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Thursday Morning

Last Thursday was a disaster!

Keep that in mind today as last week was a canary catastrophe when BRK.A dropped below $110K, down 5% for that week and we lost levels on the Nasdaq, S&P, SOX and transports.

In the wrap-up that day I said I wasn't worried and that has worked out nicely for us as we played this rebound correctly but I'm now concerned we are going to ping-pong off these highs and fall into a toppy looking range.  It's very difficult as the markets just don't want to consoilidate any more, it's either up or down with no rest in between.


With almost 200 Dow points added on in 2 days we can only conclude that the traders who left (volume is down 40%) felt confident enough not to place a lot of sell orders.  Just holding half of yesterday's gains would be great today and any positive move would be spectacular:

As I said on Tuesday: "The "January effect" when it happens, is a small-cap mover so the NYSE and the Russel should lead the way."

Last Thursday I also said that $60.80 was my downside oil target and here we are so let's not get our hopes too high ahead of inventories today.  As usual, we will keep right on top of the action in comments but we are already being set up for failure by "analysts" who predict:

  • A 1.2Mb draw in crude (despite the ship channel closure)
  • A 220Kb BUIILD in gasoline!
  • A 590Kb BUILD in distillates!
  • A 60Bcf draw in natural gas (about half of normal for this time of year).


Keeping our expectations ridiculously bearish allows them to make hay out of the actually bearish facts.  Not only that but wait until we get a quarterly adjustment to inventories which is almost certain to show an additional build as oil is just proving to be far more abundant than Mr. Pickens would have you believe.

We won't know the story on the dollar until we get the existing home sales report at 10 but, as I said last week, the dollar is a report card on our economy, which seems pretty weak compared to Asia and Europe.

Gold still has to wrestle with that $630 mark so good luck to the gold bugs, one would think a booming Asian economy would create some sort of demand for their favorite metal – one would think…

Speaking of Asia, the Hang Seng added another 276 points today and finished at 20,001 – the Dow must look awfully small from way up there!  All of Asia continued up with huge gains in steel stocks that should bode well for our X Feb $75s, currently at $4 (up 50%).

Despite large gains in the financial sector in general, ICBC fell 1.2% as someone besides me finally thinks they may be a bit overvalued for a bank.

Europe is taking a pause today and is likely to coast into the holiday around here, just under record highs so we should be in for another interesting day in US trading.


This is old news now but this video on the "Kramer Incident" is hysterical if you're a Seinfeld fan.


Just like a good football game, this market is best watched from the sidelines. 

I've got a busy weekend ahead of me lining up some long-term picks for next year but I'm not likely to get suckered into making new year's predicitons as I make predictions all the time, but only when I have enough facts to make good ones. 


This silly game of getting otherwise reasonable analysts to make half-baked predicitons based on whatever facts happen to be available on December 31st is one of the most damaging indicators that are followed by individual investors!  It is perhaps even worse than "lists" of future picks, also hastily assembled to make arbitrary deadlines that have nothing to do with market conditions and everything to do with getting people's names in the paper.

Reviews are another story, I think reviewing what worked and what didn't work throughout the year is a vital tool in laying the groundwork for future success.  "Those who forget the past are doomed to sit through reruns of American Idol" or something bad like that…


We are either being handed a huge gift by AAPL today or on the road to doom but I am very likely to take out our callers this morning back near yesterday's lows as we will have this matter resolved tomorrow and we may get  a chance to sell them all over again before the day is up.  If not, perhaps we will just take our profits off the table as they are substantial on these Apple trades!

I know I'm a radical but, rather than listen to a bunch of half-assed analysts on CNBC ("Can Not Be Checking") and 4th party accounts from pretty much every other news source, I took the 45 seconds it takes to actually track down the actual Financial Times article all this new nonsense is based on

It turns out this story originated from San Francisco, the same city as yesterday's PR attack on Apple began.  It also turns out that, like yesterday's attack – there is no new information here, just a repackaging of the original story and facts.

"According to an Apple filing in 2002, the options under review were handed to Mr Jobs in October 2001, at an exercise price of $18.30 a share. However, the purported board authorisation was dated near the end of the year, suggesting that the benefits were both not properly authorised and were backdated. Mr Jobs later surrendered his options before they were exercised, implying that he did not gain any direct benefit from them. He was later given a grant of restricted stock by the company instead.

