Archive for 2008

Earnings Dilemma (Solved!)

For many options traders, earnings season equates to trading dilemmas;  should a straddle or strangle be entered before an earnings announcement to profit from an expected big movement afterwards or should iron condors or iron butterflies or even naked short options be entered to profit from the inevitable implied volatility crush after the news event? 

If the stock doesn’t move much at all after the earnings report, the straddle and strangle strategies suffer from implied volatility crush while if the stock moves much further than expected the iron condors/butterflies and naked short options run into trouble.  For the iron butterflies/condors, maximum risk is incurred if the stock moves beyond the long option strike prices.  If naked short options were entered, the risk associated with the short calls is theoretically unlimited if the stock were to keep rising while the losses in the naked puts would continue to accumulate if the stock were to continue dropping. 

In short, trading at earnings appears nothing short of gambling.  None of us know (or at least should know) with certainty which direction a stock will move subsequent to an earnings report.  As good as our estimates may be, a chance always exists that a stock will move opposite to our expectations.  For example, we may have created a fundamental thesis that postulates a stock will drop at earnings based on what we project will be disappointing earnings or revenues figures.  However, if management reports in a conference call that forward-looking guidance is considerably more positive than analysts’ estimates, disappointing results may quickly be disregarded by investors in favor of the rosy guidance.  Even if we do manage to correctly assess the direction a stock will likely move, the magnitude of the move is certainly in doubt. 

If we take a look at a history of how Amazon’s stock moved following earnings courtesy of we can see that sometimes the stock moved substantially post-earnings, but the final movement by the end of the month was considerably lower.  Sometimes, it moved substantially and failed to retrace, and sometimes the stock failed to move much at all!  So, while entering trades at earnings is fun and provides an adrenalin rush, it seems initially that betting on any given move is akin to gambling cloaked in sophistication.

But perhaps, we are too quick to dismiss!  If we analyze a little further, we can spot…
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Weekly Wrap-Up

Another great week!

This is starting to be some sort of pattern and we have been firing on all cylindars with our picks.    Not buying into Friday morning's rally capped off a perfect week where we were able to make nice improvements in our virtual portfolios across the board.

  • Short-Term Virtual Portfolio posted a 31% gain for the week as our oil puts came roaring back.  Getting out on Thursday was a very good call as we took the money and ran although we still have SU, BP and EOG puts but nowhere near the size of the bet we had down last week.
  • Long-Term Virtual Portfolio gained just 6% but we repositioned our callers and now, with 2 weeks left to expiration, we can have fun watching them give up their premiums.
  • Day Trading Virtual Portfolio was heavily hedged to protect our already big gains but our oil puts were magic there as well although we sold a lot of puts to cover and didn't make the massive gains that the larger STP made.  As usual, Google was very, very good to us and we picked up 7% on the week.
  • Our $10,000 Virtual Portfolio is now our $16,969 Virtual Portfolio, up 69% since it's 2/19 start date and 11% for the week.  We're actually rooting for oil to bring us over the $20K mark in that virtual portfolio! 
  • The $25,000 Virtual Portfolio improved to $29,486, up 18% since inception (2/19) and up 7% for the week.  We've taken some huge hits (CROX, HUM, TASR) that have just trashed our performance in this one so I think we're due for something to go our way.
  • Even our boring old Stocks Virtual Portfolio had a nice week, gaining 9% as ABK came back from the near-dead.  The virtual portfolio is up 63.5% for the year and will be shut down next week so we can start a fresh stock virtual portfolio during the CNBC challenge.
  • Complex Spreads is made up of GOOG, AAPL, BIDU, CROX and MA, with CROX 100% covered it turned out to be a huge combination that jumped another 48% on the week, bringing our year-to-date gains to 294%.

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Friday Already?

Oh we really hate for a week like this to end.

No matter what, we are going to cover into the weekend, something is still wrong as the Fed just coordinated with the ECB to boost liquidity with our Fed boosting term loan availability for US banks to $150Bn (up 50%).  That's a lot of money to toss into the pot for no reason so I'm a little concerned that we'll find out why on Monday morning, possibly another BSC-type blow up.  MAYBE they're simply responding to the running issue with interbank lending to smooth things over while the economy heats back up but….

So how much of yesterday's rally was based on people who knew this was going to happen (GS) and were buying ahead of the announcement?  Europe was closed yesterday so the Fed could have made this decision on Wednesday and waited 48 hours to make the joint announcement when the EU markets reopened.  I hate to be suspicious right when we are having so much bullish fun but it's my nature…

Anyway, none of that matters because we "only" lost 20,000 jobs last month and unemployment DROPPED back to 5% (from 5.1%) and the market is loving it.  Forget the fact that 110,000 goods producing jobs were lost  along with 61,000 construction jobs, the largest drop since February 2007 and VERY bad since spring is when construction usually starts.  The service sector added 90,000 this month but only added 8,000 in all of Q1 so don't expect that to continue but the financial sector stopped losing jobs finally although retail dropped 27,000.  Temporary employment also fell 9,000, that's not good either.

