Thrill-Ride Thursday
by Phil - October 13th, 2011 8:24 am
Wheeeee, what a ride!
I hate to say I told you so but I did tell you so in yesterday’s morning post when I said: "Not to be cynical but, if you are going to have some Slovakian Government officials torpedo a vote that will tank the markets – isn’t it a good idea to run them up first and bring in a bunch of suckers to sell to? We remain a bit skeptical until we get back over our "Must Hold" levels and hold them for more than a day." As you can see from David Fry’s chart, a little cynicism is a good thing in these markets as the Slovakian vote was delayed again and the FT rumor popped the day’s bubble.
We discussed shorting oil at $86 (now $84) and gold at $1,695 (now $1,670) as good plays off the morning pump and, as usual, shorting TLT was a winner but now we’re near their theoretical support by the Fed so we’d rather see a run-up to $120 before we play them again. At 1pm, we have a 30-year note auction of just $13Bn but, as I pointed out to Members in Chat, this makes $52.5Bn of 30-year borrowing since August 15th – that’s not even two months!
Who can keep funding this kind of debt load? And it’s not just the US that’s borrowing at an ever-increasing pace – the EU is borrowing as much as we are and Japan is borrowing and Russia is borrowing and Brazil and India are borrowing – Africa would borrow if anyone would lend it to them and our NAFTA buddies, Canada and Mexico, who also borrow about $50Bn a year to fund their own deficits.
How is it possible, a logical person may ask, for almost every single country in the World to run a deficit at the same time? Either A) China has so much of a surplus that they are funding everyone else or B) Everyone is printing money 24/7 to pay bills they don’t have the income for and, if B is the case – where’s the inflation? Is it really possible that, on a planet with a $60Tn GDP and a $4Tn annual deficit (and yes, half of it is ours!) that prices go up less than the 6.66% (why does that number come up so often) printing of…
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DiggWhipsaw Wednesday – Don’t Get Excited
by Phil - October 5th, 2011 8:28 am
Baby listen without thinking you better be without demands
Now don’t get edgy and don’t start blinking and don’t start making any plans
You try to reach a vital part of me My interest level’s dropping rapidly
It’s all excuses baby all a stall We just don’t get excited
Don’t get excited No don’t get excited Don’t get excited
Wheeeeeeee – this is fun!
It was "1,072 or Bounce" yesterday and the S&P fell all the way to 1,074.77 at 10am before heading higher but, as you can see from David Fry’s chart, we got a second chance to jump on the bull train as we lost almost all of the day’s gains into the afternoon stick.
In our morning Alert to Members (as noted in the morning post), we played the Russell Futures bullish off the 600 line and, as of 7:30 this morning, they are at 646 – up $4,600 per contract but that’s chicken feed compared to our trade idea from the morning post on TNA, where the Oct $28/33 bull call spread offset with the sale of the $23 puts came out to net .15 and this morning, after a $6 move (5% on the RUT) in yesterday’s action, that spread is already net $1.90 – up 1,167% in a day!
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The best possible outcome on that trade is netting $4.85 profit, which is a whopping 3,233% gain on cash but, when you make over 1/3 of your projected 3-week gains in the first day – it’s a good idea to take a little profit off the table! So, UNLESS we get a better than 1.5% gain today, we’re going to go back to Cashy and Cautious after a whole 24 hours on the bull side. Don’t blame the player – it’s just that kind of market….
As you can see from the Big Chart – there is NOTHING to get excited about as we bounce off our EXPECTED channel bottoms. We’re now firmly in downtrending channels on all of our indexes and we’re dangerously close to having to drop our ranges – which is a decision we take VERY seriously before acting. If we are forced to do that, the odds of a near-term recovery drop significantly.
So of course we’re thrilled with yesterday’s gains but it’s a move we’ve been…
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…
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
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Turnaround Tuesday – Greece is Fixed (again)
by Phil - September 20th, 2011 8:28 am
Yay! Another crisis averted.
Well until next quarter, at least, when we can begin the "crisis" cycle all over again. As it stands, after much hand wringing yesterday, Greece will get the $11Bn they need to fund their nation for another 3 months. Yes, as I noted yesterday, this is not a typo – Greece needed $11Bn and the global markets gave up $1Tn in value because we weren’t sure if they were going to get it on Monday morning.
To meet their budget goals in a declining economy, Greece is being pressure to cut 100,000 public jobs by 2015. With just 11M people in Greece, cutting 100,000 jobs is like asking the US Government to cut 3M jobs – isn’t that insane? And by insane, of course, I mean – isn’t that the Republican platform? Yes, nothing say "economic recovery" like firing 3M people in this topsy-turvry World.