Under Apple’s rules, the chief executive’s remuneration must be set by a compensation committee of independent directors and later authorised by the full board."

I know – that's it!  The top business news story of the past 24 hours, all the non-stop pontificating by every analyst with a pulse since this story broke last night and that is all there is.  As Reinharden said yesterday in comments:

"It’s kind of like saying “Local police are examining radar gun displays to determine whether speeding tickets should be issued”. Local officials say that speeds more than 20 mph above the speed limit could result in reckless driving charges. Reckless driving is often associated with driving while under the influence which carries a mandatory jail sentence. Killing someone while under the influence is often prosecuted as manslaughter.

"And this morning the markets decided that that means that Mr. Jobs was going to jail for manslaughter ’cause the police looked at their radar gun…"

We made a lot of money on this nonsense yesterday and we will excercise caution but let's be on the lookout for another great opportunity today as all this negative Apple news seems very oddly timed ahead of MacWorld, the Friday filing of the actual SEC statement, the fact that PC magazine wrote a glowing article re. the 30% increase in Mac sales (thanks Kustomz), the fact that ITunes traffic increased 400% over last year's holidays

With plenty of positive Apple news to report on, I find it very interesting that the Financial Times' other Apple headline yesterday was "Apple remains unfazed by march of Microsoft’s Zune."  March of Zune?  I don't even think Microsoft's own PR division would have the nerve to call a 1.9% market share a "march."  

Unfortunately, in today's media saturated world, it is not enough to just check our sources – we also need to check the agenda of our sources!


A guy on CNBC just pointed out how far SHFL has fallen and I have to agree that they are now way underpriced.  Never underestimate the inability of traders to read an earnings report.  SHFL had a fantastic quarter – sales were up 39% and income from continuing ops was up 32% but net was just .14 vs. .19 expected due to a .07 investment write down on their purchase of Stargames and .03 for the usual options nonsense.

There are 2 plays I like here, one is to just take the May $30s for $1 and wait for earnings and the other is to take the Jan '08 $30s for $3 and sell the Aug $30s for $2.55 and let mathematical nature take its course.


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  1. U.S. weekly initial jobless claims rise by 1,000 to 317,000
    U.S. 4-week avg. initial jobless claims fall to 315,750
    U.S. continuing jobless claims rise by 16,000 to 2.53 mln
    U.S. 4-week avg. continuing jobless claims rise to 2.50 mln

  2. Thanks MJ – not much in it though is there?

  3. what do you think about buying back those calls of aapl at these levels?

  4. nope, no alarms

  5. APLL:
    Amtech notes that despite the news yesterday and this morning, and the prompt rebound with the stock, they believe investors should be building positions around $80 and get aggressive in the $70s. The firm has been looking for a pull-back in AAPL shares to get more aggressive on the long side. Yesterday, renewed concerns over its options investigation (which they believe are valid but overdone in regards to Steve Jobs’ liability), created a brief chance for nimble AAPL investors to buy at a great level during a slow week, with many on Wall Street on vacation. Firm encourages investors (particularly those with a longer term investment horizon) to buy AAPL on dips as they believe the stock has upside to $99 based on their checks of strong December quarter momentum and a strong product pipeline in 2007.


  6. AAPL certainly not getting killed at this point.

    Most articles by the “pros” tend to think this is old news and will be cleared up Friday.

  7. down 1% on this news might even be considered rational.

  8. Not low enough yet – I’m happy where we are (it would be great if it flatlines here into earnings) and I’m not going to force it – has to be a nice drop with signs of reversing but not enough people buying this dip (like I said yesterday – they got 60M shares out, what can they do for an encore?

  9. Someone is desperate to take this stock down, that pre-market selling to $77.50 was blatant manipulation.

  10. I sold mine yesterday at 6.40 at the close. I put in a late sell order not thinking it would go, but it did.

  11. Phil,

    Historically there is little chance AAPL will flatline into earnings, there is higher probability there will be a run-up into MacWorld starting first week in January.

  12. XOM Feb 75 puts still looking good?

  13. Phil, what about EBAY at this level?

  14. It all depends on tomorrow – if I were HP I’d have a parody commercial ready where the Mac guy is being taken away in handcuffs and he goes past the PC guy who is having coffee with the SEC and says “I guess you should have paid more attention in accounting class Art Boy!”

  15. XOM – I still have them 8-)

    EBAY – I still have them 8-(

  16. COP $70 puts for .70 make a nice mo play if inventories go our way.

    VLO $52.50s for $1.10 are my choice for a cover if inventories go against us but they are getting cheaper and cheaper as we speak!

