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Testy Tuesday Morning

Here comes that down market thing!

A little profit taking ahead of the Fed I think, let’s see what else is on the calendar:

Date ET Release For Actual Consensus Prior Revised From
May 07 15:00 Consumer Credit Mar $13.5B $4.0B $4.5B $5.6B $3.0B
May 08 10:00 Wholesale Inventories Mar   0.4% 0.4% 0.5%  
May 09 10:30 Crude Inventories 05/04   NA NA 1169K  
May 09 14:15 FOMC policy statement            
May 10 08:30 Export Prices ex-ag. Apr   NA NA 0.6%  
May 10 08:30 Import Prices ex-oil Apr   NA NA 0.3%  
May 10 08:30 Initial Claims 05/05   325K 315K 305K  
May 10 08:30 Trade Balance Mar   -$59.5B -$60.0B -$58.4B  
May 10 14:00 Treasury Budget Apr   $160.0B $143.0B $118.8B  
May 11 08:30 Retail Sales Apr   0.6% 0.4% 0.7%  
May 11 08:30 Retail Sales ex-auto Apr   0.6% 0.5% 0.8%  
May 11 08:30 PPI Apr   0.7% 0.6% 1.0%  
May 11 08:30 Core PPI Apr   0.2% 0.2% 0.0%  
May 11 10:00 Business Inventories Mar   0.2% 0.2% 0.3%

As I said yesterday, it’s that big, scary FOMC statement on Wednesday that has everyone up in arms along with Trade numbers and a budget statement.  Raise your hand if you think all that’s going to sound good!  What just one?  OK Kudlow, thanks for your vote…

Retail sales is behind curtain number 3 and expectations (judging from the poor retail sector performance this month) are pretty low.  That’s where I think we get an upside surprise (see MA’s 1Q report) but the Friday PPI can put us right back on inflation watch into the weekend so it is indeed a good time to lighten up.  We’ve been trying to lighten up for 2 weeks now with trailing stops on most of our positions but the darn things just won’t trigger.  Today may just be the day and I welcome the opportunity to shift the virtual portfolio to a mainly cash position as it may indeed be time to pick up a few puts.

Still on tap for earnings we’ll be watching are:   

  • Tuesday – AQNT, BIVN, CDE, CVS, DUK, DYN, EXPE, HET, HOC, MMC, MVL, TAP, PLA, WCI, CELL, LNG, CSCO (biggie), ERTS (early retail peek), LEAP (my kids care), PZZA, PCLN, and DIS (biggie – need ‘em). 
  • Wednesday – CACH, XEC, FTO, HLS, LM, TOL (big mover), TXU, EAGL, GMKT, SCI, KNOT (got ‘em) and WFMI. 
  • Thursday – ED, LAMR (is Cramer right?), MEND, PCG, SLE, STN, SUP, TWTR (retail), URBN, VG (should be fun), AIG (got ‘em), CEGE (got ‘em), MED, NFI, NVDA, PGIC (need ’em) and THQI (need ‘em) 
  • Friday – GG (got ‘em) and HELE

So plenty left to do for the week but the Fed overshadows all until it is overshadowed by the retail numbers and the PPI.  There are reports here that may give APPL more fuel but nothing that will really give Google a reason to get going.

Asia had a bit of a pullback today as the dollar dropped to scary levels – finally falling against Asian currencies as well.  Since the dollar index is a basket study, this could trigger a whole new wave of declines and we may test 80 on a soft Fed statement.  Shanghai was the great exception with a 2.8% gain as retailers and property developers in China couldn’t be doing better.  Our MTU led the banks higher with a 2.3% gain but miners pulled back some as merger mania subsided.

Speaking of mergers, our pals at MT put in a $4.5Bn bid for AKS (30% premium) as the EU moves to CUT aluminum tariffs.  Interesting that their economy is going so well that they are cutting tariffs to lower prices while our economy is doing so poorly that Congressmen think tariffs are the answer…  The Queen is over at the White House today and rumor has it they’re going to make a bid to buy back the colonies while the exchange rate is so good.

The EU also raised their economic outlook for the year to 2.9%, up .2% from the February estimate.  "The EU and the euro area remain on a brisk growth path," said Joaquin Almunia, the EU’s commissioner for economic and monetary affairs.  The commission said strong domestic consumption and rising employment will help sustain economic growth this year. However, it added that the slowdown in the U.S. housing market and higher-than-expected oil prices pose risks to the EU’s growth.  This is causing Europe to trade down this morning and is damaging our pre-market trading as well.

Let’s keep it in perspective today as a mild pullback would be fine but hopefully we can hold 13,250.  The S&P 1,500 is the one to watch but we really don’t want to lose 500 on the SOX!

US Markets

As you can see we’re a long way from testing our moving averages but note the little downspikes we had last Monday as we try to keep some perspective.  Still we want to stop out of our weaker positions and add to some that we still have faith in (TM, for example) and I’ll be solving my stress problem by showing up in the afternoon and just seeing what positions are left as I have a morning meeting.

Happy Trading was already concerned about the S&P last night so let’s focus on this chart today:


This would be a real bad day for oil prices to try to assert themselves but we are pre-inventory so we can expect an afternoon pump.  ZMan has evidence of OPEC cheating and feels $60 is going to be tested again and we both wonder what will happen to natural gas when all the shorts have covered.  Let’s watch out for Brent getting back over $65 and our $62.50 mark on WTIC.  I’ll be surprised if gold can’t crack $690 at this point.

Oil and Dollar

MOT is another stock on my accumulate list (’09 leaps) as Icahn got thrown out at yesterday’s meeting and, while it may hit the stock short-term, the lasting effect will be to spur management to make some prettier numbers.

Be careful out there today!

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  1. I expect to be back around 1pm – make sure Google doesn’t go down any further!

  2. Scary friggen pictures of as of yet unnamed but strengthening storm off the Carolinas and tracking for the Gulf.

  3. State of Florida could use the rain to put out all our wild fires though……the Atlantic can keep the wind however.

  4. Meteorologists say it is strange for the storm to spin back toward land at this time of year. I am sure global warming will be the conclusion for this phenomenon soon.

  5. NILE and WYNN. Another set of hugely shorted stocks that have decent numbers. These will hurt the shorts.

  6. ZMAN, you see Norway was down 2.7% at one stage today

  7. Here in “Gods Country”, we have been getting boatloads of rain. It is storming again today. Making up for a 5 year drought in one month!

    Karm, I am heading to Florida today – Orlando. Plane leaves in a few hours.

  8. New Orleans is the place to be today. That weather pattern is bringing in a “back-door cool front.” It’s awesome today. All I need is an awesome day in the market.

  9. Give Minnie a pinch for me :wink: I thought you lived outside of Orlando at one time?

  10. Here too Blleau, West coast of Florida just south of TPA (Sarasota)

  11. I live in Oklahoma. Work took me to Florida since last July. I have been going 10 to 20 days per month. Slowed down lately. Havent been since March.

    No Minnie for me. But there is a Catherine!

    Actually, I will be in Winter Park, which is kind of a cool little town.

    Wang’s World article on SeekingAlpha:

    Now, you can also see what I look like! =)

  13. Supposedly you can smell the fires on upper east coast….we have almost 100 acres burning in South Sarasota County….hazy but no smell…nice cool northerly breeze

  14. HT, is that the Goddess’es pic again?

  15. Interesting note out from UBS analyst re DNDN: UBS raises their tgt on DNDN to $9 from $3. Firm continues to find Provenge BLA risky, with full approval on May 15 unlikely.

  16. Happy

    Cool. You’re famous!


  17. You mean 19 from 13 correct

  18. karmcon,
    yeah, just don’t tell her! =)

  19. AAPL moving nicely again today….market as a whole getting hit by profit takers?

  20. My portfolio beginning to look like the color of Steve Nash’s nose!!

  21. What is the plan with TASR? Sell into the inital unexcitement?

  22. Nike up on Adidas news yesterday

  23. :mrgreen: daveo

  24. TASR headed down – guess not enough pumping by Cramer/CNBC?

    The Jan $10 calls (bought by Phil for $1.35 yesterday) get sold $1.05 (20% rule)?

  25. Bought back the HLYS May 40. Still holding the Aug 45

  26. TSO breaking down at $115. lol. How many times have I thought that before. Happy take a look at the daily if you please.

  27. daveo,
    in the same boat with you, but I will wait out the may 40s as I don’t think the stock will reach this level by expiration.

    I am one of your fans, appreciate your thoughts as always! Going to read that GOOD article now.

  28. GDX – I’m thinking of selling the May 41s or even the 40s. Any ideas? It has slowing been dropping since I bought the Jan 43s.

  29. Jordan – Of course they won’t make 40 but is it worth it for another 0.05 to 0.10? I mean they did have great earnings. I guess the diluting of the stock with 8 million more shares has people scared. While I don’t think they’ll make it to 40 I’m pretty sure they’ll go up from here.

