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Testy Tuesday – Too Close to Dow 13,600 to Quit Now

AAPL WEEKLY Come on bears – is that all you've got?

As noted on Dave Fry's chart (as well as yesterday's post) AAPL tested that $500 line yesterday and single-handedly took down the Nasdaq and the S&P but the .05% drop in the Nasdaq was LESS than AAPL's 0.7% drag (down 3.5% and 20% of the Nasdaq) so the net of other stocks in the index were UP, despite the fact that AAPL suppliers also took a big hit.

The President was not helpful in the afternoon, making it very clear he will not negotiate with Republican terrorists, who are threatening to destroy the good faith and credit rating the United States has spent 237 years establishing by refusing to raise the debt ceiling and, as Obama said:

"America cannot afford another debate with this Congress about whether or not they should pay the bills they've already racked up," 

That seems a simple enough concept, doesn't it?  This isn't a real crisis and the President rightly compared it to sitting down for an expensive dinner and then refusing to pay the bill – it's illegal and immoral – the GOP cannot unilaterally decide to default on our obligations.  Well, unfortunately they can.  Although they have approved the last 36 increases, only the ones under Obama have become a crisis as the Republican Congress has turned it into leverage they can use to threaten the President.  

Steve Sack - The Minneapolis Star Tribune - Debt Ceiling Threat - English - debt ceiling, debt, budget, government, politics, budget negotiationsThis tactic works because no rational person is willing to destroy this country's credit rating to make a point so the irrational jackasses who are willing to play chicken with America's credit rating are able to ransom it to the people who are moral and responsible and care about this country too much to let it be harmed.  

Obama laid out the destruction that will be wrought by Republicans if they delay this extension.  Social Security checks will halt, Veteran's Benefits will be withdrawn, Unemployment checks would stop, Government Workers won't get paid, Government Contractors won't get paid, Bondholders won't get paid, the IRS won't refund money…

Defaulting on our Bonds can cause interest rates to rise sharply and, as we've seen – Greece didn't recover so well from doing so.  We have no ECB to bail us out, we would simply default and it may be many years before our rates normalize and that in itself could be a catastrophe.  Of course, stopping Government payments also stops 20% of our GDP and that, as they say, is that for our economy as well.  Clearly this is not a good thing and the markets reacted to it yesterday with TLT shooting up 1% for the day and looking to move much higher (now 119.52) if we don't resolve this. 

Yet, so far, our markets have held up well.  It's an indication that we're sick of this nonsense from Washington and, having come off the Fiscal Cliff at the last minute just 2 weeks ago, it's hard to get all worked up about a catastrophe that's still 4 weeks away.  

As you can see on our Big Chart – yesterday's action did little to get us off track of the "Striking Cobra" pattern (see last Wednesday's post for more on this) and, as I pointed out last week – it's still "880 or Bust" on the Russell so we'll be watching that but, more importantly, we'll be waiting for our predicted lines of 13,600 on the Dow and 3,150 on the Nasdaq to be crossed, to confirm a breakout at our 5% lines

Bears are throwing everything they can at this market and it's still standing so far and, although we adjusted our bearish hedges yesterday (using TZA to play the Russell to fall, in fact) we also took advantage of the drop in AAPL to get more bullish at $500.  Another hedge we took was adding more USO Feb $34 puts at .83 as oil tested $94.50 and gave us a nice, short entry on USO and in the Futures (/CL).  

Tesla Model X SUV handson videoWe also had a great trade idea in Member Chat to give ourselves a free Tesla Model S (or, even better, the new SUV) by using the stock to pay for the lease ($600/month) and hopefully get enough to pay off the car $60,000 down the line:

TSLA – You can pay yourself $600 a month to cover a lease by buying the 50 of the 2015 $30/42 bull call spread for $5 ($25,000) and selling 25 of the $23 puts for $5.30 ($13,250) for net $11,750 and then you can sell the 25 of the March $34 calls for $1.80 ($4,500) to cover your deposit and first few lease payments.  The upside at $42 in Jan 2015 is $60,000 – enough for a new Model-S but hopefully we can pay to lease one sooner than 2015.  Let's do this set in the Income Portfolio as it will be fun to track.

Maybe it was our fault but TSLA has already popped 3% since yesterday but, of course, our target is $42 – so we still have a long way to grow.  While TSLA is not our "One Trade" for 2013, it's a very good one.  I'll be on BNN at 3pm today to announce our One Trade for 2013 and, hopefully, to stir up some other trouble!  Actually, there's a lot of pressure in this appearance as last year we picked BAC, on the show, on January 17th at $6.49 (actually, I had written it up for Members on the 5th, at $5.75) and that ran up to $12 (up 85%) and up the full 56% we expected from our well-hedged entry.

I had also predicted oil would not hold $100 and today we're talking about shorting it at $94.50 so that one worked out as well, obviously, so lots of pressure to perform today and I think our two featured trades will be fun ones for this year as well.  While we are still in watch and wait mode as we get through earnings season, a combination of an improving economy and lower oil and gasoline prices could give us a very good year – as long as Congress doesn't sabotage it first!  

Daryl Cagle - CagleCartoons.com - Hopper and the Debt Ceiling Nighthawks - English - Edward Hopper,Nighthawks,debt ceiling,cafe,elephant,donkey,GOP,Republican,DemocratAccording to Seeking Alphaformerly hawkish Minneapolis Fed chief Kocherlakota stakes out his position as the most dovish of the FOMC:  He says current policy isn't easy enough and calls for the Fed to lower its unemployment rate threshold – the trigger for tighter policy – to 5.5% from 6.5%. The speech is worth the read – an insight into the thinking of PhDs who believe tweaking a "communications policy" or altering some level of reserves can guide a $16T economy to the exact point they wish it to go.

December Retail Sales came in at +0.5%, much better than 0.2% expected but the Empire State Manufacturing Index was -7.8, only a bit better than December's -8.1 and, worst of all this morning, Fitch once again warns it will formally review the US's AAA rating if the debt ceiling isn't raised.  The Futures are down and confused and we're just looking to hold our levels and keep consolidating for a breakout, but it could be a bumpy ride with all these cross-currents for the next few weeks.  

Be careful out there. 


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  1. stjeanluc

    Oil Lines

    R3 – 95.78
    R2 – 95.03
    R1 – 94.44
    PP – 93.70
    S1 – 93.10
    S2 – 92.35
    S3 – 91.76

    Yesterday's high and low – 94.29 / 92.95

  2. Burrben

    Moring!  
    Wake up, Wake up

  3. phil

    Clamcase Pro features a roomy familair iPad keyboard

  4. Pharmboy

  5. Savi

    Good Morning
    If the Tesla trade works out I will take full credit-- everyone who buys one can thank me for it—-if not who asked you to listen to Phil ;-0

  6. wombatcreative

    morning guys.
    here we go.

  7. dplatt

    Had a position from a while ago that I should have closed. AAPL 615-620 bull put spread. net credit of $2.50 on the spread. I entered it back in October. Still new here so I didn't quite understand the rolling procedure you use here Phil to manage losers. I woke up this morning to see I had been Assigned 600 shares out of the 10 contract a piece spread and now the brokerage is telling me i must liquidate today or be penalized. (No idea how much?) I figure I will sell the stock, and close out the 10 long 615 puts and the short -4 620 puts today. Any idea as to why I was assigned early though? I figured apple options were pretty liquid and didn't expect to have to deal with this? Is it just because no one else was willing to take the other side of the order for the counterparty?
     
    Thanks for all your insight and help Phil and Everyone else on here too! Looking forward to making some winning plays this new year once these losers are worked out.

  8. stjeanluc

  9. stjeanluc

  10. cturb

    These people are determined to have AAPL sub $500 until expiration. Damn!

  11. samz3700

    dplatt – with puts that far in the money – you can get assigned anytime. 

  12. Opesbridge

    The Opesbridge LP December 2012 Comment Letter has been released.  If you would like to receive a copy please write to me at Ron@Opesbridge.com.
    Ron

  13. jabobeast

    FU AAPL!!!!!

  14. stjeanluc

  15. 1020

    Good Morning!

  16. stjeanluc

  17. Burrben

    Why is AAPL at $489?  Because I sold a 420 put….like a magnet.

