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Wild Weekly Wrap-Up (Part 1) – Our Billion Dollar Oil Shorts!

Billions!  

That’s how much money our oil futures trade ideas generated over the past two weeks and I certainly hope everyone got a piece of theirs but, out of curiosity, how did our other trade ideas do in this terrible market?  We track our virtual portfolios but we have many trade ideas during members chat on both sides of the fence so let’s take some time to review what worked and what didn’t work as the Dow dropped 500 points since the holiday.  

Keep in mind this is just virtual performance and I’ll do my best to not miss anything and I’m going to include the Friday before the holiday weekend so we can review what our mind-set was as we set ourselves up for the long weekend as well as how we handled the moves since in both our daily posts and our Member Chat.  I’m not going to narrate each day, that’s what Stock World Weekly is for –  I’ll just make quick comments on the trades when appropriate.  Keep in mind, with all options trading, once you make a quick 20%, you should be looking for the exits (see our Strategy Section) by setting stops (and we also stop out with a 20% loss of course) – we are just lucky when we happen to do better.  

TGIF – Dollar Done Diving or Destined to Drop?  

In the main post (main post trade ideas can be read daily by Report Members or higher – the rest are in our Private Member Chat), I discussed shorting oil futures off our $101.90 (at the time) target.  We didn’t like waiting for $102 because sometimes it failed.  Oil finished at $99 this week but was as low as $97.24 as we put pressure on the NYMEX pump crew by accepting their bogus offers to buy oil over $101 per barrel.  This post was the first one where I decided to go public with what we were doing, hoping to break the back of the market manipulators at the NYMEX by letting as many people as possible in on the trade.  This is also where I laid out our bearish fundamental case for oil so good for review.  My comment in the morning post was:  

As I mentioned yesterday, this week’s action is fake, Fake, FAKE and we are waiting for the pump-job today to run it’s course and, as long as we remain below our 2.5% lines, we’ll be adding shorts into the long weekend because we think 75 will hold on the dollar and then, like Richard Gere in "An Officer and A Gentleman" the Dollar will have nowhere else to go but up.  Speaking of UUP, we will be liking them long again this morning and the Jan $20 calls are only $1.85, which is very little premium with UUP at $21.62.  If pressed, we can sell short calls against it but UUP was at $23.40 in Januarywith the Dollar at 81 so that would be perhaps a 50% gain in the UUP calls if the Dollar goes up 7.5% but we’ll be very happy to take $2.20 (20% gain) and run on a good pop. 

  • We were wrong about the Dollar (short-term) and the UUP calls are now just $1.65 – down 11% but I still like them. 
  • TZA June $40 calls at .65 were the Member Alert trade, we cashed out our bear side today, these finished at $2.80 – up 330%
  • DIA June $124.75 calls at $1.25 were a trade idea in the same Alert, they hit $1.75 the next morning for a 40% gain.  
  • Oil was re-shorted at $100.90 at 11 – Billions were made on the futures. 
  • USO June $39 puts at .80 were also selected for non-futures players, they topped out at $1.10 on the 2nd – up 37%

Florida GOP Lawmakers Live For Big Oil ImageThat trade idea was from 11:04, at 11:12 I noted to Members:  

Holy crap, someone just spent an incredible amount of money to prop up USO as it was about to fail $39.75!  I’d love to say that proves they are going down but whoever this is has a lot of money and is willing to spend it to keep oil from failing this level.  Still, seems desperate and doesn’t change my weekend outlook (to keep shorting).  

  • SEAC Jan $7.50/10 bull call spread at $2, selling $10 puts for $1 (net $1), still $1 
  • LNKD Aug $90/85 bear call spread at $3.40, selling June $95 calls for $1.85 (net $1.55), now $3.70 – up 100%
  • EDZ June $17 calls at $1.55, now $2.55 – up 65%
  • CCJ July $28 puts sold for $1.05, now $2.45 – down 133% – I still like CCJ but longer term now.  2013 $25 puts can be sold for $4.20 and that puts another $1.75 in your pocket while you wait and drops the net entry to $22.20 with CCJ at $26.03.  

Wow, that was a busy day!  Fortunately we stuck to our guns and held bearish over the weekend (and Gordon Long pointed out on Monday that "The Economic Death Spiral Has Been Triggered" – worth a re-read with 2 week’s perspective!)   but Tuesday, they made it tougher for us:  

Manic Tuesday – Greece is the Word!  

Greece being ‘fixed" is a running joke for us in chat.  It’s how they push the Euro up and the Dollar down.  My comment in the morning post, with the pre-markets flying, was: "Yeah, that’s right – I’m going to get on the bandwagon after commenting in Member Chat at 2am that I thought the "fix" was total BS – with Portugal, Ireland and Greece looking like the coyote before he realizes he’s run off the cliff. That led us to conclude that oil would be a good short off the $101.50 line. Well, it was and fell to $100 but now it’s back to $102.50 pre-market, up almost 2% from Friday’s close for no reason at all other than the Dollar, which just gets weaker and weaker and weaker and weaker based on the extend and pretend policies employed by the EU and Japan – it’s ridiculous but what are we going to do about it?  Obviously, we just short oil again at $102.50."

