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Just Another Manic Monday

As soon as Paulson runs out of money Barack steps in!

Obama said, in his weekly radio address (fireside chat), that he will create 2.5M jobs by making the "single largest new investment" in roads, bridges and public buildings since the Eisenhower Administration to lift the sagging economy and create jobs.  His plan to includes making public buildings more energy efficient, repairing schools and modernizing health care with electronic medical records.  “We won’t just throw money at the problem,” he said. “We’ll measure progress by the reforms we make and the results we achieve — by the jobs we create, by the energy we save, by whether America is more competitive in the world.  When Congress reconvenes in January, I look forward to working with them to pass a plan immediately.

This is just what we expected him to do but the timing is a little strange and that worries me as both the outgoing in incoming administration seem a little too worried about saving the economy ahead of the holidays.  We remain in the roller coaster economy until our trajectory improves drastically on the weekly charts.  In any given session, it may look like we are taking off like a rocket but, as soon as you pull back to a longer view, things do not look as good.  I discussed in the Weekend Wrap-Up that, for all the excitement at the end of the week, we are still 200 points shy of Monday’s open and it is 8,800 or bust this week for sure.  Obama effectively just promised a fresh $700Bn in stimulus starting as soon as he takes office – our last stimulus push came the week before Thanksgiving and we improved from below 8,000 to 8,800 so we’ll see how far we can get on a fresh 3/4 of a Trillion dollars.  By the way, as part of the PSW program to prepare our children for the future:  After 999 Trillion comes a Quadrillion, which is 1015 , or 1,000,000,000,000,000.  Have I mentioned I like gold lately?

India is spending 200Bn Rupees ($4Bn) to shore up thier economy, which is dealing with both recession and terrorist attacks.  That will bring Indias spending for Q4 up to 3 Trillion Rupees (see how fast we’re going to need Quadrillions?).  Nonetheless, IT IS NOT ENOUGH: "The incremental spending is less than what was originally thought,” said Sonal Varma, a Mumbai-based economist at Nomura International Plc. “Any fiscal stimulus will help alleviate the stress in the economy, but a slowdown is inevitable."  Forty percent of Indian industry’s funding in the year ended March 31, when India grew at 9 percent, came from overseas borrowings and the sale of new shares in the stock market, said Tehmina Khan, international economist at Capital Economics Ltd. in London.  “The moderation in growth will be more than anticipated,” Governor Duvvuri Subbarao said yesterday while announcing the rate cuts. He said the 7.5 percent growth forecast for the current year will be revised in the next monetary policy statement scheduled on Jan. 27. The country’s ratio of gross current account and gross capital flows to GDP has increased 117.0 percent from 46.8 percent during the period, the central bank said.

So, you see, a Trillion here, a Trillion there and before you know it we’re up to a thousand Trillion and you have to know what to call it - so practice saying Quadrillion every once in a while and you can sound authoritative when it comes up in conversation.  Make sure the kids can say it too because, when you were a kid, I bet you never imagined you would be reading about Trillions every day like we are now

$32 Trillion in global capital was wiped out this year alone but, according to Bloomberg, companies in the MSCI World Index are now trading for an average of $1.17 per dollar of net assets, the lowest level since 1995 and 39% are selling at a discount to shareholder equity.  I mentioned in the weekend wrap how I had made this point to members on Friday – that the global market is trading below what I see as it’s liquidation level.  For quite some time I’ve been defending my floor at 8,200 by reminding people that we did not have a nuclear war and an asteroid did not hit the earth – 6.6Bn people will wake up this morning and want to eat breakfast and get dressed and put on a pair of Nikes and some of them will buy a Big Mac and some of them will need to buy fertilizer for their crops and somewhere on this 197Bn square mile planet of ours, someone just may want to transport something from one place to another without walking and they may even use an oil-based fuel to do it.  Sure, you can’t tell it from the way things are trading but it will happen – mark my words…

If those 6.6Bn people buy and consume just $5Bn worth of goods and services each per year then you have a $33Tn global economy.  That would be 34% less than last year’s economy which should lead us to conclude that a 40% sell-off in the global markets this year (over 50% off the top) may just be a bit of an overreaction.  BK is one of 49 companies with a market capitalization greater than $1 billion that hold more cash than the value of their stock and debt, out of 2,267 overall, data compiled by Bloomberg show.  Businesses with reserves will be cushioned from insolvency and may even benefit from deflation because buying power and the value of dividends increase as prices retreat, said Arlene Rockefeller, chief investment officer for global equities at State Street Global Advisors, which oversees $1.7 Trillion (there’s that word again!).

Just 276 companies had cash that exceeded the value of their stock and debt when the S&P 500 bottomed in 2002. Those shares posted a median total return of 115 percent over the next 12 months, according to data compiled by Bloomberg. That’s more than triple the return for the S&P 500 during the same span.  Usually this would not happen because companies trading too cheaply get taken over but banks are not funding takeovers lately so the bargains are piling up.  Of course some companies may fail as well but, as I said to members last Monday night when picking 36 Stocks to Buy at the Bottom:  "All of these companies are industry leaders, brand names we will remember the way our grandparents remembered American Can, Nash Motors, Victor Talking Machines and Wright Aeronautical – which didn’t survive the depression but they also had the opportunity to buy GE, SHLD, XOM and X at the same kind of discounts we are being offered on this century’s greatest corporate names."

