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Monday Market Movement – Can We Go It Alone?

It’s lonely out there in Stock Land today

Everybody’s closed today except Japan and they are so thrilled with 94.5 Yen to the dollar that you can’t figure anthing out by watching their market add another 53 points this morning to finish the day at 11,339 but it was well off the gap up open at 11,400.  As I mentioned in the Weekend Wrap-Up, where we discussed our Super-Secret Strategy for making money off this nonsense – just because a rally is totally propped up BS doesn’t mean it isn’t, technically, a rally – does it?

With everyone else closed, the MSCI Asia-Pacific Index hit 19-month highs and copper climbed to $3.62 in overnight trading (when there were no traders) and gold hit $1,130 while oil hovered around $85.50 so we can infer that commodities are very, very popular with vacationing traders.  Asian traders were excited about our jobs numbers – obviously they didn’t read my analysis on Friday:

Overall, we are seeing positive signs about the global economy,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co., which manages $111 billion. “While developing nations are leading global growth, they are waiting for the U.S. to rebound. Recent reports are suggesting that the U.S. labor market and consumer spending are improving.”

Consumer spending is certainly improving at the Apple Store with 700,000 IPads going out the door in 48 hours, bringing AAPL an estimated $500,000,000 in revenues over the weekend.  I was in the NY Apple Store this weekend and there were about 200 IPads on display with lines 3-4 deep of people very patiently waiting considering the average person who touched one held on for a good half hour.  Keep in mind that the IPads that are selling now are limited Wi-Fi only models – the good, 3G ones don’t come out for another couple of weeks!

So, based on 2 days of sales, we can project AAPL selling $175Bn worth of IPads this year and that will make AAPL worth about a Trillion dollars, which is very likely to boost the Nasdaq back to 5,000…  OK, that may be a bit of an over-statement but we still cannot ignore the Apple effect on the market because it does look like they are going to move a tremendous amount of IPads this year and that will be good for chip makers and glass makers and BBY and App developers and bandwidth providers…  Put enough of those things together and you do have a rally!

We love the IPad because it’s a perfect top 10% product.  It’s relatively inexpensive for people earning $100K per year and there’s over 200M of us on the planet so it will be quite a while before we all have IPads (and don’t scoff unless you do not have an IPod), even at the sales rate of 700,000 per weekend.  The problem is extrapolating great IPad sales into a positive outlook for the entire economy.  Top 10%’ers bought IPhones and IPods during the market crash – what AAPL is very, very good at is identifying their target market – they don’t skimp to make machines for the masses.  Apple makes very high-quality stuff for people who don’t expect to even get a discount and, when the tech becomes cheap, THEN they sell them in quantity to the masses.

I think the real impact of the IPad won’t be felt until 2012 when, if the World does not end as forecast, we should be seeing the $199 IPad and Apple will have accomplished what "One Laptop Per Child" has struggled to do for a decade and THEN we will have an explosion of web access and utilization around the World.  Yes there are $200 laptops now but quality is still an issue – even to the poor and, just like the fact that there are $2,500 cars – there’s a difference between being able to buy a Tata Nano for $2,500 and a Posrsche Carrera for $2,500.  The $200 IPad will be the cheap Porsche of laptops and even the programs are cheap (or free) and that is the real game changer.   So congrats to Steve Jobs, who has probably changed the World this weekend – now it’s up to us to invest in the companies that will profit from it….

We’ve been in TTH, VZ and T for quite some time and we don’t mind waiting on VZ and T because they both pay 6% dividends on our long-term positions, we have also been playing GLW because, although they don’t supply IPad glass, the IPad uses 6x more glass than the IPhone and that has to put upward pressure on all pricing, especially for whichever competitors are going to try to play catch-up with their own devices.  The same goes for our chip plays and the SOX in general and we’ll be revisiting that group this week as they are going to be some of our top picks to play the Dow over 11,000 (if it holds). 

Former Federal Reserve chairman Alan Greenspan said yesterday on ABC’s “This Week” that the chances the U.S. economy will retrench after recovering from the worst recession since the 1930s “have fallen very significantly in the last two months.  There is a momentum building up which is really just beginning and it’s got a way to go.” Greenspan said the U.S. is “on the edge of a significant build-up” in inventories “and that is a self- reinforcing cycle.”  Of course, he has been totally and horrifically wrong in the past…

Speaking of people who are horrifically wrong:  Tim Geithner has "fixed" the problem of China being declared a currency manipulator in the Treasury’s Report on Global Currency Policies on April 15th and has circumvented the will of Congress, who already voted for sanctions based on the Report – by delaying the Report indefinately!  “We are disappointed, but not surprised, by the administration’s decision,” Senator Charles E. Schumer, a New York Democrat, said in an e-mailed statement two days ago. “After five years of stonewalling, punctuated by occasional, but halting action by the Chinese, we have lost faith in bilateral negotiations on this issue.”  The move will give China space to relax currency controls “without looking like they’re kowtowing to U.S. pressure,” said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut.   

Speaking of the bottom 90%:  More Americans filed for bankruptcy in March than in any other month since personal bankruptcy laws were tightened in Oct. 2005. March saw 6,900 filings per day, a 35% spike from February.  Federal courts reported over 158,000 bankruptcy filings in March and filings were up 19 percent over March 2009. The previous record over the last five years was 133,000 in October.  

Fewer people are trying to save their homes,” Katherine M. Porter, a University of Iowa law professor and bankruptcy expert, said. “They realize their payments are not affordable, and bankruptcy judges do not have the power to adjust the mortgages to make them more affordable.  To file Chapter 13, you need ongoing income, and to the extent we have more people who are unemployed, they can’t use Chapter 13 because they don’t have that income to pay into the plan,” she said. 

Let’s figure the average person who declares bankruptcy owes $30,000 in debts (one would assume it’s more than a year’s salary).  That’s $4.7Bn a month in defaults!  You would think that’s going to impact someone’s earnings but, fortunately, US Banks don’t have to declare any asset impaired until they sell it so we can keep pretending none of this stuff matters for a long, long time – just like we pretend to get tough on China for depressing their currency and costing millions of Americans their jobs – leading them to Bankruptcy Court in the first place…  The European Commission is about to start its first investigation into Chinese subsidies, a probe that could potentially see a slew of new tariffs against Chinese firms that export to Europe.

In its annual report, the American Chamber of Commerce in China calls out Beijing for "a mounting number of policy challenges, ranging from the inconsistent enforcement of laws, to China’s discriminatory domestic innovation policies and regulations that limit market access into sectors that had been increasingly open to foreign investment."  I don’t know about you, but I’m beginning to feel there’s some sort of pattern here…  A top Chinese government economist says the U.S. decision to delay a report that might have labeled China a "currency manipulator" is a "positive signal" but a yuan adjustment is unlikely in the near-term. "We need to see whether China’s export recovery will be sustained and need to see whether companies can cope with a stronger yuan," he says.

The U.S. office vacancy rate rose to 17.2% in Q1, up 0.2% from Q4 and up 2% from a year ago. Average net rents fell 0.8% vs. 7.4% in the year-ago quarter. "As labor markets stabilize, we expect occupancies and rents to require another 12 to 18 months before showing signs of improvement," the report’s director says.  We like shorting CRE but CRE short positions don’t like us as no amount of bad news seems to affect that sector.  Here’s a report that says office vacancy is 2% WORSE than Q1 of last year, when IYR was below 20 – now it’s at 50 – Imagine how high they will go when things stop going down!

We are long on individual builders but it seems very unlikely that the entire sector is in recovery so we’ll be looking forward to some spectacular failures down the road.  I’ve decided that I’m willing to call the recession over when they finally open New Jersey’s Xanadu Super Mall – now in year 3 of delays.  Fill that up and I’ll be willing to believe anything is possible!

