Thank GOOG It’s Friday!
by Phil - October 14th, 2011 8:34 am
Can we end the week with a bang for a change?
Google had tremendous earnings last night (10% beat) and that has the Futures flying (along with AAPL’s IPhone 4S release, which has, as usual, lines around the block to buy their product on the first day). We already made some quick futures money in Member Chat, shorting the Nas (/NQ), Dow (/YM) and Oil (/CL) at 6am in Member Chat. Why go short – just because we had a silly pre-market run-up and we wanted to lock in gains – now it’s 7:30 and we’re done – waiting and seeing how things go into the open.
Futures trading is very useful for locking in pre-market gains but you have to be very careful or it’s just as easy to blow them and, as we demonstrate in Las Vegas Sunday Night – the futures markets are clearly a load of manipulated BS – especially in thin after-hours and pre-market trading. Fortunately though, that’s fine with us as one of the main lessons at PSW is "We don’t care IF the market is rigged, as long as we can figure out HOW the market is rigged and place our bets accordingly."
The news we didn’t want to risk the futures on comes up at 8:30, as we get the Retail Sales Report for September and not much is expected after a very weak August, where Auto Sales really dragged us down with a 0.2% drop and there was nothing sexy about the other items either. Still, one thing people fail to grasp when looking at these charts is that the numbers are in MILLIONS, not thousands – so August 2011 was $389,502,000,000 in total sales and up $26Bn from last August. That’s a pretty healthy pace of $4.6Tn in just Retail and Food Services – what recession?
As you can see from David Fry’s chart, we probably need to work off some overbought conditions before we can have a proper rally. Also, in an early Alert to Members this morning, we looked over our updated Big Chart and determined it was very unlikely that we will hit the levels we need to go bullish into the weekend so we are already planning to short the Nasdaq into the morning pop to put us neutral into the weekend with a 15/15 allocation (short-term positions, of course). …
Facebook
Twitter
LinkedIn 
del.icio.us
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!
.jpg)
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…
TGIF – Closing a 12% Down Quarter
by Phil - September 30th, 2011 8:15 am
1,320 – That was the S&P close on June 30th.
1,160 – That was the S&P close after yesterday’s wild action. A neat 160-point drop (12%) in 3 months for the World’s largest market kind of sucks, don’t you think? My commentary in June 30th’s "It’s the End of the Quarter as We Know It" post was:
We feel fine because we cashed out on the long side (shorter-term, unhedged positions) and we really don’t care what the market does today or tomorrow but we are betting this rally reverses and we will be taking some (more) short hedges today – hopefully selling into the last legs of this fairly fake-looking rally.
My top downside picks to play the sell-off were EDZ ($17.90 at the time, now $28, which is up 36% even without using options to make a spread) and TZA ($35.50 at the time, now $51.10 – up 44%). As I said in that morning post: "I didn’t think they could take the Dollar below 75 but they hit 74.54 last night and it remains to be seen if they can hold it down in real trading, especially with the Pound weakness (see this morning’s Alert) and the Yen’s unwanted strength. Something’s gotta give and we’re betting it’s this fake, Fake, FAKE rally…."
We were shorting oil futures (/CL) at $95 (now $80, up $15,000 per contract) as we thought the holiday weekend was the end of the run but we did keep heading up to $100 (down $5,000 per contract) before finally getting a drop to $75 (up $25,000 per contract) in early August.
One funny play from that June 30th Member Chat was the VIX Aug $15/17 bull call spread at $1.20, selling the $16 puts for .50 for net .70 on the $2 spread. That just seems so cute (and obvious) with the VIX at 38.84 now (it was 30 at the end of Aug for a full 185% gain on that hedge).
Other hedges we liked in that post were the TZA Oct $31/42 bull call spread at $3, selling RUT Aug $710 puts for $2.90. The RUT puts expired worthless so net .10 on the spread that is currently $20 in the money for pretty much the full 10,900% gain.…
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
…
Whipsaw Wednesday – What Us Worry?
by Phil - September 7th, 2011 8:25 am
That was easy!
Only 3 days of panic and we’re back to manic already – I’d say that was a record but our last panic only lasted two days, on August 18th and 19th, when we dropped 600 points before bouncing back 800 points the next week so this last 3-day, 600-point drop was gentle by comparison. That, of course, did not stop the usual round of Doomcasters from declaring the end of the World (especially the European section) as we know it but that was all so yesterday morning and now it’s 24 hours later and the Dow is up 300 from that bottom in the pre-markets.
Pre-market yesterday we were bullish but cautious, going long on Dow (/YM) futures at 11,000 (now 11,227 – up $1,135 per contract) and Russell (/TF) Futures at 666 (now 688, up $2,200 per contract) and our bullish EWG spread from the morning post should be going gangbusters already as the DAX pops 3% this morning!
