Testy Tuesday – 1,072 or Bounce!
by Phil - October 4th, 2011 8:06 am
Has it been a week already?
That’s right – last Tuesday our title, after 3 bullish days, was "S&P 1,200 or Bust (again)" and bust we did! At the time I said "It’s not that I’m flip-flopping – we’re simply playing the range and if the trip from the bottom to the top of the range is just 2 days – then flip-flop we must!" Our bearish hedge in that morning’s Alert to Members was 30 DXD Oct $18/20 bull call spread at .70 ($2,100) offset by the sale of 10 GE Jan $15 puts at $1.05 ($1,050). DXD is already at $21.34 and the bull call spread is $1.30 (30 = $3,900) while the 10 GE short puts are $1.75 ($1,750) for a net $2,150, up 105% in the first week – even if the short puts were not stopped out with a smaller loss.
We also ran our Long Put List that morning (see Weekend Reading for recap of that strategy and list of short trade ideas) and those, of course, are up huge across the board as things got so bad yesterday we even had to short IBM – our list’s last brave holdout. Another fun short we played that day was a ratio backspread on CMG.
Taking advantage of selling into the pre-earnings excitement, we were able to add the following trade to our virtual $25,000 Portfolio:
Earnings are on the 20th, the day before expirations so I like the volatility crush of selling 5 $340 calls for $9 ($4,500) and buying 3 Dec $350s for $15 ($4,500) for a free spread. No matter what CMG does, $4,500 of premium will be gone from the callers on Oct 21st, then the Nov whatevers can be sold, hopefully for another $4,500 in premium or perhaps we can just pull the trade so let’s do one set in the $25KP and see how it goes.
CMG took a nice dip since then (now $292) and the 5 Oct $340 calls fell to $2.20 ($1,100) but the 3 Dec $350s have held $8.60 ($2,580) for a net profit of $1,480 off a trade that cost no cash just 7 days ago. These are the kinds of trades we love around earnings season. We didn’t need to hold it for a month and now we can free up the margin (about…
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DiggWhich Way Wednesday: Durable Goods and The Bernank
by Phil - September 28th, 2011 8:25 am
Strap in for another wild one!
We fixed our targets yesterday morning, in the main post, at Dow 11,300, S&P 1,200, Nas 2,575, NYSE 7,100 and Russell 685 and, at 10:46 in Member Chat, my comment was: "Past 10:30 without breaking 10,300 and the Dollar over 78.20 so over 78.25 is a good reason to tap the DXD hedge or grab the DIA FRIDAY $111 puts, now .98 so let’s watch that VERY CAREFULLY although it could just be a bit of profit taking into the EU close with the DAX up 12% since Friday morning. A pullback to 10% (from the DAX 5,000 bottom) is very much expected here and EWG naked calls can come off the table for now until they prove they can break $20."
We ended up holding that 10,300 line through the afternoon but we finally broke down at 3:07 and we stuck to the plan but my adjustment on the trade idea for Members in chat was: "Game on for the DIA puts but now we can pick up the $112 puts for $1.10 – 10 in the $25KP with a stop at .90 in case we dive into the close."
Those puts came off the table at $1.65 into the close, up 43% in less than an hour and even the original idea of the $111 puts topped out at $1.40 for a nice 43% gain on the day (but those took 6 hours, so not as good an annualized rate of return!). As I noted to Members in this morning’s Alert – these are the kinds of quick adjustments we can make to re-balance our portfolios on the fly in a choppy market.
We don’t want to let ourselves be chased in and out of short-term positions by these silly market fluctuations so we make quick adjustments with even shorter-term momentum plays that help us ride out these little moves. As I said to our Members during the afternoon drop "I’m not changing my stance because Meredith Whitney told me to." That was at 3:48 when people were asking if we should panic out of our bullish positions on FAS and other trades. At 3:29 I had already pointed out: "Also Whitney was no help – same BS as usual when they want to halt a rally. Next we hear from Roubini, Gross and El-Erian."
That…
Long-Dated Options Appear Rosy At JPM, Gloomy On MS
by Option Review - September 23rd, 2011 3:05 pm
Today’s tickers: JPM, MS & DF
JPM - JPMorgan Chase & Co. – A couple of options strategists appear to have exchanged sizeable blocks of long-dated calls and puts on JPMorgan this morning to position for shares in the name to rebound, or to at least hold, above recent multi-year lows. Shares in JPM came up for air today, rising 0.70% to $29.48 by 11:55 am in New York, following steep declines earlier in the week. The stock has tumbled nearly 40% since the first full week of April. One investor positioning for shares in JPM to at least hold above $29.00 come March 2012 expiration, sold some 7,000 puts at the Mar. 2012 $29 strike to pocket premium of $4.20 per contract. The investor may walk away with the hefty premium received on the sale of the time-rich, closest-to-the-money put options, as long as shares in JPM exceed $29.00 at expiration next year. The large short put position indicates the trader could wind up having 700,000 shares of the underlying stock put to him at an effective price of $24.80 each – after factoring in options premium – should the put contracts land in-the-money at expiration.
