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Manic Monday Market Movement

I love alliterative titles, don’t you?

Fun time is over, the Jet’s lost to the Colts (avenging their first loss of the season) and the Saints beat the Vikings in overtime actually putting the best two teams from each conference (by record) into the Superbowl for the first time in ages.  Superbowl tickets are going for $2,800 (average according to Stub Hub), which is about the same as the last two years so not economic downturn is being felt there.

As I mentioned in the weekend wrap-up we were fortunate enough to have cashed out the bull side ahead of the holidays and we followed our two step program for bearish success on Friday by 1) taking the money and 2) running – as it’s been a very long time since holding a bearish position over the weekend hasn’t been punished by the market Gods (by that, of course, I mean Lloyd Blankfein). 

We have plenty of bullish plays that we attempted to bottom fish last week (see our Weekly Wrap-Up and save money by buying our mistakes!) and we still have our disaster hedges in case things get worse but, on the whole, we’re expecting a 1% bounce in the very least off our 5% lines (anything less will be a bad sign) and our chart is shaping up like this:  

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Topped Out  10,700  1,150  2,320  7,400  650  2,000  23,000  11,000 5,530  6,050
Currently 10,172 1,091 2,205 7,030 617 1,921 20,598 10,512 5,308 5,677
Drop % 4.9% 5.1% 5% 5% 5.1% 4% 10.4% 4.4% 4% 6.2%
2.5% Bnce  10,433 1,121 2,262 7,215 634 1,950 22,425 10,725 5,392 5,899
10% Drop 9,630  1,035 2,088 6,660 585 1,800 20,700 9,900 4,977 5,445
Cur. % Up  25% 25% 26% 26% 28% 18% 27% 17% 25% 26%
July Base 8,200 880 1,750 5,600 480 1,650 17,500 9,200 4,200 4,600

Clearly you can see why we have a 5% rule – that alignment on the US indexes on Friday is no coincidence.  Our 5% rule tells us that we should EXPECT a 20% retrace of the drop at each 5% level so a 1% bounce here and a 2% bounce at 10% (if we fall that far) would still be considered signs of continuing weakness until they are broken over.  Conveniently, today, we can just look for 1% gains on our major indexes but the levels we are shooting for as a retrace are:  Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625 and yes, those are not exactly 1% as we’re taking into account other resistances we chart including psychological resistance, which comes into play at Dow 10,300 and NYSE 7,100 so we round to those.

Both the Nikkei and the FTSE bounced off their 5% levels and both have been rejected off their 4% bounce level (the FTSE is still open, of course) but it’s the DAX that has something to prove as they have already blown 5% support and are not up 25% (also support) from their July base anymore so that’s 2 out of 3 strikes we can allow before pointing an ominous finger at that 10% line (a 40% retrace of the rise up – in line with Fibonacci expectations), which is the next stop if the market turns ugly. 

Check out Michael Clark’s Global Chart Review if you haven’t already, he draws a great picture of the technical issues we’re facing but I must say that this all cracks me up as we’re BUYING now, not selling.  Yes, I’ve been bearish since Thanksgiving saying a big correction will come, A Big Correction Will Come, A BIG CORRECTION WILL COME and we just got the biggest one-week market correction since last February and I AM SATISFIED!  I’m not saying we’re now going to fly back over 1,150 on the S&P tomorrow but I am satisfied that we finally got a pullback and tested the 10,200 line I’ve been wanting to see tested since we first broke through it on November.   We did touch it for about 10 seconds on Nov 27th (Friday after Thanksgiving) but that was low-volume nonsense and not a proper test.

It was the manipulative moves that PREVENTED us from testing 10,200 that made me more and more insistent that we would get a drop and, next time, I will know better and wait to be at least 4% wrong before piling on the bearish bets – it would have saved a lot of hassle!  Do not mistake this for BUYBUYBUY premise, I was SURE we would sell off but that was 5% ago – now we could bounce back – but it would be far better if we consolidate here or sell off a bit more with some volume to firmly establish 10,200 as a new support for the Dow otherwise, we’ll be looking at good old 9,650 on the Dow and 1,035 on the S&P and 2,100 on the Nasdaq, 6,660 on the NYSE and good old 585 on the Russell as our "must hold" levels, where we do feel good about the fundamental support. 

Since THAT is our premise, we don’t mind bottom fishing a bit here with our buy/write strategy, especially when we are able to take advantage of the higher VIX to give ourselves a 15-20% discount on the positions we enter (see "How to Buy Stocks for a 15-20% Discount") – that will take us all the way back to our July base.  That’s why you can see in the Wrap-Up that we took mostly buy/writes to work into new positions as well as some naked put selling for positions we are a little more worried about (because the put is a lower commitment and can be rolled even lower without having to commit to the position).  The simple logic for our bargain hunting is this – if you regretted not buying stocks when the Dow was at 8,200 in July and we can scale into positions that break even on a 20% drop that protects us down to 8,200 – then why not take a chance on what may be the 2nd opportunity of a lifetime in 12 months?

We have our disaster hedges so we are well covered to the downside and balancing our virtual portfolios means we WANT to identify bullish opportunities but we’re not going to be idiots about it.  This is why it’s a good time to watch our levels and exercise caution but, as I said, the FTSE and the Nikkei both bounced off their 5% lines and our futures make it seem like we should do the same so our job for this week is to hang loose and go with the flow and try not to force our plays one way or the other.  We had 61 trade ideas last week (which is a lot in 4 days) and 27 of them are not winners yet as we tried to keep an even mix of bullish and bearish plays.  Did Big Bad Barack scare little Goldman Sachs and force them to pack up their bag of tricks and go home or did we simply get a huge overreaction to some mild political backlash?

As I said to members in our Weekend Chat, the Supreme Court handed corporate America the largest gift in the history of the United States last week or, as the NY Times so rightly puts it: "With a single, disastrous 5-to-4 ruling, the Supreme Court has thrust politics back to the robber-baron era of the 19th century. Disingenuously waving the flag of the First Amendment, the court’s conservative majority has paved the way for corporations to use their vast treasuries to overwhelm elections and intimidate elected officials into doing their bidding."  Hey it sucks for "them" but it’s good for "US!"  WE (the top 10%, not we,The People in the bottom 90%) own those corporations and now we can go out and expense as many politicians as we need to get ourselves some good government.  That’s why we bought BTU last week – global warming is now an issue of the past!

So we now have a VERY positive long-term market story to latch onto but it is still earnings season and we have plenty of data including Existing Home Sales at 10 today, Case Shiller, Consumer Confidence and the Home Price Index tomorrow, a Fed Rate Decision on Wednesday, Jobs and Durable Goods orders on Thursday all leading up to a highly inflated Q4 GDP Report (at least 5% now expected) as bullish inventory builds and rising commodity prices gave our economy quite the apparent boost.  If it comes in well and the market flies – we’ll probably sell into it and flip bearish but let’s not get ahead of ourselves.  Also on Friday is the Employment Cost Index (where we can celebrate paying "them" less!), the Chicago PMI (will be down despite our "amazing" GDP) and the Michigan Sentiment (who still lives in Michigan?). 

We also have over 300 earnings reports so non-stop fun but, for today, we will be seeing what happens and hoping we didn’t get too far ahead of ourselves in our early bottom fishing expedition last week.

 


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  1. neverworkagain

    Bord / complaining:  Bord, i’m afraid your 5 or 6 posts trashing on Phil are just making you look silly. You clearly have not been understanding the full discussion during your time on the board. Phil’s message has been crystal clear and his balance means bullish and bearish trades are always being made. You have to take some responsibility for your own portfolio.  Add some more balance rather than blaming others, Obama, politics, Phil, or whatever.  I’ve been trading a long time, but the last 10 months on this site have added a lot more balance and consistent payoffs to my trading. Spend more time listening and reading and the message will get clearer.

  2. Cap

    The markets, and AAPL, getting a nice bounce pre-market.    I am looking for highs today in the 1100-1112 range (which does not mean we close there).
     
    Any thoughts on how AAPL trades from here … before and after earnings ?

  3. Cap

    Front page of the post – photo -  Cops Taser Jets Fan.
     
    Was that you Phil ?
     
    :mrgreen:

  4. d12ewman

     Hey Phil, 
    I am a new member but have been following the report for a long time. Great stuff. I am currently short march 5 puts in PARD. Pard was downgraded this morning. Buying opportunity? Roll the puts? Hold? Outlook? 

  5. bord

    Neverworkagain, If you actually read the posts (and try counting OK because it was not 5 or 6), I never trashed anyone, never blamed anyone, and I stated very clearly the part about how Phil is balanced and how we should all take responsibility for our own portfolio…. so take a break OK?  I didn’t know asking hard questions and stating one’s honest opinion without vitriol on this website gets rewarded with getting attacked.

  6. Cap

    After further investigation, the Tasered Jet fan was not Phil.   But he was a guy from Jersey !

  7. pstas

    TOS- anyone else showing problems with Option Buying Power on their TOS software? Mine is showing N/A. I have contacted support @ TOS and they are looking in to it.

  8. judahbenhur

    Phil/AAPL.  Thanks for the suggestion Friday on the 185 puts.  Wish I’d sold more, but I was scaling in. I’m going to take the money I made there and buy myself an iPad.

  9. bord

    Cap/Phil/AAPL,
    I also am interested in AAPL too, I have Feb 200 long calls that are 75% covered with Feb 210 calls, as well as some April 210 longs that are 100% covered with April 240 calls. Ideas? I feel quite bullish and feel there will be a run up today or tomorrow, but I also don’t want to be too greedy.

  10. bord

    Cap/Phil/AAPL,
    I also am interested in AAPL too, I have Feb 200 long calls that are 75% covered with Feb 210 calls, as well as some April 210 longs that are 100% covered with April 240 calls. Ideas? I feel quite bullish and feel there will be a run up today or tomorrow, but I also don’t want to be too greedy.

  11. bord

    Cap/Phil/AAPL,
    I also am interested in AAPL too, I have Feb 200 long calls that are 75% covered with Feb 210 calls, as well as some April 210 longs that are 100% covered with April 240 calls. Ideas? I feel quite bullish and feel there will be a run up today or tomorrow, but I also don’t want to be too greedy.

  12. bord

    Cap/Phil/AAPL,
    I also am interested in AAPL too, I have Feb 200 long calls that are 75% covered with Feb 210 calls, as well as some April 210 longs that are 100% covered with April 240 calls. Ideas? I feel quite bullish and feel there will be a run up today or tomorrow, but I also don’t want to be too greedy.

  13. TmDecay

    It seems Phil has been a little testy after Scott Brown’s win but I am sure he will mellow out soon and focus us on his balanced investment advice and less on politics.   Phil believes in investment balance but not political balance but that’s human and like most of us.  For me I have decided to just ignore his political views since they are pretty much polar opposite of mine.  I do value Phil’s investment opinion and the other contributors on this site just as much.

  14. Pharmboy

    pstas – TOS is fine for me.

  15. TmDecay

    AAPL – I sold naked 180 puts Friday and if AAPL shoots up this morning I am considering selling naked 230 calls.  Maybe the naked 230′s are too risky but of late good earnings have not equated to a stock boost.

  16. judahbenhur

    Peter D, SS, Cwan, Balance, other stranglers (and Phil, of course).  I was wondering this weekend whether it makes sense to use the 2x and 3x ETFs for the crazy plays instead of, or in addition to, the SPX and RUT vertical spreads.  For example, would front month TZA vertical call spreads or TNA vertical put spreads be more effective in protecting the strangles and providing a payoff in the event of 5-10% corrections than does the RUT put vertical?  If we deployed the same amount of cash to a TNA put vertical as we do to a RUT put vertical, do we get 2-3 times the return?  (I’ve day traded 2x and 3x ETFs for a long time, so I’m aware there is some degradation in in the ETFs when the market just twitches day to day.)
     