We also laid out new hedge ideas on EDZ and GLD but the point of those was, wisely, to take the money and run on our old hedges as they bottomed out in the morning (max profit), trading in our well-ridden horses for fresh ones that have more time to expiration and lower deltas to snap back on a bounce is all part of our range-trading strategy – we may need those hedges again, just not now….
By the time the market opened, things looked too good not to play bullish and we ended up picking 19 bullish plays in yesterday’s Member Chat with not one bearish one. My comment to Members in the 9:44 Alert, where we took a very aggressive upside play on the Dow was: "Damn, and I said I wasn’t going to get too bullish. Oh well, what can you do?" As I have been pointing out in our Range Trading posts – sometimes you just have to go with the flow…
Just 18 minutes later, I put up 6 long-term trade ideas on CAT, DIS, HOV, JPM, SKX and T as we took advantage of low prices, a probable bottom and a high VIX. The nice thing about our buy/writes is that they have a built-in 20% discount (see "How to Buy a Stock for a 15-20% Discount") and can usually be scaled in to ride…
TGIF – Are We There Yet?
by Phil - August 19th, 2011 8:29 am
Where is the bottom?
We are now officially getting silly, with Germany falling another 3% this morning, now down close to 30% in less than a month (see David Fry’s chart) with the banking sector off 50% and more. To keep that in perspective, the S&P is down less than 20% and even our super-lame Transports (which go down with oil for some reason) are down "just" 24%. So – do we have another 10% (at least) left to fall or is it kind of ridiculous that AAA-rated Germany, with arguably the World’s strongest economy, should drop 30% in 30 days?
It looks like EWG is going to open around $19.50 this morning and you should be able to sell the Sept $19 puts for $1+ or the Jan $17 puts for $1.25+, giving Germany another 16% buffer before you have to give that $1.25 back at net $15.75, which is back at the non-spike lows of the crash.
The VIX spiked up to $42.50 yesterday, that’s higher than it was in April’s sell off and that made an excellent short at the time. You can sell VXX Sept $45 calls for $3.25 and buy the $45/40 bear put spread for $3.40 for net .15 on the $5 spread. If the VIX and VXX do move higher, a 2x roll to the Sept $55s (now $1.60) is about even or the Dec $62 calls are currently $3.10 so it would take a pretty major, sustained move up in volatility for the short puts to really hurt.
Here we are, back at our March lows for the Nikkei and 15% BELOW the March lows for the DAX and 10% below the March lows for the S&P. REALLY? Were we too optimistic in March by 15%? We just had earnings reports and the numbers were generally fine – it’s the outlook that got gloomy, due to all the economic uncertainty. That’s what happens when your Congress is a bunch of buffoons who are willing to sacrifice the Nation and it’s Citizens in order to improve their political posture…
Other than the imaginary problems of debt (it’s been worse) and austerity (a poor solution to address the debt non-issue) and the real problem of the deficit (easily fixable by collecting taxes and cutting military spending) and a slightly slowing economy (caused by the idiotic austerity measures),…
Falling Up Friday – Closing the Week GREEN!
by Phil - August 12th, 2011 8:20 am
In case you were on vacation, here’s what you missed:
The Dow is down 2.6% for the week, the S&P is down 2.3% and the Nasdaq is down 1.2%. Very likely, by the end of the day, these losses will be erased and we should have a nice, green close. For some reason (can’t imagine why) the VIX went up to 45, where we shorted the Hell out of it. One trade idea we had was on Wednesday Morning, where we sold the Aug $45 calls for $1.45 against the Sept $45 calls at $1.40. Even yesterday that one was looking good with the Augs down to .85 and the Sept $45s still $1.30 so the net .05 spread turned into net .45, a nice 800% gain in two days.
On Wednesday afternoon, Nicha had a great idea to short VXX as well, so we did the Sept $36/32 bear put spread at $2.50, selling the Aug $38 calls for $1.55 for net $1 on the $4 spread. Those Aug $38 calls have already dropped to $1 and the bear put spread is $2.60 so that’s net $1.60 – up 60% in two days on that one. This is why we ALWAYS sell into the initial excitement. On the whole, we have been TRYING to follow my philosophy, which I reminded everyone of of in last Friday’s Member Chat, of "Don’t Just Do Something, Stand There!" – which is still some of the best crisis management advice I can give people.
What does our Big Chart look like since last Friday?
Wow, those were four very silly days, weren’t they? As I noted above, we’re down about 2.5% for the week but the week isn’t over and we could still turn this puppy around and do you know what that would be? It would be a VERY bullish bottom candle on a weekly chart! In fact, if we can finish August back at that +5% line (a 10% gain into the month’s end), THAT would form a VERY bullish candle on a MONTHLY chart.
So Greece blah, blah and Italy, blah, blah and Merkel, Sarkozy, B-B-B-Bennie and the Fed, Inflation, Deflation, Unemployment, Debt and Taxes – whatever… Just wake us up when it’s over and we’ll consider pulling our cash off the sidelines. Meanwhile, as I lectured Members in…
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. …
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(