Friday Follies – Did Obama Blow Jobs Speech?
by Phil - September 9th, 2011 8:15 am
Obama did not satisfy the markets last night.
Although his $447Bn American Jobs Act is a step in the right direction, $307Bn (68%) of the money is coming in the form of tax cuts and Unemployment Insurance extensions, leaving just $140Bn to go towards the creation of actual jobs. Even if every single dollar of that money went directly towards paying a $40,000 salary – the entire amount would employ just 3.5M people, not even 1/4 of the amount of people who are out of work.
Is that the best America can do? Come up with a jobs program that MIGHT lower unemployment from 9% to 7% over the next year? Of course we won’t create 3.5M jobs for $140Bn because a lot of that money gets spent on parts and materials. It’s certainly not that the projects are unnecessary, it’s just that the scope of the program is too limited to have a substantial impact.
In fact, exactly one year ago, I wrote "Jobless Thursday – America’s Infrastructure Crisis" where I laid out the TRILLIONS of Dollars worth of repair work that MUST be done in this country sooner or later. Why don’t we do them SOONER, while 20M potential workers are sitting on the sidelines? We MUST spend at least $2Tn on infrastructure in the next 10 years so why not spend $400Bn this year and next rather than waiting until the last minute to do anything? The money is all borrowed over time either way but NOW is when people need to get back to work and, of course, if we get necessary projects done now instead of 10 years from now, then we, the People, get to enjoy 10 years of beneficial use out of them. This is not complicated stuff folks, just common sense…
Nonetheless, $447Bn is 3% of our GDP and figure about 2/3 gets spent in the first year so the program SHOULD keep us out of Recession in 2012 – yay for that at least. If Recession is off the table, then the markets are underpriced – now we have to consider whether or not the bill can get past the Republicans in Congress. By the way, if you have not read "Reflections of a GOP Operative" yet, please do – it’s an excellent insight into the current political climate.
We had flipped bearish yesterday, anticipating…
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DiggWhich Way Wednesday – Wherefore Art Thou QE3?
by Phil - July 13th, 2011 8:29 am
China is still rolling along and the Fed says "maybe" on QE3.
That was all it took to get us to yesterday’s highs but we took the money and ran at 2:24, when I told Members in Chat "DON’T BE GREEDY!" As I had mentioned in yesterday’s post, our Morning Alert to Members put us long on Dow Futures (/YM) at 12,400 and Nasdaq Futures (/NQ) at 2,350, which made vast sums of money of course with the Dow up well over 100 points at the time. During Member Chat yesterday, we took advantage of the early dip to go long on TBT, FAS, WFR and QQQ while killing our short positions on USO, EDZ and FXI (see Monday’s post) as they had a great run and WE ARE NOT GREEDY!
Of course we have our bull call spreads from last week so we’re pretty bullish BUT still cautious because our indexes are not holding their lines – especially the always-troubling NYSE, which did not hold the "Must Hold" line and when we name a line "Must Hold" well, it MUST be held!
The other thing I said to Members at 2:24 in yesterday’s Chat was:
Keep in mind this rally has 100 Dow points to go just to get us back to Friday’s close (12,660) so don’t be impressed with less (S&P was 1,344, Nas 2,860, NYSE 8,411 and RUT 852).
At the moment, we’re not even getting a 50% bounce of this morning’s bottom and Friday’s close was way below Thursday so it’s very easy to give us a "rally" by tanking the Dollar and floating rumors of MORE FREE MONEY but, for now – it does nothing to change the greater reality.
