I hope it's going to be a Thursday thump…
At least when you hear the "thump" you know you've hit something! The market encountered virtually no resistance on the way down back to our mid-points and we could not be more thrilled as we went bearish at the top and we've been lining up our buys all week, expecting to hold 8,650 here but frankly happy to see us go back to 8,200 since we are a little bearish and looking for bargains.
We're selling our short plays like SKF and FXP (a cover if you are in yesterday's spread leg) into the initial excitement this morning as we've had great runs and we're either going to be shifting long if we hold Dow 8,650, S&P 888, Nas 1,550, NYSE 5,750 and Russell 490 (the latter 2 being well above the 50 dmas as I look for leadership there). I called a drop back to our midpoints in yesterday's member chat, 7 minutes after the market opened and it does not look like we will be disappointed this morning with some poor retail results, even from WMT, who shocked people with a profit warning. We already grabbed ISRG on the dip and I urge members to check out the plays laid out in last night's comments as this is a great opportunity to get in cheap!
This is going to be fun because the crappy American economy will send investors scurrying back to our crappy American currency so we can expect the dollar to pop and that will put more pressure on oil with already (ROFL) dropped 12.5% yesterday – something I mentioned may happen in the morning post. We'll see how oil handles $40 but, as I keep saying, we're going to have a very hard time sustaining any sort of rally until we get real capitulation in the energy sector (off 5% yesterday) and investors stop putting money back into it and rotate into other things.
We saw the same thing happen with the builders as it took an agonizing amount of time for the sheeple to stop trying to call a bottom and move on but those same sheeple are now into energy stocks and looking for the next bubble to blow their money on. Sadly, we have had no clear leadership for them to jump on top of and we have a parade of pundits on CNBC telling people how the smart money is parking oil in tankers and other ridiculous things to keep people invested while the big money dumps out (see "The Roach Motel Theory for Oil").
I read an article yesterday where FRO alone has 70M barrels worth of tankers rented out for storage so who knows how much oil is parked out there in addition to the 4Bn barrels of global storage (SPRs plus commercial) that we're already counting. Yesterday's 11.8M barrel BUILD in inventories and we sent 9.7M barrels of product OUT of the country last week. Imports surged by 1.6Mb per day as at least some of those tankers full of oil took the money and ran as oil ran up from $35 to $50 in the past two weeks. That inventory report only covered through 1/2 so who knows how many more barrels were dumped this week – we'll find out next Wednesday but another massive build in product will be catastrophic for those poor tanker speculators…
I said yesterday, at only half a joke, that we needed to keep up our 30% monthly gain from December's picks into the rest of 2009 to keep up with inflation but, looking at the Deficit figures for 2009, maybe that's right in line! Between the stimulus, the tax cuts, the war and existing unfunded TARP money – we are crossing the $2Tn mark for 2009 projected debt and that DOES NOT take into account the fact that tax revenues may be down considerably. That means the US needs to auction off $150Bn a month in notes and MUST find buyers. The auctions work by adding interest to the notes until the sale is filled and $150Bn a month is 3 TIMES more than we normally auction off in a mere $600Bn average Bush deficit. THIS COULD BE A PROBLEM PEOPLE! Have I mentioned I like gold lately?
Still, stocks are commodities too – there are only a limited amount of shares of ownerships in these little money making machines (well, the few that do make money) to go around and that means inflation will inflate stocks too, as well as the meager earnings they do manage to scratch out. We have our list of 38 key positions we like and we have our daily gambles but let's not be idiots and think that tucking our money away in 10-year notes at 2% is "safe." A few years of 9% inflation can chop those notes in half on you and by the time you cash you $100,000 note you may be lucky to be able to get a Prius with it. Money MUST be put to work in this market. Germany and Japan are already having trouble raising cash so it is not just us with our hands out for whatever change the global market can spare.
