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The $25,000 Virtual Portfolio – Stepping Our Way to a 10-Bagger!

I can’t believe we’re doing this again!

Thanks to FINALLY getting out of the damned DIA Feb $122.75 puts at $5.15, we’re up to around $35,000 virtual Dollars on June 11th’s $10,000 Virtual Portfolio (and we ran through the preliminary results last Friday, where we also predicted "Alpha 2 says "Cliff Ahead").  As I said in yesterday’s post "once more into the breach, my friends" and we’re going to put our profits to work with the fairly ambitious goal of getting to $100,000 by December 31st.

This virtual portfolio will be available to Voyeur Members but trade ideas during chat will have their usual 1-hour delay.  Premium members will get the trades with no delay and hopefully Matt will have a new system running that will allow Basic Members to see $25KP comments with no delay as well.  New trade ideas and updates will be copied into the comment section of this post or, assuming I write one, the updates of this post.  If you are not a Member yet, now is a good time to join.  Check out the subscription page – Our EXAMPLE trade on C just closed up 200% and our ENP example returned 137% – not bad for free samples, right?      

We didn’t play the $25KP this week but Monday’s DIA play in Member Chat was a good example of the kind of trades we’ll be looking for.  The trade idea there was:

DIA $117.75 puts should give good bang for the buck at $1.06. If I had the new $25KP up and running I’d go for 10 with a DD at .86 and a stop at .76 for a $400 risk on the first trade.

As you can see from the chart below we didn’t get our chance to Double Down until Wednesday and there was a brief and scary dip Friday morning that touched our .76 level but, of course, my Friday morning Alert to Members went with 2 aggressively bearish plays (TZA and QID) so we were clearly not going to let a little flush scare us.  

 

This is why we AVOID hard stops!  When you put in hard stops you will get triggered on spikes all the time.  When you see that quick move in the opposite direction prior to a stock making its big move – that’s what pro traders and market makers call "flushing the stops."  It’s a specific move designed to, as Cramer likes to say "shake out the weak hands" before making a move in the intended direction.  This is why our Strategy Section focuses on the concepts of scaling in and rolling positions.  

In the above example, we would have been happy, of course to make .60 off our original entry had the move been straight up.  In fact, we would have taken .20 off the table if we had been in for more than $200 risk at the time but our GOAL on entry was to double up at the lower price so we didn’t need to be satisfied with the 1x gain on Wednesday.  Although, I will point out that, had we taken the 20% gain off the table and re-entered when we got to our next goal, we would have done even better.  Patience and following the rules (mostly) is the key to enjoying an active virtual portfolio like this one.  

So this trade made (at $1.62, which was up .70 (up 73%) $1,400 on 20 contracts.  That’s not the kind of gains we should expect every time but it’s the ONLY trade I identified as a $25KP-type trade idea during the week and we do need to make $1,500 a week this year to make out goal!  On Friday, I identified another $25KP opportunity (also didn’t count although we may go in officially on Monday) of the NFLX Weekly $200 puts at $1.55 (just 4) and we rolled those up to the Weekly $210 puts for another $1.90.  That’s $3.45 in now on 4 puts that are already down to $2.50 so a $380 loss so far.

Now would be a good time to discuss allocations and stop losses – nicely relevant to this example!

Allocations:  As Sage and I noted in last week’s "Smart Virtual Portfolio Management" article, every $100 counts in a small virtual portfolio.  We need to always be aware of our total risk on a trade and we need to, as Kenny (not Jim) Rogers advised us: "You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run…    Every gambler knows that the secret to survivin’ is knowin’ what to throw away – and knowin’ what to keep."  Even in an aggressive virtual portfolio, we never INTEND to allocate more than 10% of our cash to a single trade, possibly 20% in a small virtual portfolio.  That means our allocations are generally $2,500 and the positions entries we look for are generally in the $600 range, which gives us a chance to Double Down twice and hopefully roll if the trade goes against us and we decide to stick with it.

Losses: Screw talking about losses.  I just realized that this may be the problem a lot of people have with trading.  So much so that it only just occurred to me that this very standard approach to trading may be part of the problem!  Most of you guys don’t have problems taking losses – hell, you lose all the time, right?  It’s PROFIT taking that you need to work on!  Nothing frustrates me me in chat than hearing about someone getting behind on a trade that was already well over 20% but then went behind.  THERE SHOULD BE NO SUCH THING!  Even in the DIA trade above, look how much better off you would have been just taking that first 20% and running and THEN coming back in when you got your price on the pullback.  When I say every $100 counts in a small virtual portfolio – I mean it!  

Sure we want to make that one trade that nets $1,400, like the one above but you can’t count on those.  They happen once in a while but we’re only, and I mean ONLY trying to make $75,000 this year.  We are going to trade about 200 days.  That means we need to make $375 a day on average, not $1,400!  With $2,500 allocations we figure we’ll have 5-10 active trades at any given time and if we pull out 10 $100 winners a week, that’s $1,000 right there!  Throw in the occasional 100% gain and we’ll be in very good shape!

Now we can talk about losses:  Losses are easy (back to the Strategy Section).  We never want to lose more than 20% on a position.  That’s $500 on a $2,500 allocation.  Simple enough?  We also make decisions at each 20% step so, when we enter a trade with $600, we’d better damned well know what we intend to do if that trade falls to $420.  If we double down at $420, we’re in for $1,020 and we’d better have a plan for $800.  Yes, $800 would be just 5% below our DD point right but WHY THE HELL DID YOU DOUBLE DOWN IF YOU STILL THOUGHT IT WAS GOING LOWER?!?  Ah ha!  You don’t know, do you?  That’s why we don’t robotically double down at 20% (we try not to robotically do anything) but we do need to evaluate and come up with a game plan, even if that game plan is:

At $420, let’s see if they hold $250 and, if not, I’ll take my $350 loss and walk away but, if so, I’ll double down off the $300 line on the way back up and then I’m in 2x for net $900 with the position at $600 and if we go back to $400 ($500 loss) I’m going to give up and walk away and if we get back to $900, I’ll take half back off the table and ride the rest out with a lower ($450) basis.  

If you do not have this much of a plan on each of your positions, you are violating my hero, Winston Churchill’s tenets, which I’m sure you’ve heard: "If you fail to plan, then you plan to fail."  Churchill also made the very wise observation, which is relevant to investing: "A plan which succeeds is bold, one which fails is reckless."  Churchill was a big planner, a chess player and a strategist – he would have liked option investing!  Whether you are invading Normandy or playing Netflix to finally stop going up – YOU NEED A PLAN!  You need to allocate your resources, plan for contingencies and have both an entry and and exit strategy BEFORE you put your first dollar at risk.  

stock photo : Risk Analysis Concept Word Cloud as BackgroundNow, we talk about risk and we talk about losses and in our strategy section we talk about Sun Tzu, another great strategist but keep in mind that Churchill was a guy who knew how to dig in too!  We were bold and reckless in digging into our DIA short position in the $10,000 Virtual Portfolio and we did end up taking a loss in the end.  Had we gotten the downturn on schedule, we would have had a huge win but we didn’t and, on the whole, we would have been better off taking our allocated $1,000 loss early on and moving on to more profitable opportunities.

We will not be so aggressive in the new virtual portfolio.  We don’t have a clock ticking on us as we did with the last leg of the $10KP and, most importantly, we aren’t already up 200% and willing to take big risks.  We will, at first, be working very hard to make $5,000, then $5,000 more and then $5,000 more.  That will bring us up to $40,000 and THEN we can get a little more aggressive as we have a profit cushion to play with.  

So, prepare to be bored!  In this way, my small, aggressive virtual portfolios can be a trick as we end up using a lot of those boring, low-risk, highly hedged strategies I preach about constantly – even as we are trying to make 300% in a year.  That’s how we went from $10,000 to $25,000 in less than 4 months last year.  In fact, we "accidentally" made money so fast, I lost my nerve to keep going and we shut the virtual portfolio down in late October with $30,000, because it was a bullish virtual portfolio and I no longer trusted the bullish side of the market.  Silly me, of course – turns out there is no other side of the market!  Still, we won’t be so dogmatic in the $25,000 virtual portfolio because we can afford to take plays in both directions – that’s something that is hard to do with just $10,000 (not if you are trying to make big gains).  

It is my hope that the markets are not so crazy that we can’t avoid having to make quick adjustments and I will try to put in entry and exit targets on each trade idea BUT (and it’s a Big But), let’s keep in mind that I am NOT Nostradamus – these targets are based on what I see at the entry, ideally the adjustment is my intention at a certain decision point but we get MORE INFORMATION between our entry and the trigger point so we don’t just jump in and DD exactly when the stock or option hits our line, nor do we exit exactly at a stop but, WHEN IN DOUBT, we follow our rules (see Strategy Section).  

I am also not omnipresent.  I can’t watch every position so it’s your job to remind me when a stock is nearing our decision point – don’t assume I see it!  Keep in mind this is a virtual portfolio and the purpose is to teach virtual portfolio management and option strategies over the course of the year and yes, make a few dollars along the way but trying to make $75,000 on $25,000 is VERY AGGRESSIVE and a lot of these trades will be risky so think of this as something one would do with a $25,000 risk allocation in a $200,000 virtual portfolio – certainly not something you should do with your only $25,000 or even half of $50,000!  

Exercise number 1 is going to be learning that there is no harm in asking:

C is nicely volatile and the March $4.50 calls currently have a bid/ask of .32/.33 but they were .30 last Monday when the VIX was lower so we don’t want to pay more than that.  So we can offer .25 (yes, I’m very greedy) for 20 contracts, committing $500 on the off chance we get a spike down and get our price.  This may not trigger and it ties up margin but it’s good to have a couple of small "wish" buys in your virtual portfolio as you never know what kind of wacky fills you are going to get (remember the guys who got to buy P&G for $1 in the flash crash – it’s because they had an offer in – just in case someone was crazy enough to sell it).  

XLF is another one we’d love to own so 5 of the March $15 calls (now $1.40) for $1 if we can get those.  Notice our allocation size is still an early scale so this is our starting point and then we can DD and roll if we get better prices – not to mention take covers.  

SPWRA is already down far enough where it’s attractive so this is our first affirmative entry and we can sell 3 Feb $13 puts for .65 ($195) and that should tie up about net $800 in margin.  Keep in mind our obligation is to buy 300 shares of SPWRA at net $12.35 (now $13.20) and we don’t REALLY want to spend $3,705 on the stock but, if we HAVE to, it’s not going to kill us.  If they do fail $12.50 we’ll need to make a decision on whether to dump them or not.  Ideally, SPWRA holds $13 and we get paid $195 for NOT buying the stock, using margin we have no plans to allocate anyway.  This is like getting paid $195 in interest for tying up $800 in your account (24%) FOR A MONTH!

While making $195 may sound REALLY boring against a $25,000 virtual portfolio – 12 of those is $2,340 a year, a nice return on our money for sure!  You’ll notice in this virtual portfolio that, other than the occasional buy/write, we will rarely enter a stock position without first selling a naked put to give us a cheaper entry.  As I warned you – this is probably going to be a lot less exciting than you may have thought.  One of my goals here is to trick aggressive players into learning that you can trade patiently and still make a nice return

Of course we need to do better than $2,340 a year here.  It would be nice if we could commit the whole virtual portfolio to that strategy and make 24% a month but then you are not spreading your risk and that greatly increases your possibility of taking a huge hit and getting knocked off the path before you start.  This is one of the hardest things I have to get new Members to understand – our goal is to make these plays EVERY YEAR, YEAR AFTER YEAR.  

So, if we allocate 10% of our virtual portfolios to these kinds of trades and if that 10% is fortunate enough to make 24% a month then we end up with about 30% in that allocation by the end of the year.  If the rest of our virtual portfolio is so conservative it makes no profit at all – that’s still a 20% gain on the WHOLE virtual portfolio for the year and, as I often point out – 20% a year is A LOT OF MONEY!  

The real key to making a lot of money is to consistently make a little money for a long time (just ask Warren Buffett).   We don’t have a long time in this Virtual Portfolio so we’re going to be way riskier than that but keep in mind that we will also have hundreds of more conservative plays during the year that will go for nice, conservative returns.  What we’re looking to do in the $25KP here is accelerate that process bu mixing conservative and aggressive plays that give us a better than 20% overall return ($5,000) each MONTH although, as you’ll see, we will start out trying to build a very small profit base and then get a little more aggressive as we build up that risk allocation in our virtual portfolio.

Overall, we try to follow Warren Buffett’s Rule #1 (and he only has one) of investing:  "Don’t lose money!

 


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  1. flipspiceland

    @Phil
    Thanks for clarifying the "Hard Stops" stragety.   I’ve often been puzzled why anyone would use hard stops equal to or a lot less than (5-20%?)  they paid for their position  (since there are those who get to peak at what price one was willing to receive and given the rampant manipulation of the markets by a privileged few).

  2. exec

    Hard Stops,
    Phil,
     
    There were several spikes yesterday in IWM.  I mean long spikes.  Mostly on the upside which is puzzling since it doesn’t make sense to me why they would spike the stop up before a move down.
     
    Do some platforms give you the option to buy a securety if it a price reaches a certain lever?  That would be an nice feature since you could set a buy order above resistence and have it purchase automatically once the resistence is breached. 
     
    That’s about the only way I could see where a spike up would make sense in a down market.  They could fake an up move and trigger the buys before reversing.
     
    BTW…..who are these "market makers" that see these orders?  Are there litterally guys behind computer screens that say……."ahhhhaaa…..there’s a sucker with a 4% stop loss……I’m going to hit this button here, cause this security to instantaneously drop 4.1% lower, grab his order,  then hit this button here and reverse coarse"?  It seems far fetched but I’ve seen it happen on a daily basis.

  3. hoss18

    Spike up before a down move is just rinsing weak shorts out. For example, say I’m short IWM at 78.50, with a tight stop-loss at 78.60. The bots(or big boys) have a large sell order coming down the pipe and they IWM will get hit. But rather than give me all the profits, they want to keep as much as they can. So they lift the bid to 78.61, launching my stop-loss. So now I bail on my 100 share position and figure I better look for a new entry. They fill that position, giving them the profit when the pending sell order hits and IWM tanks.

    And just to be sure they got you, when it does tank, and I’m suddenly on the outside looking in, screaming “dammit! I KNEW we were going down!”. They pile their sales on hard, overshoot the bottom, and here I come a ball full of emotion, chasing with more shorts at the bottom, only this time I don’t put on the hard stop, and VOOM they dump their shorts on me, lift the bid again, and this time keep it there. So through the magic of bots, playing my emotion and understanding my weaknesses, they are able to get me short at a LOWER price, with a small loss from the first transaction, and a bigger loss on the second because now they have raised it back to the original, but I’m playing with no stop, because the stop screwed me the first time.

    Double f*cked and I didn’t get a cherry on top…….would you like a receipt with that?

    And trust me I know it’s true, been there and that enough times……go play futures for a year or two, it happens hundreds of times a day….

  4. exec

    Hoss,
     
    I’ve been there!!!
     
    I  was just doing some research on Schwab, check this out, I’ve been trading for 15 years and never new I could do this.  This would also explain
     
    Although stop orders are much more common when selling securities, stop orders can also be used to purchase stock. A standard buy-stop order is triggered when the ask price is equal to or higher than the stop price specified, or when an execution occurs at the stop price (at the same venue where your order resides). Buy-stop orders are typically used to purchase stock above a particular threshold where the investor believes an upward trend may be established.

  5. exec

    Hoss,
     
    I was also suprised to find out that Trailing Stop orders are held on Schwabs servers, rather than in the market like all the other specialty orders.

  6. exec

    Hoss,
     
    I often wonder how JR avoids being whipsawed. 
     
    I swear to god…..it’s like they look at every single TNA/TZA trade that’s out there.  Almost without exception, if I buy some TNA, it will pull back significantly and try to get me to bail.  Same thing is true for selling.  It’s like the second you sell they run it up and try to get you to chase it.

  7. samz3700

    I am sure this happened with oil futures on Friday just before the big run up they dropped oil all the way back to 86.00 before that huge run. I was in the futures at 86.30 on the front month and then doubled down. I got out with a small profit but would have made over 100% if I had just held on. How many people came in to trade around eight thirty or nine to see there positions way down and pulled the plug. It’s not like the situation in Egypt materialized at 9:30 am on Friday. I would
    it would have been over 2k per contact in a matter of 90 minutes or less.

    Maybe it’s not manipulation. I don’t like to be a conspiracy theorist and sometimes we blame too much on “them” but there is definitely a lot of manipulation. The article on dndn and hedge funds is a must read.

  8. stjeanluc

    Exec – I believe that JRW doesn’t set stops! You need to check with him. I know that we are all getting paranoid, but it seems that the market chases limit orders (will it be stop or entries). I have always been told to never, ever enter a market order, but in these conditions, you almost have to have mental stops and enter and exit at market as inefficient as it is. 

  9. stjeanluc

    Phil, interesting article on commodities prices from Krugman:
    http://krugman.blogs.nytimes.com/2011/01/29/commodities-this-time-is-different/ 

  10. hanna5

     stjeanluc – yes, i think you are right. For large trades, i dont set stops. If the security is liquid, just use mental stops and market orders. I think i have heard JRW say that he has a second screen/window open with the market order (sell/buy) entered in, and when he sees it cross his stop, he clicks execute. He would be way to easy to follow (and scalp pennies off of) if he had a 30k share order for TZA as a stop/limit. 

  11. rj_jarboe

    Phil,
    On the $25KP being boring, I say perfect!! I tried following the 10K portfolio, it was easy to manage at first, but got too aggressive for me. When you can only get to the computer 3 times spaced out over the entire trading day it is nearly impossible to follow an agressive portfolio. I had to set hard stops at double down points and 20% profit points or I missed them entirely. I found out that if setting hard stops is the only way to play, it is best to find a different game. I did learn a significant amount by following along, but would have liked to participate more. Thanks for putting up these portfolios, they are both educational and fun.

  12. yshenhar

     Phil
    Looking forward to boring profits. I too tried to follow the second leg of the 1050P that was mostly day trades. I am not able to trade every day and prefer to have the majority of my portfolio with trades that require limited attention. It was a great learning experience but very hard to do on part time basis.
    On related note – if we continue down next week and it becomes the (anticipated) down leg, how do we add bearish positions? How does portfolio management combine the short and slightly longer trading range?
    Thanks!

