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Monday, February 6, 2023


Weekly Wrap-Up

Worst January EVER!

What a way to start the year!  I've decided to delve into the bear case this weekend to see if I can talk myself out of thinking we've suffered enough at the 8,000 line.  I'll be posting as I read in a Weekend Reading section but I thought it would be a good idea to first review what worked and what did not work in a choppy week

After a solid and active week of picks last week,  we went into this week with a much more cautious attitude.  Monday morning I warned that the VIX would fall and it was time to start grabbing those March premiums.  The VIX did drop 20% (and spiked all the way to 34 on Wednesday) but recovered nicely into Friday, which is why I was up all night Thursday working on our Buy List, as it was once again a good time to enter some hedged plays.  But on Monday Morning, I was in no mood to buy anything and my comment that morning was: "XOM and CVX together on Friday (15% of the Dow weighting) have me really, really, REALLY worried that we’ll get a -5% GDP along with poor earnings from them and people are going to act like the world is ending so it’s going to be a tricky play this week but lots of fun playing the ultras."

In the end, XOM and CVX did not kill us but the 33% decline in XOM profits didn't inspire a lot of confidence in the XLE, which fell 6% from Wednesday's silly high and finished at the low for the week.  The bottom-line takeaway from XOM's report is that revenues are way off and even the best companies are getting hit very hard – what chance do the little guys have?  I pointed out on Monday that January is supposed to be THE BEST month of the year for the markets – let's hope not!  Of course I mentioned gold again, stating: "investors look for REAL safety as opposed to the very imaginary safety of fiat currency, no matter what country is issuing the paper" and the January chart really emphasises why I do, indeed, like gold.

Rolling CAT puts we sold to the March $30 puts at $2 is not helping so far as CAT fell another 10% this week but it sure beats staying in the Feb $34 puts, now $3.62.  I said I still like them at a sub-$30 hedged entry and I stand by that but $30 barely stood up on Friday morning as they spiked down to that line at a pretty alarming rate.  My other pick in the morning post was to short XOM at $80 and we went with a couple of long put plays that were later hedged with the Feb $75 puts which we uncovered on Friday's little XOM rally and I'm almost regretting not reselling them into the close as it may have been greedy. 

The stupidest play of the week was discussing in detail the glut of shipping capacity in a slumping economy on Monday morning and not connecting the dots to short our beloved DRYS, which would have made us very happy (instead we went back in on the long side as they crashed).  In member chat we went with MCD (good call), HOV (bad, then good, then bad), XHB (fell to our $10 hedge but I like them more now), XOM puts (nice, hit them right at the top) early in the morning but, by 11:19, I didn't like the market and said to members: "Not good now, we seem to have topped out so lets see how much we give now.  Good time to cover up a bit more or take out put covers from Friday and let the long puts ride."  That was a very fortunate call as we tanked into the close and we quickly found someone to buy SKF puts (remember we said the ultras would be fun) ahead of a 10% jump for a nice day-trade.  We used the $125 puts and, even though we were done with them the same day, the target held just right on the drop this week.

You're welcome!Our foray into Indian banking couldn't have come at a better time as IBN is now miles above our $11 hedged entry (thanks M2!).  We had great advance information for the week from CAT when I noted at 12:14 that "CAT said coal demand held up well relative to steel, copper and oil, which were all way off.  Gold miners were also a help for them."  This is the kind of stuff we need to pay attention to during a conference call – clues to the bigger picture…  Gosh only 12:14 – Monday was a busy day!  We shorted oil, following Eric Bolling who dumped half his position at 12:26 leading us to go with the USO $37 puts at 12:28, just at the top of their 10% dip so thanks Eric on that one.  We also used that opportunity to roll up our long index puts based on my premise that the energy sector would drag us down.

After that there were no more featured trades until 2:20, when I called for selling the X March $25 puts for $2.55 ahead of a 15% run in X that made for a quick 50% profit.  The March $25 puts are now back to $1.73 but I'm liking selling the Feb $30 puts for $2.50 on Monday if we open in a good mood.  At 3:01 I found a 30% discount on AFL, where the selling seemed overdone and that hedged entry of $11.70/14.60 seems pretty safe as they zoomed up from that level (and we only need $17.50 to make 50%).  We also had a good plan on WYE, working into a nice hedged entry and selling naked AXP puts into the earnings was an instant winner as the last trade of the day. 