  30. Jordan,

    HLYS – why wait on the May40s? Assuming you sold somewhere near $2, you can pocket at least $1.8 profit now vs waiting for it to expire and try to gain another $0.15. I think people are overreacting (yeah, 8M shares being dumped doesn’t help), but it might turn back up. For that reason, I’m holding onto the Aug45s. My 2 cents.

  31. TSO is getting a boost from VLO. It is much easier for TSO to go down if VLO is down also. And as I type VLO dropping and TSO dropping to, lets see that 110 soon :-)

  32. RIMM – moving again. added MAY 140 calls for a scalp

  33. TSO
    Zman, it’s right on the 20-day MA, but, this time RSI is below 60.

    something big is coming. I can’t find any news, yet!

  34. Happy, There was a RIMM analyst day … more here …

  35. RIMM news
    MJ, thanks!

  36. KC, yes you are correct, it’s a risk, but I have only 2 contracts riding on this one so not worried too much. I will place a sell at 0.05 see if anyone picks up the phone.

  37. MJ – given valuation and the move in margins, it’s very possible for VLO and TSO to move in opposite directions during a correction in gasoline prices.

  38. VLO – out of covered calls. TSO closed naked short position. First time I made money in energy in months

  39. HLYS – I took out my caller at a dime. I’m sitting naked on the Aug 45′s now and will just sit tight as I don’t believe it can stay down for long and I wasn’t excited about the margin requirement that comes with selling the May 30′s or 35′s. The short float is around 50% and that should provide quite a bit of support.

    TASR – I sold those down about 12%. I wasn’t willing to wait for the 20% rule and taking commissions into consideration, I can’t sell at 30 cents and make money very easily. So I just got out. My reason for getting into the trade (the Cramer/CNBC pump) didn’t pan out.

  40. HLYS – Correction, I took out my caller at a nickle! Better than I remember ;)

  41. RIMM – gettin’ the mo. going to try for the 5th time to take out 145 for keeps

  42. zman,
    SU: it’s a down day, and I know you argue for getting outs on SU, but is today, a down day, the day to go ahead with this? Do you wait for an “up” day?

  43. ZZZZZ, yes if people do use their brains then what you say makes sense, but these oil bastards do not have so much sense to compare margins or P/E ratios.

    I am eagerly waiting for TSO to drop below the low of 113.85 from 5/03 drop.

  44. KC the play on HLYS was to buy the Aug 40s at $2.0 and sell the may $40s at $2.05 – now the aug $40s are at .40 the spread is only .35 if you buy back the caller and sell the Augs back – you pay comish on both buy and sell – i think let the mays expire and save the comish on the sell side and the 5cents you pay your caller, i think but i could be off base.

  45. Jordon – I took my first shot at the 80 June puts yesterday. I’m not doing anything today with it, maybe tomorrow. It’s a mostly down day. TSO crakcing $114 while VLO is flat to up. :-)

  46. POT – I know BillBigD isn’t here. Is there anyone else following POT? It’s been consolidating and may breakout again at $194 (though it is down a little today) .

  47. The CRK quarter was fantastic.

    Stock flat b/c it’s a “down day for the group”.

    Production growth excellent, costs well contained and the only one of I’ve seen to outpace their operating costs to such a degree that lease operating expenses on a unit basis (LOE/Mcfe) fell significantly. Everyone else is registering 10%+ per unit gains in op costs (and the analysts have liked that!). I’ll listen to the cc before the end of the day and get back here with anything interesting but if the we have an avg to up day tomorrow for energy this thing could jump a $1+ on an analyst love in.

  48. KC, Eric Bolling on Fast Money on CNBC at 2000 on weeknights loves POT.

  49. DNDN

    It would be great if someone could double-check this trade with me. It is a Stangle/stradlle swap. From my calcualtions, you make max profit at $25 ($9,000) for max loss of $900 if stock goes below $12. You make money between $12 and $65.

    You do it like this:
    - Sell 10 May 25 puts
    - Sell 10 May 25 calls
    - Buy 10 Jun 30 calls
    - Buy 10 Jun 20 puts

    What do you guys think?

  50. Z – I am in the SU and BTU puts – how are they looking to you?

  51. CHAP – I don’t know how reliable this is, but I read they are looking to be bought, though they haven’t been publicly traded for that long. Otherwise, they look overbought and toppy.
    BHP – these guys rumored to be potential buyer of RIO and maybe even put in a bid for AL.

    With all this M&A activity, what’s your view of GS as a buy? Thanks.

  52. Wow, just took garbage out and smoke is thick…..still about 25 miles away so I cant imagine how people close can stand it. Visibility extremely limited.

  53. HLYS – If stock stays down and May40s expire, there’s no question that waiting and doing nothing results in max profits on that leg. But, if the stock moves back up, you would have a smaller profit.

    For me, I chose to take the sure thing by selling the May40s, while keeping the Aug45s (which I think everyone is doing), expecting stock’ll go back up as people digest the good earnings HLYS had, and a little time to get past the 8M share that is to be sold.

    By the way, did anyone manage to do the trade for a nickel credit? I tried for a while and finally had to settle for an even trade (I don’t think the market makers wanted to give in on that nickel credit ).

  54. jazzkool,

    Thanks on CNBC. I don’t watch much live media, but I’ll sure be keeping an eye on POT for a play.

  55. Anybody know why WFR is so strong today?

  56. GS
    KC, I’d give it a couple of days. GS basically hit 130 and needs to vent. I actually bought puts this morning and just cashed out for a quick profit. Wait ’til after the Feds. If the reaction is to continue this bull run, then, GS has plenty of room to go up.

  57. optrader at 12 you’d lose 2k need pps of 30 to make 9k breakevens way off as well, please check math again

  58. max loss about 4500

  59. sorry optrader that is wrong forgot to hide current postitions on graph will rechek

  60. looks like a good trade optrader still checking

  61. GS – thanks happy

  62. WFR – took opportunity to sell May60s for $1.55, more as a hedge against downturn vs. selling premium.

  63. OpTrader,

    Have been studying your straddle/strangle because I need the practice. Without looking at the prices of each position it would seem to me that if the stock was 25 at Jun expiration you would lose on both the Jun 20 puts and Jun 30 calls you bought?

  64. optrader check with vol drop though hurts trade quite a bit but still looks okay to me

  65. Just got a seeking alpha email from some guy who shorted WFR at $57.09 and provided a pretty decent rationale for his short, but WFR is selling now for $59. Wonder how he feels about his short now. It really takes a lot of guts to short a momentum stock like WFR. Cramer was bemoaning his hawking WFR in advance of earnings, saying he really did not realize how many momentum players had gotten into trading the stock.



  66. RIMM – may be stalling so out of MAY 140s for a decent scalp. Also closed PKD short

  67. Karmcon, I am not planning on holding until June Expiration.

  68. Opus,

    You are right about IV, but my calculations assumed a 70% IV drop.

  69. Optrader


    Did a similar trade yesterday:

    Sell May 12.50 puts and calls

    Buy Nov 10p Nov 15c

    Liked the breakevens a lot. (about $4 and $58, if I recall) Debit was $35 per spread (1 contract of each), so would be $350 for 10 contracts, margin was $500 per, so $5000 for 10 contracts.


  70. For the DNDN swap, and this is very important, please look at values at May expiration (May 19th). The numbers I gave at for that date, as I am not planning on holding in June. This is a play on FDA approval.

    Thank you.

  71. optrader question is how much vol drop if at 260 now if drops to 60 kills trade but still looks like a good trade
    how much vol drop are you figuring no way you make 9k maybe half that at 25pps vol drop will be huge also check negative vega on trade also are you checking all this stuff?

  72. WFR

    Wacker Chenie AG had good earnings and statements about polysilicon demand exceeding supply was inferred – all I’m familiar with

  73. Nltd,

    With Thinkorswim, I have a “buying power effect” of only $1,100. $10,000 seems like a lot of margin for this spread, which has a very limited risk. If my calculations are right, even if stock goes to $100, loss would be $1,000 or so. So why would they take $10,000 in margin? What broker do you use?
    I am going to look at your trade too. Very similar, but why do you buy the Nov’s and pay extra premium?

  74. yes op looking at may epiration but vol is at 260 now were do you think it goes after FDA surely not from 260 to 190 more like 260 to 40 or so don’t you think!

  75. Darn missed out on the RIMM train somehow and didn’t want to chase. Waiting for a a good pullback
    LCAV tomorrow morning expecting a fireworks show.

  76. OpusX,

    Yes, I checked all greeks. I think you are looking at wrong date. Please look at May 19th. Like I said also, I figured a 70% drop in IV.

