Archive for 2006

Google Plays – Round 3 Update

This is not how it’s supposed to happen!

Usually you can make a play like this once, maybe the second time for a little less profit but this is now officially just silly! Once again Google has rocketed on us and we find ourselves with some very profitable positions.

As a disclaimer, I got nervous and cashed most of mine out (as I mentioned in the blog during the week) in a fit of general market bearishness, but I am loving this YouTube deal if it goes through and can only hope that people sell Google off on the news to give me another entry point!

Bambi Francisco wrote an excellent article outlining the risks involved but here’s my take on the deal:

I don’t think Google would be doing this deal if they didn’t have a handle on the copyright issues. Either they think they already have the legal right or they have some compromise in mind, say limiting TV and Film content to 3 minutes. Media outlets pay to have someone see a 3 minute clip of their stuff!

Fair use of a song or radio clip is 30 seconds or 20% of a 3 min song. That works out to 4.4 minutes on a half hour show (22 minutes of content) so I think, if push came to shove in the courts, that’s where we’d end up.

According to Wikipedia:

Brief song clips (under 30 seconds) may be used for identification of a musical style, group, or iconic piece of music when accompanied by critical or historical commentary and when attributed to the copyright holder.”

There is no firm ruling yet for video clips but, if I were running YouTube, I would make a deal with the major content providers that included adding a link to a full content version a la ITunes for a nice little revenue stream.

Another nice little revenue stream YouTube could pick up is advertising! As any blogger knows, just 100 page views a day can get you 2 bucks from Google’s AdSense program and we know YouTube gets 100,000,000 downloads a day. Even if you were to assume that each person only looked at the page they were downloading from (highly unlikely) that’s $730M a year in revenues!

While Google may have floated an offer to YouTube last week, it is very possible that…
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Crude Reality

From “Oil demand growth picks up but base remains feeble!” “Contangos Peak!” What is driving these sudden downturns?

Sudden – Ha! August Supply figures have been revised upward by over 200Kbd, showing that supply outpaced demand by 600,000 barrels a day for the entire month! September demand slipped further and we had a build (still subject to an upward revision) of 860,000 Bpd for the month of September.

This will, of course, come as no surprise as we approach record US inventories at the same time as 2 years of obscene oil prices have finally changed US consumption habits for the better (or worse if you’re trying to dump your speculative oil). Since 2003 global demand is up just .7% total with Japan, India, Europe and South Korea actually declining and only the US and China increasing usage.

Global supply, on the other hand, has increased 4.8% in that same time!

What’s worse for OPEC is that their position in the global marketplace is waning as other suppliers are rapidly increasing production:

There are currently 3,600 tankers in operation with an average capacity of 500,000 barrels of crude oil and a top speed of 15 knots. Assuming a fairly efficient system there are about 2,000 full tankers carrying 1Bn barrels of crude already at sea at any given time. If the entire gulf were to shut down production for one month and IF no other supplier could step in to fill the 30Mbd gap, it would still take 33 days for the disruption to actually be felt in the supply chain.

Tankers are already dropping rates by as much as 30% as US oil supplies rise to 16% above last year’s levels. We first picked up on this trend last month.

The US gets just 3Mbd from the region and the loss of that oil would drain our petroleum reserves in 230 days – again, assuming no other country were able to fill the gap and assuming no emergency measures were taken to curtail consumption.

The rampant consumption that should be of concern to OPEC is their own! Not of oil, but of goods and services which they have imported with a vengeance since 2003. Annual imports of G&S in OPEC nations has gone from just $200Bn in 2003 to $370Bn last year
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Saturday Reading List

Wow! War videos taken by insurgents showing them killing Americans on youtube!

This is new and intense – not the just videos themselves (and warning when you click on them, they are very graphic!) but the concept that now both sides of the battle can put up their own home videos to bring the mayhem right to your screen. I’m old enough to remember how a single picture, of children fleeing a napalm attack in Viet Nam, enraged the country back in the 70s:

Now we have videos by enemy soldiers (our soldiers aren’t suppsed to make home videos – but they do) having a good time, planting a few bombs, firing weapons, taking out a convoy

How much do you think the people are prepared to take? While we were momentarily angered by images from Abu Ghraib, times have changed and still images just don’t capture the imagination the way videos do.

Fortunately, there is a lighter side to YouTube, view this one to cheer yourself up!


Regarding all picks on this post: I have tremendous reservations about the market despite many technical indicators pointing to a huge rally. My concerns are based on the underlying fundamentals in the US economy and a general sense of paranoia that the markets have been manipulated of late in order to draw retail money in prior to a large dump.

