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Tuesday – Bill Gross Gives Us 90 Seconds

Our favorite bond pimp is in some mood this month!

Maybe it’s because, despite PimpCo’s best efforts, they failed to tank the markets last week but Gross starts his March newsletter off with this harsh chart but his words are even harsher - saying of cocktail parties:

I suppose the parties wouldn’t be so bad if there was something original to be said, or if “you” had a genuine interest in “me” as opposed to “you,” but let’s face it folks, no one does. The only reason any of us really cares about cocktail conversations is to quickly redirect someone else’s stories into autobiographies that we assume to be instant bestsellers if only in print. If not, if the doe-eyed listener seems simply fascinated by what you’re saying, you can bet there’s a requested personal favor coming when you finally shut up. “Say Bill, I was wondering if you knew somebody at…that could…” Yeah right! But, as my chart shows, 90 seconds into a typical conversation, no one gives a damn about you and your problems – maybe those shoes and that dreadful eye shadow you’re wearing, but not anything audible coming out of your mouth.

Yow Bill!  Tell us how you really feel…  After telling us how appalling he finds it to endure 90 seconds of our time at a party, Bill then asks for his own 90 seconds to teach us about economics.  I’m not going to edit as it is about 90 seconds worth but after that opening – don’t you find it kind of hard to read what he has to say without looking for a place to throw a virtual punch?

To begin with, let’s get reacquainted with the fundamental economic problem of our age – lack of global aggregate demand – and how we got to where we are today:

(1) Twenty years of accelerated globalization incrementally undermined the real incomes of most developed countries’ workers/citizens, forcing governments to promote leverage and asset price appreciation in order to fill in what is known as an “aggregate demand” gap – making sure that consumers keep buying things. When the private sector assumed too much debt and asset prices bubbled (think subprimes and houses, or dotcoms/NASDAQ 5000), American-style capitalism with its leverage, deregulation, and religious belief in lower and lower taxes reached a dead end. There was a willingness to keep on consuming, there just wasn’t the wallet. Vigilantes – bond market or otherwise – took away the credit card like parents do with a mall-crazed teenager.

(2) The cancellation of credit cards led to the Great Recession and private sector deleveraging, the beginning of government policy reregulation, and gradual deglobalization – a reversal of over 20 years of trade policies and free market orthodoxy. In order to get us out of the sinkhole and avoid another Great Depression, the visible fist of government stepped in to replace the invisible hand of Adam Smith. Short-term interest rates headed to 0% and monetary policies of central banks incorporated new measures labeled quantitative easing,” which essentially involved the writing of trillions of dollars of checks to replace the trillions of dollars of credit that disappeared after Lehman Brothers. In addition, government fiscal policies, in combination with declining revenues, led to double-digit deficits as a percentage of GDP in many countries, a condition unheard of since the Great Depression.

(3) For awhile it seemed that all was well, that the government’s checkbook could replace the private market’s wallet and credit cards. Risk markets returned to normal P/Es as did interest rate spreads, and GDP growth resumed; it was only a matter of time before job growth would assure the world that we could believe in the tooth fairy again. Capitalism based on asset price appreciation was back. It would only be a matter of time before home prices followed stock prices higher and those refis and second mortgages would stuff our wallets once again.

(4) Ah, but Dubai, Iceland, Ireland and recently Greece pointed to a potential flaw in the model. Shaking hands with the government was a brilliant strategy in 2009 when it was assumed that governments had an infinite capacity to leverage themselves.

But what if they didn’t? What if, as Carmen Reinhart and Kenneth Rogoff have pointed out in their book, “This Time is Different,” our modern era was similar to history over the past several centuries when financial crises led to sovereign defaults or at least uncomfortable economic growth environments where real GDP was subpar based on onerous debt levels – sovereign and private market alike. What if – to put it simply – you couldn’t get out of a debt crisis by creating more debt?

You know, for a pompous jackass – the man makes a good point…  Gross goes on to say that while emergency deficit spending may work over the short-run – "Based on existing deficit trends and the expectation that not much progress will be made in reducing them, markets are raising interest rates on sovereign debt issuance either in anticipation of higher future inflation, increased levels of credit risk, or both. This places a potential “cap” on the “debt” that supposedly can be created to get out of the “debt crisis.”  Clearly Mr. Gross has not met the White Rabbit nor has he read my October rant on the Wonderland Market (probably because it’s longer than 90 seconds), nor did he read today’s FT article titled "How Reagan Ruined Conservatism," which clearly points out that he is talking to the proverbial wall

Gross makes an excellent point about the global homogenization of debt we are seeing, saying: "Government bailouts and guarantees such as those evidenced and envisioned in Dubai and Greece, as well as those for the last 18 months with banks and large industrial corporations across the globe, suggest a more homogeneous “unicredit” type of bond market. If core sovereigns such as the U.S., Germany, U.K., and Japan “absorb” more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle."

While this may, in the short-term, be a "good thing" as we save Greece from having to pay a logical 10% interest to borrow their next Drachma, what we have really done is have Europe as as a co-signer to Greece’s refinancing.  This is no longer about Greece learning how to restrain themselves or suffering the consequences but about Greece learning to restrain themselves or we ALL suffer the consequences.  The same obviously goes for the US, who has now directly guaranteed what Whitney and Roubini estimated to be $6Tn of potentially bad bank debts as well as stepping in behind AIG, FRE and FNM to guarantee tens of Trillions more in MBS and CDS securities.  As anyone who has done a relative favor and co-signed for a home loan knows – it’s all well and good as long as they make their payments but, as soon as there is a slip – it becomes very much your problem! 

Today our Wonderland Market is climbing back to test the top of our bounce zone using what Douglas Adams called "The SEP Effect" or "Somebody Else’s Problem."  This allows the market to ignore Gross’s logic as well as all the bad news and just climb along an uptrend on a broken wing and a muttered curse.  As Adams puts it: "An SEP is something we can’t see, or don’t see, or our brain doesn’t let us see, because we think that it’s somebody else’s problem…. The brain just edits it out, it’s like a blind spot. If you look at it directly you won’t see it unless you know precisely what it is.  This is because it relies on people’s natural predisposition not to see anything they don’t want to, weren’t expecting, or can’t explain."

Using that simple logic, the market is able to shake of CDS, MBS, Trillion Dollar deficits, double digit unemployment, foreclosures, credit card defaults, inflation and hosts of other concerns and JUST GO UP – because – it’s nicer than down isn’t it?

We do sort of kind of think something will be done about Greece by Friday as Merkel is meeting with Papaconstantinou in Germany where he promises not to ask for WWII reparations and she promises to give him money just for the hell of it.  If we do not get a resolution on Greece by Monday, I imagine the markets will be very disappointed.  The British Pound is on the edge of the $1.50 cliff and there is a lot of futures betting that they will fall to $1.35 – on par with the Euro by the end of March – clearly that is not our problem but that homogenization of debt that Gross points to may make it our problem very soon.  Australia rasied their benchmark rate to 4%, 3.5% higher than ours as we vie with Japan to be the new source of carry-trade funding for the next decade. 

China had a little pullback this morning as the Hang Seng dropped 150 points (0.75%) and the Shanghai fell half a percent (15 points) but the Nikkei rose 0.5% and broke over our 10,200 bounce level to 10,221 while the BSE racked up a 2% gain to 16,772.  China was hit by New Home Sales in Shanghai falling 54% in February to the lowest monthly volume registers since tracking began in 2005.  That’s down an ADDITIONAL 54% from January’s 51% drop.  "Policies implemented by the government to curb speculation in the overheated real estate market, traditional slack momentum during the Spring Festival as well as growing wait-and-see sentiment among buyers dragged the city’s monthly volume to a record low although they didn’t impact the housing prices," said Lu Qilin, a researcher at Uwin.  Clearly this is somebody else’s problem

Also not our problem is the urban/rural income gap in China hitting a new record (we discussed causes for this in yesterday’s post and in Member Chat over the weekend re. the NY Times article) as city wages have pushed to a whopping per capita of $2,525 a year vs. just $757 a year earned by the average Chinese country mouse (and there’s about 1.1Bn of them).  I guess we can raise the standard of living of 1.1Bn farmers by 10% ($83Bn) by redistributing it from the top 30% (in true communist fashion) as the top 300M only earn a collective $757Bn so it works out to just a little 10% taken from the "rich" and given to the poor to bring the ratio back to an just an appalling 3:1 (now 3.3 to 1). 

None of this is Europe’s problem and they are having another nice day with 1% gains across the board.  The Dax finally got over our 5,750 target so this is going to be the US’s race to lose today as we closed with all 5 of our indices over our bounce lines yesterday.  Euro-zone deflation – oops, I mean inflation – remained low, at 0.9% in February, despite a 10% rise in fuel prices because the Eurostat data, just like our own beloved CPI, doesn’t include prices for energy, food, alcohol and tobacco.  That way, we can show increases in consumer spending by squeezing them on essentials and forcing them to go into debt while at the same time claiming inflation is under control so we can continue to make rates artificially low which allows the bankers to keep raping the consumers on the lending spreads while disincentifying savings with ridiculously artificially low rates since the consumers have to compete as lenders with a government who simply prints money and gives it to the bank. 

Oh sorry, forget I said that – it’s not our problem…

We took our short oil profits and ran yesterday – getting a little more cashy in order to take advantage of this morning’s run-up to do a little more shorting.  We have Auto Sales throughout the day and if they come in positive, I’ll be getting more neutral but tomorrow we get a lot of employment data and ISM services and the Beige Book so I’m willing to stay short into that data if need be as this very low-volume attempt to shove us back into an uptrend is a very dangerous game and we can slip back surprisingly fast if sentiment turns.

 


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  1. Cap

    I guess Bill Gross just has to "man up" like the rest of us and accept gov’t incompetence and runaway wasteful spending and higher taxes.  After all, cutting foolish spending and reining in the bureacracy, well, that’s just not possible, 

  2. Cap

    Steve Liesman promoting Chritina Roehmer for Fed Board to replace Kohn ???? OMFG, what an idiot !
     
    Rick:  "Which Neville Chamberlin do you put in charge of foreign relations ?"  

  3. David Ristau

    Hey all,

    I will be releasing an Overnight Trade of the Day post today instead of my usual post. I am not too fond of the market this morning, and I am having trouble finding some things I can be too confident about. For that reason, we will do one of our Overnight Trade. It should be out around lunchtime,

    Thanks.

  4. samz3700

    Anyone having trouple getting a fill on the roll from dia 105  to 106 puts?
    Would think this would be going through with the vix low and dia pushing toward 105 -
    Gel – nice call on nbg
    Pharm – nice move starting in mygn

  5. RMM

    Cap; do you mean Chamberlain the Brit ?

  6. ssdirk

    JRW – I am back in the saddle.  What lines do you see for IWM today? Thanks.