  13. stjeanluc

    hanna5 – The second windows sounds like a good idea. Actually if you use a charting software (I do), you can draw the limit lines and enter market orders in TOS for example as the lines get crossed. I’ll have to try that.

  14. exec

    Good Short read on trading.  Some of this is completely logical and pure common sense yet I find myself doing the opposite.

  15. Phil

    Fun political, economic and religious discussion going on at the end of Friday’s chat but please let’s keep those comments there – thanks!  

    Hard stops/Flips – They are good when you want to go get a burger or if you are out for the day but, if you can sit and watch the market yourself, they make no sense at all.  I was saying the other day, the bots are so prevalent now in trading that you can see them attacking every trade.  It’s documented 1,000 times so why don’t people believe it?  They see your order, jump in ahead of it, take out the offers at the price you want and try to poke you for a nickel and, if you are dumb enough to pay that – then another and another.  

    When a position falls to your stop, you put in a sell order AT THAT STOP, not a market order.  Again, this all goes back to scaling and rolling but if we had a stop on our 20 DIA $117 puts this week at .76 and we were in for .96 – then we’re in for $1,920 and down $400 but $400 is still not our $500 limit so there’s nothing to panic about and the way you need to look at it (assuming you do believe in the position) is that if it blows past your stop and doesn’t come back, then very likely it’s a silly spike and you are better off waiting for it to go to .54, where you can DD for another $1,080 and then you are in 40 at $3,000 or .75 per put with the puts at .54 so you are down $840 and the puts would have a delta of about .20 so you’d need a 100-point drop to get even.  

    All that has to factor into your decision making process:  Can you afford to scale, does the position have time to come back, do you still believe in it, do you have an exit strategy if it drops another .20?  BEFORE I would DD I look at March and I see the $112 puts are $1.10 and the Feb $112.75 puts are .54 right now so I’d be looking (from the $117 puts) at probably a roll to the March $116 puts and I can accomplish that with no extra money by selling some other sucker my $117 puts for .55 or the $118 puts for .65 so that would become my "sell stop" as I would turn it into a bullish vertical by selling the Feb $119 puts if the Dow crossed the point where they fell to .65, KNOWING that will pay for my roll to a March spread.  Because the $119 puts have a higher delta – the second I sell them I can no longer be hurt by a Dow move higher – I would have frozen the trade there.  

    At that point we have a line in the Dow (our entry point) where we would stop the short puts back out OR roll ourselves to March – whichever looks more attractive at the time.  ALL of that needs to be planned and considered before you commit to your first DD.  Like chess, this move opens up several possible countermoves but, often, we can see 3 or 4 moves ahead and we don’t make the next move unless we are generally comfortable with the subsequent possible outcomes.  

    That’s why you don’t need hard stops.  What you do need though, is hard plans!  

    Spikes/Exec – Let’s say I want to unload 10M shares of IWM at $77.50 (my stop).  IWM trades 50M shares a day so it’s a good chunk of the day’s volume.  What I do know (because I’m a big trader with computers that track this stuff) is that 50% of the volume typically comes in the last 30 minutes as mutual funds balance in and I know they are driven by mindless trading programs that I already bribed someone for the code to (just hire someone who used to work for the fund and it’s yours).  So I know the approximate timing and volume of 50% of the purchases each day.  I also know, statistically, that there are times when smaller player front-run those buys and that puts in a floor, usually around 3:30 sharp.  So, at 3:30, before I begin selling my 10m, I first buy 500,000 at market.  That flushes out the stops of the shorts and forces them to start buying and, hopefully, creates an optimistic wave of buying that pulls in more money.  Into THAT volume move, I then sell my 10M shares.  

    The above is, of course, more effective when you jam up all the indexes at once and that’s why you see them make these lock-step moves so often.  Obviously, millions of investors aren’t all coincidentally buying up every index at the same time.  Also, I pointed out the other day how EVERY commodity went up EXACTLY 1.5% at the same time – blatant manipulation doesn’t even begin to describe that kind of action.  

    Market makers are, sadly, the IBanks.  There used to be people doing it and some still do but now it’s mostly machines.  The job of a market maker (who is appointed by the exchange and can "see" everything) is to match buyers and sellers (and option market makers can create contracts when they want to) and they make their money by simply buying the stock at a low ask from the seller and selling it for a higher bid to the buyer.  They just sit in the middle of the transactions and make the bid/ask spread.  That’s why market orders are suicide – you are giving the MM permission to just buy at any price and then charge you more!  When you want to buy something – pick a price and put in a limit order.  If you don’t get your price – don’t play!  If you are selling, of course you are worried you may not be able to get out so advice A is – DON’T PLAY ANYTHING WHERE YOU HAVE THAT WORRY and advice B is – just take the opposite side of the trade as a momentum play until things calm down.  With luck – you can sometimes cash out the MoMo trade and THEN catch the rebound on your opposite play. 

    We’ll work on "locking" our positions in the $25KP – that’s something I think a lot of people would benefit from.  

    LOL Hoss – nice adding color to the example! 

    Buy-stops/Exec – I often talk about using a sell-stop to cover.  It’s the same thing.  You can set a price at which you want to sell a call or put for.  Usually it’s selling a call to cover a falling position.  TOS has some pretty elegant ways of letting you set up rules (like 10% retrace of a last sale price you set, etc.).  As to Schwab – they are doing you a favor holding the orders on their servers.  Once they hit the open market, the bots circle you like sharks. 

    Futures/Samz – They are even worse than options!  Anything that’s fairly thinly traded will get hit like that.   As to "THEM" – I say them a lot and there certainly is a Gang of 12 and they do TRY to rule the World but there’s also the Klug Brothers and OPEC and Paulson (the hedge fund guy, not Hank) and Hank Paulson and many other "THEMS" and they don’t all have the same interest at the same time.  Then there are also legitimate macro-economic forces that come into play as well as Government interference, whether well-intended or not and countless other factors that make the market move.  From a literary standpoint – I find it more convenient to just chalk it up to "THEM" when the market does unnatural things.  

    It doesn’t have to be a conspiracy to be true.  As I have noted in the past, when the rules are written by decades of lobbyists and Congresspeople for the benefit of people in a certain income bracket who behave in a certain way, then you don’t need a conspiracy to get the behavior you desire.  Write rules that force mutual funds to have open game plans while allowing hedge funds to have secret ones and don’t enforce rules against naked shorting and allow HFT programs to exist and you’ve created an environment where HFT fund traders will rape the American worker of their retirement savings day in and day out. You don’t need to meet in a smoke-filled room to make sure we get a stick save every day – it’s baked into the system and survival of the fittest dictates that the firms who take advantage of it rise to the top while the ones that don’t become unpopular and the rich clients move their money to the firms that have less morals and take advantage of unsuspecting retail investors until you get to the point where that’s all there are.  Call it what you want but "THEM" is what I call it…

    Krugman/StJ – Thanks! 

    DESCRIPTION

    Boring/RJ – That’s how the $10KP started out.   We shifted gears in the last month because we were trying to double up in a month and you can’t do that without day trading.  It is my intention, that almost none of the trades will be day trades.  Of course, the best laid plans of mice….

    Next week/Yshen – Well we’re clean at the moment so it depends what happens.  We’ll look for good opportunities like we usually do.  This isn’t a long portfolio like the $10KP was, this is an opportunity portfolio so we don’t have to worry about covers or balance until we have too many positions on one side or the other that need protecting.  

  16. exec

    Phil,
     
    I’ve been studying your commet below:
     
    All that has to factor into your decision making process:  Can you afford to scale, does the position have time to come back, do you still believe in it, do you have an exit strategy if it drops another .20?  BEFORE I would DD I look at March and I see the $112 puts are $1.10 and the Feb $112.75 puts are .54 right now so I’d be looking (from the $117 puts) at probably a roll to the March $116 puts and I can accomplish that with no extra money by selling some other sucker my $117 puts for .55 or the $118 puts for .65 so that would become my "sell stop" as I would turn it into a bearish vertical by selling the Feb $119 puts if the Dow crossed the point where they fell to .65, KNOWING that will pay for my roll to a March spread.  Because the $119 puts have a higher delta – the second I sell them I can no longer be hurt by a Dow move higher – I would have frozen the trade there. 
     
    I know this is second nature to you and most of the option traders here so I’ve refrained from asking questions about these rolls.  Instead I’ve been attempting to follow allong during chat, but I’ve yet to get a grasp on these rolls…..this string has me totally confused.  I get it all the way up to the point where you state that the Feb 112.75 puts are .54.  My computer says .57 but that’s in the ballpark.  But then it becomes totally incoherant to me.
     
    This comment:
    so I’d be looking (from the $117 puts) at probably a roll to the March $116 puts and I can accomplish that with no extra money by selling some other sucker my $117 puts for .55 or the $118 puts for .65
     
    First off, you own the 117 puts correct?  So when you say roll up to the 116′s I assume you mean you will buy 116p’s at $1.18 is that correct?  So what exactly are you planning on doing with the 117′s you own?  Can you sell 118′s if you own the 117′s….what am I not getting here?  Secondly, I’m looking at the DIA 117p and 118p’s and they are listed at $1.45 and $1.90 respectively.  Where are you coming up with the .55 and .65?
     
    I don’t even want to get into the remainder of your comment until I understand this part because clearly I am looking at something wrong here.
     
    I don’t mean to be a pain in the ass but rolling up at no cost is something that I definitly want to understand.  I went through Sage’s book and can’t find any refrence to rolling.

  17. zeroxzero

     I didn’t realize that the weekend remained an active place on PSW.  I guess I’m not the only one who obsesses about this stuff.
    At the risk of a well-deserved community reprimand, I attach the following, my self-directed apocalyptic weekend rantings.  If you are going to short what have been skyrocketing EM markets, you better be able to explain why, at least to yourself.
    It’s long,rambling, and disoriented, but eventually arrives at my point.   The use of capital letters imply no emphasis; rather, my computer was hit by lightning a month ago and suffers certain infirmities. My apologies in advance.

     
     THE "KICKED CAN" STOPS ROLLING?
    ———- IN A WORLD WHOSE POPULATION HAS DOUBLED IN A GENERATION BUT WHOSE LIMITED SUPPLY  NATURAL RESOURCES HAS DECLINED, IT IS NATURAL THAT GOODS AND ASSETS [CAPITAL] WOULD RISE IN PRICE AND LABOR WOULD FALL IN PRICE.   THE ECONOMIC EFFECTS OF THIS POPULATION GROWTH WAS HISTORICALLY MEDIATED THROUGH IMMIGRATION RESTRICTIONS AND TARIFF STRUCTURES, EFFECTIVELY KEEPING LABOR RATES HIGHER THAT A FREE FLOW OF GLOBAL LABOR ACROSS NATIONAL BORDERS WOULD HAVE OTHERWISE PERMITTED,
     
    NONETHELESS, FINITE NATURAL RESOURCES BECAME GRADUALLY MORE EXPENSIVE THAN THE AVAILABLE LABOR, AND FIRST WORLD COUNTRIES, IN RESPONSE TO RECESSION IN THE 1970′S, UNDERTOOK THE ABANDONMENT OF TARIFFS, THE CUTTING OF TAXES AND THE LIBERALIZATION OF TRADE RESTRICTIONS AS AN EXPEDIENT TO MAINTAIN THE LIVING STANDARDS OF FIRST WORLD CITIZENS THROUGH CHEAPER IMPORTS.

    INEVITABLY,  THE RELIEF PROVED TEMPORARY, SINCE IT WAS COUNTERBALANCED BY A EVEN MORE RAPID DECLINE IN THE PRICE OF FIRST WORLD LABOR, WITH A CERTAIN TIME LAG, AS JOBS WERE EFFECTIVELY OUTSOURCED THROUGH IMPORTING GOODS FROM POORER COUNTRIES WITH LOWER LABOR RATES — REPRESENTING THE TIME-HONORED POLITICAL DYNAMIC OF DEMOCRATIC POLITICS, WHICH IS "BETTER NOW, WORSE LATER."

     THIS RESULTED IN FIRST WORLD COMPANIES LOSING SALES AND BECOME UNCOMPETITIVE WITH IMPORTS,   THESE FIRST WORLD COMPANIES RESPONDED AGGRESSIVELY BY INCREASING THEIR USE OF TECHNOLOGY AS A SUBSTITUTE FOR LABOR, AND BY DIVERSIFYING THEIR LABOR FORCES OVERSEAS, EXPORTING JOBS TO EMERGING MARKETS.
     HENCE THE SALUTARY EFFECTS OF CHEAP IMPORTED GOODS AS A MEANS TO MAINTAIN FIRST WORLD LIVING STANDARDS WAS AGAIN TEMPORARY, AS JOBS DISAPPEARED OVERSEAS AND AS TECHNOLOGY BEGAN REPLACING THE LEAST SKILLED SEGMENTS OF THE FIRST WORLD WORK FORCES.
     HENCE  A FINAL EXPEDIENT WAS INTRODUCED TO SUSTAIN THOSE POLITICALLY-IMPORTANT NATIONAL LIVING STANDARDS,  OPERATING ALONG THE SAME "BETTER NOW, WORSE LATER" DYNAMIC AS THE PREVIOUS EXPEDIENTS — AND NOW KNOW IN POPULAR PARLANCE AS "KICKING THE CAN DOWN THE ROAD."
     LEVERAGE.   THE COUNTRIES WITH THE LARGEST GDP AND HENCE STRONGEST CURRENCIES – THE EU, THE U.S., CHINA, JAPAN AND GERMANY [20% OF THE EU] INCREASED THE USE OF LEVERAGE UNAVAILABLE TO POORER COUNTRIES TO MAINTAIN THEIR RATES OF GROWTH.  THIS CAUSED EQUITY CAPITAL TO BECOME EVEN MORE SCARCE AS DEBT LEVELS SOARED, FURTHER ACCELERATING THE INCREASE IN THE VALUE OF EQUITY CAPITAL.
     BUT SINCE THESE FIRST WORLD POPULATIONS WERE ALREADY GROSSLY OVERPAID, IN GLOBAL TERMS, THE MONEY WAS APPLIED TO CREATING A REAL ESTATE BUBBLE. WHICH RESULTED IN REAL ESTATE AND FINANCE BECOMING THE PRINCIPAL SOURCE OF NEW JOBS IN THE U.S. AND PARTS OF EUROPE.  WHEN THE BUBBLE COLLAPSED FROM EXTREMES OF LEVERAGE, THOSE JOBS WERE LOST. 

    THE RESPONSE OF THREE COUNTRIES OF THE FOUR COUNTRIES WITH THE LARGEST INDIVIDUAL GDPS — THE U.S,, CHINA AND GERMANY — HAS BEEN A CURRENCY DEVALUATION WAR. China and Germany are playing the same game — an artificially low currency to maintain growth through exports. 
     The U.S. is pursuing an effective devaluation of the dollar through loose monetary policy and historically low interest rates.  China has not permitted its Yuan to devalue meaningfully since 2003, notwithstanding the accumulation of a global surplus of more than USD $2 Trillion, a record 6% of world GDP equaled only twice in history [the U.S. in the 1960's, the UK in the 19th century.

    And despite the apparent austerity of the Euro economies and monetary vigilance of the European Central Bank, Germany is quite content, for the moment, to bail out Peripheral economies rather than suffer a Deutsche mark that would be much higher than the Euro's present level if it were not dragged down by the prospects for the uncompetitive Peripheral economies.
     Japan alone among the four countries with the largest GDPs has maintained a strong currency through it's unusually high level of internal savings, despite massive government deficits -- Japan borrows from its own citizens, whom, to date, are willing to accept below market rates of return -- but it that situation ends, one would expect the Yen to fall sharply..
      
    HENCE  EUROPE, THE U.S, CHINA AND JAPAN CONTINUE TO EMPLOY CHEAP MONEY DEBT AS A MEANS OF SUSTAINING GDP GROWTH AND PREVENT POPULAR REVOLT IN THEIR OWN COUNTRIES, WHICH ARE NOW SUFFERING THE DROP IN LIVING STANDARDS THAT THE TRUE VALUE OF THEIR LABOR, MARKED TO THE GLOBAL MARKET, NOW IMPLIES.  THIS TENDS TO EXPORT INFLATION IN THE PRICE OF ENERGY, FOOD AND OTHER SCARCE RESOURCES, AS THESE DEBT-FUELED FIRST WORLD RESCUE POLICIES PUT PRICE  PRESSURE ON ENERGY AND OTHER NATURAL RESOURCES..
     HENCE THE FALL OF EMERGING MARKET LIVING STANDARDS AND THE DISTRESS AMONG THEIR POPULATIONS, WITH THEIR WEAK CURRENCIES, IS INCREASING AT A HIGHER AND HIGHER RATE, PUTTING MORE DISTANCE BETWEEN THE WEALTHIEST 1% OF THE PLANET AND THE OTHER 99% WITH NOTHING BUT LABOR WITH WHICH TO EARN THEIR LIVING.  IN MANY PLACES, THE VALUE OF LABOR IS SIMPLY NO LONGER SUFFICIENT TO SUSTAIN LIFE -- HARDLY A RECIPE FOR GLOBAL STABILITY IN A WORLD WHERE 5 OUT 7 BILLION PEOPLE EARN LESS THAN USD $3,000 PER ANNUM.
    WHAT MIGHT BE CONCLUDED ON THE BASIS OF THESIS IS THAT THE GLOBAL ECONOMY WILL NOT "RECOVER" NO MATTER HOW MUCH MONEY IS CREATED AND PUMPED INTO IT IN THE FORM OF FURTHER BORROWING.
     IS A RETURN TO FISCAL AUSTERITY A VIABLE ALTERNATIVE?  I THINK THIS VERY UNLIKELY, BECAUSE THE RELATIONSHIP AMONG THE STRONGEST GDP COUNTRIES SET UP THE CLASSIC "PRISONER'S DILEMMA."
     IT WOULD ONLY WORK IF UNDERTAKEN SIMULTANEOUSLY AND RATABLY BY THE FOUR LARGEST WORLD ECONOMIES, WITHOUT ANY CHEATING, SINCE, IF UNDERTAKEN BY LESS THAN ALL OF THEM. IT WOULD RESULT RESULT IN A STRONGER CURRENCY FOR THE HONEST, WHICH WOULD TEND TO PUSH DOWN EVEN FURTHER THE VALUE RELATIONSHIP BETWEEN CAPITAL AND LABOR IN THEIR PARTICULAR ECONOMY, PLACING THEM AT A GREAT DISADVANTAGE TO THE OTHER MAJOR ECONOMIES.  ,
     THIS IS ALREADY HAPPENING BETWEEN GERMANY AND PERIPHERAL EUROPE; THE LATTER ARE UNCOMPETITIVE IN PRICE RELATIVE TO THE GLOBAL LABOR POOL.  THEIR DOMESTIC COMPANIES ARE FORCED TO EXPORT JOBS EVEN FASTER THAN THEY ARE ALREADY DOING, PENALIZING ANY AUSTERITY POLICY NOT UNDERTAKEN BY THE OTHER LARGE ECONOMIES AND INCREASING FURTHER THE GAP BETWEEN RICH AND POOR.
     THESE  TWO CONCLUSIONS -- THAT NEITHER FURTHER DEBT CREATION NOR FISCAL AUSTERITY WILL WORK TO REVERSE THE DECLINE IN THE RELATIVE VALUE OF LABOR VS. CAPITAL  [IN THE LATTER CASE,, UNLESS AUSTERITY WERE EQUALLY APPLIED TO ALL COUNTRIES, WHICH IS POLITICALLY INCONCEIVABLE] — LEAD INEXORABLY  TO A THIRD ONE:  THE GLOBAL ECONOMY IS NOT GOING TO RECOVER. 
    I WOULD EXPECT RESOURCE  PRICES TO CONTINUE RISING AS THE RICHEST COUNTRIES PILE DEBT UPON DEBT TO ALLEVIATE THE UNEMPLOYMENT OF THEIR CITIZENS AND TO  PREVENT POPULAR MOVEMENTS DIRECTED AT THE CONFISCATION OF SCARCE CAPITAL.   AND WE CAN AN INCREASE IN POPULAR PRESSURE TO CONFISCATE AND REALLOCATE CAPITAL BOTH IN  DEMOCRATIC AND AUTHORITARIAN COUNTRIES.  
    Respectfully submitted
    ZZ
     
     
     
     

  18. zeroxzero

     Again, my regret for the capital letters, I couldn’t make them go away.

