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Inflationary Thursday – Dow 15,000 + $5 Will Get You a Happy Meal

Are they rioting in Africa?

Check – they are rioting in Africa!  Toppling governments in Tunesia?  Check, government toppled.  Riots and demonstrations also in Albania, BelarusJordan, Libya, Lebanon, Ireland, Egypt, Yemen, Zambia…  Even the British Royal Family attacked in their limo after being booed and jeered by a mob chanting "off with their heads."  

If nothing else disturbs you while you buy your NFLX today – that last one should.  Rich folks in an industrialized nation trying to go to the theater in their limo and being attacked by an angry mob.  How long before we (in the top 1%) need to armor our cars and hire bodyguards?  Is this part of the Fed’s plans to create jobs – make the top 1% so much richer than the bottom 99% that we’ll need to hire guards just to go shopping at Whole Foods as we drive past the bread lines?

We’re in an era where the world and nations ignore the food issue at their peril,” World Food Bank’s Josette Sheeran said in an interview yesterday at the agency’s Rome headquarters. Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs to ease budget crunches.

The global recession has eroded government aid that helped people in poorer countries afford bread, cooking oils and other staples. The U.N.’s Food Price Index surged to 214.8 in December, exceeding the previous record in 2008 when rising costs and fears of shortages sparked riots from Haiti to Egypt. More than 100 people have died this month in protests in Tunisia against food inflation, unemployment and alleged corruption, according to the U.N.

Michael Klare writes: "Already, combined with staggering levels of youth unemployment and a deep mistrust of autocratic, repressive governments, food prices have sparked riots in Algeria and mass protests in Tunisia that, to the surprise of the world, ousted long-time dictator President Zine al-Abidine Ben Ali and his corrupt extended family. And many of the social stresses evident in those two countries are present across the Middle East and elsewhere. No one can predict where the next explosion will occur, but with food prices still climbing and other economic pressures mounting, more upheavals appear inevitable. These may be the first resource revolts to catch our attention, but they won’t be the last."

Let’s begin with food, the most important and volatile of these commodities. Food prices declined in October 2008 after the onset of the global financial crisis, but that seems to have been an anomaly. The December 2010 index of global food prices compiled by the U.N.’s Food and Agricultural Organization (FAO) hit a record 215, one point higher than in the spring of 2008. (In that index, based on a “bundle” of food staples, a baseline of 100 represents average prices in 2002-2004.) In fact, some food products, including sugar, cooking oils, and fats, are now trading substantially above their 2008 levels; others, including dairy products, grains, and meat, are inching perilously close to record levels.

The numbers are already staggering.  According to the IMF’s very conservative measurement, which peg US inflation at just 1.5%, the end of year inflation is 4.6% in China, 3.7% in the UK, 5.9% in Brazil, 8.8% in Russia, 8.3% in India, 4.4% in Mexico, 6.4% in Turkey, 5.7% in Indonesia, 10.9% in Argentina, 11.9% in Iran, 26.9% in Venezuela, 10.4% in Egypt, 11.8% in Nigeria, 15.5% in Pakistan…  Judging from who’s rioting and who’s overthrowing their government I’d say about 10% is the point at which you may want to consider doubling up your security detail before you head downtown.  

Don’t worry though, we can easily afford the minimum wage thugs we hire to bash in the skulls of the unemployed thugs who want to get their hands on our stuff, right?  POT, for example, announced a 103% increase in earnings last quarter as the price of fertilizer skyrocketed as speculators snapped up supplies.  The stock is so high now ($175) that the company is announcing a 3 for 1 split so we can give a few shares to the help next Christmas – isn’t that charming?  

India’s market plunged 5% this month, the Shanghai Composite is off 17.5% since November and Egypt (EGPT) dropped 10.6% TODAY but don’t let that bother you – everything is just fine – until it isn’t, of course but then, who could have ever seen that coming, right?  

Most of this Global inflation is being sparked by our own Federal Reserve, since the Dollar is 62% of global reserves and almost all commodities are priced in Dollars and the Dollar is down 4% for the first month of 2011 – putting that much more pressure ON TOP OF those shocking 2010 inflation rates.  Well The Bernank gave the rest of the World a huge FU yesterday as the Fed announced (unanimously now that Hoenig is no longer a voting member): "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." 

That comment has been interpreted to mean until US jobs come back and that means, pretty much, forever.  This was enough to send the Dollar down to month-lows at 77.70 and that popped gold back to $1,346 (up 1.5%) overnight and sent oil back to $87.50 (up 1.5%) and copper back to $4.30 (up 1.5%) and silver up to $27.50 (also 1.5%) – so a pretty uniform boost to commodities on a 0.5% dip in the dollar is clearly disproportionate and will, of course, choke the life out of global consumers.  Yay – let’s buy some commodities!!!  

Actually, to be honest, we already did.  We went bullish on gold on Tuesday and bullish on silver yesterday in Member Chat, even as we took short-term short bets on the indexes because we feared exactly what happened yesterday – the Fed is keeping those free money spigots going full-throttle, no matter what the consequences are for the bottom 99% (hence the title of yesterday’s post).  This is good for the markets but bad for the World.  

I feel bad about making money this way but, as I said yesterday: "You’d better be out there making an assload of money because you’ll need it to keep up with rising prices for things you buy and declining values of your US assets."  Now we have to factor in the price of security people to guard our gold when we’re going out to the AAPL store for our IPhone 5s (which will also be able to be used as a credit card!). 

Keep in mind that gold and silver are our defensive plays.  In Member Chat yesterday, Jromeha mentioned he’s 80% in cash and 85% short the market on the 20% in play and I said I thought that was an excellent way to play what I felt was a blow-off top after the Fed.  We added 2 disaster hedges yesterday, a TZA spread that pays 500% if we get to $17 by April and a QID play looking for a quick 66% if they hit $11 by March.  That’s in addition to our very short play on the Dow so we are SHORT in the short-run – DESPITE all the foolishness out of the Fed.

Something has got to give and the dollar remains stubborn above the 78 line and the Russell hasn’t taken back 800 and our "Secret Santa Inflation Hedges" from Christmas and our "Breakout Defense Plays" from early December are up HUGE and need to be protected, as do the dozens of other long-term bullish trades we’ve selected since the beginning of the year.  It’s those short, sharp shocks that will get you in this market – the long-term will take care of itself.

454,000 of our fellow Americans were shocked with pink slips last week as Unemployment Claims rocketed back 12.4% up from last week’s 403,000 job losses.  That’s the GOOD news compared to Durable Goods, which plummeted 2.5% in December (isn’t that Christmas?) and that is off a whopping 266% lower than "expert economists‘" expectations of a 1.5% gain.  The next bit of bad news will be November Pending Home Sales at 10 am and we’ll be buying the F’ing Dip after that because, regardless of our World View, the farce is still with us in the US economy. 

Hey, at least we’re not Japan, who lost their AA rating this morning as S&P downgrades their long-term debt to AA-.  S&P also notes Japan’s demographic situation will strain government finances even more in the future.  Will this cause the Yen to drop and the Dollar to pop?  Hell no – Japan’s economy may be a 20-year disaster in progress but it’s not a Bernanke!   

Sarkozy is over in Davos talking up the Euro, saying: "Whether it be [German] Chancellor Merkel or myself, never will we turn our backs on the Euro. Never will we abandon the Euro," he said.  He added that those who bet against the euro should watch out for their money.  "The Euro spells Europe. The euro is Europe and Europe has spelled 60 years of peace on our continent, therefore we will never let the Euro go or be destroyed," he insisted.  BUT - "The dollar will continue to be the world’s number one currency," he said.

Spain, Ireland, Greece and Portugal will probably remain “stuck in recession” for the next 18 months and be the laggards in a three-speed European recovery, Standard & Poor’s said.  S&P sees Germany, Europe’s largest economy, and Finland leading the euro region’s recovery this year, with growth of at least 2 percent, Chief European Economist Jean-Michel Six in Paris said today. The U.K., France, Italy, Belgium, Luxembourg and Netherlands will follow, with expansion of in a range of 1.5 percent to 2 percent. The “three-speed” recovery will “complicate” the job of the European Central Bank this year, said Six, who sees the first interest-rate increase at the end of 2011.

If the Pending Home Sales don’t send us off a cliff, we’ll be looking at an upside play on FAS and XLF again (we had one on Tuesday that went very well already).  Our last entry points (with option plays, of course) were $29.25 on FAS and $16.25 on XLF and today is another POMO day, courtesy of the Fed, as is tomorrow and free money always does wonders to cheer up the Financial sector.  

NUE missed earnings and RCL, RTN, PG, MUR, CY, MO, MJN, JBLU, BMY, DHI, CNX, CL, AUO, OI, DRE, ETFC and AMLN all missed either earnings or revenue targets since yesterday’s close but don’t let it bother you as long as the dollar keeps going down – that makes everything we buy more "valuable" – even poorly performing stocks!   Isn’t investing simple?   

We can’t wait to clear the last of our technical hurdles (Russell 800) so we can put that sideline cash into play and, like our mindless inflation hedges from December that have doubled and tripled up already – we look forward to betting on the next round of the decline and fall of the United States of America – you burn Rome, we’ll bring the fiddles!  

 


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  1. yodi

    Good Morning Phil,
    I still have one of your old B/W on my books RIG stock at at 49.77 now 80.10 and the Jan 12 65 c& p for – 9.96 now 4.87 and c – 12.05 now 18.82 I thinking of rolling it to 75 or even 80. what you think ?

  2. samz3700

    Phil
    On the dollar, I understand that we Are going to keep rates low but do people really believe Trichet when he says they are going to fight inflation? What is that going to do to the pigs when they issue debt? Who is Trichet kidding? I guess he has more credibility than the Bernank which is all he needs.

  3. Cap

     NFLX 209.50 pre market — LOL.   Definitely a short here.  Risk is maybe 215 if super crazy today.
     
    I doubt it, probably opens around 205.

  4. mampcsA

     Phil, went for the POT play you suggested yesterday (+4 Jun 175C, -5 Feb 165). You mentioned doubling the longs and rolling the shorts by 2x if they go up, which looks to be th case. Can you suggest what to roll to? Thanks.

  5. dclark41

    http://news.yahoo.com/s/nm/20110127/bs_nm/us_usa_economy_claims
    OUCH!
    OOPS! I forgot. This kind of stuff doesn’t matter………
    http://news.yahoo.com/s/ap/20110127/ap_on_bi_ge/us_ap_economy_survey
    ………….but this stuff does!

  6. dclark41

    "The gains this year will be enough to withstand the threats still clouding the economy, the AP survey found. A majority of the economists doubt, for example, that falling home prices and higher mortgage rates will pose a major risk to the economy in 2011."
    Oh really! There are many people like myself who are upside down on house value with adjustable rate mortgages. (by the way-I have been in my house since 1994! A divorce at the height of my houses value caused my situation.) We are just going to be thrilled with higher mortgage rates! How much rent do they think people like me will be willing to pay!
    "Employers will create a net total of 2.2 million jobs. Three months ago, the economists predicted 1.6 million jobs would be added in 2011. Last year, employers added roughly 1.1 million."
    I wonder when this will begin??? One month down eleven more to go!
    "Consumers will spend 3.2 percent more this year than last year. That’s stronger than the 2.5 percent growth the economists had forecast in October. And it’s nearly double the spending growth that’s estimated for 2010."
    Looks like another great Christmas!
    ….and lastly
    "Inflation will be 1.8 percent this year, barely more than the 1.7 percent the economists forecast in the previous survey and up only slightly from 1.5 percent last year. The 1.8 percent forecast falls within the range of inflation the Federal Reserve thinks a healthy economy needs."
    What a joke!
    Happy Thursday!
    http://news.yahoo.com/s/ap/20110127/ap_on_bi_ge/us_ap_economy_survey

  7. terrapin22

    Egypt stock market down big.  suez canal may be vulnerable to the unrest and this may impact oil price. 
    Baltic dry index keeps falling too. 
    http://www.zerohedge.com/article/egyptian-stock-market-plunges-over-11-fresh-multi-year-lows-suez-canal-transit-halt-imminent

  8. dclark41

    Phil:
    Really, how much stuff can the MSM just ignore?! Oh, they might talk about all this stuff today, but tomorrow will they just as easily forget it and move on to DOW 15000! These same stories keep repeating themselves and the problems remain the same. The world is in deep —- and getting worse by the day! I am just amazed how short our memories have become. Was it 75% cash or 75% ammunition?

  9. hanna5

    Oh NFLX - Of course the earnings reaction is a little crazy. But, after shorting the stock for months, i gave up. Then i got an Apple TV and signed up for NFLX. I love it!!! I have tons of movies that i can watch whenever. And, the selection is pretty good. Also, i got in for $8 for the first 2 months! Super cheap!! And, when i want a newer movie or TV show, i can get it off Itunes with the super cool Apple TV Interface. And, i watch stuff on YouTube all the time with it….so user friendly. All this to say, for a combined cost (with Netflix, and Itunes purchases) of about $20 / month, I’m thinking of dropping down to basic cable (premium package with comcast now $80/month….

  10. tuscadog

    Phil / Fed    Wow, most cynical stance so far!  Sounds like you’ve decided not to fight the Fed, fundamentals be damned.  Does this mean JRomena’s net short position is now unwise?  I’m virtually all in cash and a bit confused.

  11. yshenhar

     Phil
    With Alpha 2 dead – is it game over for the bears? 
    I have DIA Feb $120 puts at $2.27, now $1.70. I was thinking of rolling to Mar 122.75 (4.3) and selling the 118.75 (2.1) – but if we are going to dow 15000 maybe its not such a great idea…
    Any better adjustments?

  12. ephmen85

    NFLX   Cap, I’ve using call verticals to short and only have one small one open at the moment (-Feb 200/+205) which is easily rollable if necessary.  I’m thinking of opening another one…any prediction of a top for the next 6 wks or so (Feb & Mar) and is it based on anything more than a WAG  (wild-assed guess)?

