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Trillion Dollar Thursday

The new budget is here!

I am so excited – it's always exciting to set a record and this budget is expected to show a $1.7Tn deficit, $15,000 per US household so make sure you look under your couch for some loose change – every bit helps.  Not much helped yesterday as we had another roller coaster session in the markets, heading down 200, then up 250, then down 150 into the close, yet somehow the VIX closes lower!  I suppose it was a normal "Which Way Wednesday" and our pre-markets look just as volatile.  We were 60/40 bullish (full covered on our long DIA puts) into the close but added some SKF calls at the lows, just in case we were wrong.  Overall, we finished right around our watch levels, as I said to members – better than nothing but not something yet.

I got a little nervous as the Russell was rejected at our 411 target, which chased us out of our very successful day trades on IWM and FAS right at the high of the day.  At 3:37 I called an end to our FAS trade that began at 10:21 saying: "FAS crazy high now, no way do I blow this overnight so trailing stop into the close based on .15 on XLF (now $8.33)."  You can see on the chart that 3:38 was the EXACT moment that FAS started falling.  Did we do that?  We did a little more bottom fishing early in the morning, adding WFR and MSFT at the day's low and hedging CY and HCBK in the afternoon, both of which had good finishes. 


Since the pre-markets are looking up at the moment (7:30), we'll look at some upside targets (downside watch levels remain the same) for today:  Dow 7,400, S&P 780, Nasdaq 1,450, NYSE 4,850, Russell 415.  Those are our minimum levels to call today a "success."  If we can ignore the President telling us that every American family needs to borrow another $15,000 (pushing us over that magic $100,000 per family mark) in order to pay this year's bills – then I'm pretty sure we can breeze past the rest of the bad news. 

fallofgmwallstatsSpeaking of bad news:  GM posted a $9.6Bn loss in Q4, that's a loss of $66,000 per US worker they employ (144,000) in 3 months.  Please remind me again why it is better to save them?  This isn't a one-quarter thing either, GM lost $30.9Bn in 2008, that's $215,000 per worker.  I'm pretty sure if we just gave each GM employee $100,000 a year and told them to go to the mall, that would be better for the economy than having them show up at the assembly line building cars that lose over $15,000 per car.  That's right, I am NOT joking.  GM sold 128,198 cars in January so I'm GIVING them 2M a year at a $30Bn loss.  Do you know how to make GM stop losing money?  MAKE THEM STOP MAKING CARS!!!  Mercy, please, I'm begging you, mercy – we can't take anymore

We got some details last night of the "stress test" that would be applied to banks before we give them money anyway.  The WSJ has a good article about the danger of creating "Zombie Banks," speaking of which, C looks like they will end up being "just" 40% owned by the Nation – not nationalized at all!  Aren't semantics wonderful?  Last night Tim Geithner said: "Nationalization is the wrong strategy for the country and I don’t think it’s the necessary strategy."

Profit taking on banks led the Asian markets lower with the Shanghia falling to the 5% rule and the Hang Seng giving up a point, finishing down 100 on a day when they fell 350 points from open to low.  The Nikkei held flat as the dollar neared 100 yen, boosting exporters.  A lot of the China chaos was also caused by intervention in the auto sector as the official Shanghai Securities News said China, planning to restructure the sector, had chosen four auto-making groups to lead large-scale mergers and four other groups to pursue regional mergers.  "The market may continue to see a tug-of-war between foreigners selling and public funds buying," said Tachibana Securities operating officer Kenichi Hirano.

Europe is up about 2% at 8:30 as RBS gained as much as 30% after reporting a $34Bn loss.  I said to members this morning that, by that logic, AIG should be heading up 50% so we'll keep an eye on them too!  What got Europe excited is a restructuring of RBS assets that will take $341Bn off the books – effectively creating a "bad bank" full of toxic assets while leaving the "other" RBS to get on with its business.  Under its deal with the government, RBS will pay a fee of £6.5 billion to participate in the insurance plan. The bank will absorb the first £20 billion in losses on the £300 billion asset pool before the insurance kicks in, and will be responsible for 10% of subsequent losses. RBS will pay the insurance fee, and raise another £13 billion in fresh capital, by issuing special so-called "B" shares to the government. The deal allows the bank to raise another £6 billion by issuing more such shares. If the bank's share price reaches 65 pence, the shares would automatically convert into common shares.

This has kept our pre-market strong (9am) despite the 667,000 additional people who lost their jobs last week.  That brings our total unemployed (counting only those eligible for claims, about 1/3) to 5.1M, the most EVER.  That continuing claims figure is up 40% since last year – that's a pretty good idea of how hard it is to find work.  The Unemployment Rate stands at 7.6%, a 16-year high and the Fed projects 8.8% later this year so there is nothing too shocking here other than the sheer numbers.  What is shocking is the drop of 5.2% in Durable Goods for January, twice as bad as expected by our usually spot-on "experts."  Even worse, last month was revised 50% lower, from down 3% to down 4.6%.  These are month-to-month figures, by the way – for the year durable goods orders are 26.4% lower.

Inventories also fell (which is good later but bad now) and all this will have a negative impact on the GDP.  Tomorrow we get the Q4 GDP figures (preliminary), which should be showing us a 5% drop, coming off our 3.8% drop in Q3.  Also tomorrow we get the Chicago PMI, likely to be the same disaster that the NY, PA and VA PMIs were and at 10 we see Michigan's consumer sentiment, which will be interesting from the land of the multi-billion dollar losses. 

Nonetheless, the markets are up nicely this morning but we'll be keeping tight stops on the DIA covers and rolling up our longer puts – just in case!  GMs rotten numbers didn't hurt F that badly so we can get back into that trade with a stop at $2 but it's going to be all about our levels today and can we break them and hold them.  AMT had good earnings, BYD was in-line, CTB not surprisingly had a rotten quarter but are interesting down here, FAF made a proift, FTO had a big miss, HUN was a big miss but they are forgiven, IRM held on – which is a good sign, Cramer pump victim LAMR was LAME but are getting interesting down here, LTD beat, LINE missed, NDAQ beat by a mile (good for our NYX?), OCR beat, RDC beat nicely, SWY missed by a bit and may be a nice hedged entry at $20, SHLD beat awful expectations by 10% and should get a pop for that, and SONS missed by a mile but is trading up.  All in all, a mixed bag of earnings but I think we may have simply hit the point of seller fatigue and we may be ready to rally.

Let's watch our levels and ride the ride!


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  1. This is an interesting preview of european markets – you should read it if only for the dilbert cartoon at the end !!

  2. Phil: good morning,
    SKF and SRS shorting is more difficult today as they are heading towrds their lower resistance level,
    looks they will drop even more upon opening,
    caution is asked for ??

  3. Phil: where is USO heading ?

  4. SKF/RMM – I have the $230 calls, down about $1 and I’m waiting to see where things settle down.  With the budget coming who knows what’s going to happen but XLF punched through 8.40 and looks good at the moment.  USO should hold this level but not much past $30.

    Gold is off $24 this morning while oil is up 3.5% so interesting dynamics.  V is down a bit, LVS shot up but, overall, it looks weak to me so I’m taking out DIA putters and going naked on the long puts into the 11 am budget.

  5. Phil: I want to set some stops on my USO march 25 puts,sold at 1.48$,
    where would you set the stop ?

  6. @230 calls – this month(mar?)
    Do you think SKF will go up this week?

  7. Phil,
    What do you think of buying puts on GS?? With AIG’s result’s coming up on Monday, it might not be pretty

  8. XLF March $10 puts for $1.90, stop at $1.75, looking for $2.50.

  9. Phil: FAS
    have sold puts march 7.5 (1.4$) and apr 5 (1.45$),
    the apr 5 are fine, yet I wonder whether on FAS we geet to 7.5 , plenty of time value,
    what is your thinking about FAS , could roll to apr 6 ?

  10. WOW OBAMA talking, market not tanking….. yet

  11. Obama — tax and spend coming to the fore ….. every time he says "invest" remember that he means "spend".
    All you rich folk (250,000 = rich !), you are screwed.

  12. USO/RMM – That’s an odd question this far in advance.  You are up about 30% and if you are concerned then take them off.  My premise is they hold that price and, even if they don’t, I’ll just roll them along and collect it eventually.  Almost any stop you set on USO is bound to get triggered on a spike one way or the other.

    SKF/Dilbert – I just wanted to pick calls that wouldn’t lose too much if we gapped way lower.  We didn’t so I’m happy.  They were disaster protection in case RBS’s $34Bn loss put the stock down 30% instead of up 30% and tanked the markets – which could have sent SKF to the mid-$200s.  Overnight protection is just that – I survived the open and will take the small loss off the table but it allowed me to fully cover the DIA puts and that made enough money to cover the SKF losses.

