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Wild Wednesday Wrap-Up

Wheee, what a day!

We broke 500 comments on the member site for the first time so you know a lot was going on.

The trades were flying fast and furious but I considered it very lucky that we had gone long DIA and QQQQ right at the end yesterday and I decided today was a good day to go further into cash.  Right at 9:32 I said: "This is a good time to take stuff off the table that was killing you yesterday. Nothing has really changed other than a few companies that were supposed to have great earnings having great earnings so be realistic."

The timing was great for cashing out our oil puts just after the inventory as that sector turned around sharply (for no good reason) and the energy sector made up much of the afternoon rally.  We messed around with some new oil positions on both sides but, other than XOM $90 puts at $1.40 ahead of earnings, much lighter than we have been in a long time, as I said in the morning post: "We picked up so much downside action in oil yesterday I’m more concerned about a negative surprise."

We got that negative surprise today as oil flew up $2.32 (only in the front months of course as the farce continues) but it's all up to XOM tomorrow who will have to justify what is now a $522Bn market cap.  XOM has gained over $50Bn in market cap since June 27th, more than the entire value of VLO ($38Bn), SU ($43Bn), OXY ($50Bn), the newly combined RIG ($33Bn) & GSF ($17.5Bn), or the total combination of SUN ($8.5Bn) + TSO (7Bn) + CHK ($16Bn) + GSF ($17.5Bn) so it will be very interesting to see how they manage to justify this runaway valuation.

The Dow was up and down 100 points four times today but ended up nowhere in particular, closing under 13,800, but at least 13,700 seemed to form some sort of a floor.  We will be watching the S&P closely tomorrow as Happy Trading and I were disappointed we couldn't close above 1,520:

 

Our AMZN bear call spread is working out nicely so far as the $85s went off at $6 on the morning jump and have already calmed down to $4.35 and I now wish we had taken the money and ran there as Apple's earnings were so spectacular they may give Amazon and every other tech a little extra boost.  We were on top of that one all day though and at 3:38 I said: "Apple might still save the markets with spectacular numbers that put them well over $150 as it’s a great consumer story."  It's at exactly $150 in after hours trading (pat, pat).  We detailed our AAPL positions in the weekend wrap-up and we made a few adjustments since so now we have this mix:

Description Cost Basis Opened Gain/Loss $ %
20 JAN 150.00 AAPL CALL (VAAAW) $ 27,610.00 5/10/2007
$ 23,590.00 85.4 %
40 OCT 140.00 AAPL CALL (APVJH) $ 18,810.00 7/2/2007
$ 26,390.00 140.3 %
25 AUG 140.00 AAPL CALL (APVHH) $ 11,885.00 7/13/2007
$ 4,115.00 34.6 %
-20 AUG 150.00 AAPL CALL (APVHJ) $ 6,400.00 7/20/2007
$ 6,590.00 50.7 %
50 AUG 135.00 AAPL PUT (APVTG) $ 25,760.00 7/24/2007
$ 5,740.00 22.3 %
Total Gain/Loss for AAPL: 

 

$ 66,425.00 73.4 %

 

We killed the $135 straddle play and, in the Long-Term Virtual Portfolio we added 20 Jan '09 $140s and sold 15 current $140s against them as we became more bullish on Apple yesterday, when my morning call was: "Apple will be sharply lower in the morning on T’s numbers as "only" 140,000 IPhones were activated but the Quarter ended on Saturday and the Phones were available at midnight on Friday so that number actually constitutes the number of IPhones that were taken home and activated within 24 hours of the phone’s release so our play of the day is to take the money and run on our puts, buy some $140s as a momentum play and rebuy the puts (as we still want protection into earnings) as the stock recovers (assuming it does!)."

Needless to say we are all very excited to see how this will work out tomorrow but it's looking pretty darned good already! 

