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Working Class Thursday – Show Us the Jobs!

UnemploymentJobs, jobs, jobs!

That's what it's all about, or not about today.  Last week we got much better than expected numbers as Job losses fell from 640,000 to 565,000 but how much of that was due to the July 4th holiday weekend we will see this morning.  Analysts have quickly lowered their expectations to match last week's figure (as they don't have a clue of their own) and now we are expected to lose "only" 550,000 jobs this morning – still a 6.6M annual pace so keep that in mind should the markets decide to "celebrate" that number.  Looking at the chart, you'll see that July of '08 had a sharp downturn in Job losses as well, down from 400,000 to 350,000 with July 4th celebrated on a Friday last year too.  Those reports arrested a slide in the Dow from 13,000 in May to 11,000 in mid-July and the market ran back to 11,800 on Aug 11th and we held around 11,500 until things fell apart in September and we fell all the way to 8,000.  I know – history is just soooooo boring, what could possibly be learned from it?

Yesterday was an amazing day as we ran right up to the target levels I predicted on Monday, which I reiterated in yesterday's morning post, saying:  "Our upper targets to break the dreaded head and shoulders pattern are:  Dow 8,500, S&P 930, Nasdaq 1,825, NYSE 6,000 and Russell 510."  We had what we call a "Free Money Day" as the markets went up and up and up some more with the Dow topping out way up at 8,620, a 6.4% move off the bottom, which is just about a 20% retrace of the 33% drop so, of course, we shorted it!  The S&P made it right to 932 and finished there, up 7.1% since Friday.  The Nasdaq made it all the way to 1,860 after gapping just over our target at the open, up 6.9% for the week.  The NYSE hit 6,000 on the nose and finished just under it – up 7.1% while the Russell over-achieved to 515, up 8.4% in 3 days. 

As I mentioned yesterday, just because we made our targets, we are not automatically expecting a "breakout."  We are not happy with the WAY in which we got here – a short rally on fairly low volume leaves what I call an "air pocket" below the gains as there is little support.  The way to think of this is that AAPL, for example, has 900M shares outstanding and, over the last 3 days 60M shares changed hands, taking the stock from $136 to $147 (up 8%).  Does that mean if the other 840M shares held need to be sold that they too will get $147?  That is the flaw with the stock market's pricing system, you are looking at very small slices of sales and assigning a "value" to the whole based on, in the case of AAPL, the sale of 6% of the stock under favorable conditions.  As our financial community discovered with the CDO market – you never really know what something is worth until someone tries to sell it.  It's very easy to drive the market higher on low volume but it's very dangerous to apply "value" to the whole from statistically insignificant samples – this is why we use 50 and 200 day moving averages – to smooth out the nonsense. 

We took advantage of that discrepancy to add two short plays to our $5,000 Virtual Portfolio as stocks ran up to "silly" levels at 2pm.  I sent out an Alert to Members (and also on Stock Talk at Seeking Alpha) at 2:04 saying: "Earnings – Up here (on this gain) we look to see who might miss and play them straight down.  $5KP Play - 5 CY Aug $9 puts at .28.  Hopefully they don’t drop more than 1/2 as CY won’t gap through $10 so easily.  $5KP Play - 3 MAR Aug $20 puts, for .60.  Same idea."  Both stocks had run up ahead of earnings and both stocks were good for a possible miss and, even if they didn't miss, my logic was that they had already priced in "good" earnings.  So far, so good as MAR had a beat (.23 vs .21 expected) but lowered guidance and CY also beat expectations of losing 0.9 per share by only losing 0.3 per share (although GAAP losses were .32 per share).  We'll see how the jobs picture is at 8:30 but I'm inclined to stick with both of those puts over the weekend as they offer little resistance to a larger market pullback although CY we will have to watch closely if people buy the headline beat.

We maintained a bullish stance on YUM at what we hope is a bottom.  In other virtual portfolios,  we get a test of our JPM put spread this morning as we took the Aug $38 puts for $4.05 and sold the Aug $35 puts for $2.22 and JPM kicked ass this morning with earnings of .28 vs. 0.4 expected.  That trade idea was based on the concept that a beat was priced in and we'll likely be looking to take out the $35 puts if we get a good price and then holding for a pullback to sell the $35 puts into.  Of course we took our 50% and ran on INTC, that was plenty to make for 2 trading hours worth of work!  As I said in the morning post, we were looking for bearish plays to balance out last week's very bullish selections.  I also mentioned shorting FAS and FAZ at $45 each and FAS finished at $48.51 ($3.51 loss) and FAZ finished at $41.60 ($3.40 gain) so down .11 so far – we'll check in with that trade from time to time…  

