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GDWheee Friday – Could be a Wild Ride!

Attention ladies and gentlemen:

The stock market will soon be leaving the station, please secure all personal items, pull down the safety bar (our Disaster Hedges) and keep all body parts inside ride at all times.  Well you know you can follow all of the safety instructions and STILL get smacked in the face with a black swan (like our friend Fabio, pictured here) which is why we elected to get back to cash ahead of this report.  The markets were just too insane this week and who the heck knows if Europe will still be a Union on Monday or what the GDP number is going to be (but I do think it’s a miss). 

Since our biggest weekend fear is financial panic in Europe, our cash US dollars will become more valuable in a crisis and if the market drops, all the better as we can ride back in and do some bargain hunting.  If the market takes off on good GDP and Greece is "fixed" and Spain is "fixed" and Portugal and Ireland are not really a problem (especially for MS and JPM) and the CRIMINAL charges against Goldman look beatable and and the Financial Reform Bill doesn’t disrupt the market with a disorderly breakup of the big banks and the Bank of International Settlements Report continues to be ignored and the run on the Greek banks doesn’t spread to other STUPID counties – well, then we can BUYBUYBUY because, if all this doesn’t matter, then it’s very likely that the entire planet Earth could explode but Wall Street will keep ticking higher.

Yep, I can’t wait to ride this baby mindlessly higher!  After all, what can go wrong?  BIDU is ONLY $710 a share, BLK is $190, CMP is $76, GOLD is $84, BUCY is $65, FAST is $56, MMM is $90, FOSL $40, F $13.50, DECK $149, SHOO $55, TPX $35, LZB $14, CTB $22, NOG $16, CEO $176, FTI $75, CLB $150, CIB $46, BBD $19, TD $75, BCA $45, BAP $87, ITUB $22, EDU $94, WYNN $93, FFIV $72, CY $14, CREE $77, UPS $70, UNP $78… 

These were stocks I was looking at last week, when I told members I thought it was easier to construct a Sell List than our usual Buy List for this market but, if we’re heading to 1,350+ on the S&P, then all these guys should be heading to all-time highs as well.  Why not?  They’re stocks and that’s good enough for any self respecting BuyBot, isn’t it?

Of course we shorted BIDU yesterday along with OIH (on that nat gas report), and we are still accumulating EDZ and TBT (of course!) and initiated SMN again but we went long on DVN, MON, VLO and SPWRA while we celebrated our DNDN plays, something we’ve been playing for years now but, as recently as Monday, we still found ways to have fun as my trade ideas for Members were:

Keeping in mind that DNDN is pretty much a one trick pony and that the approval is mainly priced in and that they could go to zero, I think the prudent trade is the 2012 $20s at $25, selling the Jan $45s for $10 and buying the Jan $20 puts for $3.  That puts you in the $25 spread for net $18.  To the upside, you can roll the Jan $45s to the 2012 $55s (now $9) so $35 possible upside.  Flat you wipe out the Jan callers and you are still $15 in the money with a year to sell calls.  Dowside you have puts that will give you a profit if DNDN goes bust or if (even better) if there is panic selling on a delay. 

Here’s another interesting DNDN play.  It’s only $6.15 for the Jan $25/35 spread and you can buy 2 of those and sell 1 $55 call for $6 and that puts you in for net $3 on two $10 spreads so $14 of upside between $35 and $50 before you owe the caller a dime.  $64 is where you would start to lose money to the upside so break even is $28-$64.

Most of us are in DNDN stock at $5 of less so these are "gravy" plays as we grew confident this week we’d be getting an approval.  If you want a great read on the DNDN Odssey, check out Michael Milken’s summary of all the nasty manipulation around DNDN.  A very satisfying to read now that we’re up 1,000% but, at the time, I was none too happy with Cramer and Feuerstein as they relentlessly tried to stampede investors out of the company

8:30 Update:  Oops, back to work!  The GDP for Q1 came in at 3.2%, just a little bit below expectations and quite a bit down from Q4s 5.6% pace.  Consumer spending was up a whopping 3.6% (adding 2.55 points to GDP) and Business Inventories are up 13.4% (adding 1.57 points) so I sure hope that consumer number keeps up or we’ll be overfilled at the warehouse!  According to the BEA: "The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased.  The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports."

Something about this data bothers me as Real Disposable Income (income adjusted for inflation and taxes) was flat and savings only dropped from 3.9% to 3.1% so where did the consumer spending come from?  I’ll have to take a closer look at this over the weekend but the markets certainly seem happy ahead of the open (8:45) but there’s nothing in this report that makes me regret cashing out bull plays into yesterday’s rally.  The WSJ pointed out last week that Mark Zandi had said as much as $60Bn worth of consumer spending was the result of money "saved" by 5M people who are living in their homes but have stopped making their mortgage payments – maybe he’s onto something because this money seems to have just magically appeared otherwise

The housing sector does indeed look weak here, with Residential Fixed Investment decreasing 10.8%. Home Sales and Construction fell after the expiration of the government tax credit for first-time buyers but a second tax credit kicked in to help the market this spring and should help GDP in the second quarter.  Federal Government spending also helped at it increased 1.4% for the quarter.  I wish Zandi had calculated how much business spending is boosted by not paying their rents or getting rent reductions – check your local paper – you can sign a 3-year business lease and get the first 6 months for free – that’s going to free up some cash too!  Oh, silly me, I forgot to put VNO at $86 and BXP at $83 on my sell list! 

Not on anyone’s sell list is New Home Sales, which JUMPED 27% in March but, as Cap pointed out in Member Chat, that’s up 8,000 homes from last March or 5 homes per day per state.  How many realtors is that actually going to feed?  In fact, 39,000 homes is 68% LESS than March 2004′s 123,000 and 69% LESS than 127,000 in March 2005 and 63% LESS than 80,000 in 2007…  You get the idea, we are only celebrating mediocrity in both the markets, with their silly earnings comparisons, and in our GDP as we comp to a disaster.  We’ll just have to see if this is a "sell on the news event."  As I said at the top, we don’t care, we’re back to cash!

Asia had a nice morning keying off our rally with the Hang Seng gaining 1.6%, back to 21,108 but the Shanghai needed a 50-point stick into the close just to gain 2 points for the day – that must have cost someone a LOT of money to paint that picture…  The Nikkei bounced back 132 points (1.2%) and got back over 11,000 to 11,057, pretty much just following the Dow around.  Japanese Consumer prices continue to fall for the 13th consecutive month, dropping 1.2% in March as unemployment ticked higher

Europe is flat to down this morning, just ahead of our open now and I think the plan is to bail out Greece so Greece can bail out Spain who will bail out Portugal, who can then bail out Ireland who will then rejoin the UK and take over all their banks and then un-join the UK and then go completely bankrupt (sorry Ireland!) as they are used to depressions over there (have you read Joyce?) and they have really good beer anyway, which is a nice consolation

Like last Friday, we’re going to let the markets run but unlike last Friday, I’m didn’t wait until the weekend to decide to get out.  We’ll see if I was right…

Have a great weekend,

- Phil

 


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  1. morxlntway

    edro00 – thanks for the link to thinkscripter but don’t think i am looking at what you described. I found a forum which looks good, but is that what you were directing us to? didn’t see the tick molester

  2. iprosper20

    a good day to short fcx a bit? thanks,

  3. edro00

    AAPL roll
    You asked to be reminded about the AAPL earnings play 2x roll, the May 260Cs to the ?280s covered by June 300s.  The premium on the 260s is less than 25%.

  4. edro00

    Thinkscripter -
    The script is under Forum:
    User Contributions: Studies
    :TICK Interpretation Indicator
    Interesting paste – I don’t know why the link doesn’t work

  5. edro00

    Thinkscripter
    The script is under Forums
    User Contributions: Studies
    TICK Interpretation Indicator
     I don’t know why the link doesn’t work

  6. tradansh

    WFR down 15% after earnings.

  7. jomama

     Selling GS Calls against GS Leaps has been awesome.  The premiums are downrights juicy and the stock moves like a rat in a coffee can.  I have 170 GS Leaps that were initially set as a diagnal vs 180.  These were bought back a while ago.  So now i just keep selling 165 front month calls when GS goes to 158 and i buy them back when GS is around the low 150′s.

  8. edro00

    Thinkscript
     
    I don’t know why the link doesn’t work but it’s under Forums:User Contributions:Studies:TICK Intrepretation Indicator
    It is easy to add a script in TOS – in the Chart window go to Studies:Edit Studies: and select either 1) Import  – if you have downloaded a .TS file or 2) New – which allows you paste a thinkscript you have copied to your clipboard

  9. dmankoff

    phil, are you suggesting that I roll down the long calls on TBT now from 49 and 48  to 46 and 42 ?  it’s adding a lot more money to the trade, so I don’t quite understand that rationale, since you told me to limit the money i have in the trade, please advise , thank you…. David

  10. lolobear

    Phil, why is oih down so much when crude oil is up?

  11. Phil

    Good morning! 

    Round and round she goes, where it stops – Goldman knows…

    Approximate recent tops are:  Dow 11,250, S&P 1,218, Nas 2,525, NYSE 7,750, Russell 746

    "Must Hold" levels are:  Dow 11,100, S&P 1,200, Nas 2,450, NYSE 7,600, Russell 715

    As long as the NYSE is not holding the "must hold" level – we are still in trouble.  

    Great opportunity to sell oil short in futures at $86 this morning – don’t be greedy and absolutely out into the weekend even though possible Euro collapse makes shorting commodities very tempting.  I still like selling USO $41 calls, now $1.29 as my outlook there hasn’t changed after reading the GDP report.

    I love all of our Disaster Hedges, make sure you have at least one, even if you are in cash – could be fun! 

  12. salvum1

     Thanks Phil again.
    Just got back from my time machine.  Phils win in 5.

  13. edro00

    DNDN Earnings play
    The DNDN earnings play from Monday, slightly modified, still works.
    Buy 2x the Jan11 40C/50C vertical for about 6.35 sell 1x the Jan11 45P for about 5.00 puts you in a 10 spread for about 3..00 and you are 100% ITM

  14. jomama

     I am surprised Apple hasn’t hyped the 3G Ipad that is being delivered to me this morning?  I know they already had the ipad release, but they really could have milked the 3G

  15. jcedens

     Pharm,
    How would you take an entry into ARNA and DCTH? Calls or spreads or stock?

  16. morxlntway

    what year is that?

  17. Pharmboy

    QCOR now is really moving.  This is sooo much fun.

