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Thank GDP it’s Friday!

[AOT]At 12:52 yesterday I officially went long on the markets.

This could be a big mistake (in fact, that’s what I said to Members at the time) but the logic was Bernanke would be confirmed (he was) and that we’d have a big GDP number today.  Now the reason we’re going to have a big GDP number is because we will have a big build in inventories (we discussed this effect on Jan 14th) as manufacturers got all excited and produced goods that nobody bought and, because it is assumed that goods are only produced in accurate anticipation of demand – this kind of nonsense comes in a positive to our GDP

Production collapsed during the recession as companies sold from their existing inventories but didn’t order new goods, because of uncertainty about future customer demand. These inventory declines dragged on GDP for six consecutive quarters, the longest streak on record since 1948.  The turnaround in inventoris could give us a Q4 GDP in the 5% range.  Rational economists prefer to look at final sales to domestic purchasers, a subset of GDP that doesn’t include inventories and trade, to better gauge U.S. economic activity. That category is likely to grow at only a 2% pace, similar to the third quarter but shhhhhhh! – we don’t want to wake the rational economist – who has clearly been asleep since the the mid 90s…

So we went bullish (speculatively), not because we are going to be excited by a 5% GDP number that makes us look like some overheating Third World economy even as another 2M people lost their jobs in Q4. No, we’re bullish because we cynically believe that the sheeple are clueless and will stampede into this number as if the US is recovering and nobody told them until this morning. 

chart of the day, google headcount vs revenue dollar per employee, 01/28/10Meanwhile, I have a message for the sheeple:  Please keep selling us your Google stock.  I think this chart of the day is self-explanatory but you never know.  This is a chart of the amount of money Google makes per employee, per quarter.  Currently they are generating $1.34 MILLION dollars for each person they hire (and they’ve been hiring).  For a comparison, Yahoo generates $500,000 per employee yet GOOG currently has a p/e ratio that is 1/2 of Yahoo’s

Microsoft’s 98,000 employees generate $623,000 each, ORCL’s 86,000 employees pull in just $267,000 each.  It’s not a definitve indicator but consider how well they have managed that number through the recession, which seems to have interrupted some pretty impressive growth.  I think Google is an exceptional bargain here and you don’t have to pony up $534 a share to play along.  The bull call spread, buying the June $490 calls for $64 and selling the June $500 calls for $57 is net $7 on the $10 spread so if Google holds $500 or higher through June 18th expiration, you make $3 (42%).  42% in six month is nothing to sneeze at and keep in mind that the bet is that GOOG does not FALL MORE THAN $34 between now and June.  

Keep in mind that you have to buy options in 100-contract blocks so you need $700 to make $300 but to make $300 with as much Google stock as you can afford with $700 (1 share), you would need Google to climb to $884 by June expiration.  This way is probably easier, don’t you think?  You can still set a stop at a $100 or $200 loss so it’s not particularly riskier than buying a share of stock but the upside is SO MUCH better!  If you want to get even fancier, you can even offset the entire cost of the trade by selling the June $430 puts for $7.20.  The catch there is you need margin and, if GOOG drops below $430, you will own it (have it "put to" you) but if you like the idea of either owning GOOG at $430 OR getting a free $10 if GOOG holds $500 – this is a fun way to play!

8:30 Update:  Woo-hoo!  The GDP is up 5.7% (3.4% of it was inventory) and look at the sheeple stampeding into the futures as if they just discovered a new fact that no one else knew about.  It looks like our longs will pay off and, having gotten out of our short plays yesterday, we will be back to cash for the weekend (for unhedged positions, of course – we still love the stuff we picked up on sale), selling into this rally before the suckers get wise to this scam

Watch all the media types get whiplash flip-flopping from gloom and doom back to boom – wheeeee, this is fun!  Keep in mind that there is nothing to celebtate unitl we get back over our 5% levels and then past our bounce levles and hold them for the day (see yesterday’s post for levels) but the futures are already up 100 points from where we flipped bullish so I’m going to go out on a limb here and predict and excellent day! 

Asia did not have an excellent day and if we break our bounce levels then the FXI calls should be a nice play ($40s are just .55 and FXI was at $44 3 weeks ago).  We were shorting RSX for protection (replacing the EDZs that we cashed out) and we can kill that one this morning too as oil will recover on this GDP and Mother Russia is all about oil (and, of course vodka).  The Nikkei dropped 2.1%, right to our 10,200 mark that we had marked as a break out ages ago.  TM has been a huge drag on that index and EWJ might make a nice momentum trade IF we break our levels.   Japan did have some good Industrial Production numbers but there are concerns that Yen strength will threaten that recovery but the GDP numbers should boost the buck against the Yen back over 90, maybe 91, which should cheer Japan up a little and 10,200 is a good bounce point anyway

Keep in mind that if we DON’T break our bounce zone, then this is one dead cat market and we’ll have to go back into some of those disaster hedges, just in case…  At 10,200, the Nikkei is just synching back up with the Dow, which is fine, now it’s our job to show a little leadership for the ride back up.  The Hang Seng fell 1.1%, once again with a huge drop off a big open but held our 20K line once again.  Not so the Shanghai, who failed to hold 3,000 with a 0.2% drop to 2,989 but the DJSH on Stockcharts is still holding the 200 dma so I’m not willing to call failure there just yet.

Europe is going crazy on our GDP numbers and those indexes are up about 1.5% at 9am with the FTSE at 5,215 (5,250 is breakout) and the DAX at 5,627 (5,750 is breakout) so it’s up to the DAX to impress us today but even a 2.5% run won’t do it so it’ll be a "tune in next week" sort of thing.  Greece is just doomed it seems with the EU saying they have "no plan B" to keep Greece from defaulting.  I don’t even know what plan A was, other than them flying over to Greece and tut-tutting over the books a couple of weeks ago so I wasn’t expecting much from plan B anyway…   

Greece’s bonds have slumped on concern the government isn’t acting quickly enough to plug a budget deficit that was almost 13 percent of gross domestic product last year, more than four times the EU’s limit. The European Commission said Jan. 27 that Greece hasn’t done enough to tame the shortfall.

The cost of insuring the country’s debt against losses rose to a record yesterday, with credit-default swaps jumping 40 basis points, or 0.4 percentage point, to 414, CMA DataVision prices show. Swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is equal to $1,000 a year on a contract protecting $10 million of debt.  The swaps have risen from 121.8 basis points in October, and compare with 433.4 basis points for Dubai in the weeks before it received cash from Abu Dhabi on Dec. 14.

Other than that, things are the same, CVX had poor earnings and RDS.A’s outlook for long-term energy demand is so poor they are cutting jobs.  But we’ll ignore those pesky facts today and look to the future, where our President is looking to triple loan guarantees for new nuclear reactors to $54Bn, which is good for our SO (and this is why we went into them in the fall) and should be a good time to jump back into CCJ, where we can buy the stock at $28 and sell the June $29 calls for $2.20 and sell the June $26 puts for $1.75 for a net entry of $24.05, called away at $29 with a 20% profit in 6 months or having the stock put to you at $25, leaving you with 2x at an average of $25.03, an 11% discount off the current price.

The Jan NY Business ISM Index came in at a huge 72.6 (a 3-year high) so there are some green shoots out there and we’re not going to be too cynical but we will be getting back to cash (no unhedged positions) over the weekend because who knows what the pundit patrol will have to say over the weekend.  I’m fairly sure Greece will be rescued but at what terms?  That will impact the next 5 countries that need saving so we’ll have to wait and see.

Have a great weekend,

- Phil


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  1. lvmoda

     Another bogus GDP day.  Watch the 5.7% number be quietly revised downward from this commerce department first estimate, when no one will be paying much attention.  What a con-game!  But like you say, Phil, at least we know what the game is and how to play it.  We’ll have a nice one day move up through some resistance levels and away from the breakdown.  Only to fade down the next week.  Didn’t this happen almost the same way 3 months ago?  

  2. sns1

    Phil- txs for the go long call yesterday. I followed your lead on the DIA…let me know when to close them out.

  3. balancenv

     Phil,
    For yesterday’s AMZN FEB 120 Put against APR 110 Put, close the short FEB 120 Put right out of the gate? 

  4. judahbenhur

    5.7%! Those are China-type numbers…oh wait, China manipulates its numbers…and we, well, um, 3.4 of that is inventory…oh, never mind.  But 5.7%!

  5. llorens

    Hello Phil – some (CNBC) are predicting that China will let the Yuan appreciate in the near future. Do you think this is likely and will it be the equivalent of a nitrous button on any of those crappy 2 Fast 2 Furious movies?

  6. magret

    Phil , anyone knows why NEU is down 10 % after beating earnings estimate $2.85 vs $2.75. I sold a strangle and am getting burnt really bad.

  7. Phil

    Good morning!

    Very little difference between yesterday and today except today we’re already down at our 5% levels of: Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620 (2 of 3 below is bad) and we MUST hold these or this is no rally at all.  Right now we’re below ALL of them with the RUT at 611 our worst performer. 

    We got rejected a 2nd time yesterday morning at our bounce zones: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625 and there is nothing bullish to get excited about as long as we are below those levels (ALL 5 must break up to be really bullish). 

    That 610 line in the Russell futures (611.50 on the index at the moment) has been a very good directional indicator. 

