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Monday Mourning – Too Little Too Late?

Well we seem to have our bailout package but it also does not seem to be helping.

Pre-market trading (7am) is down considerably but it's possible that there is still some worry as the package has not yet been voted on but the selling is a bit overdone.  As it stands now, the bailout program (now renamed the Emergency Economic Stabilization Act of 2008) will provide $250Bn immediately, $100Bn more if the President decides it's necessary and $350Bn subject to additional Congressional approval.  The bill expires on Dec 31st, 2009 and assets are to be purchased at "market value," whatever that is

Another thing hammering the financials is a provision that a broad-based fee will be assessed, apparently against the whole industry, to pay for any lossess incurred by the government in funding this bailout, oops, Stabilization Act.  The government also gets warrants to participate in the upside for the financials but, between that and caps on compensation, well-capitalized firms will have little reason to participate so we can expect our warrants to be coming from the dregs of the dregs of our financial markets.   

The Treasury will also establish an insurance program to cover losses with a risk-based premium also paid by the financial industry – another scary cost for the financials.  We should be retesting last week's lows today but, if we survive it, I'm actually thinking we may have a short-term bottom here, well called by Warren Buffett last week.  WB has no bottom and the two bidders that are possibly going to prevent this country's 3rd largest bank failure ever (all this year) are down to C and WFC and it looks like they are not willing to pay very much after seeing how cheaply JPM got WM last week.  I don't see WFC as being able to absorb the potential losses so look for C to get a sweetheart deal for the bank.

Over in the UK, mortgage lender Bradford and Bigley has failed and will be taken over by the Treasury as a crisis of confidence, more so than debt took them down very quickly.  "The Treasury with the other tripartite authorities, acting in their respective capacities, sought a range of private sector solutions before taking this action," the UK Treasury said Monday. "However, with its financial advisor, HM Treasury concluded that this option best delivered its objectives of maintaining financial stability, protecting consumers and protecting taxpayers."  Europe is down about 3% this morning.

Also in Europe, the governments of Belgium, Luxembourg and the Netherlands combined to pay $16Bn to Fortis, Belgium's largest retail banks in return for 49% of the company.  Fortis must now sell their stake in ABN and that is now driving down ABN partner RBS on fears the fire sale by Fortis will devalue that asset – see how everything is connected!  The ECB and other Central Banks continue to pump tens of Billions into the markets on a daily basis, trying to shore up the financials around the world and maintain some semblance of liquidity.

On the bright side, NY Investment firm, JC Flowers, has raised $2.5Bn from investors to form a buyout fund that will target banks and other financial firms in a bottom-fishing expedition.  Flowers wants to “take full advantage of the blood in the streets,'' said Michael Holland, chairman of Holland & Co. in New York, which manages $4 billion of assets. “He had a coup in Japan and is going to visit similar opportunities in the U.S.''  Flowers was part of an investor group that bought Long-Term Credit Bank of Japan Ltd. for 121 billion yen ($1.1 billion) in 2000, renaming it Shinsei. The group sold two-thirds of the company in 2004 for 532 billion yen. David Rubenstein, co-founder of the Carlyle Group buyout firm, hailed it as perhaps the most successful private equity deal in history.  Let's hope Flowers is once again calling the bottom correctly.

Asian markets are way down with the Hang Seng dropping 4.3% and the Nikkei falling 1.3% after falling 300 full points from a good open.   Any improvement in the US markets today can be played by taking the FXP (FXI ultra short) puts but it remains to be seen whether the US markets will respond, even assuming the House does pass the bill today.  The dollar is going strong and China is pitching in by making moves to slow Yuan apprectiation, which has been up 6.7% this year alone. 

Adding more pressure on the US financial markets is a widening investigation by NY Attorney General, Andrew Cuomo, who's ongoing investigation into short selling is now expanding to include the $54.6Tn credit-default swap market.  According to Bloomberg: "Cuomo is probing whether credit-default swaps were manipulated by short sellers to spread false rumors about financial companies such as bankrupt securities firm Lehman Brothers Holdings Inc. to drive down stock prices."  According to Anthony Carfang of Treasury Strategies, Inc.:  "You have a set of people doing this trade and they're targeting one company at a time,'' Carfang said yesterday in a phone interview. “When Fannie Mae goes under, they move on to the next target, which was Lehman Brothers, and now you see them in Wachovia and Morgan Stanley.''  Credit-default swaps on both Wachovia Corp., the fourth- largest U.S. bank, and Morgan Stanley reached record highs yesterday, suggesting investors are betting on a failure or hedging against losses.

9am:  It looks like C is getting the WB deal and clearly that marks them, along with JPM as REALLY too big to fail.  I'm liking Oct $20 calls as a gamble if C opens below $19.50 (now $19.25 pre-market) as well as the 2010 $22.50s for about $3 as a play on a long-term recovery.  We had a lot of speculative put plays on financials on Friday afternoon and if you do well on some of those, then picking up a couple of bullish calls is an interesting way to balance things out. 

Both MS and RBC dropped price targets dramatically on AAPL and that stock is getting hammered ahead of the open.  MS dropped their price target to $115 and RBC from $200 to $140 and if this is the kind of downgrades we are going to be getting on the best of tech companies, it will not be a pretty picture at all in the rest of the markets.  The Nasdaq was already on the ropes but with RIMM and now AAPL hitting new lows, that rope is clearly going around the neck of Tech in general.  If the Qs fail to hold $40 then look for QID (QQQQ ultra shorts) to really take off but the premiums are outrageous on the option side. 

One more bright spot is oil rapidly selling off, back to testing $100 this morning.  We're going to need oil to head MUCH lower than that to help the consumers at this point.  Oddly enough, Personal Income was up 0.5% for August, much more than the up 0.3% expected and way better than the -0.7% we had in July.  Personal Spending, on the other hand, was 0%, lower than the 0.2% increase expected – another indication that consumers are tightening.  Tomorrow we get Chicago PMI and Consumer Confidence and that's where we'll end the month.

It's going to be a rough one today, a Nasdaq breakdown will be very tough to recover from as it was our best hope for new leadership.  Let's watch the Transports, who SHOULD benefit from lower fuel costs but are unlikely to be in a party mood today.  I'm looking for the Nasdaq Transportation Index to hold 2,100 and it's a critical level while holding 2,200 will be mildly positive but It's hard to be optimistic looking at this opening.



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  1. AAPL downgraded by RBC and Morgan Stanley (the latter to 115 from 178).


  2. C buys Wachovia with FDIC help.

  3. Phil, has your thesis/premise on Citigroup changed with this acquisition?

  4. Oil is down to $103 on fears of an economic slowdown.

  5. I love the oil quotes. It’s either down because of economic fears, or up because of economic fears. LOL!

  6. GOOG   Approaching its double-bottom low…does it stay above $400?

  7. USO   Does "sell into intial excitement" mean I should sell some putters against at the open, or do you think oil continues to go down during?   It’s hard for me to imagine that the dollar will stay strong which seems to be the only thing holding up the price of oil.

  8. C/Jomama – I think the FDIC haning them WB is a good sign that C is officially too big to fail and that should mean they will survive but Whitney still does not like them and that’s scary at this point as her words can scare the crap out of investors now.  I mentioned playing them above though as I think, like JPM, the acquition of assets this cheaply can only be good for them in the long run unless all these homes are truly worthless and then we’re all screwed anyway.

    GS, X, AA, MS, RIMM, AAPL, MRVL leading us down.

  9. G’day
    POT < $140 (V. low & going lower)

  10. GLD – The only thing I have thats green. :-(

  11. GOOG – If they fall below $400 it is so over for the markets.

    USO/Eph – There’s a reason it’s ALWAYS.  A big dip like this gives you a huge pop, if the put is 3 months or less, taking the money nad running is usually a good thing. you can always position for a long spread next but a 5% drop in one day is pretty rare so keeping tight stops on half (20% of the profits) is why we have rule #2.  I do think oil can go back to $90 or lower but you can play that with $77 puts at $2 with a stop at .50 rather than risking the gains you already have.  They should gain .40 to .50 per dollar down this week so that’s 1/2 at least of what you gain by risking your whole other position.

    POT and all ags getting killed.  Dollar surprisingly strong but people are still buying gold.  Qs right at 40!

  12. XLF held 20 again.  VIX is fairly angry at 37.44. 

    VLO finding buyers at $33.  C holding up.  FRE up yet again.  JPM with another good recovery, not so much GS at the moment, lokis like they want to retest $130 but a nice gamble down there selling $120 puts for $5 as long as you don’t mind owning GS at $115.

    VZ bounced well off $31.50, VOD took a huge tumble and the $22.50s for less than $1 were double that last week so .75-.50 would make them very interesting as a craps roll.

  13. UK caved in after creeping back up pre-US open. Now down 3.5% and nothing is safe. Inverse oil is the only thing making me money there. In the last week my UK holdings have been hit for 20%.

  14. Ugh, this is nasty.

  15. GOOG at 5% rule, AAPL down already 12.5%, Dow at 2.5% but S&P broke it already heading for down 3% fast. also the XLF is down 6.2% and if they can’t retake down 5% (above $20) it’s pretty hopeless.  10,500 is still a long way away so if we don’t hold 10,800 then the DIA Nov $110 puts aren’t bad insurance at $6 as the Oct $108 puts can be sold for $4 and if we head down and you can get $6 for selling the Oct $108s, that’s a free $2 spread.

