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Friday Already?

It’s very strange coming off a holiday right into a Friday.

Traditionally volume on a day like today is anemic but we actually had a pretty strong volume day (comparatively) on Wednesday, the strongest in the past week, which is a good way to break those 50 dmas we discussed in our Big Chart Review but, so far – this is only EXACTLY what we expected to happen for the week so we took the money and ran (and covered) long before the close on Wednesday.  We went bottom fishing on Monday’s dip but, 5% later at 8,800, we decided not to be greedy and tightened up our shorts, effectively rebalancing to a more neutral stance by shifting the profits from the run up into more short-side bets.

The idea was to be well covered into the weekend as our worry is that this weekend’s reading of annual reviews is going to be downright depressing as well as the very distinct possibility that the entire "rally" may have been nothing more than window dressing.  Our two speculative (unhedged) downside plays from Wednesday were the SKF $120s, now $4.35 (at $7.30, we like the naked sell of the $100 puts much better) and the USO Feb $32 puts, which finished about where we picked them at $3.40 as the 14% run in oil on Wednesday after a 2M barrel inventory build was downright ridiculous.

Fortunately, the rally was not led by the energy sector despite the big run in crude.  This indicated to us that no one was buying the sudden move from $38 to $43, with most of that action coming off Russia’s dispute with the Ukraine over natural gas prices.  While the TV pundits are quick to paint worst-case scenarios involving Russia cutting off Europe’s supply of natural gas for the winter, the fact is they, like us, have Trillions of cubic feet in storage and Russia, in the end, is a motivated seller who needs money.  GM stopped making Hummers – did the price skyrocket?  BA isn’t shipping Dreamliners – will they now get a premium?  Banks aren’t lending money – are interest rates skyrocketing?  Why is it that investors believe that supply and demand works anywhere BUT in the energy market?

Not only do you have this ridiculous posturing by oil and gas producers to try to make massive production cutbacks due to low demand seem like it’s bullish for energy, but you have the media treating the conflict between Israel and Hammas as if it were the Iran/Iraq war.  Neither Israel or Hammas produce ANY oil at all, no oil is near where bombs are falling and this "crisis" has been going on for 40 years and will likely go on for 40 more.  Also, let’s not forget that the dollar is down 10% from where it was in mid-November, when oil was $55 a barrel and, should war escalate or should Russia come further unglued, the dollar will most likely assert itself in a flight to safety, knocking all commodity prices (including stocks) back down sharply.

The trick to playing a choppy market is picking the counter-trends.  You can be 50% bullish and 50% bearish and, if you pick well, you can be right on both sides!  On Tuesday at 11:38, for the first time since our bottom call in November, I suggested a long play on FXI, with the 2010 $20s at $10.65 (now $11.35).  If we are going to have an international turnaround, we can expect it to be led by China, who are in better fiscal shape than Brazil, Russia or India and have already committed to massive stimulus packages of their own.  China, if you’ll remember, was sitting on about $1.5Tn in US currency and, typically, when the markets crash – they guy with a lot of cash on the sides tends to come out quite well. 

China is indeed flying this morning as the Hang Seng came back from their break to post a 4.5% gain on the day, finishing just over the 15,000 line.  Both the Shanghai and the Nikkei were closed so, to some extent, we can assume that the lack of other options drove traders to China, which does look cheap, after having to sit on their hands while watching the US markets post two strong sessions (the Nikkei had a half day Tuesday, well ahead of the US open that day).  Also sparking the China rally was China’s State Council approving the issuance of 3G phone licenses, a long-anticipated event that sent the Telco sector almost limit up for the day.  India’s Central Bank also caught rate-cut fever and made several moves to push money into the sysetem.

Europe was off to the races this morning with 1.5% gains in early trading.  Looking at the 5-day charts of the DAX, CAC or FTSE could give one the impression that we are in some sort of rally despite mean old Russia turning off the heat in the winter.  Mining (coal instead of gas) and banking are leading the EU markets higher in the first trading day of 2009 despite some very bad manufacturing numbers that show a record low since the EU was founded.  Belarus is the next country to need a bailout and the IMF is lending that breakaway republic $2.5Bn to tide them over until a miracle happens.  To help repay the loans, Belarus announced they will devalue their currency (also Rubles) by 20%.  Russia just gave Belarus $2Bn in November so this could turn into a very expensive monthly habit (have I mentioned I like gold lately?).

After the strong week we had we would be thrilled to limp into the weekend holding our gains but, as our members are well aware, hope is not a strategy so we are well covered for a pullback – just in case.  We’re waiting for next week before placing any major bets and we are expecting an Obama rally into the inauguration.  How early it starts and if it sustains after the event are the real questions as we start the new year.

 


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  1. Steve Jobs still not dead:  AAPL Feb $90s are $5.95 and run after earnings.  AAPL Jan $85s are currently $4.50 and you can put a sell-stop on them (covering before they get too low) at $4, which should take you below $85.  The Feb $95s are $4.15 so you can roll into a veritcal if AAPL breaks higher on you after you cover but the hope is to hold the Feb $90s naked and cover with Jan $90s at $5 or better.


  2. Phil: Happy 2009,
     
    sold SKF puts at 6.6 and 7.1$,
    I missed your response to what strategy to pursue now: roll to a lower FEB strike now already ?


  3. RUT 500 is very significant, let’s keep an eye on that, it should be tough to break.  911 is 2.5% above the S&Ps 50 dma at 889 so that’s going to be tough to get past and I’m more worried about the downside today than the upside.

    They banged oil up at the open and the sector is moving up now, that will give the market some support but we are miles away from 9,082, which is the 5% rule for the Dow off 8,650 and the Nas is only just over their 50 dma at 1,558 so they will probably be the first to fail and we can watch the Qs at 30, which would be the first bullish indicator, followed by the Nas at 1,600 if we are going to have a real rally.  SOX are down half a point so no chance of the Nas breaking up if they don’t get green.

    GOOG below $310 still not sexy, RIMM barely holding $40, BIDU actually disappointing at $132 considering China’s general move.

    C up 2.5% exactly at $6.88 but BAC (now officially the world’s largest bank) down a bit and very disappointing below $14.

