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Testy Tuesday Morning

And another hurricane bites the dust!

This is turning into another disaster for natural gas traders, who ran up the price up to $14 just 4 weeks ago from $7 at the beginning of the year and now, 30 days later, it's back to $7.  Of course, as Secretary Paulson will tell you, this is due entirely to fluctuations in supply and demand as speculators play only a very small part in the futures market but I'm not even sure we're done going down yet.

The "demand" for natural gas futures at this time of year is based on the "supply" of people who believe there is going to be a hurricane or a war or something to cut off the very plentiful actual supply of natural gas, which we do not import from overseas and is (see Zman's chart) drifting along at the upper end of the 5-year average storage levels, a little below last year, when we were bursting at the seems with natural gas in the US.

We won't get into the scam that is LNG here, other than to remind you that this is a scheme to INCREASE imports of energy into the US of one of the only things we have plenty of.  The key to the drive to build LNG terminals is that energy companies can store months' worth of natural gas in the ground, rather than be forced to sell it at market prices as it's produced.  Recent failures to get a plant under construction on the Taunton river in MA were the last straw for traders, and gas prices fell almost 20% from the point the plant was essentially blocked (July 18th).  CHK, who routinely have had to cut back production the past two years to prevent US storage from overflowing, have been in free-fall, dropping from $74 on July 1st to $44.92 yesterday.

Natural gas averaged $12 in Q2 and is already averaging less than 9 this quarter.  Coupled with a mild summer, this goes hand in hand with falling oil prices to give consumers a huge break so far in Q3.  I mentioned in last night's post, most of the data we've been looking at is backward looking and we're hitting the reports that show our economy with oil at $145 and natural gas at $14.  It will take more than a month for us to get a picture any sort of recovery, but let's look for early signs and take them seriously.

Meanwhile the market is, as I predicted yesterday morning, back in it's depressive state and we'll need to watch our levels to see how low we can go.  I'll be bottom fishing in the banking sector and GOOG is getting very attractive under $500 as will AAPL be if they can test and hold $170 (the 50 dma).  I'm expecting AAPL to test $170 as news is out of Japan that IPod Nanos are overheating while they are recharging.

We'll be watching to see if the Dow can retake it's 50 dma at 11,578 and we need a 100 point gain just to get there.  The S&P is closer to the target at 1,286 but anything over 1,275 will make me happy.  The Nasdaq finally gave up the 200 dma yesterday at 2,425 and has a big drop to the 50 dma at 2,350 if things turn sour in Techland.    2,410 is going to be the line in the sand for the Nas, if we don't get a bullish bounce there, we are very likely to head to the lower test

The NYSE never did get it together and has been drifting along between 8,300 and 8,500 for a month and it's the NYSE I'll be looking to for a clue on which way we go.  That 8,300 mark is critical for the 2,764 companies the index tracks (Nas is bigger with 3,200) as we are looking for that sector rotation to drive us up through the 8,500 mark this month.  Semis also face a critical test at 365 as do transports at 2,450.  Losing these levels will be a very bad sign and very likely lead to a retest of the July lows.

Our PPI came in at a tragic 1.2% and is the same joke as last week's CPI so I won't waste time here telling you what idiots the "economists" were who were forecasting 0.6% for July as these are the same idiots with the same clueless forecasts.  For those of you keeping score, PPI was 1.4% in May (oil averaged $127), 1.8% in June (oil averaged $135) and now 1.2% in July (oil averaged $130).  Let's see if clever econonomist will be able to figure out what will happen to the PPI with oil averaging $117 so far in August…  They say the market is a forward looking mechanism and last Thursday we looked at the CPI numbers and decided to move past a very bad open and BUYBUYBUY into a 250-point rally.  This morning the Dow is likely to open at the same 11,450 we tested on Thursday but today we also have anemic Housing Starts and Building Permits to also weigh down sentiment even though lack of new housing allows us to burn off inventory, which is actually a good thing…

Nothing was good in Asia this morning as markets there fell to a 2-year low with the Nikkei falling 3000 points as the BOJ held rates steady at 0.5% but downgraded their assessment of the economy.  The Hang Seng dropping 446 and  Australia also hit the 2.5% rule to the downside and the Shanghai was a bright spot for a change with a 1.5% gain but really just a bounce off yesterday's 5.3% drop.  China Merchants Bank jumped 3.2% as first-half profits more than doubled and led a rally in the financials over there.  Miners continued to fall, even BHP, who had very good earnings just yesterday

Europe is down 2% ahead of our open, spooked by the financial sector but German Investor Sentiment finally improved, rising from -63.9 to -55.5 (still awful) and was, of course, nowhere near "economists" expectations of -62 points.  Current conditions hit a new low in the survey at -9.2, the worst level since February 2006, when it stood at -19.5 – the beginning of a year where the DAX climbed 25% so I'm actually more encouraged by the turn in outlook than I am discouraged by the drop in sentiment.

Like last Thursday, we'll have to play this one by ear but I'll be a little quicker to remove covers and jump on some momentum plays today if it looks like we're heading higher – if we can shake off today's data, we should be looking more forward to a retest of 11,700 than backward to 11,450.

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  1. Unlucky Phil – Ramana posted in yesterdays report :-(

  2. Oh well!

  3. Things not looking good out there. GOOG and BIDU very weak premarket. UK a complete disaster zone FTSE -2.08%

  4. Phil – I was just trying to understand your system. And last night I think I got closer by finding the theoretical price feature in ToS. It calculates the future (theoretical) price of an option based on future date, movement of stock and change in volatility. I was able to play out your GOOG example for 2 months without a problem assuming 20$ – 30$ movement in each month (which I know for GOOG can be chump change). Frankly it was clear as day using that.

  5. Phil – I realize you added FRE to the Stock portfolio.  Any thoughts on adding it to the LTP?  Thx

  6. oops – just found the position in the LTP portfolio.  Ignore my last comment.

