Tuesday – Topping Out or Just Pinning the Fed?
by Phil - January 24th, 2012 8:26 am
Tough call today.
The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.
You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).
Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders. Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.
An optimist would say – well, you can read almost any MSM site for that. It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts! The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat. The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95. Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you? For one thing – you have a very good stop line to watch!
As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross…
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DiggWednesday Worries – Ireland “Fixed” – Who’s Next?
by Phil - December 8th, 2010 8:28 am
So many things are pissing me off today.
I got my political outrage out of the way in my earlier post: "Thanks for the Gas Money, Mr. President," so we don’t need to talk about that again. Ireland, as of 7:45, has not actually voted to accept the EU’s deal, which will pull $20,000 per Irish family directly from national pension funds to pay for the speculative mistakes of Irish Banks. Additionally, the Irish people are being asked to borrow another $75,000 per family from the EU at about 6% interest, also to pay for the speculative mistakes made by the Irish Banks. While this may seem insane – it’s only a drop in the bucket compared to what Americans are spending to bail out our own speculators so why shouldn’t they join the club?
At least Ireland gets to vote for their obligations, we have a Federal Reserve System where a single man, known as "The Bernank" is able to spend what is now heading towards $3.5Tn of OUR MONEY to bail out his banking buddies. That’s $31,818 per American family spent over two years IN ADDITION to the stuff I complained about Obama and our spineless Government spending in the last post.
As I said, things are pissing me off today! I should be in a better mood – we had a fabulous day trading in Member Chat yesterday. In yesterday’s post, I closed with "One last stab at making some bearish profits for us (see Morning Alert)" and you can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Virtual Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), PCLN weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and NFLX Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit.
Of course I featured the idea to short NFLX last …
Defending Your Virtual Portfolio With Dividends – Q4 (Members Only)
by Phil - October 23rd, 2010 7:55 am
In uncertain markets, dividends can give you a critical investing edge.
As you can see from the chart on the left, just mindlessly investing in dividend-paying stocks can give you more than a 2:1 annual advantage in your investments.
Of course, here at PSW, we teach the art of selling options premiums – something that turns virtually any stock into a "dividend" payer. For example, MSFT is only a small, 2% dividend-payer but a fairly solid cash-machine of a stock that we don’t feel is likely to go bankrupt overnight so it makes for a nice safe staple in a long-term virtual portfolio. But MSFT is also a very poorly-run company that hasn’t grown in 20 years but we can make it a much more interesting stock by simply selling covered calls.
For example, in our August edition of Dividend Payers, we looked at MSFT for $24.23 and we sell the Sept $24 calls for .77. This lowered our effective basis to $23.46 and selling the call putus in no special danger – we simply agreed to sell MSFT for $24 on expiration day in September (the 17th).
The stock was called away from us, and we made a .54 profit or 2.3% of our net $23.46 cash investment in less than 30 days. That works out to a 26% annualized ROI and we had an opportunity (as we had expected) to buy the stock again and again at $24 on Oct 4th and 5th and sell the November $24 calls for .90 for a net $23.10 re-entry and ANOTHER 3.8% GAIN if we are called away at $24 or greater on Nov 19th. Doesn’t that beat waiting a whole quarter for your 1% dividend checks?
Of course, you can optimize all this with timing and we favor stocks that are on sale – this is just a very simple example of how our most basic options strategy can drastically boost your annual returns on any stock in your virtual portfolio.
Let’s say you don’t want to mess around with MSFT every month. You could have simply sold the 2012 $22.50s for $4.40 (also suggested in the August post), that dropped your net entry from $24.23 to $19.83 and getting called away at $22.50 would be a profit of 13.5% over 17 months PLUS you would be getting your…
Testy Tuesday – 7.5% or Bust!
by Phil - October 19th, 2010 8:28 am
Wheee, this is fun!
Will our 7.5% lines hold? As I mentioned yesterday, we expected a test of our 7.5% lines at Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 and we remain TECHNICALLY bullish if we hold them. The Dollar was doing well until about 3am this morning but then turned down sharply – some sort of rumor is driving the market and, of course, heading into the G20 pretty much any comment made by any Central Banking official is blown way out of proportion.
China is likely to raise rates today, making a small concession to the US on their exchange rates but more so to cool off the massive property bubble that is forming in their cities. That may put some downward pressure on commodities without strengthening the dollar – an interesting combo, but one that illustrates how China is becoming more important in the Global marketplace than the US.