    GS/HP – I don’t think fighting the Fed is a good game plan here.  AIG would have to be way beyond awful at this point to disappoint and you’d be having a fit today in Europe if you had correctly bet RBS to have a huge miss and were right about that but now the sector is up 20%…  The government is NOT out of money – YET…

    FAS/RMM – I think you are nuts.  A 10% drop in XLF (.80) would send FAS down $2, that can happen to you while you sleep or even while you go to the bathroom.  This is not at all the same thing as selling SKFs that are over $200, while I am generally bullish, I’m still very worried about a major pullback over some event or another.  Of course, even as I write this my XLF puts are testing their stops…

  13. New home sales abysmal, Durable goods abysmal, Jobs abysmal, GM abysmal yet the markets are up over 1%. People sure are climbing that wall of worry – amazing

  14. GM loss of $82 M per day for a year – sort of sez it all.

  15. New home sales down 10.2%, worse than expected.  Dec was revised UP from down 15% to down 9% so that kind of balanced it out but a bad number.  Median home prices fell 12%, inventories hit 13.3months, up from 12 months.  We are at an annual pace of 309,000 homes…  That is amazing, down from 1.5M 2 years ago. 

    I’m watching $8.50 now for my stop on XLF puts.  I don’t think they break it (and break it means for at least 5 mins with the following candle above the close of the last candle – not a spike).

    Tax and Invest – I like it…

  16. Somebody has got to put a fork in GM.  They’re done!

  17. Pril,is the VLO effect still valid as it is negative today vice XOM?tks

  18. Come on IWM, RUT, Qs, NDX – move!  Don’t just let the financials and oil leading the market.
    TM is down while the Auto sector is up (as in the Dashboard below).  You can sell Apr 60 PUT for $3.6 or Apr 55 PUT for $2.15 if you’ve been playing TM, which is profitable for selling PUTs or CALLs.

  19. Let’s see.. the pace at which jobs are being lost is accelerating.  The drop in home prices is accelerating.  Yet we’re not ALL bears?  Enjoy this respite.  I know ‘they’ want to get a little Call side mileage out of Obama’s addendum to his plan for banks last night.. but I think it will be short lived.  There are two big complaints about it which can be bandied about at will to drop us the other way.  We may still get an FMD today.. but it will be for the day only if that. IMHO.

  20. I have a postion in DXO , I have read the past few days that you don’t like some of these oil etn/etf’s. How does DXO rank in your opinion?

  21. Valero Rule/Potter – Oh no, that hasn’t worked since oil crashed.  In a healthy oil market (which we had for 5 straight years), VLO used to be a great leading indicator because they were a pure refiner and were very sensitive to the variables but there are so many counter-trends now that it’s a mish-mosh betting on energy stocks.

    UNH having a very bad day!   Whole sector getting hit on concerns that health care reforms mean profit reforms but Obama just said he’s keeping 7m people on health care so that’s a nice bump in customers and there’s still over 40M people in this country with no health care at all and those people could become customers.  UNH at $20 is a great deal and you can sell the $20 puts naked for $1.75

  22. DXO/Chuck – Well at this price it’s like UYG, not much left to lose unless the ETF completely breaks.   I would like them if you could sell calls agains them but they’re not a terrible long-term gamble.

    LOL, that was close on XLF.  I agree with Matt, rallying on this is BS – be very careful out there and roll up that protection!

  23. My DT-1 Buy Dia75P @3.25 . S/L 3.15, trgt 3.6

  24. Great call on HCBK  Phil :)

  25. Painful being a bear today. What on earth is making people buy this news ?

  26. Speaking of things that are free – ISRG being given away again at $99.50.  Selling Apr $90 puts and calls for $20.95 puts you in for $78.55/84.27 on an excellent stock.  The Jan $80s are nice too at $32.70, waiting to sell Apr $105s for $10+ or selling the Apr $100s for no less than $8.50 (now $9.70).

    IBM with big positive outlook, share buyback…  Good mo play on Apr $95s at $2.40, maybe keep longer.

  27. Phil: on FAS, you did not say what to do, just called me nuts.

  28. Hi Phil, seems like the moment of truth has arrived for the UNH trade :) Had opened a Jan 10 20 calls for 7.50 debit and sold Apr 26 calls for 1.65 UNH at $20…any thoughts for some possible actions

  29. Hello phil,
    so to continue yesterdays discussion. so if i want to hold long term, UYG or FAS stock ? keeping in mind that i would want to sell calls when things get  alittle better.

  30. HCBK/Kustomz – I’ve been wanting to buy them for a while, just needed a good reason..

    XLF skirting my limit here.  I still think it looks toppy so not ready to capitulate but the market seems to disagree with me so far…  At this point I should be out but I want protection for GDP tomorrow anyway so I’m willing to roll up and DD but, as a day-trade, it’s done.

    UNH/Shiv – If you intend to stick with the trade, the correct move is to roll down to the $15s for $2.65 and buy back caller for .15 and wait.  That puts you in the $15 calls, now $7.80 for net $8.65, not too tragic and you can always sell Apr $23s for $1, now $1.23 but I think the drop is oversold and you’ll be able to sell $25s for that.

    UYG/Micro – You need to do UYG as front-month FAS callers can burn you too fast to fix.

  31. Thx Kudlow, you and 7400 on DJI should be worth 100 points

  32. For those in TIE, there was an insider buy of $87K – 14K shares – at $6.10, filed with the SEC a few minutes ago. – Ilene

  33. Seidman:  "The budget is counter productive as far as the economy is concerned".
    You don’t say !

  34. IBM – Done with a quick .50.

  35. Ilene – TIE. Thx

  36. Good day to adjust some of my SKF short calls !

  37. These guys don’t get it … more interested in trying to escape blame than.
    Deficit we  are inheriting
    Deficiti we are inheriting
    Deficit we are inheriting.
    Lets punch these dopes in the face.

  38. Keep an eye on TNX gents, gone through 3% – Ben is edging closer and closer to losing control of rates.
    Would be a very bad sign for any hope of a housing recovery.

  39. The buyer was Glenn Simmons, who bought last month as well.  In this market, buying because insiders are buying is as risky as anything else, but in a strong market, or on a good day (for a day trade), insider buying can be used as a signal to buy.  More later…. 

    According to Yahoo: 

    23-Jan-09 SIMMONS GLENN R
    20,000 Direct Purchase at $7.06 – $7.1 per share. $142,0002
    22-Jan-09 SIMMONS GLENN R
    6,700 Indirect Purchase at $6.70 – $6.75 per share. $45,0002
    22-Jan-09 SIMMONS GLENN R
    5,000 Direct Purchase at $6.80 per share. $34,000

  40. Thinking about buying some C for a trade as it sells off and other banks don’t.

  41. TIE – Cool, thanks Ilene! 

    There’s our break.  It looks like the IBM news gave us an extra push but they couldn’t take out $90 and XLF never really broke $8.50 and $1,700,000,000,000 of debt has got to sober someone up eventually…

    I really can’t take Kudlow anymore – when he gets angry his voice is like nails on a chalkboard!  His fantasy economy is crumbling around him and now he has to pay the piper and he is outraged!  Don’t forget $2.7Tn previously hidden costs are included in this budget so it’s really not that terrible.  The fact is we have a massive bill to pay and NOT taxing people is not going to pay it.  We’ve tried pretending it didn’t exist for 8 years, now we’re going to give reality a try.  I am generally bullish about that and hopefully Cap, Kudlow (if indeed they are two different people) et al will continue to get sell us their stocks down here and then we can move along – just like we did in the 90s. 

    I do expect a big temper tantrum this week.  I know I threw one at Bush’s last budget (in fact it was BECAUSE it hid so many costs) and the GDP is going to back up the Doom and Gloom squad tomorrow so still balanced bearish off this level as we haven’t hit one of our goals yet:  Dow 7,400, S&P 780, Nasdaq 1,450, NYSE 4,850, Russell 415.  Keep that in mind.

    SLM possible wrecked by new budget?  Down 30% today.  Hard to tell if this is true but Kudlow hates it so it must be a good idea…

  42. Bought some at 2.54, 1 cent off the low for today so far.

  43. Bronek – you’re welcome! 

  44. Cap,               hypocrisy rules….no more earmarks …wait for it….after this year…change is obviously deferable

  45. Phil, what do you recommend for a mattress hedge ?

  46. Phil:
    is WMT a buy ?
    either stock or a LEAP ?

  47. UK just closed up 1.3% @ 3900 , nice round number. Quite a big slide into the close.

  48. XLF toppish :) shouldn’t be at 10 or 15 ?? in a year, we are not toppish when we go back to reality right ?

  49. Phil: I am interested to close some positions which are up and I have a gain:
    just closed WFR hedged stock at 32$ gain,
    I am looking at CHK which is up, is it worth holding longer ? (gain is 35 %)

  50. are you still long the xlf puts or are you stopped out.