We’re still waiting to see our breakout levels broken and held this week and today will be interesting as there’s no EU trading to move us one way or the other so it’s all up to the US trade-bots today and we are still sitting in cash and watching the fun in what should be yet another low-volume day.

 


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  1. ocelli7

    Phil,
     
    What are your thoughts on oil……short at 86 or wait closer to inventories in a couple of days….

  2. Cap

    AAPL … well sales don’t look quite as robust as everyone saying.  AAPL claims it sold "more than" 300,000 I pads, including sales into the channel.
     
    AAPL store on Bway / 67th on Sunday (Easter) not terribly busy.   People playing w/ Ipads; no lines; I don’t know if they had any to sell or not.  Definitely not overly crowded.
     
    FWIW.

  3. bgbigelow

     Phil I’d love your thoughts on the SCO play.  We setup the sell of the 12 put and bought the 12/14 vertical call.  The premise was that they wouldn’t take out 85 oil, but if we hold it tomorrow is it time to shut that down?  
    Thanks.

  4. Prakash

     I saw 64GB iPads going for no more than $10-$20 over MSRP on eBay yesterday, which is actually a great deal since you don’t have to pay sales tax.

  5. tradinv1

    Phil, what are your thoughts on the disaster Hedges?

  6. Cap

    I will try to check out the Ipad sometime during the week; possibly today as I have a meeting near one of the Apple stores.

  7. tradansh

    ToS users – Which symbols can I use to track the yield of 30 or 10 year treasuries on ToS? Also, are there any symbols to track the interest rates?

  8. pstas

    TBT – Phil- I believe you set $60 for a yr end target. Could you outline your logic for that number? Thanks.

  9. yodi

    Good Morning Phil,
    Looking at LFC doing well with the puts in one trading account but at the caller side of an other acc I am not to happy
    Bought Jan 11 55caller for 21.30 trading down at 19.80 sold the apr 70 call for 1.35 and the trading is 4.45 thinking of rolling to Jul 10 80 call and selling a 67.5 putter to make the roll close to 0 even that the putter is very high 67.5 but there is not much money in the puts.  Jul roll of caller -2.73 and the putter 1.10 plus the original sale of the caller brings it up to 1.35 + 1.10 = 2.45 net cost .28.  your thoughts pls thks

  10. Phil

    Good morning!

    Dollar getting attacked right at the bell and that’s keeping commodities up and boosting the markets but not a very exciting move so far. 

    Transports are lagging, maybe $85+ oil is making them think twice, finally.  Still, everything else looks good with the SOX up 1.5% and the S&P right at 1,182 so all we need is 50 more Dow points and it’s party time for the bulls.

    Let’s keep our eye on the ball as we must break ALL of our recent highs (getting old now) of: Dow 10,955, S&P 1,180, Nas 2,432, NYSE 7,497 and Russell 693 – See, I’m being optimistic now and making 2 of 5 green instead of 3 of 5 red but really – if they aren’t all green there is nothing to get excited about and failing all 5 means we are likely failing in general.

    To the upside, we expect resistance at the next set of even numbers:  Dow 11,000, S&P 1,200, Nas 2,500, NYSE 7,500 and Russell 700 - The NYSE is way over at 7,572 so they are our leader at the moment and we expect the Russell to confirm so watching 693 and then 700 on the RUT is key this week.

    I’m still skeptical but, as I said in the above post – we can have a hell of a rally based on one product like the IPad dropping (realistically) $1Bn in new sales into AAPL’s quarter because that’s $1Bn of chips and screens and apps and routers and telco subscriptions and BBY sales etc. etc – a real driver of nice business and that business will be positively extrapolated by CEOs giving quarterly reports over the next 30 days.  That’s how one single green shoot can sprout a forest of positive momentum and that’s the sector we’ll be watching as we look for places to park our sideline cash.  

    Still, until we break our levels – we remain sidelined.  So close, but yet so far…

  11. daveo

    @tradansh – the 30 and 10 year futures are /ZB and /ZN, respectively.

  12. b1ll

    TSO on sale ?

  13. EricL

    LQD (investment-grade corp. bond ETF) and JNK (junk-grade) are starting to show some divergence with the market rally here. There might be several things going on, including anticipation of an improvement in treasury yields, but that’s another thing to keep in mind (and another reason to be cautious, IMO).

  14. 1020

    TSO – Downgrade(s) and broke below 200 dma……

  15. tradansh

    What’s up with TASR? Still moving down. Will it hold the 200dma at 5.1 or breakdown further?

  16. tradansh

    TASR – Also a big gap to drop till 4.6

  17. Phil

    Oil/Ocelli – I hate to say pattern but generally we get the high open Monday and a sell-off into the  uncertainty by Tuesday afternoon and then a boost into the close and all the way up through Weds ahead of inventories when we either go up or down really fast.  So the best bet is generally to short the Monday open but not with the Nas flying up and the RUT playing catch up (up 1% now) to the NYSE – everything looks too strong at the moment.  We need to see some rejections first. 

    AAPL/Cap – I was there about lunchtime and it was pretty crowded, not ridiculous but plenty of people waiting to play.  I think AAPL did a great job turning the stores into huge IPad showrooms – there was almost nothing else going on in the whole store!  We’ll have to see what the real number is but Piper doubled their estimates after the weekend and they usually have a clue.

    SCO/BG – Did you take out the putter at .30 when we were way ahead?  If so, it’s fine to sell the May puts and roll the bull call spread but if you are in the play as we set it up, which was .70 for the Apr $12/14 spread and .60 for the short $12 puts.  Now we’re at our "worst case" where SCO is put to us at net $12.10 and our month-old plan was to accept the assignment and sell the Oct $12 puts and calls, now $3.80, to create a $8.30/10.15 buy/write, which still has a lovely 50% upside if called away.  If you didn’t REALLY want to own SCO for $12.10, then just roll along to the May $11s at $1.20 (+ .90) and let the Apr caller expire, which means it’s net $1 on that side and take the putter, now .70 and wait for the premium to die and roll them down to the July $10 puts, now .60, even or better and then you just wait to decide if you want to sell the May $13 calls (now .45) or the May $12 calls (now .75). 

    EBay/Prak – I would be wary that they have been stripped of some of the expensive internals and replaced with cheaper chips. 

    Disaster hedges/Trad – They are mainly June/July plays and I will sleep better with them on for now – at least until we break out over our whole number levels and, even then, I’m just going to roll them up as we add a new set of buys. 

    TBT/Pstas – It’s 2x to the 20-year so we need a 20% bump in TBT or a 10% bump in the 20-year to about 5%, which seems pretty likely to me. 

    LFC/Yodi – That’s the way to work them but why not just go for the May $72.50 spread?  That’s $5.70 so + $1.30 in your pocket and you still have nice downside protection and the May $72.50 puts can always be rolled down to the July $67.50 puts but, if LFC goes up, as you are trying to play in July, you have anotgher $2 in your pocket already to pay for the next month’s roll higher. 

    TSO/B1 – They had that big accident and now investigation and scandal.  I don’t like them much anyway compared to VLO so be careful but, probably a good time to look for an entry. 

  18. Phil

    TASR got zapped by JPM downgrqade, very oddly after winning a patent case against Stinger on Friday and also on Friday getting 2 orders for about 3,000 units.  I think Q1 is going to be shy of estimates becase a lot of police forces have budget problems and have delayed orders but if the economy is recovering so wonderfully – what could JPM be worried about?   JPM upgraded them in Nov at $4.50 and now they put them to Neutral at $5.50 so I guess this is the range they see.  The 200 DMA is $5.12 so I think this is a fine place to enter.  The Jan $2.50/5 bull call spread is $1.90 and if you can pair that with the sale of the $5 puts for $1 (now .85) or even .90, that’s a very nice spread.  Best way to initiate is offer to sell the puts for $1 and, once that fills, then look to fill the spread

    10:30 is certainly time to go short based on our Super-Secret Dow Theory.  I’m going to work it this week and today we can go for the DIA $109 puts at .75.