    XOM still red, let’s watch them as they can lead the Dow one way or the other as 1% in XOM is worth 20% in GM, 10% in C, 5% in BAC or 3% in AXP, DD, DIS, GE, HD, KFT, MSFT, PFE or T… you get the idea.


  4. SKF/RMM – No, we roll when the putter is down to less than 1/2 premium.  It doesn’t matter what the price is, once a putter or caller lose half their premium, that is the time to consider the roll as you hit a point of diminishing returns.  Right now, they are exactly on track for a wipeout and you certainly don’t want to put off the day you wipe out your putter if you don’t have to!


  5. DRYS up on no news…any reason?


  6. Phil – how do you tell when a putter is down 1/2 premium?


  7. Worldwide sales of semiconductors fell 9.8% to $20.8 billion in November, compared to $23.1 billion in the year-earlier period, the Semiconductor Industry Association said Friday.
     
     
     
    As discussed Wednesday – I’m bearish on the semis. Is there more to come ?


  8.  bought back dry 12.5 puts for a nice 50% gain.  looking to buy xom feb puts when xom goes above 80 – which will happen this week imho.  lookingchunk  to sell another chunk of dry puts when it comes back down below 10 – which will happen this week as well.


  9. Hey, if any of you guys have an engineering background, I think I’ve come up with a new, environmentally-friendly way to generate electricity:  A 200-foot tall dippy bird!  I got one for my kids for Xmas and I’ve been contemplating that basically, they run very well using just water and, if you build one big enough there’s no reason it can’t drive a turbine.  Here’s the basic physics behind it, let me know what law of thermodynamics we’re breaking (as usually these things that seem so easy break some law) and, if not, let’s draw up some plans and get some funding!

    DRYS – You can’t ship nat gas (well there is LNG but very little works yet) but you sure as hell can ship coal to countries that have their nat gas supply cut off by Russia.  Note BTU, JRCC and ACI doing fairly well the last two days as well.

    1/2/Logan – Well either you sold him $8 in premium and now, at $12, he only has $4 in premium left or, if you forgot, a good rule of thumb is the putter has less than 1/3 premium.  The AAPL $80s, for example, are $7.65 with $2.30 in premium so just about the time you may want to consider a roll to the Feb $85s, which are $8.30 with $8 in premium.  Since that roll puts 0.65 in your pocket and you have a reasonable expectation of doing better (since the $2.30 in Jan premium will decay at $1.15 per week for the next 2 weeks while Feb premium should hold up better due to earnings) you can ask for $1 and just keep an eye on it and try not to let it slip below a .50 credit.  By having a strategy laid out well in advance for your positions, you are able to take control of the bid/ask cycle rather than being at it’s mercy!

    Semis/DB – LOL DB, how can you be bearish on semis when sales are off 9.8% and the sector is off 50% over the same time?  This is not an industry that can’t cut costs by halting production and Moore’s law dictates that their internal costs fall at an exponential rate so similar sales numbers on static volume will actually turn profitable over time.  I think shorting Semis here is suicide and if they have another dip to 170 (now 210) I will be very strongly and firmly making a buy call.  As it is now, I’m planning on going bullish on the sector when they break 225.

    Wow, oil holding $43.50, that sucks.  I think we need to step back though and remember that we thought $40 was too low and are generally expecting to settle in a band around $50-$60 over time.  My short-term bearishness is based on the fact that they still need to capitulate to put in a bottom but the NYMEX boys are playing their own special game…


  10. Phil: why did you say on dec 31 at 3:36pm: SKF can now be rolled down to the Feb 85 puts ??


  11. Phil, how about selling the GOOG JAN 150′s for $1?  Also can you explain how to determine the premium in an option?  Sorry, I am still relatively new


  12. sorry, GOOG $350′s


  13. I’ve been thinking about my rollling answer to RL and I want to clarify something.  If you set up the long side of your play with the goal of collecting a certain amount of monthly premium then any time you have made that money and can roll your caller to a higher strike in the next month and still collect your additional premium is a good time to roll.  Any time we can roll a caller from 1/2 premium to 100% premium at a higher strike is a win for us but always keep in mind that you don’t want to sacrifice too much protection just to get more premium.  In the AAPL example, rolling too early leaves us exposed to a big dip as the Feb caller would "only" lose about $4 on a dip to $80 on Jan 16th vs $7.65 lost by the Jan $80s so you have to be comfortable taking that $4 risk on your long side. 

    Never forget that we often talk in absolutes but Rule #2 is "When in doubt, sell half" and that is great advice for when you are considering early rolls.  If you are hesitant, roll half and leave half – the best of both worlds!  Don’t forget that next Wednesday is the day we like to be out of all of our own Jan puts and calls but the opposite goes for our putters and callers – we WANT them to stay with us in those last 7 trading days to expiration while thier premiums fly out the window so only if you really think you are going to be underwater at expiration should you be rushing to roll someone out of danger.


  14. Phil/Semis – Thnx – One of us will be wrong :-)


  15. SKF/RMM – Because, at the time we were following Rule #1 which is "Always sell into the initial excitement."  There was a sharp spike down that ran the Feb $85 puts up to $9 so you could have collected +$3 AND improved your position by $15 in exchange for a month of time – THAT’S a good trade-off!

    GOOG/Greg – Tempting though it may be, it is far too dangerous a stock to naked sell "just" $40 out of the money.  They are actually just coasting along under the 50 dma at $310 and could break out with considerable style if the whole market keeps going like this.  I’d rather sell the $250 puts for $1 if you are going to burn margin like that (costs $125 to make $1) as I really wouldn’t mind owing GOOG at $250 if it falls that far.  Also, you can roll the Jan $250 puts to the Feb $200 puts and then the March $150 puts and the April $100 puts and the June $75 puts and the July $50 puts if it keeps going down so I look at is as I don’t mind owning GOOG for $50 when I’m considering selling those puts.

    Premium/Greg – It’s simply how far over the stock price is the option.  There is straight premium, like the GOOG $350 call for $1 has $1 in premium but there is also implied premium.  In straight premium, you sell the GOOG $350 for $1 and every day that call becomes 10% less valuable with 10 days to expiration but the implied premium is $43 over GOOG’s current price of $308 ($42 in strike plus the $1 paid for the call).  That means GOOG has to gain $4.30 each day for $10 days in order for that call to pay off.  Since GOOG is up just .33 today, they are falling off track already and the caller should be worried about his contract. 

