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Faltering Thursday – Terror at Dow 23,000

Have we finally gone too far?  

Of course we have, what kind of question is that?  On the right is the SPY volume for the week and we haven't cracked 40M shares trading vs. an average of 62M this year, which is already half of last year.  This came on a day, yesterday, when the Dow popped 160 points but, as we noted in yesterday morning's PSW Report (and in our Live Trading Webinar), it was on the backs of just IBM and GS, while the other 28 stocks in the index were effectively flat.  So the very, very narrow "rally" continues but it can very easily be overwhelmed by any kind of volume selling and we called for more CASH!!! in our porfolios during yesterday's webinar – as this market may finally be approaching peak ridiculous.  

If it's not, we'll get back in but yesterday our Webinar Trade Idea was to short the Russell (/TF), which was 1,510 at the time (1-3pm) and this morning we fell all the way to 1,495, which is up $750 per contract and we took a $7,320 gain and ran in our Morning Alert to Members (also tweeted out) on our 12 contract play near the bottom (our average entry was 1,503.27 as we started earlier than the Webinar).  Still, it's not bad for a day-trade, right?  

We also played the Dow (/YM) Futures short at 23,100 and the Dow fell below 22,900 this morning and that was good for gains of $1,000 per contract and Oil (/CL), which we discussed shorting in yesterday morning's report (subscribe here so you don't miss them) which fell from our predicted spike of $52.50 on inventories all the way back to $51.50 this morning, also good for $1,000 per contract gain while our Webinar Gasoline shorts (/RB) at $1.65 are already up $840 per contract at $1.63 so – you're welcome!  

We also called a long on Silver (/SI) at $17 and that's popping this morning and Coffee (/KCH8) is already moving up but Natural Gas (/NGV8) is still under $3 and we love those next October contracts, especially in light of this mornings note from the EIA, which shows Natural Gas demand growing much faster than oil, up 1.6% a year for the next 5 years.  Until 2022, the IEA sees gas gaining a firmer foothold in South and East Asia as the availability of ample, competitively priced supply would help to expand opportunities. China and India will lead the demand growth in Asia, but other countries such as Pakistan and Bangladesh “show a similar picture of strong growth underpinned by cheaper LNG and incremental gas use for power and industry.”    

Image result for world natural gas pricesCheaper isn't a bad thing for /NG as the US is, by far, the low-cost supplier.  We are the Saudi Arabia of Natural Gas and, as we bring LNG capacity on-line, we are exporting more and more of it overseas, where markets pay as much as double what producers get in the US.  As our natural gas becomes easier to export, Global Prices should fall while our prices rise a bit to equalize as the exports become demand drivers within the US market.  That's our long-term premise on Natural Gas.  

Still, we would rather play the Futures (/NG) than the ETF (UNG) as UNG tends to get chewed up by fees and contract rollover costs while our Futures contracts allow us to take quick advantage of short-term spikes.  Chenier Energy (LNG) is a big player in this space and we have owned it in the past (when it was much cheaper) but we still like it at $47.50 for the long-term.  Perhaps they will have issues as they ramp up production and get cheap again…

Earnings have been coming in pretty good so far though guidance continues to trend to the downside.  Over in the UK, this morning, Retail Sales were down 0.8% in September and they didn't have a hurricane to blame, yet their markets are just as over-priced as ours are, with the FTSE up 12% since Trump's election.  China is up 30% since Trump's election while their GDP growth is slowing to 6.8% for Q3 (not that you can belive Chinese data, of course).  

The Wall Street Journal’s lead headline, Oct. 20, 1987 Today is the actual anniversary of the great crash of '87 and, as we discussed in yesterday's Webinar – I'm not looking for a crash – just a 5-10% correction which we will quickly buy into.  Until it comes, we will be playing the market very cautiously.  

Unlike 1987, we have a market now that is dominated by over 2,000 ETFs with over $3.2 TRILLION in assets and that puts a floor on the market with the daily inflows from 401Ks and IRAs but, for example, I just called the broker for my kids' college accounts and moved them to CASH!!! into this quarter's uncertainty.  It's doubtful I'll go back in until March – unless we do get that correction.  There's no good way to hedge a 529 plan so cash was a good alternative but our portfolios are, as we've noted, very well hedged into earnings and our concerns run through Q1, when we expect to see some profit-taking.  

Meanwhile, we're still bargain-hunting for value stocks.  

 


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  1. Adding new lines already! Might as well face it, this market will never go down again! There are just no more bad news anymore. Tax cuts – higher growth so good news, tax increases – lower deficits so good news, peace – higher revenues so good news, war – higher spending so good news, higher rates – better banking profits so good news, lower rates – lower borrowing costs so good news! And so on…


  2. Now, that's valuable R&D – Google looking to actually help the world:

    https://www.theguardian.com/science/2017/oct/18/its-able-to-create-knowledge-itself-google-unveils-ai-learns-all-on-its-own

    Named AlphaGo Zero, the AI program has been hailed as a major advance because it mastered the ancient Chinese board game from scratch, and with no human help beyond being told the rules. In games against the 2015 version, which famously beat Lee Sedol, the South Korean grandmaster, AlphaGo Zero won 100 to 0. [...]

    At DeepMind, which is based in London, AlphaGo Zero is working out how proteins fold, a massive scientific challenge that could give drug discovery a sorely needed shot in the arm.



  3. Good morning everyone!

    The webinar replay is now available here:

    https://youtu.be/wb3W9hhSiTY


  4. Good Morning.


  5. UNIT – Opening strong !

    Don't see any news.


  6. albo/UNIT

    https://seekingalpha.com/pr/16973070-windstream-announces-debt-exchange-offers-consent-solicitations

    Looks like something has happened to put the default issue at rest.


