by Option Review - April 10th, 2014 3:33 pm
A big early print in the iShares Russell 2000 ETF (Ticker: IWM) on Thursday may be a short-term hedge to protect against further market losses during the next five weeks. The options market participant appears to have purchased the regular May $107/$113 bear put spread 40,000 times for a net premium of $1.33 per contract. The trade starts making money if shares in the small-cap ETF decline 2.7% from the current price of $114.78 to trade below the effective breakeven point at $111.67. Maximum potential profits of $4.67 per contract are available on the spread should shares in the IWM drop 6.8% to $107.00 by expiration next month.
Note: At the end of the day, IWM was at 111.96, down 3.29(2.86%). ~ Ilene
by Option Review - February 12th, 2013 2:18 pm
Today’s tickers: MAS, IWM & WU
by Phil Davis - October 18th, 2012 8:03 am
EU leaders are meeting in Brussels today and tomorrow.
For anyone who's been paying attention for the last two years – that's usually not a good thing and, as we noted yesterday, it was a strong Euro and a weak Dollar that was driving our little rally. The Dollar bottomed out at 79 and the Euro topped out at $1.314 and the Euro's strength sent the Yen back up to 79.30 to the Dollar (weaker) and that led to a 2% Nikkei rally last night. As you can see from the chart on the right, the S&P for the week is 1% behind UK and Germany and 2.5% behind France and Italy (+4%) and Spain (+7%) – so we have a lot of catching up to do if this rally is real and sustainable.
Still, I sent out an Alert to Members early this morning noting that the Global Markets were holding up well as of 6am and that was encouraging. Yesterday we discussed taking advantage of the run-up in the Russell to make a TZA hedge to lock in some of our gains (see main post) but we still haven't covered XLF (target $16.50 – see Dave Fry's chart) and we're still bullish on AAPL as well. We cashed that ISRG play, as planned for $9 on the spreads (200x = $1,800), spending .30 x 200 ($60) to buy back the callers so that, with the $200 we were paid to take the position is just short of our $2,000 goal at net $1,960 – not bad for a day's "work".
In Member Chat this morning, we discussed GOOG's outlook for earnings this evening and decided they were more likely topping than popping so we have that risk to the Nasdaq for tomorrow. IBM was an 80-point drag on the Dow yesterday but it did manage to finish flat and advancers led decliners on the NYSE by 2:1 so the conditions are still there for a rally and hopefully what we have here a a pause that refreshes and not a triple top from the mid-September highs.
The Nasdaq and the Russell are, in fact, in downtrending channels and, for the Nasdaq, their fate rests on GOOG tonight and AAPL next Thursday – but it's still a long way back to the highs at 3,200.
by Phil Davis - October 10th, 2012 8:44 am
$76,103 – That's not sales, that's profit!
Every minute of every day, AAPL is making $76,103 (at $40Bn a year) on the sale of $316,120 worth of products. No company on Earth comes close to that kind of metric and, overall, the stock's performance clearly indicates that but, if you listen to the MSM, you would think AAPL is finished.
We had a nice, in-depth discussion about AAPL in Member Chat this morning and we not only concluded it's still a buy but we came up with a lovely spread that has the potential to turn $3,000 into $45,000 between now and Jan 2015 if AAPL simply holds $600 – needless to say we're very proud of that as it's always nice to have a trade or two in your portfolio that returns 1,500% and we rarely get a chance to do them with a blue-chip stock like AAPL.
Note in the above chart, that AAPL is still a relative outperformer this year – shown priced against HPQ, DELL, INTC, IBM, CAT and ISRG – all good companies that have simply failed to keep up. We also like HPQ at this level, now $14.30 as their REDUCED guidance has them earning $3.62 per share next year after earning $4.05 this year and that's still 25% back on your money, which sure beats TBills and we're not even counting the $18Bn in cash they have on hand, which is quite a lot when you consider that their entire market cap is now just $28Bn. Small wonder HPQ spent $9Bn buying back their own stock last year, when it was priced 100% higher.
