If you are a free article reader or basic member and you ever wondered if it's worth subscribing to our premium service I would humbly (well not so humbly) submit to you our list of Friday's featured trades.
In our member section, we discuss dozens of trade ideas every day but the ones I pick as generally recommended are set in bold type against my normal blue background so they are easily and quickly identifiable. This system will be the backbone of the alert system we are finally rolling out in March but the fact is that NOTHING will get you information faster than being on-line live during a trading day and hearing a trade idea the moment I type it, especially for our momentum or day trades. The advantage of hearing a trade idea in context of the conversation we have regarding the markets is something that can never be replicated by a text alert sent to your mobile phone or Email 5 minutes after the fact – yet that seems to be the backbone of most services out there…
To make good calls on the market you have to have a premise and my premise all week was that we may test 8.000 or even lower but we would not stay there because the situation is fundamentally different than it was in October or November, when we fell to lows on fear and uncertainty. There is still plenty of both in the market but there is also money – $8,000,000,000,000 worth of it that has been pumped into the market either through direct bailouts or indirect loan guarantees, rate adjustments etc. that the Fed and the Treasury have been able to push through. $8Tn is a LOT of money – it's enough money to make 8M people millionaires. That's right, our government has spent enough money bailing out the banks to have given 8% of all US households $1M cash – for bears to get on TV and tell you that this will not make a difference in the economy is simply ridiculous. For analysts to get on TV and tell you that it isn't going to be inflationary is also ridiculous, which is why we've been buying gold for a month!
I said in the morning, as we looked to open down almost 200 points pre-market: "While it is very tempting to panic today, let’s keep in perspective that, as of yesterday’s close, we have generally fallen just 5% for the month." Our members know we don't follow many rules but the 5% rule is one of our biggies. Having the 5% rule for the month conicide with a 50% line off the market top simply screams bounce to us. We're not calling for any major rallies, but we do think this is a nice, investable bottom that we can make hedged entries into.
At the bottom of the morning post, I mentioned that I liked GE at $12.60, selling March $12.50 puts and calls for $2.80 to lower the net entry to $9.80. If that is called away at $12.50, the profit is 27% on March 20th, less than 60 days away. If the stock finishes under $12.50 on that date, a second round is put to you at $12.50 and your average basis becomes $11.15, an 11.5% discount off our $12.60 entry. That is effectively our margin of safety on this trade so, as long as GE stays over $11, we're fine just holding it and, of course, there is the $1.24 dividend, which the company reaffirmed Friday.
That was before the bell. Once the market gets going, as I mentioned, we discuss many trades and several trade ideas that I think are especially good are featured, I'll summarize Friday's activity as follows (note that our goal in any day trade is to make 20%):
- 9:46 – SSO $18s at $4, now $4.80, topped out at $5 (see 1:49 comment).
- 9:54 – DRYS at $9.44, now $10.70, topped out at $11.40. Also picked the sale of the March $7.50 puts naked at $1.45, now $1.10.
- 9:57 – QLD at $24.50, now $25.13. Picked $21s at $4.45, now $4.90. My comment on this trade was "looking for $5.25+ (would take about a $1 move up and won’t happen today most likely)."
- 10:00 – WFR, selling naked $12.50 puts for $1.65, now .75.
The reason we sell naked puts into a drop is because it gives us an additional discount as an initial entry to a stock we like. WFR was trading at $12.50 at the time so the net entry would have been $10.85 if we got "stuck" with it. As it is, when you make 50% profit the first day of a trade there's really no point in waiting a month hoping to make another 50% is there?
So I was a little bullish in the morning post but the bounce off the -2.5% levels at the open made me feel good and, since those levels were easy to keep our eye on, I was happy to do some quick bargain hunting. These are, of course, quick ideas but we also have our core list of over 40 stocks that we buy whenever the market gives us a good discount and I'll be reviewing that list for members over the course of next week as well.
- 10:03 – LVS at $5.50, now 5.96, topped out at $6.20. For options we look to make 20% in a day, on stocks, not taking a 5% one-day profit used to be considered greedy but, in these crazy markets, it's no crime to hold out for 10% on a day's move as long as the momentum is with you.
- 10:16 – CAT $34 puts sold naked for $1.83, now $2.11. Well they can't all be winners! CAT finished at $35.66 and we did discuss the fall back of rolling to the May $25 puts, now $1.33, if we have to but the bottom line is we WANT to own CAT so we will not likely shirk if we have it put to us near our target.
- 10:16 – SKF, selling $220s for $20, now $14.35.
- 10:46 – I said "NYSE went below the 50% off line – that is life and death for today (5,194)." That's not a trade but NYSE finished at 5,195 so I'm pretty proud of that!
- At about 10:45 the market took off and went up fast. I am not a chaser so I did not have any more highlighted trades until 12:06, when the market had pulled back from 8,056 at 11:21 to 7,995, where I was happy with the way we held up on the dip.
- 12:06 – YRCW at $3.50, now 3.53. Topped out at $3.71 but I love this as a long-term hold (or at least until we can get $5).
- 12:06 – TM hedged entry at $61.50, now $62.58, sold March $60 puts and calls for $11.65 for a net $49.85 entry with a 20% profit if called away in 60 days or having the stock put to you at average $54.93, a 10.6% discount off our entry price.
- 12:40 – XLV (repick from last week). Hedged entry at $25.80, now $26.08, selling March $24 puts and calls for $3.25 to net $22.55/23.28 on the entry.
- 12:40 – SLW at $6.89, now $6.84, hedged entry selling Feb $7.50 puts and calls for $1.65 for a net $5.24/6.37. That was our most bullish spread of the day.