    I don’t know the answer and I’m going to take a shot at backtesting, but I was curious as to whether any of you had ever tried that approach.  I may be off base, as this thought came about while I was re-reading Malcolm Gladwell’s old piece about Taleb and Niederhoffer titled "Blowing Up", which is in Gladwell’s collection "What the Dog Saw."  I thought then, as I usually do when reading Taleb or about Taleb--he’s partly right, of course, but why not just make money when the market doesn’t move dramatically while also protecting yourself/taking advantage of big downturns.  In other words, strangles with juiced crazy plays. 

  17. pstas

    TOS problem resolved- just gremlins I suppose.

  18. tchayipov

    Peter,
    I’m finally aproved for PM, and ready to try your creasy strangles, any advice to open it now?

  19. tchayipov

    Juda
    I think main consern is margin: if you have PM and use as a creasy hedge something else your margin will increase when market drop, but if you do it with the same SPX or RUT your margin will drop

  20. RMM

    Phil: I like to add a new DIA protective insurance: what should it be ?

  21. Phil

    Good morning!

    Plenty of levels to watch, anything less than a 1% bounce today is not good and getting rejected off the 1% line is not good either.  Europe is pretty flat ahead of us so far. 

    Bounce levels are:  Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625

    5% levles (very bad if they break) pretty much where we were on Friday’s close so just anything red is very bad for the markets. 

    So far, we are looking weak coming out of the gate with less than inspiring volume (if things are cheap, where are the buyers?) and no participation from commodities.  Gold was rejected at $1,100, oil still below $75, Nat gas at $5.70 (down .10 already), silver at $17.05 but copper is our star at the moment, up  a point at $3.37 but anything under $3.40 is weak now and $3.20 would be a critical breakdown for them.

    S&P 1,100 is a very good place to make bullish day trades from (using it as a stop line).  This bounce should be led by the usual suspects (Ags, energy, commodity pushers..) and WFR is already up 2.5% but most things are just hanging around so plenty of opportunity to make some plays.

    XOM is super cheap at $66.47, the high VIX (25.50) lets you sell the March $65 puts for $1.65, which is nice but the 2012 $60s are just $11.30 and do make a nice long-term hold as XOM is also a nice hedge on inflation or high oil prices.  The March $70 calls are now .65 and getting $1 for a 1/2 cover is a nice way to begin working off the premium.

       

  22. judahbenhur

    Tchay, Thanks, I hadn’t really thought about that.  I had been thinking that the PM calculation is based on positions in the same security class or product group, so that increases in the value of, say, a TNA put would offset decreases in the value of the sold RUT put.  But, I don’t know exactly how the calculation is made, I only know what I’ve read about it.

  23. judahbenhur

    JRW, Do you have any lines to share this morning?

  24. llorens

    what’s the opposite of a dead cat bounce? If I’m officially bullish then I would call last week a Healthy Cat Dip?

  25. morxlntway

    is PARD officially a doomed stock?

  26. morxlntway

    healthy cats land on their feet?

  27. ssdirk

    judah/Peter et al – I will have to investigate the 2x,3x crazy play.  As you know, I do sometimes use TNA/TZA as a day trade to protect profits on daily strangle moves.
    As a side note, I learned a very valuable lesson on portfolio margin and being overextended.  This weekend I had visions of a Black Monday happening.  When I looked at TOS Analyze tab at the -10% and -15% price slices for my SPX and RUT strangles I realized a margin call was coming.  I wore myself out this weekend thinking about this.  I thankfully received a gift this morning with this bounce and took advantage to scale back to where I can withstand the Black Monday event and be able to roll if necessary without having to sell out.  I feel lucky and hope others are not as foolish as I was.  If you have portfolio margin follow Peter’s rules about the # of contracts you can handle.

  28. EricL

    Weak so far — /ES can’t even hold over 1100. Sellers will step back in if we can’t get rolling soon.

  29. jburgess

    Phil, would you take a few seconds and explain the last sentence of your XOM trade? "he March $70 calls are now .65 and getting $1 for a 1/2 cover is a nice way to begin working off the premium. That would help me a lot thanks.

  30. Pharmboy

    XOM/jb – when/if XOM gets to 67.2, the $70 Mar C should be $1, where you can then sell 1/2 of your position.  So if you own 2 XOM 2011 C, you would sell 1 $70 Mar against it to reduce your price to 10.3.  Repeat.

  31. 1020

    Good Morning!
    An interesting comment from Pussy Galore on S.O.H.
    Secret Treasury "to do" list:
    1. Rally market to make public feel things are getting better; create capital gains. (done)
    2. Tank markets to create selling and windfall IRS revenues from capital gains to reduce deficit. (in progress)
    3. Make people so disgusted with the stock market, they pull money out and finally buy houses. (pending)
    4. Start recovery for real. (date to be determined)
     
    A bad market will create demand for treasuries and lower mortgage rates…….

  32. Phil

    AAPL/Cap – If they don’t beat big it will be very bad for the markets.  Estimates are for $2.07, which is just 15% over last year and I think they made that much on Apps alone.  There’s also the possiblity that they change their accounting and book the T revenues they’ve been putting off and that could give them a shocking run up, which would be great to sell into. 

    Aside from just selling puts at strikes you want to buy AAPL for anyway, I like the 2011 $190/240 bull call spread for $20, selling the 2011 $150 puts for $10, which puts you in AAPL at net $160 if they go below $150 and, otherwise, costs you $10 below $190 with a $50 upside payout possible.

    TASR/Cap – They could have Tasere’d me and I wouldn’t have cared…  I didn’t think we’d win anyway so it wasn’t too depressing but it just sucks to have the dream crushed like that.  It would have been easier if they didn’t look so good earlier on…

    Welcome D12!  PARD is a good one today, they got a bad phase 2 study and, frankly, I’m not sure where this leaves them but remind me later as I’ve already put out some feelers.  As a rule of thumb, we can assume an over-reaction and if you have the March $5 putter at $3, you could consider rolling them down to 3x the March $2.50 puts at .70 to capture that premium and hopefully do well on a bounce as it’s not likely this is a BK issue and, even if it is, you are only increaseing your overall risk by 50% to move your putters into $1 (total) of premium.

    TOS/Pstas – I’m good on mine.

    AAPL/Judah – Now THAT’s what I like to hear!  Hey, do I get a royalty for naming the IPad?  I’ve gone from being pissed they weren’t going to use my name for it to now wondering where’s my somethin’ somethin’…  8-)

    AAPL/Bord – I don’t like Feb calls at all as you have a boatload of premium that will evaporate fast.  You have a $10 spread that you paid what, about $4.50 for so you hope to make $5.50 and you are screwed if AAPL goes lower.  You can just sell March $180 puts for $4.50 and AAPL would have to fall over 10% before you DON’T make $4.50.  If it’s a margin issue, see above spread as it’s safer and you can adjust it.  Think in terms of earnings periods, even the Apr spread doesn’t cover you for another earnings period and that means you won’t maintain premium very well (and you paid more premium dollars than your caller).  You’ll notice that I take mostly bull call spreads that are IN the money and I sell the caller to wipe out 100% of the premium on the lower calls – taking out of the money or near the money bull call spreads is much more dangerous. 

    December Existing Home Sales down 16.5% and supply went up to 7.2 months again – BAD!  Now we’ll see what holds… 

    Thanks TM – I do value political balance and when there is a party that represents the interests of the left, I will support them too!  8-)   As to AAPL, ultra-high expectations are always risky into earnings.

    AMZN $118!  I’m actually worried about those damn short puts now…  Overall, it’s a  great problem to have after such a hassle on those short calls. 

  33. jburgess

    Pharmboy--thanks!

  34. RMM

    Phil: my 9:39 question please.

  35. pirateinvestor

    NO, being bullish is an Upward Facing Dog!

  36. stockbern

    RTH  April 85/95 put spread from last Nov. is finally showing some life

  37. ssdirk

    1020 – Last week I asked Phil the same exact thing about Gov Sachs tanking the market before March to creat ordinary income withdrawls as opposed to Cap Gains.  His response was "that would be devious."  I would not put it past them.

  38. 1020

    SS/G.S.  Devious yes, business as usual, YES! ;)

  39. judahbenhur

    Phil/iPad name.  Well, for about $300 you could have registered the mark with USPTO, and then APPL could have bought the rights from you.  (You would have also had to demonstrate intent to use in commerce, but that’s not hard.)  Next time, let me know and I’ll do the paperwork for you gratis.

  40. bassdad

    Phil,
    FDO 2011Jan 25/30 bull call.  Filled at net $3.05 instantly.  Planning on selling $30Puts for $3.70 or more.  Any thoughts or ideas Phil.

  41. judahbenhur

    Phil/Jets.  At the risk of making a non-trade comment…this season I turned my 8-year old boy into a Jets fan, as that was the age I became a Jets fan (1968 season).  I realize I’ve now exposed him to a life of grief.  High hopes for next year though.

  42. jomama

     juda – next year should be good for the jets – i think "sanchise" is the real-deal.

  43. JRW III

    judah,
    Good morning, I’ve got support at 61.58 and resistance at 62.50

  44. RMM

    Phil: how about entering these new option symbols into the trading forms ? pay attention, much work.

  45. Jtiff

    Phil-
    Do you think a buy-write for xom is a good move, or do you think the Jan 12 calls is a better move?  I’m new this month so sorry if my questions are a little green.

  46. craigzooka

     damn, Judah I should have done that.  If you have been to CVS lately they have a brand of crappy electronics called iCraig.  I feel like they owe me free prescription for using my name.  Or at least a bag of skittles.

  47. judahbenhur

    JRW, Much appreciated.  Think I’ll just wait to catch a TZA train today. 

  48. jburgess

    Phil, the table you put in todays opening article  discussing the 5% rule makes things crystal clear. Perhaps you could do it like that more often?

  49. craigzooka

    Does anyone know if TOS changed the intraday margin on e-mini futures?  It used to be 1k intraday if you have over 15k in an account.  I traded a contract today but it hit my buying power for 5k, which is the overnight margin.  Anybody know anything?

  50. Peter D

    Good morning folks,
     
    I’ve been busy adding short strangle this morning, so tcha, it’s a good time to add them.   March 900/1200 looks good.  Actually, when you can sell a PUT that is close to 20% OTM, with 8 weeks to go for $4.65, then it’s a good time to sell.  Feb 950/1170 (yeah 1170 seems low and is a gamble, but the market does look weak).  Same observation on the Feb 950 at $3.2, which is an excellent sell.
     
    judah/using ultras for the PUT vertical,
     
    It doesn’t quite work if you look at the spreads, as the vertical in the ultra does account for the fact that they are ultras and would move 2x or 3x as much.  For instance, for a 5% protection, the RUT Feb 590/580 is $1.7, while with TNA, you’d need to go for 15% cushion, which is TNA Feb  35/34, costing $0.2 (equivalent to $2 for a $10 spread).  TNA Feb 39/38 (5%) is $0.3, which is $3 for a $10 spread.  So the TNA vertical is more expensive than RUT vertical!   Remember that the margin on the ultras also increased to 2x or 3x, so it doesn’t give more return for using the ultras in the short strangles.

  51. 1020

    Craigzooka – My parents had a Craig 8-track player in their ’70 Dodge Challenger. :)

  52. Phil

    Ultras/Judah – Sure, that’s why I use them for disaster hedges.  Mostly the 2x, not the 3x although EDZ was my weekend disaster hedge on Friday, in case Asia opened down 5%.  Taking TZA at $10, for example, you can assume a 10% drop in the RUT will send them up 30% to $13 so the July $7/10 bull call spread is $1.20 on the $3 spread, which gives you a 150% return if TZA stays flat through July and TZA has to fall 20% (RUT up 7%) before you are below break even on the trade.  Of cours ultras are flaky in their movement so it’s not exact but couple that with the fact that, if TZA falls more than 20% then you can sell something like the July $6 puts (now .20) for $1 and recoup almost everything you laid out with a put-to price at $6, which is 40% lower than here and all you have to do is make sure you will make enough to offset this trade if the RUT rises more than 5% by July.    People try to make this stuff more complicated than it is but that’s pretty much all you have to do…

    DIA/RMM – I’m not too keen on adding here until we test and fail 10,300 but it’s just the normal rule that you want to initiate at whatever strike can’t be rolled up for .50, which would be the June $103 puts at $5.90 and, since we are a little bullish, it would be good to full cover with the Feb $102 puts, now $2.13 with a stop on 1/2 at $2.30 (pretty much if we break below 10,200).  Again, not too complicated..

