Archive for 2007

Lowering Your Risk – Advanced Option Management Strategies

OptionSage submits:

Recently I attended an event where Jim Rogers was due to speak.  He was introduced as a man who delivered a 4200% return in a 10-year period.  I was curious as much about the mindset of the man as about his returns. So I started to mingle with those who knew him back when he was delivering stellar returns and each person I spoke with mentioned the same thing:  “When Jim knew he was right, he wouldn’t budge….he took big risks and made a great fortune by sticking with his convictions”.  Many of them expressed that they themselves could not have withstood the pressure of remaining in some of the trades and to see them through to profitability.  For each of us, a pain threshold exists at which point we simply fail to do the “right thing”.  We panic, we exit, we lose.  Knowing where that point lies inside you is to have a HUGE advantage over the amateur who repeats the same emotional buy/sell pattern without success. 

The reason it is such a huge advantage is that once you know the point where you do the wrong thing, you can then construct your virtual portfolio to never breach that threshold.  The simplest way to achieve that is by protecting your positions and hedging your virtual portfolio. 

One of the best ways to think about hedging is the analogy Phil likes to use “It’s not that we’re fighting the tide, it’s more like we’re going with the flow but making sure our life jacket is fully inflated at all times”.  The challenge most of us have in adding hedging to our existing positions is that, almost by definition, we are recognizing that at least one of our positions is NOT going to make money.  This is so hard for most traders to come to terms with that it’s worth emphasizing and it’s worth you taking some time out to ask yourself whether you really can tolerate a losing position in your account (even if it’s part of another hedged trade that may make even more money!) without scolding yourself too much.  You must learn to view
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Wild Weekly Wrap-Up

June 9, 2007 – 12:06 pm

What a wild week that was!

This morning I said "I wish I was good at Photoshop" and, next thing I know, Evogroup came through with this Image:

This is why I love our member site – the talent pool is extraordinary - I’m starting to think rather than mess around with stocks we should just become corporate raiders, we certainly have enough capable people to take over companies and turn them around!

So when I said "If you were to reverse this picture and overlay the daily movement of the Dow since that day, it pretty much follows the exact profile of that mountain," I was pretty darn close.  Not bad for a picture I picked out on May 17th to illustrate where I thought we were (the climber) at the time.

Of course I’m very happy to report that our virtual portfolios, all of them, reflect the accuracy of that call as we took full advantage of the dip, the mini recovery and the subsequent bigger dip to give us three consecutive fantastic weeks.

While we parked ourselves relatively in neutral earlier today, that didn’t last for long as we flipped around and went with DIA calls at 10 to protect our bearish set while we cashed out of the put side.   We didn’t have all that much faith in the early rally, but when oil went down and the transports went up (the SOX were strong all day) we had the exact premise I laid out in the morning when I said "Oil MUST fall below $65 and the Transports MUST reverse."  None of us expected what happened at about 1, especially me as I was out to lunch but I made a call to buy X the moment I got back and that made for a nice day trade on momentum.

We picked up a few more fun plays but entered the weekend back in neutral as this after lunch rally looked suspiciously like the Asian after lunch rally yesterday, which was followed by a 300-point drop!

It was a really wild way to finish off a crazy week and this will make 4 weeks in a row where I think we should just take these amazing gains and just travel the rest of the year because next week can’t get any better (but I’ve been wrong


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Friday Virtual Portfolio Moves

Posted June 8, 2007 at 9:38 am | Permalink (Edit)

YHOO – offering $1.35 for remaining 2 July $27.50 puts in $10KP, I think $27 will hold, no biggie if I don’t get it. XXX FWLT still going down but let’s watch that one.

WFR – I did end up covering them fully July $60s as I lost faith in the whole market.

Posted June 8, 2007 at 9:51 am | Permalink (Edit)

FWLT – Selling the July $95 puts for $4 XXX Keep in mind what a fantastic turnaround this is for a $10KP position that was down 30% (and you can see here how a DD would have been great if we had the money).

Headfake – anything less than a 20% retracement of yesterday is NOTHING, anything less than a 20% retracement of the week (about 100 pts) is not much at alll.