That’s good advise for today as well. A mere hint of QE3 does not change the cost of Italian debt, nor will it help our Treasury sell $21Bn worth of 10-year notes today at 2.9% (what kind of idiot would trust our Government to give them back Dollars with less than 3% interest to guard against inflation?), nor will it employ people and we ABSOLUTELY know that QE3, if done like QE2, is going to…
Options Strategist Portends Sharp Rally in St. Jude Medical
by Option Review - June 24th, 2011 5:30 pm
Today’s tickers: STJ, POT, SNDK & FXI
STJ - St. Jude Medical, Inc. – A three-legged bullish options combination play on St. Jude Medical cost $8,500 to initiate today, but the strategist responsible for the transaction could walk away with more than $1.26 million in his wallet come January 2012 expiration. The options player appears to have sold puts on the medical devices maker to offset premium required to purchase a bull call spread. Shares in St. Jude Medical are currently down 1.9% to stand at $46.49 as of 1:10pm on the East Coast.
The investor sold 1,700 puts at the Jan. 2012 $40 strike for a premium of $1.70 each, purchased the same number of calls up at the Jan. 2012 $50 strike at a premium of $2.45 per contract, and sold 1,700 calls at the Jan. 2012 $57.5 strike for premium of $0.70 apiece. The net cost of putting on the three-way trade amounts to $0.05 per contract or a total of $8,500. The spread positions the trader to make money should STJ’s shares rally 7.7% over the current price of $46.49 to exceed the effective breakeven price of $50.05 at expiration next year. Maximum potential profits of $7.45 per contract, or $1,266,500, are available to the investor if the price of the underlying stock jumps 23.7% in the next seven months to trade above $57.50 at expiration in January. The trader loses the $8,500 paid to establish the position if shares fail to rally as predicted. Additional losses accumulate if shares are sharply lower at expiration. The short stance in Jan. 2012 $40 strike puts indicates the investor may wind up having 170,000 shares of the underlying put to him at $40.00 each should the options land in-the-money at expiration day. The maximum payload requires STJ…
What, Me Worry Wednesday – Fitch Warns on China
by Phil - April 13th, 2011 7:57 am
The futures are bouncing!
Why are they bouncing? Why not? We went down and people love to buy those dips and that means they are just going to love this chart, courtesy of Barry Ritholtz’s team. We don’t get our next Case-Shiller data point until the 26th but we did get mortgage applications this week and they are down ANOTHER 6.7%. This is despite the fact that an average 30-year mortgage is still just 4.98%.
I know that we have been trained to ignore supply and demand in commodities as well as to pretend that all prices are inelastic and that American consumers will buy anything at any price because they are generally mindless sheep that you can lead into anything with the right jingle but, if they are not willing to buy a $250,000 home with a 5% mortgage – what’s going to happen when that mortgage is 6%?
At 5%, a $250,000 mortgage has a monthly payment of $1,342.05. At 6% that payment jumps up to $1,498.88 – 10.5% higher! At 7% it’s $1,663.26, 24% higher – that’s the "cost" of housing as rates tick higher but, of course, that will force housing prices even lower to compensate and the Fed will tell us that inflation is low because home prices will be falling faster than food prices are rising – so we have that to look forward to…
I mentioned yesterday that China tightened their rates and home prices in Beijing fell 26.7% in the month of March. I waited all day to read more about it in the WSJ or Bloomberg or to see them discussing this on CNBC but no – it’s not the kind of news they want you to hear so – for your own good, it is not mentioned. I had to find this news in Business China but it’s also in the China Daily and the People Daily but where it isn’t is in any US newspaper I’ve looked at and neither is there mention of the problem caused by giant-sized, irradiated Asians poking buildings with sticks! (just kidding).
We talk about Chinese censorship and control of information but what is this? If a Nigerian Rebel spits at a pipeline or if a Somali Pirate even glances in the direction of an oil tanker – it’s on the front page of the papers (sometimes before it…
Halliburton Options Trade Smartly
by Option Review - October 29th, 2010 4:06 pm
Today’s tickers: HAL, CSTR, AMAG & FXI, SPY
HAL - Halliburton Co. – A sharp fall in Thursday’s session for oil services and sloppy cement-mixer Halliburton has not gained much traction at the end of the week. The stock today trades on both sides of unchanged and is currently at $31.71. While the prospects for additional liability are pretty much set out on the table following a report showing it provided BP with an unstable cement mix to surround the Macondo oil well, BP didn’t notice or attempt to rectify the error. Halliburton’s November puts are being sold as the stock stabilizes while the smart trade appears to be selling well out of the money call options expiring in April. Around 4,000 call options at the $36 strike price have traded to the bid telling us that an investor is taking a long stock and short call position or is simply just writing premium. The 52-week high at $35.89 remains a tall order after yesterday’s news making the short position in the calls look like a viable proposition.
