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Tightening Tuesday – Global Edition

Suddenly everyone is cutting back.

China plunged to the 2.5% rules (yay for our FXP and EDZ plays!) as Chinese banks have begun restricting new loans, responding to a push by regulators (and PSW) to contain credit after a surge in lending in the first half of this month.  Chinese banks advanced 1.45 trillion yuan ($212 billion) of loans in the first 19 days of this month, the 21st Century Business Herald reported today, without citing anyone. That’s equivalent to 19 percent of the CBRC’s full-year target.  “This round of quantitative tightening seems to be more serious than we thought after Beijing was shocked by the lending figures in the first two weeks of this year,” Credit Suisse economist Dong Tao wrote in the report. “We would not be surprised if banks imposed a monthly lending quota, as against a quarterly quota in 2008.”

The central bank has also moved to curb credit, ordering banks on Jan. 12 to raise the ratio of deposits they hold in reserve, limiting the amount of cash available for lending. The People’s Bank of China has also instructed lenders including China Citic Bank Corp. to boost their reserve ratios by an additional 0.5 percentage points.  “Five major banks we have contacted today all suggested they received instruction from banking regulators last week to slow down new lending, but not stop new lending,” HSBC Holdings Plc economist Hongbin Qu said in a note today.

Gee, who’d have though China wouldn’t continue to lend at a pace of $5.5Tn a year?  Oh yeah, it was us…  Math is a very useful tool for fundamental traders and, it seems, even Presidents as the rumors are that even Obama now realizes we are running out of money and will be proposing a 3-year freeze on spending.  Of course a freeze on spending which ran a $1.4Tn deficit last year isn’t really all that exciting but it’s been so long since ANY government acted even a little bit responsibly that it’s worth noting.

We are going to have to be serious about the deficit in ways that we haven’t been before,” Obama said yesterday in an interview with ABC News. “We need a smarter government, not a bigger government, not a smaller government, we need a smarter government. And we don’t have one right now.”

The S&P Rating Service got serious with Japan last night and threatened to cut their debt rating by a notch, saying the government isn’t fixing the nation’s bloated finances as fast as expected.  Lowering the outlook on Japan’s AA rating to negative from stable, S&P said, "The Japanese government’s diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures."  The BOJ just concluded a 2-day meeting where they decided to leave rates steady at 0.1%.  Our own fed is beginning their 2-day meeting today – Very interesting.  The Nikkei fell 1.7% to 10,325, gapping below the 5% rule (10,512) after lunch as the dollar fell below 90 Yen. 

Fear and Greed are market driversEurope is trading off about half a point this morning despite the UK putting up a positive (+ 0.1%) GDP number for Q4 but they are recovering from worse as Asia really spooked traders early on (US futures were down as well).  I havd already said to Members at 6:20 this morning that I think the panic in the MSM is already overdone as this is nothing more than a very normal market correction – the same one we’ve been expecting since November and, even if we hit the 10% support levels I charted out in yesterday’s post - it’s STILL a normal market pullback after such a huge run from March. 

Nothing is happening now other than all the stuff I’ve been ranting and raving about for 3 months is finally getting some attention and the retail investors are all surprised and panicking out of their positions.  As I said yesterday, we don’t pay retail for stocks – we know how to buy at a discount and we know where the bottom is so we can plan to scale into positions here on some stocks we REALLY like (yesterday was AAPL, XOM, ACOR and LVS) long-term and we’d be willing to buy more of if they should head lower.  Last year we had our first Buy List on Jan 30th and we bought while EXPECTING another 20% drop.  When the Feb/March sell-off hit, we took that as our cue to scale in, doubling down on a 20% dip.  That gave us 2x the stocks at 10% less than where we started AND, in many cases, our covers paid for much of our losses

If you are not prepared to buy when the market is going down, then you are doomed to never buy low.  If you are not prepared to sell when the market is heading higher, then you are doomed to never sell high.  Learning good hedging techniques is the key to breaking yourself of bad market habits that let you be influences into making bad decisions by the MSM and their manipulative "guest analysts," who use the media and USE YOU as cannon fodder to help them mover their own positions around

The World did not suddenly fall apart last week, we are only finally dealing with the myriad of problems that have been swept under the rug during 2009 as the market mindlessly ran up 30% off our June/July consolidation without a significant break.  Could things really have been that good?  Of course not, it was silly.  Actually it was reckless and stupid and, ultimately, damaging because, as I said in my 2010 Outlook, it causes a MIS allocation of capital away from new companies and sectors that can thrive and create jobs – instead plowing money into the same idiotic commodity investments that popped just 18 months ago. 

But, you know the old saying:  "Fool me once, shame on you.  Fool me twice and I’m a commodities speculator."  Ordinarily I wouldn’t care if a new bunch of suckers gets fleeced buying shiny bits of metal and gooey liquids but the rising commodity prices suck capital away from the entire rest of the planet and that damages the global economy.  The World consumes 86M barrels of oil per day so a $10 rise in the price of a barrel of oil takes $313Bn out of global consumers’ pockets annually.  Oil is up $40 since last January, that’s $1.2Tn with another $800Bn after the refiners and distributors get their cut and PRESTO – 5% of the global GDP is transferred to oil crooks!  Add another $2Tn of increases in other commodities costs (copper is up 200%, platinum up 130%, gold 90%, DBA up 20%) and 10% of the global GDP is sucked out of consumers pockets and drawn away from jobs producing companies to force them to pay double for the same exact thing they were getting last year for half price.  

You can’t take $4Tn and flush it down the global toilet and expect to recover from a recession (unless, of course, you are a Wall Street banker or commodity trader who makes bonuses from just that).  THAT’s the fight that needs to be had with our World "leaders."  China is taking the lead in cracking down on excessive speculation and it’s up to us and Europe to follow their lead.  Wrist slapping the banksters and sending them back to business as usual isn’t going to do it, not when TARP-taker JPM is hiring tankers to store oil at sea (in order to fake demand, hinder supply and drive up prices). 

Could their collusion with the tanker companies go as far as to engender back-door deals that led to JPM’s recent upgrades of NAT and TNK, upgrades that were worth tens of millions to those companies?  Well, due to lack of any sort of investigation, we may never know and it’s not just JPM - RDS/A, BP and MS also play the offshore storage game with 168 tankers storing close over 250M barrels of crude at sea - That’s 20 days of US imports! 

By purchasing oil (with the TARP money you gave them) that they have no use for, they create a false demand that drives up prices.  By renting tankers (with the TARP money you gave them) they create a false impression of demand for oil tankers.  By not delivering the oil that was purchased, they create both a false impression that the oil was consumed (it’s fungible global data) as well as shorting the inventory of the destination country.  I have been pointing out for weeks that imports have dropped to record lows and with 168 tankers intercepted before they can make deliveries, it’s no wonder the US has been shorted over 15M barrels a week (almost an entire day’s demand per week) in order to drive up the prices so our friendly oil manipulators could book record profits and pay back the TARP money that they used to rip us off in this scam.  Isn’t that special?

Also very special is Jeremy Grantham’s quarterly letter in which he says far from being just a harmless byproduct, proprietary trading was "of course … indeed the rot at the heart of our financial problems." He covers a wide range of topics including this very telling chart on Health Care, which clearly shows the US is #1 in per capita spending at 60% over #2 Norway (and 139% over the global median) while (and hold on because this is FUNNY) having 2.5% less life expectancy than the global average.  Aren’t we just the biggest suckers on Earth?!? 

Thank goodness we have so many good people fighting to maintain the status quo.  We don’t need those 47M people to get health insurance in order to prosper.  Health care costs have risen and average of 15% a year without insuring a single additional person and we can thank the GOP for fighting to insure many more years of profit growth in this $2.5Tn industry - I’m sure with their help, US health care expenditures ($2.5Tn) can catch up to GLOBAL energy spending ($5Tn) in our lifetimes!  And that’s a neat trick as our lifetimes are shorter due to the terrible health care so they have to time it just right but we only spend $1Tn on health care when Bush the 2nd took office just 9 short years ago and we’ve increase our spending 150% since than and even LESS people are insured now than were then!  So don’t tell me we can’t stick the consumers for another 150% this decade – YES WE CAN!

We’ll see how confident our consumers are at 10am with 5% less jobs than last January and 100% higher fuel costs, increasing food costs and (according to Case-Shiller) 8% lower home prices (24.5 lower in Vegas, down 14.2% in Phoenix, 12.1% in Miami but Dallas is up 1.4%).  Redbook Chain Retail Sales showed a 1% year/year increase this week thanks to increased drug and food prices which offset declining demand for other merchandise as consumers were forced to make choices with thier last dollars.  The ICSC Retail Store Sales index was down 2.5% looking at the same period.   

Like I said, none of this is news to us as I’ve been talking about it since Thanksgiving but let the sheeple be shoked and awed by the data (maybe CRE will hit the fan next) and we’ll just pick up the bargains as they drop.  It’s starting to get interesting out there!

 


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  1. tradansh

    VZ / Phil – What’s your take on their earnings? Time to DD on the positions? Stock seems to be stable pre-market, even after the loss.

  2. hanna5

    tradansh / VZ : Loss? Earnings looked OK, rev a little short, but nothing terrible. I may be crazy, but i wouldnt expect the stock to move much based on the report…did i miss something?

  3. ssdirk

    JRW, judah – 1st time holding overnight with TZA a winner.  IWM now sitting on 50dma.  Below that I see 60.80 as the lower channel created beginning in mid July.  JRW what do you see for today.

  4. judahbenhur

    SS, Very nice. I’m waiting to see how high it might come back this morning, then joining you on TZA.

  5. jcmcn5

    OECD Data — I too read Jeremy’s letter.  I thought for a second I was reading one of your posts! 
     
    Ah statistics.  You can make them say anything you want.  Life expectancy rates do not take into account issues that have nothing to do with Health Care, such as eating habits.  Our life expectancy is low because we are a nation of fast food consumers, who are therefore obese (the biggest health care problem we have today).  Wait til Japan and Switzerland has a McD’s on every street corner, and consume a daily diet filled primarily with processed sugars and fat.  There’s also the higher  murder rate due to gang related violence (not very many Crips and Bloods in Switzerland).  We also,  have a higher infant mortality rate than most of the world.  A large contributing factor to that is pre-term delivery, a pre-emptive, expensive, and often unnecessary health care cost, by the way.
    Gotta love statistics, until you peel away the propaganda they come with!

  6. David Ristau

    Hey all,

    I think you should take a look at MTG as a great short option for today. I have my analysis on it on my post. 

    If you have any questions about any stocks you are looking at, ETFs, oil, bonds, etc. please don’t hesitate to ask. It is better to ask on my page rather than Phil’s so we don’t mix up people. 

    Thanks, and look out for my Overnight Trade of the Day coming out this afternoon.

  7. samz3700

    Phil -
    Any suggestions on initiating a position in goog – or just wait and don’t try and catch the knife.

  8. JRW III

    ss
    Bounced right off my line at 61.15. below that it’s 60.35

  9. Phil

    Good morning!

    Today we need to take back those bounce levels of Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625 - which seem kind of far away right now.

    The 5% lines were Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620

    Gold tested $1,088 and hold it, oil hit $74 and held that but nat gas is under $5.50 so watch that.  Silver is $16.50 on the button but below $17 is sad for them and copper held $3.30, now $3.32 and that’s limbo for them as $3.40 is good and $3.20 is bad.

