Archive for 2007

(Safely?) Trading Dangerously

Of the many ways of viewing risk, two primary approaches are noted:

[1] Target mediocre to low rewards in expectation of profiting regularly and often
[2] Target relatively high rewards while recognizing that profits will be banked less frequently
The trader who targets approach 1 believes the probability of an obscure event happening to derail a position is so low that entering the position frequently will yield handsome returns. While the trader who targets approach 2 dismisses the statistical thesis on which trader 1 relies, recognizing that on any given day the market can do just about anything! 
For example, WellCare Group (WCG) dropped 75% of its value in about 2 trading sessions recently when surprising news was reported. A trader who had a low reward/high-risk position in play (perhaps an iron condor) perceiving it to be a high-probability play might have relied on historical statistical information to justify the entry of a trade but that didn’t help whatsoever when the stock blew past the put strikes!
Similarly, a trader that attempts to pin the strike is often engaging in a high-risk game of russian roulette. An account can literally be blown out of the water if the play goes wrong! Let’s take a look at Google as an example.
Google is famous for having its strike pinned on expiration day. It happened in August, it happened in September and then came October. For those of you that love the play, October was absolutely the wrong time to play ‘pinning the strike’ with Google. Google, in fact, appeared to be holding steady for much of the day but in the last half hour dropped 5 points quickly. But why was it a wrong time? 
The first obvious reason not to play the pinning game in October was earnings had been announced the day before. The rule to which I typically adhere is to stay with a trend and stick with a pattern UNLESS the stock is about to report earnings (or is a biotech stock – they can be crazy like a fox!). Earnings

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k1 Project – Core Strategy III – Advanced Topics

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:

The k1 Project


I have come to doubt the veracity of Phil’s professed performance returns, as well as the usefulness of his strategy. Caveat Emptor – k1

"The will to win means nothing without the will to prepare." – Juma Ikangaa

Welcome friends to a journey I began this past summer, to understand how a trader and blogger who kept coming up in my Quicken news source (by way of SeekingAlpha) was consistently producing the kinds of returns I had been taught to believe could only be snake oil.

Weekly Wrap-Up

Wow, what a week!

The Dow went from 13,000 on Monday afternoon all the way back to 13,350 at Tuesday's close and back to 13,060 on Thursday afternoon.  The fact that we called the moves ahead of time gave us, yet again, one of our most profitable weeks of the year.

Last weekend I talked about the absolute importance of virtual portfolio balancing and I'm thrilled to see a lot of members really starting to get the idea that we can maintain a well-balanced virtual portfolio and still have a great time playing momentum on the fringes, having 90% of the fun with less than 25% of the risk!  This Friday was a very mellow options expiration day as everyone was very well covered and the marked did us the very great favor of juming right into our predicted trading range.

We came into Monday morning looking for a bounce after a very painful week where we dropped 600 points in the last 3 days.  As grim as things looked, I posted up the Big Chart and said: "I’ve decided to hold onto our current chart levels until it is really time to give up."  While this is not the place for a Big Chart reprint I'm happy to report that we did manage to hold the line in the US on all but the SOX (down 10) and the Transports (down 45) and, given that this was an expiration week, I'm almost willing to give it a pass.  Europe and Asia held up aw well with India actually making 1,200 points of progress as the rest of the World flatlined. 

Monday afternoon our virtual portfolios took a huge hit as the VIX ran up our callers but I pulled out the trusty old Hitchhiker's Guide and told members not to panic as we took advantage of the situation by selling MORE November calls for huge premiums.  New members should read this post as I went into detail about strategy to use at the time while the market was moving against us.  I made a nice Free Pick in the wrap-up of the ETFC Jan '09 $5s for $1.50, which were still available for…
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Friday Virtual Portfolio Moves

November 16th, 2007 at 9:30 am | Permalink   edit   copy

FDX lowered guidance – big party poopers!

November 16th, 2007 at 9:48 am | Permalink   edit   copy

CAKE – I’m not going to give him a quarter, I’m pretty sure they’re pinned and I’m willing to hold naked into next week if we close green (the market, not CAKE).

This rally does not look very encouraging, make sure you cover all! XXX

November 16th, 2007 at 10:01 am | Permalink   edit   copy

 AMZN coming back a bit.

MCD and JBX doing well, someone is sector buying fast food.