    TSO $65 puts for $1.95 should be a good downside chaser to VLO if it really breaks down.

    SUN $62.50s are also on my list at $1.80 but they are risky.

  17. If oil fails $60.80 to the upside, we are going to be having a lot of fun!

  18. “I guess you should have paid more attention in accounting class Art Boy!”

    Now THAT’S funny. I loaded up on AAPL APR 90′s yesterday morning, watching the CNBC clowns (parrots) is a real hoot too. You’d think they were a wholly owned subsidiary of the hedgies by their coverage of this old mularkey. No journalists on the staff I guess.

    Let’s see if they can knock it down some more while I raise some cash.


  19. Thanks for the update on refiners- always good to see them in play.

  20. U.S. consumer confidence up in December to 109.0 vs. 105.3
    Confidence was predicted to dip to 101.9 from previous 102.9

  21. Present Situation index climbs to 129.9 from 125.4

    U.S. Nov. existing-home sales rise 0.6% to 6.28 mln
    U.S. existing-home inventory 7.3 months
    U.S. Nov. existing-home median sales price falls 3.1% y-o-y

    Dec Chicago PMI 52.4 vs 49.9 in Nov

  22. Briefing is now taking a dim view of AAPL’s short term prospects because of this “new” news, speaking of “trimming” postions. Their premise is a 60% rise since the recommendation, and caution.

  23. Phil,
    Target on the LVS? Still long the Puts!

  24. AAPL A lot of support at 80.

  25. LVS – I don’t see what’s keeping them up! If I get worried I’m more likely to sell the Feb $85 pus for $3, leaving me in for just a buck on the March puts but this rise will have me worried if they get back to $89.50 although on this volume I’m disinclined to pay attention to anything that’s happening today.

  26. Very much with finger on the trigger on the VLO $52.50s to cover put positions. The problem is they usually pull a pretty big head fake either right before or right after the inventory but the whole VLO group is looking like they are about to jump off a cliff at the moment…

  27. Phil,
    With AMZN JAN $40 puts would you keep them over 4 days holiday weekend (suffering premium decay), or exit position (with current loss) and reopen it next week?

  28. AMZN – next week or so is when we expect the drop (assuming there is one – they’ve been doing great).


    I’m taking the TSO puts right now – VLO crashing!

  29. Covering VLO ahead of inventory with 20% stop

  30. No numbers yet but VLO is spiking! Keeping a trailing 20% stop

  31. Crude supplies down 8.1 mln bbls in latest week: DoE

    Gasoline supplies up 3 mln bbls in latest week: DoE

    Distillates up 500K bbls in latest week:

  32. OIL heading north

  33. Crude supplies down 8.1 mln bbls in latest week: DoE
    Gasoline supplies up 3 mln bbls in latest week: DoE
    Distillates up 500K bbls in latest week: DoE

  34. TSO puts are dropping….Phil, you buying TSO puts??

  35. I love this sector!

  36. XOM jumped $0.26

  37. What about OIH calls….??

  38. Bought XOM Jan 80s for $0.55

  39. -8.1MB! Still overhang from Houston and total BS but what can you do.

    Build in gas 3Mb
    Build in distillates 500Kb

    This is NOT bullish! Refineries at 90.9% Out of VLO calls even

  40. These numbers make no sense.

    As usual, tight stops on oil plays.

  41. TSO – yes, I bought them ahead of inventory and covered with the VLO calls that I already dumped (at least the broker got paid).

    There was a quick head fake, that was a terrible report. They shut in 21M barrels and the 2 week draw was 16M barrels, WE JUST DON’T NEED THE AMOUNT OF OIL THEY ARE SHIPPING!

    Still the spin will be relentless and we are coming into a long weekend so don’t be greedy.


    OIH calls? I know I never bought those… the OIH options are ridiculous so I’m staying away right now.

  42. NEW YORK (MarketWatch) — Crude inventories fell by 8.1 million barrels in the latest week, the Department of Energy said Thursday. However, at 321 million barrels, they are still above the upper end of the average range for the time of year. Gasoline inventories rose by 3 million barrels, and distillates supplies, which include heating oil and jet fuel, rose by 500,000 barrels. The crude drawdown was bigger than analysts expected. Crude futures were last trading up 31 cent at $60.65 a barrel.

