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Wednesday Wheeee! Oil $95.50 and Falling

Wheeeeee!

We love it when a plan comes together.  Oil just dropped a full $2,000 per contract below our $97.50 shorting target on the /CL Futures and the SCO trade we were kind enough to share for free in our morning post of January 30th (the Feb $36/37 bull call spread at .40) now has an excellent chance of finishing up the full 150% in 16 days.  Actually, that same morning I discussed shorting oil as it popped up to $98 but, I was not specific about which USO puts we were using for our virtual $25,000 Portfolios in Member Chat and, unfortunately, our next free trade giveaway isn't until April as our Premium Chat goes back on wait-list shortly (what do you expect with these kinds of trade ideas?).  

Speaking of good trade ideas, I am still tweeting a few to the cheap seats and we hit one out of the park yesterday when I called for closing the AAPL weekly $455 calls at $6 that we had taken (also noted on Twitter) at $1.55 the day before.  That's up 287% in less than 24 hours – that's even better than the oil trade!

Our earnings plays for today (also tweeted as we wind down our free picks month) were from Monday's Member Chat, where we already had 10 of the CMG Jan $235/315 bull call spreads in our virtual Income Portfolio and we sold 10 short March $320 calls for $9 ahead of earnings, assuming high food costs and high expectations would keep us safely below the falling 200 dma ($325) on earnings (and we already have a massive, but unrealized, profit on our net $31.08 spread – which makes 157% in January if we hold $315).  That one is perfect as CMG is down just slightly on earnings so we'll hopefully collect our bonus $9 (29% of the basis in 3 days) and we're still on track for the full 157% at the end of the year.

EXPE was a new spread we added to our aggressive $25,000 Portfolio (we have two flavors of virtual $25,000 set-ups, one for high-margin and one for normal margins) with the sale of 4 March $65 calls for $4 ($1,600 credit) and the purchase of 6 July $64.48/69.48 bull call spreads at $2 ($1,200 debit) for a net credit of $400 so, even if EXPE fell, we'd still get to at least keep the $400.  Fortunately, we also had a buffer to the upside as EXPE shot up to $69 and that means we may have to give our callers their money back but we also get to keep all the gains on the long spreads – we'll make and adjustment in Member Chat later this morning.  

UUP WEEKLYYesterday was more of a watch and wait day as we didn't find any earnings plays we liked but we did like EDZ (now $9.15) as another nice hedge against a market drop but we're still well above our bear levels (see morning post) so no rush and, of course, we have a clever way to spread the hedge so it's not a one-sided risk.  

As you can see from Dave Fry's Dollar chart, we're still being knocked around by currency fluctuations and this morning the Dollar is up 0.5% and the Futures are down 0.5%.  I know it's hard to make the connection so I'll give you a moment….   

So the question we ask ourselves as traders (this does not apply to our long-term INVESTING strategies) is – can the Dollar break over 80, which is pretty much that declining 22-week moving average on Dave's chart?  Well, what factors influence the Dollar?  Other currencies for one thing and the Euro fell from $1.36 to $1.35 (-0.6%) this morning while the Pound is pretty flat at $1.565 and the Yen was rejected at 94 to the Dollar and is a bit stronger at 93.40 so it's the Euro – again – that is giving us trouble and I don't even need to look at the news to know that Italy and Spain are to blame.

That means our only real concern with today's drop is that we hold Monday's lows and that would mean we're simply still consolidating for our next 5% Rule breakout on the Big Chart:

That's the 10% line on the S&P at 1,520 we're looking at – very, VERY impressive.  The Russell is already well over their 10% line – as is the NYSE and those are our two broadest indexes while only our two narrow indexes – the Dow and the AAPLdaq – are truly lagging.  As long as the Euro doesn't implode then I don't see the Yen going over 95 (weaker) too easily and that means there's no reason for the Dollar to be leaping higher and crashing the markets and, as was pointed out by Josh Brown last night – where the Hell else are you going to put your money, if not in US equities?

QE-Fed-BalanceSheet-SP500-020413There's a nice chart set from StreeTalkLive this morning (thanks Diamond) and I only need this one to make a bullish premise as QInfinity was only put in place in October and now it's January and prior QEvents saw consecutive 50% moves higher in the S&P over 12 months.  So far, we've gone from 1,275 to 1,500 – that's just 17.6% in 4 months.  It also happens to be exactly on track for a 50% gain in 8 more months, which makes sense from a math perspective as the amount of QE is proportional in time and size to the prior two so there's no reason to think the results would be any different – is there?

In fact, things are nowhere near as bad as they were in late 2008 or mid 2010 and QE2 had to go through the Fukushima disaster on March 11, 2011, which kind of held it back a bit.  Our biggest concern with this round of easing is that it's way TOO MUCH and the Fed has misread the STRENGTH of the economy and is essentially overfilling the tub now and that spillover will begin to take the form of runaway inflation as all that money begins to slosh over the sides.  

You will hear an endless parade of fund managers and the media lackeys they pay telling you to get out or stay out of the market and that makes perfect sense because – THEY MISSED THE BUS – and now they need you to get out so they can get in, so any little hiccup is being blown way out of proportion – like the Fiscal Cliff was in December.  We ignored that nonsense and we'll have to ignore a lot more nonsense if we are going to stay bullish.  As I pointed out to Members this morning, you are BETTER OFF flipping a coin than listening to your average analyst and, the more analysts you listen to – the worse the performance becomes.

If you are in the market – of course you should have some hedges and, if you had runaway performance like we did with our Income Portfolio, of course you should take some profits off the table – because paper profits are only worth the paper they are printed on and ether profits even less.  If you are NOT in the market, however, perhaps you should consider some upside hedges as you really don't want to miss out on another 37% Fed-fueled move up, do you?   

That would make you as dumb as a fund manager – and you don't want that!  


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  1. phil

    Dollar shooting up to test 80 (up 0.5%) so pressure on the Futures and additional wheeeeee on oil ($95.15) – almost tempting to go long off that line!  

  2. hemas03

    Phil, just in case you have mode onto today's post. is it time to roll the Mar 13 34 short calls in the inc PF?
    TIA

  3. 1020

    Good Morning!

  4. stjeanluc

    Oil Lines

    R3 – 98.33
    R2 – 97.70
    R1 – 97.17
    PP – 96.54
    S1 – 96.01
    S2 – 95.38
    S3 – 94.85

    Yesterday's high and low – 97.07 / 95.91

  5. dclark41

    Phil
    That's quite a run JPM is having.  How would you play them here. Or would you just wait for a pullback for now?

  6. diamond

    Phil – Some interesting charts

  7. Pharmboy

  8. stjeanluc

    The FAS Mar 121 Puts didn't make it to $1.50 after Phil posted but maybe we get a chance today!

  9. stjeanluc

  10. stjeanluc

  11. revtodd64

    NFLX –  If NFLX is possibly replacing Dell in the indexes, should we be out of the put spread so we don't get squeezed?

  12. stjeanluc

  13. neverworkagain

    So God made a Banker!  For anyone who, saw the Dodge Ram ad during the SuperBowl, this is hilarious:  http://www.marketwatch.com/story/so-god-made-a-banker-2013-02-06?dist=beforebell

  14. 1020

    Banker – Very Good!

  15. stjeanluc

    P&L Ex. AAPL – $29044.00

  16. stjeanluc

    BTW, the P&L ex. AAPL on the 25KPM is $18,931.

  17. rpme

    Almost $100 to fill up the car today, add in the 2% tax for this year could really start to place a drag on spending.

  18. phil

    Good morning! 

    HPQ with a nice pop to $17.  I guess DELL is making people realize there's some value in that crap.  

    AAPL with actual buyers in the morning?  That's a scary trend if it continues. 

    Dollar 79.85 – not good if they pop 80 as not much upside resistance (and, of course, that would mean the Euro is failing $1.35).  