    Oil got rejected harshly at $75 so the GDP isn’t fooling the NYMEX crowd and nat gas is still 5.25.  Gold is looking sad at $1,080 with silver at $6.13 and copper is also not buying a recovery at $3.10 but part of this move in commodities is the dollar, which is testing $1.60 to the Pound and better than $1.40 to the Euro ($1.392 at the moment) and at 90.65 Yen.

    Still, it will be hard for us to get a strong rally going without commodities until they are done falling but I would actually like to see us grind out rotational gains rather than just having one of those rallies where we fly up on low volume on bot trading.  Speaking of which, volume is very low on this selling and I think the bots will be kicking in to take us higher.  I still like the DIA $104 calls at .67 with a stop at .60 as a way to play the upside, looking for .80+.

    It’s a tough rally to call but in the very least I expect to test our bounce levels, anything less than that will be hugely disappointing.

  8. RMM

    Phil:
    what can I do with putters feb 104 (base2.1$) and feb 106 (base 2.23$) ?

  9. samz3700

    Phil – on goog – I would rather own some leaps -
    Any suggestion on strike price -
    Thinking of selling Jan 11 500 put for $40
    and buying the jan 500 call for 82 and selling front month premium to work that down -
    It feels better than the March contracts – gives more time to work of the premium and if we get more of a pull back gives me time to work back

  10. yodi

    Good morning Phil,
    Still sitting with DIA FEb 106 2.29 short now 4.80 and 107 3.95 now 5.67 obviuosly with mattress Jun 109 at 6.43 now 9.70 your thoughts pls

  11. mrmocha

    Picked up some MGM calls for the day, LVS and WYNN are up and MGM is not, so this is purely a catch-up play.

  12. mrmocha

    Cap, HK up 3% from our entry at 22.90 yesterday, so far so good!

  13. ssdirk

    JRW,jonah,Big – any train riders today?

  14. judahbenhur

    JRW, SS,  Held TNA overnight. Ruined my sleep but it worked out. Sold off of the 5 dma (61.40).  You guys on anything?

  15. mrmocha

    Market flat while buybot PMs are meeting. Half are saying ‘goose the market to make the Prez look good after the SOTU’ and half are saying ‘tank the market to punish the Prez for a bank tax’.  Must be an interesting meeting!

  16. ssdirk

    judah – LOL!  Good job.  Don’t do it over the weekend 3 nights are too many.  Waiting for TZA up.

  17. Peter D

    short stranglers,
    We dodged a bullet, didn’t we?  The futures were down 0.7% with Asia’s little panic, then up 0.8% with the GDP.  Our strangles are staying very close to neutral Delta, meaning more adjustments would be wise if we open down 1%, but it didn’t happen, so I’m scaling back even more (also because of VIX dropping, to 22.7 now).  I’m not sure what happens after this bounce, but looks like we can get better pricing, either for the putters if the market drops, or callers if we bounce.  It’s been a crazy month and I certainly want to get off and take the 14% profit off the table.   This 14% came from selling off the January long putters, and doubling down into the VIX spike last week.

  18. tchayipov

    AAPL still under pressure

  19. ssdirk

    Peter – I also scaled back this morning.

  20. Phil

    3 months/LV – Yep, it’s a fine scam once you get the swing of it!

    DIA/SNS – Let’s close out at the day’s high – that’s my plan!  8-)  Actually we need to watch resistance at 10,300, Michigan Sentiment was good and Chicago Purchasing Managers survey was good so I’m really hoping they have the gas to keep going but there’s very little volume and we sure are getting bursts of selling into the rally so this could go either way. 

    AMZN/Balance – It depends what you can afford.  If you have the margin for it, we can still get $2.50 back for the Apr puts we don’t believe in and let the Febs run thier course (either expire worthless or stop out at $1.75).  Don’t forget this was a .55 credit and now it’s $1 so almost 100% gain – that’s kind of a lot for a day

    On the other AMZN play, the 3 Apr $140 calls are still $5 and the 5 Feb $135s are $2.85 (down $1) so that’s up $500 in addition to the $365 credit we keep – not a bad day’s work!  Just don’t let the net get away

    Yuan/Llorens – Yes to shut everyone up but not significantly and then they will repeg to the dollar anyway.  With the dollar rising it’s a moot point anyway.

    NEU/Magret – Maybe on the poor demand outlook for fuel from RDS.A?

    DIA (I assume)/RMM – Nothing to be done right now, it would be good to know your overall position though. We may drift back up next week in which case you are perfect and, if not, you’ll need to add more long puts and roll them to lower March strikes.  3 weeks to go you know…

    GOOG/Samz – Oh that was just an easy example of GOOG, we can do much better than that!  I like your plan but I DON’T like spending $40 in premium on the other end very much.  How about a nice 2011 $470 ($126)/570 ($74) bull call spread for $52 with $100 payoff at $570 and you can EITHER sell the puts too or just sell $5 per month in premium (March $590 calls are $5) to work off the whole $50 and make it a free trade.  Of course, once GOOG gets over $600 there’s not much risk anyway..

  21. judahbenhur

    SS, Yeah, it was an uncharacteristic trade for me. I was pissed off that I had caught TNA at a low yesterday and then it didn’t get back to the level I was waiting for.  Then when there was a sell-off at the end of the day, I decided to just hold. It was an obstinate play, but I figured there would be some kind of funny GDP number to sell into this morning.  I’m rolling the Feb SPX calls down to 1050, how about you?

  22. judahbenhur

    SS, I meant 1150, of course. Typing slower than thinking, or maybe the other way around.

  23. ssdirk

    judah – make that 1150 and I’ll do it.

  24. ssdirk

    judah – all rolled down.  Feb1210 and 1080′s to 1050′s.

  25. ssdirk

    Funny, 1150′s,

  26. ernest

    The people selling AAPL are idiots.  With the new accounting standards, the iPad, their increasing sales overseas, etc; they could easily go up 100 points from here (of course that won’t happen if the overall market crashes).

  27. jomama

    phil, is that your favorite play for a new GOOG spread?

  28. samz3700

    Phil – you thinking full cover for weekend if we get over our levels?

  29. Phil

    DIA/Yodi – Same as RMM above, we have 3 weeks to expiration and 3 months to roll so not time to worry yet. 

    MGM/MrM – I like them too but we went with LVS earlier this week.

    Overnight/Judah – Yeah that was a miserable night to watch futures wasn’t it?

    Qs/Nas not doing much, whole rally kind of lame and VIX down 7% does not help the calls much (but great for puts we sold, those always work great on the turns).  AAPL being smacked down to hold the Nas in check I think.  Gotta give funds time to buy before triggering the ETFs…

    GDP up 5.7% (US GDP, that’s like CHINA’s GDP up 20%) and the SOX are down for the day – what is wrong with that picture? 

    V and MA moving up strongly, that’s a good sign for the overall market.  AXP up 3% and COF has been on a tear since yesterday afternoon.

    GOOG/Jo – See above, I’m still not comfortable in anything but long verticals as we can fall hard and without notice and a leap/short call can’t protect you enough from that. 

    Full cover/Sam – Whatever it takes to be as neutral as possible into the weekend (cash is very neutral!).  We could gap up or down 200 on Monday as Asia finds our out GDP grew by 50% of China’s entire GDP (don’t forget, we are their customer).

  30. ssdirk

    judah – you ready for a ride on the TZA?

  31. judahbenhur

    Phil/overnight. To make matters worse, my 3-year old slept through the night so I didn’t even have a reason to be up to check the futures.

  32. judahbenhur

    SS,JRW, The RUT seems awfully indecisive to me.  Couldn’t stay over the 50 dma.  IWM holding the old 61.20 line.  I dunno.  JRW, what’s your wisdom, or did you get on at 61.69.

  33. JRW III

    Phil,
    " Gotta give funds time to buy before triggering the ETF’s ",  so you’re playing for a mid-day or afternoon fall ?

  34. yodi

    Phil the GOOG leap bull to sell only two mar 590c against it cost at TOS over 11,000 in margin for a credit of 878.00

  35. JRW III

    judah,
    No I’m indecisive today as well !

  36. oncmed

    Phil,
    Lookin for your suggestions on AAPL b-call spread…thanks.

  37. ssdirk

    JRW, judah – is AAPL showing us the way to the TZA train?

  38. ajaytoo

    Phil, short AAPL Mar 210 put…roll to Jul 195 put when it becomes even (so as not to miss the roll)?

  39. Phil

    Europe is finishing up strong, I don’t know what’s with all the lackluster move over here.  Surely people aren’t that smart all of a sudden and doubting the numbers?

    Kids/Judah – Gotta get ‘em reading those charts as soon as possible!  I asked my youngest (who is very helpful spotting good charts for me at 7) if she’ll take over for me when I’m old and she said now way, she’s going to have her own sight called Jakie’s Stock World.  Seems I’m sowing the seeds of my own destruction! 

    Copper $3.08 – someone does not like our numbers at all!

    Things are not looking too strong.  Time to get out of the short-term plays unless you are willing to ride them out (I’m going to).  Certainly if S&P blows 1,088 we need to give up until they get back over.

  40. Phil

    DIA $99 pits at .97 are good downside protection using S&P 1,088 and Dow 10,175 as a stop.

  41. JRW III

    Sitting on the MAJOR trend line now !

  42. judahbenhur

    JRW,  Hold, hold…(I don’t have the Braveheart video clip, so you’ve just got to imagine it.)

  43. BigPinot

     Hi JRW SS…is it time to hop aboard TZA?