  19. matt1966

    Robert Rubin will catch softballs from the US Financial Crisis Inquiry Commission this week.  So will Greenspan and Citi’s Prince at some point.
    http://www.ft.com/cms/s/0/fad283d8-4019-11df-8d23-00144feabdc0.html

  20. phlit

    Mornin Phil,
    re ERY bot the May 10 call & sld the May 9 call & EDZ bot the May 40 call , sld the May 43 call, I entered into on thurs,
    what am I doing now? Thanks.
    Phil

  21. Phil

    Oops, XOM and CVX moving up now as oil gets to $86.50, the Dow’s not a good short until those calm down.

  22. Pharmboy

    Good morning!  Here is a chart worth thinking about…..Doji String.  Very hard to day trade, and the wedge is UP. 

  23. judahbenhur

    Must…get…to…11,000…

  24. Pharmboy

    ARQL – Phase II data is good, they formed a huge star on 3/31, held it on Thursday.  Risky, but a nice play is the July 5/7.5 bull call spread for 1.05 (ITM) and selling the 5 P for 50c, so a 45c debit.  that is about 400% return by July.  I don’t see any data coming out b’f then.

  25. Phil

    British Prime Minister Gordon Brown says the world’s large economies are close to agreeing on a "global responsibility levy" on banks that would cost the financial sector billions of pounds a year, but he played down expectations that a deal could be struck at the next G-20 meeting in June.

    The probe into the role of AIG’s (AIG) executives in the insurer’s collapse has "hit a brick wall" and likely will end without a single criminal charge, sources say. Investigators are unable to uncover evidence that exec Joseph Cassano lied to his bosses or shareholders about the company’s financial problems.

    Buybacks could fuel the equities rally, with companies holding a record cash pile after spending the lowest percentage of profits on repurchases since 2003 – just before a four-year climb for stocks began. Mizuho expects repurchase spending to nearly double to $235B this year on surging earnings.

    Tesoro (TSO -6.3%) shares tumble after Friday’s chemical explosion that killed five workers at its Anacortes, Wash., plant. The blast triggered the second federal investigation in six months of Tesoro, the west coast’s biggest refiner. Not quite the way a new CEO wants to start.

    Feb. Pending Home Sales: +8.2% to 97.6, vs. -0.5% expected, and compared with the prior month’s -7.6% to 90.4. Sales +17.3% Y/Y. "Anecdotally, we’re hearing about a rise of activity in recent weeks with ongoing reports of multiple offers in more markets," says NAR’s Lawrence Yun.

    Mar. Employment Trends Index: 94.4 vs. revised 93.7 in Feb., the seventh straight month of increase. "The solid rise in the ETI and the widespread improvement across its components suggest that the March increase in employment was not a fluke," Conference Board says.

    March ISM Non-Manufacturing Index: 55.4 vs. 53.5 expected and 53 prior (>50 denotes expansion). Prices rose to 62.9 from 60.4. Employment rose to 49.8 from 48.6. New orders rose to 62.3 from 55.

  26. phlit

    sld the Dia Apr 109 calls for  $1, now 1.5, thinking abt rolling to the Apr 110 for a.64 debit but still up .35 net.    thoughts?
    Phil 

  27. barfinger

    It is time to admit that we have been too skeptical.

  28. Phil

    ERY/Phlit – So you are asking me, on day one of 49, what to do to adjust your May positions?  If you are scaling in, when they are down 20%, if you still want to buy more, you try to wait for them to get as low as they can and then DD.  If you jumped into full positions, then you have do decide if a day going against you is enough to shake your buying premies and then I would have to suggest you probably take A LOT more time before pulling the trigger next time as your premise must be pretty shakey…  As a practical adjustment (assuming you are scaling in), I would look to roll the ERYs down to the May $9 calls for .50 as that’s net $1.35 on the $1.10 calls.  On the EDZ spread, that’s a huge move for a bunch of markets that were closed today!  Nice opportunity to spend .80 to roll down to the May $38s and leave the caller where he is.

    Push Judah!!! 

    DIA/Phlit – Is that the Apr $109 calls that have .80 of intrinsic value in them.  You’re thinking about giving them .70 of premium to make yourself feel better – that is soooooo nice!  You are just a super guy and I hope you will buy my calls one day because I want to be treated that well by my callers too…

    Admissions/Barf – There is nothing that makes me feel better than seeing people capitulate.  It’s sad but no matter what I say or how often I say it, there are always a bunch of members who give up right at the exact spot where the market turns.  This is why I set levels - I have a set of numbers I plan to capitulate at, they are the same numbers we’ve been using since 4 of our 5 indexes (not the NYSE) a couple of weeks ago when we cashed out.  I’ll probably still be skeptical, even as I make a new Buy List for playing stocks over 11,000 but I don’t think it’s too skeptical to make sure the market actually moves up 2.50% from 10,700 in a month to confirm a rally.

  29. Phil

    Oil $86.80 – someone is capitulating big time! 

    USO $42 calls can be sold for .79 and the May $42/41 bear put spread is .45, which I also like and you can pair those with the sale of the May $45 calls for .58 to make a free play at $1.13 pofit if USO finishes below $41 (now $42.03) which is about $85 oil.  Otherwise, of course, you are short USO at net $41.87 (roughly oil $85) and you just keep selling puts every month

  30. kustomz

    Skeptical that they can manipulate the" free" markets? Not at all. Skeptical the Gov can sustain spending trillions to prop everything up for the next 4 years….very. Keep your eye on rates. Unemployment benefits just ran out for a few million jobless by the way. April 4th was the last day. Probably why AAPL only sold 300k IPads :-(

  31. bgbigelow

     FCX – Phil thoughts on the short may 85 calls?

  32. Pharmboy

    Good opinion.

  33. judahbenhur

    Phil/push.  Well, I am thinking there will be more people selling at that magic 11,000 mark than buying, so I am waiting, but it is starting to feel like pushing an overloaded cart uphill.  Maybe Sisyphus can give a hand.

  34. jcedens

     Phil,
    I sold about half of my TBT holdings last week as they rose. Normally this would be the level to sell the other half and wait for a pull back. Do you think we’ll get a dip from here to buy again, or should we just hold what we’ve got for further rise?

  35. chuckerd

    Phil – isn’t the price of oil getting to the point where they will start bringing in some of those ships holding oil offshore?  And does that even matter or is the game just completely unaffected by the fundamentals now?

  36. lflantheman

    Phil….Remind me again of your favorite way to protect profits.  AAPL   Hold mostly Oct 230 calls, up 40% since purchase.  I know you like to take profits after 20%, but with this company CRANKING I’m reluctant to close positions right now.  I do sell closer options for premium, but how much would you cover, and when?   Appreciate your advice.

  37. bord

    I concur with Phil that we are due for a correction, but I think they need to push it above 11,000 before it happens. If we are operating on the rigged markets/sheeple assumption, then you need to get it to break 11,000 because then it gets plastered all over the MSM nightly news (Dow breaks 11,000 so we must be recovering blah blah blah), that sucks in aunt Millie and uncle Merle to go buy some stock. I assume a manipulator would want to sucker in more of that retail money before pulling the plug on the charade.
    And speaking of correction Phil, I am long AAPL (surprise surprise) but feel i should be prepared to sell into the excitement of the IPAD release. My plan is to get neutral on AAPL if we break 240 this week, and prepare to get long again on a pullback. Thoughts?

