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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DiggPhuket Friday – Carnival of Madness
by Phil - December 16th, 2011 8:25 am
It’s party time!
A lot of investors have been saying "Phuket" lately and they can only be referring to the annual Patong Carnival in Thailand, where the tourist bureau wants you to know the tuberculosis outbreak is "under control." Actually, it’s an amazingly beautiful place with great people – must be why so many people keep mentioning it when starting at the markets this week…
As I mentioned yesterday, we had to flip bullish because our bearish bets were no fun and we felt that A) the bottom was a little forced in order for Timmy to peddle his T-Bills and B) that Santa Clause is coming to town. Actually, we had plenty of bearish bets from when the market was high so we needed the bullish bets to get BALANCE!
Balance was the theme of our virtual White Christmas Portfolio and we added another $3,615 in gains over the past two weeks to bring us very close to a triple at $42,925 off our $15,000 start back on November 21st. This is a very aggressive virtual portfolio where we are practicing the art of hit and run trading. The positions we closed in the last 9 sessions were bullish bets with FAS, XLF, FAS, DIA, GLD, XLF, FAS and XLF and bearish bets with GLL, TZA, FAS (spread), USO, DIA, TZA, DIA, DIA, DIA, DXD. See – BALANCE!
We thought the market would go up and down (I know, such a stretch!) and the markets did, in fact go up AND down with an AVERAGE swing of 1.5% PER DAY but, in the end, we’re still consolidating around our Must Hold lines and right back where we were at the last options expiration day of November 18th – causing almost all puts and calls sold to sucker a month ago to expire worthless. Isn’t it a funny coincidence how all that seems to work out for the Banksters?
As I reminded our Members, our cynical motto at PSW is "We don’t care IF the game is fixed, as long as we can figure out HOW the game is fixed and place our bets accordingly."
I don’t know how many times I need to tell you oil is a scam before you’ll believe me but it was way back on June first, when I laid out our plan to break the…
White Christmas Portfolio – Month 2
by Phil - December 5th, 2011 7:49 am
What a first month we had!
Oddly enough, when I was last on BNN (I’ll be on again this afternoon), we were just about to start our newest virtual portfolio after closing down this year’s virtual $25,000 Portfolio early as we were way past goal, over $130,000 on the 20th (up 420%). As that portfolio went so well, we decided to play a "White Christmas Portfolio" – as I explained on TV on Oct 24th, which aimed to practice making the same kind of small, aggressive trades, with the aim of turning $15,000 on October 24th into $25,000 by Christmas (66%).
In fact, I gave out our first trade idea, GNW, which was $6.30 during my BNN interview, now $6.47 (up 3%). We discussed the Jan $5/7.50 bull call spread for $1.10, which is now $1.40 and that’s up 27% but, more importantly, your gain playing the option INSTEAD of the stock is .30, vs .17 – that’s almost 100% better gain with NO MORE RISK than buying the stock while requiring less than 20% of the cash commitment (and no margin on just the bullish spread).
Of course, our actual WCP trade idea had another component deemed too confusing for TV – we also sold the short Dec $6 puts for .85 as an offset, which lowered the cash cost of the trade to .35 and those puts are now .20, up another .65 on their own and the net of the entire trade has gone from .35 to $1.20, which is a 242% gain on net. Of course, none of that matters – what matters is that you put a net of $350 into the trade (10 contracts) plus about $600 in margin on the short puts on October 24th and you can cash that trade out today (we elected to cover it on Friday) for $1,200 and that is clearly 242% more cash than you started with on October 24th – the margin requirement is gone, but the cash remains!
With that kind of success on our first trade, it’s not too surprising that the whole portfolio has been doing well. We left off last Wednesday with a balance of $35,540 – far better than we expected to do, obviously, in our first month (up 137%) so we decided it was prudent to get back to cash as we were "too bullish".…
FHFA Friday – Potential Lawsuit Tanks Banks
by Phil - September 2nd, 2011 8:18 am
$30 Billion – that’s bound to get their attention!
According to the WSJ, the Federal Housing Finance Agency is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble. The suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims arguing the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.
Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues, agrees with what I told Members in last night’s chat:
"While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”
In other words – MADNESS! What was the point of spending Trillions of Dollars bailing out the Banks if you are going to turn around and sue them for $30Bn and drop their stock price another Trillion, causing them to need another bailout?
Perhaps this is the denouement of a week of scary market rumors that seem to have been designed to stop the markets from breaking too high. We were speculating on this last night in Member Chat before this…
F’ing Thursday – Give Us a Break!
by Phil - August 11th, 2011 8:30 am
Holy cow – when will it end?