We managed to short oil at $103 that day on the spike up.  Obviously, Billions were again made on that trade.  

  • USO June $39 puts at .50 (again), topped out at $1.10 – up 120%
  • TBT weekly $32 calls at $1.35 – stopped out at $1.50 – up 11%
  • UNG 2013 $10 puts sold for $1.20, now $1.15 – up 4%
  • SQQQ July $24/25 bull call spread at .35, selling June $23 puts for .30 (net .05), now .55 – up 1,000%
  • Oil futures shorted at $103 again as they ran up into the close – more Billions

My theme of the day was to ignore the rally because it was just end of month window dressing.  That afternoon I made a prediction that is working out so far as I Asaenz asked me what I thought June would look like:  

June/Asaenz – Well, I’m still looking for a serious correction, not this 5% BS so yeah, I’d be getting cashy and waiting for a pullback, if not playing for one.  I think that QE2 will morph and not really go away but also that anything other than a new, aggressive program, which is politically undoable at the moment, will be a failure.  They NEED a correction to sell more easing so correction first, then more stimulus.  

Which Way Wedne$day – Let’s Break The $peculator$ 

This was the day I officially declared war on the NYMEX speculators.  Taking oil up to $103 on Tuesday was the last straw and we had been playing around in the futures and saw a pattern that I felt we could exploit and I laid out my strategy in this widely published post to make sure it would literally cost them Billions of Dollars every time they tried to pretend to want oil for over $101 per barrel (based on my premise that this "demand" at the NYMEX was nothing more than fake market manipulation).  

I reiterated the above SQQQ hedge, which made 1,000% so far, in the main post along with, of course, the oil futures short at $103 for more Billions.  I went through a big explanation of the whole process and why it would kill the speculators if we shorted the futures.  Had Obama given me the $3Bn I asked for, we could have eliminated the national debt by now but at least he took my suggestion to use the Strategic Petroleum Reserve to help us bust the speculators (thank you Mister President!).  See, it does pay to vote Democrat!  After telling Members I thought we should stay the bearish course into that relentless rally, I was a little worried and that morning I said:  

I spent pretty much all day yesterday warning Members not to fall for the other kind of blatant manipulation as the funds gave us a mega window-dressing day.  Today I will either be a hero or a goat but, when push comes to shove – you do have to go with your gut and my gut was screaming BS at yesterday’s move from the minute we opened all the way until that ridiculous close

  • The morning Alert to Members was that SQQQ play again (I REALLY liked that trade idea!).  
  • Also in the Morning Alert was USO June $39 puts at .55 (again), topped out at $1.10 – up 100%
  • TBT June $32 calls at .35, now .77 – up 120%
  • AGQ $255 June calls at $2, now .50 – down 75%

NFLX, CMG, PCLN, WYNN, BIDU – it’s a MoMo-fest holding up the Nasdaq and could become super-ugly if it breaks.  - 11:14 in Member Chat

QQQ July $57 puts at $1, now $2.75 – up 175%

RIMM June $37.50/40 bull call spread at $1.65, selling $37.50 puts for .83 (net .82), now -$1.48 – down 277% (this position can be "fixed" by simply rolling the June $37.50 puts ($2.26) to the Jan $32.50 puts at $3.30 for a net credit of $1.04 and cashing out the spread at .80 means you are in the Jan puts at $1.84 for a net $30.66 entry.  This is the advantage of only selling calls on stocks we actually want to own – the adjustments are fairly painless (also, the bull call spread should have stopped out at no more than 50% down).  

  • Profits were taken on oil at $100 – up Billions
  • IWM weekly $81 calls at $2.05, out at $2.25 – up 10%

Thrilling Thursday – Can We Make Another Billion Today?

Wednesday could not have gone better.  We had widely circulated our Wednesday article on how to break the NYMEX speculators and the futures trade idea from Wednesday’s post to short 376,620 NYMEX contracts (1,000 barrels per contract) at $103 were good for a $1,129,860,000 profit – plenty to go around for all of our readers to participate and, more importantly, plenty of PAIN for the manipulators who were trying to generate fake demand for oil at $103 (the mechanics of this were explained in Wednesday’s post).  Did we directly cause the NYMEX to collapse or was our timing just perfect?  Either way, it worked and it worked so well that we relentlessly kept after them and shorted oil again at the $101.50 line in the new post.

We expected a dead cat bounce off the drop to our Must Hold lines so we led the day off with short put plays in our Morning Alert to Members aimed at generating $3,000 in income by June expirations that did not do too terribly considering the market has fallen an additional 3.75% since then:

