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Weekly Wrap-Up – Why Does This Rally Give Me the Creeps?

I’m sorry, I am trying so hard to get bullish but it’s not working

My only solution is to, as we often joke, switch off my brain and stop reading the news (listening to it is great as everything is coming up roses in TV-land) and ignore the now-exposed shenanigans on Wall Street (why should I worry about my investments just because the people running the game are up on fraud charges?) and for goodness sakes don’t even look at something as depressing as "The Economic Elite vs. the People of the United States of America," neither Parts 1-3 or Parts 4-6 because that can lead to thinking and thinking makes it REALLY hard to go to sleep at night with your money riding on the top of an 80% market while gold is trading at $1,150 an ounce because of overwhelming global instability and a total lack of faith in the global financial markets

Yep, if we don’t think about all that stuff and focus on the good stuff, like the fact that Unemployment is only 3% for those of us who earn $150,000 a year (for the poor it’s 31%), and 93% of our virtually fully-employed analysts predict the S&P will finish the year even higher (although not too much higher) with only Andrew Garhwaite of Credit Suisse in need of an "attitude adjustment" with his puny target of 1,175, which is 32 points lower than Friday’s close.  Fortunately, enlightened analysts like Deutsche Bank’s Binky Chad think we can still squeeze another 100 points out of this rally (about 10%) although Goldman Sachs is wimping out at 1,250, their partner in "whatever you want to call it", JP Morgan is up at 1,300.  So it’s BUYBUYBUY from the gang of 12 and we’ll be whipping Andrew into shape by the next report or he may find himself the fall guy for the next scandal…

Oops, sorry, I wasn’t supposed to mention the scandals as that’s not really a buying premise unless of course you look at the sheer volume of things the IBanks were getting away with and then look at the virtual nothing that is being done about it and then we can conclude there is no reason they can’t pump this market back up to Dow 14,000 because we already know it was such total BS last time, when we dropped 50% like a rock in 2008 - so what’s another 3,000 points of BS in 2010? 

Pieur du Plessis put up the old "Investor Psychology" chart this weekend and makes the case that we are ONLY moving out of the caution phase and into the enthusiasm just now (it’s that damn Andrew Garhwaite again!) while I have been thinking we are moving past "Greed and Conviction" (maybe because bankers are finally starting to be convicted) and into the "Indifference/Dismissal/Denial" zone as MOUNTAINS of negative news are being shaken off by new rounds of cheerleading accompanied by pathetically low-volume market rallies that have, frankly, only moved the Dow up 200 points in the past two weeks despite "fantastic" earnings reports that "blew the doors" off estimates.

Can an entire market rally really be engineered by a few computer programs using low-interest government loans from the Fed to make Billions of dollars for the same investment banks and their media lackeys who rate the market a BUYBUYBUY no matter how awful life is getting for the bottom 90%?  Of course it can!   Ellen Brown, from Web of Debt has an excellent article on the subject so I won’t get into it here. 

Jeremey Grantham calls the market move "nothing but Fed-sponsored monetary pornography" (Zero Hedge) and perhaps that’s what’s really bothering me – if I think of my investors like children than I guess I see all these little market concerns like one of those one of those predator maps that has way too many red tags around where my kids are playing! 

Now don’t get me wrong, I don’t want to compare our fabulous IBanks to child molesters (although they certainly do enjoy taking candy from babies) – it’s only your money they are after and, as we see in the news every day – that’s hardly illegal at all!  So the market is forever blowing bubbles and the children are dancing without a care in the world.  P/E multiples are flying, risk premiums are at zero and, as Grantham points out, alternate investment returns are so low that all of the sheep are being herded into the blind alley of equity and commodity investments – like lambs to the slaughter, as the saying goes.  Yeah, just a little creepy…

We are not, of course, above riding the market movement higher but I cautioned Members to lighten up this weekend on our 566% plays while they are only halfway to goal.  The 566% plays were established 2 weeks ago because we were "worried" the market would head higher and damage our bearish position.  We ended up getting the best of both worlds as the market swung wildly up and down, giving us a chance to cash in on both sides and we don’t turn opportunities like that down.  Now that we have broken our upside watch levels of Dow 11,000, S&P 1,200, Nas 2,500, NYSE 7,700 and Russell 720 and SEEM to be holding them, we can begin establishing some bullish plays, using the 3 of 5 rule as a sign to get the heck out if we fall back below.  As a new disaster hedge, I like the following play on TZA (ultra-short on the Russel):

  • Buy Oct $6 calls for $1
  • Sell Oct $10 calls for .50 (net .50)
  • Sell Oct $4 puts for .30 (net .20)

This hedge pays $4 (up 1,900%) on a market crash that sends the Russell down about 20%.  TZA was over $10 in early February, when the Russel was just below 600 (now 741).  With TZA now at $5.41, your risk of assignment comes on a $1.41 drop in TZA (26%) which would require roughly an 8% gain in the Russell to 800.  You can commit $1,000 to this hedge with 50 contracts and margin on the trade should be roughly $5,000 and you have a commitment to buy 5,000 shares of TZA at $4 ($20,000).  You can roll or adjust that play as time goes on of course but since even the most bullish of the Gang of 12 only expect a 10% move up from here for the whole year, we’re not anticipating getting blown out of the position by October options expiration.

What we do buy with protection like this is peace of mind because we structure most of our Buy List plays to have a 20% margin of error (see "How to Buy Stocks for a 15-20% Discount") and, generally, all we need is a flatline to make a 20% profit on our positions.  That means, if we have a $100,000 virtual portfolio, we can commit just $1,000 of cash and $5,000 of margin to the TZA spread and we are protecting $100,000 worth of bullish positions from a 20% loss – THAT’S GOOD HEDGING!  Should the Russell rise 20% and force us to buy TZA at $4, we are pretty damn sure we will have made a lot more than $20,000 on the way up, especially if we throw in a couple of new 566% plays along the way (we will!).   