  7. Cnicola – That’s good, I need to try that tool, it sounds useful.

    FRE/Dal – Long term?  We have to be sure they will exist long term first!   Also, they are too volatile in the front-months we’d need to sell.  If a stock doubles up on you when you have a caller, you can get killed.   The bets we take are month-to-month, hoping they make it to expiration day.  As a long-term stock to hold and sell calls against, I do like the risk/reward down here.

  8. FRE – That LTP position was there from July and has already paid for itself over and over again.  Notice it’s 2/3 covered with a position $1 over the long.  Be very careful!

    GOOG/DTP – Don’t forget our goal to roll down our caller to lower strikes at $4.50 per $10, we will DD once we think we are happy.

  9. Nikkei

    You’ll scare people with that 3,000 point drop.

  10. FRE

    You can also straight up sell the front month Puts naked; takes almost no margin.

  11. FRE

    I sold the $3 Puts yesterday for .45.

  12. wow, AAPL leading us well right now.

  13. UYGs holding up nicely.

    All going according to plan so far, taking out callers I’m up 50%+ on. Down to GOOG $500 calls at $17 in DTP.

  14. Phil, i am taking out my MDT callers.  Are you still staying covered?

  15. Does anyone know what time they open the SKF options?

  16. Good morning. 
    I was able to roll down my GOOGs  NICE CALL BTW!
    And sold 1/2 of my WFR 45 put position.

  17. MDT – I didn’t have callers but I wouldn’t take out callers into a spike unless I think it’s really hopeless.  They get a short-term boost in volatility and there’s no reason for you to pay for that, perhaps a roll up to the next level or out a month if you are really buried.  The Q was really good and if the market wasn’t way down, they would probably be doing better. 

    LOL, the UYG $22s we picked up yesterday are HIGHER than they were yesterday, what does that tell you?

    Cool Texas!

  18. Phil, I am actually covered with 55′s.  debating whether to take out callers.  I doubt MDT will be above 55 at options expiration, so i’m inclined to stay put.

  19. Phil,
    Speaking of WFR, we still have the Oct. 45 Puts uncovered in the 10KX. What should we do with those?

  20. $10KX:
    Huge apparent loss on GOOG spread, pay no attention as it’s all premium of the putter, we’re still on target. 
    FRE sucks!   Let’s sell our Oct $7.50 puts for $3.70, that leaves us naked on the 5 Sept $7 puts and we will be frozen until we buy them back, hopefully for less than $2.50 on a good bounce (they were $2.10 yesterday so be very happy with that).
    HOV – DD at .35, we’ve done this before…

  21. ok, the SKF options are open now

  22. UYGs 22 mines are at .95 bid and bougth yesterday @ 1.13 so  .. don’t see much highness here really, but they are holding nicely 19.40..  
    on INTC nice dip to buy back callers @ open now just 1/4 cover

  23. MDT/Jo – Well it’s only $1 but it’s also all premium but it’s also a long way to expiration so maybe take a few off as that was a good report. 

    Holy cow!  Now Fisher has to come out with negative comments?  "Housing not bottomed yet."  "Next several quarters will be unpleasant."  Talk about a coordinated attack!

    WFR $10KX/JB – I don’t remember having those in $10KX.  We do have them in the $25KP as part of a butterfly with Jan $50s and the Sept $50 puts and calls sold against. 

    SKF/MJ – I hope you are going for puts!

    UYG – possibly they were slow to reprice… Now mine are down too.    XLF was also very slow to reprice.  If it blows 20 we are in bad, bad shape as our indexes are not looking as bouncy as I’d hoped.    Fisher really put the screws to the market this morning.

  24. UFFF out of those UYGs @ 95 bye bye

  25. SKF sold some Sep 150 calls at 7.4 against my Jan 130 calls (adj basis of 19).

  26. $25KP:
    TASR is up (.05)!
    GOOG  – Same problem as $10KX, looks bad but isn’t.
    UYG – In this one we sold the $22 call so let’s look to take them out today, setting a buy back stop at $1 with a .20 trail from .80.
    AMZN – fine
    GOOG – Fine as we have a $500 caller.
    VLO – right on target.
    WFR – Fine

    That one was easy.  This portfolio is now pretty well balanced.  Sometimes it takes a while to get there but once you find a good balance, it becomes a pleasure to maintain.

    XLF testing $20.  You would think the world is ending…

  27. WFR – Sorry Phil, yes the 25kp. I don’t remember selling the Sept 50 Puts (just the call side).

  28. Butterfly Collection:
    Also holding up quite well and mostly cash now.
    BIDU – I was worried there as we took out callers yesterday.  Let’s sell those $310 puts for $18.50
    AAPL – Up despite the exploding Nanos.  That’s cool as we have no callers.
    MA – Just right at the moment.

    Taking a huge beating with BAC and C putters in the money and our common HOV and FRE getting slammed.   Nothing to do but wait here, lots of cash to bottom fish with but let’s see a bottom first.

    Day Trading:
    We’re just in the GOOG $500s now at $17 and the UYG $22s at $1.10, those we will DD at .80 if possible.

  29. BAC was a very easy trade from last week or 10 days back when it failed to break above that difficult 34 resistance level. I bought some Jan 30 puts then, sold aug puts which expired worthless. Now I am short 27.5 puts at 1.4, will be glad to own some BAC at 26.1, especially when I sold out all my BAC above 32.

  30. will line up some orders for SKF April 2009 puts if this damn thing spikes to 150.

  31. Phil,

    Can your review the GOOG flys in detail by position?  I just wanted to know if there is anything thats not covered.

  32. TASR busts through $6, a pattern of bucking the markets since last week.

    CEPH flying.

    XLF $19.95, this is tragic!

    OIH holding up.