  13. Pharmboy

    ZMH – well that is a fine howdy do!  Those OTM calls may just make it afterall!  UP UP and away….

  14. Phil

     Good morning!

    You know, I keep intending to write a positive piece on how we need to ignore the news ourselves and just BUYBUYBUY but then I end up reading the news (big mistake) and that sets me off again worrying about the global economy.  I will put up a new set of upside defensive plays over the weekend, as it’s still REALLY easy to make money if the markets are going up 10% or more this year – using the low VIX to our advantage.  

    Meanwhile, that Durable Goods Report was horrible and the Unemployment numbers were 50,000 worse in a single week than projected and there’s been no upside surprises in hiring so we have to assume that next Friday’s Non-Farm Payroll Report will NOT add the net 120,000 jobs expected.  So we have a bad start to the year and a freeze in Government spending so it’s all up to private enterprise to add the 2.2M jobs anticipated by the bullish AP survey the bulls are hanging their hats on (and Q2 projections are based on).   

    I really hate to be a boring old stick in the mud but I DEMAND to see Russell 800 (again) before I declare it safe to make upside bets.  Is it really so much to ask?   

    NFLX is testing my $205 top prediction this morning and they should pop over on momentum but that’s still my target so a nice short opportunity on the NEXT week $205 puts at about $2.50 (now $3.50) or less.  That’s where I think they will bottom out.  

    POT was a ratio backspread yesterday and the Feb $165 short calls are $14.50 and they can be rolled to 2x the $175 calls even and those can be covered (in whole or in part) by the March $190 calls at $4.20 as they are up more on news of the 3:1 split than the earnings, which are only $6 for the year, making the p/e of a commodity stock 30 (a bit much).   So I like the short Feb $175 calls at $7.50 as a naked new play too!  

    If it’s a real rally, oil should be over $78.50 and copper should bust $4.40 – those will be other things we look for on a move up.  Gold and sliver are too silly to use as indicators but every riot that breaks out puts another leg of support under gold.  

    The open is weak and very low volume so not too meaningful and the Nasdaq is looking especially tired at 2,750 – another good line to watch while we wait for Russell 800 but now we need to hold Dow 12,000 and S&P 1,295 and NYSE 8,200 as well or we’re just churning a top.

    Again, I apologize if caution is boring but it is.  

    I do like AMAT at $15.71, you can sell the Jan (2012) $15 puts and calls for $3.50 for net $12.21/13.60, which is a nice 13% discount if put to you and 28% if called away – never a bad thing for 12 months.

  15. Pharmboy

    AMED was upgraded today. P/E is 7, and they have settled down.  Long term, they should be a good one along with managed care REITS.  Need to find a few of those!

  16. samz3700

    NFL 195 puts for a fun ride down

  17. samz3700

    Sorry nflx damn iPad auto correct

  18. japarikh

    Phil,
      I am short NFLX March 200 Calls at $8.50. Looking to roll. Looking at Jun $240 for $11. What do you think? Is there a better play?
     Plan on selling short future calls and holding the March 200s to see where things settle. Will cover in 1-2 wks. Thanks.

  19. ephmen85

    SFL   I’m thinking of opening a buy/write….any thoughts?

  20. Phil

    RIG/Yodi –  I think that’s fine.  It’s a pretty even roll and your risk is owning them (I’d stick to $75).  You could buy 1x the 2013 $90 calls for $9.50 and roll the caller up to 2x the 2012 $80s at $9.50 and leave the puts or just roll them up to the $72.50s at $7.50 to pick up $3 there.  That would cost you net $5ish to push your callers up $20 against your stock but you still have pretty good protection as the callers have a 1.12 delta (2x .56) and you have 1.47.  If RIG begins to fall, you can double up your long calls and cash out the stock, taking most of your money off the table and leaving you with a slightly bearish spread that you can roll down later.  

    Trichet/Samz – They ARE going to fight inflation.  You have to understand the mindset of Europeans who remember WWII and generally feel inflation was the main cause of it.  These guys lived through the war with rations, they aren’t afraid to tighten their belts like Americans are – a lot of the old folks in Europe think it would be good for the young people, to build some character.  As long as Sarkozy and Merkel are willing to keep funding the junior debt of the other EU nations, they can keep things going without inflating their currency too much.  We don’t have that ability, inflation is the only way we can possibly pay our bills because our Government doesn’t make enough discretionary spending calls to cut unless you want to count the military as discretionary because it would take a 50% cut in military and a 100% shutdown of all other government functions including SS and Medicare to balance our budget (and then who would collect the taxes or tell the military what to do?).  So our choice is Anarchy or Inflation while Europe can realistically choose Austerity – painful though it may be.  

    POT/Mampcs – Hope the above answered your question.  Let me know if it doesn’t. 

    What matters/DC – Selective reading to say the least.  

    Baltic/Terra – now down to 1,234, lowest level since Feb 2009and down about 70% since last June.  That’s one of the most amazing things in the World right now to me – how people believe demand is driving commodities when cargo ships are empty and oil inventories are at record highs.  Of course, they are now saying US supplies don’t reflect the real World:

    The spread between oil traded on NYMEX (USO) and London’s ICE (BNO) rises to a record $11.54/barrel as bulging U.S. stockpiles may not reflect tight world conditions. A Valero (VLO) executive laments the NYMEX contract has "almost become irrelevant" as a benchmark. 

    WYNN at that magic $120 mark!   I like the March $122 calls at $5.65, selling the Feb $120s at $3.80 as a spread.  

    XLF flying already!  

    S&P 1,300!!!  5 points to go on the RUT…

    Pending home sales up 2% – not so bad.  Was up 3.1% in October but it is old data so not getting people too excited.   

  21. 1020

    Good Morning!

  22. samz3700

    Phil did you mean the 200 puts on nflx 205s are 5

  23. nicha

    Phil / IBM – original trade was: 5 IBM Jan $150 calls at $1.65 ($825) can be sold against 4 April $155 calls at $2.49 ($996). The Jan $150 calls ($5.60) were rolled to Feb $150 calls ($6.10) for a credit of .50 cents. Now those Feb $150 calls are $12. Looking at your answer below (01/20/11) I think it is time for me to roll into a vertical. But which one? Thank you.
    IBM/Nicha – It’s not usually a good idea to react to the initial move up (don’t buy into the initial excitement) so just keep your eye on the roll, which could be the $150s or you could DD on the Apr $155s (8 at avg $3.47) and roll the 5 Jan $150s ($2,600)  to 10 Feb $155s (now $2.65, $2,650) and that sets you up for a roll to the March $160s (not printed yet) or at least the Apr $160s (now $2.30) and that would put you in a $5 bullish spread if IBM keeps going up and forces you to roll.  So just keep your eye on those relationships and you only have to worry if the net cost starts to become unfavorable.

  24. Phil

    Ignorance/DC – It is amazing isn’t it?  I like that 75% ammunition idea (see lead cartoon). 

    NFLX/Hannah – My issue isn’t whether or not it’s a good deal, it’s about the fact that it costs them a lot of money to give you that content and I very much doubt they can sustain this model as competition will prevent them from getting to 40M homes (40% of US) and they are priced for at least 60M subscribers.  How many did they add this Q?  3M?  That would be 12M per year (assuming they can keep up this level of excitement) and it would take them about 4 years just to get to the level you are paying for now.  This is not different than paying $800 for GOOG in 2008 – it’s not that they aren’t worth $800 – just not YET!  

    Net short/Tusca- I don’t think net short on 17% is unwise.  It may be the wisest thing in the world but he’d better be in the 5,000% plays on the other 3% and then, once we’re ready to go more bullish, the 17% net short covers the upside money we deploy.  Go back to the 5 Trades that make 5,000% article, I’m pretty sure I did the math on portfolio balancing there.  

    Alpha 2/Yshen – Not game over but not looking good now.  There’s no logic to what’s going on now other than what I said in the Secret Santa post – it’s all about betting on inflation.  It doesn’t matter what company you pick, they will make 20% more money in 2012 than 2010 because we’re going to have that much inflation.  The dollar is down 12% since last June and the S&P is up 24% – this is not rocket science!  In addition to gaining value against the dollar, a stock benefits from the expansion of earnings in dollar terms (assuming they maintain margins) so the apparent p/e goes down and the stock looks even more valuable against a weak dollar.  

    Look out below if things swing the other way but China is tightening and Australia is tightening and Europe is tightening and Canada is tightening so what on earth has our Fed or Treasury done to make you think we will make gains back in the Dollar.  My bearish premise was that Europe or China would collapse and boost the Buck but that’s not happening and it seems that no one is going to call us out on our BS policies so we will keep playing this game until the bubble pops I guess.  We all need to accept that and play the cards that are being dealt. 

    DIA/Yshen – If you are going to go that path, be prepared to be in it for the long haul  It’s like the mattress play, you can go on for a very long time and just keep rolling and rolling and then you have to be quick on your feet to catch the dip when it finally comes and cash out but it won’t make you rich once you start hedging and rolling so is it really worth trying to recoup a 20% loss?  

    Sale of NFLX tomorrow $210 calls for $2.50 very tempting! 

  25. flipspiceland

    Theyre rioting in Africa
    They’re starving in Spain (whistling)
    There’ s hurricanes in Flo-ri-da (whistling)
    And Texas needs rain
    The whole world is festering with unhappy souls
    The French hate the Germans, the Germans hate the Poles
     
    Italians hate Yugoslavs, South Africans hate the Dutch
    AND I DONT LIKE ANYBODY VERY MUCH!!
     
    But we can be tranquil and thankful and proud
    For mans been endowed with a mushroom-shaped cloud
    And we know for certain that some lovely day
    Someone will set the spark off
    AND WE WILL ALL BE BLOWN AWAY!!
     
    Theyre rioting in Africa (whistling)
    Theres strife in Iran
    What nature doesnt so to us
    Will be done by our fellowman
     *Words and Music by Sheldon Harnick
    -From their 1959 LP "From the Hungry"
     

  26. make33

    Phil,
    I have 1500 shares of RDN at 7:50. Any good plays you can think of? What do you think about them in general?
    Thanks!

  27. amatta

    What is up with OPEN they have flown up the last 3 days for no reason…. 

  28. jomptien

    What is happening to T today?

  29. Phil

    NFLX/Japar – Wow, so many people playing with fire!  Well they are only at $207.70 and they sure don’t deserve that so I’d stick to my guns for the moment.  If you think NFLX is so valuable, sell the $180 puts for $4.25.  NFLX would have to fall below $170 for you to owe the net same as you do now.  I’d do that and wait only without selling the puts.   8-)

    SFL/Eph – I have three letters for you:  BDI

    NFLX/Samz – No I meant the $205 puts, so far, they are not going down in price as NFLX was unable to make a good run at $210 so it’s a no play on those as I only wanted them if they got too cheap. 

    IBM/Nicha – Well you had a net of about -$1 after the first roll and you have 4x $8.80 ($3,520) and your callers are 5x $11.70 ($5,850) so the best thing to do is double up your April calls (+$3,520), which increases your basis to $3,120 and then roll your callers to 8 of the March $155 calls at $7.85 ($6,280) which drops your basis to $2,690 on 8 April $155s and you are short 8 March $155s and the hopes are you will be able to roll those to the Apr $160s, which are now $5.50 for even or better, leaving you in a $5 bull call spread which has a max payout of $4,000 (up 48%), which is not too bad for a blown trade.  

    RDN/Make – I’m surprised those crooks are still in business!  They were such sub-prime schysters, I can’t believe they survived.   Apparently a lot of other people can’t believe it either and you get huge money for selling puts and calls.  I’d go with the 2013 $5/7.50 bull call spread at $1.60 and sell the $5 puts for $1.20 for net .40 on the $2.50 spread but I’d also pull the plug on the puts below $7 and keep the loss on the BPS to .60 so you risk maybe $1 to make $2.10.  

    Sing a long/Flips – How about Generation Landslide (some things never change):

    Please clean your plate, dear, The lord above can see ya
    Don’t you know people are starving in Korea?
    Alcohol and razorblades and poison and needles
    Kindergarten people, they used ‘em they need ‘em
    The over- indulgent machines were their children
    There wasn’t a way down on earth here to cool ‘em
    ‘Cause they looked just like humans at Kresge’s and Woolworth
    But decadent brains were at work to destroy
    Brats in battalions were ruling the streets saying
    "Generation Landslide close the gap between ‘em"
    And i laugh to myself every man and the ladies
    Who never could see those billions dollar babies

    Militant mothers, hiding in the basement
    Using pots and pans as their shields and their helmets
    Molotov milk bottles heaved from pink high-chairs
    While mothers limp burned, with certificate papers
    Dad gets allowance from his sonny the dealer
    Who’s pubic to the world, but involved in high finance
    Sister’s out ’til five doing banker’s son’s hours
    But she owns a Maserati, that’s a gift from his father
    Stop at full speed at one hundred miles per hour
    The Colgate invisible shield finally got ‘em
    And I laugh to myself every man and the ladies
    Who never could see those billion dollar babies

  30. jerconn

    PHil – "So I like the short Feb $175 calls at $7.50 as a naked new play too!"  Do you possibly mean the $170 calls?  The 175′s are nowhere near $7.50, or do you expect them to get up there?

  31. samz3700

    Just cannot kill the beast.

  32. danosu77

    Phil,
    Good morning.  Couple of questions:
    1) When is the new 25-100 portfolio going to start? I was out of town last week and just want to make sure I did not miss it.
    2) When you list your buy-writes like AMAT $12.21/13.60.  What is the second number? The first is Stock – credit received for selling a call.  I just can’t figure out the second number. 
    Thanks,
    Dan

  33. bobhu

    Phil,  I have short Apr. TZA $16 put, I am thinking sell some TZA calls every month to hedge that, what do your think?  Thanks.