    CMG $306, EXPE $67 – perfect!  

    Oil did bottom out at $95.04 and is now back to $95.44 with inventories at 10:30.  As noted in pre-market chat, gas demand fell 1.6% last week so that does not bode well for inventories (and also indicates that consumers are price-sensitive above $3 wholesale (/RB).  

    Pattern is developing that "THEY" take us down pre-markets and then buy at the open – goes to my theory that Fund Managers were caught flat-footed by this rally and have a lot of catching up to do.  If you want to know how tightly controlled the media is in this country, consider the fact that the S&P is up from 666 in March 2009 to 1,500 in Jan 2013 for a 125% gain in 4 years and STILL you can't find any stories talking about how great equities are as an investment.  Now, you know I am no perma-bull but how could it be possible that THIS isn't the story of the decade?  

    We need to stop looking backwards and look forward.  Looking backwards is like driving away from a horrible accident and someone forcing you at that exact moment to make a decision on a high-priced insurance policy.  Of course you will over-pay as you just witnessed a horrible accident so you are overly cautious.  Rationally, you will probably go the rest of your life without it happening to you but it will be many years before you feel comfortable driving without caution.  Investing is the same way – did our parents or grandparents "hedge" or did they just buy stuff and ride out the dips with the very comfortable expectation that "stocks go up" and that's the way it will always be?

    The same was true for homes and they weren't wrong.  What's wrong with both is we had speculative bubbles where prices ran up ahead of the curve and then came back down to the norm, or even below – but it doesn't change the 100-year FACT that stocks and homes go up because they don't make more land and they don't make more shares of most companies so, when you are making 20 and 30-year investments, you can be reasonably sure that time will heal all wounds.  

    While we can, of course, do much better than the market by timing our entries and exits, the general idea is to be in the market so we can participate in that 500% INFLATION-ADJUSTED gain in the S&P since 1980 (left side of above graph from 400 to 2,000).  My parents sole their nice but not spectacular home around 1987 for $320,000, which they had bought for $60,000 in 1976.  Had they put that money in the S&P, it would be about $1.5M now – more than enough to replace the home.

    So make sure you understand the difference when I talk about INVESTING vs. TRADING as we do a lot of both on this site but I am 100% bullish on investing for the long-term.  We may have a pullback but I don't see any particular reason for a long-term crash and there's a lot more danger of an inflationary run, like the one that made my parents 400% on their home in 11 years.  Not bad for a couple that declared bankruptcy in 1972 and my Dad (step-father) had to take a job making deliveries because it came with a car and my Mom had so many part-time jobs we never saw her.  4 years later they had scraped together a deposit for a home (and my Dad was working again, of course) and that was the last time they ever worried about money as inflation and rising salaries took care of the rest.  

    There are still lots of things to buy – that won't be true if we have another few months like this because even my bullishness has limits when valuations get stretched.  Of course I didn't like the values form early 2007 until the Summer of 2008, as the S&P ran from 1,300 to 1,560.  My big mistake in 2008 was being a bit too eager to get in on what I'd missed as we went back to 1,300 but this time is very different and we have no intention of rising out a 20% correction.  What I'm more concerned with at the moment is – what if there is no correction at all – kind of like 1995 (450) through 1998 (1,050)?  

    So think about stocks you want to own for the next 20 years and make a list and, HOPEFULLY, we'll get a pullback with some good buying opportunities.  For now, the best place to look is earnings misses or things that fall out of favor, like CHK back at $20 today or TASR lounging at $8 or HOV at $5.32 or X or even the stock that must not be named.  

    That's why I don't mind cashing out our winners – there's always something else to buy…

  19. phil

    NFLX over $180!  Nasdaq inclusion is killing the put spread so it needs to be killed.  Wasn't an official portfolio play but the idea was the $180/175 bear put spread at $2.90 and the $180 puts are still $7.60 and the $175 puts are $5.50 so $2.10 but you could pull the puts and end up with the naked puts at net $4.70 (the $2.90 you spent less the $7.60 for selling the puts) and put a stop at $6 so risk .50 more of a loss (vs .80 to cash now) against maybe making $4.70 if NFLX plows higher.  

    I still like NFLX as a long-term short but the change in status blows our original 10-day premise.  

    March roll/Hemas – Sorry but what on Earth are you talking about?  

    JPM/DC – I'm sure I answered that earlier.  Ah, here it is.   

    Thanks Diamond – as you can see I used one of those charts – though not for the author's intended purpose…

    LOL Never!  

    $25KPA up $15,000 in a day?  Wow!  Imagine if AAPL actually recovers…

    Gas/Rpme – You said it.  

  20. yodi

    Hope you have observed my BIDU play of yesterday up .73 good enough for one of these cheap dinner meals in LA for 149.00 a shot actually up 175.00 so we can include a good tip!

  21. dclark41

    Phil/JPM
    Thanks. Totally missed that.

  22. stjeanluc

    Inflation / Phil – Actually, all this talk about the markets at an all time high don't take into account inflation. The Dow topped at 14,198 in October 2007. In today's dollar it would be 15,721 using the Fed's own inflation calculator (I guess 6 years at 2% adds up with big numbers). The Russell hit 856 in 2007 as well and that would be 948 today. And finally, the S&P was at 1576 in 2007 and that would be 1745 today. So still some ways to go before we catch up!

  23. phil

    "But market manipulation is my job!" Heard today at the Eccles Building on news of RBS' Libor-fixing.

    Oil inventories show 2.6Mb build, gasoline up 1.7Mb and distillates down 1Mb but that's heating oil so expected this time of year.  Certainly not supportive of $97.50 but not devastating either.  This is the big deal though:

     

    U.S. crude oil imports averaged about 7.6 million barrels per day last week, down by 499

    thousand barrels per day from the previous week. Over the last four weeks, crude  oil 

    imports have averaged over 7.8 million barrels per day,  754 thousand barrels per day

    below the same four-week period last year

    We have MASSIVELY cut down our consumption.  3.5Mb per week less imports than last week and 5.3Mbw less than last year WITH a 3.3Mb build at that level is a massive cut-back in consumption and we're now producing more than we import.

    Oil is running up to $96 and that should be a good spot to short /CL again (tight stops over the line, of course).  

  24. Maya1

    Phil,
     good mmorning.
    the people at UBS, who have some of my funds, had me in the AAPL Oct 580 short puts at $97 (10 contracts). That iitself was an even roll from Jan2013 puts.
    they held the puts through Jan earnings, taking a huge paper loss on the position as it stands.
    although they are talking, they don't have a salvage strategy, and I think we need one.
    what would you do?
    For completeness, they also hold 100 shares of AAPL in their account.
    thanks

  25. jelutuck

    Phil, need some advice (and probably a wrist slap about stops). I am short HPQ Jan 13 puts for a little profit, but sold the Feb 13 calls (full position) at just the wrong time and they are now $4 ITM. Not much premium to roll, do I just buy back for a loss and hold the short puts or would selling another call make sense?

  26. lolobear

    GMCR – Hey guys, what are your thoughts on it?  Love all the feedback I get here.  

  27. button

    Stock that shan't be named
    Somebody's buying

  28. Jbur

    AFL:  Just wanted to share a buy/write I did a few minutes ago.
    Bought stock for 51.02, and sold the Jan14 50 straddle for 9.12
    Net is 41.90 for a 21.76% profit if called away in 11 months.
    Put-to price is 45.95 if assigned in 11 months.
    Not as good as most of the Buy/writes that I do on a percentage basis, and not nearly as profitable as the directional trades that we do, but still better than cash.

  29. dclark41

    Lovin' that UNNAMED STOCK!

  30. yodi

    SWY buy write
    Stk @ 19.38
    sell Mar13 20c @.80
    Yield on stk 3.6%

  31. dclark41

    Phil
    I sold half of my SQQQ hedge early this morning. Just think the NAS has some catching up to do.