  18. tradermoksha

    Hi Phil,
    i’m a bittttt worried here in italy about my euro cash holdings cause Italy is not so distant from Greece..don’t know how sure are the italian banks…any suggestion/thought are greatly appreciated. thanks
    ps. any italian here?would be nice to talk with italian traders of this website.my email: moksha@libero.it ciaooo

  19. RMM

    Phil: you always have DIA protective puts, now you also have disaster hedges,
    you say have at least one you gave DXD (DOW30), SDS (S&P500), TZA (SmallCap), TBT (Treasury), EDZ (Emerrg.Mkts),
    with this variety: which one is the one to have ?

  20. Pharmboy

    ARNA = many of us sold the July $3 P for 50c for an entry.  IF you buy here, make it a 1/4 entry, and you can still sell the Ps.  The DNDN story makes me wonder if the hedge funds are not doing the same to ARNA.  Does not make sense that they woudl be $3, and OREX and VIVUS are higher in price for generic drugs. 
     
    DCTH – I would wait to see how the market plays out today, but selling the May $15 P for $1 (let it come to you would be an OK entry).  If it falls, it can be rolled down.  Also make sure it is a 1/4 or 1/2 entry.

  21. craigzooka

    WOW, I think ARNA is getting the PSW bump today.  Sorry for front running you guys as I bought my shares at $3 on the last dip :)

  22. edro00

    AAPL roll
    Nevermind – missed it – next time AAPL gets over 270 we need to roll to 2x the June 280s

  23. tradansh

    Pharm – Thanks on QCOR. Up 100% on my position. Wondering if I should get out now or wait for some more move up.

  24. Pharmboy

    Trad – that is up to your risk tolerance.  Take 1/2 off, the rest are a free ride.  I am standing pat.

  25. tradansh

    DCTH – Seems like in a downtrend right now. Might make sense to wait to sell puts. But then, these stocks can pop anytime, so most TA is useless.

  26. Pharmboy

    Remeber ONTY?  They were in my first post, and then we discussed them a few weeks ago. IF you like the DNDN story, these guys are in a similar space.  They were hit on the share price ’cause they had to stop their trials due to an infection, but it was/is my belief the infection is due to the other drug these patients are on, and not the ONTY application.  To make a  long story short, they are up10% from where we bought in (options never filled so we bought the stock).  I think they have more room to run.

  27. tradansh

    ARNA – Dang, 5% move today. What’s going on?

  28. jomama

     I think GS is ripe for a reversal today – morning action based on BofA and S&P downgrade.  They will parade analysts (who have GS stock) to talk up GS and magically we have a reversal.  Like you say phil, we know the game is rigged………

  29. craigzooka

    tradansh, Like I said, its the Phil’s Stock World bump!

  30. Phil

    AAPL/Edro – I’d hold the callers for weekend protection at the moment.  Thanks on script by the way!

    WFR/Trad – Those will be a nice buy for us next week.

    GS/Jo – LOL, glad you are having fun. I can’t believe people keep buying this thing as if it’s all going to go away. 

    TBT/Dman – Just the $46s for now, the $42s are your escape plan if they go lower (and they very well might on Monday so you may want to wait).  The second stage was in conjunction with selling calls to someone else and turning it into a vertical spread.  Go back and read what I wrote. 

    OIH/Lolo – RIG is a very big component and Nat Gas inventories are totally out of control, which means we could start seeing major production cut-backs in the next couple of months.  The US can only store about 4Tn cf of nat gas and we’re pretty much there.  They may get saved as everyone turns on their swimming pool heaters next month but still a lot less pools than normal years.

    Phils/Salvum – I’d better get tickets then!

    DNDN/Edro – Nice catch.  Amazing that you can still do that!

    Euro/Tradermoksha – You are in luck!  The EUO (ultra-short Euro) has attracted a lot of option activity so you can protect yourself from a 10% drop in your currency with the sale of the Aug $20 puts at .60 (EUO at $21.36), which has about $3K net margin for selling 10 and is very rollable to lower strikes.  You can use that money to buy $21/25 bull call spread at $1 so net .40 to have $4 of upside.  Thats about $400 of cash and $3K in margin to give yourself $4K of upside.  Keep in mind this is INSURANCE and very possibly won’t pay off but you can roll the puts and there’s great support at $19 (rising 50 dma) and the only reson EUO would go down is your Euros keep going up so if you take 5% of your cash and put it in this trade, it pays 20% if the Euro drops 10%.  Don’t forget – if things stabilize, you can just close it for a (hopefully) small loss.. 

  31. craigzooka

    I really wish the EDZ options were a little more liquid.  I have gotten used to 1 or 2 penny spreads instead of this 40 cent nonsense.

  32. judahbenhur

    SS, Held that 73.25 line again. Bought some calls right there.

  33. EricL

    GDX with a nice breakout. I’d like to see a pullback and test of support around the 49 area and I’ll buy more.

  34. RMM

    EriL: what charting do you use ? and use what minutes?

  35. EricL

    Gold.
    It’s hard not to be bullish about gold long-term; it’s one bull market I actually believe in. Gold went up in the face of dollar strength recently, so obviously people are buying it for reasons other than to hedge a weak dollar. I think they are buying it because they know that nearly every major nation is carrying an unsustainable amount of debt.  I think we could see gold at $3-$4000/ounce in the years ahead.
     
    I’ve been adding to my position although a pullback is due. I plan to stay long unless there is a clear failure of 1100, at which point I would cut back significantly. Also, I would cut back temporarily at 1225 to see if it could break out.

  36. EricL

    RMM,
     
    I’m really looking at past areas of support: past tops, past bottoms, and areas of congestion. I also watch the 5, 50, and 65 DMAs, but I personally prefer just simply looking at where buyers have bought and sold in the past. There is almost always at least some resistance or support there.

  37. RMM

    EricL: what charting software ?

  38. yodi

    Hi Phil having the Jul DIA mattress naked are we looking to sell any May putters possible 110p ?? thanks

  39. gel1

    Jo
    Your graphic anology "like a rat in a coffee can" started my day with a good laugh…. So apropos!   I do believe they are the largest trader in their own stock fighting against so many other hedge funds. Their enemy at the moment might be larger than they can deal with as far as stock valuation ( US government )

  40. yodi

    Phil what is the vertical call play on MON now thks

  41. philisit

    Anyone comment lately that SRS is below $5/share split adjusted??

  42. kustomz

    Major selling in GILD past 4 days and its holding up well….very close to breaking down here

  43. Phil

    Disasters/RMM – You shouldn’t have much DIA puts if all you are protecting is cash!  As to the others, it depends where you feel you have the most downside exposure.  TBT protects you from inflation and dollar devaluation and the others are obvious.  I think EDZ is a fun bet right now and I HOPE TZA doesn’t work because our economy is screwed if they small-caps start really failing.  The Dow is likely to give you the sharpest downside move but they’re a bit redundant if you already have a comfortable amount of DIA spreads…

    ARNA/Craig – Great call!

    QCOR/Trad – That was a great call by Pharm (but so many are I neglect to point out!) and "When in doubt, sell half" applies to QCOR.  If you take 100% on 1/2 and set a stop at 50% on the rest, you make at least 75% without limiting your upside on the other 1/2. 

    ONTY/Pharm – I do like them too.  Mellow entry is Nov $2/5 spread at .95, selling $2.50 puts for .40 so pretty much you are stuck with them at net $3.05 if they trade down but a nice 350% gain on cash if they hit $5 and you are $1.50 in the money to start.

    GS/Jo – I wouldn’t do anything more than day trade them.  I have my long puts on them (looking for zero) so I’m just watching the fun now. 

    EDZ/Craig – You just have to put in a GTC at your price and walk away.  The way they zig-zag, things tend to fill if you give them enough time. 

    Gold/Eric – I think the Europeans are flocking to it now.  My favorite play on gold (other than the GLD spread we did earlier in the week) is ABX, who at least earn money in addition to having more gold than Fort Knox.  You can pick up the 2012 $35/55 bull call spread for $8.20 and sell the $35 puts for $4.10 so $4.10 on the $20 spread with a $15.90 upside (387%) against not to much margin ($350 a contract according to TOS).  I’d rather buy that than bet pysical gold gets to $3,000+ as it’s already $9 in the money and ABX was $53 before the crash when gold was cheaper and oil (their costs) was higher.

    DIA/Yodi – Yes a 1/2 cover with the 110s (now .95) is prudent.

    MON/Yodi – Here.

    SRS/Phil – I try not to look anymore.  I get too tempted to play it (notice no real estate disaster hedges as I now suspect the entire world could end and IYR would still go up).

  44. judahbenhur

    SS, If you’re around, I’m just curious when your 5-min candle drill would have given you a trigger — TZA at 9:45, TNA at 10:15 or TNA at 10:40?  This may be a screen play day, but it doesn’t feel like it to me.  I’m taking half off if it doesn’t hold here.  Looks more like a down day screen play at this point.

  45. jburgess

    Phil, you mentioned to Jo that you have long put on GS. What are they?

  46. gel1

    Eric/Gold
    I am glad to hear you believe gold has a "long term" positive outlook. I thought I was the ony "bug" on this board. Gold has a long way to go before it reaches its previous high of $875 so many years ago. Adjusted for inflation against the USD, gold should be trading today for $2200. Factoring the "out of control" debt/GDP ratios of so many economies, and the looming bankruptcy posibilities of sovereign debt, I think a valuation of  gold could easily reach $5,000/oz. There is absolutely no way many of these economies can ever pay back their debt, uncluding the US. If the US debt were to spread evenly for each US citizen it would come to $350,000 ( this debt includes the unfunded obligations). Hyperinflation is the only solution, other than total default. Either way, we will see $5,000/oz.

  47. morxlntway

    what’s with MEE this morning?

  48. fprat

    Phil:
    On the Euro/Tradermoksha comment can you elaborate how it will pay out 20% on a drop of 10% on the EURO, that will put EUO below 19, can’t follow it.

    Thanks

  49. edro00

    Judah – In yesterdays post I suggested you look at using TOS’s study WoodysCCI for entry/exits and tick_molester for trend.  Don’t know if you saw the post but do look at them re today’s action.

  50. EricL

    RMM,
     
    I just use ToS’s charts.
     
    gel,
    yeah. Gold’s strength against the strong dollar this year has been the ‘tell’ for me. Still, we have to see it clear 1225 and hold before getting too excited.

  51. balancenv

     edro00, you’re using 1 or 5 min chart on iwm? 

  52. RMM

    EricL: how do you use candles in the charts to trade ?

  53. judahbenhur

    Edro, Yes, I looked last night, but I didn’t try to put them into practice this morning.  Thanks very much for the suggestions.  I’ll take a more careful look over the weekend.