    Every day that figure gets recalculated and you eventually get to a point where the math is clearly against you.  With GOOG though, the reason I don’t like that particular short is that even if GOOG is at $310 a week from Monday, they "only" need to make $8.60 a day to put the caller in the money and that is still not out of the question for them so you are basically taking a posiition in which you are unlikely to feel safe until Thursday and, even then, if the calls are "just" $30 out of the money, it’s a very definite possibility…

    Wow, market flying agaiin!  SKFs turned down fast, FXI flying up.  Qs made 30 but then were rejected and S&P right at 911 so if they can’t break this it might be worth another roll-up on protective puts.


  16. Phil: XLF and UYG have gone up quite a bit,
    I see my jan 12 caller for XLF is 1/2 premium and ITM, this could of course change the next 7 days,
    no rush but just checking the philosophy.


  17. BA- i own leaps 2011 25 calls. sold 40 call at 2.80-now 4. my question is what caller  should  i sell-the Feb 40 or the  45?


  18. U.S. Dec. ISM index 32.4% vs. 36.3% expected
     
     
    Obviously a Good thing because the market shot up. !


  19. SOX actually were leading this turn up with a jump to up 2% since DB and I were discussing just a half hour ago.  OIH up 4% and XLE dragging at 1% as USO flies up 10% even though oil is flat at $44.  Coal stocks going nuts as are other commodities and Transports don’t seem to mind the higher oil prices at all…

    F is starting to move but not as fast as GM, which is up 10%.  SNDK is up 12% on no news I see.  YRCW is up 18%, back over $3 now.  HOV is still $1.58.  Ags are not moving and financials are down but recovering so a very strange sort of rally so far.

    S&P broke over so now we can watch 911 for a floor as well as 5,800 on NYSE, 500 RUT while we wait to see if the Dow can make 8,900 and the Nas can break 1,600 but I’m just amazed we’re doing this well…

    XLF/RMM – I’m still bullish on SKF over the weekend so not thrilled about taking risks on XLF or UYG at the moment.  On Jan $12 caller, he still has 1/2 premium and you have a strike every dollar to roll him to so, more so than other options, you really want to wait and sqeeze every penny out of him if you can.  As long as you have a clear path to rolling him into a strike next month that has 100% premium (the Feb $13s are .90) then there is really nothing to worry about.

    BA and V doing very well since we bottom fished them earlier in the week and still moving.   AAPL getting its groove on too!


  20. SNDK – Today morning’s Semi report says Chips down except for Memory and Sandisk is the memory king so they are up. Could always be some new speculation on a buyout too


  21. BA/Drum – They popped the 50 dma and we’re bullish anyway so I’d lean towards the $45s but how about rolling the $40 callers to 1/2 the Feb $40s as that should cost you less than $1 per current contract and give you more flexibility as they can be rollled to 2x the $45s if BA stays strong or you can add more if they go lower.

    ISM/DB – All these gloomy numbers are pretty much baked in already.  It’s going to take some terrible earnings AND terrible guidance to shock the market at this point.

    We’re going to have to scramble to get more bullish if this follows through on Monday as we expected to get to 9,500 around the inauguration but this is coming on early and strong and it’s not going to be smart to get in the way of this.  That’s why it’s nice to be long on the ultras (UWM, QLD, UYG) while covering with the basics (other than the SKF puts) as you get nice bang for your buck on a rally like this.  It doesn’t matter if the volume is BS if you have real profits to take!

    VIX way down at 37.81!

    Solars getting a nice boost but you can see from the chart below this is a "no sector left behind" sort of rally.

    Qs are NOT over 30 – that is NOT good!  Wee do not want a commodity-led rally and so far they are more or less in the middle, hopefully it stays that way.  Homebuilders in general are really weak and if the rally is sustainable they should make some progress.

    WFR with a very nice move!

    .


  22. Oh damn, scratch that on the Qs,. I was getting a bad data feed that really screwed up my view of the market!  Anything over 30 on the Qs is good and the SOX are right at the 2.5% line at 217.50 so we can watch that too along with Nas 1,600


  23. I like the USO $31 puts for $1.05 as a gamble.  Easy to get out at .85 if they break $35 but looking for $1.50 next week.


  24. YRCW + 24% !!


  25. GS heading the wrong way and I’m not pleased about C getting rejected at $7.  Nat gas plays doing very well along with drillers.

    LVS having a good day, SHLD up 5%.  ISRG stuck under $130. 

    MON making a break for it, maybe Ags turn up here…

    MSFT testing $20 – if this rally had volume I’d be really excited by it!


  26. is fxp entering an attractive price area?
    i did your recommended ir 2011--12.5 leap  and sold the march 15c at 3.19. now that ir is over 18 and running lately,  should i do something with these callers now?


  27. ABX
    Phil
    I have ABX stock and sold Jan32.50C covers at 5.15 now 5.30 with only 0.25 premium left.
    It costs me 3.50 to roll up to the Jan37.50C with 1.80 in premium
    or the roll to Feb37.50 costs me 1.60 with 3.60 in premium
    the roll to Feb seems better???


  28. FXP/Drum – No, too dangerous as the FXI is still really low and could jump 10% several times, kocking FXP down 20% several times.  I said the other day and this morning that China is by far the best of the emerging markets so this is simply not a good time to bet against them.  You are better off shorting commodities, which will simply die along with China if you want to bet against a Chinese recovery.  I’m not clear on what FXPs you have though as I don’t understand how you ever sold March $15s for $3.19 when FXP never went below $30 so let me know exactly what you have and what you paid for each…


  29. i have ingersoll rand


  30. Phil,
    do  you think xom is going to 75 anytime soon?? xom seems to be one stock defying gravity. I have Apr 75 puts and I am deciding whether to sell jan 80 puts or not.
    thanks


  31. BA – On a tear today and past few days – Opinions on how how it can go in the short term?
    I own the stock with cost basis in high 50s and currently no covers. Thinking of adding some at current price around $44.40 and selling half covers with Feb $45 calls which can get me around $2.50 but limit the upside. Would welcome any better trades – I doubt it can go much higher than high $48s in the short term (unless the rest of market zooms higher)


  32. BA  Just to confirm, if I’m fully covered with 40 callers, you think it is better to adjust to 1/2 Feb 40 rather than full Jan 45s?