  16. Oops – here comes a turn I hope.  MASSIVE Fed action, $225 available for TAF auctions (up 200%).  Swap lines with Foreign Central Banks also tripled to $690Bn – this is HUGE and if this doesn’t work, go out and buy canned goods as this is a friggin scary move.

  17. Hmm..well, it looks like we’re gonna have to fight for a spot at the canned goods aisle….

  18. Gold zooming on that move as the Fed just dumed almost another $1Tn on the markets.  We could see $1,000 at this rate.  GLD $91s are $3.10 and make a good hedge on gold going way up.

  19. Seems crazy to me. Financials down, tech down, housing down I understand. But dollar up at the same time? Commodities down except gold? Bonds up?

    I’m 90% in cash and think 100% might be better. Too many incongruities.

  20. GS hopefully done going down here at $125 and now the $115 puts are $5.

  21. Kicking myself for lightening up last week. Also rolled some longs down for better position whereas the bear spreads I had would have been more profitable. Bad decision. The UK papers were predicting 1000 point crashes in the US if the bailout wasnt passed. Talk about scaremongering. Some of it seems to have rubbed off though.

  22. Dollar up/Tooearly – The rest of the world is in chaos as well, that’s why the Fed could afford to make this move today without crashing the dollar.  Part of the reason they need to make dollars available is due to demand, international investrors are running back to dollars – they may be nuts but they’re buying them.    Commodities are down on fears of global DEPRESSION, not recession, that causes deflation and means a bond paying 4% is the best thing you can possibly own.  Gold is the short-term safety play but certainly something that should be sold into excitement, espectally if they can’t take out $90 on this run.

    AAPL below $110 down 15% now, if they don’t find a floor I don’t see the Nas turning around.  GOOG is testing $400 and the Qs fell below $39 now so totally pathetic.  RIMM down to $64…

    SKFs hitting $106, $110 is where they topped out Friday AM but this may be worse.

  23. Phil – GLD. I see hi IV on Oct GLD. I am placing buy Jan 91C-sell Oct91 C, any better play?

  24. MSCI All-Country World Index loses 4.3%, biggest loss since 1997.

  25. Scratch my earlier post. It preceeded the latest FED action. Just wanted to point out that the miners have been seriously underperforming gold and could take off unless this is just a move for a safe currency.

    What about FXE? It did very well recently when the dollar was dropping. The ECB says iit has a single objective of fighting inflation. One of the objectives of the FED seems to be to inflate debt away. Two independent reasons for the € to outperform the $.

  26. Drivers Looking For Gas End Up In Hit-Or-Miss Situation

    POSTED: 5:44 am EDT September 29, 2008

  27. I wake up and come out to find you guys have killed the market.    Will we see AAPL below 100!!

  28. VIX at 40,  that’s good.

  29. GOOG is a steal now at 406

  30. Walmart holding strong.  YRCW is way low in my opinion.  they seem to have a floor at 12.5.  Even with the slowdown, drop in oil/gas/diesel should really help them.  what are your thoughts phil?

  31. HOV is not moving down in this market decline. Thank goodness for the time decay.

  32. Guy on CNBC makes a point, we could be seeing a lot of last day of the Q hedge fund selling by guys who hung on hoping for a boost from the bailout but are now forced to raise cash for withdrawls. 

    GLD not breaking $90, that’s a good sign if it stick, means the dollar is going to hold up regardless of our spending.  

    GLD/Bro – I’d go a little more in the money on the long side or 3/4 cover where you are because gold can really fly if Asia wakes up and decides they may have a lot of worthless dollars in the bank.

    I think though that this is a good point to lighten up on the puts or start adding a few bullish plays as $1Tn is not nothing and it may not boost the markets in 15 minutes but you can’t put $1.7Bn to work (the Bill + the Fed) without pumping up equities somewhat.

  33. I keep wanting to buy MA. It must be so oversold. Having problems keeping my fingers off the buy button. Whats the number for MA anonymous !!!

  34. Don’t forget the FXP puts can be HUGE winners but have ridiculous premiums.  $90 puts at $5.20 were $11+ last week.

    FXE/Tooearly – I’m not sure how far the dollar will drop relative to other currencies as all CBs are flooding the markets.  Relative to gold is probably the best way to play it.

    YRCW/Jo – $11 was the March low but certainly a good deal if we ever come back.  Looks like the market is not done going down and the VIX is up high enough for us to get back to 10,600 or it may mean we are 200 points too far down already – tough call with all this negativity!

    C is amazingly holding up for a change.  GS held $125, V  and MA look awful though.  SKFs could not take out $106 on that run but it looks like they’ll get another shot so we need to watch that.  XLFs getting back over $20 is key.

    Rather than play YRCW, the IYT (transport ETF) Dec $80s are $8 and the Oct $85s can be solf for $3+ on a run ($2.55 now) and that’s a pretty good spread on a recovery and low oil.

  35. Phil- Thx. I thought that if GLD moves higher then I roll caller to 94 in NOV or 98 in DEC. The 47% increase in IV, may indicate that options are ahead of the underlying.

  36. Not that I’m the only one -obviously smarter men than I are having trouble understanding this -but I have trouble understanding how such a massive capital influx isn’t good for the market. Regardless of the ethical implications (like taxpayers being shafted for the mistakes of a run-and-gun financial world they have no part in), the end result is that a lot of money which wasn’t accessible (government reserves) is now accessible. This is a bad thing?

  37. GLD – big fight goin on between the bulls/bears on very large volume on the hourly candlestick chart. Just a guess, but if the bulls win the fight gold is going to move up quickly. Still think it’s largely a daytrade though rather than a new trend

  38. IV way too high to play any options here.  May buy common or ultra ETFs instead.

  39. IBN (India Bank) down 12% today and back at 2005 levels at $21.77.  1/2 the current $22.50s at $1.95 can be sold against Dec $17.50s at $5.70 to knock out most of the premium with good position and the Nov $20s are $3.90 so those can be sold for the other half down to $3.20 and  it would still be a not terrible spread. 

    GLD/Bro – Just don’t roll caller too far ahead, you want to maintain some protection.

    Capital influx/Rock – I agree.  I think at the moment it’s the FACT that that kind of infusion is needed is spooking people but it’s kind of like when they pump a comatose patiend with adrenaline – you are going to make them jump, it’s just a question of whether it has any lasting effect….

    Gold/Joseph – Absolutely a day-trade/trend trade.  The whold market is at the moment.

    IV high/Fab – that’s why it’s good to look for opportunities to sell options at the moment or at least pick options that were significantly higher last week, when the VIX was back around 33.  There are very few things I like at these prices even though a lot of things are REALLY cheap looking (I’m sure someone said the same thing in November of 1929 too!).

  40. Arab money not being put to work

  41. BAC I’m liking down here, usually they beat C and today they are way below them.  Any financial call is risky but the $32.50s at $4 are only 1/2 premium and a good mo play.

  42. UK down 4.8% with 25minutes to go. Not much hope of a bounce here.

  43. Phil GLD Thx (So far no fill, I made $3.7 offer, it seem that they are asking for $4.0 for a calendar)

  44. Phil,
    IV – but even if I have some long-dated calls, I’m not sure if I can get myself to sell some front months at these pathetic levels…

  45. Bailout vote     It seems like the House Republicans are balking and at least some of them have been on CNBC saying they are not going to vote for the bill even now.   If enough Republicans don’t sign on, will the Democrats still pass the bill?   Can they (do they have enough votes to pass it by themselves)?

  46. DIA, IWM – in a real mess, but are hanging much tougher than Q’s, SPY on the hourly charts… for a daytrade only, we may be setting up for a contrarian play  to buy calls on Q’s, SPY. DIA, IWM are in no-man’s land, however.

  47. If Repubs don’t sign on, do the Dems want to pass it by themselves? Don’t see too many voters who like the bailout bill.

  48. Phil – Looks to me that markets don’t like the warrants item on teh bailout plan and I suspect central banks action today are just to stop the damage until the bill gets through the house but after that markets will continue their decline as US has just demonstrated that the problem is much bigger than originally communicated to market participants. I wonder how countries holding USD are going to react…tremendous pressure on USD will follow. Do you feel markets can maintain and stay above 10,000 level gievn the unknowns.

  49. The fact of it is pretty scary, insofar as it’s hard to have any confidence in any of these guys. Someone posted the list of Paulson’s reassurances over the last couple years; they sounded a lot like the homebuilder and then bank executives who seem to be sure that nothing is wrong until someone hands them the Chapter 11 form.
    That said, the lack of confidence ought to be priced in before the bailout ("nothing you guys do will save us"). Then with the bailout, everyone looks at it and says either We were right or Maybe this will help. I guess we may see the rally, if we see one, when the package actually passes.
    Frankly, it’s clear to me that there is a coordinated effort by the central banks and regulatory bodies of almost all of the G8 plus several other important countries. If the regulators are working together this well to ban short-selling and the banks are working this well together to flood the market with $1T then the whole mechanism of modern capitalism is furiously trying to stop this crisis, and they are working together without scruples (banning short-selling). That’s a pretty tough opponent, and I’m willing to put some money on them winning.