  18. phil

    Good morning! 

    Picture above is nicest keyboard for the IPad I've seen yet.  Essentially does the same thing as a surface now.  And what happened to Surface – that thing died faster than Zune.  

    Hopefully we get a bottom on AAPL this morning as Cramer is knocking them and Nomura cut their price target from $660 to $530 for the same old reasons:  

     "We are more cautious than sell-side forecasts for revenue and gross margin, mostly driven by our expectation that iPhone gross margins and average selling prices are unsustainably high," Jeffrey said. Nomura kept its neutral rating on Apple. Nomura hiked its first-quarter, 2013 profit target on Apple to $12.84 a share from $12.78 a share, but cut its second-quarter estimate to $11.25 a share from $11.96 a share. Nomura trimmed its first-quarter 2013 revenue estimate for Apple to $53 billion from $54.2 billion and its second-quarter revenue estimate to $44.1 billion from $46.7 billion. Nomura reduced its unit estimates for the iPhone 5 by 5% in fiscal year 2013 and 8% in fiscal year 2014. Apple's fiscal year 2013 runs from Sept. 30, 2012 through Sept. 28.

    Good article here on yesterday's manipulation of the stock but it's not recovering today – it's getting worse at $493 but that's likely the people who follow Nomura panic-selling.  

    Meanwhile, in reality land – The RUT opened down at 870 but already popped back to 874 but the Nas is heading lower and XLF failed to hold $17 and the SOX failed 400 so certainly worrying signals but I still think it's a reaction to worries that are already priced in and it's just retail suckers running away.  AAPL (down another 1.7% and completing a 5% drop in 2 days) is still dragging down the markets but the markets are fighting pretty hard to stay afloat. 

    Gold had a nice pop to $1,684 but back to $1,677 now.  Oil bottomed out at $93.65 but back to $94.05 at the moment.  Dollar up a bit at 79.69 as the Yen finally bounces a bit (lower) at 88.76 but of course 90 was going to be hard to break – as is 79.50 on the Dollar.

    The big question is – does a debt default strengthen or weaken the Dollar?  I think stronger because less Dollars in circulation and panic into the Dollar AND the fact that the US doesn't have enough Dollars to pay their bills doesn't seem like an indication of Dollar weakeness AND the Treasuries refusal to print Trillion-Dollar coins is also a plus.  So, we can expect the Dollar to rise if this nonsense continues and TLT to climb (bonds are priced in Dollars) and that's going to put some downward pressure on the markets.  

    Oops, now AAPL is down 2.5% and that's a low so we're now down 6% in two days and anything below the $490 line is very bad.  Good for my One Trade pick today as there will be very good entries – especially as the VIX is still dead at 13.89.  

    VIX

    Those weekly $520 calls are down to .75 but the next week $520 calls are $7.90 so rolling is out of the question but worth a DD in both $25KPs and absolutely we'll be thrilled to get out even ($1.80) as it simply didn't do what we thought and we'll be lucky to get a bounce now. 

  19. stjeanluc

  20. rperi

    The AAPL play from SWW of $560/$600 bull call spread selling the 2015 $270 puts for a net credit of $3.50 can now be done with the $510/$550 bull call spread selling those same $270 puts for a $3.25 credit.  Still a good play?

  21. Burrben

    Yodi / ECA
    Back down to the mid 19's.  Adding anymore stock here?  It's been a really good play for me so far.  I'm short the the month 19 puts right now.

  22. dclark41

    http://finance.yahoo.com/q/sa?s=AAPL+Star+Analysts
    The top 4 on AAPL:
    Barclays $740
    Baird $750
    Pacific Crest $645
    Jefferries $800
     
    Nomura nowhere on list says: $530
    The market listens to Nomura!

  23. newt

    AAPL/ Phil: How about selling next week $520 calls? For those who didn't go long this weeks $520's.

  24. dplatt

    Phil,
    I want to close my current position so I do not need to satisfy a margin call regarding my previous post:
    AAPL Stock 600
    Jan 2013 615 Put (10)
    Jan 2013 620 Put (-4)
     
    Please guide me through this as I know there could still be Time value in this spread and I don't want it to work against me but I also need to close this today. At least the 600 shares and I'm guessing 6 long 615 puts I have with it. 
    TIA

  25. stjeanluc

    Tough call on AAPL – there is no real technical support until the $463 lines on my charts. There should be plenty of fundamental support higher than that but apparently fundamentals don't matter much. The knives are out!

  26. albo

    Phil, while I still think selling puts on a stock trading at several hundred dollars is a losing strategy with huge risks, which requires awfully deep pockets and enormous cojones, I do think this is the final flush for AAPL. 
    The following quotes are from Paul McWilliams of FINAL INNING about yesterday's stories about AAPL :

    "First, this isn't new news – there were stories about order reductions in the market in early December. Second, I doubt orders have been reduced by 50%. Third, I don't think the reductions are fully attributable (or even mostly attributable) to a lack of market demand for the iPhone 5. Fourth, where are the stories about the surge in iPhone 4(s) iPhone demand?

    What normally happens when there is a shortage in the tech industry is customers over-order (the term "double-order" is commonly used here) in hopes that they will at least get enough to keep pace with demand. The theory in tech is it's nearly always better to have too much than have too little when it comes to consumer electronics
    While I think even the most ardent AAPL fan has to come to grips with the reality that Android has taken share (especially via Samsung), and that WP8 smartphones are building an impressive base of users, AAPL's detractors need to consider the fact the aggregate market for smartphones is expanding too. In other words, the smartphone market remains a target-rich environment. Field data suggests that AAPL has not only done well with its new iPhone 5, but also that sales of the iPhone 4(s) remain brisk as it is now offered as an entry level solution by even major U.S. carriers. Another point that I think is being overlooked is the fact AAPL negotiated market share based deals with a number of international carriers that require them to sell a specific minimum percentage of iPhone 5s relative to their aggregate smartphone sales. This fact will likely become a headline story later in the quarter."

  27. stjeanluc

    Analytical tools / Burrben (from yesterday's post) – In the past I have subscribed to Optionistics (http://www.optionistics.com/). They have some options screeners that allow you to search for some of the criterias that you mentioned. My problem is that I need more time to go through all the data that I already have… You can have a look at what they have for free but then you have a 15 day delay in the data. But that should also allow you to see if there is value there.

    I have also used an application called OptionsOracle (http://www.samoasky.com/optionoracle-image/). It's a free software that lets you do some analysis of different strategies. Their wizard is pretty powerful as you enter multiple stocks, choose the different strategies that you want tested (covered calls, verticals, naked shorts, etc..), your expiration and many other factors and the wizard gives you a table with the P&L and risk analysis. Good stuff but somewhat complicated… Also, since it's not a broker the data is probably delayed somewhat, but good enough for long term trades.

  28. dplatt

    Phil/Yodi
    I also have March AAPL Bull Put 570-575 Spread I entered into for net $2.50
    How would You suggest I roll this position to make it more likely to profit? I noticed form yesterday you like the idea of having a greater likelyhood (anything up or flat) of making your gain versus crazy up 10% to make 300% trade ideas.
    I entered this position back on Dec 4th but I believe it still has good time value left to roll further out, perhaps into a Jan 2014 spread?  It is an IRA account.
    Teach a man to fish!

  29. yodi

    Burrben
    ECA My Jan14 play is still on track I normally do not mess with the initial play only concentrating on the monthly shorter plays. My Jan13 23 caller will be worthless sold for 1.80 Yesterday I sold the Apr13 22c for .45. just to make extra pocket money.
    adding more stock will not help you much in the present play set up April 30th 2012. As they have a 4.1% yield you might set up a 2015 play which would be simular than the 2014 play.
    Buy stock at 19.31 sell Jan15 22c for 1.87 and sell Jan15 18p for 3.25 you starting with a discount of 5.12.

  30. rexx

    TSLA skepticism from the Simpsons.   http://www.youtube.com/watch?v=fkzBwXNACrM

  31. kustomz

    How much would the S&P have to lose if it were to trade inline with AAPL's PE… This market has gone full tard..