  77. GL all gotta go see my lovely :roll: D-attorney (have only been putting her off for a month, but she is gettin p.o.’d (which means either higher billing or higher billings)). Stops in place and rabbit foot hung on a monitor so I should be good to go. Think green

  78. optdragon,
    Do you like phil’s June 45/June 40 put play on LCAV?

  79. DNDN – while I don’t grasp all the fine details of this trade (like how volume comes into play), I show breakevens of ~$11 and ~$53 with max profit closer to $12k at $25. It’s really the selling of the May straddle that generates the profit (esp. the May25 put). This trade, requires some serious margin to be put up.

  80. BTU – I’m losing faith it will fall. Need a pull back in ng. I don’t think below $7 is likely which would only take a buck or two of the stock. I’ve got pretty worthless $45s so I’ll take anything at this point.

    SU – it’s been a beast despite down oil. If they don’t get taken out soon I think they fall. However, I’m really suprised the pipe blasts in Nigeria aren’t driving oil steadily higher today. They’ve had some effect but after the drop of the last week I’d think the bounce would be stronger.

    Die, TSO, die.

  81. oh, there goes oil. SU probably goes positive now.

  82. OpusX,

    I don’t understand your calculations. Do you agree that on May 19th, if stock is at $25, even if IV is zero, May $25′s all expire worthless, and you sold them for more than $15 each. So even if June’s are worth nothing, you still make $15. Am I missing something here?

  83. KC,

    Thank you for checking the trade. I have the same numbers as you do if I am leaving IV at the current levels. Volume does not come into play, it is “Implied volatility”. What do you mean by “this trade requires serious margin”? What are you showing?

  84. taking June 90 calls on NE.

  85. I like Phil’s strangle. I’m doing a $3 to 1 strangle with the May45calls and May 40puts, overweight long.
    I have a strong feeling about it. I like the technicals and the historic technicals with earnings. I like the company fundamentally and love the short ratio and short percentage with small float.

    Nice quote

    Good morning. He who risks nothing, does nothing, has nothing, is
    nothing, becomes nothing. True wealth is the ability to fully experience life!
    Take a risk! Enjoy life! :)
    God is Love
    Rev Run

  86. OPTrader,

    DNDN – I think you’ll need $10k margin ($5 per contract on the puts and $5 per contract on the calls since the puts/calls sold would both be ITM before your longs).

  87. KC,

    Well, it is not the way it works, at least with my broker. They look at the spread, and not at each separate leg. Looks like the margin is only $1,100 with Thinkorswim.

  88. optrader do you know that on vol adjustment that is an absolute number when you adjust it down so if you put -70% in calculation that is now down 70% that is down an absolute number so if you put down 70% that changes absolute vol number from whatever it is now down 70 points 9for lack of a better word) so iv vol is currently 260 and you put down 70% that would still equal a vol of 190% no way vol stays at 190 after FDA I’d say goes to 20 to 40 range so must put down 220% to get that p&l graph

  89. OptionDragon – What stock are you talking about ?

  90. OPTrader,

    Wow, maybe I need to look into Thinkorswim. OXPS would require $10k margin.

    I haven’t had a chance to look at nltd’s trade yet, but for small # contracts, like 1 or 2, yours or his might be doable for me. Thanks for the play suggestion.

  91. KC, don’t watch “FAST MONEY” for stock picks. The four panelists, who are stock savvy, are hilarious in their biting commentary on their colleague’s picks. It’s entertainment for me. Actually called in to the show on the webcam they have set up for calls asking for stock advice, but only because they sent me a free Logitech webcam to make the call and then emailed me and asked me to call using the webcam.


  92. Opt

    Using opXpress. They want ($5 per contract on the puts and $5 per contract on the calls since the puts/calls sold would both be ITM before your longs) as KC says above.

    I used strikes 2.50 apart to cut margin in half…

    Went to November to use all the IV skew available (without still having to put a lot into the trade). Don’t know how calculator does its thing for sure, but appears to me it just uses average IV, doesn’t take into account the skew. Certainly a drop in IV affects the trade, but if the Nov drop IV, the Mays should drop a lot more…that’s my premise, for what its worth. Keep in mind, this is gonna be one volatile “happening” and I’m not at all sure if my opinion or the calculators can predict it.


  93. I think too risky optrader you start losing money again on 5/19 around 29pps max around 1400 but would be in a lot of pain before expiration call TOS about margin must be at least 6 to 10 K

  94. Jack- LCAV

  95. OpusX,

    I agree with you. Except that I think we will have a lot of IV still, because of the possibility of ROW deal and major “noise” around the stock if it gets approved. Anyway, like I said in previous post, even if IV drops to zero and June’s are worthless, the trade still makes $4 (the credit from the trade) at $25 on May 19th, right? And you own the June straddle for free.

  96. NTLD, nov vega is 5x the may vega you better figure out what that means before you trade these biotech binary events it’s whats called a sucker’s play (no offense intended)

  97. optrader I agree with your assessment might be worth a shot could make big money on june epiration if pps moves up in to the 30′s

  98. OpusX,

    Unless I’m mistaken, OPTrader is planning on getting out of the entire trade on May16th (day after FDA announcement), and not waiting until even May expiration. Does that change your view of the trade? By the way, it would be great if you could explain what pps is as I’m not familiar with it and I’m trying to learn. Thanks.

  99. OpusX,

    Do you use TOS as well? If so, please try to enter the trade, and you can check margin. To do so, don’t enter leg by leg, but do a BUY-DOUBLE DIAGONAL-STRADDLE/STRANGLE SWAP. You can then hit “confirm and send” to check the buying power. And then you can cancel. I am showing only $1,100 in margin requirement.
    Thank you to everyone looking at this trade. It’s great to have someone else’s opinions, especially on the complex spreads.

  100. KC,
    Yes the trade is for FDA’s decision. But of course, if IV drops dramatically and stock is at $25 at expiration, I get a free play on the June’s.

  101. Look at SWN fly.

  102. Any thoughts on where GOOG goes from here?

  103. KC, i got HLYS trade for a nickel but could only execute 2 contracts yesterday. Out of the may 40s at 5cents. Stitting tight on the Aug 45s.

    zman, I’m trying to pick up some NE June 90s at 1.90. Price reasonable?

  104. KC pps = price per share

  105. Im in 2:1 call/put on LCAV, should be interesting!

  106. optrader,

    I did calculation on your DNDN ideas and couldn’t figure out how t omake money. Assuming with with FDA’s decision, the DNDN is either going to be around $5(reject) or $30 (approval), either one side of the options, either put or call’s value will go to zero, no matter it’s may/june options. I don’t think you can assume June’s options still hold the time value. so in my calculation. you always lose money with big price swing that will come with FDA’s decision on DNDN. I might miss something. Please let me know if I’m wrong.

  107. Jordan,

    HLYS – Great, you’re ahead of me then with the nickel credit on the spread. Now we just need HLYS to rebound…

  108. Dragon,

    Your thoughts on June75/May70 call spread on FWLT?


  109. Hello All!

    What a messy market. Holding levels nicely though for the most part.

  110. optrader when I set up order as you said TOS doesn’t list margin but the trade would cost 11680 or so maybe call TOS they are always helpful IMHO

  111. Yiwu,

    We are selling the May $25′s. So it’s good for us if they go to zero.

  112. zman, CRK wow, good call!

    KC yep. I am sure people are exaggerating the effect of the 8 mil shares. EPS results were amazing. How come people didn’t focus on that?

    Grant: GOOG up long term, but short-term, who knows. could even touch 450 IMO, especially if there is a may/june selloff.

  113. Anyone ever use optionshouse as trading platform? I hear they charge flat $9.99 per trade without any per contract fee.

  114. OpusX, my understanding is that “buying power effect” is same as margin. Am I wrong here? In any case, this is what matters to me.

  115. Phil, please take a look at optraders idea when you get a chance (it’s on DNDN buying a double diagonal straddle strangle swap)


  116. optrader that is my understanging also

  117. OPTrader & nltd

    After checking out both plays I also agree the trades will lose money. I assumed the IV after the FDA decision would wind up about 40. OTM Junes will wind up with no value. Too risky for me.

    Thanks though – keep the trades coming. There must be some way to play the IV crush.


  118. Phil – I have done well with JWN by reducing the basis with selling calls against it – at some point is it a DD at these prices for the calls – or roll to a different strike price? Also, got out of the SU puts with a profit, it looks like a call? Your thoughts on oil direction.

  119. FWLT is expected to beat and MDR is an indication of the sector. WOW look at the volume bars for today now that is affirmation. Premiums are high. Day volume has been bullish on the option chain.
    FWLT is technically overbought so it says priced for perfection, they gotta beat and raise for further gains.
    I like the company I like that spread.

  120. Opus

    Thanks for input. No offense taken. I’m sure you’re right. I’ve not been playing stuff with such big moves as are expected with biotechs, and haven’t paid much attention to the vega. I’ll learn…thanks again.