    The Dollar is good against the Euro ($1.406) with $1.40 being a critical breakdown for the Euro.  We’re at $1.614 to the Pound on a positive GDP in England and $1.60 is the line in the sand over there.  The Yen remains strong and you only need 89.6 of them to buy a buck this morning despite and S&P downgrade so what does that say about us???

    I’m cautiously bullish here, it’s a nice time to do a little bottom fishing!

    A couple of stories to consider:

    U.S. companies need to refinance $513B in debt this year, but "the jury is still out as to whether the high yield and bond markets will continue to support this level of refinancing," potentially creating a corporate cash crunch.

    Democratic lawmakers are considering an $80B jobs-stimulus package that would provide tax credits to small and medium-sized businesses that hire workers. Lawmakers hope to have the measure on the Senate floor by mid-February.

    South Korea’s economy grew a slower than expected 0.2% in Q4 after climbing 3.2% the previous quarter. Exports, consumer demand and government spending all declined. (ETF: EWY)

    Peabody (BTU): Q4 EPS of $0.43 beats by $0.14. Revenue of $1.5B (-18%) in-line. Shares +1%. (PRYAY!!!  They are still cheap and you can still sell the Feb $45 puts for $1.50 naked for a net $43.50 entry.

    If we don’t have volume, then we don’t take a move up too seriously.  We have the Fed tomorrow and Obamas State of the Union where I think he’ll push for Health Care, talk about the spending cap and the above Jobs program so possibly a boost on Thursday morning

    On the whole, it’s a good day to browse the Buy List and let’s look for some entries that got cheaper.

  10. Cap

    Energy names getting hit good in early morning selloff.
     
    Mocha — loading up on HK here 24.20

  11. judahbenhur

    SS, Joined you at 61.50. 

  12. JRW III

    Phil,
    What makes you so Bullish today when yesterday you were saying a 2 1/2  % downward follow through ?

  13. EricL

    X dropping as fast as it went up (o.k., faster). I got out of my short at 57 — way too early. It’s now resting on the 50 MA and coming into support a little below here so possible quick swing trade coming up.
     
    RF with missed very low expectations confirming my bank friend’s claim that they are worse off than they appear.

  14. ssdirk

    judah/JRW – for some reason my IWM chart on TDA is not repopulating.  I am switching to TOS charts to see it.  Man I hate it when that happens.

  15. jcmcn5

    Phil- speaking of the buy list, what are your thought re: Gamestop vs. ERTS?  I saw an unemployed friend of mine browsing the game section at BBY the other day and it occured to me that there could be a whole new slug of the population beginning to play games in their spare time.  Not nice, I know, but is there an opportunity there?

  16. EricL

    Anyone do short strangles/condors into AAPL earnings? I didn’t — would have been perfect.

  17. tradansh

    hanna5 – VZ dropping now. Looks like it’s going to hit 29.

  18. Pharmboy

    MYGN – dipping to new lows here.  I have them already, but I like the companies prospects and they have room to grow.  Selling a FEW 22 March P for 1.5 or better is a nice entry.

  19. phlit

    Hi Phil, I bot the 620 Feb put on the Rut and sold the 650 put for a 12.2 credit . Its against me for about 9 or 10.  A current rollout would cost me about 5 points.  Should I wait till last week before exp or what?  Your thoughts? Thanks

  20. Pharmboy

    HK/Cap – looks like they have a gap to fill at 22.15…..chart is going that direction.

  21. jburgess

    EricL/hanna5--VZ-  went short VZ Apr29 puts last week. Already have long position in the company, which is well run, profitable, and will only become more so in the future. Would like to see them hit 29 and be assigned.. long term hold, with a juicy yield.

  22. Phil

    VZ/Trad – I love those guys.  They are spending many billions to bring fiber to every home in America and NO ONE ELSE IS.  We are still in the not-so-profitable building phase but I don’t see banwidth use going down in the next decade or so so I love them long term (and the 6% dividend doesn’t hurt) at $30 and you can sell naked March $30 puts for $1.05+ to begin an entry or the 2012 $30 puts for $5.40 AND buy the stock at $30 and wait to sell the $30 calls for $5 (now $2.80) so you have a net $19.60 entry with a 10% net dividend and a call away with a 50% bonus at $30 - a nice buy and hold.

    Statistics/Jcm – Don’t say "gang related violence" someone may think you are against guns and start another debate!  So your plan is to export our poorly educated, malnourished, violent lifestyle to other parts of the world so they can die faster and improve our relative performance – BRILLIANT!  

    GOOG/Samz – I’m already holding that knife on the pointy end but I’m not too worried as long as we don’t crack below the NYSE (7,000) and S&P (1,088) 5% lines.  I thin for a new GOOG position, I like the March $520/540 bull call spread at $22, selling the $510 puts for $12 for a net $0 spread that pays $20 or GOOG put to you at net $510.

    Bullish/JRW – I’m not bullish for today but I am willing to start buying.  5% is the best pullback we’ve had in ages and we can protect ourselves down to 20% so why waste the opportunity (especially with this nice, juicy 25 VIX)?

  23. jcmcn5

    Hey — As long as the Crips and Bloods are killing each other (which they are) I say, Good for them!  Put them all in a giant cage and we can all watch them while eating popcorn and cheering! 

  24. EricL

    Doh! Just saw X reported a big loss. Not touching them for now.
     
    jburgess, yeah I like VZ under 30 too.

  25. ssdirk

    Wow – that was a quick turnaround.  Is this an early stick?

  26. jcmcn5

    Actually, I never said I want to export anything to other parts of the world Phil.  You’ve reacted quite angrily to posters who have taken you out of context.  I’d appreciate the same consideration. I didn’t say what you implied I said, and you know it.  I posted what I did because Grantham threw statistics in my face and said "You See?  You See?  This means without a doubt that we need health care reform"  When in fact, the statstics say no such thing without further examination.  I hate it when people shove statistics down my throat and demand that I conclude the same thing they want to conclude from them.

  27. jomama

    If apple announces ANYTHING with VZ they will have a temporary spike IMHO.  So that’s a possible catalyst on a stock that has good long term fundamentals.  I am selling VZ 30 2012 puts.  This market is just too irrational for leaps and selling calls. 

  28. hanna5

    Hey Phil, and everyone else: What do you think about GLW post earnings? Good earnings, decent forward projections, great margins. Buy in on recent price dip?

  29. ernest

    The Consumer Confidence number is what caused the bounce.

  30. foss

    Phil, I played AAPL yesterday buying April puts and selling 180  puts. Have a small profit. What do you think of increasing risk and rolling up the puts higher?

  31. bord

    Good morning Phil, What is your opinion on two stocks, MT and BRK.B? Any plays there?

  32. wiiboxer

    Phil, what do you think of AET at this level, I have postions with it, any adjustment needed?
    +1 Jan 11 25 Call @ 9.85, now @ 7.65
    -1  Apr 10 33 Call @ 2.75, now @ 1.23
    -1 Apr 10 30 Put @ 1.4, now @ 2.05
    Thanks

  33. bord

    What? AMZN up? That crop report can’t be right!!!! Unless…..

  34. EricL

    No follow through to that buying burst so far.

  35. Peter D

    Good morning short stranglers,
    Thanks goodness for this bounce, it was looking grim that VIX would continue to go up, endangering our short strangles.  I took this opportunity to get rid of the additional spreads that were added in the past few days.  Like I mentioned yesterday, once your account balance has recovered to the previous level before the 5% S&P500 drop, it’s good to lighten up, just in case.  I’m going to be in meetings all day today, so no PSW reading until after the market close.

  36. ernest

    AAPL – The event where they are supposed to announce the tablet begins at 10:00 AM PST tomorrow.  I’m sure the stock will be very volatile before, during, and after the event.
    Check this out:
    http://news.cnet.com/2300-13579_3-10002273-1.html?tag=mncol;txt

  37. chuaeu

    Phil,
    Considering buying deep ITM Leaps and selling puts and calls vs. the more conventional buy-write strategy. Pros and cons of one strategy vs. the other? Thanks.

  38. llorens

    Good one Bord.  "Looking good Billy Ray!"   "Feeling good, Louis!"

  39. Phil

    RF/Eric – That is just sad!

    GME/Jcm – I like them better than ERTS (ATVI is better than ERTS) as, of course, they retail for many so whatever is hot goes through them.  It’s perfectly nice to identify growth opportunities and the rise of the couch potato is a good bet I think.

    RUT/Phil – Those are nasty out of the money and it would be a big trick to get back to 650 by the 19th but it is possible.  I don’t like those trades at all because you are the one paying all the premium so you have no control (as you can see).  You can roll to Apr $580/610 for $2 so keep your eye on that roll and don’t let it get away from you if you want to stick with it – it’s got a pretty good chance of paying out and that still leaves you with a net $10 collection on the same $30 spread.

    Stick/SS – I don’t think so, I think there’s plenty of people like me who see the 5% line as an opportunity to take a poke at a few things.  There’s not too much volume (43M at 10:13, 50M at 11 is typical slow stick day) to get excited about but it is improving and holding a bottom on rising volume is a traditional bullish signal so we’ll just have to see if it’s sustainable as we get up to our 4% retrace levels.

    Statistics/Jcm – I was just kidding man!  Your "statistics" are that we are more obese and we kill each other more often and we are having unnecessary pre-term deliveries (motivated by profits perhaps?) which are killing our children didn’t quite convince me that I should be taking the discussion too seriously.  Having traveled pretty extensively all I know is that people in Europe rightly think we are insane to pay twice as much per capita for health care and still have all the issues we do.  You can put up all the statistics in the world but the one that matters is ANYONE in Europe can get medical attention when they need it at no charge.  It’s a human right that they take for granted.  Just imagine the health benefits of not having the stress of worrying about health costs as you go through life…

    I do have a solution to national health care.  Let the people who want national health care have it.  The 150M people who do can form a pool and run through a National system and the ones who want to vote against it will be left to their own devices.  150M is a good-sized group, Canada only has about 20M people on their system and they cover an area as large as the USA for just $3,895 a person, just a bit over half of what we spend.  Maybe we can convince Canada to expand their coverage to include the US, we’ll pay them a nice profit at $4,300 and save the rest…

    Irrational/Jo – You’ve got that right.  Could go either way fast but probably will go nowhere (technically, we haven’t gone anywhere since October in the big picture).

    GLW/Hanna – I love them and the IPad is a whole new generation of glass use for them.  I wouldn’t jump in here as the 50 dma is $18.50 and the 200 dma is way down at $16.25 so better off waiting to see what holds as the momentum is still down (as it is for the broader market).

    Consumers are, as usual, loonie:

    Jan. Consumer Confidence Index: 55.9 vs. 54 expected and 53.6 in December. Present situation 25, vs. 20.2 prior, while expectations ticked up to 76.5 from 75.9. "Consumers’ short-term outlook, while moderately more positive, does not suggest any significant pickup in activity in the coming months … While consumers were less dire about their income prospects than in December, the number of pessimists continues to outnumber the optimists."  "Less dire" – that’s a new kind of green shoot!

    Jan. State Street Investor Confidence Index: 104.5, up 0.2 from previous 104.3. North America confidence at 107.9 while Europe is at 98.9; the difference "reflects some of the underlying fundamentals … While there have been some mildly positive data surprises in Europe, there is continued concern about the way forward in addressing the fiscal difficulties of a number of the periphery economies."