  7. Thanks, D.


  8. Like shooting fish in a barrel today


  9. Good morning! 

    Not much of a bounce so far and that does not bode well.  If the Nas (/NQ) breaks 6,050, that will be a bearish signal and we're watching 1,492 on /TF, 2,545 on /ES and 23,000 on /YM – looking to short the laggard if 3 of them break with VERY TIGHT STOPS.  

    As usual, I favor /TF shorts 

    Never down/StJ – I say if we recover today, then it's time to throw in the towel on bear plays!  

    Cool on Google!  

    UNIT/Albo – Great call there. 


  10. PM I just bought some more stck but might as well sell some puts today


  11. Yeah, I have a bunch of UNIT too.


  12. Good deal, Baron.


  13. Follow up on IBM:

    was asking about my short IBM calls the other day before earnings, conclusion at the time being nothing to do yet as they were out of the money, wait and see. Now that earnings are out and the stock has popped I'm just taking another look;

    sold 5 IBM $120 puts (jan2020)

    bought 10 IBM $140 calls (jan 2020)

    sold 5 IBM $160 calls (jan 2020)

    then i had sold 5 IBM jan 2018 $150 calls in the short term with the plan to either expire/rinse/repeat or roll if needed. 

    Looks like the short 150s are approx $10.90 at the moment  so they still have $1.50 of premium. If i understand correctly i could be at risk of getting exercised if the premium falls much more and approaches the dividend amount? 

    Looking at my roll options it looks like i could buy back my Jan 2018 $150s and sell the Jan 2019 $155s for about $13.50 and pick up about $2.60 on the roll and those Jan 2019's have about $4 in premium. 

    Anyway, overall IBM is going up so the position as a whole is doing great, no complaints, just seeing if my roll logic makes sense and learning as I go with this one so i get more comfortable with the all the mechanics of rolling options positions. 

    On a side note i believe the original trade Phil had sold a couple extra Jan 2018 $150s so doing something with the position may be more urgent for those with that trade structure?

    Thanks!


  14. SCOTT

    DF – selling the March short 10 put, long 12 call combo for .37 credit.

     March 10/12 BCS selling 10 puts

    Correct?  (is that a combo)

    Thanks for the information


  15. Glad I sold my OPTT – It's down 50% since then (yesterday)….


  16. SLB/Phil,  your thoughts on SLB earnings, if you have a chance.  any earnings play?


  17. 1020

    Saw it dropping last night and bought a little.  Figure how low can it go with that base.


  18. Phil,  Looks like now might be a good time to buy back the Dec JO calls?


  19. DF/qcmike – no BCS.. just a short 10 put and long 12 call. I'll sell short calls later if stock moves up. this is starting the position..


  20. Scottmi

    Thank you 


  21. 5 points down on the S&P

    Let's get excited, we just can't hide it
    I'm about to lose control and I think I like it


  22. All Green – uh oh. In my acct, every long is green right now, and every short is too.  The end must be near.


  23. IBM/Crs – Getting exercised only means that the contracts are cancelled and you have 500 shares of IBM put into your account and $80,000 cash is taken out.  You can turn right around and sell the shares and re-sell calls and then you gained the premium that was cancelled – it's really not a big deal but you need to have it happen a few times before you will be able to believe it.  It is very, very rare when I have a contract assigned and I don't go "thank you" as it saves me rolling costs, in the very least.  

    The short Jan $150 calls are $11.20 so about $1.35 premium at the moment and the March $155 calls are $8.75, so it would cost you $2.45 to roll the short calls up $5 at the moment.  That's the only thing you need to watch, the cost of the roll that widens your spread by $5.  If it goes up over $3, you may want to execute because it means IBM is over $160 and your $140 calls would now be $25 in the money to those short calls.  Does that seem like something to worry about?  If not, then worry more about the downside and enjoy the protection provided to you by the short calls.  

    With these kind of trades, things only get really urgent when they tell me there will not be any 2021 options or 2022 options – THEN I have to worry about getting everything perfect this quarter…  blush

    OPTT/1020 – What a ride!  It's because they are raising $8M with a stock offering at $1.42

    Ocean Power Technologies, Inc. Prices $8,150,000 Offering of Common Stock

    Ocean Power Technologies, Inc. Announces Proposed Public Offering of Common Stock

    Do I want them to have $8M more than I need them to hold $2 – yes!  

    SLB/Lunar – Hard to imagine they are doing well but the comps must be awful too.  Yes, they are, last year they made just 0.25 in Q3, they should blow that out the water with about 0.42 but only 0.25 and 0.27 so not much of a year but maybe on track for $2.50 next year, $3 at most.  Still $65 is not a bargain for an oil services stock making $3 – even if they do double up from this year's pace so no, not for me. 

    JO/Baron – In the OOP?  Might be a waste of $150, don't you think?  I'm still waiting for June to come out before making any changes there.  