I hope I’m wrong, I did call for a massive rally way back on 8/31 and I got it, but not quite the way I wanted it (with a nice pullback first) and it has bothered me ever since. Nonetheless, on Thursday I vowed to go with the flow and embrace the Meatball Rally – where bad news just doesn’t matter!

That being said, the flow (as we learned in Ghostbusters) swings both ways so I am only advocating calls in a positive market environment, we are not going to try to fight the tide here! We’ll keep a close eye on our levels next week.


I was reading Tom’s excellent blog, and he reminded me that I should be looking at ATI again! ATI is one of my Boeing Buddies ™, a team which includes fellow titanium merchant TIE, BEAV, GR and AIR, all of whom benefit from BA’s resurgance. As…
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Leaps of Faith

This is for Ilene, who has patiently waited for me to get around to posting something useful for two weeks:

Man does not live on bread alone (although my daughter is game to try) and your virtual portfolio needs variety too.

One of my favorite staples in the virtual portfolio is the income producing (we hope) spread where I buy a leap with the intention of selling calls against it each month.

I don’t track these because it is mind bogglingly tedious but the gist of it is we take a leap on a stock, say SHLD. I like Sears because it’s volatile enough to give me a good premium but good enough that even if it drops to the 200 dma I can hold on without freaking out as I think the underlying fundamentals support the stock for the long term.

I’m not looking for a stock that’s going up fast, I’m looking for rangy stocks that go up and down in a channel (just like on TV!) so I can sell calls when it’s high, and buy them out when it’s low (although that takes a little practice and nerve!).

We did this with our Google plays earlier in the month but those went up so fast we are going to get called away so let’s go back to Sears!

Right now I think SHLD might make a new high but I’m also concerned about a pullback so, if I were to go in today, I would want close protection.

The Jan ’08 $145s are $39.60 so I’m effectively paying $184.60 for the stock, a $21 premium. My goal over the next 15 months is to make $1.50 a month to work off the premium. In a regular month, when I’m bullish, I would the sell the Nov $165s for $7.50. That guy is paying a $9 premium for 45 days (sucker!) and I will have no trouble until the stock goes over $174 or under $156.

The proper strategy is to manage this much like any trade and buy your caller out if he loses 70% of his value. You biggest danger in these trades is that, early on, before you recapture some premium, the stock flies up or down on you – forcing you to take cash out of your pocket for the caller or to liquidate at a loss.

This month, I’m in a nervous…
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Doubting the Dow

I finally found something I’ve been meaning to look up for some time: The current weighting of the DJIA! This became imperative today when I was shocked that the press blamed $18Bn GM for hurting the $3T index with its 6% drop.

Well, I checked it out and I am now more convinced than ever that the Dow is the most useless, overused tool on the planet!

Aside from the fact that it contains just 30 out of 8,500 stocks traded on the major exchanges and aside from the fact that it contains some of the world’s dullest companies, I now see that there is absolutely no logic to the weighting!!!

The Dow is “price weighted,” meaning that weightings are determined based on the selling price of each stock, not the value of the company. This leads to some totally ridiculous outcomes:

GM, which makes up .6% of the Dow’s market cap, has a 2.1% weighting. That means that GM disproportionately affects the Dow by a factor of 350%.

GE, my favorite market indicator, with a $373Bn market cap, makes up just 2.4% of the Dow’s daily move.

XOM ($400Bn) at 4.5% could lose $12Bn in value (-$2) and that loss would not be reflected if GM gains just $2 (+$1Bn). How does this accurately reflect the economy? I’ve said on numerous occasions that GE should be replaced by TM but this whole weighting system is insane!

PFE ($203Bn) counts for just 1.9% of the index while BA ($66Bn) counts for 5.6%.

WMT ($201Bn), who sells $360Bn worth of stuff annually, is given a 3.2% spot, not even double AA’s ($24Bn) 1.9%, who might hit $28Bn in sales if things go well.

Sharing top weighting with BA is another blast from the past – IBM ($126Bn), with a 5.6% spot. I love IBM and I think they’re a great value but they were at $83 in January and $90 in Jan ’05 and $90 in Jan ’04 and $80 in Jan ’03… what exactly are we trying to measure here?

Number three in the weightings is MMM ($57Bn), with 5.1%, 150% more than T ($123Bn) at just 2.1%. AT&T made $1.8Bn last quarter, more then 3M made in its best 2 years…

Another insult to the tech sector is INTC’s ($118Bn) 1.4% weighting as well as the unbelievable 1.8% (less than GM) given to MSFT ($277Bn). Microsoft
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Weekly Wrap-Up

Another pretty good week considering I’m being overly cautious!