  50. Oh great, CNBC guy saying House still may not pass bailout.  That would be amazing but if people believe that then it’s easy to understand the sell-off.  I don’t think Senate passage is in question but EU markets really belive the Republicans are going to block it despite words to the contrary and it’s interesting how they are going to vote after the EU markets close, totally squeezing those guys in the morning if we make a U-turn off the vote so very interesting dynamic…

    CS is one way to play that, down 15% today at $44.  The $45 calls are a bit much at $2.50 but the stock was at $52 on Friday.  Another interesting one is RBS, who got screwed on the Fortis deal indirectly (see post) and they are down at $3.20 and not optionable – although it is terriflying to own actual stock in a bank these days…

    WYNN and LVS are moving for some reason.

    Fab – yes it’s a real catch 22…

    Dems can pass bill without the Republicans in the House.  They did say they won’t without a Republican majority though but I’m not sure how they can enforce it unless all the Republicans vote first.

    Q contrarian/Joseph – QIDs are up 10% on the day, they make an interesting put play here if you want to be short-term bullish on the Qs.  Technicals on all the indexes say we are doomed and TA has been very good at predicting lately.  If this bailout doesn’t give us traction soon, we probably are doomed so don’t go too crazy on the long side, I’d have to say that calls are still the speculative plays as the preponderance of evidence is against them.  The key is how much these assets sell for when the government starts buying them.  If the market can be convinced that 60% is a fair number and not just the taxpayers being played for suckers, then a lot of undelying bearish assumptions fall apart.

  51. CHK   How much lower can this go?   I’m short Jan 09 35 puts, and having margin pressure, but I don’t really want to buy them back here.   I can roll then to Jan 11 30s for a $2.50 credit, but I’m buying much more vol then I’m selling and I don’t really want these sitting around for 2.5 years.

  52. Phil – Take a look at the TED spread and you will get a sense on how much faith markets have in this bailout to work and bring thing to a normal state. Not looking good, I like your throughts on not going crazy on long side as this can turn ugly in a heart beat.

  53. Dems can pass bill without the Republicans in the House.  They did say they won’t without a Republican majority though but I’m not sure how they can enforce it unless all the Republicans vote first.
    I’m guessing the Whips will basically have the count before the vote.   I don’t think any of the Republicans will say "yes, I’ll vote for it" ahead of time and then change their mind.   There are at least some Democrats who are against the bill as well, so I’m not sure that the Dems have the votes to pass it by themselves.  But assuming they do, the Dem leadership has to make a decision whether they are willing to take the political heat by passing it on their own.

  54. Is the vote today ? now ?

  55. Rocket –  institutional money is looking at is the TED spread. The bailout news was expected to decrease the spread but today it increased another 100 basis points from last Friday. From what I read, no one gives a damn about much of anything except seeing credit spreads contract. The spread news will trump any other news right now and we are in a news-driven market; fundamentals do not matter. I’m 100% in cash and have been for weeks except for the rare daytrade. I will continue to stay in cash until it is really, really clear that the spreads are contracting and, btw, in 1987 it was two months -after- that crash before the spreads actually began to contract.

    So, this malaise could take weeks or months to play out, making long-term bets on AAPL or GOOG or financials or whatever, is IMHO just moronic.

  56. UK just closed down 5%

  57. Phil,
    What’s your feeling on HOV.

  58. Lots of Republicans dont like this deal, im watching the House on CSPAN

  59. Joseph – Where can I find TED spread? (11:30 post). Thx

  60. 12:30 is the deadline for the vote on the 700b bailout

  61. Markets/Bball – As above, we are in technical hell and no one is buying on fundamentals because it’s hard to say what the fundamentals are at the moment.  Everything hinges on this plan passing and working quickly, that’s a lot to hang a bullish hat on considering the track record of these bozos so far into this crisis. 

    Good point Rock, I can’t believe we won’t get a rally, the question will be how much BS the rally will be (like the July rally was).  I still think there is a fatal flaw in not actually bailing out the 5M homeowners who are in threat of foreclosure.  The government could have just backstopped those $1Tn in loans ages ago and, even if they took a 50% hit over the life of the loans, it would have been a damned site better than what we’re doing now. 

    CHK/Eph – Nat gas was $4 at some point last year, still $7.50 so they have quite a way to fall if prices come down and demand stays low.  That’s why Aubrey is on TV all the time telling you to put nat gas in your car – to save his ass.  You currently have $35 in margin tied up selling the Jan $35 puts for $5.80, you can roll those puts to 2x the Nov $32.50 puts at $3.35 ($7.70 total) and use the extra $1.20 to buy Jan $20 puts to cover at .70 ($1.40).  This caps your downside at $25 (2x $12.50) so is less margin and puts your putter lower with less time and still Dec and Jan to roll to if it doesn’t work by then. 

    TED/Bball – I talked about that last week, it is really scary and I’m only hoping it’s because they think the stimulus won’t pass and not that they think it’s not going to work even if it does.

    Vote is at about 1pm.  You can see the pontificating on CSPAN if you can bear it.

    HOV/JB – I think they are one of the strongest builders long-term but it may be years before we burn off inventory and the housing market turns.  I like owning the stock and covering as a play but not so much at $8 as I do at $7 as they were in a great channel there until they broke up and out last week.  If they get back around $7.50 and hold it, that’s worth a chance.  You can sell $7.50 calls for $1.10 here, that gives you a $7 basis called away with a .50 profit, which is 7% in 3 weeks so nothing to sneeze at, it’s not a bad way to enter as the goal is getting in at $7 anyway.

    CSPAN – Even if they are voting for it, they want to make their strenuous objections a matter of record.  CYA at its Washington finest!

  62. Ironically, the politicians are in a pickle.  They don’t want to be blamed for a bad plan or for destroying the economy.  Kind of interesting.

  63. WOW, this bill may not pass.

  64. TLT puts – seems to be a cheap way to get upside cover.  Nov IV at around 19.

  65. GOOG broke $400!

  66. GOOG below $400

  67. CHK – Doubt it goes much lower unless S&P below 1150 or some such disaster.
    I had Jan $35 Puts from earlier in the month. Just sold them for a 120% profit. Just wish had more of them…

  68. Oil fell below $100.

    GOOG fell below $400, 2-year low!  AAPL back to test $110.   Qs broke below 39 yet VIX is heading down?

    S&P is almost there M2!   Another 1/2 of today’s move…

  69. TED spread – Exactly, Phil… even if the bailout is passed but credit spreads do not contract, then nothing really changes. Credit spreads are THE key to a market recovery. 

    Bronek – TED spread: btw, the spread is the difference between the LIBOR rate and the 3-month T-bill rate and is basically what it costs large financial institutions to borrow

  70. Joseph – Thx for TED

  71. By Tony Crescenzi Contributor

    9/29/2008 9:13 AM EDT


    There are two key points to make regarding the market response to the government bailout plan. First, the market was already priced for the likelihood of an agreement on a plan. What I mean is that any deterioration that would have occurred, if not for the likely passage of the plan, was already largely removed.
    Second, the plan does not guarantee a rapid repair of all that ails the markets. It will obviously take time for the plan to have an impact, and all parties involved will be tentative in the early going.
    For example, the Treasury’s initial purchase of distressed assets will probably be plain-vanilla mortgage-backed securities. In addition, those who are interested in dumping their assets onto the government’s books will have to consider a number of factors ranging from the price of the securities, to the implications of having to give the government equity ownership and any loss of executive pay.
    Frayed nerves take time to heal, which means that fear and anxiety will remain a major part of the pricing of financial assets. I noted last week that the financial crises of 1987 and 1998 were both followed by roughly two months where key fear gauges stayed high.
    For example, both the TED spread and the yield spread between LIBOR and fed funds did not peak until two months after the crises of ’87 and ’98. It is human nature for frayed nerves to take time to heal after a shock — healing of any kind is more a process than an event.

  72. Thanks Joseph!

  73. Phil:

    we always seem to talk about PUTs and Covers when the market is already DOWN 200/300 points.
    Look at AAPL: absolute distaster again without COVER,  I referred a number of times to P&F chart resistance ar 116, well it broke that now, the next resistance is at 91 and 84.
    I think we have been far too optimistic about the LOW level of the market.
    Of course understanding the impoact of all the financial actions is and was very difficult.
    Since last May, I was close to getting out of the market about 6 times but every time the lowness of the market kept me in.
    Now lowness has achieved loneliness.

  74. Good point on CNBC – This is a 200-page bill that was final drafted yesterday, what’s the chance that 435 Congresspeople read it before voting?  What a wacky way to run a Democracy…

    C 5% up, BAC 5% down.   RBS on the move.

    X could not hold $80, that’s bad!   PCX down at $27.50, I can’t believe they burned us to the upside in June!

    OIH group getting killed, down 8% today.

  75. Took out TM caller for 60% gain.  Hope i don’t regret it…..

  76. Phil:
    who cares about the price of oil when economic activity is DEPRESSED .

  77. Phil:
    as nBAC and JPm seem to be big survivors, would they not be the ones to own ??

  78. RMM – I bought some 2010 leaps in BAC and JPM on Friday. Down a bit today but fully covered. Seems to me all the assets floating around that JPM are getting without the liababilities will add to their bottom line at some point.  They both have to recover by 2010 surely ?

  79. WOW, this bill may be passed.


  80. Phil
    On Friday I had a long position I wanted to protect.  I liked your suggestion to turn it into a double diagonal (answer to RMM’s AAPL question), so I opened the following position:

    Long 5 Dec420C @ 49.45
    Short 5 Oct430C @ 23.50
    Short 5 Oct 430P @ 25.00
    Long 5 Dec 430P @ 38.00
    The BEs were 385 and 488 at expiration
    Today I rolled the Dec420C to Dec400C for $9.00
    Would you do anything else today or just wait for events to unfold
    Thanks, edro

  81. REP. Marcy Kaptur i must applaud this woman’s statements 1 of a few to make any sense and expressing the facts of the matter.

