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Thrilling Thursday – S&P 1,200 or Bust (again)

SPY 5 MIN What fun this is!  

Yesterday, in the morning post, I set our goal for the Dow at 11,340, which was the 5% move off the 10,800 line.  That lined up right around with 1,200 on the S&P which, as you can see from Dave Fry’s chart, we popped through on that wild closing run but then failed again on that wild closing drop in a very, very silly last hour of trading.  

Fortunately, at 3:50 in Member Chat, I put up 3 hedges using TZA, SDS and UUP but they were light hedges that are fully offset by bullish balances like shorting the RIMM Oct $26 puts for $1.30 or shorting EWG Oct $15 puts for .35 to cover the cost of the spread.  That way, if the markets keep going up – the insurance is free.  If the markets go down….  Well, you’d better REALLY want to be long on EWG or RIMM but, when we are "Cashy and Cautious" we’re always looking for some long-term opportunities so these protections are like killing two birds with one stone as they protect our bullish bets AND set us up for a new, cheap entry.

When you wake up in the morning and you’re not sure if you want the market to go up or down because you have some exciting gains to look forward to in either direction – you are well-balanced!  At 2:06 we shorted TLT aggressively at $113 (still a good trade), at 1:53 we added very aggressive trade ideas on the Russell with the IWM Sept $70/71 bull call spread at .60, selling the $70 puts for $1, a net .40 credit which makes $1.40 (350%) if the Russell can hit 710 or more at tomorrow’s close.  We also picked the TNA Sept $42/45 bull call spread at $1.45, selling RIMM (earnings tonight!) Sept $27.50 puts for $1 for a net .45 entry.  In both of those trades, we will, of course, stop out if the Russell fails to hold yesterday’s goal of 700 and that’s all going to depend on whether or not the Dollar holds 77 today.  

XLF WEEKLYAs noted above, our goal for Thursday it to take and hold S&P 1,200.  We don’t need a big day, we just need consolidation up around these levels to prove we’re in the right place.  The Financials are still our biggest worry and we have a lot of heavy, bullish betting in that sector that we hold the $12.50 line with both our FAS Money trade as well as our $25,000 Portfolio, which I just finished a full review of this morning.  

The Fed begins their 2-day meeting next Tuesday, when it’s QE3 or BUST on Wednesday afternoon (another reason to pick up some hedges, no matter how bullish you are).  Meanwhile, today is a data-palooza, with CPI, Empire State Manufacturing and Unemployment coming up at 8:30.  That’s followed by Industrial Production at 9:15, the Philly Fed at 9:15 and, at the end of the day, we get a peek at the Fed’s Balance Sheet and statistics on the Money Supply, which was up 21% since August of 2009 at last report.  

All that money sloshing around leads to a lot of risk-taking on the part of the Banksters who are swimming in it (with $1.6Tn of excess reserves at last count) and, in shades of 2008 again, a "rogue trader" at UBS seems to have lost $2Bn making "an unauthorized trade."  This continues the amazing streak by the IBanks of 100 years without ever taking a loss on a trade that was actually authorized or made by a non-rogue trader.  

Does Europe care?  No, not at all.  They are rocking AND rolling this morning with 2.5% gains heading into afternoon trading.  After all, what’s $2Bn in the grand scheme of EU problems?  

Spain sold €3.95B of eight and nine year notes at comparable yields to the last time it sold such paper. Demand was healthy, with bid-cover ratios varying depending on the exact note, but all coming in at 2:1 or greater. Yields are a bit higher in the secondary market, the 10 year up 6 bps at 5.41%.  That’s helping the markets a lot.  

Nonetheless, George Soros is calling for the creation of "a European treasury with the power to tax and therefore to borrow," as the ultimate solution to the debt crisis.  This is a good trick because, by saying something is vitally needed that has no chance of passing, Soros can then spin the rejection of the idea as a Euro negative and clean up on his wagers.  It’s like an oddmaker commenting on a Superbowl team and saying "If they are going to win this game they’d better have at least 3 400 pound guys on the line" – by setting a condition that can’t possibly happen, you push other bettors to put up money against the team – even though the actual play factors haven’t changed at all.  Soros, like Murdoch, is a master manipulator of other investors

8:30 Update:  The usual 428,000 people lost their jobs last week but that trend is worse than expected so the Futures are not thrilled but still a bit up from yesterday’s close so far.  Continuing Claims continue to trend down a bit but, more often than not – that number reflects people giving up on the Workforce (don’t forget NFP added ZERO jobs last month), rather than people finding suitable employment.  The August CPI came in at an inflationary 0.4%, 100% higher than the 0.2% expected by Economorons at the Fed.  Core CPI was still 0.2%, however so Bernanke is still in the game.  

So the cost of stuff went up 0.4% and 428,000 people lost their paychecks while August Real Earnings FELL 0.6% – that’s a net 1% drop in spending power in just one month!  It’s even worse when you look at weekly earnings instead of hourly, as those are down 0.8% in August.  Also depressing is the September Empire State Manufacturing Survey, which came in at NEGATIVE 8.82, also 100% WORSE than the -4% expected by clueless Economorons.

Does this mean we should SELLSELLSELL?  No silly – it’s BUYBUYBUY because "Job Creators" have increased the spread of what they pay workers to what they charge for their stuff by over 1% in a single month.  There are 130M people left in this country who have jobs and 428,000 of them don’t anymore and that’s down 0.3% but the remaining 129,572,000 working people will pay 1% more for a net gain of 0.7% more revenues AND, best of all, those 428,000 jobless people will STILL buy some stuff so not even the whole 0.3% is lost.  It’s a WINWINWIN for Corporate America!  

Although the Global situation hasn’t changed a bit, we find ourselves still pretty bullish but we will keep pushing up our levels (as planned) as we make progress and we are ready to flip bearish at the drop of a hat (we only have to buy back our bullish offsets and we’re instantly way more bearish).  We’ll certainly be angling to hedge back near neutral into the weekend and then next week is going to be a real thrill-ride as Greece boils over in the EU this weekend and Bernanke steps up to the plate on Wednesday.  

The key to today is getting the Dollar below that 77 line – if we can do that, the S&P should have no trouble taking back 1,200 and, at that point, China will have to wake up (we went long FXI yesterday in our $25KP, but will pull it if we don’t hold 1,200) and do a little bottom-fishing of their own.  We still have Industrial Production at 9:15 but scared workers are usually productive workers so that’s not going to be a big deal compared to the Philly Fed at 10 am but we already got past TERRIBLE Empire State numbers and I doubt Philadelphia will be much worse and if it’s better – then RALLY FUEL!  

Strap in for a wild one folks…

 


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  1. stjeanluc

    Oil Lines
    R3 – 91.30
    R2 – 90.61
    R1 – 89.59
    PP – 88.90
    S1 – 87.88
    S2 – 87.19
    S3 – 86.17
    Yesterday’s high and low – 89.92 / 88.21
    Breakout line – 92.68 / 83.73
    That $90 lines was a good spot to short yesterday…. 

  2. stjeanluc

    NFLX – That’s going to hurt this morning….
    http://allthingsd.com/20110915/netflix-cuts-its-guidance-by-1-million-subscribers/ 
    The stock is trading down $30 in pre-market. Ouch!

  3. stjeanluc

    Interesting chart:
    http://www.visualnews.com/2011/09/08/the-making-of-an-infographic-visualizing-uschina-trade/?view=infographic
    I didn’t realize how much we export out of the US! In absolute terms, almost as much as China! Of course, we import much more. But our export are just shy of 10% of GDP while in China it’s 30% of GDP. That dependence on export is kind of scary I would think! 

  4. jcaesar

    Does anyone know what caused the futures spike at 9:00AM?  If it’s a rumor, I’m sure angel could tell us. ;-)

  5. Pharmboy

    Nice little ramp job in pre-market action…..PP for today:

     

    And:

     

    Whether or not the broader stock market reverses lower again before the end of the year is truly an unknown, but the QQQ is often thought to be the leading index and if it is filling that role now, indications are that the broad market will continue higher in the near term.
    There are two simple but very meaningful facts that support this theory illustrated on the weekly chart above.
    1) The "Larry Williams play" is in full swing. For those not familiar with this favorite pattern of ShaddowTraderPro Swing Trader, it occurs when price does not follow through after either a topping tail or bottoming tail has formed but instead reverses and violates the tail portion of the price bar which often leads to follow through in the opposite direction indicated by the topping or bottoming tail.
    The blue arrow points to the recent topping tail weekly price bar. The following week (orange arrow) saw price open with a gap below the topping tail candle, but instead of following through lower, the QQQ has done nothing but battle back higher until yesterday when price closed near the top of the bottoming tail after superseding it earlier in the day (magenta oval). In a nutshell, this is sheer bullish price action.
    2) The QQQ has crossed back above the Value Area Low (VAL) (54.76) of the 2011 year to date (YTD) value area. Without much price consolidation between yesterday’s closing price and the YTD Point of Control (POC, red line at 56.98), and the POC’s tendency to act as a magnet in drawing price "back home", The likelihood is increased that QQQ will follow through higher.
    From a purely technical perspective, the two facts outlined above increase the probability of the QQQ moving higher and if this index fulfills its traditional role as the leading index, there is a greater chance that other major U.S. Indexes will follow suit.
  6. dclark41

    jcaesar:
    Well you might start by looking at the dollar that dropped from $77.3 to $76.89…88……

  7. iTrade

     http://www.zerohedge.com/news/global-liquidity-bailout-arrives-ecb-announces-emergency-liquidity-providing-operations-conjunc
     

    The Global Liquidity Bailout Arrives: ECB Announces Emergency Liquidity-Providing Operations In Conjunction With Fed, BoE, BOJ and SNB

    Tender date
    Settlement date
    Maturity date

    12 October 2011
    13 October 2011
    5 January 2012

    9 November 2011
    10 November 2011
    2 February 2012

    7 December 2011
    8 December 2011
    1 March 2012

  8. jcaesar

    dc – That damn dollar thing again.  Ok, why do you think the dollar would move? 

  9. dclark41

    jcaesar:
    Could have something to do with story that itrade just posted above. Outside of that, I am a bit out of my league on the whys and hows of dollar manipulation. But its been a pretty good barometer where the market goes as of late.

  10. exec

    Yep…..they’re killing the dollar into the open. 
     
    They are a clever bunch.

  11. exec

    They are going to complete the squeeze they started yesterday.

  12. jmm1951

    Debt crisis live. Rogue trader in irons.
     
    http://www.telegraph.co.uk/finance/financialcrisis/8720479/Debt-crisis-live.html

  13. stjeanluc

    Thanks iTrade… It’s raining money everywhere now! That would explain that dollar move and the corresponding futures move! 

  14. jcaesar

    dc – Thanks!

  15. Pharmboy

    Euro spiked, Dollar down, and ZH states it is a coordinated effort.  Sickening to a S…..

