$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
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DiggFriday Already? What Next?
by Phil - December 3rd, 2010 8:28 am
What a wild week!
The Dow is up 400 points since Monday and we are just 150 points away from our November 4th high. Once we get over 11,500, we have no reason at all to be bearish from a technical standpoint and fundamentals are out the window so what else should we be looking at? We ended up too bearish on our $10K-$50K Virtual Portfolio as we hit our double-down targets on a couple of index shorts so I am CLEARLY in the bear camp this morning as we’re still playing this as a double-top, rather than a breakout but what if we do break out? As David Fry said this morning:
Any worries from Europe, China tightening, higher Jobless Claims are mere inconveniences when the light is a bright green. Let’s face it; this is what the Fed stated they wanted with their POMO activities—higher prices overall with higher stock prices emphasized. The Fed prints money and buys bonds from the Primary Dealers and (wink wink) they know what they’re supposed to do with it. Bears just better get out of the way.
Looking at David’s Nasdaq chart, we can see that we are back at 2007 highs. I find this truly amazing as it seems to me things aren’t quite as good in America as we THOUGHT they were in 2007, before we found out that Financial earnings were a scam and before our homes lost 1/3 of their value and when our neighbors used to all have jobs but CNBC is telling us over and over and over and over again how great things are so it must be true because they are on TV and TV doesn’t lie to us.
So there’s our ridiculous rally premise and we’re "very excited" to go bullish if we break over the 2007 market highs. XLF has been a real laggard so we like taking advantage of a run in the banks with trade ideas like the FAS April $20/25 bull call spread at $2.70, selling the April $21 puts for $2.55, which is net .15 on the $5 spread that’s already $4.25 in the money. So, if FAS makes a .75 gain between now and April expiration and holds it, this trade makes a 3,233% profit. That’s pretty good right?
See, that’s why we don’t fear the upside. If…
Whig Party Wednesday – Reps take the House and QE Too!
by Phil - November 3rd, 2010 8:03 am
Now, like many Americans, the Democrats know what it’s like to lose their House.
Back in the mid-1800′s, the nation had another kind of Tea Party as the Whigs became a successful 3rd party, even going so far as to put two men in the White House – William Henry Harrison and Zachary Taylor plus Millard Fillmore, who succeeded "Old Rough and Ready" who died just after a year in office but that was a long term compared to Harrison, who caught pneumonia making a long inauguration speech in the freezing rain and died of it a month later despite attempts to cure him with opium, castor oil and leeches – treatments we are likely to see again as the Republicans vow to repeal Health Care legislation.
I don’t have to talk about what happened last night, Barry Ritholtz did a great job of it in "The Tragedy of the Obama Administration" so let’s just focus on the repercussions of the changeover and, of course, today’s upcoming Fed decision. The Board of Governors were meeting all day yesterday and will meet again this morning to discuss their policy decision and one would think they can’t be so deaf as to see that our citizens are not interested in additional deficit spending, which is exactly what QE2 is when the Fed writes checks to paper over the Treasury’s profligate spending.
Look for new and improved ways of not taxing corporations. Like GM, which will not have to pay taxes on its next $45.4Bn of earnings despite the fact that the Government paid for their losses already and allowed the company to bust union contracts and trash benefits for the millions of retired and fired workers as they shut down and sold brands – permanently shipping US manufacturing jobs overseas.
Of course, this tax break isn’t about GM. GM just sets a good precedent for similar treatment of Banksters and others who received relief under TARP and, of course, whatever they decide to call the next emergency bailout of Big Business. If the market breaks our tops, we are going to be loving the XLF which already owns most of the people who got elected last night. With FAS at $22.44, we can sell the April $19 puts for $2.75 and buy the Jan $17/21.67 bull call spread for $3.10 and that’s net .35 on the $4.67…
Prior Weekly Wrap-Up – February Expiration Day Special!
by Phil - February 19th, 2010 7:17 am
I didn’t get to do a wrap-up last week so we have a lot of trades to go over and, with expiration looming and the Fed tightening, I thought it would be good to just get the list out on Friday so we can adjust our rolls to March where neccessary (in bold under appropriate positions).