  121. Anyway, OpusX, how could the trade cost you 11680? You should have a credit of almost $4k. Are we looking at the same thing? May $25′s Swap?

  122. Edro,

    DNDN- What do you mean by “the trade will lose money”? At what price? If you assume that the June options will be OTM

  123. optiondragon,

    what is the spread on fwlt??


  124. you are right I had an extra order in there 4k credit and 1100 margin

  125. Edro,

    DNDN- What do you mean by “the trade will lose money”? At what price? If you assume that the June options will be OTM then the trade can’t lose money, as you make it up with the May $25′s and the spread has a credit of $4.

    Opusx, if you agree with me that “buying power effect” is the same as margin, then you should have $1,100, requirement, like I do, when you enter the same trade.
    Maybe I am totally missing something here…

  126. STLD-anyone got any news on this guy?

  127. Storms already? Man did we screw up this planet!

    WYNN – buying Jun $105s for $2.68, selling May $100s for $2.72 (stop at $3.25) XXX

    TASR – that turned ugly, June $10s down to .45 already. Not adding more as it may be flatlined to expiration but not stopping out on these or Jans yet.

    Just a massive sell-off. Nothing is spared. Things that are up now are pretty darn strong but there’s some underlying buying coming in.

    HLYS – massive insider selling causing drop, nothing to do with long-term prospects. Happy holding Aug calls. Also waiting on May $40s – it’s a long way to go in 8 days and I have nothing I want to roll to just yet so no sense in paying a dime for the hell of it.

  128. OpusX – Thanks on pps. Now it’s obvious!

  129. OPTrader

    Here is a table of the trade. I assumed the IV = 40.
    The IV crush kills the trade.

    Hope the formatting works….

    May25C May25P Jun30C Jun20P Credit On 5/18 M25C M25P Jun30C Jun20P Debit
    3.4 11.8 2.8 8.9 3.5 Stock = 5 0 20 0 15 5
    Stock = 10 0 15 0 10 5
    Stock = 15 0 10 0 5 5
    Stock = 35 10 0 5.23 0 4.77

  130. DNDN

    What is wrong with a Buy-Write with Aug $20 Call?

    Need to keep it simple and I currently do not have any positions…

    Want a relatively low-risk (for DNDN) play for IRA a/c, so must be Buy-write or similar.

  131. The FWLT Aug 75/May 70 spread doesnt look bad either.

  132. OPTrader

    Formatting failed.

    Using Bid/Ask you get a credit of 3.5.

    Current IVs on the Junes are >250 when the IV drops the OTM Junes are worth 0.


  133. LCAV – I have the May 45 calls – what does anyone like to hedge this puppy? Someone said the june puts what strike price? Thanx

  134. Ok, I am glad we agree on margin LOL. $1,100 does not seem too much for me. It’s the great advantage to deal with brokers who look at the whole spread instead of each leg. Now about the risk/reward, and after reading all comments, let’s consider the worst case scenario, which would be IV at zero for the June’s on May 19th.

    - Trade makes money between $21 and $29.
    - Max profit is $4k at $25
    - Max loss is $1k: below $20 and above $30.

    But this is the worst worst case scenario. And you still have the free June straddle. The spread widens a lot if the Junes keep some IV. Very difficult of course to predict IV.
    Maybe this would be a good trade coupled with a trade that makes money from IV crush…

  135. OPTrader

    Let me try this again.

    Using Bid/Ask you get a credit of 3.5 for your May 25s.

    After FDA
    Stock = 15 May25C=0 May25P=10 Jun30C=0 Jun30P=5 Net Debit=5
    Stock = 35 May25C=10 May25P=0 Jun30C=5.23 Jun30P=0 Net Debit=4.77

    Credit is less than debit – trade loses.


  136. VLO up I don’t get… Oil is up (their cost) gas is down (their revenues).

    EIA revised demand up by 20,000 bpd US and 100Kbd Global. This is a BS thing to react to as it’s just 7% of OPEC’s cut.

    HLYS – now that I’m looking at it, it’s worth .45 to move to the Aug $40s but not really in the $10KP as it’s too speculative. As to discussions re. waiting for .10 at expiration. I have no capital at risk and I am ahead .37 so yes, another dime makes a huge difference if I can get it (assuming I don’t need the margin freed up).

    Corey – right play on TASR – when your premise dies kill the trade! For the short play especially. On the long play, I still like the fact of the French order.

    Oil plays – not going to get a good drop unless we have across the board builds tomorrow.

    POT – a little high for me here.

    CRK – great call Z – that dip was a gift this morning!

  137. optionTrader,

    the june options will also go to zero, either call or put. you do have “sell” in your tradings, but also “buy”. It’s going to lose money. please be very careful. I could be wrong, just double check.

  138. Has anyone thought of plays on French companies now that Sarkozy is elected, he may have different (pro-business) policies that will benefit French companies? I have been thinking about this, and seems some of the large employers in France may benefit by more flexible laws? Any thoughts? Maybe a weekend project ?

  139. Edro,

    We agree on the outcome, see my post above. My feeling is that the stock will be between $20 and $30. I am extremely confident that the drug will be approved. now, how will the market react? I think there will be a big short squeeze because of the huge short interest but I will be surprised if they let it go above $30.
    - Everyone who believes in the drug is already in, so who is there left to buy? Is that enough to compensate for profit-taking?
    - Sell the news. Revenues will not be instantaneous. Only short-term catalyst will be ROW deal.
    - Too many contracts in May. Too much money on the line to let it run.


  140. STLD
    that’s a lot of volume. It’s strange that it didn’t do anything yesterday, but, jumped today.

  141. “fans”
    Jordan, thanks! Nice to know that I have “fans”!! =)

  142. WYNN- Joined Phil on the june 105′s

  143. Kingchih Fan:

    Re: Optionshouse. I don’t use them (yet), but their head of sales is a friend and Optionshouse was started up by the folks that own PEAK6, the Chicago based options powerhouse team. PEAK6 provides some of the protrader bells and whistles that mey not be available anywhere else. Sounds very interesting to me. My friend is very excited about this company, but he may be biased since he works for them and his sister owns PEAK6.


  144. DNDN catching a bid now

  145. DNDN play: Are you sure about those numbers? I prefer to keep it simple. This time I like buying the stock for $17.20 and selling the $12.50s for $8.10 for a basis of $9.10 collecting, hopefully, $3.40 in profit in 10 days. XXX I wish I could balance this with shorts as the $30 puts have a $3 premium at $15.60 but there are no puts to be had.

    Another DNDN play is to buy the $2.50 calls for $14.65, sell the $12.50 calls for $8.10 (net $6.55) and buy the $7.50 puts for $1.02 (net $7.57). It’s not perfect but you can’t lose more than .07 and you can make $4.93 (up to when you get called away at $12.50s less the $7.57 invested). XXX I’m going to try to get 20 of these for the $10KP as there’s no margin issue here but it will be our third DNDN play and it will be awful if they go to $5 so be careful. There’s a little mo right now so treat it as such and wait to sell the higher calls~

  146. Phil likes the June 40 puts for LCAv though i don’t think he got filled his full strangle.

  147. Sold Goog May 470′s @ $2.20 against my Goog Jun $480′s reducing my basis on the June position to below market

  148. Oops thats $6.55 net on the first and $7.55 on the second but you can get up to $12.50 as your caller doesn’t come in until then… That’s why I hate those plays!

  149. WYNN – May100s tanking, at $2.15. Still seems a good trade if one pockets the entire/most of the premium. Phil?

  150. I don’t want to pollute the board here, but looking at the DNDN spread, a better way to do this might be to replace the Junes with some long stock, and sell more May $25 calls. For example something like this:

    - Sell 20 May $25 calls
    - Sell 10 May $25 puts
    - Buy 500 shares.

    Breakevens are $10 and $40. That’s a $30 spread! Loss is $4,000 at $7.50, and $43. Have not looked at margin yet.

  151. DNDN- Rumor: Novartis bought worldwide rights.

  152. Hi Phil, on the day of DNDN announcement do you think there could be any loss mitigation plays in case the stock tanks big time? Approvable seems to mean that no results until 2010…

    Let’s assume for a second that DNDN is at $17 right before the announcement. Do you think we would be able to unwind the stock at, say, $15 or $12 as it may be on the way down to $4? Would you sell “market” in the first second of it going down?

    I am just trying to fight off the ulcer inducing uncertainty with information…

  153. nice rumour optrader, where did you get that nothing on yet (if u don’t mind my asking)

  154. OpusX,

    A friend sent me an email. He is the guy who got me in DNDN last year. A serious follower :)

  155. STLD
    BillBigD, I think the news is that AKS might get bought by MT.

  156. Phil,
    What is your sell price on your TASR June $10s?

  157. NILE – Phil, you talked about HLYS after earnings, wouldn’t mind hearing your views on the Nov45/Jun50 put spread. Thanks.