  16. jmm1951

    "Last month UBS announced plans to axe 3,500 jobs … today they have revised that figure … to 3,501."

  17. wassellc

    Pharmboy, are you planning on rolling the SPY Sept 120C’s to Sept4, or just killing them and going with the naked Sept5 120C?

  18. dclark41

    Phil:/itrade post
    So not QE3 rather WQE3 (World Quantitative Easing 3). Is this a backhanded way to get US money contributing to Europe?

  19. stjeanluc

    Pharm, it seems that the central banks are really working hard to prop up the markets. It’s unreal when they actually do it together. That’s manipulation in a grand scale there. Makes it kind of hard to make rational investment decisions I guess! 

  20. Pharmboy

    EU banks are up 8-22%.  SocGen, UBS, etc.  DAX up 4.5%

  21. revtodd64

     Rogue trader?  That’s what happened to me!  One of the traders for RevTodd’s Ibank made a stupid, risky unauthorized futures trade!  I want my money bank.

  22. Pharmboy

    The 118 I will hold into tomorrow and roll to appropriate strike.  120s are up, so buy them back now.  The 110/111 Ps will be rolled out and up, with next weeks appropriate put.  I try not to pay for the roll, so whatever I sell, is what I will pay for on the roll.  It will not be until tomorrow unless things go really haywire today (seems they already are). 

  23. barfinger

    Good news! Europe is fixed again! Is this a good example of excitement that invites selling?

  24. stjeanluc

    FAS Money Recap 
     
    Long Strangle –Jan 12 Puts (3.01 average now 2.52) and 15 Calls (2.75 average cost now 2.66). 
     
    Weekly – 1/2 September 13 Puts (1.03 now 0.22 – 78%) and 1/2 October 13 Puts (2.30 now 1.67 – 27%)
    Monthly – 1/2 September 13 Puts (1.03 now 0.22 – 78%) and 1/2 October 13 Puts (2.30 now 1.67 – 27%) 

  25. snow

    dx/Phil – your wish is granted! what a drop with volume on /dx starting at 9am sharp!

  26. jcaesar

    stjean / pham – It’s not the central banks.  It’s Phil’s sunny talk moving the markets up.  PSW goes to all of the big trader’s desks for sure.  ;-)

  27. Pharmboy

    For USO, I am going to buy back the 33 Sept Ps, and sell the weekly 33 Sept P by EOD.  I would like to get 30c or better for them (24c now).

  28. Lincoln

     Phil GMCR
    Forgive my caution on this but having lived through the worst with other short plays ie NFLX, only to survive with minimal gains I really feel GMCR is primed for a drop and I would like to play it better than I did some of the other MOMO’s.  I had a hard time understanding your recommendation yesterday. "With earnings, I think it’s a terrible  shame not to roll up to the $105s at $10.50 because, even if they go higher, at least you capture some premium.  What if you sell 2x the $105 puts for net $21 (+$2) and spend $2.70 on the $125 calls to cover 1/2." until I realized you must have meant 105 calls.  
    So the general concept here that I could keep in mind for future situations where doubling down again is not an option is by doubling but covering 1/2 I won’t increase my margin exposure, give up a little of max gain in order to increase likeliehood that position can be closed much sooner than otherwise or I’ll be in a position not much worse and likely better than if I did nothing and the stock keeps going higher. I try to make sure I understand the logic thoroughly before acting on your advice so  do I have this right?   TIA

  29. Pharmboy

    SPY 118s, if you can get 1.58, that is only 10c off our entry…buy them back. We did well on the 120s to pay for it)

  30. Pharmboy

    One of Mine just went through 118s.  If you can hold on to your pants, I am going to keep the other 118s I have to see how things work out tomorrow or EOD today.

  31. Phil

    496Good morning!  

    Forget the big chart, check this one out

    Keep in mind that there are $100Tn of Dollar-denominated assets in the US so that little dip was a $1Tn hit in 5 minutes to the net worth of America.  Does that make sense?  Of course not.

    Gold hit $1,779.90 at 8:50 and a minute later, the Dollar was dumped 1% and gold scrambled back to $1,800.  Clearly our Banksters are not done dumping GLD on the Chinese yet (they only changed the rule this week to let Chinese suckers play this market) so we’ll have to wait patiently for the end game there.  

    Meanwhile, it’s 1,199 on the S&P with the Dollar at 76.75 so we need LOWER to get higher but that drop was BS so a quick reverse might be in store! 

    SDS is at $23 and the October $22/23 bull call spread is just .38 and is an excellent way to play for the S&P not to make 1,200.   You can offset it with an SPY tomorrow short $117 put at .32 on a bet the S&P will hold yesterday’s low through tomorrow’s close or a more conservative offset like short RIMM tomorrow $26 puts at .40 or AA Oct $11 puts, which can be sold for .45. 

    Otherwise, we can stay bullish as long as the RUT holds 700 and the Dow hold 11,250 but anything less than 1,200 on the S&P is a major disappointment.  Watch that 77 line on the Dollar – we need it to provide upside resistance now in order to keep things going higher. 

    Thursday’s economic calendar:
    8:30 Consumer Price Index
    8:30 Empire State Mfg Survey
    8:30 Initial Jobless Claims
    8:30 Current Account
    8:30 Real Earnings
    8:45 Regulation of Systemic Risk conference (Bernanke, Tarullo)
    9:15 Industrial Production
    10:00 Philly Fed Business Outlook
    10:30 EIA Natural Gas Inventory
    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet 

    At the open: Dow +0.86% to 11343. S&P +0.9% to 1199. Nasdaq +0.93% to 2274.
    Treasurys: 30-year -0.95%. 10-yr -0.61%. 5-yr -0.29%.
    Commodities: Crude +0.58% to $89.42. Gold -1.67% to $1793.75.
    Currencies: Euro +0.98% vs. dollar. Yen +0.22%. Pound -0.36%.

    Market preview: Stock futures jump on news that the ECB will offer European banks dollar loans coordinated with the Fed and other central banks. S&P futures +0.8%. Stocks had been drifting following a batch of economic reports pointing towards higher inflation and weakening growth (IIIIII). Netflix -14.6% after slashingits U.S. Q3 subscriber numbers. Later: Philly Fed.

    August Industrial Production: +0.2% vs. +0.1% expected, +0.9% prior. Capacity utilization 77.4% vs. 77.5% expected, 77.3% (revised) prior.

    September Empire State Survey: Manufacturing -8.82 vs. -4 expected, -7.72 prior. New orders -8, -7.82 prior. Prices 32.61, 28.26 prior. Shipments -12.9, 3 prior. Inventiories -12.0, -7.6 prior. Employment -5.43, 3.26 prior.

    Q2 Current Account: -$118B, vs. expected -$123B and -$119.6B (revised) in Q1. Dollar -0.36% against euro, -0.135% against Swiss franc.

    Initial Jobless Claims: +11K to 428K vs. -3K consensus. Continuing claims -12K to 3.74M.

    "Of all the facets of the financial and economic crisis, high unemployment is the most visible manifestation of the challenge to restore sustained growth," says the OECD, noting recent declines in unemployment have yet to make a dent in the vast increase since 2008.

    August Real Earnings: -0.6% for real average hourly earnings M/M, -1.9% Y/Y. Real avg. weekly earnings -0.8% M/M, -1.8% Y/Y. Avg. workweek unchanged.

    August Consumer Price Index: +0.4% vs. +0.2% expected, +0.5% prior. Core CPI +0.2% vs. +0.2% expected, +0.2% prior. 

    U.S. manufacturers, who helped fuel the great bounce of 2009-2010, are growing increasingly cautious in their outlook. The U.S. economy "is clearly not recovering anymore," Cummins (CMI) CEO Tom Linebarger said in an interview yesterday. So far, 2012 earnings growth forecasts are down to 16% from 19% as recently as June.

    The European Commission forecasts EU Q4 growth at 0.1%, down from 0.2% in Q3 due to the ongoing debt crisis and resulting financial market distress. "Recoveries from financial crisis are often slow and bumpy," says commissioner Olli Rehn. 

    European shares are flying following central bank announcements of dollar funding availability to EU banks. Stoxx 50+4.5%. The dollar is getting sold across the board. Gold is tumbling, -2% to $1,790/oz.

    The ECB and other major central banks announce – in coordination with the Fed – the opening of dollar liquidity-providing operations. The news means the ECB will be able to offer EU banks dollar funding as necessary. Bank of EnglandBank of JapanSNB.

    Some European bank share reactions to the central bank news: BNP Paribas (BNPQY.PK+22%, SocGen (SCGLY.PK)+10.5%, Banco Santander (STD+6.6%, Deutsche Bank (DB)+8.8%, Credit Suisse (CS+6.9%.

    Another explanation (but then why did it reverse already?):  U.S. Treasuries dive following what appears to be a coordinated QE from the major Western central banks. Both the 10 and 30 years are down more than a full point in price. The yield on the 10 year up 12 basis points to 2.12%, the 30 year up 8 bps to 3.36%.

    The FT reports the UBS trader arrested in connection with a $2B loss this morning is Kweku Adoboli. Adoboli worked in theDelta1 trading division - described by FTAlpha as the last domain of prop trading left in the banking sector, and the same area SocGen’s Jerome Kerviel used to work. 

    Bank regulators are examining whether the nation’s big lenders are carrying $845B of home equity and 2nd mortgage loans on their books at an accurate value, according to sources. Of particular interest are cases where borrowers are overdue or underwater on their 1st mortgage, with the 2nd lien’s valuation not yet reflecting that reality. 

    Don’t look now, but leveraged lending activity at U.S. banksis up 74% from a year ago - to $572B YTD – as banks with huge cash hoards seek decent returns. The degree of leverage being used is also up 14%. 

    Bloomberg analyst believes Broadcom (BRCM) was likely responsible for the "rush orders" reported by TSMC (TSM) as lifting its Q3 sales, as the former scrambles to meet orders for the iPhone 5 (AAPL). Production of the next-gen iPhone has reportedlykicked into high gear, and as with the iPhone 4, Broa

  32. matt1966

    Phil, thanks for the info on algos.  I’ll read look into it as soon as I get a chance.. which are very difficult to come by these days!  I see your point about humans being able to wait for the fast pitch whereas algos trigger once their conditions are met.. but my counterpoint would be, I can write an algo to wait for the fat pitch and it will always act on it and only it.  Whereas if I’m trying to sit on my hands until it finally comes over the plate.. I may or may not act on it.  Or, worse yet, I will have some silly little trade going on to entertain myself and get become distracted by it.  It’s taking time.. but my algo is almost a smarter trader then I am and is already without a doubt better at execution then I am.

  33. dclark41

    Phil:
    Is it worth it to hold on to the FXI trade one more day? I figure that is the only way this trade can be fully price, but worried about decay.

  34. Phil

    Oil (/CL) coming back to $90 for a possible reload on the short side.  May stay up until 10:30 nat gas report.  

    I like that China chart, StJ.  