Posted June 8, 2007 at 10:00 am | Permalink (Edit)

DIA puts – as insurance, that question is like saying is it too late to buy health insurance but as a trade, it’s 50/50 right now. I’m protecting myself by offsetting my DIA July puts (which have .25 tstops) with Aug $138 calls at $1.25, which should gain about .30 per 100 points. XXX

Posted June 8, 2007 at 10:17 am | Permalink (Edit)

Well this is my rally premise – oil down and transports leading but oil needs to do better than this.

Posted June 8, 2007 at 10:33 am | Permalink (Edit)

MA – market is totally schitzo if this one takes off.

JOSB – I smell a beat but $45 is a big number so I like the Oct $45s for $3.40/July $35s for $3.95 as you pocket .55 and risk $1 only on paper as he will certainly lose $2.15 in premium and you have 3 months on him so XXX for 5 in the $10KP

Posted June 8, 2007 at 10:50 am | Permalink (Edit)

POT – good protection, GCI very iffy but stuck with my 20 as they are…
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Finally Friday – In progress

I wish I was good at Photoshop.

This is a picture I put up on Thursday, May 17th to illustrate where I thought we were in the market.  At the time I said:

"Was I paranoid yesterday or is this really the top?"

"We won’t really know until the end of next week but we’ve had far too good of a year so far to take chances up at this level and I doubt many hedge fund managers will disagree with me.  My comment on the subject yesterday was: "While we could drop 150-200 points by Friday I think that’s what most fund managers are expecting and NOT dropping 100 points by Friday will but me (as a fund manager) heading into the holiday weekend on the wrong side of the market. That will cause me to put money into things that seem like they will rally but should be safe like MSFT, GOOG, MRVL, UPS… solid names that haven’t rallied with the markets."

If you were to reverse this picture and overlay the daily movement of the Dow since that day, it pretty much follows the exact profile of that mountain – a little dip, back up to a slightly higher plateau and then – Uh oh!

To keep things in perspective, we still have about 150 points left where we can grab onto that little outcropping but, if we can’t grab hold of it by 13,100, then we will have just our bungee cord at 13,000 for a bounce.  If that breaks, it will be a long and bumpy ride back to 12,500.

President Bush is having a bumpy ride at the G-8 conference, becoming ill after having a meeting with Putin (uh-oh!) in which the Soviet Premier turned the tables on him and offered to base the European missile defense system in Azerbaijan – something the President will have a very difficult time objecting to after all that talk about how the program was in EVERYONE’S interest.  Perhaps Bush was already feeling the heat as the other G-8 leaders decided to ignore him and move on with a global warming treaty without US input – flatly stating they will deal with his successorThis is a very poor political turn for Bush and his party as it puts the Democrats in the position of being able to meet with World leaders to tackle the issue
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Thursday Thump

"Thump" is not a good sound for a stock market to make.

We started off the morning knowing that the "recovery" in Asia was bogus and I called it "Testy Thursday Morning" but it only took us all of 60 seconds to decide we had failed.  By 9:32 I had posted: "Ouch – 30-year 5.16, 10-year 5.05, 2-year 5.01… That’s the trifecta of GET OUT! Time to set stops on naked calls or sell against leaps I think."

We had a good old time getting out of our few remaining longs on the members site as most of us were pretty short on the market and (from a quick poll) half or more in cash just waiting patiently for an entry sign (didn’t get one today).  Congrats to everyone for running one of the mellowest crash day chats I’ve ever participated in, I can’t tell you all how proud I am of the group we have here!