  34. txchili

     Phil
    From Pharmboy’s comment
    AMED they were beaten down because of Obamacare worry about Medicare reimbursements. I don’t think much will be done by June to change the outlook. Now at 35.63
    How about a June 32/36 spread @ $2.33 selling the $32 Ps for 2.50. . Net .17 credit. on the $4 spread that is 90% ITM? Worst case you get them at 31.83.
    Thanks

  35. exec

    Bob,
     
    I’m holding April 15′s.  I’m doing the same thing to hedge against my long plays. 
     
    It sure is frustrating though watching 55% gains melt away.

  36. exec

    Oh……the ol dollar spike reversal.

  37. Phil

     OPEN/Amatta – They are a stock so they must be valuable!  As Cramer says:   "They are going to $80 and stocks that go to $80 are going to $100 and stocks that go to $100 are on their way to $120…."  OPEN has a p/e of 158 but we have to begin easing ourselves into the dot com-style of valuing thing so it doesn’t matter that it will take them 150 years worth of earnings to pay back $80 on their stock – it only matters if they show subscriber growth and then Cramer will convince the sheeple that that growth will go on forever and $80 becomes $120 (p/e 225).  Of course it seems ridiculous – it IS ridiculous but it’s also what happened between October of 1998, when the Nasdaq fell 25% from July to 1,500, through March of 2000, when it topped out over 5,000 – up 233% in 17 months.  You could have sat there for almost two years being as rational as you wanted to be and, just over a year later – you would have been proven right as the Nas was back to 1,500 but you would have missed a hell of a ride!  

    T/Jomp – Subscriber additions were sup-par so people are worried that they are going to get hosed by VZ on the IPhone switch.  They also guided 2011 down.   I like them at $25, not $27.

    POT/Jercon – They were when I wrote it.  They topped out at $7.95 this morning right at the open, which is when I was writing that comment.  Way too late now.  

    Beast/Samz – Did they stab it with their steely knives?  

  38. tchayipov

     Danosu / buy/write
    second number is an average price of shares if you have to buy additional shares because of your short puts (also it is your break even point)

  39. samz3700

    11:30 am f* dip. Time to buy, buy, buy? Caution – I just might.

  40. danosu77

    Thanks tchayipov!

  41. Phil

     $25KP/Dano – I should have something together over the weekend.  I wanted to see how the Fed and the rest of the week play out before making commitments.  The 2nd number in the buy/write is the net avg of 2x if the 2nd round is put to you below the short put strike price.  

    And what Tcha said!  

    TZA/Bob – We sell the short put because we have faith that the RUT won’t go up forever and the Apr $16 puts ($2.70) can be rolled down to the Jan $11 puts ($2.35) or maybe better as they have $1.70 in premium at the moment so your hedge is your long-term belief that the RUT won’t go up enough to drive TZA down 25% (8%) but really TZA has to be under $10 (down 33%) to put you out of the money as you collected at least $1 for the put so unless you think the RUT is heading up past 880 – there’s no reason to hedge.  Of course, if you don’t think the RUT can drop 8% in a month, then you can sell the Feb $19 calls for .20 and then you will be hoping for a drop, but not too much of a drop.  I prefer not to play that way as it’s annoying and, if you were using TZA as a protective hedge – it’s also very foolish as a real stock disaster then screws you on both ends.  

    AMEX/TxChilli – Well it doesn’t have to be a real change, just a rumor of a change to take them down.  I’ve stayed away from that space due to all the uncertainty.  It’s hard to tell how Health Care Reform will ultimately affect these guys.  I like AMED but I’d be more cautious and sell the 2012 $30 puts for $3.80 and use that to buy the $25/30 bull call spread at $3.40 for a net .40 credit on the $5 spread and your worst case is you are in them for net $29.60 (break-even $27.30) with $5.40 of upside, which is 22% even if you have 100% margin and more like 100% on ordinary margin of about $5. 

    Dip/Samz – Didn’t get XLF dip we wanted, makes for tough choices.  Gold got cheap and so did oil despite sub-78 Dollar but that just makes me think we are still flirting with disaster if anything happens anywhere in the World that sends people back to Bucks.  

  42. Pharmboy

    Weather in DC looks like there could be delays in DEPO and OREX.  Damn…..I think exiting DEPO trades even is the way to go.  IF there is a delay, the stocks will tank and we can re enter. OREX I am short….and will hold those for another few days.

  43. exec

    Anyone know where JR has been?

  44. Pharmboy

    BIG TZA spread just went through.  Feb 12/18 spread for 2.93 which is ALL ITM.  Hummmm….

  45. Pharmboy

    Cap – U around?  After all the spoofla on GOOG, AAPL and NFLX, the weekly AMZN 200s look mighty tasty for a gamble.

  46. exec

    Pharm/TZA spread,
     
    What does that indicate?

  47. Pharmboy

    exec – I cannot tell if it is a debit or credit spread, I assume a debit.  I did not see any calls move in that range either..  It indicates to me that someone is hedging for a move down b’f the end of OPEX. 

  48. Phil

    Thursday’s economic calendar:
    1:00 PM Results of $29B, 7-Year Note Auction
    4:30 PM Money Supply
    4:30 PM Fed Balance Sheet

    Notable earnings after Thursday’s close: AMZN, BXS, CB, CPWR, FII, FNF, GMCR, KLAC, MSFT, MWW, PMCS, QLGC, RMD, RVBD, SNDK, THOR, VRSN

    At the open: Dow -0.07% to 11977. S&P +0.02% to 1297. Nasdaq +0.18% to 2744.
    Treasurys: 30-year +0.16%. 10-yr +0.14%. 5-yr +0.15%.
    Commodities: Crude -0.3% to $87.07. Gold +0.1% to $1335.90.
    Currencies: Euro +0.19% vs. dollar. Yen -0.37%. Pound +0.28%

    10:00 AM On the hour: Dow +0.12%. 10-yr +0.06%. Euro +0.09% vs. dollar. Crude -0.15% to $87.20. Gold +0.1% to $1335.80. 

    11:00 AM On the hour: Dow +0.16%. 10-yr -0.04%. Euro +0.09% vs. dollar. Crude -0.65% to $86.76. Gold -0.07% to $1333.50. 

    11:25 AM Today on the open market: The Fed buys $5.79B in Treasurys maturing 2012-2013, of $33.56B offered by dealers; though mostly in bonds issued a year ago. Most Treasurys move lower: 30-year yield +0.03 to 4.62%, 10-year +0.04 to 3.45%, 5-year +0.02 to 2.04%. Two-years get a boost, yield -0.02 to 0.61%. 

    12:00 PM On the hour: Dow +0.05%. 10-yr 0%. Euro -0.16% vs. dollar. Crude -1.4% to $86.11. Gold -1.08% to $1320.10. 

    Initial Jobless Claims: +51K to 454K vs. 405K consensus. Continuing claims +94K to 3,991,000

    Dec. Chicago Fed National Activity Index: +0.03 vs. -0.40 prior (revised from -0.46). Three-month moving avg. -0.22 vs. -0.36 prior (revised from -0.41). Three of the index’s four broad categories made positive contributions; the consumption and housing category continued to make a large negative contribution.

    Dec. Durable Goods: -2.5% vs. +1.4% expected, -0.3% prior. Ex-transport +0.5% vs. +2.4% prior.

    Dec. Pending Home Sales: +2% to 93.7 vs. -0.5% expected, +3.1% prior (revised). The index is still 4.2% below year-ago levels. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers,” NAR’s Lawrence Yun says. 

    EIA Natural Gas Inventory: -174 bcf vs. consensus of -171 bcf. 

    Jan. KC Fed Manufacturing: Production index slips to 11, a setback after two months at 21 (percent of firms reporting production gains). Shipments, new orders, order backlog indexes also declined. Future production slips to 24 from a (revised) 39.

    Demand for working capital is up as U.S. commercial paper expands for the first time in three months – by $71.1B to $988.4B (seasonally adjusted, just +$10.1B). But asset-backed paper slipped by $4.7B. Some argue the seasonal adjustments are skewed now, in the wake of the credit crisis. 

    Unconcerned that China and India are tightening monetary policy, Jim Rogers sees commodities as a win/win investment. “If the world economy gets better, commodities are going to make a fortune. If the world economy does not get better, commodities are the place to be because they are going to print more money." 

    Far from being an empty gesture of goodwill, Niall Ferguson sees Chinese purchases of PIIGS debt as potentially important. China can pick up this paper "very cheaply," says Ferguson, "that might even be the simple solution to the problem of the euro zone."

    Anti-government riots in Egypt continue to wreak havoc with its equity market, down 10.6% for the day and 21% this year. Interior Minister Habib al-Adli dismisses the riots’ importance, saying "the millions will decide the future of this nation, not demonstrations." Premarket: EGPT -9.95%

    New measures to cool the real estate market hit Chinese property shares, but the overall market finishes nicely higher. The property market had shown signs of cooling in 2010, but prices and activity appear to be re-accelerating and spreading to tier-2 cities. China +1.49%. CRBJY.PK -3.86% in Hong Kong. 

    U.K. home prices fall for the seventh consecutive month in January, while a separate gauge of demand sinks the most in 3 years, according to a report from Hometrack. "The biting reality of spending cuts are doing little to improve a fragile market," says Hometrack’s head of research.

    "To avoid the second-round effects, it is necessary for the dynamics of costs and prices … to be significantly more contained," says ECB member Lorenzo Bini Smaghi, concerned over surging import prices, but quickly saying his comments should not be read as a policy change. Euro is flat at $1.3715.

    "It’s patently unjust that the Irish people should absorb all the losses made by the banks and that the bondholders should be totally free." No,it’s not Dylan Ratigan, but George Soros, who also says that the bailout deal will be modified to reflect his belief. 

    It would be nice if Obama’s business charm offensive led to job creation, but there’s not yet any sign that it will, Simon Johnson writes. "We are still waiting for employment to turn back up decisively. Compared with previous recessions, the delay is simply stunning," questioning why companies are keeping profits "artificially high."

     

    Goldman Sachs’ (GS) Gary Cohn warns Davos attendees that too-tight regulation on banks is moving risky activity beyond regulators’ grasp toward hedge funds and other obscure corners of finance, which may result in another crisis, FT reports. Hedge fund managers dismiss the remarks as "self-interested."

    Jamie Dimon (JPM) mounts an emotional defense of his bank – “J.P. Morgan bought Bear Stearns because the United States government asked us to!” – and his industry – "this constant refrain ‘bankers, bankers, bankers’ is just a really unproductive and unfair way of treating people." Dimon may be a great banker, but he needs a history lesson, David Weidner writes. 

    Caterpillar (CAT +1.7%) posts another big quarter and projects more of the same, but some analysts fret over raw material costs that squeezed margins. But Caterpillar, more so than other industrials, also benefits from higher raw material costs because its customers expand mining operations when prices rise – a tailwind that should help in the coming year

    Sanford Bernstein notes AT&T’s (T -2.9%) Q4 marked the "Twilight of Monogamy" – or the loss of iPhone (AAPL -0.1%) exclusivity. But in Q4, AT&T only added a disappointing 400K contract wireless subscribers, while the Street wanted to see 541K. Now it must contend with Verizon (VZ -0.3%) and its new iPhone.

    The plunge in shipping rates claims a victim as Korea Lines, an operator of 180 vessels, files for bankruptcy. A sign of more pain to come for shippers, or a bell ringing at the bottom? (BALT -2.8%) may be a decent proxy for the Baltic Dry Shipping Index. 

  49. amatta

    Phil, 
    Are you bullish on WYNN? Oh no just what I needed to make back my money on those short calls…

  50. bobhu

    Phil/TZA,  Thanks a lot.

  51. exec

    This market is such joke.  I was listening to an interview on Bloomberg yesterday where they were talking to a manager and he was saying with very carefully selected words that there are "market forces" at work that were manipulating things.  When pressed by the commentator, he basically eluded to the fact that the government had a system in place that was preventing sharp declines.  He pointed out the other day where they saw heavy selling up until about 2:30 and then the S&P rose 10 points in the last hour on very light volume.
     
    Bloomberg immediately cut him off and put on another manager that consumed the cool aid and when on at length about all the inflows that were causing the market to go up.

  52. ephmen85

    IBM    My current adjusted position is +1 Jul 145C +1 Jan 145C / -1 Mar 160 C and - 1 Mar 160/155 Put vertical.   We’ve had a great run-up and I’m thinking of going to full covers by selling a Feb 165, but wonder if I should just stay put.   Not a huge decision, but why leave theta on the table.

  53. hanna5

    Hmmm, Still think we are bouncing around the top here. Hopeing for a near term pullback still to tighten things up. Trading is just listless and overextended. Rotating from sector to sector, while stocks bounce around the same levels for the past couple weeks.

  54. flipspiceland

    U 2 can be a world famous economist.  Just say stuff like….. ’we are waiting for employment to turn up decisively as it did in previous recessions…..the delay is simply ‘stunning’….
    It’s ominous when I feel smarter and more savvy than world famous financial mavens and pundits, like Simon Johnson.
    What on earth are these people— who are waiting for Godot—- gonna do when they find out that employment in the private sector is NEVER going to turn up decisively?  Are there really people that control hundreds of billions of dollars in investment capital buying this market in anticipation of a return to global upturn in jobs?
    Next thing you know, Taleb will find a white swan.

  55. Jbur

    All : "We’ve all talked of the American Dream." Oldie, but one of my favorites.
    http://www.youtube.com/watch

  56. amatta

    Pharm, 
    AMZN 200C’s for .65? When are they reporting? That is tempting to make a quick $650…

  57. Pharmboy

    Tonight…..and I bought for 55c.  If they do a NFLX, they will be UP UP UP

  58. reza99

    NFLX crossed $210.65

  59. hanna5

    Amatta – with the way this market has been going, and the expected holiday sales from AMZN, i would be more likely to BUY the 200 calls then sell them. They report tonight, i think. But, either way, it seems like gambling…

  60. jabobeast

    I guess last week’s RUT drop was only a headfake? Shorts have been squeezed since September hard on TNA. Will it ever end?

  61. Jbur

    Video much more appropriate in this version:
    http://www.youtube.com/watch

  62. kallenjr

    Phil,
     
    If the bankers (Fed and PDs) can keep pushing thismarket up, if they have that much control, what would ever bring it down? And what is the harm of manipulating it up and keeping it up?
     