  82. Puts and covers/RMM – It’s impossible to find the right place to cover at the moment, especially super-volatilie stocks like AAPL.  What did make more sense was covering bullish tech plays with bearish bank plays as you are playing the sector you think will recover against the sector we think is the weakest.  That’s why the SKFs, for example, are good covers for bullish portfolios.  I don’t know if you are still in the Jan $135s but they are down $4 from Friday’s close, about the same as the Oct $130s are down as well.  What hasn’t changed is that you can still sell the at the money $110 calls for $10 and that $10 can roll the Jan $135s down to at the money Jan $110s at $17.15, it’s really a question of whether you want to stick with them or move on. 

    At this point on AAPL, the Apr $115 puts and calls for $40.20 with the Oct $115 puts and calls sold against them for $19.85 make an interesting butterfly play as it doesn’t seem likely AAPL will come flying back and we can hope $80 holds on the way down. 

    BIDU failing at the 10% rule now. 

    NYSE testing 5% rule at 7,500.

    Oil/RMM – When economic activity is depressed in large part BECAUSE $1Tn of discretionary income is being spent on fuel that was not spent on it 2 years ago, then it matters a lot.  We needed ags and energy stocks to collapse along with the price of oil and of course it’s dragging the markets down when the XLE is down 7% and the OIH is down 9% – they are like a boil that needs to be lanced as are the greedy financials that drove up the price of housing and other commodities over the past decade.  Unfortunately, the bubble we are popping makes up 40% of the S&P and probably 60% of the earnings so a 20% dip in the markets is getting off easy with a wipeout of these sectors.

    BAC/JPM – Yes, I like both of them LONG term, short-term if this Bill doesn’t pass we are so screwed.

    Can this market be so absolutely insane that it will sell off right to the vote and then turn on a dime?  Stops may be a good idea here as may be keeping your finger on something like the DIA $112s at $2.21 that were $3.40 on Friday.  The VIX is at 40, usually a sign that something crazy is about to happen.

  83. Phil
    On my previous question – I guess I am afraid my short puts will get exercised

  84. lol kustomz

  85. GOOG/Edro – I like the roll and you might want to keep a stop on the caller at $18 ($10 move up appx) as you can always sell another one for more money on momentum..  Otherwise, you are right to wait, it doesn’t pay to overreact to one-day moves other than to improve yourself as the $9 you spent bought you a very real $20 gap that locks in that amount in Dec.  On the $430 puts, they still have $14 in premium, that would be a lot for the putter to give up but if we don’t improve by EOD you can spend $7 to roll them down $10 or spend $3 to roll them down to Nov $410 puts at $44.

  86. GOOG/Edro – Oh by the way, when you have a butterfly like that, it’s always good to look ahead to the next month to see how you are holding up.  Your puts and calls were solf for $46, now $62 but still with $23 in premium and you can roll to almost any November put and call at about $75 so not so far out of range yet.  One thing you can be certain of is your putter and caller will lose all of their premium in 3 weeks, leaving them with hopefully $40 or less in value (GOOG would have to hold $390 without a big recovery) at which point you will be able to put them back into pure premium at your next target strike.

    Damn it does look like the markets are trading off the play by play on CSPAN!

  87. Personally i would like to see this bill fail to pass, i need to see what a precipice looks like so in the future i know what to look out for.

  88. I wonder to what extent downgrading AAPL today was simply manipulation by MS trying to tank the markets and push Congress into action.  It’s sad that that’s all it takes but they cut estimates from $170 to $110, that’s severe and rare and also makes them look pretty dumb – not the kiind of capital you spend loosely.

    LOL Kustomz – this is the precipice, what you will see if the bill doesn’t pass is the very ugly splat America makes when it goes over that precipice.

    Casino stocks still doing well.   BIIB having a great few days, they had an upgrade last Thursday.  JOE is interestingly strong (Florida land),

  89. Phil – Given your views on how banks and financials will get re-priced for the risk going forward, don’t you feel that their capital budgets more on the technology side are going to get slashed dramatically. If that’s the case all teh big players including CISCO, DELL and HP are going to suffer (maybe more CSCO and DELL and less HP – bought EDS for services component). I think there is a very good possibility that techs will face a serious selling pressure over teh next 6-8 months. Your thoughts please?

  90. Its amazing how Phil can make a simple 5 letter word so graphic (SPLAT), evokes nausea especially when followed by America

    Speaking of Nausea, i get sick every time the house applaudes themselves. These people are out of touch with the common person and the reality of the real world.

  91. bballer22, i think your right that’s why i believe they will benefit form your assertion. Small tech companies will be less likely to make large moves……If Pe’s fall this will move small cap tech with the idea big fish eat little fish. 

    SHLD holding up well

  92. Techs/Banks – I think big iron sellers like HPQ and IBM will suffer as IBanks and hedge furnds trim budgets but there will still be a need for efficiency in a competitive marketplace and I don’t think there was that much redundancy in the system.  In fact, it could be argued that GS et al were incredibly efficient processors of money and with big houses like that broken down and investors diversifying their holdings, we may not see too much overall job loss (but the pay grades of those jobs will go way down).   In other words, you used to be very comfortable giving GS $100M to hold, now you put $10M in 10 financial companies (my Grandfather, a depression survivor, always had 6-10 banks with some of his money in each).  Obviously, there is a lot of potential downside to tech if the economy contracts but clearly it was tech that led us out of the ’87 housing crisis – unfortunately, it didn’t really get going for 3 years after the crash.

    GM got their $25Bn low interest loan package (not just for them) approved on Sunday and look at them today.  DO THEY ACTUALLY HAVE TO GO TO ZERO TO BE KICKED OUT OF THE DOW?

    C fell off sharply, sellers back – is something wrong on the hill or is it just because 1pm came and went with no vote yet?

  93. Now JRCC seems cheap!  Stock can be bought for $20.75 and $20s can be sold for $3.08.  Also Dec $15s are $7.40 with the same $20s sold for $3.08 making a $3.32 cost to a $5 spread.

  94. JRCC – I have a feeling they fall more. I thought AAPL was cheap @ $130.

  95. Phil – you nailed it right post LTC we were in depression for 3 years (some prefer to call it adjustment period). I agree that techs will bring the efficiencies but the leaders coming out this time might be way different than what we see in the current tech landscape. Tech multiples will get taken down and coming earnings season will given ample opportunities for that to happen.

  96. X – I think they will go up with a market rally and will be a good short potential at that point

  97. C Nov $22.50s for $1.50 are nice way to play a pop.

    Check out the pricing on VIX options, totally crazy!  You can get a VIX $25 call for $6.50 and the VIX is at $40, that’s how over hyped the VIX seems.  I’m NOT saying to do this as these are casino contracts but it shows you where the betting is at.  The $40 puts are $10!

  98. GOOG picking up a little.

  99. Phil:
    expecting that the rescueplan would stabilize, I closed all my SKF and SMS, well the day is not over.

    But again: the techs hurt more than anything else, its AAPL, RIMM< ISRG, for 6 months they give me the big losses.
    I wonder whether I should keep them, again, they are so low but ??
    Its frightfull, sell in May and go away was true again, I would be way ahead.

  100. Voting started and the market is flying.  What insantity!

    SKF/RMM – Now you are getting the hang of it!  Tech comeback will depend on how the market digests the actual passage of the bill but, if tech doesn’t come back fast, then selling calls gets safer too.  You can sell callers and hedge a tech run with QID puts, they are very high right now.

  101. Wow, thgis vote is scary close!  Repulicans voting 5:3 against so far dems about 2:1 in favor but that’s too close for comfort.

  102. WOW this is close

  103. Make sure you have a put lined up on financials if this thing fails!  C will certainly be unhappy they are swallowing WB with no package, it may be enough to push them into a spiral…  SKF $115s are "only" $10.45!!

  104. Oh this is insane!  148 to 143, there are 140+ Reps willing to let "whatever" happen by not passing this bill.  They are literally willing to say no and see what happens to America.  157:159 AGAINST now!

  105. O my, this is going to either pass or fail by only a handfull of votes

  106. Phil – Ref C. I heard today on CNBC that C has gov backstop on WB assets. I haven’t look into it myself.

  107. Oh my god it looks like it’s failing!

  108. This bill wont pass

  109. Phil,
    I suspect the voting is driven by the constituents, most of whom do NOT want this package passed as currentlywritten. Most of them do NOT want the same people who created the mess oversee "fixing it".

  110. Failed!!!!

  111. DOW down -560.00 points

  112. What the f*** is going on over there ?????????????

  113. Done do bail out

  114. I can’t believe that just happened, these people are insane!  They have no idea what they just did to this country.


  116. The voting is not closed. They can change the votes. In other words it ain’t over. CNBC says so. John Horowitz///

  117. Dow down only -503

  118. only 13 votes need to change….Dems wanted 80 Republican votes…they delivered only 65…there is room

  119. Can someone please explain to a remote Brit what is happening ?

  120. Dow now -415 wow

  121. 95 Democrats voted no, I consider this a major failure of the Dem leadership.  Members can still switch votes and they need 13 to switch out of 95 dems and 133 Republicans who voted against.  Now they need 12…

    RIMM down to $62, AAPL at $104, GOOG $386, QS below $38, XLF blew $19.