  54. qcmike

    Phil
    what month do we roll the MEE 45 put to ?
    Thanks

  55. jomama

    jburg – i think phil recommended/had a play on buying 2012 70 or 50$ GS puts for 2$.  Something like that.  It’s kind of like putting 100$ on green on the roullette table to continue the "casino" analogy that i keep hearing.

  56. jossietx

    Phil, what do you think about BP? Time to buy?

  57. Phil

    Oil heading up for a possible re-load at $86 after a great run down to $85.20 but let’s make sure this little rally stops first as we don’t want to fight a rising tide

    GS/Jbur – That was from way back on the 19th, when we took the 2012 $70 puts for $2, which are now $3 and we paid for them with an upside mo play that’s gone now so they are just free lottery tickets.   My upside cover on GS was the 2012 $100/145 bull call spread, now $26, as the logic was GS either dies or they’re fine and you get $19 profit in 2012 and that pays for 5 of the puts and leaves room for upside profits too. 

    MEE/Morx – Word is they are offering $3M settlements but also that the roof had support issues so they could be on hook for more but I love this play on the dip, selling June $38 puts for $3.50

    EUO/Fprat – EUO is ultra-SHORT on the Euro, it rises 2x to a Euro drop (in theory)

    Buh bye BXP, bye bye VNO – keep an eye on those kids – if they break, down we go!

  58. edro00

    balance -
    5 day, 5 minute seems to get the pivots right on .. IWM been staying around the PP for the last hour

  59. gel1

    jburgess/GS
    I have the GS July $100 long puts.. so far they are doing well. One answer for Goldman in this scenario is to let the stock fall and then come in and buy their shares on the cheap, and eventually go private to partnership status.

  60. EricL

    RMM,
     
    I’m not a big candlestick guy, tbh. If I see a lot of tails on any time-frame (repeated failed attempts to get higher or to break down) I consider it a sign of a likely top or bottom on that time-frame. I’ve found that one to be reasonably reliable. Really though, looking at prior points of support (places where buyers repeatedly stepped in) or resistance (repeated selling) or congestion areas are about 90% of what I look for, usually on the 1- or 3- month daily charts. It’s a ‘keep it simple’ thing.

  61. tradansh

    DNDN is like an energizer bunny. Just touched 57.

  62. balancenv

     edro, thanks!

  63. edro00

    SPG earning BMO today eps expected 0.84. actual 0.03
     
    This is how the MSM is reporting it
    NEW YORK (Dow Jones)--Simon Property Group Inc. (SPG:$91.53,00$-0.89,00-0.96%) , the nation’s largest mall landlord, reported stronger-than-expected first quarter earnings Friday as more shoppers spend money on discretionary goods.
    Simon Property (SPG:$91.53,00$-0.89,00-0.96%) reported a profit of $15 million, or 3 cents a share, down from $113.3 million, or 45 cents, a year earlier. The latest results included 48 cents in debt-extinguishment charges. Excluding the charges, funds from operations, a key profitability measure for real-estate investment trusts, fell to $1.41 from $1.61 as revenue increased 0.7% to $925.1 million.

  64. RMM

    EricL: txs a lot

  65. leonf675

    Phil, what are your thoughts on SGG?

  66. salvum1

     PHIL/ picks
    Ok, here is a question that has been at me: how do you choose which setups to take and which not to take?  I mean, you list a ton of them and my account can’t do all so what do you suggest a good screening process is for mere mortals such as me that aren’t dealing with 7 figure accounts?  I know we shoot for delta neutral but….what else?
    thanks

  67. EricL

    EVVV, which I mentioned Wed, is up over 20% since on good earnings. I’m sticking with them, but rolling my 10 strike June calls up to Sept. 15s to take some profits.

  68. Peter D

    BIDU, hey those callers and putters have started to lose value.  Good for the shorts.  Gotta run to meetings!

  69. balancenv

     edro, is the cci setting just default from TOS? 

  70. RMM

    Phil: my BIDU jun750 caller: 14 % green, will BIDU fall further  ?

  71. edro00

    Balance -
    Yes – the default,  there are several CCI studies – like Woody’s because it’s colorful :-) and incorporates the MACD

  72. RMM

    ssdirk: in this quotetracker: there are 3 types of charts, is it the BIG Chart you use ? what timeperiod and frequency  with candlesticks ? How do you use candlesticks for trading /
     
    TXS for info.

  73. balancenv

    edro, indeed it’s colorful, Thanks for the tips.

  74. stjeanluc

    MEE – Massey Energy says it is aware that FBI investigators are interviewing witnesses but also that it is unaware as to the nature of the FBI investigation, according to Bloomberg, citing an emailed statement.     

  75. stjeanluc

     MEE - The FBI is examining the possible bribery of officials at the agency which oversees the mining industry and possible criminal negligence on the part of Massey Energy, the radio service reported, citing unidentified sources familiar with the investigation.     

  76. edro00

    Balance – there is an extensive writeup on WoodysCCI on the web somewhere

  77. Phil

    MEE/QC – Oh I like 2x the June $38 puts as an even roll. 

    BP/Jossie – Next week, yes.  We want to see if we survive the weekend first. 

    Talking things up:  European Central Bank policymakers criticize S&P for being too hasty to downgrade Greece, considering that negotiations on aid were ongoing. S&P says it has a mandate to act in real time, but ECB’s Lorenzo Bini Smaghi says "This is (the) limit of ethical good practice and it will lead to a loss of credibility for these rating agencies."  The Greek rescue package will be finalized within days, says EC President Jose Manuel Barroso, and will be sufficient to prevent a European debt contagion. 

    Sources say Greece has agreed to the outline of another €24B ($31.9B) in austerity measures that include public sector wage freezes and another VAT increase. The aim is to cut Greece’s budget deficit by 10-11% of GDP over the next three years.

    BOJ leaves its interest rates unchanged at 0.1%, as expected, and forecasts consumer prices will turn positive next fiscal year, with the core consumer price index expected to inch up 0.1%.

    New anti-dumping duties on hundreds of millions of dollars of Chinese paper products could further inflame U.S.-China trade ties.

    Actual good news: Chicago PMI: 63.8 vs. 59.9 expected, 58.8 prior. Production 63.1 vs. 60.5 prior. New orders 65.2 vs. 61.8 prior. Order backlog 61.4 vs. 54.3 prior.

    GDP Q1 (Advance): +3.2% vs. +3.3% expected, +5.6% in Q4. PCE chain-weighted price index +0.9% vs. +0.8% expected, +0.5% prior. Core PCE +0.6% vs. +0.5% expected, +1.8% prior.

    Q1 Employment Cost Index: +0.6% vs. +0.4% expected, +0.5% in Q4. Yearly employment costs were +1.7%, up from +1.5% in Q4.

    April New York ISM Business Survey: 62.2 vs. 60.6 in March – the eighth straight month above 60. Future optimism remained bright, but not as blinding as in recent months, with six-month outlook at 75.9 from 88.2 in March. Employment advanced to 61.8 from 55.1; firms are hiring at the quickest pace since at least Nov. 2007.

    Apr. Reuters/University of Michigan Consumer Sentiment: 72.2 vs. 71 expected and 73.6 in March.

    Make what you will of thisSentiment split: Institutional investors are dangerously bullish, but individual investors remain profoundly skeptical of the runup.

    At a slightly higher than expected +0.6%, core inflation is still the lowest since a flat reading in 1959. The trend suggests the Fed’s monetary policy can continue to focus on growth rather than inflationary pressures.

    TARP warrants for PNC (PNC +1.6%) sold for $324.2M, the third-biggest auction amount for bailout warrants – adding onto the $5.65B pile the government amassed in earlier sales to defray bailout costs. The sale provided another chance for investors hoping to repeat earlier one-month windfall gains in the auctions.

    Did Dick Fuld (LEHMQ.PK) commit perjury? Felix Salmon crunches the numbers: Fuld claimed he was paid $310M during the years in question and lost nearly all of it. But he may have been paid $529M and kept $469M – more than he said he was paid in total.

    Goldman’s (GS -7.6%) share price decline accelerates after S&P issues a downgrade, citing the reports of a federal criminal probe into its mortgage dealings.  Fortune’s Geoff Colvin’s own set of answers to the Senate’s Goldman (GS) grilling goes beyond the vitriol to try and understand what, exactly, Wall Street’s crimes were.

    Goldman Sachs (GS) -4.9% premarket after news the feds are considering tacking criminal charges onto the SEC’s civil case. Not to be outdone, Rolling Stone’s Matt Taibbi is out with yet another evisceration of his favorite target, while some wonder if Congress isn’t devoting too much time to pursuing a single firm.  (I’m sure those same people would have said "Hey leave the Furher alone – Arent’ there any other dictators to go after?"

    A judge rules Goldman (GS), Citigroup (C) and several other high-profile banks will have to defend themselves against claims they conspired to rig bids for municipal investment contracts in California. The suit targets more than 40 corporate defendants.

    The CFTC fined Morgan Stanley (MS) and hedge fund Moore Capital $39M yesterday for allegedly breaching rules in the precious metals and oil markets. The fines are among the largest ever levied by the CFTC.

    The White House calls a halt to new oil drilling until a review of the Gulf spill has been conducted. As costs mount, BP’s (BP +0.6%) reputation is in tatters, as the worsening incident threatens to undo marketing efforts to rebrand the company as “beyond petroleum.” But some analysts say the $20B drop in BP’s market cap is an overreaction.

    Hurting OIH:  FBR lowers Transocean (RIG -2.6%) and Halliburton (HAL -2.5%) to Market Perform over uncertainties following the Deepwater Horizon catastrophe. Concerns about the cementing process raise questions about whether drillers can safely drill in deep water, and whether regulators are up to monitoring them.

    The daughter of one of the victims of the Upper Big Branch mine disaster says Massey Energy (MEE -7.9%) is offering $3M settlements to each of the families of the 29 miners killed. NPR says the FBI is investigating possible bribing of regulators and criminal negligence.

    I predicted this would happen – he is only one of many to come:  Steve Wynn (WYNN -0.5%) says he will move his company’s headquarters to Macau, where he foresees most of the firm’s future growth.

    Microsoft (MSFT) has shelved a development project for a two-screen, touch-sensing device that could be used to read electronic books and take notes. MSFT shares flat premarket.  Wow, they actually figured out a product sucked BEFORE they released it – that’s good progress for Microsoft!

    Not getting our 50 Obama points (or did we already get it?)

  78. tradansh

    QCOR – Up to 10 now (almost). Dang.