    S&P (/ES) Futures stopped dead at 1,200 – that’s not a very good sign as the Dollar had dropped 1% to get them there.  Maybe they need 76.50 or lower to get over and, if so, it’s not so much a rally as a reaction to the Dollar.  

    Philly Fed NEGATIVE 17.50 but the good news is it was -30.7 in August so let’s call that an improvement (but a bigger improvement to -15 was expected).  That was our last bit of worrying data so it’s now or not until the EU closes (11:30) for the bulls.  

    Woo-hoo on TLT and FAS!  If our banks start moving like the EU banks, this can get very exciting.  

    FAS Money – Better sell another round of Oct $13 puts for $1.65 while we can.  The Sept $13 puts are still .23 and look good to expire worthless bu, of course, if you can’t afford to have 1.5X open at once, then it’s a roll but, officially, we do the extra sale and set a stop at .30 on the tomorrow puts.  Still no call selling while we wait for the Fed.  

  35. Phil

     FAS Oct $11 puts can be sold for .92 and that money pays for the Oct $12/14 bull call spread at $1.15 for net .23 on the $2 spread that’s $1.66 in the money so 10 of those in the $25KP and 20 in the Income Portfolio.

  36. jmm1951

    Spread question
     
    On a Nokia $7/$4 2014 LEAP bull put spread the bid/ask is as follows:
     
    Bid: $1.51
    Mid: $1.96
    Ask: 2.41
     
    What is the optimum bid price to enter that is 90% likely to be filled within 5 minutes without being a rip-off (assuming the stock price stays static) ? I know TradeKing automatically fill bids at 1/3 of the spread, so $1.80 looks like a cinch, but how far can the envelope be pushed?

  37. exec

    Phil
    The games they play with the dollar is fascinating.  Who is controlling the movement?

  38. celesteschein

    Phil
    I would think the banksters would want to paint a gloomy market picture before the QE3 decision, don’t you? I almost expect them to tank the market which is really sad. I am in the Oct $34 USO puts. Are you still expecting the sell off? Thanks, Celeste

  39. sank1

     Phil,
    Actually nice on FXE, TLT, XLF, EWG & VLO. Thanks.

  40. sank1

     And did I say TITN?

  41. stjeanluc

    FAS Money Trade – We sold another 10 October 13 Puts as we expect the weeklies to expire worthless tomorrow. We have a stop at $0.30 for these weeklies just in case!
     
     FAS Money Recap 
     
    Long Strangle –Jan 12 Puts (3.01 average now 2.52) and 15 Calls (2.75 average cost now 2.66). 
     
    Weekly – 1/2 September 13 Puts (1.03 now 0.21 – 78% – stop at 0.30) and 1x (20 contracts) October 13 Puts (1.98 average now 1.61 – 19%)
    Monthly – 1/2 September 13 Puts (1.03 now 0.21 – 78% – stop at 0.30) and 1x (20 contracts) October 13 Puts (1.98 average now 1.61 – 19%)

  42. Phil

    WQE3/DC – Yes but that’s what we expected coming out of the G7 meeting this week.  Just a strange delay in announcing the action (maybe people had to vote or maybe, as we expected, the IBanks wanted to get theirs before the retailers were told what’s really happening).   

    Rational/StJ – I don’t know, it’s kind of rational to assume the CBs wouldn’t just let everything go down the tubes without at least TRYING to do something.  The real question is – will it work or will it just delay things as they get worse?  

    LOL Rev – Them rogues is everywhere!  

    Selling into the excitement/Barf – Certainly a good place to pick up hedges and take some bullish profits.  If we get over the line, then we can just use the cash to buy more bullish plays (like FAS above) but, on the whole – they still need to prove the confidence is returning and not just a bear squeeze.  

    Europe up huge with an hour to go:  FTSE up 2.5%, DAX and CAC up 3.6%.  Not much reaction from our markets so far and FXI $36 calls down to .40, which makes no sense to me (other than that they are expiring tomorrow, of course) but, in the $25KP, I’m more inclined to roll out to next week’s $36 calls for .40 than to roll or DD tomorrow’s so let’s make that adjustment as I’m not willing to give up on the trade.  

    Gold rejected at $1,800 – very important to see what happens at $1,780 on the next touch.  

    USO next week $34 puts at .45 are a great way to play a big NYMEX sell-off into the contract rollover (Tues).  

  43. GSsucks

    Phil – Should we dump the FXI Sept $36 calls we picked up yesterday?

  44. GSsucks

    wow…you really are able to predict stuff accurately, you knew I’d ask about the FXI puts. 

  45. David Ristau

    Phil -

    So you think speculation over QE3 at the coming Fed meeting next week will be outweighed by oversupply by of contracts? The Fed meeting won’t spark some legitimate rallies in oil simply speculating for QE3?

  46. edro00

     Pharm
    Take a look at the SPY double diagonal
    BTO Oct11 117P
    STO Sep4 118P
    BTO Oct11 123C
    STO Sep4 122C
    ND 3.62 Cost per contract $362 returns about $198 between 118 and 122
    BE 115.25/124.75
    Easy rolls to next weekly

  47. stjeanluc

    FAS Money – Well, that was quick. That $0.30 stop got triggered on the weeklies! 

  48. stjeanluc

    Rational / Phil – I think that we know the answer to that one… Kick the can down the road has been the most used CB tool in the last 3 years! 

  49. Phil

    GMCR/Lincoln – Sounds good to me.  Keep in mind that our main goal, ALWAYS, is to SELL PREMIUM.  With every position you have you should say – how can I sell more premium?  What does Steve Wynn do?  He sells premium to thousands of people over and over and over again and sometimes he loses the bet and sometimes he wins the bet but he ALWAYS sells the premium to someone else and you NEVER lose that bet (as long as you don’t buy it back early).   That’s it.  Sell premium over and over again and you will have a huge advantage over the people who buy premium.  After that, statistics become your friend…  

    Meanwhile GMCR dropping like NFLX.  

    Algo/Matt – The key is to be aware of many factors and write the best one you can.  As you know, I used to consult on systems and I’ve never seen one I would rather have trading for me vs. doing it myself but it depends on how you trade.  I can make a pitching machine that’s 10 times better than me because I’m not that good of a pitcher so it’s all relative and depends what you want to accomplish.  Like GMCR, the other day.  We know they are not worth $112 so when the "good" COST news shot them up there, we went short for a huge win.  You can’t teach that to a machine – at least not until Watson develops the appropriate level of cynicism to read the breaking news with a critical eye…  

    FXI/DC – Good question and see above for answer.  They are slow out of the gate but, if the S&P pops 1,200 – that trade could be your best friend.  Since FXI was $38.50 at the beginning of the month, it’s reasonable to flip to the next weeklies and risk a 50% loss ($400) against the possibility of a $1,500 gain.  

    NOK/JMM – By putting a time limit on it you are inviting yourself to get ripped off.  That’s an insanely wide spread – 50% of the purchase price so the spread itself is a rip-off at it’s very core.  Clearly the trading is too thin to get a good fill.  I would offer to buy the $4 puts for .75 and to sell the $7 puts for $2.75 and see which one fills first and then worry about filling the other.  Of course, I wouldn’t do that trade at all as NOK is at $6.11 and you need them at $5 not to lose money so you may as well just short the 2013 $5 puts for $1, where you break even at $4 and make $1 at $5 in 15 months instead of 27 and, if that doesn’t work, you can roll them to the 2014 $4 puts and your break-even drops to $3 where you still make $1 if they stay over $4 – the same $1 you max out at with the bull put spread that has virtually no possibility to come off the table early. 

    Dollar/Exec – Well clearly the CBs did something today but they obviously agreed on the weekend and announced officially today so it’s the IBanks playing games.  They knew this was coming so they teased the Dollar up all week and then sprang the trap when they needed it – saving gold or the markets or whatever they were doing but, meanwhile, gold is already failing $1,780 again and the RUT looks like it’s failing 700 in a few minutes into the EU close.   Hopefully it’s just EU profit-taking that will stop at 11:30.

    Gloomy picture/Celest – That’s what they’ve been doing all week.  I think we’d be much higher if not for the relentless negative news flow of which, only about half of it is true.  As to oil, yes, we expect a nice sell-off as they have to close their contracts – hopefully this afternoon but, if it looks like maybe a hurricane, they could hang on through the weekend.  

    Good going Sank!  

    FXI/GS – Just a case of great minds thinking alike.  

    Fed/David – Oil did get a nice pop last year on the Fed meeting.  From about $75 to $85 but then it flatlined and then it fell back to $80 in November before it got going again.  Bottom line – $90 is TOO HIGH and already has QExpectations built in.  

    FAS/StJ – Yeah, maybe that was too tight a stop for an ultra option but sure beats where we were on Monday so we’ll take it!  Yes, can’s will be kicked until they run out of road (and THEN, finally, maybe they will hire people to build a new road – if only to kick the can down).

  50. pentaxon

    Phil: following up on the EUR/CHF discussion of yesterday:

    The equity of SNB is now 45 Bn CHF – earlier operations were interventions of about 200 bn CHF which caused 20 bn(!) CHF losses. If they do another interventions of about 300 bn CHF a shift of 10% in the CHF/EUR relation will wipe out all of the  equity of the SNB. The problem is the small size of the country and the snb in comparison to the leverage potential of Soros, Paulson and Co. With the price fixing at 1,20 they have created an anatural, assymetric profile with no downside risk for some players. You know the Bank of England and the Bank of Japan already failed and they are a lot bigger.
    Maybe the only solution would be the one done by your national bank: the fed silently changed the regulation last year so that they can denote losses as liabilties to prevent bankruptcy. (because the losses of the bonds they are holding would wipe out all the capital of the FED quite easily)

  51. stjeanluc

    The future of war:
    http://andrewsullivan.thedailybeast.com/2011/09/our-drone-future.html
    Just a big video game… Skynet is probably already being formed with Boeing, Microsoft and Intel! The Terminator can’t be that far! 

  52. tommyt

    tommyt
    can anyone tell me where to find the buy list.
    thanks

  53. Phil

    This is funny to me.  Barry is heading over to the Bloomberg Summit today and he’s choosing the following seminars to attend:  

    • A CONVERSATION WITH RAY DALIO (Major Bear) 
    • A CONVERSATION WITH GARY GENSLER (CTFC Chair)
    • CAN CHINA HURT YOU? (Uber-China Bear Carson Block vs. Stephen Roach)
    • THE NEXT BLACK SWANS (Nassim Taleb!  You don’t get more bearish than that!)

