Wednesday Wheeeee – We Love it When a Plan Comes Together!
by Phil - January 11th, 2012 8:21 am
Once again, we're done with our day before you get up.
In my 5am note to Members, I said: "I see nothing in the news to justify this pre-market "recovery" and I hate to sound like a broken record but I like shorting oil (/CL) if we get below that $102 line with tight stops and the Dow (/YM) is right at 12,400, which is a great spot to short. RUT (/TF) is at 762 and below 760 (same as yesterday) will confirm a downturn but 12,400 is a great line so why wait?" By 6:26, I was able to follow it up with:
And wheeeeeeeeeeeeeeeeeeeeeeeee! There go the Futures!
It's 7:07 and we're still going down, with oil at $101.24 (up $760 per contract) and the Dow at 12,340 (up $300 per contract) and, as Dennis said: "Good enough for steak and eggs for me!" Roro got up late but still caught the Dow at 6:16 and that was right on the nose for the oil drop as well as we hit it right on the nose this morning and now we're done and waiting for the next good set-up.
Of course we scale in and scale out of positions as there's no need to get greedy in the Futures, where a single remaining contract catching a $1 move down in oil (now $101.25 again) pays $1,000. This week, we have even stationed our own Craigzooka in New Zealand, where it's tomorrow – which makes it much easier to bet on today's action as he can tell us what happened already! Not that today was all that hard to predict, right? My comment to Members LAST Wednesday was:
It’s been a pretty reliable bet that they tank the markets into the longer-term note auctions because it scares people into T-Bills and keeps the rates low. From this line-up, it seems to me they intend to jack us up on Friday and then zap us on Tuesday as Esther George releases something hawkish ahead of the 3-year and it’s no coincidence that Plosser, by far the biggest Hawk, is given the floor at 12:30 on Wednesday – just 30 minutes before the critical 10-year auction. Coincidence? Surely you cannot be that naive!
So that's how we've been playing the past 7 days and it culminated in pressing our…
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DiggThursday Foolishness – More of the Same with One Trade
by Phil - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
Just Another Manic Monday – Value Investing
by Phil - September 26th, 2011 8:27 am
Up, up and away!
As I mentioned in Friday’s morning’s post, we did a lot of bottom-fishing on Thursday as we began to develop Disaster fatigue with long plays on XLF at $11.50, shorting TLT at $123, shorting VXX at $49.50, TNA at $34.50, BRK.B at $65, AA at $10.20, VLO at $19, IMAX at $15.75, BA at $58.32, AGQ at $170, CHK at $27.50, DIS at $30.14 and ABX at $47.50. They were hedged, of course and, for the most part, you still had a nice chance to make those entries on Friday – but not so much this morning as the futures are up about 1.5% already (7:30).
Friday morning, in my Alert to Members, I reminded them that BCS looked like an excellent VALUE to me, no matter what the PRICE was ($8.75 after hitting $8.40 the day before) and this morning, that PRICE is up well over 10% in EU trading. Did the VALUE of BCS change materially over the weekend? Of course not, certainly not by the $4Bn their market cap gained – like the song, the VALUE remains the same – only the highly variable price of a share of BCS is undergoing ch-ch-changes…
I pointed out similar hedged, long-term plays could be made on GS ($94), MS ($13), BAC ($6) and C ($24). Of course we hedged them per our discussion in the morning post (TZA was our morning choice but we’re out over 650 on the RUT) but then we went long on EWG (Germany) again with the very aggressive Oct $16,18 bull call spread at $1.30, offset by the sale of the $17 puts for .90 for net .40 on the $2 spread. 10 of those in our virtual $25,000 Portfolio cost $400 and can return $2,000 in less than 30 days if EWG is over $18 and, guess what – they’re over $18 this morning!