  19. oburlacu

     That’s why I always write my post in a editor (like word) and then I copy paste it here:)
    Any editor has the ability to turn caps to normal letters and viceversa.

  20. snow

    Oil & food / Phil – Just came across this; it’s the sort of thing you like:
    http://www.countercurrents.org/bradford290111.htm

  21. clarence

    Anyone—
    This is going to be a stupid question to most  of you, but could someone explain who "the Bots" are?
    Thanks

  22. nicha

    Phil – I too am a bit confused about the below statement. What I understood is assuming the Feb $117 puts have fallen to .54 and I sell them for .55 to roll to the March $116 puts (buy them) and "turn it into a bearish vertical by selling the Feb $119 puts if the Dow crossed the point where they fell to .65, KNOWING that will pay for my roll to a March spread".

     
    So now I have the March $116 puts for .55 and I have sold the Feb $119 puts for .65? First, isn’t that a diagonal spread and secondly my understanding about the bearish put spread is that you buy the higher put and sell the lower put. Thank you for your patience in teaching us :)
     
    "All that has to factor into your decision making process:  Can you afford to scale, does the position have time to come back, do you still believe in it, do you have an exit strategy if it drops another .20?  BEFORE I would DD I look at March and I see the $112 puts are $1.10 and the Feb $112.75 puts are .54 right now so I’d be looking (from the $117 puts) at probably a roll to the March $116 puts and I can accomplish that with no extra money by selling some other sucker my $117 puts for .55 or the $118 puts for .65 so that would become my "sell stop" as I would turn it into a bearish vertical by selling the Feb $119 puts if the Dow crossed the point where they fell to .65, KNOWING that will pay for my roll to a March spread.  Because the $119 puts have a higher delta – the second I sell them I can no longer be hurt by a Dow move higher – I would have frozen the trade there."  

  23. nicha

    clarence/bots – are computer programs that buy and sell for the Gang of 12. In other words when you place a limit order for some security you will notice that the price of the security will spike up a little bit after you place the order. The bots will try to make you to put in a higher bid (chase) in order to make a bigger profit for themselves. And, vice-a-versa when you sell. This is largely true for non momo (momentum) stocks.

  24. abel1236

    hi not sure i follow this example, 20% of $600 would be $480, therefore if we DD at $480, we’re in for $1080, 2x, breakeven at $540, so down $120.
    and how do you get $800?

    That’s $500 on a $2,500 allocation.  Simple enough?  We also make decisions at each 20% step so, when we enter a trade with $600, we’d better damned well know what we intend to do if that trade falls to $420.  If we double down at $420, we’re in for $1,020 and we’d better have a plan for $800.  Yes, $800 would be just 5% below our DD point right but WHY THE HELL DID YOU DOUBLE DOWN IF YOU STILL THOUGHT IT WAS GOING LOWER?!?  Ah ha!  You don’t know, do you?  That’s why we don’t robotically double down at 20% (we try not to robotically do anything) but we do need to evaluate and come up with a game plan, even if that game plan is:

    At $420, let’s see if they hold $250 and, if not, I’ll take my $350 loss and walk away but, if so, I’ll double down off the $300 line on the way back up and then I’m in 2x for net $900 with the position at $600 and if we go back to $400 ($500 loss) I’m going to give up and walk away and if we get back to $900, I’ll take half back off the table and ride the rest out with a lower ($450) basis. 

  25. tchayipov

     Guys
    I found very interesting strategy to play creasy overpriced stocks like PCLN and NFLX:
    you buying call spread for exaple NFLX Jun 225/230 for $2.2 and sell Jun 310s caller for $2.9,
    idea is: when NFLX start dropping down your caller will loose value much faster than your call spread (you don’t need to hold position until exparation) plus you can roll down your caller to get additional premium
    if NFLX continue to climb higher your spread will go ITM, it is long way till your caller plus you have full $5 to roll your caller higher until you start loosing money
    if you have Portfolio Margin it is quite profitable strategy
    same way you can play good expensive stocks like GOOG or AAPL but do it both way (calls and puts) it is like iron condor but much easer to adjust and higher profit potential (50-100%)

  26. exec

    oburlacu
    January 29th, 2011 at 7:51 pm | Permalink  
     
     
    Oburlacu/Word,
     
    How do you prevent all the formating from being copied?  I’ve typed stuff in word before and whenever I past it over, it has all the formating information pasted along with it.
     
     

  27. revtodd64

     Snow/ oil and food – Thanks for the good read!  My wife, who is vegetarian, would add that eating down lower on the food change is more energy efficient.

  28. Winston

    Phil, I profited from a previous recommendation on MEE (adding my own twist to it). I sold 10 Jan 12 35 strangles – and then integrating all the views on the board about how ridiculously underpriced MEE was back then (October ;10) – I added 20 MEE Jan 13 long 30 calls – financed by the strangle. I then got clever and started selling front month strangles and am now in 10 short Feb 50 P / 55 C. I really would appreciate your advice on managing the impact of the recently announced takeover of MEE. I am also curious at the outrageous lack of time premium in the LEAPs. Jan 12 30 calls are at 30.40 ask and the Jan 13 30 calls are at 30.40. I know you advise checking out liquidity and premium between strikes, but I guess I just focused on the impact of stock price appreciation on the premiums. Rolling MEE seems out of the question. Regardless of the above, it was a gem recommendation. I just hope it won’t end in tears with the takeover.

  29. cslanson2

     Tchayipov
    Your NFLX idea is interesting but not so logical.  If you are making this trade based on the premise that NFLX is an overpriced stock than it doesn’t make sense to also expect the stock price to rise to $230 so that your Call spread can be in the money at expiration.  There is a good chance that the value of NFLX will be "corrected" by the market and you will get nothing for your time & effort.  This seems like a way to tie up a lot of margin with perhaps no payoff.
    Consider instead an ultra wide short strangle for June where you sell your same $310 Caller and also sell the $130 Putter. This will tie up the same amount of margin and pay the same $5.00 and so long as you "roll" as required by any stock price movement, you will actually get to keep the $5.00.

  30. clarence

    Nicha/
     
    Thanks for the explanation!

  31. tchayipov

     cslanson2
    if you have PM your margin will be much less with long call spread. you can check it in Analyze tab of TOS – if during one month price of NFLX will drop 20 points, your caller will loose 3 times more than your spread plus your can roll down your caller and get additional premium

  32. tchayipov

     about payoff
    in 2 month you will get at least 20% from you margin (if NFLX will drop), I think it is not bad and much safer than to sell just naked calls or strangle

  33. cslanson2

     Tchayipov
    No margin required for Bull Call Spread and margin is the same for naked $310 Caller as for the Strangle I illustrated.  If the share price drops or rises you can roll the Caller or the Putter up or down but in any event you will collect & keep the premium.

  34. jvest

    NFLX could be joining the bear party on Monday, as Engadget just leaked that AMZN is preparing an unlimited instant streaming service for Amazon Prime subscribers (only $80/year for 2-day shipping AND soon also unlimited instant streaming).

    http://www.engadget.com/2011/01/29/amazon-rolling-out-netflix-like-video-streaming-for-prime-subscr/
     
    Also covered by Dan Rayburn at seeking alpha:
    http://seekingalpha.com/article/249526-amazon-leaks-details-about-netflix-like-movie-subscription-service-free-for-prime-members?source=email_watchlist

  35. tchayipov

     cslanson2
    you probably don’t have PM, with PM just naked calls have a margin $5300 (for 5 calls) but with long spread it is only $3500
    plus if you have just short naked calls or strangle, your margin will increase much faster when price go up

  36. cslanson2

     tchayipov
    You are correct I not only do not have PM, I don’t even know what it is.

  37. tchayipov

     cslanson
    if you have account with TOS and have more than 125k you can apply for PM . then the system will calculate margin for your total position, avaluating risk of your total stock position (it is much less than regular margin calculation.

  38. Pharmboy

    DEPO drug APPROVED…..OFF TO THE MOON ……….

  39. Pharmboy

    New Post here.

  40. Phil

    Good morning!

    Saudi Markets were open yesterday and down 6% (see Stock World Weekly for details).
      
    NFLX/JVest –  Good catch!  Repeating my comment from Friday’s post:  I think it was just rumor-fueled buying from people who heard about the FCC thing.  AMZN is going to be helpful, rolling out a FREE movie service for prime members ($79 a year for free shipping, which is so great I don’t know why everyone doesn’t do it).  Also, now that Comcast has NBC, Hulu can get back in gear.  
     
    Amazon’s core business could essentially subsidize the streaming service for quite some time, allowing Amazon to spend money on licensing more content and quickly expanding their inventory. In the last two years, Netflix has added about 8,000 titlesat any given time to their ‘watch now’ catalog and today it is estimated they have around 20,000 movies and TV shows. So if Amazon launches with 25% of Netflix’s inventory on day one, that’s not a bad start.
     
    The other big advantage Amazon has over Netflix is that they also sell and rent digital copies of movies. Adding a subscription service now gives Amazon three different ways to get in front of the consumer and multiple ways to generate revenue. Netlfix does have a huge head start when it comes to the number of devices they are on, but Amazon can catch up– and since they already have their Amazon Video On Demand platform working on devices like the Roku and TiVo, they aren’t starting from scratch.
     
    Now that details of the offering have leaked out, I’m sure we’ll hear more from Amazon on this pretty soon. In the mean time, the landscape for buying, renting and subscribing to TVs and movies continues to get crowded with Amazon getting ready to join Netflix, Hulu, Apple (AAPL) iTunes, VUDU, Microsoft (MSFT) Zune Video, Sony (SNE) PlayStation Network, BestBuy (BBY) CinemaNow.com, Blockbuster (BBI) and others.
     
    Rolls/Exec – This is tricky to discuss as we’re talking about things that are examples of what to do two moves down the line if certain other things happen.  So yes, from owning the $117 puts, IF the Dow goes up so high that they drop from $1.40 to .55, THEN we would PROBABLY roll to the MARCH $116 puts for (ESTIMATING) the same .55 that I would intend to sell my blown Feb $117 puts for.  It’s a lot to take in because we’re talking about huge changes in positions that haven’t happened yet and may never happen.  Perhaps I’m being too ambitious with the example but it is the kind of thing you need to go through live enough times that you are used to the changes.  
     
    Ranting/ZZ – Weekends is when we do do our rantings but preferably not in all caps.   Don’t you guys have a little box on the top of the chat window with a W on it?  That is the box you use to past text from another source – it strips out all the Word stuff by default and, if you click "Remove Styles Definitions" it also keeps the fonts from getting out of control.  The long-term resource issue is a very dangerous one, of course.  I was speaking at a Mortgage Conference about interest rates in the global markets a few years ago when China was still the hot thing and I pointed out that there is not enough metal in the world for everyone in China and India to have a car, let alone ovens and refrigerators and air conditioners and washers and dryers.  
     
    We have, unfortunately, created a global myth (given our current technology and use of materials) that everyone can have the American Middle Class lifestyle if they want it but that’s just crazy.  We already consume 20% of the planet’s resource output with 5% of the population – you don’t have to be an expert statistician to see where this may end badly.  Of course, money is one of those resources the World consumes so more of it needs to be "mined" in order for the global economy to grow and, if not enough is created, then the money that’s already out of the ground becomes more scarce and valuable.  
     
    Think of the Central Banks like farmers setting rates and fixing reserve requirements and, of course, printing money as farmers deciding what crops to plant for the next year.  They have to make decisions now for next year’s harvest and they may make too much or too little and, in between, there can be unforeseen disasters that wipe out the crops and cause temporary shortages and sometimes surpluses of capital.  
     
    We already know farming isn’t an exact science yet we expect Central Banking to be – that just doesn’t make sense.  These are very complex issues but what scares me most of all is, as I’ve been saying all last year, the HUGE expansion of the money supply to make up for the HUGE drop in the velocity of money.  I did the math once in a post but we’ve roughly doubled the money supply to make up for a halving of the velocity.  Unfortunately, that money is out there and, as China is seeing right now, about as hard to clean up as an oil spill and if that velocity does start to come back – then all the kings horses and all the kings men won’t be able to put that inflation genie back in the bottle.  
     
    Oil and food/Snow – I like that, I’d love to see a visual representation of various meals valued in oil for comparison:
     
    This is a good illustration of my perspective on chasing the Ag sector, though.  Food prices have drastically outpaced production costs and the speculation is based on shortages that haven’t happened yet and probably won’t because the World actually has plenty of food, even with the disruptions – it’s mainly a temporary distribution issue
     
     
    Confusion/Nicha – Sorry, that’s my fault as I meant to say bullish vertical, not bearish.   I’m talking about how you can stop losing money by selling higher calls so you are still on mission, selling premium, while protecting your bearish position.  
     
    Bots/Clarence – Short for Trade Bots which, as Nicha notes is short for programmed trading applications, not just the ones that swipe your spreads but the general applications that deploy Billions on behalf of the IBanks, who get their money from the Fed every morning while our Government claims it’s not manipulating the markets.  
     
    20%/Abel – $800 is 20%(ish) of the $1020 you have in play AFTER you DD at $420.  Since we are doubling down at $420, let’s say it’s 1,000 whatevers at .42 and we previously had bought 1,000 at .60 so now our average is .52 but we bought our last round at .42 so that means we now have 2,000 and we’re down .10 with a $840 total value.  We obviously doubled down because we thought that was the spot at which it was turning so, if we then fall – it means we were wrong twice now on the direction of the position and it is once again time to reconsider.  The point is that, at the point where you decide NOT to take the very small $180 loss they you are making a very serious commitment to the position as you’re moving from 2.5% of your $25KP to 5% and, at that point, you’ve pretty much committed to pushing it to 10%.  
     
    It’s fine to take pot-shots at entries with 2.5% at risk, knowing you’re not likely to take more than a 1% ding but quite another thing to press it up because now you are risking 2% and likely 4% as a possible loss on a position YOU WERE ALREADY WRONG ABOUT.  Of course we scale into a position often hoping to take a bigger position at a cheaper price but we need to think very hard about taking that second step because we’re no longer playing around at that point – it’s a commitment.  
     
    On that strategy Tcha, I’d edit that one line to say, if you have PM and the stock doesn’t fly up and crush you, it is quite a profitable strategy.  The key to playing like this is portion control and moderation.  Your biggest danger is a buy-out – because you can’t roll a buy-out.  We used to do those a lot in the mid 2000′s (or however you say 5 years ago) but a boom in M&A activity with ridiculous prices being paid for already ridiculously priced companies (often in energy) soured our taste for it.  
     
    MEE/Winston – That’s the danger with selling short calls on an underpriced company.  There’s not  much you can do on a buy-out other than wait it out as it crushes your long premium (because the price is set now).  This is why I developed the buy/write strategy, it actually benefits from a buyout.  At least you get paid on the front-month strangles but there’s nothing much to do about the short 2012 $30s, although you can still roll them up to the $55 calls at $7.50, which is at least some more premium or you can go vertical to the 2013 $55s at $10.50 for the extra $3 as it won’t matter as they’ll all cash out when the deal closes.  Also, you can sell the 2013 $50 puts for $6 but you do run the risk of getting screwed if the deal fails.  
    NFLX/CSL – He’s taking a net .70 credit on the spread and that’s the goal.  If NFLX finishes at $230-$309.99, that’s just a bonus and, meanwhile, he’s got $2.80 + .70 of upside protection which makes break-even on the $310 calls $313.50, which does seem pretty safe for June and is, of course, rollable.  I still prefer taking a stand on straight puts as they pay off best when the thing finally corrects.  
     
    DEPO/Pharm – Congrats!  
     
     
  41. tchayipov

     Phil 
    thanx, didn’t think about buyout risk. 
    just would like to mention, my goal is not just 0.7 credit, month before expiration, if price crushed, long spread will still have a value (it is about 20% for 2 month profit potential)
    and if price go up my protection is 0.7 +5.0 because spread will be total ITM
    and if it’s finished between caller strike and long spread it is more than 50%
    if you have PM

  42. hanna5

     tchayipov / NFLX : Actually, depending on what IV does, this could be a neutral to negative trade. Lets say NFLX drops $10 on monday, and the IV shoots up because of some news. The long caller, will move little (drop in price likely countered mostly by IV gain as it is far out of the money). The closer in time and money call spread will lose money faster. So, you could end up negative or neutral. This could happen the other way. Just seems like a gamble with lots of variables. 