  43. Wow, if the rest of the Valero group doesn’t head down we may have to rename this rule as VLO is power diving ahead of the pack!

  44. Dollar weakness keeping oil over $60 but not much else.

    $50.74 is the 10% rule for VLO off early month highs so look for something like a bounce there.

  45. Dow just 8 points above the danger zone at 12,480

    Transports below 2,600
    S&P below 1.424
    NYSE 8 points above danger of 9.150
    Nasdaq below 2,425
    SOX below 470

    That’s 4 dead and two very sick canaries! Time to take it off the table guys!

  46. Why is yhoo getting crushed?

    Phil, you think it is cheap at these levels? Any ideas?

  47. Crushed may have been an overstatement…LOL

  48. VLO coming back- what a stock! And look at the volume – this stock is heavily traded as I understand. Low volume day all across the board- VLO over 5mil shares!

  49. has posted another AAPL article

  50. soccer

    Is that the right link its dated December 26, 2006

  51. YHOO – nothing is cheap at these levels – dollar is failing at 84 despite strong housing data that keeps the Fed from cutting more.

    Builders fell on this morning’s news? Something else is wrong I think – not sure what but that’s what canaries are for – when they start dying on you, you are supposed to get out of the mine, not go sniffing around to figure out why they died…


    VLO/XOM – I wouldn’t go by anything XOM does at all, like I said yesterday, at this volume 1 in 5 shares bought is being bought by them.

    =============================== is just relentless with this Apple stuff but it does say the 26th, and, if so, what is up with the timing of these things?

    It still sounds like a hatchet job since it’s based on statements that have to be qualified like this: “Krakaur was speaking generally and not about Apple, with which he’s not involved. ”

    “In its October SEC filing, Apple said that, “in a few instances,” Jobs “was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.” The statement said no current Apple executive was suspected of wrongdoing. ”

    So the premise everying is going on is that, while under SEC scrutiny, after an extensive internal investigation, Apple computers, with the full blessing of the Board, filed a false report to the SEC misstating their findings… I just have to say I find that unlikely!

    “We anticipate it’s going to be a very substantial restatement, based on the option grants on record,” said Mark Molumphy, a partner at Cotchett, Pitre, Simon & McCarthy representing shareholders in a securities class action against Apple. ”

    OK so we know who the authors DO have whispering in their ears…

  52. The law of averages :)


    Dec. 28 (Bloomberg) — Bill Miller’s 15-year streak of beating the Standard & Poor’s 500 Index is coming to an end.

    Miller’s $21 billion Legg Mason Value Trust was up 6.7 percent as of yesterday, trailing the 16.5 percent gain of the S&P 500. The mutual fund is the worst performer of 108 “multicap value” funds tracked by Bloomberg

  53. If you look at an daily chart of USO: , you can see that, since early October it has been topping right about at the $54 line. 5% of $54 is $2.70 or $51.30 – right where it is right now.

    Crude is in a similar spot at $60.40, down 5% from $63.50 but these are non-dollar adjusted numbers so it is logical to assume that oil is only being held up here by US technical traders who aren’t smart enough to adjust for dollar fluctuations – this is not a good basis for holding a line!

    I’m still more concerned about my more realistic target of $60.80 and whether that will survive this afternoon’s pump but I think the transports are going to see this as a real plus and we could get a turnaround if oil stays down at this level.

  54. While I’m mentally prepared to take stuff off the table, I just went through all my open positions and found none I felt urgent about killing – remember though, these are all very light positions as I cut down my exposure more than a week ago.

  55. Phil, here is my take on that statment:

    “In its October SEC filing, Apple said that, “in a few instances,” Jobs “was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.”

    1.) Turns out Jobs did receive option grants – 7.5 million options
    2.) I sincerely doubt that he was unaware of the accounting implications given how hard tech companies lobbied Congress on accounting for them . FASB had to back down a few years ago on their expensing proposal.
    3.) It sounds like he did benefit — given that his options were ultimately converted to restricted stocks (even more profitable for Jobs)
    4.) Sad to see extremely well compensated CEOs do shady things like this. It kills people’s confidence in the capital markets.
    5.) I have no AAPL positions — don’t care either way.

    I’m a skeptic, by nature :) and this is just my $0.02

  56. Phil,

    Can you suggest a appl call calendar spread?? Do you recommend in the money spreads or out of money spreads??