  • 10 INTC June $22 puts sold for .47, now .70 (down $230) – our eye is on rolling these to the July $22 puts at .97, putting another $270 in our pockets as we have faith on INTC into earnings.  
  • 5 GS June $130 puts sold for $2.40, now .45, (up $975) – these look good to expire worthless but, of course a stop at .60 is prudent to lock in gains
  • 5 RIMM June $40 puts sold for $1.65, now $4 (down $1,175) – as above, these can be rolled to the Jan $35 puts at $4.30, putting another $150 in your pocket and the worst case is you own RIMM at net $33.05.  That’s why short put selling is a FANTASTIC way to initiate stock positions.  Consider that RIMM was at $40.43 on the second and fall to $36.56 as of Friday’s close so the puts ONLY lost $2.35 while the stock itself lost $3.87 so we are down $760 LESS than if we had bought 500 shares of the stock.  Not only that but, rather than take even the $1,175 loss, we can simply postpone our purchase to January and now we have bought ourselves another $5 discount for our patience AND, if RIMM continues to fall, we can roll the Jan $35 puts ($4.30) to the 2013 $30 puts at the same price.  So, as long as RIMM doesn’t go bankrupt and as long as RIMM doesn’t fall more than 15% a year – we can keep doing this all the way to zero if we have to!  We can also employ call covers to collect more cash but you can see how powerful just the simple put-selling strategy can be to generate income AND protect your entry decisions.  
  • 5 HD June $35 puts sold for .75, now $1.71 (down $480) – can be rolled out to the August $34 puts even.
  • 5 BA June $75 puts sold for $1.10, now $2.45 (down $675) – cab be rolled out to the July $72.50 puts at $2.05.  Isn’t that amazing, we spend .40 of the $1.10 we collected and now we can own BA for net $71.80, which is $4 LESS than the $75.69 we entered at on the 2nd.  Keep in mind these are BUYING strategies that happen to generate an income (if we don’t get our discount prices) so, rather than LOSING over $2,000 by buying the stock a little before the bottom, we have a $675 paper loss (and we can just take that loss if we change our mind about BA, but we haven’t) which only kicks in if we either end up buying BA BELOW $71.80 in July (now $72.69) or at whatever strike we roll to after that.  

In a normal market, we would just buy the stocks and hedge them but the market looks very weak so we’d rather hold our cash until we see a clear bottom.  Also keep in mind this is something we can do every month that generates $3,000 in any flat or up market and even in this severe downturn (down 3.75% in a week), we only have a net $1,585 on the 5 positions so it’s easy enough to just pay the fine, walk away and try again in July.  We still have a week to expirations and we do expect a bounce so we’ll see if these don’t turn around by next Friday but, if not, we execute our Rawhide Strategy and keep rollin’, Rollin’, ROLLIN‘…

It’s amazing how much great investing advice you can get from John Belushi (see Animal House).  Anyway we didn’t get much of a bounce at all and kept heading down, great for our oil puts, not so good for the above short puts but that was just the Morning Alert to our Members and we didn’t even get to the winning trade in the same Alert that made up for all the losses of the short puts:  

  • 20 USO June $40 puts at net $1.10, out at $1.75 (up $1,500) – see how good it is to hedge?  5 long plays by themselves = $1,585 loss.  5 long plays and one short hedge = $85 loss but the losses are just on paper and the $1,500 is real cash in your pocket!  
  • XLF July $15 puts sold for .50, now .55 – down 10% – I still like these.  In fact, we waited for two whole weeks to get our fill at .50 as we would be thrilled to own XLF long-term at net $14.50.  
  • Oil futures short at $100.60 – only $900M to be made on Thursday, a great disappointment.  

$98.96!!!  I feel another Billion coming on….  - 11:24 comment to Members

Same as yesterday except we started at $101.50 so $98.50 is good for an exit on oil and that’s $1.70 on the USO June $40 puts and that’s a nice gain too so all done in the $25KP and the futures for now!  - 11:37 comment to Members (puts came in .05 better, bottom call was PERFECT!)

PLX Nov $2.50/5 bull call spread at $1.95, selling $5 puts for .50 (net $1.45), now $1.50 – down 3% – Our buy/write strategy will show paper losses when the VIX rises, even when the trade itself is on track.  PLX is at $6.35 and is actually UP from our entry.  We don’t care as long as they are over $5 at November expirations we make $1.05 (72%).  

Playing the bounce/Asaenz – You have to think of it like a trampoline – it may bend a bit lower but not that likely to break.  As I just said above, if oil doesn’t fail then XLE and OIH and XLF (who have way too much invested in commodities) may be able to recover but, if oil breaks lower – those levels may be toast.  As the great and powerful WOPR once said: "Sometimes, the only winning move is not to play" – at least until we have more information. – 12:15 comment to Members

  • Yet another oil short call at $100.50 at 2:21 – laid out Futures Scaling Strategy in Member Chat that day. – we hit $99.50 the next morning for gains of $500 per contract
  • FAS weekly call spread at net .02 credit, expired at .14 – up 800%
  • S buy/write – selling Jan $6 puts and calls for net $4.33/4.67, now net $3.72 – down 20%

S 2013 $5/7.50 bull call spread at $1.10, selling $5 puts for .76 (net .34), now net -.25 – down 173% – that’s silly of course because it’s an ownership play but the net is so cheap that a small fluctuation makes a very poor percentage loss.  Still, notice how nice it is to pair a small hedge, like FAS (which was bearish) with bullish entries.  Rather than getting burned with losses, this combination could have easily netted out a winner and we STILL own S for the long-haul.  