8:30 Update:  Job losses were good.  "Only" 522,000 job losses on the week ending July 11th.  This will suck for our remaining DIA puts but I'm still not very excited by the jobs report as July records a lot of seasonal hires (see chart above) and is NOT a good indicator for what's really going on out there.  Continuing claims fell a whopping 642,000 to 6,273,000, the lowest figure since April 11th and double the previous record decline set in 1983. "This big drop is not necessarily an indication of what is going on economically," a Labor Department analyst said, adding that the seasonally adjusted numbers are really clouded by the timing of the layoffs in the automobile industry and other manufacturing sectors.  Within a week or two, the data should be more reflective of the true state of the labor market, the analyst said.

Still, you headline shoots don't get any greener than this so we'll see if we break over our levels this morning (we are already well over on most) or take a pause and do the 1.25% retrace we expect before, hopefully, consolidating (some say flatlining) into the weekend at right about our upper levels.  Of couse we still have plenty of earnings to get through and it's a sea of green this morning with just HOG, MMR, MTG, NXY and USAK missing so far this morning although last night was kind of ugly with EWBC, LSTR, RECN, SGK and STLY all missing (half the reporting companies).  To have a "good" earnings season, we need over 60% of the companies to beat and we're not there yet.  Later today we hear from GOOG and IBM in addition to ESLR and PBCT and tomorrow morning we close out the week with BAC, C, FHN, GE and MAT – all potential market movers so fun, fun, fun in store on options expiration day! 

China GrowthAsia had a decent morning.  The Baltic Dry Index flew 7.33% back to 3,324 so someone is shipping something somewhere but you wouldn't know it from our own transport index.  Both the HSI and the Nikkei took tremendous hits in the afternoon and went from up 2% to up about 0.5%, about the pattern we expected from US markets this morning only without the gap up at the open that saved both from taking losses (we already had ours yesterday)China posted a Q2 GDP of 7.9%, just 0.1% off the government's target and that is incredible (as in NOT credible) but the Shanghai is already up 75% this year and held flat on the day on this FANTASTIC (as in "based on fantasy") report.  

China has rebounded after authorities used the state-controlled banking system to engineer one of the most dramatic monetary expansions in history. Banks have issued twice as much in new loans so far this year as in the first half of 2008, and China's money supply is now expanding at nearly triple the rate in the U.S. Along with China's stimulus plan of four trillion yuan ($585 billion), the credit boost has helped to restore confidence, and the activity it supports is, at least in the short term, good news for home builders, car makers and suppliers of commodities like copper. 

But the government's strategy carries risks. The flood of easy money into the economy could be spilling over into markets for stocks and real estate, and inflating fresh bubbles. Any buildup in bad loans and dud projects could weigh down growth and public finances. Also, the economy's dependence on government-driven investment and credit means that any policy hiccups could derail the pickup in confidence. "I do think there is a distinct and rising risk of an asset bubble and fluctuation in growth," said Wang Tao, China economist for UBS. With so much activity crammed into the first half of the year, it gets harder to come up with more stimulus projects in the future, she said. It is urgent that the government devise ways to generate sustained growth in the private sector. "In addition to short-term stimulus, there needs to be medium-term thinking about changing the growth model," Ms. Wang said.

One reason officials are reluctant to start phasing out the stimulus is weak demand for China's exports, which are down 22% so far this year. Despite official concern about unemployment, the small businesses that account for most jobs remain starved for credit even amid the boom. The benefits of the stimulus program have so far been concentrated in the state sector, which employs about 20% of the work force. "The current recovery is mainly based on a short-term rebound in inventories, which is not the same as a trend recovery," the State Information Center, an official think tank in Beijing, said in a report last week. "The material basis for an economic recovery would be the beginning of a new round of large-scale investment in capital equipment," the center said, urging the government to do more to support private-sector investment.

Iceland EUEurope is up about half a point ahead of the US open (9am).  NOK had the poor profits we expected but is calling a bottom in their outlook.  LYG, a resident of our $100,000 Virtual Portfolio, have announced another 1,200 layoffs as they consolidate the HBOS acquisition and they are up 10% for the week. The UK had a mixed jobs report, with a slower rise but still on a record pace for the quarter.  "The latest U.K. labor figures contain conflicting signals about whether conditions in the labor market are getting better or worse," said Vicky Redwood, an economist at Capital Economics. "However, the big picture is that unemployment still has significantly further to rise," she said.   Despite beign bankrupt, Iceland is unconvinced joining the EU would help.  This is like throwing a drowning person a life preserver and them saying "I'll have to think about it." 