As I mentioned yesterday, we were expecting a whipsaw after the morning sell-off and we played that perfectly with bullish trades on the DIA and OIH and, as we move up, we took bearish plays on GLL, TZA and QQQ. All good so far but then we did a little bottom fishing before wising up and shorting USO into the close – just in case. The futures were up 2% this morning at 5am and I had to warn our Members:
Overall, this is too weak to get us over the hump and we are going to have to lean a little more bearish unless we can follow Europe up 2.5% or more. Our charts will turn from "spiking low on volume" to "consolidating for a move below 20%" very quickly if we don’t gets something bullish going by tomorrow.
The Dollar was at 74.64 at the time and it’s only 75.04 now (7:50) but the futures have gone from up 2% to down 1% in less than 3 hours – that is insane! How are retail investors supposed to play this market? The average person does not have the stomach for watching their virtual portfolio’s value go up and down 5% a day – at some point they are all going to pull the plug and walk away. Of course, as I was saying yesterday – that’s just what the Banksters want you to do, assuming they know QE3 is right around the corner, accompanied by a 20%+ market rally into the year’s end.
Anyway, hope is NOT a strategy for the prudent investor so I published another set of Disaster Hedges this morning as it’s time to add a layer to our longer hedges (which are now deeply in the money). I hate to chase these plays but one thing we learned in 2008 is that there may never be a bottom (not in the short run) no matter how oversold you think things may be. Was the market wrong in 2008 to go below S&P 1,000? Well 3 years of subsequent trading seem to indicate that it was – but that did not stop us from dropping 33% lower, to 666 (the mark of the Blankfein!).
Our entire goal in a sell-off like this is to simply preserve our cash. The lower we…
$25,000 Virtual Portfolio – Month 7 – Profiting from Chaos!
by Phil - August 8th, 2011 6:23 am
Wheeeeeeee, this is fun!
There’s nothing like an active virtual portfolio to get you through a rough market. The last update to our very aggressive virtual porfolio was on the July 28th, when I said to Members "On the whole, we’re pretty short so we’ll be either adding longs or cashing in shorts tomorrow to get a little more even into the weekend but still bearish if there’s no debt deal." There was, of course, no debt deal that week and the next morning I said in our Member Alert:
Volume is not very high – this is a retail panic so far. If you have short positions, strongly consider put tight stops on them (this includes the $25KP and Income Virtual Portfolio) as they put plenty of cash in your pocket and we can always find another layer of shorts if the RUT can’t hold 775.
Needless to say, the RUT failed (10% ago!) and we stayed generally bearish. At the time we "only" had $57,760 of virtual cash (after starting with just $25,000!) with $960 worth of unrealized losses in our remaining, mostly bearish positions. How do you think that worked out? That’s right, possibly our biggest gains of the year! In the last two weeks, we closed the following positions as the markets collapsed around us:
- 10 USO 8/5 $36 calls at $1.35, out at $2.35 – up $1,000
…
Flip Flop Friday – 2% Up or Bust!
by Phil - August 5th, 2011 8:30 am
As the great John "Hannibal" Smith used to say: "I love it when a plan comes together."
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Of course Smith’s plans usually involved a great deal of mayhem culminating in things blowing up – very apropos considering the massive market blow up this week. The plan in Monday Morning’s Alert to Members, which was titled "Cashing in Longs and Back to Cashy and Shortish" was pretty straight-forward:
If you want to play this rally for more upside, you can still short the VIX (we did the Aug $19 puts on Friday for $1, now 1.20) or play gold down with the GLL Aug $22s, that are still .35 or the GLD Aug $155 puts at .72 BUT I’m not really believing things are fixed so these are SPECULATIVE plays to follow the rally – WHICH I DON’T BELIEVE IN. Clear?
What I do believe in is shorting the Dow with DIA Aug $119 puts at $1.20 or the SQQQ Aug $21/23 bull call spread at .85, selling the Sept $19 puts for .55 for net .30 on the $2 spread.
USO Weekly $38 puts are .44, 20 of those in the $25KP for $880! (longs are, of course off).
Let’s be straight about that, all the short-term long, including the ones in the Income Virtual Portfolio – are DONE. This was the pop we hoped for and now it’s done and back to cash!
The VIX puts are, of course dead with the VIX now at 31.66 but the Aug $22 GLL calls are still .15 (down 57%) and the GLD Aug $155 puts are now .95 (up 32%) thanks to that same rise in the VIX. Not bad for trades I did not believe…
Which Way Wednesday?
by Phil - August 3rd, 2011 8:29 am
Wheeeeeeeeeeeee!