    Some LTP notes:
    BA 2010 $60s are a fantastic deal at $11, I have too many already.
    AIG seems to be holding $20.  No hurricanes is good for them.  2010 $20s are a good gamble at $5.88
    BAC being given away at $28.25 and I’m selling the $27.50 puts for $2 in stocks (20)   XXX
    C – really, how could you not sell the $17.50 puts for $1.35.  You aren’t willing to own C at $16.15?  They just paid a .32 dividend on the 31st, that’s $1.28 in dividends alone!  Jan $12.50s at $6.72 when you can sell Oct $20s for .75 are one of the best LTP plays ever!

  33. GOOG/Reb – All in the $25KP. 
    We have 20 $510 puts sold against 10 each $500 puts and $520 puts.
    We have Sept $510 puts and Sept $500 calls sold against the Dec $460 calls and Sept $530 puts
    We have Sept $510 puts and Sept $500 calls sold against the Dec $460 calls and Dec $510 puts.

    It’s time to roll the Sept $530 puts in the $25KP to the Dec $510 puts for +$7.50.  XXX

  34. will nibble some OIH puts around 185.

  35. Phil- on the 25kp, weren’t you going to start a fresh one after Aug exp?

  36. More LTP notes:
    CCJ -  I"m going to DD on my 2010 $30s around here.  This is not a good stock to sell against as they are too likely to pop but $28 is a ridiculous price for them. 
    SNE Jan $40s at $2.70 are a very good deal.
    TIE putting in a bottom, loving the Jan $12.50s at $1.35
    T – I don’t know how they got so low but crazy that you can buy 2010 $35s for $2.27.  Good play for the patient.
    VZ – That fiber thing is selling well.   2010 $35s are just $3.60
    XLF – 2010 $17s are back to $4.75, where I came in last time.
    WFR 2010 $40s at $17.50 have just $7 in premium (.50 per month) and you can sell $50s for $2.35 but probably $4 on a move up.
    USO – my putter is killing me! 
    TXN – Nice chance to get in on 2010 $25s at $4.  These guys were $32 in May and $27.50s can be sold for .25, 16 of those sales pays for the long…

    Meanwhile, things are getting worse, not better so think of this as more of a shopping list.  After Fisher’s comments, it’s kind of unlikely we turn around today unless something actually comes out to change the mood.

  37. USO — it is high time that it dropped below 90, come on already!

  38. WOW TASR…any news?

  39. MJ – Hmmm, I’m gonna long USO stops below 90.35. Might get a couple dollar move.

  40. $25KP/Bon – If I was I forgot.  I’m pretty happy with the mix we have now, hate to change it for no reason and we got into some butterfly trades that will take some time to resolve but we’re not taking on new plays that aren’t appropriate for a $25KP.  This one is up to 48.4% today, that’s up 8% from Friday in this crappy action - not the kind of thing we want to cash out for no reason.

    TASR up because former head of MSFT Business Development joined the team.  This is a bit of short squeeze more than a real shift so good time to lighen up if this run helped you.  XXX

  41. Nobody makes mealtimes easier than Bon Vivant!

  42. Phil,
    Any USO/OIH moves before tomorrow?

  43. ^ Is that you Bon???

  44. Cause that’ll be wicked. Food is my weakness.

  45. PHIL:
    I am glad I get away for a while from this market, Alaska tomorrow,
    being away until Sep 2, I have covered most and have DIA PUTS,
    August should be a slow month, OPEX is in 31 days, a long time,
    XLF, C, V, AXP, UYG all beaten down again, again there is news about predicting that within a few month a MAJOR bank will go under, my attempt to hedge these with SKF has been unsuccessfull,
    AAPL,  RIMM, BA : cover until early SEP.
    Any comments ???

  46. Airlines and travel stocks getting hammered despite oil going down.  Sentiment must be that global economy is really, really dead…

    Ags making up ground, gold stocks coming back, OIH doing well – not the group we’re rooting for…

    VIX STILL CAN NOT HOLD 22!!!  That was our key indicator last time that we found a bottom, the VIX for 2 days couldn’t take out 22 despit being out of phase with it’s usual 1:100 ratio to the Dow’s move.  I’m very happy about that.

  47. DM, seems like your long USO might work again! Your model seems to be kicking ass! If crude closes strong today (futures expiration), we might see higher prices in the near future.

  48. TLT close a breakout, SKF just crossed intraday 2nd level resistance, TICK 5 minute chart headed south, and VIX crosses 20 dMA. Not looking good for the bulls today

  49. bullish engulfing candle on ISRG if it can hold. sold sept.  calls against my  leaps

  50. USO/Emo – Not touching them right now.  At $110 I’d be inclined to buy calls but this is a wishy-washy spot. 

    Dow is being trashed by the financial sector (XLF off 3%).  AIG down 6%, AXP – 3.5%, BAC – 4.4%, C -2.5%, JPM – 3.3%… Those are most of the Dow’s losses so I’m not really too worried about them.  This is one of those days when I need to give my motivational speech that the markets do go up AND down and if you can’t learn to buy stocks you like when they are down then it will always be hard for you to make long-term money.  I think this is a great, investable bottom and I just listed a ton of good stocks to play so take it for what it’s worth…

    RMM – I think you are fine and I would take the profits on those SKFs and roll down the longs (assuming you are Jan or further) on the financials.  One may go under but not all so as long as you are diversified you have a good chance. 

    TASR still going!

  51. MJ – lol we’ll see if it lasts to completion. No point if it ends pre-maturely. Chicks don’t dig that.

  52. DM, LOL.
    I bought some USO to follow along your trade.

  53. PHIL……This 85 yr. young who yearns to learn appreciates  very much the frequent posting of LTP plays.  Once I’m com-fortable with these I’ll warch to implement some of your daily morning recs.  Appreciate all the info from the young whippersnappers on the site, especially the jokes.  Oh yeah—-as the real estate guys (and gals) say  "Get a lot while you’re young." I was "heavy" in real estate but no longer(that’s a pun)..  GABBY

  54. Solar plays holding up.  WFR too.

    ISRG doing nicely.