Ken Heebner of CGM focus fund has joined me on the bullish side of the financials sector, specifically blessing our C stock holdings with the following "back of the envelope" calculation:

[Image]

"A year from now, credit will be available because of the government’s actions," said Mr. Heebner, who works at CGM Funds in Boston.  CGM has been hit of late with an early move into the financials as they flipped from bearish when the XLF was down at 20 and the government (and Buffett) began to step in.  In addition to C and BAC, they also had a significant stake in WFC.  40% of Heebner’s fund was in Financial stocks as of September 30th and they have taken a big hit but I agree with his bottom call from a value perspective and that is why we remain long on both the XLF and UYG ETFs.  I like adding BK at $30 but the Bloomberg story will have it getting away from us so a hedged entry into the initial excitement is the way to go, buying the stock, selling the Jan $32.50 calls for $4+ and waiting for a pullback to sell some puts.

Asia had bailout fever this morning and Tokyo jumped 5.2% while the Hang Seng gained a whopping 8.7% on the day in a very strong session that (perspective again) took them back just over 15,000, still more than 50% off the closing high of 30,638.  The Shanghai put up a 4% gain, back to 224 and continues to lead but volume was low across the board. "I’m happy to see it bounce a bit, and we may see a bit of a bear market rally in December and a bit of Obama euphoria, but the world’s still a very ugly place in the first half of 2009," said Goldman Sachs JBWere senior trader Patrick Crabb in Australia.  Added  Jan Lambregts, Rabobank’s Asian research head, "Job losses of the magnitude [seen in November] dismiss the notion this recession’s just another blip that will blow over soon."

Hong Kong’s market in particular was buoyed by a statement by Hong Kong Financial Secretary John Tsang Monday that a long-delayed program aimed at allowing mainland Chinese residents to directly invest in Hong Kong’s stock market hasn’t been scrapped. But he gave no timetable, and markets watchers said adoption near-term was unlikely given the weakened markets in Hong Kong and China.

Europe is partying ahead of the US open with better than 5% gains across the board.  HSBC announced it would increase the funds available for UK morgages by 20%, seen as a bullish bottom call but the bottom line is everyone is looking at everyone else for signs of a bottom: "It was a very powerful statement by the equity market on Friday when U.S. stocks closed up 3% despite the worst employment report since 1951. This has to make some participants wonder whether, with all the worst possible news on the economy priced in, we can at least start to find some kind of bottom," said Kenneth Broux, economist at Lloyds TSB Corporates & Markets.  I have said to members that this is very much like one of those gunfights, where all the buyers stand around waiting to see who’s going to reach for the buy button first but, once the shooting starts – it’s utter chaos. 

The US markets are looing like they will run right up to the 2.5% rule at the open and that’s the least we expected for the week – it’s a shame we’re getting it so soon as what is too easily done, is also easily undone so let’s not go too crazy unless we see a firm hold over those levels.   I’ll run a new Big Chart Review toninght but keep in mind that 8,800 is not very impressive in the longer view.  We want to see 9,000 and 900 on the S&P, 1,550 on the Nasdaq, 5,600 on the NYSE and 480 on the Russell and, if they act as serious resistance, we’ll actually go a little short.  Remember, we are not yet bullish – just bottomish, and it’s going to take a heck of a lot of fill to raise the water level.  It’s just another manic Monday and we’ve seen this movie too many times to be surprised by the plot

 

 


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  1. CHK !


  2. Phil
    What’s the best way to play it today.  Sell into the excitement at the beginning and look for a fade?  No new news to change direction.


  3. This market is now totally immune to bad news. 3M cut earnings , eliminated 1800 jobs. DOW slashes workforce, closes 20 facillities. Tribune mulling bankruptcy. S+P cutting Russia’s credit rating. PRE-Market DOW up 200pts

    Cant help feel we are being set up for a fall.


  4. Sell into excitement/Steve – I think so, if we don’t pop through 8,850 early on it’s probably going to be a tough number and you can watch that as well as 900 on the S&P as easy spots to take the cash you cleverly raise by cashing in on the rally and picking up some stragglers off our list

    MMM news was awful, I forgot to mention that – I guess that makes me part of the problem being the media ignoring bad news.

    Do not be impressed by anything less than holding 2.5% gains today so we’re going to watch that line carefully and, after hitting it so early, we’re going to be worried as soon as we cross below 2% and any major index failing 1.25% is a good time to add some short side. 

    For now, if you are doing the mattress strategy.  Ideally you would have stopped out of the highter calls on Friday, leaving you with the lower layer of 1/2 X puts which can be rolled up as high as possible and what we are waiting for is a chance to DD on the put side to bring us back to the coverage we had before, but starting at a higher level.

    There is a huge media push across the board telling people to buy.  I guess they are trying to manufacture at least a Santa Clause rally so we’re going to go with the flow and see where it takes us.  So far it loks like wwe’re well over the 2.5% line everywhere but the RUT, who are right there.  The SOX are our drag at 1.1% so let’s watch them as they will hurt the Nasdaq and, if they go negative, then profit taking on the QID puts and QLD calls is a very good idea.


  5. DRYS – unreal


  6. TLT – still stubbornly high


  7. GOOG not playing along.  AMZN had a great week but no follow-through.  GOOG really bothers me because Obama is talking internet for every school desk in America and you’ll have teachers using GOOG as a teaching aid – I don’t see how you can not like that.  There are reports that ad revenues are down but I’m pretty sure that won’t be in GOOG’s space.  BIDU looking weak too at $117 so they’d better pop that soon.

    YRCW hanging at $5 – I think a lot of last week’s big gainers are getting profits taken out. 