Asia is a mess with the Shanghai falling 2.3% and they were the stars of the day. The Hang Seng dropped 3.8% and the Nikkei gave up 3.9% (Bombay, who fell 7.25% yesterday, wisely took a holiday today). European markets are off another 1.5% this morning but the global Dow is still hanging tough at 1,555 and we can maintain hope as long as they can maintain 1,500 so we'll be watching that closely in our next Big Chart Review. As expected, the BOE cut rates to 1.5%, the lowest level since the bank was founded in 1694 so when we say these are once in a lifetime rates – we are NOT kidding! The ECB meets next week and has rates on the continent at 2.5%, already down from October's 4.25% but the markets still want MORE (or less as the case may be).
So the world banks will be lending money at 0% and borrowing money at 2%, then 3%, 4%, 6%, 8%, 10%, 14%, 18%… at which point I think we'll flip our position but, for now, we are firmly bullish on interest rates over the long term. We'll hear from Obama at 11 and we're hoping his speech on the economy firms up a floor at our mid-point so we can at least move back to a 5% test of the upside.
Jobless claims for last week were way better than expected at 467,000 (540K expected) so that's good news and we get a report on Consumer Credit at 2pm, which almost certainly grew in November by about $2Bn vs a $3.5Bn decline in October as holiday shopping trumped recession. Earnings are off to a rotten start with big misses by GAP, HELE and TXI this morning but BBBY, BLUD and RT were good last night so we have to give it some time before we draw conclusions. Volume is still very low, hopefully today we'll have some decent action and, of course, next week earnings season starts in earnest so it's going to be a wild ride.
As long as every man, woman and child on earth can scrape together 3,333 dimes for the US collection plate – everything will be fine!
Last week I entered into a SKF July110 call at $30, against a February 140 caller at $9. I now realize I have entered a long position of its’ own, rather than a hedge against my financials. Having been hit hard by an implosion of DXD options implied volatility last month, I look at all that empty premium “air” above my July 110 position, and am concerned. Could you please a suggestion or two, which makes this hedge much tighter
ATVI looks interesting
TD Ameritrade Buys Thinkorswim to Expand in Options
http://www.bloomberg.com/apps/news?pid=20601110&sid=a1AOXRsTz0kw
DRYS is insane!
ISRG, ISRG, ISRG!!!
phil: what do you recommend as a play for isrg? just buy the equity and forget it :)?
phil, does that mean buy ISRG??
Phil: with selling feb 12.5 for DRYS, there could be initial excitement now to sell a call ???
ISRG, pretty big miss on the street’s numbers. Perhaps an over reaction to the down side here though..
Owning DRYS is like drinking coke with pop rocks in your mouth. How about my call on them yesterday – to the penny!
SKF/Drum – It’s topping and we think we’re holding here but taking out of the money calls on the ultras is crazy. Your premium is $30 over 4 months and your calller is $10 over 6 weeks so what’s the point unless you are amazingly bearish on the financials? If you want to properly hedge with SKF you should go for the July $80s at $46.80 ($15 premium) as the July $110s are $34 so you only lose $12 if SKF drops 30% (15% up on XLF). You can offset that with the Feb $125s at $14 and then you are in for net $32.80 (same as the July $110s) with a $45 advantage on your caller, who you can roll down to the Apr $110s for + $14 if the financials take off (leaving you in for net $18.80 and still deep in the money) or rolled up to the Apr $160s about even, giving you a clear path to a double if the financials do tank.
ATVI/Kustomz – We did that one the other day when they were crashing, kind of hard to get excited now that they jumped 20%. TOS gets bought? Wow and just $606M, that is good for AMTD. I hope they don’t screw them up.
AMTD sounds like a smart play on this dip. Stock is at $12.65 and you can sell the Feb $12.50 puts and calls for $2.30 so net $10.20/11.35. I’d sell the puts and buy the stock and wait on selling the calls for a bit.
nav as insane as drys & not pulling back either?
Time for PUTS?