    Oils making a comeback despite flat crude, I think a lot of people are betting on inventory tomorrow.  Only 65M Sept barrels remaining to get dumped at the NYMEX.  Oct up to 300M already but still room for more.  Next month is when they run into rolling issues as Dec already has 175Mb stuffed into it at $113.72. 

    BHP good mo play.   Grabbing 20 $70s for $1.15 in DTP for fun, out at .90, looking for $1.75+   XXX

  55. LOL Gabby :)
    Phil- thanks for the LTP notes, I think the format really helps, getting your quick thought on a particular leve is helpful, even if it does not lead to any action. No action still requires a decision not to (impulsively) act.

  56. Phil,
    The stock club needs your attention immediately.  There is a recommendation to start putting it into a cash position starting immediately given the substantial losses we’re incurred and the continued excessive losses we’re incurring on a day to day basis.  Please put your attention there ASAP.

  57. Good call on ISRG Yogi.

    Gabby – Real buying in the 70s must have been fun!  I was into comic books at the time…  8-)

    Wow, whole energy sector getting bought.  Coal, gas, majors…  I’ve gotta think someone is going to come out with a sector upgrade or maybe Rent-A-Rebel scheduled for tomorrow morning.

    Those 65M remaining NYMEX barrels have been traded 178M times today – now THAT’s supply and demand in action folks….

  58. Stock Club Casper – Are you authorizing a cash out?  Very likely the worst sense of timing in recorded history but if that’s what people want then sure…

  59. Anyone here watching FMCN?  Great earnings and outlook.  Very strong so far.

  60. Not me.  The whole club is imploding.  Please wee most the recent emails.  Your explanations and plan are desperately needed.

  61. Casper – no recommendation. Its lot of noise.

  62. It’s more than noise.  Phil needs to addess the clubs needs ASAP.  Lots of people have lost more money than they ever expected and consequently we have significant issues that can only be addressed by Phi.

  63. Apart from some USO calls, I am planning to load up on commodities POT, CHK, MEE and X

  64. MJ – Sold USO… Got my couple dollars for the 10 cent risk hah. Not too bad…

  65. Some good news about AAPL, amazing…

  66. Phil, is it possible to have a conference call with all the stock club members regarding this mess soon!

  67. How are you doing on it MJ?

  68. DM, thanks. I am still in the trade. I think the banks are collapsing, there is no were else to go other than the commodities. And tech is a perennial short for the big boys.

  69. Gabby – LOL You are by far my favorite.

    MJ are you in the stockclub?…. Phil Is it possible to see your positions in it? Maybe the community over here can help.

  70. Using Person Pivots in TOS shows that intraday SPY, DIA, RUT, QQQQ are all heading for a critical area of support. This particular level of support has been a pretty good predictor of sentiment and direction for several months. My guess is if 3 out of the 4 are violated nearly simultaneously in time, it is very bearish. But if they hold, it probably represents a bottom for today and perhaps a reversal tomorrow.

    SPY at 125.84
    DIA at 112.65
    RUT at 728.03
    QQQQ at 46.59

  71. DM, do you mean on the stock club? As was mentioned earlier we are down more than 50% and the bleeding doesn’t seem to stop there.

  72. MJ – Interesting thinking. Well have fun with all the $$$$$$$$$. Maybe I would’ve done the same, but I set my TP at the same time as my entry on that one.

  73. Rolling AIG 2010 25′s to 20′s for 2.00.  Will sell some Sep 22 to cover half the cost.

  74. Stock Club – that’s fine and I’m putting something together later.  I did see a mail going out that the balance dipped $30,000 this morning and now that it is up $40,000 from that point I expect we will now get emails saying how much better everything is.  Whoever decided to allow members to start at the account all day like it’s a horse race made a huge mistake as plays take a month to develop and this is day 2 (with both days being down 150+).  Panicking out of positions would cost the club a phenominal amount of money so it would have to be a pretty clear cut vote to "put it into a cash position" but that is your call, not mine.  I’m the guy buying down here…

    The Stock Club initiated an LTP strategy at the top of what is now a 3,000-point market drop over the 4 months it’s traded.   There are 8 months left to the year but running a portfolio by committee is never going to work and we will discuss that after the markets close with club members.

    Wow – Oil flew up to $115!  That’s what all that buying was about…

  75. anyone know what happen to the price of oil?

  76. MJ / Stockclub – Really sorry to hear that…  I think we have a lot of smart traders here and maybe it’s time to test out the community?…. I’m sure there’s lots of good traders here that can share some ideas on the positions. I’m not asking for an opportunity to mock… But I am interested to know what sort of trouble are you guys are actually in.

  77. Just read your comment Phil. For sure, you’re the boss.

  78. Phil, re the Stock Club – I totally agree with you. Madness to cash out at the bottom. That’s what suckers do all the time.

  79. Conference call – if someone wants to set one up, sure.

    Stock club – oops, make that just a 2,000 point drop…   Actually our biggest losses came the last time members panicked and insisted on covering everything at the bottom of the last big dip in July, we got murdered by the callers on the bounce into expiration.  Right now is a terrible market for trading an LTP strategy, our main LPT took a 20% hit this week, that’s what happens when the market turns down hard.  Over the course of a full year, it’s done very well because we give it a chance to come back.

  80. Phil – Your take on Canadian banks especially CM and TD. CM has acknowledged some exposure but has been beaten down a lot while TD does not have any exposure to sub prime issue (atleast as per the last earnings report). Earnings coming out early next week Aug. 27/28.

  81. USO – Now I’m tempted to short into inventory but whatever was up it was something very big as all commodities started flying a while ago.  I would say some speculator took a huge position but our government tells us there is no speculation so I guess it must mean someone really needed some oil and nat gas and grain and gold and silver and copper and corn and wheat for a party this evening…

    TD/Bballer – That’s a pretty good idea.  I don’t know about CM as they blew last Q but TD missed by just 1.5% and looks very solid.  Earnings are on the 28th and after this sell-off I’d just grab the Oct $60s, whiche were $2.40 yesterday for $1.45 and just look to get out on some pre-earnings excitement.