    Will the banks/PDs eventually turn on each other?
     
    When and what effect will there be when it is realized that we will never be able to pay this back – either the deficit or the fact that the Fed printed $4T+ can not be pulled from the market?
     
    I am willing to ride this all the way up. Since it’s not a free market anymore, I don’t know what the exit signs will be or which exit door to take.
     
    -ken

  63. Pharmboy

    CELG getting attractive again.  Need to wait for the downgrade parade, but they have support in here.

  64. amatta

    Phil, 
    The AAPL calendar strangle is now up $500 or close to it. Is it time to take it off or would you still wait for the Feb’s to expire and then see what to do with the long?

  65. amatta

    Phil, 
    Any play a little bit more conservative on AMZN than buying the 200 naked calls? 

  66. amatta

     Hanna, 
    Yep that is true…

  67. morxlntway

    what spooked WFR? i was trying to sell some calls to cover but being too greedy

  68. Phil

     JRW/Exec – Nope, hasn’t been on all week.

    WYNN/Amatta – Not bullish, that spread was to take advantage of high price of front-month but cautiously net bearish.  

    Interviews/Exec – You will notice that they tend to call the same, reliable guests over and over lately.  They don’t want any wild-cards making waves.  Speaking of guys they don’t let on TV – poor Whitney Tilson!  NFLX was a huge short for him since last year and he reiterated his short position just a couple of weeks ago.  

    Speaking of manipulation – clearly the markets MUST not drop. Saved, saved and saved again….

    IBM/Eph – I’d be worried about the Dow dragging them down and $165 is kind of greedy anyway. 

    Bounce/Hanna – Yes we’re churning at the top but, after a while, we have to call that consolidating for a breakout.  

    Smartonomics/Flips – That was a great realization I had early in my writing career – these guys are just as incompetent at their jobs as a guy who can’t get your order straight at the diner.  Some of them are smart but only in the same proportion that any individual doctor or lawyer is a "good" one.  The rest are just guys who ended up in a career and now they wake up in the morning and try to do something to justify their paychecks.  They really don’t know anything more than you do other than the fact that they might have a little more time to focus on a subject but that does not make them better interpreters of the data they read.  It’s really kind of horrifying…

    Harm/Kallen – There’s all kinds of harm done in manipulating the markets.  Don’t have time for a 6-month course in macro-economics but let’s say that there are 100 homes in the world and they are worth $1,000 each and 100 people in the world own them and owe $750, pay a $5 monthly mortgage on their $200 annual salaries and they have $250 invested in the market.  So the homes crash and prices fall to $750 and 10% of the people lose their jobs and then the market crashes and their investment drops to $125.  In a natural market, the people who still work would continue to pay their mortgage and dollar cost average into the market and, when it came back, they would recoup the money but if the market is propped up artificially – they are unable to buy at a discount and the people who are unemployed are unable to find cheap housing so they move away.  Now there are just 90 people for 100 homes so the homes persistently stay low while the 90 people have no net advantage in being able to buy cheaper stocks.  Since the market is taking in more money than the population (down 10%) can actually afford – it too is automatically overpriced and, since no one is saving any money – not even the people who are still working – there is no excess to create jobs.   All it takes then is another shock to drop the markets back again and you lose another 10% and another 10 homes empty out and then you have a 20% glut of homes and 20% less money moving into the markets weekly.  

    The homes are never re-priced so none of the 80 people can move or get cheaper mortgages – they are simply trapped paying 20% more than their home is worth every month and attempting to put money into a market that is just as high as it was when 25% more people were participating.  That’s about where we are now – the only people who "win" are the ones who can churn the stocks ever higher and extract the profits when the next round of money comes in from the 80 workers’ paychecks (think IRA/401K).  Meanwhile, very little real money is going back into the market and home prices are artificially high, making it impossible for new people to come in and buy at what should be market rates and again you are set up for failure in which you can lose another 10% of your workforce permanently.  

    At the point where you run out of retail suckers to pour their paychecks into the market, the ponzi scheme collapses and the IBanks turn on each other – just as they did in 2008 when the bundled notes began to come undone.  It was a hot potato and they all knew it and they decided to kill off a couple of banks completely rather than having them all take a hit and here we are.  Since it worked so well for them the first time and no one went to jail and everyone got bailed out – why not do it again?  

    We are in uncharted territory – none of us know exactly when we will reach the tipping point but the key is to know that it’s there.  It’s like surfing – you know there are rocks and you know EVERY wave will break eventually but that doesn’t stop you from catching a few good waves, does it?  

    AAPL/Amatta – Gosh I wish I had a database so I would know exactly which play you mean.

    AMZN/Amatta – Why would I buy calls on AMZN?  Why on earth would you buy calls $20 out of the money?  I hope they do go to $200 so Cap and I can short the hell out of them but, other than that, I have no desire to guess earnings.  

    WFR/Morx – I think there is a "no way in hell" vibe coming from the Republican’ts re. Obama’s solar objectives.  

  69. shadowfax

    IWM sell program low volume.

  70. Phil

    1:00 PM On the hour: Dow +0.14%. 10-yr +0.16%. Euro -0.12% vs. dollar. Crude -1.09% to $86.38. Gold -0.85% to $1323.10. 

    The Treasury sells $29B in seven-year notes at 2.744% (.pdf). Bid-to-cover ratio of 2.85, vs. a recent 2.89; indirect bidders take 52.1%, vs. a recent 51.7%. Direct bidders take 5.7%, vs. a recent 8%.

    Treasurys get a mild lift from a solid enough seven-year note auction, the last sale of the week, with the 10-year yield slipping -0.01 to 3.405%; 5-year -0.02 to 1.998%; 2-year -0.03 to 0.6%. 

    When a country devalues its currency, it hopes to make up in export gains what it loses in standard of living. It has often proven to be a foolish bet, as seen in the U.K., where rising corporate profitability is landing on the backs of consumers squeezed by a still-sluggish economy and rising inflation.

    In preparation for new Basel III capital rules, The Bank of Portugal recommends that the country’s lenders stop paying dividends. Not involved in the real estate boom like their Spanish neighbors, Portuguese banks will still see profits and capital ratios get hit as austerity measures bite.

    Swelling natural gas supplies may be headed for the market, as the returns for buying this spring and selling in the winter have dropped to a seven-year low: a $0.357/million-btu gap between the April and November contracts. Storage and pipeline projects with a capacity of 58.7 bcf have been canceled or postponed. Futures now -2.8% to $4.377. 

    Forget your iPad (AAPL) and iPhone, says Lenovo (LNVGY.PK) – the LePad and LePhone are where it’s at, in China. The IBM spinoff, makers of the ThinkPad, is challenging Apple’s leadership (the iPhone is China’s top-selling smartphone) with an "extreme focus" on its newer, diversified products: "Our advantage is we know this market better.” 

    Three lunchtime reads:
    1) Banking "toxic cocktail" is too big to forget
    2) Five potential 100% gainers
    3) On Jeff Immelt: Is a multinational CEO the best jobs czar?

  71. mampcsA

     Phil, when you save cover POT 175 short calls with March 190, you mean for the additional 1X short calls right? That would mean +4 June 185, +5 Mar 190, -10 Feb 175.

  72. Pharmboy

    Perfect example of a power spikes today in BKI.  THAT will be fun to short.

  73. mampcsA

     By the way, it was June 175C. So +4 June 175, +5 Mar 190, -10 Feb 175.

  74. Phil

     POT/Mampcs – Yes, just the additional ones.  The idea is just to protect yourself from a pop higher, even though we don’t expect it.  

  75. Phil

     

  76. tchayipov

     Pharmboy / CLDX
    do you think it is good time to add some??

  77. amatta

    Phil, AAPL, sorry its the short Feb 330/360 against the March 325/365 net 3.30
    Thanks

  78. Phil

     Here’s why we have TZA shorts!  Notice that the Dow, S&P and NYSE are up just over 5% since last April but the Nas and Rut are up over 10% so either the majors head higher and break their 20% lines (up 2.5% from here) or the minors pull back to the 20% lines.  As you can see from last April – the out performance of the RUT and Nas was there too – it didn’t end well

  79. jomama

    phil, what do you think about buying march xom 80 puts and selling feb 80 puts for .15 debit? if xom goes up after earnings the march ones may stay at .5 while feb will be worthless?

  80. Pharmboy

    CLDX/tcha – they are holding support here.  I want to wait though. The small caps are not being bought into here as much and that is my biggest concern (rotation, risk management?).  If they hit $3, then I think it is time to roll and start buying stock.  The company has some very interesting things in the pipeline, and results from trials have been positive.   I think they have just fallen off the map.  I want an accumulation phase to begin first.

  81. Pharmboy

    It’s enough to make one want to give up. Nothing – - – not riots, not joblessness, not foreclosures – - – seems able to fight the Treasury’s commitment to asset inflation. As we pause here to consider the S&P has doubled in value since twenty-two long months ago and, for the first time since September 2, 2008, has penetrated the 1300 line, we wipe away a tear and think of what might have been. – Slope

  82. ajaytoo

     Phil / NFLX – NFLX Feb 200 short puts at 9.50, now 15.10. Roll to 2x Feb 210s? 2x Mar 225s? Maybe wait until tomorrow?

  83. stjeanluc

    So much for the inverse relationship between dollar, gold and oil! All of them are down at the same time…  All of them are going through support level now. Bad….

  84. lflantheman

    Trading NFLX:   I won’t be on computer this afternoon to discuss the trade, but I think the NFLX weekly long straddle may come in tomorrow, as the stock is unlikely to sit firmly at 210, having increased 15% in a single day.   Buy weekly Jan 215 call and buy the weekly Jan 205 put, for about 1.75 total.  Odds are great this will make some $ tomorrow.  But, this is a wager, not an investment.  Expect to lose all.

  85. fortep

     Exec / mkt manipulation:  didn’t catch the Bloomberg interview yesterday but here’s a good clip of Joe Saluzzi explaining in mid 2009 how high frequency trading distorts volume, how HFT is not done on a fundamental basis but when the tape is bullish they just continue to buy. Same will work eventually should the tape turn bearish as we found out on fat finger day. 
    http://www.youtube.com/watch
     
     
     
     
     
     
    s

  86. exec

    Fountain Plunge Update,
     
    Only in America can someone text their way into a fountain, then sue someone for it.
     
    You just gotta love this country.

  87. rehat

    Phil,
    Any plays on Oil. down to 85.625. Can’t play futures though.
    Thanks

  88. chaps

    Phil:
    Given this article you posted and overall trends in US nat gas market, do you have a directional bias one way or the other?
    http://www.bloomberg.com/news/2011-01-27/natural-gas-profit-at-seven-year-low-to-cut-storage-growth-energy-markets.html

  89. exec

    Fortep,
     
    Interesting video.  It never occurred to me that the Bots are just buying in the direction of the move and that if the market turns south, they will just buy in that direction.
     
    I always assumed that the goal of the manipulation was to force the market higher because everyone wants the market higher.  He cautioned that if the liquidity dry’s up then we could get a sharp reversal.  He failed to mention that the Government is providing an endless stream of liquidity.
     
    Which raises a question.  Does anyone know when POMO 2 expires?

  90. roberthjrfl

    Phil and all, can you tell from TOS which side of the Bid / Ask a trade happens — meaning which side the market maker is taking?  I am looking at Active Trader and don’t think you can see this information.  Thanks for the guidance.

  91. exec

    This isn’t good.
     
    For years they’ve been cooking the books and giving artificially lower deficit projections by using the SS surplus to offset the deficit.  (at least that’s what I read)  Now you have SS on the other side of the ledger adding to the deficit with the amount it adds increasing exponentially.

  92. tuscadog

    Pharm / Missed Double    Yes, but we’ve only ourselves to blame as Ben looked into the camera and told us he was determined to support the mkt to create (the only) feel good factor and his only hope of boosting investor sentiment and getting spending going again.  As Exec noted re Bloomberg Tuesday night, insiders are openly referring to the ‘plunge protection team’ ie illegal insider mkt manipulation apparently sanctioned by the SEC.  No wonder firms like Goldman make $100mm per day trading when they have Ben’s insider script and his funding.
    As I said in an earlier post, Ben can not allow the mkts to tank as it’s his last hope for triggering a wealth effect boost to consumer spending as manufacturing jobs aint coming back from China (especially with Immelt advising our naive Chicago social worker).  He’s between a rock and a hard place.  The job situation will deteriorate further this year with the looming State / municipal layoffs, so QE3,4,5 etc. (and global inflation) is guaranteed.  I’m sure Phil will advise us to invest accordingly?  I’m in cash but I’m thinking it’s too early and the ponzi still has (Bens) legs before the eventual collapse.
    If you think it looks bad in Cairo today just imagine cities like Detroit if we withdrew food stamps for 50 million Americans! That’s why the spending insanity will continue until the collapse.  The old investing rules are compromised by corruption at the highest level.  The hardest part will be figuring how long Ben can play King Canute, then going short?

  93. judy

    yes, exec. That is how it works It has for years. They tap the SS trust fund its not separate.

  94. amatta

    Phil, 
    TZA Shorts? Wouldn’t that be bullish? 

  95. judy

    Pretty crazy. Its like taking money from your IRA to pay current expenses and still saying you have just as much money in your IRA for retirement as you did before the withdrawal. Non-sense accounting.

  96. shadowfax

    exec
    With the video evidence only the lawyers win. Hope the mall doesn’t fill the fountain with cement because the next stupid one will get hurt instead of wet. BTW my 79.33 line from yesterday has changed from resistance to support, the bottom at 11:33 was abounce off a 200 period SMA and now we are resisting the 50SMA. That may be the range for the rest of the day but what the hell do I know.