Buying/David – I would not be so gung ho to buy things tomorrow.  Best to stay cashy into the weekend!  - 3:29 comment to Members

Damn!  Look at the candles on the NYSE and the Nas – RIGHT on the lines!  These are levels we have tracked all year – how’s that for a working system?  Dow popped right off the floor at our spot, RUT about the same, only the S&P accomplished an air turn and we’ll see how they handle 1,317 tomorrow but doesn’t just saying 1,317 out loud make you realize how shakey things are?  - Special Alert to Members at 4:44 am on 6/2

I think it’s a lose-lose because, if jobs suck, commodities keep falling and that drags the market down but, if jobs are good, then the Dollar goes up and that drags the market down.  - Comments on Non-Farm Payroll Report at 5:58 am

TGIF – Stopping the Slide or Just Sliding to a Stop?  

I apologized for there only being $940M to be made on the NYMEX on Thursday – we really wanted that Billion but they had cut down the number of contracts available to sell faster than we could accept their phony offers to buy.  I reiterated our strategy and renewed my call to the President to give me $3Bn and the keys to the Strategic Petroleum Reserve so I could smash the speculators and pay off the national debt at the same time.  Obama did not give me $3Bn but HE DID open the SPR for us – allowing us, once again, to have a good old time shorting oil!  

Non-members should note that we don’t usually spend so much time shorting oil but we do like to spend our time making money and oil was certainly where the money was the past couple of weeks!  

We just took some longs in the futures in Member Chat as the Dow hit 12,100 and the Nasdaq hit 2,300 so we’ll see how those go with tight stops but that, along with $98.50 oil, was a discount trifecta we couldn’t turn down so – come on oil crooks – work your magic as we’re with you this morning! - Morning Post Commentary

  • Oil went from $98.50 back to $101.50 – another $1,000 per contract (crazy, isn’t it?)
  • Dow futures (/YM) went from 12,100 to 12,200 at $5 per penny per contact = $500 gain per contract
  • Nasdaq futures (/NQ) went from 2,300 to 2,315 at $5 per .25 = $300 gain per contract
  • USO June $39 calls (yes, calls) at .85, topped out at $1.30 – up 52%
  • QQQ June $57 calls at .50, topped out at .65 – up 15%
  • NFLX June 10th $275 calls sold for $5, expired worthless – up 100%
  • TZA Jan $34/46 bull call spread at $3, selling RUT Dec $500 puts for $4 (net $1 credit), now net .50 credit (up 50%) – this is tricky but we collected $1 ($100 per contract) and now, if we want to buy it back, it would cost us $50 to get out so a net $50 gain.  This is a fabulous hedge because we make money as long as the Russell holds 500 (now 779) so we expect wild swings in value but there are many ways to win this potential 1,300% gainer but up 50% on a 3.75% drop in the market is a great start!  
  • TZA Jan $34/46 bull call spread at $3, selling BA Jan $62.50 puts for $2.55 (net .45), now $1 (up 122%) – despite our Boeing trouble on the short puts, the Jan puts only went up to $2.70 while the TZA spread rose to $3.70 so good deal for us again.  The reason we have two of these plays is most people don’t have Virtual Portfolio Margin accounts that are required for the trade with the short RUT puts so we pick a stock we REALLY want to own for the net (BA at $62.95) as our offset.  

Again, look how nice it is to have a little downside hedge and notice that we took it (in this case at 10:18 am) after we put up a few bullish trades.  BALANCE – it is ALL ABOUT BALANCE!  As the great Mr. Miyagi said in the Karate Kid: "Better learn balance. Balance is key. Balance good, karate good. Everything good. Balance bad, better pack up, go home. Understand?"  Substitute "trading" for "karate" and it’s probably the best advice I can possibly give you. 

  • CSCO 2013 $15 puts sold for $1.90, now $2.30 – down 21%

So, what do we have?  Lots of Fed speak (and 2 shots later today too).  Small auctions on Monday shouldn’t be market movers.  Tuesday is the normal nonsense except Consumer Credit may show stress from high gas prices.  Beige Book Wednesday can’t possibly paint a good picture and the 10-year (Weds) and 30-year (Thurs) both run the risk of being bad.  I certainly don’t see any data points we can count on so a bull-market premise very much depends on the Fed’s ability to talk the Dollar back to 73.  If something bad happens in Europe or Asia over the weekend, the Dollar could pop and we will fly below our must hold levels and things can get VERY MESSY so make sure you are well-covered into the weekend!  - My comment to Members at 11:37 am on Friday, 6/3

  • Oil futures short at $100.50, stopped out at $100 – up $500 per contract.
  • USO June $40 puts at $1.10, now $2 – up 82%
  • USO June $40 put at $1 average (nearer the close), now $1 – up 100%  
  • Oil futures short at $100.60, stopped out at $99.25 on Monday Morning – up $1,350 per contract

$1000.60 on oil – this is back to our sweet spot in the futures for a short but don’t forget they pushed it to $101 yesterday after hours and weekend futures are very messy as they close about 5pm but don’t open again until Sunday at 6pm so anything can happen in 2 days!  - 2:52 pm comment to Members

Disasters/Gucci – As I said above, I like that TZA spread and it’s really a matter of if you feel well-covered or not.  We don’t get all freaked out on being below the lines for a single day but I am VERY concerned that we’re below the lines and the Dollar is at  73.79 – that’s down almost 1% and the markets are down 1.5% so another 2.5% drop today – NOT GOOD.  - 3:29 comment to Members

In Member Chat last weekend I reviewed 6 disaster hedges from the end of April/Early May to remind Members how amazingly effective a little hedge could be to protect your overall virtual portfolio.  This the THE MOST IMPORTANT use of options – the rest is just having fun with leverage but options are a very powerful tool that can and SHOULD be used to hedge conservative virtual portfolios.  