  122. quickly recovering but watch volatility….

  123. DB – the House of reps are voting on the bill HR 3997. They allocate time for voting. During that period the members are allowed to change.
    If my memory serves me right, in a Westminister model, the parlimentarians cannot change their votes.

  124. I saw the Dow down 6.1 and Q down 6.7% and panicked ! And I’m a bear!!!!!!

  125. Passage of the bill requires :218 votes( now YEA votes are 207). I hope that explains it DB. :-)

  126. How much time do they have to change their vote??


  127. Thanks for the explainations guys. You can change your mind !!!!.

    Spreads on bid and ask are HUGE after that crash. With the vote being so close even if it passes I cant see a rally here.

  128. Another good job for a Pelosi run congress.

  129. How much time : As I understand, it depends on the Speaker…again dont hold me to it.

  130. option spread so big any position now is a loss!

  131. Phil,
    95 Dems had to vote against it because their constituents did not want it. This is not the end though, contrary to your "They have no idea what they just did to this country" statement. This bill can now get kicked back and redone in a manner which is much more responsible and less expensive.

    It’s apprehensible that a problem which has been around for over a year, which is so monumental, gets less than a weeks worths of debate in Congress.

  132. Phil:
    Look at 94 Democrats and a32 Republicans, they voted NO: these a……… say Country First, they lie, its THEM first, selfish bastards.

  133. VLO snapped back to $30. 

    11 votes still needed.  Gold spiked but came back down as word is they will still wrangle the votes. 

    NYSE down 6.7%.  C went from up 5% to down 5% now.

    CNBC says Dems are furious as Republicans promised them a number they didn’t get by a mile.

    Time to change, they can keep it open for quite a while but this betrayal issue is making the Dems not wanting to switch as this becomes a purely Democratic bill that will be hugely unpopular.  Forcing this through with the Dems means it becomes political poison for them just a month ahead of the election and can shift the whole balance of the House so the Dems have to decide if they are willing to risk their majority on this issue.

    This is horrifying…

  134. VIX over 45, a 10 year high.

  135. why the hell would Dems pass a White House (republican) bill in the first place? I thought it would fail. I hope this thing goes down in flames. 8 years of Bush is what this economy is adjusting to. If you didn’t see it coming it was your own fault.

  136. JB - You can not like the bill but businesses will start shutting down tomorrow.  There are no loans and what loans people thought they would get are now in limbo and you will see payrolls missed in the hundreds of thousands this week and bank failures and all sorts of horrible things if they don’t get this done. 

    Now they need 13 votes again!  Republicans are switching to no…

  137. Un-fxxking-believable.

  138. CNBC says no chance of passage – strap in for a wild ride!

  139. Those a…….. do not know what they are doing.
    Actually, it always was this way.

  140. Phil,
    Thats a pretty dire prediction…somehow I don’t see that happening.

  141. Phil:
    tell me what to mbuy for protection.

  142. Brazil was halted limit down.  Oil heading to 10% drop, NYSE past 7.5%, Dow past 5%, BAC hitting 15% down.  AAPL heading for 20% down at $102….

    SKFs flying.

    This is like finding a person bleeding to death on the side of the road and voting not to do anything about it…

    RMM – still the SKFs, they can go miles up from here.  It’s a financial crisis and C could actually fail on this mess as WB is now deadly to them with no capital to back it up.

    We could be looking at Hong Kong dropping 2,000 points in the morning.

  143. My 2 cents – The restive Republicans/Dems were allowed to have their say by letting them to vote against it. Now they will make a silly amendment and pass the bill later on. This way those pols having to contest an election can  make a claim that they voted against the bill.
    Only a third (145 members) of the Congress is up of relection. That means those who are not contesting can vote for the bill for a successful passage. Atleast 80+ are not up for relection. I am assuming nobody is a statesman :-)

  144. Argghhhhh No news feeds of any use here. Whats happening now ? Did it pass. MA is recovering GOOG isnt. Russia seems to have obliterated all todays trades ?

  145. What is horrifying is believing this package was any sort of fix (either short or long term). What is horrifying is having our current political leaders willing to short change the country by doing so little diligence on what the real problems are.
    Other than Paulson and Bernanke, not a single person with proven expertise on the economy has been heard from in a congressional public forum. A whole lot of back-room dealings over the last few days. The US taxpayer has said enuff by inundating their representatives with communication on not passing this craziness.
    The fix to this problem is deep, many different ways of doing business are obsolete – real changes have to be made.
    Neither Obama, McCain, Bush, Pelosi, Franks, Reid , et al and any other political leader has shown the gonads to take a risk with there own personal power for the good of the country. None of them have provided the taxpayer with a plan for REAL CHANGE.
    Washington has heard loud and clear – -stop the power grabbing, stop the bickering, stop the spin and get back to work doing the job you are paid to do by the taxpayers and the job you are being paid to do by the lobbyist, wall street reps and special interest.
    There is still time

  146. Phil:

    as I start new with SKF, which ones,
    going out to Jan ?
    strike ATM ??

  147. TDA is down.  Again!  Any comment on the most stable platform when the **it hits the fan?
    The funny thing is – that I would be a buyer here (probably of aapl, at least), but since I can’t log in, I can’t buy.  Just makes me wonder how much money on the sidelines would come into the market, but can’t because of technical difficulties…

  148. In the end of my last post – The last sentence should read ….

    Washington has heard loud and clear – -stop the power grabbing, stop the bickering, stop the spin and get back to work doing the job you are paid to do by the taxpayers and STOP DOING the job you are being paid to do by the lobbyist, wall street reps and special interest.

  149. On the bright side, gas is down 10%.

  150. marketwatch says bailout officially voted down

  151. Only 1/3 of Senators is up for election.  All of the representatives stand for election every 2 years.

  152. Ramana…..ALL 435 House members are up for re-electionevery even-numbered year.  Wish the Senate members were also up.  This type of  "gotcha" politics begs for TERM LIMITS… GABBY

  153. Only thing I can find green is Biogen and Campbell Soup.

  154. Sounds like Pelosi put her foot in her mouth.

  155. Phil:
    While it is true that Republicans in the House boycotted the rescueplan for 10 days, it is also lots of Democrats who voted against.
    What the hell was Pelosi saying/doing?????????

  156. Well this is very historic.  If this is the start of the second great depression we’ll all know the exact moment it happened.

    Gasparino says they are still working on it on the floor of the house, they need 10 Republicans and they feel 10 Dems will join them.

    Congress – All 435 house seats are up for election I think, that happens every 2 years.

    CNBC repeats vote is dead.  Be aware that your options would be doing worse if the VIX were not at 45!

    Still time/Geauxsaints – Gee, I hope so.  Lots of corporations have values tied to stock prices which means there can be all sorts of loan calls starting tomorrow and Moody’s et al can go on a downgrading spree and that can throw another $1Tn into recievership overnight.  It’s not what’s certainly going to happen but it’s what can happen now and risking that is reckless as this entire country can be bankrupted by this.  The commitment was for $250Bn, not $700Bn and they could have pushed to review at that level but doing nothing at all is like putting the neck of the country on the chopping block.

    SKF/RMM – Jan $120s at $21.55 were $14.50 yesterday so if you plan on a DD and a sell of maybe Oct $120s that are now $12.25 if it heads the other way, it’s not a bad spread.

    Lack of Congressional action may force Fed to dump another $1Tn on the market tomorrow, Gold not up too much considering.

    So they are using Pelosi’s speech as the reason that the bill was voted down.  In other words, "I was going to vote for something that was good for America until you hurt my feelings and I’m fickle enough to change my vote out of spite."  I guess if that’s the tact they’re going to take, good luck with it.   Yes, I do think this is a major failure by Pelosi even so, it’s ridiculous that 93 Democrats voted against it after all that.

  157. ramana – the entire House is elected every 2 years.

  158. Oil at $95.77 at the close!   Gold $911, GLD way lagging at the moment.

  159. Don’t forget these guys are all supposed to be going home now until the election.  I’m not even sure they can keep all these guys in Washington through the end of the week.

  160. Anyone know of an inverse FTSE fund in the US I can trade ahead of open in the UK tomorrow ?

  161. This is scary!  So what is the consensus here? Should I liquidate my account? Or liquidate half at least?

  162. If not for the markets, I love this political play. Just shows how smart these folks are.
    BTW, thanks for all for correcting me on the election to House of reps.

  163. On Congress going home .. just recently, a hand full of republican reps refused to leave Washing during the last congressional break pending some congressional action on the countries energy policy, with opening up off-shore drilling being on the point. Would not be surprised if a very similar effort is undertaken by the Republicans  on the current crisis. 

    Consider, that over the last week, McCain has laid the groundwork for a movement to remain in Washington to conduct the people’s critical business. Both Dems and Repubs will have some serious soul-searching to undertake (probably find nothing there!!) before they leave Washington.

    My guess — whichever party does not leave Washington and refuses to adjourn — wins the election.

  164. Hi, Phil:
    What is WB status?  I sold $12.5 put according your suggestion.  I thought I lost several hundreds and DTA showed so in my account but this time my accoutn show WB at $1.8.  My loss went up to %5700???

  165. Phil:
    my DIA nov107 PUTS are now at 82.2 gain:  I did not remember I had these. not enough to balance the big AAPL loss.