    Jan. Richmond Fed Mfg. Survey: -2 vs. -4 last month (above 0 = growth). Shipments improved to -2 from -6, while services held steady at -9. Major jump in the retail index, which moved to +1 from -18.

    The deficit will reach $1.3T in 2010, says the CBO, and economic growth will remain ‘muted’ for the next few years.

    Nov. FHFA Housing Price Index: +0.7-% month-on-month, vs. +0.6% in October. Year-on-year, prices are +0.5%.

  40. llorens

    Dell at $13.68 really not looking bad. We announce Q4 earnings 2/18 and consensus is +$0.27.

  41. jomama

    Phil, what do you think of GS here?  I realize the political headline risk.  But these guys will find a way to make a boat load of money.

  42. llorens

    That’s true Jomama, and it would be like betting with the House.

  43. 1020

    Good Morning!  Pharm, do you have an opinion on PDLI?  Thanks.

  44. jomama

    Phil, i don’t think any US citizens jump over the border for Canadian healthcare.  I truly believe the only solution is rationing.  You have to tell 400 pound people that they can’t get two new knee joints since it will be ineffective – I realize this may lead to a "slippery slope" but this is the crux of the problem from my point of view.  A national healthcare system will only be viable if we change our expectations – this is not taken into consideration when you all quote statistics because 70 year olds in europe and canada are not getting prosthetic penile implants paid by medicare.  (i am serious)

  45. 1020

    G.S. @ 150 would be nice….

  46. yodi

    Hi Phil,  ZION is running away from me now trading at 20.42 up 2.51 holding short apr 17 c @ 1.97  now 4.15 and Mar 17 c @ 1.71 now 3.80 sold puts the other day as I thought they were going down any good advice thanks

  47. Phil

    AAPL/Foss – I don’t believe in taking winning positions and increasing the risk until you lose.  If you did the credit spread I picked yesterday, then the trick is to just wait until the $180s expire and whatever is left on your April puts is all profit – why mess around when you are on target?  AAPL could have a big sell off after the pad intro or they could go to the moon -that’s why the premiums are still so crazy.  If you want to take a risk, take a few Aprils off the table but leave the short puts $27 out of the money – they are all premium.

    MT/Bord – I like them at $36 but not here (same for X).  BRK.B I love long-term but let them sell off.  I think I said the other day that $65 was my target and we’re halfway there now.  They still don’t have leaps so the options aren’t too attracive yet.  I am looking at the Sept $62s, now $9.60, covered with the $70s, now $5.20 for $3.80 net if possible (they have to move lower), that’s an entry I can live with.

    AET/Wii – As with the whole market, they do look determined to test the 200 dma ($28) but that’s all good with what you sold so why worry?  Good chance to roll out to 2012 $25s for $1.50 and if they hit $8.70 or less you can DD and be in for $10 avg with 2 year’s worth of puts and calls to sell.

    LOL Bord!

    Strangles/Peter – They are buckin’ like a bronco this month!

    Well ZION is no longer a good indicator of market direction…

    AAPL/Ernest – Tomorrow is going to be a crazy volatile day for the markets in general. 

    Comparison/Chuaeu – To me, there’s little point in owning a stock that costs more than $20 and doesn’t pay a dividend vs owning a DITM leap.  The stock is there to protect your upside – if the Leap can do the same for less money, then why not use that?  Also, if the stock goes down, the Leap will lose slightly less as it adds premium – again, what’s the problem with that?  The big negative to the leap is the spread – if you are going to go with a leap you will have trouble getting out at a good price if you are panicking out due to the spread. 

    Picked up DIA $104 calls for $1.02, just testing to see if we can pop 10,250 here (same as yesterday where we lost .03).  Very momentum trade with very tight stops.  One day we may get a move..

  48. 1020

    Hi Phil. PCS, A buying opportunity or hold tight?  Getting close to a 52 week low…..

  49. 1020

    Hi Phil. Got another, SCMRD.  Recent split, low volume, lot ‘o cash….

  50. Cap

    Check out BKS today; rumors of something to do w/ AAPL annyouncement; probably BS.
     
     
    Spending Cap ?  Hah.  "Non Discretionary items".  Its a joke.  A meaningless gesture that the Dems in Congress will still violently oppose.
     
    Its like putting a spending cap on your household budget but have it apply only to your kids purchases of candy and video games — and not to housing, fuel, food, clothing, medical, etc.

  51. Cap

    Pharm; thanks for the heads up on HK; I will have to look at the chart. 
    I am still happy buying at these levels; I have actually traded in and out of it a bunch today.

  52. Cap

    AMZN … up b/c someone upgraded and took PT to 160 from 130.
    I expect AMZN to be sub 100 this spring.

  53. tchayipov

    Phil
    when you think is good time to open/add position SPWRA?

  54. Phil

    BTU popping nicely!

    DELL/Llorens – Based on HPQ, GLW, IBM, TXN and AAPL I’d be very sad for them if they blow it as things sound good in the industry.

    Gold rejected at $1,100, oil rejected at $75, copper rejected at $3.35 so I’m not sure what all the fuss is about but there is some buying coming in.

    Done with EDZ Apr $4s at $1.95 as we’re recovering.

  55. Phil

    Actually, good time to put stops on all disaster hedges, we can always go back in if they break back down but this may be a good bottom.

  56. chuaeu

    Phil,
    Thanks for the input re DITM Leaps – echo my thoughts as well. I’ve been almost all in cash, and just started scaling in as earnings have started coming in and this long awaited correction hit. So these would be deep conviction stocks that would be hedged with your disaster plays.

  57. aclend

    What is the stop on the June 107s?

  58. Pharmboy

    PDLI/1020 – well, they generate revenue from a royalty stream of big antibody products.  Dividend is nice, and looks like they creep up during the year, and drop after ex-div every November!  So, Mar 7.5 P for 1.5 for a $6 entry which appears to be their lower levels.

  59. leonf675

    Phil,
    I have a long position in EDZ with the basis around $6.50 and short put position in April $5 that I sold at $1.20 (now $0.70).   Do you think now is a good time to sell calls against these positions?  If so, which ones would you recommend?

  60. jcmcn5

    Sorry Phil. Didn’t mean to get so jumpy.  Grantham just kind of pissed me off.  He took two separate statistics that were not necessarily meant to be taken together,  accepted them at face value without even the slightest examination of the contributing factors and then drew a sweeping conclusion from it.  Sure, his conclusion was one possible conclusion, but hardly dispositive. 
     
    Believe me, I wish that we could find a solution to our health care situation.  I’m a sole provider to a family of four and my employment situation is tenuous at best.  With small children to care for I know what it is to stress over these issues .  I just hate it when both sides use BS statistics to build their case.  It makes me believe that both sides are lying about this (which they are).   So when both sides are lying to you, whom do you believe?  Whom do you trust to make decisions that will affect us all for so long?  The political class we have now, Dems and Reps?  I wouldn’t trust one of these people to take care of my dogs for a day.

  61. Phil

    GS/Jo – I like them at $150, we sold puts last week, which I still think is good for an entry – the Feb $150 puts can be sold for $4.10 and those can roll to the March $140 puts, now $3.40 if we head lower and I sure would like to own GS at net $136.

    Gold punched through, now the buying makes more sense.  If oil pops $75 we may be onto something.

    Healthcare/Jo – That’s a valid point of course.  Health care without health education is kind of pointless but it’s going to take a long time to re-educate the next generation (and I’m sure MCD will lobby against it all the way). 

    LOL, took the .05 I regretted not taking yesterday on those DIA $104s but already up a dime now, looking to reload with $105s if we break up from here (using 10,250) or reloading these if they hold up on a pullback.   Oil under $75 is bothering me as it S&P not breaking 1,100 so taking nickels is a good plan.

  62. EricL

    Potentially monster double top formation in ISRG. I’m in with some conservative put verticals, but out if it breaks over its recent high.

  63. daveo

    Mattress Play: I have 1/2 June 109s puts that are reaching my trailing stop (at $9).  My plan was to roll them to the June 103s.  As the market seems to be going up should I just sell the 109s and hold off buying the 103s?  Maybe wait for the 104s to be the correct mattress play?  Or should I just take the protection now and stop thinking so much?

  64. jcmcn5

    RTH- so what do these retail numbers tell us here?  I’ve got the Feb 90 puts i bought at 0.85 a week ago, hold, dd, roll or sell?

  65. 1020

    Thanks Pharm!

  66. gel1

    I cannot understand all this hand-wringing and consternation regarding health care. The percieved magnitude of the issues are blown out of reality. IMO, the solution is clear – 1, Keep lawyers and the government out of the whole mix – the need for tort reform is a no brainer. The least efficient management on record are government managed programs and entities – get rid of 100% of this. Allow market forces to determine pricing. Why should a MD who has spent most of his life preparing and sacraficing in order to help others be expected to provide services for free (or at a fee the governments thinks appropriate) to an individual that has put no effort into being anything? Insurance is a commercially available commodity ( yes, even health insurance) that should be available to everyone at a price comensurate with the risk exposure. This should be mandated by law to be available to everyone at a price balanced with the risk. In order to buy cigaretes, liquor or many other "less than healthy" indulgences, one must prove they are in possession of health insurance. For those that do not legitimately have the financial resources to pay for health care then the governbment should write the check. Our congress has just wasted a year of their time on this need, and attempting to blow another Trillion of our resources on a plan that nobody wants in the form they have presented. Trying to make something that is simple into a complex solution is counter-productive.

  67. Pharmboy

    GILD is such a crazy range bound stock.  Earnings after the bell.  Is this the one that propels them over 48?  (I know they are 44.XX, but still, they need to break the cycle.

  68. grenowoods

     Phil – the population of the Great White North was 20M in 1967. We’re now at a whopping 33.5M, all with national health care :-)

  69. Phil

    ZION/Yodi – Don’t panic into the big move, people are getting squeezed (you included!).  If you don’t stop out at sensible spots (20-25% losses) it just gets harder and harder to recover.  Best is to roll to a spread while there is still good money selling puts like the March $19 puts at $1.30 and you can use that $1.30 to push the March and April $17s to Apr $19s at $2.40 and then hope you get back on target. 

    PCS/1020 – Let’s see if they hold it first ($5.75).   SCMRD is too speculative for me to like, I prefer to see at least the possibility of profits in the next couple of years since we don’t know what the borrowing environment will be like going forward. 

    BKS/Cap – That makes little sense unless they are going to dump their silly thing and partner with AAPL, which would be smart for both as BKS has almost all the publishers signed up already.

    SPWRA/Tcha – Yes as an opening position I like them at $20 and you can sell the Feb $21 puts for $1.

    AAPL over $210 – congrats to all who played the bull side!

    DIA/Ac – If you added lower June puts it was a .25 trailing stop (triggered) or .50 on any naked ones.  If you are fully covered with the $103 puts, it’s no worry as we wait to collect the $2.

    EDZ/Leon – Based on us moving up I am worried EDZ will pull back so I took money and ran.  If you want to stick in it then just sell the Apr $5s for $1.30 to match the puts and that drops your basis to net $4 on the $2.50 worth of puts and calls sold and be happy to make 25% if you get called away.

  70. RMM

    pHIL; WHICH 2 stocks are worth trading today ?

  71. jcmcn5



    1, Keep lawyers and the government out of the whole mix – the need for tort reform is a no brainer.
    Good luck with that.

