Archive for 2007

Scouring The Bargain Bin

As I was scouring the bargain bin this weekend for long-term investing opportunities, a couple of former market favorites stood out as potential candidates.
First let’s look at Starbucks (SBUX). Starbucks has suffered a monstrous demise over the past year. It began the year in the mid-$30s and sits at $25.53 at the close of business on Friday. The decline of approximately 30% combined with fears over consumer spending diminishing has some wondering if the glory days of Starbucks are gone for good. As Phil pointed out in Friday’s comments, Starbucks is so addictive that “People will skimp on their kids before giving up the coffee but the market has to see it in action”.
When I think of Starbucks, I think of the old Buffett comment when he was purchasing Coca Cola (KO) – “If you gave me $100Bn, I wouldn’t know how to displace them”. Starbucks is valued at approximately $19Bn but I would hazard a guess that with $19Bn it would still be a considerable challenge to replicate the success of Starbucks. They have become a cult phenomenon but that aside they have 10,000 domestic locations with plans to add 1,700 more stores in fiscal year 2008. Moreover, Starbucks has targeted an ultimate buildout of 40,000 stores with half of those locations outside the US. (Currency diversification anyone? Uh hum…China?)
With the stock out of favor, it’s difficult to get too bullish on the stock in the short-term but the long-term trade below might well be quite attractive:
SBUX Jan 2010 Strike 25 long calls for $6.20  (scaled)
The position could be scaled into over time and could offer a nice opportunity to hedge regularly with shorter term short calls. I wouldn’t commit to a full position right away but a partial position might be interesting while a further pullback to $23 would offer an attractive opportunity to add to the position.
Another interesting play now is Ebay, trading at $35 per share. Management repurchased $500M worth of shares and reported solid top and line numbers in addition to reasonable operating profits and cash flow figures. With 2007 top and bottom line estimates raised, almost $4Bn in cash and zero debt in addition to new Paypal

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k1 Project – Basic Tactics – Rolling Options

What is rolling, what does Phil mean when he talks about “rolling a caller out and up”? Defined, this is the simple practice of buying out a short option you sold, and then selling a different option, and is a built-in feature of many trading platforms. However, the practical reality is much more complex and interesting

k1 Project – Virtual Portfolio Management

"You can play whatever you want in any kind of market, as long as you have a plan, good money management, and a good exit strategy."Optrader

"Please do not play with money that you can’t afford to lose."Optrader

Optrader’s got a million of these, Phil’s got a million and one. Don’t make me go the archives for them, you know I will.k1

Weekly Wrap-Up

Well we finished the week down 300 points.

It's not too bad but certainly not what the bulls were expecting following an additional rate cut.  We hit my 13,500 target yesterday and, while we didn't rush in to buy things, we will feel a whole lot better about buying stuff if we can hold it here next week.  

My bullish premise for next week hangs on the hopes that the latest drop in the Hang Seng is merely preparation for capital to move into the public floats of Alibaba (the 5th biggest Internet IPO ever), PTR and several other big Chinese as they become available to investors for the first time on Tuesday.  Alibaba raised $1.5Bn for 17% of the company in an IPO but there were $208Bn worth of requests7 from investors – that's a lot of pen-up buying pressure!  YHOO (owner of 39% of Alibaba) is one of our only naked long positions going into this weekend.  A nice double on the first day's trading for Alibaba should give us a boost early next week.

The Chinese are looking to make a statement with Alibaba as a strong showing in Hong Kong will prove to Chinese companies that they don't need to seek a Nasdaq listing to gain legitimacy.  If the money is there to support a Google-sized IPO for Alibaba and you combine that with the lack of Sarbanes-Oxley requirements in the Asian markets, we could see a lot more capital flowing away from the US, which is already barely clinging to it's assumed mantle as the World's financial center.

We came very close to another one of my targets as the dollar touched 76.22, a record low and finished at 76.26 while gold broke through my $800 target, finishing the week at $810.  Oil finished the week at a record close of $95.93, up 20% since the Fed first dropped rates on September 18th (the dollar has dropped 6% in the same period and gold is up 12%).   The Dow was at 13,400 on 9/18 and it's up 1.4% since then so it seems like a pretty expensive way to boost the markets to me…

Effectively, with a 6% dollar adjustment factored in, the markets are at about 12,850 (x 1.06 = 13,621) after testing 12,650 (x 1.06 = 13,409) and that is, surprisingly, a good thing as
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k1 Project – Core Strategy I – Fundamentals

"The only thing I will take credit for is having an investing strategy that creates opportunity based on one of my success theories in life. That theory is: Success is very much a matter of being in the right place at the right time." – Phil

"The systems we use here were never meant to be a slot machine, it’s a new way of handling the markets so that you control your virtual portfolio and not vice versa." – Phil

The LTP strategy is the core of Phil’s approach. Though the minute-to-minute action through comments might lead you to think otherwise, the central elements of the LTP strategy are fundamental to any understanding of Phil’s approach:

  • selecting comparatively underpriced long calls
  • carefully selling short calls against those long calls
  • managing the position by retiring or rolling to maintain or enhance your advantage

If you’ve signed up with PSW to learn to produce the kinds of returns Phil advertises, consistently in up, down, or sideways markets, this is the strategy you’re here to learn. The strategy is presented in three parts. This is part 1, Fundamentals:

  • Fundamentals and Central Concepts
  • The Premium Business
  • Advanced Topics

The material is divided into sections to promote better learning and to keep the variations from confusing the basic description of the strategy. Once you internalize the central concepts the other sections are just icing on the cake. If the analogy to commercial real estate works for you, then you’ll enjoy the second section. The Advanced Study section is simply a place to collect some variations on the LTP.