Apple entries – All I do is put in what I wish I could pay and, once it’s filled I focus my attention on when to cover it. Richt now I’ve been too busy rolling to focus on Apple but the move is to start the down leg by taking the $150 puts at $5.53 and waiting on selling the $165 puts as long as possible. Obviously, when you decide to cover the puts is when you decide to enter the $180 calls (now $5.15) and then you make damn sure you cover them on the next turn, even if you’re wrong. Unless you are a really great timer, best to leg into the spread a couple at a time.

Market really tanking now, time for DIA 131 puts! XXX

November 16th, 2007 at 10:23 am | Permalink   edit   copy

Watch 13,100, 1,450 and 2,600 for breaking back up lines. Hopefully we’ll hold here but there would be nothing strange about a 100-point drop.

Oil up $1.71 on nuclear BS in Iran and now Chavez wants nukes or some BS – they all know the key words to pump oil on the right day don’t they? Such a joke.

RIMM fell below $100! Huge volume sell-off but still looks like a pin to me.

GOOG roll – you have 13 months to roll him, what do you care if GOOG goes up $46 and you have to give him his $21 back? You will be sitting on ‘09 $630s that are $41 in the money. The $46 in the money ’09s ($580s) are $145 and, more importantly, have $45 MORE INTRINSIC VALUE than the $640s. You have to understand that when you are out of the money, your premium can vaporize just like your caller’s! It doesn’t matter much with 13 months…
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Lehman vol seeps higher in midafternoon meltaway

Today’s tickers: LEH, WSM, BUD, CBG, HRB, RHT, LVLT, XLF

LEH – Yesterday afternoon, Lehman Brothers’ Chief Administrative Officer said at an investor conference that the firm is “very comfortable” with its valuable of illiquid Level 3 assets, but a look at developments in implied volatility and put volume this afternoon show a level of discomfiture in Lehman’s share price action ahead of tomorrow’s option expiry. Implied volatility surged more than 17% this afternoon to 54% against the backdrop of a 4% decline in share price to $62.65. A look at the option action shows selling pressure in the November 65 calls, where premiums have eroded some 77% on the session, to $0.30, while traders have sought to buy puts at the 65 and 60 strikes. A look at that November 60 put shows a brash bearish bet indeed – given today’s premium, in order for that position to break even at $59.72 tomorrow would require a further 5.2% drop for Lehman shares in the space of a day. Buying in the December 60 puts occurred on a volume of some 7,600 lots. A look at the ratio of open puts to calls in Lehman Brothers indicates that put open interest is at a 52-week high, with 1.35 puts outstanding for every call.

CFC – Implied volatility in mortgage lender Countrywide Financial also took a leg higher, up 16.7% to 95.2% as of this afternoon’s dispatch. The action in Countrywide is occurring against the backdrop of a more than 7% decline in its share price to $12.40, within around 50 cents of its 52-week low, amid rueful prognostications about the duration and severity of the current housing slump. Earlier this week the company announced a 48% drop in monthly mortgage volume for October and a steadily increasing rise in mortgage delinquencies. This afternoon’s option volume shows selling pressure in Countrywide’s November 12.50 calls, with calls at the 15 strike in the December and January contracts selling to the bid on volume of around 2,500 contracts each.

VIX – The afternoon hit for financials sent the Volatility Index careening 7.7% higher to read 27.94 as of this afternoon’s dispatch. On the options front, the most heavily trafficked contract was the November 22.50 put, which sold off heavily even as their value eroded 55% on the session. The November 25 calls were bought on a volume of 13,500 lots with…
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Finally Friday!

Let's see if we can end this week with a bang! 

We got our callers off the table and it would be great to get a nice pop to sell the Decembers into but I'm not going to get my hopes too high, the market has a way of crushing your dreams lately.  I've got my eye on a WSJ story this morning that the $2.5 Trillion tax-free muni-bond market is having troubles, not because of the instability of the local governments who back them (that WILL be an issue if the economy worsens) but because the insurance companies like ABK who back these bonds put THEIR money in the wrong places (CDOs) and may not have the reserves needed to maintain the integrity of the system.

ROFL – what do you do when your insurance company is no longer insuring you?  What if you paid them in advance?  This is not just a concern for municipal bond holders but what about those beleaguered title insurance companies who got paid in full when you bought your home but now you have companies like FAF (and ABK reinsures title too!) involved in lawsuits with the NY AG, and having their pension program questioned while earnings are off 50% from last year and the stock is ALREADY down 40% since June.  With title claims on the rise due to a very active foreclosure market – do these companies have adequate reserves? 