  43. tchayipov

     Hanna
    sure, it is preferable to open this trade with high IV, but I think if IV shoot up it will be negative or neutral for short term, but in couple of month you still gonna get what expected

  44. tchayipov

     with high IV long spread should hold value even better, caller will shoot even higher and could make lose for position for short term but start loosing value sooner or later and defenetly faster than long spread

  45. tchayipov

     I agree with Phil
    this strategy has only buy-out risk or if price shoot up fast and far, this is why it is preferable for overpriced  and expensive stocks

  46. japarikh

    Phil,
      Looking to add dividend payers to my portfolio. I know you’ve like NLY in the past and recently mentioned it. Do you still like that stock in that space?

  47. jomama

     MEE may be ripe for a good ghetto hedge fund / arbritrage type of play tomorrow.  Will be looking to sell some MEE puts tomorrow if there is some good premium.  Since buyout is ANR stock and cash should be interesting.  Worked out well with XOM/XTO.  XTO puts got converted to XOM puts that later paid off quite handsomely.

  48. exec

    Phil/Egypt,
     
    It sure isn’t looking like they are getting a lid on this event.  In fact, I think our government is starting to understand that it’s a real mess that looks a lot like Iran in the 70′s.  It is very odd to me how the US has responded publicly.  Is it possible that they were blindsided by this???  It’s like they know they are in a bad place and not quite sure what to do about it.
     
    Tomorrow should be interesting.  I’m not sure what rabbit they can pull out of there hat from now until open to give the illusion that this is no big deal…..but it could be…..if the wrong people take control….it could be very destablizing for the region.  The media has begun their feeding frenzy with all kinds of wild speculation.  There marching out the experts and it looks like they are gearing up to turn this into the type of circus that only the media is capable of orchestrating.
     
    I’m long TZA and happy about that, are you still thinking we might get a 4% bounce? 
     
    If the futures are down tomorrow, I was thinking about selling into the moring excitement, however, I was wondering if you think this could have legs.  It would be just like me to sell when we finally have a sustained downward move……one thing is for sure…..the last 4 month gains have been built on hype and very light volume and everyone who matters knows it….if things start to come unglued it could be an ugly week. 

  49. morxlntway

    i wonder how many barrels of oil it took to get the women to that size? :) (just amusing. I realize it is a serious consideration)

  50. bps2002

    Phil,
     
    Not that it matters to me, but those are 55 gallon drums in the photo, as opposed to the 42 gallon/bbl of oil.
     
    Someone definitely has an agenda on that illusion. I like beef and oil, though not together.

  51. revtodd64

     APA/Egypt  -  http://www.marketwatch.com/story/analyst-sees-volatility-for-apache-on-egypt-ties-2011-01-28
    Apache has 25% of its production in Egypt and took a big hit from $125 to $110 last week.  Any takers on a rebound if a new government forms quickly?

  52. zeroxzero

     Depends on whether it’s with or without Mubarak.  Obama stepped in it by blurting out support for the protestors.  Mubarak is one of very few Middle Eastern supporters of U.S. interests, and the Muslim Brotherhood, the only organized opposition in Egypt that presents an alternative, is not likely to be.  And if Mubarak doesn’t go, he’ll remember Obama’s kind words.
    EM stocks have had a huge run over the last two years, China started to underperform last year, and I wouldn’t be at all surprised to see a flight to safety, i.e., this side of the global, CAD/US [lol].  Suncor rocketed and Petrobras took a hit Friday, not much of one but enough to hear the "fear song" playing in the background.  It could blow over fast — but if it doesn’t, given the toppy-looking, thinly traded market, the slide might be significant.

  53. Cap

     Everyone should take it easy tomorrow no matter what the market does.   We should be entering into a period of political instability; not just in Egypt.  This type of problem does not simply go away.   Contagion also likely to spread.

  54. Pharmboy

    Cap – agreed.  It is gonna be a wild, wild ride.

     

    For those gold bugs….not so fast….

     

    Transports falling….which goes to Chapter 2 of my TA book!

     

    SPX vs CL

    Very interesting 3 part articles by Charles Smith (Of Two Minds):

    The Big Squeeze: Predicting the Effects of Savings Extortion and Abuse of the Middle Class

    The Big Squeeze, Part 2: Abused Fundamentals and Fake Markets: How They Play Out

    The Big Squeeze, Part 3: The Quiet Rebellion: Civil Disobedience, Local Markets, and Debt Erasure

     

    And a very good nigh to all! 

  55. Phil

    We had a huge drop at the open of the futures but all reversed now.   

    Hang Seng gapped down 300 points and recovered off the 23,300 line back to 23,400 and down 251 at the moment, just before their lunch.  They tend to take big queues off the EU open at 3am, which is just into their close.  

    The Nikkei is down 126 and bounced off the good old 10,200 that was so critical on the way up.  Now 10,233 and that’s 1.25% off, about the same at the Hang Seng but that’s not bad after the trouncing we had on Friday.  

    The biggest effect of the Egyptian protests at the moment is the cost of all Emerging Market Debt is through the roof.  They all look risky now and the JPM Index of short-term debt for EMs is over 2.5% from 1.74% last month.  Sadly, this is also spiking inflation in those markets while, at the same time, food and oil and even copper are once again getting snapped up by speculators.  

     

    “The geopolitics is clearly a warning to investors,” said David Cohen, the head of Asian forecasting at Action Economics in Singapore. “Oil prices have spiked higher. That would be one more source of upward pressure on interest rates.”
     
    The last time short-term borrowing costs in developing nations rose this fast was the second half of 2008, when the global financial crisis and record commodity prices pushed the world economy into a recession. The yield on JPMorgan’s ELMI+ Index jumped as high as 21 percent in October 2008, prompting central banks around the world to slash benchmark borrowing costs.
     
    Russia’s worst drought in a half-century helped send a United Nations gauge of food prices to an all-time high last month, cutting the buying power of 2.8 billion people in the so- called BRIC countries of Brazil, Russia, India and China who spend 19 percent of their income on groceries, compared with 6 percent in the U.S., Euromonitor International data show.
     
    “The developments in Egypt will unlikely bring the global economic recovery to a halt,” Robert Pavlik, chief market strategist at Banyan Partners LLC in New York, wrote in an e- mailed note Jan. 28. “However the market does not like uncertainty and these developments have brought uncertainty to the geo-political landscape.”

     

    That’s fine as long as they stay in Egypt but the BRIC nations, with "just" 20% of their household budget spent on food, are 4 of 200 nations facing crises.  Stock World Weekly has a great chart showing where the violence and protests are firing up around the World.  Here’s a quick rundown of recent news on that front:

     

     

    North America Issue Cover for Jan 29th 2011Meanwhile, we need to look in our own back yard as the Economist’s cover story this weekend was "The Union’s Troubled State," which does a great job of giving us an outside (EU) perspective on the State of Our Union.  This is kind of a MUST READ!  

    The WSJ released their test quarterly survey of housing-market conditions found that prices declined in ALL of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier.

    Home values are falling at an accelerating rate in many cities across the U.S.

    Really, do I have to go on from there???

    I won’t because it’s just too depressing.  Let’s call that article a "don’t read" unless you already are in on our BBB investment plan – that’s Bullets, Beans and Bullion – the perfect investments to see us through the next leg of the downturn as we hole up in our bunkers, waiting for the mobs to pass by to the next neighborhood.  

    Before you hunker down in your bunker, you may want to stop by at your bank make a withdrawal – while you can!  

    Yeah, remember last year where we set an all-time record for bank failures at 157?  Well, as January draws to a close we are already ahead of last year’s pace with 11 in 4 weeks.  It’s interesting because I was just watching the "60 Minutes" rerun of "Your Bank Has Failed: What Happens Next?" on their weeknight edition and I was wondering why they were putting this on again but then I saw the FDIC seizures for January and went "Ahhhhhhh!

    Now – On to the good news!  

    Philippine GDP is up 7.1%, which is hot but not too hot.  Of course it’s led by agriculture as their neighbors are starving but let’s call that a winner.  

    Japan Industrial Production (I know, what’s that?) is up.

    [UPSHOT]US Corporate Profits are up 17% with 54% of the S&P reporting so far.  The bad news there is we no longer have super-easy comps to base off.  

    For 2010, S&P estimates profit growth will be about 51%, a percentage gain surpassed only by the previous year’s record 243% jump and a 77% gain in 2003, according to S&P.

     
    Financial companies are enjoying the biggest jump in profit gains, albeit over a quarter in 2009 where they as a group lost money, according to S&P. Telecommunications companies that have reported so far saw profits rise 58%; materials companies including steel, mining and chemicals are up 45% and energy concerns are up 40%. For instance, Chevron Corp.’s fourth-quarter profit rose 72% on higher oil prices and better refining margins.
     
    The biggest laggards include utilities, down 18%, and health-care companies, down 17%. Columbus, Ohio, utility American Electric Power Co. posted a 26% decline in profit due to a required refund to customers and employee-severance costs. Pharmaceutical companies are facing patent expirations, slowdown in health-care spending, price cuts in Europe and tougher regulatory hurdles for new products.
     
    Expect the correction in stocks to continue for the month, a Cantor Fitzgerald strategist says, but "it’s not all negative that we’re seeing a pullback phase. The S&P was up 25%, at 1300, since the first day of September. That’s a heck of a run and it’s overdue for a pullback."
     
    It’s a busy data week (see Stock World Weekly) with tons of earnings.  Not too much to be made of the early trading other than to say that it doesn’t look like anyone is panicking but we’re not hitting Egypt’s sphere of influence yet so it’s up to Europe to carry the ball in a few hours (unlike the AFC tonight!). 
     
    Obviously, I’ll have more to say in the morning!  
     
     
     
     
  56. Phil

    NLY/Japar – I love the dividend but the premiums have not been very exciting to sell.  Remind me tomorrow and we can take a look at what will hopefully be a VIX over 20.

     Egypt/Exec – I think the people are satisfied with the Government shake-up and the good-will job the army has pulled off.  Hard to say what’s happening in this very big country but I’ve been reading a lot and I’m not seeing enough friction to spark a real revolutionary fire over there.  Not sure what a 4% bounce is unless you mean a bounce back to 4% but we’re not even there yet (5%) but yes, it seems we’ll get a bounce off Friday’s selling already.  The question is – then what?  

    Gallons/BPS – Actually, if you read the article it’s 283 gallons of oil or 5 and a bit of those barrels.  It would have been 6.7 at 42 but I imagine farmers don’t have oil barrels laying around.  

    APA/Rev – Good idea if they drop more but I like BP-type drops (beyond the ridiculous) for entry points.  

    Good point ZZ! 

    Good advice Cap!  

    Good chart Pharm and we love Smith!    

    Well, nice team effort by all.  I can go to bed now, knowing the situation is well in hand.

  57. oburlacu

     NLY always had low premiums because of huge dividend. If you sell ITM calls you WILL be assigned before dividend.
    It happened to me twice so far.

  58. dmci

     Oburlacu
    I  sold a covered call on NLY 1 minute before market closed the day before it went ex. I thought I could sneak it through but I got assigned @ 7:30 PM that night. It may work if you can find a broker who will let you trade options in the extended hours.

  59. scottmi

    Gold – hedge fund blow up with gold.

  60. exec

    Phil/4%
     
    I was refering to your comment from Friday:
     
    Phil
    January 28th, 2011 at 4:03 pm | Permalink  
     Textbook 5% rule finish for the Nas and the Rut, right on the 2.5% line.  Generally, when that happens, you can expect more selling of at least 1.25% the next day and then 0.675% to support at the 4% line (the bounce zone) and then the behavior there dictates the next leg. 

  61. Phil

    NLY/Obur, Dmci – Yes, that’s always a problem with big dividend payers so our entry depends on a combination of what strikes we can sell and where the stock is at the moment.  For instance, at the moment (as of Friday) the stock is at $17.83 and the Jan $17.50 calls are .75 so if I buy them for net $17.08, is it a bad thing if I get called away at $17.50 (up 2.5%).   If I pair that with the sale of the $17.50 puts at $2.30, then all they can do is take the stock away from me at net $17.75 and "force" me to re-buy it for net $15.20.  So, either you get the stock and keep the $3.05 from the put and call sales (net 21% off net $14.45) or you go in for net $14.45/15.97 and save about 10% off a 2x entry.  

    Of course, things are a lot more interesting if all this math makes you realize you have no need to own the stock and you can just go with the 2013 $15/Jan $17.50 bull call spread at $2.15 and sell the 2013 $15 puts for $2.20 so you have a .05 credit on 1x where your absolute worst case is owning the stock at net $14.95 and, if called away, you get a $2.55 profit off your nickel cash credit.  This is as much as you would collect in dividend for a year if you buy the stock at $17.83 and wait but it’s got FREE built-in 16% downside protection and margin requirement on the put side is just $3.60 since the puts are so low.  All in all, a very nice play but I’d want to make sure XLF is holding up first.  

    Fund/Scott – So the guy lost $7M – how does that "send shudders" through the gold market?  It may have been big (and ridiculous) for his firm but traders do this kind of thing every day.  I’ll bet oil screwed over a few bears on Friday too.  Meanwhile, this should be a cautionary tale to all short stranglers as that sounds like what he was doing.  

    4%/Exec – Ah, that would be a 1.5% fall from here and yes, that would have strong support. 

    Meanwhile, futures looking up already.  Somehow they jammed the Dollar back down to 78.12 from 78.45 last night – AMAZING!  

  62. jerconn

    Phil, I’m seeing your $25,000 portfolio suggestions for the first time (Basic member), so they may have been up for some time and maybe I’m missing something. It’s an hour before opening, but looking at the XLF $16 March 2011 calls, they are not $1.40 as you write, but .67 so I am assuming that you really meant to buy the $15 calls, which ARE around $1.40 (but you said to offer $1.00).  Can you clarify – did you mean to suggest the $16 callers no matter what they cost, or did you mean the $15 callers? 

  63. snow

    XLF / jerconn – Jer, we should be able to, even as basics, to see Phil correcting himself. I will bet he shortly pops up and says, oops, I meant the 15s, not the 16s.

  64. jerconn

    snow, ‘hope you’re right…!

  65. snow

    Jerconn / XLF – Yup, he’s fixed it – it’s the 15s

  66. jambnd2

    Snow, I’m brand new and am wondering where you are ‘seeing" that Phil fixed it – I’m lost without some sort of portfolio listing all in one place like OpTrader does.  Can you point me to the correct area on the website?

  67. snow

    Fix / Jambnd2 – he fixed it here, and said that he did over on his main board:
    http://www.philstockworld.com/2011/01/31/monday-mubaraks-mood-may-move-morning-markets/#comment-747161
    …see it down there at the end?

  68. Phil

     $25KP Update

    OK, day one in the bag an let’s see what happened. 

    In the main post, we were looking for the following and these remain active: 

    • 20 C March $4.50 call for .25 (.30 was day’s low, now .38) – still waiting for fill. 
    • 5 XLF March $15 calls at $1 ($1.44 was day’s low, now $1.54) – not going to happen…
    • 3 SPWRA Feb $13 puts SOLD for .65 (.67 was day’s high) now .54 – on track

    So that’s one of three of our "wish" trades triggered.   That’s fine, we ask for prices we’d LOVE to enter at and if we get one of 3 out of each set, that puts us in one REALLY good entry each time.  I’d rather have one really good entry than chase 3!

    And, from the Monday post:  

    • 4 NFLX Weekly Feb $210 puts at $2.50 ($1.95 was low, $4.50 was high at open), now $2.26 – iffy, tomorrow we’ll be happy with $3 but I am hoping NFLX makes $310, which should be $3.50. 
    • 10 INTC Feb $21 calls at .47 (.35 was low, .70 was high at open), now .54 – I guess we should be happy with .60 unless they blow through it and then we’ll set a .07 trailing stop.

    Not bad for a first day.  I’d say the $195 from SPWRA looks good and INTC seems like it’s not likely to be a loser which means we only have to worry about NFLX so now we make a plan for them other than "gosh I hope it goes up."  

    As they are a weekly, it’s pretty much do or die tomorrow.  It’s a very volatile stock and kudos to those who took .50 and ran today, I wish we had but they didn’t quite get back to $3 after our entry so we stuck it out.  It’s very expensive to roll NFLX to the Febs but we can sell the $210s to someone else for $2.25 and roll to the Feb $205 puts at $4.70 but that’s a – $5 spread x 400 so $2,000 at risk is a bit much so we want to avoid rolling if possible – hence, the take .50 and run strategy tomorrow.  

    Not a bad first day.  It would be nice to get a good win under our belts so we have a little breathing room. 

     
  69. chasw

    Phil, I was out today and missed the opportunities at entry on the $25,000 portfolio. Is it possible to provide an end of day alternative to the trades for tomorrow’s open?

  70. scottmi

    NFLX – Phil, reading over your summary (thank you!) do you mean to say you hope NFLX makes $210 rather than $310?

  71. Phil

     Alternative/Chasw – We make new trades pretty much daily.  You can’t expect to follow every trade on the next 250 days of trading.  If a trade is cheaper and we’re sticking with it, then there is an entry opportunity.  Make sure you are in the main chat room for the day (under the day’s post), not here where I only go to post end of day updates.  

    NFLX/Scott – Yes, I meant $210.  $310 would not be convenient.  

  72. Phil

    $25KP Update:  

    At this point we are done with the C put bid and the XLF put bid.  They have now gone up so far that, if they come down – we may not want them anymore.  

    We closed our 10 INTC Feb $21 calls at .65.5 average.  That’s up 18.5 from .47 (39%) or $185 on 10 contracts for a win on our first trade.  Notice that the rule of thumb on the 5% rule is still there – 40% is a very powerful cross and always a good place to take those profits BECAUSE you are only going to let it go to 50% and then stop out if they pull back 20% (of the gain, to the 40% line) anyway so, why not just kill the trade at 40% on the way up. 