  72. ssdirk

    Check out this video over at zerohedge on Keynes vs. Austrian school of economic thought.
    http://www.zerohedge.com/article/hayek-vs-keynes-straight-outta-compton

  73. bord

    Go AAPL Go!  
    Phil: You probably didn’t realize it but you attained simplistic brilliance when you said earlier "I don’t believe in taking winning positions and increasing the risk until you lose." That goes on the sticky by my trading log right now!

  74. Phil

    Dispositive/Jcm – Good word!  It’s not about what he points to, life expectancy is just one obvious outcome of health care and makes a point better than getting into a bunch of small statistics (which also support the arguement but let’s not get into that).  This isn’t about trust and it’s not about who is "in charge" of your health care.  Right now no one is in charge of it and you and your family are raped by the Health Care System on a daily basis.  I turned very negative on health care when my Dad got cancer and my company (and it was MY company) had the top level Blue Cross plan that was very expensive and Tina had to make it almost a full-time job to fight for his treatments and fight for him to see doctors and fight to get medicines approved and they denied home care etc along the way. 

    Health care is an illusion in the same way that auto manufacturers could save Billions by just telling you that you have air bags on your car but not actually putting any in.  All the people who lived and didn’t have accidents would say "gee, isn’t this great, it saves so much money without government regulation."  Sadly, when you really need it, it isn’t there.  I had over 100 employees and I paid for their whole families and saw all sorts or stupid things in the health care system over the years and I would trust ANYONE but private enterprise to run a better system.  As noted in the link I posted earlier, the government already runs two of the finest health care systems on the planet – one for the military and one for Congress – doesn’t your family deserve the same care?

    ISRG/Eric – MAYBE they will finally get real.  We took those puts the other day and I still expect them to work.

    DIA/Daveo – Sure, make a momentum play out of it but not over night if you need to seriously cover other positions.  During the day it’s worth taking a chance sometimes. Use the critical levels (DIA 10,250, S&P 1,100, RUT 615 that are close to a cross as downside stops and stick to the 2 of 3 rule.

    RTH/Jcm – I think retail is soft and it will show up in earnings but the Feb $90 puts we were happy to get out of last week and you can stil get out with a nickel so I would – too risky now that we went 3 weeks into Jan and didn’t get the big failure. Notice $91.50 held up in Dec twice so getting back over it is worrying. 

    Health care/Gel and ALL - A fun discussion but let’s have it after hours, thanks!

    Canada/Greno – I guess I got that figure in my head from the World’s Fair and it stuck!  Damn, you guys are breeding like rabbits…

  75. Phil

    Quiz/RMM – I give up which two?  Let’s see I liked BTU, VZ, SPWRA, GS, GOOG and the DIA calls so far but I will let you know if I see something else exciting. 

    Good video SS!

    CNBC guy’s arguement against AAPL is "how can they keep being as great as they have been?"  Oh yeah, that’s a great reason to short them…

    Then Dennis says "this is just too positive a story, even for an optimistic guy like me."  America’s premier financial network in action….

    AAPL testing 5% rule at $213.20

    Simplistic/Bord – Hey, that’s what my teachers said about me too!  8-)

  76. Phil

    Keep in mind we’re looking for  Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625 - pretty amazing how well this stuff works isn’t it?

  77. pyern

     CME – Last 5-7 days has been brutal and is at 200 dma. Good trade for a bounce?

  78. craigzooka

     the joke they played with AMAT over the last week is rediculous.  Last friday Citigroup downgraded them.  Today Oppenheimer upgrades them.
     
    Phil,  do you feel like their dividend is safe?  AMAT was on the buy list a while back, I wonder if you are still bullish on them.

  79. ssdirk

    Phil – that 5% rule is amazing! 

  80. gel1

    Phil…Oops, sorry about that – weekend is better and would be fun! Back to trading and starting to sell lots of puts.

  81. tchayipov

    Phil,
    about Health Care in Canada, let me tell you it is not perfect, it is actually not Helth Care at all, it is a Sick Care, family doctors here are a blockers which allow you to see specialist only if you already realy sick and have very bad test results and even at that time waiting time sometimes up to 6 mo

  82. 1020

    Speaking of Lawyers, Guns and Money (great song) Phil, do you have a take on SWHC?  Thanks

  83. JRW III

    Whole lot of resistance here ( IWM 62.03 ); still in TNA from this morning ( thanks Phil ) but ready to switch if we fail.

  84. yodi

    Phil Dia’s  Do not know  what to do with the short puts holding FEB 106 @ 2.29 now 3.95 104p 2.00 now 2.64 and 107 p 3.95 now 4.82 3.95  mattress Jun 109 long 6.43 now 9.05 any move to make thanks

  85. ssdirk

    JRW – I am ready for TZA redux.

  86. jcmcn5

    Gel – What puts are you selling up here and why?

  87. JRW III

    ss,
    Me too, but if we break north I’ll be doubling my TNA position.

  88. Phil

    CME/Pyern – Good catch, that’s just the kind of thing we’re looking for (stocks testing the 200 dma).   I like the June $270/290 bull call spread at $12 and hopefully they go down a bit and we can sell the $250 puts for $12 (now $8.50) but, otherwise, a 1/2 sell of the $270 puts (now $13.70) if they head up to cut the spread cost in half (and of course, an easy 2x roll on the put side.

    AMAt/Craig – Yes I do like them with all the good chip reports coming in.  I never really worry about whether a 2% dividend is safe though as it’s more exciting to just buy them for $12.95 and sell the July $13 calls for $1.20 and the July $12 puts for .90 which is net $10.85/11.43 and a nice 19%, 6-month upside which kind of makes the dividend an afterthought

    And rejected at 4% – Be careful people!

    SWHC/1020 – I don’t know why they got hammered like that lately.  You would think with a Sarah Palin Presidency just around the corner that they’d be doing great but it might be that the VP was charged with bribing foreign leaders.  $4 is a bad number for them as they don’t have strikes other than $5 and $2.50 so it’s a no play for me but at $2.50 or $5 I’d be interested.  Good Zevon clip.

    DIA/Yodi – We are not breaking out here so no change yet.  This is the point at which you should have bought some lower june puts to cover but you can also simply buy back the $104 puts on this bounce and put a tight stop on whatever June $109 puts remain open (pretty much if we cross 10,300).

  89. jomama

    1020, you read my mind.  I just saw swhc on the ticker while i escaped to the gym and was wondering the same thing.

  90. Phil

    DIA – $1.15 is very nice for the $104 calls because it’s not like you want to risk them overnight and, at the bounce zone, the risk now outweighs the reward!

  91. 1020

    Great clip Phil!

  92. ssdirk

    JRW – TZA it is.

  93. sarahd

    Your rules state: sell on the news and sell half when in doubt.  What timing do you recommend regarding AAPL?  The Ipad announcemnt is Wednesday and the earnings were Monday.  Do you sell into the close Wednesday or hold out until Thursday morning to sell half?

  94. humvee4me

    Equating Longevity to Quality of Health Care , makes as much sense as equating Tiger Woods putting skills to his sexual proclivities.  You know his going to put it in the hole, but in long run we’re all  f***ked. 
    Premature deliveries for profit  (ha, the ob’s can’t win, first they are accused of too many c sections, then sued when they don’t perform the one some lawyer later says they should have).
    Wanting to let "anyone but the insurance business" run the health care system.  Why we want the government to "be in charge" is beyond me, did we forget about the patient being in charge, it’s only their lives.  I’ve worked in VA hospitals and believe me you wouldn’t want to be in one. 
    Damn, lets just make some $$

  95. Phil

    Guess which bank was the most aggressive counterparty during AIG’s (AIG) bailout, demanding more collateral and assigning lower values to real estate assets backed by the insurer…

    An insider’s view of the real estate train wreck

    David Rosenberg expects a reversal from 2009′s "overwhelming complacency" as stocks are too expensive. “We have a market that is highly overvalued … We have more sellers than buyers." His focus: staples, healthcare, and utility and telecoms.

    The Treasury sells $44B in two-year notes at 0.880% (.pdf), the second-lowest yield ever. Bid-to-cover ratio of 3.13 vs. a recent 3.23; indirect bidders take 43.1% vs. a recent 42.3%; direct bidders take 10.8% vs. a recent 15.5%. Earlier, the Treasury sold $10B in 1-month bills at 0%. Treasurys gave up gains and flattened; the 30-year yield +0.02 to 4.56%; 10-year flat at 3.63%; 5-year flat at 2.36%; 2-year +0.01 to 0.83%.

    One of our readers?  Given "the enormous amount of government debt issued in the past twelve months, along with a dwindling supply of foreign treasury purchasers, an interest rate rise looks very likely in upcoming months, which will push yields up and bond prices down," says Caledonia Wealth Management’s David McMillan. To capture the move, he’s short the 10 year Treasury via the ETF TBT

    The National Retail Federation expects 2010 industry sales to rise 2.5%, based on an anticipated increase in consumer spending and a drop in unemployment. Even granting such optimism, a modest gain doesn’t help much, since retail sales fell 2.5% last year. (ETF: XRT)

    Guidance looking good so far:

  96. gel1

    jc
    Just sold 15 contracts (puts) AAPL 230′s Jan 2011 for 39.00. - 58,480 in pocket.  My rationale is the worst case scenario would be AAPL at 191.00.  With the potential profits anticipated from their foreign sales and the new products, this to me is safe and potentially very profitable position. I think hell will freeze before AAPL is under 190 next Jan. – anyway with the new bucks in the pocket, you can buy a coat for insurance. I have to admit, I am a cheerleader for this company.

  97. bord

    Yes ditto on the Sarah’s AAPL question, when is the sell into the excitement moment in your view Phil? Today, tomorrow or is AAPL in the open field with no one but the punter between it and the end zone?

  98. ssdirk

    Gel – I agree with your premise on AAPL – best company by far.  However, as a life long Saints fan, I can assure you hell froze over on Sunday.

  99. samz3700

    Phil -
    are we 1/2 covered or full on dia covers sorry cannot find the right post

  100. Phil

    IPad/Sarah – As I was telling people yesterday (and even before earnings) – sell on a run-up into either earnings or the IPad as AAPL tends to get bashed whenever they do something good.  Because we got the big sell yesterday ahead of earnings we used that to our advantage and sold overpriced puts.  On a short-term play, I’d be very satisfied with $213 and cash out as $215 was the high and should offer some resistance – also, the markets are getting rejected at the bounce zone and that can drag AAPL back down. 

    By the way, selling should be scaled out the same way buying is scaled in so if you have the March $220s, now $7.50, you should stop 1/2 at $7 and 1/2 at $6.50 which is a pretty wide buffer but gets you out at an average of $6.75, down 10% from the best price.  Consider it a .75 trailing stop to set as they climb.

    AAPL/Gel – I like that play and don’t forget you can always just slap on 15 March $190 puts at $4 if you get nervous for 1/10th of what you got paid and if you lose $1 (30%) 4 times on AAPL dips by playing it safe, you can still make that mistake 6 out of 12 months and still make $35,000 while every time you make a couple of bucks on a drop that recovers, you knock 5% off the basis.

    BKS – Good call Cap, rumor was false and reversed hard!

  101. microflux

    I looked through the buy list what do you think about these and how would you play them diffirently today :
    ATVI
    ERTS
    FTR
    GME
    INTC
    MBI
    NDAQ
    i’ll add WFR and TASR on my own :)

  102. gel1

    ssdirk
    It can happen, but remember, Steve Jobs was not coaching the Saints on Sunday!

