward, possibly muting the vigor of the economic recovery." Or, to quote economist Irving Fisher: "Over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money." – Hey that sounds scary, no wonder the market is going up.

    Dow 10,666!  More importantly, Nas looking to re-test 2,314 and S&P 1,150 is significant. 

    QQQQ $45s at $1.45 which is plenty for a mo trade and we’re NOT looking to hold it overnight so don’t be greedy.

  131. RMM

    Phil: need help again with FAZ,
    have stock, not much down anymore by selling premium,
    yet now I have:
    1x putters jan19
    0.5x callers feb19,
    need adjustment??

  132. gel1

    Judah…. I know what you are saying… it is real tough to keep a secret in DC. Secrets die quickly!

  133. RMM

    Phil: your 3:33 PGH comment: puts have little premium ? how can you get from p+C strike10 2$ ?

  134. RMM

    Phil: PGH: you meant JULY????

  135. JRW III

    And that’s a wrap

  136. Pharmboy

    Com’on reverse stick, make my day…DIA 106s for 49c

  137. drumkeerin

    dear phil
    my Apr DXD 26call vs the 33c short took a real beating today. Any kind of roll at this point?

  138. Phil

    Rolling/Samz – It depends on budget + faith in the position.  You do generally want to be in the .50 spot and it is an expense as it’s insurance and it costs something for each month you cover.  This DIA coverage (and most of my covers) are meant to be covering a buy/write type portfolio where the vast majority of your positions are going to make at least 10% a month in a flat or up market AND have a 10-20% built in buffer so the DIA puts are there just for a real disaster that knocks your positons down 20% or more.  So if I have $60,000 in hedged positions that are protected for the first $12K, then I want to have about $12K in total DIA puts that will double if the Dow drops 500 points, protecting my positionns for the additonal $12K in drop.  If I take that hedge out 4 months and I’m selling $9,000 a month in contracts, then I’ll collect $36,000 before I lose the $12K and if you sell $2,000 a month of puts against the longer puts, you’ll collect $8,000 and that means your insurance has a net cost of $4,000 against $36,000 you will collect if you don’t need the insurance.  Having an overall portfolio plan is essential in setting up and managing these plays.

    AIG/Bord – I don’t know what’s up with YHOO, they don’t have any earnings dates.  Their service is slipping. 

    FAZ/RMM – The Jan $19 putters can be rolled down to the Feb $18 putters for about a dime but I would sell 1/2 X the Feb $17 calls ($1.35) and put a stop on the $19 callers at .85.

    PGH/RMM – Yes July.  I thought that’s where you said your current putter was so I didn’t bother to write the month. 

    Good call Pharm, just a little push down into the closebut it’s a long way to go before they spook Asia and Europe. 

  139. Phil

    AA Feb $18s at .77, selling Jan $17.50s for .55 is a fair risk on earnings.

  140. judahbenhur

    JRW, I think SS asked you about this before.  I assume you’ve developed a good enough feel for the rhythms of TNA/TZA/IWM to get out when it seems to you like it has run out of gas.  I got out today and Friday on trailing stops on the final run, which were good enough though I did miss the last minute big run Friday.  If you were to use trailing stops on TNA and TZA, what increment do you think works best?

  141. aclend

    FPL all over the place. Anybody know why?

  142. JRW III

    judah / stops
    I usually use mental stops, but if I have too much going on, I use 1% on TZA and 2% on TNA.

  143. Phil

    DXD/Drum – You don’t want to put more money in so just sell the Feb $28s for $1.15 and spend that to roll to the $24s and just be happy if you get $4 out of it.  Once you get behind, the goal needs to be getting even. 

    FPL/AC – That is a little wacky for a utility company.  They just said this morning that they see record year due to cold in Fla, that spiked them in the morning but I don’t know why people bailed after that. 

  144. judahbenhur

    Phil/Trading Places. Now I can peacefully watch the clip from Trading Places. Thanks. You’re right--not obscure--it is probably the only reason most people know there is such a thing as commodities trading.

  145. hanna5

    As a note to others, i started accumulating GFA today. A brazilian home builder, at 30.4. Resistence near 30 level. I like the fundementals and long-long-long term outlook (growing middle class, economy, etc). Valuation is generous, but not terrible. I will plan on a double down at 25 if the stock heads in that direction.
    Strange last 15 minutes for GOOG for those that follow it. Massive volume/price spike at 3:46ish.