    So, good note there for short-term traders.  Unless you are in for the long-haul (and we almost never are with a naked front-month contract) then 40% is a very good place to set an exit.  

    That’s $25,185 then.  For the sake of my sanity, I do not count a trade until it’s closed although you will see me comment on cash in play etc. as the portfolio fills up but, right now, it’s hit and run for the most part.  We are still holding from yesterday:  

    • 3 SPWRA Feb $13 puts SOLD for .65, now .39 – on track
    • 4 NFLX Weekly Feb $210 puts at $2.50, now $1.80 – Not looking good now.  I didn’t want to give up at $2.20 but shame on me for not getting out even this morning.  When you are in the last week on a contract – unless you are specifically playing the short-term move, you need to pull the plug if you are anything but dead certain.   Because NFLX was weak on a strong Nas we felt like something might happen tomorrow and I identified a roll to the March $215/210 bear put spread at $2.50 (net .70 more) BUT – if I really believed in it, then we should have rolled to the $215 puts now (+$11, $4.400) and just sold half the $210 puts ($11.40, $2,280 ) and waited to see if they head lower.  If you don’t have the confidence to execute your roll, then you probably shouldn’t be sticking with the trade!  

    We did a little shopping today and ended up adding:

    • 5 XLE March $70 puts at $1.10 ($550), now .95 – we are offering to roll up to the March $72 puts for .35 more.  Those puts are now $1.45 so .50 for the roll.  We needed to get to $75 to hit our mark.  Someone asked in chat why we didn’t just wait and buy the $72 puts today at our net target.  The answer is because those were the puts I wanted but they were over $2 yesterday and I thought that was too much.  However, if XLE fell sooner than I thought – I would have been sad to have missed it (and oil was higher yesterday, it’s just the oil stocks that rallied today) so the compromise was to take the lower put and offer to take the higher put if it goes on sale.  
    • 4 DIA Feb $119.75 puts at $1.50 ($600), now $1.35 – Looking to make .25 at $1.75, not planning on adding to position because, if we head higher than this, then we are going to be getting bullish.  
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now $1.50 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), still $2 – Net $1,300 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio). 
    • 3 VIX Feb $17 puts sold for .70 ($220 credit), still .70.
    • 6 VIX Feb $17/19 bull call spreads for .65 ($390), still .65 – just a fun upside play on volatility but also a bearish position as the VIX usually moves up as the market goes down.

    So day two and we are loaded for bear.

    Why?  Because there were lots of cheap entries on bearish plays.  Just like we got a cheap entry on INTC because they got bad news and went on sale, as we test our upside resistance levels we get cheap entries on short plays that certainly were not attractive Friday.  These trades will protect our bullish plays – if we ever find any we like.   

    Don’t forget I blew it on IWM on Monday, letting it stop us out before it took off (not the $25KP but Member Chat).  That trade would have made our month already if we stuck with it!  That’s all it takes – one good trade in an otherwise balanced portfolio and we’ve taken step one towards balancing.  Had we had any of these hedges in place Monday – I could have stuck with the long IWMs.  

    Now we are certainly ready to get a little bullish – as noted in the wrap-up show.

    Also, I noted today that, if you are an after hours player – you don’t miss anything if you miss some trades.  I am trying to catch moves ahead of the curve so I can give lots of people good notice so it’s nothing like our usual precision trading games in Premium chat.   You are honestly better off ONLY going after the trade we are pressing – the ones that have already gone 20% against us but we have decided to roll, double down or stick with.  So never chase – there will always be something to trade tomorrow! 

  73. Pharmboy

    Updated sheet here….

  74. oburlacu

     Pharm
    that edit grid is very slow and disconets a lot of times. Have you tought about using https://docs.google.com and share a spreadsheet in there?

  75. Phil

     $25KP Update – Day 3 

    Wow, what a break today!  

    In Monday’s Alert I wrote: "4 NFLX Weekly Feb $210 puts at $2.50 ($1.95 was low, $4.50 was high at open), now $2.26 – iffy, tomorrow we’ll be happy with $3 but I am hoping NFLX makes $310, which should be $3.50."

    Well, those sucker bucked like a bronco but we held on and got our $3.50 this morning!  A nice $400 gain that brings us to $25,585 – not bad for 3 days!  

    If you have trouble catching opens like we had today, one thing you can do is just put in an offer to sell at the target.  Maybe you’ll miss out a little extra gain but at least you won’t miss when a quick pop gives you the opportunity to get out!  

    That leaves us with the following open trades (EGLE is new today):  

     

    • 5 XLE March $70 puts at $1.10 ($550), now .95 – we are offering to roll up to the March $72 puts for .35 more.  Those puts are now $1.40 so .45 for the roll at the moment and we wait.  We needed to get to $75 to hit our mark.   
    • 4 DIA Feb $119.75 puts at $1.50 ($600), now $1.21 – Looking to make .25 at $1.75, not planning on adding to position because, if we head higher than this, then we are going to be getting bullish.  
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now $1.35 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.24 – Net $1,300 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio). 
    • 3 VIX Feb $17 puts sold for .70 ($220 credit), now .65.
    • 6 VIX Feb $17/19 bull call spreads for .65 ($390), still .65 – just a fun upside play on volatility but also a bearish position as the VIX usually moves up as the market goes down.
    • 10 EGLE March $4 calls at .50, still .50 – hoping for .75

     

    So nothing too critical at the moment.  The DIA puts are a concern but I can’t see not wanting naked DIA puts over the weekend so the soonest we’ll probably want to deal with them is Monday, unless we get some really silly spike.  Still very bearish so still looking for upside plays tomorrow to balance us out but if Pharm hadn’t caught EGLE for us, I don’t know what I would have bought at these prices.  

    By the way, I’m talking for the $25KP, where we’re more directional and unhedged.  On our regular long-term picks there are plenty of trade ideas we like every day.  

    Don’t forget we have 11 months to make $75,000 so we’re not too excited about $150 a day just yet but that’s $3,000 a month so halfway there and, of course, as our portfolio increases our position allocations increase so we should have a much easier time getting that last $25K than this first one!  

    Enjoy this week, it’s about the last time that you’ll be sure which way you want the market to go.  Once we take a few more longs – we’ll be looking for profits in both directions so you won’t know what to cheer for – and that’s the way it should be because it also means you, like any good casino – don’t care which way the market goes, as long as your short options keep paying you!  

  76. Phil

     2011/02/03 at 10:23 am

     

    XLE finally turning down.  Not going to get our roll in the $25KP and the March $70 puts are $1.02 now ($1.10 entry).  We should be able to pick up $1.35 on a good dip so let’s target that for now.  Oil $90.75 despite the violence in Egypt so this is a Dollar thing.  

  77. Phil

     2011/02/03 at 10:49 am

     
    SPWRA/$25KP, Jerconn – Those aren’t 20% plays.  We’re willing to own SPWRA so we don’t really have any negative to the downside.  Either we get the stock we want at a price we’re happy to pay or they pay us the full 100% not to own them.  INTC is great and it’s the same logic – as long as you REALLY want to own them for net $17.30 – what’s the downside? 
  78. Phil

     2011/02/04 at 9:58 am

     
    XLF/$25KP – New play.  10 March $15 calls at $1.65 – will take quick .25 today but I’d rather have .50 on a slower move up.
     
     
    EDZ/$25KP – Flying, March $20 short puts looking good!  As is bull call spread.  
     
     XLE/$25KP, Nicha – With oil failing XLE will be next if you are patient.  I don’t want to DD or roll because we did the Dow so that is enough until we have another winner to take off the table.  
     
    XLF/$25KP, Rez – That’s a weekend hold to balance.  We are way too short if things spike up next week. 
    EDZ/$25KP, Rev – NEVER let me stop you from taking a 20% profit.  I went with XLF as balance BECAUSE those were looking good and I didn’t want to let them go and I’m willing to ride the banks down and hold for a bounce but, on the whole, I’m still looking for a big move on EDZ. 
     

     $25KP Update – Day 5

    Still $25,585 in cash and the following positions (XLF is new today):  

     

    • 5 XLE March $70 puts at $1.10 ($550), now .90 – we are offering to roll up to the March $72 puts for .35 more.  Those puts are now $1.40 so .50 for the roll at the moment and we wait.  We needed to get to $75 to hit our mark. 
    • 8 DIA Feb $119.75 puts at avg. $1.21 ($968), now .90 – Looking to get 1/2 out at $1.21 if possible but we’ll need a proper sell-off to get there at this point.  (We DD’d at .92 in Thursday’s post)    
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now $1.20 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.70 – Net $1,300 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio). 
    • 3 VIX Feb $17 puts sold for .70 ($220 credit), now .85.
    • 6 VIX Feb $17/19 bull call spreads for .65 ($390), now .52 – just a fun upside play on volatility but also a bearish position as the VIX usually moves up as the market goes down.
    • 10 EGLE March $4 calls at .50, now .40 – hoping for .75
    • 10 XLF March $15 calls at $1.65, still $1.65 – this is mainly a hedge in case we take off on Monday and our shorts get killed.   

     That’s pretty balanced (still on the bearish side) – I very much doubt I’ll see another bullish play I like so that is likely it for the week.  

  79. Phil

    Sorry, by the way, I’m catching up after a crazy week.  As some point, I forgot about the SPWRA short puts.   

    Another mistake I made is we allocated cash for C and XLF bullish trades at the beginning but they got away from us and we never subbed them.  That’s very bad as we did, of course, fill our bearish plays and that led us to be poorly balanced.  We need to be a little more pro-active next time finding substitutions to unfilled plays.  

  80. Phil

     2011/02/07 at 9:53 am

     

    On the $25KP, there’s a reason we went long XLF and that was to take out the sting on our bearish trades in case – well in case this happened and we opened higher Monday morning.  I don’t want to panic out of our bearish trades in the $25KP – we have a year and we can roll them along so let’s see what sticks today.

     

     

    XLE/$25KP – Yes, we are doing that roll for .35 – this is what we waited for and look how silly with oil down.

     

     

    $25KP/Snow – No, that play was exactly that, we wanted a cover on the weekend to give us a quick hit if we got a Monday spike.  We did but we often turn back down on Tuesdays so why stick it out.  We can always go back in if they break $17 but $1.90 on XLF is a very good spot to take the money and run as .50 was the most we hoped for anyway and we still have 2 months to blow it!

     

     

  81. Phil

     

    DIA/$25KP, Ajay – We are waiting for tomorrow’s hearings but, if no luck, then we have to roll out and turn it into a spread. 

     

    XLE/$25KP, Red – The roll has been .50 since we went in so why spend .50 when it won’t improve our own relative gains?  If I were going to stretch my target, I’d be more likely to sell the $71 puts for $1 and spend $1.25 to roll to the $74 puts so net .25 buys $4 of position in exchange for limiting gains to $3, which I’d be very happy with. 

  82. Phil

    DIA/$25KP, Ajay, Obur – Yes, it will cost $1 to roll them out to March $120 puts so the question is – do we want to be in March $120 puts. If you know the answer right now – please let me know but, if not, I’m still doing what I said I’d do not even two hours ago and waiting to see the market reaction to Ben’s testimony.   

    EDZ/$25KP, Rev – Never anything wrong with taking a profit like that.   As it was a pair trade and very much "on track" for March – I haven’t been inclined to kill it yet as it’s a nice, potential $3,700 gain so I’d have to be convinced Emerging Markets are stronger than I thought to pull the plug at $22.74 with a $23 target.  

    XLE/$25KP – Did anyone get the roll-up to the March $72 puts on Monday or it never triggered?  

    I see EGLE coming back, another $25KP play.  They held $4 nicely, now $4.19.  As a regular play on them, I like the sale of the Sept $4 puts for .40 along with buying the $3/4 bull call spread for .65 for net .25 on the $1 spread that’s 100% in the money.

     

    DIA/$25KP, Obur – MY mistake, I was looking at the .90 they were on Friday.  Either way, money lost is lost and it doesn’t make sense to go into a frenzy trying to "protect" the $240 that’s left.  If the Dow is going to go up every day no matter what – then we just need to say we made a mistake shorting it, be glad it was "just" $720 lost and walk away.  


  83. Phil

     Good morning! 

    Same old watch levels on top at the 100% (off the bottom) lines:  Dow 12,938, S&P 1,332, Nasdaq 2,530, NYSE 8,362 and Russell 684 – with the last being long, long gone so we’ll continue to use 800 as the pass/fail sign on the RUT, keeping in mind how large the air pocket underneath it may be.  

    In our $25KP, let’s think about where we are this morning.

    We cashed XLF with a $250 gain (at $1.90) so that gives us a net $25,835 with open positions as follows (see Phamboy’s spreadsheet as well):

     

    • 5 XLE March $70 puts at $1.10 ($550), now .92 – we are offering to roll up to the March $72 puts for .35 more.  Those puts are now $1.50 so .60 for the roll at the moment and we wait.     
    • 8 DIA Feb $119.75 puts at avg. $1.21 ($968), now .38 – This is not happening with the Dow at 12,200 and I’m thinking it may never happen at this point.  I don’t want to spend money but waiting past today is foolish as we’re $2 out of the money with a .23 delta so even a 200 point drop in the Dow won’t help us.  The roll we have to make is to spend $1.75 ($1,400) to roll to the March $121.75 puts (now $2.13) and hopefully we can sell some Feb puts to offset it – let’s focus on the Feb $120.75 puts and sell them if they hit .50 (now .65) on a move up but hopefully we won’t have to.  So yes, I’ve decided to keep them.  
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now .90 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $3.25 – Net $3,250 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio) – These we need to possibly stop out if they go over $4K.  
    • 3 VIX Feb $17 puts sold for .70 ($220 credit), now .50. – let’s see where things go. 
    • 6 VIX Feb $17/19 bull call spreads for .65 ($390), now .65 – just a fun upside play on volatility but also a bearish position as the VIX usually moves up as the market goes down.
    • 10 EGLE March $4 calls at .50, now .35 – hoping for .75

     

    So not so terrible but it will be if we blow EDZ so let’s watch them like hawks please!!! That EDZ pretty much makes our goal for the month…

    The indexes could fall 2.5% without really getting bearish so let’s look for that.  Not in one day, of course but 1.25% today at least and then follow-through if we’re going to be weak but anything less than that and I think we’ll do some dip buying, especially if we hold .625% (1/2 of 1.25%) – beginning with the Dow as we’re covered there anyway and they have the farthest to go to get to their 100% level, which they need to do to catch up.  

    I’m watching  DDM $60 calls at $1 as a possible upside play on the Dow, maybe using 12,150 as an on-off line but they have a dime bid/ask spread so it’s not the kind of thing you want to go in and out of too often.  The volume is pretty good on this move down and we’re not falling too hard but maybe only slowing at -0.625% on the way to a break.   Still, if you feel you need upside coverage – this would be my favorite at the moment with tight stops.   

    $25KP Correction – That was the DIA March $121.75 puts, now $2.15 as a roll target from our .40 Feb $119.75 puts!  Selling the Feb $120.75 puts for no less than .50 (now .60) if the Dow heads higher.  

     

    2011/02/10 at 1:52 pm

    EGLE/$25KP – Good time to Double Down with 10 more March $4 calls at .30 for average 20 at .40

  84. Phil

     2011/02/11 at 9:42 am

    Good morning!  

    Mubarak left for a "vacation" this morning so I’m not so sure they’re going to get their riots but I think $86 is a good place to take the short oil money and run.  This does not affect XLE in the $25KP, we’re still looking for that to roll over below $72.50 (now $74).     

    On the $25KP yesterday, I forgot to list a short put on SPWRA that’s well in the money.  I’ll do a clean-up update over the weekend but Pharmboy’s spreadsheet has it.  

     

    Woo-hoo on SLB – out at $1.50!  Maybe we should start doing day trades in the $25KP?  Are there any people who cannot day trade in $25KP or really, really don’t want to? 

     

    XLE/$25KP, Dflam – Well I’m hoping XLE is just lagging oil, which is back to where it was when XLE was at $69.  If you push that chart out longer, you’ll see that XLE went totally nuts in September – with no relation to the actual price of oil anymore.  We wanted to roll higher but that never worked out but we still have a month and a week so no hurry.  

     

    2011/02/11 at 3:16 pm

    VIX/$25KP,  Willie, Chaps – Cash settlement and they settle sooner than other options so we need to roll them.  Rolling 3 Feb $17 puts at .95 to the March $17 puts at $1.05 for a .10 credit.  This will raise our net collected on 3 to .80 so you can see why I like these plays.   We can also roll the 6 $17 caller, now .40 to the March $17 calls, now $1.95 for $1.55 ($930) and then we’ll wait for the Feb $19 caller to expire.  

     

     

     

  85. Phil

    OK, that brings us to our new rundown and action plan.

    After cashing XLF we have $25,840 net and the following open positions (see Pharmboy’s spreadsheet too):  

     

    • 3 SPWRA Feb $13 puts sold for .65 ($195), now .05 – nothing to do here but wait for them to expire.
    • 5 XLE March $70 puts at $1.10 ($550), now .70 – we are offering to roll up to the March $72 puts for .35 more.  I’m hoping XLE is just lagging oil, which is back to where it was when XLE was at $69.  If you push that chart out longer, you’ll see that XLE went totally nuts in September – with no relation to the actual price of oil anymore.  We wanted to roll higher but that never worked out but we still have a month and a week so no hurry.  
    • 8 DIA March $121.75 puts at avg. $2.96 ($2,368), now $1.60 – This was a $1.75 roll from our Feb $119.75 puts, partially offset with the sale of the Feb $120.75 puts.
    • 8 short DIA Feb $120.75 puts, sold for .50 ($400), now .30 – We don’t want to roll these so we’re more inclined to take them out (buy them back) if they go back to .50 so let’s call that the plan of the moment.   When these expire, we do want to pick up more money selling March puts but we’ll have to see how the week goes.  
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now .70 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.70 – Net $2,000 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio) – These we need to possibly stop out if they go over $4K.  The were $3,250 on Thursday and dropped to back to $2,750 so we lost $500 and blew our opportunity to take this off the table, which I’m not happy about! EDZ is at $22.28 so, if the spread expired tomorrow it should be $4,280 so it still seems silly to bail with $2,750 unless China gets very bullish.  
    • 3 VIX March $17 puts sold for .75 ($225 credit), now $1 – rolled from the Feb $17 puts for .05 more. 
    • 6 VIX March $17 calls at $2.20 ($1,560), now $2 – rolled from Feb $17 calls at $1.55.  Intention is to cover with vertical caller after Feb caller expires. 
    • 6 short VIX Feb $19 calls at $0 (credit netted out in March $17 calls), now .20 – waiting for expiration.  
    • 20 EGLE March $4 calls at .40 avg ($800), now .35 – I’m torn on this as it seems kind of a joke that the market is so bullish but nothing is being shipped.  Technically, unless we are uber, gung-ho bullish, we should be selling 1/2 at .40 to leave us with our original 10 at a lower basis but the BDI did bounce as we expected so, as long as they have up days, I’m willing to keep the 20 calls.  