  32. lflantheman

    Virtual MoMo trade:   BTO 5 GOOG Jan 19  710 puts for 4.90

  33. Burrben

    TSLA Road Trip
    After reading this I decided I couldn't own a TSLA.  These people stopped in trailer parks to charge their car each night….  yes, trailer parks with a new TSLA.  I hated trailer parks WITH MY TRAILER…. 
    I think it's really funny:
    http://teslamodelsxc.wordpress.com/2012/09/20/day-8-final-push/

  34. Burrben

    Yodi, that's not a bad idea.  I only have a 50% position right now in the stock, and it's been so nice of a trade that I'd like to add more.  
    Another way to look at it is that the "sapling" we bought at HD to plant just went back on sale, so why not buy more to harvest more trees?

  35. yodi

    Burrben
    ECA well it's a sleeper you can always add some monthly cherries to it not so nail biting than AAPL at 489 what a joke

  36. jelutuck

    Phil, looking for some  advice on HPQ.  I am short the Jan 14 $13 puts with a profit, but short the Feb $13 calls from before HPQ started taking off.  Im thinking of selling some Jan 14 $15 puts and rolling to a Mar or August short $16 call to try to recover.  Thoughts or other ideas?  TIA.

  37. cjji

    Iflan, NFLX is dropping.  Hang on or fold?

  38. 1020

    Forget about AAPL. I'd like to know how the cleaning lady stole a train and ran it into a house!…..
    http://photoblog.nbcnews.com/_news/2013/01/15/16521599-cleaner-steals-train-in-sweden-crashes-into-house-official-says?lite

  39. lflantheman

    Virtual MoMo trade:  Sell to Close 5 of the FB Feb 30 puts for 3.10, to take some  profits and reduce exposure to this event of today, which could move the stock significantly either way.  Also, the GOOG short above is related to the FB event.   If they announce any kind of new search capability, GOOG will take a hit. 

  40. rperi

    My first ever PSW Buy/Write is coming to expiration.  I bought CSCO at $16.66 and sold the Jan $15 puts and $20 calls for $2.95, in at net $13.71.  CSCO is at $20.89 with 3 days to go, and it is a seed I would like to keep planted.  I can roll the caller out to Jan 15 for $2.26 and sell the $20 puts for $3.05, to reduce my net further to $8.40, not to mention the $.56 yearly dividend.  It also looks like I can roll to the front month calls for $.38, which would seem to net more profit over the two year period.  Of course, I can also just take the 38% profit and just buy the stock again, selling the Jan 15 $20 calls and puts for $6.15.
    In general, what are the best options for playing buy/writes forward?

  41. stjeanluc

    Just relentless selling on AAPL and the volume is picking up again now…

  42. phil

    TSLA/Savi – That was totally your idea, thanks (and enjoy the car!).  

    AAPL/Dplat – Once you are under the strike, you can be assigned any time but nothing that stops you from liquidating the stock and just reestablishing the spread if you'd like.  Keep in mind that, when they assign you, they forfeit their premium so, if you re-sell, you are selling the premium again.  

    RUT flew back to 680 but stopped there.  

    Magnet/Burr – Useful ability. 

    AAPL/Rperi – I think it's still a good play but we're going to need some good earnings next week at this point. 

    Analysts/DC – Notice CNBC repeating Nomura call over and over but virtually no mention of other calls (and there are plenty of them):

    analysts

    I like Ed Zabitsky of ACI.  That call didn't work too well last year.  Here's his reasons last year:

    •The iPhone is a bandwidth hog and is not profitable for carriers.

    •Rivals are entering the mobile browser space to compete with Apple.

    •Although Apple’s gadgets are trendy, their hardware will eventually become irrelevant.

    Sound familiar?  AAPL fell from $420 to $360 in the fall of 2011 (down 15%) and was back about $420 into Jan earnings and then flew to $600 (up 50%).  Then, last April, we fell from $620 to $520 and then on to $650. Now we spiked up to $700 but realistically we fell from $650 to $500 and that's 23% and we're flatlining into earnings.  Same old, same old on the whole…

    AAPL/Newt – SELLING next week $520s?  That's not at all what we want to do.  Earnings are Thursday so anything done next week is very risky.  

    AAPL/Dplatt – If you have the 10 615 puts, they are $128 with AAPL at $487 so no premium left and you can cash 6 of those and the stock for a total of $615, which is right what it should be with 3 days left.  While that's a $5 loss to your $620 assignment price, you're keeping whatever the short putter originally paid you.  That then leaves you with the remaining 4 spreads and there's not much you can do about that as you simply owe net $5 on them.  There's nothing to "save" here – it's a loss and, if you want, you can just set up a new trade. 

    Fundamentals/StJ – LOL!  What fundamentals?  

  43. yodi

    rperi
    CSCO good going You need to close the Jan13 20 caller right away as it has no more premium. The putter will expire worthless
    You wish to set up an other long play sell Jan15 22c for 2.21 and the Jan20p for 3.05
    In addition you can sell 1/2 the Mar13 22c for .40

  44. newt

    Phil: Thanks, just checking that the OODA is tightening up.

  45. jabobeast

    aapl
     
    Q1 earnings are expected to be announced after market hours on January 23, 2013Estimates: 15.50 | 13.343 | 11.53

  46. aaronc

    AAPL, for what it's worth on a 12 month Daily chart the low was 419.55 on 1/24/12, earnings release. The high for the year was 705.07 on 9/21/12. Using these two data points a 78.6% Fib retracement is at 479.58. That area should provide some technical support.

  47. lflantheman

    Virtual MoMo order placed:   If Feb 30 FB calls last trade less than or equal to 2.50, sell the 5  remaining calls at market.  This unloads the calls (but still for a profit) if FB tanks after their 'event' today.  

  48. albo

    lflan – Yesterday you were asking AAPL to break below 500.  I know you decided to quit trading it on this site.  Just curious what your current thoughts are ?  Kinda hard to play AAPL from a momentum point of few, but at some point this falling knife will turn around.

  49. stjeanluc

    AAPL Earnings / Jabo – Earning Whispers are consensus estimates at $13.43 with the whisper number at $14.00 which would not be a huge beat by AAPL standard. Revenue estimates are at $54.5B.

    For comparison, last January they reported $13.87 when the whisper number was at $12.11 and they had revenues of $39.2B. They were trading at $422 then and shot up to $650 in 3 months!

  50. yodi

    Dplatt AAPL as what Phil says. You need to close your short putters as they ITM. If you have enough cash to close them possible hang on to the stock for a upturn as it is not allways good to sell at the lowest point. With the AAPL Apr13 bull put I would wait until after earning and revalue the situation

  51. stjeanluc

    As a follow up on the AAPL earnings history, last January they had positive guidance with the good numbers, but the last 3 earnings reports their guidance has been negative and the earnings reports have been as follows:

    Apr 24, 2012 – $12.30 / $39.2B / Negative guidance
    Jul 24, 2012 – $9.32 / $35.0B / Negative guidance
    Oct 25, 2012 – $8.67 / $36.0B / Negative guidance

    They were also below consensus and whisper the last 2 earnings. Not drawing any conclusions but I believe we need to be careful until the earnings have been released. The January report is usually the best one because of the holidays so tough to extrapolate as well. The landscape has changed also.

  52. lflantheman

    albo….AAPL…..I am in no trades in AAPL anywhere right now.  If I were to trade it today I would short it, but I'd rather just sit it out for now.  It has become a very very difficult stock to predict or trade right now.  

  53. stjeanluc

    In addition, last January there was not much to lose if you waited until after the earnings to go bullish… Sure, the stock opened at $427 and closed at $451 the day after, but it rallied to $644 (another $200) by the first week of April!

  54. phil

    AAPL down 3% again and that's another 0.6% drag on the Nasdaq, which is matching.  Other indexes holding up so far.  

    Good overview Albo.

    AAPL/Dplatt – The $570s are now $5.70 so more than you paid for the spread and the best thing you can do is use that money to buy time.  It will cost you $11.60 more to move to the July $570s, now $17.30 and then you have a calendar spread and hopefully AAPL goes up, but not too far up.  Even if they drop $100, you should still get the price of the $670s, which is $5 and your caller will expire worthless so not too terrible while the $620s are $9 so a $50 drop that allows you to sell April calls should be no trouble and anything up less than about $620 should be no problem to deal with as you can always roll the short callers.  Ideally, AAPL goes back to $555 after earnings, the short calls expire worthless and then you can sell more or get into a vertical again, getting at least your $11.60 back.  