All in all, a pretty good week and an appropriate place to take a break and call this part one of the post as it’s getting a bit long.  I hadn’t intended to make it so chatty but the main idea is to have a reference point so we can learn and improve in the future so it turned out that I did feel like there were things that were worth saying (and repeating).   

I’m not sure there will be a Part II as Stock World Weekly did very extensive (and very good) coverage of last week’s exciting trading and, with an even more exciting expiration week ahead – I’m in more of a looking-forward mood at the moment!  

 

 

 

 


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  1. Cap

     Wow, what a wild (and fun) week.
     
    New POMO schedule came out today (last one, we hope).
     
    POMOs are much lighter than they were.  2-4 B.

  2. Pharmboy

    tcha – NABI – yes December Ps and Cs. For DCTH and SVNT – if they are for a DD or an initial entry sure.  I have so much of them that I need to decide what to do.  Again, I try not to let any one position go over 5% of my portfolio on these stocks.

  3. Pharmboy

    Holy crapola….CDS’s and US banks….playing with fire on EU PIGS debt!

  4. rossmanmd

    Phil,
    I have not paid too much attention to my hedges the last couple of weeks. What is the best thing to do when the underlying security exceeds the caller significantly? For example, I have June 22/25 BCS (2.40/1.20) and July 24/26 BCS (3.10/2.10) and SQQQ is at 28.93. Puts in other securities were sold to fund most of the purchase. (Similar examples in SDS and EDZ). Thanks.

  5. asaenz

     @ Phil, first of all thanks for all the great calls on oil this past week! I’m not quite sure what the term "roll" means. Is there a page on your site where we can read about this. I sold the RIMM June $40 Puts which are down as you mentioned on the article, and you are proposing we roll them to the Jan $35 Puts. Does this mean that we buy to close the June $40 Puts (take the loss) and then sell to open the Jan $35 Puts (get more credit)? Thanks! Enjoy the weekend!

  6. danosu77

     Asaenz,
    I have many pages of Phil’s examples of rolling contracts.  Let me know how to email them to you.  
    From the site, here is one of my favorite articles on rolling:
    http://www.philstockworld.com/2010/12/19/option-strategy-workshop-rolling-contracts/
    Good luck,
    Dan

  7. danosu77

     Phil or others, 
    If you get a chance, can you please help explain the following this weekend?
    1. How to determine the number of futures contracts needed vs. what is currently trading?
    2. You had mentioned summarizing oil futures trading.
    3. Exec had asked about how to evaluate company fundamentals
    4. How you determine the "must hold lines".  
    As always, I am keeping track of your answers and working on the wiki book as I get a chance.  I am up to 100 pages of PSW notes!  I am working on making it more presentable.  I am moving my wife up to Chicago in 13 days and that is taking up a lot of my time.  
    Have a great weekend everyone!
    Dan

  8. Burrben

    Phil / Permanent portfolio using ETF’s article.
    Phil, during the week you posted a link that I found very interesting.  
    http://seekingalpha.com/article/274266-building-a-permanent-portfolio-using-etfs
    I was wondering if you actually thought that this portfolio was a relativly good idea?  I have around 250K that I would like to put in a semi-safe portfolio that would require minimal management from me.  I would most likely add some downside hedges to the strategy, but other than that it looks pretty good.
    I have other money that I am planning on using for trading purposes to hopefully generate a monthly income using the tools and techniques that I’m learning here.  But until I feel like I have a good handle on all the strategies, I’m paper trading and only trading money I can lose.  

  9. asaenz

    @ Dan, my email is asaenz@hotmail.com … really appreciate your help!

  10. kramer36350

    wtf!
    Exclusive: The Fed’s $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went
     In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!
    http://www.zerohedge.com/article/exclusive-feds-600-billion-stealth-bailout-foreign-banks-continues-expense-domestic-economy-

  11. topher7

    Pharm/ PIG’s..   playin with fire …..There HAS to be good play here..???  

  12. Pharmboy

    Toph & all – if there is anyone on the board who knows how to read the statements from banks and what they own in terms of EU debt, that would be of great help.  I know MS owns a ton of Portugal’s debt (at least as of Q1), and last year and this year they have been thrashed on those….I would short all of them.

  13. zeroxzero

     Hi, Phil, hope you’re cold is long gone.
     I’m totally flat since the Exchange took my punch bowl away Friday over a small margin contretemps,  although they were good enough to let me cash in all my fabulous USO shorts.  But I got my mojo back since then.  Is this week’s theme a continuation of the dollar up / oil down [to the $80s?] drift?  And should we be bargain hunting in the broader market  -- or, as seems more likely, expect a rising dollar to shove equity indices down further?  Inquiring minds, as they say.

  14. Phil

    Oh my gosh, time for futures already?  

    This is the problem with playing the futures, you end up checking the markets way more often!  