  103. gel1

    Phil/AAPL
    That insurance sure beats buying a coat. Nice strategy!

  104. jomama

    PHARM, what are your thoughts on GILD earnings today? 
    This weekend, i met a CEO from a boise pharmaceutical company.  He said that he lost a lot of talent to United Therapeutics.  What are your thoughts on UTHR?

  105. Pharmboy

    GILD/Jo – should be fine for earnings.  Flu pandemic did not pan out, but people bought their stuff anyway.  As for the AIDs drugs, those are growing, just not as fast.  All other pharma’s have done well, so I think it is a whipsaw, personally.  As for UTHR, will have to look into them AH.  They have revenue growth, but just don’t know the products/pipeline as well.

  106. samz3700

    Exchange is so annoying -
    Own June 103 dia puts and 105 dia puts – cannot put in an order to roll the 103′s and buy more 105′s – "cannot have open contracts on both sides of an options order" – IB says its a rule set by the exchange -
    b/c I would be acting like a market maker - please I am selling one position and adding to the other – absurd.
     and f* the marktet makers who are the biggest crooks anyway

  107. RMM

    pHIL: is XOM a buy as a stock or sell puts ?

  108. samz3700

    Exchange is so annoying -
    Own June 103 dia puts and 105 dia puts – cannot put in an order to roll the 103′s and buy more 105′s – "cannot have open contracts on both sides of an options order" – IB says its a rule set by the exchange -
    b/c I would be acting like a market maker - please I am selling one position and adding to the other – absurd.
     and f* the marktet makers who are the biggest crooks anyway

  109. jcmcn5

    This  is the kind of thing I had in mind when I asked yesterday about the "crash risk" associated with the heated rhetoric being thrown across the partisan divide in DC.

  110. jomama

    pharm, i havn’t done any research on them as of yet (got back from a exhausting bachelor party in cancun and then was on call yesterday).  But the guy said that they have a fabulous pipeline and he was buying as much as he could.   This doesn’t mean BUY, BUY, BUY but it does lead me to research and ask.  Thanks.

  111. jomama

    RMM, i think in regards to XOM – both.  I have bought XOM in my retirement account and have sold XOM 70 puts 2011 for 9$ in my brokerage account.

  112. jcmcn5

    Sorry – it looks like you have to register for the site.  It’s free though.

  113. humvee4me

    TOS
    I finally got my TOS account funded; looking at vertical spreads, I see where I can adjust the number of strikes that is presented, but where do I adjust the spread amounts  (the default is just giving me $1 spread differentials).  Thanks

  114. ssdirk

    jcmcn – I was able to pull it up no problem.

  115. hanna5

    What do you think of a stick into the close, to get above 10300?

  116. gel1

    Jo
    I like your XOM ’11 put sales – will follow your wisdom

  117. nobhar

    HUM…….I have used the VA for more than sixty years as a WWII combat disabled Navy vet and have nothing but accolades for them.  Just this past summer I had two stents placed  in my cardiac region, back surgery and acute/chronic kidney failure.  Those wonderful docs, nurses and nurses: aides SAVED MY LIFE.  GABBY

  118. jomama

    gel, i don’t know about wisdom – it is just a calculated risk on a well run company that generates a ton of cash.

  119. RMM

    jomama: CVX looks better than XOM and pays higher dividend.

  120. mrmocha

    HKCap, Pharm, thanks for the input, I thought long and hard about getting back in this morning but also don’t like the chart yet, so I used my cash on AAPL instead. After getting creamed in Dec betting short I got back on the long trade bandwagon and bot the AAPL 200s this morning for $10, then covering with the 210s this afternoon for $10, now gonna just sit back and see if I can get max gain from my free trade (AAPL > 210 at OpEx does it).

  121. jomama

    RMM, i will have to look into CVX – I just understand XOM better and have a good understanding about the stock and it’s direction.  I also believe that they may pop if the XTO merger doesn’t go through.  I played the XOM 70 puts for many months so i just feel a little more comfortable with XOM kind of like phil with DIA’s.

  122. BigPinot

    Phil and nobhar…of course you know the reason the Govt. gives Congress great health care package…so they are insulated from the pathetic rip-off system that has been built to INSURE the PROFITS of insurance companies, NOT the HEALTH CARE of the SUCKERS who are stuck buying the policies.

  123. kustomz

    10250 finds support and10280 traders unload…stick very questionable

  124. Phil

    DIA/Samz – If you did everything you were supposed to do from Friday’s alert (and I added it to the strategy section here) then you added 1/2 the June $102 puts as we broke 10,250 at $5 and the 1/2 x cover Feb $106 puts should have been rolled to the 1/2 x $104 puts at $2.25 and 1/2 x the $102 puts at $2..  1/2 of the June $108 puts should have stopped out at $9 leaving you with 1/2 June $108 puts and 1/2 June $102 puts covered by the two Feb putters.  Should we feel like we’re not going to bet over our bounce zone then we need to add 1/2 June $102 puts (still $5) and should we break further down or just buy back the Feb $102 puts if they cross back over $2 (now $1.68). 

    So if you just want a DIA position for the moment, I’d say the June $105 puts at $6.50 fully covered with Feb $103 puts at $2.10 would be good for now with a stop on 1/2 the covers if we fall below 10,165 again and, of course, looking to roll up the June $105 puts for .50 per $1 (we collected $2, which pays for us to roll up to the $109 puts). 

    Buy List/Micro:

    • It’s the wrong season for game companies in a weak market (when they turn up go for the laggard).
    • FTR is perfect at $7.64 as you can sell Aug $7.50 puts and calls for $1.30 and that’s net $6.22/6.86 plus the 13% premium. 
    • INTC 2012 $15s are just $6 (.80 premium) and you can sell the 2011 $17.50 puts for $1.40 to knock 25% off that price and the March $21 calls can be 1/2 sold for .42 and don’t knock collecting .20 per long as that’s $2.40 per year which is a 33% ROI right there.  
    • MBI – I think David just picked them this morning (nice timing!).  You guys need to know a sweet spot when you see one and we LOVE it when our stocks hit the option strikes!  They are still $5.20 and we can sell the March $5 puts and calls for $1.30, which is net $3.90/4.45 and that ain’t bad for 6 weeks! 
    • NDAQ is in falling knife mode, we can wait for a bottom. 
    • WFR kicked up already but still cheap
    • TASR I like enough to go for the 2011 $2.50/5 bull call spread at $1.70 and sell the 2011 $5 puts for .85 for net .85 on the $2.50 spread that’s already 100% in the money for a potential 195% gain or you own TASR for the current price next Jan

    RMM – Look, picks!  ^

    Rolling/Samz – Those rules are amazing.  Average trader restricted from doing what the guy on the other side of the trade is doing.

    XOM/RMM – 2.5% dividend doesn’t do it for me but you can take 2011 $55 calls at $12.85 and sell March $65 calls for $2.60 to wipe out your premium in the first month and you can sell the March $65 calls for $1.55 as well and just plan on rolling them along for the year.  $4 every 6 weeks against a $12.85 position is a nice ROI.

    Link/JCM – I do have to get around to doing that but I think you only get a couple for free and I’m sure I’d use up my quota from other random links I follow real fast.   I used to subscribe but they’ve gone downhill.

    TOS/Humvee – Don’t be shy, they have excellent technical support.  There’s a little adjuster where it says price that usually goes in pennny or nickel incriments. 

    Stick/Hanna – Volume at 2:30 is 130M so very stickable but if they don’t punch us up through our 4% bounce zone soon I’m going to be thinking they can’t. 

  125. BigPinot

     Phil I ve got a lot of puts for the market, gold and calls on TBT what should I do?

  126. ssdirk

    JRW – did you jump on TZA?  2nd ride for me today.

  127. gel1

    Jo
    That’s what I mean by wisdom – your analysis is exactly the same as mine and your strategy fits in to what I would have done. If you are wise, then by reason I too am wise, as we agree. Feeling good is like making money – this way a double win!

  128. RMM

    Phil: the XOM play you talk about under 2:25, is there a better one for CVX ?

  129. JRW III

    ss
    No, I got out of TNA at 2:00 when it failed to break 62.03 for the second time; made $ 16k though. Now I’m waiting for the Stick, or the realization that there will be no Stick.

  130. gel1

    RMM/CVX
    CVX is a good play, but not equal to the potential that XOM enjoys. The potential for a NG rebound is big, and XOM has that option in its hip pocket. If our beloved government decides to trash the shale production (NG), then XOM can recind its offer for its NG acquisition. Personally, I would rather play CHK than CVX, as I consider them one of the best energy plays that exist at the moment. (Reserves and takeover potential as well as management)

  131. Phil

    XOM/Jo – Least nat gas and most refining is why I like them. 

    Puts/Big – Gold hit our goal at $1,088 which is down 5% from $1,150 and about 10% from $1,200 so we expect a 20% retrace of that drop (and our $1,088 target is a combination of 5% rule measurements up from the bottom and down from the top) so we expect a 20% retrace of the $112 drop so $22 back to $1,110 off the major drop and anything less than that is a weak bounce.  You can use that for a stop or you can take money and run ahead of the Fed but it is possible they say something tightish and send gold flying down too.  As to TBT, that’s probably the thing I would play if I could only play one thing all year (and see earlier news item on Dave McMillan, who feels the same).

    CVX/RMM – Too much nat gas so I don’t like them (nat gas $5.40 now!).

    Your tax dollar at work: The proposed bipartisan deficit-cutting commission – opposed from the right because it might raise taxes, and from the left because it might cut programs – is rejected by the Senate, getting only 53 of a needed 60 votes.

    Financial reforms will be merely parochial without a "global sheriff" of financial regulation, says Andrew Ross Sorkin, and such a proposal could come from Davos this week.

    Calculated risk charts oil prices and the Shanghai market to see what a forecast of lower Chinese crude demand might bring. Nymex futures now -0.5%. (ETFs: USO, PGJ, FXI)

    Keep an eye out for retail layoffs:  Home Depot (HD +0.5%) will lay off 1,000 as it consolidates support functions, and close three pilot stores, though the company stresses the cuts are strategic and aren’t related to business pressures.

  132. Phil

    AMGN pulling it together after earnings panic. 

    FSLR coming off the floor.

    FDX seems to have found a floor.  Apr $75 puts can be sold for $2.40 and that’s a nice entry anyway.

    T held $25 very nicely (200 dma) and I don’t think they’re losing AAPL so 2011 $30s at .53 are worth a toss, they were .63 yesterday and $1.50 at the beginning of the month.

    Gold can’t break $1,100 and oil can’t break $75 – does not bode well for the close….

  133. mrmocha

    SYNAPharmboy, I’m still in SYNA and was fully covered so this pullback didn’t hurt much, I’d love to hear from you when the chart makes a major statement to you, I think we turn and run back to 30 at some point.  Thanks!

  134. RMM

    Phil: agri is ay down, any trades ?

  135. Cap

    Gel; FWIW, I don’t like that play.  Lots of things can happen that are bad … war, market crash, whatever.   AAPL could drop 100 points and you are screwed.   I might like it better at say 150.
     
    But good luck !

  136. Phil

    Just grabbed DIA $99 puts at $1 for a quick mo trade

  137. Cap

    Back in HK at 24.14

  138. Phil

    Agri is ay down/RMM – Twas brillig, and the slithy toves did gyre and gimble in the wabe.

