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!
Phil/GLD-
You suggested the Jan2010 $80s on 12/5 😉
I took out my $79 callers yesterday for a profit.
I’m readjusting the position now.
Thanks guys
Phil: with 8 days to OPEX, I am looking at callers/putters of the hedged positions, the ones which need to make more $ to get back into the GREEN,
the question is: is it time to roll to FEB calls and puts?, some shorts are ITM, some have some premium left,
1) GE, have jan 17.5 callers and putters, roll to feb 17.5 call and feb 16 put ? assignment potential
2) JPM, have jan 30 caller and putters, roll to feb 30 call and feb 27 put ?? assignment potential
3) BTU, have jan 25 caller and putter, roll to feb 25 call and feb 25 put ??
Eph & TX – Ref GLD tactics. Theta for Jan’10 and Jan’11 are similar, so rolling to Jan’11 gives you perception of additional time to collect premium. I mean perception b/c probably this roll will not disappear. Phil’s suggestion to roll down yourself provides you delta advantage, so in the event of dip you don’t have to sell on margin. I would roll myself down, but very frequently I am dead wrong.
RMM/ITM callers For callers deep ITM you can look at the daily decay rates of your current position vs what you’d roll to. I had to make two trades today. I had 2 VLO Jan 20 callers. With the stock at $24.15 and the callers at $4.30 they had .15 in premium or less than .02 day. I spent $170 (.83 per contract) to move them to the Feb 22s at $3.73. Those callers have .04/day in premium so I doubled their decay rate and still am protected by being ITM. The other trade was WFMI. I had had Jan 9 callers, since I was only 1/2 covered to begin with, I did a 2X roll to the Feb 11s for a slight credit. More importantly their premium went from < .01/day to >.03/day.
TM/Eph – easy to roll up though.. They are very strong considering Japan slippage today.
ISRG/Bill – Well I summarized plays above at 10:04 and last night the discussion on ISRG started at 4:20 and kept going through 5 am this morning.
Oops – that is it from Obama. He’s too much into the tough love thing. We need a "shining city on the hill" kind of speech or a "morning in America" thing with snappy phrases, NOT THE TRUTH – ANYTHING BUT THE TRUTH!!!
Still, as an investing citizen I am happy with it and feel like the situation is being dealt with so I can continue to be bottomish but I have no immediate need to be bullish. It would be great if we could flatline here until next week and then rally up on some BTE earnings and perhaps BTE Retail Sales next Weds and a nice PPI Thurs and CPI Friday ahead of the holiday weekend (ML King) and the inauguration the following Tues. Basically, if you read back through the last 2 weeks, this is almost exactly the action we expected so it’s silly to complain about it now that it’s here…
GLD/Eph – No, actually you have a better upside delta where you are so, if anything, you can roll down but the $70s are just fine to take good advantage of a run-up. You can always roll back a year and you will go all in the money faster than 2011 no matter what so you can always roll there. A good example is look at the $50s for the two years – just a $2.50 difference, that’s $3.50 you’d be throwing away to the upside. The reason you would want to go to 2011 is to protect yourself from a drop – since we are getting well paid for the front months and we are firmly bullish on gold,
ISRG comments – For future reference the search box at the top now searches comments as well as articles and when you put in ISRG you will be able to quickly see the first article with comments and, even after you open the post, all tags of ISRG are highlighted in yellow.
GOOG – Very disappointing action on the $320 puts, up just $1 from our entry and the $330 calls are down $2.60 so not good so far. I’m inclined to take $11 for the puts if it’s offered again (it was this morning) and then chance the naked calls through tomorrow, hoping to luck out on Payroll and get a rally.
Can’t blame energy for our weakness, they are flattish. Miners too and even retail is recovering a little. Another slow day with a total lack of buying interest so far.
Oh my gosh, Kudlow made a good point: "You can’t sell $2Tn worth of notes and bonds if you are going to let your currency go to hell in a handbasket." Santelli also good saying that if all the currencies suck then we can only compete on who offers the most interest – very very true…
Gold/Texas – On 12/5 we saw it as having a possible downside so we didn’t want to be too in the money. Now it’s about $3Tn in money creation later so we’re not so worried. It’s always about the risk/reward of the positon, the $80s were speculative back then but had a good risk/reward profile. You’re up 37% and the $70s are up 50% over the same time but the difference is that you were able to stomach the drip to $741 whereas if you were in the $70s you would have been far more inclined to stop out or cover and, now that we are at $840, either one of those would have sucked….