  44. ssdirk

    TZA – taking a small stab.  I don’t think we hold it.  Those GDP numbers should have rocked us higher.  I don’t think the big boys want to be overly long this weekend

  45. chakra108

    Phil
    AAPL – I own the JAN 11 190/240 spread. Should I buy back the $240 call that I sold. What do you expect AAPL to do in the next few days? Thanks.

  46. BigPinot

     In TZA jan 9, delta .84

  47. EricL

    Amazing action. Huge gap to fill if we break right here. If we hold, FSLR may be a good short-term long (it’s holding the line at 117 this morning).

  48. judahbenhur

    Phil/kids. True story. When I told my soon to be 8-year old that I was going to replace my Kindle with a new iPad and wasn’t getting a Nook, he said, "Did you buy Apple and sell Amazon and Barnes and Noble?"  I’m so proud. (Wife is horrified.)

  49. EricL

    Taking some small long-side gambles (FSLR, SPY calls). Some pretty clear stops just below us, so decent risk-reward.

  50. BigPinot

     Judah…priceless….lol

  51. jomama

    judah, my six year old – tried to use the letters CNBC when i was playing scrabble with her.  

  52. llorens

    Haha Judah. Did she request a trailing stop on her homework?

  53. yodi

    Interesting AAPL down 2% AMZN up 2%

  54. ssdirk

    This is a struggle for the 1085 line.

  55. BigPinot

     ss…how is TZA looking?

  56. ssdirk

    Big – I think it is holding the line waiting on the overall market move.  Market up might be slow and steady, market down could be a bit faster.  I have my finger on the trigger to exit if needed.

  57. judahbenhur

    Phil, Do you like selling AAPL Apr puts, or stay with Mar, or wait for more of a sell-off?  (I don’t own any AAPL, just some short Mar puts.)

  58. Phil

    AAPL/Ajay – Yes, you don’t want to let the roll get away but, on the other hand, July is a long time to wait and collect so try to be sure.

    AAPL/Chakra – Instead of buying him out for $13.50 you can spend $13.50 to roll down to the $165 calls or the 2012 $190s, both of which give you better odds of winning than going naked.  I’d roll down and put a stop on the caller at $15, looking to resell as they went up. 

    Out of $99 puts at $1.05 – not much but better than nothing and way better than flip-flopping on calls out of fear!

  59. jomama

    Phil, what do you think about selling Feb YRCW 2 puts for 1.5.   Sounds like a pretty good risk/reward.  Of course there is a risk of BK.  But this month?  Looks like a reasonable gamble.

  60. Phil

    LOL Judah – that’s the way to train ‘em!

    Good bottom fishing Eric, I’m still liking the overall consolidation trend, even if it does take a month to resolve. 

    Nas red, that is shameful.  SOX down 1.5%.

  61. yodi

    POT down to 101.00

  62. stockbern

    HK  ?

  63. alsos

    I’m still thinking they turned the bots off when they saw Volker over Obama’s shoulder.  Hope I’m wrong.

  64. jomama

    Phil, why is CY so weak besides just following the overall SOX index?

  65. ssdirk

    Big – Nice!!

  66. chakra108

    Phil
    To confirm your idea. You want me to roll the JAN 190 to JAN 165 paying up $13.50 and leave the sold 240 as is? I fail to understand how this would be better. Can you clarify. Thanks.

  67. ssdirk

    IWM sitting onthe 100dma.

  68. lflantheman

    This afternoon may get ugly.  I’ve increased my bearish bias significantly with Feb 99 DIA puts.

  69. Phil

    What the hell, the second I closed the puts we ran down.  Very annoying! 

    AAPL/Judah – Wait, we are so weak here, failing to even hold the 5% lines and heading off to retest yesterday’s lows.  Volume is picking up (now 120M at noon on Dow) so we need to take this a little sesioulsy although loads of time for a stick-save into the close, there is cerainly someone who is racing for the exits at the moment. 

    YRCW/Jo – We sold the $1s for .50 so why not the $2s for $1.50?  BK is a risk but 3 weeks is not long. 

    CY/Jo – They are not strong anymore anyway.  SNDK was very disappointing this morning and SOX are now off 2.5% so big flush going on.

    Roll/Chakra – Yes, IF you are going to spend $13.50 to buy out the caller, I think the money is better spent buying $25 more position.  Spending the same to buy out the $240 caller means you need AAPL to hit $265 to make the same $25 that you make as long as AAPL simply doesn’t go any lower. 

    Dollar at $1.387 to Euro and $1.6007 to pound and back to 90.38 Yen so a huge amont of dollar strength in this sell-off.  Copper bounced off $3.05 (now $3.065), silver $6.14, Gold $1,078, Oil $73.34 and nat gas $5.17 – pretty lame across the board but, just like I don’t like a commodity rally – I don’t mind a commodity sell-off that takes the markets down.   The best possible thing for this country would be a 1/3 pullbck in commodity pricing while the rest of the economy starts to pick up steam but that’s not likely unless Asia crashes while we recover.

  70. morxlntway

    when your children (must be under 5) bring you drawings, go long if there is a smile, short if there is a frown. Works every time!

  71. alsos

    You got admire this Obama.  He knows the GOP have it in for him, but he just won’t let up on this reconciliation with them.  Maybe its true that if we don’t stop the partisan bickering and all get behind him that the country will fall apart anyway.

  72. judahbenhur

    Jomama/CNBC. I hope you gave her points for creativity.
     
    Llorens/homework. Nah, I send my boy to a very progressive school that doesn’t believe in homework until 3rd grade.  They don’t seem to believe much in school work either, so I pretty much spend $25K a year for his days in this garden of Eden and then home school him in the evening so that he’ll know something.

  73. jomama

    alsos, Obama is doesn’t want everyone to be partisan but not at the expense of his own agenda. Rhetoric……..the beat goes on…back to the markets.

  74. jburgess

    Phil, I have a long position PM at 48.61. Opened as a buy-write selling Feb 49 calls, but bought them back the calls about 50% too early. PM has been getting hammered presumably b/c of the strong dollar. Don’t really care if I hold the stock long term. Suggestions on working more with the position? Much appreciated.

  75. judahbenhur

    SS. Very nice call on the 100 dma.  I’m sitting this one out. Selling some strangles instead.  What do you have for your March calls on the SPX? 

  76. oncmed

    Phil,

    Lookin for your suggestions on AAPL b-call spread…thanks.

  77. jomama

    Phil, looking for a new entry for AAPL.  long term spreads?

  78. ssdirk

    judah – SPX Mar I have 1240/950 with 1040/1050 wild play.  I need to roll the 1240.

  79. jomama

    oncmed – funny..same question – one minute apart

  80. oncmed

    …copy-paste?  LOL

  81. ssdirk

    judah – reposting Peter’s post yesterday about SPX Mar strikes.
    Peter D
    January 28th, 2010 at 3:33 pm | Permalink  
    ss/cwan/short stranglers,
    Back from meetings, which are part of having a job!  I’m still amazed at how I can keep tab on these shorts while being away from the market for hours each day, must be that this short strangle scheme fits my work schedule well, being on the West Coast.  
     
    ss/11:48 comment,
    You are right, SPX Mar 1210 is down to $1.2.  After a 7%-8% drop from the peak, it usually takes a while to get back to the 1150 high.  Given the recent market perspective and also Gel1 comments (he’s a long term holder, but is looking to open the shorts), we could take a chance with having the 1190 or 1180 short calls.  Same thing for RUT, March 670 or 680 callers are what we need to seriously consider.  For Feb, you are also correct that 1160 or 1150 is what we can aim for, and be ready to jump back out (move higher) if needed.
     
    cwan/12:40PM comments,
    Yes, that’s a valid concern, so I have a family member who can help me close out the shorts.  In our case of wide short strangles, having shorts is much better than having longs when something happens to you.  Because most of the time, those shorts would expire worthless, and we have time to close them out (as long as there is no Black Friday, or being too close to the money).  So, we need to give instructions and access to your mirad of accounts to whoever that needs to close out your positions (preferably that they know options).  For example, close both legs of the strangles at the same time and don’t pay the Ask price, etc

  82. judahbenhur

    SS/SPX.  I have the same, but trying to sell more with 1180 calls instead.  (I have a very high ask, so it may not fill.) What do you think, too aggressive?

  83. Phil

    According to Yahoo Finance, Berskshire A shares are now $115,420 and the company now has a market cap of $2.9Tn with a p/e of 1,749!  They added over $600Bn worth of market cap this month – no wonder the rest of the market is going down – there’s no room for anyone else!  8-)

    LOL Judah – Good plan with the kids.  I have to teach mine everything too – man are they going to be messed up!

    PM/Jbur – I don’t see if you sold puts but assuming you picked up .50 (net gain) on the $49 calls puts you in around $48 so why not just do what you are supposed to do and sell the March $45 puts for $1.20 and the March $47 calls for $1.10 and that drops your basis to $45.70/45.35 and hopefully they pick up and your next headache is rolling the caller. 

    AAPL/Oncmed – Well you can now sell March $180 puts naked for $4.50, I like that entry (net $175.50).  As a bull call spread, I like 2012 $160s for $62 and patience.  Hopefully we bounce and can sell the 2011 $230s for $25 (now $16) which would be net $37 on the $70 spread with a year to roll.  As a cheaper bull call spread, there is nothing wrong with going for it on the 2011 $200/230 bull call spread for $11 which is a very nice 172% gain at $230 and you can sell March $165 puts for $1.80 (net margin about $800 on TOS) and 6 of those pays for your long.