    Dip/Llorens – I think George called it shrinkage – perhaps the market was just in the pool

    PARD/Morx – Not looking good at the moment. 

    # of contracts/SS – Very good and IMPORTANT point!

    XOM/Jbur – We’d like to sell those calls for $1 as a 1/2 cover but they are now at .65 so we have to wait for XOM to move up so we have to take the Leap on faith and wait for a chance to cover.  Oh, and what Pharm said! 

    Bad market/1020 – I don’t think "THEY" have packed up their toys and gone home just yet.  Weak hands were shaked out of posiitons and bearish bets were paid off, that’s exactly what does happen before you break critical levels and the only thing that was bothering me as we broke our upper levels was that we never had a proper test of 10,200.  Well, here it is and that was proper volume last week.  I’ll get cautious again at 10,700 and downright worried if we drift back up there on low-volume BS but I would LOVE it if we drift along here (10,000-10,500) through earnings to finally consolidate a bit.

    RTH/Stock – Even a broken vertical is right once a year or something like that…

    IPad/Judah – I hate people who do that but sure, let’s be those people next time!   You would think after having to wrangle with CSCO on the IPhone that AAPL would have registered out IPad or "Slate" way in advance.  I could not believe it when Ballmer started calling his tablets "Slates" but, then again, maybe that’s just what Jobs wanted – for MSFT to think they were going to use that awful name and then saddle MSFT with yet another terrible product name that they will waste Billions trying to build a brand on and never give up because Steve is such a tool.  Now THAT’s devious!

    FDO/Bass – If you filled instantly you overpaid (rule of thumb).   With so long to go, you can be patiend and wait to see if there’s a dip so you can sell the 2011 $25 puts naked for $3 or better.  If there is no dip, you don’t need the sale as you’re on track to make 40% without being fancy.  FDO is up 100% from Jan ’08 but I do think they are worth it, perhaps I’d feel better after they re-test $27.50 but it’s possible they never will. 

    Grief/Judah – I’ve enjoyed them for the most part but I do admit I also like the Giants so I have another outlet for the occasional big game wins!   Jo is right and I’m very excited about the Sanchise (good word!), especially when we start picking up some drafts to build around him. 

    New options/RMM – This is another reason to switch to TOS or some other trading platform that doesn’t make you use symbols.  It was kind of a big deal before but there is NO WAY I would use a platform that makes you use the extended codes.  Aside from the time it take enter – the chance of typos is tripled.   WSS needs those codes and that’s one of the reasons I lost interest in trading there.

  53. yodi

    zion going down -0.61 now 17.04

  54. judahbenhur

    SS, Good cautionary note.  The genesis of my earlier post was a similar thought (that is, thinking about people who blew up, like Niederhoffer).  And so, I was thinking that if structured properly, TNA/TZA might offer better protection against the sold puts, which would allow us to take the profits of any dramatic downward move, buy back the puts and pocket the difference.  I love the strangle plays, but I’m still playing with different combinations on a relatively small scale, looking for the combination that allows me to continue to sleep soundly nights and weekends when I decide to scale up.  (Similar to the reason I never carry my day trades overnight.)

  55. Cap

    Jets had a nice run; but face it; they were a 9-7 team w/ a strong D and good ground game that either worked or was 3 and out.  If Indy hadn’t laid down for them; they wouldn’t even be in the playoffs.   That said; their future looks brighter.
     
    The Colts; and Peyton Manning … too good in the end; Jets gave ‘em a good run in 1st half.
     
    You can avoid the SOJ torture; become Packers fans !  We do have our own elements of torture; including very hard to swallow playoff losses to the Giants in 2008 and the Cards this year, and Favre on the Vikings.  But exciting team w/ good young QB and exciting passing game. 
     
    Believe me when I tell you I suffered as much as any Jet fan growing up until the 1996 super bowl and the era of Holmgren/Favre/Reggie White / Sterling Sharpe.

  56. ssdirk

    Judah – as my wife will admit, I took a grain of sand and made a mountain in my head.  I’m glad I got a reprieve and was able to correct my mistake.  Sleeping at night is extemely important.

  57. Peter D

    ssdirk/margin,
     
    You are correct on seeing the margin going through the roof.  I did some investigation in the weekend to see what’s going on, and found that the Rate of Increase in VIX was causing all kinds of problems.  It made the exchange algorithm that calculates the options value went crazy.   How do I know?  I looked at the SPX Mar 875 and saw that its value jumped to $5.25 at Friday’s close, and that’s not normal.  How often can a 20% OTM PUT would worth $5.25 with 8 weeks to expiration?  It’s a good chance in many months to sell additional short PUTs. 
     
    Then I looked at the escape routes and found many of them.  At Friday’s close, you can roll 2X and 5% down for a credit, which is unusual also.  SPX Feb 1000 PUT is $7.9 and 950 put is 4.55 (2X of the 950 is $9.1).  So we know that we can roll 5% down (roughly the entire move down from the peak of SPX 1150), and double the contracts and still be okay.  So instead of rolling, I added the SPX Feb 950 short PUT and 1170 short CALL first, then roll the Feb 1000 short PUT later.  This morning, CBOE must have recognized their errors in calculation the options value as the 950 putters lost $1.35 and 1000 putters loss $1.75.  Some of that is due to the lower VIX, but I’m sure some are due to the errors in the calculating rate of change of VIX.  Anyhow, it’s good to take advantage of it.
     
    Now, for others who sold PUTs in the past couple of days, you are much better off this morning.  If you buy CALLs, you’d need to take corrective actions because, a) it’s very hard for the market to come back to the high, as there are too many sellers just waiting to sell their longs or starting the shorts, b) VIX works against you on the way up, and c) time is not on your side.

  58. EricL

    Looks like the gap fill and retest of Friday’s lows may hold. I don’t know about the rest of you, but I’m looking and hoping to see a move up to the 1115 area on the SPX (1110 on the /ES), at which point we’d be near the 50 MA and also come into overhead resistance. That’s where I’d plan to get out of longs purchased late last week.
     
    It will be tempting to short there too, if we make it that high.

  59. llorens

    Haha Phil – "It shrunk?"…."like a frightened turtle". Or as a funny comedian (Craig Shoemaker) once said "like a button on a fur coat".

  60. EricL

    I meant "Friday’s close", not the lows.

  61. microflux

    Morning Phil;
     
    You still like the WFR March 13 puts sold for .80 ? im trying spend some cach this morning. between the buy list and the weekend wrape up what do you like the most now ? thanks. by the way thanks for the member discussions on the weekend. did you start the title insurance Co. yet ?
     
    David

  62. EricL

    Almost tempted to short GS here. What a pathetic bounce.

  63. tchayipov

    Peter,
     
    for march 900/1200 which put spread you recommend?

  64. Phil

    Platinum rallied 57% last year, but analysts still see plenty of upside as platinum becomes the metal of choice in the recovering auto industry. (ETF: PPLTI almost agree with this, Platinum is worth watching if China keeps stimulating.

    Dallas Fed goodJan. Dallas Fed Manufacturing Outlook: Business Activity Index 8.3 vs. 3.2 the month before. Mfg. Production Index 7.4 vs. 0.1 prior. New orders, shipments and capacity utilization also showed improvements.

    The SEC may adopt an alternative uptick rule next month, curbing short sales if a stock falls 10% in a day.

    Dec. Existing Home Sales: -16.7% to 5.45M, vs. expectations of 5.78M. Months supply rises to 7.2. NAR’s Yun: "Job creation is key to a continued recovery in the second half of the year."

    Speaking of walking away from bad real estate:  One of the highest-profile deals of the real estate boom thudded to an end today as Tishman Speyer Properties and BlackRock (BLK) turned over their massive NY project to creditors. The two had paid a record $5.4B for the Stuyvesant Town and Peter Cooper Village complexes.

    Playing up his recent populist turn, Obama plans to announce today a package of new initiatives aimed at helping middle-class families, including changes in tax credits, 401Ks and student loans.

    Ahead of the Q4 GDP estimate due this week, economists forecast the economy grew 4.6% last quarter, more than double Q3 GDP and the fastest pace in almost four years. But this eye-popping GDP number is likely to be a one-off, as sources of sustainable growth are still struggling.

    Bankers head to Davos ready for a fight, with plans to lobby for softer bank reforms and a different regulatory approach for too-big-to-fail. But with bankers in a weaker negotiating position now than in the past, it’s unclear just how much their lobbying will achieve.

    Let’s simplify the criteria for judging the Obama banking restrictions. Simon Johnson asks: Does the plan result in breaking Goldman Sachs (GS) into at least four pieces? Or does it come to gingerly repainting deck chairs on a sinking ship?

    China’s GDP will probably grow 9.5% in 2010 on the back of strong domestic consumption and corporate investment, a state researcher said today, while the headline CPI is expected to rise 3% at most. (ETFs: PGJ, FXI)

    U.S.-China tensions are still high following the ‘Google affair.’ Less than a day after asking China to investigate the cyber-attack, Chinese officials issued a statement urging "the U.S. side to respect the facts, and to stop using the so-called Internet freedom issue to make groundless charges against China."

    "Any accusation that the Chinese government participated in cyber attacks, either in an explicit or indirect way, is groundless and aims to discredit China," said Chinese officials this morning. As for internet censorship, the practice is legal and other countries should butt out of China’s domestic affairs.

    If you’re trying to get a handle on the business environment for U.S. companies operating in China, Google (GOOG) is the obvious, but wrong, example. Take a look instead at 3Com (COMS) and H-P (HPQ).

    "Strategy, as we knew it, is dead." Business execs are rethinking how they make key decisions as companies pick up the pieces post-crisis.

    After the VIX’s big three-day run last week, investors are doubling down on expectations of more volatility, pushing VIX call options to a 19-month high.

    IntercontinentalExchange (ICE) +3.6% early on after Deutsche Bank upgrades shares to Buy, citing favorable volume trends and opportunities for ICE’s new OTC business. "Volumes at ICE have started out the year strong, particularly in energy and agriculture, while industry equity volumes have been sluggish," firm says.

    Speaking of discount stores:   Wal-Mart’s (WMT) warehouse club unit Sam’s Club will cut more than 11,000 jobs, about 10% of its workforce. While sizeable, Sam’s says the move is strategic rather than cost-related, with 10K positions moving to a U.S. outsourcer.

    Union membership in the private sector fell 10% in 2009, roughly on par with the total fall in employment. But since unions don’t necessarily regain members when jobs start to return, the decline could seriously damage labor’s ability to influence legislation

    Wednesday might bring more than the much-rumored Apple (AAPL) tablet. Sources say Apple also plans to announce it’s ending its iPhone exclusivity contract with AT&T (T).

    Paul Lim sums up the three main risks facing U.S. investors in 2010: Earnings risk. Valuation Risk. Policy Risk.

    Floyd Norris notes the sharp pullback in China’s investment in Treasurys – and that the increased debt burden isn’t only falling on Hong Kong and Japan, but increasingly on American shoulders.

    Like any heavily weighted index, the dollar index is easily set up for a violent accident – and Lance Lewis puts together the pieces for a reversal that could be triggered by the Fed Open Market Committee next week as much as anything.

  65. jburgess

    Pharm- if I ever catch on the to abbreviated option trader dialect, I’ll really be able to make some money!!

  66. Cap

    GOOG gettng crushed — 537

  67. jcmcn5

    Is RUT sending us a message?

  68. mrmocha

    Phil, did you see your buddy Cramer predicting a thousand point drop if Timmy or Ben leave?