CSTR - Coinstar Inc. – Coin and DVD-rental-machine operator Coinstar provided a pop for its shares after reporting surging revenues thanks to growth in its DVD-machine operations located in supermarket chains around the nation. Investors were primed for a dip in profits but were left smiling by a 42% increase in revenues on the movie-rental side. Call options on the stock were equally hot property on Friday after the share price jumped by 23% to $56.86. Formerly out-of-the-money call options expiring in November and which were trading at $1.50 yesterday traded all the way up to $8.00 a piece today despite a 20% slide in options implied volatility, typical after earnings. The share price surge put calls at six option strikes in-to-the-money on Friday. Compared to a 10-day average today’s overall options volume stacks up to more than five-times the norm.…
Hefty Bullish Plays Constructed on Transocean
by Option Review - July 29th, 2010 6:09 pm
Today’s tickers: RIG, AKAM, VPRT, FXI, GMCR, XLP & KR
RIG – Transocean Ltd. – Two massive bullish transactions utilizing nearly 110,000 call options on the provider of offshore contract drilling services for oil and gas wells indicates at least one big options player is taking a long-term optimistic stance on the stock. RIG’s shares inched up 0.50% this afternoon to trade at $47.00 as of 3:15 pm ET. The nearer-term of the two spreads looks to be a variation on the traditional call butterfly spread because volume at the lower strike price [wing 1] is the same as that used in the body of the butterfly. Typically, a butterfly spread is constructed using a 1X2X1 ratio. The longer-term spread employed in the February 2011 contract looks like a normal butterfly. In this transaction the investor enjoys maximum profits if RIG’s shares surge 38.3% to settle at $65.00 by February expiration day. The transaction involved the purchase of 15,000 calls at the February 2011 $50 strike [wing 1] for an average premium of $5.5250, the sale of 30,000 calls at the February 2011 $65 strike for an average premium of $1.475 [body], and the purchased of 15,000 calls at the higher February 2011 $80 strike for an average premium of $0.425 apiece. The net cost of this transaction amounts to $3.00 per contract. Transocean’s shares must rally 12.8% by February expiration in order for the investor to breakeven on the spread at a share price of $53.00. The investor may accumulate maximum available profits of $12.00 per contract if Transocean’s shares surge 38.3% to $65.00 by expiration day. The spread initiated in the November contract is similar in its bullishness, although differs with respect to the lopsided nature of the wings, time to expiration, and strike price selection. In this trade the investor the purchased 19,500 in-the-money calls at the November $45 strike for an average premium of $6.175, and sold the same number of calls at the higher November $55 strike for an average premium of $2.22 each. The third leg of the trade is half the size, that’s 9,750 calls purchased at the November $65 strike for an average premium of $0.725 apiece. The investor or investors responsible for these transactions are well positioned to benefit handsomely from bullish movement in the price of the underlying shares in the months to come.
AKAM – Akamai Technologies, Inc. –…
Wild Weekly Wrap-Up – The Madness of the Markets (Part 1)
by Phil - May 21st, 2010 11:22 pm
Where do I even begin to go over this week?
I think, to set the proper tone, let’s look at my Thursday morning Alert to Members where I said: "Get out, Get Out, GET OUT of the short-term short-side plays if we get back over the 200 dmas. Take the money and RUN. CASH OUT THE SHORT SIDE. Is that clear? We may not hold these lines but that’s why we have October Disaster Hedges, the shorter-term downside plays are huge winners and should be cashed here – we’ll find something else to short if we fall off this support level. 200 dmas need to be held and those are: Dow 10,250 (8,650 is next major support), S&P 1,100 (900), Nasdaq 2,225 (not there yet! 1,800), NYSE 7,100 (5,500) and Russell 630 (still above! 500)."