Meanwhile, a large stake in Mar. 2012 call options benefits the owner if JPM’s shares take off running to the upside within the next six months to expiration. It looks like one investor snapped up 5,000 calls at the Mar. 2012 $38 strike for a premium of $0.85 each within the first 15 minutes of the opening bell this morning. The call buyer profits at expiration if shares in JPMorgan Chase & Co. jump 31.8% over the current price of $29.48 to surpass the effective breakeven point at $38.85. But, the investor need not wait until expiration to potentially rake in profits…
Bearish Bets On Jefferies Spot-On As Shares Extend Losses
by Option Review - September 22nd, 2011 2:01 pm
Today’s tickers: JEF, MS & EXEL
JEF - Jefferies Group, Inc. – Disappointing third-quarter results released earlier in the week initially failed to take the wind out of Jefferies Group’s sails, as evidenced by a more than 2.5% rally in its shares by lunchtime on Tuesday. We observed bearish put buying taking place on the stock in the midst of Tuesday’s rally, and noted that one strategist was positioning for the stock to surrender those gains and then some by October expiration. Lo and behold, shares in the investment bank reversed course by the close of trade on Tuesday, and have continued to slide in the days since.
The stock has fallen 15.0% in the past 48 hours alone, while losses since the start of 2011 are now up around 55.0%. One post-earnings report put buyer purchased roughly 3,100 of the October $14 strike puts on Tuesday for an average premium of $0.75 each. These contracts currently command an asking price of $2.80 each. The decline in open interest in the Oct. $14 put to 1,706 by Thursday suggests some profit taking may have occurred yesterday when shares in Jefferies Group shaved 5.4% off their opening price of $13.58. The investor may have received as much as $1.35 per contract by selling-to-close part of the original position on Wednesday. Overnight gains on the sale could have amounted to roughly 80.0%.
Fresh bearish positioning in Jefferies put options this morning may mean the worst is yet to come. Investors expecting declines in the price of the underlying to extend through November expiration snapped up more than…
Feeding Frenzy Erupts In HPQ Options
by Option Review - September 21st, 2011 2:10 pm
Today’s tickers: HPQ, MS, ACI & ARIA
HPQ - Hewlett-Packard Co. – Options covering Hewlett-Packard Co. are densely populated today on news the company’s board is meeting to discuss ousting CEO, Léo Apotheker, less than one year after he was hired to replace former-HPQ CEO and current co-President of Oracle, Mark Hurd. Hope that a shakeup may get HPQ back on track, and speculation that the board may select former eBay CEO, Meg Whitman, to head the company, sent shares in the trodden-down stock up as much as 11.7% today to $25.10. Options implied volatility on Hewlett-Packard earlier rose to 56.05%, but currently stands 20.05% higher on the session at 53.47% as of 1:40 pm ET.
Investors have now exchanged more than 205,000 option contracts on HPQ, with much of the activity taking place in the front month. Calls are trading roughly 1.8 times to each single put option in play thus far in the session. In-the-money calls are popular with buyers positioning for shares to appreciate, while out-of-the-money calls suggest more of a mixed picture. Trading traffic in HPQ calls is heaviest at the October $25 strike, where upwards of 26,100 contracts changed hands against open interest of 11,574 positions. The Oct. $25 strike call was bought and sold in roughly equal numbers. Similar two-way trading is apparent in the Oct. $26 and $27 strike calls, but trading in deep out-of-the-money calls in the October contract was dominated by sellers. Meanwhile, investors positioning for shares to potentially surrender today’s gains in the next several weeks to October expiration, snapped up in- and out-of-the-money puts. Volume in the Oct. $23 strike put soared to 30,000 contracts in early-afternoon trade, trumping previously existing open interest of 3,737 lots. Buyers of the bearish options paid an average premium of $0.89 per…
Tempting Tuesday – Murdochs Testify to Parliament
by Phil - July 19th, 2011 8:29 am
NWS is down 20% of late.
Today we hear from the Murdoch family, owners of the venerated Wall Street Journal as well as Dow Jones, Inc., who will be explaining how their company allegedly broke the rules, lied, threatened and/or bribed almost everyone, engaged in cover-ups, slandered anyone who got in their way and callously ruined the lives of innocent people – all in the name of profits. Already Sean Hoare, the reporter who blew the whistle on Murdoch has been found dead inside his London apartment. "The death is currently being treated as unexplained, but not thought to be suspicious. Police investigations into this incident are ongoing," said a police statement.