  57. Soccer, I think you are reading too much into it re Jobs.

    The stock back then was in the teens. The exercise price on the options was $18.50. Basically, the stock had to double before the options were worth anything.

    Then in March 2003 with the stock still below $10 – Jobs gives up the options and takes restricted stock which he cant do much with for three years.

    And, during this time Jobs salary is $1 per year. Granted their are other perks.

    In the meantime, Jobs takes the company from $8B to $70B market cap.

    Hind sight is easy to pick and jab for these people, but I dont see anything egregious.

  58. The last few days, all the “action” has taken place in the first hour of trading. Very annoying.

  59. We weren’t doing Apple calendar spreads for the hell of it, the opportunity came up as we were reasonably sure we could buy low and sell high were a natural calendar spread was our WORST case scenario.

    That being said, I think the Feb $85s are the best way to go at $3.60 as you are only likely to give up 1/3 on a $5 drop and the Jan $85s are $2.25 and you can set a kind of “sell stop” at $2 and hopefully hold out for a better price.

    Once you sell the Jans, you are only in for $1.60, which is the price of the Feb $95s so you are effectively protected from a $10 drop into earnings. Once earnings hit, both you and your caller will get killed as your premium evaporates, no matter which way it goes so you’d better hope you are within about $5 to recoup your investment.

    So you are still effectively taking a naked $1.60 call into earnings but the bargain you are getting is that $1.60 barely buys you a Jan $90 right now and you are getting a Feb $85 for that price!

    If you are a wealthy hedger with a lot of margin you can also buy the Jan ’09 $110 for $11 and sell the Jan ’08 $100 for $8 as it currently costs $3 for the Jan ’08 $130s so you should make out as long as you’re within $50 next year. On the up side, the $45s have a $3.40 premium so you don’t want the stock to go over $145 but you can always roll it forward at that point.

  60. I don’t know, I’m seeing a little Dow action!

    C with a huge giveback today is dragging us down, AA also with a rejection off $30 but no other serious losers (no winners either).

    DIS is doing well, they are almost certaiin to make my cut for next year’s long-term list.

    HON and other defense stocks will explode once the Dems take office and admit they have no actual plan to end the war this decade.

    GM really, really, really needs to be replaced by TM! If we are ever going to be serious about joining the global economy, it’s time to admit that they are our most important carmaker!

    Here’s a nice Cramer article (written after my weekend article on the Dow):

  61. If John Edwards is going to run for President he needs to stop speaking to people from “people’s homes” wearing work shirts with white tees underneath.

    I have no problem with a President who never wears a tie but try to at least wear cool jackets and sweaters like Arnold – Edwards looks like you interrupted his yard work to ask him about his platform….


    Exchanges yet to set Ford commemoration plans

  63. Pitch78 – I’d like to think that since I have no position in the Company, I can present an unbiased view. No doubt Enron shareholders defended the performance of Enron’s executives as well — until it was too late.

    As for nice perks, how’s this one? Taken from the last filed 10-Q:
    “Total payments for the CEO’s tax obligations to the taxing authorities were approximately $296 million.”

    Why is it that executives who “earn” $650 million need the Company’s help in paying their tax bill? Why not offer the same to the guys making $40K, $50K, $60K, etc?

  64. Hi Phil,

    I’m learning about options and want to understand some of the comments re: the AAPL spread. How do you determine that “you are only likely to give up 1/3 on a $5 drop?” And, what is the reasoning behind “which is the price of the Feb $95s so you are effectively protected from a $10 drop into earnings?”

    Any other experienced options traders please feel free to chime in.


  65. Pitch – a general follow-up on the difference btw stock options and restricted stock.

    With stock options, you benefit when the FMV of the stock is above the exercise price (after your options vest)

    With restricted stock, you only have to stay for a certain amount of time (usually 3 years) and you get the FULL VALUE of the shares upon vesting.

    That’s a huge difference.

  66. Hey if you had a $296M tax bill you’d want some help paying it too!

    Holy cow! Could you imagine sitting down with your accountant and getting that news?

    You may be on to something though, the 15,000 Apple employees could each get $20,000 towards their taxes instead…

  67. Dow turned green

  68. Tres – always look at your surrounding brackets when picking an option.

    In this case you are picking the Feb $85 for $3.60. Since the Feb $90 is $2.40 (it moved now) you would assume you will drop to that bracket’s value if the underlying stock shifts $5 on you (ignoring time decay).