In our Feb 7th Wrap-Up, I was gung-ho bullish saying "It’s Only a 55-Point Drop You Wimps!" and we had been BUYBUYBUYing at the bottom all week, especially Wed-Fri as the market spiked through our projected support at Dow 10,000 but not enough to change our minds as we bottom-fished on AAPL (2 trades), ABX, ACOR, AKAM, AMED, BRK/B (2), C, CCJ (3), CSCO, DELL, FXI, GE, GOOG, IBM, LLY, LOW, NLY, TBT (5 times!), TM (3), TNA, USO (yep, we wen long oil) and UYG. To say we were weigting bullish by that Monday was an understatement as we has finished the weekend in a bullish stance and were relying on our disaster hedges to protect us.
Those disaster hedges are an interesting set to look at, especially now that we’ve recovered 400 points:
- DXD July $27/33 bull call spread at $2.50, now $2 – down 20%
- We can roll the $27 calls to the $25 calls for $5 to widen the spread and drop our b/e from $29.50 to $28.50
- EDZ July $3/8 bull call spread at $2.10, now $1.60 - down 23%
- EDZ Apr $10 calls sold for .70, now .15 – up 78% (pair trade)
- SDS 2011 $36/40 bull call spread at $1.30, now $1 – down 18%
- We can roll the $36 calls to the $33 calls for $1.10
- TBT Jan $35/45 bull call spread at $6.30, now $7.40 - up 17%
- TBT March $50s sold for .65, now $1.22 – down 87% (pair trade)
This is what is great about disaster hedges. The potential upside on these spreads, if the market headed south was up about 100% on the 4 trades so a commitment of 5% of your virtual portfolio to each one (20%) would give you back 40% of your virtual portfolio in cash if the markets tanked. Already, after 2 weeks, we have the markets heading in the opposite direction and what is the cost? Not even 20% of the 20% you may have allocated, a 4% insurance premium while the 80% of the virtual portfolio that is bullish caught a…
Wintery Wednesday – Are We Now Corrected?
by Phil - February 10th, 2010 8:21 am
Was that it?
A 10% correction (David Fry chart on right) and we’re done? If so, this is still a fairly bullish market, and it should be, as our sell-off last year was, beyond a doubt, way overdone. Often people forget the fundamentals of investing and the biggest fundamental of them all is: "Where else are you going to put your money?" There many fine companies out there with P/E ratios that are below 15. That means if you give them a dollar, they will return 6.6% in earnings. IBM has a PE of 12, which is an 8.3% return on my money and, according to projections, that will improve to 11 next year, generating 9 cents for each dollar I give them.
Call me an optimist but I think IBM is a fairly safe place to keep my money. Perhaps as safe as 4% TBills, or 7% Greek bonds or 3% Yen Notes or, Heaven forbid, a bank! In fact, not many banks are paying 1.8% on your deposits but IBM does through dividends. IBM was my example trade in the Weeekend Wrap-Up so I won’t get into strategies here but that is what our whole Buy List is about – picking up great long-term values and hedging them to even more effective entries.
Not every stock is as rock solid as IBM but (going back to the Wrap-Up) who did we buy when the chips were down last week? C, CCJ, TBT, GOOG, XLF, AAPL, AMED, CSCO, TM, LOW, AKAM, LLY, NLY, GE, TNA, USO, ABX, DELL, FXI, UYG, BRK/B. Not exactly a radical collection of picks is it? Yesterday, with the market up 2.5% from our shopping spree – we bought NOTHING. Part of the "buy low – sell high" philosophy is waiting for the market to be either high or low. Two weeks ago, on Jan 29th, I charted 10,058 on the Dow as a critical support line and, from our Buy List Update this weekend, I put up the following chart for Members:
And where did we finish yesterday on the Dow? 10,058. See, this charting thing is easy – that’s why I don’t usually bother, it’s dullsville! Let’s now turn our attention to our other major levels of 10,165 and 10,300 which, keep in mind, is nothing more than our predicted "weak bounce" off the drop from 10,700. As I said in the above chart, we can expect…
Weekly Wrap-Up, it’s Only a 55-Point Drop You Wimps!
by Phil - February 7th, 2010 12:19 pm
That’s right, I said WIMPS!