    DRYS/Fab – What was unreal was the dip, this is much more real now.  TLT worth keeping an eye on.

    OIH up 9%, XLE up 6%.  If they are 20% of the market and up about 7.5% then they are accounting for 1.5% of this run,which means we would like to see 4% gains on our indexes now (2.5% for the main plus the 1.5% from energy) to be happy as we really have no use for energy gains.

    No data today and just Pending Home Sales tomorrow.   Wholesale Inventories and our joke of a budget on Wednesday.  Thursday is Import/Exports Pricing, Jobless Claims and Balance of Trade.  Friday is a biggie with PPI, Retail Sales and Business Inventories.  If we make it through Friday above 9,300 (5% over 8,650) then I will be impressed.


  8. That may have been about it to the upside.  There doesn’t seem to be enough volume to get us over the hump and the energy sector went way to far for not enough reason and is leading the pullback.


  9. We seem to be stalling.


  10. QID $65s at $7 are a fun mo play to take the market daown, they were $19 last week so looking for $10 is in now way greedy but out if we pop back over the 4% lines.


  11. OXPS doing some strange things.  My DRYS just lost 1000 with nothing happening.  Anyone see any funny stuff in OXPS?


  12. Phil- two questions
    1. we popped through 8850 and 900, but we keep testing it…at what point is it a confirmed trend today?
    2. doesnt look like anything will take us down for this week, correct? autos to be bailed out, opec cutting production, stimulus being thrown around everywhere, bankruptcies/job losses being ignored…so bias should be bullish, no?


  13. Phil:
    stock/call/put hedges:

    some are now totally different, the call side deep ITM, the put side way OTM,
    take SPWRA: sold dec20 call for 3.4, put for 3.7$, I believe that call should be rolled to dec 35 for 3.4 ,

    so: in general, if the hedge has positive value, move the caller up now ?? leave the putter low.


  14. AAPL and GOOG finally heading north.


  15. I’m new to the site, will they post new trades on this blog, or do we have to look somewhere else?  Thanks


  16. Phil.  I wish to unsubscribe from your blog.  Who do I contact?


  17. Phil: dec35 caller would be 7$.


  18. Hi Phil,
    Re: "There doesn’t seem to be enough volume to get us over the hump…"
    Exactly how do you gauge volume? Is that eyeballing several individuals, an index or index ETF, something else? Do you use a moving average for comparison?
    Thanks


  19. CELG having a poor start.  Glad i sold out Friday on them.


  20. Greg
    Read the K1 project.  And also read a couple weeks of past blog to get the lingo used here.


  21. WMT turned down.


  22. phil,
    how do you fel about aapl 95 covers for $6.65?? i am naked on aap for now!@


  23. WMT   The wrong full death lawsuit will play them down.  And they may not be able to have sells like they had before.  They should just do a lottery to avoid the crush of people.


  24. we are still lagging asia and euro gains!!


  25. Phil, I’m long AAPL Jan 10 70s and short Dec 90s. Should I roll the callers to Jan 100s or should I wait until expiration day next week?
    Go DRYS!


  26. DRYS about to pop $7!

    Trends/SNS – You are confirmed when 8,850 and 900 test out as a floor.  We could pop through them 20 times but if we fall back below, then they are still a cieling.  For the week, the Jobless Claims Thursday and Retail Sales Friday can sting us and the inventory report will slap the energy sector in the face again.  Understand that OPEC saying they will produce less fuel is like CROX telling you they will make less shoes – It doesn’t help them if no one actually wants them!  Anyway, our bias is bullish if we hold 2.5% today but not unless.  You can’t go bullish on the assumption that none of the facts matter.  I’m long-term bullish but short-term cautious as I think a person would have to be crazy to go long into the holiday break without heavy coverage.

    Wow, GOOG with a big pop along with BIDU – So much for hedging the Nasdaq but let’s watch 30 on the Qs as a critical spot, that’s just over 1,550 on the Nas. 

    SPWRA/RMM – The bottom line is you own it for less than $20 and currently owe caller and putter $15.45 after getting about $7.  Now it’s all about your target for next month.  You can get $13 for the Jan $30 puts and calls and that still leaves you well covered, spending $1.45 to push your caller $10 away from you.  That would be the conservative way to roll them up.  Of course you can leave the naked $20 puts but it’s the same gamble you would take if you sold them naked for no reason as these are not meant to be gambles and you really should be selling the Jan put side with the calls side.  Yes, you can do an interim roll to Dec $35s but you are laying out $12 to take a gamble and that’s not really the goal of that type of play.

    GOOG through $300 and BIDU flying!

    Welcome Greg!  I post trades all the time and the ones I generally recommend are in bold.  Don’t be shy about asking on any stock you may be interested in and if you go back to last Monday night’s post, you’ll find a big list of stocks to work off along with a description of our hedged entry system.

    MikeE – contact admin@philstockworld.com

    Volume/Strat – I look at DIA and QQQQ volume as well as the reported ticks from the exchanges and also, some of the key sector ETFs so I’m not impressed, for example, to see OIH trading up 7% on smaller 1-hour volume than they had almost any time on Friday.  So I see that and I see volume tapering off as they head to resistance, which indicates a lot of people are waiting and seeing – and I get concerned.

    Now we are getting our second test at the 4% mark on NYSE (5.620) so let’s keep a close eye on them.  SOX made it up to a respectable 2.5% so we have improvement over the last test so we’ll look for the S&P to take out 912, which is their 4% next while the Dow really needs to take out 9,000 to be impressive.

    AAPL/High – For $4.50 you can sell the $100s – I like that better.