  51.  Trying to buy back USO 21 puts @ $0.15. Sold them just last Wednesday for $1.04!

  52. Mattress/Cap – I like that QID play from yesterday’s chat:  "October $50 call is $16 but the Oct $25 call is $32 – just $16 in gain for a $25 move.  BUT, we can use that to our advantage because the Oct $45 call is $18 with $5 in premium and the $60 is $13.30 so we only expect to lose about $5 (27%) on a 33% drop in QID while the $30s are $27, so a 50% gain if we move 33% the other way."  So today the Oct $45s are still $18.40 on a flat Nas and the Apr $64s can be sold for $8 so that’s in for $10 with a $19 spread.  I think the Dow is too likely to move up with the financials so you can get pretty burned there but many tech companies have weak earnings and drillers are still questionable, a lot of them are in the Qs and then there will be random bank failures and health care issues as winners and losers emerge so, if things are going to hell, I like the Qs as a hedge a little more than DIA at the moment.

    WMT/RMM – They are the best retailer but that doesn’t make retail a good place to be.  If they go back to $45 I like them or if you are just using them as a selling vehicle I like them but I don’t think they are going past $55.

    XLF/Micro – I mean today toppish, not for the year!  I’m sorry but I’ve been doing very, very well calling these silly tops and bottoms since I decided last week that investors are far stupider than I had previously thought.  CNBC has gone from being a diversion to apparently the main way people get their information.  So when I see a $1.75Tn deficit delivered by the President today, it doesn’t surprise me that gold goes down because people ARE that stupid.  It doesn’t surprise me that the markets go up for the same reason but then they get to my levels, where people who think like me have designed programs that handle hundreds of billions of dollars and you can see the markets come to a dead stop.  Retail lunacy will only take the market so far, that’s been the case with the bottoms and the tops of late – the crowd runs too far one way or another and then people are "shocked’ by stick saves or sell offs that counter the day’s move.  At this point I’m just going with the flow (or against as the case may be).

    CHK/RMM – I’d take that and run.  WFR too.  35% with 3 weeks to go means you can probable do better on another deployment of capital, like UNH today.

    XLF/Ronald – I stayed in the puts per my 10:55 comment where I declared it a bad day trade (although working now) but good overnight proteciton I was willing to add to or roll.  As it turns out, I did neither as it didn’t get much cheaper so I’m back on my original premise and now we’ll see how they handle each .20 level going down, which is their usual resistance.

  53. Phew, ½ day of work done.

  54. C taking a dump now

  55. GLD  I’ve got 3 Sep 88s covered with 1 Mar 90 and 2 Mar 97.   What do you think about rolling the 2 Mar 97 --> 1 Mar 92 for a .10 credit?  

  56. Phil
    I have put two different programs on my vista that are supposed to update your page every minute including adding firefox and putting program on it that is supposed to update your page but I have to manually update the page and I’m late on getting your updates.  I don’t know what to do to correct this.

  57. Ronald – on Firefox, make sure a check mark is on the word ‘enable’ where the cicular arrow is used to refresh…

  58. Phil: tempted to close SPWRA: have only the stock left, gain overall 84 %, worth keeping ??

  59. Cap
    February 26th, 2009 at 11:48 am |
    C taking a dump now
    Oh, you mean Citigroup!   Thank God!   For a second I thought you were making a disgusting twitter comment that you’d be away from the keyboard for a few minutes.  :-)

  60. WOW i am impressed robinhood is here. is he realy going to pass this stuff through congress ? it feels like a dream. about the retail investors being stupid i agree, but its very very sad as basicaly they are being slushed around to make waves so their pockets can be emptied. sad realy. ready to pay you 40% rate ;) ?

  61. Pharma not participating today. 

  62. GE  What’s a good target to sell this month’s callers?

  63. Phil – I’ve been doing very, very well calling these silly tops and bottoms since I decided last week that investors are far stupider than I had previously thought. ….. I hope you are making tons of money. I too think investors are very silly – but for different reasons :-)

  64. "Factually wrong" that they are raising taxes when they are raising taxes ?  Nothing but Spin & Lies.

  65. Eph …. LOL ….. talking about C.

  66. Phil – do you think X is getting pinned in here?  Puts OI is outrageous, and downside could be more (approaching the one in Nov).

  67. Phil: BTU hedged stock position to close ????,        is it worth keeping, have 4.4 % gain,

  68. "War on the Wealthy"    Alliteration aside, has CNBC moved significantly right politically in the last year, or has it always been this way and I hadn’t noticed?   Do you think it is a response to Fox’s launch of a business channel?

  69. I could see some philosophical arguments with other parts of the plan, but taxing carried interest at normal rates seems to just be fixing a massive flaw in the current tax code.   I recognize that a negative consequence might be that money goes overseas, and maybe there are ways to limit that, but philosophically I think low rates for carried interest is indefensible.  

  70. Phil,
    Can you really see X below $20? $150 seems like 10 years ago

  71. CHK getting wacked

  72. LOL, now Kudlow is outraged that the golf industry is suffering because banks are dissuaded from doing deals on a golf course.  I’ve seen so many executives waste thousands of hours on golf courses under the guise of doing business I have no pity for this one.  It’s only the way business is done in a wasteful, excessive society – in a recession it’s a crime against the stockholders to spend 6 hours (travel, lunch & game) to do something that could be accomplished on a 30 min conference call.

    BKC at a very fair price and just affirmed outlook.  Stock at $20.30, selling Apr $20 puts and calls for $3 is net $17.30/18.65.

    GLD/Eph – I would take them out at the moment and see how the day ends.  We’re down $5 from yesterday and bond rates are climbing – that’s wrong.  Costs you $8 to buy the set out and you can easily cover with 3 $95s, now $2.35 and get $6 of it back if you get nervous but these are the kind of moves you want to use to your advantage.  If you are against spending money, then the roll is good too.

    Vista/Ron -  I have no clue about that.  I just hit F5 when I want to refresh the page.  What I do is have 2 windows open, one for commenting and one for bookmarking the last comment I read.  Only refresh the comment page and the other page refreshes itself when I submit a comment anyway.  I know there are some programs that auto refresh but I’ve never used them myself.

    SPWRA/RMM – Well they are my favorite solar stock but up 84% is a good reason to go to cash.  You can always trade 1/10th of your SPWR for 5x LDK (my second fav) and sell the Apr $5 puts and calls for $2.30 for net $3.90/4.45.  Since you are collecting $1.20 in premium x 5, it’s like getting $6 per share of SPWR in premium for the period.

    40%/Micro – At this point, if there’s an economy to earn an income from in 2010 I’ll be thrilled to pay 40%!  This is what Kudlow and Co do not get – had we invested in infrastructure and grown this country, the US would still be the worlds largest economy and we’d very likely have a $20Tn economy rather than $13Tn.  By hamstringing the growth of the lower classes and skimming all the profits off the top, they end up fighting for table scraps in a shrinking economy – it’s an insane system.  The world did not prosper without wealth redistribution – it never did,  It was the whole concept of Robin Hood socialism that allowed human society to grow by leaps and bounds as it did for the past 100 years.  The average American now lives better than a millionaire in 1930 because the prosperity is spread around but the average Billionaire has such a ridiculous surplus of wealth that it’s a drain on the rest of society.  See "The Dooh Nibor Economy."

    GE/Eph – That might have been it!  I’d give them until next week and see if we do get a financial run.  They are in such a sweet spot to benefit from the stimulus it amazes me they’re still down here.

    X/Pharm – They are priced for BK and a hell of a lot easier to bail out than GM.  Also, you can say we don’t need an auto industry but I’d be concerned leaving our country without the ability to make steel….

    BTU/RMM – I’m in for the long haul.  Oil going up, no reason to sell.

    CNBC/Right – Clearly an editorial decision was made.  Putting Kudlow on in the middle of the day is effectively telling the left to take their business elsewhere.  It keeps me wondering how MSNBC is so liberal – I suppose MSFT must have more control over there.

  73. ISRG seems to be taking a hit.  Anyone have any news on it? 

  74. Homesales / homebuilding analyst note:
    Homebuilding: January New Home Sales Fall Strongly, Well Below Street; Maintain Negative Sector Stance

    January New Home Sales fell strongly, down 10.2% sequentially to 309K from an upwardly revised Dec. (344K from 331K previously), well below the Street’s outlook for a 2.1% decline. Moreover, on a YOY basis, sales fell 48%, worse than Dec.’s 43% drop. Accordingly, given the continued weakness in the NAHB survey, which remained depressed at 9 in Feb. only slightly above Jan.’s record low of 8, we believe sales should remain depressed through the Spring selling season. As a result, we continue to believe a trough in the housing market remains elusive. In addition, while absolute new home inventory continued to decline, months supply rose to a new record high. More importantly, however, we believe the core problem facing the housing market is still the highly elevated level of existing homes available for sale, which stood at 3.600 mil. in Jan., and is 10.5x the size of new home inventory. Accordingly, given our outlook for continued weak demand amid rising unemployment and low consumer confidence, tight credit conditions, and rising delinquency trends, we believe inventory should remain highly elevated over at least the next 6-12 months. As a result, we believe this should result in further home price declines and large impairments well into 2009, and thus reiterate our negative sector stance.