  7. judahbenhur

    Cwan, I was interested in your post/question to Barfinger late yesterday.  Do you think maybe he meant selling the 1110 calls and 1105 puts in his example?

  8. yodi

    EricL, pls explain the EL condor 60/65/70/      sell put and call ITM and buy put and call OTM what is 60 65 and 70 thanks

  9. judahbenhur

    SS, Welcome back.  I’m TNA from the opening bell.

  10. ssdirk

    Peter, judah – I have the short Mar RUT 650.  Scratching my head wondering if DD to 660 or roll to Apr 670 is necessary.  What do you think?  Actually, I can’t believe we are this close to 650.

  11. dmankoff

    ok, Phil, feeling better?  this market is on fumes !  but keeps feeding itself higher
    how about a new TBT trade today…. which is the best call spread to do , do you think?
    thanks
    David

  12. jromeha

    Phil, could you give me a bullish play for SQNM?

  13. Phil

    Good morning! 

    We’re over all our bounce levels of Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625  so it’s all about holding them today.  If we can put in a good floor here we’ll have to consider adjusting our short positions and looking upward to 10,700 again but let’s not get ahead of ourselves as this is all low-volume BS so far. 

    Oil is still unrealistic at $79.27 and gold is back to $1,123 with copper back at $3.35 so no lessons have been learned yet. 

    We’re thrilled that our major long bets and the Buy List are doing well so we’ll let everything ride but I’m going to want to take a couple of disaster hedges at some point, now that they are getting cheap again. 

    I like the DIA $103 puts at .80 but it’s a dangerous play and you just have to take a loss at 10,500, probably .65 or you can wait for the Dow to test 10,500 and then play that line – which is smarter so let’s call that the official play and jumping in now is just for lunatics.

    Same goes for oil – we want to see them test and fail $80 again for both the futures play and the USO puts with Apr $37 puts looking good, already back at yesterday’s low of .93 so I think .90 is worth the risk.

  14. judahbenhur

    SS, Just thinking out loud--while I’d normally think the April roll is easier, I don’t see any great strikes in April to pay for the roll and you may face the same problem next month with the April caller.  660 doesn’t quite seem safe enough for March either, though whenever we get a pull back, you’ll get the necessary breathing room.  I don’t have time to look right now since I have to take my 3-year old to the dentist, but maybe there is a way to roll to 660 and also buy some protection with TNA calls in case the RUT moves relentlessly upward.
    Out of TNA, which pays for the dentist visit since health insurance doesn’t cover jack.

  15. tchayipov

    my TOS system doesn’t recognize USO symbol

  16. tchayipov

    my TOS system doesn’t recognize USO symbol

  17. Phil

    Confidence/David – Good instincts, I think this move is very misleading at the moment. 

    DIA/Samz – If we pop up a bit you should get the fill, right on the line at the moment.

    Chamberlain/RMM – I think he meant the guy who slept with 20,000 women…

    TBT/DMam – How can you possibly want a TBT trade every single day?  What do you do with them???  We got a nice pop this morning so it would be chasing at this point.  If we get a trend up, then you’ll have to pay up but don’t chase on a jump like this as it can flip in  moments. 

    SQNM/Jrom – Talk about chasing!  Well we ALWAYS sell into the intial excitement so step 1 is selling Apr $8 calls for $1.25.  Then you set a buy-in stop at $8.50, using that line for an on/off on the trade.  So your worst upside case is you get a net $7.25 entry and your downside case is you make $1.25 off some sucker who wanted to chase this stock after a 20% jump. 

    TOS/Tcha – Mine does.

  18. tradinv1

    Phil,  What are your thoughts on the FCX trade from yesterday?  Hold on and see if it falls apart or get out even?

  19. oncmed

    Phil,
    …speaking of disaster hedges, what u think about June 110p – 103p spread?  selling callers along the way..

  20. yodi

    Hi Phil
    TBT hold long Jan 11 46c at 7.97 now 5.37 jan 53 sold at 4.82 now 2.86 do you recomm any changes and even selling some puts
    SPWRA holding long Jan 11 17.5 c bought at 10.30 now 4.50 sold against Jun 10 26c sold 1.22 now .47 and sold Jun 22.5 p 3.84 now 4.60  do not know why the Jan long dropped so much
    need some good advice thks

  21. JRW III

    Cap / yesterday
    That was 20,000 of TNA, and then breifly 50,000 of TZA

  22. jimmyv

    Is this run up in AMZN for real? What a bunch of crap.

  23. gel1

    Phil/Debt
    We agree on the time frame for the accumulation of the excessive $7 T of debt over the past 10 years. Now it has to be paid off, and we are both "doctors of dialogue".  You have selected medication and I have opted for surgery. You have far more compassion than I, and the patient would far prefer your resolution.

  24. Phil

    Oil getting missed $80 by pennies! 

    GM joins the recall train, targeting 1.3M Chevrolet and Pontiac vehicles in North America over power-steering problems. Regulators are investigating the matter after receiving more than 1,100 consumer complaints about steering failures.  Hey – I have a wacky theory that laying off 30% of your workforce can lead to production problems

    The FDIC is reportedly ready for a sale of $1.8B in guaranteed debt backed by failed banks’ mortgage assets. The timing is no coincidence either: With the Fed wrapping up its mortgage-debt purchase program, the FDIC’s move can be seen as a partial replacement.

    As concerns about Greece’s deficit mount and European contagion fears grow, U.S. Comptroller of the Currency John Dugan says regulators are taking a very careful look at the exposure of U.S. banks to sovereign debt risk.

    High debt isn’t the only problem plaguing the eurozone. Several countries, including Greece, are facing years of weak inflation, which could seriously harm recovery prospects. Others, including Spain and Ireland, are at risk for deflation.

    ICSC Retail Store Sales: -0.8% W/W, vs. +2.3% last week. +0.7% Y/Y, vs. +0.9% last week. Don’t read too much into the results, as Feb. is a thin month to begin with and snow hurt sales in the Northeast.

    Redbook Chain Store Sales: +1.5% Y/Y vs. +1.9% last week. Snowstorms held back sales only slightly, and spring apparel is moving at full price.

    Cheap food for the masses wins out:  Domino’s Pizza (DPZ): Q4 EPS of $0.30 beats by $0.05. Revenue of $463M (+8.1%) vs. $438M. Shares +1.7% premarket. (PR)

    Cantor Fitzgerald upgrades Sequenom (SQNM) to Buy from Hold with a $16 price target. "Sequenom is back on-track toward building its molecular diagnostics portfolio," and its next-gen MassARRAY platform will be a key driver of long-term growth. Shares +19.4% to $8.25. (see also)

    Five leading magazine publishers, including Time Warner (TWX) and Meredith (MDP), team up on a multi-million dollar ad campaign showcasing the "power of print." Maybe they didn’t see the new Pew Research Center report that says over 25% of American adults read the news on their cellphones.

    Dow leaders: BA +1.3%. CAT +1.1%. CHV +1.0%. KFT +1.0%. JPM +0.7%.
    Dow laggards: T -0.6%. WMT -0.6%. GE -0.3%

  25. gel1

    tchay… Congrats to your hockey team for the Olympic win.I  A game that will be long  remembered.

  26. RMM

    Phil: Too early to roll???? considering the market pulse.
    Have a look at the following MARCH Putters which I have:
    AMGEN P55, 1.06$ now 0.41
    XOM P65 1.74 now 0.84
    KBR P20, ).89 now 0.20
    MDT P43 1.12 now 0.40$.
     
    PSL sleeping with 20000 women, think about the strain and stress and wear.

  27. JRW III

    ss
    Welcome back, how was the powder ? I’m thinking Short; support at IWM 64.00 main old resistance line from June 2007. Resistance now at IWM 64.85

  28. ssdirk

    JRW – snow was great, although we missed skiing great powder yesterday when we left.  Thanks.

  29. tchayipov

    Gel/ hockey
     
    thanx, it was a nice game, US team was very good too, but to get a gold in Canada was too hard for them

  30. Peter D

    ss, welcome back.  How much spare margin do you have?
    You can roll 1X Mar 650 to 2X to Mar 660, or to 2X Apr 680.  You can then sell additional puts to bring delta back to neutral.  Yesterday, I thought of a new trick that can be riskly, but will change the delta very quickly.  Buy back 1X Mar 650 caller, then sell 8X Mar 580 puts for Even.  If the delta is currently too negative, no additional margin is needed with Portfolio Margin for selling those putters.  We gain the same dollar amount if the Mar 580 putters expire worthless.  If the market drops 5%, then we can flip back to buy out the putters and sell the callers.  Hopefully, time would expire before then.  This trick is actually reduces margin with PM  if the market stays within -5% to flat.

  31. jburgess

    SS: Keystone is where I learned to ski back in the 80′s. Schoolmarm was my first ever run. Hope you had a good time.

  32. Peter D

    cwan, answering your question yesterday.  I do like SDS as the other leg for SSO or TNA in IRA accounts.  Since these ultras would generally goes to zero overtime, we need to sell puts that are way out of the money as both legs may lose when the ultra values decreases.

  33. ssdirk

    Peter – I have plenty of margin left as I have not sold any April strangles.  The 8x is a little too risky for my stomach.  In general, it seems these past 2 months have been a bit trying for strangles with the whipsaw action and falling vix.  Am I reading that correctly.

  34. Fein234

    Phil and others / Oil – I’m curious if anyone has been following the Iran situation closely? Really tough to suss out the effects on the oil market with bits of info here and there, but I wonder how much of a floor there might be on oil prices until Iran situation takes a definitive direction. Perhaps this is also part of Goldman pounding the table on $95 oil this year… of course we can expect them do so at "opportune" times. Seems that even this week the Chinese especially and maybe the Russians are at least slightly warming up to the idea of sanctions, but again hard to say how real that is when push comes to shove. Phil, any plays you’d recommend for anyone who wants to hedge a portfolio against tail risk of a sudden Israeli / U.S. invasion, Iran making a mess in the Persian Gulf, etc.? USO OTM spreads or what? I’m not trying to be alarmist here and have no idea if/when anything will happen, but I’d love to get your thoughts on disaster protection in this context. Thanks.

  35. ssdirk

    Phil – what could possibly take this market down?  Unemployment is supposed to be ignored, all bad news is ignored.  Heck even an earthquake caused a jam job.

  36. Peter D

    ss, it’s just the RUT that gives us trouble, while SPX behaves properly.  One of the reason is that VIX is tied with SPX, not RUT.  So when the RUT outperforms SPX, either up or down, we see large swings on the RUT short strangles.  The $10 strike on RUT doesn’t help with the rolls as we know.  So we just need to have more SPX than RUT spreads.

  37. ssdirk

    Peter – a while back you stated that the SPX strangles were easier to DD and roll.  Back then I didn’t know what you meant, but now I do.

  38. tchayipov

    Phil
    when you have time, could you explain why you prefer USO when you play oil?