  79. ravalos

    Phil, on 4/19 I had bought a MSTR May $80 / $85 Bull Call spread for $2.97 and sold May $75 Puts for 1.42 which gave me a net cost of 1.55 for the $5 spread.. Last night MSTR missed expectations and the stock is down 12% to almost $79, but I believe the stock is a bit undervalued (I consider the miss just a blip for this very nice and lean company). So since my long May $80 calls still have about $2.8 in PURE PREMIUM, I decided to adjust and buy May $75 Calls for $5.95 (paying about $1 in premium) and sell the long May $80 calls I had.
    My position is now 3x May $75 / $85 Bull Call spread with 5x May $75 puts sold, all for $4.44 net debit. The position is now $4.5 in the money so as long as the stock remains here or above my position is break-even or could be even profitable.
    Was this a good adjustment?? Thx 

  80. jomama

    jossie, i sold some long term puts on BP yesterday.  I think 52 is the floor on them.  They certainly, have some headline risk.  I’m sure they will cast the CEO of BP to be the villain of AVATAR II.

  81. ravalos

    Also, since I have short May $85s in MSTR, should I roll down these to the May $80s for about $1.75 credit and reduce my overall cost to just $3.6 on a $5 call spread? or should I just leave it as it is now $75 / $85 bull call spread at a cost of $4.44 on a $10 call spread?

  82. JRW III

    Good morning
    IWM is in a channel of rising trend lines now at 73.21 and 74.00 but rising. Pivot 73.35; R 73.84,74.32, 74.80; S 73.11, 72.86, and 72.38
    Computer problems this morning; now I have to use firefox to open my charting and explorer for the other windows   A real pain !!

  83. kururi67

    Phil on ABX I have long Jul37 call, short may41 call. The41  caller got away from me jumping over a buy stop I set up. I am up 34% on the trade already, do you have a good roll for the caller or should I just cash out?

  84. pstas

    AKAM- Phil, interested in your thoughts going forward on AKAM after the big pop on earnings. Everything seems over done on this stock- over reaction both up and down.

  85. Jtiff

    Phil-
    How do you feel about QID as a hedge play?

  86. hextra8

    gel1/AAPL
    I’m following your play of AAPL Jan 2011 260 calls, Jan 2011 300 calls. I’d appreciate it if you’d let me know when you make changes to this trade. Thanks.

  87. gel1

    hextra/AAPL
    Sure… Feeling bullish, I closed out the 300 calls the other day… Still have the 260 calls. Plan to look at the situation later today and will advise.

  88. aclend

    Die BIDU! Diiiieeeee!!!  :-)

  89. JRW III

    In TZA at $5.55

  90. gel1

    Doubling my DAL (Delta Air Lines) positions. With the UAUA merger the other airlines will benefit because of consolidation. DAL is the LEAST unionized carrier and will benefit with increased earnings going forward.

  91. RMM

    JRWIII: in at 5.65 with TZA. you beat me .

  92. kustomz

    Wheeeee!!

  93. RMM

    TRWIII: 5.56$, not 5.65.

  94. salvum1

     Phil / DXD
    Why isnt our DXD position moving in our direction when the dow is?

  95. gel1

    My FX play today is long the USD vs the PLN (Polish Zloty). buy at market, and set stop loss at 3.025.

  96. RMM

    JRWIII: what is the signal on the chart for TZA to close ?

  97. Phil

    SGG/Leon – Sugar?  I don’t play that.  It’s really complicated to keep track of but my understanding is surplus at the moment but that seems to be priced in.  They don’t have options and SGG drags down DBA, who I do like playing and are still very cheap and totally great to sell calls against.  DBA 2012 $20/25 bull call spread at $3.10, selling $25 puts for $3 is .10 on a $5 spread with a nice 4,900% win at $25 (DBA now $24.84) and it looks like $5K in margin so 100% off that too!  I also like the 2012 $25/30 bull call spread at $1.45 as an inflation hedge that pays 2:1.

    Picks/Salvum – Well it helps if you have a buying premise in the first place.  Being delta neutral is pointless if you are buying premium but good if you are selling it.  If you are a long-term investor then the above DBA $20/25 spread is appealing and if you are looking to hedge inflation then the $25/30 is appealing.  You need to have an overall account goal whether you have $10,000 or $10M or you’ll end up trading against yourself.   There are 3 articles in the Education Section that outline the set-up of a $10,000, $100,000 and $1M portflio – I suggest you read those over the weekend.

    BIDU/Peter – Stock is losing some value too! 

    EVVV/Eric – Nice spike to catch!

    BIDU/RMM – You don’t care if it falls further or not, only that it doesn’t rise $50.  I don’t think the risk is worth cahsing out on that one yet – plenty of potential reward left. 

    MEE – All rumors, I think.  I wouldn’t be surprised if FBI is asking questions but that’s a long way from charges and think about all the angry families that could be alleging anything.  Anyway, the company isn’t worthless, they generate $3Bn in revenues and "only" 29 people were killed and, sadly, there is a Cap on the value of human life (XOM paid $0 to Alaska).  So the put sale is good as long as you REALLY want to own MEE at net $35ish, which puts their p/e down around 7.

    MSTR/Rav – The problem with front-month set-ups like that into earnings is they are very much do or die plays.  It kind of takes out the whole concept of hedging and leaves you with a pretty inflexible position.  I would have just sold the $80s ($2.50)  and left the the $75 puts if you REALLY want to own them at net $75ish.  If those both expire worthless then you actually make money, which is kind of nice considering the drop.  Your spread isn’t terrible (as long as your premise on the company is correct) but let’s worry if they aren’t over $80 by Wednesday, yes to the roll if you intend to keep the calls because you should be THRILLED just to get even at this point. 

    ABX/Kurur – Consider yourself well protected over the weekend.  If they keep going up, you are going to want to roll the July $37s ($7.50) to 2x the Oct $44s ($3.95) and I’d take money off the table by doing a 1x roll now, which will leave you VERY well protected over the weekend in case everything crashes (including gold) and next week you can decide what to buy. 

    AKAM/Pstas – I’d let them run a little more, see if they can get over $50 but yes, they are now priced to prefection so a 4Q plan to bet they miss one is a good idea. 

    QID/Jtiff – We did that last week.  A little chasey now with the Nas down a point already but June $14/16 bull call spread is $1.15 and should be pretty forgiving and only need to sell $15 puts (now .49) for $1 if QID falls below $15 (or just get out at that point).

    Wheeeeee! By the way…  8-)

     

     

     

  98. pstas

    Oil- Ah, politics, politics, and more politics. My fantasy is that someday we actually get some grownups in charge (neither Democrats or Republicans) whom actually understand that lower energy costs are good for the economy and stop blowing smoke up everyone’s arse wanting them to believe that they can make oil go away anytime in soon.
     
    http://www.reuters.com/article/marketsNews/idUSN3012459220100430

  99. JRW III

    RMM
    I don’t understandyour question. If it reverses I’m out even, I hold untill it turns or EOD

  100. RMM

    JRWIII: to close TZA, what are you watching ?

  101. JRW III

    RMM
    I watch IWM 1 min plus RSI, momentum,volume, and 14,3,3 stoch; then there are my trend lines at 73.21 and 72.65

  102. RMM

    Phil: what’s your hunch, how will market close today ?

  103. gel1

    Hextra/AAL
    Probably should have kept my short side of the spread, with  the gremlins trying to drop the market. I will wait for AAPL to have a nice day, and then will add a short leg to the spread. With AAPL trading at only 12 times forward earnings, it is hard to consider any short positions. The stock should be trading at 20 times forward earnings which would put next years price at $385/share…. or put another way 50% higher than today’s price.

  104. RMM

    Phil: today bought DIA may puts 110 at 1.20$, TZA stock at 5.56$, and BIDU naked short jun750 calls 23$, all running well.

  105. Phil

    LOL AC! 

    DXD/Salvum – Long-term hedges don’t do much without HUGE moves.   Disaster hedges are for disasters, at least 500 points down, nothing you are likely to see in a daily move.  That’s what makes it a good hedge, you also don’t lose much up to 11,500 so if we break higher we can kill the play with not too much damage. 

    Politcs/Pstas – So you advocate drilling new wells without trying to prevent the next disaster?  I’m sorry but if I was in charge I’d be kind of concerned with protecting the land and the sea that we’ll have for the next 1,000 years at least as much as getting the oil for the next 20.  Also, if anyone was really concerned, there would be a $100Bn a year solar development budget AND a $100Bn wind development budget because you CAN make oil go away if we spend a couple of Trillion over 10 years on wind and solar in addition to the couple of Trillion we spend EVERY YEAR on oil.   The failure of politics is pandering to short-sighted issues of the month without making the hard-choice commitments it takes to build a country.  That’s why China is winning – they need railroads – they spend whatever it takes to rail the whole nation.  They need oil, they go buy it wherever it is.  Our country doens’t want to compete so we subsidize the corporate wellfare recipients so the people get all the fun of paying taxes AND profits to big oil – BRILLIANT! 

    Hunch/RMM – 90M at 12:45 is getting too big to stick and I’m in cash and I can’t imagine other fund managers don’t have a similar outlook into this weekend so we’ll just have to see if the "must hold" levels hold….

  106. RMM

    JRWIII: you watch IWM to get signals for TZA trades?

  107. salvum1

     PHIL/ Picks
    Nice bear raid on POZN – gee, have we seen that before on DNDN last year?
    Anyway, I have looked in the education section waaay back.  PErhaps I am being too literal but I cannot find any articles with 10, 100k titles excpet for the setting up a hedged portfolio post which has specifics on picks.
    Thanks.

  108. JRW III

    RMM
    Yes, IWM tracks the Russell and TNA/TZA are Russell triples.

  109. tuscadog

    Phil, Goldman (and MS, JPM) invests in PIIGS default  according to Cliff Wachtel on Seeking Alpha.  See his article ‘Euro Toast’, makes me feel good about my RWM position.  Now time for your EDZ play?  Is UUP the best play on a Euro collapse vs $?

  110. judahbenhur

    JRW, Are you still using the 2/25 trend line to see if it provides support?

  111. Phil

    "Must Hold" levels update:  Dow 11,100, S&P 1,200, Nas 2,450, NYSE 7,600, Russell 715

    So we have the Dow right on the line at the moment but the SOX are down 3.7% and really dragging the Nas.  GS bounced off the 10% line and the VIX is back at 20 (up 8%) but this particular sell has trailed off so keep on your toes for a reverse at 1pm.

    If that doesn’t happen, we are miles away from the Nas (2,484) and the Rut (729) breaking down so the red indexes can fall a lot further before the Nas and RUT find support to slow things down, maybe another 1% down from here.