    Man I feel better, I thought I blew it staying long!

  84. ssdirk

    judah – just thinking out loud.  It would be nice to sell today to capture the weekend theta, but as we have seen a spike in vix can wipe that out in a hurry.  So, I think I am going to wait till Monday and pick strikes based on Monday’s levels.  I just feel we may have a chance to get better prices soon and March is still 48 days till expiration.

  85. gel1

    Slowly moving into GS and CYD selling puts in order to build  long term positions. Adding a bull spread on GOOG.

  86. chakra108

    Phil
    I own the FEB 28 DXD PUTS for $0.25 down to $0.15 now. I can either DD or buy the MAR 30/28 spread for $0.80 which gives me an extra month and two more strikes higher. Which in your opinion is better or is there any other idea in DXD’s that will allow me an EVEN.

  87. RMM

    Phil: yesterday you said you turned bullish: well, what will you trade  ?

  88. judahbenhur

    SS, I’m setting an ask price that probably won’t fill unless the VIX spikes in the afternoon. So, I’ll likely be with you on Monday. I’ve been scaling in so slowly and not buying much of anything with my cash, that the spike in the VIX didn’t make much difference to me the other day, other than as a curiosity and a lesson for the future.  Appreciate your thoughts.

  89. Jtiff

    Phil-
    Any thoughts on XLF in the near term?  What about the potential impact of Obama’s proposed reforms?  Will the stimulus for regional banks and small business influence to any significant degree?  No hurry on response.

  90. Phil

    Toyota (TM) expands its recall once again, this time to an unspecified number of cars in Europe and around 75,000 cars in China.

    In addition to expanding its recall, Toyota (TM) is busy shipping replacement parts, but hasn’t said whether the parts are going to factories to get production going again or to dealers to fix cars in their showrooms and on the road.

    Lawmakers plan to hold a hearing next month to investigate "how quickly and effectively" Toyota (TM) responded to safety complaints.

    Honda (HMC) will recall 646,000 Fit/Jazz and City units globally, including 140,000 in the U.S., to fix a defective master switch which could cause water to enter the power window switch and in some cases cause a fire. The accelerator pedal, however, is rumored to be just fine.

    The EU signals it will provide last-resort backing should Greece need it, though France and Germany stress an emergency rescue plan hasn’t been formulated yet. Investors are still nervous, driving Greek bond yields up to a record 7.25%.

    As Greek investors sweat, Spain announces its deficit-reduction plan in an effort to avoid Greece’s fate. (ETF: EWP)

    Euro area unemployment hits 10% for the first time since the unified currency was introduced in 1999. Eurostat pegs EU27 unemployment at 23M, and euro area unemployment at 15.8M.

    Euro area banks expect stricter credit rules for companies and households in 2010, quashing hopes the tightening cycle had peaked. "All in all, a turning-point in the tightening trend observed since the second half of 2007 is now closer, but has not yet been reached," ECB said in today’s quarterly Bank Lending Survey.

    India ups its reserve requirement to a higher-than-expected 5.75%, after raising its inflation and growth forecasts. (ETF: INDY)

    Concern over tightening lending conditions in China and the deteriorating finances of Greece and Japan led investors to pull over $9B out of developed market equity funds during the past week. Safe-haven bond funds, conversely, grew by $4.8B

    A U.S. real estate developer is suing the Citizens Bank unit of RBS (RBS) for $8B. The developer claims Citizens Bank failed to follow through on its financial commitments, and used sham defaults to try to collect $180M of loans to alleviate RBS’ liquidity crisis.

    People outside of real estate getting to participate via the slicing and dicing of loans isn’t exactly unprecedented, Floyd Norris notes – there was fairly complex securitization going on in the 1920s as well, and it ended up pretty much like the recent wave did.

    Gotta love the Donald!  If Donald Trump has his way, orphaned Manhattan apartment complex Stuyvesant Town-Peter Cooper Village may soon be called TrumpTown. "No one has a better track record running properties," an enthusiastic Trump told the NY Post.

    Here’s a good reason SOX are failing:  Hynix Semiconductor, the world’s No. 2 memory chipmaker, fails to draw any bids for a controlling stake in the company by today’s deadline, making this the second failed attempt by creditors-turned-share… to offload a 28% stake.

    Green ShootChicago PMI: 61.5 vs. 57 expected, and a previous 60. New orders in fourth straight month of rapid acceleration, at 66.4. Production similar at 66.6.

    The GDP looks good, says Derek Thompson, but the broader look at economic growth came yesterday with the Chicago Fed’s multi-component National Activity Index – and its picture of a stalling recovery, especially in consumer spending and housing, is a bit more subdued.

    Mobile-phone shipments reversed four quarters of declines by increasing 10% worldwide last quarter, to 324M units, says Strategy Analytics. And Apple (AAPL) nearly doubled shipments of the iPhone, with gains in Europe (especially France) and Asia (particularly Japan). Samsung and LG broke their Q4 shipment records.  I guess there are no SOX in there?

    Priced against an ounce of gold, U.S. stocks remain firmly settled in a 10-year bear channel.

  91. jcmcn5

    Phil — I’m out of town and have only just checked in.  What’s up with TBT?  GDP up 5+% and TBT goes down? 

  92. tchayipov

    Just closed Feb RUT strangles with good 2% profit in a week, too scary to keep it over weekend, thanx Peter

  93. tchayipov

    Phil
    what do you think about WFR at this price?

  94. jomama

    gel, i am slowly building positions in XOM, GS & Apple.  Just bought half positon of appl 2012 leaps  and will start to daytrade calls.  i.e.  will start selling some calls to capture the volatility and buy them back etc.  worries on ipad overrated in my opinion.   Have deep in the money calls 2012 for XOM in my retirement account. 

  95. gel1

    Phil
    I have four leap C positions. I’m contemplating just closing them out. Do you have a guess what will take place over the next 12 months and where would you guess the stock might be priced next Jan.  The bank tax could be a big negative IMO.I would solve this for myself but can’t find my crystal ball.

  96. gel1

    Jo
    I too am building long term positions in these keepers – they will be standing tall no mater what happens. I screwed up on GOOG as I forgot I had placed a stop on it and was recently stopped out (big tax problem)., so I am doing the same as you, and selling FM calls with no stops on the stocks. Take a look at CYD – Singapore based company with the factories in China. They are the largest internal combustion engine manufacturer in the world selling into the growth in Chinese auto industry. They also just entered into a co-venture with CAT making diesel engines. I like this one long term and scaled in selling puts.

  97. Phil

    We started this month at 10,428 so 261 points away from keeping our 6-month streak of positive monthly gains alive.  Not looking too likely is it?

    DXD/Chakra – That’s an interesting way to try to be bullish.  They are super unlikely to come back there but you may get your .25 back on a big move up.  I would sell the Feb $36 calls for .20 and sell the $27 puts for .10 and you still make $1 on a big move down and for DXD to hit $36 (up 20%) the Dow would pretty much have to hit 9,000 in 3 weeks – possible but doubtful and then you can roll-em anyway. 

    Bullish/RMM – Just some ETFs and I killed the short plays (the disaster hedges etc) and, of course, we’ve been bottom fishing since last week.  Going into the weekend, I wouldn’t want to trade cash for stock, better to be flexible until we see what’s up (or down) on Monday.

    XLF/Jtiff – Easy answer, XLF is a basket and banking will survive but it’s priced like it won’t.  I like XLF long-term BUT AS A VEHICLE TO SELL PREMIUM, not just to sit on like an egg that’s never going to hatch.

    TBT/Jcm – Why should TBT care what the GDP is?  Right now, the overriding factor is a flight to Dollar and Yen safety as Europe looks like they are ready to fall apart.  The drives money into low-yeild treasuries and keeps TBT low (for now).   Long-term, GDP is a factor and our debt is a factor but if you are going to worry about the daily ups and downs of TBT, you will drive yourself crazy. 

    WFR/Tcha – We love them down here.  They are off with the SOX and you can sell the March $13 puts for $1.15 which is net $11.85, a nice entry or a nice gain on the month.

    C/Gel – I think all this nonsense with the banks will be over by Q3 and we’ll end the year nicely.  They are making TONS of money and shoring up their balance sheets so, if we avoid an additional crisis, then we could go past $5 easily.  They are speculative positions though and if you have better places to make money, it’s not a no-brainer like TBT seems to be.

  98. bord

    ssdirk, is there really that much theta decay over the weekend when we still have 3 full trading weeks in feb. to expiration? just curious.

  99. yodi

    Phil in your  reply to the AAPL copied below you mentioned TOS charges a margin of 800.00  I see TOS charges 10/1 in respect to the March put . Can you explain the difference. The same applies to the play with the GOOG play you mentioned this morning at 10.14 AM.
    AAPL/Oncmed – Well you can now sell March $180 puts naked for $4.50, I like that entry (net $175.50).  As a bull call spread, I like 2012 $160s for $62 and patience.  Hopefully we bounce and can sell the 2011 $230s for $25 (now $16) which would be net $37 on the $70 spread with a year to roll.  As a cheaper bull call spread, there is nothing wrong with going for it on the 2011 $200/230 bull call spread for $11 which is a very nice 172% gain at $230 and you can sell March $165 puts for $1.80 (net margin about $800 on TOS) and 6 of those pays for your long.
    yodi
    January 29th, 2010 at 11:07 am | Permalink  
    Phil the GOOG leap bull to sell only two mar 590c against it cost at TOS over 11,000 in margin for a credit of 878.00

  100. gel1

    Phil/TBT
    I am totally in concert with you on TBT. Over the next few months it could be a rocky ride. By mid summer we will start to see some terrific action in TBT as the USD starts to show some cracks and  the Fed commences to make noise about tightening. I think TBT will be my best investment for 2010. Got to have patience though.