Another bullish bet we placed was USO Nov $28/30 bull call spread at $1.30, selling the $27 puts for $1.10 for net .20 on the $2 spread with a 900% upside if USO simply doesn’t drop from where it is now. That’s what’s nice about options – you don’t need the market to go up to make money good money. On this trade idea, your worst-case scenario is owning USO at net $27.20, about 10% lower than it…
TGIF – Stop the Week, We Want to get Off!
by Phil - September 23rd, 2011 8:35 am
What a disaster!
Of course, that’s why we have Disaster Hedges, right? August 11th was the last time we did a "Hedging for Disaster" post which included a LONG trade idea on gold that’s done now (we’re short) after gaining over 300%. We’re a little mixed in our results on the other hedges but that means we can SWITCH HORSES – from the trades that have already worked to the ones that haven’t yet. That’s how we cash out our winners on a regular basis – it’s the pony express of investing. Our other Disaster Hedges from that post were:
- DXD Oct $23 calls at $2, selling Oct $27 calls for $1.15 and the Oct $19 puts for .70 for net .10. That spread is currently -.05 so down 150% so far and a nice horse to switch to, offering a .05 credit on the $4 spread.
- FAZ Oct $65 calls at $22, selling Oct $72 calls for $20 and selling JPM 2013 $20 puts for $2.05 was a net .05 credit as a backstop to our long financial plays. FAZ is now at $71.34 and the October FAZ spread is now $3.70 but the JPM puts are now $3 so net .70 is only up 1,500% so far. Should the financials stay low, we get the full $7 from the spread and we’re obligated to buy JPM for $20 (now $29.27) in 2013.
- SDS Sept $26 calls at $3.20, selling Sept $32 calls for $1.65 and selling VLO Jan $15 puts for $1.20 for net .35. SDS is only at $25.73 so far (not a disaster yet) and the spread is now net $1.25 and the short VLO puts are .17 so net $1.08 on this one is up 208% and we’re not even at goal – that’s pretty good! Note the spread is LOWER than when we started so this can also be used as a fresh horse with a different offset, like X Jan $15 puts for $1.20 for a net .05 trade.
- TBT was stopped out with a small loss at $24 (fortunately). My comment at the time, with TBT at $24.88 was: "Keep in mind though, that the Fed has said rates will stay low through 2013 so it would be wise to uses stops on the puts, at least, if TBT fails to hold $24!"
- EDZ
…
Hedging For Disaster – 5 Plays that Make 500% if the Market Falls (Members Only)
by Phil - August 11th, 2011 7:30 am
We took our last round of disaster protection back in early July and almost all of those trades are well in the money.
Since you know I am a big fan of taking cash off the table in either direction, let’s not be greedy and look at ways to "roll" our downside protection into new downside plays so we can set SENSIBLE stops on our now deep in the money short plays (very similar to our Mattress Strategy). Keep in mind that this is the biggest market decline we’ve had since last Summer, so adding a layer of protection here doubles our returns if this is the first leg of a major sell-off, or it gives us a smaller hedge that we can roll up later while we take our bigger hedges off the table. As I have to say WAY too often to members – It’s not a profit until you cash it in!
Hedging for disaster is a concept I advocated during another "recovery," in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – "just in case." That "just in case" saved a lot of virtual portfolios! The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn. That way, 10% allocated of your virtual portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a good buying opportunity. At the time, I advocated SKF Jan $100s at $19. SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting even just 5% of your virtual portfolio into that financial hedge would give you back 75% of your virtual portfolio when you cash out.