I have a whole month’s worth of closed positions I wish I had back but we still managed to pull another week out of the hat with an 80% average gain on 48 closed positions with an average holding time of 7 days.

There were 44 winners and 4 losers (and I am ashamed to say SBUX was one of them, as we let ourselves get stopped out early!) with 26 gains of 50% or more, 14 of which were doubles. The official spreadsheet can be found HERE.

One reason for our excellent winning percentage is the fact that our remaining 35 positions are actually down 3% at the moment as I’ve been grabbing profits off the table on my general concern about the markets.

Our open folder still holds the other end of the Google spreads and a lot of rolls, which makes it look bad but a loss is a loss so I count them as such regardless of the offsetting gain.

Today wasn’t much of a pullback!

We took very nice bounces off our technicals, testing the Dow 11,800 mark at 12:45 and having none of it.

The rise of the Dow and lockstep motion of the other indices was so steady that it put the VIX back to sleep, a very bullish indicator:

For the week, we got the Nasdaq leadership we always wanted with a 2% gain in that group, very impressive as the SOX ended the week down 1% but holding 450:

The NYSE fell a little behind the other indices but this too is healthy as the NYSE has been the leader for a long time. That index also made a point of testing my mark today!

Oil finished the week at $59.76, down exactly 5% from the week’s open, resting 25% off the July double top at $79.50. This week’s low of $57.75 is just under 25% from the lower high of $77.70 we tested in early August. If you look at the weekly chart, last October 6th was simply the mid-point of a $24 (35%) post Rita slide to $56.

Gold held $576 for the day, showing surprising strength, as did all commodities on indications that the US economy was much stronger than people thought. The US dollar…
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Freaky Friday

At this point it will be very hard to end the week badly!

The Dow is up 250 points for the week and 66 points over 11,800 – well above the previous high. I am still happy to just maintain yesterday’s levels:

Dow – 11,800
S&P – 1,350
NYSE – 8,500
Nasdaq – 2,300

That’s all we need to have an unblemished celebration that will take us into the weekend.

Asia went into the weekend fairly flat on light profit taking and Europe is mixed as the ECB hiked a quarter point yesterday with another hike ahead.

The dollar held up well yesterday as most of the world still remembers a crazy guy is about to set of a nuke in Asia (I know, you’ve been so busy making money you forgot!). This does tend to worry people and underscores gold’s problem as it used to be the obvious play in uncertain times.

Sentiment is moving towards the dollar and the seemingly unstoppable US economy, a move that does not bode well for commodities!

I’m putting my foot down with this oil nonsense! If I hear one more “analyst” taking a 1MBd OPEC production cut seriously I am going to scream.

OPEC supplies the US with 3.5Mbd and 1M barrels represents 3.3% of their global production so the net effect on us is 115Kbd or 800K barrels a week. Since we had a build of 3M barrels last week and since demand tends to drop in the fall, this “cut” amounts to less than nothing.

Would OPEC be calling for emergency production cuts if it wasn’t an emergency? They already shipped 6 weeks worth of oil at the old volume, they’ll be cutting back over the next 2 weeks (if at all) on supplies that can’t possibly reach our shores sooner than December, when we are not likely to be needing it. So of course it’s an Emergency for them – they already shipped us 2-3M barrels a week more than we need for the next 6 weeks!

That will not stop the press and the pump crowd from trying to convince you that an attack on a 50Kbd pipeline facility in Nigeria constitutes a global catastrophe that will disrupt pricing on the 50Mbd that are exported globally.

Let’s keep and eye on GE, AAPL, TXN, SHLD and MOT to guage the real market sentiment, they will…
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Thursday Wrap-Up

Hey my new positive mental attitude paid off!

I don’t know how, I don’t know why but the markets rallied in the afternoon to post another positive day. I was on my way to a meeting but I was positive they were going down as I heard that the National Economic Council said the economy slowed considerably in the third quarter and was likely to remain so.

I thought Fed Gov. Plosser’s inflation warning would bother us, I thought oil back over $60 would give traders pause but nooooo! We have officially entered the Meatball Phase of the market because bad news JUST DOESN”T MATTER!

Although we had a lot of job cutbacks there didn’t seem to be too many people looking for work so either everyone is working or they all got blog sites. So it’s another day of going with the flow and enjoying the ride.

What do you think the odds are of my making a reference to Sergeant Schultz at 1:31 in comments and Cramer making the same reference on his TV show tonight? Hi Jim!

As we mentioned, the Dow made an amazing (cover of Newsweek worthy) recovery at 2pm and finished up for the day. The same was true for the S&P, and the NYSE, which, along with the Nasdaq, had a generally strong day.