HPQ is a pretty good candidate for a buy/write, where we Buy the stock for $14.30 and Write 2014 $15 puts and calls (sell short) for $5.50 and that nets $8.80 on the trade and, if HPQ is below $15 in Jan 2014, then another round of shares will be put to you at $15 for an average entry on 2x of $11.90, which is 17% below the current price and, if HPQ is over $15 in 16 months, then you get called away at $15 for a $6.20 profit on cash (75%). Buy/writes are our favorite tools for making long-term entries – see "How to Buy a Stock for a 15-20% Discount."
by Phil Davis - September 5th, 2012 7:49 am
What a day yesterday. The Dow dropped over 100 points from the open but then, at 2 pm, a miracle occurred and we recovered almost all of our losses in just 30 minutes. We had similar action on the S&P and, as TA guru Dave Fry commented:
Our crack addicted trading desks believe in the Bernanke Put and the global central bank put. It’s quite apparent reading the news from China this morning as pundits were universally calling for more PBOC stimulus—it’s QE contagion. Moody’s cut their European outlook to negative which must be viewed two ways: Moody’s gets no respect and it means more QE.
Speaking of which the ECB is rumored to be launching “unlimited” bond buying (QE) with “conditions” (whatever those might be). The bond buying is said to be 0-3 year maturities with the implication being the problems of austerity and debt would beClouseau-like “sol-ved” during that period. Given that sort of optimism you’d not be incorrect in assuming the ECB will need a bailout itself down the road.
As you can see from Dave's SPY chart, the real volume for the day came to the downside while more volume sold off into the close than took us up in the afternoon.
That's the beauty of the HFT algos – they punch the market up all afternoon and then dump it on the mutual funds that come in after the bell and buy (for you – you retail sucker) at the day's closing prices. Pump and dump – that's the game the big boys get to play every day and it's clear as a bell that yesterday was dump, pump and dump with 2-3 times more volume selling that buying.
That's why this chart of On Balance Volume has such a massive divergence, again, much like the one that led to a 20% drop in the market last year that "no one saw coming." OBV measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days – clearly SOMEONE is fleeing this market and has been since late July. Keep in mind it was Operation Twist that "saved" us last fall and we're up a solid 27% from 1,100 on the S&P but, when we get in on ridiculous moves like we had yesterday – how can we trust…
by Phil Davis - August 28th, 2012 8:29 am
Seriously, this is 4 Tuesday's in row – is anyone seeing a pattern?
Of course this Tuesday we are 100 Dow points lower than we were last Tuesday and the BS pre-market pump job at 6am has already faded (7:30) although we're still working short bets on the Russell futures (/TF) and the Euro (EUR/USD) from 813 and $1.256 as I put up a note in early morning Member Chat as we spiked on – get this – the news that Draghi cancelled his appearance at Jackson Hole this weekend.
Why would it be good that Draghi is NOT going to the last Central Bankster conference of the year but the buzz is that he MUST be so close to a masterful solution to all of Europe's problems that he can't be bothered to gather with his brother bankers on the eve of his triumph. The announcement was timed to coincide (10 minutes before) bond auctions by Spain ($2Bn 3-month notes at 0.95%) and Italy ($3.75Bn of 2-year notes at 3.06%) and the Euro jumped 0.7% into the auction – lowering the effective rates and both auctions were a "success".
That pulled the EU markets off the floor (still down half a point at 8am) and got the US futures out of the red zone as we finally pushed the Dollar under that pesky 81.50 line, goosing the indexes and commodities. Unfortunately, it's just a sugar rush and we've already run out of steam but I'm sure someone will start another rumor around 9:15 to get us back to green into the open.