    Woops, down we go again.  This is not going to make Asia happy if we close red.  EDZ is still nice to play a melt-down and the March $6 puts can be sold for $1.05.

  139. BigPinot

     SS/JRW is TZA a good overnight play, or sell at close?

  140. ssdirk

    Pinot – I made a good chunk today on TZA so I am going to close it.  There is always a chance to reenter tomorrow.

  141. Phil

    Elliot Wave guy says DOOM!!!

    SDS March $32/36 bull call spread is $1.90 and $3 in the money – a very nice hedge for the downside.  You can sell the $33 puts, now .80 for $1.90 on a good move the other way too!

  142. RMM

    BigPinot: wanted to go to Pig and Pinot but all sold out.

  143. BigPinot

     RMM…huh?

  144. Phil

    Stopped out on DIA puts up .05 but looking to reload at $1 (it’s that kind of trading in this range, SDS play is way better if you aren’t day trading).

  145. judahbenhur

    SS, Good for you. I rode a slow TZA train today, DD when IWM failed 62 and got out just now.  Seemed like a lot of work for a few shekels.

  146. Phil

    See, back in again already – so void getting out for the moment – looking for $1.10 now and very carefully guarding each nickel until .20 where we can set nickel stops.

  147. Cap

    Good play Mocha !
     
    Deficit cutting commission.  Another extraordinarily weak, BS move by Obama.  A politician’s favorite way of punting on making a controversial or hard decision and claim the appearance of doing something.

  148. BigPinot

     Phil…how are you playing tomorrow…bearish or bullish?

  149. Cap

    Hey Peter Orzag … where your baby mama at !   Instead of working, this dude is just chasing girls in DC.

  150. JRW III

    Big,
    I never carry overnight in this market. And Russell is sitting on support. Tomorrow is another day !

  151. kustomz

    Cap its a way to create or save 10 million more jobs, get with it man…you need to read between the lines

    People are starting to realize that the only thing the stimulus is stimulating is more unsustainable global debt

  152. cwan120

    How is the volume today?

  153. 1020

    Hey Gabby! I don’t get to thank a member of the Greatest Generation for their service and sacrifice every day so, THANK YOU!!!

  154. JRW III

    Big,
    Of coarce I’m speeking of the 30% that I day trade.

  155. EricL

    PNC sitting on support but looks like it’s about to break down. Regional banks in general have completely reversed a strong morning rally.

  156. BigPinot

     Phil…Nasdaq cant keep a gain going after aapl, I just feel change of sentiment will power the market lower, especially as earning season winds down. 

  157. EricL

    Wow — PNC broke down the second I posted that.

  158. JRW III

    Gabby,
    Ditto 1020 !!

  159. kustomz

    Deeeeee leverage, lets say it all together now

  160. Phil

    I guess the best way to put it is, the more you make the more you are willing to hold on a pullback but you always (in momentum trades) want to make those nickels and when you lose a nickel you get out.  That way, you hopefully balance small losses with small wins and, once in a while, you get a nice run that makes real money.

    Well, if we thought CME was cheap before – look at them now! 

    Tomorrow/Big – Cashish!  Gotta be a bit bearish into this close but anything can happen, of course.  I added those last couple of bear plays because I was too even, now bearish a bit. 

    Volume/Cwan – 170M on the Dow at 3:44, very stickable volume but no stick at all.  More like anti-stick.

    10,165 should hold and we don’t want to be greedy on the day trades.

  161. gel1

    Cap/AAPL
    Thanks for your input. I look at the play strictly as a "premium burn" over the next 12 months. It is one that I have for this purpose and I have selected AAPL as I know of the exposure, but feel this one is one of the most imune to a radical unforseen drop, and should crawl upwards in value if anything does.. The catastrophic/black swan event is always potentially there (now more than ever IMO), however I look upon my play as an income play, much like the dividend play but with adjustment options. I am hedging the catestrophic event with some of Phii’s mattress strategies, and I, for this reason, always have a bunch of gold positions that will explode should a catestrophic event become reality. (lets hope not).

  162. ban2

     Hi Phil
    Like several suggestions you’ve based on Cramer’s rant’s, I follow his Chartible Trust Portfolio and try do use what I’ve learned on this site when he announces he’s adding  to positions.  His C/T port is fairly conservative as results are posted daily and compared against the S/P
    I do buy/ writes or sell puts after prices settle (he never deals in options for the Trust) and I’ve done ok
    He recently added positions on -- 
    WFT (energy); added today
    ACN (outsourcing);
    CHU (China phone/ Apple play)
    CSCO (tech and bandwidth play) added today
    Any of these stand out in your opinion?
    Thanks

  163. ssdirk

    That’s a weak bounce guys.  I don’t think that bodes well for the rest of the week.  A lot really depends on the tone of the address tomorrow night.

  164. BigPinot

     Yeah Gabby, Im glad youre still kickin. Sorry but some of my buttons are broken on my computer so it looks like I dont know grammar.

  165. EricL

    Wow on CME. ICE getting killed too.

  166. judahbenhur

    JRW, 61.15 was a really good line.  I should have played it all the way into the close. Maybe tomorrow…

  167. jomama

    Phil, what do you think about WU?

  168. yodi

    Boy o boy the Dow is really struggling

  169. Pharmboy

    MrM – SYNA killed me….I don’t like them for now, 24 looks like it will be a floor, but that is what I thought last time.  STEC is also like riding the surf waves here in SD (although I don’t surf).  I am staying in mostly cash, just waiting for a real pullback.  Then stepping in with my toes.  I am looking for home runs with a few biotechs and techs….RF - now that is one crappy stock that is cheap to manipulate.  My uncle still hates ‘em, but he hedges and knows how to do it…so, a no go for me, but he loves to stick it to the MM. 

  170. ssdirk

    judah – better than greedy.  You never know what stick awaits around the corner.

  171. Pharmboy

    Oh, and my uncle agrees with Elliott Wave, not the theory, just DOWN.  Look how easy it is to pull the plug, or have we forgotten?  Wall Street has, b’c they will lure in the retail, and stick it to them b’c everyone wants UP.

  172. JRW III

    judah,
    You are welcome, And I’m out.

  173. EricL

    The entire Dec-Jan rally in XLF has now been completely invalidated from a chart perspective. False breakout?

  174. neverworkagain

    The market’s characteristics have completely changed in the last week. Four areas which were givens from March until last week were:
    1) Rally on any ‘better than’ numbers or data regardless of how low the bar was set.
    2) End of day stick saves almost regularly, and particularly on down days.
    3) Dip buying every time key technical levels were in jeopardy.
    4) Almost never big red numbers on the overnight futures (Dubai World and a couple other days the only exceptions).
    It is making me very cautious going forward and I’m maintaining my disaster hedges. For me, this is not a dip-buying market yet. Maybe when (if?) the next stop is S&P 1,000 I’ll be interested. Or if the above characteristics show up again.

  175. gel1

    The market uncertainty should give the VIX a boot in the butt. The buy/write opportunities will benefit for sure.

  176. Pharmboy

    Never – agreed, 1000 is a good toe place, but only my little one…I want to be able to walk.

  177. Phil

    GS leading us lower, past 2.5% now, XLF at $14! 

    Knights who say deeeeeeeeee leverage!

    Cramer picks/Ban – Well CSCO is a long-term favorite of mine, I don’t touch Chinese ADRs generally as you never know what they are really doing.  I’m down on energy through March (but accumulating XOM) and ACN is trading at an all-time high and Cramer is just trying to herd you in so his hedge fund buddies have someone to hold the bag for them so I’d stay away from that one.   So, given those choices, I like CSCO and I like them in any case. 

    WU/Jo – I don’t even know what they do anymore.  I hear they are a big deal in the 3rd world as a means to move cash around but I get the impression they are pretty much making money of fees that will one day get blown out by PayPal or some other more modernized method so I’m not into them.

    Nice $1.15 on those DIA $99s should make anyone happy!

  178. EricL

    There is support around SPX 1030 too — we bounced there several times.

  179. gel1

    Pharm… I agree with your uncle once again.

  180. Phil

    XLF/Eric – I said it was false while it was going up, now we’re just getting real. 

    Good points Never! 

    VIX down 4% on this crazy day – go figure…

    OK, time to go be a hockey Dad – later all!

  181. bord

    How you can you play hockey without a stick? Cause we sure did not have one today..;)

  182. ssdirk

    YHOO inline will not help.

  183. Cap

    Opinion on Cramer picks ?  Never, ever listen to Cramer.

  184. Cap

    I feel like I am playing chicken with the market.   Bought some BEXP SWN and HK into the weakness at the close.

  185. gel1

    This market has lost a lot of traders as the volume is down. I think the long run-up since March was a result of pure hope in the effectness of our new government.  The true reality of the situation is now out in the open, and hope is waning, and the loss of hope is having a negative cloud over the market  A deeper correction is very possible,.as I do not think our populist government gives a rats ass about how well the market is doing – sad but true. The Wednesday speech will be filled with lollipops and blames for those that he believes created the mess. That rhetoric will not resolve the crap that is still so evident, nor help the financial markets. Phil, that mattress you designed feels very comfortable at the moment.

  186. bord

    A question for Pharm, (and Phil too if he wants to chime in),  Pharm since you watch the health care sector so closely, I was wondering what your favorite play is right now? I don’t have an investments in the health sector now, and for diversification purposes, wanted to get some ideas to consider. Thanks.

  187. tuscadog

    Bord,
    I’m long AMED with 10,000 shares.  Done a lot of research since last Spring.  But, on Yahoo site, "Financial Blogs" there are 7 great articles by Daryl Davis.  Spend 2 hrs educating yourself on Amed.  Big short interest, around 10mm shares/50%, which provides additional artificial covering upside.  Great Co presentations on the co web site (Jeffries today).
    Shorts think Healthcare bill will reduce revenues (eventually).  But, I’m from Europe, and one key reason healthcare costs less is the focus on keeping people of hospitals with home health care (hhc).  Cost 10x more to hospitalize old folks.  This is why Amed has grown historically at 20% and will continue this trend indefinately as co consolidates the industry through acquistion and continued organic growth.  Cash cow, minimal capex (just nurses), 11x  LY p/e.
    Lots of good info on the Yahoo Message Board for Amed.  Depression proof cash flow.  My 2 yr target is $90 (now $57).
    I’m 65% in cash but have core long term holdings in (mainly) Amed, plus Cien, Humana, Forest Labs, Cubist, ACGL

  188. JRW III

    Cap / Chicken
    We are sitting on support, either we go Up and you win, or you can short ANYTHING and you’ll be fine !!

  189. bord

    Thanks for the info. tuscadog!

  190. Peter D

    whew, that’s 6 hours back to back meetings.  I see that my short strangle portfolios are up 2.4% today (good gain without touching them), and 11% for January.  Woo hoo!  That’s a bit over leveraging for Jan, but hey, got to make the most of the surge in VIX because of Obama’s speech, and the Benanke confirmation worries.  The fast VIX jump was uncalled for.   Comparing the VIX level with previous low in SPX and you can see that VIX was higher than it should.  So it’s a risk worth taking and now profit are being locked in as the portfolios are being deleveraging fast.  The portfolio buying power is still at 60%, and will be back up to 80% in a day or two.
     
    On the flipside, if we were greedy and had too many spreads to start with, we would have had a margin call.  Well played to the short stranglers.