Keep in mind these are INSURANCE plays – you expect to LOSE, not win but, if you need to ride out a lot of bullish positions through an uncertain period, this is a pretty good way to go. We cashed out our bullish $25KP positions by July 28th, (our active virtual portfolio) with the S&P at 1,340 and, since then, I’ve had a very hard time making long-term bullish picks. I want top put up a Buy List but it’s still too risky – this will be step 1 though – protect first, then buy! Once we cash…
Smart Virtual Portfolio Management – The $25,000 Virtual Portfolio
by Phil - January 22nd, 2011 12:18 pm
Options Sage submits:
“Never risk what you do have and do need on what you don’t have and don’t need”
Smart virtual portfolio management is a world apart from conventional virtual portfolio management. While conventional virtual portfolio management offers generic guidelines to diversify capital, smart virtual portfolio management is tailored to your personal circumstances. We have, in the past had similar articles on managing $10,000, $100,000 and $1M Virtual Portfolios. This article is a variation of the $10,000 article in preparation for our new 2011 Member Virtual Portfolio with the goal of turning $25,000 in into $100,000 over the next 12 months. Phil is, of course, proposing an aggressive stance but, after turning $10,000 into over $30,000 in just 7 months in the prior virtual portfolio – let’s just say we are confident it can be done.
Although this article focuses on prudent strategies for a $25K virtual portfolio, many less conservative investors are likely to find the strategies addressed throughout suitable for their own virtual portfolios – though the % allocations will differ as we will see in Phil’s virtual exercise. No matter what your risk tolerance, a virtual portfolio comprising some relatively conservative trades is always prudent!
Phil once commented that, when trading a $10,000 virtual portfolio, “every $100 counts”!
Capital should be allocated judiciously in a small virtual portfolio. NEVER allocate a majority of your capital to any single trade. Dedicating 20% of your virtual portfolio to relatively conservative trades (shown below) is appropriate but exceeding 30% is far too risky when dealing with limited capital. With a $25K virtual portfolio, it becomes increasingly imperative to be right first time. Financial constraints limit your ability to scale into trades at different threshold levels and that makes timing critical unless….
Unless you figure out how to trade without requiring perfect timing of the market! Those of you trading along with Phil’s earnings spreads have already seen some of the ways we take advantage of stock movement, whether they go up, stay flat or even drop to some degree…
Strategy A: The Covered Call – With a Twist – Making 44% in Just 13 Weeks
Instead of placing the short call out-of-the-money in the conventional format, the short call is actually placed in-the-money.
C closed…
Testy Tuesday – Trichet Talks Tough at High Noon
by Phil - October 12th, 2010 7:40 am
Anti-Claud is coming to town!
You’d better not print, you’d better not ease you’d better not contract or your wages will freeze - Jean Claude Trichet is coming to town… The EU’s Central Banker has a lunch meeting at the NY Economic Club and there is no one who knows better when Bernanke’s sleeping and when the recovery is fake, so we’d better pay attention, for the country’s sake! THIS is the most powerful banker in the World, not the hollow Bankster puppet we have setting US policy, and Trichet has fought easy money tooth and nail -even as the US embraced it this year.
As you can see from the Chart on the right, Europe is a bigger (slightly) trading partner of China than the US and a MUCH bigger buyer of US goods than China by a factor of 3. The strong Euro lowers Europe’s trade imbalance as they have to send less Euros to both the US and our peg-partners in China for the same amount of goods they bought last year while the same goods they sold last year ship out in exchange for larger amounts of foreign notes.
With the Bank of Japan this week boosting its asset- purchase plan and the U.S. Federal Reserve mulling a similar shift, Trichet said last week that ECB policy makers are in the “same mood” as a month ago and for now remain committed to phasing out their unlimited lending program. That boosted the Euro back to $1.40 for the first time since February. The ECB and Fed compose “two different schools of thought,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The ECB is looking at their own economy and seeing some signs of a revival. They’re very concerned about going down the line of the Fed.” Now Mr. Trichet will attempt to school us this afternoon – not coincidentally, on the same afternoon that the Fed Minutes will be released and QE2 mania is likely to peak out.
As noted yesterday by Zero Hedge, "While risk assets may hit all time highs courtesy of free liquidity, the economy, also known as the middle class, will be stuck exactly where it was before QE2… and QE1." The article does a great job of outlining my long-standing premise that money simply cannot be printed fast enough to overcome…
Turning $10K into $50K by Jan 21st – Week 12 Update (Members Only)
by Phil - September 4th, 2010 9:24 am
What an exciting 10 weeks these trades have had!