    If you are bearish, I don’t know why bother going to a conference and listen to other bears.  You want to be challenged, to get a viewpoint that’s different from the one you already have…  That’s why I hate these conferences that break up into little sessions – I like it when various people have to get up in front of hundreds of people from different backgrounds and present and defend their ideas with Q&A sessions – those are the worthwhile ones…

      

    Very good point by Barry:

    Perhaps folks are thinking, “Well, my taxes might not go up now, since I’m making the median income, but my wages are going to quintuple any day now, I just know it.  And when they do, I’ll be damned if I’m going to pay one more plug nickel in taxes.  I also need to protect the loopholes for corporate jet owners, as I’ll surely soon be one.”  Folks, can we have a reality check here?  Pull out your most recent IRS Form 1040 and see exactly where you stand and whether or not you’re among the “wealthiest Americans” to which Obama has been referring.  There is no doubt that some of you are, but I am equally sure that the vast majority of you are not, even if TBP may draw a somewhat higher income cohort.  (As I read the comments to my recent post on the Census release (having already almost completed this post), I guess what I’m trying to say is summed up by Dogfish, who paraphrases Taibbi’s Griftopia:  “”…tea party types like Joe the Plumber identify with the rich because they think “they are one clogged toilet away from being millionaires.”"  News flash: they’re not.)

    To quickly demonstrate the faulty thinking that must be at play here, let’s have a look at some economic statistics from the area in which Monday night’s debate took place.  Specifically the zip code in which the Florida State Fairgrounds resides — 33610.  Seems fair, since the audience was certainly enthusiastic enough about the slate of debaters and most definitely jazzed not to have their taxes raised.  (With all credit to The Reformed Broker for his astute observation, it did seem as though most of the audience arrived at the Fairgrounds in their Medicare-funded Rascal Scooters.)

    Unfortunately, the American Community Survey (ACS) covering the 2010 Census won’t be released until Sept. 22, so we’ll have no choice but to use data from the 2000 Census (I’ll make a note to revisit this data in a couple of weeks).  So what do we learn about all those folks in 33610 (click through for Census fact sheet) who seem deathly afraid of having their taxes raised?

    Give or take, it would seem there are probably just over 100 or so households (out of 12,000) that might see their taxes rise if some of what Obama proposes gets passes.  All the others, not so much.  We’ll have an updated number within the next two weeks, when the ACS is updated.  So let’s get a collective grip here, splash some cold water on our faces, and have an understanding about what is being proposed and whom it’s going to impact.

  54. biodieselchris

    Gold in a very healthy pullback and the BDI is now positive for the year. I guess the shippers don’t read the news about the Euro crisis ending the world…

  55. stjeanluc

    Add that to the voodoo folder:
    http://ftalphaville.ft.com/blog/2011/09/15/678531/albert-edwards-and-the-killer-wave/ 

  56. stjeanluc

    Taxes / Phil – That has always been one of my points – people are opposed to raising taxes on the rich because they think:
    a. I am already rich (not knowing where they are in the income ladder)
    b. I am going to get rich
    It’s just ridiculous. There has been many studies made showing that in general people exagerate greatly where they think they are in the income ladder. That is of course something carefully used by the opposition party. 

  57. stjeanluc

    This list will look familiar:
    http://www.bespokeinvest.com/thinkbig/2011/9/15/best-performing-stocks-since-lehman-bankruptcy.html
    Should be called the MoMo list. Of course, some have lost some of the momentum even as we speak… 

  58. Phil

    Buy List/Tommy – Currently it’s the September’s Dozen under the Portfolio Tab but, of course, we find new things every day.  We never got enough of a dip that lasted to do any major bottom fishing in this cycle but you can run back through the portfolio tab and see what prices we considered good on old buy lists.  

    Shippers/BDC – Yeah, even old EGLE is finally moving again. 

    Dollar 76.90, gold $1,782, silver $39.50 (congrats to AGQ shorts – one more day to victory!), oil hanging tough at $89.66.  Euro $1.385 so goal on FXE too – if we can hold it for another day.  

    Dow sneaking up over 100 points with S&P crossing 1,200 again.  Dow volume super lame at 55m coming into noon.  

    I have a lunch meeting around 1 but back by 2-2:30.

    Taxes/StJ – I think that has something to do with the average IQ in the US being 98, which is about 10% lower than Hong Kong or Japan (but we’re smarter than Canadians!).  It’s actually a very depressing chart when you consider that’s AVERAGE:

    From Intelligence and the Wealth and Poverty of Nations by Richard Lynn

     

    Rank

    Country

    IQ estimate

    1

     Hong Kong

    107

    2

     South Korea

    106

    3 ^

     Japan

    105

    4

     Taiwan

    104

    5

     Singapore

    103

    6 *

     Austria

    102

    6 ^

     Germany

    102

    6 **

     Italy

    102

    6 *

     Netherlands

    102

    10

     Sweden

    101

    10

     Switzerland

    101

    12

     Belgium

    100

    12 **

     China

    100

    12

     New Zealand

    100

    12 **

     United Kingdom

    100

    16

     Hungary

    99

    16

     Poland

    99

    16 **

     Spain

    99

    19

     Australia

    98

    19

     Denmark

    98

    19 *

     France

    98

    19

     Mongolia

    98

    19

     Norway

    98

    19 *

     United States

    98

    25

     Canada

    97

    25

     Czech Republic

    97

    25

     Finland

    97

    28

     Argentina

    96

    28 ^

     Russia

    96

    28

     Slovakia

    96

    28

     Uruguay

    96

    32 ^

     Portugal

    95

    32

     Slovenia

    95

  59. exec

    Interesting read.

  60. jmm1951

    Phil/NOK
     
    I guess you and I see it differently, or maybe I am just figuring out the math wrong, but if you sell the 2014  $7 puts and buy the $4 puts at those prices, that would be a credit of $2 on a $3 spread.  I’m not exactly sure of the implications in a margin account, but in an IRA account (which I have) that means that it costs $1000 in cash for each 10 contracts to secure the spread. If NOK finishes at $5, then the long put is still worth $1 and the short put -$2, so that is 100% profit on the net $1000 that is locked into the trade. The breakeven on the spread would therefore be at $4.50 ($2[credit]+$0.50[long put]-$2.50 [short put]).
     
    If the stock closes above $7 in 2014, then that is a $2 per share profit, which is 200% on the $1000 needed to secure the spread.
     
    The maximum loss on the spread would be $1 per share if Nokia bankrupt or below $4.

  61. jmm1951

    Phil/spreads
     
    However I very much like the advice of bidding on each half of a spread separately and seeing which fills first. Excellent! No doubt the reason brokerages make it easy to place a single bid for spreads, condors, buy/writes, and collars is not purely for the benefit of the client.

  62. l4real

    Phil, Great chart on intelliigence and wealth! 

  63. JRW III

    Good morning,

     

    IWM  68.10,  68.69,  69.15,  69.53,  69.95,  70.14,  70.64,  70.98,  71.33,  71.87,  and  72.09

    Well, it seems the new reality of the "market" (ha!) is as follows:

    (1) Prices move down based on concrete, firm, real, economic data showing things are going to hell in a handbasket;

    (2) Prices move up based on politicians offering ceaseless reassurances that things are going to be juuuuuuuuuuust fine, so don’t you worry your pretty little head about it, m’kay?

    This from Tim Knight; I will be unavailable today, good hunting !!

     

  64. Pharmboy

    Double diagonals look fine by me.  I was looking at similar ones, but using the Quarterlies for $1.2X. 

  65. jmm1951

    Phil/IQ
     
    Clearly Hong Kong is like Lake Wobegon, where all the children are above average. It is a depressing thought that a person of average IQ (100) is considered only to be capable of semi-skilled employment, and that considerably more than 50% of the US population fall below that number.

  66. Phil

    Very depressing Exec.  

    NOK/JMM – My mistake, I don’t do bear puts that often so it is $2 upside, not $1 but still, I’d rather have 2 of the short puts for $2 that make $1 at $4 than 1 spread that makes $2 at $7 but loses $1 at $4.  Margin is a separate issue and I think it’s downright criminal that the rules for trading most IRA accounts preclude you from selling premium – even in the most conservative ways.  

    POMO Day:  11:10 AM The Fed uses its latest rollover of principal to buy $3.3B in Treasurys maturing 2015-2017, of $15.317B offered by dealers. Bonds keep trading significantly lower: the 30-year yield +0.05 to 3.33%; 10-year +0.075 to 2.07%; five-year +0.06 to 0.94%. 

    The number of companies offering a higher dividend yield than 10-year Treasury bonds is "mind-boggling," Bespoke writes. As of yesterday, 233 (46%) of S&P 500 stocks boast a higher yield than the 10-year, and more than 60 pay out a yield of more than twice the 10-year.

    Li Daokui, a top adviser to the PBOC utters the words "liquidate" and "Treasuries" in the same sentence, reports Ambrose Evans-Pritchard. The news is not necessarily bad for the U.S., as Mr. Li says there are trillions waiting to be invested in "real" American assets. For buyers of Treasuries yielding less than 2%, however, "there is a big seller out there, just itching to let go." 

    12:00 PM On the hour: Dow +0.92%. 10-yr -0.49%. Euro +0.72%vs. dollar. Crude +0.3% to $89.17. Gold -2.29% to $1782.35.

    Sept. Philly Fed Business Outlook: Business activity -17.5 vs. -10 expected and -30.7 prior. New orders -11.3 vs. -26.8 prior, shipments -22.8 vs. -13.9, unfilled orders -10.4 vs. -20.9, prices paid 23.2 vs. 12.8. 

    Europe closes sharply higher for the 3rd consecutive day, with the ECB’s announcement giving an extra afternoon boost. Stoxx 50 +3.5%, Germany +3.1%, Spain +3.7%, Italy +3.4%, France+3.3%, U.K. +2.1%. The euro +0.7% at $1.3854.

    A bit of detail on the dollar funding move announced this morning: The ECB will offer 90 day dollar loans – in 3 operations later this year – to EU banks in the hopes of assuring smooth functioning of money markets. It’s an ECB operation, with the other central banks signing on to show a united front.

    Knight Capital (KCG +3.1%) says domestic equity trading volume soared in August, which proved to be an intensely volatile month for all markets due to unprecedented macro events. The company reports 5.9M average daily U.S. equities trades, up 61% from July and 76.5% Y/Y. On a dollar basis, trading leapt to $41.4B, a 53% jump from July and 85% higher Y/Y. 

    Three years after Lehman, IMF chief Lagarde warns of "a dangerous new phase of the crisis," and essentially calls for a doubling down of policies – of which she was an instrumental figure – taken since 2008. Maybe correct, she seems unburdened by thoughts that maybe those policies have led the financial world to its present state.

    One of Angela Merkel’s parliamentary leaders predicts large majority victories in both houses in votes for changes to the EU rescue facility. There has been speculation Merkel would have to relyon opposition party votes to win passage, thus possibly leading to a fall in her government. 

    "I don’t expect anything like what we say in 2008," saysUPS CEO Scott Davis, who forecasts "slow growth," in the U.S., but nothing worse. Of a bit more interest is an unexpected slowdown in air freight to Asia, but it’s not enough to dent Davis’ optimism that global trade "is the best path out of current economic doldrums."