I have never heard so much whining and crying and complaining about a market drop as I have the past few weeks. Last week, I pointed out that we had only fallen 105 points from the prior week (10,172 to 10,067) and this week we fell ALL THE WAY to 10,012 to finish the week and you would think the world was ending (again) from the way the MSM has been acting.
By Friday the panic was palpable as we gave up Monday and Tuesday’s bogus gains to test new lows for the year – testing, in fact, the lowest levels the market has hit since last November and I pointed out in Friday’s post that it reminded me of when BSC and LEH went under and everyone panicked and sold Financials off to the point where Warren Buffet was willing to give GS $5Bn AFTER they bounced 50% – THAT’s how undervalued the financials were in November of 2008.
What do we do while people are panicking? We BUY! We don’t BUYBUYBUY like Cramer’s Pavlovian Peons but we sure do BUY and take some nice entry positions with sensible hedges. I was finally motivated to finish updating our Buy List on Friday and 18 of our 38 positions were highlighted (immediately actionable) on Friday. Sure they may go lower, but we’re buying them with 20% buffers built into the positions and then we can double down if they drop 40% (back to Nov 2008 lows) and then we’ll have our entries down 10% from the lowest levels of the past decade or so that we can hold until the next decade – what’s there to panic over?
If I wanted to buy IBM in January but thought it was a little pricey at $134, why would I not be HAPPY to have the opportunity to make an enty at $122, back at where they were pre FABULOUS October earnings? I can buy IBM for $122 and take advantage of the panic-induced VIX at 26 to sell July $125 calls for $6.60 and the July $120 puts for $6.65 for a net entry of $108.75 with a call away at $125 for a $16.25 profit (15%) in 5 months. If IBM should fall below $120, we will have a second round of the stock put to us as $120 for an average entry of $114.38, another 6.2% lower than it is…
Weekend Wipe Out – All the Way Back to Mid-November Lows!
by Phil - January 23rd, 2010 11:36 am
Well I hate to say I told you so but…
No wait, that’s nonsense – what market prognosticator doesn’t love to say "I told you so"? Actually, it’s kind of my job to tell you so and the reason I’m so popular is because, more often than not, when I tell you so, I tend to be right. I’m not right all the time and my single biggest flaw is I am often right but sometimes way too early and timing is EVERYTHING in the markets. It’s not good enough to tell you what is going to happen (give things enough time and everything happens eventually, right Cramer?) - I need to get the period right as well so we can turn it into an actionable trading idea that makes money.
As a fundamentalist, I didn’t like the entire last 500 points of the rally. I had predicted the market would finish the year at 10,200 way back when it was down at 8,650 when the idea was we’d have a Santa Clause rally to 20% (10,380) and then a 20% pullback of that run (346) into Jan earnings that would take us back to 10,034 so the entire run from 10,200 to 10,700 REALLY annoyed me. It didn’t annoy me just because it made me wrong – I’m wrong a lot and I’m old enough to have learned how to deal with it. What annoyed me was the manipulation as, clearly, the fundamentals in no way, shape or form justified the additional 5% move up.
I’ve gone on and on about how fake the move was and how manipulated the markets were and how artificial the support was and I think I’ve pulled out the Seinfeld "fake, Fake, FAKE" clip often enough now that I don’t even have to do a link (but I love it, so I do) or explain how it’s a metaphor for recent market activity so I’m not going to waste our valuable time here. Let’s just do a review of the recent action, which is my best way of preparing for the upcoming Members only post where I’ll be charting out new levels and coming up with action plans for the week ahead.
So don’t read this if you can’t stand to hear "I told you so" because this is the review post and I did tell you so!
When did things go wrong? Clearly they were wrong for ages but when…
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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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