  146. ernest

    Got burned on the Jan DIA puts again.  Made a nickel in the morning but lost 9 cents in the afternoon.  From now on, anytime that play is recommended I’m going to go out at least one month (i.e. If the Jan DIA puts are recommended I’ll buy the Feb ones instead).  At least they don’t lose as much value per day if you’re wrong, so I feel safer knowing there is time to recover.
    As a general rule, if I’m buying naked call options, I also think I will stick to ones with a delta of 0.5 or above.  That was drilled into my brain in a technical analysis class I took, so I should probably stick to that unless the direction of the market is really strong for that day.  This low-volume, GS-manipulated crap is causing me too much stress.

  147. ernest

    Do most of you prefer to do covered calls or naked puts as a more conservative way to add some dollars to your account?  It seems like RMBS & SNDK would be good options for either given their higher option prices.  If anybody is trading these or some other stocks that are also good candidates, I would love to hear your opinion.  Thanks in advance!

  148. ernest

    SIRI – One more question.  Do any of you trade Sirius?  They have shot up since the end of the year.  I wish I had bought some shares when they were still below 60 cents.  Some people think they are still in big trouble, but they have received several upgrades recently, their CEO seems to have his head screwed on straight, their short-term debt problems are resolved, and I’m guessing they added subscribers due to the improved auto sales lately.  There are also a few options available on SIRI, which is unusual for a stock below a buck.  Just looking for some opinions on whether it’s a worthwhile play and what might be the best way to go (Buy the stock or the options).

  149. llorens

    AA halted AH due to their earnings, only +0.01 EPS

  150. ssdirk

    Ernest – my $.02.  I prefer selling puts in order to initiate a buy/write strategy.  Once, or if, assigned then selling covered calls/puts.

  151. llorens

    Play for a bounce after they sell off? Consensus EPS was $0.06.

  152. cwan120

    AIG earning date – finance.aol.com does not give an earning date, either.  So, it’s not just yahoo.
    AMZN earning date – Jan 29.
     
    BTW, I found finance.aol.com gives next earning dates in the most consistent display format.  Go there, type in the stock symbol, click the Search button.  And then, on the left hand side, click the link "Actuals & Estimates".  The next earning date always shows up on the page at the same spot.

  153. cwan120

    AA earnings / llorens – Only +0.01? What’s the street’s estimate?

  154. llorens

    Consensus EPS estimate was +$0.06.

  155. llorens

    AIG should report first week of Feb, FYI.

  156. judahbenhur

    Ernest/RMBS. One caution in selling puts on RMBS. They are at the start of a very significant antitrust trial against Samsung, Hynix and others, which could well send their shares much higher on a settlement or victory. So you could make money in selling puts if they win, but if they lose the case, you’re not going to want the shares put to you, since they could well lose 30% of their value.  I have RMBS 2011 calls and a Feb bull call spread. Phil recommended the 2011 bull call spread and/or the May bull call spread for RMBS when I asked him some time back, but that was back when they were trading below $18.

  157. gel1

    Hannah/GFA
    I like your pick. I, as you, believe the emerging middle class over the next few years, coupled with the 6% growth projected for Brazil, will drive this homebuilder. When the middle class is expanding, like it is in Brazil, usually a new home is the most desired purchase because the family is growing, and space is needed. Gafisa is up 250% this year, and as the largest Brazillian builder should continue to do well. IMO.The drop today in stock price to a little over 30 is a good entry point.

  158. Phil

    Trading/Judah – That is my all-time favorite movie clip.  I love Youtube for that reason as it’s so cool to be able to share things like that.  You’re right, there’s so many times I have explained commodity trading using that example. 

    GFA/Hanna – You forgot to remind me on the weekend!  GOOG had a personal stick save at the close – someone didn’t want them to print below $600 but AAPL couldn’t make $210. 

    DIA/Ernest – You have to have razor stops on those, especially once you make money you need to set a stop at even for the two trades so that’s your worst case. Much more relaxing to play for the upside stick than the downsides unfortunately.

    AA with a slight miss but little reaction.  Revenues were there but they missed earnings with energy costs and currency conversion hurting them.   Should be good for the spread. 

    Adding dollars/Ernest – I much prefer both when it’s a stock you don’t mind more of.  With SNKD (assuming you own the $30.49 stock) if you are willing to own more at $25 then you can sell the Apr $31 calls for $3 and the Apr $28 puts for $2.15 so you collect $5, dropping your net (assuming you just bought it) to about $25 and and average entry of $26.50 if put to you below $28.  To the upside, you get called away with an additional $5.50 in your pocket at $31, which is a very nice 3-month gain.  Do that 4 times a year and you pocket $20 on a $30 stock so it would have to go very, very wrong on you to hurt you badly and, of course, to the upside you can only get called away so SNDK would have to drop to $15, as long as it didnt’ do it suddenly, before you were in a very bad position.  