If China is raising their lending rate to 5.56% and their deposit rate to 2.5%, they risk attracting even more money, including a reverse carry-trade from the US, when money can be borrowed from the Fed at 0.25% and lent to China for 2.5% giving the trader a 2.25% profit for the year. 2.25% may not sound that sexy, but when it’s done by Investment Banks and other investors who can lever their money 10:1, that’s a 22.5% on their cash. This is how Japan has supported their economy for two decades but it’s hard to imagine what will happen if the US Dollar, which makes up 62% of all money on the planet, starts flowing out of the country in even faster quantities.
We were just discussing investing in foreign countries in Member chat and I warned that this may not be the best time to make that kind of move as the dollar is very possibly bottoming here and transferring US Dollars to another currency risks hitting a reversal that wipes out any interest gains and possibly even some the principal as the Dollar rebounds and you find yourself in the wrong currency at the wrong time.
I guess I should talk about AAPL although we’ve already discussed it in depth in Member Chat but they do seem to have had some kind of earnings and, although very nice – expectations were already a bit high so they…
Iron Condor Nesting in Brazil Index ETF
by Option Review - February 4th, 2010 5:21 pm
Today’s tickers: EWZ, CVX, WFC, GFI, SU, MA, ZION, DAL, AMAG & JWN
EWZ – iShares MSCI Brazil Index ETF – An iron condor options strategy employed in the February contract on the EWZ implies one investor expects the underlying share price of the fund to stagnate ahead of expiration in two weeks. Shares of the exchange-traded fund, which generally correspond to the price and performance of publicly traded securities in the Brazilian market, are down 5% today to $64.37. Today’s decline merely adds salt to the wounds – The Brazil index ETF has taken a severe beating in the past few months, falling 20.5% since attaining a 52-week high of $80.93 back on December 3, 2009. The iron condor, a strategy utilized by option traders anticipating little movement in the underlying share price, is perhaps one investor’s way of indicating the worst is over and a bottom is close at hand. The iron condor’s construction is essentially the combination of two strangles, or alternatively can be thought of as two credit spreads. On the call side, the investor pockets a net credit of $0.09 per contract by selling 10,000 calls at the February $71 strike for $0.13 apiece, spread against the purchase of 10,000 calls at the higher February $74 strike for $0.04 each. As for the puts, the trader receives a net credit of $0.26 per contract on the sale of 10,000 puts at the February $59 strike for $0.44 each, marked against the purchase of 10,000 puts at the lower February $56 strike for $0.18 apiece. Therefore, the combined credit enjoyed on the iron condor amounts to $0.35 per contract. Maximum retention of the $0.35 credit, or total monetary profits of $350,000, is contingent upon the underlying share price at expiration. EWZ shares must trade within a range of $59.00 to $71.00 in order for the investor to walk away with maximum profits. The investor holding the iron condor is exposed to significant losses if his ‘neutral’ prediction is wrong. Maximum loss potential on the transaction of $2.65 per contract is far greater than the $0.35 credit received for undertaking such risk. But, apparently this trader is confident that shares of the underlying stock will move sideways – at least through February expiration. Perhaps this confidence stems from the fact that losses do not amass to the upside unless shares rebound 10.85% to surpass the upper breakeven…
Weekly Wrap-Up – The Return of Fundamentals?
by Phil - September 27th, 2009 8:23 am
Fundamentals don’t matter, until they do – then they matter a lot…
We had a fantastic week because we stuck to the fundamentals and stayed short – even though it was a very painful path to follow. In last week’s wrap-up, facing the never-ending market climb on low volume I had said "I am trying to get bullish, really I am," and I was trying to find bullish plays for members - but we still ended up bearish for the week with a lot of bearish plays being added and thank goodness as it gave us a fantastic week this week!
Just following the plays I mentioned in last week’s wrap-up would have been great as we had SKF bullish at $21 (now $26), DIA bearish at $98 (now $96.74), FAZ bullish at $16 (now $22.12), OIH bearish at $120 (now $114.75), SRS bullish at $8.50 (now $9.93) – and those were just from Thursday and Friday, last week was very active and very successful. I had been quoting Samuel Jackson to highlight my difficulty joining the bullish analysts and I closed last week’s comments by saying: "It really is hard to be the shepherd in this market as I see wolves everywhere, waiting to pounce on the flock as the mainstream media leads them off to slaughter. Or maybe (hopefully) I’m just being paranoid and everything’s fine…"
Monday I led off the week with my concerns about the spread of the flu, as the season is upon us. That gave us 4 bullish (but hedged) plays on SVA, BCRX and CAH (2), none of which are performing so far so all of which are still good entries, especially CAH who got whacked by a DB downgrade on Thursday yet paid back $1Bn in debt on Friday and still look very good long-term.