  97. Phil

     AAPL/Amatta – Well we’re dead center in that range so not much to do really.  You are right though, at about $5.50, you’re not going to do significantly better because you have $10.50 long and $5 short and figure best possible case is $7 so not really worth risking.  Given the current prices, you could cash out the March $325 puts at $6 and leave the rest as we’re more bullish than $330 through the months end and you can stop the Feb $330 puts at $4 if they go the other way so you net $2 off the table at worst and leave the call spread.  

    XOM/Jo – Those are often good spreads, just make sure it’s an amount you are comfortable rolling if you have to.  

    1,300/Pharm – I think it’s a testimony to how fake this all is that people are not jubilantly celebrating these milestones – even the cheerleaders on CNBC act like it’s a crime they are getting away with.  

    NFLX/Ajay – You have net $209.50 on the short and NFLX is at $211.10 so you are out $1.60 so far.  I wouldn’t do anything drastic over that.  They already got a slew of upgrades and a 15% pop so why not just give them a chance to cool down.  Actually, If you move them to the next weekly $205s ($9.30) you spend $6 of the $9.50 you collected to push them up into $4 of additional premium with a tighter clock and if THAT doesn’t work, then you can roll them to 2x the Feb $215s, now $6.60 and get your $3 back again.  

    Dollar/StJ – Still at 77.91, not dead yet!

    Strangle/Iflan – I think they may be too clever for that one and the market seems determined to pin these levels into the weekend in general.  

    Saluzzi/Fortep – That’s a good one. 

    Suit/Exec – That’s pathetic.

    Oil/Rehat – We’re in a bad spot in the NYMEX cycle for betting.  Oil is generally way overpriced, even here but it’s so easy to push higher on a day. I’d be inclined to go long at $85 for a bounce but let’s see how they handle that first. 

    Nat gas/Chaps – Lots of cross currents but I still think we finish the year higher.  After betting we’d hit $7 by Jan and failing last year though, I don’t have a lot of taste for playing nat gas and, oddly enough, CHK is on a roll, regardless so they are not a play either.  

  98. diamond

    Phil - Now may be the time to pick up that deserted island (at a "deep" discount). ;-)

  99. jomama

    sorry phil, i was looking at xom 70 price instead of 80….. oops

  100. exec

    Shadow/79.33
     
    I sold everything earlier with the exception of the April TZA 15′s.  I have some time so I decided to hold them for a while……after all, this market can’t go up for ever……can it???? 

  101. drmtv10

     Hi Phil and members.
    Comments appreciated for following trade under consideration:
    XRT  put debit spread, buying June 47P & selling June 44P (net cost $0.97).  On the other hand, sell BBY June 32P for $1.33 (or 32/22 credit spread for $1.1), matched by same amount.  
    Though the trade is a net credit of 0.1, it’s not risk free.  It seems that one should be prepared to buy BBY for $32 (30.67). Do you think that inflation / QE will keep XRT high (there seems to be high open interest in XRT for Feb/Mar, hence I decided to look at June) enough, where XRT may not feel gravity at all, making this trade a non-starter..
    Thanks in advance.

  102. reza99

    Phil:
    What GDP number tomorrow would be good enough for the S&P and the Dow break through 1300 and 12000 marks?
    Do you see a risk of  the GDP number not meeting the expectations?
    TIA

  103. pstas

     LinkedIn Corp. is likely to file for an initial public offering as early as Thursday with the U.S. Securities and Exchange Commission, according to a report from Bloomberg citing a person familiar with the situation.
     
    Sure, why not. 
    Come to think of it, why not re-do the whole dot.com thing again. I am a lot "smarter" now and this time, I will sell  CSCO at 80. :)

  104. exec

    Reza/GDP,
    I just assumed it would make it.  All they have to do is lie……they can always adjust it down a few months from now on a Friday before a holiday weekend.

  105. kallenjr

    Phil,
     
    If market manipulation is allowed, is there anyway we can do it? Create our own bot network? :-)
     
    -ken

  106. reza99

    Phil:
    BTW, I think inflation is good for nominal GDP; GO FED!!  :)

  107. shadowfax

    exec
    I decided to buy some puts at 13:20 to hold for a while but net $168, 6% in twenty minutes got me out again.

  108. reza99

    Exec:
    Judging by the past yes. Would it be giving ‘them’ too much credit if ‘they’ let a bit of air out of the inflating market once in while making for a nice clean short correction? dunno.

  109. Phil

     POMO Expiration/Exec – It runs through June at the moment but the old one also expired once.  Any program is going to have a sell-stop.  GS doesn’t have a program running that says "buy an infinite amount of stock to support Dow 12,000 no matter how many people are selling."  That just isn’t happening so, therefore, an event could trigger that flips those bots to sell one by one and that can snowball very quickly out of control because we’ve had only low-volume moves up and that means there is not likely to be buyers to be found for what is being sold for a very, very long time. 

    Bid/Ask/Robert – You can watch and try to pick out patterns but it’s not like there’s a big sign that flashes.  What you should do is look for the the blocks and keep track of what it takes to move them and how quickly new bids are revealed once one strike is exhausted.  It’s usually pretty easy to see where the real money is bidding and asking if you are patient and the people coming in in-between are generally the retail suckers paying more or selling for less than they should. 

    Social Security/Exec – Oh that’s just this decade!  

    Good summary Tusca.  As I said on the weekend though, Ben is just a guy with a hose and he’s pretty much got it running full.   He just asked Timmy to come in and use his hose too but Timmy has a small hose and the hole is getting bigger and the more they fill it, the bigger it gets.  It’s a losing battle – that’s for sure.  

    TZA/Amatta – I mean using TZA for shorts, of course. 

    Island/Diamond – Yeah, I put that up yesterday – LOL!  

    XRT/DrMTV – I had shorted them in the $1050P a while ago, I’m surprised they held up so well.  I like your spread as BBY should rise with XRT and may even outperform it so it should be low risk. 

    GDP/Reza – We had a preliminary 2.6% but Christmas Sales and Inventories have jacked expectations way up to 3.4%, which I think is unrealistic.  I think that a small miss, maybe 3.2% would be considered a plus as it keeps the Fed on the table (as if they need an excuse) but below that will worry people.  Watch out for the Chain Deflatior as over 2% is a problem for the Fed’s low inflation myth and, of course, any gain in the Employment Cost Index over 0.5% would be considered catastrophic (God forbid we pay people!).  Then you have Michigan Sentiment at 9:55 and we’ll see how happy people are with their $50 tanks of gas.

    Dot com/Pstas – Groupon, Facebook, LinkedIn, OPEN, NFLX…. it’s already happening.  

    Manipulation/Kallen – Sure we can do it, it’s actually easy.   Here’s a video of Cramer telling us how to do it but if WE do it, we go to jail – if Lloyd Blankfein does it, it’s God’s work.  Don’t forget that!  

  110. Phil

     You would think they would be embarrassed to have these totally fake stick saves every afternoon at 3:30 but nope – they don’t really care who knows what a total scam this thing is, do they?  

  111. jvest

    Phil/TASR - I have tried to go long TASR a few times with lackluster success. Do you like TASR enough to actually put up your own money, or is it just a "like it long term" kind of thing? Would you put it in the $25KP? The stock has fallen over 10% in the past 10 days on basically no news.

  112. shadowfax

    Phil
    Pool Breaks! save that one!

  113. amatta

    Come on… this is just getting old! Damn this manipulation, every frigging time they pull the Dow out of negative to finish up… The same with TBT, right at 39.50 they pull the string on it. Just need to adequate myself to following their cues, but then they will probably change course…

  114. jvest

    Also, QID is down 1.5%+ today but I still don’t see July $10 calls for $1.05. Perhaps you meant the July $11 calls?
     
    "QID also getting fun at $10.65!  July $10 calls are $1.05 and you can sell March $11s for .45 and that’s net .60 on the $1 spread which is still a 66% upside and if QID goes further down, then you can sell some puts for .50 to offset further, maybe the July $8 puts, which are .20 now."  

  115. rainman

    Whuck? MSFT released early again? Some tech heads over there eh?

  116. amatta

    Oh oh now they will make a huge deal on closing above 12K…. It diddnt close there yesterday but that didn’t stop them from covering the screen with 12K celebration

  117. shadowfax

    Microsoft
    Their good report was do to Windows 7 sales not computers, was late but is selling because it is a good one. Bet CNBC doesn’t figure that out. 

  118. tuscadog

    MSFT I assume the early release is to pin 12,000?  Boy they’re relentless.

  119. amatta

    Phil, 
    The market makers I assume have a bot calculating algorithms to put in the bid ask on options that are not that liquid right? or how does that work? It doesn’t seem to be linear with movement on the underlying though… and it always seems to be tilted against me when I try to enter or exit a position.

  120. amatta

     OHH no they can’t pull it off? Those bots will get an asswhopping later….

  121. shadowfax

    CNBC Microsoft
    They got part of it not PC sales, Windows and Office sales are upgrades, computers are no better than 2 years ago but their software is better. And what does Microsoft produce?

  122. tuscadog

    Phil / DBA Do you still like DBA at these elevated levels?  The spreading riots will lead to more subsidies and underpin consumption?

  123. Phil

     Look at AMAT fly!  I have to wonder if we’re causing this.  The market is so thinly traded it’s hard to tell if I made a well-timed call or if my call caused the move…

    Speaking of dot coms, Pstas – be sure to let me know when "Angry Birds" does their IPO!  8-)

    TASR/JVest – I like TASR as a long-term retirement play.  I think one day there will be a lawsuit in which a police department will be sued for NOT using a TASR and that will turn the tide.  The guns get better and better and the company still spends 20% of it’s revenues on R&D.  Their growth has been arrested by the budget crisis but they have a clean balance sheet and their patents have stood up to vigorous competition and they are still very, very small, with 350 employees but $100M in sales so $285,000 per employee – that’s a good number!  We always buy the stock around $3.50 to $4 and it’s $4.22 now and you can sell the Sept $5 puts and calls for $1.60 for net $2.62/3.81, which is close to 100% if called away at $5 and a nice starting point if not.  Don’t forget, if your basis is down at $3.50ish, you can just sell the Sept $5 calls for .40 and you’re well over 15% annual returns on just the call side while you wait for the stock to head higher – what’s not to like?  

    QID/Jvest – You are right, maybe I was looking at April as that spread with the March $11s is net .58.  Wouldn’t be worth spending more to buy the time.  

    MSFT – Man that is messed up!  

    MMs/Amatta – They now have algorithms that go right after the individual trade so if you put in a bid for $1.05, they will buy ahead of you and clear the $1.05s out and push the ask to $1.10 and if you pay it, they sell to you for $1.10 and make .05 in 10 seconds.  You have to put a bid in and stick to it – never chase.  

    DBA/Tusca – I don’t like a new entry here.  I really think the rioting is a wake-up call for the G20 to do something about this.  

    Bots/Amatta – Oh so close!  1,299.54 (rounds up to 1,300) on the S&P, 11,989 on the Dow, 2,755 on the Nas, 8,206 on the NYSE and 795 on the RUT.  Guess they didn’t want to make ti too obvious….

    CNBC talking up MSFT like it’s crack…

  124. Pharmboy

    AMZN should take NFLX with ‘em…..

  125. judy

    Pharmboy,
    What do you think of ABT. I think they are in trouble with the new small molecule drugs to compete with humira. Thinking about a bearish position. BUt, its pretty low and pays a solid dividend so that supports its price.
    Any thoughts.

  126. rainman

    SNDK trounced earnings

  127. nicha

    Can somebody please expain how Phil got the basis of $3120 and the bcs max profit of $4000 (up 48%) from below. Thank you.
     
    IBM/Nicha – Well you had a net of about -$1 after the first roll and you have 4x $8.80 ($3,520) and your callers are 5x $11.70 ($5,850) so the best thing to do is double up your April calls (+$3,520), which increases your basis to $3,120 and then roll your callers to 8 of the March $155 calls at $7.85 ($6,280) which drops your basis to $2,690 on 8 April $155s and you are short 8 March $155s and the hopes are you will be able to roll those to the Apr $160s, which are now $5.50 for even or better, leaving you in a $5 bull call spread which has a max payout of $4,000 (up 48%), which is not too bad for a blown trade. 
     
    Here is my original question:
    Phil / IBM – original trade was: 5 IBM Jan $150 calls at $1.65 ($825) can be sold against 4 April $155 calls at $2.49 ($996). The Jan $150 calls ($5.60) were rolled to Feb $150 calls ($6.10) for a credit of .50 cents. Now those Feb $150 calls are $12. Looking at your answer below (01/20/11) I think it is time for me to roll into a vertical. But which one? Thank you.

  128. Phil

    01:00 PM On the hour: Dow +0.14%. 10-yr +0.16%. Euro -0.12% vs. dollar. Crude -1.09% to $86.38. Gold -0.85% to $1323.10. 

    02:00 PM On the hour: Dow +0.09%. 10-yr +0.27%. Euro +0.05% vs. dollar. Crude -1.86% to $85.71. Gold -1.47% to $1314.90. 

    03:00 PM On the hour: Dow +0.11%. 10-yr +0.32%. Euro +0.11% vs. dollar. Crude -1.98% to $85.60. Gold -1.65% to $1312.50.

    At the close: Dow +0.03% to 11989. S&P +0.22% to 1300. Nasdaq +0.58% to 2755.
    Treasurys: 30-year +0.44%. 10-yr +0.27%. 5-yr +0.24%.
    Commodities: Crude -2.05% to $85.54. Gold -1.66% to $1312.30.
    Currencies: Euro +0.18% vs. dollar. Yen -0.45%. Pound 0%

    Market recap: Stocks hung onto slim gains amid mixed economic and earnings news and light trading, while strength in semiconductors boosted the Nasdaq. Gold settled at its lowest level in four months, and crude oil futures tumbled another 2%. The dollar jumped vs. the yen after S&P’s downgrade of Japan but fell vs. the euro. Advancing issues slightly led decliners on the NYSE.