As a happy Swimmer I’m concerned about TD Ameritrade’s buyout of SWIM. Although I don’t imagine they will do anything to hurt TOS’s awesome trading platform, but I do fear commission hikes down the road. Everytime I see Sam Waterson pitching $9.95 trades as a bargain I realize how good my rates are (1-cent/share, $3 minimum) for my trading level.
Anyone use TD Ameritrade’s platform? Just in case they do do (hehe "do do" hehe) the unthinkable and fold the TOS platform in to TD Ameritrade’s, how bad would it be?
Phil:
my march 93 DIA puts are 30 % green, is some of this gain to be cashed ?
ISRG/Greg – Big discussion in last night’s post. I love them down here! We have naked sells of the current $100 puts at $4.60 for a fun play that pays off fast, naked sells of the Feb $95 puts for $8.50 as a price we’d love to own them at, a buy/write with the stock at $102 against the Feb $95 puts and calls for $23.25 for a net $78.75/$86.87, and the July $80 calls naked for $33.50, hoping to sell Feb $115s for $10 or better on the bounce and, worst case, taking $10 for the $100s (now $12.70).
SWIM I’ve got a call spread with + 5 Jan 10 5s / -2 Jan 7.5; -2 Feb 7.5. First, how mad am I that I didn’t take out my 2 Jan 7.5 callers yesterday (they went from .025–>.55, what’s a mere 2100% among friends) especially since one of SWIM appeals is that you can close shorts for .05 or less without commission? Second, there’s really nothing for me to do, right? I wait for the premium to run out of my shorts and then close ’em along with a long? At least I was naked on one LEAP. Sigh….
FSLR on a $7 15-minute pump; gonna recommend a short to 150 here …
thanks phil
Great bottom play and great call Phil but the reason Xbox is doing so well…..ATVI COD4 COD5 Guitar Hero…they should have a great Q….unless they’re using the money they make to heat the building
Cap, be careful shorting FSLR – could be an Obama friendly stock. I gave up playing FSLR roulette wheel last year, been burned too many times.
Phil/ISRG: Gotta give you a shout out on that call last night. Thanks!
GS good to buy puts for MOMO?
Ameritrade & TOS – I have had Ameritrade for years – they are OK. After their last big buy/merger with TD Waterhouse, they merged the two software platforms over months quite OK and now offer both. I suspect they are buying TOS for the software and I expect down the road they’d fold it into TD’s platform. As for comissions, I guess they’d be rationalized after a while to be same as current TD’s commissions, but not right away.
In fact, I was considering moving one of my IRA accounts to TOS but am going to pause to think it over as I don’t want to have IRA & non-IRA at same place and am concerned about starting an account at a place that just got bought over as transition may affect things adversely. May go to TradeKing instead – anyone have suggestions/opinions?
DRYS/RMM – Do you still own the stock? I hope so or you’ll be chasing. If you have the stock and the put then don’t be greedy and sell the $12.50s if they don’t pop through $15 before they break back below $14. This is a huge play for the Feb buy/write – we couldn’t have been given a better entry. The guy that took your shares yesterday did you a huge favor!
NAV/Dilbert – I wouldn’t bet against them. It would be nice to see them hit the 50 dma again, just under $25 and then they make an easy buy but $30 is very cheap for them still.
DIA/RMM – Depends if they are there for protection or just a trade. If you sold the $87 puts yesterday against them there’s no need to do anything as you’ll be collecting that cash and you sure don’t want to nerf your coverage right at our mid-point, just in case…
SWIM/Eph – Greed kills! That’s my "almost" rule about taking out callers once you gain 70% or more with 10 days to go and 85% in the last week, it only takes one shot like that to make being cautious 20 times worthwhile. Also, a caller or putter will usually hold a nickel right up to the close on expiration day so when you get the chance to buy someone out for .05 with more than 3 days to go, it’s silly not to do it. Oh well, thank goodness you have position advantage at least… There is something you can do, you can roll out to the same Aug spread which is + .60 and + 40 for your callers and + .14 for you. When the deal goes through, it’s the same net cancellation.