    It can be argued that, if you are afraid to sell the puts on 200 shares at $6,000, that you would be better off dropping to 100 shares at $3,000 and selling the puts and calls where before you would sell only the calls because the sale of the $31 calls only drops your net to $27 and you collect $600 while the sale of 1 put and call contract collects $500 but puts the stock back to you $50 lower AND you have $3,000 back to cash to make use of for 3 months. 

    Futures falling off pretty good on AA news, about 35 points on the Dow with the RUT at new lows for the day.

    SIRI/Ernest – We are full up on them from .30 back in the summer.  We sold half at a double and the rest is under the mattress for a few years.  They are a very dangerous stock but not likely to go BK (someone would buy them I think) so if you can sell the June $1 puts for .45 or better, that’s a nice entry but, otherwise, I’d rather wait for them to get closer to $1 to do a proper buy/write as a new entry.  The last sale of the June $2 calls was .05 but if you offer to sell them for .10 and get it, then you can buy the June $1 calls for .10 and it’s a free trade – never hurts to offer. 

    AOL/Cwan – Thanks, Yahoo is just getting annoying these days.  Must be the budget cuts…

    Somehow AA made oil sell off too! 

  159. ssdirk

    JRW -  AA may put the lower channel on IWM/RUT in jeopardy.

  160. ernest

    judahbenhur/RMBS:  I’m assuming this trial might go on for a while, correct?  I was thinking of selling Feb puts.  RMBS is currently at 23.83 (After hours).  I could sell the Feb 22.50 put for $2.16, which seems like a pretty safe bet to me.  What do you think?  Then if it gets put to me at that price, I could sell covered calls.  Since they are only at the start of the trial, it shouldn’t affect the price in that short of a period.
    Also, I know this is a "newbie" question, but it’s after-hours :) .  Can you or someone explain how you calculate the benefits of buying a LEAP and then setting up a spread where you sell 2 calls at different strike prices that are only a month or two out?  I’m not familiar with this particular strategy, but it seems to be the one that Phil recommends most often.  And what do you do when you get close to the expiration of the short-term portions of the spread?

  161. cwan120

    SS – RE "flag".  A pretty good picture of a widening or narrowing channel.  I think some people use the term "wedge" to describe such a formation.
    So, do you say the flag is pointing East or West? 8)

  162. pstas

    CMG- a short up here?

  163. llorens

    Considering an overnight short given the AA news and buying back early in the morning. How about F since they closed up 3.59% ($12.11) and they’re a US company as well? Trading at $12.09 now AH.

  164. pstas

    CMG- next earnings report 2/8/10- est .79 vs .52.

  165. jburgess

    Would someone tell the newbie what "TOS" is that Phil has referred to a couple of times today?

  166. llorens

    AA now down almost 5% AH, now at $16.67. this is just AH but I wonder how everything else will do overnight. Can’t see futures going positive after this reaction but then again this is Superman’s Bizarro World.

  167. ernest

    TOS is Think or Swim.  I think they used to be independent but were purchased by TD AmeriTrade.  I’m not sure if they still operate as an independent broker, or you get their services with your TD AmeriTrade account.  I have used TD AmeriTrade before but not TOS.

  168. eben22

    ernest/RMBS – I am trying to follow the RMBS case so here’s my 2 cents also.  I don’t think you want to sell even the Feb puts.  Last week there was a sudden drop in the stock which later was attributed to a "fat finger."  Needless to say, the stock went from 24 to 16 in a few minutes.  This drop coincided with judge Kramer suggesting the possibility that he would hand off the case to another judge.  The case is slated to start Wednesday now.  We should know if Judge Kramer is keeping the case or not by then.  If he passes it off there could be another delay which would whack the stock.
    Selling the covered calls limits your upside which could be substantial.  A settlement could come at any time and we could wake up to RMBS at 50.  So, to me a long call spread might make the most sense and balance both upside and downside possibilities.  I have a spread, own some naked calls and I have also hedged by buying some JAN 19 puts for a few pennies just in case Kramer hands the case off. 
    Eben

  169. judahbenhur

    Ernest/RMBS trial.  Well, the trial is scheduled to begin today.  According to a study I’ve seen, the average length of trial for antitrust cases is 11.4 days, and there is a little under 6 weeks until the Feb opex date.  In the run-up to the trial, RMBS shares went from sub-$18 to $25.  I’m not trying to dissuade you from selling puts. I sold some January puts last week that I’ve already closed out for a profit.  The Feb puts are just a higher risk approach at this particular juncture than they would usually be.  I do think RMBS is either going to win the trial or receive a favorable settlement, which is why I have the bull call spreads, and in which case you would get to keep the $2.16.  But if it loses, I think RMBS trades back at $15 in a heartbeat.  It is a very volatile stock and in the past has reacted with wild swings on these legal events.