  112. ssdirk

    judah/JRW – just getting back from my son’s field trip.  Of all things we went to see Oceans.  Pretty darn ironic with oil lapping at our doorstep.  Doing a little forensic on the 5min chart shows a clear TZA or put signal at 11:25.  Not sure what the puts were at that point, but tza was below 5.50 now 5.70.

  113. tradansh

    My TBT long positions killing me today. TLT broke through a major trendline today and seems to be heading to 200dma at 92.7. If it breaks that, then TBT long holders are in major trouble.

  114. tradansh

    POZN being yo-yo’d around like DNDN. 12.4 to 5.5 in one tick and now back to 10.91.

  115. JRW III

    judah / Support line
    Yes we just hit it and I’m out of TZA at $5.71

  116. ssdirk

    judah/JRW – the 2/25 trendline holding well so far……..so far.

  117. gel1

    Phil/Oil
    The US is in need of oil, as it would take 20 years to convert automobile technology to an alternative. The Gulf oil spill was an accident, and as you know, that all the precautions notwithstanding, shit happens!  We need to keep all our domestic oil production for transportation and chemical production. Our utilities and large truck requirements should be run on natural gas. The supply and technology is already in place.The holdup is our government and these  decisions are driven by politics, unfortunately. Just think…. if Palin was elected president, then she would open up all those reserves in Alaska and our shortages are gone, and the balance of payments issue is additionally solved.  See…. it is all politics!

  118. RMM

    JRW: when RSI gets close to 20 or 80, I move,
    am out of TZA at 5.9604

  119. JRW III

    RMM
    You got $5.96 ?

  120. humvee4me

    TNA/TZA traders wonder what chart type on TOS is best to monitor the RSI, tnx

  121. microflux

    Hello phil, what do you think of :
    buy WFR for 13ish sell 13 put/call for 2.05 ish ? go / no go / wait ?
     
    thanks :)

  122. RMM

    JRWIII; would be nice, sorry, it was 5.6904

  123. JRW III

    If they’re going to turn this around, this would be a good place IWM 72.50

  124. Pharmboy

    $93K for DNDN treatment.  Lil’ more than the $63K projected.

  125. judahbenhur

    JRW, Not a bad buy signal on the 5-min chart at 72.50, and then my computer screen froze up, I’ve just rebooted. Hmmm, should I still jump in…

  126. salvum1

    Phil / politics
    Also, if the US was concerned about energy they would have been building more refinerys while at the same time, given tax subsidies to solar and alternative energy not oil and gas, as if they need it.
    How about we tax the top 100 corporations an additional 5% and take those profits and distribute those dollars to all of their employees as bonuses.
    Since this was a discussion last week, I have somewhat modified my views.  It is NOT fair that so few make so much – that is certainly a change in thinking.  The problem I keep running up against is how much is too much and who gets to decide?  If it is 100 mil, why not 5 million?  Why not 2 million? Seriously?  And I would only agree IF governemtn cuts spending. Taxes would not have to be raised if wealth were more fairly distributed (so hard for me to even type as a cpaitalist at heart but as a Christian, I cannot accept that so many suffer with so little when so few have so much) because tax collections would rise as more people would be making much more.   My final condition in this world would be that those who do not want to work and have exhibted that behavior, they could collect welfare if they worked 20 hours per week picking up trash, taking care of parks etc.

  127. oncmed

    Phil
    I am thinking of selling some May 250 PUTS on AAPL @3.
    What do you think of selling these Naked. Could you please suggest a spread that hedges this if you think there is a better risk/reward.
    TIA

  128. judahbenhur

    SS, JRW,  Faith in Mr. Stick today?  Phil said the volume might be too much for it.

  129. gel1

    Salvum…. logical thought. I agree, we NEED first to reduce spending, then restructure our political system in order to preclude the conflicts of interest. Let the productive earn profits for their effort and risk, but encourage them to contribute to the unfortunate through creative revision in the tax code to encourage this.

  130. gel1

    For you FX traders… keep an eye on the USD/ZAR. The USD is gaining strength, and the SA Rand is already priced too high, and is sure to drop. The unemployment rate in South Africa is 20% and the economy is contracting, so the rise against the Dollar this past year is over extended. I will watch this one and will soon buy the USD/ZAR

  131. judahbenhur

    SS, Though I didn’t play it, I did have a fleeting thought between 9:45 and 9:50 that your method was giving a good sign for TZA.  Do you see it that way?

  132. tradansh

    Phil/AET – They have taken a nice drop today. Is it a good time to get an entry by selling puts?

  133. ssdirk

    judah – yes, that’s how I would have played it (I know hindsight is 20/20).  I am finding that I prefer to take larger positions in the morning than the afternoon.  I know the stick is still alive and well, but something just spooks me in the afternoon.

  134. Pharmboy

    Yodi – did you note TRMA today?  They should benefit from all the rigs offshore.

  135. Phil

    Portfolios/Salvum – Remind me on the weekend and I’ll dig around the archives for you.

    PIGS/Tusca – Yes, I liked to that in the morning post.  I’m not comfortable with UUP here, we played it in the fall, when the dollar was stupid low but now I don’t find it compelling.  EDZ is just a simple way to play Spain, which is the 8th largest economy in the World (Greece is 27. Portugal 36) faltering and setting off ripples. 

    WYNN coming down nicely.  NFLX $98 – what a week!!! 

    TBT/Trad – Just people panicking into T-Bills, might last a week or two if we have an actual crisis, then comes back as no one is going to buy $100Bn worth of US paper next month for under 2.5%.

    Oil/Gel – You don’t have to convert 100%.  We produce 9.5M domestic barrels a day and we import 5M from Canada and Mexico so those are hardly "imports".  We could eliminate all other buying within 5 years and then knock off about 1/4 of the remainder every 5 years.  Why would anyone fight this concept?  Any drilling, whether off the shelf or in Alaska is nothing but a distraction – like when a company about to go under finds one last guy to lend them money so they can keep pursuing a tragically flawed business plan for another quarter.  You are right, Palin is the perfect CEO to ride out a terrible plan until we’re so totally screwed that no one can fix it.  Then you will finally get your small government wish! 

    WFR/Mirco – Good plan but wait. 

    Holy cow, we may get a triple out of oil today – back to $85.25 and now heading for $86 AGAIN!

    Jumping in/Judah – I’d use Dow 11,100 as the line to watch, about RUT 728.

    Welcome Salvum!  Welcome to "liberalism."  That’s all we want, something "more fair" than what’s going on now.  Energy is easy because Americans use about 150Bn gallons of gas a year so the simple thing is to charge $1 a gallon tax and use that money to fund alt energy and then DON’T tax the gallon equivalents of alt energy.  It’s very democratic – if you want to not pay the 30% tax, then conserve 30% (ANYONE can get a car that gets 40mpg and drive less and car pool) and try to use more alt energy sources.  As to how much is too much?  I think 100x $35,000 (the average American salary) or $3.5M a year is fair to be called "a lot" and 100 times that ($350M a year) is fair to be called "too much."  If we used that rule of thumb, then the incentive for those who want to make more than $350M a year is to raise the average income of the American worker to $50,000, then they could make $500M a year at a lower tax rate….  The top 400 earners in this country made $60Bn MORE than $350M each last year. 

    Something simialr could be done with corporations, even if the rule is that 50% of all profits (pre-bonus) be reuturned to the shareholders as dividends.  This would help stop big corporations from developing war chests that crush competition and stop the big boys from endlessly buying each other out until they are so big, they can no longer fail without causing massive damage.  As to work for welfare, that was Clinton’s idea and I support that too!   Unfortunately, Bush didn’t renew it in 2004. 

    AAPL/Oncmed – Only if you REALLY want to buy AAPL at $247.  They are not going to stay up if the Nas sells off hard and the margin is a lot so there are far better ways to make $3 selling puts if your intention isn’t to buy AAPL stock regardless.

    Volume slowed down to 113M now at 2pm so very little since last check but that’s how we went up, which we expected after 1pm.  Now the Dow failed to break back over 11,100 and that’s not encouraging for the bulls and may get some funds to hit the sell button as they lose faith in Mr. Stick buying up their shares later

    AET/Trad – Insurance is VERY risky right now as they have tremendous reserves and you don’t know where they invested those reserves.  I’d stay out until we see how the EU settles next week.

  136. chuckerd

    salvum1 / work for welfare
    Love that idea – but you know the unions would go berserk and sue to keep unemployed people from doing the unfinished work that the union is "doing".  How dare we let people do that for a minimal sum…that would be preventing the union members from being able to make a living!  <end sarcasm font>

  137. tradansh

    GILD breaking down. What’s going on?

  138. jomama

    Pharm, I am not really buying DNDN.  It is expensive and urologists are gonna loose a lot of money – prostatectomies, etc.  There is already evidence coming out that robotic and laparscopic prostatectomies leave higher margins of cancer or residual cancer.  So all of these old school urologists (haters) are gonna find reasons to justify their existence and high reimbursement.  Just a contrarian point of view on all of this DNDN excitement.

  139. gel1

    Phil/Oil
    Please do not interpret my comments I am a supporter of her candidacy,. I like her legs, but it ends there. We have plenty of solutions that would definitely work, but all the private interest political wrangling will preclude a timely solution. Phil, I have never seen your legs, but I have seen your brain and judgement at work, and you have my support to take us out of this perpetual conundrum.

  140. yodi

    Pharmboy
    TRMA yes they up by .41 but this does not help my RIG 90 putter short !!!!! I was happy to be down with TRMA but now I am down both. Well you can not win them all. One should not smoke on an oil rig. But I see RIG is insured so I wait till the exitment cools down as my putter is in Aug only. But thanks for reminding me, good memory !!!! Daily enjoy being with this group.

  141. salvum1

     PHIL/ Liberalism
    Wow, I have to admit that that word, liberalism, has been a dirty word in my mind, and I am not quite sure it truly represents the beleifs ogf those that are tagged with it.  Of course, I am excluding both Cindy Sheehan wack jobs and Nancy Pelosi power grubbers as well as Rush Limbaughs of the world.  I like your formula for how much is too much.  I just wonder what a realistic solution would be since there is absolutely no chance what you suggest will occur.  Just as my lack of FTL (are you a Stargate fan? they use the same acronym) forces me to operate within the confines of this space time continuum, so does the knowledge of what is possible in this country.  So, what would something that has a good chance of happening be?  AndI have to say, that I would want the size of the government to shrink at the same time taxes increase, use taxes that is.

  142. kustomz

    GILD…way oversold i bought some here…not many good stocks at 52 week lows

    Down with the dollar.. long live equities!!

  143. Phil

    A €120B bailout for Greece isn’t going to address fundamental causes of a situation that is "not even close to sustainable," Jeffrey Miron says; let it default. It’ll hurt creditors, but they knew what they were getting into lending to a profligate nation.