    While absolute new home inventory continues to decline, months supply rose to new record high; more importantly, however, existing home inventory remains the core problem. Absolute new home inventory fell 11K units to 342K, rep. a 3.1% decline and a 40% fall from its July ‘06 peak, while specs fell 4.2% seq. to 298K, down 38% from its Sept. ‘06 peak. However, mos. supply rose 9.0% to a new record high of 13.3. Importantly, we believe these declines in absolute inventory remain relatively immaterial relative to existing home inventory, which remained at a highly elevated 3.600 mil. in Jan., or roughly 10.5x the size of new home supply.

    Prices fall, but we believe more declines are necessary. Median prices fell 9.9% seq. to $201K following Dec.’s 0.6% decline. On a 3-month moving average basis (to reduce volatility), prices fell 1.8% seq. and 8.5% YOY. We continue to believe further material declines in new home prices are necessary, given continued weak demand and our outlook for further deflation in existing home prices, which should drive continued large impairment charges for the builders.

    Regionally, new home sales’ decline led by the West and South. Specifically, the West fell 28% sequentially following December’s 2% sequential decline, while the South fell 7% following Dec.’s 9% fall. Moreover, the Midwest fell 6% sequentially following Dec.’s flat month, while the Northeast rose 13% following Dec.’s strong 39% decline. On a YOY basis, all regions fell between a 34% to 60% range.

    Maintain negative sector stance. We note that while the large-cap builders are currently trading at 0.56x P/B (ex-FAS 109), modestly below the 1990 trough of 0.7x, we also point to a markedly more challenging housing and macro environment today. Moreover, we believe our outlook for impairment charges to represent another 30% hit to builders’ book values could easily prove conservative. As a result, we believe a sustained positive move in the homebuilders at this point will require a fundamental driver, rather than simply a more compelling valuation multiple, given the current lack of confidence in asset values.

  75. Phil: have closed CHK just befor it tanked , also closed VLO, WMT,
    take the gains as yoiu say.

  76. Are you getting long here Phil?

  77. CHK looks like a hit job ?

  78. Phil: Thanks for your comprehensive response to my Tech trade idea. I’m still digesting the info and not sure what to do outside of daytrading.  My main objectives are Low risk and capital preservation.  Not easy in this environment for making profits.  Not for me anyway.

  79. MRK – been watching them closely, prob getting hit b’c of healthcare plan.  If they fail here then it is back to $26.  Could sell 1/2 Mar $25s P… FWIW

  80. Check that, Apr $25s P

  81. Phil,
    I have a few stocks that I own that I want to sell Mar calls on (X 20 @ 2.7, AXP 12.5 @1.75, YRCW 2.5 @.50, GE 9@ 1.01, CAT 26 @ 1). Do you have any suggestions on improving these positions?

  82. It’s amazing how you can spin a story.   Here’s a different way you could spin the current CNBC story:  "Imagine, banks demanding money from people when they can’t even prove that they owe them anything!"

  83. Phil, I need real help.  My portfolio is now all jumbled as I entered positions, adjusted, partially entered, DDd, etc. and I have an insurance put that I need to cover so, please review and let me know what your advice is with regard to my portfolio. This is all my investments, so I have no other hedges, covers, etc.
    Take your time, maybe after hours if you can, it would be great help!
        bought 200 shares AAPL stock @ 92.67, now $91.58
        sold 2 Mar $90 calls @ 8.31, now $5.15
        sold 2 Mar $90 puts @ 5.80, now $3.85
        bought 500 shares ABX stock @ $24.43, now $31.14
        sold 5 Mar $37.5 puts @ $3.67, now $6.9
        bought 6 Apr $87 puts @8.03 now $14.10
        bought 1000 shares stock @ $8.26, now $6.24
        sold 10 Mar $10 puts @ $3.16, now $4
        bought 500 shares stock @ $11.54, now $9.30
        sold 5 Mar $12.5 calls @ $1.67, now $0.07
        sold 5 Mar $12.5 puts @ $1.97, now $3.25
        bought 7 Jan 2011 $70 calls @ $23.80, now $32.50

        bought 8,000 shares @ $3.20, now $2.58
        bought 5,000 shares @ $3.34, now $2.50
        sold 50 Mar $5 puts @ $2.36, now $2.50

  84. CHK  Good investor presentation.   Makes the case that shale producers are going to be in the driver’s seat in the future because production costs are so much lower than traditional production and are likely to go lower as the industry gets better at it.

  85. You are absolutly correct, this country has the potential to have an explosive growth. its all there, the money, the universities, all the very specialized companies spinning off from them. you can not pay to get an infrastucture like this in place, and here we have it and just letting it idle. its like tieing a race horse down with chains. why cant we put people in charge of things that are educated in that field ?

  86. Phil,
    I just bot 100 shares of APC and 100 shares of CHK slightly above $36 and $15 respectively.  It looks to me like "the boys" pushed it down for an easy entry point.  Who knows?  Anyway, under that assumption, What’s the easiest/simplest way to hedge the downside given my inability to write calls or sell puts? 
    I’m thinking I should let it run awhile, but then what?  Your thoughts?  Please keep it simple.  I don’ want to get in over my head just yet.

  87. By the way, a friend of mine, professor at a large university, told me the stimulus has an unprecendented amount of funds for NSF (National Science Foundation) projects.  The way this usually works is university scholars apply for NSF funding, and they get though a very selective process and very few projects are funded.  But this year, because of the large amount and a provision that it has to be spent by the NSF within 120 days, pretty much all NSF projects will get funded.  So, this could be a lot of waste, since I am sure not all proposals are all that great, and also that people with bad rpojects, knowing the approval hurdle is low, will probabloy submit application to fund projects that they typically would not.

  88. Phil: can we explore the LDK situation,
    you like it, why ? its at a real low, yes,
    what is outlock for their business ?
    I closed  my SPRWA for a good profit, you said use some of that to get the LDK,
    the hedged stock position in LDK I have is about even on the puts and calls but has lost 1/2 on the stock which I bought at 12$,
    of course, the whole trade depends how LDK is potentially performing.
    Tough situation.

  89. JWick, how can you not write covered calls?   That is allowed in any IRA.  

  90.  Mkt internals are neutral, NYSE TRIN trending up, NASDQ TRIN trending down . Kudlow did his job. I see trading range 7250 – 7420, So my DT-2: bought DIJ 74calls @2.19 S/L 2.08; Trgt 2.51. Let’s hope we close on a + side.

  91. ephmen85:  You’re correct, I can write covered calls.  What I meant to state was I cannot sell naked puts or naked calls.
    Thanks for setting me straight.

  92. Win some, and lose some, and lose some and lose again . I am out. Wow, someone hit mistakenly hot a big SELL button.

  93. CHK/JWick    Selling covered calls should be the norm, not the exception.   Obviously you can try to time the sells on run-ups and if you think we are due for a really big move you can go naked for a while, but especially in these volatile markets there is just too much premium out there to not pick up some of it every month.   Covered calls are your easiest hedge.   If you are a bit bearish, sell the Mar 15s for 1.80, if you’re bullish sell the Mar 17.5s for .55,. in either case you are bringing in a decent amount of premium and in 3 weeks you can do it again.

  94. ISRG/Steve – Just selling off with the sector I think.

    Builders/Cap – Yuch!

    Long/JW – No, I’m bearish until we get through GDP unless we break through our levels.  I doubt that will happen but who knows what shenanigans will come into play this afternoon.

    CHK/Cap – that was RMM getting out…

    MRK/Pharm – I know, I still haven’t found one to hang my hat on the way everyone’s trading.

    Ha!  Donnie backs me up – says golf is not good bang for the corporate buck….

    JW/List – Are you saying should you sell those calls?  As long as you are comfortable with the sell and the roll to whatever April call then sure.  As I said above, GE I would hold off on and YRCW too as you are capping your gains more than they may revbound but ask again on Monday as we’d better be looking up by then.  When in doubt, sell 1/2 of a lower stike like the X $17.50s for $3.95, which gives you almost the same downside protection and can be rolled to the same 2x the Apr $22.50s but give you the flexibility to roll up to 2x March $22.50s or $25s (now $1.40) or, on the downside, to cover even more.

    Bank spin/Eph – I love this one.  Good point by you but think of the overall implications.  There’s probably no reason any of us need to pay our mortgages.  I know there was a period of time where almost every other month we got a notification that our loan was repackaged – I would challenge anyone to trace it back at this point, especially as the paper trail probably leads through several bankrupt entities…

    Jordan, remind me later and I’ll be happy to go through it after the close.