  69. Pharmboy

    jb – best to just sit back and paper trade for now.  I am not convinced of any thing for now. 
     
    On the gambling front, VIAP is 17c.  Play money only.  GNBT is also a nice @ 61c, but more expensive play money.   Looking for $1 for each.

  70. judahbenhur

    JRW, SS.  Well, IWM bounced like a rubber ball off its 50 dma.  I’m still sitting tight.

  71. pstas

    DIA- trying to look ahead a bit here – if we stay in this range , say 10150 to 10,300 into the close; what does the magic 8 ball tell you to look for on Tues? As we seem to be stuck in the middle I have been hesitant to pull the trigger on adding June puts as per the discussion over the weekend.

  72. ssdirk

    judah – yeah, something smells fishy about this action.  It doesn’t feel sustainable.

  73. Peter D

    tcha, any March PUT vertical that you like and cost $1.2 to $1.8 to buy.  Do check out the surrounding verticals also.  Sometimes, as soon as we specify the strikes, the price moves as some of us would put in orders and due to the low volume on SPX and RUT, price can get distorted easily.

  74. cwan120

    SPX RUT stragles / ssdirk -
    Thank you so much for sharing your "Black Monday" dream with us.  I had a question last Friday night.  No one answered my question.  The question is quite related.  My question was "by now I deployed about 85% of my ammo, assuming $20,000 per SPX strangle reserve.  Do you recommend that I deploy more?  If I pair each strangle with a put vertical, does it mean I can deploy a little more?"  After your "Black Monday" dream, I think I should be careful not to go beyond our established rules ($20,000 per strangle reserve).
    So, I am wondering how much % ammo you deployed before your dream?  And what’s your % now?

  75. Phil

    XOM/Jtif – If I were MORE bullish, I’d go with the buy/write but, as the moment, I see the 2012 as a good entry ahead of earnings because they are WAY cheaper than doing a buy/write (and cash is king right now) and, if they do fall, we can roll down $10 for $3.50 (the cost of the roll from the $70s to the $60s) and I can’t imagine not wanting to own XOM at net $64.80 in 2012.  The main point is that, from $50, we still have 24 months to sell premium and should be able to work off .25 per month or about 1/2 the cost of the Leap so now we’re taking owing XOM at net $57 which is about as low as they spiked in Nov ’08.

    Table/Jbur – Glad that helps.  I do those tables when the market moves.   We’ve been in such a range for months it hasn’t come up, all we did was print the same levels every day… 

    Margins/Craig – I did hear something about Futures margins changing but I didn’t think yet.  Let me know what TOS says if you talk to them.

    Packers/Cap – Not to mention the cold!   There’s one home stadium I do not want to be at…

    Gap/Eric – I agree, this is so lame so far that a move up now would seem more like a chance to reload shorts BUT volume is a respectable 87M at 11:24 (about 40% over bot levels) so I think we have to respect the possible consolidation move.

    Shrinkage/Llorens – I think we may have a brand new market metaphore to play with!

    WFR/Micro – Yes but I like them as a long-term entry to WFR, not nec. just a trade.  I don’t like much right now to the bull side – Friday was full of possiblilities but now they need to prove out the positions we picked up last week before I want to start new ones.  On the title front – I have been having a series of VC meetings and I’m not in a hurry as I now doubt there is urgency to catching a market bottom this year. 

    Message/Jcm – I don’t think so, I think they are just more reflective of investor panic than the majors although if the Nas joins them below Friday’s lows then that’s a downside tradable trend.

    Cramer/Mr. M – Wow, that’s crazy.  I would love that if it happened but it depends on how the Administration handles it more than anything.

    Sitting back/Pharm – Very good plan!

    U.K. PM Gordon Brown says his government won’t cut spending in 2010, while rival opposition leader David Cameron warns the U.K. could face a Greek-like crisis if it doesn’t move quickly to reduce its bulging deficit. (ETF: EWU)

    The Fed looks ready to follow through with its pledge to exit the housing market, ready or not. Most Fed officials say they’re confident the withdrawal will lead to only a modest rise in mortgage rates, but some policymakers are worried the economy’s still too fragile, while others think the Fed’s making the classic mistake of taking on too many New Year’s resolutions.

  76. ssdirk

    cwan – I’ll get to your question in a moment.  Things look to be heating up a bit.
     
    JRW/judah – ready for the TZA train? 

  77. tchayipov

    Peter thanx,
    any recommendation about RUT?

  78. daveo

    Mattress Plays:
    Phil,  here is what I have ended up with:
    1/2 Long June 103 Put (cb 9.27) now 6.15
    1/2 Long June 109 Put (cb 12,70) now 9.8
    1/2 Short Feb 102 Put (cb 2.04) now 2.40
    1/2 Short  Feb 104 Put (cb 2.06) now 3.45
    The cost-basis on the longs is so high as I have been adjusting based on losses on the long calls I took last week that failed miserably. 
    The June 109s hit 10 on friday so I’m planning to roll them to the June 103s or 104s if they drop to $9.  Any suggestions on the short end?  Should I just close out the Feb 104s?  Thanks

  79. ssdirk

    cwan – as Peter said, something did seem a bit strange with the margin requirements this weekend.  In any case, in regards to the $20K per contract rule I was way, way overextended by about 2.5X.  A 10% move down today would have forced me to liquidate in order to meet margin requirements.  I am now in line with the the 20K rule and can now withstand a much larger correction with no problem.  My current margin requirement is around 10% of my overall portfolio balance.  So I have plenty of firepower left.
     
    Peter – when you are fully invested in your strangles what is your margin requirement as a % of your total portfolio balance? 

  80. 1020

    Phil/Packers  Lambeau may be cold, But it’s an excellent place to watch football. The crowd, the tailgates, the brats……

  81. EricL

    I think you’re right Phil, this looks like consolidation. I wouldn’t short here unless support breaks.

  82. judahbenhur

    SS/TZA train.  Still waiting.  I’ve been hoping it would return to this morning’s open, when the people who bought into a bounce back rally would quickly get off.  I’m only looking at TZA today.  Last year, when I was day trading DXD/DDM off of DIA, I would only trade DDM when the DIA 5 dma was pointing up and DXD when the DIA 5 dma was pointing down, either one when it was indeterminate.  Not much question which way we’re pointing today.

  83. llorens

    I’m going to call now that AAPL will shoot up very soon AND after earnings. Too many people now on the "Short Term Pullback" bandwagon. I would expect a pullback if a higher ratio of analysts predicted a big run up after earnings.

  84. llorens

    I remember shorting AMZN when it hit $110 after earnings. Here comes the pullback. Here it comes now. Aaaanytime now. Oh crap I better cover.

  85. ssdirk

    cwan – more background to how I got so over leveraged.  When the vix was so low I was looking to achieve the 4-6% per month that Peter talks about.  With the premiums so low I sold all of my firepower at once instead of scaling in.  As Phil said I had become comfortably numb.  When the vix shot up with the selloff I went a little crazy selling more strangles to DD while not paying attention to margin requirements.  I first looked at it on Saturday and kinda freaked out.  I am lucky to reverse my error for a profit, but it could have been ugly.

  86. ban2

     Phil
    FAS  April 68 puts selling for 9.95. Good for a possible stick play ??

  87. ban2

     oops meant April 69′s

  88. oncmed

    Peter,
    Why do you prefer SPX over SPY given the euro style and wide spreads?  Thanks…

  89. Peter D

    tcha/RUT,
    It’s an easy pick today.  RUT Feb 520 PUT is $1.95, which is great to sell.  It’s 15% OTM, and there are less than 4 weeks left.  The callers can 670 or 660 if you are more adventurous.   More March, add another 4%-5% cushion on each side.

  90. craigzooka

    I found out the situation with the TOS  futures.
     
    If your account dips below 15k then they take away the intraday rate.  But they dont automatically give it back if your account goes above 15k.  You have to contact them.  But TOS support took care of it in 30 seconds for me.  Damn their good. 

  91. Peter D

    ssdirk/margin,
    Usually in the 10-15% cash used if it’s close to the middle and low VIX.  It varies lots depending on where the short strikes are.  The closer to the money, the margin for SPX would approach the 8%, so the cash used would be 40%.  It’s 10% for RUT, so cash remaining is 50%.   So when we double down, look to exit the additional spreads as soon as you are ahead on both spreads, or aggressively looking for rolls to reduce the margin requirement.

  92. Peter D

    oncmed/SPX versus SPY (repost),
     
    SPX/SPY, I don’t see a difference in margin when trading SPX and SPY.  The main differences are:
    - SPX Bid/Ask spread is usually wide $1 or more (cons)
    - SPX volume is much less liquid than SPY (cons)
    - SPX requires 10x less in commission for the same amount of dollar invested (pros).  As the option value is 10x larger, SPX supports wider strangles.  For example, we’d get $1.4 for selling SPX Nov 880 PUT, but only 14c for SPY 88 PUT, so not worth selling SPY 88 as commission will eat up a large portion of the spread.  If you have Portfolio Margin, the margin for wider strangles are much less, so you’d have less cash tied up in margin.  To make it short, SPX favors Portfolio Margin spreads as you can get a high percentage return and take less risk with wider strangles.
    - SPX is a cash settled option, so there is no stock is put to or called away from you prior to expiration (big pros)
    - SPX expiration is a day earlier than other options (neutral)
     
    When we are dealing with 200 SPX spreads a month, you’d see that having 2,000 SPY spreads is not quite feasible in terms of commission (although our brokers would love us to use SPY).

  93. judahbenhur

    Cap/Pack.  My first football loves (before Namath and the Jets) were Bart Starr and the Packers.  I remember the Starr qb sneak in the snow against the Cowboys (or maybe I just remember watching the replays).  They’re still the only NFC team I root for.  Also, I didn’t mean to imply that introducing my boy to sports grief was a bad thing.  I think it’s healthy.

  94. EricL

    LOL Peter. I’m not sure who ‘we’ is, but I doubt too many others here are trading $4m positions in SPX options alone.
     
    Bank stocks recovering a bit.

  95. EricL

    First time I’ve been nicely ahead on both my regional bank longs and KRE shorts in the same day. See how long it lasts.

  96. EricL

    I know you scale in and out of those Peter, but I bet 200 SPX contracts is more than the MMs have on offer at a given time at a strike. Just think you could actually move the VIX (for a second, anyway).

  97. biodieselchris

    GOOG … 2 Mar 580c at 9.70, -2 Feb 580c at 4.50, and 15 shares (bought last week at 579.67) …wish me luck …

  98. Phil

    Mattress/Daveo – It’s not about closing, per se, as it is about setting stops.  We expect a bounce to 10,300 – at around 10,250+ you need to just keep a tight reign on those $104 puts and look to buy them back if we get rejected and head lower.  You can always sell something else if you are wrong (and the $103 puts have more premium).  If we break down lower, you need to consider a DD on the $109 puts to drop your basis to $11.50 ish and looking to get 1/2 back out even for a quick way to drop your basis (or you could just roll the whole June $109 position down to $101s and take $4 off the table, which is 1/2 of what you’d add to DD.   Just keep in mind our expected range, which is right now the 5% rule at 10,165 (the exact number from the drop from 10,700) and back to 10,300 so you have 135 points to work with UNTIL it breaks.  The other key to playing like this is you have to know when to fold ‘em and, if your range is broken, then it’s time for a new plan!

    Lambeau/1020 – Oh, so I hear but I won’t even go to the Meadowlands when it’s freezing.  I can ski all day and still choose to eat lunch outside and go out in an outdoor hot-tub later but something about sitting on my butt in a stadium in sub-zero temperatures just doesn’t appeal to me. 

    AAPL, AMZN/Llorens – LOL, I’m not sure it will be the same as no one expected AMZN to put up those numbers and there were lots of analysts who flipped their opinions to boost the stock.  AAPL is already expected to grow earnings 20% this year (year ends in Q3) and 20% next year and they have surprised by about 23% for the last 4 quarters so it will take roughly $2.50 EPS vs $2.17 officially expected to "surprise" people to the upsde.  Like I said earlier, they can double their earnings with the stroke of a spreadsheet because they are not recognizing Billions from T and who knows how they book App revenues.  What I do know for a fact about AAPL is the more they sell off, the more I want them!