Of course, getting TZA put to us at $20,000 (assuming we don’t roll) does not mean we are taking a $20,000 loss.  If TZA drops about 50%, all the way to $3, our loss taking it at $4 would be $1 times 5,000 shares or $5,000 against projected gains of well over 20% on $100,000 - not a bad price to pay for the ability to sleep at night and owning 5,000 shares of TZA at $4 might be pretty darned clever as we hit the next set of major resistance ponts.  Let’s keep that one thing in mind as we switch the rest of our brains off and try to get more bullish in this creepy rally – we will ALWAYS have our hedges and we will ALWAYS have our stopping out levels to the downside because danger lurks around every corner and we want to keep our precious assets safe! 

It has been a very interesting week as we recovered off of Friday’s option expiration day catastrophe with Goldman’s SEC news and, of course, the on again – off again – on again news coming out of Greece.  We finished this week more than 50 points over that Thursday’s close so yay bulls and all that.  Our week’s picks were surprisingly pretty good considering what BS I thought the whole thing was:

Monday Market Mayhem – Is Goldman’s Goose Cooked?

Wow, I am so bored with Goldman at this point I can’t even bear to read my own post on the subject so let’s move on.  We had the volcano in Europe bad news in CRE as demand for properties slid and rents fell with vacancies on office space in Los Angeles climbing to 17.6% in the first quarter even as average rents fell 10% year over year.  Needless to say, IYR took this as great news and jumped 7.5% for the week.  My outlook for the week was fairly chipper:

We’ll be very proud of the markets if they do manage to shake off this adversity and move higher but, on the whole, we’re happy to be mainly in cash and simply deciding when (and if) to cash in our short positions.  The Weekend Wrap-Up reviewed our newest disaster hedges and they are still in play as are our two 566% upside plays from last week as we’re right back to where we first looked at them (breaking over Dow 11,000).  As I said at the time, these are VERY easy lines to watch so we can afford to get agressive on the bull or bear side of Dow 11,000 and S&P 1,200 as long as we keep a good strong stop discipline.  Meanwhile, it’s earnings season so let’s go out and have some fun!

  • GS 2012 $100/145 bull call spread at $30, now $29.30 – down 2%
  • GS 2012 $70 puts at $2, now 1.91 – down 4.5% (pair trade)
  • DIA 566% play (see "Should We Take Profits at 300%?") at .20, now $1.10 – up 450%
  • SSO 566% play at net .30, now $1.10 – up 266%
  • C 2012 complex spread – on target
  • GOOG Jan complex spread – on target
  • GS July $125 puts at $2.25, now $2.31 – up 3%
  • GS May $165 calls at $5.70, out at at $7 – up 22% (pair trade)
  • UNG Oct $7/9 bull call spread at .58, now .78 – up 34%
  • UNG Oct $6 puts sold for .43, now .32 – up 25% (pair trade)
  • XLF June $15/17 bull call spread at $1.25, now $1.41 – up 11%
  • IBM ratio backspread (earnings play) at net $110, now $320 – up 200%

We love our little earnings plays as they make for nice, fast payoffs and, if they don’t – then we end up with stocks we like anyway for a longer haul.  Notice we were 100% bullish on the day and this was, of course, our second round of our 566% plays, as we did the first two back on the 13th and 14th.  We saw Friday’s dip as a great opportunity to re-up since, other than the GS fiasco, they were doing amazingly well in their first week.  That’s why that play was once again sent to all Members in the morning Alert as it’s a nice, liquid play that anyone can make and we love to make money for our Members

Turnaround Tuesday – Flip Flop and Fly!

We were in a giddy and bullish mood on Tuesday morning as the pre-markets were running up and clearly our decision to go long on Friday’s dip below 11,000 had already been a good one.  Of course some were saying I was being a "flip-flopper" for going long when I’m overall bearish on the market fundamentals but, as the cartoon suggests, it’s not always profitable to stick with your original premise

As I said last week, remaining mainly in cash gives us the flexibility to make these quick adjustments and cash out on plays that work (ones that pay 20% or better) as soon as they change direction, knowing that there will always be another opportunity to play for another 20% tomorrow.  As I said (correctly it turns out) about our IBM earnings play in the Morning Alert to Members

Nice $350 payout (up 200%+) on the IBM trade.  It’s fine to ride out and just keep a tight stop on 1/2 the callers (now $1.55) and then stop out the longs if it turns back down but really, we’re playing for $500 at the end of May so taking $350 today and using it for another dozen trades between now and then is likely to be a better use of funds.

  • IBM Jan $120/130 bull call spread at $5.70, now $5.90 – up 3%
  • IBM Jan $110 puts sold for $3.30, now $3.10 – up 6%
  • AAPL June $270s at $3.30, now $12.10 – up 266%
  • AAPL May $260s sold at $3.60, now $14.20 – down 294% (pair trade)
  • XOM 2012 complex spread – on target
  • STX earnings play at net .50 credit, now .85 credit – up 70%
  • GSK 2012 $40/45 bull call spread at $1.60, now $1.30 – down 19%

AAPL really blew us out of the water on earnings and our Alert play the next morning was to cash out the June $270s and pick up the July $300s (then $1.90) for an eventual roll of the May $260s to 2x the June $280s (now $7.85) at which point we have a bearish spread remaining on AAPL.  That’s the trick to these earnings plays – even when they don’t work out, there’s plenty of good ways to adjust them as long as you stick with the basic concept of selling premium ahead of earnings. 

Whipsaw Wednesday – Is Los Angeles Burning? 