     

    We still have 60% of our cash to deploy and I’m still looking for upside plays as we’re quite bearish enough.  At the moment, China looks very strong coming back from holiday with a 2.5% gain on the Shanghai and a 1.25% gain on the Hang Seng and, if that doesn’t make you realize the 5% rule is very, very real – I don’t know what will!  

    Not a great start for the first two weeks but not a terrible one, especially considering how wrong our bearish stance has been so far.  Get ready for another crazy week as Japan’s GDP contracted 1.1% (but no one cares and the Nikkei is up 1.13%), Obama’s budget has a $1.6Tn deficit so cutting $100Bn would only get us back to $1.5Tn, which is 10% of GDP which is worse than Portugal, Ireland, Italy, Greece or Spain and, of course, all their deficits combined and tripled still wouldn’t touch ours!  

    Also, political unrest is catching on like wildfire throughout the Middle East and, if you think Egypt is "fixed," think again:

    In downtown Cairo Sunday, the armed forces moved decisively to further normalize civilian life. During morning rush hour, squads of military police units rushed into Tahrir Square and broke down the tents of the entrenched demonstrators who have been protesting there since Jan. 25. They also pushed remaining protesters to the square’s periphery, breaking their hold on the area and reopening the road to bustling vehicular traffic.

    Not exactly the kind of environment we expect to see VIX 15.50 in, is it? 

  86. Phil

    Time for an update.

    Today we bought back the DIA short $120.75 puts for .27 ($216) after they bounced back from .19 and began to look risky with 3 days to go and 150 Dow points out of the money.  The Dow hasn’t fallen like that in ages but it could and, if it did, we’d want to take the money and run on our March puts so we don’t want to be trapped by these short puts – not for a lousy .27.  If the Dow recovers tomorrow, I wouldn’t mind selling some $121.75 puts, now .48 as those can make us real money in 72 hours.  We shall see.    

    After cashing DIA’s $184 in profit, we have $26,240 net and the following open positions (see Pharmboy’s spreadsheet too):  

    • 3 SPWRA Feb $13 puts sold for .65 ($195), now .04 – nothing to do here but wait for them to expire.
    • 10 XLE March $72 puts at avg $1.15 ($1,150), now .90 – We finally got our roll and we celebrated on Monday with a Double Down at .85!  Now we wait.  Frankly, this all went exactly according to plan as we wanted to own 10 $72 puts for less than the $1.45 they were trading for at the time.  Now we will be thrilled to get back out at $1.45.      
    • 8 DIA March $121.75 puts at avg. $2.96 ($2,368), now $1.79 – It’s too much to DD as we have no faith in the position so we’ll try to hedge ourselves out of trouble.   
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now .60 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.70 – Net $2,000 with a $5,000 potential payoff is our hedge against an emergin market crash.  If you can’t do the margin on this trade then it is OK to do 12 spreads for $2,400 and you end up with about the same protection ($3,600 or 14% of the portfolio) – These we need to possibly stop out if they go over $4K.  They were $3,250 on Thursday and dropped to back to $2,750 so we lost $500 and blew our opportunity to take this off the table, which I’m not happy about! EDZ is at $22.68 so, if the spread expired tomorrow it should be $4,680 so it still seems silly to bail with $2,750 unless China gets very bullish.  
    • 3 VIX March $17 puts sold for .75 ($225 credit), now $90 – rolled from the Feb $17 puts for .05 more. 
    • 6 VIX March $17 calls at $2.20 ($1,560), now $1.95 – rolled from Feb $17 calls at $1.55.  Intention is to cover with vertical caller after Feb caller expires
    • 6 short VIX Feb $19 calls at $0 (credit netted out in March $17 calls), now .05 – waiting for expiration.  
    • 20 EGLE March $4 calls at .40 avg ($800), now .35 – I’m torn on this as it seems kind of a joke that the market is so bullish but nothing is being shipped.  Technically, unless we are uber, gung-ho bullish, we should be selling 1/2 at .40 to leave us with our original 10 at a lower basis but the BDI did bounce as we expected and is continuing strong, up 20% in 2 weeks - so, as long as they have up days, I’m willing to keep the 20 calls.  

     

  87. Pharmboy

    Total for the cash position is 26,024, as 25,840 + 184 = 26,024.  I think you are using the 400 collected from the sale of the DIA puts, but we bought them back for 27c, so 23c net.

  88. Phil
     
    Sorry, that took way too long.  Meeting was more than double usual but important to go through.  
     
    It looks like tomorrow we will need to roll out some additional bullish plays, including for the $25KP so we don’t get steam-rolled by the Free Money Express.  Today’s action showed us that nothing matters right now – it’s up, up, up and, when bad news hits, up some more.  
     
    Of course it’s all going to end badly but maybe not tomorrow and that’s how we’ll have to play it.  As I noted above – the Dow is only up 300 since Jan 25th – it’s not like we are missing anything really – it just feels like it.
  89. Phil
    DIA/$25KP, Humvee – I wish you would have asked earlier as the Feb $121.75s were .42, now .23 but no biggie.  We still have the now naked March puts and they are looking sad now.  I’ll be looking for a bullish offset on the Dow and then to roll them back to longer months most likely.  
     
    VIX/$25KP, Kmaus – Yes, we do need to look at selling March calls.  That was our plan, remind me in the morning if I don’t get to it early please.  
  90. Phil
     
    Good morning!  
     
    Looks like another exciting day in the markets.  
     
    We’re still watching 82.50 on IWM, 1,333 on the S&P and 8,362 on the NYSE but this will be day 2 over on the S&P so it’s time to do SOMETHING bullish in the $25KP.  
    So, in the $25KP, I am liking 10 FAS March $34 calls for $1.76 ($1,760), selling 8 FAS March $35 calls for $1.31 ($1,048), so we are committing net $712 to the $1,000 spread but taking a bonus on 2 contracts for any move FAS happens to make over the $35 mark.  
     
    Also, let’s add 5 USO March $36 calls for .95 ($475), those were $1.50 last week and we do want to DD or roll if they go lower. 
    I’ll have more later but let’s just get bullish and root for MORE NONSENSE!  
     

    Philly Fed was 35.9, up from 19.3 if you can believe it.   20 was expected.  Let’s just accept these numbers at face value and BUYBUYBUY – it’s what’s going to happen anyway.    

  91. Phil
     
     

    VIX/$25KP, Willie – Ah, thanks!  At the moment, the March $17s are back to $2.10, which is near our net so I’m back to not wanting to cover at the moment.  What I’m looking at is a roll down to the $15s for $1.40 and selling the $19s for $1.40, which would put us $1.90 in the money on a $4 spread that cost us net $2.20.  Of course we still have the short $17 puts at .70, which are back in the green for us but it could turn into a $1,000 winner for us so that’s the way I’m leaning but not going to pull the trigger unless we fail $16.50 on the off chance we get lucky (doubtful at this point).   

  92. Phil

    2011/02/17 at 12:56 pm

     
    FSLR.Ajay – Thanks for pointing that out but nothig is a short right now.  As you’ll see with the $25KP, we just need to layer in a couple of new upside plays every day we go up and, after a few days, we cash out the oldest (most profitable) and run a couple of new ones but we’re not going to bet against it.  I think I’ve said before, there is a very big, very clean run to 13,000 for the Dow once the S&P clears their level and if the S&P pops that last Fib resistance at 1,345, then it’s clean sailing for them up another 10%.  
     
  93. Phil

    2011/02/17 at 1:28 pm

     

    SPWRA/$25KP, StJ – You can buy it back and pay $20 but they are at $17 and would have to fall more than 20% and, even if they do – we REALLY would love to own them at $13 (300 shares) so why should I pay $60 plus commission now?  

    2011/02/17 at 1:39 pm 

    EGLE/$25KP – That’s strange as the BDI is at 1,271, up 27% off our bounce already and up 2.8% yesterday.  Just another good entry opportunity to me if someone didn’t get them yet (March $4 calls at .30).   

  94. Phil
    Good morning!
     

    USO/$25KP – PLEASE don’t tell me I have to tell you that $1.45 is PLENTY to make off our .95 entry (52%).  We can set a stop at $1.40 and make it a .10 trailing stop if we head higher and, over $1.60, it can become a .15 trailing stop but we cash out by day’s end no matter what.  If it were a bigger position, I’d take 1/2 off now to make sure we get the nickel.  

    2011/02/18 at 10:28 am

    XLE/$25KP, Jabob – Wow, those dropped like a rock!  Our basis on 10 is $1.15 so doubling down at .50 would be .825 average and the delta is .17 so we’d need a $2 drop to get even.   XLE is up $5 from last week so not too unreasonable to look for a pullback but the rioting in the Middle east is not going away so feels a bit like throwing good money after bad into the weekend.  The June $72 puts are $1.85 and that would be a $1.30 roll and we can sell March $74 puts for .87 and that would probably be a better use of our net .50 so that will be our decision AFTER the weekend.  If they keep going up, the roll will get cheaper anyway (because the June puts have a .30 delta to our .17) and, if they pull back – we might not need the roll.  

  95. Phil
    All right, we made it through our first expiration.  
     
    • Our 3 SPWRA short calls expired worthless so that’s the whole $195 added to our total.  The short VIX calls also expired worthless, as expected but we already credited that amount to the remaining leg of the spread so no cash gain there.
    • 5 USO March $36 calls were added on Thursday at .95 ($475) and sold for $1.45 (+.50) so a $250 gain to cash on that one.  
     
    Pharmboy’s figures came out a little lower than mine and I’ll defer to his total of $26,434 on cash and closed positions, it seems I added too much on the closed DIA short puts last time.  That leaves us with the following outstanding positions after our first 3 weeks:  
      
    • 10 XLE March $72 puts at avg $1.15 ($1,150), now .44 – OK, now I am worried!  Oil kicked up to $95 today and we did have a rolling plan on Friday, but that may be out the window now – we’ll have to see tomorrow.   .      
    • 8 DIA March $121.75 puts at avg. $2.96 ($2,368), now $1 – It’s too much to DD as we have no faith in the position so we’ll try to hedge ourselves out of trouble.   
    • 5 EDZ March $20 puts sold for $1.40 ($700 credit), now .70 – We don’t really care as it’s all premium.  Worry if EDZ fails to hold $20.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.50 – We lost our chance to take the money and run on this one.  Had we done that, we could have been back in again.  Still, not a crisis with EDZ at $21.50 but that’s a line we’d better not fail.  I would not mind if XLE and DIA were not killing us but this is now a $950 profit (on the pair) that we cannot afford to lose.    
    • 3 VIX March $17 puts sold for .75 ($225 credit), now $70 – rolled from the Feb $17 puts for .05 more. 
    • 6 VIX March $17 calls at $2.20 ($1,560), now $2.90 – rolled from Feb $17 calls at $1.55.  Intention is to cover with vertical caller but waiting has paid off so far
    • 20 EGLE March $4 calls at .40 avg ($800), now .35 – I’m torn on this as it seems kind of a joke that the market is so bullish but nothing is being shipped.  Technically, unless we are uber, gung-ho bullish, we should be selling 1/2 at .40 to leave us with our original 10 at a lower basis but the BDI did bounce as we expected and is continuing strong, up 20% in 2 weeks - so, as long as they have up days, I’m willing to keep the 20 calls.  
    • 10 FAS March $34 calls at $1.76 ($1,760), now $1.87
    • 8 short FAS March $35 calls sold for $1.31 ($1,048), now $1.37 – This is a slightly extra-bullish bull call spread

    Hmm, not as bearish as I was thinking we were this morning.  It’s mostly because our two bearish plays are kicking our asses that I feel like we’re to bearish but it’s FAS and EGLE give us some nice upside potential and we can hit and run a few more bull plays to offset the bear side losses without giving up on them (keep rolling them as a bearish hedge).  

    Short week this week as we close out our first month.  In the first half of the year we needed to make $2,500 a month and that’s not happening in month one unless we really luck out over the next 4 days.  I’m looking at playing UUP up from the $22 line and we’ll certainly be looking for another chance to short oil but that very much depends on how things are shaking out in the middle east.  

  96. Pharmboy

    All – Every thing seems good to me on the spreadsheet.  Everyone gets a bit of a different price, esp. on the FAS and USO plays for the sale.  I try to use Phil’s numbers, so I will switch to the 1.45 (I was out at a little less, and I know others were as well, but we are not going to worry about a few pennies when this is a portfolio play for all to go along with and we should all be within the ballpark on those sales/buys.

  97. Phil

     Busy day:  Chat comments were as follows:  

    February 22nd, 2011 at 9:55 am | (Unlocked)Permalink  
    Alert to premium, alert, and basic members sent at February 22, 2011 – 9:55am


    • In the $25KP, we’ll take this opportunity to cover our DIA $121.75 puts by selling the $123.75 puts for $2.10 (8 of them) and we’ll deal with the roll later.  
    • Also in the $25KP, let’s buy back the 8 short FAS March $35 calls for .92 and go naked for the bounce.  We will look to resell them at $1.25 or better. 
    • Also in the $25KP, can add 10 INTC March $22 calls at .48.  I like the new tech that AAPL will be rolling out this week:  
    Sealed pallets wrapped in "Apple Confidential" tape are arriving at resellers early this week, suggesting another revamp of the company’s MacBook Pro (AAPL) is due to be announced, along with an expected new high-speed connection type based on Intel’s (INTC) Light Peak project, but using copper wire instead of fiber-optic. 

    February 22nd, 2011 at 11:55 am | (Unlocked) Permalink  
     
    HOV (good catch B1)/$25KP – 10 March $3.50 calls at .80 as a new entry.  
     
    February 22nd, 2011 at 1:03 pm | (Unlocked) Permalink 
     
    XLE/$25KP, Mampcs – When in doubt, we sell half so let’s put a stop on 10 of them at $1.25 (now $1.30 with a .10 trail if we pop over $1.40).
     
    February 22nd, 2011 at 1:07 pm | (Unlocked) Permalink   

     
    XLE/$25KP – Let’s just get out.  $1.30 is a gift considering where we were.  Sorry but Obur is smarter than I am, no need to get greedy. 

    February 22nd, 2011 at 1:40 pm | (Unlocked) Permalink  Alert to premium, alert, and basic members sent at February 22, 2011 – 1:40pm

    TOS/Rav – LOL!  Just be warned that I will kill you if you cause TOS to start using TD’s crappy margins…  8)
    $25KP Update:
    • XLE’s all gone with 0.06 profit ($120) 
    • 8 DIA March $121.75 puts ($1.95) now covered with 8 $123.75 puts ($2.95) and we collected $2 on those so we can now roll out the $121.75 puts to the May $122 puts at $4.10 (+$2.15).
    • 5 EDZ March $20 puts down to .35 so let’s buy them back for $175.  
    • The EDZ $18/23 spread is back at $3 but let’s see which way things go tomorrow as we have another $2K to make there and EDZ is at $23.66 so this is money they have to earn back.  
    • 3 VIX March $17 puts are .35 so let’s buy them back for $105 as we can do better for that much margin.  
    • Let’s look to sell 6 VIX March $21 calls for $2 to turn that into a .20 spread ($120) with an $1,800 upside.  
    • EGLE – No change
    • FAS – We bought back the callers earlier.  Seems worth it to DD with 10 more March $34 calls at $1.08 for a $1.42 average on 20.  

     

  98. Phil

    Oops, missed one!  

    February 22nd, 2011 at 10:00 am | (Unlocked) Permalink  edit  lock  

    Wow, what an amazing rebound already.  Volume coming into 10am is 40M so better than normal (25-30) but not much at all.  
    Oil is heading lower so I think we should roll the $25KPs 10 XLE March 72 puts, now .37 to the $75 puts, now .85 (.48) for a $1.63 net and then DD with 10 more at .85, spending $1,290 to hopefully put us in a position to get out even at $1.24.  
  99. Phil

    That was a busy day! 

     

    Pharmboy’s spreadsheet should be updated lated but we both had $26,434 at the start of the day.  We cashed out the 8 short FAS March $35 calls for .92, up .39  ($312), we cashed out the entire XLE position (after rolling and doubling down) up 0.06 ($120), we cashed out the 3 short VIX March $17 puts at .35, up .40 ($120) and we bought back our 5 short EDZ puts for .35, up $645 – bringing our cash position up to $27,511 so, all in all, a nice productive day 15!  
     
     
    That leaves us with the following outstanding positions after our first 15 trading days:        
    • 8 DIA May $122 puts at avg. $5.11 ($4,088), now $4.15 – Rolled from the March $121.75 puts for $2.15. 
    • 8 short DIA March $123.75 puts, sold for $2.10 (-$1,680), now $2.95.   
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $3 – Feeling much better about them again.  .    
    • 6 VIX March $17 calls at $2.20 ($1,560), now $4.30 – rolled from Feb $17 calls at $1.55.
    • 6 short VIX March $21 calls sold for $2, now $2.20 – makes this a net .20 spread!   
    • 20 EGLE March $4 calls at .40 avg ($800), now .25 – I’m torn on this as it seems kind of a joke that the market is so bullish but nothing is being shipped.  Technically, unless we are uber, gung-ho bullish, we should be selling 1/2 at .40 to leave us with our original 10 at a lower basis but the BDI did bounce as we expected and is continuing strong, up 20% in 2 weeks - so, as long as they have up days, I’m willing to keep the 20 calls.  
    • 20 FAS March $34 calls at avg. $1.42 ($2,840), now $1.08 – Doubled down at $1.08
    • 10 INTC March $22 calls at .48 ($480), now .39 – would like to DD at .24 but doubt it will happen.
    • 10 HOV March $3.50 calls at .80 ($800), now .70 – Ouch, bad start!  