  158. DNDN

    phil: so the potential maximum loss is $2.55, right?

  159. what was the ratio for lcav? How many calls vs how many puts? Thanx

  160. DVN
    Zman, what do you think about DVN?

  161. JPL,

    Here you go:

    Posted May 7, 2007 at 12:37 pm | Permalink
    LCAV – If I read right that they are not spending much on expanding these things are a gold mine as they entrench in the market as they get positive word of mouth and the procedure gains accepance. Threat of lawsuits is much less than it was and the analysts seem to have no clue as to earnings capabilities as they have underestimated by an average of 20% for the past 4 Qs. I like the June $45s for $1.85 and 2/3 Jun $40 puts at $1.18 buying the puts first and hoping for a drop to buy some calls but certainly in before $2. XXX

  162. DNDN,

    Phil: i got the max loss is $2.55, the max gain is $2.45 on your play. am I wrong?

  163. Yahoo leaps sell the mays against ???

  164. WYNN – I take back what I said earlier. Got filled on May100s @ $2.65 (Jun105s @ $2.60)

  165. Phil, any opinion on GME (June 35 / 40 bear call spread for 80c credit)?

  166. Starting a WFMI straddle for earnings tomorrow after the bell. The 45 puts are undervalued with low IV in my estimation. Buying WFMI May45 calls for $2.41 and the May 45puts for $1.60. I would say after the Wild Oats acquisition that costs could be a concern short term but the acquistion would be accretive to future earnings. A very big plus for growth forward!
    My bet is a 2 to 1(dollar weighted) overweight long or even 3 to 1 overweight long bcuz of the technicals.

  167. LCAV – I got none – gave up.

    Good point on GS KC but others not seeing it that way for some reason.

    HLYS – got $1.90 for the augs and $2 for the mays. Never buy a spread as a spread if you can afford not to, they rip you off on both ends. I usually play them as two mo plays with very tight stops (ie. as soon as I trigger one leg I buy the other on a nickel or dime turn).

    WFR – cool! Nice strong underlying buys at this price. $60 may be a good top into next week for selling though…

    Margins – the old rules (still in use) charge you for max possible loss on both sides. New rules take the other side of the trade into account. With DNDN, if the play doesn’t work at $5 and $35, be very worried. There’s also a strong chance of a flatline if they delay.

    GL Karmicon!

    TSO – new plan is to buy at lunch every Tuesday and sell after next day inventory – I think that’s been a winner pretty much every week this year.

    NE – be careful, not cracking back over $62.50 despite Nigerian shenanigans is awful sign for oil. Europe is way fuller than we are and spillover gas and oil is heading here. I bet even Chavez is sending us gas this week since we pretend we need it (but we don’t, we just need refiners to do something radical, like refining!).

    KC/DNDN – no, the May 15 announcement is the ENTIRE reason for these prices. Expect to lose 85% of the premiums within minutes of the announcement.

    JWN – I don’t even remember selling mine but they’re gone. I like them again down here but I’ll wait for retail numbers as I’ll buy the leaps on a run-up and sell calls on momentum or, if they dive, I’ll just wait and buy cheap leaps. When you are entering leap spreads, you really have almost nothing to lose by waiting if you are unsure of an outcome.

    SU -my premise is that Z’s record put ratio on nat gas is working it’s way off and supporting gas above $7 but it’s unnatural support and once you run out of shorts who are covering you will find you have no buyers at all (unless there’s an early hurricane).

    Optrader – you can see why I almost never talk about those plays! ;-)

  168. Phil-
    have 1000 DNDN @15.40=sold 17.50s @6.20
    what do you think of buying back @6.20 and
    moving up to 20s? Is that the greed monster in me?

  169. Should you sell the may 45 calls going into earnings tomorrow morning – I am up 50% on them. Of course, I am down in the puts. Some thoughts please?

  170. Phil:

    Any play that you can think of to take advantage of CFC’s sudden jump in stock price and IV?

    Thx, Edgar

  171. P – Thanks for the CRK props, up 24% on the bid so far.

    VLO vs TSO vs crude vs oil. I think the refiners are just equWall Street is pretty down on TSO now and that money is flowing to VLO. As such, my long VLO / short TSO play is still working. Unfortunately, I’m out of the VLO calls.

  172. HLYS spread – I do leg into spreads. With this one, I tried to do it as a spread and specified a nickel credit with no luck after a long wait. Finally, I had to leg in but still was only able to get an even trade (most likely due to timing).

  173. LCAV

    since this an earning play for tomrrow, how about buy the may options 40p/45c? the primium is smaller compare with june options.

  174. P – on the n gas short. I couldn’t agree more. Second half fundamentals point to little more supply than a year ago unless Canadian imports really fall that 10% or the LNG doesn’t show up on our coast (fat chance it doesn’t at these prices!). You’ve got a little mbump in chem sector demand and the fear of hurricanes and a hot summer holding it up after those shorts bail. I’ll bet this Friday’s CFTC read is a little less short. The number only runs through Tuesday close so that means last week’s number didn’t include the run over $8 which was a squeeze if I ever saw one. Still, given the size of the short position and weird weather, you could see gas prices holding up $7 for several more weeks when, of course the longs will be praying for hurricanes.

  175. Happy,

    FFIV to 85 if CSCO has good earnings

  176. That being said, the forward 12 and 24 month nat gas strips are very high which is what the E&Ps hedge against and budget with. The coming winter is trading between $9 and $10 and next Spring is already $8.30 to $9.00.

    Over $7, let alone over $8 is like Christmas to the gassy E&P’s everyday and they’re definitely locking in these prices. CHK already knows it will be the largest gas producer in the U.S. in 2008, they’re not going to risk the cash flow by remaining unhedged – they’re adding costless collars so they lock in the downside $8 ish while leaving the upside to about $10 or $12/mcf.

  177. VLO- What is driving the price up?

  178. WYNN $100s? The reson that trade works is because some numbskull is willing to pay me 2% for 2 weeks (50% premium). Never panic sell. The May $100s are still coming in over $2.50 if you are patient, $2.15 is for people who put in market orders. June $105s have been coming in at $2.50 too so the trade is going better than I had hoped.

    DNDN – the $7.50 puts are just a buck to avoid the “worst” those could be a nice sell into the excitement buffer if the announcement is bad but not too bad but there’s no way to predict how severe the move will be. If you have the play and you have a plan for any outcome, you will probably beat 75% of the traders to the trigger and that is key with these. I don’t know if it’s a mid-day announcement or not.

    I do think the stock will hold $4, even on a rejection – for whatever that’s worth…

  179. out of CROX MAY 75 short and DJ JUN 60 for a scalp. Ever notice how fun this stuff is when you win?

  180. LCAV May $45s cannot be hedged without too much risk but the way it’s running you could just cash half out before earnings for a cheap ride on the rest! Nice call on that one yesterday…

    France is a very long-term play and you may get riots in the streets while your waiting for the workers of the world to put in an extra 7 hours a week and give up some bennies…

    Optionhouse – Greg – tell your friend to get in touch with me as we are considering working with a platform with virtual portfolios, trade alerts, automatic trading etc and frankly, they were not one on our radar but we’d be happy to take a look. Could be a lot of referrals if we find someone we really like – I can’t imagine how many people we sent to OpExpress

  181. Off to Spain next week, so I am limiting my option activity; but I like COH August 55 calls, stock has corrected off highs. Optiondragon, I like your WFMI idea.

  182. RIMM – remounted MAY 150. also added JUN 155 short

  183. GES-starting to jump

  184. Would like to see NYX close above 83, im calling a bottom here. MACD never reached the lows of March yet money flow leaving the stock was greater. Fear is leaving this stock at these prices. Beginning to like it here.

  185. Phil,

    Why not do a calendar spread on DNDN, selling May 17.50′s and buying June 17.50′s. at a cost of ~$0.50 per spread? Seems like if the date does get pushed back, then you’d be a huge winner, if it gets approval, you’d also do well, and you’d lose a small amount on a rejection.

  186. CFC
    anyone knows what’s up?

    coolkid, yes, let’s hope CSCO delivers!

  187. RIG-hopped back in earlier from last weeks sell.

  188. Phil: I sent my friend at Optionshouse an email asking him to contact you at

    PEAK6 is a pretty amazing operation and Optionshouse is their baby. Check out PEAK6′s website when you get a chance:


  189. CFC rumours of LBO. Also that W Buffett could be interested.

  190. AXR +5, NILE +7. GBX, TRMA moving

  191. DNDN NOV – with an unconfirmed rumor like that the best thing to do is to wait and see if we get a sudden volume move, then dive in. No sense in acting on it by ourselves as it is 50/50 just BS and we can get burned but, if it takes off, then we can guess that at least it’s making the rounds and should be good for maybe $1.50.