  82. Look how happy Sharon is!  Oil at $115.60, apparently over Russia continuing situation and now she says hurricane (tropical storm actually) MAY take a turn and there are SOME models that say it could head that way and that MIGHT shut down SOME oil and gas facilities…  Man, that is a stretch but look at the sheep fly back into that sector.  This is why I said we could bounce from $110 to $130, it’s just like housing, they can’t accept defeat.

    So we are crushingly down on a global slowdown and worldwide recession we will not recover from but commodities rally???  Someone is wrong, either the commodities or the financials…

  83. Re Stock Club, LTP

    I´m also very fearful here at the moment, my LTP is also down a lot. But be sure you are doing nice if you choose this strategy and be very long and very patiant you will have gains also with no covers.
    I uncovered half my C callers and waiting now also thinking now of uncovering more.
    If the market drops again don´t cover at the bottom, that is the worst we can do. better wait a month for a rally to cover in.

    I really think like Phil this are all the same old storys with exception of a few new bad and good storys that occur all the day.

  84. SPY collar – I think we just bottomed for the day and I closed the vertical part of the collar (SPY 132/131)  for 1200 net gain. Still long 40 SPY SEP 138 but really just looking to make back a few hundred to increase net gain and will close.

    Started 82 XLF DEC 23 calls long/OCT 22 short for .18 debit

  85. phil
    if i am fully covered with sept 500s on GOOG, would you recommend uncovering a bit here?

  86. DM, ha, ha, ha.  Nope, that ‘s not me.  But, I do like food . . .

  87. Phil, so for those wanting to enter 25kp, its ok to enter any new trades initiated going forward [just making sure]?

  88. DIA -started 50 SEP 118 long/SEP 120 short for .46 debit

  89. maybe we’re turning up INTC has gone green and the UYG (I got back on those ) seems to sign alive

  90. Joseph/SPY – Are you looking at intraday chart to think we are bottomed for the day? If so what about that while it is going up it is at low volume?

  91. Darn, I haven’t placed order to lock profits from my POT callers in my attempt on DT and I have missed $5/ contract swing. That’s life. At least time decays premium.
    BTW is seems that JRCC (coal) is heading up. I am shooting for double by Nov.

  92. cnicola – there hasen’t been any volume for weeks – I’ve whined several times that the lack of volume has made guessing direction a real problem. What I was looking at was that DIA, RUT, SPY and Q all moved up after threatening to fall through an area of important support from a Person Pivot (PP) perspective while, at the same time, SKF which had earlier broken through an important level of PP resistance was falling fast, and the commodity  buying flurry had abated. So I decided the bottom just might be in.

  93. Oh yeah, pretty much all major indices are oversold on a daily chart. It’s basically looking like it’s time for a reversal.  You may have noticed nothing lasts longer than 2-3 days in this stupid market that has no memory whatsoever.

  94. Phil,

    Do you have a opinion why PEP is so strong these days? While the PPI is looking bad after bad analysts expection


  95. Alex / PEP – Smart CEO. Blue’s the new red baby!

  96. I think the sentiment of the Stock Club is a great indicator that it is a time to buy.   Sounds like people are fed up.  This sentiment can probably be seen outside the stock club as well.  Sounds like a great time to sell a bunch of puts.  C, BAC, and XLF.

  97. Phil - check out the premium on Sept 180 calls…seems hard to pass up selling these

  98. I agree jomama, I was just thinking the same thing.

  99. Alex – as long as you are buying time, markets usually come back.  The main LTP is 80% invested, more than it’s been in 2 years (which is why it lost 20% in 2 days) but all the big money we made there was becasue we took a stand.  Last year I did a review where I pointed out that we made 75% of our money on 3 very good bottom calls but a lot of people think that you make a bottom call and the next day you double up.  While it looks that way in retrospect, it’s really a quarter by quarter event and anyone who stares at a portfolio every day waiting for it to move is going to be disappointed.  Our butterfly portfolio was down 8% on expiration week, we barely touched it and by expiration day it was up 11% – that’s what happens when you sell premiums, they

    GOOG/Windy – We’re not out of the woods yet but taking out a few never hurts when you’re ahead.

    $25KP/Bon – Yes it’s fine as our balance is still such that the trades are good as new entries but feel free to ask on any specific one. 

    Today is not good volume either…

    Oh good Bob Toll explaining to CNBC guys that lower inventory of homes is GOOD for builders. How is it possible for these anchors to have this job for 10 years and not know this?

    PEP/Alex – Just a super-good company, better than KO. 

    Troy – I’m going to guess AAPL and I’ll say that I would not sell calls on a stock that is up $1 on a down 200 market day with 5 weeks to go.

    Oil is calming down and the markets are perking up.  Love that $115 resistance line holding!

  100. Joseph
    just curiosu if you think the DIA will be above 118 by Sep ? is that why you picked the 118/120 ?

  101. Phil – Ref UYG –fly. I have –Sep22C which lost > 50% of value. Should I uncover for $.9 or roll it up to Sep25C for .5. I am of opinion that this will not reach $25 in Sept, so there will be some premium to cash out. Thanks

  102. anybody playing Russia RSX its down big today..

  103. Phil Clarification
     Ref UYG –fly. I have –Sep22 Caller which lost > 50% of value. Should I uncover for $.9 or roll it up to Sep25C for .5. I am of opinion that this will not reach $25 in Sept, so there will be some premium to cash out. Thanks

  104. Phil – yes I know, your favorite game.  Sorry.  POT is the stock.

  105. millions – DIA 118 would get it back to near-term resistance. If it does this pretty soon, like in the next few days, it means I can exit the trade and move on with a small net gain if it then stalls. It’s only a 3.5% move. On the other hand, I have a very good shot at making all the premium in the 120 because getting past 118 is going to be difficult . But, if it does, great, it’s a breakout and it’s a debit spread so I still win.

