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Tuesday, November 29, 2022


Weekly Wrap-Up

22-feb-v2.jpgI'm not doing a weekly wrap-up.

I pretty much did one on Friday in the morning post and I posted my weekend reading list this morning at the end of Friday's comments for members and Peter D posted 4 excellent plays for those of you willing to dip your toes in the financials once again.  We actually had a great day on Friday as we sold premium in long SKF and had a fantastic 10-bagger on SKF puts later in the day.  At 9:45 I called fro a switch from UYG at $2.02 to FAS at $4.30 and FAS ran up to $5.20 and finished at $4.90 (14%) while UYG peaked at $2.24 and finished at $2.20 (up 9%) so a good switch to the faster horse.

We also flipped from FXP covers to FXI longs (hedged at $20.98/21.99), a very well-timed about face as we sold FXP into the initial excitement.  VLO got too cheap to turn down on the leaps and even C became attractive at 1:35, when the Sept $3s hit .52 and I noted they could be covered with 2011 $5s at .58 but, so far, we haven't needed to pull the trigger on the cover!  My last call of the day came at 1:48, when I said to members: "SKF $200 puts at $1.45 for the brave, out if XLF cant cros $7 when Volcker starts speaking."  As we expected, the moment Volker came on TV to dispell some of the silliness we got a double and were able to take half off and let the rest ride.  That ride took us all the way to $16 just one hour later – not bad for a day trade!

I did add a mattress layer at 2:34, going for the $185 puts for $2 and those quickly ran to $6 but "yawn" compared to our original play as it ran and ran.  We were all stopped out by 3:12 and sadly, by 3:28 we had to turn a little bearish (we had originally planned 50:50) as the administration backpeddled on a statement that the Treasury would actually have a plan for us next week.  Since we never had to trigger our bearish QID play from the morning post, I was wishy-washy about the downside and said of our DIA puts to members at 3:36: "Hmm, possibly there is a plan but they don’t want to have any expectations going into it so they are covering up a slip on the release of a plan… very confusing, half covers very appropriate."

I thought all the talk of bank nationalization was a bit overdone and BAC came out with very strong denials and were rewared for it into the close with a 46% rally off the bottom.  This is why the SKF is at the same time fun to play and very dangerous.  While Cramer warned his people to stay away from this 50% gainer last week, we generally play it for the drops whenever it goes too far up.  As I pointed out to members, with the XLF at $7 and SKF at $205, a .35 (5%) move up in the XLF becomes a $20 drop in the SKF (10%).  As I said when we discussed this on Wenesday the 11th:

Meanwhile, Cramer is once again playing fast an loose with the facts on SKF.  After talking his sheeple out of protection that went up 15% yesterday while the financials collapsed, in yesterday’s show Jim justified his massive disservice to viewers by pointing out that the SKF, SRS, FXP and DUG "would have actually had a 30% loss" in 2008.  While that is true, it ignores the fact that they were up 150% in early December, where a 30% hedge in the ultra-shorts would have offset a 64% drop in the remainder of the virtual portfolio.  When a hedge pays off, as I would imagine Jim knows, you cash it out – only a truly MAD money manager would press an insurance bet that goes (in the case of the SKF) from $100 to $300 during the year.

If your virtual portfolio had $100,000 worth of exposure to the financials that day, with the XLF at $9.25, you may have watched them drop 24% in the next 6 market sessions and being unhedged meant either riding the roller coaster into the pits of hell or jumping off and taking a massive hit.  Putting just $10,000 into 45-day protection of the SKF March $160s at $18 that day (SKF was $140) would have returned $40,000 if you had cashed out at $64 – which is obviously something we would recommend doing per my above statement!   Of course we don't advocate spending 10% a month on naked puts and we certainly don't advocated buying SKF at all at $188 but the correct play at the time would have been selling the Feb $180s for $5 to offset the premium loss.  The Feb $180s finished at $7.45 and we would have been very happy to give that caller his extra $2.45 back but, if SKF had finished lower, that $5 would have paid for half of a roll to the March $140s or the Apr $155s so another 2% of the virtual portfolio to protect your bullish positions for another 30 days. 

