Archive for 2007

Weekly Wrap-Up

I am starting to LOVE this market!

Now I know what all the fun is about in China – these wild swings are a trader's paradise and it's been a busy, but rewarding, couple of weeks.  Practicing our best James Bond investing techniques we went long, we hedged down, we went short, we hedged up, we went long, hedging down again and then we went short.  Then it was Tuesday!  

We are embracing the insanity of the market, enjoying the fiscal buffoonery practiced by our leaders and dancing to the manipulated tune of the commodity markets – pure bliss! 

This is how the rich get richer in America folks, turn the system into a parlor game that the average person can't afford to stay in, forcing them to walk away with half their money (if they're lucky) until the next time the "institutional investors" need fresh cannon fodder to line their pockets.  Mixing metaphors?  Sure I am but what the hell, may as well throw all the rules out the window along with the economic ones that have already fallen by the wayside.

We've decided not to complain about it as, not only does it get us nowhere, but it makes us miss the party.  This poor guy made a great point about how ridiculous values for top stocks were in October of 1997.  He makes an excellent point but, as I've said before, while he was bellyaching about the stocks, the market went up another 50% before finally heading back to his top call only in September of 2003!  So we've decided to rock on and toast the Plunge Protection Team for as long as they can keep it up (no Viagra jokes please) as we party like it's January 11th 2000 (one week before the crash). 

I will continue to point out the true economic picture as it unfolds and, unfortunately, it's very depressing but keeping our wits about us even as we enjoy the party is the difference between waking up in the morning with a slight hangover or waking up stripped naked in an ally with your eyebrows shaved off.  Last weekend we decided 2 things;  Thing 1 was that we could spot a correction well in advanceThing 2 was that we would…
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Is Your Company Overvalued?

Fundamental analysis is that mysterious component of investing that is cloaked in obscure financial terms such as PEG ratio, Levered free cash flow and EBIDTA. While some ignore the fundamentals entirely in favor of rigorous technical analysis and some focus exclusively on sentimental analysis, Phil and I tend to focus heavily on fundamental analysis as the foundation of our investing philosophy. 

This might appear impossible to discern if you look at the numerous trades mentioned regularly.  Option strategies such as bull call, iron condors, collars and calendars are so prevalent that it would be easy to solely classify our methodologies as those of option strategists. This may even be true over the short-term if we play an event such as an earnings announcement. But our primary focus is long-term and rooted behind a long-term approach is a solid understanding of fundamental analysis. So, with that said, let’s take a look at a couple of investing terms that might prove helpful when conducting fundamental analysis.
P/E Ratio [Price per share/Earnings per share]: In Nov 2000, Researching Motion(RIMM) traded with a P/E > 1000. Usually we see numbers such as P/E of 10, 25, 30 etc. For example, a stock trading at $30 per share with earnings per share of $3 has a P/E of 10. You can think about it as an amount that investors are willing to pay for a $1 of earnings. For example, investors in 2000 were willing to pay $1000 for $1 of RIMM earnings! 
Let’s take a straight-forward example of starting a simple business – a lemonade stand. You set up a stall and start selling lemonade and make $1 profit at the end of the day. What is it worth to somebody to buy your lemonade stand? Well if they believe you will consistently earn $1 in profits each day then they know that by the end of the week the business will have earned $5, so perhaps they deem your business to be worthy of trading at a 5X multiple of earnings, $5.
Baidu and VMware trade today at a P/E > 200 while Intuitive Surgical trades at a P/E > 100. Another way of viewing this is that investors are willing to pay over $200 for each $1 of earnings produced by Baidu

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Making 30% Profit on 30 Stocks in 30 Days

As we have a lot of new members I'm going to repost the September 26th post where we decided the Dow was going to rally and we made a new virtual portfolio comprised of Dow components.

I decided to close the virtual portfolio last week as it was dull and I thought the Dow was going to turn down (it did) and all we left in for the past week were our protective DIA puts, which worked out well.  I strongly encourage new members to look at my original takes on these components, the original plays and how we adjusted them (although we adjusted few as the goal was to have an easy virtual portfolio).  Also, now that earnings are coming out – it's a fun way to see how good my predictions were!