  32. phil

    Nice job Yodi.  As long as we can afford to eat – we're going to be OK…

    You're welcome DC.  

    Inflation/StJ – Good point.  

    FDX making new highs on no Sat delivery at post office.  

    AAPL/Maya – Well, if you are netting into AAPL at $483, there's not much to panic about with the $580 puts and AAPL at $460.  The PRICE (not value) of the Oct $580 puts is $135 and the 2015 $540 puts are $135 so not much to be gained on the roll so this trade NEEDS AAPL to move up at least $25 just to get even.  There is no actual backup plan on something that deep in the money, other than rolling to 2x the 2015 $400 puts at $50, taking the short-term $35 loss and sitting on the short $400 puts at net $31 for a 2x entry at $369 vs your 1x at $483 current commitment and 1x at $443 in 2014 commitment if you were to roll the Oct puts to the 2015s.   If you are comfortable with the net of the rolls – then you really don't need to do anything as $580 is not an unreasonable target for October and the VIX is low so the rolls are not likely to get worse for you.  As you own 100 shares of AAPL, there's not much harm in selling the 2015 $580 calls at $31 to cover and then you still make $120 on the stock from here before getting called away plus the $97 you won't have to pay the putter would be a very nice turn-around from here and lowers that long-term, worst-case net to about $350 on 2x, if things go that way.  

    Speaking of AAPL – wheeeee!   I told you we'd miss those weekly calls.  

    HPQ/Jet – Isn't this year 2013?  How can you still be short the Jan puts?  Always try to do your rolls before your caller or putter is more than 2/3 in the money – otherwise you get buried, like you are now.  The Feb $13 calls are now $3.90 with the stock at $16.90 so no premium but you can roll them to 2x the 2015 $17 calls at $3 for a $2.10 credit and buy 2x the 2015 $12 calls for $5.75 less the $1.10 per long you just collected nets you into that $5 spread for $4.65 less whatever you originally sold the puts for and then you can take whatever other profit you have on the short puts and sell the 2015 $15 puts for $2.75 and now you are down to less than $2 on the $5 spread that's 100% in the money.  Also, if you don't want to sell 2x the puts, you only raise your net on the spread from $2 (or less) to $2.75 – so still a nice upside with the 1x commitment on the short side (and you can stop out the long spreads for $1.50, which would knock another $3 off a 1x put-to basis.  

    Aren't adjustments fun?  8)

    GMCR/Lolo – I don't like them but they are too scary to short until $60ish, then I'll be excited again.   We got burned from $100 to $115 but than a big wheeee as they fell to $40 and, ultimately, $20.  Now back at $47.60 – they are the same company with the same model with the same flaws as they were last year – just a new round of suckers to sell to this year. 

    AFL/Jbur – I like those guys a lot.  

    SQQQ/DC – Good call, we'll all have to follow you if AAPL hold $460. 

  33. yodi

    MCO long term play
    Jan15 buy vertical 38/47 @ 5.18
    Jan15 sell jan15 38p @ 5.35
    4 off
    Sell 1/2 Mar13 50c @ 1.60
    PM margin 560.00
    cost of Jan15  trade  only +- 100.00 credit
    Max profit at 47 3680.00 longs only!!!
    Stock has dropped 10$ !!!!!

  34. yodi

    the mistery stk 464

  35. dclark41

    Phil
    I am not a sqiggly line guy, but the chart on AAPL looks like there isn't much keeping it from getting to $490-$500. Perhaps it can get there before the Fiscal Cliff crap starts again. Any interest playing another weekly trade?

  36. hemas03

    Phil, I apologize, I should have been more careful .My question is whether it is time to roll the Mar 13 TSLA 34 short calls in the Income PF?
    TIA

  37. dclark41

    Phil/AAPL
    I think I got my answer. What do you look for to convince yourself that a stock has broken through resistance ($460)? THX

  38. stjeanluc

    AAPL weeklies / Phil – They went down to $2.90 this morning… I guess we could have taken another shot again then but hindsight is always perfect.

  39. dclark41

    St jean/ unnamed stock
    That would have been ideal but 460 was sitting there and looked like a strong point of resistance. If it holds above it looks like there is little to stop it going to 500.

  40. albo

    ZNGA

  41. yodi

    Phil Milking GMCR
    buy Jan14 vertical put 45/38 @ 3.53
    sell Jan14 25p @ 1.41
    sell Mar13 40p @ 1.33
    lower protection

  42. Burrben

    Yodi / Trades
    When you post the trades are those the prices that you got filled at, or the mid's.  Which of the trades have you actually put on in the last week?

  43. stjeanluc

    AAPL / Dc – And now we have it at R1 which is 465. Bounced off cleanly of PP at 453 which is where we could have taken a shot. Once again, it's easy when you look back at the charts!

  44. yodi

    sorry pressed wrong button
    lower protection 38.78
    upper protection 78.10
    profit if stays the same 494.00 Mar13
    you can sell other 3 month putters to fill your bag
    Your thoughts as you are negative on stock

  45. stjeanluc

    The insanity continues – we use less oil yet we store more!

    http://www.bespokeinvest.com/thinkbig/2013/2/6/crude-oil-and-gasoline-stockpiles-both-increase.html

    This morning's release of energy inventories from the Department of Energy (DoE) showed that crude oil inventories rose by 2.623 million barrels, which was roughly inline with forecasts for a build of 2.65 million barrels.  While the increase was inline with forecasts, actual levels are still well above normal.  While we started out 2013 above average, the spread has continued to widen since the start of the year.

  46. rossmanmd

    Phil / RRC,
    Lat e in December

    RRC at $62.94 (now $71.22)
    sold 2014 $57.50 P @ $5.90 (now $3.25)
    sold 2014 $70 C @ 5.40 (now $9)

    Nice return in a little over a month. Any suggestions to improve?

  47. scottmi

    AAPL – one could go mad watching AAPL.

  48. yodi

    Burrben
    I do about 15 to 40 trades incl. rolls etc. a day you are asking me for trades of last week? If I show a trade like SWY it was filled at 9.57 and 10.04 stk @ 19.37 call @ .80 today. I normally set up a trade and place the order some get filled some I set GTC as it depends if we do have an up or down market. Last weeks trades are of the past and mostly no good for trading any more. Look at Phil's trades he places the values and by the time you wake up and look at them the horces are out of the stable. You have to form the iron when it is hot! BIDU was down yesterday they are already in a recovery mode, I mentioned yesterday to wait with the short caller which I possible only place once they up to 100 or so, that is why I put this recommendation on yesterday!!! It is just my way of trading every one has a different view.
    Mostly I wonder if any one is intersted at all?
    Sometimes I wonder if some one is interested in these trades at all ?

  49. yodi

    Burrben
    Take MCO down 10$ the vertical has filled sold the 1/2 Mar13 for 1.52 but the long Jan15 38p is still open I set it now at 4.95 they offer 4.75 but you put it on 4.75 they drop it to 4.70 or 4.65 like a cat and mouse game so you just leave the sucker and they run after you on a down day.

  50. Savi

    scottmi--what do you mean 'could go'  I am already there
    yodi—fwiw I have the swy  order in but no fill yet—thanks

  51. yodi

    Savi
    SWY should fill at about 19.40 and call at .82

  52. yodi

    Phil BIDU steaks for two already 350.00

  53. stjeanluc

    New report from the CBO:

    http://blogs.wsj.com/economics/2013/02/05/charts-10-years-in-the-u-s-economy-according-to-cbo/

    Growth and jobs come back but so do the interest rates!

  54. snow

    Interested/Yodi – you're doing the silent tree falling in a forest thing? You're appreciated, mate, it's all part of great variety we have here in styles. Very valuable.