  101. RMM

    Phil: how about selling AAPL and GS puts ?

  102. bord

    Phil, FXI and EEM do look like they are on the edge, and tempting to short. But both have fallen a lot already… What your opinion on them, and if you would short them now, how would you do it? 

  103. kustomz

    Phil sounds like big trouble. You’re going to need plenty of legal advice before this thing is over. As your attorney, I advise you to rent a very fast car with no top. And you’ll need the cocaine. Tape recorder for special music. Acapulco shirts. Get the hell out of N.J. for at least 48 hours.

    Youd think with all those smart phones sold QCOM would find a floor, i likem when they stop going down

    TYX….so much for the bond vigilantes

  104. samz3700

    gel -
    Do you have the long aussie / short euro on?
    Weakness in commodities – I guess is hurting Aussie – but seems like a long term winner – Europe just seems in such lousy share

  105. japarikh

    Phil,
      Can you outline a couple of TBT plays when you get a chance? Thanks.

  106. samz3700

    Aussie interest rate outlook
    These guys publish a nice free note on aussie rates – st. george – part of wespac – sure you can get it from other sources that are better but they are local and its a nice easy to use format
    trying to find out if I can open a cd through the bank – earning over 5% for a one year – not sure what the tax implications are for foreign owners.
    http://www.stgeorge.com.au/corporate-business/report-centre/interest-rate-outlook.asp

  107. ssdirk

    bord /theta decay – It depends where you are on the risk profile curve.  So if you start your strangle with 10%/-15% strikes it will give you a negative delta and a high Theta.  Over the weekend you will gain 3 free days of theta decay with the vix being constant.  In this part of the curve Theta is the highest so the weekend is wonderful.  But as we saw this past week a spike in vix can negate that pretty quick.  A good way to see Theta effects is using TOS Risk Profile tab.  Instead of using "P/L open" select "Theta", and also use "+4 @ Day Step" under "plot lines".   Select one of your strangles and you will see that in the middle of the curve the effects of Theta are greatest the further you are away from expiration.  At the far ends of the curve Theta is more pronounced the closer you are to expiration.

  108. samz3700

    this is looking kind of ugly

  109. ssdirk

    bord – I hope this makes sense to you.  If not, I will try to clarify. Just let me know.

  110. bord

    very nice explanation. thanks ssdirk

  111. kustomz

    SDS QID charts looking very bullish

  112. samz3700

    Peter or others – Futures Question – ES
    Are there front month options on es – my system is showing march as first month available

  113. ssdirk

    bord – Let me clarify one thing.  When I said that theta is highest at the middle of the curve, I meant with respect to delta.  The difference between theta and delta is the greatest, so in a quiet market you would gain the most from theta decay.  At the far ends of the curve theta is greater than the middle, but delta is also much more positive or negative thereby negating the effects of theta decay with a move in the wrong direction.  Looking at the curves I outlined above can demonstrate it much better than I can explain it.  Sorry.

  114. phlit

    Phil, does it make any sense to roll out the  650 leg on my Rut put  spread for anything less than $10 …..say 9.5???

  115. Phil

    While some Goldman (GS) bashing is kind of funny, Felix Salmon says Ben Stein’s latest diatribe – which attacks Goldman’s trading desk for its nonexistent fiduciary duty to the firm’s clientsis just plain stupid.

    The Fed’s exit from its debt buying program should have a minimal effect on mortgage rates, Morgan Stanley (MS) analysts say – to the tune of a 0.1-0.15 percentage-point rise, rather than an entire percentage point. The bank is expecting private investors will step into the gap.

    Energy related stuff getting killed, suddenly commodities out of fashion.   Nas can’t pull it together because AAPL is costing them half a point all by itself (15% x 3.24%) and the SOX are down 2.5% and solars are dropping – kind of hopeless but no reason not to buy other 4-letter stocks is it?   I’ll be updating the Buy List on the weekend, hopefully we can find good entries next week while the VIX is still high.

    Margin/Yodi – Well now TOS says $1,650 so I have no idea where that went wrong before.  Still worth it to collect $180 (more than 10% for 7 weeks).  I’m trying to give non-PM numbers to be helpful but they all seem really high to me! 

    Selling puts/RMM – You can go for it but we may be down another 5% next week if we can’t break back over our 5% levels here. 

    FXI, EEM/Bord – If we had broken up, I wanted the FXIs long (EEM I have no interest in) but I’ll just say cash again and hope people start believing it….  Did I say cash? 

    Say Kustomz, where you Hunter S. Thompson’s attorney too? 

    TBT/Japar – We just keep selling the puts for the most part.  You can sell the March $46 puts for $1.05, which is a nice place to start a position.  We don’t want to be too aggressive with Europe falling apart.

    On the whole, we are holding up well considering all the sector pressures but if they are going to take a loss for Jan, they may as well make it a good one and get Feb off with a bang.  Most likely, more consolidation ahead – great for buy/writes, great for naked sales – Hell for everything else!

    Ultra Shorts/Kustomz – I’m not seeing enough reason to reload on those yet.  Everyone has a very short-term view but this is a very healthy move to bridge a major gap that was forming between the indices and the 200 dma and I’ll be kind of surprised to see us fail the mid-points between the 50 and 200, which is about 9,850 for the Dow and 1,050 for the S&P and anyone who isn’t ready, willing and able to scale in at those levels is just over-committed.

  116. EricL

    Needless to say I’m out of this morning’s swing long attempts.

  117. gilmdjd

     On the subject of the YRCW puts…. Maybe I’m an idiot here…but 2 days before these puts expire the shareholders are to vote (and likely approve) the conversion of much of the debt to shares. The shareholders are also asked to authorize the issuance of those shares. If I figure this right it may dilute current shareholders 4:1 and make a share purchased today worth .25 or something like it. Way I figure it .50 for those puts is not pricing in risk of BK but rather the expected share dilution. I don’t want to agree to have a share put to me for 50 cents only to get that share and find its market value is 25 cents. Have I got this wrong?

  118. gel1

    Samz
    At the moment I am not in Aussie. Sentiment is not good at the moment because of commodity bearishness. Will consider it later on as a bullish position when the China contaction settles down. Thanks for the link.

  119. judahbenhur

    SS/100 dma.  Wow, that IWM 100 dma is like a steel-reinforced floor.  If it breaks through, look out below. 

  120. chakra108

    Phil
    ZION – I own a MARCH expiry spread as follows
    SOLD MARCH15 CALLS
    BOT MARCH 16 CALLS
    I am down 5% on this trade. My expectation is for this to trade down before the next Q call. Can you comment on this trade and suggest changes if any. Many thanks.

  121. kustomz

    Im a bull by nature but im seeing the signs everywhere that bears will rule the roost in the coming months. The bull argument for further gains grows weaker by the day. Dollar strength commodity weakness China pulling back India demanding banks raise reserves bonds edging lower Euro in trouble….Im thinking a healthier pullback from here…. not calling for a collapse but anythings possible…the world is still suckling on the boob of Gov’s…i see more unwinding on the horizon

    Both optimists and pessimists contribute to our society.  The optimist invents the airplane and the pessimist the parachute.  ~Gil Stern

     

  122. Phil

    A jury finds Vivendi (VIVDY.PK -1%) liable on 57 counts relating to acting recklessly and inflating shares with misleading statements about liquidity. Investors’ lawyers estimate damages at $4B, though the company says it might take years to determine an amount.

    RUT/Phlit – What’s the whole spread look like? 

    This is very interesting – only 12 Dow components in the red and only 9 down more than 0.5% but BA, CVX, IBM and JNJ are very heavy weighted.  When you are looking at your DIA position, it pays to think in terms of whether you like the guys who are down to help decide if you want to stick it out.  Other than CVX, who aren’t that bad, I like all of them.  Menwhile, AXP is up 2%, CAT 2%, CSCO 1%, DD 2.5% (XOM is into chemicals), DIS 1.5%, HD 2%, KO 1%, MRK 1%, TRV 1%, UTX 1%, VZ .7% and WMT 2% – that’s some pretty broad buying but a $1 drop in IBM ($123) wipes out the $1 gain of WMT ($53), the .50 gain of KO ($54), the .60 gain of TRV ($50) and the .25 gain of VZ ($29) and the .45 gain of MRK ($38) and the .25 gain of CSCO. 

    The Dow is a very, very, stupid index and very easy to manipulate, followed closely by the Nasdaq where 6 stocks make up 42% out of 100 in weighting (and AAPL is still almost all of the Nas’s losses).  So unless we think AAPL will go down below $190 and SNDK will fall another 12% on Monday and oil will fail $72.50 over the weekend or gold won’t hold $1,175, then we have no reason to be bearish based on today’s trading.

  123. ssdirk

    judah – yeah, there is a bit of an air gap under it.

  124. ssdirk

    judah – actually we may see additional support around 60.38 from the 11/16 – 11/19 and 12/6 -12/7 trading levels.