    Reuters reports, S&P Managing Director John Chambers as putting the chance of another U.S. downgrade at 1 in 3, though he foresees no change until late 2012 or early 2013. He says marketshave recognized the initial downgrade as signalling a reduced ability to stimulate the economy with fiscal measures.

    Freddie Mac reports that a 30-year fixed-rate mortgage averages 4.09% this week, marking an all-time low in the weekly survey. The 15-year fixed – gaining popularity with borrowers – fell to 3.30% from a level of 3.33% a week ago.

    Foreclosure filings were reported on 228,000 properties in August, +7% M/M, with 78,800 default notices, +33% M/M and the highest monthly gain in four years, RealtyTrac reports. The jump may mean that lenders are pushing through more of the foreclosures delayed by robo-signing. Bank of America (BAC) reportedly has been ramping foreclosures into overdrive.

    Capital One (COF -3.4%) resumes its downtrend after reporting a sharp rise in charge-offs to 4.1% in August from July’s 3.77%. Delinquencies edge higher, to 3.43% from 3.37%. The moves are a reversal from recently improving credit quality.

    With the firm’s PC and mobile phone guidance having beencut, and chip companies slashing guidance left and right, Gartner now sees semiconductor revenues declining 0.1% in 2011, compared with a prior forecast for 5.1% growth. Gartner is also lowering its 2012 growth forecast to 4.6% from 8.6%, and warns macro issues could reduce its outlook further.

    More from Gartner: DRAM sales from the likes of Micron (MU) are expected to decline 26.6% due to soft PC demand and low prices. But a 20% rise is seen both for NAND flash sales from companies such as Micron and Sandisk (SNDK), and ASIC sales from vendors such as Qualcomm (QCOM), due to smartphone and tablet demand.

    CHINA!  American Superconductor’s (AMSC -12.9%bad year gets worse after the maker of wind turbine parts discloses it’s suing Chinese customer Sinovel, demanding it pay for past product shipments and accept shipment of parts it’s obligated to buy.AMSC‘s revenues collapsed this year following order cancellationsfrom Sinovel. 

    Nomura’s Romit Shah thinks Intel’s (INTC) planned debt offering could boost its 2012 EPS by $0.09, given Intel can issue debt at yields below 3%, and repurchase shares featuring a current earnings yield above 11%, and dividend yield of 4%. Nonetheless, Shah has a bearish rating on Intel due to PC-related concerns

    Nice!   Deutsche lifts up Supervalu (SVU +4.4%) with a Buy rating, giving the grocery chain credit for realistic earnings guidance and implementing positive initiatives. Deciding to wax a bit nostalgic, Deutscheadds that SVU reminds them of Saks (SKS -0.5%) and Macy’s (M +1.5%) back in 08/09 – when "sentiment was just too negative relative to ongoing underlying changes." 

    Google’s (GOOG) proposed acquisition of Motorola Mobility (MMI) is “the beginning of the end of the patent wars," Cowen’s Jim Friedland believes, also seeing “a high probability that Apple (AAPL) is infringing on MMI’s patents.” The 17,000 patents and 7,500 patents pending is the stick Google may wield against Apple in cross-licensing deals down the road, he says.

    "What do you call a ‘rogue’ trader who makes $2B," asks the WSJ‘s David Weidner. "A managing director." Catching improper trading is quite simple, according to the Champ, Nick Leeson. The fact is, it’s allowed because of the winners.

  67. danosu77

     Phil,
    I sold the FAS Oct $8 puts for 0.76 (now 0.335) and used that to fund the purchase of the XLF 12/13 Bull call spread at 0.50. Since both are up, do I need to take the profit now or can I let them continue to ride?
    Thanks,
    Dan

  68. lol730

    Oil,
    I’m not completely sure that we’ll have huge sell off.
    Looking on price movements around roll-over dates it seems that they are using following routine.
     
    They don’t roll as one transaction.
    Rather they pump, then sell front month, then drop it for rollover difference and at this point buy next month.  The cycle takes 1.5-3 hours.
     
    Taking into account that average vol /CL is 250,000-300,000K contracts a day – rolling over this way is pretty doable
     

  69. Pharmboy

    So, manufacturing still horrible, jobs suck (did you see the revision of last week in the numbers?), imports are horrible, and foreclosures up 33% m/m b’c banks NEED to start moving things off the books.  Mainstream media says Greece is going to be fixed, Merckel says no to EU bonds.  Tell me this is what a market needs to go up?  I will just click my heels thrice……

  70. jcaesar

    exec – I’ve seen JRW say a couple time he uses a crystal ball to determine his pivot points.  Has he ever actually responded to the question with any details?  I know you follow his approach so I thought I’d ask.  TIA

  71. jromeha

    St Jeanluc – definitely the future of warfare. I actually took the test and prepared my application for becoming a UAV operator but was selected for a free Grad program so pursued that instead.

  72. Phil

    M’kay JRW!  

    FAS/Dano – Well, you know what they say:  .425 in the hand is worth .85 in the bush, especially when it essentially makes your spread free.  I would take it off because you never know what will happen and, if we do go lower, then you can make a new sale at .76 and still make more money than if you left it and, if it doesn’t go lower, you make $1 – what’s wrong with that?  

    Oil/Lol – They are doing a great job of keeping it together so far.  We’ll have to see.  

    OK, have to go to my meeting now – see you guys around 2.  

  73. David Ristau

    Phil -

    Do you think BBY is a good short at these levels?

  74. David Ristau

    All -

    Do you think BBY is a good short at these levels?

  75. matt1966

    Phil / What I’m trying to accomplish:  In the mornings, I have about 45 minutes from the point I shower until I need to get out of the door to slug it during my commute.  Along the way, I have to help wrassle 3 young boys to breakfast, teeth and out the door so I can drop each one of them off at their respective holding places.  That leaves me all of 15 minutes to set up my algo to run for the day.  So, for me, it has to be simple to set up.  Secondly, I may be able to spot some short term technical opportunities but I’m no fundie.  I’m also terrible at execution.  So for me, program trading needs only to react to technical opportunities.  It inherently executes flawlessly.  Now, if I were your level of a trader, I agree, there is no way I could impart that kind of knowledge into an algo.  Especially when you consider all the complicated option plays you get involved in.  Now THAT would be a headache to figure out programmatically~   So for me, if I keep chipping away at it, I will be able to tweak my little Algorasm to the point where it returns positive better then 85% of the time all the while I’m busy at work.  Who knows.. if I really get it.. I may not have to work for someone else anymore but rather for my self.  I’ve got several other programs (non-trading) that I would like to develop and sell.  Now that would be something! 

  76. matt1966

    JRW, Knight’s chart looks like the dreaded Head And Shoulder Growing a Shoulder pattern!

  77. Anonymous

     Phil
    You mentioned several times that there seems to be a connection between bad news / market sell-offs and large sale of US bonds. How can one find dates when such large sales are planned as a target for market down turn?

  78. craigzooka

     @matt1966,  Are you going to be able to make it to Vegas?  I would love to talk shop about trading algorithms with you. 

  79. jmm1951

    David/BBY
     
    Best Buy Needs to Tune Out the Haters
    http://stocks.investopedia.com/stock-analysis/2011/Best-Buy-Needs-To-Tune-Out-The-Haters-BBY-HGG-RSH-WMT-COST-GME-AAPL0915.aspx?partner=YahooSA#axzz1Y2iaT7c8
     
    Big box stores are having a hard time in general. Although it is never said about BBY, I think the dire state of the new housing market cannot help, as Best Buy does sell refrigerators, washing machines, cooking rangers, vacuum clearner, and toasters as well as iPhones, laptops, and TVs. Perhaps if AAPL could come out with a line of microwave ovens or a food processor?
    The argument is always that BBY is the showroom for Amazon, and there is obviously something in that. Personally I find BBY rather uninspiring considering the size of their stores. For example in a branch in a major university city (Gainesville), they did not carry any of the best-of-breed Chinese electronic dictionaries, or more recently their selection of netbook computers was pathetic when I wanted to replace one that my wife’s dog had been chewing on. How can I order from Amazon without seeing the thing first?
     
    On the other hand, it would not be a great surprise if the favorable tax climate for Amazon gets changed by Congress one of these days, making the Supreme Court, which is clearly long AMZN, redundant. It is noticeable that in Canada and the UK Amazon deducts sales taxes and VAT without even a whimper of: "Oh, we don’t know how to do that. It is too hard for us!"
     
    But I would have thought there were better shorts than BBY.

  80. pentaxon

    Who wouldn’t go nuts watching fox all day?
    http://www.zerohedge.com/news/ubs-rogue-trader-had-been-reduced-watching-fox-news-guidance

  81. lolobear

    Phil – what’s your take on RIMM?? Bad earnings….

  82. myshortpencil

    I like an Iron Condor on Apple for the Sept. 23 weeklies, for a credit of 2.28.  Buy the 410 call and the 385 put and sell the 405 call and the 390 put.  The risk/reward is about 1 to 1.  Apple is trading at $392.50.  Break even on the trade is $387.72 and 407.28.  This trade presupposes there will be a neutral to moderate upward bias in the market next week.

  83. stjeanluc

    This is why I think Intel will still dominate the field in the future:
    http://www.engadget.com/2011/09/15/intel-reveals-claremont-near-threshold-voltage-processor-othe/
    It’s interesting to see that companies like Intel and IBM don’t get props like Apple. Sure, Apple makes a ton of money and has great products. But they are mainly consumer entertainment products as IBM for example spends a lot of money on R&D that has much larger implications for the "human race" – they also make money with more mundane tasks. So, yes Apple will keep on making a lot of money but IBM and Intel will probably keep on finding solutions to make our life better even though it will not be visible to the average citizen. 

  84. Pharmboy

    I just did the SPY 123 Calls, next weeks sale, with buy of the Quarterlies for 59c.  Looks like they want to break this out to the up side, but volume is pathetic.

  85. stjeanluc

    Pharm – Lots of resistance between 121.50 and 122.50 so might be OK…. 

  86. Pharmboy

    yep……that is the plan anyway.  If one is still in the 120s, buy them back now.

  87. mrmocha

    Jeepers, looks like I picked the wrong week to be short!

  88. jerconn

    Pharm – why are you negative on DNDN?  Is it their science, or because there is competition creeping up on them in the form of better drugs for the same disease?  Purely from a business perspective, I would have thought they are expected to execute and will do so, starting to sell more and more Provenge…

  89. Pharmboy

    Business model is my basis.  Getting a manufacturing site up to speed with  the infrastructure needed is key for them, and it is VERY labor intensive.  JNJ, MDVN (yuck), and others are also catching up, so I don’t see their technology being the be all end all, therefore it will be hard for them to be profitable.

  90. Pharmboy

    PCLN, CMG down.  hummm…….