That's a pretty big other shoe that may drop on the markets.  GS's chief economist, Jan Hatzius finally got around to reading my column and matched my target saying his "back-of-the-envelope estimate of credit losses on outstanding mortgages, based on past default experience, was around $400 billion."  According to Reuters: "Unlike stock market losses, which are typically absorbed by "long-only" investors, this mortgage-related hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises. And leveraged investors react to losses by actively cutting back lending to keep capital ratios from falling — A bank targeting a constant capital ratio of 10 percent, for example, would need to shrink its balance by $10 for every $1 in losses."

"The macroeconomic consequences could be quite dramatic," Hatzius said in the note to clients. "If leveraged investors see $200 billion of the $400 billion
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Thrilling Thursday Wrap-Up

Another fantastic day in the markets!

There's nothing better than being well hedged and having your callers evaporate into expirations.  Of course this could all end in tears if we don't hold my 13,000 line but that's what mattress plays are for so we're not going to worry about that until we have to.

I ended the day buying DIA calls of all things so we'll see how that works out.  Seeing the Dow kind of, sort of hold 13,100 in the afternoon gave me hope that there were buyers out there, timid though they may be. 

We had nice Daily Doubles on the XOM and CVX $85 puts as we nailed the inventory build before hand and they both flew straight down from our very cheap buy points.  We even felt good enough about a market bottom to make a play on HOV, although not so good that we didn't cover it!  After the spectacular death of our Googlefly play we got some nice entry points on our new Applefly and hopefully Apple will continue to flatline today so we can add more to this one.  Entries were (all December):  $165s bought for $5, $180s sold for $11.75, $150 puts bought for $4.50, $165 puts sold for $12.50. 

It was very easy to buy and sell on momentum yesterday, unlike the IronBIDU, which was unfillable, the Applefly play has cheap enough entries on the puts and the calls we bought to be able to buy them naked and THEN sell the cover.  Feel free to check with me tomorrow for timing issues if you haven't filled yet, with this set of entries I'll be looking to DD on this play if possible.

Aside from Apple going up $3 and down $8 during the day we are also taking advantage of the fact that there are lots of buyers for the close plays (so they are "bidding" up the price) and less for our out of the money covers.  Also, remember our goal is to roll the outside puts and calls $5 closer to the money for $1 to cut our risk, which can only be done the play is going AGAINST that side so it will feel like throwing good money after bad but it's an investment worth making.

I think we can blame WFC's CEO Jon…
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k1 Project – Covering and Hedging II – Complications

"Hedging is, in part, an admission that you may not know everything – that you may in fact, be wrong about a few things and are willing to pay to insure against that possibility." – Phil

Thursday Virtual Portfolio Moves

November 15th, 2007 at 9:39 am | Permalink   edit   copy

GRMN – too trendy for me (although I like CROX). I do like the Apr $95s for $12.20 because you can roll to the $90s for $2 and the $85s for $4.50 and you can sell the Dec $95s for $4.50.

LTP – you can look at the main virtual portfolio view or you can assume a position of a similar strike price that is Nov or Dec is a sold position and not a LONG TERM Virtual PORTFOLIO position.

Thanks Opt – it is a nice, mellow way to enjoy the markets…

Respect the channel guys, we may be here for a long time!

November 15th, 2007 at 9:44 am | Permalink   edit   copy

I really was very surprised at how many of those LTP positions I’m bullish about, it made me think long and hard about whether or not we can really bottom out here and I think if the dollar can hold up and we don’t go racing back to 13,600 before we’re ready, we could have a nice Dec/Jan but I am worried about my 14,500 by summer target.

November 15th, 2007 at 10:02 am | Permalink   edit   copy

DRYS has a lot of debt and little cash and will not fare well if the global economy slows down. That’s a big if by they are not what I consider a bullet-proof stock.

Premiums dropping – that is the point of staying at least 6 months long, it insulates you (and lets you take advantage of) volatility fluctuations.

November 15th, 2007 at 10:24 am | Permalink   edit   copy

I was hoping for more of a run in the oil patch this morning, not to many fun plays to short into but the XOM $85 puts will make a nice mo play if there’s a build a swill CVX $85 puts.

GE – yest to the ‘09 $40s. As a shareholder (my retirement account) I like the fact that they would rather own up to the loss than put $24M of their own money into it (as that was all the gap was) to cover it up.

November 15th, 2007 at 10:26 am | Permalink   edit   copy

HOV ‘10 $10s for $4.55, selling the Dec $10s for $1. XXX I’m willing to risk $3.55 that they don’t go bankrupt against a 25% monthly income!

November 15th, 2007
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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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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 ... more from Insider

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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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 >>