    Wow, what a difference a day makes!  Notice the way we make money – we cash out winners, one by one and make adjustments to our "losers" and ALSO, try to balance out our potential losers with trades that benefit from their additional demise.  Whenever your portfolio is "killing you" – you are out of balance.  Of course the hard thing to realize is that when your portfolio is "making a killing" – you are ALSO out of balance!  

    Because we have a very short-term focus in this VERY aggressive portfolio – we are playing a lot of trades from both sides and we are happy to cash out one side, even as we press another.  At the moment, we’re flipping a bit bullish – gambling that the 2.5% lines will hold up but, if they don’t – what are we worried about?  We’d be looking at $5,000 coming from EDZ ($3K profit) and a $2,280 profit on the VIX while our DIAs are hedged and can take care of themselves now that we moved it to a more conservative calendar spread (Mattress Play).  Our downside worry then, isn’t HOV ($800) or INTC ($480) or EGLE ($800) which are all at stage one in our scale and no trouble if they go down as long as we are ready to commit the rest of our $2,500 allocations.  

    So it took me just a one-paragraph review to identify FAS as our critical, unhedged, upside play to keep an eye on.  It’s dangerous because it’s big, it’s March (so expires soon), it’s out of the money and it’s unhedged.  I do, however, believe that it is highly unlikely I lose more than 50% ($1,420) without both EDZ and the VIX being well on their way to goal.  

    That’s settled then but now I have to flip it around (kind of like a Rubick’s Cube) and look at it the other way.  If FAS goes up, then EDZ and the VIX go down and EDZ is $2K unhedged (our VIX play is now net $120 so we LOVE THAT) and the March $34 calls were $2 last week so maybe it’s a wash if FAS takes off and EDZ gets blown.  BUT – we then maybe get a little action on INTC and HOV.

    So, in conclusion – we’re looking pretty well balanced and we still have over $18,000 of undeployed cash and what did we do today?  We took out all the short puts that were cosing us margin to free up that $18,000.  See how all the pieces come together?  

    We scraped together a little money while the market was a pain in the ass and, now that it’s interesting again with the VIX back over 20 and some good stocks going on sale – we are ready to rock and roll with our cash!

  100. Phil

    Catching up with comments from main chat:

    2011/02/23 at 10:12 am 

    INTC/$25KP, DC – Yes to following through with our DD at .22 now.  That’s 10 more March $22 calls at that price ($240)

    2011/02/23 at 11:48 am

    EGLE/$25KP, Obur –  BDI fell 1.69% yesterday but not so bad.  We’ll have to see how things go but the market still looks weak into Europe’s close.  

    DIA/$25KP, Morx – No, they are long and covered now.  

    10 C Apr $4 calls at .70 ($700) in the $25KP

    CVX/Dflam – Good man!  Note the process on the $25KP – make money, get cash, try again…  

    2011/02/24 at 12:12 pm

    FAS/$25KP, Cnar – Not ready to give up on XLF coming back yet.  We’re in too deep to DD so it would be a cover and roll play if anything.  At the moment we can sell the March $32 calls for $1.12 and the March $30 calls are $1.94 so that’s $1.34 so it would cost us net .22 to roll to the March $30s but the March $30s have a .54 delta and we have a .24 delta so that roll gets .24 cheaper for us with each $1 that FAS falls so there is no reason for us to rush into it and maybe we’ll end up in the $29s if we are patient….

    Note, this is not a move to make, just illustrating why it’s OK NOT TO do anything at the moment (Don’t just do something, stand there).  

    2011/02/24 at 12:39 pm

    DIA/Ult – There $25KP position is 8 May $122 puts at net $5.11 (now $5.11) and short 8 March $123.75 puts that were sold for $2.10, now $4.40 so we have interestingly transfered our loss from the long puts to the short ones but that’s fine as we have 2 months to roll ‘em.  The adjusted base cost of the March $121.75 puts was $2.96 and they are now $3 so your roll cost would put you in the same ballpark as everyone else.  

    2011/02/24 at 4:04 pm

    VIX/Cwan – We’re not out of the woods yet.  Let’s see how the Asian markets look tomorrow and then figure out an escape plan (goes for $25KP too).  

  101. Phil

    $25KP Update – Day 17  

    Pharmboy’s spreadsheet is updated (thanks Pharm!) at $27,531 at the end of the day.  No changes were made, there was a $20 discrepancy and he’s the guy with the spreadsheet so I defer to his numbers!  We added 10 C Apr $4 calls and doubled down on INTC at .22 but, otherwise, we’re pretty well balanced and waiting for a good reason to cash out VIX and EDZ and get bullish.  If not – they are good protection with almost $5K of upside if things stay rotten.    
     
    That leaves us with the following outstanding positions after our first 17 trading days:        
    • 8 DIA May $122 puts at avg. $5.11 ($4,088), now $5.37. 
    • 8 short DIA March $123.75 puts, sold for $2.10 (-$1,680), now $3.85 – At the moment (not an execution) I’m looking at a roll to the Quarterly (3/31) $122.75 puts, now $3.70.  It’s almost tempting to just do it because, in exchange for 10 days, we pick up $1 in position for .15!  So, as soon as we lose faith in our levels holding – this is the way to go
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $3.17 – We were pissed we didn’t take $1,000 off the table last time and they dropped back to $2.50 so, if Asia looks strong tomorrow, we’ll probably ditch them and wait to reload.      
    • 6 VIX March $17 calls at $2.20 ($1,560), now $4.90.
    • 6 short VIX March $21 calls sold for $2 ($1,200), now $2.40 – this $2.50 spread is $2.30 ($1,380) of profit and again, better to take it and run than watch it melt away so we’ll be on the look-out for signs of returning complacency.  If we were able to leave naked callers, the thing to do is take money and run on the calls we own and stop out the ones we are short on but, just playing the margin of a small portfolio as some people are – you can’t afford those games.
    • 20 EGLE March $4 calls at .40 avg ($800), now .27 – The BDI is holding up well despite the market drop so I’m holding out hope.  
    • 20 FAS March $34 calls at avg. $1.42 ($2,840), now .67 – Not money we want to lose but I’m just not bearish on XLF at all, which is how we ended up with a full commitment on these guys.  
    • 20 INTC March $22 calls at avg .35 ($700), now .20 – we did the DD at .22 – if we were shorting puts I’d be thrilled, buying calls really does suck, which I suppose is why people who buy them are suckers but margins are a rich man’s game and this is a poor man’s portfolio.
    • 10 HOV March $3.50 calls at .80 ($800), now .70 – Ouch, bad start!  
    • 10 C Apr $4 calls at .70 ($700), now .72 – Wow, profit on a bullish play!!!

    On the whole, we are netting out about even on the open positions and that’s good when you have no idea which way the market will go.  As it stands now, we’d rather it go down as we have $5K to pick up on the short side (VIX and EDZ) and $5,800 committed to long positions (counting DIA as neutral) so figure we stop out with a $3K loss on those and pick up the $5K is net $2K and that would make for a nice month’s work.  

    Our upside path would be a little trickier as we’ll have to ditch our VIX and EDZs with small profits and risk going naked to the upside.  The DIA is no cover because it’s short-term bullish now (due to the short puts) so, the bottom line is we still need long plays if we cross over our levels again but we’ll need to get aggressively short quickly if we fail them after giving up our hedges.  That’s why it’s nice not to do anything right now – it’s much more relaxing to coast in neutral while we wait to see the market resolve itself.  

    The Hang Seng has been up and up all day, up 2% coming into the EU open.  The Nikkei is up 0.7% and the Shanghai came back from a 1% drop and is now even and the Bombay is up 0.77%.  The Nikkei being happy makes no sense as the Yen is up to just 81.8 to the Dollar again and usually exporters in Japan do not like to see anything below 82.  

  102. snow

    EDZ / Phil – I missed the original entry on this – yell if you decide to reload so I can join the party, even if late….

  103. Phil

    $25KP Update – Day 20  

    Pharmboy’s spreadsheet is updated (thanks Pharm!) at $28,761 at the end of yesterday.  We cashed the 6 VIX March $17 calls for $3.50 (up $780) and bought back the 6 VIX short March $21 calls at $1.25 (up $450).  This is very good as we already had a nice win on the VIX short puts.  Today we bought back 20 FAS short March Weekly $32 calls at .17 (up $460) as well so that’s $29,221 of realized balance.  We rolled the other FAS too.      
     
    That leaves us with the following outstanding positions after our first 20 trading days:        
    • 8 DIA May $122 puts at avg. $5.11 ($4,088), now $5. 
    • 8 short DIA March $123.75 puts, sold for $2.10 (-$1,680), now $4.20 – still considering roll to the Quarterly (3/31) $122.75 puts, now $3.70.   If 12,000 fails, will be very tempting.  
    • 10 EDZ April $18/23 bull call spreads at $2 ($2,000), now $2.85 – This is a $5 spread and makes good protection.  EDZ is currently at $22.24 so it’s at least a $4.24 spread right now – $2.85 is just not a temptation.      
    • 20 EGLE March $4 calls at .40 avg ($800), now .17 – The BDI is holding up well despite the market drop so I’m holding out hope.  Roll to Apr $4 calls is .08 (.17 to .25) so worth no more than $200 to buy a month on this roll.   
    • 20 FAS March $32 calls at avg. $2.06 ($4,120), now .80.  We were supposed to sell to make a roll cover but let’s see how the day plays out on this one.  
    • 20 INTC March $22 calls at avg .35 ($700), now .20 – we did the DD at .22 – if we were shorting puts I’d be thrilled, buying calls really does suck, which I suppose is why people who buy them are suckers but margins are a rich man’s game and this is a poor man’s portfolio.
    • 10 HOV March $3.50 calls at .80 ($800), now .50 – Earnings did not work out, giving it one day and then out. 
    • 10 C Apr $4 calls at .70 ($700), now .62 – Dying with the FAS play…

     So it’s a darn good thing we booked $4,200 in profits because the FAS play is threatening to take it all back!  Right now, we are re-testing the XLF bottom of last week and we ran from there right back to $17 (and then failed that) so that’s what I’m hoping for.  I didn’t catch Bernanke taking any major hits so the setting is right for a relief rally, so we’ll remain bullish for the moment until we blow our levels. 

  104. Phil
     
    EGLE/$25KP, Cnar – It is to be exectuted!  (roll from March $4 call to April $4 call for net 0.08).
     
     
    Submitted on 2011/03/02 at 2:02 pm
     
     
    EGLE/$25KP, Willie – They are dropping but the Apr calls are hodling value so far, just need to be patient as the Aprils are thinly traded and the March calls are mainly us.  
  105. Phil

    Submitted on 2011/03/03 at 10:14 am

    Oil did not go up on a down dollar, nor did gold.   USO April $38 puts are .80 and still my favorites but too risky for the $25KP at the moment.

    5 UUP Apr $21 calls can be added to the $25KP at $1, plenty of time to sit on those.  

    Also in the $25KP, today is the day we can roll the 8 DIA March $123.75 short puts to the March 31st $122.75 short puts for no more than net .10. 

    10 EDZ April $23 puts can be bought back for $1.15 in the $25KP as well.  This gives us better downside protection without having to add another bearish position.  

    Submitted on 2011/03/03 at 10:32 am

    FAS/$25KP – let’s sell the WEEKLY March $31 calls at .60 (but make sure you sell it).  FAS is $31.22 so you are getting .38 premium for 3 days and they can roll to $32 calls of next week. 

    Submitted on 2011/03/03 at 10:53 am

    EDZ/$25KP, Vic, ALL – Yes, I meant the calls, of course!  

    Submitted on 2011/03/03 at 11:11 am

    EDZ/Yshen – For the $25KP, to replace EDZ, which we are close to ditching, I like the TZA Apr $38/42 bull call spread at $1.20 with a stop at .60.  That should hold up reasonably well with a .14 net delta difference (so a $4 move in TZA (10%) to knock us out) and it pays almost 3:1 on a less than 5% move down in the RUT so $600 risked (the .60 stop out) buys 10 contracts with $2,800 worth of protection.  This is NOT a trade for people who already have EDZ as a cover (now naked).  

    $25KP/Snow – Yeah, remember yesterday when everyone was worried about the long positions?  Ah, good times.. 

    UUP/Smala – See above, we just added the Apr $21 calls to the $25KP.

    Submitted on 2011/03/03 at 11:17 pm

    FAS/$25KP, Yshen – That’s normal for them to call if you don’t have experience doing weeklies.  You should let them know you intend to deal with them by 3pm.  Yes, they can be rolled but I’m not sure what we’ll do until I see the activity.  Any finish below $31.40 will be a nice win for us as we pay the caller back less and keep the .20.  The premium on the callers should dry up quickly after lunch. 

    Submitted on 2011/03/04 at 10:32 am

    INTC/$25KP, Ult – Had I seen that spike I would have liked to have gotten out even or at least sold 1/2 but too late now so we’ll watch the Nas and see if they can hold 2,750.

    FAS $25KP $31 short weekly calls now .07, at this point we set the stop at .10.

    Submitted on 2011/03/04 at 12:47 pm

    On the FAS $25KP calls, now .05 – if you don’t have a broker that will let you ride them to expiration – then may as well take them out for .05 now as it doesn’t get much better until about 3:45.  There is stick risk in any event so a .10 stop means we’re risking .05 to make .05 but only if we KNOW we can let them expire worthless.  If you have a broker who doesn’t like to let you run it into the close based on the assignment risk – then you are risking .05 to make Zero and that’s silly.  

     

     

  106. Phil
    $25KP Update – Day 20  
     
    Pharmboy’s spreadsheet is updated (thanks Pharm!) at $29,961 at the end of our first month.  Since the last summary we bought back the 10 EDZ April $23 caller for $1.15 (up .85) but (see below) I transferred that money to the long calls, not to cash.  We also sold 20 FAS weekly $31 calls at .60, which expired worthless, adding $1,200 to our virtual cash to close the week.  
     
    That leaves us with the following outstanding positions after our first 22 trading days:        
    • 8 DIA May $122 puts at avg. $5.11 ($4,088), now $4. 
    • 8 short DIA March 31st $122.75 puts, sold for $2 (-$1,600), now $2.67 – a .10 roll from the March $123.75 puts was executed, lowering our sold basis by .10 but, on the whole, we made good progress from a bad position.  
    • 10 EDZ April $18 calls at $3.15 ($3,150), now $3.10 – We bought this spread for net $2 and bought back the $23 caller for $1.15 which means we spent, effectively, net $3.15 for the April naked calls.  Rather than transfer the .85 profit from that $2 sale to cash – I prefer to keep track of the trade this way – we don’t want to think we’re doing better than we are.    
    • 20 EGLE April $4 calls at .48 avg ($960), now .25 – we did a .08 roll from the March $4s  to buy time.     
    • 20 FAS March $32 calls at avg. $2.06 ($4,120), now .79.  This one, of course, looks worse than it is as we did put short profits to cash twice.  Unlike EDZ, where I fear a loss and want to keep a stop out in my head, FAS is a position I would rather stick with so we will likely turn this into a spread next week.    
    • 20 INTC March $22 calls at avg .35 ($700), now .19 – My bad for not having set the stop out at .35 on at least half.  That is what you are supposed to do when you DD and that opportunity passed us by in the morning, turning this one into a nail biter.  I really thought their new tech, being used in IPads, would get them a better pop.
    • 10 HOV March $3.50 calls at .80 ($800), now .40 – We never got a chance to get out on the quick drop – have to be lucky next week. 
    • 10 C Apr $4 calls at .70 ($700), now .58 – Held up pretty good on a BAC downgrade.  We’ll see
    • 5 UUP Apr $21 calls at $1 ($500), now .96 – Playing the Dollar to go up seems crazy, right?  
    OK, so let’s not get too excited about a $4,961 gain in our first month as we cashed in our winners and we’re stuck with our losers which I’m eyeballing at about the same!  Ideally, half of the above plays work and wipe out the losses of the other half but we BOUGHT premium for the most part and we have a chance of both sides getting wiped out so we need to change the nature of the trades next week.  
     
    From a strategy standpoint, the Dow play will take care of itself as it’s a neutral income producer now.  EDZ is our primary hedge, good if something blows up over the weekend or even if not as high oil prices are keeping Brazil and Russia (1/2 of the BRICs) elevated.  EGLE has time and I have faith - look at the BDI move up (as we expected).  
     
    FAS has no time but we have, in fact, taken .83 of profits against it so not in such bad shape and now I’m ready to commit cash to a roll (I didn’t want to do that without collecting that last .60 off the short sale).  INTC is at $21.56 after falling .23 yesterday – if the market doesn’t crash next week (good for EDZ), then I think we’ll head to April.  
     
    HOV I am not happy about so maybe a loss to be taken there.  C is April and we’re good with that (I hope) and UUP is just my crazy macro view that we’re reaching the point at which the Dollar either totally breaks down or bounces back and we’re betting on the bounce with this one.  
     
    So UUP and EDZ are our bearish covers with longs on FAS, EGLE, INTC, HOV, and C and DIA is a neutral, income-producing spread.  We have $16,543 available to commit with a pretty quite data week ahead and plenty of earnings to play so, as long as the Bots get their act together – we can have fun with earnings spreads next week as the the 2nd to last and last week before expiration are the best weeks to do those (because the front month has extreme decay vs the long hedge).
     
    So, an active week ahead and I look forward to hearing any good scoops you have on the companies scheduled to report.  
     
    Thanks,

    - Phil 

  107. Phil

    Submitted on 2011/03/06 at 10:17 am

    $25KP/Iflan – If we cashed out now we wouldn’t be much better than even – I detailed that in yesterday’s update.  No, I don’t count trading fees, the tracking is already enough of a pain in the ass as it is.  Obviously, in small accounts, it is best to take advantage of low fee or flat-fee services like IB or Option House because, even at $10 per transaction – those fees can really start to add up over time.  Ideally, we will make enough money where fees are not a big issue but they do become one if you tread water for too long with no progress. 

    Submitted on 2011/03/07 at 9:55 amSubmitted on 2011/03/07 at 9:55 am

    This is why we are Dow bullish in the $25KP on the DIA spread but we have a lot of work to do on that portfolio – probably tomorrow so be warned.  