  38. jromeha

    Phil – Ive havent been able to trade much lately but am still in the RIMM trade you recommended pre-earnings (sell the April 75s and buy the June 70s), are we waiting until the end of the week or would you recommend getting out? Thx

  39. lflantheman

    bord…I see I’m not the only one concerned about protecting AAPL profits.  :)

  40. lflantheman

    bord…I’m with you on a pending AAPL correction, along with the market in general.  I too think 240 plus  perhaps is as far as we are going with this before we get a pullback.  My sense is I should nearly fully cover with April 240s at 5 if I can get it.  We’ll see what Phil says. 

  41. jossietx

    Phil, I bought FAZ APR $15/17 bull call spread @0.37. Should I roll? I  also sold SRS APR $7 puts at $0.4. Should I roll or wait?

  42. lflantheman

    bord…May 250s have been over 6 today.

  43. dilbert

    I think we may have seen the top for this month?

  44. judahbenhur

    Peter D, Thanks for the trade suggestion late Friday.  I entered an 1100/1230 strangle, closed it out this morning when the VIX dropped for a solid profit.  No muss, no fuss.  It occurred to me that up til now I’ve been missing a trick by not playing some of my strangles with much a much shorter turn around, i.e., 3-4 days instead of 4-6 weeks.  Has it become part of your normal routine to sell at small spikes in the VIX during the day and buy back the next time the VIX drops, whether it be the next trading day or just a few days later?

  45. dilbert

    Sell on Apr 5th and go away …?

  46. judahbenhur

    Peter, I meant Thursday, of course.

  47. kustomz

    20 measly points, IBM BA MMM UTX XOM should do the trick

  48. Peter D

    Judah,
    You’re welcome!  It’s not my normal routine to sell into small spikes in the VIX.  Once in a while a condition is right for this play as the put and call values seemed high with less than 2 weeks to go.  I pulled the trigger because we had the feeling that a 5% drop over the weekend was unlikely.

  49. phlit

    Phil……fine I am premature on my DIA 109 roll which has a 45% premium, but at 25% premium is it  correct?  correct me if I am wrong. 
    Phil

  50. tradansh

    10 year treasury rates move over 4% for the first time. Clearing a major resistance of 200MA on the weekly chart.

  51. deano

    Phil – Ever looked at the REIT MFA? High div., maybe good for a scale in after a drop?

  52. judahbenhur

    Peter, Thanks for the explanation. It does seem to me that with the VIX so low, shorter term strangles could be consistently profitable whenever the VIX spikes a point or so.  Of course, that may just be the day trader in me talking.

  53. biodieselchris

    Did SPY fail to pay the march dividend? It doesn’t show up on the charts or historical price data. It’s weird, I can’t find information on it anywhere.
     
    Here’s a story blowing a hole in your top 10% theory Phil: Top 10% Manhatten real estate down 30%.
     
    BIDU: gambling on profit taking or some other nefarious pre-expiry hoo-ha, April 550′s are 1.55.

  54. nobhar

    PHIL……HOW WOULD YOU PLAY     TLT      today ??????   GABBY

  55. kustomz

    IPad …wait till people start dropping them, im sure that will push sales higher.

     MET PRU…they have been on a tear but TRV beaten down

     

  56. nobhar

    PHIL>>>>>>>>>>>>CORRECTION……That’s   TTH………..senile  GABBY

  57. Phil

    Unemployment/Kustomz – I’d be much more concerned about the fact that the Fed is not longer (supposedly) going to be buying up Treasuries.  We’ll see what the impact of that is later this week.   Another reason I have no desire to be bullish until we see the results. 

    FCX/BG – No change but painful! 

    Dow voulme just 54M at noon, about 20M below normal.

    Sisyphus/Judah – Good choice becauase he was punished for his manipulation and trickery with the undoable task – maybe exactly what we’re going to get at 11,000…

    TBT/JCEd – They have auctions this week and TBT may finally break $50 (it did today actually) but then, like the markets, we’ll have a clean floor to buy off again and we can get aggressive with bull spreads etc so I don’t think you’re missing the bus just yet.  I still lile the Jan 46/52 bull call spread at $2 and you can sell $45 puts for $2.10 – still one of the best plays in the market.

    Oil/Chuck – We’ve had huge builds since early March and oil just goes up and up.  I think they can keep this up for a while as we next have the Memorial Day start to "summer driving season" that always seems good for a boost.  That doesn’t make $86 any less ridiculous though and someone is bound to break ranks here and take us back to $82 (5%) or maybe lower. 

    AAPL/Iflan – The question is, do you really have profits or have idiots decided to pay $20 in premium for your calls?  Your 40% is safe as long as AAPL gains $3 per month for the next 7 months and finishes at $257 or higher.  I guess you can assume that no one really knew they had the IPad coming out and that none of those sales were baked into AAPL’s 20% run in the past 6 weeks and, of course, we’ll assume that nothing can possibly go wrong between now and then.  Heck, with that degree of confidence, you shoul be selling the Oct $240 puts for $23.50 as that must be a no-brainer too…  Or you can cash out and take your $15 profit off the table and play for upside past $250 by buying the Oct $240/270 bull call spread for $10 and selling the $200 puts for $8.30 so you have left net $1.70 on the table for a possible $30 more.  If you do not feel comfortable selling the Oct $200 puts – then why the hell would you even consider leaving $27 on the table with the $230 calls?  You can avoid the put sales by selling the May $270s for $1.75 as you don’t owe them their money back until your bull spread is $30 in the money but it’s less bullish on AAPL than the other play…

    AAPL/Bord – As a new entry I’d certainly wait.  Everyone seems to forget that AAPL can easily drop 33% on even a good rumor about Jobs’ health.  That’s pretty much back to my last major buy point at $165 so I’ll be very excited to load up the truck there and I do like plays like the one above for Iflan as I don’t mind having AAPL put to me at $200 (but I’d still roll them down and out to the $180s) but they are not compelling at $235 until they can prove that the IPad isn’t just substituting for their extremely strong laptop sales, that have driven growth for most of the last 5 years.  AAPL has strange quarters but the last year ended Sep ’09 at $42Bn in revenues and $8Bn in net profits but forward expectations are for about $54Bn in revenues and $11Bn in profits.  With 900M shares outstanding that’s 12.25/share and a 20 p/e IF they grow revenues 25% and earnings 37% – start pushing their market cap over $250 and you are almost certainly setting up for disappointment. 

    RIMM/Jrom – Yep, still waiting.  If the Nas breaks out they should catch up and, if not, we’re rolling. 

    FAZ/Jossie – Yep, quite the disaster on FAZ but now we can sell the July $10 puts for .40 and buy the July $10/13 bull call spread for $1.50 which is net $1.10 on the $3 spread that’s $2.70 in the money – nice protection on the financials.

  58. phlit

    sld the USO April 40 calls for 1.25.      is it time to roll with the stock at 42.06?
    Phil

  59. judahbenhur

    Phil/volume.  If the volume is low now, just wait until 2:00 when Tiger’s press conference starts.  Trading will just flatline for a while.

  60. pstas

    TBT- Phil- typo? I show Jan 46/52 spread @ $3+?

  61. gel1

    Phil
    I would like to open a long position on LVS (Las Vegas Sands) as I believe their Asian operations look attractive. Could you recommend a good strategy? Thanks

  62. gel1

    Sold Puts on BRKB today – 2011 70′s for $1.95 – A Christmas gift for me!

  63. jcedens

     Phil,
    I’m using an IRA for trading that is held at TDAmertrade and they don’t allow "defined risk" option trading in IRAs, so I can’t do bull call spreads unless I’m holding the underlying already, because they don’t recognize the long call as cover for the short call. Are there significant dissadvantages to using a bull put spread vs a bull call spread?