  125. stockbern

    MYGN/Pharm  Up nicely today.  Is there any news?

  126. EricL

    I’m going to try FSLR again before the close with some call verticals. It does seem to be finding a floor here and is badly oversold. I’ll probably sell the 115 C and buy a deep ITM strike so that the trade is profitable even if drifts here.

  127. EricL

    ISRG may be breaking down. Huge gap below.

  128. JRW III

    judah, ss
    Today has been like a train stuck in the rail yard, but it looks like ss called it with TZA as volume is pretty high and tick is negative. I still fear the Stick, but right now it looks like a) we close here or b) we fall in the last 1/2 hour. So unless I see a Stick, I’m preparing a TZA buy into the close.

  129. yodi

    Phil on this one I am really lost JPM hold Mar 43c for 5.76 should have sold the damm thing when it was still 3.00 now .61 as well stuck with a march 43 put short at 3.02 now 4.45 not to make it look to bad I closed the march 47 c for a profit of 2.57 which is now 0. Is there any thing one can do?

  130. ssdirk

    Anyone have a current volume update and comparison to normal?  Is the stick possible?

  131. phlit

    Phil,
    bot the 620 put Feb rut and sold the 650 for a 12.20 credit . at the moment I am down abt 25k less the credit.  My thinking is to lower my spread to a 20 point spread with a 2.2 credit and if I can close that 10 point spread for less than $10 is good for the overall trade. I dont think it changes my breakeven which is rut 638.8.  Pie in the sky?? Thanks. 

  132. phlit

    sorry 637.8

  133. EricL

    Bet they defend ISRG here. Critical point. I’m long some put verticals.

  134. judahbenhur

    JRW/Stick. I think the logic of Phil’s comment is right.  January is down no matter so why try to save it into the close.  End it down and Feb numbers will be easier.   Of course, when we stop fearing the Stick, it will whack us good.

  135. gel1

    Out of C… looking at far better alternatives that are more predictable.

  136. Pharmboy

    MYGN/stock – no idea.  Long overdue.  They have a gap to fill on the up side to 25ish, but OH resistance here.  Been crazy at work, but ITMN, ILMN are both doing well.  LLY is still a good entry here and MRK 35/40 Jan11 bull C spread  is still good.  I still think like gel, and am entering small positions, preparing for 9800 for so on the Dow.

  137. tchayipov

    what a terrible day!!! but was starting sooooo good

  138. phlit

    Phil is this where we start praying to the STICK GOD???

  139. JRW III

    Monday is also a Demark 9 day, So Tuesday could be fun !!

  140. phlit

    Phil is this where we start praying to the STICK GOD???

  141. llorens

    will be adding to my Longs at the very end of this session.

  142. ssdirk

    Hanging by a thread.

  143. mrmocha

    Whew, not the right day to go long. DD on Monday if Phil is still bullish, else more wound licking next week.

  144. oncmed

    Phil,
    ….following up from yest…if POT holds here, can you throw out a B-call spread….LEAPS?  TIA

  145. hanna5

    agree with llorens, will also be adding to longs near the end of this session. some of this now seems just like trend/mo trading….good stocks getting sold off with bad.

  146. JRW III

    ss,
    60.16 then 59.00

  147. ssdirk

    JRW – I definately see the 59.  Man this can get out of control.

  148. ssdirk

    judah – glad we waited on selling strangles.

  149. phlit

    Phil your thoughts on INTC.   bot more INTC at 19.45

  150. ajaytoo

    Phil, man AAPL moved fast. Missed the even roll from my short Mar 210 put to Jul 195 put. But now at -1.00 it just doesn’t seem worth it as the move down seems overdone. Wait till Monday to see and hope for a bounce to make the roll for even?

  151. Phil

    Sector ETF strength: Retailers– XRT +1.1%.Biotech– BBH +0.9%. Real Estate– IYR +0.8%. Regional Banks– RKH +0.8%. Homebuilders– XHB +0.7%. Insurance– KIE +0.7%.

    Sector ETF weakness: Coal– KOL -3.8%. Semis– IGW -2.7%. Gold Miners– GDX -1.8%. Gasoline– UGA -1.5%. Oil– USO -1.4%

    Looks like a commodity sell-off to me!  (semis are a commodity). 

    YRCW/Gil – That’s a good point but we don’t need to hold them that long, if we make a dime (out of .50) we can get the heck out ahead of the vote.   Also, there is some improvement in the stock’s relative value due to debt relief but I wouldn’t want to guess at it…

    ZION/Chakra – If you can get out with 5% on that you are lucky.  ZION reported nice earnings on the 26th, beating estimates (on a loss) by a wide margin.  No matter what the reason for a 5.7% GDP number, somehow that is good for banks and I very much doubt ZION will slip below $16 to put you in the money without the aid of a major sector failure (and see above that RKH is up 0.8% overall today.

    Stern/Kustomz – That’s a good one!  I think the market is "right pricing" here.  We haven’t had a normal consolidation in so long that people don’t know it when they see it anymore.  If we can stay range-bound between 10,000 and 10,500 through next Q’s earnings, I think I will be very happy.  As worst, I think we hang between 9,850 and 10,250 but that would not be as bullish of a consolidation.

    JPM/Yodi – So you still have the March $43 calls and the short March $43 putter with JPM at $39?  Well, since you are already short the March $43s you can sell the March $39 puts for $2 as that’s all premium and even if JPM goes all the way up to $43, you still keep the $2, pay the caller $4 but you wiped out the putter.  Also, by leaving your $43 call on, you can hopefully still sell on a good run up (as long as you can leave the caller naked) but keep in mind that JPM, because of Chase, is adversely affected by new bank regs so it may be a while before anything good happens.  If they keep going down, at least it’s an extea $1.40 (net of your calls being wipde out) to pay towards the Roll to the June $38 puts.

    Volume/SS – Big today.  190M on the Dow (140M is stick zone) at 3pm.  Stick not likely and, like I said earlier, why bother if you are going to have a red finish, better to have a big red finish so you can have a nice Feb.  Or we could, in fact, be screwed…  Have I mentioned I like cash lately?

  152. EricL

    ISRG: ~SNAP~

  153. ssdirk

    Dow -.2%
    NAS -1.32%
    S&P -.63%
    NYSE -.7%
    R2000 -.6%
    Who is likely to play catch up?

  154. tchayipov

    does anybody know what is wrong with Harley???

  155. Pharmboy

    Nice call Eric – picked up the Feb 330-320 P vertical……

  156. stockbern

    http://www.youtube.com/watch?v=lyhaTQseKTQ        
     
    Looks like I picked the wrong week to go long!

  157. oncmed

    Phil,
    Also,  GS leaps here?  thinking about Jan11 130′s for about $30…

  158. ssdirk

    JRW – used your 60.15 line to take off 1/2. Thanks.

  159. grant

    tchayipov/HOG – The problem seems to be it is a stock.
     
    I have dumped everything today.  I have given up for now.  (Sure sign for the rest of you, things will get better!)

  160. kustomz

    tch…more layoffs at HOG not a good sign for demand picking up anytime soon

  161. ssdirk

    GILD climbing in the face of this selloff.

  162. jomama

    GILD holding up extremely well. 

  163. jomama

    ssdirk – jinx!

  164. dmankoff

    Hi, Phil, i just sold FAS 68 put for $4.70,   think that’s OK, or should I buy a put below to protect it?  i would not mind owning FAS  at 63.30, so i guess I’m OK in selling it and keeping it over the weekend, since the fianncials are so oversold
    your feedback?

  165. ssdirk

    jomama – JRW’s levels are magic. 

  166. ssdirk

    jomama – LOL. now i see.

  167. Pharmboy

    ss – Several big pharmas are rockin’ today.  MRK, PFE, NVS.  JNJ LLY, AZN and GSK are holding them back, and I like GSK in this area as they have support.  If they go through, it is 36ish.. 

  168. jomama

    Phil, what are your thoughts on XOM’s earnings for Mon.  Surely, all of the potential weakness has been priced in?

  169. tchayipov

    HOG/
    is selling weed is not good business anymore???

  170. BigPinot

     SS I got out of the TZA about 30 minutes into it so I could go back to sleep. Breakeven except for commissions. Had I held it would have been my best trade of the year…come to think of it it IS my best trade of the year …

  171. ssdirk

    Pharm – I have GILD with a May 45 covered call.  May is a long time away, but it got away from me quick.

  172. JRW III

    Big,
     LOL !!

  173. Pharmboy

    ss – they really need to break outta this area, if not, you should be fine.  I have mine covered with 46 Febs and am gonna roll up one point on exp week to close the gap.  I also sold 48P to make them either push it higher for me or I can roll those down as well.

  174. Phil

    RUT/Phlit – Those are very dangerous trades, as you can see!  Well, very much like I just told Yodi, you have nothing to lose by selling the $620 calls, preferably March and you can roll your set to the March $640/600 spread for about even and that keeps you owing $22K there, less the sale is $10K with a break even at $630 and you sold the $620 calls for another $13K and they break even at $643, that leaves you with a much wider zone (617-643) to make a profit. 

    Holy cow, who let the water out of the tub!  Now I’m missing my disaster hedges already…

    GS getting ugly! 