  191. jcmcn5

    Phil — may have missed an exit call somewhere, but did we ever exit from the XLF buy-write?  I own the stock at 14.99, sold the march 15 puts and calls for $1.30 as i recall. 

  192. jomama

    GILD with nice earnings – up 5% at the moment AH – BRKB going up as well?

  193. bord

    jcmcn5,
    XLF is probably still on, because 2 days ago he added a new trade, XLF long 2011 15 calls (Naked!)…. I double checked and he said yes naked. I doubt he would have called off the buy-write given the new naked call, which is down about 22% now, (I likely will DD soon).

  194. jcmcn5

    thanks bord

  195. bord

    I think it was last Friday, check the chat that day it might be there.

  196. jomama

    brk just got added to the S&P to replace Burlington.

  197. jomama

    Damn, I was tempted to sell some BRK 56 Sept puts today – I guess that train left the station.  oh well.

  198. gel1

    tuscadog
    I like your position in AMED. Have been in it for a long time, The fundamental are solid. long term. CBST is another good one – have been in it twice and both time lost patience. I’m out at the moment, but they have a great story, that someday will be appreciated.

  199. Phil

    That was fun!  Nothing like watching 9-year old girls trying to knock each other’s teeth out…

    YHOO looks like it was taken well. 

    Deleveraging/Kustomz – The flaw in that bear premise is the assumption that debts need to get paid.  You don’t need to delverage anything if you lever up and up and up until it explodes.  Then there is nothing to delever.  See, the futures are up half a point already!

    Populist/Gel – They shouldn’t be doing things "for the market," they should be doing things for the long-term economy.  What they should have done, when the financials were dead, is let them stay dead and take over the business of lending to people.  The government could have given people 2% home loans and cut 50% off everyone’s monthly mortgage payment.  The banks would have been repaid and would simply be out of the lending business but the rest of the economy would be booming again.  I don’t think it’s any riskier for the government to give money to people at 2% than it is to give money to banks at .25% who then turn around and lend it to the same people at 6% is it?  When the bank screws up and makes bad loans, we bail them out anyway (9 banks closed so far this year) so how could it be worse and look how much money we’d be putting back into the economy…

    Health care/Bord – I still like UNH and MDT best but both are miles up from our entries.  Those are my two favorites. 

    AMED/Tuscadog – Sounds good!

    XLF/Jcm – As Sartre would say, there’s no exit…  Here’s the scoop with these plays.  I like ETFs or stocks that trade between $5 and $15 that pay good premiums and are very unlikely to fall more than 1/3 in a year.  XLF was $15 and we sold $1.30 worth of puts and calls.  If we sell $1.30 12 times that’s a return of $15.60 on our $15 investment, which would be considered good in many circles.  I especially like these plays with stocks or ETFs that have $1 incriments to sell to as that means we are very unlikely to get stumped on our rolls. 

    Now, it’s nowhere near March and the $15 puts and calls are $1.55 and the stock is down $1.  I don’t really give a damn what the stock is, it’s just my cover for selling puts and calls.  If they were Feb $15 puts and calls they would be $1.20 and I would have gained .10 for the month, which is $1.20 for the year and is an 8% return on my $15 investment.  So let’s say we look at the Feb $15s and let’s say today was expiration day – XLF is at $14.01 so the caller expires worthless and the puts are worth $1 so we gain .30 total ($3.60 annualized).  Now we look ahead and we sell the March $14 puts and calls for $1.30 or, if we are more bullish, perhaps sell the $15 puts and calls for $1.50. 

    We won .30 on the first month and we sold another $1.50 so our basis is $13.20 and, if put to us, we DD at $15 and that makes an average of $14.10 so we are just .10 out of the money with the stock currently at $14, even though it dropped $1 on us.   If we are not too pathetic with our targeting, we should win .30 to $1 pretty consistently – XLF has been between $14 and $15 since July and, if we have another crisis and fall back to $7, we’ll be happy to DD and sell 2x from an average of $11 (less whatever profits we bring in between now and the crash). 

    I often say you need to think about a play like this as if you are a landlord renting out an apartment.  You are going to rent it every month and you try to get the most (premium) that you can.  During the time you rent it, you may have some damages and repairs to make and the value of your apartment may rise and fall 50% but – So what?  As long as you collect your rents and don’t spend too much on damages, you have an income stream for life and the only time you worry about the value of the apartment is when you decide it’s not worth renting it out anymore. 

    Between 1998 and 2008, XLF went between $20 to $40 but was mainly between $25 and $35.  That’s 120 months and if you collected just .30 a month that would have been $36 on a stock that started at $25 and it’s still worth $15 so $51 back on a $25 stock despite the fact that it’s now at 1/2 of what it was.   If you keep a LONG-term perspective on these, you can end up with a very happy retirement where you do nothing but rent out your positions month after month after month and the big trick is DON’T BUY CRAPPY STOCKS – buy the classics, buy the things you can envision still having in 5 years or 10 years and then don’t worry about what happens this month or even this year.   As long as you can find renters who pay you a decent price – you are still in business…

    XLF/Bord – Yep those are long-term scale ins and we do want to add more or roll down if cheap. We can roll to the 2012 $13s for $1.55 and that’s buying $2 and one year for $1.55, not a bad deal.  We can also roll to the 2011 $13s for $1 but it’s possible to make that roll for .60 (the $17s are .50) if we head lower so the bottom line is – there’s nothing to worry about yet.  Also, we can now sell the 2011 $12 puts for .90, that’s getting tempting too.   Ordinarily, down 40% ($1.39 entry) is where we want to DD so at $1 we need to make a decision on DD or roll.  If we DD, that makes us down 20% on 2x at $15 and then we’d want to sell 1/2 the June $15s for .60 to make up the .20 per long loss (and the .30 per long collected would pay for us to roll down to the $14s if we decide to.

    BRK – Damn, they were so close to my $65 target too!  That’s annoying…

  200. gel1

    Phil
    The difference between having banks make loans to unqualified lenders as opposed to the government making the same loans, is that in the first scenario the equity holders eat the mistake, wheras in the latter where the government gives out 2% loans, the taxpayer eats it. Why either – what happened to renting?

  201. Cap

    Phil; how cute; I prefer female mud wrestling myself …. (picture John Candy vs. 1/2 dozen vicious but hot women).

  202. Pharmboy

    Bord – i just wrote something up about LLY a week or so ago.  I like them for the rest of the year.  MRK, GILD, GSK, NVS are all good ones to be in for long term, but what is long term?  I am in MRKs 35-40 Jan11 C spread (2.6 now). GILD currently in 40/45 Jan11s, 1/2 cover with 46 Febs and sold Feb 42 and 45 P.  I closed those out the other day when GILD bounced up, and now will roll the calls up.  GSK for a pipeline is pretty strong, so I like the 35 Jan11s and waiting to sell the 42.5 Feb for $1.  Selling the 40 P Feb or Mar also makes for a nice entry.   BMRN is in a new writeup for this week as is ILMN (of whom I mentioned a few weeks ago). 
     
    For fliers, ITMN has data coming in April, so I am loading up as much on the dips to burn off my 12.5/17.5 Jul spread for 1.7.  All or nothing on this one, but I think they will make it.  VIAP an GNBT are my home runs at 19c and 61c.  If you go back through last years readings and my year end review, I noted many others that are good companies.  I like AMED and many of the retirement homes (selected ones) and now looking into UTHR as noted today. 

  203. judahbenhur

    Peter, If you’re still checking the board today, I was wondering why you had commented this morning that you were lightening up just as the VIX was surging.  I thought this situation was exactly why you kept margin unused, so that you could sell into the high premiums we’ve seen the past few days.   February will be my first monthly endgame for the strangles/crazy plays.  My Feb SPX verticals are getting closer to the money (I have 1060/1050) while my Feb puts for the strangle are comfortably down at 970 and calls now in Neverland all the way up at 1210.  My RUT strangles are similarly in good shape (680/480) though the 560/550 verticals may be out of reach. All good, seems to me.  So, my question is--how have you typically played the verticals in the final weeks?   

  204. tradansh

    Phil – What do you think of the American Royalty Trusts like BPT or PBT? BPT has a yield of almost 15-16% and you can sell options too (though less liquid). Sounds very enticing in today’s world.

  205. Peter D

    judah/strangles,
     
    VIX was dropping when I made my comment this morning.  It dropped from 28 at the close on Friday, to about 24.6 at 11:30 AM Eastern, and I saw profit came in fast with the short strangles, especially the ones added last Friday.  Then I set GTC to buy back more short strangles before leaving for meetings.  They were nicely filled when VIX dip to 22.8 before climbing back up to 24.5 at the end of the day.  So I used up some margin last Friday and unloaded today and more tomorrow.  If you have the margin and haven’t used them in the past few days, then it’s not too late to take advantage of the 24.5 VIX by adding spreads at strikes that you are comfortable with.
     
    As for the verticals, I either: a) close them along with the short strangles when the profit target is reached, or b) selling off the long PUT if it’s comfortably OTM, 10% or so.  Although VIX is lower compared to Friday, it’s still decent at 24.5, so with the original crazy play with short strangles, it’s best to wait for VIX to come down, i.e. do nothing with the original spreads, but unloading the spreads added last Friday when VIX was higher.  This and next week is when the Feb’s would loose most of their values, so a flat market at this level is best.

  206. Peter D

    Sorry, that’s 10:30AM Eastern, not 11:30AM, when VIX was at 24.6. 

  207. lflantheman

     Peter D  …I thought the last week of expiration was typically the time when options lose their value most rapidly, or am I misinterpreting what your’e saying. 

  208. balancenv

     Peter and all strangers:
     
    The last few days were certainly interesting for SPX/RUT short strange plays. 
    I was trapped by the early Jan "irrational exuberance". For VIX to be too low, I’ve sold too many SPX contracts. 
    When the market dropped 50 SPX points, my margin almost went from 60% reserved to less than 10% reserved. This is due to both SPX 1000 P and RUT 570 P. 
    Even though 1000 P was still 100 points away from the current SPX, it’s the margin that kills me. 
     
    Recall my previous simulation result of the last 8 yrs of SPX strangle plays. The results show the put vertical hedge can ALWAYS save the rainy days. Well, there’s a subtle difference in today’s case. If you use TOS and do a simple plot of say,  Feb 1060/1070 put vertical and play with the P/L curve with the date advancing day by day to 2/19 expiration date, watch the ‘white’ line (not the final P/L at the expiration date), you’ll notice that the vertical will have accelerated value increase ONLY during the final 2-3 days before the expiration. This means, in my case, having a pair of 1060/1070 put vertical with a 1000P as the put leg of the strangle, is NOT an effective ledge when the market drops from 1150 to 1100.  The put verticals only increase its value from 1.x to 2.x, while the 1000P shot ups and eat in my margin. 
     
    I admit it was greed that drove me to sell 1000P instead of 950P, and sold too many contracts without the ’20K reserve per contract’ rule. But how can you achieve 5% per month following those rules with VIX being sub 20′s??
     
    Peter’s crazy play is a useful hedge for other case (like in the final week and you’ll in deep trouble), or when the market is flat and you can just simply sell the + leg of the put and leave the – leg naked. But you’ll have to good at picking the target and more importantly, don’t expect the hedge to help much in your rolling, especially with > 3 weeks away from expiration. 