    Yet another nation on watch:  Loan growth in China in 2009 far outpaced that in other EMs, and by year?end Chinese banking assets exceeded those of the other 23 systems covered in this report, combined. Although Chinese loan growth is likely to slow in 2010, such a rapid expansion gives rise to significant asset quality concerns in the medium term, in Fitch’s view. Globally, loans/GDP ratios look high in China, Taiwan, Latvia, Estonia and Ukraine relative to sovereign rating levels, while penetration is moderate in Mexico, Peru, Indonesia and Colombia.

    Speaking of bailouts that never end:  AIG (AIG -3.7%) has run its tab at the Fed up to $27B, the most in five months, after the insurer tapped the credit line to repay expiring commercial paper. Debt on the five-year line was about $45B in November before AIG handed over stakes in two life divisions.

    A judge rules that MBIA (MBI -5.2%) can proceed with a fraud lawsuit against Countrywide (BAC -2.5%). The insurer says it covered more than $459M in losses as a result of false representations tied to lending standards in Countrywide mortgage originations. 

    The New York Fed takes another step toward using the key liquidity-draining tool of reverse repurchases, posting a master agreement to be used with money market funds. (previously: I, II)

    In the biggest localized banking challenge since the S&L crisis in 1991, the FDIC is resolving an auction of three Puerto Rican banks that together hold more than a quarter of the island’s deposits. The moves will "stabilize the patient," says one analyst there, but "we’ll be in intensive care rather than bleeding in the street."

    Auto sales reports coming Monday should show a nicely humming recovery, with seasonally adjusted annual sales rate expected to come in at 11.2M vehicles – up from a year-ago 9.2M, but still down from March’s incentive-laden 11.8M.

    Krugman: To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.

  144. Pharmboy

    jo – I don’t see DNDN making a profit – ever.  From my last cancer post, prostate cancer is #1 for males, and there are a ton of things in the pipeline that target the disease, and if any one is a hit, DNDN will be DUNDUN. 

  145. gel1

    Bought some TBT June 45 calls. We will see a bounce up soon, as the Greece debt problem will be solved.  Elections in Germany, and the political posturing has delayed the process. I believe we have seen a "flight to safety" concern as the equity markets do not like  uncertainty, and bond holders in Europe are opting for the safer US bonds. I anticipate a nice recovery in TBT over the next few weeks.

  146. yodi

    Phil,
    WYNN coming down nicely.  NFLX $98 – what a week!!!
    Do we stick to NFLX over the week end or will they go up again still holding the 5.30 putter May 100 against them thks

  147. gel1

    Pharm – LOL. DUNDUN could be a takeout target as their drug could be first to market and will have momentum if tied to a big Pharma company with marketing strength.

  148. Pharmboy

    DLB having a nice day.  Wonder if they get any benefits from IMAX and they definitely will be great in China and India.

  149. RMM

    Phil: I have DBA and DBC with gain: are you saying:get out of those ?

  150. Pharmboy

    Gel – for $8B market cap, I would short that company.  Oh wait, maybe PFE will buy them!  BUY BUY BUY

  151. jomama

    gel, if i were to invest in DNDN at this point it would be under that exact premise – that PFE with buy them or a pure momentum play.  either way – they are starting to look like the HLY’s or CROX of biotech.

  152. Pharmboy

    Anyone know about CKSW?  Look like something a ORCL or MSFT would like to have.  Their increases in YOY revenue and no debt!

  153. Phil

    Wow, all of a sudden they "gotta have" oil at any price.  Up from $85.25 to $86.50 now in just over an hour! 

    DNDN/Jo – I agree, limited growth from here, I think we’re done with them. 

    Support/Gel – If called to duty, I will serve but only if I am givin absolute power to bust heads and clean house.  No "politicking" in my administration…   8-)

    That reminds me, I had an idea that ALL Congesspeople should be required to have Facebook pages and they could "friend" their contituents, who would then know what they are doing all day and vote and comment on whatever’s happening live.  If a group of constituents get interested, they can form sub-groups and gather support within the community and some total number of votes within the constituency should merit, in the very least, a meeting and discussion on the topic.  Democracy 2.0! 

    RIG/Yodi – You can roll down to 2x the Jan  $70 puts and that’s a very excellent price for RIG.  Margin on 2x is probably barely more than you have now and you can sell 1x June $80 calls ($2.40) for a little more cushion. 

    FTL/Salvum – I’m an old-time Sci-Fi fan, the term is way older than Stargate, which I’ve seen but don’t Tivo.  Anyway, everyone knows that a Tardis is the only proper way to travel the space-time contiuum these days!  The tax structure is not at all impossible, it’s simply something like 60% over $3.5M, 75% over $35M and 90% over $350M.  Then there’s no reason for Paulson to destroy the US economy to make $3.6Bn, wouldn’t be worth his time…  Maybe he’d only wreck Cleveland or something and get Tucsan next year – that sort of thing….

    ROFL – Man if you want to know what I mean when I say "flushing the stops" look at oil futures, now back to $86 from $86.50 in 4 minutes flat! 

    LOL – Cramer says (and he’s right) "nobody wants to insure an oil rig – it’s too risky"  Gee, doesn’t that sort of say it all?

    Greece/Gel – Yes, over time rates must rise but Greece is very likely to reject any solution that’s proposed.  Not the Government, but the people, who are freakin’ pissed right now and are past the austerity breaking point already.  Greece’s whole GDP is $330Bn, they can’t swallow $40Bn worth of cutbacks the same way our government can’t slash $1.5Tn off the budget (10% of GDP). 

    NFLX/Yodi – You sold puts?  I thought we were short?  If you don’t mind rolling you can stick with the $100 putter I guess but I thought $95 was too high.

    DBA/RMM – No, I like DBA as long as you are using it to sell calls.  DBC not so much because I think materials will drag it down. 

  154. jburgess

    Jomama- you mentioned earlier that you are short long term BP puts. Mind sharing months and strikes?

  155. Phil

  156. Phil

    Cool, consumers will soon be 100% of GDP at this pace.  Something is very, very wrong here:

    [image[3].png]

  157. jomama

    juburg – i sold BP 2012 Jan 50 puts yesterday for around 8.  Not exactly fast money – but based on two things 1. 52 week low is around 42/43  2) they are not going out of biz – look at XOM/valdez  3) dividend investors are gonna get pretty interested about……now.

  158. RMM

    Phil: one of the best jokes was this week when the indicted pirates in NY claimed that they were acting on behalf og GS.

  159. stockbern

    ATPG/Pharm     Now what do yo think about their chart?

  160. yodi

    PHil, Thanks for the tip on RIG looks like a good move possible they will come out of this again.
    Re NFLX yes I sold the 100 MAY puts for 5.30 now I could buy back for 3.85 but I think it is worth while staying put with this. As you said stick with the 100. Will be interesting what next week will bring. Lots of decissions to be made in this world. Angela will not open her bag that easy!!

  161. jburgess

    Jo- thanks

  162. biodieselchris

    Latest C-S existing home prices:
    reality versus media myth.
     
    Interesting. Or, as the author points out, "Classy."

  163. dflam

    Phi: On MEE, I have July $42 puts at $4.51 now $7.25. Can roll to Oct. $38 Puts at $6.35 . Make sense to you?

  164. craigzooka

    I think it’s funny that everyone is furious about this oil spill, on CNN they talking about getting everyone to use less oil, so what does oil do? The price goes up of course!

  165. Phil

    In the past 9 quarters, beginning with Q1 2008 or about the time Bear failed and things started going downhill fast, the Primary Dealers (a set of banks that as everyone knows includes Goldman, BofA, JPM, and included Lehman and Bear), in 8 of the these quarters closed out quarters at the lowest level of net asset holdings! Whether this is by Repo 105-type transactions, or via BofA type "roll" trades as discussed in detail in the WSJ, is irrelevant: the simple purpose of this phenomenon was to make balance sheet leverage more palatable and easily presentable: the lower the asset base, the less the equity required to satisfy regulatory leverage ratios. How nobody has observed this scheme previously is simply stunning, and a real testament to the PD’s collective ability to keep this crucial data to the distribution list of a select few.

    The consensus is that the recession has ended, "but I’m not sure it is over," Robert Shiller tells CNBC, citing a potential "new bottom" in housing prices. “On an unadjusted seasonal basis, prices have been declining for five months,” Shiller says, describing the housing market as “kind of iffy” and warning of a possible double-dip.

    Parsing the GDP report, Karl Denninger says it adds up to one thing: We need a stronger dollar, and soon. Evidence that private demand is stepping in to replace government dollars is absent.

    I’m taking bids now.  .10 for 2020 breaths of clean air in lots of 1,000, you need about 17,000 a day so a mere $1.70 for a day of life from the ICE – what a great plan this is!  Intercontinental Exchange (ICE -0.8%) pushes into the developing emissions-trading sector with a planned $603M purchase of Climate Exchange (CXCHF.PK), the dominant market operator in Europe and the U.S.

    The Gulf spill is not expected to impact crude oil futures, Rick Mueller of Energy Security Analysis says. The field "was not a production field and it was not a big field," but the disaster could weigh heavily on public perceptions about offshore drilling.

    MEE/Dflam – I’d roll to 2x the June $37 puts at $3.40, you can always roll those down and out much lower. 

  166. gel1

    Phil/Greece
    If Greece does not accept the bailout terms, they will be cut loose from the Eurozone. We may see riots if the deal to bail them out is implemented. Taking them out of the Eurozone is the best solution IMO, as I do not believe austerity is possible ( it is just not in their genes) . The same solution for the other laggards, such as Spain and Italy makes sense to me. This allows the losers to inflate their individual currencies and pay the debts in that fashion. Should this take place, the Euro will gain a lot of strength, and has a bright future. These laggard countries are a real drag on the responsible members, although the weaker Euro make their exports very attractive. I guess there is always a silver lining to all negative situations.

  167. Pharmboy

    ATPG/stock – that was a pure momentum play if they broke 23.  If anything I should have shorted on 4/26 -27 with the bearish engulfing and follow through.  With this gap, they are still a good short but not risking any more capital to short positions.

  168. SeanC

    Phil: I’d like to invest in DBA long term.  You mentioned "above DBA $29/$25 spread" – I can’f find where "above" is; but are you talking about Jan 2011?

  169. pstas

    GILD- nibble, nibble here. Bought Jan 35/40 call spread for $3. Will sell puts if it falls further.

  170. gel1

    Jo/DNDN… we will probably see a marketing joint venture with possibly PFE or a company that has a sales force. I made a ton on this stock, and am out for good.