Take a look at the one-month chart and think about the times you would have panicked as the stock moved up and down and pay particular attention to the prices on Expiration Day, October 19th (all contracts discussed without a date  in the below article were Octobers).

PLEASE DO NOT take this as being new plays – this is a repost of our article from the 26th which I never finished as we already had plays on WMT, UTX and XOM in other virtual portfolios (and VZ didn't thrill me as I liked T much better).  Anyway, it's a good chance to look back while the month is still fresh and think about how we trade our options in a volatile month:


Whee!  Here we go again!

All aboard the market train as the GM strike ends, oil prices rebound (XOM, another Dow component) so we’re in for a retest of 14,000.  I’m going to dispense with the news today as it doesn’t seem to affect the market anyway and let’s take a look at our 30 Dow components – perhaps we can find some bargains as the tide of index buyers lift all ships (plus they are nice and liquid so we can get our when it all hits the fan!).

Just for fun I’m going to…
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Your Questions Answered!

When we began trading we found it near impossible to find knowledgeable option traders willing to help answer our questions and with a genuine interest in making others better traders. We often refer to trades as being ‘just for fun’ but if we can help answer questions and take each member to a level of trading competence they never dreamed possible than we will feel like we really achieved something special. We received some interesting questions from one of our members, Don, and decided to share the answers in the hope that it might be somewhat helpful to you.

Don:     “I get the theories behind every trade with these exceptions:

Selling calls against either stock or LEAPS is an easy concept. Here’s what I don’t get…Let’s say we own the AAPL LEAPS at 36.00 and we start to sell the calls against it starting this NOV. I would sell slightly out of the money to receive premium hoping that we don’t get to that higher strike. If we do I see that as trouble since I would then have to use some of my money to buy back the sold call-it seems as if you easily adjust trades either out in time or up in strike (getting a reduced premium) at an additional cost to us…conceivably if a stock continued rising we would be incurring cost while the LEAPS wouldn’t be rising fast enough to keep up with us.”

Stock & Option Trades: Purchasing longer term long options and selling shorter term short options against them is a REALLY smart long-term strategy!  At the time of writing an Apple long-term long calls at strike 190 in Jan09 cost $38.95 (Ask price) while the November 190 short call offered $4.20 of credit. One way to view this trade is that it is really expensive out of pocket!

Another way to view the trade is to break down the cost and the credit separately over time. For example, in 20 days I can generate $4.20. It’s not a big stretch at all to argue that, conservatively, I could get at least $5 over any 30 day time period for entering short options just out of the money on a regular basis. So, after 8 months I pay myself back $40 – more than the cost of the long option! Still, I would have at least half a year before the Jan09 options would expire worthless!

Don, your

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Friday Virtual Portfolio Moves

October 26th, 2007 at 9:25 am | Permalink   edit

DELL – I like them long-term and I do think it’s good the Dell is back from his little vacation.

BIDU benefitting from MSFT numbers. MSFT benefiting from pent-up upgrade cycle (how long have we waited for this damn thing) as well as catching the wave on the XBox (gotta hand it to them for sticking with it until they got it right). Also, MSFT is the definative exporter so they were in the sweet spot for the kind of US companies that should do well in a dead dollar environment. Best of all, they don’t even really make anyting but CD’s, and those can be done anywhere – it’s the perfect business!

Long-term, the more people that convert to Vista the more MSFT will start to make on other things like office as Vista has some nasty copy protection which will force many corporations to double and triple the number of copies of other software licenses they have.

TSO – THAT should finally kill our putter! (not much fun for our longer puts though).

CFC – be patient, massive short covering if they stay over $15 as many had bet them bk…

October 26th, 2007 at 9:30 am | Permalink   edit

MSFT trade – probably sell the $35s against a longer $35. Just over $36 should be the max gain but I’d be thrilled to get $2 for the current $35s against the Apr $35s at $4 or less. XXX

BIDU’s earnings were pretty good.