  39. Phil

    FCX/Trad – If you didn’t take the quick profits I still think it’s a reasonable thing to hang onto but I wouldn’t push it if copper holds $3.35 and gold holds $1,120 as that’s simply good math for FCX.   The pound and the Euro are holding it together at the moment on expectations of Greece being "solved" on Friday but how it is solved is still an issue.  I will be fairly bearish all week until I see some solid breaking of our levels (not just skimming along the top of the bounce zones) and, of course, some volume. 

    June/Oncmed – I don’t like bear verticals as much as bull ones on short funds for protection but it’s a very similar logic.  As long as you have a plan to earn enough to make the risk tolerable, it’s a good hedge. 

    TBT/Yodi – Yes, I’d take out the caller and wait a bit.  When they were below 50% you should have set stops or bought back 1/2 as any lower than that and you’d have wanted to sell lower covers anyway.  You can also roll the $46 calls down to the $44s for $1, picking up $2 in intrinsic value for $1.  Anytime someone wants to give you $2 for $1, it’s usually a good idea to take it.   SPWRA – Jans drop fast when they go out of the money and the VIX is back to 19, killing premium.  Same deal, you take advantage of it and roll down to $12.50s for +$3 or to 2012 $15s for $2.60, which gives you a lot more time to get even.  The June calls are done for and you should take them out and sell something more realistic like March $20s for .75, which can roll to Apr $21s and if they are back to $21 by April you are a happy camper.

    AMZN/Jimmy – They are a pretty good company and that cloud computing thing they are doing is going to be a big source of new revenues.   I stopped betting against them but they will still dive at some point as the $100M per Q they are currently earning on the Kindle (1/3 of profits) takes a hit. 

    Playing doctor/Gel – Well I like to follow the Hippocratic Oath, which states: "I will apply dietic measures for the benefit of the sick according to my ability and judgment; I will keep them from harm AND injustice."

    Too Early/RMM – Yes but not to early to set stops.

    Oil/Fein – Well the invasion scenario is what keeps oil over $60 in the first place.  I wish it would actually happen so we could finally see that it will have a minimum impact on global supplies but it’s the treat that keeps it high, not the reality.  I find it very funny that people think oil can be $100 when 85M barrels of it are consumed daily.  That’s $8.5Bm a day or $3Tn a year and that doesn’t account for mark-ups on refined product ($3 a gallon for gas is $126 a barrel already) so we’re taling about closer to $6Tn at $100 or about 12% of global GDP up from 6% at $60.  Where exactly will this extra $3Tn come from?  How will it be financed, what things will be given up to pay for it (in 2008 the answer was mortgages!).  This stuff doesn’t happen in a vaccum – unlike gold – oil is actually consumed every single day and if you want to project $100 oil you need to figure out where, ultimately, that $100 will come from.  If you can’t figure out how consumers will be able to cut ANOTHER 10% of their expenses to pay for oil (and these are the bottom 90% who buy 90% of the oil) then the logical conclusion would be that $100 oil is unsustainable.  That’s how I sleep very soundly at night shorting oil at $80 – knowing if it spikes up to $150 on an "invasion" that I will be happy to roll up and double down and wait for the drop. 

    Speaking of $80 oil – here we go! 

    Down/SS – The Beige book tomorrow is our best bet for a downside catalyst.   Volume is still nothing, just 47M at 10:50 so far.  That means there is no support to the last 250 points we’ve gained. 

  40. jromeha

    Thx for the advice Phil. I knew I was chasing, just upset b/c someone recommended that stock to me last week and its up 33%+ since then…..

  41. cwan120

    Hi, Peter,
    Thank you for your reply on selling strangles in IRA accounts.
    What cushion would you suggest?  The premiums drop off really fast after -10%.  But 10% cushion of TNA is not much.  As a 3x ultra, 10% of TNA is about 3%-4% RUT.
     
    Hi, SS & Judah, you folks play with TNA/TZA all day long.  What do you think of selling SDS/TNA puts as a substitute of SPX strangles.  This is for IRA accounts, where we can only sell puts but not calls.  We do have to put up all cash for the margin.  But the idea is that if we can sell 1% premium for the margin, it may not be a bad deal.  But maybe it’s too risky.  See my comment last night.

  42. ssdirk

    JRW – are you in TZA?

  43. gel1

    Fein/Hedge
    I believe a surgical strike by Isreal on the Iranian nuke sites is better than 50-50 probability. My hedge for this market mover is the Gold etf – GLD (always present in my portfolio).

  44. roberthjrfl

    TBT/Yodi – Yes, I’d take out the caller and wait a bit.  When they were below 50% you should have set stops or bought back 1/2 as any lower than that and you’d have wanted to sell lower covers anyway.  You can also roll the $46 calls down to the $44s for $1, picking up $2 in intrinsic value for $1.
    Phil, when you have time could you comment on process of selling lower covers.   i understand the rule about beating by 50% and i understand about rolling down the long to pick up $2 for $1, but i am not sure about the new cover though…  thanks for the guidance.

  45. ssdirk

    cwan – hmmm, haven’t thought about it, but I will give it a look.

  46. tradansh

    cwan – general question on the ToS IRA accounts. Do they allow you to sell puts on margin in a Roth IRA account or only cash secured puts?

  47. cwan120

    Hi, Judah, regarding barfinger’s strategy,
    I have the same thought as yours.  I think too that he meant selling 1110 calls and 1105 puts.  It’s an interesting idea.  I’m sure it’s stressful at that close range.  But if you widen the range a bit, it’s almost like the TNA/TZA plays you folks are doing all day long.  On a real good day (like 2 days or so ago), you might even gain on both legs.

  48. bgbigelow

     BIDU is finally starting to break down.

  49. cwan120

    tradansh / Roth IRA: Call or chat on-line with TOS.  You’ll get the answer really fast.  I don’t know, because I only have traditional IRA.

  50. gel1

    The Bank of Canada is very concerned about creeping inflation, and have taken a "hawkish" position in their statement today relative to interest rate inceases. They have announced the probability of a rate increase before June. This is a currency booster, but more importantly, a precurser to action to follow shortly thereafter in the US. This shortens the timeline for our anticipated move upward in TBT positions, IMO

  51. gucci

    Hi Peter, my march Rut ss is 510/660 and crazy play 580/590, should I roll 510putter up to march 580 putter for 0.67 cent or wait for vix go up then roll it up — which is more safe thanks

  52. tradansh

    cwan – what about traditional IRA then? are you able to sell naked puts on margin?

  53. balancenv

    cwan,
    Alternative is to short iron condors as ‘defined risk’ in IRA, for example, I have APR 900/950/1210/1260, even with IRA full margin, it’s still close to 5% per month..
    Also you need to look at TNA’s option open interests… 

  54. Phil

    USO/Tcha – Prefer USO to what?  I like the futures but they are a little violent for most people so I use USO as an oil play the average person can follow. 

    SQNM/Jrom – Well don’t forget to thank that person, even though you missed it.  You want his next pick! 

    VIX 18.87!  17.50 was the bottom out in Jan and we fell from about 19 to 17.50 from Jan 6-19 with the Dow going from 10,550 to 10,750 during that time.  So let’s say we can get up to 10,600 before the VIX is back at 17.50 at this point – that’s not good!  We need 10,673 to make 5% over 10,165 (our last 5% level) so if we fail there – we will be into another major downtrend right around March 15th – BEWARE THE IDES OF MARCH!!!

    Meanwhile, with the VIX at 18.78, the March $19 calls, which are out of the money, are $1.60 and the March $19 puts, which are in the money are .65 – so that’s where sentiment is at the moment.  Be careful…

    Lower covers/Robert – Remind me after hours but think of why you sold the cover – to protect you.  If that cover drops from $1.50 to .50 with a month left – what protection do you now have?  The most you can make is another .50 but you can lose the $1 you gained just as easily so there is no longer a good risk/reward to keeping it.   Moving on from that line of resoning, you just need to re-evaluate where you are on the position and find a more adequate way of protecting yourself based on your expectations of movement off your new position.  New information should always lead to new decisions….

    DIA $103 puts hit target!!!

  55. tchayipov

    CME is creasy today, Phil do you recomend to sell additional calls?

  56. Cap

    RMM — yes, despite the mispelling.
     
    Did not mean Wilt, the Laker.

  57. gel1

    Just executed a Buy/Write on CTL (Centurytel, Inc) . Nice dividend payer @ 8.4% with lots of cash flow and profit. X-Dividend date is this Friday, the 5th.

  58. Cap

    20,000 women; yep, Wilt.
    By the way that Neville Chamberlain comment was Santelli’s this morning, not mine.  Great line.
     
    JimmyV – AMZN; yep, complete crap.  9 point rocket since 11 am yesterday.  Yeah, that makes sense.  Momo BS computers.    Go NC State !

  59. JRW III

    ss / TZA
    No, i’m in TNA and switching if we come back through IWM 64.85

  60. Pharmboy

    Picking up some SVNT calls (16s for 22c).  Since they don’t appear to have any data, and we made our money on the P last month to pay for the calls this month, time to buy some cheap calls and if they pull back, sell the Ps.  Again, there is a ton of money in them from Hedge Funds and institutions.  They only need approval of the manufacturing and then it is off to the races for them.
     
    SQNM has also picked up a ton of institutional investing including Blackrock at the end of Januaury (when they were 3.5).

  61. Peter D

    cwan, the original  idea was to sell TNA puts after the market has dropped by a large amount.  At that time VIX would be higher, and we’d also want a 15% TNA cushion (5% on the 1X indices) in case we are wrong and we need to roll for many months. 

  62. cwan120

    Hi, balance,
    Your iron condor idea is interesting.  How do you pick the strikes, are the short legs also +10%/-15% from market?
    How do you adjust if the market moves too close to one side?
    Thanks.

  63. cwan120

    tradnash: Yes, TOS allows you to sell naked puts, but not naked calls, in traditional IRA accounts.
    For naked puts, you have to put up cash to cover them.  No margins allowed.

  64. Phil

    Good article on declining China indicators by Prieur:

    chinaman-pic1

    On the same topic:  "Bubble in Shangri-La?"

    EDZ is back at $5.08 and we love them as a disaster hedge.  The Apr $4/5 spread is .60 and you can sell the $5 puts for .50 for .10 on a $1 spread that’s $1.10 in the money.  If EDZ heads lower, you can roll to the Oct $4 puts, now .60 so worst case is bing in EDZ long-term at net $3.50.

    Canada/Gel – That’s what I do expect to break first.  Every country needs money and they can’t all print infinite amounts like we can so soon we get a competion for investor bucks which will, in turn, be fueled by the dollar carry trade.  We are so Japan…

    CME/Tcha – I’d wait and see.  We could break up here.  I doubt it but we could.