    MT/AKS is unconfirmed, even though it was in the Journal this morning. Started in the Financial Times which is turning into the National Enquirer of the financial papers…

    TASR June $10s – .65 – now why did you have to remind me about those?

    NILE Nov $45s puts at $1.48 and June $50 puts for .70? They’re at $55 so what’s my next sell? If they go down I’m in good shape but if they go up I’ll be lucky to be even and I really can’t sell as the gap is too wide and I’m too exposed to a drop. Nov $50 puts ($2.75) /June $55 puts ($2.00) on the other hand puts us in for .75 and if the stock drops to $50 we owe our caller $5 but the Nov $55 puts are $4.90 so little harm there and 4 more months to sell. Even if it goes up to $60, we have an easy ladder up and a low basis (as our putter would be dead) and you have to go all the way down to the Nov $40 puts to get below .75 so we’re good for a $10 rise from here (all roughly of course).

    DNDN – oops that’s right. At 0 I get my money back and at $10 I get my money back but I lose up to $2.50 between 0 and 10! It’s still a good risk/reward but it would be smarter to cover it with the $10 puts at $2.25, giving up $1.25 of the possible gain lowering your risk by $1.25 as well. It also raises your break-even from $10.07 to $11.32 but I doubt that will be the distinction if it’s a bust.

    This is why I don’t do these during the day, if I don’t write them out on paper I tend to miss little things like $2.50 worth of losses!

  192. bigbilld – went long NE earlier.

  193. Any thoughts on NBR?

    Approaching $34 resistance, but looks to be having a nice day.

  194. clare:
    good idea on DNDN. the question is how far FDA will push the decision back. If it pushes back beyond June, then the June call will lose as much value as the may call, I assume.

  195. CFC
    Dominic, thanks! I thought Buffett is interested in a large cap?

  196. NBR –

    Just saw Jag Note / Rumor private equity all cash mid $40′s

    That probably explains the up day, probably nothing more than another rumor. There are so many it’s hard to keep up. Sorry for the extra post, not trying to speculate.

  197. zman, I am also in NE Jun $90s with you, got 10 contracts earlier. Now up nicely. Wow.

  198. CFC
    coolkid, thanks! you’re so cool!! =)

  199. Happy, tought o keep up on all the “potential” lbo’s and buyouts !!!!!! Crazy. Still looking at these highly shorted names. Very few are disappointing on earnings and commentary. Seems like these are by far the best longs right now…..

  200. GME – I’m not bearish, have you seen all the cool games they have? Wii sales are insane so I wouldn’t bet against the sector at all. On the other hand, if GME wasn’t a believer in Wii they could have gotten smoked and I simply haven’t done enough research to know so I’m staying out.

    WFMI – the market doesnt strike me as being in the mood to hear about future earnings. I detest Whole Foods (the stock, I love the store) as it’s a grocery store with the p/e of Google (sorry, I take it back, their forward p/e is 27.35, Google’s is just 24.24).

    DNDN – you’re giving up $2.50 worth of insurance to make $1? Effectively you own the stock at $9.20 with a max gain of $8.30 and you want to spend $1 so you are in for $10.20 with a max gain of $9.80. It’s a good trade if you’re right but you will be very angry if you are wrong and I wouldn’t push it for a .50 net.

    JPL – what calls?

  201. Phil: I’m in Cy June 60′s @ .75. Tried to DD @ .35 today but low was .4. Is it time to bail @ .5? What happened w/ CCJ this a.m.? Ready to break down?

  202. June 22.5 not 60

  203. Airlines Scramble With Fare Increases,2933,270627,00.html

  204. volume ramping up in CSCO, last 5 min 2.5 million shares!

  205. Agreed with Phil on DNDN/NOV. Probably just BS rumor, but I thought I would post the reason for the sudden run-up earlier.

  206. Clare


    It is only a good play if the FDA delays, otherwise the IV crush will leave the May and June options identical within pennies and you will lose your $0.50.

    However, I like the play at even so I’m trying for an even spread. Then I don’t lose anything except commissions. Hasn’t filled though…..


  207. DNDN rumor

    I don’t think any big pharma will buy DNDN before an FDA decision. Too much legal liability regarding inside information and too risky to speculate for big pharma, which ususally are very conservative financially. Everybody will be fired if any big pharma acquires DNDN and receives rejection from FDA!!!

    However, if FDA approves, DNDN is very likely to be acquired by Novartis, GSK etc, just like ImClone.

  208. CSCO aggressive buying as though the results are out :-)

  209. anyone playing PCLN
    earnings atc

  210. Dominic, yes, seem like oppotunities! I’m keeping an eye on these also, although CFC itself is not far away from its 52-wk high.

  211. DNDN- Also, about the calendar spread, it is very doubtful that FDA will delay by less than a month. So if there is a delay, the Junes will drop big as well.

  212. Phil, what would u advise about CSCO, should I take half oFF, bought 27.5 Jun @ 1.35 & its now 1.8 (~30 %) ? Need to learn a lot of money management. Thanks in advance.

  213. Edro,

    is even spread possible? I want to try this idea, maybe to get out before the decision if may call goes down faster than the june call. what will be the max spread to pay as reasonable?

  214. Phil – sorry LCAV – but I took the trade and it went well – so better lucky…. your thoughts about leaps in BA?

  215. is anyone still in WIRE ?

  216. Happy, take a look at GBX. What you think ?

  217. Z – thanks for the info re: NE, SU and BTU – so far so good.

  218. COOLKID
    Just pulled last half off on PCLN. Didn’t want to risk negative stuff on Con Call

  219. Phil,
    I bought the WYNN jun 105′s @ $2.60 but missed the sell of the May $100′s and mkt closed, what do i do now?

  220. CFC – remember the old days when no one would touch this stock? I think it was March.. Too crazy for me at the moment.

    DNDN calendars – we have 2 already.

    Oh no, more bad news for stents!

    Thanks Greg!

    NBR – oil run up is into inventories that may disappoint. Still couldn’t get $62.50

    CY – long gone but I like it down at $21

    CCJ – traders now watchig that Uranium etf so it will be more volatile – good for selling against once it finds a channel.

    CSCO – sorry this is late but I sold 3/4 yesterday to make the rest of the play free. Absolutely when you make a big hit pre earnings you don’t risk it (as you are risking double what you originally intended to risk).

  221. Wynn – you may luck out as the markets finished strong and if the Fed is kind we may go right back into rally mode.

  222. ERTS beats by 200%, stock selling off in after hours.

  223. After hours traders are truly insane. How could you sell ERTS on that report?

  224. Phil, new to the options game and trying to understand the calendar spread on DNDN. You buy the stock for 17.75 now and sell the 17.50 May calls for 6.20, or a net investment of 11.35. Then you buy the June 17.50 calls for 6.70. If there is no announcement and the calls expire worthless, you have a 6.20 gain, and you may be sitting with stock that is selling at 17.50. If the announcement comes out after May 18 but before June 16 and it’s catastrophic, aren’t you possibly out 11.35 plus 6.80 you spent to buy the June calls.
    With your first proposed trade, the worst that could happen is you’re out the 9.10 if there is catastrophic news in 10 days.

    Or am I to infer that 17.50 is likely to be a floor no matter what the news?



  225. The funny part is I sat with the head gaming trader at Goldman during my internship, I’m going to have to email him about this one.

  226. ERTS – who knows what the earnings really were, Dow Jones News Service says earnings of 6c per share, Reuters says loss of 8c per share.

  227. Jazz, you are confusing me! I hope I didn’t say that… I said buy the stock for $17.20 and sell the $12.50s for $8.10 to reduce your net to $9.10. The way you have it turns it back into a 100% net positive play and you may as well just buy the June calls and limit your downside.

    If you want to play the delay game, owning the stock and selling calls is the way to go as you can do that month after month without worrying about expirations and your worst-case upside scenario is you get called away with a nice profit.

  228. I dont understand… CSCO beat by 1 cent and its down a buck. Its gonna ruin all options !

  229. jazzkool,

    DNDN – You’re confusing a covered call (buy stock, sell May calls) with a calendar spread (buy Jun call/sell May call). Personally, I prefer the covered call over the calendar, given the return. Phil already mentioned the pros/cons of selling the 17.5s vs the 15s. If you’re looking for greater downside protection, it’s better to sell the 15s.

    “DNDN – you’re giving up $2.50 worth of insurance to make $1? Effectively you own the stock at $9.20 with a max gain of $8.30 and you want to spend $1 so you are in for $10.20 with a max gain of $9.80. It’s a good trade if you’re right but you will be very angry if you are wrong and I wouldn’t push it for a .50 net”

  230. DNDN – I guess I wasn’t paying attention on the late DNDN discussion. Selling the $12.50s would give even greater downside protection.