October 26th, 2007 at 9:35 am | Permalink   edit

Woo hoo – gold $780!

Rolling up BIDU putters at $10 for a $20 roll!

October 26th, 2007 at 9:48 am | Permalink   edit

Nas 2,800, Dow 13,700, S&P 1,530 – I don’t think we’ll hold them, there are huge issues still unresolved and MSFT is giving us the same kind of boost that AAPL did on their earnings – it’s too specific to lift the whole market for long.

Of course that’s my brain talking, not generally a good predictor of short-term market behavior, especially around a Fed meeting!

October 26th, 2007 at 9:55 am | Permalink   edit

TIE going well (but then again, what isn’t?).

Actually that’s a good idea, we should be looking at who is NOT doing well in a crazy rally like my BEN puts, GLW, FAF, DO, TASR!, ACAM, BC,…
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Lift for oil services, while managed health swoons on Wellcare woes

Today’s tickers: MSFT, HAL, TSO, WCG, HUM, EWJ, IVV

MSFT –Banner sales for Windows Vista in the third quarter of this year spelled bumper profits for world’s leading software maker Microsoft. Shares in the company, which are otherwise fairly nonplussed by bullish tech news, were lifted 11% to set a 6-year high, sending options to 3 times the average volume. With shares up 11% to $35.54., more than twice as many calls are moving as puts, with a surge in call-side premiums contributing to what looks like profit-taking in the November 32.50 calls – its premiums are up 275% on the session. Evidence of what looks like a new era of liquidity in Microsoft options is apparent in November call strikes as high of 37.50, and in the January contract, where buyers and sellers have swapped calls at strikes as high as 40.

TSO – Tesoro – Options in oil explorer Tesoro are moving at more than 3 times their usual level today, as shares gain 11% to $63.59 following the announcement of a $1.4 billion tender offer from billionaire investor Kirk Kerkorian’s Tracinda Corp. The offer, which values Tesoro shares at $64 apiece, would add an additional 16% to the 4% holding Kerkorian already holds. With premiums higher on the surge in share prices, we were interested to see traders flock to sell November 65 calls at prices 283% higher than yesterday. These calls sold on a volume of 12,000 lots – nearly 3 times the prior open interest. Buying interest was seen in the January calls at strikes of 65 and 75, implying a massive move higher for Tesoro shares in January. The share is currently trading at within a buck and change of its 52-week high.

HAL – Halliburton shares are 0.8% higher this morning at $41.35 and just a shade below the 52-week high at $41.95 11 days ago. A large amount of calls appear to have been bought in Friday’s session at the 45 strike where 52,000 lots have gone through at a premium of close to 0.33. That gives a buyer the right to buy stock before expiration in November at a fixed price of $45 while the trade would make money at prices above $45.33.

Halliburton’s shares slid last weekend shortly after crude oil recoiled from a record high above $90 per barrel. At the time the fear surrounding the price spike…
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Federally Fueled Friday

Will Bernanke bless us with bushels of bucks?

The market has already priced in a 100% chance of a .25% cut in both the Fed Funds rate and the discount rate yet the financials are surprisingly lethargic.  The general consensus is that the Fed will drop rates a full point between now and January and that is crushing the dollar, fueling oil to record highs (with gold right on its tail) and boosting the market all the way to 13,671 already, just 100 points below were we were the last time the Fed decided that inflation was the least of our worries.

We have a 2-day meeting next week that starts on Tuesday but we don't get a statement until Wednesday at 2:15.  While the last meeting gave us a 330 point gain on the day as the Fed went from being a respected institution to what Barry Rithotz calls "Wall Street's Bitch" in the space of an afternoon, expectations are far different now as investors now expect the Fed to roll over and do tricks on command, whatever monetary credibility Paul Volker and Alan Greenspan built up over the previous 20 years was tossed out the window as the Fed leapt in to save a market, that had run from 11,000 to 14,000 in 12 months, from making a perfectly normal 30% correction.