    • Stocks are off to a weak start following earnings disappointments from eBay (-3.4%) and Philip Morris (-3.4%), as well as reports that Apple's iPhone 8 could face a 50% cut in orders and that cellular connectivity for the new Apple Watch was suddenly cut off in China; S&P and Dow -0.4%, Nasdaq -0.9%.
    • European bourses are broadly lower, with Germany's DAX and France's CAC -0.6% and U.K.'s FTSE -0.4%; in Asia, Japan's Nikkei closed +0.4% but China's Shanghai Composite finished -0.3%.
    • In other U.S. corporate news, Dow components Verizon (+2.8%), Travelers (+0.6%) and American Express (-0.4%) all reported better than expected earnings, but AmEx is lower at the open after announcing the departure of CEO Ken Chenault.
    • Apple's (-2.3%) news items are weighing heavily on the tech sector (-1%), but Adobe Systems (+9.3%) is surging out of the gate after raising its 2018 guidance and reaffirming Q4 targets.
    • U.S. investors received two pieces of economic data – the weekly initial jobless claims and the Philadelphia Fed Index for October – both of which came in better than expected.
    • U.S. Treasury prices are higher, with the yield on the benchmark 10-year note down 3 bps at 2.31%.
    • U.S. crude oil -1.4% at $51.30/bbl as traders take profits following the recent rise on geopolitical tensions.
    • Still ahead: leading economic indicators, EIA natural gas inventory
    • Supervalu (NYSE:SVU) is down another 2.87% to extend on yesterday's sharp sell-off after the company surprised with an unexpected wind-down of a transition services agreement with Albertson's.
    • Despite the TSA surprise, analysts are issuing favorable comments on Supervalu following the grocery operator's strong earnings report. RBC Capital keeps an Outperform rating and boosts its price target to $42, while Pivotal Research calls valuation "attractive" on Supervalu.
    • SEC Form 10-Q
    • Previously: More on Supervalu's Q2 results (Oct. 18)
    • Previously: Supervalu leads grocery sector higher (Oct. 18)
    • via Lisa Abramowicz at Bloomberg
    • The best-performing fund in high-yield DEBT category so far this year – the Fidelity Capital & Income Fund (MUTF:FAGIX) – has raised its equity holdings to more than 20% of assets.
    • The DDJ Opportunistic High Yield Fund (MUTF:DDJCX) earlier this year had more than 60% of its holdings in stocks – it's up 9.8%  this year, besting 99% of peers.
    • Implications: First, while stocks may be expensive, high-yield is even more so – at least as measured by the spread between junk yields and the S&P 500 earnings yield.
    • Second, it highlights the perverse incentives for fund managers, who – in the face of historically high valuations – see now as the time to cut cash holdings and up risk.
    • Abramowicz: "Over the long term, the consequences of this will be painful."
    • Apple’s (NASDAQ:AAPL) iPhone 8 could face a 50% cut in orders, according to sources of Taiwan’s Economic Times via Reuters.
    • Analysts have suggested iPhone 8 sales have suffered due to the continued popularity of the iPhone 7 and the staggered release of the forthcoming iPhone X. 
    • Rosenblatt Securities analyst Jun Zhang says the firm’s research showed an even production mix between the iPhone 8 models and the iPhone X but that “X allocation could shift up to 60-70 percent in December and even more in the March quarter.” 
    • Pre-orders for the iPhone X start October 27 with shipment expected November 3. 
    • Apple share are down 1.64% premarket.  
    • Cellular connectivity for the Apple (NASDAQ:AAPL) Watch Series 3 was suddenly cut off for many customers in China, according to The Wall Street Journal.
    • The feature was available from China Unicom, but industry analysts suspect the government cut the connection due to security concerns. 
    • The Chinese government requires customers register with a carrier under their real names and obtain the SIM card from that carrier. 
    • Apple embeds the small eSIM card into the Watch. Customers can choose freely between carriers, which makes matters more difficult for the government to control and track. 
    • Customers who bought the Watch between the September 22 launch and the September 28 suspension reportedly still have connectivity.  
    • Apple shares are down 1.63% premarket.  
    • Previously: GE, Apple partner on industrial software (Oct. 18)

    • The stock's rallied more than 20% over the last six months, so some "sell the news" action shouldn't be unexpected.
    • There was, however, the largest increase in loss provisions since 2010, notes Morgan Stanley's Betsy Graseck, and what that might say about future credit trends. Helping the quarter was a surprisingly large boost to net interest margin, but Graseck wonders how sustainable that might be.
    • Piper's Jason Deleeuw also takes note of the big jump in loss provisions.
    • Both Deleeuw and Graseck rate the stock at Neutral.
    • Bearish Jason Arnold from RBC calls the Q3 beat "low quality," noting a drop in the tax rate helped offset the loss provisions. The possible exit of Chenault had been viewed by some at a positive catalyst, but his successor (a 32-year AmEx veteran) suggests status quo. Arnold stays at Underperform.
    • Bullish Kevin St. Pierre from Bernstein says Squeri was widely expected to be the next CEO, though the move may have come earlier than expected. He's at Outperform with $107 price target.
    • Source: Bloomberg
    • AXP -1.5% premarket
    • Previously: Ken Chenault retiring at AmEx (Oct. 18)
    • Previously: AmEx boosts full-year view after Q3 beat (Oct. 18)
    • Goldman Sachs downgrades Nike (NYSE:NKE) on concerns over "fundamental challenges" with inventory in the U.S.
    • Analyst Lindsay Drucker Mann points to the extra products sitting at Amazon and eBay in particular as a pricing challenge.
    • She also warns that Nike could use its investor day event next week to drop its "stretched" long-term financial targets.
    • GS lowers Nike to a Neutral from Buy and keeps a price target of $54.
    • Sources: CNBC and Bloomberg
    • NKE -2.10% premarket to $51.20.

    Yellen heads to the Oval Office

    • Narrowing his search to five finalists, President Trump will meet today with Janet Yellen, whose first term expires in February, in his search for the next Fed Chair.
    • Other candidates include Fed Governor Jerome Powell, former Fed Governor Kevin Warsh, National Economic Council Director Gary Cohn and Stanford University economist John Taylor.
    • Trump is expected to make a decision before his trip to Asia, which begins Nov. 3.
    • North Korea has upped its war talk once again, warning the United States it faces an "unimaginable strike at an unimaginable time."
    • The comments were made ahead of a drill being held next week by the U.S. and South Korea, which will see Americans in the Korean Peninsula practicing being evacuated in the event of a "nuclear crisis."

  24. DF/qc – the spread on the combo is offering .45 right now. I have a couple more offers in, but not executed yet. It filled all the  .37s I wanted yesterday after a short wait…


  25. Phil,

    JO, understood.