    CHK hit by Obama administration cancelling all Bush sweetheart drilling deals (the ones they were trying to ram down our throats ahead of the election – remember "DRILLDRILLDRILL"?) and reassing commercially reasonable fees.  That’s freaking out the whole E&P sector but it’s silly as it’s only a pass-through in the end.  The bottom line is that oil companies will never get back to the obscene profits of the past 8 years.  Forgive me for not crying…

    CHK/JW – Oh I get it, I’m confusing you with JWM – that’s why I can’t get it straigh whether you can cover or not.  OK, now I have it right…   Based on the conference call of CHK and the rising price of oil and the contract panic which I think is overblown, I would say your best move is to wait for a 10% gain before hedging.  You have $5,500 worth of stock.  I’d hedge with XOM puts as I think they are the oil co with the farthest to fall.  A 20% drop in XOM is $15 to $67 and you can get the Jan $70 puts for $9.77 or $977 for one contract.  They should double if XOM drops 20% within 4 months and if XOM goes up 20% they should be worth about what the $60s are worth ($5.70), less the time decay (30%) so you are risking $5 and should offset more than $7 on a drop.  Clearly you make $1,100 on a 20% rise so a good offset there and it also offsets your losses quite well.   That is IF the relationship correlates.  If you try that hedge and you do not find that they are well synchonized, then it’s time to select something else.

    NSF/Jordan – Well that’s bound to happen making up for years of neglect.  I have friends at NASA and all I can think of is the hundreds of fantastic projects that have gotten the ax in the past 8 years so I’m not too concerned about overfunding until I really see it happen.

    LDK/RMM – The lowest cost supplier of solar wafers in the world.  As massive projects get funded these guys can make the bids work for many people.  Basically they are using last generation stuff and mass, mass producing – kind of like the companies that make $49 DVD players – it’s a good niche.  This is a 2009 call and it’s only February.  Not one penny of stimulus has been spent yet.   If you are not patent, it’s not worth it for you.  I liked them at $12 and I love them at $6 but I also like CROX for too long…

    LOL JWick!  Then you can hedge by selling covered calls.  That’s much better than betting against yourself.

    Not good on XLF – see they tested $8.40 to upside and failed.   That puts them on path to test $8.20, which is light resistance on the way to a real test at $8 and below that we are back to $7.60 so be careful if this starts breaking down.

  95. Phil & ephmen85:  I hadn’t thought about selling the covered calls.  That should be the easiest strategy for me since I’m a beginner.  Thanks a bunch!

  96. Phil, do you of any sector that pays more taxes than oil..exxon alone paid 30 billion in 2008

  97. Phil:
    CHk: what luck I had, (wish I knew how to add a smiling face, just typing what you guys suggested yesterday does not work).
    LDK: what is"patent" ?
    wonder whether I should just take the SPWRA profit and use it buying LDK ?
    Will they profit from Obama plan /

  98. Nice recovery by CHK from that selloff (or sellout).  I bought 1000 shares at 15.03; gone now.

  99. Phil, do you expect anything from the FDIC’s report on the health of the nation’s banks out at 2:30?  I mean, we know it ain’t good..  But do you think the market will react? I"m inclined to think so..

  100. should have bought more; or calls also;  it looked like a scam play.

  101. Matt; I will note that Thurs afternoons often sell off at 2 2:30 anyway after a few days run up; so the report might be just an excuse for what might happen anyway.
    I don’t know what will happen today; could go either way or no way.  How’s that for prognosticating ?

  102. As suggested TRLG proved a good short ahead of last nights earnings and last weeks huge run up. -14% today.

  103. The problem with all the supply siders is that you are arguing against their religion, but the actual data (which I do not have at my fingertips) of the current economy does not support their position.   They just look at the Laffler curve, but forget that it all depends where you start.   If rates are 90% and you cut them 50%, the increase in the size of the economy increases business activity and increases overall tax revenue and lower rates can shrink the deficit.   That’s not where we are now and haven’t been since before Reagan.   If you cut rates from 35% to 30%, you don’t get enough of a boost in economic activity to overcome the reduced rates and deficits go up.  That’s not a philosophical position, that is the actual measurable effects that tax cut have had on the economy over the last 25 years.  Phil is great at digging up the data so maybe he can find the actual numbers.
    What’s so frustrating about today’s political atmosphere is that people are unwilling to acknowledge that there opponents have any point at all.   The NY Times had a good op-ed about this yesterday

  104. Cap, that’s some good stuff.  Seems the markets got ya a little confused.  Join the club!
    Eph, what kind of work do y ou do?  scientist?

  105. Phil,
    Changing my profile name to WesMc from Jwmconn to help avoid confusion of the JW’s. I made some decent money on my calls that I have sold. I have waited on selling some of the covered calls because of the large drops in the value of the underlying stocks. I wanted to sell Mar calls on the few stocks where I don’t think the stock is gong to go up much by OPEX. 

  106. Jordan list:

    • AAPL - right on target
    • ABX -  Never sold calls?  Oh well, long way to Apr and the escape is rolling $6.90 putter to Apr $30 or $32.50 or $35 puts and calls for $6+.  
    • DIA – Obviously you should have stopped out of them by now, unless you’ve been playing with covers.  WHEN YOU HAVE A DOUBLE (like you had yesterday) YOU HAVE TO WANT, WITH ALL OF YOUR HEART AND SOUL, TO CASH OUT – IT HAS TO HURT YOU NOT TO CASH OUT – YOU HAVE TO HAVE AN AMAZING REASON NOT TO CASH OUT AND, EVEN THEN, YOUR REASON IS PROBABLY STUPID!  Is that clear?  So I would cash it out and sell the March $74 puts for $3.23 and buy June $77 puts for $8.38.  That’s net $5(ish) and you can buy 15 of those for 1/2 of what you have on the table now. 
    • FAS – Where are your calls?  Have you taken them out already?  No worries here as you can roll the $4 puts to the Apr $9 puts and calls at $4.55 which lowers your basis to $7.71.  No rush as long as the roll relationship stays around that level. 
    • GE - Obviously take out the caller.  Same as FAS, the Apr $9 puts and calls are $2.70 or the $10s or the $8s so no rush unless the roll turns unfavorable.  You will not "win" every month, some month you roll up, some you roll down and any month they flatline you wipe out the puts and calls. 
    • GLD -     $38 last week wasn’t good enough for you?  If you set a stop at 20% of your $15 profits you would have been out at $35. Not too far off.   You can also hedge of course but you are still in too deep.  If you go back through last week you’ll see I was very into getting out/hedging our long GLDs as we expect a pullback to $850.  Right now I prefer the Jan $85s at $17.80 selling the 1/2 the $92s for $3.50 and seeing what happens next.  That takes about 1/2 off the table so you can always roll down or whatever as necessary but you lower your downside delta considerably. 
    • UYG - Sell 1/2.  That leaves you in for $3.82.  Sell the Apr $3 puts and calls for $1.18, that drops your basis to $2.64/2.82 and if you have to DD, you’re back to 8,000 and you’ve saved yourself 10% off your current basis.
    • YRCW - Again, where are the call sales?  Hopefully you see that buying a stock and just selling a put is very, very bullish and can kill you.  This one you either need to double down and sell 2x the Apr $2.50s for $1.10 or just roll the putter to the July $2.50 puts and calls for $1.75.  As you bought in for $3.34, your net is still way down at $1.59/2.05

    On the whole, it doesn’t sound so bad, especially for a month where the market dropped 12%.

    XOM/Potter – $30Bn in taxes on $400Bn in revenues (7.5%)?  AXP paid $1.2Bn on $8Bn in revenues (15%).  ABX pays $1.5Bn on $6.3Bn in revs (23%), AAPL pays $2.2Bn on $10Bn (22%), NKE paid $520M on $4.5Bn (11.5%).  So no, I do not know of any company who takes more from the American people and gives back less – don’t even get me started on a jobs per dollar of revenue or the poor people of Valdez Alaska who’s lives were destroyed and XOM just weasled out of paying more than a token amount 20 years after the fact while they paid out 30 times more than the entire lawsuit in dividends and stock repurchases over that time period. 

    Patent/RMM – patient.  They are not American so not sure if they directly profit from stimulus but global push to renewables is on.

    FDIC/Matt – I would think it can’t be worse, may be a good excuse to rally if Whitney/Roubini turn out to be off by a  few Trillion.   Need to have some FAS calls lined up, just in case.

    Unwilling/Eph – I blame the web.  No matter how insane your viewpoint is, you can find a dozen web sites that agree with you and they link you to a dozen more and then you bookmark them and end up in your own little universe where everything you believe is reenforced constantly.  That’s why I go out of my way to read stuff I totally disagree with 25% of the time…

    Cool Wes, that will be less confusing.  It will be very strange to have no window dressing into the close of the month but we are miles away from our levels still…

  107. Matt, I’m a former banker and teacher, but for the last ten years I’ve just been investing and playing poker.  Unfortunately, recent market losses, combined with the normal volality of poker, means that I have to heed my wife’s advice and "find a real job with some more stability."   So I’m in the job market, but as you can imagine, having limited success.   Anyone got any interest openings?   After all, I’m the product of a classic liberal arts education (Williams, 1985, Political Economy major); we can do anything!
    Off to get my haircut, back for the close.

  108. 1/2 covering DIA puts with March 75 puts at $3.70.  If we break up, I add more, if we break down, roll them to 2x a lower put when they lose 1/2 premium.

    Watching XLF $8.40 as break up point on pending news.