All in all, it was a pretty good Monday.  We have a new system we are trying out where non-members can sign up for a FREE sample membership and will be able to view comments that are 7-30 days old so the above comments and plays should be available in their entirety on Monday so you can see them in context of the day's activity.  It's a great way to see if our style of trading is for you and it also gives you access to our daily general posts via Email alerts with just a 24-hour delay.  This is an experiment so please sign up and let us know it's worth the effort to maintain this section.

Tuesday morning it was earnings, earnings, earnings (or lack thereof) and we expected a choppy day.  I reiterated that, no matter what happened during the week that "I’m still very, very, VERY worried about Friday (see yesterday’s post) and I’ll be very worried about today if we can’t take out yesterday’s highs," which we barely did mid-day.  Despite that, ahead of the bell in member chat I noted that BTU was BTE and we had a great hedged entry plan on that one, hitting all our targets for a better than $18/21.50 entry and a $25 target.  We liked BTU so much that we took JRCC as well but I lost interest in them as they pulled back in favor of sticking with BTU. 

I chickened out of DDM in the chop at 9:48 and that's a shame as they rocketed later and I spotted AFL at 9:49 for the people who missed Monday's entry.  VZ was a great entry at 10:04 and those are still available as they came back down in the carnage at the end of the week.  Forget the ultras as we hit the 3x FAS at 10:39, selling naked $7.50 puts for a ridiculous $1.23.  Cap had us watching SLG and that was a great play as we got a crazy $4 for the Feb $15 puts and calls against the stock at $15.64 and the volatility crush has already given us a nice profit for the week.  At 11:07 I called UYG (another ultra-long financial) "below the point of covering I think/hope" and they literally exploded the next day.

You know it's a dull day when we start hedging DNDN, which we did at 11:57 as the sale of the May $2.50s drops your cost of ownership to $1.36 and a potential $1.14 profit if they can hold $2.50 for a few months.  In that same comment I said about gold (GLD) "down $10 is not enough for me to start bargain hunting but if you are not in it you should be."  Patience is a hard thing with these wild commodities but we were $15 off our bottom although I did lay out a spread.  At 1:30 we did a complex XOM butterfly that's right on target already with a $353 net value per unit on our $160 entry – not bad for a week's work!  Quick, big profits like that are good to take off the table or at least take some off as our max gain was only $700 if XOM flatlines at $75 through expiration.  That was Tuesday's last trade as we drifted below our breakout zone.

Wednesday was Fed day and we got exactly the call we expected and I didn't like the pre-market rally and spent the morning post pushing for someone in Congress to use my housing solution before it was too late.  Once again I had no picks for the morning post (as I didn't buy the move but didn't want to bet against it) and my 9:38 warning to members was: "Watch those 2.5% rules, we expect a pullback to 2% off those so the trick is do we hold that and can we break over those marks today.  If we don’t make 5% by tomorrow on $1Tn in spending then how they hell can we afford a recovery with 40% left to go?

An hour later there was still noting I wanted to buy until Ajay pointed out that BK was a bargain and we hedged into that at $20.28/21.39 and they held up pretty well at the week's end so thanks Ajay!  By 11:30 I was pretty skeptical and called for selling GS $90 calls for $4 and that was scary into the close but worked out great.  One thing I did have faith in was AMZN and we were miles too conservative with a $39.50 net entry to the March $47.50s ahead of earnings but it's still a nice month's profit (20%) and having 20% downside protection is what lets you be brave and take these plays in the first place isn't it?