    SVU, I'd like to add or something.  How about selling some puts down here, but which ones?


  26. Thanks for the advice on IBM Phil, i get the assignment thing now not being to big of a deal, just dump the shares and re-sell the calls and you actually get that premium a little earlier than otherwise would. 

    Still slightly confused on the May $155 roll you mentioned at a debit. Is there a reason that roll would be preferable to rolling out to Jan 2019 for a credit while still widening my spread by $5? Or are you suggesting that i just continue to hold my short Jan 2018 $150 calls until closer to expiration when almost all the premium has drained out and then at that point consider my next roll? to really milk out all the premium? 

    i think im starting to wrap my head around this…i think haha


  27. 10:01

    UNIT

    Uniti Group surges after Raymond James says Windstream (WIN) exchange offers reduce chance of technical default at UNIT   (16.55 +0.70)


  28. 19-Oct-17 04:49 ET

    WIRES

    On The Wires

    Windstream (WIN) commenced debt exchange offers and consent solicitations with respect to senior notes issued--to exchange 7.50% senior notes due 2022 and 7.50% senior notes due 2023 for new 6 3/8% senior notes due 2023. 

     


  29. Phil,

    Good time to get into OPTT?


  30. Sorry, working on OOP update.  These things kill me!  

    SVU/Baron – They are in the OOP so I will be giving it deep thought shortly.  

    IBM/CRS – That's the roll you'd LIKE to make, because it means IBM is going up and your longs are worth more, right?  If, on the other hand, IBM goes lower, then the short calls go worthless and you sell something else to cover the next period.  Would you rather be flexible and able to sell 6-8 premiums or cap your potential gains and become inflexible now?  

    WIN – You would think that would be a positive for FTR, but it's not.  

    OPTT/Japar – Very speculative but sure, I'd grab some down here (already have it in my kids' accounts).


  31. phil/SKX earnings tonight.  they look like fat premiums to me.  any earnings play?


  32. While Phil is OOP-ing, Yodi, anyone on the Continent, or anyone remotely paying attention – time to shake up the American centric view…. time for your moment of Zen… The place is here. The time is now, and the journey into the shadows that we are about to watch, could be our journey.

    The MSM reports that the Islamophobic Freedom Party party took 26% coalition in the Austrian elections on Sunday.  The conservative People's Party, led by 31 yr old Sebastian Kurz, captured 31.5% of the vote. Rumor has it Kurz might form a government with the Freedom Party which was founded by ex-Nazis. This would not be the 1st time as both parties ruled in coalition 2000 – 2006. 

    In Germany, Merkel was re-elected in late Sept, but her party suffered its worst result in decades at 33%. Coalition partner SPD at 20% may go into opposition, as the right-wing, anti-Islam nationalist AfD won its first seats with 12.5%.   Seems anti immigrant populism movements are not just gaining ground swell in Amerika, but globally. 

    IMHO, the Little Kim's or Ayatollahs are annoyances pumped by MSM to fit the narrative of distraction du jour which inflames and helps to enable the populist movements which leads to something far worse.  The question is where, when and will the next REAL…

    Kim II Sung (1.6M), Ho Chi Minh (1.7M), Saddam Hussein (2M), Pol Pot (Saloth Sar 2.4M), Enver Pasha (2.5M), Tojo Hideki (4M), Lenin (4M), Hirohito (6M), Chiang Kai-Shek (10M), Yahya Khan (12M), Hitler (20M), Stalin (62M), Mao Zedong (75M), please stand up?  Those are not stock values, they are the est. death toll attributed to each dictators reign of genocide.  Against their own people, otherwise and Out.


  33. FTR – tempting me with Nov $11 puts.. orders in to sell at .95


  34. scottmi, FTR 2020 $10 puts are $5.25


  35. FTR/Lunar – nice 23% annualized return on full margin requirement there. I'm also considering more FTRPR.. yield on those is 58% now. Stock can take a hell of another hit an still be 'good'…


  36. scottmi, what is FTRPR? didn't know about that.  thanks in advance!


  37. FTR – just got a couple fill on Jan 2018 $10 puts at 1.30, yielding 51% annualized return against full margin


  38. Scottmi/FTR

    Those preferred are tracking the stock and being sold in big lots with volume today.  But I like the idea as a div cut would/should be good for them.


  39. Scott/Lunar,

    I'm with Lunar on the puts for FTR.


  40. Lunar – FTRPR is their preferred stock. Did the math on it a while back and started buying some when was yield was lower and conversion would leave me with net after conversion cost of $12/share. Now, price would be better, but haven't worked the latest math.


  41. FTR

    8 days down on how many lawsuits? Ugly but what you gonna do…


  42. FTR,

    At this point I suggest sitting until it stabilizes.


  43. All/SBH

     

    Phil called a trade for me on SBH a couple of days ago at my request and I entered it relatively neutrally as I have been doing recently (thus missing all the goodness on IBM), but can find no reason for it to be down so much today.  Then this comes out…Is it bs to prop up the stock or is the stock down to help AMZN?

     

    Sally Beauty: Will Amazon Buy SBH? 7 Points to Consider as SBH Trades -7% — DA Davidson  (16.87 -0.88)

    10/19/2017, 1:28:41 PM ET

    DA Davidson lays out a scenario whereby AMZN could buy SBH; they highlight 7 points to consider following weakness in the stock:

    New loyalty program would enhance gross margin

    Positive changes in mix shifts are beneficial to gross margin

    Duking it out on price with Walmart (WMT) on non-exclusive items is not SBH's strategy

    Major innovation launching in nail could boost category growth

    Insider stock purchase at around $17.50/share

    Cash spent on share repurchase in FY18 will NOT be as low as $160M

    Will Amazon (AMZN) buy SBH as its beauty play?