By depriving us of a consolidation period, the Fed has effectively built a market rally on a very poor foundation, leaving us subject to wild swings up and down that are great for Goldman Sachs (our Treasury Department) but bad for the bottom 99% of the country as they watch the value of their savings and homes go up in smoke while the costs of goods and services skyrocket.  As I have often said: "If our government pursues Asian-style Central Banking policies they will subject our markets to Asian-style market swings."

But we're not here to worry about economic policy today – we're here to party like it's January 10th 2000, when the market had just closed above 11,500 for the first time and had just recovered from a huge sell-off the week before and was looking indestructible.  Indeed we were in for another week of nice gains before, for no reason in particular, sentiment changed and the party quickly ended, with…
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Thrilling Thursday Wrap-Up

Wheee, what a week!

Down 350 points on Friday, up 200 points Monday, down 100 points by 11:30 on Tuesday and back up 100 points by the day's end, down 200 points to open Wednesday but getting it all back at the close and then today was down 50, up 100, down 200 and back up 150 all to end up right where we were (13,650) the whole week after the last Fed meeting.

The above chart is one that we use to talk about a stocks movement over time, usually that time is more than 8 hours!  Every day the market seems to take us on this roller coaster ride and it is just a little exhausting and that may be a dangerous thing because it's a little harder to be bullish when you're exhausted.  We know that is true because even the best parties we've ever been to ended at some point (otherwise we'd still be there right?).  Of course the current non-stop party king is China and that rising tide continues to lift our ship as global growth is the highlight of Q3 earnings, even as the US crawls to a standstill.

This morning we looked at the less than Durable goods orders, which were off sharply from last month and later in the day we go the New Home Sales Report that showed September home sales rose 4.8% from the previous month.  There are several problems with this;  Problem 1 is that August was revised down close to 10% and August already sucked at 795,000 (now 735,000) so September is up 4.8% to 770,000 – that is less than August was supposed to be a month ago.  Problem 2 – the margin of error on the government statistics (not really known for their accuracy at the best of times) is +/- 10.3%, this is about the same margin of error you would get if you polled 5 people standing in line at the 7-11 about economic activity.  Problem 3 – last year the annualized rate of new home sales was 1,004,000, 23.3% more than this year.  Problem 4 – cancellations – the Census Bureau does not count cancellations yet here are the current RECORD cancellation rates:


Firm . . . Cancellation rate for Quarter
Centex (CTX) 35%

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Thursday Virtual Portfolio Moves

October 25th, 2007 at 9:36 am | Permalink   edit

POT missed on currency and that’s a very silly reason for them to get sold off, let’s keep an eye on that one for a bottom and perhaps get the Jan $110s, which will give sanity a time to return on that one.

BIDU going down again possibly, always fund to play.

Whole market looking ugly already! Mattress down just in case!

October 25th, 2007 at 9:39 am | Permalink   edit

Took SLB $95 puts for $1.80 rather than sell my calls, will DCA my calls to match, figure I’ll get both ends eventually.

October 25th, 2007 at 9:50 am | Permalink   edit

AMZN – that would be known as the losing end of your spread.

Now in an SLB strangle, see above note, will get out with a small profit on the call side if they can’t break $101 and then give my puts a little time before giving up with a minor loss overall.

October 25th, 2007 at 10:06 am | Permalink   edit

DCA = Dollar cost average, in other words DD for less money and hope to get even on a bounce. In other words, I don’t sell, I buy 2x puts to stop my losses then try to time a low and DD – If I’m wrong, no big deal as I have the puts, then, on the way back up, I try to sell the puts even and play the upside as a mo play where I take 1/2 off as we cross my new, lower, break even point, leaving me back in the original trade with a lower basis than I started with.