The Nasdaq did it without the SOX which were flat all day and will be worse tomorrow after MU missed after hours The transports more than made up for it with a huge day and will face a test of 2,600 if we get some follow through tomorrow.

Oil made it back to $60.05, well below my bounce target of $60.29 and miles below our danger zone of $61.69. Isn’t it funny that we now think of $61.69 as a high number when, just a month ago, T. Boone Pickens was telling us $100 was coming any day? Where is that old pumpaholic?

Gold took a relatively small bounce and finished at $573, not very impressive against a 1% rise in crude.

Just 2 weeks until Google earnings, I guess I’ll try to do an update over the weekend! I was hoping to do better on the puts but Cramer’s been ga-ga for Google all week so I guess we’ll have to reposition on Monday.


I’m going to post an
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Thoughtful Thursday

I’m not going to be down on the economy!

In an attempt to go with the flow, I won’t mention articles like this, which indicates that service sector activity is the weakest since April 2003 and I certainly won’t point out that, aside from saying we are facing an economic crisis of biblical proportions, Bernanke also said A) inflation remains a concern B) Growth is slowing C) rate cuts are unlikely.

Rather we will focus on both Mr. Bernanke and Fed Gov Kohn who both said about housing that there is “little evidence” of a spillover to the rest of the economy. Finally, leading economists embrace the Consolation Prize Theory!

So happy days are here again – let’s party like it’s 1999!

Asia is partying like its 1989 (think we can get them to buy all our real estate again?) with the Nikkei flying up 366 points – now that’s a rally! Nissan rose 3.5% in relief that they will not be used as a life preserver for GM. Remember that Tracinda already owns 56M shares of GM at $31 so talking about buying, or even actually buying 12M shares in order to keep prices above $32 makes a lot of sense for them.

Europe is having a quiet, up another half percent party, the type you would expect in all the finer economic zones. The ECB is expected to raise rates and we will all keep our heads firmly in the sand as that will weaken the dollar, raise 10 year rates and probably boost commodities.

Ryanair violated one of Warren Buffet’s primary rules of investing: “Never Buy an Airline” with an offer to take over Aer Lingus for $1.88Bn – should be good for our CAL shares as we get out on rising oil prices.

The Dow is just 150 points away from 12,000 and we’ll see how the industrials respond to oil poking back above $60 today. The last time oil bounced back over $60 was January, when the Dow dropped from a nice run to 11,000 all the way back to 10,650. Holding 11,800 or even 11,700 will be impressive while anything positive is uber bullish!

Obviously, if the S&P takes out 1,350 it’s going to be party time but let’s realistically keep an eye on 1,340 for a sign we should tighten up our stops on calls.

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Wild Wednesday Wrap-Up

Dow 11,850!!! Wow!

S&P 1,350!!! Wow!

NYSE 8,538!!! Wow!

Nasdaq 2,290!!! OK, we still have some work to do but – Wow!!!

Did I actually attempt to buy puts yesterday? What the heck was I thinking???

Even worse than that, we got stopped out of our SBUX $35 calls at .50 just 2 days ago (still need that jumping out the window sound effect!).

Oh well, it’s not all so terrible. We said a fond farewell to a lot of very profitable plays and our current virtual portfolio is well mixed going into the end of the week.

The markets performed exceptionally well with the Dow gaining 123 points on the day, seemingly picking up steam for a run at 12,000. Hopefully we’ll get some follow through tomorrow – we finally got the transport move we were looking for with that index gaining 3% and running right up to the 2,550 mark we were looking for this morning!

The only blemish on the landscape was the SOX missing the mark by a touch but a 2% gain on the day is nothing to complain about.

In comments today I didn’t like the look of oil at 11:08 and the Valero Rule confirmed an exit at 11:25 so we got out of all our oil puts just in time. In comments, we made some misguided attempts to get back in during the day as we were generally incredulous of the action but, as you can see from the chart, that was never a good idea!

Oil finished the day up .73 to $59.41, far from our danger zone and hardly worthy of the 2% leap the sector took. Still, there was nothing to short today, even Yahoo was up.

Our oil puts of the day were short lived affairs as another huge build in inventory inconceivably led to a rally in the sector. We decided to blame Nigerian Militants today who threatened to attack strategic oil facilities because, logically, it is every militant’s goal to increase the oil revenue of the country they are fighting against. To get the lowdown, the press gets regular Emails from the militants while the Nigerian government has no comment.

Zman had the chart of the day today in oil, which clearly shows how large the surplus is getting.

Gold dropped another $15 for…
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Zero Hedge

Americans' Economic Hope Has Collapsed

Courtesy of ZeroHedge. View original post here.

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 - a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.


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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...

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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?


Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?


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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped


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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>