  44. All/SBH

    There you go..I forgot Davidson upgraded it 3 days ago so maybe just a prop  job.  Shaky action.

    16-Oct-17 09:29 ET

    SBH

    Sally Beauty upgraded to Buy at DA Davidson; tgt $21 — Believe SBH has support here with a free cash flow (FCF) yield of ~11.5%   (17.45)

    DA Davidson upgrades SBH to Buy from Neutral and sets target price at $21. SBH hit a low of ~$17.50 two other times in 2017, subsequently running up to $20-$21 within 3 months, with past insider buying at this level. With ~65% of sales to salon professionals, SBH is more "Amazon proof" than many retailers, has a new CFO executing a restructuring with benefits extending through FY18, and is testing a new loyalty program that could benefit gross margin. Firm ests hurricane impacts on F4Q17 EPS are immaterial (~$0.01) and already discounted by the 15% decline since mid-September. SBH has high annual FCF of at least $250M to be spent on share repurchase, which alone drives at least 6% EPS growth.


  45. Options Opportunity Portfolio Review (OOP):  $332,599 is up 232% in just over 2 years (we started with $100,000 on 8/8/15) and up $10,669 since last month's review.  We're still a bit bullish, even after our 10/6 hedging adjustments.    

    Fortunately, using our Be the House – NOT the Gambler strategy, time is firmly on our side and, as long as our position are "on-track" to our goals – then the premiums we sold WILL erode and more money will drop into our laps.  That's a nice, passive strategy to pursue and it works in almost any market – even this crazy one.  As I noted in yesterday's Webinar, I moved my kids' 529 College Funds to CASH!!! yesterday morning because, unlike this portfolio, I didn't have a good way to hedge them.  The OOP has 60% cash at $181,890 and our positions are well-hedged – let's keep them that way!  

    • NLY – Do we REALLY want to own them for net $9.25?  Sure we do, so we can leave the short puts, even though they may be tested as rates rise.  
    • WTW – Leftover from cashed in spread and I can't believe they still get 0.60 for those puts.  Since we like WTW enough to buy them, why not buy back the 10 short 2019 $15 puts (0.60 = $600) and instead sell 10 of the 2020 $28 puts for $4 ($4,000)?  That pays us another $3,400 for promising to buy WTW if it drops about 40%.  This is one of those passive income streams I was talking about above.  

    • TZA – A more aggressive spread than SQQQ but again, TZA is at $13.50 and a 3x ETF so 130% of $13.50 is $17.55 and that puts our calls $3.50 in the money for $28,000 and it's currently priced at $11,000 so only $17K upside here.  I think we can buy back the short Jan $30 calls for 0.10 ($800) and sell the April $18 calls for $1 ($8,000) and roll the April $14 calls ($1.60) to the April $11 calls at $2.95 for net $1.35 ($10,800).  So, for net $3,600 out of pocket we now have an upside at $17.55 of $6.55 or $52,400, which would be a gain of $37,800 from our now $11,000 + $3,600 investment.  

    If you stay on top of your adjustments, maintaining hedges is fairly inexpensive.  It's the up-front one-time expense that puts people off hedging but, if you make is a consistent choice in your portfolio, the cost of maintaining hedges is a lot less than the cost of planting them!  

    • F – We're in this for the dividends with a low target so, on track.
    • AAPL – Today I'm glad we have those short calls!  AAPL is down on rumors, which I just said yesterday were likely to come into earnings (taking advantage of the fact that AAPL doesn't comment on rumors).  Let's not take a chance and buy back the short Oct $140 calls at $15.40 and we'll sell just 20 of the Nov $145s ($11.70) and see how tomorrow looks before selling more.  So we're dropping to a 1/3 cover after making $16,000 on these short calls but we do intend to get to at least a 1/2 cover into earnings.  
    • AAXN – We got the pop we wanted so now we need to do our job and go back to selling some calls (1/2).  We'll sell 5 of the Jan $25 calls for $1.50 ($750) and that's on track for a nice, bonus $3,000 while we wait to collect $12,000 more on the mature spread.  

    ABX – On track, though gold has been slow to move for us.  Good for a new trade though I'd go to 2020.

    ATI – Deep in the money but toppy so let's roll the Oct $20 calls to the Nov $20 calls and keep our protection in place.  The short puts will go worthless but ATI is too high at the moment to sell more.  Let's cash in the 10 long 2019 15 calls ($10 = $10,000) and buy 20 of the 2020 $20 ($8)/$27.50 ($5) bull call spreads at $3 ($6,000) so we're getting $4,000 off the table, leaving ourselves with a $15,000 spread that's 1/2 in the money and 1/2 covered by the short $20 calls.  A nice day's work!  

    • CDE – On track.
    • CHK – On track – good for a new trade.
    • CLF – On track.
    • CSCO – On track.
    • DBA – On track.
    • DIS – Good for a new trade (but have to sell 2020 puts).
    • FNSR – On track.

    • FTR – I love them but they get cheaper and cheaper.  Nothing to do but wait.
    • GE – Another disappointment so far but not at all worried about GE being solvent long-term so let's take the OPPORTUNITY to buy back the 2019 $30 calls (0.37 was last sale) and we can roll our 20 2019 $23 calls ($2.35) to the 2019 $18 calls ($5.75) for net $3.40 ($6,800) and we'll sell 10 (1/2) of the Jan $23 calls for $1.35 ($1,350) to help pay for it and – just in case they do cut the dividend.  
    • GOGO – Took a huge dive this past month.  They floated $100M of senior notes and then announced a new plan to install seatback systems on the plane – a big departure from their old business.  I think the sell-off is a good chance to buy back the short May $14 calls (0.45) and we'll see if we get a bounce off the $10 line.