  91. cwan120

    Phil,
    I bought BIDU Jan $61 puts and CMG Dec $200 puts in your Long Put List as hedges.  They are now less than 2/3 of entry prices.  Do you think I should close them out?
    As hedges, I don’t mind losing money on them.  But I am thinking those puts expire in 3-4 months, a lot of time to wait for BIDU and CMG to go down.  But, on the other hand, do they ever go down??  I seem to hear FU from Jabob and others at least once a day. :)

  92. thatway

    matt1966 : out of curiousity which api, language, platform are you doing this in?   How do execute with TOS?

  93. hoss18

     Phil…..although I love the look of my portfolio this week, having scaled back my shorts, I feel its time to begin re-hedging.  Looking at intermediate term hedge like:
     
    Buying TZA Jan 12 40/50 BCS $2.20
    Selling T Jan 12 27.5 P $1.56
     
    Giving me a $10.00 spread for $0.64 with the worst case being put to of T at $26.63 and adding 1X to my existing position(which carries $23.75 basis).

  94. kurtww

     thatway – he’s using a self-written Java app that uses Interactive Brokers’ API (correct me if I’m wrong). Matt, are you going to Vegas? I’d love to talk to you about it also. 

  95. hoss18

     My thinking is, if this is just a bear market rally re-tracing 38.2% of the original drop, and we don’t hold the RUT 700, we could be looking at another sizeable drop, possibly another 10-20% mirroring the initial plunge from August.  This would send TZA well over 50…and give me another nice entry in T with a little cash to play with.
     
    If it doesn’t pan out, then the insurance policy does it’s job for not a whole lot of up front….thoughts?

  96. GSsucks

    Pharm-  What is your take on IGXT? From my [limited] research their 11/13 date with the FDA has a very high possibility of approval.  What kind of upside would expect if they got approved?

    Also, if possible, could you write a detailed description of your Calendar money strategy and perhaps file it under the "strategy" tab or another tab?  I think a lot of folks could benefit from it….and more importantly, you won’t have to explain the strategy to a different person every other day :) .

  97. Phil

    Wow – Up and up since I left!  

  98. pentaxon

    It worries me somehow that my indicator is turning down again on medium term.
    http://www.pentaxon.com/psw/viyindicator.html
    I would expect a sort of QE like year end run up like last year. But maybe it is too early for QExx as the effects would vanish until the presidential elections?

  99. lolobear

    And b/c NFLX is 90% institutionally owned, is there a chance this thing takes a bounce in the upcoming weeks?

  100. jcaesar

    pentaxon – Can you remind me what VIY is?  Also, how do you get the data?

  101. Pharmboy

    IGXT – well, I call them a poor mans DEPO.  Wellbutrin is a horrible drug, and there are plenty of other SSRI/generic drugs for depression.  I am not a fan of repurposing drugs unless there is a real reason for it to be done.  For WB…..not interested.

     

    I will work on something for the calendars for SPY and USO.

  102. Phil

    Dollar back at 76.76 is a big help – even GMCR cheered up but not NFLX – down 18% on the day.

    Nicely over our 71 goal on IWM – looking good all around.  

    BBY/David – No, I would not short them into holiday shopping season .  

    Chipping/Matt – That’s the right attitude, find a niche that works for you. 

    RIMM/Lol – Hard for them to disappoint (low expectations) but guidance on new machines will be a big issue.  I wouldn’t bet them up but we did bet them not to go down below $27.50 (10% lower).  

    AAPL/Myshort – That’s a good way to play the weeklies but watch out for earnings rumors as it’s a very tight range for a stock that goes up and down 2% a day.  

    Recognition/StJ – It takes a little of both.  Someone has to put tech in people’s hands but, as you know, I’m a very big fan of R&D.  

    Short/Mr. M – Actually you may have single-handedly turned the markets around!  8)

    DNDN/Jercon – When your business model is selling something that costs $30,000 per dose, you are probably going to run into a spot of trouble.   I think they need 3 doses per patient so about $90K for the treatment but it does buy an average of 4 months of life so there will be people willing to pay – even if the insurance companies aren’t too wild about it.  

    Long puts/Cwan – I think you might want to make sure we hold up for the weekend as long as you planned them as insurance and you are otherwise happy with your long-term gains.  BIDU may be a good one to drop out of as they are spinning off their travel site so new information that gives them a little credibility for moving up.  CMG is just ridiculous but don’t forget that these puts were more about picking stocks that won’t go UP too much, not ones that were inherently weak.  The idea is that IF we have a MASSIVE collapse, THEN these stocks will fall with the rest but, otherwise, they will never get near those strikes no matter how much time you give them. 

    TZA/Hoss – I certainly like it!  Very good spread except T is cutting it close to the bone (5%) vs needing an 8% drop in the RUT to get to $50 but, of course, T is a great stock so if you really want to own it it, it all great.  

    QE/Pentax – The trick is to announce it in Sept to begin in Dec – that gives them more bang for the buck. 

    NFLX/Lol – I would stay far away.  We got the drop we expected and I wouldn’t be shocked to see them go lower but now they are a dangerous bet in either direction.  

    VXX $42.60 – this week is turning out perfect!  TLT coming down nicely too.  

  103. amatta

    Phil, 
    I had some of the usual fuc#@ps! from Schwab while trying to setup my disaster hedge before I left for my vacation (the play recommended 80 Oct SQQQ 26/31 so now I have 22 26/31 for net $1.15 and 58 25 Oct longs for a net of $3.00 (have 58 tomorrow 25′s expiring short). So I was looking to sell the Oct 30′s for 1.50 or better in order to have the $5 spread for net $1.50 ($.15 cents higher than the original intention but with this move up I can’t get more than 1.10 it seems)…… It has been really difficult to adjust this trade as the SQQQ options are terribly illiquid.  
    What do you recommend I do with the overall trade? 
    Seems like we are pushing right into big resistance (and broke so far) on the nas at 2,600…I was hoping for a brief reprieve from the rally to be able to sell those calls but doesn’t seem we’re getting one. 
    Thanks

  104. mrmocha

    SLW - selling weeklies again here, hoping for a 38 pin.

  105. morxlntway

    Phil – what do you think of rolling the IWM sept 70s to Oct 71s for .60c?
    thanks

  106. joemayo

    Pentax
    do you thinks markets will make last wave down push to Aug lows maybe through oct before year end push?

  107. stjeanluc

    I can’t recall who it was, but someone was looking at shorting Corn 2 days ago and that has worked well – down almost 3% today or $20.00. At $50 per dollar on the futures with $2300 of margins, that’s a pretty good return for the day!

  108. Phil

    SQQQ/Amatta – So you have the Oct $25s, which are now $1.85 and that’s down from net $3 already?  I don’t even understand how you got there when we discussed the Oct $26/31 bull call spread at $1.35 just 3 days ago.  The idea was to spend as little as possible to get to a neutral position.  Now the $26 calls are $1.45 and the $31 calls are $1 so a crazy premium on the top but who cares if your longs went up 5%?  I would just cash the $1.85 and pick up the $21/24 bull call spread at $1.20 so that’s .60 back in your pocket plus whatever you made on the short Sept calls and that’s that – get back to plan and leave them alone!  You are NOT supposed to turn those spreads into trades as the bid/ask spreads are too wide and they will chew you to death – the idea was to lock down your positions 500 Dow points ago so you wouldn’t have to worry.  Now the Dow can drop 500 points and you’re back to where you are so you don’t even need as much insurance, do you?  

    IWM/Morx – So you want to roll them ($1.35) to the Oct $71s why?  Are you trying to lock in the gain on the spread?   If so, I’d roll to the next week $73 calls at .86 and take .59 OFF the table and hopefully the $71s expire worthless tomorrow and then you keep .59 plus whatever is left on the next week $73s BUT – if they gain another .65 tomorrow, you will not be a happy camper as you’ll end up rolling to the caller to the next week $74s and all you will accomplish is walking away from a great profit and possibly getting wiped out next week on a dip.  Bottom line is, when you buy a spread, you are stuck with the spread so don’t go changing your mind about the target every time the stock wiggles…

    Corn/StJ – Turns out cows eat more corn than cars and high beef prices have lowered demand.  

    Go FAS!  

  109. mrmocha

    If you want cheap disaster insurance for a ‘no QE3′ event next week, I got the SDS 25/27 spread for .15.

  110. Phil

    Totally squeezy triangle pattern thing on oil today.  

    SDS/MrM – That is cheap!  

    Volume is dreck on the Dow at 115M at 3:52 but we are holding up very nicely so no complaints.  We just have to stick with our plan and raise our level expectations each day but still no reason to go bearish or even neutral yet in day 3 of up and up movements.  At this point I’m pretty surprised FXI can’t get it going but they are up about 3% in two days – just seems like they aren’t making a good effort.  

  111. stjeanluc

    FAS – We really got hosed on these weekly puts this morning. Looks like bots pushing it just to catch our stops! It’s been relentlessly down since then! 

  112. stjeanluc

    Oil / Phil – That $90 line has been a pretty good shorting point these last 3 days! 

  113. Phil

    Strong finish – very exciting week and totally going our way – we only regret the hedges.  

    FAS/StJ – I’ll take it considering how hurting we were a few days ago!  Thank goodness we didn’t cover the calls – over  $14 now!  

    Dow finished at 172M so 57M in the last 8 minutes.  Futures keep going up tomorrow will be interesting and RIMM earnings soon.   

    Oil/StJ – Very reliable which means look out if they take it out (for more than a few minutes).  Oct barrel count dropped from 130M to only 124M in the last day and that means the traders aren’t willing to sell under $90 but if we turn down, they will be bailing hard.  

    Click for
    Chart
    Current Session Prior Day Opt’s
    Open High Low Last Time Set Chg Vol Set Op Int
    Oct’11 88.60 90.15 88.01 89.26 15:54
    Sep 15
    89.40
    0.49 255956 88.91 124033 Call Put
    Nov’11 88.65 90.29 88.14 89.45 15:54
    Sep 15
    89.59
    0.58 133909 89.01 282087 Call Put
    Dec’11 88.91 90.45 88.34 89.71 15:54
    Sep 15
    89.81
    0.65 76409 89.16 196955 Call Put
    Jan’12 89.34 90.63 88.60 89.97 15:54
    Sep 15
    90.03
    0.67 24065 89.36 96532 Call Put

    Look at this mess – almost 600,000 barrels in front 3 months and in next 3 month combo already.  That’s TERRIBLE and 100,000 barrels have to roll out over the next 3 days and they’ll be looking at almost 700,000 contracts in Nov/Dec/Jan – I don’t know if I’ve ever seen more than 650,000 in a 3-month group!  

  114. jerconn

    Phil – pls explain "totally squeezy triangle thing" on oil – I know it’s TA, but bearish or bullish?

  115. stjeanluc

    Hard to believe, but 40 years ago we had over 30 railroad companies:
    http://www.ritholtz.com/blog/wp-content/uploads/2011/09/rail_mergers.gif
    Now, just 4…  These guys are worse than the banks!
    I want to use your husband graphic Phil to show the trend. In 40 years we’ll have one bank, one railroad company, one phone company, one airline, one computer maker and they will still call it capitalism and complain about government regulations! 