    AAPL/Ajay – They still have $1.60 in premium, which is more than 15% so not much sense in paying them until we confirm a real up move in the markets.  Just keep an eye on the even roll to the Jan $95s or the $2.50 roll to the $100s and don’t let that pricing get away from you.  Right now, the Jan $100s have 6 weeks left and lose $1 per week while your $90 callers lose .75.  The thing is, for .25 a week, do you really want to give up $9.60 of downside protection?  Once you are sure that equation works for you, then you are ready to roll.


  27. Oil up 5%, keeping OIH and XLE in business.  XLF up just over 5% but things are looking better at the moment so we raise our standards and say we absolutely don’t want to give up our 9:45 highs, which is just over 8,900 on the Dow and 906 on the S&P and 1,555 on the Nas. 

    X up 20% today!


  28. AAPL should hit some resistance at 100 with orders around that point.


  29. Dow touching 899x before backing down?


  30. Phil- how should we be thinking about outbreaks, retracements, buy orders and short covering?
    Retracements: we moved nearly 900 points on the Dow since friday morning, at what point does a retracement begin to occur and by how much in general?
    Outbreak, if we break 9000 today, what’s the next level of resistance?
    Buy orders: How can we assess where the big buy orders are (ie, where buying begets buying)? wouldnt that give us a better sense as to market levels?
    Short covering: How can we assess if these movements are a large function of short covering activity?


  31. VIX has been fairly flat today.  You would expect more of a drop if this rally is real.


  32. Phil: SPWRA: what is the spending 1.45$ to push the caller 10$ away, wwwwwwwhere am I spending ?
    Do you sell the calls and puts at the same time ?  Yes ?


  33. Retrace/SNS – You want to look for a consolidation point to start with so you have to use 8,200 as a base on the Dow.  Clearly we tested it many times during the week and it did exactly what I talked about earlier, acted first as a cireling on Friday, then as a floor.  So let’s say we had a run from 8,200 to 9,000.  That’s not 10% so we have no reason for 9,000 to offer more than psycholocical resistance.  Real resistance would come at 9,020 but close enough.  So we’d be lookng for that area to get a real test and a pullback of 20% (164) to 8,856, which is the 8,850 I mentioned earlier.  That logic is then confirmed if you see 8,850 acting as some kind of resistance, which it sure did early this morning so now we’re looking to hold it on a pullback.  Once we establish that range, we then look to see how our highs and lows are trending within that range each time we go up and down to see if we are making progress.

    Also, we have to be concerned about the opposite of what we usually are.  Europe is up better than 5% and it’s possible they are buying our stocks and that may stop around 11:30 so keep an eye on the clock.  SOX were rejected at 2.5% and back at 1.65% and Qs still can’t close the deal at 30.

    Big buys/SNS – If you have level II screens, you can see block trades moving by, that let’s you know what the big boys are doing and, of course, you want to see size and frequency increasing to give you a trend.  As to short covering, usually you’ll see something a little more frenzied when it’s short covering – like we had on Friday as the bears went WTF?

    VIX – Great point Steve, they should be down 5% at least, more like 7.5% on this gain.

    SPWRA – You currently have $15.50 worth of call/puts sold at $20 and you roll them to $14 of calls/puts sold at $30 so you are spending $1.50 to roll them up $10 but your SPWRA stock gains because now you can only be called away at $30 rather than $20.  If SPWRA runs up like that each month and only costs you $1.50 per $10 to roll callers and putter, just $15 from now you will have gained $100!

    A lot of Biotech is selling off.  MCD is down – seems like profit taking on last week’s big winners.  Airlines getting sold is very disturbing as they should not be this unhappy with $43 oil.  YRCW, FDX and UPS should be happy too so I am very concerned that there are no fundamentals backing up this rally and there is nothing we hate more than a commodity-led rally!


  34. UK just closed up 6.17% @ 4299


  35. Thanks, Phil…I submitted for the even trade AAPL Dec 90 for AAPL Jan 95s….waited 10-15 mins and I got a 30 cent credit! Woohoo.


  36. CBE lowered their guidance last week yet the stock is up 11% today.


  37. When I got the CHK press release last night, I jumped for joy.  My wife thought I was having a heart attack.

     Phil/ CHK, (two-fold question)
    I’m up 55% on my Jan10 putter (Sold @ 2.38, now trading at .90).  Would you recommend taking him out.  Our allowing more premium to burn off. .  Since my cost basis is 7.90 for CHK common, there is still some premium in the Dec 12.50 puts (.75).  I would not mind getting assigned 2X 100 at 12.50.   As I could pick up .75 X 2 (1.50) in premium an still keep my cost basis around 9.30 (if assigned 200 shares). However, if I’m not assigned, I keep the 1.50, I will have lowered my cost basis to 7.47 (if I don’t buy any more shares). 
    I don’t want to get over-zealous on the position, but I want to take advantage of the current situation. I would rather sell the puts then have shared called away, since I’m long CHK.
    Thanks

  38. CHK/Texas – There’s a reason we have that 50% rule of thumb on callers and putters that are 2 weeks out.  More than half the time you will regret not taking tyhem out.  Since you are up $1.50, you could puts a stop at $1.10 (a .20 trailing stop).  That allows him to decay naturally but insures you get 80% of the profits should it change direction.  You have no reason to take the assignment don’t forget, you are in an easy target to roll to the $15s, where the puts and calls pay you a whopping $5.20 on your $7.90 basis (plus whatever you buy back the putter/caller for).  That’s not over-zealous as you can always keep that money and roll them down to the Feb $12.50s.  The idea is just to get yourself a little more premium each month.  Don’t forget, if you buy back the puts and calls for $1.65, your basis is $9.55 and selling the $15 puts and calls for $5.20 drops your basis to $4.35 so, even if assinged to you at $15, you still have an avg basis of $9.64 so very little to lose on the downside and the upside is called away with a $11.65 gain.