    Phil – for those of us already in with May15s sold, I think you’ve already said there isn’t a good way to protect against stock dropping into mid/low single digits, right (12.5 puts are $3.6, which would offset more than half the premium collected on the May15s)?

  231. Phil, I was commenting on the .50 spread that you seemed to be comfortable with. Your play was fine with me as long as the stock price didn’t go down below 9.10 in the next ten days. The point I was trying to make is “Isn’t the .50 spread (sell May 17.50s and buy June 17.50s) really risky with no downside protection?”


  232. I wish I actually went with a 90% TSO put portfolio.

    I sold the June 115 P’s early for a gain (when TSO dipped below 114), had sellers remorse and bought some may 115 P’S and June 110 P’s ’cause that’s what Phil likes. I am a little in the red but I need to feed the addition. I also like to bang my head into walls occasionally for the same feeling. Keep the faith alive.

  233. Rocketbottle: be very careful about trading addiction. It is very dangerous. Do not play with money you can’t afford to lose. And also, there are new opportunities in the market every day. You don’t have to be in on all of them to do well. Just my 2c of Dr. Phil :)

  234. CHK down 3% in AH – they are being greedy and issuing $1b of convertible debt. zMan are you still long?

    I like CHK and the CEO, but every time CHK approaches $34-$36, he issues debt, does dilution etc.

    Long CHK stock but hedged with June $32.50 puts

  235. Anyone playing CLWR? They report tomorrow AM.

    I am currently long the stock (since before there were options for it) and thinking of adding if I like what they say in conference at 10am.

  236. ERTS having a tough time explaining their new accounting scheme for on-line gaming profits! seems to have confused the mkt. accountants and lawyers !!!!

  237. yiwu


    When you trade a spread you can pay for the trade, a net debit, get money for a trade, a net credit, or purchase the trade for no money, or even. Clare’s spread was close enough to even for me to try (if didn’t get it though). I’ll try again tomorrow.

    I did get the HLYS spread at even.

    When you trade a spread the trade page should offer you “even” as an option.



  238. DNDN – that’s right, this is a risky trade in that there is the possiblility of a wipe-out and we will immmediately flip and sell the (perhaps) $5s, or June $5s in a catastrophe if things go very badly – whatever it takes to claw our way back to even.

    As to “the .50 spread” – yes you are risking .50. If the stock goes to 0 your June $17.50s may be worth 0 and if the stock goes to $100, the in-the-money June $17.50s may not have a .50 premium advantage over the May calls but if I look at another $17.50 stock like MOT ($17.70), I see that the June 18s cost .52 so it seems like a pretty realistic amount to expect to get for a month on a stock that is perhaps 10x more volatile. This is not a stock to learn about volatility or anything else on – this is a unique situation on a unique event that will have a profound impact on the company and the outcome is a gamble, almost no matter which way you bet and you are being rewarded for taking that gamble.

    There is no way to beat a system here – you would think selling $15 puts for $4.95 and $10 calls for $9.55, giving you $14.50 would be safe. You get paid off from .50 to $24.50 but who is crazy enough to take that chance? You are getting that outrageous reward for taking an outrageous risk and I’m just trying to find one I can live with…

    By the way, if you have hedge fund money then that’s a great play coupled with the Aug $20s at $6 and the Aug $7.50 puts at $1.42 since you can make a reasonable assumption that if you break $20 to the upside here after the 15th you are likely to do well enough on your August calls to cover your debt while a wipeout will brake your May losses at $7.50, enough to cover the cost of your Aug puts and calls. Again, you can still lose and we’ll see if we do but there’s a real sweet spot here if we expire between $15 and $20, the range we’ve been in since they got the preliminary approval. I always find it amusing that people like to play anything but a flatline yet that is what happens 7 out of 10 times…

    Don’t forget that while perhaps 100,000 contracts are traded in a day at $5 each ($50M) there are 16M shares of stock being traded at $17 each ($272M). Those traders do a heck of a lot more research than we do and have analysts meeting with scientists and legal experts and checking through prior FDA decisions on similar drugs and are trending similar companies with similar caps and expenses who had breakout drugs of similar potential value and they have used this information to arrive at a likely go forward value of DNDN of $17.50. The person who pays $3.75 for the $25 call with 8 days to expiration is basically saying that all that is crap and these people are off by 40% or more and they will realize their mistake within days of a positive decision (which couldn’t possibly go the other way).


    CHK – might not be enough to put my June $32.50 puts in the money… Think how much happier you’d be if you had sold the $35 calls. The premium on them was about 3% for 6 weeks, a 25% a year premium. If your expectations for the year were less than $44 then it really doesn’t make sense not to sell calls. If you get called away and you still like it, just buy more or buy out your caller (you still win the premium) or roll your caller but, one way or another, you will collect 25% after 12 months of selling more than you will just holding the stock and a lot more than if you hold the stock and buy occasional puts as insurance.

  239. GBX
    Dominic, it looks like it’s found a bottom. But, with the railroads all up today, it’s hard to tell. You’ll have to let us know if it keeps on going!

  240. From the GAO, “the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion”

    That’s $167,000 per living, breathing US citizen. Fuck.

    Be careful out there folks, especially first time home buyers.


  241. WFR

    Backtested today, confirming a bear flag pattern.

    May 55 puts @ .95
    Jul 50 puts @ 1.20

  242. WYNN – Phil, I just wanted to say hats off to you for coming back from your meeting and identifying the trade. I’d watched the stock for a while this morning, expecting it to turn up after earnings. But when I saw it just slowly drift down, I lost interest and did not bother to investigate alternative trades. There’s a lot to learn from you. Thanks.

  243. You’re welcome KC – they don’t all work but sometimes if you can get a feel for a stock and you’re patient, those plays present themselves.

  244. Some tidbits of information found in this article
    Therefore, in order to find the next SPX candidates, one must first identify those stocks that meet the criteria. For example, if the Dow Jones/News Corp merger goes through, the index committee might look for another media company to replace Dow Jones. One company that meets the criteria is the Washington Post (WPO). It has a market value of more than $7 billion and four consecutive quarters of profitability. If not, the committee might instead choose Time Warner Cable (TWC) or Echostar Communications (DISH). Possible candidates from other sectors include Genetech (DNA), Alcon (ACL), Fidelity National Financial (FNF), Las Vegas Sands (LVS), Caremark RX (CMX), and Thomson Corp. (TOC).