  170. edro00

    "DXD/Drum – You don’t want to put more money in so just sell the Feb $28s for $1.15 and spend that to roll to the $24s and just be happy if you get $4 out of it.  Once you get behind, the goal needs to be getting even. "
     
    Phil – Our position is
    Long 10 Apr26C basis 4.78 now 2.9
    Short -10 Apr33C basis 2.03 now .85
    Shorting the Febs makes no sense.
    The cost to roll the long Apr26C to the Apr24C is about 1.40
    For now, the best thing might be to roll the short Apr33C down to the Apr28s to increase the delta, this also makes the basis of the spread 1.60 on the $2 spread so we can get out even.
    If the stock keeps going down we can roll the longs when it costs less than 0.50 to roll down $1

  171. judahbenhur

    Ernest/Eben’s comment.  Eben is exactly right that if Kramer passes off the case, it would hurt RMBS’s share price.  First, Kramer is viewed as a good judge for RMBS, and second, any new judge would need a long time to get up to speed.   In late Aug last year, the stock ran up from $16 to $20 and then it was announced that the trial would be delayed until January.  The stock dropped to $15 and change with a couple of days.  Like Eben, I have both spreads and some long calls to balance the cost of the calls with the potential upside in a settlement/victory.

  172. cwan120

    TOS / jburgess – TOS or http://www.thinkorswim.com is the favorite broker here.  They have the best trading platform in the industry.  You can contact scott at thinkorswim dot com to negotiate a discount on commissions.  Tell him you are a PSW member.  The last time I heard, the special commission rate for PSW members is $1.50 per contract with no per-ticket fee.  Eg., if you trade 1 contract, the commission is 1.50.  For 2 contracts, it’s 3.00.
    As Ernest mentioned above, they are now part of TD Ameritrade.  So far, the merger doesn’t seem to change their excellent services.

  173. japarikh

     Now CVX sees lower Q4 earnings. All we need is a couple of more of these to finally restore some sanity in the market
     
    http://www.marketwatch.com/story/chevron-sees-lower-fourth-quarter-earnings-2010-01-11

  174. ssdirk

    cwan – I would say east-northeast.  ;)

  175. llorens

    jumped in short F at $12.03. Seems to be a negative mood/fog after the AA miss and other lowered guidance.

  176. bord

    Phil, What plays would you recommend (bull or bear) on VALE and CHL? Thanks.

  177. edro00

    International Trading
    Just got a notice that Fidelity now provides "global online stock trading".
    Anybody tried this??

  178. Cap

    AMZN — don’t know what cloud computing could be worth; but I do know there is and will be lots of competition.
    As for AMZN’s main business; retail web; WMT is going to dominate them as time goes on; and margins will fall even further.
     
    Did some comparison book shopping on WMT vs AMZN over the weekend; WMT’s prices beat AMZN by 5-10% every time.
     
    Once internet sales get fully taxed (and they will, you think the states will let that revenue slide on buy), AMZN will get hurt even further.
     
    I agree w/ hanna5 on the valuation issue.  It will matter eventually.  When is another matter entirely.

  179. Cap

    Zandi – spoken like a good little Dem leaning economist.

  180. Cap

    If you are confused as to whether idiot Sen. Harry Reid is a racist and should resign… this flowchart explains all you need to know…
     
    http://3.bp.blogspot.com/_RMfq9Mo5T2Y/S0pr0q7IFjI/AAAAAAAACHc/emUJe9gvmOo/s1600-h/flowchart1.jpg

  181. jromeha

    Cap- that’s pretty funny! I’m a big liberal but do agree that there is a double standard… His comment was much more offensive than lott’s statement about Thurmond…

  182. pstas

    Useful article on statistical integrity re: Chinese data:
    http://web.stratfor.com/images/writers/ChinaFilesStatistics.pdf

  183. Phil

    Good morning! 

    Finally some red in the futures – looks like we’ll be getting our level test this morning. 

    DXD/Edro, Drum - I don’t know why I thought it was Feb but the main idea, like our DIA puts, is to roll when it’s cheap.  As a rule of thumb it’s good to pay .65 or less to roll down $1 – that goes for the calls you own of course.  Once you get that, then perhaps you look to roll your caller down to pick up .40 so you spend net .25 to gain $1 but just be wary of the upside you are losing as it caps your potential gain.  Also, keep in mind that we scale into these, just like any posiiton so if you started with a 5% position at $4.90 as protection and you DD at $2.45, then that puts you in for avg $3.68 (on a 7.5% cover) with the stock at $2.40 and a .70 delta so you need a $2 move up to get even (where you would sell 1/2).  HOPEFULLY, your bullish positions made more than the 2.5% you lost over the same period so getting this position back to even is just gravy.

    Good China article Pstas!

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