  64. gel1

    Big insider buying on ACF ( AmeriCredit )  – Sold August 25 puts as an incomeplay. ( The business finances cars so business HAS to get better, not worse )

  65. Phil

    DIA/Phlit – 25% is a guidline, as is a 20% profit or loss, to take a hard look at your trade and make a decision.  When I look at the DIA $108 call, which is pretty much out of Premium at $2.10, I don’t care about the $2.10, I care about what I have to do with it.  If I’m early in my scale, then I might roll them to 2x the $110s at .79 because those can be rolled to the May $113s at .65 so, if I don’t think the Dow is going to get to 11,300 by May expiration – I’m not worried.  If the $108s are a full position, I’ll be inclined to look at the May $110s at $1.87 and I’ll probably want to sell May $105 puts for $1 to offset slightly.  That way, if DIA blows over $110, I have a clear path to roll the calls to the June $114s, now .85, using that extra $1 I sold so now I have a clear path to 11,500. 

    This is why I object to "rules" – the rules depend on what my next 3 moves will be and that depends on where the underlying security is and what the VIX is at and what our outlook is and where we can roll to and how much of a pullback I expect and how far into the scale I am…..  So when people want to hear "25% is when you roll" it’s a gross oversimplification of a process that must be learned and practiced over time and shortcut "rules" like that can lead to a hell of a lot of bad trading

    TBT moving now!

    MFA/Deano – No, I haven’t but I will if you remind me on the Buy List!

    Manhatten/BDC - That’s expected because the people who have money are just sitting in their condos paying the rent and the ones who lost their jobs are having fire sales and there’s no one to sell to.  I didn’t say the top 10% are out speculating on real estate – it will be a long time before that foolishness is back in fashion.  

    TLT/Gabby – See above (or below your comment).  Oh, TTH – LOL, you do need a check-up (or maybe just some more caffeine)…  At the moment, I’d go for T as they are lagging and they have a safe-looking 6% dividend and you can be happy to own them for 20 years so a buy at $26.30, selling the 2012 $25 puts and calls for $6.15 is a very nice net $20.15/22.58 which makes the $1.68 dividend 8.4%/year of the cash you lay out with a 24% upside kicker if you are called away at $1.30 below today’s price - that’s a nice, lazy way to make money for 2 years!

    Dropping IPads/Kustomz – My daughter dropped her IPod Touch and shattered the screen.  It still works, touch and all through the spider-web cracks and luckily we bought it with AXP and got their warranty so a new one is coming.  Apparently, if you have to pay for it, a new screen is 1/2 the cost of the device but really what they do is give you a totally new unit.  With the backup system, that’s hardly a bother – I got my IPhone replaced and thought it was great that it synched right up and the new phone was my old phone in 5 minutes.   Any reason on TRV or just Dow fatigue?

  66. terrapin22

    Pharm Boy – any thoughts on GHLV?  potential new ED drug taken under tongue and goes into effect in 5 mins.   Thx. 

  67. kustomz

    TRV chart was bullish and followed MET PRU pattern but i think profit taking and DOW fatigue are major factors, its been a steady sell off since 3/30…looking for a bounce and a small window of insight into where the DOW goes from here

  68. Pharmboy

    Terra – they are entering trials now (enrolling).  I would wait, as if it does not beat the positive control (Viagra), then then will go limp, I mean down, whatever (OMG, did I just write that?).  The company develops products that may not work for the oral route (pills), but I cannot find out what technology helps for buccal, dermal, etc.

  69. nobhar

    Mucho TKS        PHIL or is it  PHILLIP..I forgot………………GABBY

  70. Phil

    Nat gas flying, up 5% today. 

    USO/Phlit – If you are worried, you can sell $41 puts for .45 and that .45 helps pay for you to eventurally roll to the May $42s, now $1.60.  That’s based on the assumption that you feel your situation is hopeless and there is no way USO can pull back to $40 (where it was on Wednesday) in the next 9 trading sessions and that means you have nothing to lose by selling the puts since your Apr $40 caller ($2.18) will lose penny for penny on the way down. 

    Tiger/Judah – He caused a big rally last time (or the trade bots were activated while traders were distracted if you are cynical).  This time, one of his mistresses is giving a rebuttal or something so this should be fun.  Volume at 1:30 is a PATHETIC 66M on the Dow.

    TBT/Pstas – I’m now showing the Jan $46 calls at $7.05 and the Jan $52 calls at $4 so $3 now, not sure what they were when I looked earlier but I still like the trade and you can sell higher puts to offset more cost as we’re still comfortable selling $46 puts and those are $2.45

    LVS/Gel – I like them but they make me nervous.  Macau is a total wild-card that can blow up in their faces if China changes a rule but you get paid pretty well to take a chance by selling the Jan $15 puts for $1.45 and buying the Jan $20/30 bull call spread for $3.85, which is net $2.40 on the $10 spread and you are $2.95 in the money so it sure beats buying the stock as you get all of the upside and no major damage until they go below $17.40.  I like that BRK/B play too!

    IRA/JCEd – I’d move the account to someone who will.  The difference is, when we enter a bull/call spread, we are letting some idiot pay our premiums for us (like the LVS play for Gel above) so we get all the benefits of owning the stock with a very small portion of the risk.  When you take a bull put spread – you are the idiot paying the premium for someone else.  I don’t like Bull Put spreads or Bear Call spreads at all – just sell the naked put and be done with it. 

    ACF/Gel – That makes sense. 

    Wheeee!   Just in time for our 2pm flip-flop on the DIA’s maybe…

  71. Pharmboy

    ALTH moving now.  Don’t see any data release, but something popped them up almost 8% today, and still ticking up!

  72. Phil

    The return of Donald Trump’s competition show The Apprentice comes with a focus on those displaced by the recession – which helps explain why castoffs from Lehman Brothers, Merrill Lynch, Morgan Stanley and Bear Stearns were among those sleeping in line outside Trump Tower hoping for a spot on the show.

    The public has a pretty dim view of corporate America (with 81% saying business’ reputation is "not good" or "terrible"), but Berkshire Hathaway (BRK.A) still gets the love as best-regarded U.S. firm. Worst: Freddie Mac (FRE).

    Comparisons between California and the PIIGS may be overblown, James Surowiecki says: No U.S. state will have to make cuts like Ireland, and America’s states are part of a country – not an ill-defined union where local interests consistently trump continental goals.

    More bond weakness in the air ahead of $82B in Treasury auctions this week, as the 10-year yield is touching and re-touching 4% today. Yields on 30-year bonds are at their highest since Oct. 2007; maybe a "full V" for the broader economy? Currently: 30-year yield +0.03 to 4.83%; 10-year +0.05 to 3.99%; 5-year +0.06 to 2.72%; 2-year +0.06 to 1.16%.

    The Treasury kicks off its auction week selling $8B in 10-year TIPS at 1.709% (.pdf). Bid-to-cover of 3.43 vs. a recent 2.27; indirect bidders take 37.5% vs. a recent 33.9%. Direct bidders took 7.5% vs. an average 1.3%.

    Cemex (CX +2.3%) keeps up an ongoing debt overhaul with plans to swap up to $3B in perpetual bonds for seven- and 10-year notes, as it tries to lower servicing costs

    Deflation on the prowl as Fed buying stops
    Harvesting the healthcare winners

    Google’s (GOOG) buying spree isn’t slowing, with a purchase of Episodic (its fifth acquisition of 2010) expected to beef up YouTube video capabilities.

    Microsoft (MSFT) heads for the lifeboats on Intel’s (INTC) Itanium chip – nicknamed "Itanic" when it failed to garner business after its 2001 introduction – phasing out support for the 64-bit chip to favor the near-ubiquitous x86 architecture.

  73. sns1

    Pharm- what are your thoughts on the Barrons article Harvesting the healthcare winners Phil just posted? Txs

  74. kustomz

    Not going to take any chances headed to Delray to hang on the beach and have some drinks…be careful lot of sectors convulsing and gyrating…If dollar doesn’t weaken below 81 i doubt they will push it today

  75. dilbert

    how do we track dollar strength?