  171. salvum1

     PSTAS/ GILD
    What is up with GILD?  I am surprised to see it waterfall like this.  I am watching the 35 area for an entry

  172. jburgess

    SeanC: Press Control and F on keyboard and enter "DBA" for a search of todays post.

  173. ban2

     Phil
    Woowoo!  I did your BIDU trade on selling the June 720 calls – 5 yesterday 5 this am for avg $36 now $26.5 (went naked)
    I just covered 5 
    Cover the other 5 or sell some puts to protect and see if we drop further?
    thanks alot for this one!!

  174. pstas

    Salvum/Gild- they lowered guidance on last earnings. Overdone selloff, IMO. A good value play,if nothing else- buying dollars for a discount.

  175. DKGuy

    Phil- LOL – loved your facbook comment for Congress. The problem is they don’t answer the phone or send anything other than form letter responses to emails now so what makes you think they wil participate in a facebook session.
    This bunch just has to go and November is coming. 
    Also I liked you comment to Salvum about too much income. All you have to do to raise the average income is banish those who make less than $35,000 to Mexico (reverse immigration) and suddenly the average goes up and then those in the top 10% can justify making more cold hard cash :-)  
    Another idea is in order to earn US citizenship you have to commit to working hard enough to make the average income over a 5 year period of time and if you fail your banished from the country. We would therefore means test citizenship. Does that work ?
    Talk to you over the weekend.

  176. pstas

    Stangles- VIX creeping up again. SPX June 1300/1000 is $5. Holding out for $6. Maybe Monday?

  177. SeanC

    Thanks, jburgess – I found it.
    Phil: do you sell cals on top of that?

  178. yodi

    PHil do we take full cover on the mattress over the week end thks ???

  179. drumkeerin

    Phil-might have missed it-other than 2012-any intermediate long position on ABX?

  180. tuscadog

    Phil, May Day union parades in Europe and mkts closed Monday.  Will make selling austerity to Greeks and bank bailouts to Germans about to vote May 9th very difficult.  May mean no real progress in talks by Tuesday.  Will this facilitate another down day in US Monday, given likely continued bailout uncertainties?

  181. JRW III

    Wheeeeeeeeeeeee !!!!!!!!!!!
    I haven’t made this much in TZA in a loooooooong time !!
    Basis at $5.66 just selling now as it hit IWM 71.88
    Out at $5.855, so a 7% day !!

  182. ssdirk

    JRW – FINALLY!!!!  Just curious what got you in at 5.66 and at what time was it?  Trying to tie your entry into my 5min chart.  Thanks.

  183. EricL

    Was talking to someone at the Dauphin Island Sea Lab this afternoon (that’s south of Mobile AL on the Gulf). Things look very grim. They are hearing estimates that it make take three months to drill a relief well, which if true would make this spill twice the size of the Valdez spill. Also, large portions of the country’s shellfish breeding grounds could be wiped out for years.
     
    We need to find shellfish futures.

  184. Phil

    Great article BDC.  I liked this chart to sum it up:

    See guys, THIS is real, not the crap that the MSM tries to feed down your throats when they tell you to buy things at 20+ multiples as if we’re in some massive global growth phenomenon that’s never going to stop

    Eurozone/Gel – That would be the end of the Euro.  You can’t have Greece and whoever printing their own money while the EU has to maintain draconian spending measures.  It’s not like the other nations are creditors, they are just more able to meet their payments at the moment (like us).  

    DBA/Sean – The long-term spread was a 2012 $20/25 bull call at $3.30, selling $25 puts for $3. 

    CTRL-F/JBur – Hey, you gave away a sacred computer secret!  8-)

    BIDU/Ban – Congrats.  I have a pretty strong conviction that they are NOT worth $720 and my conviction is backed up by the fact that the $720s can be rolled up to $800 in October so if you don’t mind those consequences, then you can wait for your other $26.50 ($13K!).

    Facebook/DK – I think it could catch on.  Just have to promote it right, maybe start a party based on Democracy 2.0 and then either they get elected or the others are forced to adopt it (which is usually how change comes to the parties – they are forced to adapt to get rid of a 3rd party with popular ideas).  As to Mexico – don’t most of our under $35K workers come from there already?  8-)

    DBA/Sean – You can sell front month partials, maybe 1/2 covers but just looking for .10 a month, not to be greedy.

    Mattress/Yodi – 1/2 covers on the $109 puts puts at $1.35 is plenty I think

    ABX/Drum – I’m worried gold will sell off and they will drop back to the high $30s, where I’d be happy to roll the 2012s lower but pissed about another position so no, they are too high to get more aggressive.   I don’t like gold much nor do I love the ABX play other than a hedge against inflation.  I just think ABX is safer than gold because they at least can still make good money if gold falls to $800 while GLD is just wiped out.

    Uncertainty/Tusca – Great point but I’m not sure of what the effect will be.  Cash, cash, CASH is the way to go when you are not sure.  Cash with some bearish flyers actually as we could tank hard and fast for a number of reasons. 

    TZA/JRW – Very nice! 

  185. JRW III

    ss
    About 1:45 when IWM hit my line at 72.86; Yes it does feel good even if I did make more on TNA yesterday.

  186. Phil

    Russell right on the 2.5% line.  Oops, passing it by.

    Overall we’re down 1.5-2% other than SOX, who are down 4.5%.   Copper finished at $3.35, oil $86 and gold $1,179. 

    Volume is 180M on the Dow, too much for Mr. Stick and it’s jamming into close – all selling. 

    Still it’s only Wednesday’s lows.  Won’t mean much if we reverse it next week and the month is still closing positive. 

    Could very much go either way next week so let’s all go have some fun and relax and come back ready to play!

    Have a great weekend,

    - Phil

  187. cwan120

    Hi, Judah,
    I’ve been busy all day, and haven’t got a chance to read the post yet.  So I don’t know if you have begun to discuss this topic.
    As I recall, you wanted to discuss hedging strategy for SPX/RUT and maybe other strangles.  I just wanted to remind you about this important topic.  We’ve been using Peter’s "crazy plays" (vertical puts) to mitigate the put side.  Perhaps we can talk more on this and other hedging strategies over the weekend.
    You might want to refer to the statistics I posted on April 28 4:00pm.  I think that’s a good starting point to think about how much a market run we want to protect.  Another subject I am interested in is whether we need to protect a big up side jump as well.
     
    Sorry, I have to go to anther meeting.  Will be back after 5.

  188. ssdirk

    JRW – sorry to ask, 1:45 eastern?

  189. ssdirk

    judah – comparing different moving averages the 10ema looks better than the 10sma on the 5min chart for entry/exit.

  190. JRW III

    ss
    Yes, I always use your time when I post, except when I say good morning in your afternoon on occasion.

  191. jcedens

    Off topic since after hours on a friday
    Would you rather have a boss who is undeniably intelligent, but with whom you have differing views on how to go about fixing problems, OR would you rather have a boss who is dummer than a screw driver, who has managed to memorize a few high level talking points with which you agree, and who is susceptable of being dupped by anyone with a half brain. 
    I can’t think of anything scarier than S. Palin as President.

  192. jburgess

    Phil, had I known it was a secret, it wouldn’t have been given away ….promise.

  193. ssdirk

    JRW – I got a good strong TZA signal at 12:55 which would have put me in at 5.69 to 5.72.  Combined with your line I could have gotten in probably a shade or two better.  Still working on this, but I think it has good potential.

  194. JRW III

    ss
    I posted that line at 11.51; late do to CPU problems, but you should have had it. Hopefully I won’t have this problem next week.

  195. Phil

    Going to jail is NOT the worst thing you can do to GS, this is:  Goldman Sachs (GS) could lose up to 41% of its earnings if tighter derivatives market regulations pass, equivalent to wiping away $3.9B this year, Bernstein Research says. Other big banks also would withstand cuts into the billions, but Citigroup (C) and Bank of America (BAC) are believed less impacted than most. (ETF: XLF)

    Concern grows that "the U.K. is the next Greece," but Paul Krugman says Britain is different, largely because it has its own currency. Greece "is in the euro straitjacket… Britain can offset the depressing effects of fiscal austerity with loose monetary policy; Greece can’t."

    Job growth will rise faster than economic models suggest, but unemployment will remain a lasting problem, Larry Summers says. "Long after this recession, finding ways as a country of developing the skills and potential of all Americans, not just the majority who are working, becomes a critical priority."

    2 good decisions from MSFT in one week?  Wow!:  Microsoft (MSFT -1.1%) will not try to outbid Hewlett-Packard (HPQ -1.6%) with a counteroffer for Palm (PALM -0.7%), CEO Steve Ballmer says.

    Market recap: Stocks tumbled steadily after midday, as Goldman’s (GS -9.4%) mounting woes dragged down the financial sector (ETF: XLF) and weak earnings from MEMC (WFR -18.6%), McAfee (MFE -11.9%) and other tech firms pulled the Nasdaq 2% lower. Decliners routed advancers on the NYSE by nearly 4 to 1.

    At the close: Dow -1.42% to 11008. S&P -1.66% to 1186. Nasdaq -2.0% to 2461.
    Treasurys: 30-year +0.66%. 10-yr +0.39%. 5-yr +0.28%.
    Commodities: Crude +1.0% to $86.03. Gold +0.91% to $1179.40.
    Currencies: Euro +0.52% vs. dollar. Yen -0.14%. Pound -0.27%.

     

     

  196. ssdirk

    JRW – sorry, 1:55 eastern.  I am actually on central time.

  197. judahbenhur

    SS, Thanks, I’ll try the EMA on Monday instead.  I rode the puts all the way down this afternoon, when it couldn’t get over the trend line and DIA failed 11,100.  Not a bad ride.  Should have bought more.  Have a great weekend.

  198. judahbenhur

    Cwan, I hadn’t tried to start the discussion with Phil.  Thought I’d save it for the weekend.  And yes, I am really interested whether a disaster play using ultras might work better than a crazy play, as a protection both for moves up and down in a month’s period.  It may be that Peter’s crazy play is still the best complement to the strangles, but I thought I’d engage Phil and see. 

  199. dflam

    phil: did you see what happened to WFR today. Stock back to $13 from $15.86 I have July $13 calls sold at $1.29 & am now even on the play. are you still upbeat about them.

  200. pstas

    jcedens- your comment reminded me of a Reagan quote – "The trouble with our liberal friends is not that they’re ignorant; it’s just that they know so much that isn’t so".
    Also the Buckley line about he’d rather be governed by the 1st 100 names in the Boston phone book than the Harvard faculty.
    Food for thought.