It will all be over in about 60 days as states, cities and counties across the nation have to finalize their budgets.  We’ve been worried for quite some time that many local governments will have to make serious cut-backs, like Los Angeles announced on Wednesday morning but in this "Alice in Wonderland" market – maybe bad will continue to be good and the markets will just keep on plowing through it.  My logic (HAH – Logic!) on the situation is:

As we get closer and closer to budget time (fiscal years begin July 1st) for local governments, we’ll get a clearer picture on what this recovery really looks like.  Cities and Counties are collecting less income tax revenues not more, their expenses (inflation) are going up, not down and their taxable land bases and sales tax collections are down, not up.  It’s easy to fudge national numbers as you only have to control a couple of dozen reports written by a hundred Federal employees operating under a strict hierachy – try doing that on a national scale with 50 states, 3,141 counties and 18,000 cities and towns and things tend to fall apart and, from that rubble, you may actually get to the truth!

Meanwhile our markets are driven by Greed and Fear. as I said in the morning post: "Investors are currently being driven into the stock and commodities market by FEAR.  FEAR of inflation, FEAR of leaving money in the banks, FEAR of treasuries, FEAR of bonds (thanks PIMPCO), FEAR of missing out…  There simply is nowhere else to put money and earn reasonable returns but that is no reason to be complacent about leaving money in the market.  This is why we maintain our disaster hedges – even when things seem to be going great." 

I predicted we’d complete a 60-70 point move up from Tuesday’s low by 10 and we’d drop 60-70 points again during the day – we ended up falling 75 points before turning it around on the 2:30 stick but that was close enough for some great short plays, of course.  My comment strategy at the end of the morning post was "We’re not just selling yesterday’s calls at 10 today but we’ll be going short on this idiotic run-up, happy to get out if we really break our levels but even happier if we get another pullback first" so keep in mind that the numbers we report at the end of the week are a simplification, making the assumption we just set and forget our short-term trades and don’t take any advantage of these even shorter-term opportunities.

  • DIA Apr $109 puts at .85, out at $1 – up 13%
  • USO Apr $40 puts at .97, out at $1.17 – up 20%
  • TBT Apr $47 puts sold for $1.25, now .79 – up 37%
  • OIH $131 calls sold for $3.45 – out at $3.80 – down 10%
  • SPWRA June $17.50/20 bull call spread at .85, now $1 – up 17%
  • SPWRA June $16 puts sold for .75, now .65 – up 13% (pair trade)
  • TBT June $47 puts sold for $1.60, now $1.40 – up 12%
  • TBT Sept $43 calls for $5.25, now $5.65 – up 7% (1st two legs of complex spread)
  • MS $31 puts at .66, now .70 – up 6%
  • EBAY July $27/May $26 calendar spread (earnings) at .02 credit, out at .20 credit – up 1,800%
  • LEG May $22.50 puts at .50, out at .20 – down 60%
  • LEG Dec $17.50 puts sold for .50, now .40 – up 20% (pair trade)
  • NFLX Sept $105 calls at $4, out at $9.50 – up 137%
  • NFLX May $95 calls sold at $2.60, now $7 – down 169% (backspread)
  • SBUX $24 puts for .38, out at .10 – down 73%
  • TZA $7 puts solf for $1.30, out at $1.30 – even
  • TZA June $6 puts solf for .70, now .94 – down 34%
  • TZA June buy/write at $4.59/5.30 – on target
  • EDZ Jan complex spread – on target

Notice how we get a little nervous about the market and we start adding shorts after a bullish start to the week.  The short plays not only protect our profits but they let us leave our bullish plays to ride through what was, as predicted, a very choppy day.  We got the big stick in the afternoon but that was such absolute nonsense that we completely reversed the next morning but THEN we began our 200-point move up as President Obama came to Wall Street and, apparently, fixed everything

Thursday’s Thrills – Greek Tragedies and Wall Street Worries

You don’t have to like Obama to like what he does for the markets when he speaks – that man is MONEY!!!  Just as GWB was the greatest sell signal we ever had, Barack Obama almost never fails to give us at least 50 Dow points when he makes a speech.  Thursday was no exception and the relief in the financial sector was palpable as he made calm and measured comments about regulations and did not show up with a mob carrying pitchforks and torches as many investors seemed to think he would.

We were thrilled, this is why we went long on the XLF spread on Monday (but notice we weren’t so confident that we sold puts on that one).  Greece was "unsolved" again in the morning but everyone is getting bored with them already so once those silly Europeans stopped trading at 11:30 and at 11:33 I said to Members: "That’s 11:30 – Europe closed near the day’s lows, down about a point and Obama is about to badmouth Wall Street so probably another test of the lows coming up."  We were looking for support from Dow 11,000 and Russell 714 and that’s just what we got…

  • Oil futures long at $82, out at $84 – up $10 per penny per contract
  • NFLX June $115 calls at $1.45, now $1.25 – down 14% (new cover for backspread)
  • TBT June $47 puts sold for $1.85, now $1.40 – up 24%
  • TBT Sept $43 calls at $5, now $5.65 – up 13% (1st two legs of complex spread) 
  • UNG Oct $7 calls at $1.05, now $1.28 – up 22%
  • UNG Oct $7 puts sold for .85, now .67 – up 21%
  • BWLD $50 puts at $1.70, now $2.25 – up 32%
  • BWLD Dec $40 puts sold for $2, now 2.20 – down 10% (pair trade)
  • NFLX May $100 calls sold at $5, now $4 – up 20%
  • FAS $109 puts sold for $9.80, out at $7.80 – up 20%
  • NFLX May $100 calls sold at $5.70, now $4 – up 30%
  • VNO May $80 calls at $2.30, now $3.90 – down 70%
  • IYR May $52 puts at $1.30, now .79 – down 39%
  • TNA May $69 calls sold for $3.10, now 5.10 – down 64%
  • AMZN earnings ratio backspread at $980 credit, cashed $1,840 (net credit $2,880), short 5 May $150 calls, now $2.47 ($1,235) – up $1,645
  • Selling 5 May $150 calls at $7 ($3,500),  buying 4 July $160 calls at $6.30 ($2,520). 
  • AAPL Jan complex spread (Disaster Hedge) – off target
  • HD Jan $35/40 bull call spread at $2, now $2.20 – up 10%
  • HD Jan $25 puts sold for .50, now .46 – up 8% (pair trade)
  • QID May $16 calls at .32, now .27 – down 16%
  • QID May $15 puts sold for .32, now .37 – down 16% (pair trade)
  • DVN Jan $60/75 bull call spread at $7.50, now $8.20 – up 9%
  • DVN Jan $60 puts solf for $4.25, now $3.80 – up 10% (pair trade)
  • MSFT Oct $35/May $33 calendar spread at .03 credit, now .47 credit – up 1,467%
  • AMZN earnings ratio backspread at $1,210 credit, cashed $1,840 (net credit $3,050), short 5 May $150 calls, now $2.47 ($1,235) - up $1,835 so far or a bazillion percent (since it was a credit spread to start)
  • FXP 2012 complex spread – on target