At 1:34, just ahead of the Fed I warned members: "Remember, 8,400 is key (2.5%) on the Dow if the others are going to be able to break up to 5%."  That call was right on the money as the Dow topped out almost to the penny at 8,400.  My take on the Fed statement was that it was just as we thought – the Fed intends to pump as much money as they can create into the economy for as long as it takes.  By 2:40 we didn't get a a big reaction so I said: "I think the risk now outweighs the reward of not covering here so a shift slightly bearish by taking out short puts on index covers and covering at least 1/2 on calls.  SKF $155s at $9.50 were $27 yesterday so not a bad gamble with a stop if they fail $122 again (maybe $8.50)."  At 3:18 I added to that with the DIA Apr $86 puts and the June $87 puts but my best-timed call of the week was (remember we were patiently waiting): "Gold/Emo – I’d enter on that Fed statement.  Jan $75s are just $19.65 but, seeing as we just sold off, I like the June $75s at $15.35 and we want to cover with March $88s at $4 (now $4.50) only if we have to."  Those June $65s are already $27.35!  Have I mentioned I like gold lately?

There was no way to beat that and we changed nothing during the obligatory "stick save" into the close, holding our bearish posture even as THEY "rallied" the markets back to near the day's highs.  My Thursday morning picture says it all (right – and click for video!), as stimulus seemed like nothing more than the rocket on the coyote's stick – just enough to lift you away from the safety of the top of the cliff before gravity strikes back!   

We had 588,000 jobless claims, pushing continuing unemployment up to 4.8M and I noted that I had already seen over 100,000 additional layoffs in earnings notes (it turned out to be over 200,000 in an official count – so far).  Don't forget, as I often say, I'm not bullish – I'm bottomish – and there is a very big difference as bottomish means I believe in a range that we can buy in and that we should sell in while bullish is just plain foolishness in this market.  As I mentioned earlier – I'm going to spending this weekend seeing if I can poke holes in my bottom at 8,000 premise – hopefully not, but hope is not a strategy…

DRYS was my first pick on Thursday and looks like a mistake so far with a hedged $5.55/6.53 entry that doesn't look anywhere near as safe now as it did that morning.  I still think the sell-off is overdone but ouch!  Oh wait – my 2nd play of the day on Thursday was selling TXT March $10 puts for $1.05, now $1.97 so you would think they may give DRYs a run for their money but NO, because we can ROLL them!  What I love about selling naked puts is the March $10s can be rolled to the June $7.50s, which are currently $1.35 so for .62 (and your putter gave you $1.05) you can lower your margin requirement by $1.25 (assuming 50%) and push your net entry price down from $8.95 to net $7.07 – giving yourself an additional 21% discount on a trade we entered after already giving ourselves a better than 20% discount.  As I often say – you don't want to sell naked puts on stocks you aren't willing to own at the strike but, for stocks you do wish to own long-term like TXT- why the heck wouldn't you do this?

To be fair to my first two Thursday plays, that was before 10 am and we didn't get Dec Home Sales, which caused me to say to members within seconds of the release: "Uh oh – Dec home sales down 14.7% – so much for a bounce!"  By 10:14 I was already amending the TXT play to say:  "TXT did not hold $11 and now may not hold $10, someone is bailing on them big-time.  Now selling the current $10 puts naked for $1 makes for a nice entry but you have to really want to own them with a plan of selling March $7.50 puts and calls for about $2.50 if we get stuck with it at $8-9 (I doubt it but this selling is crazy)."  OSK also looked too cheap and we sold $7.50 puts against them but so far, so bad on that one.  I redeemed myself calling for the sale of BA March $40 puts at $2.50 at 10:32 (2 minutes is not bad to get back in the game) and my sarcastic comment there was "I guess if the world is going to end and we are never going to use planes again then this may be a poor long-term play…" but the real reason we went in was because the story that Russia had canceled 15 Dreamliners was misleading because they had flipped from sale to lease – pretty obvious to those who read more than the headlines.

At 10:50 we tried to get bullish by selling DIA puts as covers with tight stops but that didn't last long.  We took a hedged entry on BAC at $4.18/5.09 and, despite the continued sell-off, I still feel good about the +$6 target on that one for a 50% gainer.  I made a DOA call at 11:50 saying: "Well that’s officially blown our levels with only the Russell holding out – now 3 need to get back over to lean bullish but the day is half over and tomorrow could be a nightmare so I’m not very enthusiastic right now."  By 1:10 my statement was: "Everyone hitting the floor of yesterday’s open.  Double plus ungood if we break here.  S&P a little better off than most so hope if they can hang on to 850 but if the mining sector wasn’t flying we’d be way worse off than we are now and the fact that people are flying into gold shouldn’t be the reason we still have hope!"