    7 Reasons/Seer – I have to stop reading bullish articles on AAPL.  At this point I just want to see the earnings report and stop all the speculation. 

    I have that in my kitchen, Jabob.

    TSLA/Burr – That's the big problem at the moment.  As a second car, for driving around town, it's fine but we're still a long way off from making an electric "the" family car.  On the bright side, where the engine should be, there's plenty of room for a generator so you can just buy one for emergencies.  Also, most good hotels I go to have a way to charge your car overnight and I'm sure this kind of stuff will spread as time goes by.  

    HPQ/Jet – They hit $17.32 yesterday so a good time to take money and run on Feb calls.  Jan puts should expire worthless so I can't see how you'd do much better on that trade.  So now you're talking about a new trade on HPQ but, at $16.50, they are nowhere near as attractive as they were at $13.  The fact that you didn't DD or whatever when they were super-low isn't HPQs fault and the stock is not obligated to make it up to you now by stretching unrealistically higher.  I like HPQ long-term but it's short-term toppy here but, if you want to stick with them, I'd just sell the 2015 $15 puts for $3 and that's a net $12 entry, worst-case and a 200% return on margin otherwise.  Why mess around with something else?

    Train/1020 – Cool! 

    CSCO/Rperi – If you are in it for long-term, I'd just roll the caller out to 2015 $20s ($3.10) for protection and be aggressive with the short puts, selling $20 puts for another $30.  That knocks your $13.71 stock down about $5.20 to $8.51 and, if you are assigned another round at $20, it's net $14.26 on 2x, so not bad.  If called away, it's a whopping $14.80 profit on 1x – also not bad and, of course, if flat, it's still another 38% return on your $13.71.  You could play it more aggressively but it's a bird in the hand thing.  

    AAPL still dragging things down.  RUT ignoring it.  Transports up 0.4% but SOX still down at $3.99.

  55. cturb

    If apple had any cajones they would pull a google and report today. Screw those hedgies!

  56. jelutuck

    Phil/HPQ. I'm SHORT the Feb $13 calls, not long…trying to figure out how to recover,

  57. phil

    Final AAPL One Trade (I'm leaving soon to be in BNN at 3pm):

    Selling 2015 $350 puts for $38.50 (should net $35 in margin) and buying 2014 $400/500 bull call spread for $52.50 for net $14 on the $100 spread that's $35 in the money at AAPL $485.  Break-even is $364 and anything over $414 is a profit, so a built-in 15% cushion.  

    I'll also probably talk about today's TSLA trade (above) and CIM.

  58. wombatcreative

    AAPL // looks like a small stutter at 485, on its way back up hopefully.
    buying more.
    the margin is making me play some chess – arghh. come on Oppenheimer.

  59. Burrben

    Fyi on CIM, the Jan15 2.5 Straddle filled for a 0.90 sale.  I'm still trying for $1 on others.

  60. albo

    ARNA – Up strong again today.

  61. dplatt

    One Trade/Phil
     
    So let me get this straight. Tie up about $87,500 of capital per spread in margin requirement and vertical cost.
    Can margin be invested in other stocks or does it need to be in cash? 
    Max profit come expiration for the spread is 47.5/52.50 is about 90.4% profit. If you include the short puts value come expiration (kind of hard given time decay and where apple will be with extrinsic value of the put) looking at possibly a profit of ~15 on the put if apple is 500-510?
     
    Excited to see this one come to fruition!

  62. jasu1

    Phil, 
    I have 10 contract of AAPL  Jan 2015    360 Put sold for 41.56  now 41.70
    + BCS 2015 500/650          buy 500 Call for 110.62  now 83.00    Loss 27,620
    sold 650 Call for 60.54 now 41.45  gain 19,000
    Does it make sense to take the profit off the 650 call and use it to get into the BNN 2014 play today….downside is??
    Thank you for the clarification

  63. zeroxzero

    Phil / Kocherlakota / Dovish – FT excerpt on Wells, Fargo related to the fallacy of easy money cures:

    Wells became the only big bank whose share price, at about $35, has more or less returned to pre-crisis levels. It outperformed the US financial sector by more than 60 per cent along the way.
    …Wells was right to suppose that millions of home and small business borrowers across the nation remain perfectly creditworthy. But the mistake is to think this is a robust business model. Of course there is a demand for loans, and of course borrowers seem to be able to pay: Fed rates are in effect zero….But a jump in borrowing costs would make last quarter’s nearly one-fifth fall in mortgage applications look like a bonanza. And it does not bear contemplating what higher rates would do to asset prices and defaults (the release of reserves added $250m to income last quarter). Wells Fargo is a case study in what can happen to genuinely useful businesses when central banks distort markets for too long."

  64. NF**X

    iflan-MoMo   Iflan – sorry, been away from site for a bit.  You know (I think) I'm one of ur biggest fans.  Sincere question: what happened to the "old" momo virtual that had the April AAPL BCS in it?   thx in advance.  love ur stuff.

  65. Pharmboy

    Holy $h1tbaLLs Batman…$GEN is flying.

  66. phil

    HPQ/Jet – Oops, sorry then.  So the short puts expire worthless and the Feb $13s are now $3.60.  I'm not bearish on HPQ so I wouldn't short them but you can just sell the 2015 $15 puts then for $3 and roll the Feb $13s to the the Jan $15s ($3.10) for net $2.50 in your pocket and a bit more room but I'd sure buy the stock to cover if HPQ breaks over the 200 dma at $18.  Still, that would net you in at $13(ish)/14 on 2x so, if you like HPQ long-term – it's a good play going forward. 

    CIM/Burr – I still like them.

    Margin/Dplatt – No, it's your buying power that's diminished on that trade and can't be re-used.  Of course, if you have $87,500 to make the trade, then you should qualify for PM anyway and that should halve your requirement.  Keep in mind, it's still a generally bullish bet (as was BAC) but it's a matter of saying that this trade has a better risk/reward profile than spreading a bet across the market on 10 or 20 other stocks.  With AAPL making up 20% of the Nasdaq – it's similar logic to BAC where, if they failed, they would drag the financials and other broad indexes with them so there was no point in playing the index when it all rested on BAC.  AAPL is like that.  It's not one trade because it's bullet-proof – it's one trade because it has a better chance and rate of return than playing the rest of the market bullish.  

  67. zeroxzero

    Sorry, I think I figured out where the weird formatting is coming from, apologies.

  68. zeroxzero

    SGEN – Thanks again, Pharm, I took profits a week ago, let it settle, and loaded up again, :)

  69. phil

    AAPL/Jasu – Yes, I'd take the profit on the $650s because we either bounce or, IF NOT, you'll want to sell lower puts, like the $570s for $60 and then you will have collected $79 against your $110 long and your net on the $70 spread would be $31 and then you can decide if you want to spend what is currently another $22 to roll down to the $450s, which would leave you in the $450/570 spread for net $53 and there's nothing wrong with that adjustment, is there?  If, on the other hand, AAPL does bottom and moves up, I'd still consider selling $600 calls to cover (now $53, were $113 last month) as it's a little greedy taking a $150 spread to start (as I'm sure you now realize). 

    WFC/ZZ – That's why I'm not as bullish on Financials this year (but this year is when FAS burns us – go figure).  

    SGEN/Pharm – Very nice.  

  70. diamond

    NF**X – RE: lflantheman's MoMo portfolio …
     
    LINK #1
     
    LINK #2
     
    LINK #3

  71. Pharmboy

    AAPL Jan 490-500 BCS for 3.8…..based upon this chart. from Gann360.

    Link: http://screencast.com/t/RP7pD8qDe

  72. jyoti

    SGEN – thanks Pharm I'm still holding on

  73. wombatcreative

    Phil
    I've seen you mention different types of margin lately like PM. Can you explain.
    As AAPL moves around I'm trying to manage house calls becasue of the insane margin, taking profits where I normally would let ride.
    For exmaple on most fo the naked puts ( like TZA ) Fidelity hits me 100% margin req.