  166. Both parties have really showed a lack of leadership.  This is really sad.  But this is really emblematic of the problem:  "what is good for me"

  167. Now WB is 1.78/1.8 should I bite the bullet and get out?? SInce they can go to 0 quiuck.

  168. I don’t think the average American understands what is happening, and what is required to fix it. From the outside it looks like the street formerly known as "Wall Street" is responsible for this problem, and instead of bailing out these guys with taxpayer dollars we should make them eat it. The average American isn’t privy to an understand of liquidity and financial markets, and even if failing banks do directly affect them (i.e. they are layed off because their employer can’t find a loan to make payroll with) there’s a good chance they’ll just blame the job loss on Wall Street crooks and whatever politicians have the less convincing spin on this debacle.
    From a Congressional Perspective, I’m not at all sure they understand it either. Especially in the House, they are there because they craft an image well, not because they have PhDs in economics or investment banking experience. They haven’t had enough time to come to grips with the implications of this, and they certainly haven’t had enough time to explain to the electorate how important it is for their daily lives that this bill go through.

  169. Earler today my WB put position already show — and my loss is the difference between 12.5-10 -the premium I got but now totally differnt

  170. Cramers telling me im unsophisticated and that if the banks dont get 200b infusion the whole western banking system will collapse….is that all it takes to put our financial system in ruins

  171. This whole finacial crisis started back in the early 90′s with Dodd and Frank not wanting any controls for Freddie and Fannie.  And the Dems wanted really easy money to put more people into homes.  This whole crisis has been brewing for 15 years way before Bush took office. And the Dems would block any attempt at any controls on freddie and Fannie and in the mean time they loved the money they were getting from them.

  172. The fact still is:
    67 % of Democrats said YES,
    67 % of Republicans said NO.

    Now: who puts country FIRST ???

  173. If things do go to sh*t then i think the Dems made the right move by pissing the Rep’s off and Barack gets the WH in an easy victory

    *Phil if you had a large bank deposit what would be your next move, where would you park 4M *

  174. How can you expect politicians to stop unfounded partisan bickering when half of what we have on this board, not to mention the national "debate", is unfounded partisan bickering?

  175. FTSE/DB – I don’t know a FTSE one but check out the FXPs, which are ultra-short on the China 25, they are up 25% today! 

    Summit – It’s important that  you have balance in the portfolio, that’s the most imortant thing.  Hopefully you have a mix of long and short positions.  The market COULD go down to 10,000 or even 9,000 if we have bank failures.  That means that a 25% position short on the DIA can go up 4x pretty easily and that has to be balanced against stopping out of that 25% position with a 12% loss and being thrilled that the market survived and you still have 87% of your money – that’s the only way to stay in this market, just hedged out or in cash.

    "(probably find nothing there!!)" - LOL Geauxsaints!

    WB/Action – They sold their banking division to C for $2.1Bn along with debt.  It’s hard to tell what the hell they are worth now.  They are keeping Wachovia Securities and Evergreen but who knows if that is worth anything at all.  The play on Friday was to buy 3 $7.50 calls for $4.30 and sell 6 $11s for $2.30 as we were bearish then but I take it you are talking about something from earlier – let me know what it is and we’ll see if something can be done while the premiums are still high. 

    DIA/RMM – Maybe not enough but way better than notthing, that’s the balance you have to work towards, add more puts when you see you aren’t covered enough.

  176. Phil, what is a good play on a Hong Kong plunge?

  177. I don’t think PHM BZH HOV KBH will recover

  178. Is anybody watching Barney Frank? LOL,  the political theatre in session. :-)

  179. Im buying AAPL and RIMM on the premise they come back and pass this bill

  180. Nasdaq down 153 points! 

    Is that all it takes/Kustomz – I think at the moment, yes!

    $4M – At the moment, I think I’d go with gold and hedge it with about $500K of puts on GLD and SKF that I would expect to double if gold went down.  I don’t want to sound like an alarmist but this may possibly cause a crisis that will topple the entire financial system and take this country down with it.  The FDIC does NOT have enough money to pay off all the depositors, not even 1/20th – the only thing they can do is print money day and night so you may get your money back, but gas will be $10 a gallon and milk will be $5.  I can’t believe how many people in Congress listened to Paulson and Bernanke and thought they were joking when they said it was essential to pass this bill as soon as possible. 

    Hong Kong/BonV – the FXPs are a 2x negative ETF on China stocks but it’s already up almost 30% today, indication a 3,000 point drop (15%) in the Hang Seng is expected tomorrow.  We’re talking chaos if that happens folks!

  181. I have 6 Oct WB $12.5 put.  This morning I look at my positions and I saw — in price of those positions and showed they price as $10.  My loss was 600 — $700 but now with WB priced $1.8 my loss went to $6000.  Wait?  Bite the bullete?

  182. Only good thing is that we probably get a nice dead cat bounce pretty soon. Looking to either buy calls and/or sell puts on SPY, Q’s, IWM, and DIA. Probably do exactly opposite on GLD/GDX.

    GLD – my only trade today and got out a tad too soon but my new daytrading screens seem to be working very well.

  183. Down 700 and counting!

  184. this is ugly

  185. That $12.5 put now priced $10.7/10.9

  186. Heh, and I thought buying DIA puts when we were down 220 points today was ‘too late’.

  187. you can get BAC 12.50 or even 15 puts for almost nothing if you think "they’re next"

  188. Anybody think we can actually hit 1K down on the Dow in a single day?

  189. WOW VIX hit 48.

  190. Looks like bargain hunting now.

  191. WB/Acton – You sold the $12.50 puts?  That’s bad at $10.80 so you have the obligation on that for 6 x $12.50 but if you roll them down to 30 $2.50 puts at $1.23, your obligation is about the same ($7,500) but they are adding $3K in premium.  You can get fancy and pick up another .30 by selling $2.50 calls against $5 calls but if WB heads back to $5 you are just screwed in the other direction.  Since they do not seem to be going out of buisness, it can be assumed you will be able to roll each month for more premium, maybe only .30 per month when things calm down but it may be better than paying them off.  It’s very important to make sure they are a going concern of course but, if they are and they just got $2Bn, it means they are worth a buck in theory.

  192. Phil: thanks.  I might just bite the bullete.

  193. QQQQ $38s are pretty cheap at $1.69 if  you think we can recover.   A little safer than AAPL/GOOG.

  194. Looks like a small rally into the close.

  195. I’m not sure about tomorrow.  No action and we could drop like a rock.  My 401k website is experiencing "technical difficulties," i.e., the public freaking out and checking their balances.  I can’t imagine how many people are throwing everything into cash.

  196. C and JPM held up relatively well, and are recovering, even.

  197. it’s past due.

    20% drop tomorrow.  :)

  198. VIX $50 puts are $17.70!  Nov $32.50s seem like a bargain at $5.40 and you can sell current $35 puts against them for $5.20, that seems like a very interesting play with just $2.50 in margin.

  199. GOOG 400 call for a recovery play, else cash and puts … and prayers.

  200. Heres a question. If the markets droped 7% the day the bill is rejected is it possible that any action in the market tomorrow is NOT related to the bill. Obviously Asia and UK and other "overnight markets" will take a hit, but what about the US tomorrow ?

  201. Money flying back to treasuries again but coming out of mortgage-backed securities, there is literally going to be no money to lend tomorrow. 

    USO way down at $77!  Those puts from this morning only doubled, seems like a rip-off. 

    US/DB – If nothing blows up in the morning, we may actually get a little relief but who in their right mind would invest in this country after watching that circus today.  Remember in Ireland when they had that total political screw-up and didn’t ratify the EU?   Their market has been killed since then, if international investors lose confidence in any country, it’s bad, when investors lose confidence in a country with $11Tn in debt -  it’s a lot worse than bad.

  202. Tuesday is last day of the month.  Phil, will hedgefunds be adjusting or selling on the last day?

  203. It is unlikely that tomorrow we get any bill voted on as it is a Jewish Holiday and many will be away.
    So what happens tomorrow?

  204. Just had an email from my broker saying that the after hours market has been cancelled !!!!

  205. Phil – Does the ‘US is the least sucky place to invest’ hold for investors both international and domestic? This despite US being in $11Tn in debt. Ireland compared to US economy is much smaller.

  206. FULL TEXT   ……………….
    1. The After Hours Trading session for Monday, September 29th, has been cancelled.
    2. When placing trades today (September 19, 2008) to open a September uncovered long put or short call on any of the 799 equities restricted from being sold short by the SEC’s emergency order, please be aware that it is your responsibility to close uncovered short positions on September expiration options by 4:00PM EST today (September 19, 2008). Orders are subject to review. You are responsible for any financial impact in complying with this emergency order. Please note: there is no impact to option positions established prior to the SECs order.
    3. The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority (FSA), today took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The action is immediately effective. All open orders to short any of these 799 stocks will be canceled. Please refer to for in-depth details of the order.

  207. Hedge funds – If they are getting phone calls all day long about people wanting out, they may be liquidating tomorrow.  Very bad endo of session dip on the Nasdaq, finishing down 199 points – haven’t seen that since 2000, I’m pretty sure 9/11 was only down about 100 on any given day.