  116. exec

    Matt,
     
    I was wondering the same thing.  How does your program interface with your trading platform?

  117. stjeanluc

    RIMM doesn’t fail to disappoint so far! Down $3.00 AH 

  118. exec

    I’m starting to think this is the beginning of a long rally.  It would be typical given everyone’s expectations that September is usually a bad month.
     
    You have to expect the unexpected anymore.

  119. lolobear

    RIMM down $4.50 now… Damn it – i bought the puts and then sold it before the close. 

  120. BertII

    RIMM sucks made 1000 today but had 400 shares of rimm with covered calls but only got 2 for the calls wiped out all my hard work for the last 2 days

  121. BertII

    At the rate they’re going down after hours they’ll be back to 21 before the market opens tomm

  122. matt1966

    craigzooka, I haven’t ‘earned’ enough trading to justify the expense.  As I coding I had fantasies that I would start banking $500-$1500 a day and then I could justify it.. even though it will take many days of those kind of returns to get me back to my 3/9/09 level!
     
    thatway / exec:  I use the java api provided by interactive brokers.  Another nice thing about it is I typically pay only $3.20 – $5.60 per trade (etf, not option) when using it.

  123. rpme

    You would think that having RIMM covered to 23.39 would be sufficient, it does not appear so.

  124. Burrben

     Phil / FAS Income Port trade
    Hoping I could get a little more insight why the FAS trade is going into the income port.  It seems from the trade that you believe FAS will hopefully go higher in the future, but if it declines we have collected some premium to offset a decline.
     
    It seems to me like FAS is like a racehorse and to play it properly, you need to stay on top of it everyday.  Before I put this trade into my port, just hoping for a little clarity.
    Thanks – Burr

  125. rustle123

    3?  Down 5.50 ah

  126. elliotteldrich

    Today’s levels.

  127. Phil

    Holy cow, RIMM got executed!  Punished mainly for gross margin drop which was due to heavy R&D spending trying to catch up to AAPL.  At least it’s not hurting the Nas futures but geez – down 20%!  

    Research In Motion (RIMM): FQ2 EPS of $0.80 misses by $0.07. Revenue of $4.17B (-10% Y/Y) misses by $300M. Company expects FQ3 revenue of $5.3B-$5.6B and EPS of $1.20-$1.40, compared with consensus of $5.27B and $1.36. Expects FY12 EPS at low end of prior range of $5.25-$6.00, but above $5.10 consensus. RIMM -10.5% AH. (PR)

    Though Research In Motion (RIMM) is down 18% AH after a weak FQ2 report, execs tried their best during RIM’s CC to give a positive spin, claiming strong uptake for the latest BlackBerrys, and expressing confidence in the PlayBook’s future. But it’s hard to spin RIM’s declining gross margin: it fell 5.2% Q/Q in FQ2, and is expected to fall another 2% in FQ3.

    Keep in mind we are still talking about $4-5 of earnings per $24 share per year.  So I still like them and we’ll do a roll to 2x something tomorrow as this is a bit silly.  

    Squeezy Triangle Thing/Jercon – I know you may have been fooled by my brilliant use of the technical terminology but I am so not a TA guy.  I do know it means you could move violently up or down at the end of the triangle but I couldn’t tell you which way is more likely.  

    There can be only one/StJ – We had this problem once, it happened in the 20s and then the entire economy imploded and it finally occurred to people that monopolies were not good things (but the IPad version of the board game is great!).  Unfortunately, Ronald Reagan sprinkled his fairy dust on American and everyone forgot all about why we had all those rules against monopolies and, just 30 years later, we’re pretty much back to where we were in the 20s again.  

    FAS/Burr – In the context of our Income Portfolio, it’s a $500,000 portfolio that’s very far ahead of schedule for the year and I don’t consider the risk of owning 2,000 shares of FAS at net $11.23 in October to be a bad use of funds as they were at $13.30 in the morning when I picked the play so a 15% drop before it’s a loss (5% on XLF) and the April $14 calls (in-line with current price) can be sold for $5.70 so figure we get at least $4 for the $12s if the stock is put to us at $11.23 and that drops our net to $7.23 on 2,000 shares ($14,460) without even selling a put as an initial entry on a $50,000 allocation.  Meanwhile, that’s the worst case.  The best case is we make $3,540 if FAS is at $14 or higher in 36 days, which is almost an entire month’s income goal.  

    If you are a technical trader who believes stocks have no actual value, then I’m not going to try to convince you that Financials are ridiculously cheap other than to point out that Financials earn 1/3 of all the Corporate Income in the US yet they are valued at less than 15% of the S&P.  You say it’s like a racehorse but I’m not betting on FAS to win the race, I’m just betting they make it around the track without dropping dead…  Of course, if the trade makes you nervous – DON’T TRADE IT!  We find trades every single day, there’s no reason to ever try one you aren’t 100% comfortable with.  

    My logic this morning that prompted me to put it in the Income Portfolio was that EU banks were moving up 10% and a 5% bump in XLF would send FAS up 15% to $15, which was my fundamental target anyway so that confirmation and the fact that the entire G7 is now backing Europe has a very good chance of buying us a bump in the financials for at least a month and, if not, it certainly should take a collapse off the table for 36 days which makes this a risk of just $460 if FAS holds $11 (and, of course, we can roll the puts too).  

    Big Chart – Nas holding up in futures despite RIMM fiasco.  Now the Nas is miles ahead of the RUT, almost 10% so if we have an up day tomorrow, TNA is going to be a good move, as would be DIA longs.  

  128. angelcur

    crazy good day huh?…we made a high above a previous high on several indices today..so i think we get to 1240 this run and then we will see whether we get smacked back to 1100..i kind of doubt it now that reaser head (geithner) is involved with ‘consulting’ with the ecbs on dollar liquidity operations you can bet that it will become a clusterfuck at some point..HOWEVAH MR  GAMBINNI…THE MARKET LOVED IT TODAY!!

  129. angelcur

    ERASER HEAD*

  130. wappler

    Phil,
    I wanted to take a moment to say thank you for the ongoing education that you offer, especially your constant reminders not to be  greedy.
    Case in point: On 8/25 you pointed out that the premium on the RIMM 26 puts seemed very high (now we know why) and I decided to sell a bunch of them.  With earnings AH today I had two options: Cash in (55% up) or bet the farm that RIMM would stay above 26 till expiration.  Remembering your mantra ‘Don’t be greedy’ I decided to cash out half an hour before the close.  Thanks again!

  131. pstas

    Economists Raise Recession Odds, Doubt Fed Can Help
     
    "It feels like a recessionary environment. What they call it later on I can’t tell you," says Bart van Ark, chief economist of the Conference Board, who put the odds of recession at 45%. Since 1988, every time the Conference Board’s estimate of the probability of recession topped 40%, a downturn followed shortly thereafter. "The consumer has never really thought that we got out of the recession," he adds.
    http://online.wsj.com/article/SB10001424053111904491704576572783783137882.html?mod=WSJ_WSJ_US_News_5

  132. pstas

    Thhttp://www.bloomberg.com/news/2011-09-13/the-risks-lurking-in-treasury-bonds.htmle
    Risks Lurking in "Safe Haven" Treasury Bonds
    While no one expects a big jump in inflation in the near term, "I see the likelihood of an inflationary shock as a high probability," says Thomas Atteberry, manager of the FPA New Income Fund, which has never had a losing year since its 1984 inception. Atteberry expects inflation to pick up in the next three to five years.
    It could come as an unpleasant surprise, as in 1974 when OPEC flexed its muscle and U.S. inflation topped 12 percent. It can also happen as a result of war. After Iraq invaded Kuwait, consumer prices rose at more than a 6 percent rate in the fall of 1990. Inflation also rises in less traumatic periods: It blipped above a 4 percent annual rate in the spring of 2006 and above 5 percent during the summer of 2008.
    Add to that inflation rate an additional ‘real rate’ of interest, which investors typically demand, and you could be looking at 6 percent Treasury rates.

  133. Burrben

    Phil / FAS
    Mucho’s Gracis on the FAS explanation.  I think the logic makes very good sense, and I will try to put on a similar trade with tomorrows prices.  
    I’m going through the list of 8 "new to me" income portfolio trades, from RRD through FAS, tomorrow and also trying to see if they fit the current market.
    Thanks for everything!!!  Burr

  134. jmm1951

    Angel/Geitner
    I think it is worth remembering that probably most of what is released to the press is just political theater for public consumption. Do not doubt that in spite of a few hours of time zone difference Geitner and his people are probably communicating and negotiating with and/or threatening hell fire with European leaders behind the scenes in video conferences every minute of the day. It is not like he walks into a meeting of Euro finance ministers and says "Bonjour, mes amis, listen up guys, I was talking to Barry O. last night and we  have some great ideas on how to fix this shit!"

  135. angelcur

    jmm1951 please believe that i don’t think geithner can effect any level of input as a catalyst for any constructive change…quite the opposite his participation in the monumental gaffe of allowing lehman to go belly up may have won him a post in treasury… it underscores how easily paulson manipulated him… i am sure that the ever flatulant count tricchet sneers every time tim enters a room and arches a condescending eyebrow whenever he utters a word…can you imagine being selected for that post based on your credentials as a malleable intellectual lightweight ?…is it any wonder the president is in such trouble with children like this

  136. Phil

    Crazy/Angel – Don’t get too excited yet, we’re still in the channel that’s rising up but we’ll need some good evidence that we’ve broken out of it.  Here’s the big chart with lines drawn in:

    So we have not broken up until we see these rising channels broken and any sign of rejection on the Nas at 2,650 should be taken very seriously.  That means the Nas must hold their Must Hold line today but the good news is those -5% lines on the Dow, S&P and Nas should be excellent support now as will be the 10% lines on the NYSE and RUT.  That also means that any disappointment at those levels will also be a very bad sign.  

    Don’t forget our plan was to be nice and bullish but to keep pushing our expectations up to tightly follow the market.  At this point, I’d rather get back to cash (stopping the short-term bull side out on a pullback) than risk a 5% pullback on the next round of bad news.  Earnings are right around the corner and we saw what happened to RIMM on a poor report!  

  137. Phil

    You’re welcome Wappler!  I wish I had not been greedy in the $25KP, where we were short 20 RIMM $26 puts.  Silly me, at $30, I did not think a 20% drop was in the cards and they went from .35 this morning (up $1,500) to $3 this evening (down $4,000) – that really sucks!  Had I been watching more closely, they were an obvious stop-out as they zoomed up to .75 at the end of the day and that’s why we have rules for these things.  

    Important note to $25KP players – I cannot watch everything, it is VERY important to follow general trading rules unless we are specifically going for something.  This afternoon I was out and those RIMM puts shot up and I missed it when I came back from my lunch meeting.  Still, I certainly should not have to tell people that a short put that goes from .35 to .75 on earnings day should, at some point, be stopped out – especially when it was sold for $1.14.