  76. gucci

    VNO – hi Phil I have VNO april 75 long put , not sure why slight pop today, may be it has been consolidate for the last 2 wks, forgot to cover, how should I salvage this or just closed out and take loss.  Thx

  77. dilbert

    how do we track dollar strength?

  78. stockbern

    VIVO/ Pharm        In your opinion, why are they still moving down.  Do you like an entry here, as I do not have a position yet.

  79. chaps

    dilbert: $DXY is the $ index future

  80. Phil

    DIA $109 puts very disappointing at .80 so I’m not going to play if the MM is going to rip us off like this.  Just for the record though, the $109 calls are $1.30  so we’ll see where they get to.  Dow volume is so silly at 75M that it’s all pointless anyway.

    Dollar/Dilbert – If you get a free account at TOS, they have all the FOREX charts live. 

    VNO/Gucci – Oh greed kills!  We were very lucky to see $75 on Friday.  Apr is close but tiy cab sell the May $70 puts for .95 and roll out to the June $70 puts at $1.55 for about .10 net and that’s not a bad way to keep playing for the eventual collapse. 

  81. samz3700

    Dilbert – people generally track dollar strength with the Dixie (DXY) -  ask someone what the symbol is on your trading platfrom – I think Phil often looks at individual crosses – USD / Euro; USD / Yen etc. – cannot remember which one goes first.
    http://www.investopedia.com/terms/u/usdx.asp

  82. Phil

    FOREX/Samz – I watch the Euro, Yen, Pound and gold, oil and copper to get a handle on the dollar.  If they all move in synch, then you can be pretty sure it’s a specific dollar move and the Yen is the most likley to diverge of the currencies as BOJ plays all kinds of games to keep things going.  In fact, there was an article in Bloomberg (linked above) where they say that Japanese exporters have been pulling out all the stops to strengthen the dollar and boost exports. 

    RIMM still dropping!  That’s bringing the May $70 puts to our $5 target entry (as a sale) but you’d better REALLY want to own RIMM for net $65!

  83. samz3700

    RIMM – Phil why do you prefer the May 70s over the 65s – I would rather take in all premium – are you anticipating a quick snap-back?

  84. ban2

     Phil
    When oil looked toppy @ $85. I sold 10  April OIH 120 calls for 5.4 naked ( now at 8.7).
    If expectation is for oil to make it’s way higher thru Memorial day what to do at this point?
    thanx

  85. jomama

    I am selling RIMM Sept 65 puts instead.

  86. grant

    Phil – Is your server slow today?  I am going through the weekends emails and clicking on articles.  For example, "WILL EMERGING MARKETS LEAD THE MARKET LOWER?" took 22 seconds to load.  Other articles have been slow too.

  87. Pharmboy

    Unfortunately, I do not have access to Barrons and have exhausted my free trial.  If someone can MS word the article or email it to me at pharmboy123 at gmail that would be great.

  88. Phil

    A potential bear market in bonds could trigger a "melt-up" in stocks as investors rotate out of fixed income, suggests Schwab’s Liz Ann Sonders. Besides, stocks are not overpriced and investors still don’t fully believe in them.

    NBER official says recession has ended. There’s been no official word from the National Bureau of Economic Research, but a key official says the recession is likely over. Robert Hall, head of the NBER’s Business Cycle Dating Committee, referencing Friday’s payrolls figure, said he "personally put lots of emphasis on employment. I would say ‘pretty clear’ is a good description" for whether the economic contraction has ended. An official announcement from the NBER may still be some time away, however, as the committee won’t make a declaration until it can assign a precise end date to the recession, a process which usually takes 6-18 months.

    Backlash against iron ore pricing. The China Iron and Steel Association (CISA) has asked domestic steel companies and traders with import licenses not to buy iron ore from Vale (VALE), Rio Tinto (RTP) and BHP Billiton (BHP) in the next two months, in protest of the new quarterly iron ore pricing system. CISA believes global iron ore producers have made "unreasonable requests for price hikes," and Chinese steelmakers have enough iron ore inventory to sustain a two-month buying moratorium.

    With equities markets now up for the fourth consecutive quarter, Barron’s takes a look at a few of the details:

    • S&P 500 index gain from the March ‘09 low to Q1 close: 73.5%:
    • The Dow Jones Industrial Average gained 4.1% –its best Q1 performance since 1999 (both points and %)
    • Russell 2000 index of small-cap stocks Q1 gain: 8.5%:
    • Average number of stocks reaching new 52-week intraday highs each day during Q1: 228

    And let me add this:

    • The Nasdaq Comp is up over 90% from the March ‘09 lows, while the Dow Transports gained~106% !

    If the iPad can lure customers into the stores that sell it, then Best Buy (BBY +1.5%) – the only retailer other than Apple (C +0.7%) itself offering the product – could benefit from the foot-traffic effect.

    New York Budget ‘Shell Game’ Hides Deficits and Cash Squeeze. The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said. “New York needs to stop playing games with the deficit,” DiNapoli said in a statement. By shifting money between accounts in a “fiscal shell game” state officials and lawmakers “cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,” DiNapoli said. In the year ended March 31 the state used $6.4 billion of funds shifted and borrowed between accounts, and rolled $3 billion of payments into the current year that began April 1, the report said. Lawmakers haven’t agreed on a plan to close a deficit of more than $9 billion this year in a $135.2 billion budget proposed by Governor David Paterson.

    Commercial Bankruptcies Increase. The total number of companies filing for bankruptcy in the U.S. jumped by more than 20% in March over the previous month, as business failures in the first quarter outpaced last year’s total.The total number of commercial bankruptcy filings hit 8,208 in March, a sharp rise from February’s total of 6,655, according to new data from Automated Access to Court Electronic Records. March’s total brings the total number of commercial bankruptcies to 21,453 so far this year, almost 1,000 more than the total for the first quarter of 2009, a breakout year for business filings.

    Economic Pickup: Truck Sales Show Rebound. Tucked inside auto industry’s strong U.S. sales report for March last week was a little-noticed portent for the broader economy: Full-sized pickup trucks outperformed the overall automotive industry, according to Autodata Corp.

    US Banks in $2.5bn ‘Christmas Capital’ Gain on Discounted Assets. US banks earned $2.5bn (£1.63bn) last year from an accounting rule that enables them to book gains – known as "Christmas capital" – by buying assets at a discount, a study shows. More than half of all acquisitions of failed banks last year resulted in such gains, according to SNL Financial, which compiled the data. For some banks, the gains contributed to the lion’s share of their income for the year. It emerged last week that leading bank regulators were discussing guidelines to limit how much of a bank’s capital can be comprised of such gains, according to people familiar with the situation. "Regulators are trying to get their hands around what is real capital and what is accounting capital," said one person who has worked on some of these transactions.

    Why Greece Will Default For Sure. Wolfgang Münchau, of Eurointelligence, shows how it’s obvious Greece will default, based its current course. It doesn’t take rocket science to do the math.

    On The Inevitable Surge Of Tax Rates. For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here is a chart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the past century.

    Looting Main Street. How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece.

  89. leonf675

    Phil, I have a quick TBT question (you must be tired of those).   I have a long call position in Jan 35 that I got into at around $14.50 which originally started as a spread, but I’ve been playing with the short side by covering/uncovering it as momentum play.  I probably made a few bucks already by doing that.   I am currently uncovered with the long calls.  Do you think today is a good day to sell to cover given the move up or would you recommend waiting for the auctions in anticipation of TBT moving even higher?

  90. Pharmboy

    VIVO/Stock – yes, but I would wait to see where 1.  the market heads and 2. if they hold 19.50 or so (lots of support here).  Charts  The Oct 20 straddle makes them a nice buy, and if called away, would be over 18%.

  91. drumkeerin

    Just trying to clarify your RIMM May 70  comment at $5. This is an independent move- not part of the Jun70p-Apr75p
    spread?