Wow!  I didn’t realize how many trade ideas there were Wednesday and Thursday until now…  Of course a lot of them are us pursuing things as the entries got better like TBT, AMZN, UNG and NFLX and you can also see we’re laying in some put plays, not just because we’re contrarian but as a set-up for our money to come off the sidelines and into some bullish positions next week if we start heading higher.  These are our target levels and above here we MUST take more bullish plays or risk missing out on another leg up in the market.  Having downside protection of IYR, QID, and VNO (we really don’t like CRE) let’s us get more comfortable moving into our first round of new Buy List plays. 

Forget About It Friday – Again

Once again, everything is back to "normal" and the markets are going up and up and up Greece is once again bailed out – ironically by the rest of the EU, who also need a bailout down the road but not today so party on boyz!  As I said in the morning post, the Mayans predicted the World would end in 2012 and the G20 is pretty much counting on it as their exit strategy

As I mentioned in the morning post, discussing the UK’s 50% drop in growth in Q1: 

Jonathan Loynes, chief European economist at Capital Economics, said the figures underline the fragility of the economic outlook. "With a big fiscal squeeze coming under any form of government, monetary policy needs to remain extremely supportive," he said.  You know what that means, don’t you?  More FREE MONEY!!!  The markets love free money, which is why bad news is such good news for the markets.

The banks run their little machines and buy up the market and the market rises and the banks declare gains on their investments and use the assets to leverage – MORE FREE MONEY – which they use to buy more stock and pump up the market so they can declare gains on their investments and use the assets to leverage – MORE FREE MONEY!!!  You get the idea – this party never has to stop as long as they keep getting FREE MONEY and no one notices the average p/e on a stock is now pushing 23 with pretty much zero risk factored in and not a penny of rate discounting priced in because rates are zero so there’s nothing to discount.  It’s BRILLIANT – what can possibly go wrong?

  • NFLX $100 calls sold for $4.50, now $4, up 11%
  • GOOG Sept $750 calls for $1.10, now $1 – down 10%
  • GOOG May $590 call sold for $1,85, still $1.85 – even (pair trade, 5:1)
  • C 2012 complex spread – on target
  • INTC 2012 complex spread – on target
  • DIA Jan complex spread – on target

Notice how we started getting bullish again as we broke our final levels.  We have our downside protection plays losing money already so it’s up to us to make sure their sacrificies will not be in vain.  C, INTC and DIA are all aggressively bullish upside plays – a preview of what we want on our new Buy List, which I will barely have time to get started on this weekend after such a long wrap-up.  That’s OK, though as we have a Fed decision on Wednesday after Tuesday’s Case-Shiller numbers and Consumer Confidence so we sure weren’t going to be rushing into things anyway.  Thursday is advanced Q1 GDP (3.2% expected – no way I say as I think we’re more like the UK and will be 1/2 of last Qs 5.6%). 

Of course we also have an earningspalooza next week with close to 1,000 companies reporting so strap in for another wild ride – that we can promise you!

 


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  1. Pharmboy

    Monday & Tuesday, nothing.
    Wednesday
    GILD:  40 Jan12s for 6.95 and selling the 43 May10 P for 2.60 (now 7.60 and 1.83)
    GILD: from gel was selling 45 Jan11 P for about 6.30 (now 5.80)
     
    Thursday
    DCTH:  Sell 12.5 May10 P for 85c. (if put to us, they are a long term hold, now 70c).
    DIA: buy 111 May10 C for 1.27 (out at 1.47)
    S:  4 May10 P of Sprint for 15c (now 13c)
    MRK: 30 Jan12 for 6.05 and selling an Iron Condor 35-36 34-33 C/P for 68c (condor did not fill, calls now 7.25)
     
    Friday:
    QCOR:  Buy 7.5 Jun10 C for 1.25 or better, sell the 7.5 Jun10 P for 60c or better (1:1 ratio) OR add to our 7.5 Jul10 C for 1.4 (from a few weeks ago) (1.30 and 55 on the June’s, 1.35 on the July’s)
    APPY:  2.5/7/5 Sept10 Bull call for $1, selling the 2.5 Jun10 P for 45c. (did not fill)

  2. Phil

    Nice Pharm – Is there any chance you can put these into my format so I can include them in the main post?

  3. Pharmboy

    Phil – absolutely, email them to you?  I usually get to them on Sunday morning.

  4. Phil

    You can or you can just post them like above and I can drop them into the Wrap-up while I’m working on it.  Thanks! 

  5. phlit

    Hi Phil,
    I am long 100 May 112 DIA calls and I sold 100 114 against them.  The 112 are just coming in the money and the 114 are now higher than selling price, net good profit. I would like to continue trading DIA monthly so  in a few weeks if the 114 calls are (hopefully) in the money I will have to roll them to June and I will need a cover in place (since I can’t sell 100 DIA calls naked)  but which one? And then I will sell or roll my 112 calls. I think at the end of the option period I will need to establish a long position in the June calls so I can eaisly roll the short calls. What looks best to you considering I want to be doing this monthly?
     
    And lastly how do I best hedge this kind of activity?
     
    Thank you for all your help.
     