  201. gra1957

    jcdens – "OR would you rather have a boss who is dummer than a screw driver, who has managed to memorize a few high level talking points with which you agree, and who is susceptable of being dupped by anyone with a half brain."
    Are you talking about our current President??

  202. judahbenhur

    JRW, SS,  The quote JRW mentioned the other day from Fry, about the initial move of the market being wrong, was true again today.  SS, using your method, we should have been in TZA at 9:45 and closed out at the end of the day.  Talk to you guys later.

  203. gel1

    Phil/Eurozone
    Actually my point was to say – should Greece not accept the offers and conditions presented them by the IMF and EU central bank, then they would be expelled from the consortium and will be free to do what they want, as they are no longer a component of the EURO. They will, in this case bring back the drachma(?) currency, after they default., and start all over again. The Eurozone does not need Greece – they are the bastard child that never listens.

  204. ravalos

    Hey DK and Phil!! I’m from Mexico and make more than 170k per year so please!! :)

  205. snow

    Phil – you advised Salvum that "There are 3 articles in the Education Section that outline the set-up of a $10,000, $100,000 and $1M portflio – I suggest you read those over the weekend."
    I’d like to do that to, but after an enjoyable wander through http://www.philstockworld.com/category/education/
    and down a couple of layers deep, while I read a lot of interesting and educational stuff, I didn’t see those particular articles. Do I need new glasses? Ya never know, when you get to be my age….

  206. tradansh

    Pharm – What do you think of APPY long-term? They had a nice drop today due to new issues.

  207. cwan120

    Hi, Phil, Peter, Judah, and Fellow Stranglers:
    I’m back.  Judah, I hope that you don’t mind my starting this discussion early.
     
    Regarding hedging strategy for strangles, first of all, I wonder if we need "crazy plays" for the up side as well.  That is, buy both put verticals and call verticals.  I vaguely recall Peter seemed to have both verticals for his BIDU strangles.  Peter, what’s your experience with BIDU?
    As we learned in the past few months, we can sell the long leg of the verticals to get some, if not all, of the costs back.  So, they are relatively cheap in that regard.  However, if we have both call verticals and put verticals, can we sell the long legs on both sides?  Isn’t it more likely that the market is closer to one side, and therefore, too risky to sell the leg on that side?
     
    Secondly, I wonder if the verticals can protect a sudden up/down, say, +/- 3% within 1-2 days?  My statistical analysis shows that on average SPX goes up/down 0.7% per day with standard deviation 0.7%.  So, adding 3-standard-deviations gives us about +/- 2.8%.  Let’s use an even number +/- 3% for easy computation.  SPX is about 1200 today.  3% of 1200 is about 36.  But our crazy plays are only $10 spreads.
     
    What are your thoughts on this subject?

  208. judahbenhur

    Phil, Cwan, Peter et al./hedges for strangles.  Of late, I have been thinking that a good disaster hedge could make it easier for us to roll away from trouble in the same month, perhaps without having to roll 2x and without having to roll to the next month, except when absolutely necessary in the final couple of days. 
     
    Assume a June SPX 1020/1280 strangle.  Currently, I would add a put vertical at, say 1110/1100.  But that vertical only protects me from a drop to 1010.  It is really designed as a way to benefit if June closes between 1020 and 1100, in my example.  And, as Cwan points out, we have no hedge for a sustained move upward.  What we all do is we roll.  We roll 2x, 4x, we roll out a month, we sell additional calls or puts to pay for the rolls.  And for the most part it works, but to my way of thinking, the rolling eats up our margin and limits our ability to take advantage of new opportunities when we are just running away from trouble.  In my limited experience, I have liked it better when I can roll away from trouble the same month since that frees me up to make plays the next month, unencumbered by my old strangles. 
     
    So, what I have been wondering is whether we can develop a hedging strategy for the strangles, using the ultras like Phil’s disaster hedges, that would be sized to pay for a roll away from trouble by say, 30 or 40 SPX points.  In my example above, if the SPX moves down to, say 1050 with one to three weeks left before opex, I’d like the hedge to be able to pay for rolling away to 980 or 990.  And, if the market keeps moving down in the final week or so, then I’d roll away to the next month.  What I am trying to avoid is having to roll 2x to 980 or 990 and then perhaps 4x and then having to roll to the next month.  I am becoming more adept at rolling than I used to be, but I still don’t like tying up a lot of margin by rolling 2x and then sometimes 4x.  Similarly, a bull ultra, like TNA for the RUT, could help pay for a roll of the callers if the market were to move against us with a couple of weeks left. 
     
    And, of course, such an ultra hedge should be able to pay for a roll in a black swan event.  I currently use TZA and EDZ for hedging, but I’m not sure I have the sizing right.  Sorry, gotta run now and I don’t know if I’ve explained this properly.  Good shabbos everybody.

  209. Peter D

    Hi Cwan, judah & others,
    Hedging is definitely an interesting topic.  If we want a fool proof hedge that protects down to zero or protecting for a 20% drop in the indices, it will cost us out of pocket money to buy, e.g. buying a long PUT, and there is no free lunch.  I found that using the ultras to hedge would cost the same as using the index hedge.  The cost of protection decreases as we lower the size of what we want to protect, and hence we use verticals instead of naked long options.
     
    The crazy play is almost a perfect hedging for short strangles, especially for a 10% move on the downside in the indices, while still paying us money.  In Judah example above, the put vertical SPX June 1110/1100 is currently $1.4, while the June 1020 put is $5.2 (which was inflated because of the VIX jump today).  Let’s see how they move.  If SPX drops 1000 points (8.5%-9%) to 1087, the June 1110/1100 put vertical would be worth roughly $5.5 as it’s just ITM.  The gain on the vertical is $4.1, while the June 1020 put would have jumped to $18 (not taking into account the VIX effect as the market would be lower at that time).  Selling the vertical would get us $4.1 profit, which can be used to move the 1020 short put to roughly 985. 
     
    If we double the number of verticals for each strangle (using up $2.8 of the $5.2 credit from the 1020 short put), we can protect down to 950.  That’s a good 20% down from the current level today.  We’d be hard pressed to find any other hedging that protects a 20% move without costing more money than the SPX vertical.
     
    Now, let’s look at TNA, the 3x ultras.  SPX 1110 is about 7% down, which would be 21% down for TNA.  TNA is currently $63.4, so 21% down would be roughly $50.  TNA June 50 put is $2.3.  TNA June 40 put (to give a $10 spread similar to SPX) is $0.95, so the June 50/40 put vertical is $1.35, which is similar to the $1.4 cost for the SPX June 1110/1100.  However, we need TNA to drop to 40 for our hedge to pay $5.  This means TNA is a less effective hedge than SPX, i.e. we get $5 for SPX when it’s at 1100 (which is 8% down), while we need to wait for TNA at 40 (11% down on the 1x index) to get our $5.  Of course, we can use TNA 50/47 put vertical, and increase the number of contracts by 3.3x, spending more on commission. 
     
    We can do the same calculation for having additional hedging for covered call or buy/write (Stock, plus short call and short put).  We’d find that the hedging can only protect down to 10% or at most 20%, especially without putting the additional money in.
     
    Hedging for a melt up is more difficult, of course, as calls have inherently less value than puts, so buying a vertical doesn’t leave much room for profit on the short call.  We just need to roll and roll.  The key is that the market doesn’t usually jump 5% overnight (unless it bounces from a 10% drop on the previous day) so the need for upside hedging is less.  I’ll see if I have something else to add over the weekend.

  210. judahbenhur

    Peter, Thanks so much for your usual cogent and well-reasoned explanation.  The genesis for my original post on the topic was a comment by Phil earlier in the week, referring to the strangles, about which he said something like, "Sounds like they could use a good disaster hedge."  Maybe the put verticals are really the best hedge, bought when the VIX is low.  Or maybe something like Phil’s mattress play would also work, where you always keep enough insurance to give you the ability to roll 3% away for every 5% drop in the SPX, so that you could roll a couple of times in the same month before having to roll out a month.  And then you day trade the mattress hedge in an effort to have it pay for itself.  The SPX doesn’t make for a good mattress play with the wide spreads, so maybe it is the DIA or SPY or IWM mattress play.  Since I daytrade IWM anyway, I’m going to give that more thought.
     
    As for the melt-up hedge, I’ve had to roll up to safety a couple of times in the past two months, but they were only on callers that I had rolled down.  Any original callers that started 10% away have been in pretty good shape, but I have been guilty of shaving that 10% to 6 or 8% and then gotten in trouble.  It just seems that the callers at 10% away don’t typically pay enough.  I’ll think on it some more.  Thanks again.

  211. chaps

    Strangles/hedging:
     
    Phil’s comment on disaster hedges for strangles was in response to something I wrote in attempting to answer someone’s question about what happened to their strangles on the "Goldman Sachs versus The Senate" down day.
     
    I’ve also looked at the ultras as strangle hedges and like Peter reached the conclusion there’s no advantage. And if you have portfolio margin, the put verticals help with your margin usage on the put side. Not sure if you’d get the same margin credit if hedging with a different instrument altogether.
     
    My understanding is that most of Phil’s disaster hedges pay out a significant % of their value over time, and so might not provide all the relief you seek as a strangle hedge -where you’re risk is the effect of a sudden downturn on your front-month short puts.
     
    If I strive to avoid increasing margin usage for positions in the current front month – and one side is under attack and using the most (portfolio) margin – flipping is best (I think) to avoid increased margin usage. You move a chunk of "margin hit" to the other side.
     
    For those who tend to day trade and you’re confident of a trend during the day, you can flip during the day to take advantage of the trend by flipping away from the side that’s under attack. You’re buying back the side where prices are increasing and selling the side where they’re decreasing. If there is a strong trend, eventually the side that’s under attack will be the one that’s hitting you for your (portfolio) margin and, again, flipping alleviates the margin usage imbalance between the two sides.
     
    Similarly, flipping restores a delta imbalance. A strong trend will get your delta out of balance. Flipping can restore balance.

  212. chaps

    Strangles on stocks:
     
    I’ve started doing it  awhile back with GOOG, and now BIDU, on the front-month (May). My feeling is you want to wait until after earnings to avoid increases in implied volatility leading up to earnings. Also, crazy plays on calls as well as puts, since stocks can gap up on news. I call this strategy "the fortress", since the P/L  curve looks like one (to me.)
     
    I start pretty far from the money and monitor the theta. When theta gets lower as you get closer to expiration, you could bring the two "turrets" of the fortress closer to the money and milk some more theta from the current month.

  213. judahbenhur

    Chaps. Thanks for you comments. That’s one of the great things about this board — many smart traders willing to share their experiences. 

  214. gel1

    Chaps… as always, great stuff. Thanks!

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