    252 problem banks with $159Bn in assets???  I don’t think that’s too bad.   Industry lost $26Bn in Q4.  $69Bn was set aside to cover losses – that’s a lot.  "Agency should consider special assessment on banks to up reserves."

    Well not really bullish but not too bearish at all.  I’m going with FAS Apr $7.50s at $1.05, stop if XLF can’t hold $8.20.

  109. Don’t look now but HOV is a buck!  NO IDEA WHY after that DISMAL report.

  110. Job Eph – My brother is hiring for ad sales (very good commissions) so let me know if you’re interested.

    Watch RUT 400 – Hyper critical level for direction.  760 of course on S&P, 5.50 on BAC.  I think this is just the sheeple panicking on numbers they don’t understand and here comes Cramer the shepherd to drive them over the cliff….

    Yay HOV!

  111. Boy did XOM decouple.  Dow flat, XLE up 2%, XOM down half a point! 

    FAS not coming down, watching that $8.20 line on XLF but it’s going to cost $1.10-1.15.  I’m not happy so I’m buying much less with intent to DD lower.

  112. Thanks Phil,
    Yes I take your advice wholeheartedly.  I did sell calls on ABX and GLD, which I cashed out.  I also sold puts agaionst my DIA, which I cashed out.
    But my mistake, especially on UYG and YRCW was to go into a position with a stock purchase, a put sale, and wait for a rise to sell a call, and when the rise never came but the stock dropped, I just froze like a deer …

  113. Come on Jim – scare folks out of financials!  Notice we are almost exactly at a 50% retrace off yesterday’s close to today’s high – still makes it interesting to me…

  114. Phil: is there a meeting going on or is someone making a speech: market going sour.
    LDK is China, how much of the SPWRA profits should I invest in LDK, its just half what I previously paid for, 6 now, 12 then .

  115. LOL Jordan – It happens to all of us.  Think about it though, the upside on those trades hedged was about 30%, that needs to be good enough for you.  Better to get 30% with a 10% downside than maybe 50% with a 50% downside. 

    Wow, CNBC is amazing, just 30 days into Obama’s Presidency they have identified a new rising black upper class and named them NewBos.  What a bunch of tools!   How do these people get to call themselves a news station?

    LDK/RMM – Like I said, just take 10% and buy the LDK spread.  You’re pocketing 90% of the cash and you still have a nice upside due to the multiple.

    Well, so much for being hopeful!

  116. Look how poorly SKF is doing given the selling pressure !  Fantastic.
    Looks like they want to focus on SRS now, as the govt isn’t helping out there.  Should be shortable real soon.

  117. Cap, I shorted SRS as it went through 78, a little early perhaps but we’re thinking along the same lines.

  118. Cap and Mr Mocha: I went to short SRS but too early, well, maybe tomorrow it reverses.
    But why should It do so ??

  119. RMM, great question. I’m still downbeat on real estate and own SRS for my IRA, today’s play is simply hoping for some profit taking after a massive run up, plus looking at the overhead resistance in the low 80s the last few days.

  120. I think this is the place to go short SRS; but dangerous to make a play in the last 1/2 hour so probably not.

  121.  Phil
    I have the DIA Jun 80′s naked right now, time to cover? Thanks

  122. IF financials are going to stabilize; no way SRS can disconnect from that.  In other words, you won’t have financials going up or flat and SRS continuing to go down.  The reason for that is stability in financials will be positive for real estate.

  123. What ever happened to Gasparino’s govt/C deal that was definitely going to get announced Mon Tues or Wed ??
    That boy spends too much time at Elaine’s.

  124. Note to put sellers.  Here’s a way to think outside the box on puts you sell.  Let’s say you sold UNH $25 puts for $2, now $5.10.  Perhaps you do not want to roll to 2x the June $20 puts at $3.03.  There is nothing that says you can’t instead sell 2 GENZ Apr $62.50 puts for $2.65 or 1x ISRG Apr $85 puts for $4.95.  You simply pay the $500 to kill the UNH and switch to something that pays you $500 that you feel better about (and gives you more premium).  You don’t even have to stay in the sector, you can get $5 for selling the SKF Apr $95 puts and they are $60 out of the money – very good if you have portfolio margining.  This is very useful for people who have putters that are so deep in the money that they don’t have a good roll in their current stock.

    DIA/Deano – I like the 1/2 cover with March $75 puts, as I mentioned above.  Hard to say what happens tonight but we sold off today on health scare and bank scare.  I’m not sure how many days people will stay scared at this point.

    Short side financials all stopped out – just long on FAS now.

  125. Phil: while you called me nuts, you never said what to do with my FAS putters march 7.5 and apr 5,

  126.  Phil
    Not sure I’m getting it (and I’ve read all the articles). Why would I want to sell already $3 ITM with only $2 of premium, when I could sell the 72′s OOM with $3 of premium? Thanks for your patience.

  127. Very late save today but its getting there. Was there a line item in Obama’s budget for the PPT ? How much was it ?

  128. Phil:  Are you expecting more downside on CAT and X?

  129. Do you guys realize at every break on CNBC there’s a commercial that says "the stimulus will hurt the economy."  This is being played about 200 times a week to anyone listening to this station – I can’t imagine where they have the budget for this.  Don’t you think this is like a little whisper in the back of people’s minds saying SELLSELLSELL.  Maybe that’s why they have so much airtime, maybe CNBC likes this commercial.  Oil companies and brokers don’t seem to have the budget of this PAC…

    FAS/RMM – Well if you are nuts to hold them then buying them back would be a good idea.,  I assume you got the point in that relentless 15% sell-off since 11 am.  I just took the Apr calls so I am now bullish but my risk is limited, yours is less so, especially on those March $7.50 puts that are in the money.  As I just said, better to trade for SKF calls that are way out of the money. 

    DIA/Deano – Because you can roll the 1/2 $75 puts to full $72 puts any time but if the market gaps up tomorrow, you’ll be able to sell another 1/2 to cover and the $75 puts will lose value MUCH faster than the $72 puts.  It’s about flexibility, not just premium selling. 

    We are down just about exactly 20% for the year so far.  What an awful way to end Feb.  We are supposed to get a 4% bounce off the bottom, if we break below 20% without a bounce (7,560-ish), things are going to look dire.  I’ll run those numbers for tomorrow. 

    CAT/X/JW – I wasn’t expecting more downside 20% ago!  To some extent this is a reflection of durable goods but we are 8 months into a recession and investors are acting like there is no light at all at the end of this tunnel.

  130. XLF up 1.88%
    UYG down 0.41%
    FAS up 4.11%
    UYG seems way off. Who designs these things?

  131. Phil – investors are acting like there is no light at all at the end of this tunnel…  Its not there’s no light its that the tunnel is longer than you think. The situation is worse than you give credit for and it will take longer for all the actions to work. I believe they will work but not untill middle of 2010. The whole of Europe is yet to get to the state the US is currently at in terms of rescue/stimulous and half the European and east European banks/financials havent ‘fessed’ up yet. Have some more coffee :-)

  132. DELL disaster!  Hopefully, at this point, people realize DELL just sucks, it’s not really an industry thing to the extent that they are getting killed. 

    UYG/Jordan – Yeah, that’s strange.   Looks like another broken ETF to me.

    LOL DB – We’ll see.  To me it’s a math problem.   You have an artificial halt to commerce due to lack of lending and general panic in Q4 and Q1.  $9Tn in bailout has been put into play yet none has actually been deployed meaningfully (lenders aren’t lending, programs aren’t funded).  There is $4Tn of cash on the sidelines of what is now a $20Tn stock market and nobody in this country has bought a car or a home in a year.  If things don’t get MUCH worse soon, you may never see what hits you when this train reverses…

  133. Phil, thanks for your comments above, I have already started modifying the positions.  From my positions above, is any one of them one you would just abandon completely?

  134. That was great!  In and out of GOOG (340 Calls/350 Puts) and DIA 75 twice today and twice yesterday…
    Picked up some RIMM and X common… 
    BTW, When our political system allows taking money from one group and giving it to another in exchange for votes… The American Experiment is finished.

  135. It’s a long tunnel and the train takes time to accelerate. Personally I’m never short for longer than a month , which I figure will be less that 1/12 of the time it’ll take to accelerate. Meanwhile for anyone interested here’s a global take from the UK and a view on the colapse of the European Monetary System..

  136. Good naked put (to SELL) candidates:

    AMGN took a nice dive today.  $50 puts are $1.75 but let’s make sure they are done going down.

    RAH fell back to the 50 dma crossing the 200 dma, nice spot for a rally.  Apr $55 puts are $1.58.

    APOL got whacked for no reason I saw: $65 puts are $1.62, wish I’d seen this $4 ago this morning!

    GMCR in an interesting squeeze on the charts: $35 puts are $1.43.

    List/Jordan – Not really, they are generally find.  UYG sucks but that’s your caller’s problem, not yours. 