Ideally though, as we did on Friday at 3:13, you want to call a bottom and cash out your short play, then use the cash to reposition your financials ($40,000 buys a lot of repositioning on the $76,000 worth of financials you have left) and rehedge from scratch.  Our general cover of choice going into the weekend (the "mattress play") is the DIA June $77 puts, which are now $8.22, 1/2 covered by the March $75 puts at $3.85.  We go to June because we are HOPING for a bottom and the June puts have a lower downside delta and the 1/2 cover assures us that a severe drop in the Dow won't hurt us to the downside, where we can roll our March $75 put covers to 2x the Apr $66 puts if we had to, leaving us with a $11 spread off our net $6 entry.  Ideally, we want to have a clear path to a double on our downside protection so when we allocate 20% or 30% to coverage, we know how much we can expect to get back in a real catastrophe.

Of course nothing beats sector specific covers against your own mix of positions but we like using the DIA puts as general virtual portfolio coverage although, as I mentioned last week, both the DAX and the Qs may now have farther to fall.  I was over at the NYC Traders Expo yesterday, which was well worth attending, and had a great conversation with Tom Sosnoff, who is one of the founders of Think or Swim (a platform I am now enjoying very much).  We were discussing using index futures as hedges and I will be experimenting with this in March and hopefully Tom will be able to help me put together a primer on the subject down the road.  New E-mini futures trading makes it more realistic for retail investors to get involved but it's going to take us a while to settle on some good, hedged strategies on these.

I haven't had a chance to try it live yet but I was very impressed by the demo of www.bestfreecharts.com.  It seems they are ad supported and give free streaming quotes with a nice interface, worth checking out if you don't have live for sure (or don't like what your broker gives you).  Also from Think or Swim, Tom showed me a very nice blog they're keeping called MonkeyBrains and they are in month 31 of a sequence of posts following an Iron Condor Strategy on the S&P that is worth keeping tabs on as they make 1 trade a month and track the results (so far, no profits but good eductaion).

Oops – never got to finish this post as I ended up writing a book in the comments!  There is a lot of good stuff on our buy/write strategy there so members should look below and also at the end of Friday's comments to get a very in-depth idea of our strategies.

New post up soon!




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Sorry I missed you at the Trader’s Expo, but I’m still laid up with a broken foot and didn’t feel like hobbling around the joint.   I thought you’d like TOS.  I don’t have that much to compare it to, but I’ve always thought the platform was great.

  I’d like to increase my exposure to oil. I have several oil plays that are all down significantly, but I have always been in oil for the long run. I think that even if renewables gain popularity, India and China will stil require oil (as will most of the rest of the world). Hence, I think 5, 10 yrs from now, oil will be higher than $35. So my question is, what is the best way to get into the oil game? I’m leaning toward the USO but am not sure. Thanks.

Thanks for the response.
As to your questions –
I had 2000 UYG until Friday when you suggested I switch to 1/2 FAS instead.  I did but didn’t want to hold them over the weekend.
GE – I have no caller because I just closed the caller at a 50% profit and was waiting for a bounce to sell the next set.

Hi There, I am a new subscribers and still trying to get a grip of the site. K1 project was exellent but there are a lot of things I am missing. Could someone pls point me in the right direction.
1) Where are portfolios located?
2) How do I get the timely updates? via reading posts?
3) HOw do I set-up my mobile service? I am an international subscriber
4) Sounds very naive to ask this but what does LTP and STP stands for? Long Term Play/portfolio and short term play/portfolio?
That’s it for now  ­čÖé
Thanks for the help, Shiv

Phil, I was assigned TXT at 10 on Friday, at a cost basis of $9. As this is a long term hold, what’s the short term strategy for March? We had discussed selling Mar 7.50 puts and calls, but if I am called away at 7.50, I won’t be that happy, nor do I want to buy any more TXT. Is it still advisable to sell the 7.50 puts and calls and then rolling whichever leg ends up ITM?
More generally, once a stock gaps down significantly from our initial cost basis, is it still effective to sell covered calls and risk being called away before we’ve had the opportunity to make up the loss?