We never did hold those levels but, as I mentioned in Friday morning’s post, I thought the end of day sell-off on Thursday was a bit forced, and, in my first Alert of Friday morning I said: "TAKE THOSE SHORT PROFITS OFF THE TABLE!" Now, I am not prone to making statements in all caps in Member Chat - almost never is about how often so this was a pretty important statement. Before that Alert, right at 9:42, I had already called for the SPY $105 calls at $2.45 as our first trade of the day. Those calls finished at $4.11, up 67% for the day so a good start to our expiration day!
A good start and our other day trades did very nicely as well:
- FXI June $39 calls at .98, now $1.28 - up 30%
- DIA May $102 calls at .13, out at .45 – up 246%
- DIA May $101 calls at .95, out at .80 - down 16%
- DIA May $101 calls at .10, out at .80 – up 700%
Of course we followed our strategies and took 1/2 the DIA’s off the table at a double so the other half was a free ride (we like to gamble but we’re not crazy!) but the FXI was the only "keeper" for the day, we’ll see if that was a good idea on Monday. We also took (as I said we would in the morning post) a number of well-hedged, bullish plays on BA (from the post), TNA, TBT (have I mentioned how much I like them lately?), INTC, AAPL, VLO, FCX (I guess we’re done relentlessly shorting them!), XOM and…
Weekend Reading – Now What?
by Phil - May 16th, 2010 9:42 pm
We had a totally exciting week last week!
I was busy this weekend so no Wrap-Up but I did write about 5 pages of commentary under Sage’s $1,000,000 Virtual Portfolio article regarding virtual portfolio allocations and scaling strategies - all Members should read that! We were discussing our Disaster Hedges as well which are all well in the money but hardly a double in the bunch so far, which is actually fantastic news if you haven’t entered them yet as you can enter these plays now and still do great if EITHER the market continues lower OR the VIX calms down since it’s the high VIX that is keeping us from making big money. These are October hedges so no one expects them to pay off this early but the fact that you can still get in them even after this dip is a nice break if you intend to start getting bullish and want hedges.
We took shorter-term hedges for more aggressive traders during the last week of April and those, of course, are up very nicely like:
- EDZ June $38/44 bull call spread at $2.80, now $3.50 - up 25%
- EDZ June $35 puts sold for at $1.25, now .70 - up 44% (pair trade)
- FAZ July $12/16 bull call spread at $1.10, now $1.35 - up 18%
- FAZ July $10 puts sold for .70, now .50 – up 28%
- IYR May $52 puts at $1.30 (fell to .79), now $2 - up 54%
- OIH May $131 calls sold for $3.45, now .05 – up 98%
- OIH May $131 calls sold for $3.90, now 05 – up 99%
- QID May $16 calls at .32 (fell to .27), now $1.27 – up 296%
- QID May $15 puts sold for .32 (rose to .37), now .02 - up 94% (pair trade)
- QID June $14/16 bull call spread at $1.15, now $1.50 – up 30%
- TBT Sept $43 puts sold for $1.50, now $3.90 – down 160%
- TBT Sept $43/48 bull call spread at $2.60, now $1.55 – down 36%
- TZA June $6 puts sold for .70 (rose to .94), now .74 - down 5%
- UGL Oct $49/54 bull call spread at $2, now $2.50 – up 25%
- GLD March $90 puts sold for $1.20, now $1.40 - down 17% (pair trade)
- VNO May $80 calls sold at $2.30 (rose to $3.90), now $1.85 – up 19%
As I often say, sometimes the best way to enter a trade is AFTER they are down and…
Smart Virtual Portfolio Management III – The $1,000,000 Virtual Portfolio (Members Only)
by Phil - May 15th, 2010 6:35 am
You can’t lose what you don’t have.