  55. palotay

    Yodi – I'm definitely following your trade recommendations and appreciate your contribution. Can you comment on your thoughts on position sizing?  From the quantities you list it seems like your strategy involves doing many very small buy write positions. Is this correct? Do you have a system for monitoring how invested you are at any particular time?  PM margin will allow you to put many positions in place, but could burn you bad if the market corrects violently. How do you monitor this? I'm struggling with this myself and would love to hear your thoughts. Thanks.  

  56. bai2r

    Yodi  – I am following your plays, especially the tree-planting ones.  Learning from what you've been posting.

  57. wombat

    Phil // TWO
    I can see your logic ( in a salvage sort of way ) but I have a bigger concern. As an investor, I would have never made that trade – by simply placing it I lost money. I know you're simply trying to make the best of a bad situation but why would one even place a buy/write that wouldn't cover your current strike ? You wouldn't unless you were so desperate to take a loss on a stock that you didn't even own yet ? 

    So I have two concerns –
    ONE // Fidelity – these were not the numbers showing up on my 'Buy/Write ticket'. I showed a spread of $.60 -1.80. Next thing I know I'm getting filled at $0.23. I am moving to TOS as quickly as possible
    TWO // PSW Port – how do I get the most accurate info? I took the TWO  trade directly from the income port on Feb1 and the numbers dont make sense. I am moving away from Fidelity and had a meeting this morning with the sup's sup's sup and they dug into this – apparently when the trade went out there was zero volume, and the spread $0 – $1.80 !! They checked all their exchange records and nothing in the last 5 days has cleared $1.10. so how could one have possibly sold $2.00 calls ?

    It seems we throw around lots of ideas but only the 'PATs' ( Phil-approved trades ) get put onto the Google spreadsheets.
    I love following chat – it's great learning, but sometimes when I'm busy with the girls
    Is there an easier way, without combing through the entire days chat to get 'green-light' PATs ? StJ obviously works like a dog keeping these updated and I want to follow the income port pretty closely.

  58. kevinb63v

    Yodi,
      I am folowing your trades with great interest and have done several of the buy/writes. I like the small position sizes as I don't have a huge portfolio and I especiallly like the buy/writes as they are very suitable to my current level of expertise. I would particularly like it if you could make mention of your intended strategy for adjusting when things don't go as planned, if you have a chance.

  59. 1020

    yodi – I'm not following your trades…. ;)

  60. phil

    MCO/Yodi – A little early to catch that knife I think.  If they are guilty, then massive lawsuits pending from damaged investors. 

    AAPL/DC – Lots of interest but I like to buy when they are going down, not up.  Good thing too as you asked that question close to $465, now $461.  If they test $455 again and hold it, that's a bit more tempting but I'd love to see $440 for a play on weekly calls.  

    TSLA/Income Portfolio, Hemas – Ah, knowing what stock it is gives me a big clue!  Those are March calls and we wisely did a 1/2 cover so we can do a 2x roll and the March $34 calls are $5.60 and June $41 calls are $2.90, so better than even on a 2x roll and I don't think TSLA is going to fly through $40 to $42 and the 50 dma is way down at $35 so I'm inclined to wait and see as long as that roll doesn't turn negative on us.  

    What/DC – Lots of things, including resistance lines but I'm more concerned about where I see consolidation zones in various views (but mostly on daily or weekly StockCharts as I'm not a day trader) as well as recent news and sentiment and, of course, our 5% Rule, when that applies.  Clearly, with AAPL, they had a rough time getting over $460 since the big drop so now that's the line they have to hold as their first stair back up.  Since the bottom was $440 and they are down from $520 (also consolidation pre-earnings) then we have an $80 drop and 20% retrace is $16 to $456 and you can see how that's in play but $460 is a good psychological line and then $472 is the strong bounce and then we can look to fill the gap and see how that goes.  But again, I will say for the 100th time – this process could take MONTHS, not days, to play out.

    AAPL/StJ – I thought about it but was greedy for a $2 entry before making the call.  C'est la vie. 

    GMCR/Yodi – I like it but they are very unpredictable as you never know how they'll book revenues.  I much prefer to see the accounting irregularities first (Sam did a great job writing them up last year) and letting the sheeple run them up and then going short.  

    Oil made it all the way to $97, which is a great line to re-short of course (/CL).  We never actually crossed back below $96 so that was a no-trade anyway.  Very annoying for longer-term trades though.  

    RRC/Ross – It's right on track, why change it?  There's no dividend so you can cash the stock and buy the 2015 $50 calls for $25 and that puts $46 back in your pocket (off a net $51.64 entry) so you have about $6 left in the 2015 $50/2014 $70 bull call spread with $14 of upside and your worst case is being re-assigned at net $63.50 (10% down from here).  Not a huge improvement over the net $18.36 you make if called away at $70 if you wait but it's really a matter of if you have anything better to do with the $46 than wait a year to make $18.36 vs. $7.33 you'd net for cashing out now.  As you'd have to make 20% on the $46 to make it up and as this position really doesn't look risky with a 15% cushion since you bought it – I don't see the point in changing it unless you think it's going down.  

    AAPL/Scott – That's why I try to say, 10-20 times a day, that people should stop staring at it and move on.  It's so funny, we played RIG and BP off the disaster and they went up and down like crazy for months and people were able to ignore the nonsense but AAPL just drives people crazy with every $5 move.  

    BIDU/Yodi – A very good call on that one.  Well played. 

    Rates/StJ – That's to be expected but bad because we have such a massive debt load.  

    TWO/Wombat – I agree the call side is a trade you would never make but the WHOLE trade is fine.  To me, it's not worth the stress to worry about it.  If you put in a net number on the short straddle and you got your price – it doesn't matter much what the puts and calls individually sold for EXCEPT, it greatly increases your chance of getting called away and, as I said, it seems to me the market maker took that order as a license to steal as he got a good fill on the puts and then gave you the minimum on the calls to net you out at what you asked.  As to following trades – hopefully, over time, you will develop your own portfolio with your own balance of trades.  We have tons of good ideas and only a very small percentage get included in portfolios (and you can see how full they get).   Should a full portfolio mean I should stop having ideas?  

    LOL 1020!  

  61. scottmi

    IRBT/stj, phil – see an earnings play here?

  62. hemas03

    Thanks Phil, yes giving you the name of the stock does help a little.  I'll try to remember that next time!

  63. yodi

    Thanks GMCR MCO we will see

  64. yodi

    All thanks for your interest. I am coming back to some of your questions now.
    Still watching the chickens hatch

  65. Burrben

    Yodi / Trades
    I follow all of them in a "Yodi's Trades" tab on IB.  Some of them I do once I read Phil's take, and then do a bit of research.  I did the QCOM which is working out excellent.  I generally start out with a few contracts, and then if on track, add a few more.
     
    I've been trying to build up positions in long term assets recently, things like TWO, AGNC, GE, BA, MCD, X, INTC, and even Mr. Fruity when it goes under 440.

  66. newt

    YODI: Please keep the ideas coming. Its a great resource.

  67. Maya1

    Phil/AAPL
    Thanks.
    I am not totally clear on the "2x $400 rolls and sitting on them for $31???

  68. lionel

    Burrben/
    Is Mr Fruity in the shape of an apple? :)

  69. Pharmboy

    HSP…someone is loading up on the Feb $35 Ps.  A discounted entry or is there something brewing with their Feb 13 earnings?

  70. mjjwo9b

    Phil / FAS Money Question:  Back a bit, when the XLF spread was increased to 20 due to the FAS DD and roll to 142, you mentioned that the hedging would be off as XLF went up in value.  I have been watching that relationship and wondered if you could offer a remedial explanation one more time.  Maybe it will sink in this time.  Thanks.

  71. scottmi

    DECK/phill – i like the weekly chart. daily has been grinding upward..  opportunity here before earnings (2/19) or stay clear until after?

  72. sgh225

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; } Burrben
    Where do I find IB as you refer to Yodi's trades?

  73. sgh225

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; } Burrben
    Where do I find IB as you refer to Yodi's trades?