    I hope everyone is having a nice weekend, wasn’t much interesting going on from what I’ve been reading.  Gaddafi is still in power, Syria still a mess, Italy is voting on banning nukes, Spanish police seem to have arrested the Sony hackers, and everyone is still fighting over Greece.  Very dull, on the whole.  

    Does nothing deserve a relief rally or did we need something to reverse the downward momentum to 10%?  I think things simply not getting worse will bring in a few buyers but we’ll have to see.

    Hedges/Ross – When you have a lot of hedges and they are doing well, it’s usually best to take the front-month off the table as they are most likely to reverse on you unless, of course, you are massively confident you will expire in the money.  Just set responsible stops, which is easy to do because we’re just seeing if those 7.5% lines get taken back.  Your June $22/25 spread, for example, is $2.90 out of a possible $3 – why do you have to ask me if it’s foolish to risk $2.90 to make .10 when it’s possible to lose the whole thing – especially over a long weekend?  The July spread is about $1.30 after starting at $1 and there you have another 50% (of what’s now at risk) in upside so you can set a .20 trailing stop to make sure you get out better than even and be happy.  If we head lower, you can ALWAYS add another spread with a 200% upside to cover those short puts but if you can’t be happy taking 150% profit off the table – you’re going to find yourself "surprised" when your gains reverse on a regular basis.  

    You’re welcome Asaenz!  Roll is just shorthand for closing one contract and opening another.  Rather than saying we are going to sell the FAS July $25 calls for .95 and buy the FAS July $24 calls for $1.30, we indicate that it’s a substitution by saying we will roll the FAS July $25s to the July $24s for net .35.  It’s also better to look at the net because most GOOD options platforms have a specific roll function that lets you put in the net price.  Especially when you are discussing multi-legged spreads, saying roll rather than writing out 6-8 moves keeps things a lot less confusing!  

    Thanks Danosu!  As to your items:  We discussed the futures trading strategy last week.  I forget which day but I’m sure I’ll come across it when I do part two of this post.  I don’t understand your question about determining the number of futures contracts "needed" – under what conditions? 

    Fundamentals:  OK, maybe I bit off more than I can chew there because I just am not the right guy to give a course on FA.  I came up from looking at companies from the top down as an investor so I look at balance sheets, cash flows, p/e and of course, the overall global macro views and the competitive environment but then I also started my own company from scratch, got venture financing, sold out – the works and, of course, I have consulted for hundreds of other major corporations, which has given me an inside look at operations of all sorts of businesses so FA for me includes reading earnings reports, SEC filings, reading conference call transcripts (listening to them is usually a waster of time), looking at industry trends and studies as well as THINKING about the business from a consultant’s point of view and putting myself in the CEO’s position and making my own forecasts for growth and profitability in the short and long term.  I can’t teach, that – there are no tricks to it and more than half of what I put into my own analysis of companies isn’t on paper – it’s me running through go-forward scenarios and determining the most likely path based on what lies ahead (as far as we know at the time).  

    If I had to say what’s the most important fundamentals to look for, it would be looking at p/e TRENDS (not just the p/e, which can be distorted), the cash flow and the debt.  Debt more than anything destroys businesses.  Then I look for anything out of the norm like expanding A/R or A/P or margin contraction and that will cause me to dig deeper but again, a lot of stuff I see I can quickly go "oh sure, the included the Thanksgiving sale" or "yeah, Easter was two weeks early this year" or "well, of course costs spiked as oil went up 20% and UPS uses 50M gallons a week" – if I can’t see why, then I dig (or just walk away from the company if it’s not worth the bother to check).  

    Must hold lines are major support lines on the 5% rule and we’ve had a couple of 5% Rule posts that are probably under Portfolio Review or in Education and I know we have an in-depth discussion about it in the comments under the scaling article in the Strategy Section.  

    Oops, futures markets open now and not very exciting so far.   All pretty flat but the RUT is making a small effort at 776.8.  All the Forex is pretty much just laying there so dullsville so far but simply avoiding an Asian melt-down should make Europe happy.  Don’t forget what we’re following:  

  15. asaenz

    @ Phil, thanks for the explanation, "rolling" is not that hard then, maybe the hard part is deciding when to roll. Do you have any methology on deciding when to roll? I think you should probably wait the most unless the stock falls quickly, and of course you should still believe its a long term good investment.

  16. angelcur

    lots of perople i talk to are convinced utterly that ireland’s people will just get in line here’s a comment from a very very succesful investor:
                                     But as a practical matter I see a continuing commitment to modernity and interconnection with Europe for both Ireland and Portugal. Recent election results in both countries confirm this.

  17. stjeanluc

    As promised, I have posted my writing on fundamental analysis and what to screen for on the wiki:
    http://www.philstockworld.com/wiki/index.php?title=Fundamentals_-_What_to_screen_for
    This seems to follow up on Phil’s earlier post. BTW, from what I can tell and based on the testing I was doing earlier, Price-to-Sale seems to be one of the better screening criteria for a company. 

  18. stjeanluc

    And just for Pharm (;-)), here are the overnight (good until midnight) oil lines:
    R3 – 104.30
    R2 – 103.09
    R1 – 101
    PP- 99.80
    S1 – 97.71
    S2 – 96.51
    S1 – 94.42
    New lines after midnight! Lines calculated on Monday morning are not usually very accurate because they take the overnight trading into account. I’ll post them anyway, but the above lines are probably in play as well. 