The reverse is true for people with Millions in a stock virtual portfolio. Phil points out that the reson you don’t run a large hedge fund trying to make 100% gains is that the people who invest in those funds are more interested in what we call "preservation of capital" rather than generating wealth. Generally, the people who have $1M of investable cash to play the markets have already achieved a great deal of success, often by taking their own risks along the way. For most of us, $1M is hard to come by and, while we want to put that money to work – we certainly don’t want it wondering off and joining the circus.
As a high net-worth investor, you need to decide how to diversify your assets to suit your long-term goals. We’re not going to get into that here – let’s just say that if you want to gamble and go for some of our "more exciting" plays, perhaps allocate a portion of the virtual portfolio to those. Whether that’s 5% or 10% or 30% is up to you but it is good to fence off your risk to a sensible, manageable amount that you really can afford to lose while keeping the bulk of your market allocation well diversified and well-hedged.
I have my own 5% Rule. Phil’s famous 5% Rule deals with the predictable movement of stocks in their trading ranges but my 5% Rule, which Phil also agrees with is simply "Do not put more than 5% of your virtual portfolio in the stock of any one company!” This is so much easier said than done for many reasons!!
[1] Transition to Large Numbers
Moving from a 5 or 6 figure account to a 7 figure account has a profound impact on many traders. In fact, our friend Dr. Brett refers to the effect “performance anxiety” can have on a virtual portfolio and notes that one of the causes is the responsibility felt by traders as larger dollar amounts are traded. Phil advocates a system of "purging" Short-Term Virtual Portfolio gains when they gets too large and shifting money into safer investments in a Long-Term Virtual Portfolio – it is good to have a strategy for balancing out your holdings, not just target goals.
While it might be acceptable to put 15% of your $10,000 virtual portfolio on that long call you just KNOW will…
Options on Halliburton Get Messy
by Option Review - April 29th, 2010 4:20 pm
Today’s tickers: HAL, IPG, AMGN, BP, COF, FXI, OMX, NEM & FSLR
HAL – Halliburton Co. – Making sense of options activity on oil company, Halliburton Co., this afternoon is difficult due to the chaotic and seemingly pattern-less trading taking place on the stock. Investors exchanged more than 200,000 contracts on HAL by 3:00 pm (ET), which represents approximately 37% of total existing open interest on the stock of 541,062 contracts. Frenzied options trading was catalyzed by news the firm is assisting in ongoing investigations regarding the oil spill in the Gulf of Mexico as HAL reportedly provided a variety of oilfield services to Deepwater Horizon rig, which is the rig that caught fire and sank last week. Options volume and options implied volatility on Halliburton jumped while its shares slipped 6.3% to $31.26. The surge in demand for option contracts on the stock, coupled with uncertainty regarding possible repercussions stemming from HAL’s connection to the situation in the Gulf of Mexico, lifted the overall reading of options implied volatility 25.4% to 44.13% as of 3:25 pm (ET). Trading activity is heaviest in the May contract with decent volume building in both call and put options. Some bearish investors bracing for continued share price erosion purchased about 2,200 puts at the lowest available strike – the May $25 strike price – for an average premium of $0.16 apiece. Buying interest in put options was also apparent at the May $26 strike where 1,800 puts were picked up for an average premium of $0.20 each. May $29 strike puts were the most heavily trafficked as more than 16,700 contracts changed hands by 3:22 pm (ET), versus previously existing open interest of just 2,743 contracts at that strike. But, the put action was certainly not one-sided as investors took to buying and selling the contracts, with buyers gaining the right to sell the stock at $29.00, and sellers receiving an average premium of $0.81 per contract in exchange for bearing the risk of having shares of the underlying stock put to them at $29.00. Similar two-way trading traffic in calls took place at out-of-the-money strike prices as some traders threw in the towel on bullish stances expiring in May. Meanwhile, contrarian players purchased out-of-the-money calls, perhaps to prepare for a potential rebound in the price per share ahead of expiration next month.
IPG – Interpublic Group of Cos., Inc. – Advertising and…
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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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