    Wilt/Cap – Would be much more interested in seeing him in charge of foriegn relations – he certainly has the experience!  8-)

  65. Peter D

    gucci, do you have portfolio margin?  If not, then roll to the 580 putters.  If you have PM, you can sell the 590 long puts and leave the 510 and 580 as shorts. The 510 putters is 99% in the bag and looks to expire worthless.  We can hold on to the 660 short calls for another day.  Again, with PM, we can roll 1X Mar 660 to 2X Mar 670 callers

  66. Phil

    Grant Thornton’s survey of U.S. business leaders shows continued unease about the economy, with the majority expecting no improvement until next year or later. Its Business Optimism Index fell slightly to 58.8 in February, from 60.4 in November, when only 22% believed the recession would end in 2011 or later.

    Apple (AAPL) is suing HTC, maker of Google’s (GOOG) new Nexus One phone, claiming patent infringement on the iPhone. It’s the latest salvo in one of the most active battlegrounds for intellectual property disputes (I, II, III).

    Some more amplification of Dell’s (DELL +2.7%) taste for deals: “You will see acquisitions from us,” says the company’s Steve Felice about a potential $11B stash to make further acquisitions. That’s a lot; maybe it’s time to go after Palm (PALM)? (previously)

    GM February U.S. Sales: +11.5% to 141,951 vehicles, vs. expected +20%. Core brands (Chevrolet, Buick, GMC, Cadillac) up 32%; castoff brands (Saturn, Hummer, Pontiac, Saab) -86.1% to 3,102 vehicles. Chevrolet Equinox +132.8%. Buick LaCross +163%. Cadillac SRX +541.7%.

    Greece will reportedly announce another €4.8B ($6.5B) in deficit cuts – including cutting public workers’ bonuses and raising tobacco, alcohol and sales taxes – in a move that could cut opposition to an aid package from the EU. Greek bond yields and premiums have fallen in response.

    KC Fed chief and rate hawk Thomas Hoenig says the crisis has passed and rates should come up sooner than later; the Fed shouldn’t be signaling guarantees: "I think it’ll help the market actually adjust if they know that rates can’t be at zero forever – and shouldn’t be."

  67. lflantheman

    AAPL iphone infringement suits…..a very positive sign.   Everyone wants the technology!

  68. balancenv

    The iron condor in IRA is a variation of Peter’s SPX strangle, tailored for non-margin IRA. I started this last Dec when I moved my IRA from Fidelity to TOS. You can pick the strikes the same as SPX strangle play (no crazy play though) for PM accounts. Then widen the verticals, i.e., widen the normal -1210/+1220 calls to -1210/+1240 or even 1250 to get more credits. You can play around in the TOS analysis page to find the ‘optimal’ credit to margin ratio. Since iron condor is difficult to adjust, the plan is to ‘sell it and let it expire’. 
    Lately I just realize, for this play there’s no need to worry about margin, you can actually be more aggressive in picking the strikes, like -10% and +8%, if you’re convinced they’ll be OTM all the way thru. 

  69. ssdirk

    Phil/Hoenig – How can he say the crisis has passed when it has just been pushed under the rug with mark-to-model accounting for banks and the invisible hand of the stock market.  With CDS’s still running rampant we will have to bail the too big too fail out again.   Man, these jackasses frustrate the heck out of me.

  70. gel1

    Cap
    There was a reason why he was called "Wilt the Stilt"

  71. hanna5

    Feelings on QCOM anyone? Perhaps they have bottomed?

  72. JRW III

    Out of TNA, made $ 1.16, waiting for direction; finger on the TZA order button

  73. samz3700

    SQNM -
    What BS – stock started moving last week – somebody new something was a foot -
    not that I am complaining – well guess i am – but I’ll take it.

  74. jburgess

    Gel/CTL- on the Buy/write did you just write the call or did you write straddles for accumulating CTL? I’ve been watching this company, and the juicy dividend for some time. Thks

  75. gucci

    thanks Peter I do have PM and  I have been saving for a good sell when VIX jump as you mention before, just waiting patiently for the right time for the right moment to sell ss — right now I have to roll my callers up to july on some stock that I sold in last week, now is too close for comfort , thx

  76. dmankoff

    phil, this looks like a great play  EDZ is back at $5.08 and we love them as a disaster hedge.  The Apr $4/5 spread is .60 and you can sell the $5 puts for .50 for .10 on a $1 spread that’s $1.10 in the money.  If EDZ heads lower, you can roll to the Oct $4 puts, now .60 so worst case is bing in EDZ long-term at net $3.50
     
     
    and JRW – are you buying TZA now?

  77. judahbenhur

    SS, JRW, Back now. Man, I wish I could have stayed for the additional .25 move on IWM.   If I recall, in January when the RUT last moved to 650, SPX was up to 1150 and the Dow was pushing 11,700.  Somebody is out of whack.  Time for TZA.

  78. ssdirk

    judah – I agree with the RUT being ahead of itself.  I am in TZA at 8.35, but will be ready to respect the stick.

  79. kustomz

    ss dont misunderstand Hoenig. I think he means the credit crisis is behind us (chuckle).

  80. Phil

    Great strategy for IRA’s Balance!

    Hoenig/SS - I said last week it gets very scary when these guys start believing their own BS and making policy based on the crap statistics they spout off to make themselves look less incompetent than they actually are and that’s just what’s happening here. 

    Stilt/Gel – Don’t forget the other Chamberlain was called Neville the Devil – they say he screwed Ireland over and that was 3M women at the time!  After that, he went on to screw over all of Europe through appeasement so his count probably puts Wilt’s to shame….

    And dare I say – Wheeeee! 

  81. judahbenhur

    Cwan, I haven’t really looked at the ultras for the short strangles.  I tend to stay in them for minutes, or at most hours, so the prospect of selling 6-8 weeks in advance may be more than my blood pressure can take.  That said, I have been musing about using them for hedges/crazy plays to protect the SPX/RUT strangles.  I just haven’t taken the time to work through the numbers.  And on Barfinger’s play, I would think you’d keep getting whipsawed, but he says it works.

  82. gel1

    jburgess/CTL
    I bought the stock, and sold a short straddle – July 35 c & p. This play gives you a .92% discount (not bad) and you will soon get the dividend if you buy before Friday.

  83. gel1

    Placed an order to sell FXC June 95 puts.The Canadian economy is cooking very nicely, and it a rate increase takes place then the sold puts should decay to zero.

  84. gel1

    Phil/Stilt…. LOL

  85. JRW III

    dmankoff / TZA
    I took 1/2 possition as IWM passed through 64.85, $ 8.34

  86. judahbenhur

    JRW, I’ve been meaning to ask you.  Every morning TOS lists the DeMark pivot points.  Like, this morning, IWM was 64.82 and 63.76.  I know you draw your own lines and that you look at DeMark.  Do you find the ones TOS lists of value?  IWM has at least been hanging around 64.82 today on its way up, and, maybe, on its way down again.

  87. JRW III

    judah / DeMark
    Yes, one can never have too much GOOD information !!

  88. judahbenhur

    Phil/VLO.  Thanks for the advice the other day.  Worked like a charm.  I’m putting VLO in my regular rotation.  You think you’ll ever bring back the Valero Rule?

  89. gucci

    Hi Phil — want your opinion on my GOOG position, I have a March bull call spread open on Feb 1 – 510/520/540 on track for now,  but last week 2-25 also open bear put spread on one of your recommend Sept 510/570/550 — in negative right now, my question is any adjustment should I do now or too early.  thx

  90. JRW III

    And back out of TZA, + $ 0.03

  91. Phil

    Ford (F) February U.S. sales: +43% to 137,644 vehicles, vs. expected +30%. Market share estimated at 17% vs. year-ago 14%. Ford brand up 46%; Lincoln up 19%; Mercury up 24%. Fusion +116.5%. F-Series truck +39.3%. (PR)

    Kia February U.S. sales: +9% to 24,052 vehicles. New Sorento (first U.S.-built vehicle) sells 8,207, 11% higher M/M. (PR)

    The 10th anniversary of the last stock market bubble

    Instead of paying workers to be unemployed – in the form of unemployment benefits – we pay workers to stay employed, but work fewer hours. In effect, to avoid one worker from being laid off, several workers put in somewhat less time on the job and take a small cut in pay. Germany and the Netherlands have used this path to keep their unemployment rates from rising even though they have experienced steeper downturns than the US.  The way the system works in Germany, a firm will cut back the hours of its workers by 20%. The government then replaces 60% of the lost pay (12% of total pay). The firm is expected to kick in 20% of the lost pay (4% of total pay) and the worker ends up taking home 4% less pay.  n this scenario the worker ends up working 20% fewer hours for 4% less pay. This can mean, for example, that the worker ends up working a four-day week instead of a five-day week. Given the savings on work-related expenses, like transportation and childcare, most workers would almost certainly end up better off under a work-sharing arrangement than they are now.

    I’m liking SDS for protection here they are down 5 in 2 weeks and bottomed out at $32.79 in Jan, now 33.91 so I like selling the June $32 puts for $1.65 and buying the June $29/32 bull call spread for $1.90 for net .30 on the $3 spread.  That means just $1,000 cash plus about $16K in net margin buys you $10,000 worth of downside protection and you can roll the June $32 puts down to the Jan $27 puts (now $1.55) where you STILL have the $1.60 so for another $1.65 you would be able to set up another bull call spread to protect you through Jan.  For SDS to fall to 27, the S&P would have to rise 10% so, as long as a 10% gain in the S&P makes you good money – then this is a great way to protect yourself.

  92. jburgess

    Gel: thanks

  93. chaps

    Here’s another iron condor play on indexes in IRAs:
     
    I sold the SPY April 105/106/117/118 yesterday for $.33 when SPY was about $111. I set an alert on both the short put vertical component (105/106) and short call component (117/118) if either hits $.33. This means that side of the condor is losing and I close it out. You leave the winning side on, assuming SPY won’t crash through that vertical as well before expiration. So you hope to escape even on the trade. TOS analysis shows you have to move pretty far towards either of the verticals to trigger the alert, so it seems unlikely you’d make it all the way back to the winning vertical within the trade time window.
     
    Then you just do it again, given the current price of SPY.
     
    Otherwise, you’re staying reasonably within your strikes and you ride it out. The gross margin on the condor is $.67, which you sold $.33 against. As usual, you can determine when to exit, depending on what % of the $.33 you are shooting for.
     
    When you get closer to expiration, are within your strikes, neither of your alerts have been triggered (which less and less likely the closer you get to expiration), but you’re closer to one strike than the other, I often adjust the delta closer to neutral through adding longer dated SPY options (say, in September). The point is that the longer dated options aren’t overly influenced by movement in the SPY, and can be used to make the P/L curve on the trade "flat" at the current SPY price, so that I’m reaping theta with less exposure to delta.

  94. Phil

    VLO/Judah – Congrats!  Glad that worked out.  Oil has gotten so insanely manipulated that the Valero rule just doesn’t work like it used to as it is based on fundamentals.  If it ever starts working again (maybe with massive commodity regulation) then I’ll be thrilled to get back to it.