  74. 1020

    ….on the edge of my seat for the HUGE FB announcement….. ;)

  75. wombatcreative

    10/1 its about their new FB enabled dumb phone they're going to dump all over EMEA and APAC
    or the hoodies.
    personally I like the hoodie idea.

  76. 1020

    Good Luck today Phil!

  77. diamond

    wombatcreative – PM = Portfolio Margin
     
    Portfolio Margin is not available with all brokers, but TOS has it. You need to ask for it and if you qualify ($$$), you take a short test, and if you pass the test (easy) they give it to you. Call your broker!

  78. samz3700

    AAPL – Morningstar has good note on situation with AAPL and orders - 
    see fair value at 770

  79. 1020

    So far, it appears buying the cupcake and selling the FB was the right move today…..

  80. stjeanluc

    Too close to call for a recovery in Europe yet:

    http://www.slate.com/blogs/moneybox/2013/01/15/eurozone_crisis_ecb_declares_victory_but_the_economy_s_worse_than_ever.html

     

    One of the odder trends this winter is the widespread sense that the eurozone crisis is "over" and Mario Draghi's "whatever it takes" speech saved the day.

    It's not that I think the conventional wisdom is wrong, exactly. But the eurozone has slid back into recession over the course of 2012 and if anything the recession seems to be getting worse. Not only are Greece and Spain in tatters and Ireland basically treading water, but German GDP shrank 0.5 percent in the forth quarter. That's hardly the worst recession on the record books. And if Germany improves a little in Q1 they may even avoid technical recession altogether. But Germany, you'll recall, is the country that's supposed to be doing well. And that's not a "doing well" number. It's not even close. Things are so bad that EU officials are touting Latvia as a success story even though Latvian GDP is still 16 percent below peak level.

    Worst of all, as Ambrose Evans-Pierce writes the European Central Bank seems to haveentirely washed its hands of the situation, deciding that as long as there's no acute banking crisis they don't need to care about anything else. This is, among other things, exactly the attitude from the Trichet-Weber years that let the acute banking crisis develop. Over the long-term, it's all tied together. Banks and sovereigns can't be solvent if citizens don't have incomes, Germany can't export if Spain can't import.

  81. wombatcreative

    samz / Morningstar – premium content section – can you summarize ?
    1020 – mosdef
    Diamond – my current broker ( Fidelity ) simply has you apply. You fill out forms with how much experience you've had with x,y,z. R we talking same thing ? The PM that I have varies from 70-100%. But for anything naked its 100%, which kills me on anything Phil puts out b/c he usually pays for spreads with selling puts (which i love as well )
    Two more snafus with Fidelity this morning. I'm going to switch once the whole Debt ceiling crap is over and things settle down ?
    I want to switch over to TOS – r u on it as well ? What are your thoughts ? 

  82. stjeanluc

    AAPL now well below the average price target:

    http://www.bespokeinvest.com/thinkbig/2013/1/15/apple-aapl-now-32-below-price-target.html

    While the stock has now fallen 30% down to $492, the average analyst price target has only fallen 6.6% down to $728.  This leaves a huge spread of 32% between Apple's (AAPL) current price and its average price target.  As shown in the second chart below, the spread between Apple's price and its average price target is now at its widest level since the depths of the financial crisis back in early 2009.  The big difference between now and then, however, is that the entire market was plummeting in early 2009.  These days, only AAPL is plummeting.

    And here is a list of other stock maybe worth a look:

  83. albo

    DELL – Big winner.  Hope some people joined me on this one.

  84. phil

    Gotta run to NYC!

    Indexes recovering nicely – very painful for bears to see this kind of action.  

    Be careful with PM – can get you into a lot of trouble!  

    Later all.

  85. 1020

    Wombat – I know Phil like TOS for option trading. I like it as well for trading futures….. It's been a long while since I've experienced any problems with them….. :)

  86. diamond

    wombatcreative – IMHO, TOS is the best overall platform for trading. 
     
    If/when you receive PM (Portfolio Margin), it will make a hugh difference in the margin required for your trades (especially selling naked options). You may want to test PM out with Fidelity to see how it goes. Be careful … PM is as if they hand you keys to a new Ferrari and you can easily crash and burn with margin calls! ;-)

  87. 1020

    diamond/Ferrari - Looking at your PM on your trading screen is a bit like seeing 300 KM/H on your speedo… :)

  88. zeroxzero

    Stj:  I agree with you.  The ECB appears to have declared victory and moved on.  When I was in Spain in December – and I'm still an active member of a company there — it was truly grim.  The brain drain of the best and the brightest among the young was accelerating, given the 50% youth unemployment rate.  If the banks are appearing to be "more solid", it can only be with government infusions, because real estate, except for the very high end inflation-hedge stuff [yes, they know it's coming, too] is also dead in the water, and the banks still own most of it.  I think it's the ebb and flow of news interest — readers get bored and writers change the theme.  But the ECB ought to know better.  Double-dip?  More like the "Infinite Yo Yo Dip", I would think — until someone actually pulls out of the Euro, and Euro debts be damned.  Then we'll see rubber meet the road.

  89. wombatcreative

    Diamond // Actually their really conservative – thats part of my problem. I have ton's of money all held in margin becasue of the trades – roughly half the entire portfolio.
    I wan to be clear – I'm not trading on margin ( where I borrow from the brokerage at interest ), I'm simply margin enabled so I can move between trades more easily. Anything that requires margin is held, although if my buying power drops ( like today – thanks AAPL ) I run into house calls and have to move stuff around – or worse, infuse the account to cover.
    How is TOS different // ?
     

  90. rperi

    Thanks Phil!  good luck today.
    and thank you yodi.  Very helpful as always.

  91. Pharmboy

    Magical pivots…sitting right on them with SPY and DIA……

  92. RMax1

    Iflantheman:
    Re: FB
    Good call on closing the long call.  Followed you lead and made a nice gain.
    Thanks for sharing you trading skills.

  93. stjeanluc

    Spain / Zero – There could be a generational loss there similar to what we saw in the 50's. My sister is basically moving her business assets from Spain to France as the situation is really bad there especially for small businesses and you need access to cash. 

    And like someone else was saying, what is Germany going to export if Spain, Greece, Ireland, Italy and soon France don't import.

  94. stjeanluc

    A one hour rally in AAPL and the selling returns…

  95. diamond

    wombatcreative – A regular margin account just looks at the trade you want to do and calculates the margin required for that trade. A PM account looks at your entire portfolio and calculates the margin required for the trade you want to do. Therefore, since you have offsets throughout your portfolio (if it is somewhat balanced), the margin you are required to have for each trade is different as well as dynamic. PM is not borrowing from your broker, it simply is a better allocation of your funds within your account.
     
    RE: TOS … perhaps you should open a paper trading account with them (free/unfunded for 60 days) and see if you like the platform for trading. That way, if you do decide to change, you will already be familiar with it.

  96. jelutuck

    Anyone know a live feed for Phil today?

  97. jelutuck

    Re: changing brokers. I too am with Fidelity and am thinking of changing brokers. I have a couple dozen option positions, anyone know how long it takes to move those and how long are the positions "stuck" between brokers so you can't trade? 

  98. wombatcreative

    diamond // TOS
    yes, i believe you're correct in the margin dept. everyone one of my accounts has a different margin req. I have 9 different accounts that bascially dont see each other ( in terms of margin )
    already applied and talked to TDAmeritrade, just havent had the time to DL and set up account. Will do after the craziness.

    jelu // not sure – when i find out, I'll post. I have so many open positions I just need to make sure that its quick and 'in-kind' – meaning everything transfers just as it is //

  99. yodi

    stjeanluc
    Moving from Spain to France looks to me like frome the fire into the frying pan.
    Germany seem to me, is looking further out than selling to Europe, as I read between the lines.

  100. edro00

    JetLuck/Wombat
    I have moved all my accounts from Fidelity to TOS.  Much better platform.
    Last move, an IRA took about a week – you have to send paper forms to TOS, but the transfer seemed to take like a day

  101. diamond

    jelutuck – For stocks/options it should be at most 10 business days, but you should check with the broker to which you are moving. Also, make sure you check how many free trades (or $$$ compensation) you will receive to open and fund a new account. You may want to move $$$ over to the new account first (since it is quicker), that way you can still trade (if needed).