    Microsoft (MSFT): FQ2 EPS of $0.77 beats by $0.09. Revenue of $19.9B (+4.7% Y/Y) beats by $0.75B. Shares flat (PR)

    SanDisk (SNDK): Q4 EPS of $1.27 beats by $0.19. Revenue of $1.3B (+7% Y/Y) in-line. (PR)

     

    Shares of Amazon.com (AMZN) are down $15, or 8%, at $171.18, after the company reported Q4 revenue of $12.95 billion, up 36%, year over year, but below analysts’ $12.98 billion estimate. EPS of 91 cents, however, beat the average 88-cent estimate.  Operating income was $474 million for the quarter, the company said. Amazon forecast Q1 revenue of $9.1 billion to $9.9 billion, beating the consensus $9.3 billion forecast, with operating income in a range of $260 million to $385 million.

     

    "What started in Tunisia is not over," is among the slogans chanted by marchers in Yemen as the wave of protests across the Middle East spreads. Demonstrators are demanding the end of the repressive, corrupt regime of Ali Abdullah Saleh.

    Worried about increasing prices, short supplies, and political unrest, developing countries are stockpiling staples. Wheat touches a new 29 month high after Algeria and Saudi Arabia announce extraordinary purchases. Indonesia, which usually buys rice 200K tons at a time, tenders for 800K. JJA +0.4%

    George Soros tells CNBC that budget pressures faced by state and municipal governments will be “the drama of the next year." Expect “some pretty tough conditions," he says, comparing it to the euro-zone crisis, which also stemmed from “states (being) too heavily indebted." 

    The Financial Crisis Inquiry Commission releases its official report on the causes of the financial crisis blaming Wall Street excesses and regulatory failures, but the group split along party lines and produced two dissenting reports (I, II). A disappointed Yves Smith says all help perpetuate the "myth" that Wall Street was as much a victim of the crisis as anyone else. 

    Las Vegas, where one out of every nine homes received foreclosure filings in 2010, leads the top 10 U.S. cities where foreclosure rates are highest, according to RealtyTrac. Houston, Seattle and Atlanta suffered the year’s biggest increases among major metro areas.

    An analyst from Canada’s Brockhouse Copper notes that the typically tight relationship between the price of copper on the LME and in Shanghai has broken down. The last 2 times this divergence occurred marked significant tops in the metal’s price. JJC +1.1%. FCX -2.8%

    With new public attention focused on reforming the tax code, it’s worth noting that corporate taxes vary widely by industry and other factors. From testimony, some winners (GE – which pays an effective 3.6% – and MRK and PFE) and losers (CVS, paying 38.8%, and TGT, among others). 

    Hulu’s (DIS, GE, NWS) investors are at odds with themselves and with Hulu management about the company’s future, say sources. The owners aren’t sure how much content should be free, and are selling more titles to Hulu competitors like Netflix (NFLX). And Hulu execs may recast the firm as an online cable operator.

    Citigroup (C), Ally Financial and Goldman Sachs (GS) say they are reviewing home lending operations to make sure they haven’t broken a law meant to shield military personnel in active service from foreclosure. JPMorgan Chase (JPM) has uncovered problems with military foreclosures, and a NYT report describes abuses by Deutsche Bank (DB).

    Apparently, Verizon (VZ) will let existing corporate customers buy an iPhone (AAPL) on Feb. 3, a week before the general public. It’s also offering some existing AT&T (T -3%) iPhone customers a chance to trade in their devices for a credit when buying the Verizon iPhone 4. The market will watch the outcome of this offer closely.

    Oil prices have not yet reacted to anti-government protests in Egypt, but the unrest appears to be pressuring Apache (APA -5.7%) shares. The Egypt region represents Apache’s largest acreage position, with 11M gross acres in 21 separate concessions (18 producing) and contributing 30% of Apache’s production revenue in 2009. (Briefing.com)

    Semiconductor gear maker Applied Materials (AMAT +4%) hits a new 52-week high, exceeding its prior max of $15.57/share. Applied will potentially benefit as Samsung (SSNLF.PK) and Taiwan Semiconductor (TSM +0.1%) spend on capital equipment to increase chip production. Intel (INTC +0.4%) and Globalfoundries are also boosting production capacity. 

     

    From Barry:  Speaking of costly wastes of money: This colorful graphic via Perceptual Edge, shows the outrageous costs of war in Iraq (click for big one):

     

    >

  129. yodi

    jvest TASR  In seaman’s terms they call this stock dead in the water. I do have it for ages on the books gaining on option plays possible 30cents a month. It is the stock of the century.

  130. Pharmboy

    Judy – I have been wanting to do a writeup on ABT, but because they have so many different revenue streams (like JNJ to some extent), it is hard to wrap your hand around.  I still am working on something, and I agree with your first look.  ABT has been on many money managers sites due to its cash generating abilities, although I have never liked their drug pipeline.  Let me finish my write up on them.

     

    I think this is the year for many Pharma companies to set up to the plate.  Biotechs are kicking the the big boy’s rears, and they need to start a buying spree soon.  GILD buying Arresto…come on….that is a one trick pony that is not even near completion yet.  SGEN, IMGN, PDLI, ARIA, ARRY, CRIS and a few others are the way to play these.  There are sooooo many out there, and most fail, but if you see something or a company lemme know!

  131. Phil

    Party Time!  With Washington buzzing with proposals to cut the budget, Sen. Rand Paul and Rep. Michele Bachmann — two high-profile Tea Party members — have each released laundry lists of spending cuts:

    The numbers in their proposals are staggering. Paul wants to slash $500 billion in fiscal year 2011, which only has eight remaining months. Bachmann lists more than $400 billion in cuts.

    Among Paul’s proposals: gut the Department of Energy and the Department of Education and sharply curtail discretionary spending.
    The cuts:
    • legislative branch — 23%
    • federal courts — 32%
    • Agriculture Department — 30%
    • Commerce Department — 54%
    • Health and Human Services — 26%
    • Homeland Security — 43%
    • Interior Department — 78%
    The legislation also lists programs for elimination. How about … the Affordable Housing Program, the Commission on Fine Arts, the Consumer Product Safety Commission, the Corporation for Public Broadcasting, the National Endowment for the Arts, the National Endowment for the Humanities and the State Justice Institute.
     
    "Oh my god. That’s just crazy," said Isabel Sawhill, an economist who studies fiscal issues at the Brookings Institution. "Really that is wacko."
     
    While the numbers are eye-popping, Paul’s proposal is limited mostly to non-defense "discretionary" spending, which is less than 20% of the total budget.
     
    Paul does not propose significant changes to the other 80% — the funding for defense, Medicare, Medicaid and Social Security — where much of thegrowing debt problem is rooted.

     

  132. Phil

    Joe Stiglitz’s wife (funny girl and author) writing about Davos:  

    The point about Davos is that it makes everyone feel wildly insecure. Billionaires and heads of state alike are all convinced that they have been given the worst hotel rooms, put on the least interesting panels and excluded from the most important events/most interesting private dinners. The genius of World Economic Founder Klaus Schwab is that he has been able to persuade hundreds of accomplished businessmen to pay thousands of dollars to attend an event which is largely based on mass humiliation and paranoia.

    Wives feel sympathetic to their husbands and share their pain. But we have our own problems to cope with. After all, we are the on the bottom rung of the Davos ladder.  The most revealing sign of our lowly status is that we are forced to wear the ultimate badge of shame — the white name tag.
    The wives’ name tag guarantees that the Davos man in question will instantly decide you are of no value and so he immediately looks over your shoulder for the next best opportunity, i.e. someone without a white name tag who is, by definition, more important than you. Many wives refuse to be Davos wives and the white name tag is the reason they most often cite for their decision to stay home.

    But if wives have it bad, mistresses, who are invited under a variety of guises and usually wind up with a white name tag, have it worse. Typically their men are swallowed up by a tsunami of meetings and interviews and don’t have the time or inclination to take their mistresses around with them. Often these men go to high-level dinners to which wives and mistresses are not invited. The skinny and beautifully dressed Davos Mistress typically hangs around the auditoriums waiting for a couple of minutes with her man. While waiting, she keeps her eyes peeled looking to search and destroy the competition.

    The only thing worse than a white pass, is no pass. Rumor has it (heard first-hand from more than one jealous Davos Mistress) that there are legions of women — let’s call them the aspiring mistresses — who do not get a coveted Davos invitation and badge and so can not enter the Congress Centre but who come anyway. They book a hotel room and prowl the streets hoping to snare their prey. They are the worst enemies of the Davos Mistress.

  133. Phil

     Wow, this is going to be bad:  Moody’s Investors Service has begun to recalculate the states’ debt burdens in a way that includes unfunded pensions, something states and others have ardently resisted until now.

     

    Moody’s new approach may now turn the tide in favor of more disclosure. The ratings agency said that in the future, it will add states’ unfunded pension obligations together with the value of their bonds, and consider the totals when rating their credit. The new approach will be more comparable to how the agency rates corporate debt and sovereign debt. Moody’s did not indicate whether states’ credit ratings may rise or fall.
     
    Under its new method, Moody’s found that the states with the biggest total indebtedness included Connecticut, Hawaii, Illinois, Kentucky, Massachusetts, Mississippi, New Jersey and Rhode Island. Puerto Rico also ranked high on the scale because its pension fund for public workers is so depleted that it has virtually become a pay-as-you-go plan, meaning each year’s payments to retirees are essentially coming out of the budget each year.
  134. Phil

    From Bloomberg – 60-Month Countdown to China Syndrome

     

    Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.
     
    An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.
     
    “There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

     

  135. hextra8

    Phil -
    I’m writing after hours so my post doesn’t take up space during the trading day but I NEED YOUR ADVICE/HELP! Chase Home Finance has notified me that they are getting ready to foreclose on my home in Los Angeles.
    I constantly get the runaround from Chase. They keep telling me a modification plan is in the works but nothing comes through. I have my own business, a steady income. I’ve had a short-term financial setback in the last two years due to the economic downturn. Once I fell behind on my mortgage, I’ve been unable to catch up. My home is not underwater. I need the kind of reset that mortgage modification provides but how do I get Chase to give me one? Much thanks.

  136. Pharmboy

    Phil – and I thought Rosie was doom and gloom……

     

    A long-standing colleague and reader sent this off to me yesterday and it blew me away. Read on:

    Obama’s State of the Union:

    “Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.”

    Herbert Hoover, May 1st 1930, US Chamber of Commerce Meeting:

    “While the crash only took place six months ago, I am convinced we have nowpassed the worst and with continued unity of effort we shall rapidly recover.”

    Obama’s State of the Union:

    “Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.”

    Herbert Hoover, October 22, 1932, campaign speech in Detroit:

    “It can be demonstrated that the tide has turned and that the gigantic forces of depression are today in retreat. Our measures and policies have demonstrated their effectiveness. They have preserved the American people from certain
    chaos. They have preserved a final fortress of stability in the world.”

    Obama’s State of the Union:

    “But now that the worst of the recession is over…”

    Herbert Hoover, June 1930, to a delegation requesting a public works project:

    “Gentlemen, you have come sixty days too late. The depression is over.”

    Obama’s State of the Union:

    “The steps we’ve taken over the last two years may have broken the back of this recession…”

    Herbert Hoover, State of the Union, December 6, 1932:

    “The unprecedented emergency measures enacted and policies adopted undoubtedly saved the country from economic disaster…”

     

    OMG…..

  137. amatta

     Phil, 
    AMZN, I wasn’t the one buying them, Pharm did. I was actually thinking of shorting them, as I couldn’t believe they were .65, hence my question if they were reporting earnings…

  138. Pharmboy

    AMZN – yeah, I bought them.  Gambling at its best.  I also bought the 175 weekly Cs when the wedge went up and got out to ‘pay’ for those gambles.  So, only out about $150 on the whole thing.

     

    Here is a nice doozy for us taxpayers (from Bloomberg):

    Goldman Sachs Group Inc. received $2.9 billion for its own account as a taxpayer bailout enabled American International Group Inc. to make good on credit-default swaps linked to mortgages, a congressionally appointed panel said.

    The money was included in about $3.4 billion in swap- related payments, most of which AIG made following the government’s bailout, the Financial Crisis Inquiry Commission wrote in a book outlining its findings. That was in addition to about $14 billion that Goldman Sachs collected from AIG and passed to other counterparties, according to the report.

    The $2.9 billion “was for proprietary trades (that is, trades made solely for Goldman’s benefit rather than on behalf of a client),” the panel wrote. The payout was “largely relating” to collateralized debt obligations known as Abacus, a series of mortgage-linked investments the firm helped create, the FCIC said, without specifying the relationship.

    Goldman Sachs, the most profitable firm in Wall Street history, acted as a “market intermediary” and bought protection from AIG to hedge transactions with clients, Chief Financial Officer David Viniar told reporters on a conference call in 2009. The trades at issue in the FCIC’s report were hedged, and most of the payments were used to cover offsetting bets, a person with direct knowledge of them said, declining to be identified because the transactions weren’t public.

    The FCIC, which set out to determine the causes of the financial crisis, released its report today in Washington, simultaneously publishing a 545-page book.

    Contracts Retired

    Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the panel’s findings. Chief Executive Officer Lloyd Blankfein told a Congressional panel last year that the firm lost about $1.2 billion from residential mortgage transactions in 2007 and 2008.

    The $3.4 billion in AIG guarantees weren’t included in a government bailout of the New York-based insurer that retired $62.1 billion in contracts by fully reimbursing banks, including Goldman Sachs and Societe Generale SA, through Federal Reserve vehicles called Maiden Lane.

    AIG extinguished the additional swaps, which guaranteed Abacus CDOs, in 2009, taking writedowns of $1.5 billion to $2 billion, a person with knowledge of the matter said last April. AIG originally had about $6 billion in Goldman Sachs trades that weren’t covered by the rescue, that person said.

    Mark Herr, an AIG spokesman, declined to comment.

    Goldman Sachs agreed last year to pay $550 million to settle a Securities and Exchange Commission fraud lawsuit alleging that it misled investors by underwriting and marketing a mortgage-related security called Abacus 2007-AC1 without disclosing to clients that a hedge-fund customer, Paulson & Co., was involved in creating it and planned to bet against it.