  19. stjeanluc

    It’s not a spending problem…
    http://www.americanprogress.org/issues/2011/06/low_tax.html 

  20. Pharmboy

    Thx.

  21. stjeanluc

    Just watched the latest episode of Game of Thrones on HBO with my daughter! Always ends with a WTF moment… Interesting, but the twists and turns, gimme a break! 

  22. angelcur

    sean bean and the lanaster dwarf are great actors tho!! that grunting dark sex/death machine is edgy huh?

  23. Phil

    ETFs/Burr – Well you can’t argue with success but I am of course, skeptical of a portfolio with that much gold.  On the whole, it’s a list that has benefited from a weak dollar.  At the top or bottom of any cycle, you will see some funds or strategies that performed fantastically and those tend to be THE WORST place to invest as the cycle turns.  Note the portfolio performed very poorly in the crash but outperformed the markets otherwise.  As a very long-term strategy, this probably makes sense but, like anything else, I’d wait for the pullback before jumping on board as, at the moment, you are chasing the top of a 100% run.   

    Europe/Kramer – Hmm, that article  is gone.  I wonder what’s up with that?  

    Debt exposure/Pharm – I haven’t seen it broken down by banks but here it is by country – somewhere in this country is about $69Bn in Greek and Spanish debt at risk but not much compared to Germany, Holland, France and UK – especially as a % of GDP:

    This week/ZZ – We have to let ourselves go with the flow at the moment.  We did not get a bounce off the 5% lines and fell right through to 7.5% but that’s our short-term chart.  On our long-term chart, we’ve just completed a 5% pullback off our 100% line after a brief visit over the line and holding 1,266 on the S&P will actually be a very bullish consolidation.  Here’s the chart from last Tuesday with the broader perspective:  

    That 200 dma has been rising to meet the S&P and is now at 1,253 – that’s the real line in the sand for this week but we haven’t even broken 1,260 yet.  If the S&P can hold above the 200 dma, when the 200 dma rises to hit the S&P, it’s got a very good chance of popping it up for an oversold bounce.  If, on the other hand, the S&P rushes down to meet the 200 dma – then it has a good chance of breaking through and causing technical panic selling.  1,249.05 was the low off the Japan quake but that had G8 intervention and rumors of "Yen repatriation" that sent the Dollar to new lows (72.95 on May 1), which is what made our bearish call so easy to make.  

    With the Dollar at 75.30 now, we haven’t been much over 76 since the quake and the Dollar is heading into a falling 200 dma at 77.50 so IF they can hold up the S&P through the end of June and IF they can hold the Dollar below 76, we could be heading into a major, MAJOR technical event right around July 4th weekend where both our indexes and the Dollar can go flying off in one direction or the other.  Fundamentally, I’m only going to consider it bullish if we can flatline the market while commodities fizzle out for the next few weeks and money funnels into other sectors – a very tough (and doubtful) trick.  Of course, some sort of stimulus would change the picture as would simply raising the debt ceiling, which would send the Dollar a bit lower again.  

    Meanwhile, Asia’s down about 1% across the board – not so bad.  Oil id down to $98.73 on a 3.3% drop in Japanese machine orders that seems a bit much to read into considering the quake.  I mean, of course they didn’t have machinery orders – they’re still not using the machines they already have at anything close to capacity… 

  24. Phil

    When to roll/Asaenz – Well, generally we’re rolling a position we sold that’s going against us and that may drive us to roll other positions we’re long on.  When we’re short on a position, at about the point where their premium drops below 75% of the price of the option, we are pretty much "done" with them, as our job is to sell premium so that’s when we’ll usually look to roll but it always depends on why we sold something and what our short-term expectations are.  Sometimes, when we sell short calls like GMCR, NFLX, PCLN recently – and they go against us harshly, we decide to stick it out to expiration day simply because we’re not buying the spike up.  Sure we COULD roll them to positions with more premium, but then we have to wait longer for them to expire so we may choose to stick with the front-month.  In short – it depends…

    On a long position you own, you roll when you feel your position is no longer comfortable.  Mainly I consider the comfort, if I get into a position where I will no longer be able to generate an income selling front-month contracts against it.  So if GOOG drops $50, I’m not really going to sweat my 2013 $600 calls because even if I sell a $500 and GOOG heads back up, I have lots of time to roll the $500s back up (but the position of my longs would affect my rolling decisions on my front-month calls, of course).  If, on the other hand, FAS drops $1, I may feel I couldn’t possibly be comfortable selling $23 calls unless my longs were also at $23 so I would have to roll down in order to make the sale.  Also, sometimes we roll down long calls simply because it’s a good deal.  If I’m in a 12-month + long and the roll down is $3.50 per $10 or .35 per $1 then I consider it a no-brainer to roll down because – if I’m sticking with the position in the first place, then why on earth wouldn’t I want to improve that position for .35 on the Dollar?  