I keep saying that option investing is very much like playing chess – you need to think 3 moves ahead at least and you need to give equal weight to what you will do if the stock goes up or down 2 brackets on you and have a plan for whatever happens. On a larger scale – you also need to be realistic about how many moves you can make in a short time period. That’s why we like index covers – you can cover and uncover many positions at once rather than having to quickly try to put in a dozen trades on a big market move.
Rolling/RMM – It always depends on our targets for the stocks and where we are currently and how much premium they have left and what we think the VIX will do next week. We got a nice VIX bump and we think we’re bottomy so it may be a good time to roll the callers but maybe not the puts just yet. GE is way under and we’re bullish so pay the dime and ditch the caller and let’s see how the day goes. Ideally you’d like to roll to the Feb $17s but no way do you take less than $1.30 on the call side (now .85). JPM why not save the headache and just go with the $28s? They were $30 yesterday morning so I’d put a stop on the $30s at .50 and wait it out. BTU – They still have 70% premium, why on earth would you pay 70% premium with a week to go? Also what Eph said! 😎
Eph & TX – Ref GLD tactics. Theta for Jan’10 and Jan’11 are similar, so rolling to Jan’11 gives you perception of additional time to collect premium. I mean perception b/c probably this roll will not disappear.
Most excellent observation, Bronek!
Assuming I want to keep the trade on, is there a general rule when I should roll out my LEAPs? Should I roll it with 6 months to go so it still has some good premiums, or wait until expiration so I have a better idea of what the underlying will do. Anyone? Anyone? Bueller?
ephmen85: good comment , txs, where do you see these decay rates or you just calculate by takiing the premium and divide by the days left ?
About AAPL:
xkcd.com/527/
🙂
RMM
The decay rate is the Theta value.
About AAPL:
xkcd.com/527/
🙂
That’s why we like index covers – you can cover and uncover many positions at once rather than having to quickly try to put in a dozen trades on a big market move.
DXD/DIA I’ve had DXDs for protection for a while and have made good money with the spreads, but my current callers expire, I’m going to cash out my long call and move the proceeds into DIA puts. With $1 spreads and much greater volume DIAs are much simpler to manage.
HOV sneaking up another 10%. AAPL hanging tough, SHLD with a 20% move! VLO up 3%, FCX and RTP both coming off the bottoms but not too strong.
Rolling/Eph – It would be an always roll into the initial excitement kind of thing. The best time to roll is when your shorter time-frame gains outpace the leaps you want to roll to. That happens on a big run and the trick is to always have a target roll and write down or remember the amount every day. As I pointed out, the ultra-deep in the money $50s cost $2.50 for a roll so that’s your "best case" and $6 is the current cost so at around $4, you have to say you’ve got a pretty good deal as it can only possibly get $1.50 better than that. That means you can put in for $4 right now and consider yourself lucky if you happen to get it on some kind of spike and, otherwise, it serves as a watch list for you too keep tabs on the ebb and flow of the cost of the roll.
ISRG broke $110! I love earnings season, the after hours traders are such idiots!
Phl,
I know that you have been talking about gold alot lately? If I want to start a position to be positioned for a disaster, Which one would you go after as of now?
phil, any thoughts on BIDU?
DXD/Eph – Oh we’ve been off those for a while. They were only fun when the premium for selling the front-month covers was so extreme but, with the lower VIX, the chance of getting blown out by your callers too high for what you get paid.
GLD/Emo – the one I highlighted for Texas at 11:27 is the best current entry. The idea is to pay off the leap by the end of the year and hopefully be able to keep pushing the caller further up the ladder as gold rises. The closer we get to a free ride, the less % covers we will have to sell and the better our protection becomes.
BIDU/Greg – They are a crazy stock with no reason for their moves in general. At this point, I’d wait for another test around $105 and then sell puts or enter hedged.
ephmen,
Just curious, What trading level does one need to get those comission rates with TOS? Who do you talk to at TOS? Tnx.
Here comes GOOG 320 lets see if the S&P can take back 910
NFLX doing a good job with partnerships. Might be for movies what ITunes is for music but I wouldn’t take them here because AAPL or GOOG will probably take them on at some point.
FXI Feb $25s are cheap at $4.75 with a $1.25 premium. The $27s are $3.45 so you can stop out with a $1.50 loss on a contract that was $7.50 on Tuesday. I also like owning China down here long-term with the ETF at $28.57 and the Feb $27 puts and calls selling for $5.35 for net $20.22/23.61.
Phil: CHK hedged stock;
want to roll jan 15 caller/putter to feb 17.5, makes sense to you ??