    So, if DIA continues to go down, I’ll sell the long, go naked on the short, and wait a bit since we will get a reversal a some point. Depending on when that happens I’ll either go for another SEP long or go out to OCT/NOV

  106. Wow, why the panic in the stock club?  Well, I’m not in the club, but I’m a buyer at this level too.
    My portfolios were down 60% in July, but it’s now back to positive with mostly the LTP style.  We are killing the callers in the past two days with 300 points drop, LTP will gain fast on a bounce.  The longs are Jan09 and Jan10, so we have plenty of time.  If you are worried, then roll down and cover, but need to set a tight stop on the callers.

  107. I’m with jomama and think the panic in the stock club just might be a nice contrarian indicator.

  108. You guys are trading directionally and don’t even know it

  109. The club is not upset with the market drop.  There are other issues for which I will decline to comment.

  110. Maybe we are trading directionally, but we also like to win in neutral and slightly bearish market with selling premiums with LTP and Iron Condors from Joseph.

  111. PHIL:
    I see your comment to TROY about AAPL selling calls: does that also apply to my situation ?

  112. Noticed that the financials are getting better from this morning.  There may be a bounce, or more sellers can come in.  Since I’m not sure which way, I will just react to the price at the end of the day.  Cover more if there is a bounce, buy more on a dip.

  113. hmmmm, SKF, after a very nice 3 day run has apparently failed to take it’s 50 dMA at 137.17. It also has heavier resistance at 141.5 and again at 148.5. 3 days in any one direction is about all this market seems to be able to manage.

    I always get confused w/ these reverse things. Do I buy a call if I think it will decline?

  114. SKF/Joseph,
    You would buy a put if it reverts, or sell Sep calls if you have longs in other months

  115. Thanks Joseph !

  116. Phil whats your target on FRE???? i picked some up today. I am long term on this stock will buy as it goes lower…

  117. Joseph/SKF – If you think financials will go up then I think you buy a put for SKF.

  118. Learner – thx

  119. Joseph,
    On the top of the trading band I am selling calls (they will expire worthless), buying puts (they increase in value as stock thanks) or do both. On the bottom of the trading range I do it in reverse. FWIW

  120. SKF – these things are expensive. If it does reverse then a retreat to 115 takes it back to the 200 dMA – right where the latest run started. To get the cost down, I can do a put debit spread of buy SEP 115 puts and sell 110 puts for a 1.55 debit.

  121. I also think this is a buying opp, but maybe giving it some more room to go down first. It’s my way of being greedy :)

  122. UYG/Bro – Rules are uncover and wait.  The next move you make is to roll yourself down to a lower strike and sell lower calls if you have to but once you get that first 50% off a caller, it is much, much harder to get the next 25% and the last 25% pretty much lasts through expiration so your risk reward for the next 3 weeks is a possible 25% gain (if they stock stays like crap) vs. 50% loss (or 100% from where you are now with that caller).  So simple risk/reward says take it off the table effectively proving that a bird in the hand is actually worth 2 in the bush.

    RSX/Milllions – that would be a very ballsy play!   I like it, all they have to do is not go to war and it’s back to 50.   They are down so far that they are below the lowest calls that are sold so I like the $41s for $1.05  XXX

    POT/Troy – Oh, you got me on that one!  Them I would sell against…

    RMM/AAPL – AAPL is so tricky on a long trip, best to 1/2 cover with $175s I think and take your lumps if it heads up.

    SKF – they are ultra short financials but very strange as they are nowhere near the 7/15 highs, like off by 30%, which seems odd as a lot of the banks we track are back at their lows.  I don’t follow them so I’m not sure of the components but I’d be very careful playing with these guys.

    FRE/Shahir – My target would be to get $1 for the $4 calls if you bought it at $4, that knocks your basis down to $3 and there are $3s to sell too but if you get called away, it’s a 33% gain in a month.

  123. Phil –Ref UYG. Thanks. (Darn rules they only complicate my life.)

  124. Phil
    Is it a good idea to sell put on AAPL, SEP. 145 ?

  125. And they let this lapse because ?…….

    Cox: SEC Seeking ‘Marketwide’ Cure For Short-Sale Abuses
    By Judith Burns


    WASHINGTON (Dow Jones)--Look for U.S. securities regulators to propose a marketwide cure for short-selling abuses within the next few weeks, Securities and Exchange Commission Chairman Christopher Cox said Tuesday.

    "We’re focused on marketwide solutions," Cox told reporters after a press conference at the agency’s Washington, D.C., headquarters. He declined to specify what the SEC will propose but said public disclosure of significant short-sale positions is one of the ideas under consideration.

    Regulators aim to crack down on delivery failures of stocks used in short-sales transactions, not prop up stock prices, Cox stressed.

    "We intend to have no impact whatsoever on the direction of prices, that’s not the purpose of the regulation," said Cox.

    The SEC has previously announced it planned to propose new rules to attack short-sale abuses. The agency issued a temporary emergency order in July to tighten restrictions on short sales in federal housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE), and 17 firms that act as primary dealers in U.S. Treasury debt, a group that includes Wall Street firms such as Lehman Brothers Holding Inc. (LEH) and Merrill Lynch & Co. (MER).

    Cox said the short-lived experiment showed delivery failures in the 19 targeted stocks were reduced "substantially."

    "It was a very effective order from that standpoint," said Cox. "The reduction in fails to deliver was large."

    Rumor-mongering about financial firms also halted during the experiment, Cox added. The SEC had issued warnings on that subject in July and Cox said, "the rumors stopped."

    Short sellers aim to profit from declining stock prices by borrowing shares to sell in hopes of buying them back later at a lower price. "Naked" short sellers do not borrow shares in advance of short sales and may never do so, a practice that can have a punishing effect on a stock price. The SEC has previously sought to curb abusive naked short selling and delivery failures; its emergency order went further, requiring short sellers to borrow shares in advance of short-sale transactions in the 19 targeted stocks.