    Phil

  6. Phil

    Oops – for example, Monday’s trades that I just finished are formatted like this:

    • GS 2012 $100/145 bull call spread at $30, now $29.30 – down 2%
    • GS 2012 $70 puts at $2, now 1.91 – down 4.5% (pair trade)
    • DIA 566% play (see "Should We Take Profits at 300%?") at .20, now $1.10 – up 450%
    • SSO 566% play at net .30, now $1.10 – up 266%
    • C 2012 complex spread – on target
    • GOOG Jan complex spread – on target
    • GS July $125 puts at $2.25, now $2.31 – up 3%
    • GS May $165 calls at $5.70, out at at $7 – up 22% (pair trade)
    • UNG Oct $7/9 bull call spread at .58, now .78 – up 34%
    • UNG Oct $6 puts sold for .43, now .32 – up 25% (pair trade)
    • XLF June $15/17 bull call spread at $1.25, now $1.41 – up 11%
    • IBM ratio backspread (earnings play) at net $110, now $320 – up 200%

    The idea is just to summarize the play so people have a reference to go back and grab them from the original post if they are still tradable.  Also, note to Members: Many times the BEST plays are the ones that are not working out so far, like the GS $100/145 bull call spread.  If you missed it last week then you didn’t miss anything as it’s cheaper now! 

    I don’t say this often enough but I think we talk about it in the Strategy Section – I think the best way to play our site if you have a limited portfolio and can’t afford to scale in is to wait until we are doubling down or rolling a play that is going badly.  It means you are getting a much cheaper initial entry on a play that moved against us but we have already decided we still like it enough to commit more capital…

  7. edro00

    566% Plays
    "We were prepared to risk $3,000 to make $17,000, risking perhaps 5% of our portfolio on the trade."
    Phil – I don’t think you are being realistic with your post suggesting members typically buy 100 contracts of your recommended plays and you can make $17,000 on a $3000 investment – I sure don’t.  The margin requirements on 100 contracts of DIA 107 puts was $178,676 according to TOS and the BP required for the whole position was $181,676.
    $181,676 is 5% of a $3,633,520 portfolio.
    BTW, thank you for the play, I got out at 100%

  8. pstas

    ERY & Oil
    I swore off SRS after the last time I worked out of my last position with a small profit. I think I will swear off oil plays also but after I get some help working out of this ERY play form a few weeks ago when we were looking for a pullback. Now- not so sure we are going to get it and even if we do, I may be too far out on this to get back to even. Forecasting crude prices is a crap shoot but everything I am reading says higher prices are in the cards. Perhaps, Phil, you have a different take? I gather you had been giving some weight more to domestic supply levels in anticipating a near term pull back?
    In either event, here is my position: I am in the May 9/10 spread for net .45 (now .125); also sold the May 9 puts for .45; (now 1.025).

  9. edro00

    Disaster Plays
    My disaster plays are a disaster – and yes, they were protecting longs which did make money so – how and when do I get out of them??  I am also tight on margin.
    Current postions
    SRS – Loss to date $9331
    (pre-split positions)
    Short  -50 Jul7P @1.40 now 2.00
    Long 20 Jul5C @ 0.90 now 0.48
     
    TZA – Loss to date $7717
    Short -30 May7P @ 0.85 now 1.63
    Short -34 May6C @0.20 now 0.18
    Long 40 Jul6C @0.55 now 0.50
     
    SDS – Loss to date $3660
    Short  -6 Jun31P @ 2.30 now 3.15
    Long 10 Jan27C @ 5.16 now 4.75
    Short -10 May29C @ 1.19 now 0.71
     
    Thanks

  10. edro00

    pstas-
    I have been trading USO successfully by following Phil’s recommendations to buy puts when USO hits 40.50, /CL at 84.50.  I buy 1/4x entry at whichever option has a delta of about .4.  Then I hope to roll up cheaply, I have been able to roll up for 0.35 per dollar.  After a couple of rolls up the USO price comes crashing down and I’m out.

  11. edro00

    Short Stranglers
    Look at the short strangle on August DNDN, say the 31P and 45C- a credit of $11.80 with  BE about 19 and 56 with the stock at 40 – what do you think??

  12. Phil

    566% plays Edro – I have what I thought was ordinary margin in one of my TOS accounts and they are showing me a net $42,714.79 reduction in buying power for selling 100 DIA $107 puts at .42.  Maybe you are not getting the same but you can always cap your downside margin (and risk) by either buying something like the $101 puts for .15, which increases the net on the play to .45 (or .35 depending on where you started) but then you can’t possibly have a margin requirement of more than $90K.  Of course your upside is then limited to $1.55 (344%) but that still doesn’t suck does it?

    There’s also, apparently the issue of what margin is.  Margin is not capital at risk.  If your have 25% in your trading portfolio and 75% in your longer-term portfolio and you are mainly in cash, they you should have margin up the ass sitting on the sidelines doing nothing.  Since we scale in at 25%, 25% and 50% over 2-3 months, there is no possible way we will be needing the margin from our long positions over the length of this trade. 

    If the Dow does dive 1,000 points and we get assigned 100 (or 10 if you are not comfortable with 100) shares of DIA at $107, then the Dow is at $101 and we are out $6 x 1,000, assuming we choose not to roll and made no adjustments along the way.  If the dow drops 2,000 points and we sit there like deer in the headlights with our spread and let the whole thing expire worthless and have the stock put to us at $107 with the Dow at 9,100 and DIA at $91, then our loss is $16,000 on what better be a $100,000 portfolio (as you point out, it couldn’t be much less with that margin requirement) and if that was our only play and we weren’t bearish – we’d be screwed.

    If however, I taught you anything at all and you had some disaster hedges like the ones you are worried about in your next question – then you will make out like a bandit to the downside.  That’s what hedging is, finding a balance between bullish and bearish positions and trying to make money on the moves to the tops and bottoms of the channnels.  When we do break out channels, then we need to pull up the stakes on our wrong-sided bets and start over.  The trick is finding that groove once in a while and riding the wave for as long as it lasts – hopefully being smart enough to get out before you get wiped out…

    I’ll get back to other stuff after I finish my post.