    TZA/JRW – Nice! 

    Copper $3.41, gold $1,137, silver $16.98, oil $80.95, nat gas $4.72.  Craziness!

    1 pm volume on Dow is 90M – right in line with prog trading day so very, very stickable. 

    ABX getting near $40.  Time to exit or cover if you are in that one!

  95. tchayipov

    Phil
    what do you think about GOOG at this level? I have LTP trade which underwater now with Jan12 480s Put (short)

  96. chaps

    Sorry, $.67 is the net margin, the risk on the trade.

  97. dflam

    phil:  If I wanted to use EDZ as a hedge against a major downturn, roughly  how many April $6 calls would I need to buy  to offset  $100,000. decline in my portfolio.Just looking for a rough guide since my only hedges are calls sols against stock. Thnak you
      

  98. phlit

    Phil, per your rec I bot VLO @ 17.76, sld the put for .95  and sld the call for .39    should I be doing anything here?

  99. Phil

    Here’s what’s wrong with the market.  There are 500 stocks and just 21 are considered a sell by more than 1/4 of the analysts who follow them:

  100. gel1

    Got filled on my short puts on FXC – that has to be "free money"

  101. judahbenhur

    SS, Back to your earlier question, I think I’d just roll 2x to 660 first and then out to April if still necessary.  650 should offer some resistance, since the RUT is so far out in front, and there is bound to be a pullback at some point when you can kill them off.

  102. mrmocha

    Phil, please give me your philosophy on getting out of this problem – I have SQNM leaps covered by MAR 4 calls which now have no premium so I need to roll.  With such a fast run-up, I’m inclined to roll to JUN 5 calls, which don’t have much premium but it’s a cheap roll and I don’t have much cash in this IRA right now.  Would you go with a tactical roll like the JUN 5s to buy time and see if the stock pauses here, our would you always pay more to buy more premium (and/or time) with something like the SEP 7s?  Thanks.

  103. Phil

    GOOG/Tcha – How are your short Jan $480 puts under water?  What are your strikes and basis?

    EDZ/Dflam – No way do you want to offset a whole portfolio with EDZ!  If you were in $100K of buy/writes that were set to make 20% per Q if the market stays flat (and using EDZ would offset China plays or bullish commodity plays mostly) then you should be covered by your sales to at least a 15% dip.  So anything from 10% down to up should make you $5,000-$20,000.  If we crash 30% then you would have more stock put to you at -20% and you would be in for avg -10% with the market -30% so down 20%.  That means you pretty much want to offset half of that loss or 10% or $10,000.  

    The EDZ play pays 10:1 so just $1,000 there will give you $10K back and the SDS is also a 10:1 payoff so another $1K there and you can collect $20K from the 2 on $2,000 cash committed.  It’s OK to commit the margin because, if you think about it, it’s virtually impossible for you to have the stock put to you (the margin you committed selling puts in buy/writes) AND have the disaster hedges put to you as they are opposite bets so you will use one or the other - or neither if we flatline and you win on both ends!   Both of these plays are designed to pay 10:1 simply if the underlying ETF does not go down – that’s not too ambitious is it? 

    VLO/Phlit – I take it you sold the $18 calls?  Not much to do really, you can roll when the time comes if it seems worth sticking with.  Getting called away with a nice montly profit is nothing to worry about. 

    SQNM/Mr. M – LOL, you are not catching a break are you?  I don’t know what leaps you have but you have $4.20 calls to move and I’d roll to 2x the June $8s for $1.85.  You can roll you current mystery leap up to 2x or add some Jan $10s at $2.20, which sure beats paying $2.10 to take out 1/2 the callers, right?

  104. cwan120

    EDZ: Don’t forget there is a 10:1 reverse split tomorrow!

  105. Jordan

    I got this interesting message this morning from by broker:

    1 : 1 Issue Change EDZ@ARCA

     
    EDZ@ARCA (Direxionshares Emerging Markets Bear 3X Shares) has announced an issue change of 1 : 1 effective 20100304.

    Anyone know what’s up?  The EDZ split is off?

  106. tchayipov

    Phil/ GOOG
    I bot jan12 550/660 Calls and sold Jan12 480 puts plus sold Mar 560 calls,
    just asking if you think that it will go lower, may be buy back puts and sell it later?

  107. tchayipov

    Phil another Q about ERY:
    I sold Mar 12 puts @ $1 now it is $1.4
    what is your suggestion? DD?

  108. cwan120

    Hi, chaps, regarding condors in IRA accounts:
    I am not understanding the last few sentences in your comment, when you said "adding longer dated SPY options".  Do you mean longer dated spreads?  When do you add those longer dated positions?  1-2 weeks before OpEx?

  109. ssdirk

    judah – thanks.  I rolled 1/2 to Apr 670 and will probably DD on the other 1/2 to Mar 660.  Amazing how things have all worked themselves out in this market in the last 3 weeks.

  110. gel1

    Closed out my USO naked short puts for a nice profit – not good to be greedy !

  111. judahbenhur

    SS, JRW, Got on TZA right after the RUT broke 650.  I don’t think it will hold 650 today.

  112. ssdirk

    judah- I am on too.

  113. chaps

    cwan:
     
    Probably best explained through an example. I put a similar trade on several weeks ago for a SPY March 103/104/115/16 short iron condor. With the market heading up and SPY currently at 112.6, the "gravitational pull" (lol) from a delta perspective is towards the 115/116 short call vertical, resulting in a current delta of -114 on the condor.
     
    If I buy two SPY Sept 111 calls, it improves my delta (on short condor and long Sept calls) to approx -35. (Buying one more call would tilt the delta positive.) So, if the market continues its move up, further threatening my short call vertical, the long Sept calls would help my short condor.
    As the market moves up or down, you can adjust your longer-dated options to keep the P/L curve flat, if you determine the transaction costs are worth it for you. I have a lot of index trades, so I aggregate the deltas over all of them and balance the aggregate delta out with a single long-dated position. That makes the trading costs relatively low for me.

  114. JRW III

    judah,
    Nice work, I’m taking a 1/2 position now

  115. Pharmboy

    WTF is going on with Gold.  That is crazy moves for nothing.  This one has got to come crashing and burning much like oil, barring an attack on Iran…..
     
    SVNT is moving now, should be good for the calls. 

  116. JRW III

    Got $ 8.28; good luck to all !!

  117. ssdirk

    Pharm/Gold – same thing that is going on with the market.  Big WTF!

  118. Phil

    EDZ/Cwan – That’s right I did forget about the split.  Math should be the same but less hassle to wait until tomorrow.

    Nice stick action there.

    EWJ $10 puts are .12, not a bad gamble with the dollar back at 88 Yen.

    GOOG/Tcha – If you are up on the puts I’d set stops but they are safe enough to probably expire worthless and give you a cheap upside play at $550.   I will point out that you can get + $20 by rolling the $660 calls to the $590 calls and $20 would pay for you to roll down to the $510s (+$3 maybe).  So you can go from a $100 spread that’s $10 out of the money to a $80 spread that’s $34 in the money for $3.  

    ERY/Tcha – Well ERY is at $10.76 so $1.25 is the "real" price but we don’t think $80 will stand up to inventories so I wouldn’t panic out on this spike.  If you can roll to 2x the $11 puts even or better I like that play as it moves the putters into more premium but not if the commitment (owning 2x ERY at $11) is any kind of stretch. 

    Speaking of oil – Nice sell-off into the NYMEX close after spiking up to flush out the stops.   They’re not even going to hold $80, the friggin’ crooks! 

    Honda (HMC) February U.S. sales: +12.7% to 80,671 vehicles. Honda Division +12.2% to 71,732; Acura Division +16.7% to 8,939. Accord +40.6%. (PR)

    Toyota (TM) February U.S. sales: -8.7% to 100,027. Toyota brand light trucks -11.2% to 33,413; branded cars -8.9% to 59,193. (MW)

    Chrysler (FIATY.PK) February U.S. sales: +0.4% to 84,449 vehicles. Car sales up 38%. Chrysler brand +9%; Jeep +6%; Dodge +8%; Ram -31%. (PR)

    Nissan (NSANY.PK) February U.S. sales: +29.4% to 70,189 vehicles. Nissan brand +31.9% to 63,148; Infiniti +10.7% to 7,041. Versa subcompact +130.1%. Maxima +89.5%. (PR)

    Daimler (DAI) February U.S. sales: +1.4% to 15,827 vehicles. Mercedes-Benz +4.7% to 14,870; Smart -68.8% to 442. (PR)

    Perhaps the real reason it’s politically risky for Germany to help Greece: rampant Greek corruption doesn’t play well with the public. Meanwhile, the next country in trouble could be UkraineGeez, how long ago did I say that?

    Cablevision (CVC -0.9%) confirms it is notifying customers of threats by Disney (DIS +0.8%) to pull WABC Channel 7 off its air March 6. "We pay more than $200M to ABC Disney for their programming, and now they say they will pull the plug unless Cablevision pays $40M more in new fees for the exact same channels. It is not fair…" (PR)

    It’s good to be the king:  Say what you will about Goldman Sachs (GS) – and its detractors have plenty to say – it’s a money-making machine. According to SEC filings, the bank made at least $100M in net trading revenue on 131 days last year, shattering its 2008 record for 90 days making $100M+ revenue.

  119. chaps

    cwan:
     
    Sorry, forgot the second part of your question. For a given expiration month, say April, I would generally be legging into condors from eight weeks before OpEx to around four weeks. As outlined, I abandon those where an alert gets triggered, expecting just to break even on those.
    Once within the four-week window, I’d aggregate the deltas for all remaining April condors and have a single long-dated option to neutralize that aggregated delta. Then I’d adjust that long position as deemed appropriate.

  120. RMM

    Phil: what made VLO go up ? should I close my jan17.5 callers ?

  121. JRW III

    And out at $ 8.30, frustrating for a PERMABEAR !!

  122. judahbenhur

    JRW, RUT is off in la-la land.  I’m holding TZA unless RUT breaks back over 650.

  123. ssdirk

    judah – I am still on.  This nonsense has to stop some time.

  124. JRW III

    If we don’t get the Stick by 2:46, I’ll be back in.

  125. tchayipov

    thanx Phil
    made rolls for GOOG with $3 premium

  126. Phil

    VLO/RMM – Gas hit $2.20 while oil is having trouble holding $80 – all good for VLO.  Why would you want to buy out callers at the top of a run?  If you are in a buy/write that was going to return a nice, safe 20% – why not accept a nice, safe 20%?  Is it really that awful to have a trade you don’t need to worry about?   Buy out a few to increase your risk or buy more longs if you are so gung-ho bullish or just buy some $22.50 calls for .85 instead of paying $2.65 to remove the covers. 