Friday Virtual Portfolio Moves

November 2nd, 2007 at 9:41 am | Permalink   edit

DIA/BIDU puts/All puts – this was a nice chance to roll up, the “rally” of the pre-market is already looking weak. BIDU is going to be fun but always bid low and ask high as there is a window you can drive a truck through on this stock!

November 2nd, 2007 at 9:57 am | Permalink   edit

POT – damn, they shook me out of those the other day.

Woohoo BIDU!

So much for mattressing up, not looking too good is it?

November 2nd, 2007 at 10:07 am | Permalink   edit

Chubby – no way! This is what we were saving our brains for. Look at what a load of morons these analysts are. CNBC was declaring a bull victory right up until 9:29 based on a jobs report that has a 150% margin of error. Now we’ve got our 13,500 retest I feel a little more comfortable playing a bounce (if we get it) but that “rally” this morning was beyond suckers…

November 2nd, 2007 at 10:09 am | Permalink   edit

Wow, check out BAC! Something VERY bad is out there…

November 2nd, 2007 at 10:35 am | Permalink   edit

Holy cow, I had to go out for a minute and they bounce back!

November 2nd, 2007 at 10:41 am | Permalink   edit

Greg – with limited capital you run the danger of over-hedging. All it takes is a positive statement from C or Paulson (GS down $10 right now) and this market could snap back to 13,900. Trends look good right now so if you do have long puts – consider selling current puts against them (preferably $1 more out of the money than you are). That way you can buy and sell those with far less risk than leaving yourself exposed on a current month put if you don’t have a lot of money to cover.

This rally looks like it’s based on a dollar collapse. I see gold and oil shooting up and the Euro is testing $1.45. We have to be really careful when Europe closes as that may be where the money is coming from!

November 2nd, 2007 at 10:59 am | Permalink   edit

BWLD – I just have the Jun $35s uncovered. 8-(

FSLR – I’d take that profit and run!

GS puts – no they shook me out too. These bull rushes have…
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Double, double, toil and (more) trouble for financials

Today’s tickers: RIG, GSF, OIH, UTHR, C, WM, VIX, XOM, CROX

Barely a day after yesterday’s 25 bp Fed rate cut was lauded by the market as a largely expected “treat,” financials swooped in on a proverbial broomstick, sweeping away yesterday’s late-session gains and unveiling yet another “trick.”

VIX – The VIX took a 17% leap to 21.70 this afternoon, urged on by redoubled trouble in the financial sector. With nearly 158,000 option contracts in play, it appears that some traders may have taken profit on positions in the November 22.50 calls, which sold heavily on the bid as premiums on the contract rose nearly 86%. The November 25 calls also sold heavily, with prices on the contracts nearly doubling today. Action in the December contract showed calls at the 25 strike trading to buyers and the middle of the market for around $2.00 apiece, implying a move past 27.00 to cap off the year. A look at the delta on this call shows option traders pricing in a less than 50/50 chance of this actually coming to pass, but if we’ve learned anything of the financial sector’s exposure to the credit squeeze, it’s that this tale is a very long yarn, and with each week comes new iterations, new layers of the crisis.

UTHR –United Therapeutics, the maker of drug therapies for cancer, infectious diseases and other maladies, resisted the broader market selloff, gaining more than 31% to $89.50 – a 6-year high – on better than expected Q3 earnings and the successful completion of Phase 3 clinical trials for its inhalable drug Viveta. The drug has been developed as an inhalable version of its drug Remodulin, used in the treatment of pulmonary arterial hypertension. With nearly 68,000 option contracts in play, the bullish biotech cracked the top 20 most actively traded option series according to our market scanners this afternoon. Risk reversal in the November contract was a preferred strategy, with traders shedding puts at the 85 strike and buying calls at the newly at-the-money 90 strike to capture continued price upside. Meanwhile, in the January contract it appears that some traders sought to take premium on a massive inflation in January 90 calls. These traded to the middle of the market at $7.10 – having doubled in value from yesterday.

RIG, GSF, OIH – The session was also a cleanup for…
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Friday Already?

Come on bears, is that all you've got?

I called for a retest of 13,500 yesterday but below that and things may get very ugly indeed as we could easily drop back to 13,200 and even the dreaded 13,000 mark where we failed to consolidate properly back in August when we had the chance.