As I said last Tuesday, with the Dollar at 81.50 we're looking for adjusted levels of: Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and we held the Nasdaq yesterday but that was all so no reason to capitulate on our bearish stance just yet. Last Tuesday we also discussed 3 more trades (there we 3 the Tuesday before) to make 300% if the market did break higher and our first batch had several 100% winners so let's see how our 3 new trades did in a downtrend:
- 2 FAS Oct $107/117 bull call spreads at $2.05, selling 1 BBY 2014 $15 puts for $3.75 for net .35 is now net $1.52 – up 334%
- AGQ Oct $38/45 bull call spread at $3.10, selling BTU 2014 $20 puts for $3.60 for
by Phil Davis - August 21st, 2012 6:58 am
Here we go again (again)!
Yep, that's what I said last Tuesday and the Tuesday before that because Tuesday is a day they push the Futures higher and ditch the Dollar and tell you that this time it's different because of the same rumors they had the Tuesday before only this week – the data is getting worse and worse, as we know is better, right?
Last Tuesday we set levels to capitulate and go fully bullish at Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and, as of yesterday's close we had the Nasdaq and the Russell over their marks needing just one confirmation to make it 3 of 5 and begin to flip our short-term portfolios (the $25KPs) bullish. We are soooo close but, so far – no cigar.
While we waited, we looked at some upside hedges that would do well if the market continued higher. Just as we get downside protection when we're bullish – we use upside protection when we're bearish and I suggested taking 5% or 10% positions in aggressive upside plays to help balance a bearish portfolio against – well against exactly what happened in the past 7 days. Our trade ideas were:
- 2 FAS Oct $105/115 bull call spread at $2, selling 1 BBY 2014 $18 puts for $3.25 for net .75, now $1.15 – up 53%
- 2014 SHLD $32.50 puts sold for $7.50, now $6.40 – up 15%
- 6 EWJ Jan $9 calls at .53, selling 1 BBY 2014 $18 put at $3.25 for a net .07 credit, still net .07 credit – even
- TNA Oct $55/61 bull call spread at $2.50, selling Oct $42 puts for $1.90 for net .60, now $1.80 – up 200%
The BBY puts jumped over 20% yesterday, from below $3 to $3.75 and that killed two of our trades (and worse today after earnings!), that were up significantly in Friday's update (which is why we take quick gains like that off the table). The good news is the EWJ play gives us a nice, new entry at the same net price so that one is still good and, of course, we are done with TNA after making 200% in a week and we'll find a fresh horse for that money.
by Phil Davis - August 7th, 2012 8:30 am
GRANDPA JOE: But this roof is made of glass. It’ll shatter into a thousand pieces. We’ll be cut to ribbons!
WILLY WONKA: Probably.
Is today going to be the day? After pressing against our breakout levels on and off since failing them in May, today do we should finally have the gas to get over the top or will our Must Hold levels keep acting like a solid barrier? Our goals on the Big Chart have been Dow 13,200, S&P 1,400, Nas 3,000, NYSE 8,000 and Russell 800 and we came right up against them yesterday but failed to punch through.
It is certainly no surprise, in this BS manipulated market, that the levels they failed to take out yesterday in regular trading are all being crossed in ultra-light pre-market trading because, as we know, investors are complete idiots who use squiggly lines on a chart to make all of their major financial decisions. Essentially, when you follow TA – you are saying to hedge fund managers – "If you can get your stock to cross this line, I will buy it." That's very much like me saying to my youngest daughter that if she can get her older sister to say "quit it," I will give her $20. Once she decides I'm serious – I'd be hearing "quit it" all day long.
We were, at the time, at the top of a very bogus-looking, low-volume rally (again) that had taken us up 7.5% from 12,100 in early June to 13,187 at yesterday's high. The S&P has been our leader but the Russell keeps flashing warning signs as it failed to hold it's -2.5% line (780) at the beginning of the month and looking very similar to the pre-disaster pattern we had in April, ahead of the May collapse – which we also tried to warn you about while it was on the way up on QE rumors (see "Federally Fueled Thursday – QE Maybe?" or "Thank GDP it's Friday – Reality Check?". Despite being dead right to call a top at the time – it took the market another week to drop but we fell off a cliff on Friday, May 4th and we were down 1,000 points by the 18th so better a week early than a week late with these calls.