    Stick/Phlit – If I had a trade bot I wouldn’t run it today.  It’s not worth it, all you can do is mitigate a losing month and you have no momentum to carry forward into Feb.  I would damn well be making sure we were ready to rolll 6pm Sunday (when the futures re-open) because I can’t have a bad Jan and a first week of Feb go bad without all my fund clients calling me screaming for redemptions as they start having 2009 flashbacks with Taxes due in April.  So, if we keep going down – this can turn into quite the panic as people keep pulling money out of the market.  Don’t forget many are trying to lock in long-term capital gains that started in March so probably a lot of people getting a little freaked out right now.

    POT/Oncm – Remind me if they retake $100 but I don’t see the postive story on them. 

    INTC/Phlit – Gotta love the monopoly long-term but AAPL used their own chip and that’s freaking INTC people out.  Again, if you use these stocks as a vehicle to collect monthly premiums, they are great but if you are just buying the stock and expecting it to go up, then these entries are likely way too early. 

    AAPL/Ajay – I agree.  See if it’s real over the weekend.

    HOG/Tcha – Bad earnings and poor outlook and now the consumer numbers in the GDP were not thrilling. 

    GS/Oncmed – CASH!

    LOL Stock – That’s a keeper!

    FAS/Dman – CASH!

    XOM/Jo – CASH!

    Did I mention I think cash is a good idea?

  175. Pharmboy

    I had not checked PCU in a whiile…..HOLY MOLY, got out of them a bit early….

  176. gel1

    Kustomz
    Re market sentiment: Earnings are up, GDP is up 6% (if we can believe it) New exciting products exposed – what is not to love? Nothing!, however market volume is down and investors are waiting for the correction everyone is predicting. We will probably see another 5% down, before I get real serious about putting cash into the market in any big way, but will not do so until Obama drops his rhetoric about how much he hates the banks and investment class in general.

  177. JRW III

    Big,
    Did you not follow yesterday, I made $ 30 K on two TZA trades ?

  178. cwan120

    Hi, Peter & Fellow Stranglers,
    I got tied up with a project at work.  Just got a chance to log in.  I missed the opportunity to unload some puts this morning.
    Among the puts, the one that are closest to market are: RUT Feb 560, SPX Feb 980, and SPX Mar 950.  They are all in red, about -75% to -100%, because I sold some of them early on (before the downturn).  I have other puts further away from market.  Most of them are in red also.
    What do you think?  Sit and wait?  I’m about 120% loaded, assuming $20K reserves per strangle.
     
    BTW, those put verticals don’t seem to gain that much.  What are your experiences on the put verticals?

  179. BigPinot

     JRW it would be funny, but… thats why I have tried to follow you and ss lately. Cant pull I dime out with phils stuff. If you had taken the opposite trades to what I tried, you would have made 400%…I have perfect negative correlation and I too effed up to use it to  make money.

  180. EricL

    Nice, healthy purging. :)
     
    Picking up a few commodity longs here (SD, PCX, MTL), but with verticals selling near the money and buying ITM in case we go down more Monday (also to collect the fat premiums, naturally). SD and MTL are also coming into some support (PCX is a bit in the wilderness, so small position). May buy a couple miners too for fun.

  181. BigPinot

    JRW… I was in and out 25% loss. Same w/ the IWM calls…I got out today when market was up and still lost 25%

  182. tchayipov

    Phil
    what do you think about buying TBT call here for mo play??

  183. EricL

    GOLD, ABX, RGLD near support too (risky, obviously). Putting in bids on small vertical positions. If they keep sliding next week I can buy out the front month as a kind of  ‘DD’, or add more.

  184. JRW III

    Big,
    Ouch !!

  185. JRW III

    ss,
    Nice call, I only made a fraction of your profit, but, better than a pock in the eye !!

  186. Phil

    Here’s which Gang of 12 member is crashing us at the moment:

    Pimco CEO Mohamed El-Erian says it might be a little soon to talk about "post-crisis" times, expecting instead a slow reset this year: "Too many markets, too many institutions have assumed this would happen quickly." Financial firms need to realize public policy risks and stay ready for a shaky regulatory environment, he told an FDIC conference.  He WANTS you to get out of stocks and buy bonds!

    From Bespoke:  As shown below, the percentage of stocks above their 50-day moving averages in the S&P 500 has dropped to 35%. This is the lowest level seen since mid-2009. Clearly breadth has gotten weak on this pullback. No sectors have more than 50% of stocks above their 50-days, and Consumer Discretionary has the highest reading at 48%. Materials is the weakest sector with a reading of 10%.

    Spx50day12810
    Finlindu12810
    Inftenrs12810

    Condcons12810

    Utiltels12810

    Hlthmatr12810

    We’re holding yesterday’s lows at least but, like I said, Monday could go 200 points either way and CASH let’s you take advantage of it.  If we head lower, the VIX goes up and we get fantastic prices to sell naked puts and enter some buy/writes and if we head higher, we’ll get another look at our bounce levels (and 5% levels now) to see if they can build some support and we can buy cheaper calls on the lower VIX.  So you can’t lose with CASH!

    This does not change my fairly bullish stance on the DIA puts as I still expect at least a test of 10,300 at some point.  PIMCO took us down just then with timing that may have been designed to chase people out of funds and back into bonds as the month closes out…

  187. Phil

    Commodities/Eric – The only commodity I like right now is interest through TBT.  If the dollar falls – TBT.  If inflation rolls in – TBT.  If the Fed tightens (not good for commodities) – TBT…  ABX would be my #2 choice but hopefully lower. 

    TBT/Tcha – Hmm, let me think….   Yes, I do believe I like them but not for a mo play.  If they drop a stimulus bomb over the weekend, they could go lower, if Greece goes belly up or Japan does something crazy, they could go lower.  What is so horrible about calecting $110 for the March $46 puts against $800 in margin for a 2% WEEKLY ROI?

  188. Jordan

    "We’re holding yesterday’s lows at least"

    Phil, by my count, we broke through yesterday’s lows…

  189. kustomz

    gel…i can believe GDP numbers, but we have to look at why they are up and where they came from and why we made it to this point…all GOV intervention with nothing from the private sector to sustain the growth…this is my biggest argument…and its not just the US its the globe….selling debt at an outrageous pace that is unsustainable and yet they speak of tax cuts…its not economically feasible

    Dubai Greece etc etc…the writing is on the wall GOV’s simply can not afford to sustain this expansion…cannot lose site of how many trillions were off loaded to GOV around the world and how much they continue to take on, really is unprecedented

    Economies were over heated 04 to 07 and weren’t given the chance to unwind properly.

    QCOM!! coming back i like it

  190. Jordan

    We are actually sitting on yesterday’s lows right now on the DOW, below it on SP500, below it on Nasdaq, Below it on NYSE, and sitting on it/below it on R2000.

  191. EricL

    I’m a little scared of TBT Phil, although I have a small long position there. There are two things that worry me:
     
    1. The Fed may really pull out the stops this year and surprise everyone and, if there is market panic, everyone will rush back into treasuries.
     
    2. Everyone seems to think it’s the ‘obvious’ trade, and we know how those can end.
     
    Long-term though, yes, it seems inevitable. But we may have to be patient.

  192. EricL

    I love days like this. The panic, the deals, the trades that look like they are blowing up one minute and are huge winners the next.
     
    BTW Pharm, ISRG looks like it may re-take that support line, so I cut way back on that trade (kept a couple on though).

  193. JRW III

    ss,
    Are you still in TZA, I got out back at IWM 60.16 for $0.30; be careful !!

  194. ssdirk

    JRW – no, I am out.  Thanks.

  195. ssdirk

    Great week gang.  That was a blast.  Have a good weekend.

  196. Jordan

    Have a good weekend everyone.  Unwind after this nerve-wrecking! :)

  197. judahbenhur

    SS, JRW.  Nice work. Thanks as always for everything.  Enjoy your weekend.

  198. kustomz

    Great weekend folks

    Jordan i put a shot of Baileys in my coffee and i drink 5 cups in 6 hours so im pretty unwound already 8-)

     

  199. tchayipov

    c u on Monday guys

  200. pstas

    Cwan- I am also in the SPX Mar 950 & 960. I sold these back near the top and we are half way to the 15% down cushion. Too early to panic , IMO, always plenty of time for that. The put verticals made some money for me and I actually rolled my original vertical spread down. From my earlier experiences with some strangles I learned not to get too jumpy on adjustments. We built in a lot of cushion for a reason so I tend to let it play out a bit.

  201. JRW III

    All,
    Enjoy the time away !!

  202. ssdirk

    cwan – I think Peter will confirm that this month has been one of the most trying for strangles in the past 12 months.  If you played it like he did it was probably one of the most profitable.  But I think his experience allowed him to do that.  The falling market and rising vix has played havoc on the short puts.  The wild plays have held their own, but have not outgained the losses on the solo short puts.  After my meltdown last weekend I took the opportunity to cover some strangles and also come unbalanced by covering some puts on strangles that I have left.  So now, I have more sold calls than puts and more wild plays than strangles.  I will probably resell some puts next week and roll my calls down.  I think you are probably OK, but Peter can tell you.  BTW, I have similar strikes as you.

  203. 1020

    Wow!  I think a few of us looked like the guy on the old Maxell ad. Hands gripping an all black leather chair  Dark Ray-bans  Hair blown back, except it’s his monitor, not his speakers blowing him (and maybe some cash) away….. :)

  204. Phil

    Lows/Jordan – Yep, I was anticipating that bounce into the close would amount to something. 