  74. stjeanluc

    Earnings tonight (average move / priced into options)

    AKAM: 11% / 10% (Feb options / whisper is that they meet estimates)
    GMCR: 12.6% / 15% (whisper is for a beat)

    Reporting tonight are also CSCO and V.

    Don't have numbers for IRBT Scott.. Sorry!

  75. sgh225

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; } Phil,
    Re:/OS Sold another 1/3 NFLX calls. Will buy back before close.
    What does 1/3 refer to?
    Which NFLX calls?
    Thx

  76. diamond

    sgh225 – The NFLX calls are on Optrader's board (NOT Phil's).

  77. Savi

    sgh—that is OPT;s site

  78. yodi

    palotay
    Thanks for your interest I only show some of my trades as it is a lot of extra work to feed the info on a trade as well.
    Some month 250 experations! Besides rolling.
    Yes I do many trades in low numbers being between 1 and 5 options. I do not add to a trade once it is made especially long term trades, as Burrben just mentioned. Yes I do have a follow up sytem where I add my daily movements, showing loss or profit on a stk from the day I started the trade.
     I try to keep mostly 35 to 40% in cash in my portfolios. PM margins are obviously in away an advantage. My buying power margin is normally up to 50% of my liquidity. In a market crash, bade word, you are obviously better of not having short putters. Stocks and callers will not hurt you as long as you do not sell them. I do follow a lot Rich of sytematic call writing. He buys normally 100stk and sells calls against them seldom sells puts. His motto is as long as I get money out of my callers no matter the value of the stock. Seing some of his stocks, they have a full cycle say from 50 to 10 and back to 50 again, never lost a nights sleep.
    Sometimes it pays to dollar average by adding an other 100 stk at the time  when the stock is really down and so you can do better call writing.
    Quantities For me it pays to be in low numbers of options so if they turn against you you can pay for a correction.
    Just looking at that crazy stk NFLX up again to 182 still holding the 180/185 bull credit spread. I do not have 10 or 20 only 2 so looking at todays position I am only 120 down no problem. Now tell me market 36 down AAPL even and NFLX up 6$ which card do you play???
    Two thinks to learn 1. do not panic  2. be like a praying mentis patience.
    Hope this help to some of all you fellows questions.

  79. dplatt

    Yodi/ Synthetic Long from yesterday
     
    If that synthetic long were to go against you it would have the same profit loss as owning the same amount of shares in the stock. While requiring less capital to enter the trade.
     
    For instance:
    Long SPY 1000 Shares at 150.75 = $150,750.00 Needed to invest. SPY falls south to 140 = -10,750.00 (-7.1%)
    Or 
    Long 10 SPY 150 Jan 2015 Calls @ 12.50
    Short 10 SPY 150 Jan 2015 Puts @ 16.70
    Net credit of 4.20
    Required investment: (not sure about TOS with Portfolio Margin) but OptionsHouse is showing 46k so about 1/3 of what is required going long the stock.
    The $ loss will still be -$10750 if SPY falls to 140 (ignoring Time premium changes) so you will need to put up more capital on a margin call. The % loss will be much greater due to the leverage. Also though the % gain if SPY goes up will be much larger and you can use the other 110k that isn't being used at the opening of the trade to invest in other things. Careful of margin calls though and liquidations.

  80. phil

    IRBT/Scott – Sequestration is a big overhang.  I love these guys long-term but a bit dicey into earnings.  Maybe sell March $22.50 puts for $1.20 just because it's a nice premium for 37 days and, if they drop, then look to establish a nice buy/write for a long-term position.  

    You're welcome Hemas.  

    Opesbridge and I were just looking at RRD – still crazy cheap with an 11.4% dividend at $9.34.  Best thing is, unlike most big dividend payers, you can get a reasonable cover selling the 2015 $10 calls for .80 and the 2015 $10 puts for $3.50 for a net $5.04/7.52 entry, which makes the $1.04 dividend 20% annual.  These are already in the Income Portfolio from $9.23 in early Jan.

    AAPL/Maya – I'm netting out your remaining credit on a 2x roll of the current short puts.  

    FAS Money/Mjj – As FAS goes up in price, the 3x multiplier adds more to FAS than XLF.  So, if XLF is at $15 and FAS is at $90, a 10% rise in XLF takes it to $16.50 (and you gain 3x $1.50 on your longs = $450) while FAS goes from $90 to $108 (up $1,800 on one contract) and you have a net $1,350 loss.  Now, if XLF goes up 10% more, to $18.15, you gain 3x $1.65 ($495) but FAS goes up 30% to $140 (+$3,200) so your net loss accelerates quickly as XLF and FAS move higher.  That's why we started with roughly a 6:1 ratio but now we're in 3:1 as we had to roll (thinking it was unlikely XLF would go up 20% without a pullback) and our next move would have to be adding more longs as we can't afford to let it bury us.

    GMCR/StJ – I'm worried they zoom up like NFLX.  

    AKAM is a good earnings play as you can sell 10 Feb $43 calls (up 5%) for $1.45 ($1,450) against the 10 May $43/46 bull call spreads for $1.10 ($1,100) for a net $350 credit and, if AKAM fails to reach $43, the short calls expire worthless and you keep whatever value remains on the long spread (probably half unless they bomb).   Let's do that in the $25KPA.  

    NFLX/Sgh – I have no idea what you are talking about.  Is that something from Optrader?  

    Ah, that seems to be the consensus.  

    Oil bottomed out at $96.25 and now back to $96.66 for NYMEX close.  

    Dollar 79.81 – dead flat.  

    Dow volume 75M at 2:35, VIX 14, TLT 116.71.  Some people are a tiny bit nervous..

  81. scotbraze

    Speaking of the stock we dare not mention, option-calc (dot com) shows the weekly option pain as $460, and Feb is $500.  Doesn't mean it will get there, but it's nice to know where the pain is currently.

  82. yodi

    kevinb63v
    Adjustments
    I do not know if you followed my AMZN play of the 23rd Jan13
    Here I show the play again as Phil thinks the stock is way over valued.
    Jan15 buy 260p for 43.98 now 46.30
    Jan15 sell 220p for 27.03 now 28.05
    Jan15 sell 145p for 8.35 now 7.95
    Feb13 sell 260p for 6.30 now 4.10
    This was only a 2x option play on all positions! up 790.00!
    I ask you what is there to adjust? stock down to 261.59 The Feb is still all premium 9 days to go. Yes with this market anything goes. But here again you need to sit back and wait. Next week we will see possible what next to roll or to sell.
    If you real nervious. you can put a stop at about 4.50 4.75 on the Feb.
    Question any one made this play?

  83. jromeha

    Phil- looking for your favorite longtime ABX play at the present moment. Thx

  84. Savi

    Pharm—-is there any catalyst for ZLCS coming up?—TIA

  85. mjjwo9b

    Phil/FAS – Thanks.  Very helpful.  One last question occurs to me:  Is your current preference for short FAS Calls due to the down side protection they afford.  Your premise is for a pull back/correction.  Without that, the puts would be the preferred play?  

  86. yodi

    dplatt
    SPY I do not play the stock 10x to me is a high poker game.
    Looking at your set up you left the Jan15 short caller out of your synthetic play, which when the stk drops will go oposit to your putter!
    To my knowledge buying stock will cost you about 50% in margin
    with only a 2% yield why would you spend 150$ on the stock if you do not think the market will go higher?
    I sometimes buy a further out put of this stock in case the market will drop.

  87. dclark41

    Phil/NLY
    Can you explain how this might affect the stock of NLY?
    "Annaly Capital (NLY) files a shelf registration for the possible offering of common and preferred stock, warrants, rights issues, or debt. (S-3)" From SA this morning.

  88. qcmike

    Phil
    After hours
     
     
    You had a trade last week that would not lose money it had a cd for part of the money
     
    Could you please send me a link or tell me what day it was on
    Thank you

  89. kustomz

    Worst performing, still cant believe AAPL is on that list.