    FAS/Ban – As a quick trade it’s fine but we haven’t gotten away from the possiblity that you could wake up to a major market meltdown and you can get buried very fast (think avalanche) if something goes wrong in the financials overnight.

    I’ve been playing ACOR, who just got an MS drug approved and the long calls just pulled back sharply in price.  I like them on the Apr $30s at $1.60 as the company hasn’t priced out the drug yet but it’s expected they’re looking at $1Bn annual sales and they are already high cash and low debt so at just $300M in profits, they are worth $2.5Bn to PFE or MRK (current cap it $1Bn).

    Green shoot!  After a flat reading in December, Discover’s Small Business Watch rose 8.5 points in January to 85.5 – the highest level of confidence since October. Now 29% of small business owners say condititions are improving, up seven points from last month, while 43% see conditions getting worse, down from 52% in December

    The White House unveils proposals from its Middle Class Task Force, featuring a set of tax credits (including nearly doubling the dependent-care tax credit for families making under $85K), capping student loan payments and creating an automated-IRA system for workplaces.

    DIA $105 calls are a nice upside momentum play at .78 but out if we can’t crack 10,250 by 1pm and then using that as a stop.

  99. judahbenhur

    Peter. Always look forward to your posts.  When you have a second, I’d like your view as to any unmanageable downside risks of the strangle/crazy play.  For purposes of  your answer, assume a knowledgeable investor who is careful about leverage.  I’ve been invested in the markets since my grandfather bought me SLB stock in the 1970s, so I’ve lived through plenty of different types of markets and I don’t get overly concerned about sudden downturns.  I guess the real question behind my question is, assume you protect yourself with crazy plays (or the crazy ultra plays I wrote about earlier), what does Peter D worry about?

  100. oncmed

    Peter,
    Your thoughts on Optionshouse where there is a flat fee of $10, no matter # of contracts?  …used to be 9.95 flat w/ no per contract fees and im grandfathered in….why don’t / didn’t you guys get in there?  Any drawbacks to them?  Thanks.

  101. Phil

    Man I love our little network!  Per the discussion in the weekend post about walking away from mortgages, here’s a whole paper on the subject from the U of Az College of LawDespite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

  102. 1020

    Phil/Lambeau  I would not know what a cold day at Lambeau is like. The worst I’ve been in was a thrashing of the 49ers at Candlestick, in the rain. It was a beautiful day! :)

  103. edro00

    ONCMED
    Optionshouse recently changed their fee from the flat fee structure:
    "When you trade at OptionsHouse, you not only get one of the lowest, most competitive rates available, you also get the flexibility to pick the rate that works best for you. Trade less than 10 contracts? Then pick the Up To 5 for $5 rate where your first five contracts are only $5. Trade over 10 contracts? Maximize your value with our low $8.50 +.15/contract rate. And best of all, you can change your rate when your trading behavior changes."
    Also, it is hard to download end-of-year data for your taxes.

  104. jburgess

    oncmed/OH commissions-- have been with OH for some time. Don’t know anything about being grandfathered. But, as of a month or two ago, commission structure changed. They automatically switched everyone to 8.50 +.15/contract. Unless you opted for $5 for 5 contracts. I wasn’t happy with the change b/c of liked 9.95 unlimited, but what the heck, they still provide a great service for the $$

  105. Cap

    Judahbenhur — Been a Packers fan since those Bart Starr days.  But actually my first football memory was the Jets Super Bowl III.  Think I was about 7.  My friends and I all had hand painted Jet t-shirts.  Mine was Emerson Boozer I think.  But other than flirtation with the Jets that year; been a Packers fan ever since.
     
    Lambeau is way cool.  I finally went to a game there in Nov 2007; had a blast.  Was only about 40 degrees.  I would never go in December or January, and I also would not go and sit in an indoor box.  The whole scene there is very unique.
     
    Football games anywhere on a real cold day are not worth it as a fan.

  106. oncmed

    Edro00,
    Yea, they changed their tune and got greedy….they used to have a whole spiel on their website on how the exchanges don’t charge per contract, so the broker was inflating fees for the customer by making up the per contract fees..that’s why they had a flat fee, but im am grandfathered…..u have any other negatives?  Thanks.

  107. oncmed

    jburgess,
    Actually, one of the major drawbacks for me was the service….bad….but I don’t really contact them much as I use all other platform for trading data and decisions….i just put the final trade there..

  108. jcmcn5

    Phil — are you a buyer of the DIA Feb 105 calls?  I just got a notification that you sold them in WSS?

  109. Peter D

    Judah/worry,
     
    What I’m worry about is to have a large Positive Delta and seeing a -5% in the futures!  Other than that I think I’ve done my homework on the maximum drops in any period of time, and have the crazy plays and position sizing to counter those.  As you have seen in the past few months, having reserved cash means we can roll out of most if not all of the situations.
     
    oncmed/optionshouse,
     
    I don’t have any opinion as I don’t have an account with them.  As we all know, I’m happy with Thinkorswim as their trading platform is great and I can roll my positions in just 4 clicks.
     
    Alright, gotta go to meetings.  Later folks.

  110. stevenparker

    Market Internals update at 12:00pmET – NYSE volume 460M shares, about 8% below its three-month average; advancers lead decliners by 1.3:1. – NASDAQ volume 1.07B shares, about 16% above its three-month average; decliners lead advancers by 1.1:1. – VIX index -4.45% to just over 26.00

  111. Phil

    Oh well, that time the DIA play didn’t work.  Maybe try again at 2:30, which is the next most likely stick time.  I’ll be interested in the $104 calls if they get to $1 or less (now $1.13).  Overall, though, we got rejected off a 1% bounce and this was just a weak attempt to take it back – will not look good if things stay this way.

  112. jburgess

    oncmed
    so what software/platform are you using for decisions and data? Thanks

  113. bord

    re: "perceived consequences," on walking away from mortgages. doesn’t that trash your credit rating for a long long time? that’s what I have been led to believe. Is it not true?

  114. pstas

    DPO- for you yield hogs out there- oversold a bit with the downturn. Pays monthly – 10% annual – even after the recent dividend cut. I just added to position @ $9.60.

  115. Cap

    These CNBC bozos Tyler Matheson & Leesman badgering this Congressman Ed Lewis for being opposed to Geithner is pathetic.
     
    Did Immelt pass the word ?  Must … support …. Timmy …. ??

  116. gel1

    Bord:
    On a forclosure, your credit rating is impacted negatively for seven years, on a short sale it is two years. FWIW

  117. gel1

    Phil
    Would this be a good time to consider a Buy/Write on ISRG? I sold all my ISRG positions on Friday, and am now lonely for it.

  118. oncmed

    jburgess,
    ..basically, Schwab SSpro along w/ TOS.  Y not use the best and trade for less????

  119. edro00

    Optionshouse
    About the only negatives I can think of is the hassle of getting the end of year trade summary, I wind up getting it as a .csv file I have to import into tradelog
    and
    When you add money to your account through an ACH transfer you can’t use it for three days.

  120. oncmed

    edro00
    ..have you tried the maxit?

  121. Phil

    [HomeSales_AC]WSS/JCM – Bought and sold already – as I said in the note here (and I post here first) it was only a look-see with a 1pm deadline in case we broke out.  We didn’t so the trade is done.

    I hope everyone knows where their local State of the Union Watch Party is on Wednesday

    Credit rating/Bord – It depends on your state but it’s not like a BK and not being able to pay your other bills trashes people’s credit ratings too.  If you were in B-school and the quesiton was:  You have a $500,000 home that is worth $300,000 but you are paying a $420,000 mortgage on it and carrying 18% credit card debt as well.  Should you A) Get another job and keep paying or B) Walk away from the home, get a home you can afford and pay off that and the CC debt or C) Just go deeper in debt until you go BK?

    Immelt/Cap – Who else is going to back the free money train for another year? 

    ISRG/Gel – They are still crazy expensive and I don’t think the optios risks justify the rewards being offered.  On the whole, I’d be more comfortable with the 2011 $300/380 bull call spread at $40 with a 100% upside and, if they head lower, you can always sell something like the $300 puts (now $28) to cover the cost of your spread.  On a good run you you have $40 in and $40 coming and you can already sell March $370s for $5 so 8 of those sales and you are coverd on the leaps.

  122. edro00

    ONCMED
    I use Tradelog because most of my trades are with Fidelity and Maxit is not compatible with Tradelog

  123. gel1

    Damn… got stopped out of GOOG. 1020 and Pussy Galore were right – my profits are now taxed as short term gains.

  124. oncmed

    edro,
    ..can you explain why you pay more to trade w/ Fidelity when you have OH?  ….just curious…thanks.  BTW I use log also.

  125. chenboy83

     Hi Pharm,
     
    Looks like ARNA’s down a chunk today.  Anything happened recently that would change your long term outlook for them to eventually get bought out at a higher price?  I have some at avg price of 3.7, looking to pick up some more, probably writing some MAR 3 puts.

  126. edro00

    Fidelity
    I negotiated a 30% discount based on my trading volume, and if I did change it would be to TOS.
    Fidelity does not have Portfolio Margin, don’t know about OH

  127. Pharmboy

    ACOR/Phil – careful with them. Their drug does not slow the progression.  I think they are over hyping that one.  NVS drug may take the reigns on that one from all (Fingolimod (FTY720)) and I still like BIIB for it as well (although BIIB has EU rights to ACOR’s drug).

  128. Pharmboy

    ARNA/Chen – good plan.  Someone is gonna buy them on the cheap.  OREX and VVUS are still valued way higher on drugs that are already approved.

  129. japarikh

    Phil,
      I’ve got 20 EDZ Apr $3 calls at $2.20, 10 GLL Apr 10 calls at $0.66, and 30 SRS Apr 8 calls at $0.93. My question is should I sell to raise more cash (not up much on any, but up at least) or roll/add to positions (since these are good disaster hedges). I haven’t seen these positions in the green in a while so I’m just a bit anxious. Thanks.

  130. stjeanluc

    Interesting article posted at Daily Option Report
    http://www.cxoadvisory.com/blog/external/blog1-22-10/

  131. judahbenhur

    Whitacre/GM.  Years ago, when Whitacre was CEO of Southwestern Bell, he got the board to agree to move the headquarters from St. Louis (where it had been for decades) to San Antonio.  If GM ever starts to turn around, I’m guessing they’ll be moving their HQ to Texas.

  132. RMM

    Phil: my feb  puts102 went from 2.36 to 2.10 , what do expect the market to do to finish today ?

  133. jburgess

    Phil, still have the CMCSA stock (17.42 cost), and short the Feb 17 straddle sold at 1.37. What adjustment would you suggest. You were right, should have dumped the stock!

  134. cwan120

    ssdirk – Thank you so much for sharing your strangle experience with us.
     
    Whoa, I saw you, along with judah and JRW, are having a lot of fun!  Strangling SPX & RUT to slow deaths is not exciting enough, you folks simply have to have more fun scalping skins off of TNA/TZA.  Geez!  Be careful of The Great Revolution of Proletariat!
    8)

  135. japarikh

    Phil,
      I, like many of us, are in a deep hole on PARD. An analyst today reports that PARD only has enough cash to go through mid-2010. I’ve got PARD at $7.5 so I’m trying to figure out the best way to play a possible BK vs. acquisition. Here is what I’ve come up with:
    Buy June $2.50 calls at $0.35 and sell Jan 2011 $5 call for $0.35. This would be a free way to recoup the loss on PARD if they get funding or get bought.
    Appreciate your input. Thanks

  136. JRW III

    judah,
    I bought TNA at about 11:45, dull so far; are you still waiting for a TZA play ?