  208. Least sucky/Ramana – Tomorrow it is very possible that the Chinese will wake up with their market limit down at 10%, Hong Kong could also be a disaster and they are getting close to 50% off the highs and accellerating down.  Europe is also in chaos and they already had huge scandals over there so everyone thinks their local market is a disaster and most people are still under the impression that the US is safe, especially people who lived during WWII as the whole world was in Chaos yet our financial system was sound.  That keeps money flowing into this country and, to date, we have never actually burned investors, which is why it has been so important to the administration not to screw the bondholders or preferreds, if you scare off those investors, we are in big trouble.   

    So the US continues to look like the least sucky place for parking money but I’m not sure what’s going to happen now – we have no idea how many banks are far closer to failure than we were led to believe and now we are likely to see hedge funds blowing up as well and that can play hell with the markets as they unwind huge derivative trades.

  209. DB
    AH seems to be trading. I am gertting some quotes.

  210. I am still seeing volume changes. Dow at -777, NAS -199, S&P – 106

  211. Least Sucky – Thanks, Phil

  212. Edro – Thanks here are my questions so far:

    1.      How do you define up or down market? (Trend line, MA Etc)? On May 26 when IWM closed at $72.21and you had Jun73 putter, did you consider to be in up or down market?
    2.      Which Leap do you buy ATM, ITM, or OTM?
    3.      At the end of the month roll do you roll to $1 straddle? Example prior to May 13 you probably held –may74C/-71P, on May 13 IWM opened at $73.3, so did you roll to –Jun74C/-Jun73P?
    4.      Please provide example for rule 4. What is a difference between “last week of expiration” and “the week before expiration”.

    5.        When you said that you “use both calls and puts (a 50% ratio)” do you mean for every 2 callers you get 1 putter? That would also  mean that you are getting two LEAPs minimum.
    Thanks in advance. As you know no good deed goes unpunished, so I may have additional questions later.

  213. Hey GS actually held up during this mess, I just noticed…

    Check out the reversal of LVS on no bail-out.

  214. Wow, UNH hit the bargain basement today!

  215. Phil – I missed the portfollios today – would have been good to see how you were trading the day.

  216. Phil
    You must be hitting the booze.  GS fell 12.5% today.  But appears to be up a little in AH.

  217. Ron Paul objecting to the bailout at 10:50:

    Portfolios/DB – As I said earlier re. balance – it’s either time to be fully hedged to neutral or in cash.  You’ll notice I mixed in puts and calls today and this is much more of a day-trading environment where profits need to be taken.  I mentioned SKF calls that went up 35% in one hour and the USO puts were a double in one day, the trick is to have a balance in your own portfolio of positions that work in either direction as the wild swings we are having can have both sides of a trade paying off the same day (like C today!).

  218. Thank goodness for mattress plays, Phil.  Closed half at the bell & offset 2/3 of my other losses.  Also opened an FXI put spread in anticipation of China’s reaction.  Pretty sure that whatever Congress does, they won’t be able to do it before Asia opens.

  219. GS/Steve – I meant held up from the $125 where I became interested in them.  I thought they were going to fail it but they got back over $120 in the end.

  220. FXI – be careful Scobe, they are already down 14% today in anticipation of very bad things happening over there.

  221. Hey, what a great sign of a bottom – Schaeffers sends out an Email called "Introduction to put options."

  222. If i could, I would short both political parties.

  223. LMAO Paulson said hard on

    But seriously, i think something comes out of this failed attemp at… well really i dont know what to call it but form the ashes…..

    I LOVE RICK SANTELLI, you go boy…

    Phil video no longer up, heres his comments afterward talks about the markets

  224. Phil--In FXI Jan 32/Oct 30 Bear Put Spread.  Ahead by $2 & 3 months.  Expect to be OK so long as the world doesn’t start spinning the other way (or Congress gets the bailout straight b4 China closes). 

    On the link i posted above you can scroll don and watch the video of his comments from the floor today

  226. Jomama--LOL shorting both parties!  Wish we could!

  227. RE: WaMu (WM) - Got this from OXPS today regarding WM…. just an FYI in case anyone else was distracted by the days events.

    Please be advised that the stock symbol WM has been changed. The symbol has changed to WAMUQ. All account positions have been updated to reflect the new symbol. Open orders with the old symbol have been cancelled. Please review your order status screen and re-enter orders as desired.

  228. oIL DOWN 11 BUCKS TODAY.  sOLARS ARE OFF 15-20%.  SPWR took a big dive.  $7.3 for selling the Oct65.  But the Jan 65 have a $5 spread. But the Jan 50 only show a $1 spread.

  229. GS
    Here is a good play.   Buy the stock, 120.70  and then sell the Oct30 cover for 95.60.   It has about $5 premium so your return is about  20% in 18 days if the stock stays flat.  Very good downside protection too.

  230. What a disaster.

    Throw all the bums out.

  231. GS/Steve,  good play – I’ll do the same with buying DIA and selling Sep Quarterly strike 100 or DIA Sep 95  for 1.2% to 1.6% in one day (let it be called away).  Good work!

  232. GS/Steve – don’t forget to buy the GS Oct 30 PUT for 0.4 in case it goes to zero

  233. OK I know this is a bit of suicide saying it, but doesn’t anyone here appreciate this show of democracy? At the end of the day a lot of these people that voted against it did it because I am sure they got inundated with protests from constituents saying "No way in hell!!!!" so I guess there are enough people out there that oppose this or at least feel a lot stronger than the ones who wanted passed (which is basically Paulson, Wall Street and all of us who are invested in the stockmarket).

    Someone here was saing that the average american does not understand why this is needed. Frankly I think I know a bit more about the markets than your average american and still I was against it … Hey you could find a lot of financial blogs and posts on opposing this (some articles were featured by Phil’s Favorites). I am not saying it is not needed or needed but basically I doubt "the we know better than you so just hand over the cash" will work … So one of the failures was the way was presented … And the other thing which was really criminal was promising it will be done and then not getting it done: in this market it is all about expectations.

    There got that off my chest …

    I am actually glad

  234. There is a lot of interesting commentary here, particularly on the politics of the vote on both sides … I think if you read all of today’s posts on the bailout, you will be somewhat more informed than what you saw on CNBC.

  235. cnicola    The United States is not a pure democracy, it is a democratic republic.   In a Republic, the people do not vote directly on issues, they vote for representatives who then vote on issues.  Part of the job of a representative is to exercise independent judgement, regardless what the people may want at the moment.   It’s not that congressmen are smarter than their constituents, but the average person going about his life doesn’t have the time or expertise to familiarize himself fully with the issues.

  236. eph
    here in Oregon we have a true democracy and it drives me crazy at times.  measures can be added to the ballot on almost anything and the people’s popular vote decides.   Our voter manual can be over 1/2 inch thick with 50 different measures placed on the ballot.   So many you cannot keep track of them.  While this seems nice it can circumvent people doing their jobs that know a lot more about the issue.   for example bear and cougar hunting, the people voted that dogs cannot be used inthe hunts.  Now we have bears in back yard garbage cans and cougars so close to town that sooner or later will kill a kid.  The DNR have smart people to decide how the hunting should be done but  that was taken away by the vote of people who never fired a rifle.

  237. I think Pelosi forgot to mention that it was Dodd and Frank and the Dems refusal to regulate Fannie and Freddy that helped lead to this mess that they blame on the republicans and bush.  How they forget so easily for their political gain.  Pelosi couldn’t even get the Dems to pass the bill.  If they wanted to provide support, they have the majority to pass.

  238. Steve   That’s the whole idea behind lobbyists.    There is a legitimate need for people with expertise on an issue to educate and inform legislators, but obviously it can lead to a system rife with abuse.

  239. The problem with lobbyist is the money they donate.  Take Freddie and Fannie, who got the millions so that they would not be regulated.  Maybe they need a law that lobbyist and the companies that they lobby for cannot donate.   Oh that won’t work that would wipe out the unions.

  240. Phil
    A stock question here.  During these times is a safe strategy doing very DITM covered calls like the GS one and then buying a very OTM put for any failure?    Seems a safe way to play the financials since they have had high volatility  and OTM puts are cheap insurance if they really drop hard vs ATM puts which cost a lot more.

  241. Top 5 reasons to reject Paulson $700 billion bailout plan

  242. Nikkei Down 11,402.60 -340.98 -2.90%

    Nikkei Drops 5% in Early Trading
    Asian shares were sinking Tuesday with investors dumping riskier assets across the board after the U.S. House of Representatives shocked markets by voting down a proposed $700 billion bailout package for the financial sector.
    Japan’s Nikkei 225 dropped 5% with a slew of banking, auto and exporter stocks still ask-only.

  243. I’m not a constitutional scholar, but I believe the courts have ruled that money equals speech so it is very hard to legislate away the corrosive effects of money campaigns and lobbying.   I think money is equally corrupting on the right as well as the left.    I’ve read that if you are a buyer for Walmart, a supplier can’t even buy you lunch, because they think even the appearance of corruption is bad.   I’d like a similar situation in Congress.   I’d allow them to have lunch, but otherwise they can take no campaign money at all once they are elected.   Incumbents would get public financing at a rate of 80% of whatever the challengers raise (since seating representatives have franking privileges and no fund-raising costs).

  244. eph – I understand your point but on the other hand I think the only power we have over politicians is "sometimes" the ability to kick them out of office / put them in. As we have seen a lot of times they used their "independent judgement" for things definitely not popular or good for the country usually via lobbyists (see Iraq war or less contentious lax regulation on Wall Street. Reading Cox saying that the voluntary regulation of IBs that they lobbied for to start with was really ineffective).