    Sens. Dodd and Corker consider a proposal to set up a new consumer protection division within the Federal Reserve, which Yves Smith says it is ill prepared to do. For that matter, the entire legislation is so weak it hardly matters.

    The bottles stand as empty, as they were filled before.
    Time there was and plenty, but from that cup no more.
    Though I could not caution all, I still might warn a few:
    Don’t lend your hand to raise no flag atop no ship of fools.

    Ship of fools on a cruel sea, ship of fools sail away from me.
    It was later than I thought, when I first believed you,
    Now I cannot share your laughter, ship of fools
    .

  127. ssdirk

    Phil, not sure if you like your new NJ Gov, but this video makes me a fan.  It is posted on Mish’s site:  http://globaleconomicanalysis.blogspot.com/2010/03/governor-christie-time-to-hold-hands.html.  It is long, but Mish has the footnotes.

  128. judahbenhur

    SS, Well, the old Keynes quote comes to mind.  (market can stay irrational longer than I can stay solvent.)  Phil probably has a corollary to it.  
     
    This one might work out for us, though.

  129. chaps

    Ship of Fools: good ‘ole Greatful Dead

  130. judahbenhur

    SS, You gotta love to see that.

  131. samz3700

    Phil -
    Any of the buy / writes that you like right now? I need to get more bullish – might be a question for review tonight.
    Thanks Sam

  132. cwan120

    Hi, chaps,
    Thanks for the explanations.  So, the long SPYs are like insurance.  You buy some insurance in case the market breaks out of one side of the condor.  Nice strategy!

  133. JRW III

    ss, judah
    Look at yesterday’s program trade pattern, be careful !!

  134. ssdirk

    judah – check out that video on Gov Christie from NJ that I posted above.  It is about 26 minutes, just set it to play in the background while you trade.  I would be proud for that guy to by my Gov.

  135. ssdirk

    JRW – I hear you and will do.  The last 45 minutes they turned on the bots, hopefully not today.

  136. cwan120

    Hey, Peter, Judah, SS, balance, and fellow stranglers,
    Did you read chaps comments today regarding his SPY condor strategy?  He has 3 or 4 comments on the subject.
     
    What I inspired me is buying the long positions when the market gets close to one side.  I wonder if this idea can be applied to strangles.  Instead of buying put verticals (or maybe in addition to??), we buy SPX calls or puts (depending on which side is being threatened).
    What do you think?

  137. judahbenhur

    JRW, Thanks for the heads up.  I’m watching 3:00 and the 64.82 line carefully.  I got quick gains this morning and I don’t mind stopping out here for gains if necessary.

  138. Phil

    Christie/SS – He seems like a good guy but it’s the usual Republican BS so far where the middle-class homeowners are getting screwed and rich people got a huge break – it’s not going to do a damn thing to address our problems.  All states have a similar issue – their tax base is a fantasy based on old numbers that cannot be collected with 10% unemployed and 1 in 10 homes in foreclosure.  The banks are refusing to foreclose because it makes them responsible for taxes and people are just continuing to live in homes and not paying their mortgage or taxes or utilities, which is another big expense for the towns that supply utilities and are unable to cut them off (lien is their only remedy).  I don’t think NJ is very different from the other big debt states – this is a catastrophe waiting to happen or one that is happening but in such slow motion that it seems to fall under the SPF!   

    Bring back Glass-Steagall, says Vanguard founder John Bogle. “It’s pretty much common sense that if you’re in the business of taking deposits, you shouldn’t be speculating on your balance sheet.” He says the concentration of bank assets due to the rise of mergers over the last two years is leading the country in the wrong direction.

    Fed’s Kocherlakota: "We avoided an economic depression this time. But stripping the Federal Reserve of its supervisory role would needlessly put a Great Depression on the menu of possibilities for our country."

    Stop railing against speculators and clean up your own house, James Saft writes. "Fighting reality by punishing people who point it out – and yes, may profit in the process – is a lot easier than addressing the fundamental underlying issues… Greek wages and pensions went up 10.5% in 2009, for goodness’ sake."

    Hyundai (HYMLF.PK) February U.S. sales: +11% to 34,004 vehicles. Sonata up 58% to 7,506; Accent up 22.5% to 5,308; Santa Fe up 52.5% to 7,964. (PR)

    Buy/writes/Samz – Just go over the buy list and find ones that haven’t gotten away yet.  At the moment though, I’d give it until next week unless we retest the 5% lines sooner. 

  139. JRW III

    In TNA at $ 47.69

  140. kustomz

    Gov Cristie, that speech needs to be snuck onto Obama’s teleprompter…
    Patterson tried this in NY and they neutered him

  141. Fein234

    Phil, on Pharm’s NDAQ play from a few weeks back, I have the underlying fully protected by by $25 puts (paid about $0.50 in premium for those). Trying to sell front month calls against it for a nice stable monthly income… so for March I sold the $19 calls for $0.40, now $0.58 of which 1/2 is premium. I know I shouldn’t "freak out" and be rolling prematurely as that’s missing the point, but how low do you generally want the premium to get before time to roll, particularly when the short calls are ITM? When you have the protective put on like this, would you ever NOT sell the full cover in front month calls? Thanks.

  142. chaps

    cwan:
     
    FYI: I trade Peter’s strategy with SPX in non-IRA accounts, and have done things similar to what balance outlined with SPX condors in IRA accounts. I’ve actually done a version of put verticals using SPX in retirement accounts (would have to look up what I did, it was awhile ago.)
     
    I find Peter’s use of put verticals work well with SPX. One big, obvious difference between SPX and SPY is that SPX = 100 x SPY. That means you have to adjust your trading style with SPY to not be eaten alive by commissions. SPX has that "100x" luxury.

  143. ssdirk

    Out of TZA with .10.

  144. judahbenhur

    JRW, Looked at the charts for yesterday and today and saw what you meant--a carbon copy.  Got out with my dime on TZA, and didn’t try to change horses again.  Good luck into the close.

  145. tchayipov

    cwan
    if you buy calls or puts as protection you just bet against yourself because they will loose value same way as your shorts.
    Idea of buying put vertical it is cheap protection against market sharp decline ( this is where disaster come from) and you can make this protection free ( I just sell back long part of march put vertical for same price as it was for spread and it make it free if they will expired worthless)

  146. EricL

    yodi,

    For EL I sold the March 65 call and put and bought the 70 calls and 60 puts. This is a small bet that the stock continues higher.

  147. Phil

    I’m starting to think the best way to play this market is get back to cash every hour! 

    NDAQ/Fein – As a rule of thumb, about 25% premium is usually low enough to roll.  But that depends on what you think the stock will do as well.  If you don’t think NDAQ breaks $20 – then why give up the $19 puts – even if they hit $1, as they make nice downside protection.  As to not selling full cover – absolutely, it depends on where you are and what you think happens next and, more importantly, if you are ahead or behind your monthly sales goals for the year. 

    Rejection at 10,428 (even for the year) would be a bearish sign into the close.  They are trying so hard to stick it

  148. cwan120

    Hi, chaps,
    What bothers me a little bit is that we don’t have protection for SPX/RUT short calls.  For example, the recent relentless run on the up side puts my SPX/RUT calls in red.  I thought your idea of buying calls or puts, depending on which side is being threatened may be a little more flexible.

  149. tchayipov

    cwan
    this is how I play short calls: as soon as they loose 50% value I buy back half of them and later if market start aproaching my remaining calls I easy double or triple up them

  150. chaps

    tchay:
     
    No, the longs don’t lose value the same as your front-month shorts, due to their expiration being far out. They retain their value much differently than your front-month shorts as a function of market movement.

  151. Phil

    These 15 pension fund chiefs manage funds that are zooming toward collapse, says Clusterstock.

    Short calls/Tcha – Very good way to manage them.

    Wow, they really don’t want to give up 10,400 but there is no way this thing stands up to real volume.  

  152. cwan120

    Tcha,
    I don’t mean to buy both calls & puts, but just the side that is being threatened 3-4 weeks before OpEx.  As an example, right now, I bought back nearly all my puts, even April ones.  They all made > 50% profits on their own.  But my calls are in red.
    Even if I leave the puts alone and not buying them back, they would’ve been quite safe, as they are so far away from market.
     
    I guess I have to do some simulations to see how this strategy might work…  I’ll try to do some "thinkBack" when I have time.

  153. Kwan

    Blockbuster just decided to bring back late fees. Talk about an act of desperation

  154. EricL

    Buying back about 1/3 of my AZO short condors at  3.50-.60, basically because I could not ask for a more favorable post-earnings result (I’m short condors with the 165 straddles being the short legs). Am keeping the remaining 2/3ds to gun for more — I hope to buy them out at 3.00.

  155. ssdirk

    judah, JRW – back on TZA at 8.35.

  156. tchayipov

    chaps
     
    oh I see, may be good idea, need to think about it and may be try, thanx

  157. cwan120

    Hey, Tcha,
    Just saw your comment at 3:19pm.  That’s a good idea!

  158. tchayipov

    cwan
    at least if you have long positions in your portfolio they should offset your disapointment :)
    personaly I don’t think you should panic because if market go up, VIX is going down and you can roll up with DD ( this is why Peter recommend to have 15k per strangle)

  159. cwan120

    Hi, Eric,
    Do your condors in general lose values (due to time decay) if the underlying stays flat?

  160. gel1

    I heard from a physician friend (internist) who was watching CNBC today, and mentioned the average postal worker with benefits makes $83,000 anually. He told me he does not make much more and he is pissed. I guess this is the power of unions negotiating ( extorting )deals with the government, when a guy with a high school education pushing letters into boxes can make about the same as a professional with 8-9 years of college and is saving lives. Something needs to be done with our government and the unions as both are out of control and the result is out of balance.

  161. EricL

    cwan,
     
    Yes, they lose value = you win because you sold them. However, you can’t look for it every day since it’s a function of many factors including the stock price. If the theta on a short condor goes negative, I get uncomfortable and start looking to close and/or reposition it.
     
    Those AZO condors were fast winners (45% profit in three trading days), but only because of earnings and my correct guess that they would fall a little.

  162. cwan120

    Tcha,
    Yeah, I know I can roll & DD.  I made sure I have enough ammo to do so.  It’s just so annoying.  I have a RUT 660 and a SPX 1150.  I am staying put and wait and see what happens.
    Aha!  I just saw we have a nice pullback!

  163. chaps

    cwan:
     
    Could be on the long-dated longs for SPX. I haven’t thought about it. I don’t look at the long SPY calls as being necessary, it’s just something I sometimes do. It’s like icing on the cake.
     
    I’m in the March RUT/SPX short strangles too, so I understand your issues. My experience with RUT is that you really need to stay on top of it in terms of rolling. (I’m sure Peter can add much more than I can.) If you get a little behind, you can suddenly find yourself a lot behind quickly. I’ve been rolling up RUT short March calls and trailing behind by selling more and more short puts. It’s the old story: the index can’t finish both above your short calls and below your shorts puts.