Google finished the day down another $4 today but got a little boost in the post-market as BIDU posted fantastic results, doubling profits from last year.  That stock shot up 20% after hours after gaining 5% on the day.  ETrade had a good report, as did QCOM, who raised guidance on strong 3G chip demand that I would wager will be going into IPhones very soon!  WFR (a big holding for us) not only came through with strong results but will be added to the S&P.
 
 
Tomorrow we have MMM, APA, AZN, BZH (Danger Will Robinson!), BDX, BDK (big consumer indicator), BBI (probably trouble), BMY, BC (are people buying boats?), CELG, CMCSA, CMI (put up or else), DO, DOW, ELN (I’ll keep my half), XOM (I’m back in the $90 puts), F (LOL), GT (prob bad), HTZ, ICE, K (butter), LLL, LVLT, ORI (title insurance), PENN, POT, RTN (guns), SU, TDW, XMSR – all before you can make a bet! Yep, cash for me thanks…
 
We need to see a serious breakout on the Nasdaq so let's root for those 4-letter stocks:
 

nasdaq_7_25_07.jpg

The dollar took a HUGE bounce today and we could get a big covering rally if this continues.  The proximate cause of the rally was, interestingly, the LACK of interest in our Treasury auction, which may force the Fed to take action as NOT selling notes is NOT an option for our deficit laden government.  "It (auction) came slightly cheaper than expectations. Nothing substantial at all. There's some short-term weakness at the front of the curve over the next 24 hours because we have 5-years on sale later this week," said Adam Brown, head U.S. Treasury trading Barclays Capital in New York.
 
 
 
Gold did not take the dollar bounce well at all and gave up $10 but we already knew there was a problem breaking $685 so now we know what it will take.  Now we watch copper for a confirmation of gold's move but things will get very interesting if the dollar starts squeezing the shorts.
 
 
Tomorrow promises to be another very exiting day!
 
 

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  1. Asia Markets : Thursday, July 26, 2007

    Japan*

    17702.09
    -156.33
    -0.88%

    Hong Kong*

    23211.69
    -150.49
    -0.64%

    DJ Shanghai*

    444.03
    5.90
    1.35%

    S.Korea*

    1963.54
    -40.68
    -2.03%

    India

    15672.20
    -27.13
    -0.17%

    * at close
    Sources: Dow Jones, Reuters


  2. Thanks Ramana, looks like the foreign markets didn’t take the AAPL earnings as well as I did.


  3. Phil, I’ve learned a hell of a lot here by reading your answers to others’ questions, so I haven’t had to ask too many of my own. But I’d like to pass this one by you and see if I’m on the right track or not. I’m holding the AMZN Jan 08 75s (basis 9.50 – now 17.10). I’ve sold Sep 95s against these (basis 2.50 – now 2.30). I think I’d like to roll the Jan 08 75s to Jan 09 90s for an even exchange. This would allow me several opportunities to sell closer months, unless AMZN does something strange. I believe I have about $5-10 stock price downside protection as I sit now (I’m not nearly as good with those numbers as you are). So am I on the right track or am I all screwed up? Thanks, Bill


  4. AMZN – conceptually you’re right but I think you may be irrationally exuberant about AMZN’s price point. Your roll takes you $15 further out of the money in exchange for 12 months of time, which is fine if AMZN holds $85+ but, if not, you will run into margin requirements you don’t currently have selling the $85s or $80s or $75s in subsequent months. This is mainly my prejudice as I don’t see AMZN holding a p/e of 150 for the whole year… If it were my position I would roll to the ’09 $80s at $21.85 and offset it by rolling my caller to the Sept $85s for $6.20 as the whole purpose to gaining time positiion is that you now have room to roll your caller (plus you have $8 in profits to protect!). If you are Uber bullish, I’d still rather see you take some off the table by rolling up to 2x the ’08 $90s and selling the Aug $90s, now $2.15 against your second half so you can at least get a little off the table, those ’09s will not get more expensive relative to your ’08s unless there is a strong downturn, in which case you’ll be glad you don’t have the ’09s!