    • IMAX – Will people ever go to the movies again?  IMAX traders don't seem too sure.  We're in the money on our call spread anyway but let's buy back the short $20 calls ($2.55 and don't overpay!), taking a chance there will be a winter blockbuster that sends IMAX back to $25, where we'll cover again.  
    • JO – Waiting for June to come out but on track.
    • LB – We got aggressive on these and we'll see how earnings look (11/15) but a move to $45 would get me to cover.  

    • M – Let's roll our 20 2019 $18 ($4.10)/28 ($1.20) bull call spread at net $3.10 ($6,200) to 20 of the 2020 $20 ($4.15)/$30 ($1.80) bull call spreads at $2.35 ($7,050) so our target goes up but we have 50% more longs.  We also have 10 more uncovered calls – we'll cash those.  Against the 20 long spreads we can now sell 10 (1/2) of the Jan $22 calls for 0.90 ($900), which pays for the roll.  
    • MO – Earnings are next week and I'd rather wait and see how they do.  
    • SCO – It's about even and we still think oil trades back down but not major move so far is making me lose confidence.  

    SGYP – Good for a new trade. 

    • SPWR – Good for a new trade – I can't believe it's back at this price.  
    • SQQQ – One of our main hedges.   Now valued at net $14,000(ish) and worth up to $35,000 if SQQQ hits $30 but now $25 so a $5 move would be 20% divided by 3 (it's a 3x ETF) means it would take a 7% drop in the Nasdaq for us to get $35,000 out of this spread, which is $21,000 upside protection from here and unlimited bonus protection on the 25 uncovered calls so another $5 move (another 7% drop) would be another $12,500 so +$33,500 if the Nas drops about 15%.
    • SVU – Talk about a hated sector!  This one is idiotic as the firm that downgraded them downgraded the price to $24, from $29 but the stock is at $16 and they still have a BUY rating on them.  So, we have to take a stand here and add 13 more 2019 $13 calls at $5.80 ($7,540), which brings our average to $7.93 on 15, with a break-even at $20.93 and we can roll the 4 short 2019 $27 puts ($11.60 = $4,640) to 10 short 2019 $18 puts at $4.70 ($4,700) about even.  Since we collected $3,080 for the $27 puts, we divide that by 10 and so we effectively sold the $18 puts for $3 (ish) per contract, which is net $15 – so all is well.

    • SVXY – We made an adjustment 0n 10/6 and now we have a stop on 5 of the 15 short Dec $80 puts at $6 but, so far, not even close to necessary.   Will volatility ever come back to the markets or, more to the point, will we ever consider 100-point Dow swings to be volatile again?  
    • TEVA – Also out of favor at the moment.  Let's wait for earnings and see what happens.
    • TGT – Testing $60 and we'll see how earnings go.  
    • TWTR – On track.
    • UNG – Going well because we keep collecting short call money but the underlying never improves.  I do like Nat Gas long-term and we don't do Futures in the OOP, so I guess we'll stick with it.  Let's buy back the 20 short Jan $10 calls (0.04 – no more!) and roll our 20 2019 $5 calls ($1.80 = $3,600) to 50 of the 2020 $5 ($2.15)/$10 (0.55) bull call spreads at $1.60 ($8,000) and hope our premise plays out over the next 2 years.  BUT, in case it doesn't, let's sell 10 (1/5) Jan $7 calls for 0.30 ($300) and it doesn't seem like much but we can make 8 of those sales and knock $2,400 (30%) off the cost of our spread while we wait.
    • WPM – On track.   
    • WSM – Brand new.  Good for a new trade.
    • XRT – Was much higher but pulled back.  We'll have to see how earnings look.

    Not too much work to make $10,000 a month, right?  We have adjustments on 9 of our 36 positions plus maybe 5 moves made during the month.  It's a nice, casual way to make money!  


  46. WTW/Phil – not sure the roll makes sense to me. Turning a great win into a new trade that yields net $3400 for a (RegT) margin req of 13,200 ~ 11% annualized for 2.25 years.  Not shabby but not as secure as the 15 puts… also, ultimately just 2.7% against 56,000 of true exposure for that same long time. The meager $600 remaining for the 10 Jan 2019 $15 puts still yields 23% against regular margin, and 3.2% against full exposure of 15000…   Does not look like the roll is making better use at this time.


  47. Wow, that was exhausting!  Even if I end up saying "on track", I still have to go through the whole research process on each one.  This is why I like to cash out our portfolios once in a while – it gives me a break!   

    SKX/Lunar – Ah, an old favorite.  They are certainly good for $1.50-$2/share so $24.25 is very reasonable.  Q3 last year was slow (0.42) so they should be up from there but they missed last Q by 13%, which is scary.  

    I think they've already been punished enough and the way I would play them is to sell the 2020 $20 puts for $3.20 and buy the $25 ($6.25)/$35 ($3.25) bull call spread for $3 and that nets you in for 0.20 on the $10 spread and you should be HAPPY if they tank earnings and you get to put $2.50 in to roll them $5 lower and widen the spread but, if earnings go well – you'll be on track to make $9.80 on 0.20.

    Anti-immigrant/Naybob – Works every time.  Hate is easy to sell, cheap to make.  

    FTR/Lunar – Yes, I love it when put sales give you a 50% discount but it does tend to indicate a 50/50 chance of BK.

    SBH/Baron – I see no news in particular and they opened down like that.   Ah, WFC cut the price target from $20 to $16.  

    WTW/Scott – But we're swimming in margin and we would REALLY like to own them at net $24.  TOS charges $2,323.70 in ordinary margin (net of the $4,000 collected) for the trade and it's nice to get some kind of return on cash you have sitting around.  If your margin requirements are that extreme and if you don't REALLY want to own 1,000 shares of WSM at $24 and make it a long-term part of your portfolio – then don't buy it, of course.  To me, it's a stock with very overpriced puts I can't resist taking advantage of. 