  137. judahbenhur

    JRW, Yeah, I almost got on then, but I’ve been on the sidelines. I was looking for an opening pump up to 42.20 or so to get on TZA, so I was surprised at how week the open was, and then I thought for a few moments about playing TNA off the 50 dma, but let it go.  So, I’ve just been indecisive all day on an entry, which is usually a good reason to sit it out.  Been thinking about Mr. Stick, though.

  138. EricL

    Apropos of walking away, I thought this was a good discussion, along with the linked earlier piece on strategic default:
     
    http://www.interfluidity.com/v2/410.html
     
    One of the things that makes it good is that the author rightly connects the issue with the Milton Friedman-inspired ideology that has come to dominate business ethics, and draws the conclusion that insisting that mortgage holders not walk away involves a absurd double-standard, especially in non-recourse states.

  139. jlui_tx

    Phil, What do you think about the us dollar trend near-term? I bought UUP Mar $22/$23 bull calls spread for $0.55. Should I just cash the profit now?
    thanks

  140. cwan120

    RE OptionsHouse,
    Two more negatives against OH:
    (1) I talked to someone at OH in Nov 2009.  She told me that OH has Portfolio Margin, but the minimum balance is $1M.  (In comparison, TOS’s minimum balance for PM is $125,000.)
    (2) OH does not provide GTC (Good Till Canceled) orders for spreads.  You have to re-enter the order every morning.  This one really p*ssed me off.

  141. EricL

    I’m going to lighten up on longs into the close if it appears we aren’t going to close over /ES 1100.

  142. Phil

    ACOR/Pharm – Thanks, I was taking the drug’s success at face value, they got a lot of good write-ups, not over progession but on improving mobility.

    EDZ etc/Japar – It depends what you are protecting but yes, it is a good idea to pull back on the shorts if you are barely even on them as we expect a move up from here.  SRS in particular I am done with completely as they have been too annoying to play and GLL was a nice win of over 50% so should have stopped out already. 

    Option Report/Stj – Note that they are discussing what we call a simple covered call strategy, not the combo of selling the puts and calls that we play. 

    DIA/RMM – I was looking for a 2:30 stick (volume 140M is in the range) and, if not, I’ll still be looking until 3:45 but not looking good so far.  We may drift along this level for a while, which would be overall good for the markets rather than the sillly up and down nonsense we usually get.

    CMCSA/Jbur – I like them more now that they’re testing the zone between $15 support and $16.50 (break out) successfully.  Your net is $16.05 so I’d let it ride unless the rest of the market begins to fail the 5% rule.

    PARD/Japar – PHARM – What do you think, is PARD dead money?   Japar – it’s a plan but I want to know where Pharm thinks this is shaking out. 

    Back in those DIA $105 calls at .78 again, be happy to get back the .03 I lost last time!

  143. dflam

    hi Phil : I’m short AC  Feb $37 puts at $.86 ,now $1.96. Thinking of rolling to Mar $35 puts At $1.68 ( ABX currently at 200 MDA $36.24) . Agree??
    dflam
    ps: they ought to shoot the ass that came up with these new stock symbols. 

  144. Phil

    Good article Eric – I think this has the danger of becoming a movement!  I was just spreaking to a banker who tells me that he’s looking at dozens of CRE properties where the keys will be turned over into tax sales and the banks haven’t got a clue how to manage them so there is nothing for them but to go the larger CRE entities and take whatever they’ll pay so it’s no wonder that BXP’s Zuckerman is running around all over TV and writing op ed in the WSJ telling everyone that the Recession is even worse than we think etc – HE WANTS HIS FREE MONEY!

    UUP/Jlui – We have the Fed on Weds so it’s kind of a wildcard.  I’d take profits ahead of it as you can always do a momentum play after if they tighen or say they will tighten as the short squeeze on the dollar should have some serious legs.

    1,100/Eric – I think we do hold it.  Oil is up over $75 on a late push and copper was rejected at $3.40 but is holding a 1% gain at $3.38 so the market is just being pokey but the volume is low (150M on the Dow at 3pm) and I don’t see any particular reason for a sell-off ahead of AAPL earnings.  Of course, someone else can miss like TXN or AMGN but I don’t think they will either. 

    ABX/Dflam – I wouldn’t even roll as long as gold holds $1,088, that’s still a LOT of money for ABX, way, way more than last year’s average.

  145. stjeanluc

    Phil – I noticed the difference, but I was still surprised at the results. Might be something on the Australian market because I had read that buy-write does beat the broad index here in the US. Might be wrong though! In any case your strategy makes more sense.

  146. Pharmboy

    PARD -I am at a loss for them.  PARD’s drugs were supposed to be safer although platinum therapies are a tough nut to crack as there are several out there.  Many analysts and scientists are high on them, and the short squeezes are coming at a rapid pace. As with any biotech in that 5-7 range, if they fail, the fall is swift.  They can easily shoot back up to 5 on a whim.  Question is … when? I hate to cut them loose (aka ARNA is my herring at the moment), but maybe more can be done with the money.  Otherwise, decrease the risk and swing for the fences, but be prepared again to strike out. 
     
    PARD will present data from their Phase 2 trial using picoplatin in prostate cancer on March 5th.(Yet another prostate trial).  Maybe this is the time to get out or pray that they rocket up for all to exit.

  147. humvee4me

    Gel1
    Last week we were talking about the relative strengths of various currencies, in particular swiss frank vs british pound.  Did you by chance see the cover story of forbes? Although the sovereign debt to GDP of switzerland is relatively reasonable, the bank assets to GDP is third only to Iceland and Ireland  (omg…).  Wondering what your thoughts are that are.

  148. Phil

    Go AAPL! 

    SNDK up 3.2%, WFR up 3.7%, VLO up 1.5%, XLF up 1.5%, OIH up 1.5%, VIX down 10%…

    I’m liking LVS again.  They refinanced their land and Vegas seems to have bottomed out and Macau is carching on.   2012 $12.50/22.50 bull call spread is $3.50 and you can sell the 2012 $12.50 puts for $3.50 for a zero trade with a $10 upside at $22.50.  As you have 24 months to sell calls, you can sell 1/2 the March $19s for .63, do that just 12 times and you have a free spread and you can buy back the put for a no risk trade.

    Buy-write/Stj – It’s very dependent on the time frame as well as your cover selection.  If you mindlessly sell without taking into account dips or earnings or good or bad prices as the VIX jumps up or down then your results will suck accordingly…

    Damn, stopped out of the DIA calls even – shouldn’t have been greedy and taken the .03 and ran when I could!

    PARD – Thanks Pharm.  I’d say let’s be set up to get out on any rally into the March announcement and let’s assume this sell-off will be recoverable then.

  149. japarikh

    Phil,
      Thanks. Lost my DSL connection last weeks so wasn’t able to cash out on GLL when I should have. I agree with getting Pharm’s input on PARD. Also, what did Pharm say about ACOR? Is the play you described earlier still valid (Apr 30 for $1.6)?

  150. judahbenhur

    SS, I imagine you’re feeling much calmer today about the strangles.  I just noticed that the RUT is trading exactly in the range it was when I sold my Feb strangles (week before Xmas).

  151. Pharmboy

    Japar – I think for a swing trade, it has some value.  I am heavily exposed to Pharma and Biotech, so I am not playing that one.  If you do play, just initiate a small position to see where they head. 

  152. ssdirk

    judah – lesson learned, and yes, feeling much calmer.

  153. gel1

    humvee
    I did not see the Forbes cover story. I do know this, however, the Swiss central bank has been very concerned about the Euro, as this imbalance has been a negative situation on the sales of Swiss products into their prime market. They will do everything possibe to keep the ratio where they want it for this purpose, and have been very active  as buyers/sellers to keep the ratio they desire. My feeling today, is the GDP is a great short against anything almost , as their economy is sinking because the consumers are not buying and the banks are flat out not lending – sounds like economic gridlock for some time in the future. On a different currency, I see the USD strengthening over the near term, and toward summer maybe see a weakening trend as a reversal. For now, I am long the USD.

  154. ssdirk

    judah – more to the point, I think we all got a good vix lesson in the last 3 days.

  155. gel1

    humvee
    Correction – that should read GBP

  156. jcedens

     Phil,
    What are you seeing in the near term for commercial real estate and what is the play on it since you don’t like SRS?

  157. humvee4me

    gel1
    I am already short the pound, and looking to increase my exposure.  Thanks for your input.

  158. aclend

    Are you still full covered? I’m in the Feb 105p. Expecting more downside if we don’t retake Dow 10,300, et al.?

  159. Phil

    Coming right down to the wire Eric but Mr. Stick not looking in control so far.

    AAPL bullish earnings spread is buying Apr $155 puts for $1.83 and selling Feb $180 puts for $2.03 for a net .20 credit and the goal is to keep whatever is left as well when the Feb putter expires worthless.  If AAPL goes that low, you have to DD the Apr puts and roll the Feb putter to 1.5x or 2x some March puts (March $155 puts are $1.03) so it’s a bullish play with an escape path

    Another bullish AAPL play is the July $185s at $32.50, selling the March $200s at $15 with the plan to roll them along once you are solidly in the money.  If AAPL goes down, you can sell July puts to raise some cash and roll lower

    ACOR/Japar – He just scared me on that one so I’ll be out on the next bump up!  I would say don’t bother with the play as it may be too speculative.

    Delta Air Lines (DAL) plans $1B in upgrades over the next few years, including improving seats, adding first-class cabins and improving and adding airport lounges. Many fixes are targeting planes it acquired in merging with Northwest Airlines in 2008.  This is good for AIR, who do the insides of planes. March $22.50 puts can be sold naked for $1 as an entry.

    Citing terrible balance sheets, John Dorfman offers "Ten Stocks I Wouldn’t Touch with a 10-Foot Pole."

    Corporate bond sales were cut in half last week, according to Bloomberg data, amid concerns that the economic recovery is slowing. Yield spreads widened for the first time since November.

    Continuing to defy sell-offs of all shapes and sizes, copper traders are still buying like this bull is still alive. Comex futures currently +1.1%.

    Years of work are culminating in next month’s overhaul of options symbols, which – by removing limits – could spur strong growth with more varied strike prices and expiration dates.

    Sector ETF strength: Solar– KWT +3.5%. Gasoline– UGA +2.2%. Semis– IGW +1.8%. Coal– KOL +1.7%.
    Sector ETF weakness: Livestock– COW -1%. Gold Miners– GDX -0.9%. Biotech– BBH -0.7%. Agriculture– DBA -0.6%. Regional Banks– KRE -0.5%.

    Dow leaders: INTC +2.2%. GE +2.2%. HPQ +1.9%. CAT +1.7%. VZ +1.7%.
    Dow laggards: AXP -1.8%. KFT -0.9%. HD -0.3%. MCD -0.3%. UTX -0.3%.

    Nice, all our Dow picks on the + side!

  160. Pharmboy

    Solar ETF – SPWRA tends not to agree.  They are getting very close to their lows…..gotttaaa hooolllddd off……although I want to buy them again.

  161. judahbenhur

    SS, Agree, and though it isn’t in Peter’s playbook, I’m going to be adding TZA call spreads or TNA put spreads for greater protection.  Just haven’t decided yet which makes more sense.

  162. hanna5

    Phil, do you like ABX at these levels? Any recommended trade?

  163. Peter D

    SPX/RUT,
     
    The imbalance in the options value calculation was all corrected now as my account balance is back to normal.  The balance is in fact higher than before the 5% descend in SPX, so it’s time for me to take off the added spreads as they haven’t done a fabulous job of taking advantages of the imbalance.  Whee.  Now I need to get my Delta to a slightly negative number, given an un-impressive bounce today. 

  164. BigPinot

     Phil…If as you say 200% of the weeks gains come on Mondays, what do you think of the coming 4 days??

  165. Peter D

    Shoot, typos – "as they had done a fabulous job" …

  166. ssdirk

    judah – I’ll look at those as well.

  167. JRW III

    Out of TNA, made $0.75

  168. BigPinot

      JRW…WHAT ARE YOU LOOKING AT FOR TOMORROW??