    Experiment/Texas – I think then that we must have already failed in the 30s.   Actually, this country was founded on "No taxation WITHOUT representation" there was never any actual objection to taxation.  So specifically, our founding fathers wanted to have someone local to sell votes to.  I don’t know what fantasy world you guys think exists where people can just take and take from society and contribute nothing.  Oh wait, that is America for the past 8 years.  You are right, THAT experiment has clearly failed and is over…  8-)

  137. I warned y’all about Obama …. plus Pelosi and Reid.  That is just not a healthy combo….

  138. Phil what are you smoking.
    Your pals in Congress are the leeches who take from society and contribute nothing.
    And what your pals are doing is nothing more than taking from the folks who actually contribute to society and giving to the folks who don’t and expect the gov’t to provide for them.
    Not my vision of America.
    There is a role for government; but bleeding us dry and pretending that they can do anything efficiently better than the private sector is ridiculous.
    Let’s all build roads and repair bridges and install solar panels and work for the post office (no offense to anyone here that actually does any of that for a living; but that is not the foundation for an economy).

  139. ROFL Cap – So you are saying that roads and bridges and energy and a post office and I suppose schools are not the foundation for an economy???  I think I finally found the exact spot in your brain that is malfunctioning!  WOW, that is now my all-time favorite statement of yours….

  140. A very difficult day indeed and I kept covering all day.  Looks like the low is threaten again as SPY is having trouble confirming the hammers and bullish piercing pattern on the daily chart.  The Qs and IWM were a disaster today, not responding to my encouragement at 10:15AM.  Can some bullish news surprise us tomorrow?  Back to full cover.

  141.  Phil, any comments on DRYS? I have 1-1 puts sold and 1-3 calls sold, looks like full cover time?
    Phil and Cap, I love you guys! :)

  142.  Phil,

    Earlier today you wrote:

    "February 26th, 2009 at 3:41 pm | Permalink  
    Note to put sellers.  Here’s a way to think outside the box on puts you sell.  
    Let’s say you sold UNH $25 puts for $2, now $5.10. 
    Perhaps you do not want to roll to 2x the June $20 puts at $3.03. 
    Why not instead sell 2 GENZ Apr $62.50 puts for $2.65
     or 1x ISRG Apr $85 puts for $4.95.  
    You simply pay the $500 to kill the UNH and switch to something that pays you $500 that you feel better about (and gives you more premium). 
    You don’t even have to stay in the sector, you can get $5 for selling the SKF Apr $95 puts and they are $60 out of the money – very good if you have portfolio margining.  "

    I get the idea – it seems like the kind of thing I just naturally do – but
    I have 2 questions

    (1) what happens ideally to the mushrooming puts – how do I keep them under control – do I just keep rolling them down until they expire? I can’t follow more than about 18 positions right now.

    (2) I read all the time "roll to 2x the June 20 puts at 3.03" for example – does this mean
    because the June 25′s have gotten way deep ITM that we need to split the roll into
    2 June 20′s at a lower individual cost – the advantage being we can pick them off one at a time ? Or what?

    Hope you can understand me.

  143. Does anyone think there is actual accumulation going on in the markets?

  144. APIC (pasta company) was just pointed out to me as an excellent recession stock.  A little late really but wow – what a run!

    DRYS/Cris – I’m not clear which puts and calls you sold.  What was the entry position and what do you have now?  DRYS is like a roulette wheel, they opened at $4.24 and fell to $3.55 today and were $3.75 yesterday.  They were $3 in October and $17 in Jan and now back to $3….  I think advice on this one is kind of silly but I like to take out the callers on the dips and take out the putters on the runs up and resell on the next extreme.  I like $3 as a floor and $5 seems tough to break but anything in between is a random number from one hour to the next.

    Puts/Red – Mushrooming puts (I assume you mean doubling down to a lower strike) are very dangerous and should not be entered into lightly.  That’s one of the reasons I posted that note, I was thinking it may not occur to someone with 10 DRYS $5 put at $1.80 that they don’t have to roll to 20 Sept $2.50 puts at $2.50 (even though that one makes sense as it’s the same amount and same margin).  They could "walk away" from DRYS and just sell $1,800 worth of some other put.  Other than booking a loss, there’s no net effect on the portfolio (as long as the margin requirement is similar).  As I noted above, you could be fed up with shipping but will GMCR fall apart? 

    As to the 18 positions.  I’m not saying open another one.  Kill the one you are sick of and just move on to something else you would like to sell puts on.  Especially in a market like this, where good stocks are coming down with the bad, the chances are if DRYS recovers then your new stock will too and you won’t be missing anything.

    On the 2x rolls – yes, think about the mechanics.  If you have 10 QLD (happens to be on my screen) $25 puts that you sold for $1,500, they are now $3,000.   Your margin is 10 x $12.50 ($12,500).  If you roll those to 2x the Apr $20 puts at $1.50, it costs you nothing and your margin is 20 x $10 ($20,000).   Is it worth $7,500 more margin NOT to pay off the putter?  If not (or if things don’t go well between now and April), the July $16 puts are $1.50 so 20 of those is actually the just $15,000 in margin and we are down 40% from the original strike and STILL the putter is in 100% premium.  Figure by July if the QLD has dropped 50% to $12.50, you may have to roll out to the 2011 $10 puts but if the Nasdaq has fallen that far (33%) then the stupid QLD putter is likely to be low on your list of things to worry about. 

    If you scale into positions with the PLAN of being able to roll to two 2x rolls (so 1/4 entries) then you can be about 50% wrong on the value of a stock before it becomes a serious problem.  Meanwhile, when selling puts, you only have to be right once and it’s bye, bye putter and you keep all his cash!

    This is a very, very strange time in the market where stocks actually are falling 20, 40, 50% en masse.  We are basing this strategy on the premise that we are not going to 600 on the S&P (down 20%) and we can ride it out but don’t go into these if you CAN’T ride it out.

    Accumulation/Kustomz – Well we haven’t had any free falls have we? 

  145. Phil, do you still like QLD and what good entry do you see there? April $23s for $5.40?

  146. Red – for part 1, I get in the boat sometimes when the puts get away from me (i cannot keep up on a daily basis).  First, if it is under the 5 & 20D MA, I look at the downside resistance levels.  Then I try do decide to roll out a month and down for a small credit/debit, or roll down 2X same month where I can get a = money or a small credit. 
    For instance, if I sold 1 X 25 Mar P for 2 and are now 5.6.  I need to recover my 3.6.  I could roll 2X to 2 22.5 Mar P for 3.7 – but that doesn’t help at the current levels.  The 20 P are 2.1, so I would be out 1.2 on the roll, so that doesn’t work either.  I then go to the April 20s and they are 3.2.  I would most likely go to those, but for added protection JIC, I may buy 1/2 position way OTM Puts in the current month JIC the levels break (Mar 15s in this case for 0.5).  This is important to me when the stock moves out of the channels and could continue to move against you.  A bit more expensive, but I can sleep on it and I can use the money to roll again.

  147. AIPC was featured in BusinessWeek mag Dec 30….FWIW.

  148. The other feature in that BW mag was Bristow (BRS).  Interesting play, but do not know enough about ‘em. 
    Here is the excerpt:
    One guy who likes bargains is Curtis Jensen, co-chief investment officer at New York’s Third Avenue Management. But even among value investors, he says, price takes second place to "an impregnable financial position that can weather downturns like the current one. Also crucial is confident management with identifiable paths to growth." Bristow (BRS), a leading provider of helicopter services to the offshore energy industry, fits that bill, says Jensen. The stock, now at 24.51, has tumbled from 59 because of losses tied to Hurricane Ike and lower oil prices. Jensen, who owns 10% of shares outstanding, says the stock is worth twice its current price. For one thing, Bristow’s 500-odd choppers are valuable, with a ready secondary market among law-enforcement and medical interests. Also, Bristow is flush, with $400 million in cash.
    Fund manager Craig Hodges of the Hodges Fund is a recent buyer. He pegs 2009 earnings at $3.40 to $3.50 a share and $4.25 for 2010. "People are misdiagnosing this stock and tying it to oil," says Hodges. "Drilling is dying, but [serving exploration sites] is less than 20% of Bristow’s business. There’s a lot of value here trading at five times next year’s earnings." Another nod to Bristow’s worth: Its main rival, CHC Helicopter, was scooped up in September by First Reserve, an energy-based private equity firm in Houston, for 10 to 12 times trailing EBITDA.

  149. Phil/Experiment:
    Please Note: that the “Anything is better than Bush… Last 8 Years” rhetoric is rear-view mirror observation and asserting it makes about as much sense as trying to attach the fallen apple to the tree for the “Forward-Thinking” Obama disciples…
    How about this experiment? DOW 3000… (Is that a little too bullish?). 
    I don’t gamble with other people’s money and neither should the government.