National Debt is $10.6Tn now and we’re looking at $2Tn next year (at least) and $1.2Tn planned for 2010 plus the second $400Bn of Obama’s stimulus so we’re talking $14.2Tn in debt by the end of 2010. We’re paying $450Bn in interest now so we’re looking at well over $600Bn in interest at today’s ridiculously low levels but if the governemnt has to start paying 8% for debt then we are up to $1.2Tn a year in interest alone. There is no possible end game for this other than A) Raising Taxes AND Cutting Spending by over $1Tn per year (probable $1.5Tn) or B) Hyperinflation that brings tax collections up by at least $3Tn that allows us to service our debt and pay down the loans. That’s going to require a doubling of GDP so we’re looking at 7 years at 10% but we don’t have that long so more likely we have 7% inflation next year and then 12% followed by something like 18% or whatever can be withstood without breaking. That’s the quick premise on gold…
CHK/RMM – I’d stand pat after that inventory report. You should have taken out the puts too!
Phil – Ref GLD. Eventually you might be right. Now, b/c of the low oil price and lousy economy some governments (Russia and others) are forced to dump Au to the market. For a time being I am selling naked puts and collecting cash for buying outright GLD later when oil price start rising. So far (3 mths) it seems to be working.
Sooner or later Governments will need to sell some of their gold reserves, that will put downward pressure on gold.
regarding inflation: is TIP a good play if looking at something beside gold (GLD)?
Phil:
SNWRA hedged stock: great position, bought stock at 20.7$,
jan 35 caller is deep ITM but has 89 cents premium left to burn,
jan 30 putter has 30 cents premium left to expire,
now, i am exploring this now as the stock is way up to over 40$,
LOOKS to me, after burning more premium, plan to roll to feb 35 for over 11$, what do you think ?
Phil: standing pat on CHK means what: doing nothing, I have closed the put.
TOS/TC I’m not sure what kind of trading levels they require, but they are very flexible. Their basic policy is to match any other company (except IB I believe) and then they do better than that for active traders. They can can also tailor your commission schedule to the kind of trading you do. For example I do a lot of 1, 2 lot option trades so a low per contract fee if very important. I think I went from 2.95 –> 1.50 –> 1.25 –>1.00. If your normal option trade is 20 lots, you might not mind paying a ticket fee + commission. So maybe you can to negotiate something like $10 + .80/contract or something like that. Scott Sheridan makes all those decisions. Email him at Scott@thinkorswim.com Just don’t use my name because I’m trading less since my account is smaller and I don’t want to lose my commissions. 🙂
Good call by me on FSLR, no ?
Just an intraday chart read; shorting the Obama pump job w/ a few hundred shares.
Out now.
Phil – FSLR is a total joke. Recognize it for what it is as a trading vehicle; definitely scalpable.
TOS/SWIM – Oh well, I have account with both and told TDAmeritrade to improve their trading platform and they didn’t. Now it’s a smart move to buy TOS. Well, less competition may not be good for us. I hope TDA doesn’t buy OpXpress too. If so, all my eggs would be in the TDA basket!
cap, another great trading vehicle is uaua
Phil: PFE hedged stock, bought at 16.2$,
jan 16 callers and putters have very little premium left so tthey can be taken out and rolled to FEB 17.5, is tha ok ?
RMM – less risky; close your Feb 12.50 puts at a profit. Sell the Jan … either 12.50 or 10’s that expire in 6 trading days.
Then, depending on what transpires, decide about Feb. Too far away (5+ weeks) to carry those naked IMO.
DRYS could easily be $10 by end of next week. Or 12.50. Or 15. or who knows ?
ISRG; nice recovery.
Boy, I played this wrong. Should have just bought shares sub 100 and held.
Instead, sold Jan 95 and 90 puts. Will likely make a few bucks, but the stock trade would have been better.
Phil
You were dead right on your ISRG analysis. Margins are slim on robots but make it up on supplies. Much like the inkjet printer market. What a come back to 112.
GLD/Bro – That’s a good way to wait also but you may miss out on a huge pop. I’m using GLD also to guard agains the possibility of a Ruble collapse or a big bank going under that can shoot us to $1,000 very fast. Even if I sold the Jan $75 calls, now $9.10 and gold ran up $100 on me, I could still roll them to March $83s at $6.25 so that’s spending $3 to gain $8 in position if it runs away. That means with a deep leap I’m capturing about 70% of the gains on a big run. Figure at +2 months per $80 in gold I can roll the caller up to $120s before I seriously have to reposition but, by then, they 2010 $70s are $50 in the money and I can do a 2x roll to the 2011 $110s and roll the caller up to 2x $130s with another year to roll so we can keep playing the upside gain to $2,000 as long as it doesn’t jump more than $200 a month.