  92. Phil

    RIMM/Samz - I don’t think getting back to $70 by may is "quick."  It’s really a matter of saying "Are you willing to own RIMM for net $65?"  I’m saying I think $65 is a fair price and I’ll be satisfied if it turns up and I "just" make $5 and don’t end up owning them.  You are saying net $62.80 makes you more comfortable and you have a $2.20 gain if RIMM stays over $65, which is fine too.  I also take margin into consideration and, since I have to set aside pretty much the same net margin for either play and since the $65 puts have $2.20 in premium and the $70 puts have $2 – I figure I may as well sell the $70s because they can always be rolled to Sept $65 puts anyway. 

    OIH/Ban – I’m expecting oil companies reporting this Q to have scaled back E&P spending and that will knock OIH down.  Also, I don’t think oil holds $85 despite the holiday.  On the Apr $120s, I’d sell the $125 puts for $1.30 as you have pretty much nothing to lose and roll the callers to the $125 calls at $4.30 so you take a short-term loss (but not really as you have $5.40 in your pocket) and then, at expiration, you decide what May combo to roll to but, meanwhile, you’ve sold $2.75 in additional premium that WILL expire in 2 weeks. 

    Slowness/Grant – I hope not as they just replaced a whole drive array on the server!  I’ll let the guys know though.

    TBT/Leon – Too early in the week for me to be tired of them.  Plus, finally breaking 50 is a very big deal so it’s party day for TBT.  I do think it’s a good week for a move but I also think it’s a total waste for you to tie up $16 on the Jan $35s when what is your bet?  You bet it will go higher than $51, right?   Well you don’t mind effectively owning TBT at $35 so there’s no reason not to cash out and sell the Jan $41 puts for $1.05 so you are back in at net $40 – no big deal.   Then you can buy the $50/60 bull call spread $2.20 and you have the same net $51.15 basis as you have now with $10 of upside but you are tying up just $1.15 plus about $4 in net margin.  As long as you are willing to risk the assignment on the put side, you can go 2x this bet and still take 1/3 of your money and margin off the table and you will make 2x to the upside while risking (assuming TBT doesn’t fall all the way to $40) just $2.30 of your gains. 

    RIMM/Drum – Yes, this is just a play I like by itself (selling the naked May $70 puts for $5). 

    Woo-hoo – 90M on the Dow at 3:30 – we’re rollin’ now! (about 2/3 of normal)

  93. dilbert

    Reverse stick? Sell and sell until we are deep down red?

  94. gel1

    Executed a nice B/W on AMAT (Applied Materials ) buying stock and Delling Oct 14 p & c for a 19% discount ( has 2% dividend ) I like this one long term.

  95. Phil

    Fed officials debate whether inflation is about to hit and what it would look like if it did. Three researchers weigh in: Even taking out housing weakness, the inflation slowdown is widespread.

    HOG gone hog wild today – Up 10% because RBC raised their price target from $32 to $36.  I see no news or announcements by the company at all.  We really are starting to feel more and more like the .com boom market…

    Stick/Dilbert – Not going well today is it?

    AMAT/Gel – Nice one, I like them too. 

  96. gucci

    Dia mattress-  should I be naked June 111 long put over night, still hold 1/2 april 108 and 1/2 109 putter, or wait till tomorrow with possible hit 11K

  97. Peter D

    Can you believe that I’m selling the RUT April 650 puts!  The 640, 630 and 620 putters are $0.8, 0.6 and 0.525 respectively.   On the other hand, the RUT Apr 650/640 long put vertical is $0.33, imagine a 30x return if RUT drops 8% in 1.5 weeks.  This market definitely has a very low price on the risk of the 8% crash in the next couple of weeks.   In fact, Apr 660/650 put vertical is $0.58 (16x return for a 7% crash).  I’m talking myself into getting some protection with the Apr 660/650 put verticals.

  98. gel1

    Nice day trading PSW strategy… enough for a new car…. I think I will do this again tomorrow!

  99. dilbert

    Not good … not good at all

  100. Phil

    DIA/Gucci – I’d go with the 1/2 cover as we’re so far over the $108s they are not liklely to hurt you much but it would realy suck if we drop and you are full covered.  I don’t think a drop is likely but I also don’t think it’s likely we’ll be up over 11,000 at the open so the risk of a 30 point move up vs reward of big move down is the weighting.  Obviously, if we open up, you can sell the $110 puts and put stops on the $108 puts.

    RUT/Peter – I think there is WAY too much complacency but we’ll see. 

    LOL Gel - A car a day and we can kick-start this economy ourselves!

    Dow 11,000: It’s a nice round number and surely would warm the hearts of investors who follow the blue-chip benchmark. But the mark doesn’t signify anything special from a technical perspective, Mark Hulbert says.

    Speaking of OIH:  The proposed merger of Schlumberger (SLB +1.9%) and Smith International (SII +1.9%) will get a second look by the Justice Department, ensuring several more months of scrutiny. The companies had expected the deal to close in the second half of this year.

  101. jcedens

     Gel,
    Glad you got the car today, I lost one believing that sanity will eventually prevail!

  102. tuscadog

    Pharmboy, do you have a link to your views on FRX?

  103. gel1

    Phil/Car
    Not all positive… oil is on its way to $100, so will be expensive to operate.

  104. tradermoksha

    i’m losing one too thanks to drv and faz. i have to bring my broken brain to the doctor….i believe too much,that’s not the way of a good trader sigh..

  105. Phil

    C June $5 calls very popular today, that would make me happy.  Next 3 most popular calls are LOW (May $25s), BAC (Apr $18s) and UNG (July $7s) - sounds like someone is just going through our lists! 

    Lots of action on EWZ May $75 puts, FXI Nov $29 puts, USO July $27 puts and OIH Jan $125 puts. Somebody might be setting up to dump a bunch of shares. 

    April is proving to be a big month for Apple. First the launch of the iPad and now, just two days later, the announcement of an invitation-only event to show off the next generation of the operating system that it will soon run, iPhone OS 4. The event is scheduled for April 8–three days from now–at Apple’s town hall.

    Apple (AAPL) has been rumored to be adding some form of multitasking support for third-party apps in the next iteration of the OS. Perhaps we’ll hear something about it come Thursday.

    Well the pattern holds – it’s a rough way to make 47 points but the end result is we gain 47 points. 

  106. Pharmboy

    Tus – no, not yet.  Did not have a chance to look at them over the weekend.  They still closed below S2 on my daily chart.

  107. jburgess

    Phil, some help on several of my positions would be much  appreciated. Have had a major trauma in our family with my wife having kidney transplant surgery 10 days ago. Have barely been able to get some reading done, let alone focus on the market.
    Have FAZ July 13/18 bull call spread at 1.29, sold July 13 put for 1.63. Seems like plenty of time and FAZ may turn around, but don’t want to let the position get to the point where adjustment are difficult.
    Had USO April 40 puts at 1.04. Per your suggestion adjusted by rolling to May 39 puts, selling April 39 puts. Roll cost me .03.
    Also sold FCX May 85 calls, but as you said to someone this morning, it’s just going to be painful for a bit.
    Thanks for the assistance.

  108. jburgess

    Pharm: going thru this helps give me an even greater appreciation for the important role pharmaceutical companies play in our civilization. Literally we can’t live without them.

  109. tradansh

    Phil, Other tax experts – A question regarding section 1256 contracts.
    I imported my 2009 trades in GainsKeeper and it classified all the option trades on index ETFs (e.g. DIA, SPY, FAS, FAZ) etc as section 1256 trades.
    Is this correct? How do you classify your option trades on index ETFs? My first year doing such complex trades, so would really appreciate some expert advice.
    Did some internet research on this and seems like this is a gray area. Clear guidelines are available on options on indexes but not on options on index ETFs.