- 1:01 – CCJ at $16.94, now $16.82, hedged entry selling March $15 puts and calls for $4.20 to net $12.74/13.87.
- 1:35 – Bold comment to members: "Again, please keep perspective that 8,066 was the LOW we were watching so getting back to there is NOT a rally. 8,217 is the 5% rule off 8,650 and that is the only number that would be considered bullish at the close." The Dow finished at 8,077.
- 1:45 – Bold comment to members: "QLD is rockin’ – $21s hit goal for the day so DO NOT let it blow your $1 gain if you day traded that one."
- 1:49 – Bold comment to members: "SSO $18s up 20% on the day – another one not to let go below. I’d say take $5 and run as you sure don’t want to hold it into the weekend if it turns down so effectively you would be forced to sell on the turn and you could get screwed out of 1/3 of the gains real fast."
- 1:49 – Bold comment to members: "DRYS faded at $11.50 so now would be a good time to cover if you didn’t."
- 2:01 – Bold comment to members: "Hit goal on NYSE (5,194 that I mentioned at 10:46) so be careful here, we shouldn’t have much tolerance for blowing it now. That would be 8,066 on the Dow and 830 on the S&P and 1,475 on the Nas and 440 on the RUT." I missed the NYSE by 1, Dow by 11, S&P finished at 831, the Nas finised at 1,477 and the RUT hit 444.
- 2:01 – F at $1.85, now $1.82. This is the only auto play we like – F below $2…
- 2:01 – GE. As it was bold it is worth mentioning that I was off on a rant about how ridiculous it was that the stock was below $12.50 but it did finish at $12.03… It is ridiculous.
- 2:21 – Bold general comment to members: "That was a real relief, now is the time to balance more towards neutral (if you were taking bullish plays at the bottom) into the weekend. The DIA Apr $83 puts I discussed with RMM earlier are a good way to cover, now $7.28 and the Feb $80 puts can be sold against for $3.05. If we do head down, the Feb $80 puts can roll to the March $75 puts and you are $8 in the money on your net $4.13 entrry."
That was 15 "alerts" for the day. We covered back up into the weekend and the market did fall about 100 points from 2:21 but then had a "stick save" close so we'll see what's real next week. We did have one last bold trade idea at 3:52 when I said "GE/Jo – Wow the March $10 puts are .82! That’s a SELLSELLSELL!!!" – In other words, selling the March $10 puts naked for .82, now .83 – the same logic as our earlier GE entry.
It was a pretty active day for making calls but we take advantage of what the market offers us. On Tuesday we had 10 calls including: USO at $28.50, now $32.33, 9:45 momentum trades on ultra-short SDS, QID and DXD, BK at $16.69, now $23.88, UYG at $3.20, now $3.18 (but we hedged to 2.35), USO again at 11, QLD hedged to $21.93 (the high it would be put to you at) now $25.13, UWM hedged to $13.62, now $15.90 and FXI hedged to $21.58, now 24.50.
Wednesday was a flat day with 9 bold plays and we hedged V to $37.25, now $44.32, FAS was just a day trade at $8.57, now $9.01 but hit $10 at the end of Wednesday, VZ hedged entry was at $28.65, now $30.44, YRCW at $3.47 (now $3.53), HOV at $1.62 (now $1.64), F at $2.04 (now $1.80), AAPL was a complex pre-earnings spread that's on target at the moment, USB puts were sold for a net $10.70 entry, now $14.64 and WMT March $45 puts were sold for $1.85 (now $1.81).
Thursday I called for bottom fishing our buy list into the sell-off and there were 8 additional bold calls. GE was hedged to $11.23 ahead of earnings, AAPL Apr $80 puts were rolled to $85 puts for $2 on the run up – that spread is now $2.13 – not much but every bit helps. DDM $24s at $3.85 (now $4.05), TIE at $6.75 (now $7.12) – several plays were made on this as it hit our buy spot, BAC spread that pays big above $6, now $6.17, DRYS hedged at $7.84 for March (now $10.70). After hours on GOOG beat I mentioned the Qs at $28.80 but we killed that even on Friday, happy to get out.
So that's 42 bold featured calls in 4 trading days. I know many premium services where that would be a whole year's worth and I don't know of any others at all who can get through a choppy week like this one with just 7 of those trades even a penny in the red (over 80% correct calls). By having a variety of calls and solid hedging strategies, we do not have hundreds of people stampeding into the same positions like other services and, of course, the focus of our daily discussions is strategy and position management – I simply try to point out what I see as good looking trades as they come up but the vast majority of our trades are basic hedged entries and spreads that do not have to be day traded – it's just that the day and momentum trades, by nature, demand more day-to-day attention as opposed to, for example, BA, which we last hedged at $42.43 and is right on target for February expiration or CEG, which is right on target with our Feb $25 sales or the other stocks from our Buy List (sorry – members only!), which are in their second month of generally good behavior.
We are never short of good ideas at PSW and, in addition to my trade ideas, Peter D (who specializes in strangles and other fairly conservative strategies) and other members contribute great ideas on a regular basis. I subscribe to and have subscribed to many, many services and there is no group anywhere that compares to the gang at PSW. I have said in the past I'm just a captain setting the general direction of the ship with my daily overview and calls but there are layers upon layers of good things going on below deck and, if you are one of the over 5,000 people who read my daily columns but don't subscribe – why not give us a try? We even have a free sample memberhsip where you can read delayed content to get a really good idea of what goes on behind the curtain!
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