  33. Thats about 500pts since Christmas. So 13000 will be end Jan ish I think. :-)


  34. Oh – It’s also bothering me that suddenly every poll I hear has investors and consumers bullish about next year.  Way too early for irrational exuberance!

    ABX/Edro – They just popped the 200 dma at $36 and should pretty much hold it and I do like gold but that is not the purpose of selling covers.  You can roll the Jan $32.50s to the Feb $35s even so why should you put any money into the trade?  If the Stock goes up another 2.50 (6.7%) next month then you can roll it up another $5 even without spening money and this plan works all the way to a 80% gain over 12 months so unless your target for ABX is way over the ATH at $54, I don’t see the reason to suddenly take risks on what is a nice, safe, successful position.  The risk in this trade (aside from the obvious downside) is that ABX runs up fast on you and you "only" get what the caller is meant to pay you.  First, you should be satisfied with that, you can always buy something else and second, IF the stock flies up THEN you can decide to spend money to reposition him.  Let’s say you sold the $27.50 calls and now we are at $37.50…  Those calls are $9.95 and you can now spend $4 to roll them to the Feb $35s.  That’s gaining $7.50 in position and adding $3 in premium to the caller for $4 while still giving you more than 10% downside protection – THAT’S the kind of roll you should be willing to pay for!   Don’t forget that a strong dollar is bad for gold short-term and high oil prices are the variable input cost for the miners so it’s not exactly going to be a moon shot from here.

    IR/Drum – Oh I get it, I thought you were still talking about FXP.  Please use caps as I thought the IR was a typo…  Well that was simply a spectacular pick by me wasn’t it?  The 2011 $12.50s are fine of course and you are worried about the March $15s but, as I said just above to Edro, you have forever to roll and the June $17.50s are $3.20 so it would cost you .90 to roll them up $2.50 in strike.  Keep an eye on that relationship and get concerned if it goes over $1.20 at which point you may want to get proactive but that leaves the caller net break even way up at $19.50 (the $3.20 they paid you less $1.20 plus the strike) and you would be $7 in the money at that point so nearly a double on the spread even if it keeps going up and up on you.  Once we get over $20 we can consider more drastic moves but it’s way to early for that. 

    XOM/HP – Probably not before end of Jan earnings so no reason not to sell Jan puts for a little income in the very least.  Silly not to take $1 for the Jan $75 puts as they can be rolled to Feb $65 puts  amd. since your puts are $4.95, it’s a nice % return.  You may want to wait and see if we get a dip on Monday (Russia could resolve, the dollar could head up, this whole rally could reverse) and, if not, you can sell the $80 puts for $2.33 which can likely be rolled even to the Feb $70 puts, now $1.77 and that too, is a pretty comfortable spread.

    BA/M2 – they should work their way back to $55 shortly after 1/28 earnings as I’m sure they’ll have a firm schedule by then with pretty good long-term projections.  Still I’d cover with the Jan $45s over the weekend at $1.25 and see how it goes.  If they keep going up you can roll them even to the Feb $50s, now .88 probably even and if it really gets away from you you can always convert to 2x the 2011 $25s, now $20.75 and that would take $5 of your money off the table and leave you 1/2 covered so you would be able to roll callers to 2x the March $55s at which point you will have gained 2x $10 on the long side, even with the callers vs. the $10 you would gain if you leave it naked from here and we get to $55.

    I know it doesn’t sound like much when we talk about selling $1.25 contracts against $45 stocks but if it’s your STRATEGY to do this EVERY month and it works 8 out of 12 times a year then you are +6 in successful sales and that’s $7.50, which is an additional 17% ROI – that’s what hedging is, we’re not aiming for home-run plays, just a nice rate of return with good downside protection.

    BA/Eph – Yes, safety and flexibility until we see if this rally sticks.

    DB the bull!   8-)


  35.  hp, you could really get screwed selling the 80′s. doesnt  take much for it to drop to 75.  down day in the dow will correllate with low oil pices and then xom will drop.  i sell xom puts vs leaps when xom hits around 75.  just bought some feb 75 xom puts for 2.9.


  36. wow…aapl flew through 88.


  37. VLO   Similar to BA.  I’ve got Jan 20 Callers and an order to roll to 1/2 Feb 22.   Should I be looking at 1/2 Feb 20?


  38. Jomama,
    thanks for the input. I have had exactly the same problem in the past where in I sell close puts and get burnt. That is why I don’t like selling puts when xom has gone up so much in the past week on low volume.
    Phil, I had sold 75 XOM puts for 3.4 in dec and covered it on dec 31st for 1.2. I should have explained the circumstances better.
    thanks


  39. USO  I’ve got a neutral spread (+4 Jul 25 Call/ – Jan 30 Call and  + 4 Jul 37 Put / – Jan 37 Put) and wonder if I should do anything with my Jan caller now.   My general plan is to just roll any ITM putter/caller a couple of strikes for a credit at expiration, but since there is so little premium in the callers I wonder if I should do something early, maybe roll to Feb 32 even.


  40. AAPL $89!   Those Feb $90s are up $2 already.  GOOG made $315.

    DIS moving up, I was hoping to catch them next week but now they are up 10% from Monday and I don’t know if I  want to chase.  Going to be a lot of hard choices if we break 9,100 next week without a pullback and we have to decide what to buy (for those of you who missed all the bottom fishing between 8,200 and 8,400).

    There is still time to go bullish on the Qs with the June $26s at $6.15.  The goal would be to get $1.50 for the Feb $32s, now .90 and plenty of fallback positions if they turn back down.  UYG is still very cheap at $5.96, no need to sell against those as a speculative play…  FXI straight up look a little dangerous but the 2010 $35s are $5 on an index that was at $70 a year ago and you can sell Feb $34s for $1.50, which is an excellent return for 60 days.

    VLO/Eph – I’d roll the Jan $20s straigh up to the Feb $22s.  You’re getting 10% more upside for free so nothing wrong with that.  No hurry though as you get better protection from the $20s and if we really get going you can spend $1 to roll them to the Feb $23s so not much downside for letting it ride a bit.  Don’t forget earnings will suck as crack spreads crashed AND demand died at the same time so you can expect a good price to buy out some caller when we get earnings.