    Meanwhile, RIMM is in a product rollover cycle and have spent a ton of money on R&D so I don’t hate them but they may get further downgraded and revisit $21 so we’ll have to handle with care going forward but I still think $25-$27.50 is about right for them. 

    Recession/Pstas – Yes but I’d put a little weight on the political BS and the relentless negativity in the media and the EU crisis blowing things out of proportion and guess that at least 10% of those people who lack confidence are driven by media influences.  That has not been true in other recessions.  Of course, look what paper it is banging the gloom drum!  Phil Izzo (the author of this article) writes A LOT of gloomy pieces for Mr. Murdoch.  Also, I don’t know where 40% is coming from when their own charts say 29%:

    Economy

    6%/Pstas – That’s what I’ve been expecting for ages (or at least 4%) but it never happens.  Who knew extend and pretend could go on this long?

    FAS/Burr – Be very careful chasing into a low VIX.  If the market drops and the VIX goes up, those trades can really burn you fast!  Patience is key – if you miss something, something else will come along if you wait.  Especially with earnings season right around the corner.  

    Geithner/Angel – I met with the guy and he’s surprisingly bright, very affable but not at all politically savvy.  Hopefully he’s learning but don’t sell him short because, from the EU perspective, he’s the guy (with Ben) that stopped the US from going down the tubes and had enough left over to save Europe’s asses as well – no one is sneering at him when he walks into a room at the G7.  Don’t let the hate-fest that passes for political analysis in this country make you think the rest of the World is this petty.  When Geithner was appointed Secy of Treasury, the market jammed up 500 points – that was Wall Street’s opinion of him at the time.  Now that he hasn’t proven as banker-friendly as they had hoped, he’s considered incompetent….

  138. Phil

    Income Portfolio – I will update the post this weekend (hopefully) but it’s very boring as we didn’t do anything short-term other than roll the IYR short puts ($55), which are almost certain to expire worthless and the DIA short puts ($115), which will expire worthless if we are lucky but we’ll watch that one closely in the morning as it would be nice to get naked on our DIA March puts over the weekend if it doesn’t cost us anything to do so!  

  139. Phil

    Oh look at that, 3am already!  

    I was just getting ready to go to bed and now I have to see what Europe opens like….   

    You can tell the markets are getting exciting again when I’m up late at my computer.  

    Not much news – I think everyone is exhausted from this week already.  Dollar right on the 77 line, Euro $1.384, Pound $%1.578 and 76.8 Yen to the Buck.  EUR/CHF is $1.206 so still a bit high for the SNB’s comfort.

    Gold is $1,768, silver $39.52 (Ka-ching on AGQ!), copper $3.96, oil $89.44, gasoline $2.79 and nat gas $3.87.  

    The Hang Seng is up 1.5% but that’s down half a point since lunch, the Shanghai is flat but sucking after being rejected at 2,500 and knocked back to 2,480 but the Nikkei is very happy and up 2.25% to 8,864 and the BSE is up half a point and testing 17,000, which would be a nice move back up.   Financials doing well in Asia this morning and Sony unveiled their IPad Killer.  

    The EU is on the top of a 5% run since Tuesday morning so a 1% pullback is expected – especially with some profit-taking into the weekend.  We’ll have to see how much of a game-changer the latest bailout is but there’s poor August Retail Data in the UK and the EC cut growth forecasts (but still growth!) to 0.2% in Q3 and 0.1% in Q4 so they have lots of reasons to sell off this morning.   

    If the S&P (/ES) fails 1,200 in the futures, that’s a good line to short off.  Dow (/YM) 11,350 should match up with it along with RUT (/TF) 710 so 2 of 3 below means time to short the 3rd until they go back over (tight stops of course).  

    Hopefully, that won’t be necessary as Europe is zooming at the open, still led by bank stocks up 1% in first 10 minutes so I can go to bed happy and you can also play the Futures long over those same lines with the same 3 of 5 rule and the same tight stops if you are bored (or greedy).  

  140. pstas


    Negative media-
    "That has not been true in other recessions."
    Hardly. It would  come from different sources if the other side were in charge.

  141. amatta

    Phil, 
    RE your response--SQQQ/Amatta – So you have the Oct $25s, which are now $1.85 and that’s down from net $3 already?  I don’t even understand how you got there when we discussed the Oct $26/31 bull call spread at $1.35 just 3 days ago.  The idea was to spend as little as possible to get to a neutral position.  Now the $26 calls are $1.45 and the $31 calls are $1 so a crazy premium on the top but who cares if your longs went up 5%?  I would just cash the $1.85 and pick up the $21/24 bull call spread at $1.20 so that’s .60 back in your pocket plus whatever you made on the short Sept calls and that’s that – get back to plan and leave them alone!  You are NOT supposed to turn those spreads into trades as the bid/ask spreads are too wide and they will chew you to death – the idea was to lock down your positions 500 Dow points ago so you wouldn’t have to worry.  Now the Dow can drop 500 points and you’re back to where you are so you don’t even need as much insurance, do you?  
    I got to the 25/30′s as I mentioned I made a mistake on the expiration dates and then had to roll to try to fix it (I had been filled only on 22 out of the 80 intended of the 26/31 at 1.35 and next day trying to get a fill for the remaining 58, I made a mistake compounded by Schwab’s willingness to screw their clients so in the end I had to roll those 58 to the Oct 25/’s for net $3.00 (already taking into account having today’s 25′s expiring). 
    The bid/ask is 1.15 by 1.85 on the Oct 25′s I am long, so I can’t get 1.85, at best 1.50 (so a $9,000 loss there). Then on the reminding 22 I can get back around .45 net (get 1.45 for the 26′s and buy back the 31′s for $1). (So a $2,000 loss). 
    Then you suggest getting into the Oct 21/24 for net $1.20 (so basically risking the $10K I’ll get back to make $14,000)… That would take a 2.5% retreat on the RUT by Oct to make a net profit of $3.400. 
    Seems like a good way to try to make back the loss. However since the original plan was to have cheap protection in case we come down hard while I am traveling, I don’t know if this would be the best bet. Unless you think we are over the hump and will at least hold 11K on the dow.  BTW I am not sure I follow "Now the Dow can drop 500 points and you’re back to where you are so you don’t even need as much insurance, do you?"  
    Thank you for your clarification.
     

  142. jmm1951

    Angel/Geitner
     
    It seems to me that Trichet and Geitner have similar backgrounds and would gel well. Geitner’s father knew Obama’s mother in Indonesia, so it is reasonable to assume that he and the President are close too. They may even have been childhood playmates.
     
    http://philanthropy.com/blogs/government-and-politics/ford-foundation-links-parents-of-obamatreasury-secretary-nominee/10851

  143. Phil

    Good morning! 

    SQQQ/Amatta – The last sale on the SQQQ Oct $26 calls was $1.60 yesterday at 3:30, hopefully this morning you can do a bit better on a pullback.  Again, this is insurance and you say $9,000 loss but you told me the whole purpose of this was you were making and losing $8,000 per 100 Dow points so there should be an offsetting $40,000 gain on the 500-point up move and, if that is not the case, then you are grossly over-covered..  Assuming your premise was correct, then you lost 25% of your upside on the insurance, which is what you expected so forget the loss and trying to make it back, now it’s a question of putting what you have left of your insurance ($10,000), in a position to protect you going forward.  The Oct $21/24 spread is now $1 and $10,000 buys 100 contracts which pay $30,000 (a $20,000 gain) if SQQQ gains less than 10% (less than 5% drop on the Nas).  5% is $40,000 for your longs so you are mitigating 1/2 the drop on the way down but you JUST MADE net $31,000 on a 5% rise so that gain, in itself, is now your protection back to where you were went you initiated the coverage.  

    It’s very easy to add more protection, for $5,000 (.50 per contract), you can roll 100 SQQQ $21 contracts down to the $20s or for $3,500 (.35) you can roll 100 SQQQ callers $24 contract up to the $25s – you need to decide what level of protection you feel the need to PAY FOR – that’s PAY FOR as it is insurance and you WILL LOSE IT when the market goes up so make damned sure you calculated your gains and losses on a 5% move – as we just had one, it should be easy.  Then just make sure you are not over-covered but, as I said a few days ago – if you are not confident there is not shame in going to cash – or at least more cash as you just got a nice, obviously unexpected by you gain in your positions and we’re heading into earnings season which could go 10% either way – especially as we are now back in the center of our range.

  144. barfinger

    In an ideal setup, I believe you would build and maintain a portfolio that was completely indifferent to market direction, and the income you earn comes from the fact that you have sold premium on both sides. I don’t think in terms of "covering", and I am not substantially a holder of stock. As the VIX rises, such a portfolio APPEARS to be losing money, as the VIX falls, it outperforms on paper.

  145. jmm1951

    barfinger/VIX
     
    I’m glad you posted that, as that is pretty much what I am trying to achieve with my portfolio. Although adequately hedged with SPY put spreads, I have been alarmed by some substantial "unexplained" moves to the downside in my portfolio totals on down days, without commensurate moves in the other direction on up days.
     
    At some point it suddenly clicked with me that the portfolio was moving more in line with the VIX than the SPX, so I relaxed even though some short put spreads showing up as in increasingly negative territory, even though the stock remained above the level of the short puts.
     
    Another thing I noticed was this: I had experimented with "parking" cash in a long LEAP call/put combo (IBM 2013 $85 call and $270 put), then realized after a couple of weeks that maybe this wasn’t so smart, but I was unexpectedly able to close the position for a very slight profit. It made me wonder if buying these very high delta, low theta call/put combos at times of very low VIX might not be a reasonable alternative to cash in a money market account, as they would have some hedging value in a time of market uncertainty, and might be returned to cash at some kind of profit that would exceed money market rates (which are virtually zero.)
     
    I have not yet been able to work out HOW MUCH profit it could make. Clearly the IBM $85/$270 combo could not be bought at LESS than $185, unless possibly you guessed right and legged in cheaper, or that would be free money for old rope, but it would be interesting to get an idea of the difference in price in such a combo when VIX is 20 and when VIX is 40. (The SPY would probably be a better vehicle than IBM due to lower spreads and greater liquidity.)

  146. amatta

    Phil, 
    Thanks for your detailed response. Well, I did make about $30K on the longs (so net $20K gain). Some of the positions are not performing as they should have on the way up. 
    BTW the SQQQ is a 3X, I think you calculated the above as a 2X. So I guess doing perhaps now only 50 of those and hedging that one (which I had thought about and would have worked very well with a TNA play)… or selling some premium on a bullish position (glad I didn’t add more to RIM as I will have to deal with that one now):
    Short 12 40 Jan Puts (Net 1.50) 
    Short 15 32.50 calls net $2.50
    Short 10 Sept 25 Puts net $3.20 (I am kicking myself for not taking these out but agreed with you on not thinking they would fall more than 10% at worst)
    What rolls do you see here?
    Thanks

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