I love the smell of capitulation in the morning (illustrated nicely by David Fry). It smells like — opportunity. We haven’t had a good bottom-fishing expedition in ages and it’s amazing to think that less than two weeks ago I was having to tell our Members NOT to BUYBUYBUY at the top. On Friday, July 22nd, when Jimmy Cramer was crowing Thursday night over "29 of 30 Dow Stocks" closing higher as if that meant you should buy everything that wasn’t nailed down, I was warning that the new EU rescue fund only indicated things were worse than they seemed. My comment that morning (7/22) was:
I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the Dollar, we should get a bit of a sell off so these are levels to look for as the Dollar heads back over that line but we can scale into position between 75.20 and 75.10 but, below that, too dangerous! Oil is good too below $99.50 with tight stops (now $99.66 so a patience game) – couldn’t quite get back to $100 ahead of the EU open.
I was wrong (so far) on shorting gold as our GLL Aug $22 calls have fallen from .50 to .10 (we rolled down to the $20s but those are not faring much better at the moment) but that was much more than made up for with the MASSIVE gains on the short futures as well as huge winning spreads like that morning’s Alert to Members, where my trade idea was to buy the SQQQ Aug $21/24 bull call spread for .90 and sell the AAPL weekly $375 puts for .80 for net .10 on the $3 spread. Of course the AAPL puts expired worthless and SQQQ is now at $25.29 and the spread is $1.85 so up 1,750% so far (and half off the table with stops on the rest at this point, of course).
THAT’s why we love our disaster hedges – they really help balance out your virtual portfolio in the event of an actual disaster with every $1,000 hedged paying $17,500 on that play. We then turn around (like today) and cash out that money and use it to buy more longs or roll our existing long positions.…
Fully “Fixed” Friday – Extend and Pretend Edition
by Phil - July 22nd, 2011 8:22 am
All fixed!
Greece is getting another $229Bn at 3.5% with about 30 years to pay it from the EU (ie. Germany and France) and private bond-holders will share about 1/3 of the pain by "voluntarily" renegotiating their own notes. Sounds like a really great offer, right? BUT WAIT, THERE’S MORE! Another $630Bn of already promised emergency aid has now been places into a very slushy fund that will now allow the EU to throw money at any nation that so much as sneezes – WHETHER OR NOT THEY ASK FOR ASSISTANCE. This will allow them to play economic Whack-A-Mole, putting out all the little Euro-zone fires until that money runs out (about 6 months at the EU’s current burn rate).
All this fantastic news from Europe has sent the Dollar down to test the 74 line and that was down from 75.37 just ahead of yesterday’s open and that’s a 1.8% drop so we would expect our indexes to go up at least 1.8% – BUT – none of them did. In fact, the Nasdaq only gained 0.72% and the Russell was up 1.07% and the Dow was up 1.21% and the S&P was up 1.35%. The NYSE, which had been our perennial laggard, did the best yesterday – gaining a close, but still no cigar 1.57%.
Will we make it up today or is this an indication that things may not be quite so good as they seem? After the close yesterday, I did a news round-up for our Members and there is still plenty to worry about and we took a stab at some SPY Weekly (today) $135 puts at .79 for our aggressive $25K Virtual Portfolio on the off-chance they "fix" the US debt ceiling and accidentally make the Dollar strong again. At the moment, we are still playing our short lines in the futures, where we’ve been scalping nickels and dimes since my 3:23 am Alert to Members (if you are not a Member, you can sign up here), where I said:
I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the Dollar, we should get a bit of a sell off so these are levels to look for as the Dollar heads back over that line but we can scale
…
Spinning Straw Trades Into Gold – Part 2
by Phil - November 9th, 2010 5:51 am
Thank you Mr. Zoellick!
It’s been a long time (March 2009) since we’ve been on the gold bandwagon, when I said to Members: "I still think we should get a correction in gold back to $875 (no longer $850 as the trendline has been yanked up) but we’re not hedging gold because we are worried it will hit $1,000, we are hedging because we are worried it will hit $2,000. That means that the difference between buying gold at $850 or $950 is not a big enough deal to stay completely out of it now. We would LIKE to be in the 2011 $70 calls for $20."
We didn’t quite get $20 but gold hit our entry target of Gold $875 in April and we had a brilliant rolling plan (see original post) that put us in at the right net price and those calls are now $67.72, up 238% as gold crosses $1,400 (up 64%). This is the beauty of using options for a hedge. Three ounces of gold were $850 each or $2,550 and you made $1,650 if you bought it then but 1 contract of the GLD $70s cost $2,000 and is now worth $6,772, a profit of $4,772 or THREE TIMES more than the profit on gold with 20% less money committed.
Do you see why, at PSW, we love options, now? In fact, we featured an ABX option play in our Stock World Weekly newsletter this weekend which has already gone into the money after just 24 hours. Are you interested in learning how to trade with options? Well, let’s go then!
- strong positive correlation
- moderate positive correlation
- negligible correlation
- moderate negative correlation
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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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