  139. exec

    I see our idiot from Cleveland….Dennis Kucinich…..sues the congressional  cafe.
     
    Amazing they keep electing this moron.

  140. Phil

    Well I can’t tell you how pleased I am to see my fundamental outlook on AMZN play out.  $185 was our long-standing target to short them and I’m sorry we didn’t risk it today but we’re so shell-shocked from the index climb I just didn’t have the stomach for another downside play, even though they hit $185 into the close.  This is a good time to observe the value of the Wiki Link above as it is very easy to click on AMZN and get my take on it from my last 5 comments – I’m using it all the time to check if I was on target about earnings.  

    Perhaps this will take the wind out of the sails of other MoMo stocks – especially if GDP is a miss.

    Math Nicha – I did the math right there.  You began with a $171 net credit and sold another $250 when you rolled (500 x .50) and from there on I did the math on every step.  

    Chase/Hextra – First of all, a foreclosure takes forever so don’t panic.  I can’t tell you what the rules are in California but there are people like Legal Loan Relief or even the AG’s office or HUD counselors, who can help you.   Your local Congressperson is a good one to go to, especially if they are a Democrat and, of course, if you have a contact with someone in TV news – nothing resolves your problems better than a video camera!  If you have connections, now is the time to use them and, don’t forget, you can also go to another bank, who may derive more of a benefit from helping you and swiping the mortgage, leaving Chase to hold the bag, than Chase would be modifying what you have.  The fact that you are not underwater makes Chase less willing to negotiate as they can turn a profit flipping your home.   Also, talk to your accountant as your business may be able to file a lien on your property to make it less attractive for Chase to take over.  

    OMG/Pharm – OMG! 

  141. amatta

    Phil, 
    Some input on the WIKI… I wanted to see all commentary and posts (the play you recommended today on WYNN), but I get a whole set of posts unrelated to WYNN if I type in the ticker in the search field. If I go on the WYNN link it does give me your comments on it (all responses to me… 8-) ) but that play from today does not show up/

  142. stjeanluc

    Iraq Cost / Phil – Think about what could have been done in this country with $3 trillions! But let’s complain about $800 billions spent on stimulus in this country nonetheless! So I guess it’s OK to spend all that money in Iraq, but let’s make sure we take your kid’s college money, granny’s retirement and any promise of better health coverage so we can pay for it and lower taxes on the top 1%. Makes my stomach turn thinking about the lost opportunities of the last 10 years.  
    I am not sure what the solution is long term, but when I hear guys like Paul Ryan and others talk about tax cuts as a solution to all problems, I am thinking – didn’t we just try that and what were the results. In 2001 and 2003 we passed what is costing $3 trillions of tax cuts and how many new jobs did Bush create in 8 years – zero! And of course, the same people clamoring for tough spending cuts now that they are not in power had no problem spending like drunken sailors then. But as they say, it’s history, we need to move along! But lets keep on living in this imaginary world where tax cuts pay for themselves (even Laffer of the Laffer (or is it Laughter) curve admits they don’t) and they trickle down to create jobs! Do you think we would learn! At the same time, I am not sure that Keynesian spending produces better results in the long run (I am not an economist) and surely austerity is also painful. Looks like the UK might be slipping back into a recession, so no joy there. I have family in France and Spain and it’s no picnic there either! My mother who is 75 this year volunteers in a food bank in a small town (4600 people) and she told me that just on Friday they had over 40 families getting free food! That can’t be a good sign!
    I have to disagree with you regarding Europe being more willing to accept austerity measures. For the older generations like my parents who have lived through WW2 and the sacrifices that came with it, it is true to a certain extent. They have lower maintenance needs. But the new generations don’t take to keenly to reductions to their "benefits". What has cushioned the blow so far for many of them is the social security nets in place – better unemployment benefits, universal health coverage, decent retirement benefits. The crisis has hit harder here because these benefits are either less generous or non-existent if you don’t have a job and most people had too heavy a debt load to begin with. When the money runs out in Europe (and it will), there will be trouble.
    Anyway, my rant for tonight. Might be the endorphins rush from shoveling these 17" of snow!

  143. exec

    Damn Jeanluc……..that was a serious rant.

    You’re not going to go Postal or Arizonal on us are you?

    Don’t sweat it. Jeb Bush is going to send O’Bama home in a couple of years and he’ll fix e everything.

  144. tuscadog

    Phil / Oil   The spreading riots in the Muslim world must be worrying the parasitic Saudi royals.  They have 6 kids per family and no job creation (totally uncompetitive in everything and expats make everything work) - a powder keg.  The web will spread the revolution among the young.  The Saudis must be thinking about how to stunt the revolution and the best way I can think of is to get the price of oil down to $60, which feeds through to food and other commodities and will calm the masses in the surrounding muslim paradises.  They are the only producer with spare capacity, so they could stop this global inflation thing in it’s tracks at will.  Could this be a good political rationale for shorting oil here.

  145. jromeha

    All – I was HOPING you could write support@thinkorswim.com and request that they add RICE FUTURES (/ZR) to their futures platform. I was going to go long at 13.5 and then realized TOS didn’t have it. THey told me if they get enough requests they would consider adding it. I will post this again on here – please take a minute of your time and shoot them an email. I was going to open up an acct with another broker but didnt have enough time before /ZR took off on me :(
    St Jean – what state do you live in?

  146. stjeanluc

    Exec – Not going postal anytime soon! And all we need is another Bush in the White House. 

  147. stjeanluc

     Jromeha – Southern NJ.

  148. stjeanluc

    Speaking of TOS, I wish they would change their Order Confirmation windows to clarify the margin requirements. I had questions today and they finally told me that the Buying Power Effect is not the total margin requirement but the amount you need to add to the credit you get for the option sale to get the total margin requirement. Seems to me that some coding would solve that problem easily!

  149. stjeanluc

    Jrom – That’s one of the issue I have with TOS, they are thin when it comes to futures. IB seems have a much better list, but they nickel and dime you with cancelled orders so I have been hesitating to open an account there. But I might one do that eventually. 

  150. amatta

    Tusca, 
    Interesting conjecture… do they have the same kind of issues as the other muslim countries? (aside from being a quasi-dictatorial regime) I was under the assumption that they had a much higher standard of living for the average citizen and thus the status quo was safe…

  151. nicha

    Phil / IBM Math – My apologies if you thought I am questioning your math. I wanted to understand how to calculate the basis of $3,120. I am trying to learn how to calculate rolling costs. My calculations are as follows. Please advice if I am wrong below. Thank you for your patience :)
     
    Original trade: (4 X $2.49 = $996) – (5 X $1.65 = $825) = debit of $171.
    When I rolled from Jan $150 to Feb $150, I got a credit of $250. 
    Trade Cost after the roll: credit of $79.
    I then doubled up on the April calls for (4x $8.80 = $3520) + (4 X $2.49 = $996) = $4516
    Rolled the 5 Feb $150 calls to 8 March $155 calls: (5x $11.70 = $5,850) – (8 X $7.85 = $6,280) = credit of $430
    Total Cost of the trade = $4516 – $430 – $79 = $4007.
     

  152. zeroxzero

     T-dog;  Yemen is already moving, I’ll bet the Saudi royals are indeed worried.  And they certainly have the capacity to pump more [although less than they have been claiming, I  suspect.] But, other than for a very short period, I think $60 oil is a bridge too far for Saudi Arabia.  FT wrote about Chinese consumption yesterday [and if you believe that China is tightening in a meaningful way, how come they won't let their currency rise?]:
    Lex, 26/1/2011: "China’s commodities consumption is so voracious that when the country’s demand hits a fresh record the market barely takes notice any longer. Even so, Beijing’s recent record-breaking run in crude oil and thermal coal consumption merits attention.
    The IEA forecasts that China will consume on average 9.8m b/d this year, roughly double the 4.7m b/d of ten years ago. The consumption rate is staggering. China will consume this year the same amount of crude oil as all the top buyers of Europe combined: France, Germany, the UK, Italy, Spain, the Netherlands and Belgium.
    Oil is not the only area in which China broke records recently and hit key levels.
    The country’s imports of thermal coal, used to fire power stations to produce electricity, surged for the first time above the key 100m tonnes in 2010, according to official data. The spike puts China as the second largest coal importer, behind Japan.  The surge in Chinese thermal coal is even more staggering that the spike in oil demand as the country was until only three years a net exporter of thermal coal."
    Saudi Arabia may bribe their way out of a revolution by making internal payments. But Yemen, Libya, the Emirates, Bahrain — there are lots of nearby candidates for a popular uprising.  As written on Monday, I’m long PBR, SU, and other Western Hemisphere oil producers.
     

  153. zeroxzero

     Suggestions welcome on how to do a currency cross with options.

  154. stjeanluc

    That was a dramatic solution to one of today’s problems:
    Unlike modern day climate change, however, the Mongol invasion cooled the planet, effectively scrubbing around 700 million tons of carbon from the atmosphere. [...] Over the course of the century and a half run of the Mongol Empire, about 22 percent of the world’s total land area had been conquered and an estimated 40 million people were slaughtered by the horse-driven, bow-wielding hordes. Depopulation over such a large swathe of land meant that countless numbers of cultivated fields eventually returned to forests

  155. stjeanluc

    Not everybody in the top 1% is blind to what is happening:

    Martin Sorrell, the CEO of advertising and public relations giant WPP, was just at the Sundance Film Festival, where he saw a documentary called The Flaw. The title comes from Alan Greenspan’s now-famous admission to a Congressional committee in 2008 — "I have found a flaw in the model that defines how the world works" — and as best I can tell it posits that extreme income inequality was a precipitating factor behind the financial crisis.
    It certainly left an impression on Sorrell. "Wealthy people invest in financial assets; they create asset bubbles," he said this morning. When wealth is distributed more equally, he went on, you get more sustainable growth.
    Sorrell is a wealthy man, and he said all this while at the front of the room at one of the opening events of the World Economic Forum’s annual meeting in Davos, one of the world’s great gatherings of those near the top of the wealth pyramid. It seemed like a significant moment.

    Jim Turley, the CEO of Ernst & Young, immediately went and ruined it by changing the subject to the decline in business-bashing in the U.S. But then Zhu Min, a top IMF official and former central banker in China, brought it up again: "Increasing inequality is the biggest challenge the economy faces for the whole world — not just advanced economies," he said. "We cannot let the income disparities increase further." 

  156. yshenhar

    From Rosenberg:
    Obama’s State of the Union: 
    “Two years after the worst recession most of us have ever known, the stock 
    market has come roaring back. Corporate profits are up. The economy is 
    growing again.” 
    Herbert Hoover, May 1st 1930, US Chamber of Commerce Meeting: 
    “While the crash only took place six months ago, I am convinced we have now 
    passed the worst and with continued unity of effort we shall rapidly recover.”

    Obama’s State of the Union: 
    “Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger 
    today. Every business can write off the full cost of the new investments they 
    make this year. These steps, taken by Democrats and Republicans, will grow the 
    economy and add to the more than one million private sector jobs created last 
    year.” 
    Herbert Hoover, October 22, 1932, campaign speech in Detroit: 
    “It can be demonstrated that the tide has turned and that the gigantic forces of 
    depression are today in retreat. Our measures and policies have demonstrated 
    their effectiveness. They have preserved the American people from certain 
    chaos. They have preserved a final fortress of stability in the world.” 
    Obama’s State of the Union: 
    “But now that the worst of the recession is over…” 
    Herbert Hoover, June 1930, to a delegation requesting a public works project: 
    “Gentlemen, you have come sixty days too late. The depression is over.” 
    Obama’s State of the Union: 
    “The steps we’ve taken over the last two years may have broken the back of this 
    recession…” 
    Herbert Hoover, State of the Union, December 6, 1932: 
    “The unprecedented emergency measures enacted and policies adopted 
    undoubtedly saved the country from economic disaster…” 

  157. yshenhar

     Pharm / OMG – woppps – should have read up all the comments I missed today :)

  158. nicha

    IL Supreme Court allows Emanuel to be on the ballot for mayor.

  159. jromeha

    StJean, I hear you! I cancel A LOT of orders! Still, not having the opportunity to go long rice cost me almost 4k per contract already! Very disheartening!
    Exec – Really? StJean’s comment was mild….. You definitely smoking some good sh!t if you think the American people are DUMB enough to elect another Bush…. Well, after the last election you MAY be right. However, if you feel like betting some $$$ on it just let me know, I’ll oblige huckleberry! Already have a bet with the member formerly known as Gel that Obama will beat the Morman,…. I’ll gladly take the bet if you want to place some money on Jeb Bush Vs Obama (bet nullified if Bush doesnt run or isnt party nominee).

  160. Cap

     Ephmen / NFLX … WAG … the top in NFLX is in or very very near.
     
    I sold a June 260 call today for $7.60.  I have no exposure at all below $220 +.
     
    I did short and cover a few times for small gains today; added up to about 4-5 points.
     
    I think any short over 210 tomorrow is money.

  161. Cap

     Hanna, the great thing is you can love NFLX and still short the stock !   

  162. Cap

     Pharm – weekly 200 AMZN’s … right you were … and weekly anything else too !

  163. Phil

    Wiki/Amatta – I’m not sure how often the database updates, maybe at night or something.  Let me know if you see a pattern. 

    Europe/StJ – I think the younger generation may not like it but they all have parents and grandparents and know the war stories and it’s not outside their imagination that life can become hard and sacrifices have to be made.  There’s a reason economic cycles move through generations – it takes that long for people to get stupid again and we had to wait until the Depression guys had all retired and the WWII people were mostly out of the government, banks and Wall Street until we had a crew running the show that was once again ready, willing and able to destroy this country out of greed.  

    Oil/Tusca – Makes sense but $60 oil can lead to instability in many OPEC nations who cannot afford a 25% revenue cut.  As you note, they can’t make it up by producing more – they will simply get less money and they will blame the Saudis and one thing you don’t want is a bunch of Muslim nations angry at you.  

    Rice Futures/Jrom – Good idea!  