    Separately, Cox said he expects the SEC will vote later this year to seek public comment on a "road map" laying out a timetable for U.S. firms to move toward international financial reporting standards, or IFRS. He said the move will be "one step on what will undoubtedly be a long journey."

    - By Judith Burns, Dow Jones Newswires, 202-862-6692;


  126. AAPL/Ash – It’s a good idea if you don’t mind owning it down there for sure (I wouldn’t).  Lots of margin requirement though…

    Overall, it was not good that we could not rally back to our levels but it was good that commodities were unable to mount a real rally.  Kind of a wait and see sort of thing.

  127. The financials are a train wreck, but LEH, FRE, C, etc. look like good opportunities for a short covering bounce on any semblance of news.

  128. SEC – they need to make a decision and stick to it.

    What little volume there is has a lot of very determined sellers in it…

  129. Uh anybody knows anything about INTC ??? what a drop

  130. Wondering if the UYG $22 calls are good here as an intital position, at $0.85? Or the $21 calls instead, if I can get them for $1.10?

  131. INTC is down only 1.5%.  QQQQs are down 1.25% Looks like INTC is just moving with the market.

  132. Hard for the feckless SEC to stick to a decision.  All the Wall St firms and Hedge Funds and trade associations sicced their lawyers on the SEC and went nuts lobbying for watering down of the rules and exceptions from them.  Scandalous.

  133. market feels like there are all these people scalping ticks and trying desperately not to be whipsawed so the net effect is that everyone, including themselves, gets whipsawed

  134. Phil,
    I am tempted to short USO here too.  USO 90 P?

  135. tell me DIA doesn’t look like its headed to 110.

  136. Cap / Short selling – I remember reading somewhere that the recent SEC ban on short selling certain bank stocks had to expire because they only had emergency authority for a short length of time (I think 30 days) to ban the practice.  It is now up to Congress to implement a permanent rule.

  137. Jefree; that is correct; although the SEC ban could have been extended; they elected not to.

  138. Selling a strangle on HPQ can be done for $2.50.  This is selling the $45 calls and the $42.5 puts.  Maybe I’ll watch this for now (dry run) to see how it behaves after earnings.

  139. phil
    do you still see AAPL testing 170?

  140. DIA debit spread – so much for an intraday bottom call. I sold 35% of the DIA SEP 118 long for a small loss leaving me net short.

    In addition to all the indexes declining to lows of the day, RUT has moved below intraday support for the first time in a long time. RUT and Q’s have been the standout indexes for who knows what reason for weeks so not good if this keeps up. All indices are nearly maximally oversold on a daily chart though…

  141. Windy,
    I don’t know about AAPL testing 170 but it sure is testing me!!!!


  143. bclb
    us both.  hopefully this is it.

  144. AAPL – I just sold some Sep 170 puts @ $6…  Good way to buy for the long portfolio.

  145. Listening to the radio.  Is there a funkier song than Marvin Gaye’s "Got to give it up"?  Not sure there is.

  146. Agricultural futures traded in really confused manner today.  Both sides of the market and extremely volatile in corn, beans, and wheat.  Stocks feel like they are just waiting for a big shoe to drop.

  147. Still, the VIX is stuck well under 22.  Not a very convincing selloff!

  148. USO shorts EMO – Too diecey.

    AAPL/Windy – I think I see it now! 

    Really nasty sell off centered on the horesemnt but lots of other things are going up at the same time, undercurrents are turning up, not down….

  149. Phil, all, is there anything that can plunge the markets tomorrow?  Thinking of how open I need to end today…
    I see crude inventories for 8/15 are announced. What is the outlook there and anything else that can tank the markets?

  150. Phil:
    is it too risky to leave financials and BA  NAKED ??
    and AAPL 1/2 NAKED

  151. Not sure whether or not you can see this but it very clearly shows the recent rally was on declining volume:

  152. Here’s one showing institutional buying and selling have been declining:

  153. the last one shows that while retail traders were buying the latest rally, institutions were selling:

  154. Plunge tomorrow/Jordan – Heck I hope not!  If this isn’t it we are in deep trouble but it is the right thing to do to end the day looking for at least a bounce after dropping 300 points in 2 days and 500 points since last week.  Look how well we held the 11,320 line today – it’s not much but we will take it as that’s also where we held Aug 5th into that rally. 

    BA naked – Of course it’s risky!  But they do tend to lead recoveries.

    Those are depressing Joseph.  I don’t see us coming off this in a V but what I also don’t see is panic selling, hopefully that’s going to be good enough to ride things out.

  155. Look at poor SNDK the last 2 days!

  156. Yet another annoying day bites the dust.  We did not hold our levels so it’s a real act of faith in I’m not sure what at the moment, mainly the belief that the selling in the financials is overdone – let’s hope it is….

  157. Yay HPQ!!!

  158. The only thing I made money in today was UYG – go figure!  I guess I bought in at the very bottom of a V.  Scaling into positions this week has really kept my losses at a minimum.

  159. HPQ is one more positive.

  160. Joseph, it’s interesting that everytime Institutional Confidence goes up, the market goes down.  On the positive side on where we are today, if the Retail Confidence continues to cross the other line, then we’ll have a bounce.  After that, Institutional Confidence would turn up, and market would turn down again.  So it’s up, down, up, or if you are a contrarian it’s down, up, down – excellent for Iron Condors in both cases as the market doesn’t get away from you.

    Those VIX lost some value since the morning, not good for the longs, but good for the Iron Condors again.  Today is not a good day for the Candle Sticks as it broke the July up trend on DIA.  You’ll see a graph on TraderMike later on today.

  161. HPQ may just do the trick tomorrow. Wonder how the strangle will be doing tomorrow…

  162. Jordan – You know, when I hear that much bad sector news in one day from that many different people, it kind of makes me suspicious…

  163. k1p followers- I’ve had the happy luck of scoring a new client this week, so will be backing off some of my other time commitments for a while (couple months, anyway). Unfortunately, the k1p is one of the casualties. Details on the k1p page.