  • Despite the spectacular run we called the top on Google at 9:52
    • "GOOG, had to take $18.95 for all of my $510s – putting a stop at $27 on the $500s I sold"
  • We saw that the "rally" in oil was a scam (as predicted all week)
    • 10:10: "Holy cow – oil up $1.21 to $67. Very muted reaction from the oil patch so far."
    • 10:38 (Z and I concur on the gas Inventories): "110Bcf build, in line but bearish I think."
    • 11:06: "OIH marching down again, SLB finally breaking, XLE still good to jump on, buying back XOM $85 puts I sold."
    • 11:10 "I’m calling shenanigans on USO and taking a few $51 puts for .75"
  • General concerns on the market
    • 10:28: "I’m seeing a lot of consumer stocks falling and a movement to drugs and energy (stuff you have to buy no matter what), not really a sign of health."
    • 10:40: "I should have just gone with my gut first thing when those rates went up!"
    • 10:58: "Bond market total disaster – support is shot and we could go much higher in rates. 5.5%+ would not be surprising soon as this could be a massive push on sub-prime debt. New Zealand, of all things, caused this by raising their rates, leaving the BOE all alone in holding rates steady. It doesn’t matter, all it leads to


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Thursday Virtual Portfolio Moves

Posted June 7, 2007 at 9:32 am | Permalink (Edit)

Ouch – 30-year 5.16, 10-year 5.05, 2-year 5.01… That’s the trifecta of GET OUT! Time to set stops on naked calls or sell against leaps I think. XXX

Posted June 7, 2007 at 9:34 am | Permalink (Edit)

OK – holding off on panic but standing ready to panic. Markets taking this very strangely in stride…

Posted June 7, 2007 at 9:41 am | Permalink (Edit)

GOOG – this is what I don’t like about butterflies – too painful to fix when you’re wrong. With 5 contracts I have to balance my net loss of $765 with spending $2K to gamble on fixing it. I think what I’ll do is sell a couple of my June $510s here and leave 2 of his $500s naked for $5, then sell my other 3 and leave all of his naked with a stop at $531. XXX

Posted June 7, 2007 at 10:01 am | Permalink (Edit)

INFY/CTSH – India is already way down and they’ve been holding up better than they should. I think the INFY July $50 put is a good bet through this expiration as I doubt they break it.

30-year 5.15%, up 1/4 point since last week – who needs a Fed hike when you have reality?

SU/MRO – with what’s left I’m going to stick it out a bit – expect a run-up into gas inventories at least, then we have the weekend with the Saudis threatening to retaliate if we keep investing in biofuels or whatever nonsense they are on about…

Posted June 7, 2007 at 10:05 am | Permalink (Edit)

Now that my Goog $510 short call is naked (from that butterfly) there is no point in not selling my $490 put for .60 and leaving the $500 putter naked as I’d be thrilled to have to give him $10 if it falls that far (as my caller would be paying for it) XXX but you can see why I don’t like these plays, take forever just to make a couple of little changes!

Posted June 7,


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Testy Thursday Morning

 

"I've come to believe that all my past failure and frustration were actually laying the foundation for the understandings that have created the new level of living I now enjoy." – Tony Robbins

"Dont lower your expectations to meet your performance…  Raise your level of performance to meet your expectations.  Expect the best of yourself, and then do what is necessary to make it a reality" – Ralph Martson

 

Sage and I will be continuing our discussion of ways to reposition underperforming virtual portfolios this weekend, a continuation of our series on Smart Virtual Portfolio Management that we began on April 9th, when we decided it was time for us all to start preparing for a pullback

I urge newer readers to go to the Education Tab on our site and read through some of these weekly articles as they form the foundation of the book we are working on and happen to be very timely for our current market situation.

The Nikkei managed to close positive today but look at how they did it.  A 150-point gain after lunch erased a morning session that opened down 160 points and recovered just 10 in the first 2 hours of trading.  The Hang Seng was also very bouncy in the afternoon, recovering a quick 150 points within 30 minutes of having lunch but giving back some of it to close down 18 points on the day.  Still, erasing the negative 200-point morning open is very impressive and we can only hope that US traders are eating at that same restaurant today.

 

According to the WSJ: "In Shanghai, shares extended their recent gains, after market-supportive comments by a central bank official and a report in a state-run newspaper that said the government doesn't plan to implement a capital-gains tax as some investors had speculated this week.  The benchmark Shanghai Composite Index, which tracks both Class A and B shares, ended up 3% at 3890.80."  Gee, that's nice but the reality is that they too had a "miraculous" afternoon recovery (in the A shares, the B shares dropped!) and any rational observer would note that foreign capital continues to flee
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Wednesday Wrap-Up

One thing I've learned about being bearish is that no one wants to hear how great your day was in a down market!