Would that be the same British Police Department that’s had two high-level resignations over accepting bribes from Murdoch’s organization? The Daily Mirror newspaper quoted an unnamed friend as saying Hoare "thought that someone was going to come and get him, but I didn’t know whether to believe half the stuff he was saying." In other words, Hoare was poor and intimidated by NWS (he was refusing to testify against them) while the Murdochs are rich so every possible benefit of the doubt is being given to them just like Rebecca Nalepa was found with her hands and feet bound with a rope around he neck hung off a balcony in a San Diego mansion and the police there are thinking "suicide."
As F. Scott Fitzgerald once said: "The rich are different than you and me – they have more money." As Bill Domhoff pointed out this weekend, when we talk about the rich, we don’t mean the top 1% – people who "only" make $1.6M a year or more. Sure those of us in that group may have a "get out of jail free" card for when we speed and we may get our buildings approved quicker than most and we may get a local ordinance passed here or there but, when you move up to the top 0.1% ($36M or higher per year income) or the top 0.01% ($450M or higher annual income), where Mr. Murdoch lives – not only do you get both national and international laws rewritten to suit your needs (like taking over 100% of the UKs satellite broadcasts), but the other laws don’t even apply to you.
This lack of accountability leads to increasing bad behavior, as evidenced by our…
TGIF – Stop the Rally, We Want to Get Off!
by Phil - July 1st, 2011 8:08 am
![[dsk0630]](http://si.wsj.net/public/resources/images/OB-OO116_dsk063_D_20110630230800.jpg)
Wow, so much to talk about today.
I’m going to skip quickly over poor Dominique Strauss-Kahn who is now, fairly obviously, the victim of a conspiracy to frame him. What’s the difference now? Strauss-Kahn was "too soft on Greece" and was focused on ending the bond speculation that he felt was crippling that country (and the Socialist Kahn was also warming up to be France’s next President) so he was "removed" from his position and Legarde (a better Bankster ballplayer) stepped in and teamed up with the EU to push the Greek people into debt slavery and, of course, "save" the Banksters from taking any awkward losses writing down Greece’s very obviously bad debt.
With Strauss-Kahn out of the way they stole Billions here and Billions there and shuffled some money around and now that Greece is "fixed" (on the evening of the day Greece finally gives up and votes to pass the draconian austerity measures) and evening of the same day Legarde is officially sworn in as head of the IMF to replace him – NOW they can let Domique Strauss-Kahn off the hook. How kind of them – I guess they could have had him killed – instead of just killing his reputation.
Of course the timing of Kahn’s exoneration is no more coincidental than the timing of his arrest (he was on his way to chair the IMF’s vote on Greek aid) so I guess it could all just be one of those funny coincidences - they happen all the time, right? The media had Strauss Kahn lined up for the lynch mob on May 16th (while one article, ratcheted up the fear of a Greek default that was a "virtual certainty", allowing JPM and other Banksters to make Billions buying Greek Bonds at over 20% interest rates – BRILLIANT!).
Speaking of JP Morgan – Now that Greece has been destroyed, where will they move the Death Star next? Well, whichever nation will be next to fall under the Bankster death-ray, JPM along with MS and the fabulous Koch Brothers took a little detour this week and stopped to buy up the oil that is being released from the Strategic Petroleum Reserve. That’s rignt, according to Bloomberg, the 30M barrels of oil that is being released from the SPR may go right back into the hands…
Twilight of the Übermenschen
by ilene - May 4th, 2011 12:45 pm
Courtesy of The Epicurean Dealmaker
This is the true joy in life, the being used for a purpose recognized by yourself as a mighty one; the being thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a feverish selfish little clod of ailments and grievances complaining that the world will not devote itself to making you happy.
…
Beware of the pursuit of the Superhuman: it leads to an indiscriminate contempt for the Human.
— George Bernard Shaw, Man and Superman
Steven Davidoff opens a recent piece at The New York Times DealBook blog with the following words:
This is powerful language. What does he mean?
Well, for one thing he means that the reputations of individual investment banks are no longer coterminous with the reputations of their executives and employees. He ascribes this to the tremendous growth in scale and complexity of financial markets over the past three decades:
Today’s Wall Street is not the Wall Street of 1907 when J.P. Morgan single-handedly used his reputation and wallet to stem a running financial panic.
Until the 1980s,… Wall Street was made up of traditional partnerships. These were small groups of investment bankers who represented companies in offering and selling securities and occasionally acquisitions. These bankers put their individual reputations on the line, because there were so few of them. Morgan Stanley, for example, had only 31 partners in 1970 and fewer than 1,000 employees.