    Submitted on 2011/03/07 at 10:11 am

    If you are following the $25KP, of course that is updated (and Alerts are sent from) in the comments of that post under the Portfolio tab at the top of the page.  

    In general – if you are not getting Alerts, first check your Member Management Link (top right of the page) and make sure your EMail Preferences are checked off to get Alerts.  These can be bumped off if your EMail system, for some reason, rejects our Mail or treats it as spam, which causes our server to follow rules and stop "bothering" you.

    Thanks, 

    - Phil

    $25KP Adjustments:

    • EDZ, DIA – no change.
    • Double down on 20 EGLE Apr $4 calls at .22 for avg of .35 on 40 – set stop to take 1/2 off at .35.  
    • Selling 10 FAS March $30 calls for $1.45 (covering 1/2).  
    • Rolling 20 INTC March $22 calls, now .10 to 20 March $31 calls at .45 for net .35 ($350) and net .70 – all out at .70. 
    • HOV no change
    • C no change
    • UUP no change. 

     INTC/$25KP – Sorry, that was rolling to March $21 calls!  

  108. Phil

     Submitted on 2011/03/08 at 10:21 am

    Gut/Exec – We were flat on a rising dollar this morning which means we can get a huge pop if they bust the buck later so up is the path of least resistance at the moment.  I won’t count anything until I see volume past 60M by noon – right now it’s just nonsense but there’s really no data to turn us back.  Look at FAS fly this morning – all of a sudden banks are golden again?

    Speaking of which: In the $25KP we sold 10 FAS March $30 calls for $1.45 yesterday, now $2.15 and we have 20 March $32 calls, now $1.05 so we put the money we collected to work and spend $1.15 ($2,300) to roll out to 20 April $32 calls, now $2.20.

    $25KP – Once the FAS roll is done, We sell 10 March $31 calls ($1.50) and put a stop on the 10 March $30 calls we are short at $2.50 but, otherwise, we stay fully covered.  

    FAS/$25KP, DC – I don’t like setting hard stops at all.  Right now FAS is testing $32 and we’re up around $2.50 on the $30 calls (now $2.38) so now I’m going to look at the $32 line to see if it breaks before giving up.  If you set a hard stop, some Bot will see it and flush your stop (because you are offering $2.50 for something they can buy for $2.35 so why wouldn’t they?) and I generally don’t like to stop out at a target until/unless I see TWO FULL 10-MINUTE CANDLE BODIES form above/below the strike.  Unless, of course, I feel we’re on some major move that’s not going to stop.  As I said earlier – I think they are going for those Friday opens so why would I let a run up to where I expect to be stop me out?  

    Submitted on 2011/03/08 at 12:06 pm

    Notice those FAS $30 calls still can’t get over $2.50 with FAS at $31.92 so now let’s officially say they have to hold $32 for at least 15 minutes before we give up and buy back those puts in the $25KP.  

    FAS/$25KP, Amatta – I am hoping very much NOT to stop out (see above).  

    FAS/$25KP, Gucci – Long March $32 calls that we own roll to the April $32 calls.  We sold 10 March $30 calls yesterday and we added the sale of 10 March 32 calls today at $1.50 and we are now going to stop out the March $30 callers (now $2.45) IF WE HAVE TO – IF FAS SUSTAINS A MOVE OVER $32 for more than 15 minutes.  Keep in mind those March $30 calls still have .50 in premium and we can roll them up if we have to, so not life and death to get out at $2.50.

    Submitted on 2011/03/08 at 12:49 pm

    FAS/$25KP, Cnar – Well you can sell them again for $2.50 and be right on the same page again because that is also what I said.  

    Rolling/Mampcs – I was going to save this for the $25KP write-up but we are rolling the short calls so we sold the $30 calls for $1.45, buy them back for $2.50 (loss of $1.05) and we pay for that by selling the $31 calls for $1.50, which, if we have to, we will buy back for $2.50 and sell the $32 calls for $1.50 to pay for those.  Meanwhile, FAS is up $2 and we have 20 longs vs losing $1 on 10 calls a couple of times.  If, at any point, FAS does fall down – then we are very well covered on our longs.  

    WE sold the mar 31 calls for 1.50

    $25KP – Once the FAS roll is done, We sell 10 March $31 calls ($1.50) and put a stop on the 10 March $30 calls we are short at $2.50 but, otherwise, we stay fully covered. 

     

    Submitted on 2011/03/08 at 2:03 pm

    $25KP Earnings plays:  Buy 4 FMCN April $28 calls at $1.30 ($520), sell 5 March $27 calls for $1.15 ($575) is a net $55 credit on the spread and, of course, bearish.  Margin on the 1 net naked call should not be much more than $550.  

    Also $25KP:  Buying 3 SAM June $100 calls for $3.80 ($1,170) and selling 3 March $95 calls for $2.70 ($810) for net $360 on the spread and that one is hoping for neutral to not too far down.  

  109. Phil

    Good morning!

    I hope everyone has their disaster hedges because I am starting to lean that way again.  Trade of the day would be our beloved DIA March $120.75 puts, now .90 and we also have another chance to short oil futures at that $105 line (very tight stops over the line) and I still like USO April puts but now the $40 puts are $1.03 and looking like the best play so yes to rolling to them and doubling down if you are in the old trade.  

    In the $25KP, I like 10 of those for $1,030 as a new entry.  

    Also in the $25KP, we should be fully covered on FAS with 10 March $30 calls (now $2.15) and 10 March $31 calls (now $1.45).

    We had earnings plays in the $25KP on FMCN and the 4 April $28 calls are now $2.35 ($940) and the 5 short March $27 calls are $2.30 ($1,150) so down a little bit but we’ll hang tight as  the market is weak.  

    We also had a $25KP play on SAM and the 3 June $100 calls are still $2 ($600) while the 3 short March $95 calls are .20 ($60) so let’s just take that $540 and run as that was a $360 spread so we’re up $180 (50%) and that’s good enough for a day trade and we’ll just play another one later.   

    Submitted on 2011/03/09 at 10:14 am

    SAM/$25KP, Pharm, Snow – Then take out the caller for .20 and wait.  Lots of time on the longs. 

    Submitted on 2011/03/09 at 11:59 am

    "THEY" are still trying to bust us higher.  The selling has tailed off so we’ll see how far the bulls can push it now.   We’re still watching the $32 line on FAS and if we are staying above there for 15 mins (through 12:15), then we will have to capitulate on the 10 short $30 puts, now $2.55 in the $25KP – not looking good for us at the moment.  

    Hola JRW!  Nice chart.  

    I was going to say let’s buy back the DIA March $122.75 puts we shorted but once again I forgot that they were the 3/31 puts so not really worth it.  But, since I do want to get a little more bearish, let’s commit $1 ($800) to roll up the 8 May $122 puts at $3.80 to 8 May $124 puts at $4.80 in the $25KP.  

  110. Phil

    $25KP Update – Day 25  
     
    Pharmboy’s spreadsheet is updated (thanks Pharm!) at $30,141.  Since the last summary we closed a spread on SAM for a $180 profit.   
     
    That leaves us with the following outstanding positions after our first 25 trading days:        
    • 8 DIA May $124 puts at avg. $6.11 ($4,888), now $4 – Rolled from the May $122 puts for $1. 
    • 8 short DIA March 31st $122.75 puts, sold for $2 (-$1,600), now $2.40.  
    • 10 EDZ April $18 calls at $3.15 ($3,150), now $2.85     
    • 40 EGLE April $4 calls at .35 avg ($960), now .25 – Looking to sell 20 for .35 on a move up.  
    • 20 FAS April $32 calls at avg. $3.21 ($6,420), now $2.30.  This one, of course, looks worse than it is as we did put short profits to cash twice.      
    • 10 short FAS March $30 calls sold for $1.45 (-$1,450), now $2.35 – stop if FAS is over $32 for 20 minutes or more, probably at about $2.50
    • 10 short FAS March $31 calls sold for $1.50 (-$1,500), now $1.65
    • 20 INTC March $21 calls at avg .70 ($1,400), now .40 – Would love to get out at .70 but not likely.  Possible roll to Apr.  
    • 10 HOV March $3.50 calls at .80 ($800), now .40 – We never got a chance to get out on the quick drop – have to be lucky now. 
    • 10 C Apr $4 calls at .70 ($700), now .66 – Held up pretty good on a BAC downgrade.  We’ll see
    • 5 UUP Apr $21 calls at $1 ($500), now $1.05 – Playing the Dollar to go up seems crazy, right?  
    • 4 FMCN Apr $28 calls at $1.30 ($520), now $2.10
    • 5 FMCN short March $27 calls sold for $1.15 ($575), now $2.20 – Will roll next week if we have to.  
    • 10 USO Aril $40 puts at $1.03 ($1,030), now $1.20  
    We certainly got very bearish now!  Repositioned the DIA spread more bearish, EDZ is a naked bear play, we sold short $2,900 worth of FAS calls, UUP is technically a short as we expect a bouncing dollar to trash the markets and USO is commodity bearish and even FMCN will benefit from a bear move.  
     
    Wow, I really must stop reading the paper – it makes me so bearish!  
     
    Frankly, I had to go with my gut as we tested up again this morning.  We did a major data review on Tuesday night (in that Chat Session) and I slept on it (yes, I do sleep) and I woke up in the morning, read the news, wrote Wednesday’s post and, by the time I was done organizing my thoughts I had to push us bearish again.  
     
    Of course we still have some upside plays but they are early stage and rollable.  Overall, we are BEARISH until the market gives us good reasons not to be.   We’ll see if I’m right or just paranoid between now and Monday, I think…  
     
    Thanks,
     

    - Phil  

  111. Phil

     March 10th, 2011 at 10:07 am | (Unlocked) Permalink 

    GMCR/Clarence – Yes, I think this is silly.  In fact, I like this short so much let’s do 5 in the $25KP of the Apr $50 puts at $1.35, which were $7 in the money yesterday.  

    March 10th, 2011 at 11:05 am | (Unlocked) Permalink 

    FAS/$25KP, Cnar – FAS is at $30.44 and the calls expire in 6 more sessions.  They need to prove to me there is a good reason to pay them $1 in premium to buy them back, right? 

    USO/$25KP, Cnar – It’s ahead of expectations so I’d like to give it a chance to play itself out but probably won’t be worth risking over the weekend with such a nice profit. 

    March 10th, 2011 at 11:39 am | (Unlocked) Permalink

    USO/$25KP, Snow – It’s a super-aggressive portfolio and, hopefully, only fun money so we take much bigger risks than any rational person would with more serious positions.   Right now, I’m risking our very nice short-side gains because I THINK we’re just weak bouncing here and that we finish the day this low or lower (but will likely want to cover something ahead of the Fed at 2pm).  If it were closer to 2, I’d be cashing out the short plays – as it is, I’m waiting to see how Europe finishes and if the RUT can pop 805.  

    Hi JJ!  When things are less crazy I want people to practice more ratio backspreads like the two earnings plays we did in the $25KP on Tuesday.  Those are very nice for a quick income and get you right back to cash (when they work out) the next day so you can reload.  

    March 10th, 2011 at 12:40 pm | (Unlocked) Permalink

    GMCR/$25KP, Kurt – Plan is to wait patiently for more rational analysis of the earnings potential of the SBUX deal. 

    March 10th, 2011 at 1:22 pm | (Unlocked) Permalink 

    Doubling down/Rain – It really depends on what you think about the position.  As you can see in the $25KP, mostly I’d rather wait and see unless I feel very strongly about something.  If you REALLY want to make a position part of your long-term portfolio and you believe that the 40% drop is not a fundamental change in the company – then it’s an opportunity to commit to more and selling puts is a great way to go.  But, at all times – try to sell as much premium as possible – that’s always the key.  The only sure thing in the markets is that the premium you sell will expire – whether the markets go up down or sideways…


    $25KP – GMCR Good time to DD at .85 on the Apr $50 puts

    March 10th, 2011 at 1:52 pm | (Unlocked) Permalink

    EDZ/$25KP, Etrad – At the moment, if we close down here we can look forward to a nice 300+ drop on the Hang Seng tomorrow and who knows what over the weekend so, unless we can get $5+, I’m inclined to stick it out.  

  112. Phil

    $25KP Update – Day 26  
     
     
    That leaves us with the following outstanding positions after our first 26 trading days:        
    • 8 DIA May $124 puts at avg. $6.11 ($4,888), now $6.35. 
    • 8 short DIA March 31st $122.75 puts, sold for $2 (-$1,600), now $3.40.  
    • 10 EDZ April $18 calls at $3.15 ($3,150), now $4.20 – We’re looking for $5+ tomorrow to get out.     
    • 40 EGLE April $4 calls at .35 avg ($960), now .20 – Looking to sell 20 for .35 on a move up.  
    • 20 FAS April $32 calls at avg. $3.21 ($6,420), now $1.60.  This one, of course, looks worse than it is as we did put short profits to cash twice.      
    • 10 short FAS March $30 calls sold for $1.45 (-$1,450), now $1.18 – stop is now back at $1.45 (even). 
    • 10 short FAS March $31 calls sold for $1.50 (-$1,500), now .72
    • 20 INTC March $21 calls at avg .70 ($1,400), now .22 – Would love to get out at .70 but not likely.  Possible roll to Apr.  
    • 10 HOV March $3.50 calls at .80 ($800), now .30 – We never got a chance to get out on the quick drop – have to be lucky now. 
    • 10 C Apr $4 calls at .70 ($700), now .57 
    • 5 UUP Apr $21 calls at $1 ($500), now $1.23 
    • 4 FMCN Apr $28 calls at $1.30 ($520), now $1.95
    • 5 FMCN short March $27 calls sold for $1.15 ($575), now $1.80 – Will roll next week if we have to.  
    • 10 USO Aril $40 puts at $1.03 ($1,030), now $1.38  
    • 10 GMCR Apr $50 puts at $1.10 ($1,100), now .78

     Wow, what a ride!  Now we are only down about net $2K in unrealized losses and I think we’d best take the short money and run tomorrow and decide what to press over the weekend.  I’ll have to sleep in it and see what’s up in the morning but if we can lock in a $3K gain after just 27 trading days – that’s very nice.  Getting our $5 on EDZ would be key so we’d love to see an Asian sell-off tonight.   China is opening down 1% so far and now real news driving things.  

    Oil is a wild-card and the Apr $40 puts topped out at $1.50 so maybe we shouldn’t expect to do much better.  Dow is neutral (we’re working it), FAS is looking good, FMCN is working…  So we have EGLE, INTC, HOV and C on the bull side and it’s all about deciding which (if any) are worth pressing.  On the bear side, it’s UUP (bearish for the market if higher), USO and GMCR so we’re still pretty balanced if we roll our longs to April but GMCR is not something we can count on to move opposite our longs.  

    Once we cash out more winners – then we need to determine where our holes are.  I think, on the whole, I’d like to go into the weekend fairly neutral.  

  113. Phil

    March 11th, 2011 at 9:34 am | (Unlocked) Permalink

     $25KP Moves. 
    I do not have time to check prices – take money and run on FAZ short calls, USO long puts and EDZ of course.  
    More to follow.  

    March 11th, 2011 at 9:40 am | (Unlocked) Permalink

    That goes for all short plays that can be cashed.  The volume on the move down was low and easily reversible.  I think we’ll have dip buying in anticipation of stimulus from Japan and maybe us too.  

    I am liking the DIA March $120 calls this morning at $1.03 on a bet we hold 11,950 on the Dow so that’s our stop line and we ride it up.  Let’s get 10 in the $25KP.   

    March 11th, 2011 at 9:59 am | (Unlocked) Permalink

    $25KP Moves:

    10 HOV March $3.50 calls, now .30 can be rolled to the Apr $3 calls at .85 for net +.55 ($550) and we’ll hope that comes back. 
    C is fine.  
    UUP is fine. 
    EGLE is not fine but not much to do but wait. 
    On the 8 DIA May $122 puts, now $6.20, I want to roll them to 16 May 114 puts at $2 and roll the 8 short March 31st $122.75 puts, now $3.75 to 16 March (regular) short $120 puts, now $1.50.  Sorry this is complex but it’s the right move to make. 
    FAS is fine as naked April $32s have lots of time to recover.  
    INTC not looking good at all, let’s spend the .34 ($680) to roll them out to the Apr $21 calls.
    FMCN we hold as is.  
    GMCR we hold.

    There, I don’t think I missed anything…

    March 11th, 2011 at 11:14 am | (Unlocked) Permalink 

    GMCR/$25KP, Pharm - Good call, we sell 5 in the $25KP at $1.10 and leave 5 at net $1.10.  

    FAS/$25KP, Snow – Sorry, yes that is FAS, not FAZ of course. 

    March 11th, 2011 at 11:41 am | (Unlocked) Permalink 
    DIA/$25KP, Cnar – We now have 16 May $114 puts and we have 16 short March $120 puts.  That’s all there is to it.  
    March 11th, 2011 at 2:04 pm | (Unlocked) Permalink 
    DIA/$25KP, Cnar – There is never anything wrong with taking 10% or 20% off the table.  I don’t always get a chance to see everything in time and, at this point, if we blow 12,000 it’s a good place to stop but I still hope for a nice stick into the close. .  
    USO/$25KP, Amatta – Yes, cashing out into the NYMEX close is the plan (2:30). Hopefully $102.50 and should be at least a double.  
    March 11th, 2011 at 3:08 pm | (Unlocked) Permalink 
    DIA $120 calls in $25KP should now have a stop at $1.25 and once we get over 12,050 – that’s then the stop, probably $1.35.  
    March 11th, 2011 at 3:32 pm | (Unlocked) Permalink
    LOL – Dow up 99 points!  Stop on $25KP position moves up to $1.45 (.10 trailing) until we get over 11,300, then that’s the stop.
    March 11th, 2011 at 3:40 pm | (Unlocked) Permalink

    In the $25KP, let’s buy back the 16 short March $120 puts at .96.
    In the $25KP, let’s add 10 EDZ April $21 calls at $2.

    March 11th, 2011 at 5:39 pm | (Unlocked) Permalink

    25Kp spreadsheet….let’s see if this works.

  114. Phil

    Pharmboy’s embedded SpreadSheet:

    25Kp spreadsheet….let’s see if this works.

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