  169. BigPinot

     SORRY HAD THE cap lock key pushed!

  170. ssdirk

    Peter – last week I asked about my SPX strangles losing much more value than my RUT strangles even though it seemed it should not have.  Do you think this imbalance you refer to has anything to do with it?

  171. Phil

    CRE/Jced – If I could only make one bet for 2010 in November, it would have been that CRE crashes and SRS takes off.  That did not work at all and my current theory is because SRS is essentially the "big fish" of CRE and they are refinancing and getting great terms from banks who are more than happy to sweep CRE problems under the table and the big CRE fish are happily running around gobbling up all the little CRE fish as bargain-basement prices.  This has nothing at all to do with "health" in the sector, it’s just the last dozen cannibals on an island eating each other one by one until the one last, fat cannibal dies of starvation.  That’s what’s going on in CRE as the big boys are racing to become "too big to fail" (they hope!).  Of course, to their bankers – they already are TBTF and that means that the government may have to look through the bank and see the need to support CRE as well because, if BXP goes down with $6.2Bn in debt – who’s problem is that going to be?

    Cover/Acl – I agree, this was a weak bounce (good call Eric) and bodes ill for the rest of the week.  If it weren’t for AAPL, TXN and AMGN tomorrow I’d be more bearish but that’s a good reporting trio and Case/Shiller always seems to paint a rosey picture and we don’t get consumer confidence until 10 (which will likely be lower). 

    Based on senators who have publicly disclosed their intentions, the Bernanke confirmation vote (to come later this week) still looks like a close call. If it falls apart, who might take his place? How about Paul Krugman?

  172. mSquare

    AAPL – Had sold Feb $200 Puts naked. I do not mind adding to my long position. If it goes lower and I get assigned I do not mind holding it at the lower price and will sell calls against position in non-earnings quarters…Right now it is just at 50 dMA of $203-ish
     http://stockcharts.com/h-sc/ui?s=AAPL&p=D&yr=0&mn=3&dy=0&id=p38323870893

  173. ephmen85

    USO  Any short to mid predictions for oil?

  174. jcmcn5

    The rth bounce has been very weak.  Any thoughts on upping the bet to the downside? 

  175. judahbenhur

    JRW, Finally got on TZA when IWM couldn’t hold 62. Getting out with my dime.  A rather narrow range today.

  176. gel1

    humvee
    If you are in the EUR/CHF cross trade, the CHF has strengthened against the EUR to the point where the Swiss bank will soon start buying Euros to raise the value of the EUR.

  177. ssdirk

    JRW, judah – got in TZA at 9.87 and will hold small position overnight.  This market does not look healthy to me.

  178. Peter D

    ss/RUT,
     
    I’m not sure if they are linked.  Late on Friday, those RUT was loosing faster than SPX, so they are almost even out, before the imbalance came in.

  179. JRW III

    Big,
    Cash, I won’t hold overnight here. It depends on earnings and spin; I think we were short term oversold and we’ve worked half of that off today. All the markers say SHORT but I’ll wait until we are more neutral, maybe Wed. In the meantime I’ll just play the daily trend either way.

  180. Cap

    Paul Krugman – ROFLMAO !!!

  181. Phil

    SPWRA/Pharm – They are back where we like to buy them but I want to see oil hold $75 through inventories first.

    ABX/Hannah – I like ABX but they are not compelling until they show us they can find a floor.  At $30 I would really love them.

    Coming days/Big – No stick does not look good for the week.  We took a 1-day pause and kind of tested the 1% bounce and failed so, in a normal market we would expect a follow-through to  the downside of at least 2.5% and the way that shakes out is, if we get 2.5% tomorrow, then we’re heading down another 5%, probably as 1.25% the following day and 0.62% the next day and flattening out down there for a while.  If we only go down 1.25% tomorrow, then we are back to a bounce test back to 5% (20% retrace of 6.25% drop) where we once again pass or fail.  Sadly, because of earnings, government interference, the Fed meeting Wednesday and other nonsense – there’s no way to be sure…

    USO/Eph – If they can’t hold $75 on Wednesday’s inventories then $70 is next stop but gas is holding $2 and Nat gas is holding $5.70 so not a good time to bet oil short.

    AMGN missed!

    RTH/JCM – I want to see more Retail earnings (AAPL doesn’t count).

    Krugman/Cap – I knew you would like that!

  182. humvee4me

    Phil,
    Of those "10 stocks I wouldn’t touch with a 10 foot pole" which 2-3 seem like the best short?

  183. stjeanluc

    Oil seems to have found some support around $74.50 (61.8 fib retrac from december low to jan highs). However, this week might be shaky for the dollar with FOMC, Bernanke and all that. Add the usual inventory/lies on Wednesday and it could be pretty volatile!

  184. ernest

    Apple shares have been halted pending news………..wonder if that is good or bad?

  185. neverworkagain

     MTXX / Big beat:  Our old friend MTXX had a big beat at the earnings level and is seeing good take-up of its replacement cold remedy products. Up 12% after hours. I still have a position from an old buy/write and will sell half on the bounce over $5 and get rid of my short puts. It could have some sustainable momentum above $5 from a short squeeze. Still the lawsuit uncertainties but $33mn of cash and a market cap of only $43mn.

  186. Cap

    AAPL halted ahead of earnings.  See a lot of msgs saying the never do that; unusual.
    Something is coming  ….

  187. ernest

    AAPL – Maybe the accounting change?

  188. Cap

    AAPL 10 Q out;   SPY flying up

  189. cwan120

    What happened in the last 30 minutes before close?  I had a phone call at about 3:30.  Just came back.  Mr. Stick went out for coffee?  HAL stopped working?

  190. ernest

    Wow, look at DIA & QQQQ after hours.  Must be good news from Apple coming.

  191. Pharmboy

    MTXX – shows that if a company has a product and should the lawsuit disappear….JNJ would scoop them up on the cheap.  Nice Never.

  192. chuaeu

    Looks like AAPL in their 10Q is adopting the new accounting standards retroactive to Q1 2010, which means revenue is going to fly!

  193. biodieselchris

    Interesting strategy on LVS. Using PARD in the exact same strategy, you could buy the Jan11 2.50 calls for 0.57, sell the 5.00 calls for 0.25 and the 2.50 puts for 1.28 and net 0.96 to yourself and have a 3.46 gain (maxed at 5), risking 1.54 per max loss if PARD folds up shop.
    (and taking the short put out of the equation gives you 2.18 of upside, versus 0.32 max loss.)
    Maybe just buying the stock at 2 is easier though….

  194. BigPinot

     Phil…I emailed the guy at Sunshine about your 1088 line for Gold, but he said he was sticking with his position. Im pot committed, at about 1093. Im just glad it could hold 1100.

  195. ernest

    Apple is the one company that can start a new market rally all by themselves.  This should be interesting.

  196. BigPinot

     I meant couldnt hold 1100.

  197. Phil

    Though it looks like the market may have priced it in, 70% of companies are beating estimates so far this earnings season.

    To ensure a successful issue, Greece sold €8B ($11.3B) in debt at a premium of 0.3 percentage points, and drew a bid-to-cover ratio over 3. The deal’s expected to "take some of the pain out of the market" as the country addresses the EU’s biggest budget deficit.

    10 stocks/Humvee – Q is the worst I think but I don’t like shorting a $5 stock.  MJN is a good one, BMY didn’t get rid of them because they were worth double.  PBI sucks but are already down.  AIG we know what a farce they are but we like them to be high when we short them and DAL is a logical short but they can go BK (or threaten it) and wipe out half those debts.  CCE surprises me, I never thought of them as a risk and MS bears watching.  MCO we knew about and that’s why we went with MHP last year and CVC and DISH are sort of monopolies (or at least oligarchs) so we don’t short them.

    AMGN holding up well so far. 

    ZION had a good day in the end and taking off AH.

    TXN with a nice beat.

    LOL – AAPL $3.67 because they changed the accounting.  That’s why they halted.  This will be interesting with a better than 75% beat…

    Nasdaq gapped up 9 points in futures.. 

    Close/Cwan – Lack of stick and we sold off into close.

    PARD/BDC – That’s one way to play but better to do with someone who hasn’t already disappointed us! 

    Gold/Big – I cerainly don’t expect them to hold up if the markets fail.

  198. Jordan

    QQQQ is back where it started. No gap.

  199. Phil

    Apple (AAPL): FQ1 EPS of $3.67 beats by $1.60. Revenue of $15.7B (+32%) vs. $12B. Sees Q2 EPS of $2.06-2.18 vs. $1.77, on sales of $11B-11.4B vs. $10.4B. Shares halted at $204.05. (10-Q, PR)

    Ernie Varitimos, a.k.a. Apple Investor, says he’ll be keeping a sharp eye on Apple’s (AAPL) margins and expenses above all else in this afternoon’s FQ1 earnings release. "I want evidence that there’s something big in the works." Join SA’s six-way panel discussion live »

    Texas Instruments (TXN): Q4 EPS of $0.52 beats by $0.03. Revenue of $3B (+21%) in-line. Expects Q1 EPS of $0.44-0.52 vs. $0.43, on revenues of $2.95B-3.19B vs. $2.83B. Shares +0.6% AH. (PR)

    Zions Bancorp (ZION): Q4 EPS of -$1.26 beats by $0.38. Net interest income of $457M (-10%). Net loan charge-offs of $292.1M vs. $381.3M in Q3. Shares +0.7% AH. (PR)

    Amgen (AMGN): Q4 EPS of $1.05 misses by $0.08. Revenue of $3.8B (+2%) vs. $3.85B. Expects fiscal 2010 capex of about $600M. Shares -0.4% AH. (PR)

    Atheros Communications (ATHR): Q4 EPS of $0.62 beats by $0.09. Revenue of $186M (+89%) vs. $175M. Shares -1.8% AH. (PR)

    AAPL beat was about .17 which, as I said earlier, is probably not enough to thrill the bulls who took them over $200 but, on the other hand, I wonder how many people realized AAPL was making this much under the table? 

  200. Phil

    Now futures are tanking – crazy stuff!

  201. Jordan

    In fact QQQQ just hit the lowest level in the last 5 days, at $43.90.

  202. ernest

    Apple is all over the place now that trading has resumed.  It’s funny to watch how fast it’s changing.

  203. bord

    AAPL is all over the road right now….

  204. Jordan

    I suspect some speculation into the President’s address about how tough he will be on financials.  It is logical to have some financial plan outlined on Wed. Plus the Fed…

  205. Phil

    AAPL is so funny to watch.  I don’t know how people can read that report and panic sell the stock after hours but they were doing it. 

    Nas was a good grab in the futures as they bottomed out and the S&P futures are 1,093 and I like them with a stop at 1,092.50 to play AAPL going up.

  206. ernest

    I’m guessing that Apple gapped down due to some previously entered sell orders that didn’t get executed before they stopped trading?  But now it’s going up really fast.

  207. bord

    AAPL below 200 about 2 minutes ago….now at 207… as Carson used to say "wild, whacky stuff."

  208. ernest

    The last time I saw Apple move this fast after-hours was last year when Jobs announced that he was going to take an extended leave of absence and it was all the way down to 74 or 75 before recovering a bit.

  209. chuaeu

    Phil,
    Now that AAPL’s finally adopted the new accounting standards, I’ve gotta believe there’s going to be renewed talk about multiple expansion, especially if the new product announcement has a subsidized, subscription model. Coupled with the high probability of a Verizon iPhone launch, and AAPL’s looking awfully good. Now let’s just hope Steve doesn’t sneeze or cough on the conference call.

  210. BigPinot

     Phil…OPT is saying put a 25 multiple on projected earnings of 12 on AAPL. Should we be piling into calls? And when?

  211. hanna5

     Hm. I like the AAPL numbers so far. Good mac sales! 40 billion cash/securities! Iphone number isn’t terrible, and i think its being constrained with ATT at this point, in terms of continued growth. Crazy action after hours. Would buy these numbers pre-wednesday on any significant dip.