  90. Pharmboy

    In Feb 2013, Fed will buy 75% of new 30y Treasury supply….

  91. stjeanluc

    Foxconn / Phil – One of the reasons why Foxconn is buying 1 millions robots for its factories. They need to replace all these "expensive" Chinese employees by machines. On the other hand, no need to be in China to run a million robots, that could be done anywhere. 

  92. crussell14

    Phil – I really like HOV selling Jan 14 $5 puts for $1.00 and buying the Jan 14 $5/7 Bull call spread for $.58. What do you think or do you see a better play? Thanks

  93. yodi

    dplatt
    I have set up your SPY play it does not look bade at all.
    Not spending any money on stock!!!!
    Jan15 buy vertical 137/155 @ 10.26
    Jan15 sell 135p @ 10.55
    Cost for two option plays credit 56.00!!!!
    Margin PM 635.00 with 2 of only !!!!!
    lower protection 134.77
    Max profit at 155 and over 3650.00
    Stk was in the 125 range Jun12!!!! and dipped to 135 Nov12!!!
    So savely I could go even with 3 play with a PM margin of 955.00
    selling 1 of Mar13 153c for 1.20 not a great return but better than nothing.

  94. Pharmboy

    XLF options bet….hedging or forewarning?

  95. phil

    As I told you – Hedge Funds are buying while they chase retailers out of the market:  

    BAML client flows net buys stocks

     

     Mobile Data Traffic To Grow 13-Fold By 2017: Cisco 

    ABX/Jrom – I like the 2015 $20/30 bull call spread at $6.80, selling the $30 puts for $4.60 for net $2.20 on the $10 spread that's 120% in the money.  In theory, if ABX takes off, you can sell some calls for income but, for now, ties up $14 or less in margin to make $7.80 in 2 years as long as ABX doesn't DROP 10% and break-even is way down at $26.10 (20% off) as you own the $20 calls.  

    FAS/MJJ – Yes, I think $17.50 is the "right" price on XLF and that should be about $146 on FAS and we can just roll our callers along until they expire as long as we don't top $18 too quickly.  Meanwhile:

     

    From this morning's Cashin's Comments (emphasis ours):

    A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade.  Here's what he wrote in last night's edition of his valuable newsletter:

    In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs.

    Jim then goes on to list some of the scheduled events and deadlines visible over the next 60 days (mostly in Washington).  When you add in the broad variety of geo-political possibilities, it's a decent reason to stay extra alert.

    Also:

    According to Barron's columnist Steven Sears, someone made a big bet against the financials ETF yesterday (ticker symbol XLF), and it has everybody buzzing.

     

    The trader bought 100,000 put options on the ETF (a put option increases in value when the price of the underlying asset, in this case, the ETF, goes down).

    NLY/DC – It is dillutive but I don't mind if they issue stock for cash to buy more stuff or pay off loans, rather than just borrowing money.  Pretty normal activity for a REIT.  I'm a little worried that they are going to use this money to take CIM away from us.

    Not losing money/QC – Oddly enough, that was CIM.  

    Robots/StJ – Yes, but then you need cheap labor to fix the robots.  Of course, then we can build robots that fix robots and just worry about the people who have to fix them until we can build robots for that to and then just the people who repair the robots that repair the robots which repair the robots until we get a robot that can repair those robots.  

    HOV/Crussell – Back at $5.33 I like them again for an entry but I'd still go Conservative and sell the 2015 $4 puts for .95 and use that to buy the $3/5 bull call spread for $1 and then you have the $2 spread that's 100% in the money for .05 and your break-even is way down at $3.53, so even if the drop to $2.50 and you have to DD – not really tragic.  

    XLF/Pharm – Yep, I saw that too. 

  96. dplatt

    Yodi/SPY
     
    i don't have a play for SPY. If i had any play it would be a long term VXX bear vertical or calendar spread the next time ^VIX gets over 18-20ish. Not setting a target on VXX because of time decay.

  97. lflantheman

    Virtual MoMo trade:   I'm trading GMCR earnings…….BTO 5  GMCR March 16  50 calls for 4.00.   STO 5 GMCR Feb 16   55 calls for 1.65.   This is a bullish trade, of course.   Break even about $46.   Possible double +. 

  98. Pharmboy

    Oil….what a crock.

  99. Burrben

    Phil – On AKAM it looks like the full spread is trading for only a 0.22×0.26 credit right now.  Just want to make sure I got the strikes right
    Short the Feb 43C's
    Long the May 43-36 Bull CS
     
    Look to put that on for a mid priced credit, or hold off?  Anyone get the posted prices?
     
    PS: I love RRD….

  100. mjjwo9b

    Phil,  Thanks for the FAS 101 lesson.  

  101. Pharmboy

    GMCR – too funny, they make 64c a few periods ago, and drop to $24.  Now consensus is 64c, and they trade at…wait, wail  $49.  Yeap.  Makes perfect sense.

    I like that VIX play, I have the Apr 18 calls….

  102. Pharmboy

    Oh, and the 16/18 BCS in VIX….oh, and the 19 Apr calls….oh…oh…oh…

  103. phil

    AKAM/Burr – Well, it's an hour later now and the Feb $43 calls have fallen to $1.35 but the May $43s are $3.05/3.10 with a last at $3.05 and the May $46s are $$1.96/2 with a last at $1.95 so almost the same at the moment but no point in filling if you don't get good prices.  I imagine you're saying you're getting a $250 credit vs the $350 credit goal and that's a judgement call cause you only have another 5 mins to fill it. 

    You're welcome MJJ. 

  104. lflantheman

    Here's another Virtual MoMo trade:    BTO 10 more GMCR March 16 50.00 calls for 4.00 .   STO 10 Feb 16   50.00 calls for 3.15.   That costs $850 for the trade and could earn 6 times investment.   Put them both in the portfolio .  

  105. lflantheman

    correction on the last post….I used the Feb $50 weeklys, but the Feb 16 $50 calls could be used as well. 

  106. Burrben

    Phil / CIM
    Quick question on selling ITM calls, how do you determine the exercise risk?  In essance if they called my stock, I would get 3.40 for it, so is that the price on the stock I have to watch out for?  
    Or maybe it doesn't really matter….fine call my stock away.  I buy more and sell more calls….
     
     
    you can buy the stock for $3.09 and sell the 2015 $2.50 calls for .70 and buy the $3 puts for .60 and you net in at $2.99 with a $3 put so you can't lose and HOPEFULLY, you collect the .36 dividend 

  107. Burrben

    Phil / AKAM
    Thanks, I tried to get a fill on those for a 0.29 per contract credit, or $29, but it didn't fill.  Oh well, I'm sure it will be a 500%'er since I didn't enter it :)

  108. crussell14

    Phil.
    I like the HOV play. Thanks

  109. phil

    RUT flying into the close – back to 911.  

    97M with a minute to go.  

    Oil making another run for $97.  

    GMCR popped $4 (10%) at the close on good earnings but how could someone have possibly read the report and reacted that fast?  Now back to $48 so I wish we'd played – other than the initial heart attack…  LOL – now GMCR falling hard.  

    AKAM getting hit for 9% on their news – great for our play. 

    Calls/Burr –  Usually you need to "watch out" for the dividend being higher than the call's premium – then it's in the interest of someone to exercise to capture it.  If you buy the stock for $3.09 and sell $2.50 calls for .70 then you're in for net $2.39 on that side and if they want to pay you $2.50 for the stock at any time – LET THEM!  The idea is to protect yourself initially and, if all goes well, you can roll the caller down the road but the stock only pays a .08 dividend so, if at any point you get called away with a .11 profit, that's more than the dividend would have been and you still have the puts working so you just buy the stock again and you're in no worse shape and you sell more calls and cycle through again.  

    You're welcome Crussell.  