  150. QLD/Jordan – See 11:43 comment on QID (the opposite) where I totally nailed the move for today as the Qs out-lost the Dow by 100%.  Yes, this is our former "sweet spot" on QLD but IF the market is going down, they Nas is going to make up ground on the other indices.  On the other hand, you can JUST sell the Apr $20 puts for $1.45.  If not put to you, then $1.40 profit vs the $5.40 you were hoping to make.  Of course this trade is $8.60 in margin vs. $30 the other way but the real key is, if this is put to you – you just have the 1 round and THEN you can sell June (or whatever) $17 puts and calls for $3.50 (guessing) and you are in for $15.05/16.03, about 30% down from here and THAT’s a pretty safe spot to start

    Since the commitment in round 2 is $16.03 vs $20.30 if you get it put to you this round.  You can go with a few extra put sales right off the bat.  Of course the puts can be rolled lower etc. but always plan your moves as if you are, for some reason, forced to complete the assignments.  If you can live with that, the rest is a cakewalk.

    Also guys, don’t forget that If you collected $1.50 for the QLD $25 puts and now it’s $3 (still $1 in premium).  Then if you spend .80 to roll them down to the Apr $22s (10% lower, all premium) means you still collected .70 against the out of the money put.  It’s hard to book a loss, even a temporary loss in your portfolio but that might be better than committing to a 2x round just to not book the loss.  That way, you are in the Apr $22 puts for .80 and owing $2.20 and then if they go $3 in the money ($19) THEN you can roll them to 2x the June $17 puts and pretso – we’re back to being 25% lower than we are now with just one DD.

    AIPC/Pharm – Man, I have to start reading Business Week more often!   BRS is indeed a great company and they are right, it’s a necessity but the combination of the oil meltdown and the low hurricane volume killed them last year.  Of course I haven’t looked at their cash flow – they may have ordered a fleet of idle helicopters…

    Bush/Texas – You are right.  We’ll try to shut out the horror of the past 8 years and put it behind us and pretend that some person came down from space and destroyed the country that had nothing to do with the Republican party, even though he is the son of a President who was the Vice-President of another Republican – I mean, we can’t call him a party guy can we – it was an isolated incident — like Nixon…   So Dow 3,000…   Are you saying that low taxes and the irresponsible acts of the previous administration have so completely and utterly destroyed the economy that there is nothing we can possibly do but ride this train straight to hell?  That’s very interesting coming from a guy who voted to "stay the course" in the last 2 elections.  At what point did the policy failures become irrevocable?  Also, does gambling with other people’s money include investing our social security trust fund in the stock market?  The Dems had to fight their asses off to stop that one from going through and that would have cost us about 50% of the fund at this point – even more if we had gone with dividend-paying banking stocks.

    I’m sorry, I know how you feel.  I went through 8 years of hell with Bush plus a Republican Congress and we were eased into it by Newt and Co when they first turned Congress into a circus in ’95 so it wasn’t as shocking for me but going from total control of government to a fringe radical group in 24 months must be really annoying – I feel your pain…

  151. Post office; let’s close it down.  Who needs it ?  Replace it w/ Fedex and UPS.  Who really needs mail anyway ?

  152. I’ve been thinking today that Obama’s budget is like buying tons more stock in GM on margin on the premise that Rick Wagoner is a management genius.

  153. Actually, the last two years of Bush we had a Democratic Congress, known for nothing but hyper partisan nonsens and obstructionism.  Is it any wonder that the wheels fell off the bus once the Dems came into power in Congress ?  I do not think so.
    Bush tried to do many good things.  Reform Social Security.  The Dems obstructed it (on the ridiculous premise that you can’t let the hated Bush get credit for fixing a broken entitlement program).  Tried to better regulate and reform that bastion of Democratic corruption FNM and FRE (a huge player in this financial crisis).  Again, blocked by the Dems that were sucking that pig dry (full employment for Jamie Gorelick, Franklin Raines, James Johnson, Barney’s boyfriend and many other Dem govt and lobbying cronies).  And who led the way in blocking regulation and reform ?  Why of course, the corrupt and morally bankrupt Chris Dodd and Barney Frank, who continue to help wreck our country.
    But you go ahead and keep railing about Bush, Phil, its already gotten old.  People now see what hopey changey bs is really all about.

  154. Phil and I are taking our act to YouTube very soon ….

  155. FedEx and UPS use those pesky roads Cap – sometimes bridges too… 

    Meanwhile, that son of a bitch Cramer just stole my 3% Mortgage Solution and pretended it was his own idea – what a jackass! 

    Cap – we need a show because I do not have the energy to answer your same BS assertions in print over and over again – talk about tired!  So you think everything was going great until Jan 2007 when the Dems took control of Congress and, RIGHT PAST BUSH’S VETO, they undid 12 Consecutive years of House Control, which included 10 years of Senate control, the last 5 of which they also held the Presidency?  REALLY – Is that what you are trying to say?  Don’t get me wrong, it’s pretty funny but it’s no "Let’s all build roads and repair bridges and install solar panels and work for the post office (no offense to anyone here that actually does any of that for a living; but that is not the foundation for an economy)." – That one is going to be a keeper for a long time….

    See, if we had a show, I could make that comment a button!

  156. Well I’m gonna go grab a shovel and get to work on some roads !
    One of Bush’s big failings was that he governed domestically like a Democrat.  I don’t exactly recall the Dems lining up to oppose the growth in spending.  In fact, many Dems were down with it.
    What I am saying is that Obama’s (and the Democrats generally) proscription for jobs is pretty underwhelming.  They envision a nation of unionized $30 / hour workers who dig ditches, spread pavement and install solar panels, work 9-5 (at best) if they even bother to show up and have bloated pensions that nobody can afford (auto companies anyone ?  state workers ? federal workers ? .   Not that there is anything wrong with those jobs per se; but that is the sum total of their entire vision of what a "job" is or the type of jobs they think are what’s needed to grow employment.
    Even you should be able to admit that is a pretty pathetic and uninspiring vision.

  157. Or maybe $7 / hour workers.

  158. Is it possible Cap and Phil are brothers……. from different mothers ……  Cousins ….. something?
    Or just  Elephants and Donkeys ,,,,,  even if this trading thing is a liitle beyond me, you guys are making it worthwhile.

  159. Accumulation/Kustomz – Well we haven’t had any free falls have we?

    Thats the first sign smart money is beginning to get back into the market.

  160. Phil. 
    I’m from a place and come from a background where we call them like we see them (Call a spade a spade). Blaming one party or the other is reminds me of my dog chasing his tail.   
    I think you missed my point. I am not a republican, I would argue that I’m the most conservative person on this forum. My party left me behind years ago. I believe both parties are the same (self-interested bums who’s main goal is to get re-elected). You live in CA right? That place is a complete mess. During this economic turmoil, 20 Million illegals are sucking this country dry (800 lb Gorilla). Don’t hear that mentioned. But, I was in the ER two weeks ago and there were 200 people there…. I asked the head nurse to estimate how many were American Citizens. She said with a straight face… ‘Maybe 15 or so".
    Simply put, it’s time to get off the golden toilet and take back the country… by force if necessary. Have we become so lazy that we can’t fight?  I’m not shorting the American people… I’m shorting the government. If it all falls apart… I’ll be fine, I was taught how to survive, thrive and help others along the way. 
    "Liberalism" will be the end of this great nation.  To hell with the lot of them!

  161. Kus, it could also be that all the money is going to shoring up the system and not moving forward.
    Phil, I think TexasMotion’s comment is telling.  He said he didn’t gamble with others money and neither should the government.  Although he’s probably going to continue to trade.. he may do more shorting.  Other’s who feel similar might just stop trading.  But the bottom line is that Obama’s bold policies are agitating if you don’t agree with them.  And that agitation will have an effect on the market.  Mostly likely to the negative.  And it’s just one more reason going against the market.  We also have the possibility of more hedge fund redemptions by end of March.  I think over the next month or two we could be taking it down to the next level.  The time is right.  There’s much uncertainty over the gov’t's position and there hasn’t been enough time for the stimulus to possibly gain traction.  It’s almost like they have to do it now (next two months) or wait a while before the effect of the stimulus wears off.. if it does.  Bottom line is, instead of protecting against the possiblity of it.. we should be preparing for it and protecting against a move to the upside.   gggrrrrr.

  162. Texas, you think the budget is bad (and it is) you have to look at the mess of Obama appointments and what’s going on with respect to foreign affairs.   This is a clown show; and its dangerous.
    As for Phil, he’s a NJ boy; but we won’t hold that against him !

  163. I’m sorry, I know how you feel.  I went through 8 years of hell with Bush plus a Republican Congress and we were eased into it by Newt and Co when they first turned Congress into a circus in ‘95 so it wasn’t as shocking for me but going from total control of government to a fringe radical group in 24 months must be really annoying – I feel your pain…
    As Larry the Cable Guy would say, "I don’t care who you are, that was funny"

  164. Phil
     I put some thought about your AH message to Edro and me two days ago and decided to request that you do not automatically renew my subscription to your service. In the last 11 months I have said many times that you and others on this board have thought me a lot about option trading and I thank you for it.

  165. Cap,  we need to put a tent on that circus!!!