    Given that this country is so divided these days with people usually voting along party lines (I mean come on McCain is not the first choice of a lot of republicans) it is refreshing to see a departure from that and to know that people can still affect the outcome …

    As for the bailout tomorrow let’s see how the market does … But it did not necessarily crash today … The irony is that a lot of the swings right now ARE happening because of gov intervention: banning shorting makes the drops a lot bigger, has made a lot of the spreads a lot wider and they have put an immense amount of uncertainty in the market by promising this thing and then failing to deliver. Paulson, Cox and Bernanke had already blown any cred they had by all the "markets are just fine" and then taking over another company. Now with Congress doing this they lost their credibility as well … As much as I think he is at fault for a lot of it, I miss Greenspan and his inscrutable statements that you never knew if he agreed with you or disagreed :-)

  245. Kospi down 3.8%

  246. eph/campaign money – Good luck passing a law like that with politicians using their "independent judgement" :-)

  247.  CNBC Asia Live for the latest Asia markets….

  248. China - is closed for holidays this entire week.  Only Hong Kong is open.

  249. Bronek

    >>1.      How do you define up or down market? (Trend line, MA Etc)? On May 26 when IWM closed at $72.21and you had Jun73 putter, did you consider to be in up or down market?

    What I should have said was "When the IWM stock price goes up" and "When the IWM stock price goes down".  In your example it is a down market.

    >>2.      Which Leap do you buy ATM, ITM, or OTM?


    >>3.      At the end of the month roll do you roll to $1 straddle? Example prior to May 13 you probably held –may74C/-71P, on May 13 IWM opened at $73.3, so did you roll to –Jun74C/-Jun73P?


    >>4.      Please provide example for rule 4. What is a difference between “last week of expiration” and “the week before expiration”.

    Last week of expiration = 1-5 days before expiration.  The week before expiration = 8-12 days before expiration
    >>5.        When you said that you “use both calls and puts (a 50% ratio)” do you mean for every 2 callers you get 1 putter? That would also  mean that you are getting two LEAPs minimum.
    Buy one call for one put so you wind up with 50% calls and 50% puts.  I leg in buying puts at the top of the channel and buying calls at the bottom, I sell my short puts at the bottomish of the channel and sell my short calls at the topish of the channel.  Sometimes this takes a few weeks.  With the stock price around 66ish I would buy some Leap calls.
    Well, the rules made sense to me when I wrote them.  I will rewrite them and repost.
    Thanks for your critique.

  250. Global markets not so bad.  China being closed seems to be a good thing and stopped the Hang Seng from falling apart.  In general, there is still optimism that a bill will be passed by the end of the week and Bush has scheduled a speech at 8:45 to address the situation so panic is not setting in and people are even bottom fishing in our futures market.

    McCain is paying the price for this already, he lost Missouri and North Carolina and Florida, which were all in his column last week and all went into toss-up territory while Michigan, Wisconsin and PA went from toss-up to Obama.  It turns out that the Dems pretty much had that limit of Congresspeople who felt that they could surivive a yes vote, the 93 nos are all from district where they are pretty much sure they will be tarred and feathered by their constituents for voting to bail out bankers – that’s going to make this bill a tough sell.

    Ron Paul/Kustomz – They should put him in charge of the Fed or give him Paulson’s job.  Although I am disturbed by his comment that 500-600 point Dow drops happen all the time and are no big deal – I would have thought he was more in touch with the markets than that.

    FXI/Scobe – Can’t argue with those premiums.

    Now would be a great time to get a real independent party going.

    Solars – they are getting to be quite a deal.  Congress just passed huge subsidies and Obama is very much for them and even McCain says he likes alt energy.   They still don’t make my 2005 rule for the most part but, if they do, I think we will have some very attractive long-term investment plays there.

    GS/Steve – Great catch on that one, what an amazing deal.  These premiums are insane and can be taken advantage of in creative ways like that. 

    DIA/Peter – another good one, this is amazing stuff but VIX 45 is a very rare thing we need to take advantage of.  Don’t even think that about GS going to 0 – We’d have to go to WMT and buy some guns and ammo if that happens.

    Well put Cnicola, I am not unhappy that the system works.  The reason Congress is elected every two years is to make them fairly directly responsive to the will of the people and this is a great example of how that is supposed to work.  As Eph says, it is a Republic but, in unfortunate timing, the closer to an election, the less leeway the Congresspeople have to use their discretion.  The real fault lies in our leadership, or lack thereof, who completely failed to make their case to the American people.  Of course, since they already sqandered all credibility and have single digit approval ratings, it was much more difficult anyway but Bush could certainly have gotten a half hour on TV at 8pm (as many Presidents have done in the past) and sat there with Paulson and Bernanke (maybe even invite McCain and Obama for good effect) and done a power-point to explain why the bailout was needed and what it would actually accomplish and cost.  That’s all they had to do.

    I liked a comment on MarketWatch: "Even the notoriously splintered government of Belgium was able to engineer a rescue of banking and insurance giant Fortis over 48 hours this weekend. But our own representatives, faced with the gravest economic threat in 70 years, took more than 10 days to hash up this rescue plan, and then rejected it anyway."

    National Review/Cap – It’s surprising how many conservatives are against the bailout actually.  I’m against it as it stands but SOMETHING needs to be done and that’s what’s on the table.  I think that’s the problem, doing nothing is not really a good alternative.  Of course I think $700Bn for banks is a bad idea.  Take those toxic loans (20% of mortgages) and have the government guarantee them against default for a total exposure of perhaps $1.5Tn but over a very long period of time and, of course, they won’t all default and the homes won’t be worth zero.  That takes care of the problem 100% but what it also does is screw the people who played the CDO derivatives game to the downside and somewhere out there people are making TRILLIONS on these defaults.  That’s who Paulson is ultimately protecting – the government could also just void all swaps, the problem is that $5Tn in mortages have been levered 10 times in the derivatives market and the potential losses are far greater than the total value of the paper.  In Las Vegas, they sometimes void all bets if a contest seems rigged so why not void these bets and remove the gamblers from the equation?

    GS/Steve – Well you don’t want to be too in the money when the market is tanking.  The deeper you are in the money the more you lose on a downside move.  If I wanted to hedge out a long-term play on GS I’d rather go with 2011 $110s at $45, which have $35 in premium but also 27 months to sell that $35 in callers so not much of an issue there as the Oct $160s are still $1.15.  You can protect them against catastrophe with the 2010 $110 puts at $22.40, which means you need to collect $2.50 a month through Jan 2010 to pay off both premiums, still an easy goal as you can sell the $145 calls for $3.15 but, from the $110s, selling the $135s at $6.30 is not too risky and puts you more than a month ahead in collections on your first day.  You can also sell $75 puts for $2 against the long puts as a drop to $75 makes your $110 puts worth $35+, plenty of cover against the longer calls.

    Russia halting their markets again, just after the open.

    Good points in the Huffington Post BBaller, I’d love to see a different plan and maybe we will now but I only hope we have time, I’m not sure we do and it’s all up to Bush and co to keep things calm while they work it out.

    Nikkei, they started to recover but dove back down at the close, finishing down 4.12%.  Our pre-market, on the other hand, is shaping up nicely – hopefully it will last and, of course, we need a better than 20% retrace (150 points) to be more than a dead cat bounce like the Nikkei had.

    Financing/Eph – I agree, money should be taken out of politics and I would go further and say NO ONE can raise capital.  You get elected to office by getting people to sign a petition to put you on a ballot, that’s simple enough.  If you garner enough votes to get on a ballot, you get $$$ and at each stage where the will of the people supports it you get more $$$.  Spending personal money should be banned and 527s and such should be banned.  Demonstrating the ability to get a message out on a budget should be one of the reasons we elect someone.  I’m not sure how a totally level playing field would be a bad thing.

  251. Ron Paul/Kustomz – They should put him in charge of the Fed or give him Paulson’s job.  Although I am disturbed by his comment that 500-600 point Dow drops happen all the time and are no big deal – I would have thought he was more in touch with the markets than that.

    Put him in charge of the Fed, lol he wants to abolish the Fed, they would cease to exist if he had his way. I believe he’s right about the markets drop and think he was trying to convey the idea that its not the end of the world and that spending 700B of borrowed money wouldn’t do anything to change whats happening in a market that’s been manipulated to work for a very few very fortunate individuals. 

    Why is Paulson against changing the mark to market rule? Why not suspend it until we can figure out whats good and bad, same thing with naked short selling i can go on and on. This is a perfect storm of financial destruction created by the powers that be. All of a sudden they want to fix it with 700 Billion dollars, i doubt 100% of that money will be used for the sake of the people. This is a mess created by greed, i think the markets and banks need to feel the pain. Saving them from this dilemma will only create more confusion in the coming years. Its just an illusion, 700 billion is a drop in the bucket. Ive been reading articles from 2004 on how great subprime was and how it puts less fortunate people in homes, yea for about 3 years then the banks have to right off that loan and take a loss and guess what they used your money to make that bad loan now you want to hand them more of your money that by the way you will never see again. 

    Taking money from one person and giving it to another less fortunate person on the assumption your doing something good is usually a mistake and does nothing to further the economy as all your doing is moving money around… my loss your gain, like that guy on the street corner with the 3 cups. Can you guess which one has the dollar? 

    I need at least 4 hours of sleep, the markets need a savior and i need my rest.