  110. Peter D

    I was looking at my 401k statement and noticed that Apple is 3rd in the S&P500 weighting at 2.01%, XOM is the 1st with 3%, MSFT is second with 2.09%:
    http://www.indexarb.com/indexComponentWtsSP500.html
     
    There are 3.5 banks in the top 10 (GE is the half).  So the higher the gas price, the longer the low interest rate persists, and we keep spending on my iPhone and T, we’re growing our 401k nesteggs.  Simple, huh?

  111. Peter D

    tradansh,
    Yup, it’s a gray area for options on the index ETF’s (SPY, DIA, etc.).  You can be aggressive and report them as Section 1256, i.e. pay less tax if you made a profit (60% as long term).  If the ruling goes against you, then you’d pay more tax later.  Of course, you can be conservative and NOT use Section 1256 to report them.  Same disclaimer that this is not a tax advice, just comments.

  112. tradansh

    Peter D – Thanks for your "comments". Totally understood. In my case, total net on 2009 trades was losses (over 20K, on day/swing trades). What would be the tax considerations then and a more conversative approach?

  113. Peter D

    tradansh, the reverse is true if it’s a loss, i.e. don’t use Section 1256 as it would have reduced your loss deduction (100% on short term loss deduction is more advantageous than 40% for short term loss with Section 1256).  Just use the normal short term capital loss reporting and show all the transactions.

  114. tradansh

    Peter D – What do you recommend for option trades on commodity ETFs like USO or GLD? go 1256 or normal capital reporting?

  115. Pharmboy

    Thanks for the Barron’s article SNS.  Below are my thoughts:
     
    First, how nice is it to have all Barron’s picks already in our information here in PSW!  Barron’s recommended companies:  GILD (been selling premium since Sept), SPPI (again, recommended in Sept ’09), AMGN (Phil played them in Nov), ISIS (not on my LT list, but we did play the bounce a few weeks ago for a nice 40% profit) and GENZ (been in and out on the $50 level, currently trying to get the 50 Jan11 for 6.90, selling 1/2 straddle Apr10 for 2.4). 
    GILD – what is not to love about them.  They are going to be a stalwart for the next 5 yrs or so, if not more. 
    AMGN – not as high on them, as I want to see if their osteoporosis drug is as big as they think it will be.  Not convinced that the premium of once a year is worth it compared to generic oral drugs (e.g., Fosemaxx).
    SPPI – could not agree more with these statements.  We (Barron’s) continue to like Spectrum Pharmaceuticals and reiterate our Buy rating and price target of $8. The company sells two oncology drugs in the U.S., Fusilev and Zevalin. It has a strong pipeline with a late-stage drug for bladder cancer partnered with Allergan, and Belinostat, a recently in-licensed late-stage blood cancer drug.  Expectations for Fusilev have come down significantly since the FDA’s complete response letter on Fusilev for the colorectal cancer indication in October 2009.  Due to Zevalin’s superior clinical data and label expansion in the first-line setting, targeted marketing, a doubling of the sales force recently and better reimbursement (starting in January 2010), we expect Zevalin sales to grow significantly in the coming quarters. Additionally, we believe the company could take a significant price increase on Zevalin by midyear. 2.5 Jan12S are 2.5, or 5/7.5 Jan12 bull call spread is ~ 55c.  Selling P on the spikes down is very nice.  Spreads are wide, so patients is a key on the entry.

     
    GENZ – the manufacturing problems persist, and I did a writeup on them here.  Also noted plays from last week above.
     
    I do not know as much about PMBs or drug store chains, so it is hard for me to comment on them.  I do like Medco and CHSI, both of which we played last year but they are not ‘chains’. I see WalMart and Costco expanding this base, but again, not my area of expertise.
     
    As for DVA etc., don’t know about them as well.  They are a lab service from my readings in dialysis, and LH is my preference there (although they are pricey here), but this corner could be better served by DCAI – smaller version that has tons of room to grow for dialysis.  I bought them last year, but stepped out for a small loss. 
     
    Medical device and diagnostics are my biggest players right now, esp. if they are covered by insurance or medicare/medicaid.  GPRO, MYGN, VIVO, VOLC, and others are good ones to look at.
     
    Otherwise, read my last writeup linked above for Pharma – those are the ones I am most interested in…and yes JB, drugs are the best medicine!!!  I know pharma takes a bad rap for the pricing components, but without them, we would not live as long.  I guess it is the necessary evil.  BusinessWeek has a great article on the price of life…..

  116. Peter D

    Tradansh, someone pointed out that Commodity ETF’s may have different treatment.  Please go back a few days of posts to find the link (I think it’s an early post one day last week).  For USO stock, you’d need to be careful as I heard that it’s a partnership, so you might need to file the K-1 form.  USO options can go as normal stock option (in my opinion).

  117. EricL

    Was just reading this — a worthwhile article on inflation:
     
    http://www.frbsf.org/publications/economics/letter/2010/el2010-11.html

  118. kustomz

    Who needs Barrons when we have you Pharm ;-)

    Grant you might want to restart your modem and wireless router if you have slow Internet.  I know PSW was offline for a few hours over the weekend but its been running like a champ for me and i reset my gear with my laptop off and it always fixes the the problem.

    Spring break has brought many tourists to SF, had a chat with a rest manager and he mentioned it was slow due to bad weather past month but SB has helped. Less vacations and more IPads!!

     

  119. bord

    Pharm,
     
    Do you have any recommended plays for GILD?

  120. jomama

     Bord, I have a few GILD positions.  My current position:  I am long GILD 40 2012 Leap Calls for about 9.8 and I have sold Jan 45 Puts for 2012 for around 6.5.  My Calls are uncovered at the moment.  I believe GILD is undervalued, has a decent pipeline – their new quad pill will do well (I believe)

  121. Peter D

    ajaytoo, just saw your tax question in the Weekend reading post.  I found that TOS tax tool is very easy to do.  You need to first get the transactions, then making sure that you match all those "unmatched" Corporate action transactions, then exporting them to TXF file.  It does also export to CSV format (highly recommended as you can rerun it later without losing the matched transactions).  Now, the year end heldovers are exported to a separate CSV file.  You’d need to manually match those with the current year transactions which would have the Jan 1st open or close date.  If you have the SPX, RUT and NDX trades, those are considered Section 1256 transactions, which are in fact easier to report as you can do 1 line per brokerage in Form 6781, and not need to report every transaction.  You can then import multiple TXF files (from your various accounts) into the tax software.  If you have over 1,000 transactions per TXF file, TurboTax may crash on you, so split them out to smaller files.  There is a 3,000 transaction limit in Turbotax, so you can either trade less, do manual Schedule D1, or try the indices (SPX, RUT, etc.) so that you can report multiple transactions in a single line.  Thinkorswim does have a good instruction in a Powerpoint format that you can download.  Good luck and please do not consider these tax advice, they just came from the top of my head.

  122. Phil

    Good morning!

    Adjustments/JBur – Sorry to hear about your wife, hope all goes well with the recovery.   FAZ – Too early.  You can roll down to the $11 calls for .90 and roll the putter to Oct $11 puts for .45 if it makes you feel better but we’re at the top of our expected range with 4 months to go.  USO sounds good, doesn’t look like the Apr $39 puts will be a problem.  FCX – not worried below $87.50 but above there you can sell the May $80s for $2 in case it really gets away as that will help pay for a future roll but it will cost you about .25 to take them back out if we fall below so it’s the price of insurance.  I see the Aug $90 calls at $6.75, which is a better than even roll so that’s my free insurance at the moment.

    Taxes/Trad – I’m no expert there, you need a good accounting firm with real stock experts, not just your buddy who’s a CPA.

    Inflation/Eric – Kind of a weak argument by the Fed in support of sticking with their beloved "core inflation" measure.  I guess this is an indication (and I’ve seen several this week) that the Fed is trying to justify holding rates down despite our "robust" economy.

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