  164. Phil, I agree, it’s kind of irresponsible even to say a big bank will fail and just leave it at that, no backup, no real information that is new.  Almost borders on spreading a rumor, but it is against an unknown bank.

  165. Phil, from the Monday mop-up I think this is a very important sentence, going into tomorrow:
    "be warned that July 11th was not the bottom, we bottomed the market out 2 trading days later, on July 15th, when the Dow finished at 10,900 so watching where we hold the line on this scare will be critical."

  166. Yep Jordan, that guy sounds like he knew what he was talking about on Monday!

  167. Hey, what did I miss?   Played golf today, lovely weather in the NYC area, shot a 102 and won $80 in my pairs event.    Now that I have puts in place on most of the indexes and at least partial covers sold on virtually all of my stocks and LTP plays, days like today are not so stressful.   I stare at the computer as much as anyone on some days (especially during expiration week), but on the second trading day of a long expiration cycle I think everyone should take a deep breath and get outside sometimes.

  168. Good for you Eph!   I’m taking off early on Friday for a nice weekend trip, plenty of time to play the markets before Sept 19th…

  169. OK probably a dumb question as usual: I sell a call for a strike price of 150 in front month against a LEAP with strike price of 100. Let’s say I let the call I sold go way away from me or my caller is a special person and exercises. What happens then?
    In theory you have the LEAP to cover for that and you would exercise your LEAP also.My question is: do you have to have enough cash to exercise your LEAP first or does the trading system deal with both call transactions and you just end up with the cash from the difference in strike prices?

  170. No, you don’t exercise your leap or you give up all your premium (and pay to exercise it).  Unless it’s some kind of gap away crisis that you can’t work out of, all that happens if a caller ecercises is that you have to give him stock you don’t have in exchange for his payment of the agreed upon stock price and the cancellation of his contract (so you keep that money too).  So if you sold the $150s for $8, what would happen to you is you would keep his $800 and he would give you $15,000 more in exchange for 100 shares of stock at $150. 

    Stock isn’t physically moved, his broker gives him the stock immediately and you end up effectively one of those evil naked short sellers as you will end up with -100 shares of the stock at $150 per share.  You still have your long calls but you are now short the actual stock.  Obviously, you want to buy that stock back for less than the $15,000 you got for it but you really got $15,800 between the calls you sold and the stock you are short.  So you want to buy back the shares and one thing people tend to forget at this point is it’s still a good idea to cover the long as you can sell calls against your leap still.  You can also keep the stock short and sell puts against that, hoping to get called away there but that starts to get messy.

  171. Cnicola
    If you are selling calls you almost will never get called away early if it runs on you.  But with puts, you can get the stock put to you if they are DITM with a week or less to go.

    Even if you get a stock put to you, don’t panic.  You usually have 3-4 hours to cover your margin call.  OXPS is real helpful if this happens, you can just call them and they will help you.  But depends on who u use.

  172. cnicola -
    You end up short the shares of the underlying, but you receive the cash from the assigned call (the strike you sold). You don’t have to touch your LEAP as long as you can cover your short shares from your cash balance (which has now increased by the exercised call amount).

  173. cnicola   Early exercise used to panic me, but after it’s happened a couple of times you realize it is an inconvenience and not a catastrophe.   In the example you gave, assuming you have a margin account,  when the person exercised the call you will go short 100 shares of stock at 150.   If you have the cash, you can buy back the short immediately, but there is really no rush.   Since you own a LEAP you are covered, and your position will not get worse even if the stock continues to rise.   Your position is actually a little better than being short an ITM caller, because the guy who exercised his option early wasted his time premium.   By the same token, it would be better to sell your LEAP and use the cash to cover the short rather than exercising your LEAP, because you don’t want to let your time premium go to waste.

  174. Wow – Guess he got THAT question answered! :)

  175. Wow, four people answering the question at the same time.   I wish I was a faster typist!

  176. All these answers without the B or O word too.  Everyone is behaving themselves.

  177. Cnicola – ToS is very helpful if you get assigned as well.  All you have to do is give their trade desk a call and they will even handle "fixing" the situation for you. I got assigned several AAPL options earlier in the year that took my account to negative $100,000.  ToS went ahead and purchased the shares I was short and I was able to continue trading once they purchased the shares and balanced out the account.  It was something I was always fearful of until it happened and I saw how easy it is to fix.

  178. Interesting blurb in Dealbreaker about LEH trying to finagle fancy financing without a dilutive offering. Sentiment is definitely not helping them here – down 13% today on 60M volume ( 2x normal ).

  179. Wow, thanks everyone for your answers. I am not in a position to get exercised on calls (so far anyway) but since at heart I am a pesimist I did want to know what would happen in that worst case scenario. Again thank you for such detailed answers.
    Singa Steve/re puts – I did follow Phil in the FRE stock + puts play from yesterday and considering I sold some 6$ puts on FRE I am curious to see if I get exercised on that (not worried about that if i do). I consider it my gauge on market sentiment: if I do get exercised then they are really panicking.

  180. Regarding assignments, I now go and check the extrinsic value of the short calls and short puts in the expiration week to make sure they don’t go negative (select Extrinsic in the ToS interface).  If they go negative, the chance of getting assigned increased significantly.  Because of the large Bid/Ask spread when it’s deep ITM, exercising is cheaper than selling the options.  Dividend is the other factor where people exercise so that they don’t loose the calls/puts value as the stock will open lower on Ex-dividend date. 

    Thanks, folks, for the tips in calling the broker.  I know the option is there, but didn’t need to use it yet.

  181. I exercise calls just to mess with people.

  182. LOL DM. Let me know where you buy your calls so I can stay away from it :-)
    But yeah that is a sick thing to do if you can afford it. Another reason for trying to get rich :-P