    XOM/HP – Taking the money and running I very much approve of.

    Wow!  Happy New Year it is!


  41. another call of yours was spwra at 35.30 – sold 35 Jan calls at 4.91 and puts at 5.30.but will let the put run. unfortunately, i have only one position here, but unsure whether to go for the  Feb 40 caller to be safe  or the 45 caller. which also pays over 3


  42. CCJ   I’ve got a 1 lot spread with 17.5 callers that are getting away from me.  Rather than roll it now, I’m thinking of buying another LEAP so I can do a 2X rollup on my caller.   Is today’s move just a spike, or should I be worried that the train is leaving the station and I should buy it now.


  43. Phil,
    can this  be real or a big trap before big players come back next week and wash out everyone?


  44. XOM   I’ve screwed the pooch on double diagonal you mentioned a while ago.   I rolled my putter but sold my call so now I’m left with a -80/+85 put vertical.   I’ve been trying to roll the put so I’d have a Jan/Apr 80 calendar, but I didn’t want to chase and my order won’t fill (I could have done it for .20 a while ago, now my order is in at .50 for days and the current price is 1.65).   At this point should I just sit with it, or go ahead and pay up to make the roll?


  45. DRYS, I am trying to sell Jan $12.5 calls for $1.35.  Nice premium if I can.


  46. Phil – are you bullish on SKF and UYG?  isn’t that kinda contradictory?


  47. HMM.. maybe nto a trap for Monday. Maybe it will happen today.
     
    Anyone envisage DOW going negative today?


  48. COH – good time to cover?   maybe 1/2 covers with Jan 22.50s?


  49. Dilbert/trap – Has to happen at some point. 500 uncontested points is silly !!!!!!!!!!!!!!


  50. USO/Eph – Should we always sell into the initial excitement on USO?  There’s still .60 in premium and if you throw away 10% of what you can get each month it can start to add up on you.  Of course the higher it goes the more your $37 putter loses so you really have $2 in cushion before you should regret not rolling.  The contracts you sold have an intrinsic value of $7 once the premium is gone and March whatever puts and calls are more than $7 so nothing to worry about unless that relationship goes negative on you.  Keep an eye on your ideal roll and track the price of that but it should improve each day through next week.

    SPWRA/Drum – Well your basis is just $25.09 and you make $10 if you let it go now so that’s what you are risking by staying in.  The $35 puts and calls are $8.50 and if you go to the Feb $40 or $45 puts and calls you get another $3.50 back so net basis $22.50 and potential $17.50 gain at $40 seems pretty damn good to me.  Don’t forget by rolling puts and calls to $45s you still risk having stock put to you at $45 so it seems a little greedy and a little dangerous to go that way.

    YRCW still flying!

    CCJ/Eph – How is $1.50 in the money getting away from you?  That is one crazy mofo stock so don’t get too excited by sudden moves but I love them long-term and endorse adding here and using your in-the-money caller as a nice cover for the new shares.

    Trap/Emo – There’s nothing real about a massive rally on low volume over a holiday.  The whole thing can be revesed if Fidelity decided to move to 2% more cash next week.  This rally is a ton of casual traders sitting at home for the holidays thinking they are getting great deals on stocks and hoping to win all their 401K money back on the big rally, nothing more.  I do expect funds to position more bullish in the next two weeks and it is possible they jump in early but think of the logistics involved in having the meeting and deploying the capital TODAY – it’s just not a real move but neither was the ridiculous sell-off we had going into Xmas either.  All we are is right back to where we were on the 12/18 Big Chart Review where we failed to hold the same levels we took back today.  We had too much of a run-up with too little fundamentals then and that’s what we have now too.  I often mention "air pockets," which is what you get when the market goes up too quickly without forming a base.  It leaves very little support under the gains and the lower the volume the weaker the support is so this is perhaps the most BS possible support you can ever get in the markets.  It’s not that I don’t think we should be able to hold this level as I think 8,650 could easily make a solid floor and we don’t even hit the 5% rule until 9,100 but my concern is that this whole move from 8,400 could evaporate in a day as it’s built on nothing of substance.

    XOM/Eph – What are the positions you are left with now? 

    DRYS/Jordan – those premiums are great.

    Contradictions/RL – SKF is short-term protection as financials are still the sector most likely to wreck the markets but, long-term, I think UYG and the whole sector will be a big winner. 

    When I pick a short-term cover, I look to cover the weakest sector and the fact that SKF is still positive even with this rally shows that it was an excellent selection.  On the other hand, when there’s a rally and things are getting away from you, it’s good to see if you can pick up some stragglers and, today, UYG is in the back of the pack and looking attractive.  Remember our goal is to be balanced so it’s OK to bet against ourselves a little, the trick is knowing when to take the profits.  The SKF $120s jammed up to $5.60 this morning, which was up more than 20% and should have been stopped out up 15%, especially as the market was running up.  If that leaves you with naked UYGs then you need to balance that trade by covering with Feb $6s at $1 or picking up something like a DIA put since we can assume the financials would take down the Dow.  In a choppy market if you make 20% on the long side and then 20% on the short side and keep the bulk of the portfolio neutral, as long as you can ride out the chops you can do quite well.  The problem comes when you get a blow-out run, like this is shaping up to be if it keeps going – then you have to scramble if your long side gains (which are probably at least partially covered) can’t keep up with your short side losses.

    Negative today/Dilbert – I highly doubt it!  There is no news to move anything, just a melt-up from oversold and maybe short-term overbought now but S&P making good technicals if they hold here and 930 is the next big test which, at this point, would be a shame not to see before we head back down. 

    COH/3Way – 1/2 covers is a good plan.


  51. Europe closed up about 3%, we are way behind that!


  52. My XOM position is a January Put Vertical  -80/+85


  53. XOM/Eph – I meant what did you pay for it but if you own the $85 puts and sold the $80 puts then what’s the big deal – any finish below $80 is max profits for you.  If you are worried about the timeframe, you can roll the set to the Feb $85 puts at $7 (net $2.15) and the Feb $80 puts at $4.50 (net $1.40) which puts .20 in your pocket and buys you a month.  You can also spend just $1.75 to roll to the Apr $80 puts and let this putter expire and THEN sell the Feb $80 puts for $3.50 or better or maybe even the Feb $75 puts for a good price by then.