I had an early look at the G20s "Framework for Sustainable and Balanced Growth," and our conclusion was that, although a good plan, it sure wasn’t something the markets should be all pumped up about as stability was not going to grow us into the bullish valuations that our stocks had already risen to. I warned members that the media was misinterpreting/misrepresenting this report saying: "You can bet though, that "THEY" are acting on this information and they will be SELLSELLSELLING, as they did on Friday afternoon even as the MSM pump-monkeys continue to tell you to BUYBUYBUY as if, not only has the economy fully recovered –…
Which Way Wednesday – Fed Edition
by Phil - September 23rd, 2009 8:22 am
We’re just waiting on the Fed today, as are the rest of the markets.
Yesterday’s volume was the lowest since Sept 11th but not as low as Monday, which was our lowest volume since the end of June, just before we had a 5% correction. June 26th and 29th were our last two consecutive ultra-low volume days but June 30th was much bigger (a down 100 day), July 1st was up again on low volume and then July 2nd was another big down day and we bottomed out on July 10th. That was the time that the media was telling us we were forming a "classic" head and shoulders pattern and were doomed to revisit the March lows. It was also the last time we enthusiastically bought stocks.
At the time of that weekly review (7/11), we had CAL at $10 (now $16.82), CBS at $5.97 (now $12.58), COST at $43.45 (now $58.58), CVX – who we just shorted – at $58.20 (now $72.60), DIS at $22.41 (now $28.38), EXM at $6.05 (now $7.32), RT at $7.12 (now $8.85), SNDK at $14.47 (now $22.91), SPY at $87.96 (now $107.27), SPWRA at $22.35 (now $32.63), SUN at $22.09 (now $27.75), V at $59.86 (now $74.41), VLO at $15.57 (now $20.50), WFR at $16.61 (now 19.09), X at $30.77 (now $50.45), XLF at $11.10 (now $15.35), XOM at $65.12 (now $69.85) and ZION at $11 (now $19). Of course our members had much better entries as we had been targeting our entries on all of those but anyone reading our weekend review on July 11th could have played along at home from those prices (we even spiked down at Monday’s open) and when I say we are now bearish – it is that we are bearishly protecting these ridiculous profits – the kind of profits you usually don’t get after 3 years, not 3 months!
Overall, the broader market is up 20% over that time so it can be argued that a monkey with a dart board could have made good picks at that time but, if you read that week’s notes – you’ll notice that this monkey was screaming for people to buy and was going against what pretty much EVERY other analyst was saying and I was confident enough to lay out my picks, my strategy and my fundamental arguments for everyone to see. It would have really sucked…
Ratio Call Spread Suggests Bullish Sentiment on Cabot Oil & Gas
by Option Review - August 17th, 2009 5:53 pm
Today’s tickers: COG, HPQ, ALGN, VIX, WLP, UNH, CVX, & OIH
Options Expriation Day – Back Where We Started!
by Phil - July 17th, 2009 8:10 am
"And now we’re back where we started,
Here we go round again.
Day after day I get up and I say
I better do it again.
Where are all the people going?
Round and round till we reach the end.
One day leading to another,
Get up, go out, do it again." – Kinks
That’s right, we often talk about various market scams but there is no bigger scam in the world than options expiration day when all the stocks are herded back to prices that benefit the largest number of SELLERS of options while the buyers of options can only stare in shock as momentum shifts and trend-lines break and stock after stock magically settles into a value that wipes out the most possible premium. There is something in options called the "Max Pain Theory" that says that stocks will always settle at the strike where the most puts and calls expire worthless but I think that’s a self-fulfilling prophesy as options activity tends to center around the strike as it moves so of course the strike is surrounded by the most options.
What isn’t a theory is what we can observe happening time and again. This is why, at PSW, we primarily SELL options, not buy them. Buying options is gambling, selling options is a business! I often point out to members that options is the game in the world where you can be the "house" with no disadvantage. In Las Vegas, you can bet with the house but they still have an edge but in options, there is no edge and day’s like this remind us why selling options beats buying them – not EVERY time but certainly OVER time.
Our last option expiration day was June 19th and I will give you today’s levels to watch because they are the levels of June 19th: Dow 8,540, S&P 921, Nasdaq 1,827, NYSE 5,934 and Russell 512. All the markets have to do to take out the calls sold that day for a nickel or a dime is to hit those levels at some time today. Of course, anything within 2.5% of those numbers is fine to as you can roll the calls you sold to the next month at no cost, collecting another premium for another month. This is the centerpiece of our Buy/Write strategy,…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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