We took a stab at selling WFMI March $10 puts for $1 but those are already $1.23, luckilly the same price as the May $9 puts if we decide to roll but I do think that selling is a bit overdone and would rather stick it out if possible.  That was it for Thursday as we certainly didn't expect anything but more of the same on Friday as we finally had our day of reckoning with XOM and the GDP.

Thursday night I went over our buy list and weighed in the likelihood of passing the stimulus next week along with whatever clarification we get on TARP II as well as going to sleep counting Trillions in free money sheep being passed out by the Fed and I decided it was absolutely time to update our Buy List.  This is a list of companies, mainly dividend payers, that we do not mind owning through thick and thin, that we are willing to buy more of if they get cheaper but that we feel have a definable floor we can trade off.  This will be the first major floor test of our list, which has been active for 3 months now and has been very successful in our first two expiration periods.

Friday morning we were relieved that the GDP wasn't worse than expected but I pointed out it also wasn't as good as it looked due to a pretty big inventory buildup being counted as a plus.   XOM was not as bad as I thought but still bad and, as I mentioned earlier, right on target for our plays.  We were looking for our buy entry at 8,066 and we got that pretty fast but it's not like we buy everything all at once (there are 38 entries), it's just an indicator of where we start looking for particularly good deals…  WMT was the first play that got our attention at 11:36 and I liked it too much to cap the gains so we went with the naked sell of the March $42.50s for a ridiculous $1.05 (still $1.10 for a $41.40 net entry) and a naked  leap as a "buy and wait" for the recovery play.

As we were all bearish and expecting a crash it was pretty dull in chat on Friday and we ended up discussing global warming and whether new rainforests were as good as old rainforests as the market gave us little to get excited about.  At 12:43 I finally pulled the trigger on ANF as selling the March $15 puts for $1 for a net $14 entry seemed too good to pass up and, having learned Tuesday's lesson, I selected 2 FAS plays that we wouldn't have to chicken out of as the wild swings on that 3x ETF make it silly to set stops so you'd just better get it right!   BBY and LDK hit the screens at 2:26 and 2:32 and then we got to discussing Wall street bonuses and Jordan had the fantastic idea of enforcing salary caps on firms like with sports teams, something I think we should elaborate on and get to Congress!

At 3:24 I noted to members: "S&P nearing 820 but Nas still holding it together at 1,480.  If the Qs break 29 we are in deep doo doo!" and that was, unfortunately, very accurate as well as being an accurate description of the week's market action.

All in all though, it was a fun week and most of our plays turned out just fine so we can't really complain.  If we survive the weekend I'll feel a little better but, like I said, I will be spending this weekend in deep market contemplation as I look ahead to the next month.  I'll be posting the Weekend Reading section while it's in progress and I urge members to contribute their thoughts as well as it's the diversity of viewpoints that makes us strong and helps us navigate these very choppy market waters.



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A bit of positive news from the credit markets:
The economy may be sliding, but the debt markets have certainly found some traction. Corporate bond issuers tapped the debt capital markets on an unprecedented scale in January, taking advantage of renewed investor appetite for corporate credit.
The $100.29 billion of U.S. dollar-denominated investment-grade issuance was the highest on record, according to figures released Friday by Dealogic. That easily trounced the previous record of $81.86 billion in 2001. In the riskier high-yield market, issuance was $4.76 billion, well below the levels of recent years but certainly respectable.

SPG – Simon Property Group – Q&A from yesterdays conference call.
Very interesting stuff from company and macro / retail perspective:

The "stimulus" put in perspective  
According to Sen. Ensign’s Republican Policy Committee, for the cost of the Democrat’s spending bill Congress could provide every American taxpayer a rebate check for $9,460. If you gave the rebate to every tax filer (including those who do not actually pay income taxes — a key Obama constituency) Congress provide a check of $6,336. That would do more stimulate the economy than wasteful Washington spending that won’t take effect for years. Republicans can ask the American people, which would you prefer: a check for $9,460? Or would you rather Washington spend that money on honey-bee insurance and the “removal of small to medium-sized fish passage barriers”?