    XOM has excellent Feb premiums due to the fact that no one has a clue what earnings will be and you can take advantage of this by selling the Feb $80 puts and calls for $9.50 and buying the Apr $85 calls and the Apr $75 puts for $9.30.  You can’t owe the caller or putter more than $5 and you can then (on Feb 20th) roll to whatever March put/call combo is $5.  If you had sold the Jan $70 puts and calls for $9.50 against the Apr  $65 puts and Apr $75 calls for $12 (picking a higher number for the extra month) then you would now owe the Jan $70 caller $11 an the Apr puts and calls are worth $12.50.  So you are down $3 but you can roll them to the $80 puts and calls for -$1.50 out of pocket and you can take $3 off the talbe by rolling to the above spread.  So even a major blow-out like that still allows you do do a very inexpensive roll to put the caller and putter back to pure premium, you get 3 tries to get them to expire worthless and it’s only $1.50 more to roll yourself to July and get 3 more chances!

    Good psychology going into the weekend if we hold this as it will keep the prognosticators from sticking their necks out too far on the bearish side.  Oil is up to $46 and OIH is up 8% and XLE is up 4.5% so close to 1/2 of the market’s gains today are from the energy sector alone. 

    10-year back to 2.3% and gold staying under $880 as the dollar is at 1.38 to the Euro so it’s really all about Yen strength that’s holding us back.  Look at TNX fly!

    LVS still running along with whole casino sector, REITs are flying too but builders look like death…


  54. This is a really good point (up 2.5% on most indexes) to pick up some DIA puts or roll to a better position.


  55. Guess it won’t go down into negative territory today! That would be a major disaster for investors who were optimistic today & Invested


  56. This is a really good point (up 2.5% on most indexes) to pick up some DIA puts or roll to a better position.
    I forgot the price we’re looking for to roll up our protective puts was it .60?


  57. Roll ups/Eph – .50 per $1 ideally.   Right now I like the DIA March $91 puts at $6.28 the best.  

    DXD (Dow ultra-shorts) are interesting down at $50.  You can get Feb $52s for $4.35 and the ETF was $58 on Monday so a serious gain if we crash and the $57s are $3 so another 2.5% gain in the Dow will only cost you about $1 of this protection.


  58. Holy cow!  Best opening day since 2003, who’d have thought?  Now we get a good upside test with Dow 9,000 and S&P 930.  NYSE at 5,900, right at 2.5% on the button.  SOX are totally flying, Qs nearing 31 which is about 1,625 on the Nas. 

    AAPL having trouble closing the deal at $90.


  59. This is so much fun!!


  60. Well AAPL made $90 so I’m happy with my day! 

    Let’s just hope it all doesn’t disappear on Monday but it’s sure going to look pretty if we finish up here. 

    OIH up 9%, XLE up 5.5%, XOM up 2.5% now but still just hanging around the 2.5% rule with the RUT actually dragging today up just 1.5% and Nas leading up 4%.  Nas probably helped by lots of junior drillers.

    SHLD sneaking up on us.


  61.  phil, what are the odds that mu goes bkrupt? i am liking the risk reward of selling jan 2.5 2010 puts for $1?  1.5 margin for 1$ return?  slow money but looks good.


  62. Phil, so you don’t discount the low volume we have had for the last couple days that got us here?  We are up 600 points since Monday and almost at your 9,100 target.  It doesn’t matter to me which way we go-just trying to be positioned right


  63. I’m really worried this will end just like Weds did, huge sell-off in last 20 mins althoug at least that would give us a more realistic net gain than we’ll get by finishing up here.

    What worries me about this is we’re up 7.5% from Monday’s lows and people could just show up on Monday and say – "Let’s book a 7.5% gain and call it a good year."


  64. Phil – Are there any reports or indicators due out next week which may affect the markets?  Particularly Monday.


  65. X perched at 39


  66. MU/Jo – They’ve been limping along for a year now.  I actually like them but they are scary to play.   Selling the puts you risk getting it put to you for a $1.50 loss in a BK while buying it for $2.86 and selling the Apr $3 puts and calls for $1.50 nets you $1.36/2.18 in April and you don’t have to wait so long to make $1 if things go north.

    Moves/Greg – I do discount the move almost entirely so I stay skeptical but you also can’t fight the tide if investors are determined to run the market up.  We do have the Obama stimulus to look forward to and if people start thinking we put in a good floor, we could keep going next week and longer but, for today, there is no way I could sleep over the weekend without good balance as the real trading begins next week. 

    Meanwhile – up, up and away the market goes!


  67. Happy New Year!
     
    Phil/X,
    I sold the Jan 30 puts for 1.75 (now .25).  Do I need to worry about taking out my putter (or let it expire)?  If the price drops below 30 at exp, I don’t can about having shares put to me at $28.25 (if we drop). 
     
    Thanks


  68. Wheres Matt? He must be pulling all the hair out of his head!!! Lmao


  69. Blimey – a hockey stick save that wasnt needed !!!!


  70. Reports/Grant – We have Construction spending and Auto Sales on Monday.  Factory Orders and ISM Service (will suck just like overall ISM did this morning).  Oil Weds, of course.  Thursday is another 500,000 jobs lost along with Consumer Credit and Friday we have Non-Farm Payrolls, which are bound to suck too along with Wholesale Inventories.  I don’t think any of those things can be shocking to a reasonably intelligent person.  Consumer Credit has the most chance to have a shocking downside and I guess Factory Orders can be weaker than expected but how can Auto sales disappoint and I’m frankly surprised construction spending isn’t closer to zero.

    Well we made it past 3:45 and no big sell-off so Happy 2009, we’re starting off with a huge bang as the markets going up 3% on the first day has got to get people thinking of what they may be missing by sitting on the sidelines.

    X/Texas – I would be REALLY surprised if they don’t expire worthless.  If you don’t have need for the margin.

    LVS up 20% now.


  71. kustomz/Matt – hey kustom you shouldnt laugh at people you are on the wrong side of a trade. I should know :-(


  72. Better than 2.5% almost across the board and RUT at 1.25% (and you think these numbers aren’t significant?) – Overall the best possibly start to the year so let’s just hope we don’t blow it.