I suppose real bears have clubs where they all get together and toast the collapse of an index or two on a day like today but I'm generally a bullish person so I'm never invited to those parties…

The last time we had a day this good was way back on February 27th, when the Dow fell 400 points in one day.  It's taken us 2 days to drop from Friday's high of 13,690 to 13,450 – hardly a drop worth mentioning in the grand scheme of things and, if 13,400 holds, we will be ready to rumble again right after options expiration on the 20th.

Back on 2/27 we gained 28% in one day and today our Short-Term Virtual Portfolio went from Friday's 22% to 43% as our very dull policy of hedging just a little bit more with each gain finally paid off.  I don't say this to brag but to hammer home the point to those of you who weren't hedging so that, MAYBE, next time we have a nice rally we can all get on board with the DIA, QQQQ and oil puts as it's days like this when they turn from your worst enemy into your best friend!

Kudos to ME for calling the top right on the head, and getting us out of our June longs (and many Julys), hedging the heck out of our leaps and even taking a bunch of Butterflies, Condors and Bear Calls!  As I said on Tuesday morning: "Our markets are looking pretty good, of course, but you know we’re in trouble when I start playing Iron Condors and Bear Call spreads, like we’ve been doing on the member site this week.   I have not been able to pull the trigger on many buys so far as I’m just not comfortable with the market action."

Mega Kudos to Happy Trading, who shared his concerns with the members at 3:37 on Saturday, saying: "Be very careful on Tuesday and Wednesday. Depending on the market conditions, I’d consider going cash starting as soon as Monday." as well as to Option Sage, who told us on Sunday that we'd better line up our contingency plans As Sage said
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Wednesday Virtual Portfolio Moves

Posted June 6, 2007 at 10:06 am | Permalink (Edit)

Finally got my TWX!

Holy cow – STP up 5% this morning thanks to DIA and QQQQ puts, we’ll see if it sticks. I’m not moving them as they are doing their job, protecting my virtual portfolio but I will pick up July $135 puts if we cross below 13,500 (a real cross, not a spike) and then set tight stops on the others in case we get a recovery. Just getting back to even on the DIA July $137s, which are a 3rd generation roll, is a huge victory.

Posted June 6, 2007 at 10:18 am | Permalink (Edit)

GSK – that’s pretty much back to the original trade, which was selling the $50s for $2.65. The idea is not to have your caller expire worthless but to collect the $1.40 premium he’s paying you and you can’t collect that until July 20th, any moves you make between now and then cost you about 10% of your potential profits as you pay spreads and broker fees. You must be patient for spread plays or they are not for you.

Meanwhile FWLT is going to test $105 and may save the $10KP if it breaks down from there!

If this were a real drop, then gold stocks would be doing better.

IART $300M offer well accepted and stock starting to gain in heavy trading. Sept $55s for $2 look interesting but tough to take calls today.

DIA testing 13,500 for real soon.

Posted June 6, 2007 at 10:25 am | Permalink (Edit)

Sold goog $510s btw – don’t mind having to pay them off if it keeps going up!

  • Posted June 6, 2007 at 10:27 am | Permalink (Edit)

    NFLX $22.50s – mo play xxx

  • Posted June 6, 2007 at 10:45 am | Permalink (Edit)

    June Qs is a good mo play I’ve got a .15 tstop on the July $48 puts but, in gneral, I think holding 13,500 is huge (assuming we do). QQQQ $47s are just .65 as…
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    Wary Wednesday Morning

    Don't blame China – they're flat this morning.

    Blame the ECB, who are expected to hike rates this morning, which will force the Fed to do the same or we will literally be burning dollars to keep warm this winter as it will be cheaper than buying fuel.