  212. ernest

    I’m listening to the conference call.  Apple now has 39 billion in cash & short-term securities, an increase of 5 billion.
    The people selling Apple after-hours are idiots, especially with the iPad/iSlate coming on Wednesday, which is going to compete with the Kindle.

  213. BigPinot

     Whats AAPL at now?

  214. ernest

    202, but changing by the second.

  215. ernest

    You can see after-hours quotes at cnbc.com.
    Depending on what Apple says Wednesday and the possibility of offering the iPhone with other carriers, I think their revenue is going to increase greatly in the future.

  216. Phil

    The knock on AAPL seems to be some shortfall in IPhone shipments of 8.7M vs 11.?M expected.  It will take all night to get to the truth but I don’t regret going with the conservative bullish plays as they should work just fine.

    S&P stopped out alread so I’m done trying to figure this thing out.   It’s all up to how Asia reacts now.  Europe fell a point today and we are about even in the futures so we’ll see what China has to say this evening.  Dollar is just 90.25 Yen

    China stepped up its verbal feud with the U.S. over the Internet, with a commentator in the Communist Party’s main newspaper saying America is seeking to control the Internet.

    Financial officials are gathering for the World Economic Forum, calculating that business opportunities in Davos will outweigh any criticism for attending the elite event.  This conference is a big deal

    Prime Minister Gordon Brown said his government won’t start cutting spending in 2010, as the rival opposition leader warned the U.K. could face a Greek-like crisis without quick action.

    CC notes:

    I’m not getting the "expectations" CNBC listed for IPhone sales.  8.7M IPhones is up 100% from last year’s Q1 (normal people’s Q4) and 3.36M Macs sold is up 33% from last year.  Oddly enough, the IPod sales, at 21M, were down 8%.

    They are guiding Q2 to $2.06-$2.18 a share and $1.77 was expected but now I don’t even know if that is with or without T revenue recognition (now wonder AAPL is trading in confusion).  Revenues are set to be $11-$11.4Bn, wich is about 5% over estimates so I have to think this is back to non-GAAP.

    Mac sales to education were up 16% over last year so thanks Obama for making AAPL’s Quarter! 

    IPhone cannibalizes some IPhone sales – sounds reasonable.  IPod touch may be another reason as people who used to buy $99 IPods in 3 colors are now buying one $199 IPod Touch and average sales price is up 9% for IPods, which is a neat trick in a bad economy on a maturing electronic product line!

    Says JD Power ranks IPhone top in customer satisfaction for business phone sales – time to short RIMM?

    283 Retail stores in 10 countries! 

    More to come…

  217. BigPinot

     Futures looking like tomorrow wil be a good day for shorts.

  218. biodieselchris

    China filters 1.2 billion people from internet searches and WE’RE the ones trying to control the internet? That’s precious. Boy and here I thought OUR politicians were crooks…

  219. Phil

    Steve’s not on the call Chuaeu but they do have a monitor hooked up that beeps to let you know he’s alive somewhere (there’s an App for that!).

    Multiple/Big – I have known about this accounting thing for 2 years and I can’t believe that pro investors haven’t priced those numbers in.  That’s not to say there won’t be a retail surge into the stock but I’d still stay conservatively long until we see how they move this week.   On the whole though, this is still an amazing company and if it wasn’t for Jobs inevitable departure, I would like them better than GE as a retirement stock but, one day, they will fall 25% or more on some news and may take a while to recover.

    $39Bn/Ernest – That’s a good point.  That takes 20% off the P in the p/e equation…

    Back to the call:

    AAPL tells Piper that they can’t guarantee 33% growth of Macs in future – was a silly quesiton actually.

    Mac growth in Europe at 40%, Australia 70%, China 100% – Damn, this is an amazing company!

    AAPL saying nice things about T, analysts fishing for word they will leave them but I’m not sure as T is paying them $1.10 per share per Q for them not to leave – I don’t know that they’ll get that deal elsewhere.

    CC’s are funny because analyst asks a question about specifics – CFO gives totally vague responses and analyst says "thank you very much."

    OK, this is good, AAPL beat revs by $4Bn and accounting change was "about half" of it.  That’s a very nice $2Bn of real revenue beat!

    Gross margin forecast is 39% (down from 41%) which I consider good as IPad roll-out is bound to impact and I’ll take 39% any day.  They won’t talk about upcoming products though.

    CC winding down and buys are starting to come in on AAPL – I think no bad news on CC is good news perhaps…

    200,000 IPhones sold in China last monh.  I wonder how it feels to Chinese farmers to see businessmen with phones that cost more than they make in a year?

    They seem psyched about Wednesday’s announcement but won’t give details.

    100,000 Apps in the store. 

    70% of Fortune 500 is piloting IPhone programs. 

    Now the call is getting dull as the analysts are asking for details they are just not willing to give. 

    Woops!   BGC Financial puts a SELL on AMZN due to competition!!!

  220. Phil

    54% Asia/Pacific Mac growth, 400% Asia/Pacific IPhone growth. 

    Oh please – they are saying they don’t know what earnings would have been if they hadn’t made accounting changes but they do stick to 1/2 of beat was the accounting change. 

    "We work with Google in some areas and we compete with them in others"   Quatro will be focus for mobile advertsing.  This is interesting because AAPL has way more screen space than other phones and could probably monetize ads better while they have that advantage.

    Well that seems to be it.  I learned little other than the fact that the people who sold AAPL after hours are nuts!

  221. jcmcn5

    Phil — TPC has a link to an article published by Dick Bove warning a politically caused equity crash.  Now, say what you will about Bove’s credibility, but the point he raises is valid.  At the risk of introducing yet another political discussion, when has it ever been good for stocks if the Administration and "Wall Street" are at each other’s throats?  Regardless of who the villains are here, this cannot be good for the short to medium term. Agreed?

  222. Pharmboy

    PVTB – running today. Chi town based bank, still losing money, but they could go back to fill the gap up to 18.  Currrently 12.25 AH.

  223. lflantheman

    Here’s an investing idea…….Put 10% of your money in AAPL long-term in-the-money options, perhaps a year or two out.  Then forget about it.  Now you’ve reduced your investing workload by 10%, and you can concentrate on the other 90%. 

  224. hanna5

    Jcmcn5/Politics: From a purely rational perspective, Dems will want the Economy to seem as strong as possible by midterm elections. It will be the issue that garners votes, because its the issue that affects people most directly. Obama knows this. After a period of populist rhetoric, i have to believe, that congress will try to focus on more job creation. They will want to point to a sub-10% unemployment # by September. Whatever this takes, congress/whitehouse will try. This should be positive for the markets, at least until the easy money / deficit spending train ends.

  225. gel1

    AAPL… My favorite company/investment. The last time I was in an AAPL store I bought an Iphone and had a long discussion with the sales associate as I was so impressed with her enthusiasm. Turns out she has been an employee since 2005, and took her pay in AAPL stock. Last year she bought herself a home for cash – All paid for from her AAPL stock. With the right employees, and the right motivation, miracles can evolve! Balmer – I hope you are tuned in.

  226. jcmcn5

    Hanna — I agree that Congress would love to point to a rising economy in time for the mid-term elections, but what can they do?  I mean, other than pass Stimulus II which could be re-election suicide for them, if you believe the polls.  Other than the Fed continuing to flood the system with $, what else can be done? The banks continue to not lend money, so job creation at the small business level is non-existent, and the consumer is supposedly tapped out.  Now I’m no economist, but I don’t see where the math adds up to a rising economy.  Even a 3% GDP in 2010 won’t put a dent in unemployment.
    Now, maybe the flood of liquidity makes the market go up because where else is the money going to go, but my concern is that I can’t see how populism is going to be good for the markets.  My worry is that this pissing match can very easily spin out of control, and given the breakdown we’re seeing in so many charts, that can be a very volatile mixture for the markets short term.

  227. gel1

    jcmcn… could you be setting some bait for a political discussion? Naughty!

  228. jcmcn5

    gel — I know, I know.  Mea maxima culpa.  HOWEVER, I think you’d agree that the topic I broach bears on what the short term trading strategy should be in response to the daily salvos being launched by the two pugilists, Wall Street and the Administration.  I’m not looking to win a debate on which side is right or wrong.  Rather, I’m interested in how we can PROFIT from it.

  229. gel1

    I totally agree, Mi Amigo… Could not resist a little ribbing.

  230. Cap

    Think about the ramnifications for the market if Obama, Reid and Pelosi still try to ram Health Care that nobody wants down our throats through more trickery; which is what is being reported tonite.
    I know Pelosi is that stupid.  I know Reid is that stupid.  Is Obama that stupid ?
     
    This would tank the markets more than financial regulatory or prop trading BS….   IMO of course.

  231. Phil

    Bove/Jcm – I like Bove.  He’s been saying we’re on a highway to Hell for a while so he’s kind of siezing his moment.   I’d love to agree and this morning’s futures will make it tough not to but all I see here is a normal market correction (long overdue) as people finally catch up and realize the same stuff I’ve been talking about since November when we clearly moved into over-priced area (to the fundamentals).  I’m not going to abandon them now and the fundies tell me that 9,650 is a far bottom for the markets and we ran up from about 7,500 (I don’t count the spike down) to 10,700 (42%) and the 5% rule says a 10% correction or 12% since we overshot the top.  88% of 10,700 is 9,416 so that’s my bottom call even if we break down here and if we find any support higher than that, then I would consider it more bullish

    Keep in mind that I was the man in the wilderness for the last two months saying all was not well and now we have a change in sentiment and everyone is suddenly freaking out and it will probably take 2 months for everyone to catch up to me again but I’m into bottom fishing now, not for putting canned foods in the bomb shelter.

    Are we now going to panic because China doesn’t want to over-inflate their economy or Obama wants to put a cap on spending?  The only people who should panic over rational government action are the commodity pushers because their position is unsustainable without continued irrational stimulus.  SI just had a great report, GE was great, TXN great, AAPL great -- there’s a world out there that is functioning but it’s not the world of oil companies, miners and banker/speculators so let them take down the market and drag good companies with them, we will be there to pick up the pieces. 

    PVTB/Pharm – Just make sure they don’t have too much CRE.

    AAPL/Iflan – If they get back to $185 (doubt it), I’d go 20%! 

    Congress/Hanna – Sure but by that logic you would say that the Republicans want the economy as bad as possible by mid-term election.  Let the nation crumble and then sieze power is a strategy that pre-dates the Romans…

    Health care/Cap – I think Obama will be promising Health Care in the state of the union and if you were one of the 20M uninsured voters or 20M unemployed voting people worrying about what happens when their helth care runs out – you’d get it.  One of Tina’s PTA friends lost her health care and can’t afford her pain medication anymore and can’t afford the back operation she was supposed to get this year (scheduled before her health care ran out) and she is heading for life in wheelchair if she doesn’t get it.  Even if she does find a job, she may not be covered for her pre-existing condition.  This is sick!  I am ashamed to live in a society where things like this can happen to people.

  232. bord

    Amen to your health care comment Phil. Maybe if these tea party wankers looked up from their Dick Armey written and funded "yelling points" not talking point because yelling is all they seem to be capable of, they would see that this reform effort  is not a game. There are millions of real people hurting out there who did nothing wrong (besides being old or not working for a Fortune 500 company or the feds and thus having a nice cushy health plan), and they need help. Anyone who has lived or traveled extensively in developed, or even non-developed countries, knows that our health care system in an international laughing stock (unless you are rich and can afford all those specialists). Even Cubans get better health care, did you hear me Cap? Cubans! (no offense Cap, but you always seem to want to spit in the eyes of democrats like me on this issue, so take your medicine OK?) So if dumbo the republican elephant doesn’t like the Obama plan, fine, propose something else that they think will work. But just don’t say no, no, no…because this is not a freakin game… this is about people’s lives. 

  233. bord

    fyi…..http://www.cnbc.com/id/35074179
    Retail forecast to be up 2.5% in 2010 but this is from their association, so just could be propaganda

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