  13. Pharmboy

    Here we go:
     
    Monday & Tuesday, nothing.

    Wednesday

    GILD Jan12 $40 calls for $6.95 and sold May 43 puts for $2.60, now $7.60 and $1.83 – up 9% and 30%
    GILD (from member gel) sold Jan11 $45 puts for about $6.30, now $5.80 – up 8%

     
    Thursday

    DCHT sold May $12.50 puts for .85, now .70 – up up 18% (if put to us, they are a long term hold)
    DIA Buy May $111 calls for $1.27, sold for $1.47 – up 16%
    S sold May $4 puts for .15, now .13 – so small and so long until OPEX, we will call even

    MRK buy Jan12 $30 calls for $6.05, now $7.25 – up 20%

     
    Friday:

    QCOR (new entry based upon FDA review dates) buy Jun $7.5 calls and sold the puts for net .65 – even
    QCOR buy July $7.5 calls for $1.40, now $1.35 – this was adding to our initial entry of calls and puts, down 16% from initial entry with paired puts at .30 still

  14. Pharmboy

    Well, the bullet format did not post…..

  15. Pharmboy

    Great chart post by Fallond Stock Picks.

  16. edro00

    566% Dia Puts
    At 0.42 100 contracts of DIA107P my TOS account shows a reduction of buying power of $174,476 – interesting.
     
    I don’t know how you can wrap the differences in margin requirements into your recommendations but it is really significant.  I find I cannot trade a lot of your recommendations that include uncovered shorts.  I bet there are a lot of others with the same problem.
     
    Unfortunately, my long term portfolio is real-estate which does not provide trading margin

  17. pstas

    edro- USO, etc- I have used some of those plays also but I find its much more of a timing issue and I seem to get in trouble with anything that requires close monitoring.
    On the strangle- DNDN- I only do indexes and lately, that has been difficult enough. I have done strangle on BRK/B for the last 3 months successfully but that stock is more like an index and except for the excitement when it was added to the S&P plus the split, it has been a fairly non-volatile stock. Short strangle on individual stocks is playing with fire , in my opinion. Plenty of good potential payoffs but too rich for my blood.

  18. lflantheman

    Phil…..It would be helpful if you could somehow flag the trades done the week before as "still tradable", so that we understand that you feel it’s still a reasonable trade to enter now, should we have missed it beforehand.
    Margin comment……What I do to learn what a trade will cost me in margin is to put the trade into TOS at a non-tradable level, then look at what margin they are going to charge me.  For instance, if GOOG May 500 puts are selling for 10.00 and I want to know the margin, I just type in an order to sell 1 GOOG contract for 12.00.  It immediately gives me the margin required, but of course the trade will not go through.  After I’ve gotten that information I decide whether I want to do the trade.  If I do I reenter at a reasonable price.  But yes, it does save time if suggested trades also list required margin.  It may vary from broker to broker and trader to trader, but will usually be close enough.   

  19. pyern

    Phil – I have the ’11 XLF 11s at $4.30 (now $5.90), 3/4 covered with the Jun 15s at $0.85 (now $1.90).
    I should have rolled earlier, but I kept thinking that a downturn was around the corner… My choices for rolling seem to be:
    (a) Roll to 1x Sep 16s for $1.50 (for a net debit of $0.45)
    (b) Roll to 1x Sep 16 puts & calls for total $2.30 (for a net credit)
    (c) Roll to 1x Sept 15 puts & calls for total $2.75 (for a net credit)
    I’m thinking of going with (b), but would you recommend (c) as the more prudent choice, given where we are in the market? Any other better way to roll?

  20. yodi

    lflantheman
    Margin comments when you place orders with TOS you do not have to inflate the price you can use the correct traded price after you see the order entree press confirm send at the  window which follows you see your margin and what margin you have left only when you press send the order will be placed. Obviously you do not press the send if you whish to change or do not want to place the order

  21. lflantheman

     Anyone here a tax accountant, or an expert on IRA/ Roth IRA?  As are many, I’m researching the possibility of a conversion this year.  I’ve run into an interesting problem.  My IRA is rapidly increasing in value.  I’ve learned that taxes are computed for the conversion on the day of the conversion.  I would assume I should be getting in gear and getting this done, as increasing taxes are accruing with increasing IRA earnings, but I’m not sure.  Who knows more about this?  

  22. lflantheman

     yodi…..thanks.

  23. Pharmboy

    I am going through charts and ATPG looks very interesting.  I know oil is a sham, but from a chart prospective, this one looks like a cup w/ handle on the weekly.  I will look for entries later tonight or tomorrow.

  24. dflam

    Phil : On 4/19 you proposed (A) a 2012 bull call spread on C  at $5/$7.50 for $.70 & selling the $4 puts for $.69 for  net $.01. I currently have (B) the C Jan. $2.50/$5 bull callspread with $4 puts sold for net entry of $.52 ,now $ .71 Should I close out the (B) position and open the (A) position which seems to be  less risky .

  25. dflam

    iflan : I just went thru a Roth conversion.You can convert up to 4/15 of next year. Keep in mind the IRA dollars converted are added to your taxable income for 2010 to arrive at your tax rate,so you will be  pushed into a higher tax rate. You also can convert  a portion of your IRA and not the entire amount.It does get complicate & I suggest you talk to an accountant. Mine charged me $125 & it was well worth it.

  26. lflantheman

     I believe this article is right on:  seekingalpha.com/article/200705-baidu-wall-street-s-high-expectations-threaten-share-price   I believe shorting BIDU into earnings  would be a reasonable play, using perhaps 1 % of portfolio.  

  27. Phil

    Well, real life got in the way of my plans for today but I finally finished my wrap-up and now I’ll get to these.  The Buy List will have to wait one more day..