  5. AAPL at 146, hope to see 150 today still holding the aug 155 calls


  6. Thanks Phil. Appreciate your guidance.


  7. Phil

    AAPL: I’ve got a OCT/AUG 150c spread (c/b=3.2) and some Jan 08 145c. I plan to sell AUG 145c against the Jan position this morning to take advantage of the earnings bump and whatever volatility bump might come with it.

    I’d like to find a way to roll the OCT out to JAN to but it looks like I’ll need to go up to the 170s to do it at a similar price. Feels too aggressive, especially since I plan to sell just OTM calls monthly. My thinking here is to use the profits from the earnings bump to get some additional time on the position…any thoughts ?


  8. Anyone have the most up to date short interest on BIDU?


  9. Question, when you talk about “roll the caller” what exactly does that entail? my understanding is this…you have sold an Aug 30 call which you then buy back, hopefully at a profit and then resell a sept/oct/nov call for a new premium? and why does this work so effectively against LEAPS, what is their benefit? When selling these options you are vulnerable to price swings of the underlying stock to the upside is this correct???


  10. AAPL 148+


  11. Phil --

    Thanks for the, um, gentle reminder in the previous post about selling into the initial excitement. That’s often been my impulse, but sometimes I’ve done that right at the open only to see things whipsaw back into much greater profits and, due to my not being nimble enough or various daytrade issues, I haven’t been able to buy back in and have lost a lot of money in opportunity…so I thought there might have been a strategy related to IV crush.

    Still, I believe solidfying that rule for myself will pay off in the long run.


  12. I’ll get to questions later as I’m writing the morning post but I’m taking at least half of Apple calls off the table, I can always rebuy later once I see which way it’s going.

    Draz – Rule #3 for you – STOP LOOKING AT THE 1 MIN CHART! When I decide a stock is topping (and I’m not too bad at it) I do so by looking at the 10 min chart and VERY rarely look at anything shorter. Of course a stock can sell-off 20 or 30 times during a run up, every time I sell a position I move the 1 minute chart and I am not that big of a player so your reaction to the 1 min chart is based on the assumption that every single asshole on the planet who has the ability to buy or sell 10,000 shares is such a genius that he should dictate your actions on a minute by minute basis. Effectively, watching the 1 min chart is like watching a coin flip and making your investment decision on every head or tail.

    Those of you who don’t believe me should watch the level 2 quotes for an hour on a popular stock. When the stock goes down 500 sells and 400 buys come in a minute. When a stock goes up, it’s 500 buys and 400 sells… The 1 minute chart takes a RANDOM time slice of those buys and sells and plots a position based on nothing more than the time that some programmer randomly set the charting program to cycle through! Logically, if the 1 min chart is a good way to make decisions then drilling down to the 1 second chart (level 2 streams) must be even better right? Try trading off that for a day and maybe you’ll be cured.

    Now you might say: “Phil, if you think the 10 min chart is a better indicator than wouldn’t logic dictate that the 1 hour chart is better than that and the 1 day chart is better than that and the 1 week chart is better than that?” To which I would reply – Right, now you know Happy’s and my secret!


  13. By the way, if anyone has the article about some moody’s guy being ultra negative on housing and foreclosurs please post it – I heard something in the morning but never saw the article. Thanks!


  14. Slow motion train wreck might be picking up speed.


  15. draz--imho, usually you see a 3 wave move when news hits -

    1. the highly leveraged folks on the losing side, run for cover
    2. the highly leveraged folks on the winning side feed the #1 folks
    3. when the dust settles the not super leverage crowd moves in and the stock usually goes in the initial direction, sometimes in hours, sometimes days or longer

    I agree with phil though, you gotta feed the ducks when they’re quacking!


  16. XOM misses? if true I am perfectly positioned, for once.

    Long apple
    Short energy
    Short housing
    short financial
    short DIA
    Long Gold (might be safe)


  17. Is Wangsworld down?


  18. New post is up, in progress, please move any Apple questions there (that don’t involve Rule #1 or #2!).