    Ireland/Angel – Forgive me if I don’t take the word of the investing class about how happy the working class are to accept lives of servitude to pay off his loans…  Very few people in Europe or the US understand what real poverty is – we just haven’t had it for 80 years.  Ben Bernanke thinks he understands the depression because he read economic books about the Depression but I don’t think he read Grapes of Wrath or Hard Times by Terkel (or Dickens), Call it Sleep or Come back to Sorrento.   

    One thing people really don’t seem to understand about modern society compared to the Great Depression is that, in the Great Depression, you could survive by earning enough money for food.  A home could be built out of wood and a home back then was what we’d call a barn today for many people.  They didn’t have gas bills, phone bills, electric bills, state and local property taxes, etc that put a much higher price tag on "survival" now than we had then.  

    That’s a BIG misunderstanding modern economists have because they don’t grasp the extent to which the middle class are ground into poverty by "necessities" or the way the poor are ground into nothing by the constant needs of the "utility" companies and the local tax-men.  This makes for a very different dynamic than the Great Depression and another downward shock in the economy could be a lot more destabilizing than most people think.

    Nice Job StJ – Thanks!  That article on taxes is great too but I can print all 10 of those charts and still Flips will tell us that we tax corporations too much and, if we only left them alone – America would become a shining city on the hill:  

    Ten graphs that prove the United States is a low-tax country

    THIS is what’s wrong with America – it’s right there in everyone’s faces but we have a political system that pits the rich vs the poor but both sides are funded by the rich so every election is about whether we give more tax breaks and special treatment to the wealthy or whether we just leave things the same for them….  There used to be pendulum that swung both ways but this country has gone so far to the right that the center seems like the radical left at this point.  

    The  anemic recovery is no surprise to Steve Keen, who contends the U.S. has an economy dependent on not just high, but ever-accelerating levels of private debt. In a healthy system, debt levels rise and fall, but remain roughly flat over time. The ever-upward slope of U.S. debt, like a Ponzi, must at some point collapse.

    The U.S. needs to create 21M new jobs by 2020 to regain full employment, according to a new McKinsey report, a level achieved only in the most optimistic job growth scenario. To add the requisite number, the U.S. labor market would have to grow at about the same rate as it did in the second half of the 1990s.

    "The debt level of the U.S. is disastrous," says Eurogroup chief Juncker, scratching his head over why the EU is the "epicenter" of sovereign debt worries. Is he not aware of the U.S. privilege of being able to create the money to service its debt with just a few keystrokes?

    The U.S. is becoming a "squatter nation," where homeowners don’t make a payment for as much as five years while continuing to live in their homes. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction.

    Creditor-friendly policies that neglect homeowners and the jobless cater to the interests of "rentiers – those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense," Paul Krugman writes.

     Like working until your 80s? It’s easy to see why many Americans will face that stark reality: 56% of U.S. workers have less than $25,000 saved; 60% of retirees have less than $50,000 saved; 45M Americans are on food stamps; plus consumers strapped with trillions in mortgage, student loan, credit card and auto debt. 

    It’s been a nice rally, Treasurys, but it’s time to bet against the government, Anthony Mirhaydari says. It’s not just the usual suspects (ending QE, inflation pressure, the debt ceiling), but currency effects from a building euro – itself backed by ECB rate hikes – that will weigh on U.S. government bonds.

    Cullen Roche says the Fed missed the mark in dealing with the financial crisis: It’s never been about Wall Street, but Main Street – a classic balance sheet recession. Debt-laden consumers were turned on their head when prices collapsed. Now, with households in savings mode, the only possible hope for salvation is public sector spending.

    "A very major breach," is what one official is calling a recently discovered cyberattack against the IMF.  Out of caution, the World Bank, whose headquarters is across the street from the IMF in D.C., has cut a network connection allowing the two agencies to share information. The IMF declines to publicly speculate about where the attack originated from.

    Hackers who breached the IMF are believed to be connected to a foreign government, a source says. Meanwhile, the fund will replace EMC-made (EMC) SecurID tokens used by staff, although unlike theattack on Lockheed Martin (LMT), there is no indication they were used in this intrusion, an IMF memo says.

  25. Phil

    Didn’t mean to start the day off gloomy by the way, still expecting a bounce this week into expiration day so let’s "Keep on Rockin’ in the Free World":

  26. scottmi

    Fundamentals/Phil – that is a great comment. thank you.

  27. angelcur

    don i am with you on irish people this was my response just so you know
    YOU think like that  as does loracan does i don’t think the average wage earner gives a rats ass i don’t think the electorate in spain or ireland and certainly not in greece are motivated by any deep philosophical alignment to nationalistic interests when it comes to a banking sector mess..lorcan must run with a toney lot over there..this is going to be a most interesting next 24 months.. ..lets see where this is in SIX months….whats the per capita debt over there?…does lorcan drink?..btw oyu are right as rain about the greeks they made that decsion abou techniquet 2000 years ago….
     

    In a message dated 6/12/2011 2:48:38 P.M. Eastern Daylight Time, don  writes:

    No, the thought process is on another level. In Ireland, there is a commitment to being a modern technology and financial center. Ireland’s growth was a miracle, and they want to get back to that. Greece never joined the modern world to begin with, so why pay a price to stay in it?
     

  28. angelcur

    that quote  and my comment above was fro you phil i dont agree with odn and his associate on ireland one bit

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