  110. projectwise

    AKAM-GMCR / Phil – Thanks for my first 2 earning plays of the season :) Still the cc but looking good for now !

  111. jabobeast

    Phil—any reason why RUT/IWM seems to be doing so much better than the rest?
     
    Sorry, if you already commented on it. Running on empty today.

  112. projectwise

    GMCR / Phil – You know you have the GMCR earning play in both 25k, right? ;)

  113. stjeanluc

    Robots / Phil – And then….

  114. phil

    You're welcome Project.  I did forget we did that $25KP play already on GMCR.  Well, net .50 should hold up on the longs. 

    RUT/Jabob – Sure, the RUT is small-cap US-based (mainly) companies that don't need Europe and don't suffer from a strong Dollar (they benefit from it) so US-led recovery is great for them. 

    Cylons/StJ – Let the robots take over – can't do worse…

  115. jabobeast

    thanks Phil! ;-)

  116. angelcur

    there was some twit just on CNBC from Fortune saying she thinks AAPL could go to $200 she was saying that AAPL earnings are not real because to much comes from iPhone and will revert to lower levels
     she also thinks AAPL is a value trap and the shift from Growth investors to Value investor will be messy. I think that has happened…from $700 to $450

  117. stjeanluc

    Cylons / Phil – Especially if they look like Tricia Helfer…

  118. stjeanluc

    Earning plays / Phil – BTW, good stuff with the verticals and selling calls like you have been doing for AKAM and others. I had not thought of that as a setup (part of the 10,000 hours). No downside as you have a credit and you can buy yourself an aggressive BCS that gives you a fat profit zone on the upside with the juiced premium on earnings. Like a ratio but with a bigger "strike" zone! You just have to be ready to ride the possible paper loss if the stock goes up as the vertical takes longer to unwind. I'll post something on the wiki with charts.

  119. dclark41

    angel
    All last week there was a ton of negative AAPL articles from Forbes. And more from Bloomberg on the week before that. This week it continued with Motley Fool. It's like they take turns.

  120. kinkistyle

    Interesting divergence taking place between equities and High-Yield/Junk bonds.  Might be signaling a correction:
    S&P500 vs. Junk Chart

  121. wombat

    Yodi //
    Two thinks to learn 1. do not panic  2. be like a praying mentis patience.
    Can I please please please have some T-Shirts made ?!?!

  122. wombat

    Phil // VIX
    When I read something like that Jim Brown piece it makes me shiver. As a trader what do you do with something like that ? Ignore it ? laugh and move on ? look at our levels and chuckle ? 

    Yodi // I do follow a lot Rich of sytematic call writing.
    What is this referring to about call writing? I only write puts on stock I would want to own, but I could really get better at call writing ; >

  123. Canuck

     
    Wombat/VIX,
    You may recall a huge trade like this happened before in 2008, with a huge out of the money put purchase on Bear Stearns, with the expiration roughly one week out – see below.
     
     
     
    Bringing Down Bear Began as $1.7 Million of Options (Update2)
    By Gary Matsumoto – August 11, 2008 16:16 EDT
     
    Aug. 11 (Bloomberg) — On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street's devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse.
    In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-biggest U.S. securities firm out of business and, in the process, reap a profit of more than $270 million.
    Whoever placed the bet used so-called put options that gave purchasers the right to sell 5.7 million Bear Stearns shares for $30 each and 165,000 shares for $25 apiece just nine days later, data compiled by Bloomberg show. That was less than half the $62.97 closing price in New York Stock Exchange composite trading on March 11. The buyers were confident the stock would crash.
    “Even if I were the most bearish man on Earth, I can't imagine buying puts 50 percent below the price with just over a week to expiration,'' said Thomas Haugh, general partner of Chicago-based options trading firm PTI Securities & Futures LP. “It's not even on the page of rational behavior, unless you know something.''
    `Lottery Ticket'
    The 57,000 puts that traded March 11 at the $30 strike price and the 1,649 that traded at $25 were collectively worth about $1.7 million, Bloomberg data show. Each put is equal to 100 shares of stock.
    “That trade amounted to buying a lottery ticket,'' said Michael McCarty, chief options and equity strategist at New York-based brokerage Meridian Equity Partners Inc. “Would you buy $1.7 million worth of lottery tickets just because you could? No. Neither would a hedge fund manager.''
    During the next four days, New York-based Bear Stearns unraveled in the swiftest investment-banking failure in Wall Street history. Speculation about a cash shortage proved self- fulfilling, causing customers and lenders to demand their money back. Bear Stearns's stock sank 47 percent to $30 on Friday, March 14. That's when the Fed moved to stave off a panic by helping the U.S. Treasury arrange JPMorgan Chase & Co.'s purchase of the company for $2 a share, a price unimaginable to the firm's 14,000 employees.

  124. rpme

    The only person who would bet $1.7 million on puts 50% out of the money with one week to expiration, is not gambling, they know. 

  125. jfawcett

    FWIW – When I started PSW back in May 2012, I stared a note sheet in MS Word.  I normally print out trade ideas, Phil's notes, as well as others for studying during the day.  This Word document is now 100 pages (and since my educational level has increased, postings to this document has decreased lately).  New members may want to consider this as a way to increase their knowledge base.

  126. jfawcett

    Just added IRBT and RRD trade ideas to this document.  Once I research both, I will either enter or leave it alone while I wait for the right trades to enter that fit my trading plan.

  127. jfawcett

    Wombat / Fidelity – Thanks for your postings on the this subject.  One of my employees at work is starting to dabble in options and bought some calls for a covered call (10 contracts) on FEB13 23 strike on MS.  He also got 'screwed' by the MM.  from your postings, I advised him dump fidelity (since I have no idea personally about them nor did I know he used them until lunch today) and advised him to seek out TDAmeritrade and TOS.

  128. dclark41

    Jfawcett
    Premium member since 2010. You describe exactly what I did. Now I am very selective about what I trade and I dont need to copy the notes. I just keep re-enforcing the principals that Phil and others display day after day. The trader in me has been weaned out by Phil and,unfortunately, the pain of real losses.  It's exciting to watch and do, but I have come to realize that I don't have the time, or the experience and kowledge to do it successfully.
    Probably the best advice I have learned here is to limit the size of your holdings, and to be honest with yourself about your abilities. More importantly, you can win trading options on boring, well established companies. But you have to be patient, do your homework, and let things play out. The Income Portfolio proves this time after time. Sometimes it's hard to do nothing!
    On the other hand, the quick day trades are fun, but if you try to do all of them you won't be happy with the results. There are some fantastic traders here who have surpassed the 10,000 hours (Phil speaks of this often) necessary to do it successfully. If you don't have the experience, you cant match their abilities or foresight. You are better off paper trading. There are so many subtleties, and nuances that inexperience can't overcome. It is the difference between Phil and I, or Pharm, Yodi, stjeanluc and the others who generously give their time to this wonderful site. I day trade two things oil and AAPL. That's it. Otherwise, I watch and learn from the experience of others building towards my 10,000 hours.

  129. palotay

    Phil/StJ
    How about the following earnings play on OPEN for tomorrow night:
    Short 5 March $52.50 (5% up from here) calls for $2.20
    Long 5 April $52.50/$57.50 for 1.55
     
    For a net $310 credit.  

  130. Burrben

    FYI –  VIX and more by Bill Luby
     
    If you haven't had a chance to check out his blog, it's excellent, but I just started getting his paid weekly letter and it's really worth it's weight.  I'll try to share some of the over riding themes tomorrow.

  131. Burrben

    Phil / Re CIM safe trade
    Where would you be able to get 3% on 60K at a bank these days?  I have a GEInterestPlus account which pays 1.11% over 50K, but anything that I could find near 3% was a dividend ETF, or some tradable asset.  I'd love to know, I have cash that I'd like to park at 3%.
     