The problem with the SLB calls is someonw bough 1,000 at the close yesterday and now they are trying to shake him out. This is why we scale into trades, there is always someone (we had “Mr. 3,000″ messing up our XOM trades a couple of months ago) who buys too much and tips our position off, causing the people who sold the contracts to do what they can to get us out. If you are scaling into a position, that’s no big deal as you get to buy rounds 2 and 3 cheaper but if you buy your whole position at once, it can be very painful.

Oh no, new home sales are revised lower last month which makes this month’s…
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Thrill a Minute Thursday

There is no stopping this train!

The markets want to rally and we’ve seen this movie before so we’re just going to climb on board and hope we manage to get off before the crash.

Durable goods orders fell 1.7% last month, that was a pretty stunning miss from the 1.5% increase that was forecast and, imagine how bad it would have been had aircraft orders not gone up 18%.  August was revised almost 10% further down, from -4.9% to -5.3%.  Orders for motor vehicles and parts dropped 2.9% while computers and electronics fell 1.4% BUT orders for non-defense capital goods (a very narrow category) rose 4.4% and that’s the spin the market is going to go with.

The Shanghai Composite fell 5% last night and the Nikkei fell another 74 points, ending at the day’s low while the Hang Seng ignored it all and rose 500 points.  China’s economy grew at 11.5%, slower than last quarter’s 11.9% and a bit slower than the 11.7% expected.  The Shanghai sell-off seemed to be based on interest rate concerns as the government certainly can’t continue to have 11.5% annual growth.  Hong Kong was led higher by financial and property companies pre-celebrating the Fed rate cut next Tuesday – I can’t even begin to tell you what a shocker it will be to people if we don’t get it (see picture above).  Should the Fed not cut – we need to grab FXI puts right away.

I didn’t think much of the action in Asia but Europe seemed happy, bouncing back sharply and erasing the week’s losses as the markets there shook off a very bad report from GSK and a loss from Daimler as they write of the Chrysler debacle.  RDS.a had a mixed report with refining margins off 24% from last year but record high oil prices more than making up for the fact that the company produced 3.5% less oil, helping to cause the shortage that drove the price of oil up 40% this year. 

At home, we’re slapping sanction on Iran, always good for oil prices, and BAC is cutting 3,000 jobs that won’t be counted as a loss since MCD had a good quarter and will need more fry cooks so we’ll still be at "full employment"!  Speaking of McJobs, the UAW is about to ratify their labor contract with Chrysler where 45,000…
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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...

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Phil's Favorites

This Is The One Chart Every Trader Should Have "Taped To Their Screen"

Courtesy of Zero Hedge

After a year of tapering, the Fed’s balance sheet finally captured the market’s attention during the last three months of 2018.

By the start of the fourth quarter, the Fed had finished raising the caps on monthly roll-off of its balance sheet to the full $50bn per month (peaking at $30bn USTs, $20bn MBS, although on many months the (balance sheet) B/S does not actually shrink by this full amount which depends on the redemption schedule) and by end-Q4 markets also experienced some of the largest volatility and drawdowns in nearly a decade.

As Nomura&...

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The Competition For Capital Has Made Stocks Cheap

By Michelle Jones. Originally published at ValueWalk.

The new year is upon us, and now is the time many investors look at what 2018 was and prepare for what 2019 might be. Recession jitters are starting to pick back up again, especially now that the full picture of 2018 is in the books. But what if you could pick only one theme for 2018? Jefferies strategist Sean Darby and team have a suggestion which is especially timely given that it appears to mark the end of an era.

StockSnap / PixabayVolatility carries into the new year

This past year was one of extremes, and the markets ended i...

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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...

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Digital Currencies

Transparency and privacy: Empowering people through blockchain


Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...

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Insider Scoop Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

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

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

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

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Members' Corner

Why Trump Can't Learn


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

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

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


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Mapping The Market

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

By Jean-Luc

Maybe we should simply try him for treason right now:

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

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

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

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

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Swing trading portfolio - week of September 11th, 2017

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


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

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

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

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

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Free eBook - "My Top Strategies for 2017"



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

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

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

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

Some other great content in this free eBook includes:


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


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

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

Market Shadows >>