Sitting on a bunch of CAT stock at a net loss. Worth flipping to 2011s and selling callers to try and make up the loss? Thanks.

Cap/C Article.    Fortune had an article where they talked about converting the preferred shares to common.  In addition to improving the tangible common equity ratio, a conversion saves billions of dollars in dividends this year.   I think this should be part of a four step plan for the all the troubled TARP banks:
1) Convert the government’s preferred to common, probably at the average price over the last 10 trading days (or whatever is standard in takeovers).  Encourage other preferred to convert on the same terms as the Feds.  If they don’t want to convert they will have to wait to get paid because….
2) No dividends paid on common or preferred until the institutions are adequately capitalized under Mark-to-Market (MTM) standards. Preferreds that don’t want to convert can accrue dividends as they always would, but they’d have to wait a long time to get paid.
3) Suspend MTM for regulatory capital purposes.   The company would publish both the marks they keep for regulatory capital and their best estimate of current distressed marks.   Each year, however, the company would have to write down assets equal to the amount of preferred dividends that they formally paid to the government under TARP.   They could chose which assets to write down, but they’d have a minimum amount each year.  Basically rather than sending capital out the door, in dividends,  they would be cleaning up their balance sheets.   They would also have to declare actual losses as they do now when an asset actually become impaired.
4) After 3 (5?) years the government starts selling it’s stake on straight-line basis over 10 years, sort of like a gigantic executive stock-sale plan.   The government takes it’s billion or so shares that it owns, divides it by the total number of trading days over 10 years, and sells that number of shares every day until their stake is gone.   This would gradually return the bank to fully public ownership and reduce the overhang of shares on a transparent basis. 
This plan seems like a reasonable balance between immediate nationalization and the zombie banks of Japan.  

Good Morning Phil & all

Asia Markets :    Monday, February 23, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                     7376.16     -40.22   -0.54%
Hang Seng*                         13175.10    475.93    3.75%
China: DJ Shanghai*              266.49        6.99    2.69%
Seoul Composite*                1099.55      33.60    3.15%
Bombay Sensex**                 8843.21  -199.42   -2.21%
Baltic Dry Index                      2099.00      42.00    1.96%

*at Close
** Data from Friday, Feb 20,2009. Market closed on account of holiday.

Asia Rallies, Dollar Slips on Relief Over Citigroup

(Indian markets are closed on account of holiday, will reopen Tuesday)

Asian markets were mostly higher while the greenback tumbled Monday on media reports the U.S. government could end up with as much as 40 percent stake in Citigroup. This sparked some relief among investors who cut their safety trades.

The Nikkei closed down about half a percent to a four-month closing low on fears about U.S. bank nationalization, but the report that the U.S. government may raise its stake in Citigroup pared earlier losses.The failure of SFCG, a high-interest lender to smaller companies, underscored worries about tightening credit hitting businesses throughout the Japanese economy and sent shares in rival firms such as Takefuji tumbling. The Nikkei lost 40.22 points to 7,376.16, its lowest close since Oct 27, after earlier falling as far as 7,209.43 — in sight of the 26-year low of 6994.90 hit on Oct. 28.

South Korea’s KOSPI finished 3.15 percent higher, ending a five-session losing streak as bank stocks rebounded, following those Citi reports. Top technology titles rallied.

Australian stocks ended down 1.5 percent, dragged by a big loss for miner Rio Tinto, but recovered from earlier lows on a report the U.S. government may raise its holding in Citigroup. The Citi reports sent banking shares briefly into positive territory, but they were mostly unable to sustain the rises.

Hong Kong shares rose 3.8 percent as investors fled safe havens to dabble in stocks after some of the uncertainty surrounding U.S. banks was lifted.

Singapore’s Straits Times Index swung into positive territory, up 2.2 percent as investors bought local stocks and while the Singapore dollar rose on news of the possible Citi stake increase by the U.S. government.

China’s Shanghai Composite Index rose 2 percent, led by property shares after official media said the government was considering a package of measures to provide long-term support for the residential housing market.