    MA has legs, V stuck at $55, CAT having a fantastic day (kind of ridiculous actually) as is DE, EBAY geting slow, steady buying.

    Now word is Auto bailout is on so another shot of stimulus for our day.  Not all that much enthusiasm considering.

    DELL making progress, Airlines pulled it back together, C well over $8. 

    Overall, pretty slow trading up here, seems like they are waiting for something but I don’t know of anything scheduled.


  39. Now insurance selling off, looks like profit taking by sectors – watch out if energy comes around!


  40. Phil:
    I am rolling to jan the callers and putters for those hedges where the caller is dEEP ITM. I did SPWRA, UNH, GE.


  41. Phil, to avoid confusion.  Does it matter that they are Jan $10 puts.  You mention 2 weeks in your reply…  just clarification
    Thanks


  42. I think V just got unstuck.   AAPL vol still coming in low it seeems.  Will wait for the after lunch crowd to get back.


  43. Anyone know why BA is up 7%?  Price target was lowered at JP Morgan, down from $46 to $42 which is where it is now.


  44. Doesn’t matter if its up or down , for me or against me , I find it really hard to believe a stock is worth 10% more (or less) in a day, let alone when that happens 2 or 3 times a week. Its really hard to position for such swings.


  45. Edro – Ref IWM LEAP Strangle. Are you lurking?


  46. PHIL,
    Europe stll way ahead of us. 2.9% compared to 7.7and 8.3 for cac and dax and 5.9 on the ftse!! do we look fwd to strong catch-up finish?


  47. INFY – A good BuyWrite at these levels. Buy stock around $25.10 and sell Dec $25 call for $1.50 or Jan $27.50 for $1.70


  48. Bronek -
    Yep I’m here.  I’m out of the strangle now.  My short puts were exercised and the brokerage exercised my long leap puts for me.  I rolled down to the 50 calls and got tired of losing money so I closed out the trade. When the market stabilizes I will get back in.


  49. GME having a nice day.  X up more than 20% now.

    CNBC just said volume in Europe was not great but we got over the hump of them closing and we’re still doing well. 

    CHK/TXS – No, the rule on that is that if you are 50% up on a caller or putter more than 2 weeks out, you should set a stop at 20% of the profits so you end up at least 40%.  Every day, the putter should lose a few cents anyway so anytime they break that 20% line, it’s a pretty good chance momentum is to the upside.  Of course, that’s a rule for a normal market where contracts don’t move 20% every 5 minutes so it’s more like a rule of thumb than a hard stop issue but it’s a long way to January and you just had a nice run.  You can always sell another put later…

    BA – I think JPM encouraged long-term bulls by not being at $35.  BA employs 159,000 direct employees on $65Bn in sales and makes $2-4Bn a year, GM employs 250,000 directly on $180Bn in sales and loses $30Bn a year.  This is what’s wrong with our government – there are smarter ways to apply funding.  Industries should be evaluated based on the job output you get for the dollars you put in. 

    Positioning/DB – You have to ignore the swings (unless you are day trading in which case the swings are the whole thing).  Of course it’s all crap but you need to have a target price you are willing to live with and stick to it for the long haul.  So you can sell BA Jan $40 puts for $2.50 and not worry about the daily moves as long as you are willing and able to own BA for $37.50.  Of course you can roll those to the May $30 puts about even and that may be your goal but there is a very big difference in your attitude if, like Texas with CHK, you would be perfectly happy to own the stock – it lets you ignore the swings and worry about other things.

    Europe/High – I think not because it is they who are catching up to us as Europe finished low on Friday, before we rallied.   Notice we are all synched up now, more or less with the FTSE and CAC about 3% behind our inexes and the DAX.

    INFY/M2 – I agree!

    When the market stabilizes/Edro – Hey, let me know when that happens!   8-)

    Speaking of which, VIX going up, not down…


  50. Interesting the way the market’s treating the DOW and 3M announcements differently.


  51. Thank you for the clarification.


  52. Time to sell some covers on DRYS The Dec 7.5 are $1.10 for 11 days!!  and can always roll to jan 10 for even.


  53. Up 30% on my AAPL dec 95 day trade.  better cash out.


  54. Edro
    1.      It is my understanding that main risk of trading LEAP w/strangle is down mrkt, when loss occurs on the LEAP and on the put side. What you think of splitting the position – making a pair trade (I.E if a position is $10K, then opening 2 trades $5K ea), one for the index, second for inverse of the same index. My thought is that indexes will roughly cancel each other, and you manage collecting the premium?
    2.      Your put was assigned? I thought you kept OTM puts? FYI, today I rolled my 42P to  44P and 44C to 48C. But you are right, in spite of using wider strangle, so far this scheme is causing loses.

  55. Now this is good – OIH is now up 5% and XLE is up 4% so 4.5% x 20% = 0.9% is the effect on the indexes, which means we are now happy with 3.4% gains.  Unfortunately, most of the indexes are now below the 3.4% line

    DRYS/Steve – Can’t turn down that kind of cash!