  102. lancep50

    jelutuck/Changing brokers – I changed an account from Fidelity to TOS in 4Q12 and it took 2-3 days and was seamless.

  103. lflantheman

    VIrtual MoMo trade :   The last 5 FB Feb 30 calls kicked out by the trigger at 2.50, still profitable; and FB continues to pull back.  This is a perfect example of the age old adage that the market  'sells the news'. 

  104. stjeanluc

    France / Yodi – Maybe long term, who knows. But the situation in Spain is really bad now. At least in France you get paid now.

  105. Pharmboy

    WTH lit a fire under the index's arse?

  106. iTrade

    AAPL $510 Weekly calls at $1 
    Playing a quick bounce off of this level in the next two days…

  107. lflantheman

    Virtual MoMo trade:    Sell to close the 5 GOOG Feb 19 puts at 1.15.      

  108. stjeanluc

    Fire / Pharm – Whatever is was, not working on AAPL though!

  109. Pharmboy

    USO…..close to even…..putting in 1/2 sell order now.

  110. dplatt

    http://watch.bnn.ca/
     
    Phil's interview isn't up yet though..
     
    Only thing I could find where he might pop up.

  111. rpme

    Does anyone know, Apple announcing before the open or after the close? I am on an airplane that day…

  112. yodi

    Pharm ABC trading at 45 today and has a steady rise since last Oct.. Any opinion TIA

  113. rperi

    Phil had BRCM as a pick twice last year, and it seems like they are in a similar spot here at $34.10.  Would rather like to see it down at it's 50 dma of about $33.50

    , but last year it was twice a winner for me.
    "Sept $33/35 bull call spread at $1.29 ha .38 in premium with 3 weeks to go so it’s a $.018 per day to "rent" the stock.
    Oct $29 puts can be sold for $.62 to offset the spread down to $.67 or a more conservative 1/2 sale to knock out the premium and puts you in for net .05 on the $2 spread."
    That worked wonderfully and you can buy the Feb $33/35 bull call spread selling the May $30 puts for a $.02 credit on a $2.00 spread that's $1.10 in the money.  The low of the channel they've been in is about $30 so having it put to you at $29.98 doesn't seem too bad. 

    Any thoughts?

  114. zeroxzero

    WFR's looking spry today, any reason?

  115. yodi

    rperi
    BRCM just check you plays there are no Sep. or Oct options in that stock
    I am holding the stock at 32.97 and my lst play was 11 Dec to sell the May13 35c for 2.52 now 2.03

  116. rperi

    that was last year's play that did net the full profit potential, yodiTh

    I am interested in the Feb $33/35 bull call spread selling the May $30 puts

  117. Pharmboy

    ABC…..distribution, like ESRX, etc.   Not my area, but PBMs are a good area to bet on for the future.  Slim, cut throat margins.

  118. Jordan

    AAPL / rpme
     
    Earnings call is after hours, 5 pm eastern.

  119. yodi

    rperi
    You could set up a play on BRCM
    Buy Jan15 28/35 vertical cost 3.60
    and sell Jan15 28p for 3.80
    gives you a .20 profit to start with a PM margin of 365.00 on a 4 x option play
    Max profit 2860 at 35 or above
    Down protection 27.85

  120. yodi

    rperi
    Feb13 BRCM play to close to the fire for me you paying .85 premium for the call and the putter is to far out May13 to leave naked

  121. rperi

    thanks for the advice.  may wait for March puts to come out to see what I can put together.

  122. yodi

    Pharm Thanks ABC

  123. yodi

    AAPL just glued to the floor at 485 now 486

  124. checho

    AAPL
    Back in Sept (7th), my thinking on AAPL @ 690 in the form of a query to Phil was 
    "If there is no QE, do you think AAPL is now a good short candidate if we strip out the noise around Draghi?  Points to consider
    Humungous market cap (similar to MSFT at the peak when MSFT turned -  I think, but may be wrong)
    Missing expectations on results in last qtr and perhaps this one(?)
    Samsung S-III may have eroded the opportunity for iphone5
    hugely competitive tablet scene with Amazon, MSFT, GOOG now in the fray

    I think AAPL may have seen its best, I do agree on P/e it is still attractive if you look at the likes of AMZN, but if it has indeed peaked on earnings, wouldn't this be the point of reversal? 

    I know on this board shorting AAPL may seem a crime, but wouldn't mind a few attractive options to short with a 20% stop loss." 
    My current thinking is
    1.   AAPL no longer has the best smartphone in the market, Samsung SIII is…..the worrying thing is others like Nexus (Google) and HTC have also caught up….
    2.   AAPL still remains an amazing value play and is the best company in the world, but the long AAPL trade is a very crowded one and just as long AMZN is the flavour, short AAPL will continue to rule.
    3.  AAPL will likely go back to the 520-555 range prior to results.
    3.  AAPL results will likely be fantastic (upside from iphone 4/ 4S will also be good – who says you need a cheaper iphone?), but smart money will find something in the guidance to rein in any big moves beyond 575-600 and then the selling resumes; any confirmed news on innovation incl date of AAPL TV launch will send the bears for cover and may set the stock back to 700.  News on deal with China mobile will possibly not fire it up.
    4.  If the guidance and associated news is not great, AAPL will close the open chart gap @425 before coming back.
    And no I didn't put my money where my mouth was to SHORT AAPL @ 690 in SEPT, Wish I had!!  

  125. scottmi

    BNN – here's Phil…
    http://watch.bnn.ca/#clip844341

  126. rpme

    Thanks Jordan

  127. rperi

    This guy Jim Doak guy is a real piece of work.  Asking Phil what he would do if AAPL flat-lined from here when Phil just got done explaining that the breakeven is almost 20% down from where it is now so we'd be glad if all it did was maintain it's current low.  Does anyone listen anymore, or do they just have questions prepared no matter what the person being inteviewed says?
    Btw, same guy who said taxing the rich is "nasty, it's ethnic cleansing" not too long ago:
    http://www.huffingtonpost.ca/2012/04/10/jim-doak-tax-hike-ethnic-cleansing_n_1416363.html

  128. dplatt

    BNN/Phil
     
    Wow.. Andrew is having a TOUGH day lol.. they didn't follow a word of what you were saying Phil. Hah a Chimera with a duck's tail oy vey.. The net on the apple trade is around 15 now though unfortunately. Unless you are already in for 14 in which case congrats!

  129. newt

    BNN/ Phil: i keep getting an error message – anyone else experiencing this?

  130. dplatt

    BNN continued..
    I'm a little pissed too about how they can only see it from an equity perspective as in just owning the stock and letting it sit there. So much potential in options! I'm incredibly glad I found this site and I'm incredibly glad it is so active! Learning so much! Thanks all!

  131. dplatt

    Newt
    Close the page and reopen the link? I used the first link by rperi

  132. Jordan

    BNN page – Same here, just reopen (I had to close browser) and it works.

  133. wombatcreative

    Phil LIVE
    here it is guys //
    http://watch.bnn.ca/#clip844341
    Phil – Q's
    I'm a bit surprised how your rec devisted from whats been happening on the board. Is that becasue it broke the $500 ?
    Anyway, here is what I am currently holding

    Bought Jan14 $450-550 Bull Call Spread ( for around $50 )
    Sold Feb13  Feb $500 Puts  ( premium $11.97 )
    Sold Jan 14 $400 Puts  ( premium $27 )
    Sold Jan 15 $400 Puts  ( premium $54 )
    IRA
    Sold Jan15 $400 Puts ( premium $50 )
    IRA2
    Bought April 13 $500 Calls ( cost $36 )
    Sold Jan 15 $270 Puts ( premium $12 )
    After watching AAPL last few days I'm a little uncomfortable – my $500 puts just broke past my break-even, but they are before earnings.

    any mods you would suggest ?

  134. newt

    thx!

  135. Burrben

    Wombat – If you are having margin issues with naked puts, you might want to try something craigzooka does in the IRA.  Buy a equal amount of the farthest put you can.  It will lower the margin requirement a ton on stocks, even with Port Margin.
     