  209. Peter D

    lflantheman,
    I should qualify the statements.  For options that are 10-20% OTM, their rate of decay is fastest around 3-4 weeks until expiration.  Since they are so close to zero, their decay measured in absolute value is much less.  For options that are ATM, their rate of decay is fastest 0-2 weeks prior to expiration.  So you are partially correct.
     
    balance,
    Have your account balance recovered yet?  Wow, that’s very close when your portfolio got to less than 10% reserve!

  210. Peter D

    Hey guys, I’m compiling the activities in the past few days for our reference (WARNING – LONG POSTS) …
     
    The play: Short strangles – Selling into volatility, play-by-play, 1/19/2010 to 1/27. 
     
    The Setup: VIX surged from 17.5 to 28 in 2 days, a feast last occured 3 months ago, when Galleon hedge fund blew up in late October 2009, and drove the Russell 2000 below support.

    1- Tuesday, 1/19, closing with SPX 1150 (near 12 month high), VIX 17.5 (near 12 month low)
    No activities on Short Strangles
    2- Wednesday, 1/20, closing with SPX 1138, VIX 18.6
    Market down 1%, no problem with Short Strangles, using up some of the Negative Delta bias, VIX is still complacent
     
    3- Thursday, 1/21, SPX 1116, VIX 22.23
    SPX broke 1130 line, and ssdirk was paying attention:  10:29AM  "alright, I am getting close to a delta of 0 on my SPX strangles.  You talked about DD or taking other measures when we get a big move down and delta goes to positive.  Can you elaborate on ways to take some profit and adjusting to keep you in a better position"
    Peter D response: 10:47AM "Now that we have survived a couple of drops and used up the negative delta hedging, we can consider rolling the short calls down.  The RUT Feb 700 is now $0.4, meaning we’d have to wait a few weeks to get the $0.4 while the short PUT keeps gaining on us if the market continue to drop.  It can be rolled to 680 or even 670 for $0.8 to $1.9 credit.  Since we are taking on more risk of getting blown out to the upside, let’s roll half and see how we are doing.  Similarly, the RUT Mar 720 is $0.8, so we should consider rolling it to Mar 700 for $1.4 credit (or Mar 710 if you are more comfortable).  The premise of these rolls is that earnings are not a blow out, not supporting a big market surge.  We still have huge cushion on the short PUT side, 12.5% or more, so no worry there"
    Peter D note that the OTM calls are loosing value quickly: 11:28AM  "short stranglers, you can all see that we are breaking the short term support of SPX 1130 and RUT 638, so the short calls that are 7-10% OTM (especially the Feb’s) are getting to zero as the market makers have given up on them, statistically speaking that the market would unlikely to make those 7-10% upper levels in 4 weeks.  In the rare cases where the market can make it to the upper resistance, then those OTM callers can gain value, but very slowly at first, giving us plenty of time to react.  In those cases where the market rallies, the callers not only battle time decay, but also decreasing VIX."
     
    judah, are we tighten the strangle or not? 11:36AM
     
    Peter, yes we are since it was a first chance in a while, 11:48AM
     
    ssdirk, 2:42PM, are the spreads on SPX options usually this wide.  Seems no one is trading them?
     
    Peter, 4:09PM, the spreads are very wide, maybe skewed by the sudden jump in VIX.
     
    ssdirk, 4:17PM,  Could you help me to understand what happened today on my SPX and RUT strangles.  I have both Feb and Mar strangles with wild plays.  Margin Req are pretty equal between SPX and RUT, and they are about the same between my 10%/-15% strikes on the curve. They are both pretty close to being 0 delta.  However, the SPX strangles lost money today while the RUT strangles held ground.  I know vix spiked in the last 2 days.  Is it because the spread is bigger on the SPX than the RUT.
     
    Peter, 4:51PM, the only explanation is that RUT putters didn’t gain as much as SPX putters and that the paper loss on RUT putters should be as much as SPX’s.  The SPX Feb 980 PUT jumped $1.95 (125%) to $3.45, while the RUT Feb 560 PUT only gain $1.05 (70%) to $2.65.  They are about the same distance OTM.  This may be caused by the discrepancies in the exchange’s algorithms to calculate options value, or caused by the fact that RUT did rally more in percentage terms during the day, limiting the gain in the putters.
     
    The discrepancies between RUT and SPX could all be reversed tomorrow where RUT strangles would lose more than SPX.  The way to take advantage is to sell more of putters into whichever that gain the most for the day.  Another 2% down and we are ready to deploy the additional cash as VIX could reach 24.
     
    This is an excellent example for doubling down that is slowly unfolding where we see paper loss, even while having negative Delta.  It’s the work of a higher VIX that counters the effects of negative Delta and positive Theta.  Having lots of margin would also help.  I’m seeing that my available margin is getting down to the 75% -80% level, which is excellent as I can even tripple down.   Keep an eye on the SPX Feb 950 and 980 putters.  When they get to $5 or more, they are a very attractive sell with 4 weeks to expiration, along with whatever the short CALL that makes sense.
     
    judah, 5:06PM,  I had been wondering when you decide to DD.  It has been such a relentlessly up market with a low VIX that the there didn’t seem to be much more to wring out of the Feb strangles.  I think I’ll take advantage of the the current downturn and sell some more Feb strangles tomorrow.

  211. Peter D

    The short term peak – The doubling down opportunity came true:
     
    4- Friday, 1/22, SPX closed 1092, VIX 27.6
    Phil’s title: "Fall Down Friday – Stop the Week, We Want To Get Off!".  However, we added short strangles instead as we had plenty of fire power.
     
    Peter, 10:48AM, I’m having a blast selling additional strangles on that dip.
     
    ssdirk, 1:46PM, What do you think of rolling my SPX Feb 1210 call to 1180 for 1.20 credit?  (note that FEb 1180 call was down to $0.73 2 days later, so it was a good roll).
     
    Peter, 2:09PM,  SPX looks iffy with the bankers going down, so rolling to Feb 1180 is relatively safe.  The last high was around 1150, so there is still a 2.8% or so cushion if we get back there.
     
    gel1, 2:25PM, Now 90% out of the market. When the President of the US declares a war on the banking system and the financial markets, then what more could bring on a severe correction. That is the way I am playing it.
     
    Phil, 3:48PM, Wow, 500 points in 3 days! Dow volume now 241M at 3:45 and it’s a fact – we only go down on volume.

    cwan, 4:21PM, I’ve been quiet because I’ve been busy on other things.  But I managed to add some March strangles using strikes suggested by you folks.  Thank you all!  I also rolled down some of the calls, which don’t increase my reserve requirements.
     
    Peter, 4:21PM, Whew, it was exhausting to add new strangles. What a great day to add them.  VIX jumped to 27.31.  Look at the SPX puts, Mar 875 is $5.25, Feb 950 is $4.55!  We may go down further, but it’s a great opportunity to scale in more.  If we stabilized next week, VIX would come down fast and the newly added strangles can be got rid off, and we are ready for another drop.

  212. Peter D

    ================
    WEEKEND for reflection and time for Divisional Football
    ================
    5- Monday 1/25, SPX 1097 closing price, VIX 25.34
    tchayipov, 9:35AM, I’m finally aproved for PM, and ready to try your creasy strangles, any advice to open it now.
     
    ssdirk, 9:59AM, 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.
     
    Peter, 10:42AM, 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.
     
    Peter, 10:59AM, big explanation and escape route planning:
     
    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.
     
    judah, 12:45PM,   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?
     
    Peter, 1:10PM, 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.
     
    Peter, 3:44PM, Seeing no meaningful bounce, looking to hedge further on the downside:
    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 had 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.
     
    The exit continues:

    6- Tuesday, 1/26, SPX closed at 1092, VIX 24.4
     
    Peter, 10:28AM, looking to exit the spreads sold into the VIX surge:
    Thanks goodness for this bounce, it was looking grim that VIX would continue to go up, endangering our short strangles.  I took this opportunity [market bounce on consumer number, lower VIX] to get rid of the additional spreads that were added in the past few days.  Like I mentioned yesterday, once your account balance has recovered to the previous level before the 5% S&P500 drop, it’s good to lighten up, just in case.
     
    Peter, 5:20PM, got rid of a few short strangles to lock in profit
    whew, that’s 6 hours back to back meetings.  I see that my short strangle portfolios are up 2.4% today (good gain without touching them), and 11% for January.  Woo hoo!  That’s a bit over leveraging for Jan, but hey, got to make the most of the surge in VIX because of Obama’s speech, and the Benanke confirmation worries.  The fast VIX jump was uncalled for.   Comparing the VIX level with previous low in SPX and you can see that VIX was higher than it should.  So it’s a risk worth taking and now profit are being locked in as the portfolios are being deleveraging fast.  The portfolio buying power is still at 60%, and will be back up to 80% in a day or two.
     
    On the flipside, if we were greedy and had too many spreads to start with, we would have had a margin call.  Well played to the short stranglers.

  213. goober

    Nothin to do but make lots a money and keep on keepin on. You are a funny guy, you perspectives remind me of me. No doubt about it, the world runs on bullshat and deception.

  214. goober

    Nothin to do but make lots a money and keep on keepin on. You are a funny guy, your perspectives remind me of me. No doubt about it, the world runs on bullshat and deception.

  215. ssdirk

    Peter – Thanks for the recap.
    balancev – it seems you had the same uncomfortable experience as I did.  I am also trying to figure out how to manage a 5% return with a low vix while maintaining the $20K per contract rule.  Without extremely tight strangles I can’t get there.

  216. bord

    Thank you Pharm, I appreciate your help on that.

  217. jomptien

    Phil, I have the SRS 2011 7.50 short puts you recommended awhile back. I sold them for 2.20 and now 1.51 although SRS has been down since inception. This was a nice mellow way to play it like you said, thanks.
    Healthcare – Being a 30% disabled Vietnam era vet and in the system for almost 30 years I can say the care is excellent – fast and effecient. In the 70′s and 80′s it was not so good. Now at least in my area (Daytona Beach), if an operation needs to be done it is done at UF medical school and I think in most other areas, with teaching medical schools, it may be the same. I am sure this whole VA system would be much more costly to the taxpayer if in private hands. Also, not to start a debate but to just give my feelings: The republicans are always waving the flag and saying "support our troups" but they don’t put armor in the APC’s and vote against VA benfits, even McCain when he was running for pres. was against it and he was disabled also. How are they supporting the troups by wearing a flag on their lapel?

  218. jomptien

    Last post should read almost 40 years in the system.

  219. balancenv

    Peter and ssdirk,
    Peter,
    Thanks for the recap. This helps a lot, to learn from the Master. 
    I spent the last few days selling the put vertical to roll down puts to 950 and the margin improves significantly. 
    One of these days I will figure out exactly how the PM margin is calculated! 
    When things calm down a bit, we should do a new thread on how to gain 5% per month on low VIX, without selling too many strangles, or tighter ones. 

  220. pstas

    Peter/Stranglers: RE: 6%
    Your thoughts on this – I am looking at SPX April 1200/925 (which is +10%/ -15%) and Vertical April 1050/1040 . Per TOS Analyze tab- the strangle sells for $14.95 and the vertical costs $2.90. Plugging these two in as simulated trades and setting the slices @ -/+ 5; 10; 15% and picking the OPEX date of 4/17/10- shows profit of $1205 which is 6% of $20,000.
    Seems easy but that is what troubles me. April is long way off.
    Comments from all appreciated.

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