    Have a good weekend everyone!


  73. LOL DB i would never, hes just such a bear and very outspoken that i would love to hear him rant….i agree with him on many issues but i cant fight the US GOV. and their deep pockets.

    Good weekend all!!


  74. Thanks Phil.
    Great way to start the year…. However, I did not throw caution to the wind.  I threw on some covers today.  The GLD spread is working out very well. 


  75. BTW, did I mention (Phil likes gold)? 


  76. DIA Put covers
    Phil,
    I have Jan84P covers on my protective puts, Feb90P.
    On Friday’s run up my protective puts lost 1.80 in value while the covers gained 0.69.
    Perhaps it’s time to roll the covers to Jan88′sfor 1.47 which can be rolled to Feb81s evenish?
    Or just roll to a Mar91P/Feb86P spread?


  77. Phil,
    Could you add the "Big Charts" review to the Dashboard?


  78. Happy and prosperous New Year to you all.


  79. Asia Markets :    Monday, January 05, 2009
    (The following is from WSJ; please cross check with other sources to confirm.)   

    Nikkei Average*                                       9043.12    183.56    2.07%
    Hang Seng*                                           15563.31    520.50    3.46%
    China: DJ Shanghai*                               205.22         7.99    4.05%
    Seoul Composite*                                  1173.57      16.17    1.40%
    Bombay Sensex*                                  10275.60    317.38    3.19%
    Baltic Dry Index                                          773.00       -1.00    -0.13%

    *at Close


  80. Asian Stocks Hit 2-Month High as Risk Returns

    Asian stocks hit a two-month high Monday, with investors betting the global economy will start to recover later this year by shedding some of their big holdings of safe-haven government bonds.

    Japan’s Nikkei began 2009 on a strong note, closing 2.1 percent higher in a shortened session and hitting a two-month high on hopes this year will be better than last, the worst in the Nikkei’s history. Resource-linked firms such as trading houses surged as oil jumped more than 3 percent, after an Iranian military commander reportedly called on Islamic countries to cut oil exports to supporters of Israel over Israel’s ground offensive in the Gaza Strip to stop Hamas rocket attacks.

    Seoul shares gained 1.4 percent with banks rallying on expectations of a rate cut, while auto makers advanced on strengthening views their earnings may not be as bad as feared.

    Australian stocks finished down 0.7 percent as banks gave up early gains, precious metal miners fell on lower gold prices and investors sold offshore earners likely to be hurt by a stronger Australian dollar.

    Hong Kong shares rose 3.5 percent. China Mobile, Lenovo Group and Aluminium Corp of China jumped higher.

    Singapore’s Straits Times Index rose 5.2 percent.  Shares of plantation firms rose on higher palm oil prices. Benchmark palm oil prices in Malaysia rose 1.5 percent after crude oil climbed on worries over supplies after an Iranian military commander reportedly called for an oil boycott.

    China’s Shanghai Composite Index rose 3.3 percent, with industrial metal producers leading the gains on hopes they would benefit from the government’s infrastructure building plans. Coal producers also outperformed, partly because of a surge in global oil prices due to tensions in the Middle East.

    Bombay Stock Exchange’s Sensex closed at 10292.54, up 334.32 points or 3.36 per cent. The index touched an intra-day high of 10306.17 and a low of 10069.11. Sharp rally led buy fresh buying as well as short coverings in metals and oil&gas counters in the last hour of trade saw benchmarks end above crucial resistance levels. Buying was also seen in midcap and smallcap space.


  81. Euro Shares Rise; Swiss Banks Gain

    European shares gained in early trade on Monday, with Swiss banks higher and U.S. President-elect Barack Obama’s plans for tax cuts fuelling optimism. Obama, seeking to drum up support from both political parties, plans to propose up to $310 billion in tax cuts for businesses and the middle class as part of his massive economic stimulus package, senior Democratic aides said on Sunday.

    The FTSEurofirst 300 index of top European shares was up 1.3 percent at 868.12 points. On Friday, the first trading day of 2009, the index rose 3 percent, but it lost more than 44 percent in 2008, hit by a credit crisis that helped tip many major economies into recession.

    Most banks rose, led by those in Switzerland, where the stock exchange re-opened after the New Year Holiday. Credit Suisse and UBS rose 8.3 percent and 5.9 percent respectively, with both continuing to benefit from recent sales of businesses. However, HSBC fell 1.3 percent after Deutsche Bank cut its target to 650 pence, from 685.

    Crude oil futures retained recent gains and traded above $46 a barrel, amid further tension in the Middle East. Total, BP, Royal Dutch Shell, BG and Statoil rose between 0.7 and 3.4 percent.

    The auto sector was one of only a handful in the red, hit by Japan’s dismal monthly auto sales. Renault, which has a big stake in Nissan, fell 4.9 percent, also hammered after Citigroup cut its rating on the stock to "sell" from "hold." Daimler, Peugeot, Porsche, and Volkswagen were down between 0.9 and 2.3 percent.

    UK retailers rose, amid expectations that updates covering the vital Christmas period, due this week, may not be quite as bad as feared. Marks & Spencer rose 5 percent; Next gained 2 percent.

    On Thursday, the Bank of England is expected to cut interest rates, in an effort to mitigate the extent of the recession in the UK. The base rate, at 2 percent, is already at its lowest since the Bank was founded in 1694. The BoE will cut by 50 basis points to 1.5 percent, according to a Reuters survey.

    The FTSEurofirst 300 index was rising for a fifth consecutive session, having gained 6.6 percent last week, in thin volumes. Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 rose between 0.4 and 0.7 percent.


  82. Oil Rises Above $47 on Gaza, Russia Gas Row

    Oil jumped to a three week high on Monday after an Iranian military commander called for an oil boycott over Israel’s offensive in the Gaza Strip, and as the Russian gas export row stoked fears for European energy supplies. An OPEC source told Reuters that the Iranian call would not sway other members of the Organization of the Petroleum Exporting Countries

    Oil prices have risen by more than 25 percent since Israel launched its Gaza offensive on Dec. 27.

    U.S. light, sweet crude [ 47.19    0.85  (+1.83%)] for February delivery rose to an early high of $48.68 a barrel on Monday — the highest since December 15 — before paring gains on profit-taking. The price remained higher on the session.