    Disaster plays/Edro:

    • SRS is quite the disaster but you can flip the 50 July $7 puts to July $25 puts, or less as they are $2.25 but I think that will be a margin issue for you.  The bottom line is you have $960 in calls and you are short $10,000 worth of puts plus whatever margin with a $9,331 loss.  I think if you want to stay short on CRE (and I sure hope you have offsetting longs because this never seems to work!) then why not just flip to the no-margin Oct $20/28 bull call spread at 3.50?  That has $4.50 of upside so just 20 contracts will win your $9K back if SRS goes up just over 10% without any margin at all.
    • TZA is a true hedge and I’d just roll it along until you get your sell-off.  You may want to wait until you get expiration on the May $6 calls but the $7 puts have very little premium.  I suppose I’d rather see you in the above Oct TZA spread though as you are short the $4s (less margin) and long the $6s so very similar but, as indicated above, you only need to commit about $5K cash and margin to make get as much as $20K back and you only need $7K to be happy.
    • SDS is a small loss and eating margin.  Why not just kill it in favor of the TZAs? 

    Margin/Edro – That’s crazy but mayb my PM leaks from my hedge fund account to my other account?  That would be strange…  If you want to follow a play, however, and have a margin issue, let me know and we can try to be creative (as above). 

    Flags/Iflan – Anything that didn’t make 20% yet is generally "still playable" and almost anything with a loss is unless conditions change so just ask in chat about what you are interested in rather than having me procatively research every single trade for various market conditions that may pop up the next week in case someone might want to take one of them late rather than the new trades I’m trying to line up for the next week.  Good point about TOS margin – Anyone who has TOS, just set up the trade and hit "Confirm and Send" and the little box pops up that tells you your Buying Power Effect (mine defaults to 10 contracts).  Just make sure you do not place the order unless you REALLY want it!!!  You can’t set it up with a free account unfortunately as it does wacky things with margins and fees so you can’t get realistic numbers.   I have complained to them about this as I wanted to use free accounts at TOS as a teaching tool but no way not that they have been bought by Ameritrade.

    XLF/Pyern – I think you are fine.  Don’t think of it as a loss that needs to be fixed, think of it in terms of what you will accomplish from now through Jan.  There are no Julys or Augs yet but there will be if you are patient.  The June $15s are currently offering you good protection against a downturn and you can roll the uncovered 1/4 of the Jan $11s to 2/4 the Jan $14s at $3.25 so about .60 more and you then are just 3/5 covered and leave yourself open for an easy 2x roll of the callers to at least the Sept $17s if we keep going up and perhaps the July or Aug $17s first.  So .60 spent on 1/4 of your longs and another 1/4 added at around $3.25 later and you get to roll all the callers up $2 for free and you’ll have 3/6 $11s and 3/6 $14s that are $6 and $3 in the money to the callers.  On the other rolls, I think that will depend on what happens in the financials between now and June.  If we break over $17 and all looks strong, then perhaps the Sept $17 calls and $15 puts as a full spread.  If we sell off, you’ll be really glad you didn’t jump the gun…

    Someone here must be an accountant, right?  I see so many people looking for good options accounting advice here that I have to think it would make a nice specialty niche…

    C/Dflam – Well I’m always a fan of taking profits but keep in mind that the drawback of more time is more time for something to go wrong too!  I think the Jan spread is on target for a $2.50 return and your strike is way down at $5 to make that $2.50 so cashing it out for .71 isn’t the way I’d go.  If you want to knock .35 off your net you can just roll the puts to 2012 but that $5 caller is all premium and your $2.50s are almost all intrinsic so it’s a shame to take that and turn it into pure risk premium with an additonal 12 month wait. 

    BIDU/Iflan – Scary but worth looking at next week.

  28. gel1

    Phil
    I hope you had an enjoyable weekend and time to relax. Next week is going to be very busy with so many companies releasing their earnings. Have you identified the best plays in advance of earnings, and the direction the stock might move after the announcement.?

  29. pstas

    Phil- ERY question posted earlier?
    ERY & Oil
    I swore off SRS after the last time I worked out of my last position with a small profit. I think I will swear off oil plays also but after I get some help working out of this ERY play form a few weeks ago when we were looking for a pullback. Now- not so sure we are going to get it and even if we do, I may be too far out on this to get back to even. Forecasting crude prices is a crap shoot but everything I am reading says higher prices are in the cards. Perhaps, Phil, you have a different take? I gather you had been giving some weight more to domestic supply levels in anticipating a near term pull back?
    In either event, here is my position: I am in the May 9/10 spread for net .45 (now .125); also sold the May 9 puts for .45; (now 1.025).

  30. gel1

    Phil/XLF
    I agree with your sentiment  – if it breaks 17.00, then it is on its way to 22.00. The upper channel of the Bollinger band is 17.25, so this breakout would be very bullish. It is up 11% this year, but the financials are really the primary driving force in the correction from last March, The big components in XLF are JPM at 10%, WFC at 9.5% and BAC at 10.2%. The one to worry about is Goldman Shafts, but it only 4.8%, and the bad news is not really that bad (yet).

  31. ekor

    Phil,
    Did I miss something this week re: the disaster hedges ? Should I roll the Oct BGZ 11puts down to 10, & maybe buy back the Jan12 TZA 5puts (4s not available).
    Also, how about Jan11 EDZ 35/45 call spread @ 2.65, + selling the 25 puts @ 2.35 for a net .30 with 2450% upside, or just the bull call spread to go with the Jan 12 EDZ 45/70 spread.

  32. phlit

    Hi Phil,
    I am long 100 May 112 DIA calls and I sold 100 114 against them.  The 112 are just coming in the money and the 114 are now higher than selling price, net good profit. I would like to continue trading DIA monthly so  in a few weeks if the 114 calls are (hopefully) in the money I will have to roll them to June and I will need a cover in place (since I can’t sell 100 DIA calls naked)  but which one? And then I will sell or roll my 112 calls. I think at the end of the option period I will need to establish a long position in the June calls so I can eaisly roll the short calls. What looks best to you considering I want to be doing this monthly?
     