    Also, I can't, for the life of me, understand how selling 10 $24 puts for $4 gives you $56,000 of exposure but, as I said – you have to be comfortable with the trade or you shouldn't make it.  You say the trade yields "net $3,400" but what about the $2,300 profit you are taking off the table?  Is it a loss because we cashed it?  I don't get how you charge the remaining $600 of the $2,900 original sale to the new trade.  Didn't the old puts have risk and margin too?  


  48. Phil/M

    You have 30 long calls not 20.  I think you made a mistake.


  49. M/OOP, DC – Yes, it was supposed to be to 20 of the 2020 $20/30 bull call spreads, not 30 – that's how we have "10 more uncovered calls" and then it's 20 long spreads with a 1/2 sale, which is fine.   

    Thanks for catching that!  


  50. WTW/Phil -  $28*20 contracts = $56,000 out of your account if put to you at the time, regardless of what you do with the $4,000 up front.. but as you say, the portfolio is swimming in margin, and overpriced options. I'd just keep the 2019 puts as still paying better then the 2020, and do the 2020 as a new trade to get the income.


  51. Phil / Hedge – I'm pretty heavy in S&P stocks –  AAPL, CTSH, BRK, VZ, T, KO and others – can you suggest a good hedge for this…. I had an SPXU hedge put just cashed out of it for a 3K loss and need to reload.  


  52. CBI – i can't find any news on this but up today…. earnings next week on WED / 25th….  Anyone see anything?


  53. WTW/Scott – Did I miss something?  We have 10 WTW puts and I said:

    • WTW – Leftover from cashed in spread and I can't believe they still get 0.60 for those puts.  Since we like WTW enough to buy them, why not buy back the 10 short 2019 $15 puts (0.60 = $600) and instead sell 10 of the 2020 $28 puts for $4 ($4,000)?  That pays us another $3,600 for promising to buy WTW if it drops about 40%.  This is one of those passive income streams I was talking about above.  

    I have no idea how selling 10 of the 2020 $28 puts for $4 nets you in for $56,000 – it seems very strange to me.  My humble math says I get $4,000 in my pocket for selling the 10 puts at $4 and, if assigned, I have to pay $28 x 1,000 which my calculator says is $28,000 and then I subtract $4 x 1,000 ($4,000) and my net payment for 1,000 shares is $24,000 which, if I remember my calculus, is less than $56,000 by more than a rounding error.  I admit I'm not up on the "new math" but gosh, I used a calculator and everything…  crying

    Hedge/Batman – Well, with AAPL I'd lean towards the SQQQ hedge.  As noted above, the March $23/30 spread is now $2.10 and in the money 100% so you CAN'T lose unless the Nasdaq goes higher but it pays $7 (+250%) on a 7% pullback – don't know if there's anything better than that.

    CBI/Batman – All over the place on infrastructure rumors.  Maybe they were in the Senate budget?


  54. Order yours now! 


  55. Phil / Hedge – thanks for the SQQQ – i'll take a look at that one.


  56. Phil,  I'm tired just reading all that, sweating too.  Thanks.


  57. WTW/Phil – egads.. I read 20 new puts sold… my bad. must be all those 20s in 2020..All makes much better sense now with 10 contracts. New trade, wholly separate from closing the 2019 puts offers 27% annualized return. Nice! I approve! ;-)

    (I will assert however that $4,000 minus $600 equals $3,400 net, and not $3,600 even when I use excel ;-)


  58. I love that t-shirt, Phil!  (There is another week. :-) )


  59. Phil/portfolio review

    Thank you for your reviews.  It’s a great lesson to the rest of us that investing is hard work.  I, frequently, review my portfolio. It takes a lot of time, but it forces me to stay in touch with my original buying premise(s).  In addition, I see and make my own moves, without waiting for “Phil”.  You can’t do that without an in-depth plan and knowledge of your holdings.  I am comfortable saying this after my 7th year with you.  Thank you.


  60. Short-Term Portfolio Update (STP):  $430,680 is down $56,347 on our hedges in the past month and that neatly negates about 2/3 of the LTP's gains so we're a bit more bearish than we were last time (in our paired portfolios) after making several bearish adjustments that were intended to move us to neutral.  

    So, on the whole, we made about $25,000 despite ourselves, which is the strength of our model for selling premium.  The primary purpose of the STP is to protect the LTP – it's not supposed to make money in a bull market but it BETTER make a lot of money when we turn bearish.  Of course, it always has – that's why it's up 330% in 4 years despite usually being "wrong".

    • AMZN – They keep going for $1,000 and keep failing.  Our intention was to risk earnings but it's too scary so let's take the $13,208 profit in the hand and get out of the bush!  
    • FAS – Those financials are like a killer clown, they keep popping back up.  Still, the ultra ETF looks toppy and it's counterpart looks bottomy so we'll see what happens.  

    • ABX – A bullish offset, not worried. 
    • GOGO – Not too worried.
    • SBUX – Who wouldn't love a 20% discount on SBUX?
    • LABU – A real no-brainer when they get cheap!  Blasted past our target but earnings are dicey so let's cash our 10 extra long March $50 calls so we end up with a proper spread.  