FSLR/Cap – Total joke of a trading vehicle, I only like to short them when they are really stressing the range as there is no end to the shenanigans on this one. $220 would be a good place to short but I would never play them long to there.
ATVI/Kustomz – I know they are doing very well because you can only get $20 off the $180 Guitar hero set after Xmas (I wrote about that when I was holiday shopping)
You’re welcome Matt – Glad I could find a long you actually like!
UYG at $5.50 – Feb $5 puts and calls at $1.65 nets $3.85/4.43.
Phil – what do you think of LINE (Linn Energy). They locked in prices last year, and the dividend is safe (for now).
http://seekingalpha.com/article/113097-double-digit-dividends-linn-energy-dow-chemicals-40-86-strategic-income-fund?source=yahoo
This is perfect so far, holding right at our levels but that’s what we would do before crashing too. It is literally all up to the President-elect in 30 minutes so he’d better have one hell of a speech prepared. We’re talking "Nothing to fear but fear itself" kind of stuff…
LINE/Pharm – I liked them at $11 but not at $15.50. Too far, too fast is all. If you feel confident in the 15% dividend (no reason not to) then you can knock them back to net $10.75/12.87, which ups the net dividend to around 20% which means you are good all the way back to $11 more or less.
47Bcf draw in gas – that’s like 100Bcf less than expected!!! Muhahaha!!! Bye bye gas, oil and coal. Now we get a real test to see if the rest of the market can detach itself from energy.
Phil: ok, the DRYS shares were taken away from me, then I sold feb 12.5 puts for 2.34$, so I am NAKED, have no DRYS shares,
with DRYS rising again, how about selling feb 12.5 for 3.4 $ ??
Phil: of course selling DRYS feb 12.5 and having no shares is very risky.
LINE – Sorry that was selling the July $15s for $4.75.
phil: new to all of this..your UYG trade..is that a buy the Feb5 puts and sell the Feb5 calls?
SWIM/Eph – …. Oh well, thank goodness you have position advantage at least… There is something you can do, you can roll out to the same Aug spread which is + .60 and + 40 for your callers and + .14 for you. When the deal goes through, it’s the same net cancellation.
Since it is a cash and stock deal, what will happen at expiration? I’d have a + 5 / -7.5 vertical. It will probably be simpler & cheaper to sell the position rather than go through a complicated assignment. Also, I might as well hold onto my naked LEAP because it will move based on the market’s assessment of the deal and since AMTD appear to get a good deal it might very well move higher, right?
Rlogan – sell calls and puts for cash in UR pocket.
Pharm – Ref Line. I hope that it is basing right here, at least that how I interpret TA. B/C of hi yields options are cheap, even with IV=60, so it is not a good candidate for CC.
DRYS/RMM – I would put a stop on the calls to sell them at $3 but why sell them if you don’t have to? You’re going to make $2.40 for free if they keep going up so why change to risk for no reason? You could take this opportunity to grab the slow moving 2010 $7.50s for $8 ($1 in premium) and then wait to cover with the Feb $15s around $3 which means you will have collected $5.50 against your $8 entry and you have a $7.50 position advantage on the caller. You won’t need to own any stock unless it’s put to you but $5.50 is a lot of cushion since the 2010 $15s are still $5.50 so you are looking at losing $2.50 on the leaps on a $7.50 drop and having the stock put to you for $12.50 and then you can sell a ton of $7.50 calls to cover all that – not terrible.
UYG/Rl – No, it’s buy the stock at $5.50 and sell the Feb $5 puts and sell the Feb $5 calls. See "How to Buy Stocks for a 15-20% Discount"
Excellent looking move off our levels on low nat gas demand. Would still like to see conglomerates get it in gear but the retail numbers are freaking out PG, KFT et al.
SWIM/Eph – Check with your broker but I believe you will get cashed out since you do not have the right to get the stock. Yes it is simpler to just take the money and be done with it of course…
Phil my man: I stick to my MAKED position on DRYS with only the puts,
just got the UYG hedged stock position, RoR is 31 %.