    Still, on the whole, I can’t see going into today’s close uncovered as we’ve had too many terrible Tuesday mornings to really want to chance it.  We have an auto stimulus that will be less than $34Bn  (probably $8-12Bn soon with a review to follow) but I don’t think that’s enough and whatever conservative pundits are left will put down Obama’s stimulus plan and, of course, someone may notice that our deficit for next year is looking like $2Tn, maybe worse with declining tax reciepts and we get the budget Wednesday so it will be on people’s minds, probably showing about $200Bn in debt for a single month in Nov.


  56. Phil – Ref Obama stimulus. Please recommend a good (LT trade grade) paint manufacturer?


  57. DXD   I should still use normal adjustment rules even though it is an inverse Ultra, right?   I’ve got Apr 75s 1/2 covered with Dec 78s.  I’m planning on letting my covers expire, but I think I should roll my long to Jul 60 for $6.90.  (I gotten a 6.30 credit last week rolling Apr 60 --> Apr 75, so basically I’m buying 3 months for .60).   Sound sound?


  58. Bronek
    My short put was assigned on the first spike down to 43, the brokerage exercised my long put to cover – without notifying me.  I was left without the protection of the long put.  By the time I realized this the call side of the pair lost money.  I rolled the call side down a few times but finally gave up.
    I originally had a paired trade as you describe but the market moved so fast that my OTM short put wound up ITM with very little premium and no place to roll and my leap calls had a higher delta than the short calls so I lost money as the market tumbled.  I’m going to wait before going back into this trade.  It did work really well – until it didn’t.


  59. edro – Thx


  60. MMM delivering 2009 outlook at investor conference right now.  Streaming online.  Really sobering comments about the economy.


  61. Eph – Leaves on my tea indicate market bottom before mid-March, so you are taking pretty pessimistic view of rolling DXD to Jul. FWIW


  62. Bronek, maybe you’re right, but DXD is my only real downside hedge, (other than having almost full covers on all my longs) .   If the market goes down I’ll make good money, but if the market goes up I should be able to stay basically even from harvesting rich front month premium (at least that is the thought).


  63. the ultra options have too high bid/ask spread to be doing rolling frequently in my opinion.


  64. Phil – Ref TIE($8). I have few Mar7.5C. I can’t cover them b/c volatility crushed and Dec10C is going for $.1. Any suggestion hot to protect this position?


  65. SAN FRANCISCO (MarketWatch) — Tribune Co. filed for Chapter 11 bankrupcy protection, burdened by heavy debt, according to media reports Monday. Tribune was taken private by real-estate developer Sam Zell last December in a $8.2 billion deal. Tribune has a current debt load of about $12 billion

    Paid $8.2 billion and they have $12 billion in debt. !!!!   There is a worse trader than me :-(


  66. Paint/Bro – that’s interesting.  I only know SHW, who are not bad at $56 but I’d rather go with concrete, CX or CAT, already flying.

    DXD/Eph – Well normal rules but tempered with a little more tolerance for quick moves but the trade sounds good and I do agreee with Bro that it’s pretty bearish consideering things are indeed looking up but a good, cheap way to cover.

    TIE/Bro – Not worth covering down here.  You are in the March $7.50s at $2?  You can cover with Jan $7.50s at $1.35 and spend $1.60 to roll to the March $5s.  That takes you from $1.50 in premium to $2.50 in the money to your caller for .25 and he’s got $1 in premium so maybe you can roll to Feb $10s even, perhaps up to $9. 

    TRIB – That is sad…  They own the Cubs right?

    Nice push to hold levels after lunch.  Hard to say how natural this feels…


  67. Phil Ref TIE. I wish to $2 base! Reality is that my base is $5.7.


  68. a few weeks ago i bought the Jan qid 85c at 14 and sold the Dec80c at 8. as a cover down. since i want to maintain the cover. should i let the dec expire, and then take up the game, or is there something i should do now?


  69. Wow. MLM blew my Dec$85 cover.


  70. Will 9000 bring out the sellers or the buyers ?


  71. Phil, can you explain the criteria for when we roll up and out for even money? I did the AAPL roll this morning from Dec 90 to Jan 95, but still trying to convince myself why this is better than waiting till next Friday expiration to roll.


  72. DXD/Eph – Well normal rules but tempered with a little more tolerance for quick moves but the trade sounds good and I do agreee with Bro that it’s pretty bearish consideering things are indeed looking up but a good, cheap way to cover.
    I thought of just rolling back to Apr 60 for $3.85, but since it was only $1/month to gain 3 months it seemed reasonable.   Should I just leave the position (+ 4 Apr 75/ – 2 Dec 78) alone?


  73. The market still looks strong on up volume vs down and advancers over decliners.  Just that the over all volume is not that strong.  But it still feels like a rally into the close.  If AAPL can break 100 then watchout for higher.


  74. Phil:
    is MDT dec caller and putter still enough timevalue or go to jan:


  75. What do you think about closed end bond funds at these levels?   PCN is trading at a historic discount and yielding over 15%


  76. Phil,
    i’m holding aapl jan 90′s covered with aapl 100′s. time to roll long leg to  apr? if so what strike price?


  77. wow on BA, up over 9%.


  78. Phil: with this gain, I should sell DIA putters strike dec ??? against my DIA puts march 86 which should be rolled to at least 88 ???


  79. Phil
    what do you think of AMGN  ?


  80. Buying a few BIDU puts hoping there’s big profit taking into the close.


  81. Just rejoin the group good to be back  what are your thougths
    on rimm  thank you


  82. Ok  I think we have clear sailing to 105 for AAPL.


  83. Phil, need help to set some insurance here.  We’re up so fast, my head spins. Like the gains but don’t want to lose them…
    What do you suggest by way of FXP for example?