    So your immediate risk/reward on the position is $5.80 to the upside (the value of the Feb $80s) and $2.40 to the dowside, or $2.20 up vs. $1.20 down – these are the kind of posiitons I like to identify.

    It doesn’t matter what the price of the security is, all you are doing is taking a bet from this point that it will go up or down $5. This is why money management makes or breaks you in this game because, as long as you take bets like this, if you have the discipline to take a $2 move off the table either way – you will win more than you lose.

    What kills you the most is no move as your premium decays and again, you need to take those off the table too. So I play my options into events and if I am more right than wrong about the direction it is a huge bonus.

    Conversely, if I’m selling options, I’m looking for there to be no significant events or (in the case of Apples 1/17 earnings) not as significant as my caller may think….


    When I say you are protected from a $10 drop into earnings, I am saying that you are in for a total of $1.60 with earnings on the 17th, if there is a drop of even $2 from $80 that day, your caller will have no value and certainly none 2 days later when his options actually expire.

    That leaves you with $1.60 in and, looking at the current 30 day out options (January), we can see that the $90s are $1.15 (close enough when you account for the fact that today to 1/19 is far shorter than 1/19 to 2/16 (the next period). Since the stock is currently at $80 and $1.60 currently buys me the $90s – that’s my assumed $10 cushion.

  69. Told you the Dow was coming back!

  70. The Conference Board said that its Consumer Confidence Index rose to 109.0 in December from a revised 105.3 in November and 105.1 in October.

    The reading was the highest since the index registered 109.8 in April and was better than Wall Street anticipated.

  71. Phil,

    Great explanation! Thanks again!


  72. Wow! Incredible (as in not credible) oil pump at the close….

    .35 off the 2pm level in frenzied buying while XOM squats on another 10M share day. This will all hit the fan in January.

    Meanwhile, they time the oil bull on CNBC to come on with the pump. He says VDE (Vanguard) is the way to go – in other words give them your money so they can pump things up when needed.

    They couldn’t touch $60.80 today – major disaster for oil stocks.

    Cumberland advisors blames the warm weather on oil’s current problems.

  73. LOL, Phil, CNBC may need to pay for Rent-A_Rebel.

    Buy-A-Peak_Opinion is not doing it today :)

  74. Holy cow, here comes Apple, the SOX and the Nasdaq!

  75. Soccer,

    You got to tell the whole story. Complete paragraph from 10Q:

    “Upon vesting during the second quarter of 2006, the restricted stock award was net-share settled such that the Company withheld shares with value equivalent to the CEO’s minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld of 4.6 million was based on the value of the restricted stock award on the vesting date as determined by the Company’s closing stock price of $64.66. The remaining shares net of those withheld were delivered to the Company’s CEO. Total payments for the CEO’s tax obligations to the taxing authorities were approximately $296 million. The net-share settlement had the effect of share repurchases by the Company as they reduced and retired the number of shares outstanding and did not represent an expense to the Company.”

    Thus, he did pay the taxes.

    And I know the difference between restricted stock and options. My point the options (which is the part they claim involves “falsified documents”) were worthless. The restricted stock grant has no such allegations.

    I am not here to argue executive compensation. That is a whole different topic and I would likely agree with you.

    Also, I own no Apple stock and the only time I ever had anything close was yesterday when I bought and sold some options.

    Never owned an Apple product but I have bought about 5 – 10 ipods as presents.

  76. as you know, i took the feb 80/jan 80 play yesterday for 4.60ish and it looks great….

    can you explain the upside potential of the 09/08 leap play?

  77. Pitch – I stand corrected.


  78. Picking up a small batch of XOM $75 puts for .60 based on this chart:

  79. 09/08 leap spread – that one’s easy but not for normal people because you are selling calls that are more in the money than you and your broker may force you to hold $10 per contract to cover the spread – no something you want to tie up. If you have millions and keep X liquid then you can afford to do it with some of your typical liquid position (plus you would also likely have a more forgiving broker!).

    Simply put you are paying $3 to be $10 more out of the money with an extra year of time. Assuming the stock stays flat all year the value of your ’09 call will become the current value of the ’08 call in the same bracket. In most scenarios you can imagine, this will work out for you.

    Biggest danger is Apple flatlines all year and the implied volatility washes out of the shares but how likely is that?

  80. SOX got rejected at 470 – still a dead canary there.

    Transports cant break 2,600 but may be consolidating rather than failing.