Ha, Phil you are so predictable buddy …. you must love living in Pelosiville.  Let’s give every member of Congress a big fat raise !
Oh, wait, they already beat me too it.  An extra $93,000 per member.
Business as usual in DC ….

phil,can you explain to me how the 5% rule works. i know you look at  every   2.5% and 5% moves and its normal to have a 20% pullback , but i do not understand what time span your looking at . Are you looking at a daily move or just a 5% move over several days or weeks. thanks,rick

New PSW member, my first post. I’m under water on DOW Feb 17.5 puts – any suggestions on a roll or rescue? Thanks,

Been a long time since I wrote in, but I love the commentary this weekend, Phil.
I still scout AM talk radio from time to time to sample far right sentiment, but its not nearly as interesting as before the election when there was still some remote chance their agenda could be vindicated with a McCain win and a continuation of RNC business as usual. But now they are just desperate and flopping around like doomed fish on the pier. They, like us, can only look back and see how that really wouldn’t have served the country well, despite their unwillingness to admit it publicly.  They had a huge part in feeding the country’s hunger for Obamania, and they are just starting to realize how badly they screwed up.  The far right movement is in shambles and trying to find its soul again. Maybe a black RNC chairmen is a "step in the right direction", but as Weekend Update on SNL said last night "You guys do know you can’t just pick ‘any’ black guy, don’t you?". It’s as laughable as Dem’s putting on their values/iraq hawk hats in 2004. Does the term "cut and run" mean anything, Karl? Time for a new game plan, eh? You can only sty the course for so long I guess.
Any party who looks to extremism is doomed, right or left. There’s way too many people in the center. The RNC thought they had it all wrapped up with 9/11 and Clinton’s hummer, but they got a little power drunk and dropped the ball big time.
A big part of Obama’s political success (and I’m sure its no accident) is to appear to appeal to the left (and even be comically called a Communist by the far right), but actually be as centrist as they come from the Dem side…another Clinton, only with more moral cred. Whoa…tough combination. First Black Prez too, and the way he uses TV, the internet, and his Harvard Law School calibre brain,  the right wing is finally going to to have to come up with a very novel strategy for the future…a candidate who at least appears really competent, and really inclusive.
And I’m all for that…I don’t give flying leap who is in office as long as they do a job which serves our interests for a safe and sustainable future. And by safe, I mean safe from the political and corporate vultures who would just as soon lop off half to 2/3rds the country if they could get their way.  As I expected months ago pending an Obama win, the whole War on Terror afront to our collective sensibilities is more or less dissolving "auto-magically", right on schedule. Good riddance! Now if we can just avoid hyperinflation and get a very responsible energy and climate change policy to lead the world with, we should be in very good shape for a while.
Happy Superbowl! Go Eagles! (dohhhhhh!)

Hi Phil! I have a hedged entry on CAT from early Dec that’s gone bad… I bought CAT at 40.5 and received 7.7 for Jan 40 Calls and Puts. I’m now left with CAT and Feb 38 puts. Two questions, should I roll the puts to May 36s? Also, on the hedged entries, after the inital call expires, should we continue to sell more calls on the stock? CAT calls don’t seem to be giving much premium, and I don’t really want to have my stock called away in the 32-38 range, so doesn’t seem worth the effort to sell covered call and then keep rolling up if the stock starts to move. Thanks! Great articles this weekend, btw!

hey, thanks for the shout out! 🙂

Naked TXT Feb 10 puts at 1. Better to roll to Jun 7.50s or wait and then either 1) Roll to Jun 7.50s later or 2) Take assignment and sell Mar puts and calls. You advocated both approaches, so trying to determine which is better.

 A pox on anyone who is against legitimate fixes for the economy for political reasons.
That said, Phil, even you should be able to call the Pelosi porkfest the POS for what it is.  Wasteful spending and not very stimulative.
Wasn’t it Rahm Emmanuel, big O’s sleazy right hand, who said "Let’s not let a good crisis go to waste"  ??

I have dish network. Which channel do I get to watch the superbowl. & where the heck do I find information on what it is?


Phil, what’s your take with DRYS? I’m inclined to stick it out and continue selling premium against my Sept 7 1/2s (currently covered with Mar 7 1/2s). Or should I cut my losses and abandon?

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