  84. Now they say $15Bn for auto compmanies.  UAW wants a board seat in exchange for concessions.

    Tons of oil sitting in tanker storage due to contango, now at near record levels.  Nice breakdown of the barrel game in this article.

    ECB not certain to cut rates again.  Good for them, bad for the dollar.  Remember, the ECB does not have a dual mandate – they are there to maintain price stability but, as the article notes, they haven’t hit their stability goal since 1999.

    We still have a bit more to go to get a breakout on the S&P priced in Euros, which is one of our most reliable resistance charts and indicates we need about 925 for a proper break-out.

    Ford is just rockin’ now at $3.64. 

    10 year at 2.74%, Gold back to $775, Oil $43.50 and wholesale gas is still under a buck.  That is no reason for VLO to be up 10% (42 gallons per barrel) so we have silly index buying – no intelligence to it.   Notice very extreme and illogiical reactioon by the XLE, led by unrealistic XOM and CVX who are caught up in Dow index buying.

    TIE/Bro – You paid $5.7 for the March $7.50s?  That’s not good, you’ll be very lucky to get that back but you can work it over time if you keep rolling back. 

    QID/Drum – The premiums on that are insane. You are in the spread for $6 and are down to $5 on your long and the $80s are still "worth" $1.80.  QID hasn’t been below $60 since Sept so that would be a big line to cross.  You can pick up $3 by rolling the caller to the Dec $66s and that $3 plus .20 pays to roll you to Jan $68s so you are improving your position greatly AND improving your position to your caller by $3 for .20 so that’s the way I would go.

    Rolling/Ajay – It’s not "better" or worse it depends on your feeling for the position and the premium you can get.  Once your caller runs out of premium,  if you are still bullish you can get very screwed because your caller will start going up dollar for dollar with the stock while the longer contract with more premium will gain lett.  Compare the gain of the Dec $90 since you bought it back to the Jan $95 since you sold it.  The $90s went from $11 at 11 to $12 now and the Jan $95s went from $11.25 to $11.95 now.  It’s not a big deal but the $90s have just $1.50 in premium left to burn while the Jan $95s have $6.50.  As I said in the morning, there was no hurry to roll but you wanted to try to get an even roll, now that roll would cost you .20 instead of netting .30.  If you want to get really tricky, if AAPL heads back down you can roll the caller back to the Dec $80s at $20.90, which have no premium and would lose every cent of the downturn – but don’t be wrong as they also get every cent of an up move.

    JRCC waking up today.

    DXD/Eph – When in doubt, leave it alone.  75% of the time it saves you money.  Actually, you only have a 1/2 sale so why not sell 2 $75s for $2.80 or at least one.  It’s all premium and you can always buy them back for $3 for a small loss if it doesn’t work.

    MDT/RMM – What strike what basis?  MDT has been a laggard, the VIX is still high but falling and you can get $4.20 for the Jan $32.50s so the question is, is that worthwhile or should you just let it cash you out and move on?

    Bond funds/Eph – I don’t play with them but there’s noting wrong with 15% as long as it’s liquid enough to let you out if you see that return slipping.

    AAPL/High – I hate one-month spreads but the $100s have $4.50 in premium and you sure don’t want to pay them off.  You can roll to the Apr $100s for $1.50 and that’s a good move as there’s no margin and you have less downside exposure as you let the caller expire.  When you sell the next caller, you can use 1/2 the new money to roll yourself lower (it’s $3 to roll to the $95s and $6 to the $90s).  That way you are not out of pocket and lowering your risk while you wait AND selling into the initial excitement today.

    Pete Najerian saying cash out into this rally.  Be careful!  We are punching 5% across the board though, which puts us to 10% since last week and makes us a good candidate for a 2.5% pullback tomorrow.  The auto bailout could be a new catalyst but it’s kind of baked in now.


  85. RIMM
    Other than their subscription based revenue I hear many negatives about their iphone copy.  AAPL is kicking them and NOK.   Read a few back blogs and some good post on AAPL market share.


  86. I think Mr Najerian might be right – dont forget Texas and Nat Semi give update/results tonight, and I cant believe that’ll be pretty. But then again Mr market doesnt seem to care.


  87. Pete has a pretty good track record. His calls and others on Fast Money have been 95% right on the market and when to cash or go in.  far better than Crammer.


  88. Phil,
    thx for the input on aapl roller. i rolled  my jan 90 to apr 100 for $1.59. i was feeling that the jan 90 was getting a little long in tooth but did not see any good roll oportunities untill today after aapl broke 100. it seems that to do a long-leg low-debit multi-month roll out, both the exit (in my case jan 90′s) and entry positions 9in my case apr 100′s) have to be in the money? is this the case?


  89. CELG sucking today.  Getting out of that one.    RIMM is barely buying me a bottle of Blue Label on todaays trade.  But AAPL can fetch me a couple vacations today.


  90. DIA/RMM – You don’t have putters?  It is crazy not to have putters to offset your rolls on long puts…  March $86 puts are $7.45, had you sold $2.50 in puts you could have rolled them up to the $92 puts using that money.  That’s where you should be anyway or at least the $91s at $9.68 so you need $2+ from a putter and the Dec $86 puts are $1.97 and can be rolled to the Jan $77 puts around even so you are covered down to about 7,500 before you have to give the putter his money back.