  164. ssdirk

    chaps – what are your strikes on the Mar RUT strangles?

  165. judahbenhur

    JRW, Nice. I can’t change lanes that quickly, so I’m just watching.  The close looks more down than up to me, especially if the Dow can’t hold 10,400.

  166. jomama

     gel, that internist would be even more pissed if he realized that some physician assistants who work for sugeons make much more than that.  

  167. jomama

     WU – is starting to look like a solid value play.  Their earnings where a disappointment, but their services are used a lot in developing countries.  I don’t see that changing that fast.

  168. JRW III

    And out at a $ 0.21 loss; so much for yesterday’s program !!

  169. judahbenhur

    JRW, SS,  I meant SS, when I typed JRW, of course. 

  170. Phil

    BBI/Kwan – Dead chain walking.   I think I said that about them when NFLX first started – it’s been a slow death ever since. 

    Postal/Gel – $25/hr is the max wage for a postal worker with 20 years on the job (starts at $10 and works up for first 10 years).  That’s $1,000 a week without overtime and yes, they have a retirement plan with health benefits.  Do you really feel that swallowing and repeating any BS propoganda you hear on CNBC helps people understand what is really wrong with this country?   What would make you feel good about paying your mailman to trudge around and carry your mail all day long?  How much should he be allocated for choosing that career to take care of his family?  I just need a ballpark so I can get an idea of how to treat the serfs under your administration. 

    The post office lost $2.8Bn last year while delivering 500Bn pieces of mail.  A one-penny stamp increase fixes it.  This is just another BS CNBC distraction to keep your eyes off the real crimes that are taking place while they run up the commodities and parade dozens of analysts today who said nothing but BUYBUYBUY as we topped out.

    Will we hold 10,400?  It’s totally arbitrary but so exciting!  8-)

  171. samz3700

    Gel -
    Average M.D. – has 11 years of college + advanced training -
    4 for college, 4 medical school, 3-4 years of residency – which is training – you get paid about $5 an hour – if you calculate the horrible 80 hour plus weeks -
    My wife was in her mid 30s before she earned any real money – that’s 11 years of income your give up – you don’t do it to get rich – law school is 3 years and out – but all the corporate lawyers i know hate their jobs -

  172. chaps

    SS/RUT March strangles:
     
    680 calls with 580 and 590 puts currently. I’ m just trying to keep the RUT rocket within a reasonable spread as we head into the last two weeks of March options.

  173. judahbenhur

    SS/Christie.  Watched/listened to the video.  He seems more of a pragmatist than an ideologue, which is to say, an old fashioned northeastern Republican.  I hope he makes good.  He certainly looks good compared to the past two governors from that state just north of NJ. 

  174. ssdirk

    chaps – LOL. RUT rocket. 

  175. jomama

     samz/gel – that is why i actively steer my kids away from medicine.

  176. EricL

    One additional point about shorting condors for those who are interested. Position sizing is just as important with these as it is anywhere. I measure it by looking at the net cost/risk (margin – credit received), and sizing appropriately.
     
    With AZO, the condors were good for a 4.00 credit on Friday against 5.00 margin, so cost/risk was 1.00. If you have a $100K account and wanted to make it a 2% position, you would need to sell 20 of them.  That would risk $2000. Right now with the condors at 3.50, you would have made $1000 against your $2K investment, or 50% in three trading days. FWIW
     
    I think an easy mistake is to sell too few, and then be frustrated that you aren’t making a lot of money. Remember to consider how much the trade costs you if you play these.

  177. ssdirk

    judah/Christie – Yeah, I know talk is cheap, but I like his 1 term stance if he means it. 

  178. jomama

     Phil, do you think the postal service could serve 90% of america’s needs by delievering M/W/F ?  If you need delivery on the other days, you would pay a simple premium – may be a cost effective way of streamlining the system?  most mail, is junk – catalogs, mailers, etc.

  179. JRW III

    Tried to pin 64.85 and I thought they were going for 65.14. Played that poorly, but still made 2.5 % on the day for the day trading portion of the portfolio.

  180. chuaeu

    Phil,
    Wonder if they practice the 5 minute stick with the bots – kind of like the 2 minute drill, no huddle hurry up offense. So the Dow manipulation we’ve all gotten used to, but the Russell being so out of whack is a new wrinkle. I like your TZA play, but I’m not convinced that Da Boyz haven’t got something up their sleeve to push this market higher.

  181. Phil

    Law/Samz – That is an annoying profession.  It’s like choosing to write term papers for the rest of your life.  Medicine is a tough gig too – doctors in Europe are much happier on the whole – you hang out and treat people and get a nice salary without all the hassles and loans to repay…

    MWF/Jo – I agree in principle but then what do you pay people?  You can’t tell millions of workers they are now part-time.   I think the plan to cut to 5 days is a no-brainer and would be good for UPS/FDX too as they would handle more emergency biz.  Overall, where the post office went wrong was catering to junk mailers – that was never the intent of the system and effectively we subsidize junk mail, making it cheap for mailers to annoy us by filling up our box with trash.   Unfotunately, since the industry grew over time and the post-office tripled in size to accomodate them – it’s now a trap as you can’t tell the junk mailers to drop dead and downsize because again you have the mass layoff issue and idle facility issue. 

    LOL, big futures spike to get back 20 points once the sellers quit.  Volume was 217M and they barely kept it together with 70M selling into the last hour’s stick.  I’d look for that selling to keep up tomorrow as someone big is making an exit from the market. 

    Higher/Chuaeu – They were trying so hard today, as hard as I’ve seen in a while but someone big has other ideas so things are going to get interesting to say the least.

  182. pstas

    HERO- up very nicely today. I doubled down on my Jan 11 5/10 spread a couple of weeks ago. Listened to the earnings conference call this morning. A positive report ,in my estimation and mgmt. is cautiously optimistic and the market seems to agree. One comment of particular note in response to a question of weather they are interested in expansion in deep drilling. They are sticking with their core business- shallow wells and see promise in the Gulf.

  183. judahbenhur

    JRW, With the amounts you make on day trading (I day trade approx. 1/5 of what you trade), I can’t imagine you need any other portion of your portfolio. 

  184. cwan120

    Thanks, Eric.

  185. Phil

    Dylan is ripping into Tea Party guy for allowing racist and Nazi sinage etc at their rallies and the Tea Party guy is making the very big mistake of trying to argue that they allow all views at Tea Party rallies.  Dylan just threw him off the show – classic!

  186. jcedens

     Peter, You mentioned that both legs of a spread on Ultra’s can loose money when the ultra goes down. I’ve seen it happen with EDZ. Why does that happen?

  187. Phil

    The world’s most powerful SEP (Somebody Else’s Problem):  Despite the 8.8-magnitude earthquake in Chile, the country’s IPSA equity index dropped just 1.2% yesterday and 0.7% today. "Although the human toll is obviously tragic, it looks like investors believe that [the earthquake] is going to have a muted impact on the economy." (ETF: ECH)

    Maybe last month’s jump in consumer spending – up 0.5% – wasn’t so great after all. Most of it came from groceries and gas, and spending on durables rose less than 0.1%, weakest in four months. Auto spending -1.2%, furniture -0.5%, home improvement outlays -2.1%. People did spend more on stay-at-home entertainment such as books, cable, and toys and games.

    HERO/Pstas – Very good company.

  188. jcmcn5

    You can’t tell millions of workers they are now part-time. 
    Sure you can,    It’s called a recession.
     
     

  189. roberthjrfl

    Phil – You wanted me to remind you after hours about selling new covers once you beat your original covers by 50%.  Yodi / TBT was the original comment line.  Any advice on re-covering would be great.  Thanks for the guidance. 

  190. jcmcn5


    In the morning’s post, you wrote that if they can keep the levels, that we might have to adjust our short bias.  Your most recent post says that you expect selling to continue but the levels have held.  Are we leaning short here or long?  I’ve been averaging into the TZA Apr. 7.5 calls (avg cost now about $1.50. 

     

  191. pstas

    Postal- Phil , I know you have difficulty with the concept of free markets without the wise guidance of more enlightened overseers but the correct answer on pay is whatever the market says it is worth. If the Postal Service were actually an independent business, it would , of course look dramatically different and political influences are far more determinant than anything else. I happen to believe the PO does a pretty good job given the constraint imposed. The sad part to me is how much better it could be for the postal employees and the citizens/customers if the shackles were removed.

  192. microflux

     Hello Phil
    what is up with MBI its heading south for the past few weeks.
    i bought the stock for 5.18 and sold march 5 calls/puts for .70/.50
    stock is 4.76 and call/puts are .12/.35
    what is the correct move ?
     
    thanks

  193. craigzooka

     Wow, they sure like to jerk around ARNA.  $3 has been very reliable support for the last couple months.  When they get down to $3 exactly their options pay a very nice premium.  Over the last several months I believe I have almost whittled my cost basis to $1.  
     
    Does anyone know if there is a way to get TOS to keep track of thinks like that.  For instance, I would like to see my total P/L since Open for all the options I have sold against ARNA, not just the ones that are still in my account.

  194. Phil

    Baltic Dry vs. Commodity Index:

    Yay HOV!  Hovnanian (HOV): FQ1 EPS of $2.97 may not be comparable to consensus of -$0.45. (After-tax net income of $236.2M included federal tax benefit of $291.3M.) Revenue of $320M (-15%) vs. $319M. Shares +3.3% AH. (PR)

    Pfizer (PFE -0.8%) is bidding as much as €3B ($4.08B) for German generic-drug maker Ratiopharm, sources say. An acquisition could expand Pfizer’s generic business to about $11B, nearing Teva’s (TEVA +0.6%) $13.9B in 2009 revenue.

    Very good Jim Jubak column on looking for Return on Invested Capital.

    Metered billing is in the cards for wireless data users, says AT&T (T) CEO Randall Stephenson. He predicted iPad (AAPL) users would likely stick to Wi-Fi rather than adding another wireless plan, and that the iPhone would be a key AT&T product for "quite some time."

    Part-time/JCM – Oh I’m sorry, when I said you I meant compassionate people….

    Selling covers/Robert – Well I thought I went over that.  You sell a cover to protect yourself.  When that protection is mainly used up, it’s time for another cover – if the situation still warrants it.  If you want a rule – there isn’t one.  What you need to do is understand what your risks are and what your hedges are meant to accomplish and make adjustments accordingly.  If you look outside in the morning and it is sunny and you haven’t heard it was going to rain – you don’t bring your umbrella (unless you live in England or Seattle).  If it becomes overcast later and you are downtown you may decide to buy a cheap umbrella – just in case.  If the rain becomes torrential – you may regret buying a cheap umbrella and then you need to decide whether to buy a better umbrella or just make due with what you have.  If you are going to meet your girlfriend for a date and she doesn’t have an umbrellla and now you both have one cheap umbrella and it’s still pouring – that may affect your decision to buy a bigger, better one as would the price that the vendor is asking for them at the time.  Why would buying option protection be less complicated or have less variables?  If you have specific plays that need adjusting, I’d be happy to go over them – hopefully that will help.