The most important thing to take away from these hedged play reviews is how important it is NOT TO TOUCH THEM. We orginated this group on June 11th and the Dow was at 10,200 and it ran up to 10,600 and down to 9,600, back to 10,700, down to 9,800 again and is now back to 10,400. We could have made some good adjustments and we could have made some bad adjustments but the best move is to do nothing with long-term, hedged positions while the market gyrates UNLESS something fundamentally changes in your range outlook.
Rather than panic out of positions like these examples, a simple disaster hedge was used in the July 26th update to ride out the dip, while letting time (theta) decay contine to do it’s work on the premiums we sold…
The VIX was at 30 back on June 11th and that, in part, determines the nature of the trade ideas we decide to use. The higher the VIX, the more we want to sell premium as we simply profit from the declining VIX (now 23.5). The idea of these picks was to find $10,000 worth of small plays that we thought could gain 500% by Jan 21st as part of a larger virtual portfolio. If you can do this with just 10% of a $100K virtual portfolio or 5% of a $200K virtual portfolio, that’s plenty of risk for these uncertain times and it’s a nice 25-50% bonus on the entire virtual portfolio if it works out. Risk can be a component of a conservative virtual portfolio if we wall it off safely.
Our first play was a fundamentals play on YRCW, assuming they wouldn’t go bankrupt. 10,000 shares at .21 was the original entry ($2,100) and I called an audible on this one on 7/7 to add 2x at .11 rather than stop out. That brought the net down to 0.143 on 30,000 or $4,290 so a bit more than a DD overall and we took 1/2 off the table this week at .29 ($5,850), turning this one into a free play ($1,560 profits in pocket) with 15,000 shares to ride out but we lost our nerve at .41 because we couldn’t get .10 for the Jan $1s so we gave up (and rightly so it turns out) and cashed out for another $6,150 in profits for a total profit of…
Smart Virtual Portfolio Management Update – The $10,000 Virtual Portfolio
by Phil - August 7th, 2010 8:25 am
Options Sage submits:
“Never risk what you do have and do need on what you don’t have and don’t need”
Smart virtual portfolio management is a world apart from conventional virtual portfolio management. While conventional virtual portfolio management offers generic guidelines to diversify capital, smart virtual portfolio management is tailored to your personal circumstances. With that in mind this article has been divided into a three-part series. The first discusses a $10K virtual portfolio while the second will offer suggestions for a $100K virtual portfolio and the final article will discuss $1M virtual portfolios.
Although this first article in the series addresses prudent strategies for a $10K virtual portfolio, many conservative investors are likely to find the strategies addressed throughout suitable for their own virtual portfolios – though the % allocations will differ as we will see in the future articles. No matter what your risk tolerance, a virtual portfolio comprising some relatively conservative trades is always prudent!
Phil once commented that, when trading a $10,000 virtual portfolio, “every $100 counts”!
Capital should be allocated judiciously in a $10K virtual portfolio. NEVER allocate a majority of your capital to any single trade. Dedicating 20% of your virtual portfolio to relatively conservative trades (shown below) is appropriate but exceeding 30% is far too risky when dealing with limited capital. With a $10K virtual portfolio, it becomes increasingly imperative to be right first time. Financial constraints limit your ability to scale into trades at different threshold levels and that makes timing critical unless….
Unless you figure out how to trade without requiring perfect timing of the market! Those of you trading along with Phil’s earnings spreads have already seen some of the ways we take advantage of stock movement, whether they go up, stay flat or even drop to some degree…
Strategy A: The Covered Call – With a Twist – Making 30% in 5 Months
The original trade was 5 June $3/4 bull call spread at net .87 ($435), which finished at $500 for a nice $65 gain (15%) in 7 weeks. A lot of small virtual portfolio player spend too much time "going for it" with risky trades when there is very good money to be made on sensible ones. – Phil
Instead of placing…
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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...
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