    And lastly how do I best hedge this kind of activity?
     
    Thank you for all your help.
     
    Phil

  33. Phil

    Good morning!

    Relaxing/Gel – What’s that?  I did have a good weekend though with plenty of kid time, which is my favorite kind of time.  I don’t like to "pick" earnings in advance – it’s kind of like picking a wave in advance, you have to let things wash over you and then one will eventually present itself.  It depends on the day, the sector, who else is reporting, the economic news that will accompany the report – whether it’s an AM or PM announcement (how much time the market has to digest) and, most importantly, what the pre-earnings run looks like.  That’s why I usually wait until the afternoon to decide what to play the next day but it is very helpful to get suggestions from you guys as I sometimes get distracted doing too much research on a company or sector (you’d be surprised how many things I reject before I make one pick).

    ERY/Pstas – Sorry, sometimes I miss them.  Here’s my take on oil – one day, fundamentals will matter.  Contango is creeping back into the market because storage is at ridiculously high levels and if Summer Driving disappoints – look out below.  I was very tempted to short oil last night at $85.50 before I went to bed but that was too scary.  Looks like we’ll get another crack at it this morning, though.    Your $9/10 spread is not looking good but they were free, your real problem is how to not pay back your putter.  Keep in mind the $9 puts are only "worth" .85 at the moment so it’s a little early to give up .17 in premium but I would take the exit of rolling to the Oct $11s at .95 (+.70) while you wait for the caller to expire (probably get a new caller next month) and roll the puts to July $8 puts  at .85 (maybe a little more than 1x) and you can also hedge the whole bet by selling some USO $39 puts (now .45) for .75 if we get a dip as you can’t lose both and USO is easy to roll along. 

    About 16 million barrels of unused storage capacity remains around Cushing, Barclays Capital estimates. Should that fill, producers will need to halt operations because there will be no place to put it. A wider contango, or price gap between oil for delivery now and in later months, means traders can potentially earn more from storing crude, and in turn means tank terminal owners can charge them more for the service.

    “In periods of weak refining activity, either due to maintenance or weak oil demand, you have greater chance for the more expensive, lighter crudes to back up in storage at Cushing,” said Harry Tchilinguirian, head of commodity derivatives research at BNP Paribas in London.

    Total U.S. fuel demand, averaged over four weeks, fell 1.1 percent to 18.9 million barrels, the biggest decline since the week ended Jan. 8, the government reported April 21.

    XLF/Gel – Just be careful because I still think there is a lot of hidden danger on the books and then we may get an explosion of interest rates as well as the Fed stopping the free money train and the possibility the the Fed reversing their MBS purchases may not work out well and will force the banks to mark to reality.  Other than that, sure $22 is good!

    Disasters/Ekor – I like the BGZ roll if you can get it for .55 or less (always good to buy $1 of intrinsic for half price).  Not sure what you mean by TZA Jan $4 puts not available as I do see some (131 outstanding, so thin) but the $5s were going for .95 last week so if you can buy back for that price and be patient to sell again on a pullback, I do like that idea.   I like the EDZ play a lot, I always like those plays because you’re barely paying for them and you can roll the putter down and out.  $45/70 is looking for a much bigger disaster, of course.  We don’t want to have too many eggs in one basket. 

    DIA/Phlit – It’s tough for me to look at trades I don’t believe in that way so understand I’m coming from nerves when I say that I think you should protect your profits by rolling to July $115s now (about even) which still have a better delta than the $114 caller but won’t get as killed on a drop-off.  That way, the roll becomes your hedge and you still have a clear path to roll the caller to June $116s and, presumably, July $118s – so, if the Dow keeps going, you actually widen your gap and, if it doesn’t, you wipe out your caller without getting wiped out yourself and you can then reload, roll down or whatever seems right at the time. 

    I am trying but I keep finding more bearish plays than bullish ones when I do reserch.  Maybe I should give up and make a "Sell List" instead?  Let’s start with BC (Boats and Bowling) – they lose $2 a share and are back near $20, where they seriously broke down in 2007 when Wall Street traders were still tipping marine gas attendents with $100 bills.  If all goes really well next year, they should make a penny per $18.85 share.  They missed 3 of the last 4 Qs and there was a lot of insider selling at lower prices.  I know boat people, you can’t sell a used boat for more than half price right now – I’ll be very surprised if BC doesn’t have some serious price pressure.  I doubt exercise equipment is doing much better and they "only" have 100 bowling alleys and that’s a bottom 90% thing so I’m dubious there too.  Earnings are Thursday and I like selling the June $20 calls for .95 and buying the $20/17.50 bear put spread for $1.20 for net .25 on the $2.50 bear spread that’s $1.15 in the money.  Obviously, the danger is a blowup upside and I’m looking at Sept $22.50s as an even roll out and we can momentum play the Jan $25s to stop the bleeding if the 20% shorts get squeezed

  34. Phil

    By the way – for anyone with margin issues – Just don’t take the naked leg.  Problem solved.  In the case of BC, the Bear Put Spread is $1.20 and has a 100% upside and is $1.15 in the money – It’s not 1,000% but if you dont’ have margin you probably shouldn’t be risking your money on 1,000% plays because they ARE risky…

    A simple bear put spraead or bull call spread that is at least a month away and has a chance to double is, in itself a hedge because you have a 100% upside and an expectation of not losing more than 50% if the move goes against you.  If you constantly take plays that have 2:1 risk/reward ratios – then you only need to be more than 1/3 right to do quite well

  35. phlit

    Thanks Phil,
    How about giving me a bearish play on the DIA.
    Phil

  36. ekor

    Phil,
    Hard to be bullish, I agree. XHB / market is like climbing a ladder sinking in quicksand. It’s Nuts.

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