Government gold/Kustomz – CBs are selling gold now to hide the fact that there is a distate for currencies. They need to keep metals unattractive or no one is going to buy $150Bn worth of Treasury notes at an auction. If I didn’t think gold was going to take a while to get going I wouldn’t fully cover now but it’s the sudden event we need to fear.
Bid to cover on our 10-year auction today was 2.5 to 1 so huge demand for our crappy paper continues!
TIP/Rl – Those are kind of a joke as they do not adequately account for real inflation.
SPWRA/RMM – Are you up more than 85% on your putter? Then you should have a stop at like .40 on him. With oil down I’d be looking at the $35s next month – also, you have huge gains to protect anyway. On CHK, yes, doing nothing as gas inventory was horrible for them and we could get a sector dump before the week is done. They have been trying all day to push oil up but there is relentless barrel dumping into any up move at the NYMEX.
FSLR/Cap – Great for the smash and grab play but not much else.
PFE/RMM – On that one it’s a good roll as there is no premium at all. You could, of course, pick up the current $17.50 puts and calls and grab an extra .80 through next week, no small potatoes since the $17.50s for next month are only about twice that.
DRYS/Cap – good targeting! 😎
Cap & ISRG: Another unhappy winner! 🙂 I get that feeling all the time.
Any site similar to briefing that has european / asian / russian unemployment charts / national stats data
Phil;
VLO hedged stock, bought at 17.5$,
my jan 15 caller is very deep ITM, the putter is zero valus,
now, is a roll of the caller to jan still worth the 50 cents premium to burn or do a roll right away to feb 25 call and maybe feb 20 to 22 put ???
Phil,
USO keeps leaking. 🙂
Do you think we can get below $25 before expiration day?
With aks moving so well do you see a play with Obams stimus package
Market trying to break to upside
cap: your 1:48, what are you referring to ?
EMOtrader … USO …. I doubt it (and hope not).
I had sold Jan 25 and 23 puts on USO. Just sold Feb 23’s also. I’ll own USO down there baby !
Phil – ref rubble. There is a believe that Russia has highest Au reserves in the world, so rubble collapse can be controlled by their gov and may be allowed to provide them a way to a cheaper way to pay down their debts. They have less debt than we, oil price are projected to rise to >$70 before the end of ’09, so I am willing to take a chance that gold will not gap up anytime soon. But, you are right stating that you are limiting a risk of financial blow-up.
Phil: hedge stock WFT, bought at 17.49$ but now net a gain,
callers and putters could milk jan premium at strike 12.5 and then roll to feb 12.5 , ok ?
International Stats/Thataway – If not that would be an excellent web site to start.
Finally we have an up move that GOOG is agreeing with – this is key now as the big guns are coming out.
VLO/RMM – If you want to spend money to stay in VLO then I’d do the Jan roll first to the $22.50 puts and calls ($1 premium) before rolling to the Feb $24s for $4 more in premium but there’s also merit to just taking the cash on some and letting it go as it’s going to cost you $4 just to roll them up $9, Dividend is just 2.5% so you can also blow that off and roll to 2x the 2011 $15s at $12 and roll caller to 2x the Feb $23s at $3 so that costs you $3 to give you caller $4 in premium (same as if you are selling $24 puts and calls) with no risk of having more put to you and 2x more premium to sell to the upside for 2 years.
USO/Emo – I think $40 will be fiercely defended ($31 on USO) and I kind of doubt we see $35 again with all this stimulation floating around. Someone needs to remind me later because I have a plan to get into USO here and fund all of our fuel consumption for life!
AKS/Bill – I forget why but they fell out of favor for me and I decided X would be a better surivor. X is certainly lots of fun to play and hasn’t made a big move yet but either one makes for a nice hedged entry with AKS at $12.96, selling Feb $12.50 puts and calls for $2.45 (net $10.50/11.50) or X at $37.91, selling Feb $35 puts and calls at $9.55 for net $28.36/31.68. Ah, well there you go – better discount for X…
WFT/RMM – I think last we looked at it you were screwed and trying to salvage it. If you salvaged it then why not get out? If you are sticking with it then of course let them expire, they are right on target now.
We’re just happy to hold our levels today (as long as we hold them tomorrow!).
Phil: SNDK hedged stock bought at 18.18 but am only down by4 % now,
on caller side could milk jan 12.5 premium, but overall plan to roll to feb 12, OK ??
RMM – DRYS
DRYS definitely on Crack now. Up something like 60% this week.