Relief Rally in Banks Lifts Euro Stocks

European shares rallied early on Monday, led by financials such as Royal Bank of Scotland on relief that the U.S. government may not, contrary to market talk on Friday, have to nationalize some big banks.

The FTSEurofirst 300 index of top European shares was up 1.1 percent at 744.05 points, having fallen to a six-year low on Friday.

Europe’s top-300 index fell more than 7.5 percent last week.

Royal Bank of Scotland shot up 17 percent after news it would set up a non-core division for unwanted assets and a report it might cut up to 20,000 jobs. RBS declined to comment. UniCredit rose 9 percent after Chief Executive Alessandro Profumo said he trusted that the Italian bank had reached its 2008 net profit target of 4 billion euros ($5.03 billion). Financials gained on a broad front, with Barclays up 9.5 percent and Societe Generale up 5 percent while insurers Allianz, AXA and ING Group added around 4 percent each. Shares in VP Bank, however, fell 4 percent after Liechtenstein’s third-biggest bank reported a 2008 net loss. The Vaduz-based bank has also been suffering from pressure on Liechtenstein’s banking secrecy rules.

The DJ Stoxx insurance sector index gained 2.5 percent and the bank index was up 2.2 percent.

Shares in London-listed Mexican miner Fresnillo, the world’s biggest primary silver producer, fell 5 percent after the company posted a bigger-than-expected fall in 2008 profit and forecast mostly flat 2009 output and lackluster demand.

Outside financials, shares in Austrian builder Strabag rose 10.5 percent after news that Russian billionaire Oleg Deripaska has no plan to sell his 25 percent stake in the company.

Oil Rises Above $40 on Citi Stake Report

Oil rose above $40 a barrel on Monday, recovering from earlier losses, after sentiment was lifted by a report the U.S. government was in talks on increasing its stake in Citigroup.

Further evidence the Organization of the Petroleum Exporting Countries has enforced output cuts also provided support, although persistent worries about the weakness of the global economy limited gains.

US light, sweet crude [ 38.94  —  UNCH  (0)] for April delivery rose, off a session low of $39.53. The March contract ended 15 cents lower at $40.03 on Friday.

London Brent crude [ 42.28    0.39  (+0.93%)] gained.

OPEC has already agreed on cuts totaling 4.2 million barrels per day since last September and evidence has mounted of a high level of compliance with the lower production targets. The producer group is also very likely to decide on a new production cut at its next meeting scheduled in March, Algerian Energy and Mines Minister Chakib Khelil said at the weekend.

Euro Rises vs Dollar as Market Cheers Citi Report

The euro rose close to a two-week high against a broadly lower dollar on Monday on reports the U.S. government is to take a large stake in struggling lender Citigroup. Rising stocks helped the euro rise to a one-month high versus the Japanese yen, which also tends to gain in times of heightened risk aversion. Citigroup is in talks that could lead to the government owning as much as 40 percent of the ailing U.S. financial giant, though Citi executives hope to limit the government’s stake closer to 25 percent, the Wall Street Journal reported. The U.S. government would take the stake by converting preferred stock into common stock, the report said.

"People are arguing that this move will give the U.S. government the right tools to manage the recession situation," Commerzbank head of FX research Ulrich Leuchtmann said. "The dollar has been a safe haven during the economic downturn and it tends to fall on good news," he said.

The euro [ 1.2824  —  UNCH  (0)   ] was up against the dollar, having earlier hit a session high of $1.2991.

The dollar index fell 0.6 percent to 86.088.

Among currencies perceived to be higher risk, sterling [1.4636    0.0204  (+1.41%)   ] gained versus the dollar, as did the Australian dollar [ 0.6497    0.0045  (+0.7%)   ] .

Against the yen, the euro [121.68    1.96  (+1.64%)   ] rose to a one-month high of 121.32 yen and the dollar [ 94.81    1.49  (+1.6%)   ] gained versus the Japanese currency.

The yen reversed some of last week’s falls, when a deteriorating Japanese economic and political outlook damaged its perceived safe-haven status.

Any thoughts on naked puts here BAC ?


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