    But you can't blame the ECB for having a responsible fiscal policy aimed at curbing inflation.  Not our pretend "core" inflation, but the real inflation that is killing the real people in their Union.  We used to have a Union – in fact the entire point of the Constitution was "in order to form a more perfect union."  Lincoln fought a civil war to save the union and we elected George Bush because he was "a uniter, not a divider" but I've never seen a bigger division between our interests and the world's interests in my lifetime!

    Speaking of the Constitution, not to get into it here but Section 8 says that Congress (not the President) has the power to:

    • To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;
    • To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;
    • To make Rules for the Government and Regulation of the land and naval Forces;

    In Article 2, Section 2 it simply states: "The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States."  While the President requires the approval of Congress to end a war, there is no such restriction that runs the other way.

    Anyway, I'm here to talk about the war on inflation, not the military actions we have going in on in Afghanastan, Eritrea, Ethiopia, Djibouti, Georgia, Iraq, Kenya, Lebanon, Pakistan, Somalia or Yemen.  The war on inflation is turning into a losing battle as those pesky "non-core" energy prices start to spill over (unlike the collapse of sub-prime lending, according to Uncle Ben) into the broader economies of those nations who choose to count such things.

    According to the WSJ: Signs are now
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    Zero Hedge

    Enemy Of The People?

    Courtesy of ZeroHedge. View original post here.

    Via The Zman blog,

    There has never been a time when normal people did not know the media was biased and biased in a predictable direction. For every non-liberal in the media, there were at least ten liberals. The ratio was probably higher, but then, as now, some lefties liked to pretend they were independents or some third option.

    The media used to invest a lot of time denying they had a bias and an agenda, but the only people who believed them were on the Left, which had the odd effect of confirming they had a bias and an agenda.

    ...



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    Phil's Favorites

    A 2019 Earnings Recession?

     

    A 2019 Earnings Recession?

    Courtesy of 

    Shout to Leigh!

    On the new Talk Your Book – Josh Brown is joined by Leigh Drogen of Estimize, one of the leading providers of crowdsourced financial and economic data to talk about the trend in corporate profits that could potentially lead to an earnings recession later this year.

    What is the thing that Leigh is seeing in the data that Wall Street isn’t yet picking up on? What segment of the stock market is most at risk? Why is the crowd smarter than the narrow consensus of Wall Street analysts?

    Check out Estimize ...



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    ValueWalk

    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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    Kimble Charting Solutions

    Gold & Silver Testing Important Breakout Levels!

    Courtesy of Chris Kimble.

    Gold and Silver from a long-term perspective have created a series of lower highs over the past 8-years. Will 2019 bring a change to this trend? A big test is in play!

    Gold since the lows in 2016 has created a series of higher lows, while Silver may have created a double bottom.

    Gold & Silver are currently facing break attempts a (1) and (2). These falling resistance lines have disappointed metals bulls for the past few years.

    The direction of Gold and Silver weeks and months from now should be highly influenced by what each does as they are attempting to break above important resistance levels.

    To become a member of Kimbl...



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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 ...

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    Digital Currencies

    Russia Prepares To Buy Up To $10 Billion In Bitcoin To Evade US Sanctions

    Courtesy of Zero Hedge

    While the market has been increasingly focused on the rising headwinds in the global economy in general, and China's economic slowdown in particular, while the media is obsessing over daily revelations that Trump may or may not have colluded with Russia to get elected, a far more critical, if underreported, shift has been taking place over the past year.

    As we reported in June, whether due to concerns over draconian western sanctions and asset confiscations following the poisoning of former Russian military officer Sergei Skripal, or simply because it wanted to diversify away from the dollar, Russia liquidated virtually all of its Treasury holdings in the late spri...



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    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 failure based on his personality, which was evident years ago. This article, written in 2017, references a prescient article Bill wrote before Trump became president, in July, 2016, 5 Reasons Trump Can’t Learn. ~ Ilene 

    Why Trump Can’t Learn

    Donald Trump by Gage Skidmore (...



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    Biotech

    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 www.shutterstock.com

    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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    OpTrader

    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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    Promotions

    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...

    Learn more About Phil >>


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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 >>