In fact, it was a gain of 90,000 government jobs that saved us, another fine example of the total BS spouted by this administration as they preach smaller government while expanding the government more than any President in history.  Hourly earnings were up 0.1%, a manageable number.

So this is going to be a "sell into the excitement" kind of rally.  We are 1/2 covered and I'm inclined to stay that way as we could give a lot back on Monday if there turns out to be a reson for the Fed's generosity other than an attempt to bail out the commodity bulls (that would be GS again).  We still have food riots around…
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Thrilling Thursday Wrap-Up

What a fantastic day!

Another one we hit on the head as the covers we took ahead of the fed were bought back for great discounts in the morning and then the market was kind enough to rocket straight up all morning, allowing us a nice opportunity to re-cover (just 1/2 this time) even higher than where we fell off yesterday.  It just doesn't get any better than that!

This has been a truly fantastic week, even our oil puts finally paid off and we finished above the levels and my EOD comment to members bears repeating here: 'Overall I’m up to maybe 1/3 invested as I’ve made an effort to invest more this month ahead of the rally.  We’re heading up so fast I’m not too keen on chasing things until we’re safely over 13,300.  As usual, I would feel much better seeing a healthy pullback after this almost uninterrupted 10% run off the March bottom.  200 DMA resistance will be tested at Dow 13,053 but don’t forget it’s not the same Dow mix that created that line so it’s meaningless (take that TA slaves!).' 

"We’ll watch the 200 dma on the S&P at 1,433 and the Nas at 2,524 and the NYSE at 9,480 with much more interest.  Transports just shattered the 200 dma at 2,732 with a 96 point move today and the RUT (753) and the SOX (423) have a ways to go.  Once we hang out above those numbers for a while, then we can talk about deploying another 30%."

We are on quite a roll, we even covered our June DIA puts at 11:52 with the current $128 puts for a quick 30% and $1.50 that will pay for us to roll up $3 so we're good on our protection all the way to 13,300!  My big mistake of the day was 2 attempts to take puts on Google, the morning attempt gave us an easy escape but our EOD cover in the DTP got hit hard but it did allow us to sleep well after rolling our callers up to the $580s, sacrificing a lot of protection in order to gather more premium.

We also took the money and ran on the May oil puts and covered our Junes, looking for a bounce into the…
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Phil’s Favorites

Hi All – Temporarily, let’s go to the old backup site for new articles.   Thanks!

Thursday Thump – For Exxon!

XOM missed!

I cannot tell you how happy I am about this because it means the world still makes sense, fundamentals ARE real and you can't just make a stock go higher by mindlessly pumping money into it.  Profits were, of course, monstrous at $10.9Bn, but costs are out of control and they missed by .08 out of $2.12 expected despite Q1 oil averaging 10% more than Q4, when they made $11.7Bn on a 30% boost in oil prices from the previous quarter.

To be fair, XOM did spend a whole extra $1.2Bn on capital and exploration costs than last year, this is very nice of them as we (the consumers) gave them $116Bn (up $32Bn), which they claim they use to look for oil while shareholders bought $92Bn worth of XOM stock in Q1, expecting them to use some of their money to make those shares more valuable in the future.  ""Higher crude oil and natural gas realizations, driven by record worldwide crude oil prices, were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs," Exxon Mobil said."

So they took in $32Bn more than Q1 '07 (up 38%) and made just $1.7Bn more (18%), sounds like diminishing returns are kicking in pretty hard at XOM!  Production was 5.6% LESS than last year and one of the reasons they list is (and I kid you not!) "OPEC quota effects."  That's right, XOM is effectively a member of OPEC and abides by their rules and has cut off your oil supply in order to support ridiculous prices.  Isn't unregulated capitalism wonderful?

In fact, upstream earnings from the exploration and production unti were UP $2.7Bn to $8.8Bn (up 30%), it's their single largest profit center YET THEY REFUSE TO EXPLORE AND PRODUCE IN ORDER TO JACK UP PRICES! 

Another stupid, non-productive investment made by XOM was, as usual, the purchase of their own stock.  In order to keep up the pretense that they aren't totally incompetent and driving a once-great American coroporation into the ground, the board repurchased $8Bn worth of their own stock in Q1 alone!  That's out of $92Bn worth of total transactions at an average cost of $88 a share, close to 1/10th of all transactions!  What will happen to this company when they run out of money to buy back stock?   They spent…
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Wednesday – Signs of INTELigent Life in the Markets?

Hopefully Ben finally got the message.

The markets were NOT happy with another rate cut.  Today's Fed announcement led to a 150-point plunge as commodities rallied on the continued idiocy of Ben Bernanke, who says inflation is "under control" while knocking another 20% off the Fed Funds rate, reinvigorating the oil market where each $1 per barrel costs US consumers $7.3Bn a year in crude alone – add refining costs and factor in oil's effect on other prices and we're closer to $15Bn per $1 rise in crude that the Fed is fueling in order to increase the loan crack spread for the banks (after 3% of cuts we're STILL paying 6% for a 30-year fixed mortgage – who is benefiting?).