We expected this, of course, and we got very bullish with our picks yesterday morning and were handsomely rewarded into the close and hope to be even more handsomely rewarded this morning as QE FEVER once again takes over the nation (see November’s "POMO Fever" article to review the scam).
Interestingly, my main suggestion for playing QE2 last year was: "We can bet on inflation with our gold plays with potentials for 923%, 309%, 3,900%, 567%, 276% and 46%." Gold was "only" $1,300 last November and I was still enthusiastic about it at the time. Yesterday we shorted it with the GLD Nov $180/174 bear put spread at $3.30, selling $193 calls for $3 for a net .30 trade that bets gold won’t hold $2,000 through Thanksgiving.
Also different this year is that we are betting against TLT (also in yesterday’s main post) and we got fabulous prices for our short play yesterday as TLT ran all the way up to our goal at $115. As we got a nice sell-off at the open, my morning Alert to Members had trade ideas to go long on Oil Futures (/CL) off the $85 line (now $87, up $2,000 per contract) and we sold some DIA Oct $111 puts for $3.10 in the Income Portfolio, which are already down to $2.70 (up 13%) – simply following our rule of ALWAYS selling into the initial excitement.
At 10:08 we got aggressive with a TNA Oct $41/45 bull call spread at $2,…
Follow-Through Friday – Out of Gas or On the Launch Pad?
by Phil - September 16th, 2011 8:31 am
Wheeeeee, what a fun weeek!
I couldn’t say how many “fixes” we’ve had over the past two years but there have been plenty. Each has proven ephemeral but each new effort has become more assertive. This current plan now comes with wide global support. We have to remember these governments have skin in the game for their own economies. BRIC countries have plenty of “stuff” to export to a healthy euro zone so they’ll be supportive. Bernanke is also determined to be a player rumored to be adding $100 billion in aid to Europeans. Also in support were the ECB, the SNB, the BOJ and the BOE. I guess you could say; “it takes a village”, eh? – David Fry
Bears should know they can’t fight the Fed and when the Fed brings all of it’s buddies along with their various economic weapons – it’s probably not the best time to stand up to them. We still need to hear the word on QE3 next Wednesday or all these gains will vanish in a puff of smoke but, really, what are the odds that all this leads up to a Fed meeting where they say: "No more free money"?
In our current environment, any whiff of the European financial crisis abating seems to send the markets higher. "Somehow we’re back to a risk-on trade again," says Custom Portfolio’s David Twibell, but the problem in Europe is very serious, and if there was an easy solution, we would have already solved the problem. "The market is being a bit Pollyannaish right now," he says.
We went risk-on on in a big way on Monday, as we bet on the manipulators to manipulate (seemed like a reasonable premise) and today is the day we take those profits off the table and use some of them to hedge for the weekend. I laid out the trade ideas from our Monday and Tuesday morning posts on Wednesday and it now looks like FXE will finish above $37 for the full 1,100% gain so we’re off to a good start already!
XLF is an Oct spread but on track and the Short FAS $8 puts for October are already down to .30 (up 70%) so there’s no sense waiting a month for the last 30%, is there? Certainly not after we make 70% in a week! VXX is well below…
Will We Hold It Wednesday – Russell 700 Watch
by Phil - September 14th, 2011 8:29 am
700 has been a tough nut to crack in our small-cap index.
Dollar weakness has hurt the companies that do most of their business in the US, collecting crappy dollars for their goods and services and having to pay through the nose for high-priced commodities and imported goods. Small caps don’t have the muscle to hold down wages in overseas factories while they boost productivity to the point of suicide like our beloved Apple can. No, while our small caps may have a plentiful supply of US workers willing to work "cheap" – we’re still not at the point where our Government forces students to work in the factories as "interns."
So, while we wait for those IPhone 5′s to roll off the assembly line, we’ll be keeping an eye on the Russell, which should benefit from the recent strength in the Dollar, which is is up over 5% in September – although probably topping out at 78 – which is good, as it will give the markets a nice boost on the way back down.
Dow futures are already up over 200 points since 3am (when they were down 100) and, when our 3am trade is working, the bots are usually taking the markets higher. Nothing has changed in the news – Moody’s went ahead and downgraded Credit Agricole and Societe General but maintained an Aa2 rating on BNP – the source of yesterday’s big drop in France on the silly rumor that I told you in yesterday’s post was nothing but blatant market manipulation by our favorite media mogul.