    "while the other $60K goes in the bank and gets 3% for another $1,800 "

  132. phil

    Good morning! 

    Verticals/StJ – Those work this season because the low VIX lets us pay minimum premiums for the long spreads relative to the earnings premium – especially on those jacked-up names you've been picking out.  It's just one of the ways we adjust our strategies to fit the current market conditions over time.  Great idea to post something on it, thanks.  

    Divergence/Kinki – The rates on bonds of all kinds just can't compete against an up market.   Back to our inflation premise.  

    T-shirts/Wombat – Start with this one:

    Brown/Wombat – People with $11M to spend are just as dumb as you are.  Not only that, but you have to keep a sense of proportion as and $11M April VIX spread that has a 6:1 payoff may be covering $1Bn worth of bullish buying.  As money flows in, people are going to hedge (well, smart people, anyway) and we've seen about $50Bn in inflows in a month so finding $11M in hedges here and there is NORMAL – not a sign the market will be crashing.  There is currently an agenda by Fund managers (the usual guest on the MSM) to scare small investors out of the market so they can get in and buy before the market gets away from them and they get caught underperforming the S&P again.  What they do is take any anomaly, like insider selling, and they point it out to their media contacts (who often don't really understand what they are reporting on) and the Fund Managers then go on TV and do their gloomiest spin to scare the sheeple.  And that's just what they are – they are shepherds banging their sticks to move the flock where they want it.  Ultimately, the path they choose for you leads to the slaughter or, in the very least – a good shearing.  

    Good idea Jfaw.  Also that's what the Wiki is for (people to add notes of useful things) but, unfortunately, it seems not that many people are comfortable creating and editing Wiki pages.  

    IRBT took a 10% hit, but they had been up ahead of earnings so not too bad at $21.65 after hours (roughly the 200 dma).  They were hit by, of course, Defense declines and are right in that short-put zone we discussed earlier (net $21.50) and now they will make a good long-term play.  

     

    Full year revenue was $436.2 million, compared with $465.5 million in 2011, within the range of $434 million to $438 million the company said it expected in October. For the three months that ended in December, revenues were $100.7 million, compared with $130.8 million for the same quarter one year ago. That’s also within the company’s guidance from three months ago, and in line with the average estimate among analysts for revenue of $100.9 million.

    The company’s net income for the full year 2012 was $17.3 million, down 58 percent from $40.2 million for 2011.

    The company saw a loss of 21 cents per share for the fourth quarter, compared to earnings of 38 cents a share for the same three months in 2011. The 2012 loss was less than the company anticipated in October, when it estimated a loss per share of between 33 cents and 39 cents, and also less than the average loss predicted by analysts of 23 cents a share.

     

    “Our Home Robot business had a phenomenal year with revenue increasing 28 percent over 2011, but as expected, the decline in Defense & Security revenue resulted in lower total company revenue and profit for the year,” CEO Colin Angle said in a statement. “2012 was a transformational year for our business, and as we enter 2013, we are a different company than we were a year ago. Our business performance over the next few years will be driven by our rapidly growing home technology business. Home Robots is expected to grow roughly 20 percent this year and comprise 90 percent of total company revenue. In addition, we have an emerging remote presence business and have stabilized our defense business.”
    For Q1, the company sees revenue of $98 million to $102 million, with profits of 0-7 cents a share; Street consensus has been $110 million and 6 cents a share.
    For the full year, iRobot sees revenue of $480 million to $490 million, with profits of 57-72 cents a share; consensus has been $477.3 million and 69 cents.

     

    I like them as a LONG-term accumulation but no way to predict them year to year – especially on the Defense side.  Still, with growth lowered and we assume .60, .72 and .86 going forward and give them a 25 p/e (generous), $21.50 is about the right price and they could easily see the teens on a set-back so I'd be careful with them until they settle down. 

    That's a good point DC.  It's very good to specialize – especially in short-term trading.  You need to get a "feel" for a stock or commodity so you can easily see it's support and resistance points and understand how various bits of news are likely to affect it.  A lot of traders keep jumping on whatever is hot or what Cramer touts that day – that's a very big mistake.  You should always know exactly WHY you are in a trade and it's easier to pick a couple of things and build up expertise in them than shotgunning random trades.  

    Think about it, you don't build much of a knowledge base if you do something different every day but, if you trade the same stock 100 times – you begin to know what works and what doesn't.  While I know a lot of stuff – it's also important that I know what I don't know – like Biotech.  I never worked in Biotech, I never consulted in Biotech and I don't have a science background so I'll find a guy I know and trust, like Pharmboy, and will defer to him on those kind of companies.  There's a thing called the "Illusion of Explanatory Depth," which is good to read as it makes you think about the difference between surface knowledge (on which many traders base their market decisions) and actual understanding of the way things work.  Recognizing those gaps within ourselves is as important to good trading as learning to recognize a death cross. 

    OPEN/Palotay – Greg and Doug and I had a meeting this weekend and I told Doug that OPEN was a great short.  The conversation came up because we were at a restaurant that was, like many recently, using an IPod app to manage their tables and reservations.  That completely blows OPEN's premise for expanding and is probably eating into their current revenues as well as they are very expensive for restaurants to use and I doubt the App is.  Unfortunately, OPEN already dropped like a rock this week and is now resting on the 50 dma so not as interesting to short as it was on Friday as expectations are now lowered.  OPEN has been a consistent earnings beater and will go down hard if they miss but the consistency indicates management controls the balance sheets for Wall Street and, with their kind of business, it's not hard to fudge the numbers for a quarter or two.  So, bottom line is the trade idea you have is fine, but March is a long way off on a stock that can easily move 10% on earnings in either direction and another 10-20% in a couple of months so I'd stay out or ALSO play the July $55/50 bear put spread for $2.80 and sell the March $47.50 puts for $2 and then you KNOW you're picking up $4.20 in premium either way and you also make $5 over $57.50 or under $50, which means you make money between $61.70 and $38.30.  THAT should be a wide enough margin of error!  8)

    Vix and more/Burr – Speaking of guys who specialize.  Good stuff.

    By the way, I don't mention our friend Dr. Brett often enough.  He writes fantastic articles on trading psychology (and a couple of good books) that all should read once in a while.  

    3% Burr – We were talking about 5-year commitments, not deposit rates.  Australia pays 3% with a safe currency – always a good place to park some cash and you can probably do better on 5-year notes plus a nice currency upside if the Dollar crashes.  TIP is an ETF for the TIPS and that's up over 6% in the past year despite the recent drop that makes for a nice entry.  

    TIP pays an erratic dividend of about $2 a year (2%) and has been a very steady climber and no reason to think that won't continue.  Options are very thinly traded but, at $120 on the 50 dma, it's got good support for a run to $125.  I like selling the Sept $120 puts for $3 because $3 is all you need to make for a 3% return and it gives you a buffer to $117 (-3%) and, of course, rollable, so you can keep your cash and just make your interest off the short puts.  If you want to get into hedging, you can buy the $120 puts for $3 and sell the $121 calls for $1.50 and assume you'll get the net $150 back in dividends so very low risk and the assumption is, from now on, you'll simply roll the callers along every 6 months and make your small, safe(ish) gains.  

  133. phil

    Someone asked about tracking insider activity:  Here's a good chart.

  134. phil

  135. deano

    Guys – just an idea: how about a quick webinar on how to use the wiki? Would hopefully educate a few of us and help us gain some traction. I'm not sure who the resident expert is, but perhaps Phil could suggest and we could promote some participation.

  136. yodi

    Warning!!!
    TOS quotes are really loco this morning ANF Feb 27 p for 1.50 as Feb 32p is .25
    AKAM showing 34.99 is 41.58 possible some more errors

  137. yodi

    New trade
    SHFL buy stk @ 16.01
    Sell Mar13 16c for .74
    If called 4.6 % return over 36 Days
    This is not a div paying stock but I do not see any good synthatic plays.

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