    London Brent crude [ 50.58    3.67  (+7.82%)] was up.

    "Saber rattling by Iran and further instability in the Middle East always produces fears for oil supplies, which is putting a platform under prices," said Bank of Ireland analyst Paul Harris.

    An Iranian military commander has called on Islamic countries to cut oil exports to Israel’s supporters in Europe and the United States in response to the offensive in Gaza, the official IRNA news agency reported on Sunday. However, core OPEC oil producers in the Gulf were likely to ignore Iran’s call, an OPEC source said on Monday. "There are no plans to do this and I think it is very unlikely," the source told Reuters. OPEC’s most influential member Saudi Arabia and neighbors Kuwait, the United Arab Emirates and Qatar are regional allies to the United States.

    Adding to geopolitical concerns, Russian natural gas supplies to southeast Europe have been reduced as a result of Russia’s stand-off with Ukraine over gas prices, which began on New Year’s day. The two sides blame each other for the dispute.

    European energy firms, which receive about a fifth of their gas via pipelines through Ukraine, said they had enough gas stockpiled to maintain supplies for several days, but analysts said Europe could face problems if the row dragged on. The row, which recalls a similar dispute three years ago that also disrupted supplies, is likely to raise new questions in Europe about Russia’s reliability as a gas supplier.

    The market will also be looking for further signs of OPEC production cuts, after Libya and Abu Dhabi’s National Oil Co both joined leading producer Saudi Arabia, vowing to cut output by January as OPEC tries to stem the $100 a barrel drop in oil prices since July 2008.


  83. Good morning and happy New Year Ramana.  Hope you had a nice break.


  84. Dollar Hits 3-Week High vs Yen as Stocks Gain

    The dollar climbed broadly on Monday, hitting its highest level in three weeks against the yen as rising share prices eased some risk aversion and put the Japanese currency under selling pressure. A 1.4 percent rise in European shares hit the yen, which has benefited from falling stock prices in past months, and helped to push the dollar to its strongest against a basket of currencies and the euro since mid-December.

    "Stocks are firming, and there seems to be a slight bias towards risk taking," said Steve Barrow, head of G10 currency research at Standard Bank in London, adding that the yen was taking the biggest hit from the move.

    The dollar [ 93.2    1.38  (+1.5%)   ] climbed against the yen to 92.97 yen according to Reuters data, its highest since early December.

    Gains against the yen prompted dollar buying across the board, pushing the dollar index to 82.722, its strongest since Dec. 15.

    The euro [ 1.3673    -0.0246  (-1.77%)    ] fell against the dollar to $1.3662 according to Reuters data, its lowest since mid-December, and pulled away from a session high of $1.3963 hit earlier in the day.

    Some in the market said that the single European currency was also coming under selling pressure after European Central Bank Vice President Lucas Papademos said on Sunday that more interest rate cuts may be needed to shield the euro zone economy from recession.

    Papademos’s comments were seen as dovish compared with statements from other ECB officials that had stoked speculation the central bank may hold back from cutting rates aggressively in the near future.

    Figures on Monday showed Spain’s EU-harmonized inflation tumbled to a 10-year low of 1.5 percent in December, adding evidence that price pressure in the euro zone may be easing.

    Some traders said this was also pushing the euro lower.

    Gold slips as dollar hits 3-week high vs euro

    Gold slipped 1 percent in Europe on Monday as a stronger dollar weighed on sentiment with traders eyeing oil market moves on mounting Middle East tensions. Gold was quoted at $865.10/867.10 an ounce at 0925 GMT, down from $873.20 an ounce late in New York on Friday, having touched a session low of $860.20. U.S. gold futures for February delivery GCG9 fell $14.20 to $865.30 an ounce.

    The firmer dollar is weighing on prices, with the U.S. currency extending gains against the euro on hopes U.S. president-elect Barack Obama will unveil fresh measures to boost the economy.

    Gold is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it. Gold usually moves in line with oil prices, both because firmer crude boosts interest in the precious metal as a hedge against oil-led inflation and increases the appeal of commodities as an asset class.

    Demand for gold jewllery has been hit by the higher prices. Sales in Abu Dhabi fell 40 percent in December from a month before, the emirate’s industry group said. Gold buying in India, the world’s largest market for the precious metal, has been crimped by higher prices, traders said. "People would want to buy if prices fall below 12,500 rupees," said Mayank Khemka, managing director of Delhi-based Khemka International. Prices are currently around 13,500 rupees.

    Among other precious metals, silver slipped in line with gold to $11.14/11.22 an ounce from $11.52 late on Friday. Platinum eased to $932/937 an ounce from $944, while palladium dipped to $186/191 an ounce from $190.


  85. Happy New Year Phil. Yes, nice break. Good riddance 2008 (but for Obama’s victory). Hello 2009.:-)


  86. Just curious, how much of this Russia/Ukraine ‘fight’ is real. We know Israel offensive against terrorists has been priced in already. And that really didn’t make much dent. But the Russia/Ukraine came on board. Is this the new Nigerian rebel thing:-)


  87. Russia – It’s real on Russia’s end but, just like any normal business contract, it expired at the end of the year and they haven’t settled on new terms.  It’s been warm this winter and gas prices have been coming down so Ukraine was holding out for better terms but Russia really needs money badly and is pretty inflexible – or as much as any seller can be when their main customer asks for a discount.  Now that negotiations broke down, Russia is playing real hard ball and asking for massive increases but it’s all just a form of negotiations.

    Don’t forget the Ukraine (which more than any other breakaway was really Russia, with Kiev the capital) is really a middle-man that marks up the gas piped through their country and sells it to the EU for more than double what they pay mother Russia, the wholesaler.  Russia wanted to up the rates the Ukraine pays to roughly 1/2 what the Ukraine charges Europe, maybe a 15% increase over last year. 

    Russia is actually sending MORE gas through Belarus and Turkey (also resellers but not big enough to handle all the volume) to make up for what Kiev isn’t shipping out and there’s also some dispute over billions that Ukraine owes Russia from last year. 

    So it’s a real mess and you can see why having issues in Georgia (warm port) was such a big deal to Russia as losing relations with the Ukrain doesn’t leave them in a very good trade position.