    I think the Apple news is just freaking out all tech investors and if the market is going to get in gear they need to get these things resolved. Apple all by itself, if there’s just a wrist slap, could spark a huge relief rally so there’s a lot hanging on Apple’s filing tomorrow.

  81. Nice article about BA’s new-found pricing power.

  82. Phil, let’s say i bought 10 contracts of each and put about $3000 at risk….how much would that “tie up” in the margin acct?

  83. Phil, you’re in violation of SoccerRule#1 — the one and only rule I have :)

    SoccerRule#1 — Never go short on XOM in light trading. Never.

  84. XOM has been on a clear uptrend since 1:20PM.

    Guess who keeps buying so passionately?

  85. Margin – it totally depends on your broker, you need to ask them what rules they have. Like I said, my account may have very different restrictions than your account, even with the same broker but they could expect you to have $10K cash on hand to cover that part of the spread or they could do an internal risk calculation to lower it.

    Since you would be making this play to make $1.50 over 12 months, it matters tremendously whether you are tying up $3 or $13!


    BA – Pricing power was my premise for taking those leaps way back:

    Glad to see Business Week catching up!

  86. XOM – fine by me, I filled at .60 and I’ll DD at .30 for sure, once the real sellers show up they didn’t make enough money to save this stock!

    They are already guiding flat sales ($398B vs. $3876B) for ’07. They made $40Bn this year so let’s say costs are $350Bn.

    RIG projects a 100% increase in profits, SLB expects a 20% increase in profits… so you know their costs will go up – let’s say just 10%, which will include labor, health, materials, shipping, rentals, inflation, the dems actually making them pay their taxes… let’s say it’s all just 10%.

    That’s still $35Bn in additional costs. That means they net out $388B in costs on $398Bn in sales, a far cry from $40Bn.

    Since they sell oil, we can also assume that they were assuming oil would not drop significantly in price from this yers average of $65. Oil averaged $55 in ’05 and the company “only” had $370Bn in sales and $36Bn in profits.

    So we have a few interesting things going on here: When XOM went from ’04s $298B/25B to ’05 $370B/36B the stock rose from $50 to $60 (20%) but, this year as the stock goes from ’05 $370B/36B to $387B/40B the stock jumped from $60 to $77 (28%).

    Meanwhile they’ve been buying back stock but they’ve run their A/P up from $46Bn to $54Bn with total liabilities up $10Bn since last year.

    In 3 quarters so far this year $29B in net income has only translated to $4Bn of cash flow, if this were my company I’d be asking a lot of questions about how come the money we make doesn’t seem to find it’s way into a bank!

    Lastly – If the company took in $370Bn when oil was at $55, how come they “only” are taking in $387Bn with oil at $65, its an 18% increase. Conclusion: Unit sales are down! What happens if the price increase doesn’t stick and unit sales don’t pick up?

    I know I keep shorting XOM thinking I must not be the only person in America that sees this but alas (other than Z) I am… So I will have to take matters into my own hands and post this up to Seeking Alpha over the weekend (or maybe I should wait until people come back next week).

    In the meantime, XOM long puts will be a part of our ’07 portfolio!

  87. Phil, I agree with your FA on XOM.

    I’ve been short most of the year (and lost a ton of money). Looking back it’s crazy to think that I had $62.50 puts. Then $65 puts , 67.50, 70, 72.5, 75 . . . that’s where I stopped. I’m looking for a good re-entry point. I’ve been chasing XOM since 63-64, so I’ll cash in eventually. However, it won’t happen in light trading. They can support any price with their quarterly 100 million share-repurchase program. They buy on average almost 2 million shares per day (2 million shares x 60 days X $75 = $9 billion) — so on days like these, they can easily snap up 50% of all traded shares.

    ————— — “Just days after confirming that Russia would pay the companies $7.45bn to establish its controlling stake in the project, the government said it would require the three foreign owners to meet $3.6bn of the additional costs of Sakhalin-2 themselves.”

  88. Good for Putin – stick it to the man!

  89. What’s up with the Intel Jan 20 puts?

  90. looking at the daily chart for XOM, it has come down to test, and bounce up off the $75 level for the second time now since breaking above it at the end of Nov. In this particular market environment (since Aug./Sept. ’06), you would think it will either consolidate then move up again…or just take off from here after this second test of 75. This levitation act is killing me, because losing on these puts is making me a little gun shy on pulling the trigger once again.