    TBT/Eric – Well, one thing I like about them is clearly we can roll them down to the mid 30s if we keep going and that would peg rates at about -1%, at which point we become worse than Greece and our rates either shoot up to 7.5% if we want to borrow money or we print our own money and rates go completely nuts.  You can’t go $1.5Tn into debt (1/3 of China’s entire GDP) 2 years in a row before something breaks….

    Well that was fun but could have been much more so if we had stayed super bearish.  Hopefully we get a little something next week to make us feel better but cash is comfey over the weekend.

    Have a good one everybody!

    - Phil

  205. bord

    Two ugly weeks in a row for me… I am drained.

  206. judahbenhur

    Cwan. Whenever I have worried about strikes in the past few weeks, I have checked the option prices for rolling down into the next month. (My strikes are similar to yours.) There is plenty of time to roll the March puts down and into April for credit, and roll again if necessary.  But I think it is too early to take such a step.  As Peter says, if you keep rolling, you only have to be right once.  (Peter, pardon if I’ve misquoted you.)  Have a peaceful weekend.

  207. Peter D

    short strangler folks,  that was a tough finish and got me hurried up a bit to roll down the callers as I don’t like the ballooning Delta.  Got a bunch of fills even 14 minutes after the close.  Gotta get to a meeting now and will respond later.

  208. jcmcn5

    Phil — with respect to rolling TBT, if I’m short the  48, which I shorted around $1 if I recall, now at $1.51, would you roll them on Monday?

  209. tchayipov

    Peter
    when you have time, could you pls explain how you use delta for strangles and how/when and why you adjust you position because of delta,
    I closed today my RUT Feb positions with good 2% weekly profit, thanx a lot

  210. Cap

    Just got in >>>
     
    Mocha:  after a pop; HK had quite the ugly day and close.  Other energy names also ….

  211. Cap

    Sign me up for Jackie’s Stock World !!
     
    I hear it is far more insightful …   :wink:
     
    I had my 8 year old glued to CNBC’s program on Apps … loved those 2 13 year old geeky kids that made the Math App for kids !

  212. Pharmboy

    Eric – yeah, I noted it in the chart, only dipped in for 1 spread, can add lower if it goes the other way….
     
    CAP/MrM – now is the time to look way out and sell those Puts as the gap was filled nicely.  Now….how low can it go.

  213. kustomz

    XOM chart is fugly!!! What happened to all that global demand for oil?  I think its going to make for a great trade when it settles down.

  214. Peter D

    cwan, pstas, ss, judah, tcha + short stranglers,
     
    Thanks judah for explaining about the rolling and your quote of being right once is very true!   Congrats to tcha, 2% a week is great return!  First, let me say that the sell off today is troublesome, more so than last week, especially for the short stranglers.   We started with a big 15-20% downside cushion and 8-10% upside cushion with the 980/1210, 950/1220 spreads, then the upside got tested as the market inches up, but VIX was dropping to the 52 weeks low, so no worries and sleeping in was the norm for the first week of the year.  Now we are in 980/1150 or so and SPX is at 1074.   We still have that 9% cushion on the downside, and the market moves towards the maximum profit target range (when the put vertical is in the money), so there is no panic, just some worry and additional scheming.   On 1/20, I did write on how the Delta would go positive as we are moving towards the maximum profit range and we need to have the nerves to wait it out:
    http://www.philstockworld.com/2010/01/20/whig-party-wednesday-republicans-take-kennedys-seat-at-the-table/#comment-281552
     
    Even after saying all that, I know it’s hard to not panic, right?  Note that this has been volatile compare to the past 2 months, but nothing compare to July 09, let alone Jan-April of 2009.  Let’s deal with the Delta first.  Last week when SPX dropped from 1150 to 1090, the herd mentality was "it’s just a bleep and we’ll have another rally, making the next hump", and those mentality is usually correct for a short time, so it was easy to double down into the VIX surge last Thursday, Friday and even this Monday, as we know it would bounce or remain flat for long enough to get out.  By Tuesday afternoon and Wednesday, I was out of the newly added spreads for a handsome profit, and ready for the next drop.  The market however, gave a couple of fake rallies that make us tired because of being whipsawed.  Keeping Delta near zero worked perfectly for up to this morning.  Then came the 23 SPX points sell off.  Guess what is the herd mentality this time?  "We are going down further"!   This could be true again, so we would want to go to the weekend with a Negative Delta in case the market drops a few hundred points over the weekend.   If we were wrong and the market heads back up, VIX would drop, helping the sellers of options. 
     
    On the upside, once the market has dropped 7.5%, the chance of recovering to the previous high within a 2 months window is very low, something like 5%, or once every 20 months.  Counting it statistically, we’ve used it 3 times, March, July and October 2009 (recovered to above the previous high), so this time our chances to recover to 1150 is even lower.   Yes, the bulls can argue that we can do it again and present their statistics, but selling Feb 1150 calls looks rather safe.  Note how resistance is formed that we and a bunch of others start to sell 1150 calls making a strong resistance to the upside.  So tcha, your question is answered, the market sentiment points to a Negative Delta positioning over the weekend!

  215. Peter D

    short stranglers/long post gets longers,
    I have to agreed with pstas, ss & judah that it’s too early to panic and like judah said, we can calmly look at the exit routes.  There are still many of those.  Feb 980 putters can be rolled to Mar 920 putters for $1.9 credit.  That’s a 6% cushion and still getting a credit.  Looking ATM strikes, Feb 1070 can be rolled to Mar 1030 for a slight debit.  That’s a 4% cushion when you’re ATM. 
     
    How about rolling down in the same month? Feb 980 putters can be rolled 2x to 940 putters for a small debit.  This is excellent as we can add 4% cushion using our reserved margin and greatly increase our probability of winning it all (expired worthless).  Of course, we can sell the second set of calls, reducing the delta and getting more cushion to the downside.  Similarly SPX Mar 950 can be rolled 2X to Mar 900 for a small credit (adding a 5% cushion, which is statistically significant).   Mar 900 strike is 22% from the 1150 peak, meaning the chance of getting below 900 is low (not never, but low).  In that case, remember that other folks would have loss 22% if they have their unhedge portfolios in SPY before we lose on our spreads. 

  216. pstas

    Peter
    Are your suggesting selling additional naked calls to lower delta?
     

  217. Peter D

    pstas,
    Good question and a great tool to sell naked short calls to lower Delta.  I didn’t resort to that today, nor in the past 9 months.  But I do have a thought that if I find the market open down big and I need to reduce Delta quickly, I would sell naked calls just out of the money.  The March 1100 call is $19.4 while the 1180 call is $1.8, so slapping on some of those 1100 calls would drop the Delta very quickly.  I’m not too confident about my timing of such big sell yet, so have always hold back from selling calls close to the money.

  218. Cap

     Tonight’s full moon will be the biggest and brightest full moon of the year.
     
    Once or twice a year, the moon’s perigee coincides with a full moan, as it does tonite, making the moon bigger and brighter than any other full moons during the year.
     
    Many people think full moons cause strange behavior among animals and even humans.  Claims have been made to tie lunar phases to births, heart attacks, deaths, suicides, violence, psychiatric hospital admissions (where IS Phil ??), epileptic seizures, and stock market swoons.
     
    In reality, there is no such thing as a full moon ….
     
    And, there is no dark side of the moon really … in fact, its all dark.

  219. Pharmboy

    Classic first 10 minutes.….

  220. kustomz

    Darkness reveals the light….it looks as though its 7 in the evening here in south Fla…spooky

    Obama met with the Rep and rocked the show…i recommend watching it. I cant imagine former pres Bush having the ability to engage the Dems in such a poignant way.
    http://www.c-span.org/Watch/Media/2010/01/29/HP/R/29045/House+Republican+Retreat+with+Pres+Obama.aspx

  221. balancenv

     I too have quite some Feb 980/1080 strangles. and equal # of 1070/1060 put spreads as hedge. I think the hedge will save the day if SPX keeps on dropping (it’s 3.75 now). In addition, I bought some DIA Feb 99 puts as additional hedge. 
    For reasons unclear to me, buying the DIA puts increase my BP quite a bit, at about 5 times of the cost of th DIA puts. This is under TOS PM. I will ask them monday why buying DIA put increases BP. 

  222. pstas

    Kustomz- I saw an interview of one of the Republican attendees- I didn’t catch his name- but he had a great line. He said, "I agree with about 80% of what the Pres. SAYS, but disagree with about 80% of what the Pres. DOES.
    Seems to sum it up nicely.

  223. kustomz

    pstas, I’m sure and most of the country feels the same way. I just like the fact he knows whats going on and if he fails miserably we know its not because he didn’t have a clue unlike the last president. I watched some videos of Bush from his younger years, he wouldn’t have made it 10 min in Brooklyn without getting his arse handed to him. Just an overall bad attitude with nothing to back it up.
     

  224. Peter D

    balance,
    That’s a great position to be in as it’s already a winning spread.   The SPX Feb 980 PUT is only $3.6 so don’t let that $3.75 from the vertical get away from you.   As for the DIA puts, did you mean "increase BP" or "decrease BP"?  Increasing BP makes sense as the PM margin test may result in more margin on the put leg, so buying additional put would decrease the margin under PM.  Click on the "BP Effect" number for each symbol (SPX, RUT), it shows the "Explain Margin" window where it shows the margin for each equi-distant PM test.  If the margin on the put side is more than the call side, then buying additional DIA puts would decrease the overal margin, which is taken from the higher put leg’s margin.

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