    Levels/Jcm – Yep I did say that but I went with my gut as the action looked fake so I can’t buy into the move.  We’re pretty much making the same exact BS run we made into February expirations, which ended in a 250-point drop so I’m not impressed by a low-volume run to the same highs.  

    Free markets/Pstas – If the post office had been private then UPS and FDX would never exist.  They filled a hole in an agency that was not allowed to change fast enough to keep up with demand.   It doesn’t matter though – as I said, this is just silly as they can raise stamp prices by a penny and have a $2Bn surplus – it’s just that Congress doesn’t want to do that in a recession (although they don’t bat an eye when gas goes up .50 per gallon and costs people $10 per tank more).

    MBI/Micro – They are just drifting along between the 50 and 200 dma.  Not surprising.  You took an aggressive posture just collecting March premium but it paid off as they stayed down.  Now the VIX is annoyingly low and I’d go for the Aug $5s at .80 and the Aug $4 puts at .50 as the next set to sell.  Your net basis is about $4.50 and $1.30 is 28% in 6 months and drops your basis to $3.20/3.60.  Or you can keep selling front month calls and sweating every move. 

    TOS/Craig – There is hardly anything they don’t do.  Just call support and they’ll walk you through it.

    Still more colorful charts about the coming mortgage resets. More than $1T in option ARMs will either reset or recast between 2010 and 2012, though some analysts are worried about ones that aren’t even on the chart.

    ABC Consumer Comfort Index: -49 vs. last week’s -50. Components still aren’t pretty: Like last week, just 8% of Americans rate the national economy positively, and only 24% think it’s a good time to buy things. Those rating personal finances positively bumped up to 44% from 43%.

  195. Phil

  196. tradansh

    Craig – I think the P/L YTD value is what you are looking for (you can customize it in the setup). However, I also dont know of any way to see overall profit/loss from  last year as well.

  197. chaps

    craigzooka/ARNA/TOS:
     
    The closest you can get in TOS, I believe, is the YTD P/L by symbol under Monitor/Account Statement.
     
    I’ve always wanted to track such things. I think there’s no way to really do it in comprehensively in TOS, or in any other brokerage software I know of.
     
    But I do it all the time without too much trouble with exporting data out of TOS into spreadsheets. It is much easier than what I used to have to do when I wasn’t using TOS. I do it in such a way that if I take the spreadsheet result and add it to the net liquidating value of the positions in my account, I get the magic answer going back as far as I want.
     
    I can give you the details if you’re interested.

  198. roberthjrfl

    Phil – Thanks for the explanation.  For example, i have a trade on POT that i have been studying.  June 100 call (20.00 cost)  covered by March 115.  (sold 5.55).  The plan is to sell front month options against the June and as you say "let time do its work."  Stock went down and i beat the caller by more than 50% so i closed the cover at 1.84.  I covered again with March 110 but i don’t want to loose the short profit made on a rebound on the stock but I want to be selling the March premium.  So my plan is, if the stock rebounds, i would be looking to roll the March to April.  Any thoughts would be great.  You have sold me (every pun intended) on selling premium and i am trying to better my understanding of this process front to back.  Thanks for the guidance and the great website.

  199. roberthjrfl

    Phil – POT may not be the right stock, but it moves a lot so i thought it would be a good stock to study.

  200. Peter D

    jcedens/ultra decay,

    There are plenty of articles about the decaying nature of the ultras.  It’s basically maths that once we have a 20% decrease in the indices, the 3x ultra goes down by 60%.  It’s hard to get back to 100%.  You can run a little simulation or google the WWW for more information.

  201. Cap

    Wilt / Phil …. that would be a good idea (Wilt running foreign policy), plus no one would mess w/ him.
    Only problem is …. Wilt’s been dead for about 15 years !

  202. Peter D

    chaps/cwan/Eric/all,
    It’s good to see chap’s way of managing Iron Condors that does reduce risks.  Eric added a good comment on position sizing, which is very important.  As chap said the piece of buying the longs is optional and tcha made a good point that the longs also decay, although not as much as the front month shorts.  We can get whipsawed and ended up with a bunch of long calls and puts. 
     
    I think the scheme is workable, but iron condors should be 20% or less of the portfolio as we can lose that 20% in any month with a large spike.  Yes, the percentage gain is high, but the risk is also high.  For example, SPX May 1200/1210 and 1000/1010 Iron Condor gives a $3.05 credit, which is a nice 44% profit of the $6.95 basis.  The same spread is April is worth $1.3, so if the market is flat (optimal), we get 25% profit of the spread in a month.  25% of 20% portfolio weighting is 5%. 
     
    But wait, there is a 27% chance that the market can blow through +10%/-10% in any two months period.  So using chap’s method, you can break even on 27% of the time and win on the other 73% of the time, which is very good.  The worse case is we loose that 20%, and would take 4 months to get back to even.  This just proves that if you risk 100% in iron condors, you’d be likely toasted in 4 months with a close to zero balance. Kudos to Eric for position sizing and to chap’s for the stop loss tactic!

  203. Cap

    GS — when you are the market, you damn well better be making boatloads of money every day.

  204. Cap

    Cablevision (CVC -0.9%) confirms it is notifying customers of threats by Disney (DIS +0.8%) to pull WABC Channel 7 off its air March 6. "We pay more than $200M to ABC Disney for their programming, and now they say they will pull the plug unless Cablevision pays $40M more in new fees for the exact same channels. It is not fair…" (PR)
     
    Not fair ?  Funny, that’s exactly the same thing Cablevision does to its customers.  Jack up rates and fees for the exact same channels.

  205. gel1

    Cap/Wilt …. Well we know what did him in – too much of anything will kill you !

  206. Cap

    ssdirk … that Gov Christie piece just rocks !  I hope he succeeds.
     
    Amazing the contrast between him and Obama / Pelosi / Reid & co. and most of the other bozo politicians in WA.
     
    We need more reality based people like Christie in gov’t.

  207. tchayipov

    c haps
    could you pls post details how you transfer from TOS to spreadsheet, because it is not convenient not to see all your adjustments in TOS

  208. jcmcn5

    Part-time/JCM – Oh I’m sorry, when I said you I meant compassionate people….
    Please don’t make that mistake again. I have an image to maintain.

  209. daveo

    craigzooka/ARNA/TOS/cost basis:  optionXpress lets you manually adjust the cost basis of any position.  I have been looking in TOS for something similar and have not found it.  Maybe you can use the Account statement tab in the Monitor section by changing the days back field. 
    chaps, I would also be interested in your spreadsheet solution.

  210. jomptien

    Gov. Christie,
    I didn’t hear his speech but if he said he will be a 1 term guy I would be a little skeptical. Remember Gingrich and the "Contract  for America group." One of their platforms I believe was just staying 1 term. When that term was over – they said "maybe 1 term is not a good idea for us, we need more." This is how I remember it.. Any politician that gets on the gravy train does not want to get off. I think only way Christie does not run for another term is if he gets a senate bid.

  211. Phil

    POT/Robert – First of all, my outlook on what to do with a call is primarily governed by what I think are the short-term fundamentals and my target for expiration.  I don’t like POT as they sell a non-rare commodity that is not even a necessity for the people who buy it.  They are up 10% in 5 days, caught up in a commodity rally I consider fake so I would be looking to re-sell.  You did a good job buying back the first caller you got ahead on but, what you didn’t do was take advantage to improve your own position at the time (always look to roll down and/or out in time when it’s cheap). 

    You were in the $100s for net $14.45 and you bought them back for $1.84 so now net $16.29 and now you covered with the March $110 and I’ll assume $7.50 for net $8.79 on the $10 spread, well protected.  This is all good so far although I would have sold the Apr $110s for $9.50 as that would drop you to $6.79 with a nice 47% profit even if called away (virtually) and otherwise well protected for a move down with the anticipation of collecting another $5 in premium at least in May. Always keep you eye on your next roll.  You only sold $2 worth of premium over 4 weeks so the game you are playing here is more along the lines of hoping to take out your caller on the next dip.  What did your caller drop to when POT hit $105.60 last Thursday?  That’s an important bit of information to manage your trade (answer is $2.75) as that becomes a goal for buying back (and I usually go for halfway between current ($7.50) and low so about $5 I’d be looking to call it a win.

    The next thing you need to be aware of is you exit points.  The 50 dma is $111.36 so if they hold that and head back up, you need to consider rolling to Apr $115s (now $6.60) before it gets away from you.  To any upside move, that $1 spread is what you want to keep your eye on and maybe make a mental note that you don’t want to pay more than $2 to roll your caller up $5 (not to mention giving up a month) so that’s your "stop" to convert the roll. 

    Since, of course, you know the delta of the $110 calls is .72 and the delta of the Apr $115s is .54 you know the differential of .18 means that you have roughly a $5 cusion before that roll costs you $2 so $120 becomes your upside concern.  There’s also going to be a greater degree of Theta decay but, rather than worry about that, I prefer to just recalculate my deltas every Monday so I have a handle on what’s going to happen for the week. 

    Your worst-case upside is you make $1.21 so you can afford to "gut out" a move up without panicking.  To the downside, your June delta is .63 vs .72 for the $110 caller so no big deal there either so this is now a channel trade between $120 and $105 and you only need to worry if your channel is broken and you only need to adjust when one of your levels gets triggered. 

    Wilt/Cap – Oops, I forgot he was dead.  I guess we’ll have to go with Neville then.  8-)

    GS/Cap – Notice that they only keep track of the day’s they make $100M or more (and how much more is the question).  What they don’t advertise is they only had 2 losing days in the last 6 months of last year.  That is RIDICULOUS!  Imagine someone told you they went to the track or a casino or even played poker (which involves some skill) and had just 2 losing days out of 150.  Would you think they were REALLY good at it or that they were cheating?

    LOL on Cablevision – this is all going to end badly I think.  The model went from stations spending big money on broadcast facilities all over the country to feeding a signal to the cable company who maintains the transmissions to the homes.  The cable companies were foolish to ever offer to pay the TV stations anything after spending tens of Billions laying pipe.  Meanwhile they are all in deep trouble as there is pretty much no need for networks anymore as any production company can feed a show right out to the web so all they need is a micro-pay system and critical mass (Apple TV, for example) and the whole concept of cable TV and Networks moves to the Smithsonian. 

    Christie is making everyone happy so far.  10 to 1 Republicans think he’s doing a good job (don’t you just love unquestioning loyalty?), Independents are 1/3 as excited at 43% to 17% and even Dems are happy with him by 38% to 33%.  Of course, in NJ, we don’t have a very high bar set for our Governors but we’ll go head to head with Illinios any time!

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