  245. Wang’s World
    new post up!

  246. The value of mergers in 2007 has already topped $2 trillion, higher than the level for all of 2004, and some 60% greater than the same period of 2006. US volume is up 41% year-over-year, according to data provider Dealogic.
    The trend could quickly turn around if interest rates rise, increasing the cost of funds for acquirers, or if the US and European economies turn south. Many of the acquisitions rely on optimistic growth projections that would be hard to justify in a slowing economy.
    “There is a part of you that wants to ask how long it can keep going,” says Robert Hotz, co-chairman at investment bank Houlihan Lokey Howard & Zukin. “What you worry about is some external event that impacts the credit markets, which I think could derail the buyout train.”
    The euphoria could leave a hangover if it turns out that buyers took on too much debt. Some private-equity firms could find themselves in bankruptcy, causing ripple effects in the broader economy. The cost-cutting needed to pay off the debt could mean more layoffs at companies.
    Caught up in the excitement, firms are more likely to overextend themselves. That’s apparent from the last merger boom. Time Warner Inc. is still dealing with the fallout of its 2000 merger with America Online.
    For the moment, shareholders are generally blessing acquirers’ proposals, especially when they put together businesses with significant cost savings. Shares in Thomson Corp. dropped just 40 cents after revelations last week that the financial information company was mounting a $16 billion offer for Reuters Group Plc. And both Alcan and Alcoa shares jumped on Monday, in part because of investor expectations that a merged company could achieve some $1 billion in cost savings.
    In the past, an acquirer often saw its stock price drop because investors feared a costly acquisition would hurt finances. About 43% of deals this year have some sort of cost savings built into them, according to Standard & Poor’s Corp., the highest level in 10 years.
    Deal prices are at their highest level since 2000, according to FactSet Mergerstat, a provider of data on mergers. On average, buyers this year are spending about 12.1 times a target’s cash flow, compared with 10.4 times during 2006, and 9.7 times in 2000.
    Both corporations and private-equity firms are being lured to the negotiating table by billions of dollars in financing, available at cheap rates with few restrictive terms.
    “Your head is constantly spinning. Every single industry is being restructured,” says Howard Wiesenfeld, a portfolio manager at DKR Ibex, a merger-arbitrage fund, who has been waking at 4am to start trading on stocks of companies that are part of European deals.
    The deal for Sallie Mae, known formally as SLM Corp., suggests how the environment has changed. When a leveraged-buyout firm acquires a company, it usually loads its target up with debt to finance the transaction. Historically, that made leveraged buyouts of financial services companies difficult because these companies already have a lot of debt and their financial soundness is subject to regulation. Yet two private-equity firms, JC Flowers & Co. and Friedman Fleischer & Lowe LLC, plowed ahead in the Sallie Mae deal, backed by $30 billion worth of lending capacity from JPMorgan Chase & Co. and Bank of America Corp.
    The reasoning: Sallie Mae can package its student loans into bonds to sell to eager investors, so the company isn’t dependent on raising money in the credit markets. Even with Sallie Mae’s debt rating heading toward junk territory, the company said it would have “no need to access capital markets during this time”.
    Between January and March 2007, companies and private-equity firms issued $183 billion in new debt, according to Standard & Poor’s. The volume was nearly 25% greater than in the October to December 2006 period, and nearly four times the rate of 2004.
    Banks, big institutions and hedge funds are willing to provide the financing for deals because the returns for safer investments such as US government bonds are low.
    Private-equity firms have been able to raise huge sums in a matter of weeks, often casting around for deals almost randomly. Just three weeks after abandoning its $20 billion bid for J Sainsbury Plc., CVC Capital Partners of Luxembourg approached cigarette maker Altadis SA of Spain with a $17.3 billion proposal. For a few weeks, Kohlberg Kravis Roberts & Co. was involved as a partner with CVC in the Sainsbury bid and, at the same time, pursued a $20 billion deal for Alliance Boots Plc.
    “It’s kind of like the Wild West,” says Hotz, the investment banker. “We’re seeing much higher levels of leverage.”
    Beyond the abundance of cheap deal funding, economists and antitrust lawyers cite significantly eased merger-enforcement standards in the Bush administration. “Now’s the time,” says Carl Shapiro, a former justice department economist now at the University of California, Berkeley’s Haas School of Business. “The line has clearly shifted in favour of big mergers between competitors, deals that would have been blocked” in earlier administrations.
    The Bush justice department’s rate of merger challenges between 2002 and 2005 was the lowest of the past 20 years, according to a new study by Shapiro and Jonathan Baker, a former Federal Trade Commission economist.
    The prospect of changes by a Democratic-controlled Congress and a possible Democratic victory in the next presidential election could affect the thinking of some sellers as well. The Bancroft family that controls Dow Jones is examining how an increase in capital-gains or dividend taxes might affect its decision on News Corp.’s offer, according to people close to some members of the family.
    The maximum tax rate on capital gains and dividends in the US is now 15%, but will rise in 2009 to 20% and 35%, respectively, unless Congress acts. Democrats are showing some resistance to President George W. Bush’s proposal to extend the lower rates. That could make it more lucrative for the Bancroft family to cut a deal now.
    In Europe, governments take a more interventionist approach in corporate affairs, but that too seems to be fuelling merger activity as officials seek to turn deals to their countries’ advantage. Spain and Italy joined forces in defending electricity company Endesa SA from Germany’s E.On AG, and a series of deals linking Spanish and Italian companies are in the works.
    Undergirding all of the activity is a deeper shift within corporate boardrooms. Unlike 20 years ago, boards are increasingly unwilling to resist demands from shareholders to spin off or sell businesses.
    Following a series of corporate scandals earlier in the decade, shareholders have been pushing harder to exercise their rights of ownership—even in Europe, where the activist investor is a relatively recent arrival.
    In February, a London-based hedge fund sent a letter demanding a break up or sale of ABN Amro. ABN at first thought the letter, sent by Children’s Investment Fund Management (UK) LLP, would have only a limited effect. But the bank’s shares rose as other hedge funds piled in, expecting the bank would be forced into a deal. Chief executive Rijkman Groenink realized the long-term shareholders he had counted on in the past were abandoning him.
    Groenink decided to sell his bank in a friendly transaction to Barclays Plc. for $88.79 billion, including a sale of ABN’s LaSalle Bank division to Bank of America for $21 billion. ABN Amro’s shareholders compared it to a “crown-jewel defence” because, to protect a friendly deal with Barclays, ABN decided to sell LaSalle, a premier asset.
    Hearing the shareholder complaints, three European banks teamed up to bid about $98 billion to wrest the deal away from Barclays. The three—Royal Bank of Scotland Group Plc., Dutch-Belgian Fortis NV and Banco Santander Central Hispano SA of Spain—plan to break up the sprawling ABN.
    The consortium’s move is even more audacious because it has completed limited due diligence. The group has spent just days poring over financial information and hours posing questions to a handful of top ABN executives. Its bid is valued $10 billion higher than Barclays, even though Barclays spent five weeks doing in-depth due diligence with ABN on a friendly basis.
    The arrival of activist investors also makes management more willing to complete deals. Earlier this year, American financier Nelson Peltz, who made a name for himself in the 1980s using junk bonds to buy aluminium-can companies, bought a stake in venerable Cadbury Schweppes Plc. Before he had even begun to agitate for change, the company announced a plan to break itself in two.
    “This is an environment where people are open to deals,” says Kenneth Jacobs, CEO of Lazard North America. “There’s a clear sense that if someone makes a compelling offer, that the just-say-no approach isn’t going to work.”
    One reason for the openness: Executives stand to make millions when there’s a change of control, as their stock options gain value and other payments kick in.
    “It’s all about incentives. Managements and boards of directors do well when companies go private,” says William Ackman, who runs investment fund Pershing Square Capital Management. “They get change-of-control payments, their stock and options become fully vested, and they often get equity in the newly private company. Managements are using shareholder activists as an excuse to go sell the company.”
    But beneath the surface, some worry the merger boom can’t sustain itself. With sardonic asides, Wall Street bankers joke about getting deals done before the music stops.
    More to this article here

  247. Okay everybody .. . I’m going out on a limb. . I remember correctly calling (lucky guess by the way) that we would have a rally when the Fed met two months ago since I was suspecting that the Members would all agree to leave rate unchanged. . That was the first time they all agreed. . Now, I think tomorrow we may for the first time see where maybe one Fed President thinks it is time to cut rates 1/4 point. . If it isn’t tomorrow, then I’m guessing next month. .

    Just a thought. .


  248. By the way, enjoyed all the option strategies on the DNDN plays. . Good stuff. .

  249. France – as a French (living in the US for 8 years – and did not vote) – Don t expect much change !
    I have been a little out of touch but this article is I feel pretty accurate

    Also Sarkozy won but he is not guarantee to get a majority in congress next month. The left will get a good chunck and no3 Bayrou
    (center) are likely to grab a number of seats.
    France is a great place to be a worker (of any level) – but invest with care ! Live to work or work to live this is definitely the number one difference I see between Americans and Frenchs:-)

    FYI : I am not a big Sarkozy fan but I will support a little Taser-ing of the car burning A-holes

  250. Did not mean to take up all that space with that last article somehow from copying 3 paragraphs all 4 pages just came along with the 3 paragraphs. Sorry.

    With that backdrop it is probably fitting that Superbear Richard Russell throws in the towel.
    “We saw something that is extremely rare [on April 20 and April 25], in fact I can’t remember ever having seen this before. What I’m referring to is that on those two dates all three Dow Jones Averages — Industrials, Transports, and Utilities closed at simultaneous historic highs. To me, a fellow steeped in Dow Theory for over half a century, this was like a clap of thunder… My take on the situation is that the stock market (and the Dow Theory) told us that an unprecedented world boom lies ahead.”
    Russell acknowledges that what he has written will surprise many who are accustomed to his long-standing caution about the stock market. He imagines that we will want to respond by saying “But Russell, you’re usually so conservative, so restrained. How can you possibly talk this way? Now you’re talking about a worldwide boom. Are you smoking something we don’t know about?”

    Russell’s response:

    “I stopped smoking over 40 year ago. No, I’m simply relating to you my interpretation of what the market is saying. I believe the markets talk in their own secret language. And when the market does something that has never been done before, that serves as a ‘kick in the pants’ for me. It’s telling me, ‘Russell, wake up. Something very unusual is going on. Get up out of your chair — and pay attention.’”

    Whos is Russel?

  251. China Oil – hoarding a commodity, whether by investors or governments, is a sign of a top in any market. Where would oil demand be without all this additional storge being built in the world? The premise for a commodity price is scarcity, not demand per se and the fact that a significant chunk of the “demand” is for oil that is saved for a rainy day is not truly bullish in the very long run.

    George Bush already set the record as the single largest purchaser of oil in history with 260M barrels ($15Bn of your money) taken into the SPR during his presidency including 140M barrels in 2002 alone. That means every week in 2002, while oil went from $30 to $50 a barrel, 3M of those barrels were being bought by Bush.

    The second largest purchaser of oil? Poppa Bush and Reagan in the 80s…

  252. DNDN

    fda request more data!!!!!!!!!

    stock bid at 8…