    For example, I was just short the BA 60 put for 7ish, but when I bought the BA 35 put  for 0.45 I was able to free up thousands in margin to use for other trades.

  136. scottmi

    Myths that Conceal Reality – a classic Milton Friedman, as pertinent as ever.
    http://www.youtube.com/watch?v=xNc-xhH8kkk

  137. wombatcreative

    Burrben
    So you're suggesting that you simply buy way OTM puts to make it look like a silly spread ?
    I'll try it with the rest - 
    IRA's a re full cash, no margin.

  138. zeroxzero

    These are excerpts from an FT Alphaville article on low volatility in commodity markets.  I thought that, since PSW likes to sell premium, knowing that low volatility is likely to persist in a low interest rate environment might be useful in setting up certain trades.
     

    "Goldman Sachs put out a research note this week clocking that… commodity volatility has dropped far below the volatility of other asset classes, even though the risks to both the downside (macro and policy risk) and upside (geopolitical risks) have not gone away."

    "Conventionalists would say that futures pricing lower than spot prices and offering “positive carry to investors” implies some sort of physical disequilibrium. That there is a shortage of supply in the market place, and that some level of destocking must take place.  The reason investors are rewarded with positive carry is because they are taking the risk of future “over supply” onto their own shoulders."

    But, as we’ve argued, the positive carry signal and curve signals generally, have been warped by the zero rate phenomenon…. All that positive carry has to be compared to the negative carry you get from holding cash. Why would a producer destock, even in a backwardated market, if the cash they received in exchange would have a negative charge associated with it?…[L]ow volatility is always a product of low interest rates — especially in commodity markets.And that’s because the lower the interest rate, the bigger the incentive to hold stock.  The more stock is held, the bigger the buffer to ease unexpected supply disruptions."

    "As for negative interest rates, these go even further. They don’t just incentivise the build up of stocks, in most cases, they incentivise complete production cuts. It’s the negative interest artificial scarcity anomaly. If it doesn’t pay to hold cash, it pays to squeeze the market as much as possible instead.  Only if and when those production cuts lead to genuine shortage issues would a producer be incentivised to destock — at the right price…in a negative carry universe it does not pay a commodity owner to produce for monetary profit.  Indeed, the commodity asset is worth more if it’s not monetised at this point. This is especially the case if the futures market is already charging a negative carry for holding stocks above ground."

  139. phil

    Well that wasn't such a bad day after all (except for AAPL, of course).  

    TV thing went well, they didn't rush me this time.  

    Transports finished at new highs – that's a good sign.  RUT refuses to lose 880 and Dow sneaking up quietly on 13,600, now 13,534.  

    VIX made brand new low at 13.55.  

    Dollar spiked almost to 80 at the close, now 79.76, not sure why.  More bullish Fed talk but getting little coverage from what I've heard so far:

    The Fed shouldn't even talk about halting QE until headline unemployment drops to 7.25% (it's 7.8% now), says the Boston Fed's Eric Rosengren. ZIRP, of course, will remain in place until UE hits 6.5%. If the employment picture doesn't improve, not only will the beatings continue, but Rosengren sees scope for an even-larger QE program. 

    Hello…. McFly….  How much more market-supportive does the Fed have to get?  The debt ceiling will throw hundreds of thousands of people out of work, that should push the Fed to drop $125Bn a month into the economy at this pace.  

    ECB/ZZ – The ECB is like a trauma surgeon, their goal was to stabilize the patient and that's what they did.  Now it's up to lesser doctors and rehab clinics to get Spain and Greece back on their feet – although it may be a very long recovery process as they've lost a lot of blood (brain drain) and some parts of the economy may never work the same again. 

    New Infrastructure study pretty much the same as the old one – $2.7Tn in infrastructure spending urgently needed.  So ridiculous, if we spend $500Bn a year for 5 years we could employ another 10M people ($50,000 each) and I'll bet the boost to our $16Tn GDP would be more than the 3% we need to break even on the investment.  

    I hate to say it but, at this point, I want to add AAPL to the Income Portfolio.  

    FB – that was a big nothing, wasn't it?  We added a search box to PSW, the media didn't make such a fuss…  8)  

    Spain to France/StJ – Not sure that's much of an improvement.  

    AAPL earnings/Rpme – Should be after hours on the 23rd.  

    BRCM/Rperi – They've been disappointing and the VIX sucks so the same stock price is not as good an entry opportunity.   I like BRCM but more as a stock I don't expect to go down much than one I'm looking for growth and, as I was saying to the Fund Manager on TV today, with options, you don't need a stock to go up to make money – you just need it not to go down much.  Earnings are the 29th so people paying .94 for the Feb $35s are over-paying a bit and you can use that cash to fund an Aug $30/35 bull call spread at $3 and sell the Aug $30 puts for $1.70 to knock your basis down to .36 on the $5 spread that's $4.19 in the money so you are up $4.64 on the spread before you have to pay the caller back a penny.  

    Yodi's play very nice for longer-term as well.  

    Gasoline taking a tumble – testing $2.70.  

    WFR/ZZ – Sector was up in general today (solar, not semis).  That's a good thing for WFR, by the way, they benefit from rallies in solars or semis.  

    AAPL/Checho – Nice call and I did not disagree with you calling that top:  

    AAPL/Checho – We just went long on AAPL to add a hedge to the $25KP.  I think AAPL is a great deal here – it's only their shear size ($650Bn) that keeps them from flying like the Momos.  Trading 13M shares a day, you need almost $9Bn worth of AAPL buyers PER DAY to sustain their price.  There was an article above indicating $3.7Bn taken out of the market in one week was a big deal, this is 3x that much every day – very hard to sustain and, of course, if you need a 10% imbalance in ($900M) to get the stock to go up 1%, then getting a 5% move up in AAPL ($30) requires $4.5Bn of inflows – that would be more than the whole market take in an incredible week and that's just AAPL.  That's why these spike moves up are so hard to sustain – they immediately create a gaping hole that can only be filled by massive inflows of capital.  So, very hard for AAPL to move up and they will drop with the market but there are way more overvalued stocks to short than AAPL.  

    It wasn't until AAPL pulled back to $555 that I got excited about owning them again (at the time (9/7) they were a bullish offset to a bearish $25KP because we wouldn't mind scaling into a big position in AAPL if the rest of the market fell).  That seemed like, and still seems like, a reasonably sustainable level. 

    Doak/Rperi – People who are guests in studio seem to think it's obligatory to be confrontational.  When's the last time you ever heard a person say "hey, that's a great trade idea" to another guest?  Hopefully I don't succumb to that as they want me to be in studio and we're trying to work out a date for June.  

    Chimera/Dplatt – It was 3 things, that's what threw me off.  Lion, serpent and goat.  I never would have remembered that anyway but I was pretty sure duck was out.  In any case, it's hard to see what elevated level of ferocity the goat brings into the mix.  OK, I'm done worrying about it or we could degenerate into this kind of conversation (from one of my favorite shows).  

    AAPL/Wombat – If you dove right in and made a full commitment and can't scale in or roll lower than you need to protect your position.  I think I had suggested an SQQQ spread the other day and that's still a good way to play it or you can simply slap on a put with a delta of .50 or better on AAPL when it breaks a major support like $500 and then you have some quick coverage while it's got downward momentum.  

    Good margin suggestion Burr.  

    Friedman/Scott – That guy was a great thinker but, unfortunately, he got more conservative with age (or maybe just cozying up to the Reaganites).  He actually invented payroll taxes and worked with Roosevelt on Job creation through Government works programs early on so quite the 180 later in life.  

    Low volatility/ZZ – Good time to buy long calls on inflationary plays.  

    And, for you new people – my favorite economics rap video:

  140. scottmi

    AMZN – little problem going on with account security and replacement order scams.