Phil: did you comment on my PART 2 of my 2008 review yesterday ? I still had questions.
Bro – thx. I see a few gaps that it filled going back in the 6 mo charts. ~ $15 is a floor from back in Oct, and if it breaks it, back to 11 or so we go. I will ease into it, and sell some puts along the way hoping for an upside move.
phil, your thoughts on wmt here? should i wait for some downgrades before initiating a new position?
Phil/GLD–
I have the JAN10 $80 calls (I’m up 37%)… Looking at selling front month against them? Any suggestions?
Like the US the UK has recovered from the lows. -0.5% with 15 mins left. I’m again amazed that people are shruging off the data especially with the job data tomorrow. Why buy ahead of that nightmare ? I’m still bearish I’m afraid, look at the retail woes for december , that surely will feed through to more job losses and the like. Worse to come methinks !
Barack’s at GMU today. Bout 30 mins from my house. Of course, his new house is alot closer to me at just 10 mins. 🙂
Really curious what he says about stemming foreclosures.. I REALLY hope he doesnt’ reward the risk takers. Cept for those they already have (banks, builders). Btw, his proposal for allowing taking current/future losses against previous profits is hitting big headwinds.
phil, i like axp as a company but they look like a good short here. can buy feb 20 puts for 2$ and sell jan 20 puts for a $1 to reduce the basis. should provide good downside protection?
TM I’ve got 65 callers so I’d like a little slippage in the next week, but the stock just keeps on truckin’
GLD/texas One of the nice thing about GLD is that with $1 strikes it’s easy to adjust. Which to sell depends on yoru short term opinion on gold, but the Jan 87s for $1.10 can’t be that bad. It gives you almost a 3% cushion for 8 trading days and you still earn over $100 per contract.
Part 2/RMM – I told you weekend was better. You can try to remind me tonight – I’m listening to my Commander in Chief right now!
WMT/Jo – Numbers were not that bad, certainly not 10% off bad! You got a 10% discount and now we can buy at $51.70 and selll Feb $50 puts and calls for $6.10 for a net $45.60/47.80 so almost 20% off yesterday if put to you – were their earnings that bad?
GLD/Texas – Nice run this morning but I strongly object to the 2010 $80s so I’d rather if you spent $5.40 to roll to the 2010 $70s (improving your position by $10 and cutting your premium by $5) and then you can sell the Feb $89s for $3 with no worries. Our worry on gold is there could be a financial event that shoots it up $100 overnight so you want to give your callers a wide berth and, at $3 a month, you’re selling into a 50% gain plus whatever you end up with on the leap.
DB – I am afraid that you are still bearish too! It’s all relative. The market is priced for nuclear war and all we have is a recession…
AXP/Jo – How low do you think they will go? I think $17.50 is a firm bottom but they probably won’t break over $21 by expiration so not a bad spread if you feel bearish on them.
Not enough big promises from Obama to keep us positive so far.
GLD/Texas If you’ve got the money, you might want to roll your calls from Jan 10 80s –> Jan 11 70s. It’s cost you just over $10, but you pick up a $10 in strikes and a whole year of time. It’ll make the adjustments easy if GLD drops down into the mid-70s.
Phil
In your opening comments today you said "We already grabbed ISRG on the dip and I urge members to check out the plays laid out in last night’s comments as this is a great opportunity to get in cheap!" I cannot find your comments for last night please help thank you
Thats it 🙁
GLD whoops, I have the 2010 70s….Phil should I take my own advice to Texas and roll out a year for < $6?
ISRG/Bill It took me a while also to find Phil’s comments…they are in yesterday’s comment section, starting about 4:15 and going forward, he’s makes several different comments.
I thought they had a fireworks show lined up after the speech.
GOOG resistance 320 but its been bought up all morning if this bad boy can break above 320 and hold we may go green today….900 on the S&P scary line