    AMGN/QC – I like them, they have good growth but probably too big to be bought so they will live or die by the development cycle.  BIIB is not quite as good but for $48.25 you can sell Jan $50 puts and calls for $8.30, which nets you $39.95/42.48, about 15% off while the best you can do with AMGN is about 10% off.

    VIX is at 57, these hedged entries are going away fast!

    BIDU/MrM – We’ve been long on it but today was a cash-out as that trade has been a pain in the ass.  Watch if GOOG can hold $300, that’s key for BIDU.

    Welcome back Bill!  RIMM – Well you missed it.  I was actually liking them at $36 but tough to buy almost 20% later.  Of course, $41 is still cheap, just not as cheap.  If the market is still going up tomorrow, then maybe bite the bullet on a hedged entry on them.  There are still doubters so you can sell the Jan $40s for $4.20 for a net $35.80 entry if put to you.  You can also buy them for $42 and sell the $40 puts and the $40 calls for another $6 which drops your net entry to $29.80/34.90 if put to you but you can see why it’s not as big a deal anymore to do the double hedges.

    FXP/Jordan – Not my choice with China moving up so fast and being down so far.  I still think the DIA puts are the safest cover.  The March $92 puts with the Dec $86 puts sold against them for net $8 make for nice long-term protection that you can make most of the money back selling front-month puts.  The March position protects you from a big rally, and we are going to have to position more bullish if we hold this tomorrow.

    LOL, XLE up 6.66%!


  91. The bid/ask spread on RIMM is great for day trading , only a penny difference.


  92. seems that dow 9000 and aapl 100 are big resistance levels. mutual fund option sellers have too much to loose above these levels??


  93. Rolling/High – Actually it’s simply selling into the excitement.  You have better upside delta on the front-month contract (or closer month) and capture more of the day’s move making your roll relatively cheaper but it is best to do the roll while you still have at least half premium and then roll to whatever you can collect max premium against. 

    With the run-up in the energy sector again, we’re looking at 7.5% of 20% or 1.5%, which means we’re back to needing 4% lines to hold on the indexes to be happy today.  Almost done though and things are pretty well behaved but it doesn’t look like they can break 5%.  S&P is below 4 and Dow is below 4 so watch them.

    While not 60:40 bullish yet, there is no point to putting more money into puts here if you are fairly well balanced.  If we reverse – we reverse and you’re back to where you were Friday but don’t make a downside bet just for the sake of it.


  94. Phil,
    thanks for the excitement roll explaination, btw when you say while you have 1/2 premium, what do you mean exactly


  95. Well, we hit a program.  Now we need to hold those 2.5% levels.  Pretty much all exactly what we were looking for in the last paragraph of today’s post…


  96. 1/2 Premium/High – I mean your position is 1/2 premium, 1/2 in the money.  Once you go more than 1/2 in the money, your downside delta gets dangerously high so, unless you are very bullish, it’s a good time to roll back to something safer (assuming your main goal is to sell front-month premium).

    BXP and VNO are the best examples of an irrational market.  VNO has over 100 office properties around the country and 100 retail properties along with warehouses, ToysRUs and some hotels and some military housing.  They have had rock solid earnings for 10 years and $1.5Bn in the banks to cover $13Bn in morgage debt (and, of course, they do get the money every month from their tenants).  Even so, the REIT fell from $105 to $37, now back to $60.  Nothing has changed much in the business since last year – they got dumped on fear, pure and simple.

    Well that was a bullish close – let’s see if they can keep it up tomorrow.  I’ll post levels to look for tonight.


  97. Thanks for the comments Phil.  Will look at the levels you post tonight. Was rather surprised by the bullish runup today.  But am bracing for a raw Tuesday.


  98. Texas significantly lowers outlook. Market doesn’t seem that bothered but Texas is halted,

    The company currently expects its financial results to fall within the following ranges:

    -- Revenue: $2.30 – 2.50 billion, compared with the prior range of
    $2.83 – 3.07 billion

    — EPS: $0.10 – 0.16, compared with the prior range of $0.30 – 0.36.


  99. Unusally busy on the alerts from in my inbox…..
    FDX also cuts outlook. (FDX usually hits market because (I suppose) its a business barometer.)

    FedEx late-traded shares fall 4.6% to $71 after outlook
    FedEx previous FY 09 EPS outlook was $4.75 to $5.2
    FedEx cuts FY 09 outlook to $3.50 to $4.75 range


  100. I’ll keep posting too myself :-)

    Corker, R-Tenn., a prominent voice during hearings last week on the auto makers, said the latest bill drafted by Democrats doesn’t go far enough to require reform at General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLC.

    "We were trying to figure out a way to have the same effect on these companies that a bankruptcy would have without going through a bankrutpcy," said Corker, who sits on the Senate Banking Committee. "That is not what this legislation does."

    He added: "It would not be something we would support."

    Corker said it was too soon to discuss specifics of the proposal because he had just received a copy and planned to study it Monday evening.


  101. Auto bailout news and the warnings will send the markets lower, yippee!!


  102. Question: is there a stock that trades based on any of the european indexes?  Something like FXP but European?


  103. FTSE is Britian, CEE is Central Europe and Russia, and VGK is a vangard europe index.


  104. I’m almost converted to the belief we’ve hit bottom. Bad news from Texas Inst and Nat Semi last night. Sony cutting jobs, Japan 3rd Q worse than expected. UK retail same store sales down 2.8% Samsung outlook dire. Yet UK is slightly positive and US futures (just) green. This is amazing. Some commentators saying that now we’re 20% off the lows we are technically in a bull market. Get that !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!