    • SQQQ – 40 uncovered $23 longs is pretty aggressive.  Let's keep it that way.  At $30 (7% Nas drop), we have $70,000 from the $23s and another $100,000 upside from there if we drop 20%.  That's pretty good off the current net $26,000 value on the spread.  
    • TZA – Half covered here means at $17.50 (10% drop in /TF) we have $70,000 coming to us but, like the OOP, we can improve that by buying back the 100 short Jan $22s (0.18 = $1,800) and rolling our 200 April $14 calls ($1.55) to 200 April $11 calls ($2.85) for net $1.35 ($27,000) and sell 100 April $16 calls for $1.10 ($11,000) so net $17,800 is the cost of improving the payoff of our spread at $17.50 from $70,000 to about $120,000 (we have half covered at $16 but then we can do a 2x roll so really more like $150,000 at least).   

    Well, that was easy.  I guess I should make all of our portfolios just 7 positions.  Like that premium Hagen-Daz!  

    Related image


  61. You're welcome Baron.

    $3,400/Scott – Now THAT is a mistake!   Thank you so much on your otherwise stamp of approval.  


  62. You're welcome DC – That's why I started a blog in the first place – it forces me to rethink my trades constantly and I can go back and see what I was thinking when I first got in (as well as what I did in similar situations).  


  63. /ES might close green.  Dow too!  


  64. Last gasp? Sure looks like  one to me. Closed a few gaps, still just as over bought… took quite the effort to get back to even… what do you expect for tomorrow?


  65. Phil - "Anti-immigrant/Naybob – Works every time.  Hate is easy to sell, cheap to make." 

    Here's to hatred, the only thing that lasts. Tastes great and less filling too. Time for my IV and Out.


  66. Hatred does not taste good, and as for closing in the green, that some VIXshit.


  67. Tomorrow/Mkucs – You had to ask?  

    Well it's Friday, not likely we'll sell off into the weekend.  I'm really not sure that a nuclear war wouldn't start a rally at this point.

    Not closing green is even more interesting – why can't they close the deal after a 100-point reversal?


  68. They did it!  Dow and S&P hit green at the bell so it's officially a NEW RECORD HIGH!   Amazing how that worked out.  

    /SI was a huge winner, by the way – gotta cash those winners – there will be more stuff to trade tomorrow.  


  69. Bernie!!!!!! 


  70. skx wow nice call


  71. S&P makes all shorts pay, all day long and after hours too.  Remember when a big gap down would mean a big down day, followed by 3  or 4 up days to new highs?  That t-shirt should read the "one day premarket bear market."


  72. Just doing my job!  

    PYPL did well too.   


  73. Cruise lines had a bad day.



  74. All /FTR afterhours what appears to be minor good news

    16:27

    FTR

    Frontier Communications named a Qualified Vendor with Choice Hotels International (CHH)  (11.48 +0.02)







  75. Trump leaning toward Powell for Fed chair: Politico


  76. BREAKING: Trump to Address Senate Republicans at Capitol for the First Time



  77. Phil – Thanks for all your hard work ! 

    Greatly appreciated.


  78. Phil, re. your comment "I say if we recover today, then it's time to throw in the towel on bear plays!"  Thank you for putting a line in the sand.  I've been short the index futures off and on all year and just getting smoked over and over.  Watching the incessant spikes up in disbelief, I keep thinking it has to end.  Apparently not. Tonight we got another YM thrust of 100 points out of nowhere and that was it, I have capitulated.  I'll watch To Infinity and Beyond from the bench.


  79. Figures are suddenly up big, don't see any news. 


  80. Indexes surge and currencies (minus US), and metals plunge.   I see no news either.

    And, for you digital currency gamblers….  BitCoin vs. China


  81. LOL.  Indexes up on non-binding tax plan passage.  Yeah!  Might as well give more of my money to the top 1%.  I sure as hell am not one of them.








  82. Donald Trump’s highly abnormal presidency: the week of Oct. 16 – VICE News




  83. World shares rise as investors await Japan vote, Fed pick




  84. U.S. Tax Reform: Taking Care Of Business




  85. Phil, All,,,,Wow GE getting taken to the woodshed this AM….guess new CEO is "Kitchen sinking" this quarter….Aarg!  got in a wee bit too early…I guess this is my "Jabo FU position"…Patience..Patience…10,000 hours


  86. Good morning!  

    Yet another Futures pop, this time it's Fed speculation.  As if they will have someone more doveish than Yellen?  

    Oh well, same old, same old and another chance to short /TF at 1,515 (1,514, actually, it keeps failing 1,515).

    Oil dipped to $50.87 but back to $51.15, /RB $1.635 after bottoming at $1.63, both should get a push into the close (2:35) – it's rollover day, so things should be crazy.

    Expiration day too.  

    GE with a terrible report, down to $22.  If that isn't a good reason to short Dow Futures (23,200) I don't know what is!  

    GE cut its profit forecast for the full year to $1.05 to $1.10 a share, from $1.60 to $1.70 previously, and said it would generate about $7 billion (£5.3 billion) in cash from operations, down from $12 billion to $14 billion it had forecast earlier.

     

    GE said weak performance in its power and oil and gas businesses, goodwill impairment and higher-than-expected restructuring costs under new chief executive John Flannery were the main causes of the profit decline.

    GE's "solid" performance in other businesses "was offset by a decline in power performance in a difficult market," Flannery said. Industrial cash flow from operations fell mainly "because of lower power volume, resulting in lower earnings and higher inventory.”

    Profit at GE's power business, which makes power plants and related equipment, fell 51 percent in the quarter.

    Excluding items, industrial cash flows from operating activities was $1.74 billion in the third quarter ended Sept. 30, down from $2.90 billion, a year earlier.

    The company reported a 14.4-percent rise in revenue to $33.47 billion, boosted by the acquisition of oilfield services provider Baker Hughes (BHGE.N).

    Unadjusted earnings per share from continuing operations fell to $1.80 billion, or 22 cents a share, from $1.99 billion, or 24 cents, the company said.

    A bit of kitchen-sinking from the new CEO methinks…  Still making $1 share and no dividend cut, which is another 0.94/share.