But this began to change in the 1980s. Trading markets became much more sophisticated, and trading and brokerage became the investment banks’ primary business. This is a technology game. The better the technology, the better the trading and brokerage operation. Individuals became less important.
The growth of more complex capital markets and a global economy also created much larger financial institutions. Morgan Stanley now has more than 62,000 employees. These banks could use their assets and position to compete in the market for finance and trading. Again, individuals were less important as size dominated. A client now trades or does business with a bank based on its positions or ability to make a market or loan. The executive at the bank executing the transaction is unimportant.
In one respect, this is true. Lazard is no longer Felix Rohatyn. Goldman Sachs is no longer Sidney Weinberg. The
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Monday – Mubarak’s Mood May Move Morning Markets
by Phil - January 31st, 2011 8:21 am
Is it safe?
I asked that question at the end of November in "Timid Tuesday – Is It Safe" and here we are, 60 days later and up 7.5% and, on the whole, feeling less safe than we did back then, when the Market Oracle and I seemed to be the only people concerned global inflation and sovereign default risks rising rapidly. Although we were playing the market bullishly, with our aggressive $10,000 Virtual Portfolio (and make sure you check out our brand new $25,000 Virtual Portfolio that begins today with a $100,000 goal by December 31st) we decided to try to take from $26,000 to $50,000 by Jan 21st (we only made $35,000), our Breakout Defense Plays (5,000% in 5 Trades or Less) and our Secret Santa’s Inflation Hedges – it was with one hand on the exit door at all times. As I said at the close of Timid Tuesday’s article: "This house of cards is teetering folks – please be careful out there!"
That was 60 days ago. We’re a lot older now and have learned a lot about the World since then. We learned that China, Japan and the IMF are all ready, willing and able to buy the bonds of various EU nations. We learned that the Dollar can still fall 5% (was 81.44 on November 30th) further down despite Europe’s very obvious problems and Japan’s MASSIVE 200% Debt to GDP ratio. We learned that Uncle Ben will never stop printing money (until forced) and we learned that commodities can rise much faster than even our aggressive "Secret Santa" plays anticipated, with every one of our hedges (XHB, XLE, DBA and XLF) already over our year-end targets, all on track for gains well over 100%.
After watching our Alpha 2 pattern break (as I predicted it would on Monday morning) for the week, we went a lot more bearish on Thursday when I said in that morning post:
Keep in mind that gold and silver are our defensive plays. In Member Chat yesterday, Jromeha mentioned he’s 80% in cash and 85% short the market on the 20% in play and I said I thought that was an excellent way to play what I felt was a blow-off top after the Fed. We added 2 disaster hedges yesterday, a TZA spread that pays 500% if we get to $17 by
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Monday Market Movement – Do or Dive!
by Phil - January 24th, 2011 8:14 am
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Big week ahead!
$30Bn in POMO from the Fed runs headlong into earnings reports from 15 of the 30 Dow components along with MoMo darlings like VMW (tonight), BLK (tomorrow morning), POT (Thursday morning) and AMZN (Thursday night). I already sent out an Alert to Members this morning outlining our strategy and Stock World Weekly did it’s usual amazing job of wrapping up last week’s action and laying out the week ahead so I won’t be too redundant here. The key driver for the markets continues to be the dollar, which is making more sense now as it saved the Dow and the S&P last week (50% of revenues come from overseas) but not the Russell (only 10% of revs from overseas) or the Nasdaq (30%).
The Dollar was relentlessly driven down last week, bottoming out at 78 on Friday evening, back to November lows, where they ditched the Dollar all the way down to 75.63 in early November before it broke back up and ran to 81.44 on the last day of the month. Now we’re back down 4.2% from the Thanksgiving highs for the Dollar and the Dow and S&P are up 8%, which is our usual 2:1 correlation yet Uncle Rupert’s Journal would have you believe that the Dollar no longer matters and that this rally is about (please sit down, PSW cannot be responsible for any beverages you are about to spit on your keyboad) – wait for it – Fundamentals!
According to the Journal: In recent weeks, for example, moves in stocks and the U.S. dollar have had little connection—a breakdown of the trend during much of 2010, when they were virtual mirror images of each other. Stocks were considered risky and would rise when investors were feeling confident, while the dollar was a haven, benefiting when investors were worried. Commodities, too, have broken away from rising and falling with risk perceptions. Now more old-fashioned concerns, like the weather, are having an impact. Corn, soybean and wheat prices jumped this month after supply estimates were cut due to dry weather in South America and floods in Australia.
Really? So the run in DBA from 22.85 in June of last year to 31.65 (38.5%) in early November was speculation but the run from 31.65 to 33.50 (6%) since then has been based on solid fundamentals. ROFL!!! That…
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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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