Just holding 13,500 would be great today but a quick bounce (possible off the jobs report) will again lift us to levels where there is little support.  Why are the funds and the fed so afraid to let the market consolidate?  That's what makes me nervous.  If the economy is healthy and the markets are healthy and the corporations are healthy then you let the Nervous Nelly's take their money out until cooler heads prevail and people come to realize the true value of the mighty US markets. 

That's how the markets are supposed to work.  It's how they've worked for hundreds of years, free markets are SUPPOSED to be a pure and reliable indicator of value.  If the government/GS (same thing) is not letting the markets "do their thing" then the logical conclusion is there must be something to hide – something so terrible that they would rather destroy the integrity of the measuring system than allow an accurate measurement!

Speaking of lies and cover-ups:  MER has apparently been mismarking securities with the help of hedge funds in order to make their losses on mortgage-backed securities seem less severe.  According to the WSJ: "The SEC is looking into how the Wall Street firm has been valuing, or "marking," its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer."  See, I told you CEOs don't leave over one bad quarter – where there's smoke, there is often fire.

I won't get into all the shenanigans as the WSJ article covers it very well but if you think the this deal is something only MER did you are truly on drugs.  The hedge funds bought $1Bn in bad paper from MER in exchange for a GUARANTEED minimum return and the right to sell it all back to MER.  The net effect is getting…
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Thursday Thump



I wonder what everyone is so worried about all of a sudden?

Well, take your pick I guess, you can use the cartoon above as a dartboard to pick something to worry about each day.  I predicted this post-Fed crash on Monday but it came a little faster and harder than I thought (I had declared Monday to be Jan 13th, 2000 – 5 days before the crash) but, looking at the banking sector's performance, it seems our problems may be deeper and more horrible than I thought.

I had a dozen calls and mails and 40 IM's yesterday from traders saying "What's happening?" as they were too busy dumping things to bother to find out why they were doing it.  By the end of the day I was just snapping back with the reply "Reality."

Our members had no such trouble dealing with reality as we were well prepared, not just for a drop, but for a drop that centered on the energy and financial complex, where we've spent weeks discussing how the Fed is simply not helping by placating Cramer and his hedge fund buddies while selling US consumers down the river on an over-inflated commodity raft.

We did our Virtual Portfolio Reviews on Tuesday to get ready for the Fed and I'm very glad I published the $10KP on the public site because we get a ton of questions as to how hard is it to follow our strategies and here we have 8 open positions designed for a $10,000 virtual portfolio that gained $7,464 in the 48 hours since it was published and anyone in America could have picked it up and played along.  That's not a bad performance considering the market went up 150 points Wednesday and then down 362 points yesterday but both the $10KP and the $25KP are designed to be hedged against catastrophic moves. 

As of the close, the $10KP (up 212%) is actually outperforming the $25KP (up 177%) but that is going to change drastically tomorrow as the $25KP has 10 LVS Jan $135 puts and LVS was much worse than we thought!  Congrats to all the $25KP players on that one and everyone else who kept…
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Thursday Virtual Portfolio Moves

November 1st, 2007 at 9:42 am | Permalink   edit

UTHR – and to think yesterday we were worried about the low end of the spread! The whole trade can be cased out up $3,600 and that’s plenty for the $10 and $25KP, it’s not worth finessing at this point, we could just buy some $85 puts, now $1.65, for the pullback but I’m happy where we are. XXX

November 1st, 2007 at 9:51 am | Permalink   edit

XOM/TSO – where were you for the past few weeks? Now it’s a little later – not terribly so but I wouldn’t want to chase things down today.

BIDU massively unrealistic! $360 puts back at $11, I’m bidding $10 and, unless the Dow bounces back to 13,800, I will just keep rolling up!

Posts – I did Mr. S but I was sidetracked today, we can talk about them this evening assuming there’s still a market to talk about.

CROX – doing nothing is the move for now if you can’t afford to roll but rolling to 2x the $60 puts at $8.60 and selling 2X the $55 puts at $3.60 is the correct move (but you need to lay out $6.50 per current contract). XXX

November 1st, 2007 at 10:10 am | Permalink   edit

C is trading like it’s the end of the world! I’d love to buy them here but this is an astounding sell-off and they blew right through the 5% rule at $38.90 so we should really wait for them to test that first. BAC popping back already, this is one of those best-case scenarios for my BAC 15% play as we get to take out a caller early and maybe get another sale for November.

ISM Manufacturing just 50.9, also very low and prices paid up from 59 to 63, that’s massive infaltion and manufacturing slowdown = STAGFLATION!

GLW – good thing to watch out for but OLED is a bigger threat than this.

Lots of SOX holding up but they have been so beaten down…

Last rate cut we were flat the week after.

GOOG barely budging.

November 1st, 2007 at 10:34 am | Permalink   edit

BMB/All – just be careful as your leaps are benefitting from a higher VIX – that’s why we roll down with our callers as we get the full benefit of a rebound as it becomes more intrinsic for us.

Days like…
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#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...

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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

Divisive economics


Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...

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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...

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 >>