Willy Wonka understood stock market physics, there…
by Phil Davis - July 30th, 2012 7:58 am
So, where's our stimulus?
Like good little Pavlovian dogs, we ran back into the markets last week when Mario Draghi rang the stimulus bill – increasing the $60Tn global markets by 5% – that's $3Tn of valuation added in 48 hours on the say-so of a former GS executive that has been put in charge of the European Central bank. What could possibly go wrong with this scenario?
If we can't trust the Investment Bankers who are taking over our Government, who can we trust? So we'll assume that everything WILL be fixed this week and that the ECB, Fed, PBOC, BOE, BOJ and all the little Central Banksters will be pumping enough money into the system to justify a $3,000,000,000,000 increase in Global Equity prices – even though that means, at an average p/e of 15, that all this expected stimulus somehow drops an additional $200Bn to the bottom line of Big Business to justify the bump in valuation.
How many Dollars, Yen, Euros and Yuan do we have to give to Corporations to turn into $200Bn? Well, if it's AMZN – the answer is $15Tn because it takes $50Bn in sales for AMZN to make $600M so figure 75x in sales to make 1x in earnings. Why use AMZN? Well because AMZN is almost 5% of the Nasdaq and it was their amazing run last week, on what rational people would consider poor earnings, that reversed the downtrend initiates by AAPL's (who are 15% of the Nasdaq) miss.
I guess it's obvious why we're short AMZN (see Dave Fry's chart) but let's look at AAPL now, who are quite a bit more efficient at dropping Dollars to the bottom line. Last year, AAPL took in $108Bn and made a profit of $26Bn – now THAT'S a good company! So let's pretend that all companies are as good as AAPL and nowhere near as bad as AMZN at converting sales to profits.
Now to get that additional $200Bn in Corporate Profits we only need about $800Bn in stimulus – assuming, of course, that money actually went to people who would spend it and not to Banksters who are still trying to back-fill multi-Trillion Dollar holes in their mark-to-fantasy balance sheets. $800Bn is a doable number so let's pretend it is enough to justify a 5% bump in the market and now we know…
by Phil Davis - July 27th, 2012 8:02 am
You made me promises promises
You knew you'd never keep
Why do I believe
All of your promises
You knew you'd never keep – Naked Eyes
Wow – what a party!
The former Vice-Chairman of Goldman Sachs (Draghi) says everything is fixed and the global markets go flying – what's not to trust? Would anyone form GS ever lie to us? Would GS be involved in manipulating the Global Markets – of course not!
Now that I've fulfilled my obligation to get my mother back unharmed – let's get real. Draghi said the violent spike in bond yields in recent days was hampering "the functioning of the monetary policy transmission channels" – the EXACT expression used to justify each of the ECB's previous market interventions.
Yields on Spanish two-year debt plunged 72 basis points to 5.47% in barely an hour, with comparable moves on Italian debt – easing the pressure before a string of debt auctions in Rome over coming days. The MIB index of stocks in Milan surged by 5.6%. Madrid's IBEX rose 6%, the biggest jump in two years, led by an explosive rise in bank shares. Mr Draghi's comments came as Spain claimed backing from France and Germany for activation of the eurozone's rescue fund (EFSF) to buy Spanish bonds, though this would require calling the Bundestag's finance committee back from holiday for a vote. Action by the EFSF would provide "political cover" for the ECB to join the fray in a two-pronged attack. "We're firing on all cylinders: that is what has ignited the markets," said Hans Redeker, currency chief at Morgan Stanley.
Joint statements from Madrid, Paris and Berlin said market turbulence "does not reflect the fundamentals of the Spanish economy, or the sustainability of its public debt". According to Ambrose Pritchard, "the wording seems scripted to clear the way for intervention." Of course, now it's time to put up or shut up as the Fed meets next week and the ECB has their pre-holiday meeting next week as well…