  141. wombatcreative

    Phil //
    I'm concerned because AAPL broke a second resist at $491 and the volume is pretty heavy.  I have only been buying some of your suggestions ( ( scaling in ) on the list and I find myself in a bit of a corner. Your call on BNN differed from mine by $50 – is that because of the $500 line break ?
    I don't mind holding some Apple shares in the short term and selling covered calls, but if I hear you correctly, the inflow on Monday ( largest in the last decade ) wont be enough to push Apple back up to 550 range // I still really don't understand the magnitude of the sell-off. I'm also surprised on the movement before earnings.
    Would you roll the Bull Call Spread $550/450 to a $400/$500 ( cost about 3K ) ? Would you dump any of the sold puts to release margin ? your other suggestions are valid but five days before earnings ?

  142. aaronc

    Phil, Great BNN interview. I bet we'll see some new faces on the board from that one.

  143. kustomz

    Pharm SGEN!!!

    Phil, you lost a lot of weight! Looking good.

  144. pstas

    Scottmi- thanks for the Friedman clip. Had not seen that one in a while. You should, however, post a "PG" warning at the same time as these tomes may cause some of our collectivist friends heads to explode without close adult supervision. 
    One of the all time best is here:
    http://www.youtube.com/watch?v=DvNzi7tmkx0

    The final minutes contains the infamous "greed" discussion. I am sure , however that many nascebt angels would arise from here. Right.

  145. stjeanluc

    Tough sledding for the NASDAQ with AAPL as dead weight! But 8800 in sight for the NYSE…

  146. mjjwo9b

    Phil:  Great job on BNN.  I kept saying, "Hey, that's the guy I spent 2 days listening to in LV".  
    BA:  On sale again.  

  147. scottmi

    Pstas – LOL, well i expect we're all adults here, and can handle "it." Though i do have to say that Friedman is far from the last word. Not quite Austrian enough to capture how economics really works.

  148. phil

    Good morning!

    AMZN/Scott – Scary.  If these on-line sellers can't control fraud, as they get bigger it will become a massive problem.  On the other hand, I've already told AMEX Travel if they don't stop asking me security questions I'll go back to a travel agent.  It's totally ridiculous that I can call my local agent and just say "Hi, it's Phil, get me to Vegas Friday on a flight around 5pm" and I'm done until she calls me back while, with AMEX, it's a 15-minute process where they verify my identity and record my conversation and read disclaimers before I confirm…

    AAPL/Wombat – First of all, you should not be trading this stock if it worries you.  AAPL is extremely volatile and, as I said last week, may go to $400 before it recovers – this is just $485.   Yes, the call on BNN was more conservative because it was a "One Trade" and you really don't want to risk too much on those.  I THINK AAPL will reverse on earnings but if I'm wrong, this is going to turn into a long-term roll and rescue operation, which will be sad and annoying (although once we decided to rescue the $25KPM, it actually went pretty quickly).  As to the $450/550 (order is important) bull call spread, I assume it's 2014 or 2015 so I'd say not to roll as earnings will either put you back in the money or make the roll cheaper so, unless you have a very firm belief in AAPL and want to roll the $450s down first and wait for earnings to decide what to do with the $550s, I wouldn't change it.  Of course, spending net $3,000 for, I assume 10 rolls, to drop the position $50,000 lower in strike is not terrible insurance if it helps you sleep better.  

    Keep in mind that values are always relative.  My home, for example, is the exact same home I bought in 1998 for $400,000.  It has the same 5 bedrooms and bathrooms and it's in relatively the same condition but in 2006 we were offered $950,000 for it and about 3 years later, we would have been lucky to get $500,000 if we tried to sell it and now it's back to about $650,000.  So what?  

    bought the house with a 30-year mortgage and we pay it bi-weekly so we are done in 21 years (2019) – that way my PLAN FOR OWNERSHIP OF A FULL POSITION.  My long-term benefit is not paying rent of maybe $2,000 a month (subtracting taxes) for the rest of my life so my $400,000 investment that I'm scaling into, yeilds $24,000 a year in profit (5%).  5% kind of sucks but, since I'm paying the rent, I'm also hedged against rent inflation.  So far, it's been a bad bet as rents haven't gone anywhere and my taxes are up but there's a 50% profit in the home after 15 years so I'm not complaining.  And, of course, since we're comparing this to long-term stocks – I'm ignoring the intangibles like raising a family in a nice neighborhood, etc.  

    If this exact same home were in Detroit, I'd be lucky if it were cracking $200,000, if it were in Beverly Hills, it would be well over $1M – so value is relative to time and place as well as what a person expects to get from ownership.  Stocks are no different than homes – they go in and out of favor despite very little changes in the underlying business and, if you are a long-term investor – you shouldn't care (and read anything by Warren Buffett for full essays on this subject).  But you SHOULD have a long-term plan for what you are going to do with it.  

    Long-term, we KNOW we can make $5 a month selling AAPL premium.  In the 2015 combos, we have 24 months to do it and, unfortunately, when AAPL is down about 20% from where we think it should be and with earnings coming up, we simply don't think it's a good time to sell calls but, next month, we'll KNOW how earnings went and it will be less scary to sell calls and we still have 23 months to make $5 ($115).  So, until we are down $115 per long – we are not really in trouble – it's just a matter of needing more time to turn a profit (assuming AAPL doesn't go BK and ruin our plan, of course).  

    This is like my plan to live in my home and raise my family and, one day, pay it off and have no mortgage and, if I end up with a profit on the home as well – so much the better but I don't run to the Internet every morning to see what my home is worth and I certainly don't cover my home against a potential drop in value (although we did do some plays like that in 2008 – shorting builders and REITs) and I don't give Realtors options to buy my home for 5% over the current price because I'm worried it may drop 10% BECAUSE I AM COMMITTED TO LONG-TERM OWNERSHIP.  

    No stock should ever be a significant portion of your portfolio unless you are willing to commit to it.  Buffett buys and sells stocks all the time but, once they cross a certain value threshold in his portfolio, you'll generally see them stay there for many, many years.  Notice the difference between the top 10 and the next 10 – as well as the fact that, as we recommend, there's only 30 stocks in his whole portfolio.  10 he's clearly committed to, 5 he's building into and about 15 he's playing with (and no AAPL, by the way!).  

    It's a pretty boring group of $75Bn worth of stocks and Berkshire makes about $10Bn a year from trading and dividends – just 13% – but he makes it year after year after year – trees that bear fruit.  

     
  149. phil

    Thanks Aaron, Kustomz.  

    Big Chart – Hard to reconcile this chart with sentiment.  Part of that is too many people playing AAPL with too much % of portfolios so one stock is ruining the gains of the others.  It would be a shame if we broke down now but I don't see it as too likely after more than two weeks of consolidation without some seriously bad news. 

    This morning BA is dragging down the Dow with a $3.50 drop (4.5%), as Japan grounds 787 as one had to make an emergency landing this morning (battery problems again).  That's costing the Dow about 25 points and JPM earnings were a 15% beat ($1.39) but revenues missed by $160M out of $24.4Bn (0.6%) and the stock is down 1.5%, and that's another 5 points on the Dow, not to mention the sector drag.  On the whole, profits are up 53% from last year, DESPITE the London Whale fiasco.  I'd love to see them drop back to the low $30s, so we could BUYBUYBUY them again but that's not likely to happen as these earnings were great and business is moving up nicely.  

    Thanks Mjj.  

    Friedman/Scott, Pstas – Keep in mind that both the Fed and the BOE adopted monetarism in the late 70s, early 80s and abandoned it as soon as they realized what a total catastrophe his theory was when put into practice.  Being wrong doesn't stop people from calling you a great economist and that's fine because Economics is really just philosophy – it's not a science – something, unfortunately, most people tend to forget.  

    The ENTIRE underlying theory of economics is, of course, based on the central idea that people know what they want, that their desires can be expressed by mathematical formulas and that their choices are then driven by rational decisions based on price vs. benefits (marginal utility).  Since you KNOW you don't always act this way and not even Ben Bernanke acts this way – the whole field is therefore based on a flawed premise and things spin quickly out of control from there.  It's no different than religion – you can do your little dances and, eventually, it will rain and people may think you know what you're doing but, in reality, it's the broken clock paradigm – some random economists with some random theories happen to be spouting off at just the right moment in time to look like geniuses.  Analysts are the same – take Meredith Whitney for a tragic example or John Paulson as a fund manager – don't get me started!  

    Anyway, moral of the story is don't follow the guy doing the silly dance just because it rained today.  

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