    Buying power/StJ – That’s right,  BP effect is net of cash collected so margin is BP effect plus cash on a short sale.  As to futures – I think the ability to cancel is a must, especially if you are playing resistance lines with tight stops as you can be in and out of an oder 5 times before actually executing.

    Saudis/Amatta – They do a decent job of spreading the wealth around but it’s an absolute monarchy with a per capita GDP of $16,000 and the 10,000 person royal family sucks up a great deal of that cash off the top.  People there can’t be too happy as they are near the top of Amnesty’s list of human rights violators.  Yemen is right next to them and boiling over so that’s got to be a big concern. 

    Math/Nicha – Well I mixed up the $171 and thought that was a credit, so there’s the big difference so basis A is $79 credit.  I don’t know what you are doing in step 2.  You already paid -$79 for the first 4 calls, you can’t charge yourself again!  It’s just -$79 + the $3,520 you spend to buy 4 more for net $3,441.  You have an obligation to the caller of another $5,850 but that doesn’t matter until you liquidate.  All you have done is take $3,441 out of pocket so far and you have 8 of the April $155s (now $8.80 so $7,040) and you have an obligation for 5 Feb $150 callers who are up to $11.70 so ($5,850).  

    That means if you liquidate now, you would get back $1,190 from the $3,441 you laid out.
    Now you roll the 5 Feb $150 calls ($5,850) to 8 March $155 calls at $7.85 ($6,280) that’s another $430 in your pocket, which lowers your basis to $3,011 on the 8:8 spread.  So a bit less than I thought but the goal is the same, roll to a $5 vertical and you keep $4,000 more than you can owe the callers and that, net of cost ($3,011), is your profit.      

    Currency cross/ZZ – Not my thing but what are you trying to accomplish?  

    Mongols/StJ – But there’s never a good hoard around when you need one…  LOL on income disparity.  I’ve been banging that drum for years and all it does is get me on Conservative hit lists…

    Bet/Jrom – That’s interesting.  Who do you think Obama would lose to that you want to nullify the bet?  I hear Angle wants to run – that should be fun! 

    Interesting article on the Koch conference.   I guess they feel the Davos crowd is too liberal for them. 

    Of the 85% of investment professionals surveyed by Bloomberg who see a crisis coming for China, about half think it’s coming in the next 5 years. Just 7% of those surveyed believe China will escape will turmoil.

    Japan veteran Peter Tasker is unconcerned about S&P’s downgrade, just another in a long line of misguided analysis. Japan’s debt is entirely self-financed, the country has massive reserves, and private sector savings match the public deficit. Besides, look at the track record of credit ratings agencies.

    Twelve of the 13 most important U.S. financial firms were at the brink of failure at the height of the credit crisis in 2008, Bernanke told the Financial Crisis Inquiry Commission in 2009. "In that period… only one… was not at serious risk of failure… Even Goldman Sachs (GS), we thought there was a real chance that they would go under." (earlier

    Apple’s (AAPL) eastern prospects are looking good, with Asian revenue up 147% in the last quarter, notes Bernstein Research. Apple will probably launch 20 new stores in China this year that eventually will garner $2B annually. Bernstein predicts new distribution deals with Asian carriers that boost iPhone sales by 7M to 8M units per year. 

    A struggling also-ran to McDonald’s (MCD) in the US, Yum Brands’ (YUM) KFC dominates China’s fast food market. Yum is selling brands in the US to concentrate even more on China, where profits at its 3.7K KFC’s exceeds the profit on its 19K U.S. fast food outlets.

    Irony alert: The NYSE issues a reminder that gambling is not allowed on the trading floor. Perhaps Captain Renault should deliver the message.

  164. reza99

    Phil:
    Is it right that recently the $ <=> commodities & US markets inverse relationship is not as strong as 2-3 months ago.
    What other factor(s)  (if any) are weakening this relationship?
    TIA

  165. Phil

    Well at least someone is working on finding a new market to exploit!  

  166. Phil

     Commodities/Reza – Well commodities can lead a rally in equities but then they get too high and begin to damage broader sectors that don’t really benefit from their rising prices and that can end up putting brakes on the expansion.  Then, when they reverse, they drag down sectors like Rails, miners, refiners, oil, oil service, even Financials who trade them…  That causes a pretty big problem if those are the sectors that led you higher.  That’s why I’ll often say I don’t like commodity-led rallies as they tend to end in tears and this particular rally was a speculative commodity-based rally – by far the worst kind as there is no underlying demand support to hold prices up on the back end.  

    Of course, that’s also what I didn’t like about the 2007 rally and it took 18 months for it to finally explode…

  167. doro165

    exec
     
    Jeb has left Foridia  with a huge budget defciect. 

  168. jromeha

    Phil – I don’t think Obama will lose to anyone, republicants have no legitimate candidate and I dont think things change over the next couple years. The Mormon is OK but I think when it comes down to it people would feel funny voting for someone whose religion views other ethnicities as ‘cursed’. Plus, he’s kind of an awkward public speaker and I think the only way anyone beats him is if the economy gets even worse…. Still, he didnt help himself by passing that BS tax bill and letting it expire during the election year! But the various ‘independents’  on this board all have their favorite candidates so I let them pick one and give them an out if their candidate doesnt make the cut. Im hoping Palin is their pick, I would LOVE watch her debate foreign policy and see how she does thinking on her toes…. Oh wait, I know the answer to that – http://www.youtube.com/watch?v=nokTjEdaUGg 

  169. Cap

     Jeb Bush is changing is name to Jeb Clampett, so you have nothing to worry about … his poll #’s went up 20 points.

  170. reza99

    Market rally / Phil – Do you agree that the strong  [inverse] dollar / commodities, markets relationship of the past few months recently has not been as strong?
    On several occasions recently $US and oil/gold were down at the same time and the markets ended up [slightly].
    What has recently made this strong US$ [inverse] correlation to markets looser/softer? or am I just dreaming . . .?

  171. judy

    reza,
    I’ve seen the same thing lately.  Good question. you are not imagining it. The tie is definately less strong. I think part of the issue is that I look at the dxy. The dxy is heavily weighted with the euro. In one case the market was going up and the dxy. It appeared that the dxy was up due to the euro being down. However, the $US was down against canadian, new zealand, aussie …..looking at the forex. The oil/gold/$ connection has weakened. The demand for gold has lessened more than the $ has gone down. Less euro debt fears, less inflation fears, etc. Thus, both down.  I think the same for oil/copper, etc. They were frothy.  And, some of the froth is coming out. 
    I’m sure there are other factors at hand as well. You’ll notice, if there is no news driving things one way or the other, they float in inverse. I have on my TOS chart -  a line showing how spy trades against dxy. If its flat, they are trading together. This has become much less flat over the last few weeks.

  172. reza99

    Interesting, thanks Judy for explaining the inflation/debt fear factors playing into this correlation.

  173. Pharmboy

    So, here is the new deal if one can find a sexy target and a few researchers to put their heads together and get good compounds to clinic….This is why I am in the space, b’c if one can get the deals, there is money to be made.

     

    We’re seeing a trend that Big Pharma isn’t waiting in the push for new biotech’s drugs. And for our university clients at Bioscience Bridge, this trend is relevant because of the rising pressure to find new products is prompting companies to license or acquire experimental medicines – even if they’ve barely been tested in human trials.

    A recent report in The Wall Street Journal said that while traditionally the sector’s big players preferred drugs with solid clinical evidence to show they work, they are faced with the loss of patents on some big sellers, an overhaul of its own research-and development-priorities, and demand for more innovative medicines. That means Big Pharma is gambling more of its deal dollars on riskier bets in an effort to replenish its pipeline with new technologies.

    For example, in June, Bayer AG paid $40 million to Redwood City, Calif.-based OncoMed Pharmaceuticals Inc. for access to its experimental anticancer stem-cell therapeutics, which haven’t yet been tested in human trials.

    All these deals provide for further payments if the drugs are successful in later stages of development and royalties on eventual sales. The average upfront payment for a Phase I asset was 68% higher in 2009 than a year earlier at $46 million and 39% higher at $37 million for a phase II product, according to data from research firm EvaluatePharma. Total deal values, which include payments for hitting development targets and royalties on eventual sales, also rose.

    Daniel Mahony, a health-care fund manager at Polar Capital Holdings PLC, was quoted as saying one reason drug makers will continue to scoop up biotechs’ early-stage programs is because they’ve overhauled their research-and-development activities to focus more on clinical trials and less on lab work.

  174. Pharmboy

    SGEN – insider trading case…..nice.

  175. Pharmboy

    Short sellers hitting one of our little plays….D’oh.  I think they want in on the play.

    3. BSD Medical Corp. (BSDM): Medical Appliances & Equipment Industry. Market cap of $143.42M. Daily MACD Line(12,26,9) at 0.083. Shares shorted have increased from 2.07M to 2.94M over the last three months (+42.03% change). Short float at 13.92%, which implies a short ratio of 2.14 days. The stock has gained 172.07% over the last year.

    4. Seattle Genetics Inc. (SGEN): Biotechnology Industry. Market cap of $1.59B. Daily MACD Line(12,26,9) at 0.232. Shares shorted have increased from 9.89M to 13.46M over the last three months (+36.10% change). Short float at 13.46%, which implies a short ratio of 14.73 days. The stock has gained 47.56% over the last year.

  176. z401

    PHIL,
    Robert in his post to you touched on something that I have been trying to figure out for sometime.  He was asking about how to spot the big guys using the BID & ASK .  You relpied to him in your  3:27 pm post  asking him to keep track of the blocks (which i think are block trades if so how big are the blocks from the big guys 10,000  5,000 shares) ???  I’m guessing this will depend on the price of the stock.  Also you talked about the retail suckers paying more or selling for less than they should.  Are they the guys trading  inside the bid and ask? to make sure they get filled?   In the time and sale window i see groups of colors for specific prices. I have a color key for those shares traded so I know which ones were bid ask etc.  within one color at a specific price lets say $ 5.25 and a number of shares say 100 next to it, i will see that same price and # of shares in the same color on the next 5 lines of T&S.  is that the same  person buying 500 shares or is it five differnet people with 100 shares per trade. and when 5,000 shares scrolls up on T&S am i to assume that is a big guy.   I’m like Robert just trying to gleen info from bid ask # of shares traded and looking for the big guys if i’m wasting my time let me know.  but i have devoted alot of time to this aspect of trading i would hate to give up. i think i’m a little preoccupied with finding the big guys :)
     thank you for all you do,  because of you i now longer feel i’m scuba diving in a dark and muddy lake called the stock market. i can actually see where i’m going and I no longer get scared out of trades because i’m unsure of what might be next. 

  177. exec

    Jromeha/Bush,
     
    I was just kidding Jeanluc about his rant.  Although I’ll bet the vains in the side of his neck were buldging out as he feavorishly typed his message.
     
    As far a Bush goes……seriously…..another Bush???? 
     
    Interestingly,  I was talking to a conservative guy the other day who was asking me who I thought would emerge as the Republican frontrunner for president.  My response was that I didn’t see a good one in the bunch.  In either party for that matter.  He actually brought up Jeb Bush as being the likely nominee and he was serious.  I told him it would be a cold day in hell before another Bush was reelected to any national position.

  178. Phil

     Good morning!

    Amazing turnaround in the Futures.  The dollar had popped up "all the way" to 78.11 at 3:30 (Europe’s open) and the Dow futures were back at 11,900, down about 50 from the close.  Now they are up 2 as the Dollar has been smacked back down to 77.85.  There is absolutely no news – just the nonsense we expected pinning us into the weekend. 

    Palin/Jrom – Funny the kind of things I remember sometimes.  This was from the Alaska Dispatch last Summer:

     

    Sarah Palin is a frickin’, frackin’ marketing genius. No one could do what she has done. No one would dare to even try to do what she has done. Sarah Palin has made stupid smart, hip and trendy.
     
    Put that in your pipe and smoke it you trendy, effete, East-Coast libs.
     
    How can you not appreciate this? To err is human. Palin has accepted it, run with it, and made it a big part of her appeal.

     

    So be careful what you wish for….

    Relationship/Reza – I think there’s a natural trailing off of the relationship as commodities run their course and begin to do more damage to the 70% of the S&P that does not benefit from higher prices than it helps the 30% who do.  I believe back in 2008 I had determined that commodity-based equities, including financials, had become 40% of the S&P and that that was a recipe for disaster.  Now, because the financials are so low as the home commodities remain dead in the water and the builders are dead too, we’re only at 30%ish for the sectors I mentioned above.  There’s a limit to how far they can grow though before they do more harm than good.  Remember I said about a week ago that someone finally noticed that high oil prices were bad for airlines – that’s the kind of thing that happens when you push the limits on commodities – other sectors begin to fail.  

    And what Judy said! 

    Bid/Ask/Z4 – I’m no expert on this stuff.  I decided many years ago that it wasn’t worth the time trying to ID what was going on as I would do consulting work for IBanks that had computers and teams with access to information 10x deeper than what I could see so I would only be deluding myself thinking there was some advantage to be had trying to trade off what I could see (even with a Bloomberg Terminal).  I was just talking about watching to determine whether or not you should bid up or down but to sit there and determine what’s real and what’s not is not really worth the time in my opinion.  There is a great trick (I’ve heard about), which is to place a block order to attract a bot.  Let’s say you want to buy 10 QID March $10 calls for .75 and the bid/ask is 77/81.  Well you can order 10 at .75 and 100 as a block only order at .74 and, as you know, the bots try to entice you to up your bid by doing partial fills.  If your order only pulls a complete fill and it’s big enough not to fill, the bot may get the 10 you really want to buy out of the way in an attempt to attract the 100.  Once you get your 10 – you cancel the block.  Of course the danger is you get filled at 100 too and have to deal with that but (I have heard) this is a good trick, although I’m not sure it’s legal so don’t try it at home (especially in the same account).  Of course, since this is an obvious trick – that means you never know how many APPARENT orders are really just bait for people like you who watch Level II or III, looking for signs…

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