Don’t worry, no one will be arresting Rupert Murdoch because – well, he’s rich. Rich fixes everything, doesn’t it? Rupert’s pal, Chinese Premier Wen Jiabao (What? You didn’t think he only buys Western politicians, did you?), says no one should rely on China to bail out the world economy. "Countries must first put their own houses in order," Wen said today. Asian stocks dropped following his comments, but European markets and futures have shaken the news off after the bank downgrades in a classic example of selling the rumor and buying the news.
Today the big rumor is bullish on news that Geithner is going to Europe to spread the religion of Easy Money in what will be the first time a US Treasury Secretary has been invited to attend a Eurozone…
Wednesday Wheeee – Our W’s Are Shaping Up Nicely!
by Phil - August 31st, 2011 8:27 am
Wheeeeeeeeeeee!
Here we go again. We made it through our "Testy Tuesday" and, as you can see from our Big Chart, we hit our goals with 4 of our 5 indexes coming right up to their resistance lines – not bad for support lines we first drew in April of 2009!
As I often say: I am neither Bullish nor Bearish – just Rangeish. Rangeish has been the winning play for us for quite a while. I was on TV August 2nd, where I laid out our plan for the month (20% drop) and we were VERY HAPPY to do our bottom fishing at those -10% lines for the last few weeks and now we are back in a zone of relative uncertainty where we must hold our Must Hold lines.
On Friday, the 19th, we were confident enough in our bottom call (I led the post off with: "We are now officially getting silly" as the futures tanked that morning) that we shorted EWG puts in the morning post and shorted the VIX at $42.50 with a VXX spread that’s already up 1,433% but well on track to double that.
Also in that morning post (and this is just the free stuff!) I put up a bullish trade idea on XOM at $70 that is obviously doing very well (XOM $74 yesterday) as well as calling for longs on the Futures at Russell (/TF) at 650, Nasdaq (/NQ) at 2,050 and Oil (/CL) at $80. If you didn’t play those bullish, don’t look now because you might cry…
Once the market opened that day, we added an aggressive play on HPQ in our $25,000 virtual portfolio, buying 20 Sept $26 calls for .60 (now .93, up 55%) and paying for them by selling 5 Sept $23 puts for $1.57 (now .20, up 87%). That trade was net $415 and is currently worth $1,760 – up 324% in two weeks.
We are able to do that when we take advantage of the very high VIX (which we expected to go down) as well as taking specific advantage of HPQ coming off disappointing earnings but it’s not the charts — it can NEVER be the charts that tell you to buy a stock that is plummeting – it’s FUNDAMENTALS!
We also picked up TIE that afternoon and an aggressive upside play on the Russell…
Magical Monday – All “Fixed”!
by Phil - August 1st, 2011 8:11 am
Oh what BS!
Still, it’s BS we expected, isn’t it? What did I tell you in Friday Morning’s post? I said: "Our plan for the day (as we’ve been short all week) is to get back to cash for the weekend but I’m sure we’ll find some speculative upside plays (like USO at $37) to play (we already went long on Silver in the Morning Alert to Members)." I followed that up with my 9:40 Morning Alert to Members, where my specific trade ideas for the morning, while the market was plunging, were:
- USO Next week $36 calls are $1.45 so 10 of those in the $25KP with a stop at $1.20.
- TNA Aug $69/73 bull call spread is $2 and you can sell the $51 puts for $1.20 and that’s my favorite index play at the moment. Of course any bullish offset would work but this one is focused on the RUT and betting it won’t drop another 8% by Aug expiration (725).
How’s that for a bottom call? That was right into the panic lows and, at 9:48 I reiterated my call right at the dead bottom, saying to Members: "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."
At 9:50 my trade idea was selling PCLN weekly $545 calls at $3 which expired worthless that day for a 100% gain. At 9:52 we picked up the weekly (that day) QQQ $57 calls at .72 and we had a 100% gain on those by 11. At 9:56 we went short on the VIX with the Aug $19 puts at $1, at 10:16 we even made 5 bullish adjustments to our fairly conservative Income Virtual Portfolio, including selling 50 DIA Aug $116 puts for $110 ($5,500) and we’ll be pulling those right off the table this morning – but I’m getting ahead of myself…
At 11:25 we went for a Jan bull call spread on UNG and at 1:20 I put up my last long trade idea of the day, selling YRCW Jan $1 puts for .70 for a .30 net entry on the trucker. …
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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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