Nonetheless, I can't be too mad at Ben as my total lack of faith in him gave us a fantastic day as my 12:27 comment to members was: "General – I’m moving to mostly 3/4 covers ahead of the Fed, essentially with 1/2 covers that means buying the covers I would want to roll my lower covers into.   This gives me some money to roll the original 1/2 covers up to a higher strike if the Fed is good and, of course, gives me a little more coverage if they disappoint."  That gave us plenty of time to cover up our positions ahead of the plunge.

We also grabbed the very cheap GOOG $560 puts at $9, which made a quick 33% in 60 minutes – Not that's day trading!  It was almost a perfect day with all of my market calls working and we even added oil puts on the morning's pointless rebound (but I did chicken out of most of the front-month XOM puts).  I also called the day's moves in AAPL and FSLR to the penny, very helpful when you're playing options!

Just after the Fed, my take was: "Oh a cut!   They suck!  And another cut in the discount rate…  Very negative outlook.  "Expect inflation to moderate" but they are going to cut like fiends while they wait.   At least they say they are concerned about inflation and there were two dissenters so it is possible they will stop here but the discount window cut was ridiculous, more taxpayers bailing out banks."  We played accordingly, and by 2:39 I was ready to call the top on the
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Which Way Wednesday? Fed Edition!

Fed day, party time, excellent!

Hopefully the free money party has come to an end.  Can Helicopter Ben change his evil ways or will will this groundhog continue to see a recessionary shadow and throw more money down the hole, giving us 6 more weeks (until the June meeting) of high inflation?

I ran down my expectations on key earnings in the Wrap-Up so we’ll move right along to the good stuff (and I’m way behind this morning so I’ll keep this short).  CMI came through for us, and, as predicted, FSLR had blow-out numbers and gave good guidance so we’ll ge our shorting opportunity as planned (but let’s stick with Cramer as he sticks another load of bag-holders with this one this evening!).  GRMN I was wrong on as they had a miss but profits are up 6% so we’ll stick with them and sell more calls.  GM ONLY lost $3.3Bn in the quarter against their $12Bn market cap so they are, of course, up 5% pre market.  HES had good numbers and I’m back to being glad we were too scared to short them.

NOV did well but not well enough to worry me on the June $60 puts with a penny beat on record prices.  Woe unto these companies if revenues fall off with costs at this level!  PG, SI and KFT all did well – what kind of recession is this?  TWX was not good but they are spinning off the cable unit and maybe AOL if they find a buyer so they are still flattish, which was our bet. 

Actually it turns out we’re NOT in a recession so the pessimists can say we have further to fall but, as I’ve been saying since last Summer, if we can have a $400Bn mortgage crisis and all it does is knock growth to 6%, then everything these bozos in the media are saying is wrong and there are Trillions of dollars on the wrong side of this bet and we could be heading right back to 14,000 (my prediction from 12/31 was a pullback below 12,000 and 14,500 by year’s end).  If anyone wonders how we make money, just re-read those predictions when you have the chance and think how much money anyone can make when you get a
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Tuesday Wrap-Up

Another day where not much happened.

This is pretty much as we expected ahead of the Fed.  I had said we will revert back to Monday's open and Monday we went up to 12,932 and today we went down to 12,806 and we closed at 12,831, down about 60 points from Friday's close.  I'll be surprised and worried if we break below 12,750 ahead of the Fed and holding 12,800 will be a good sign tomorrow.

A quick review of my earnings picks from last night:

  • ADM – Made their money selling food and those prices are in doubt with costs up.  Right on with that one.
  • BP – Huge earnings overcame falling prices, still at $72.  Totally wrong there.
  • GLW – Great Q, I was right about GLW but it's not rubbing off on AUO, who we had to DD on at .80 ($1 basis).
  • MA – Wow!  Way BTE, even so our butterfly is still up a bit so no panic yet but time is not our friend if they stay high.
  • X – Perfect for us, earnings great but costs up and they didn't go far which is perfect for our put spread.
  • VLO – This was exactly what I said it would be.  I still like the XOM puts into earnings but we took them off the table because we were too far ahead yesterday to take the risk (although still in the LTP as a put).
  • BXP – Perfect!  Also, very encouraging for the overall economy.  This makes me think I may not be crazy and we really are at the bottom…
  • BWLD – Very nice!  The Sept $30s should do quite well!
  • DWA – Another encouraging consumer signal.
  • LFG – Also perfect.  Man am I on a roll!
  • PNRA – I should have been braver but those June puts were free money to sell!

We don't know Wednesday morning but let's look ahead to later Wednesday although the Fed is going to change everything so I'm not keen to make fresh picks without GDP and Fed data.

Wednesday evening:

  • AKAM – These guys may affect GOOG so let's watch them.  An indication of web growth.
  • CTX

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Trend following virtual portfolio

New post!



Zero Hedge

Americans' Economic Hope Has Collapsed

Courtesy of ZeroHedge. View original post here.

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 - a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.


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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...

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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?


Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?


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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped


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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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