Global PC shipments fell 5%, which means DELL accounted for a good portion of the losses (HPQ is taking market share from them) and that decline is less than expected so a green shoot there as well.  Not so green is CIT, who will not be bailed out by the government and that could have severe repercussions to small businesses who use their lease-lines of credit to make major purchases.  Expect a negative impact on durable goods orders in Q3.  That stock is a fun short at $1.64 but stop at $1.81 as something is wrong if they gain 10%. 

Well, I was wrong about jobs so we'll have to see how the morning plays out.  We're still going to be looking for a 1.25% technical pullback in the major indexes but, if they hold that, then we may have something to build off.

 


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  1.  Hey Phil… I’m looking at a premium crush play on GOOG… whatchya think of this?
     
    Buy SEP 440 calls
    Sell 75% cover JUL 440 calls
    For a downside "blowout" hedge, I’m looking to make a lowball offer on the JUL 420 puts (right now 4.8 ask) for a bid of 1.10. Hopefully I can get that hedge made before the end of the day if there is a Mr Stick up move in the final hour.
     
    I’m expecting GOOG has a really tough time going much higher today with several resistance lines clumped together  from 440 to 450


  2.  HOG earnings miss causing it to trade down to 16.50 in premarket…. yeeehhaaaawwwwwww


  3. Phil would merks plan be expressed 3/4 ?


  4. I missed the YUM play (too busy on other stuff).  What do you think?  Jumping in now, buying some calls?


  5. phil
    bought the TASR stock yesterday for 5.07, but didn’t fill on the 5′s. Generally, is it better to sell the callers and putters as the 1st move?


  6. PD – Can you repost or point to where we should be (position-wise) – and what to do/expect – with the DIA puts? I’ve prob lost track and have a mixed bag. No rush.


  7.  CIT being allowed to fail and knowing that the gov’t is full of GS alums just makes me wonder if GS has a bet on CIT’s failure. Is that really why CIT is being allowed to collapse?
     
    So who is the insurer that is on the hook to pay GS for winning its bet?  Is it AIG who is gonna pay again from the pockets of US taxpayers?


  8. ATTN: SNDK is a ‘screaming buy’ says Cramer……SHORT SHORT….


  9. Drum -  if I want to hold the company long term I tend to sell in the direction of the movement.  If it is down, sell puts, up calls.  I wait a bit b’f doing the straddle/strangle.  If it is for a quick turnaround of cash, then by all means do them simultaneously.  TOS lets you do it.  Not sure about the new OXPS software.


  10. Nice double on the MAR puts…couldn’t get ‘em to fill yesterday for 60-65c.  Oh well. Moving on.


  11. Good Morning,
    Maybe someone can just help me out. I am reading the new members guide.. Am I able to sell calls and puts without owning the stock. For example, if xyz stock is at $10 and a c$15 call sells for  $1. If I sell those calls without owning the stock and it never reaches $15 at the expiration date, do I get to keep the $1 per share. Thanks


  12. Crap…was thinking SPWRA was a good play as they are oversold and friday’s max pain was @ $24 strike.  Could have gotten .50 a contract for selling the $24 puts.  It ran away on me though. 


  13.  Crazy activity on HOG…. premarket was trading down around 16.5…. shot up to 18.37 in first 10 mins of opening
     
    totally ridiculous and illogical action


  14. Sorry that’s $26 max pain.


  15. Picked up the CAT divi today.  Nice play.  Makes that one of my bigger winners this year.


  16. Looks like the push is still on.  Oil being supported by Nigerian Rebels saying they will break the cease-fire.

    Someone hit the buy button on a big program this morning with 20M shares in 10 mins flying past so maybe an early stick.  The Nas is off to the races but XLF is heading down 1.25% already and this seems like a lot of effort being put in to NOT let the market fall. 

    It will be impressive if we go highers without a 1.25% pullback across the board but it will also be dangerous so I’m not too keen on jumping on bull plays until we get over 8,650 on the Dow and hold that as that should be a real point of resistance.  Still no 6,000 on NYSE, 515 is a line to watch on the Russell, SPY 930 is the critical point there and Nas next target is 1,875. 

    Oil needs to break $62 to get a real rally going there. 

    My plan for the DIA $85 puts worked "perfectly" as the 1/3 I took off for .25 yesterday can now buy me 1/2 at .15 and I think I’m going to go for that for the test of 8,650.  We have the Philly Fed at 10 and that will boost us up if it’s as good as the NY Index was yesterday (down just 0.5 vs down 4% expected). 


  17. Miracle
    (1) yes
    (2) for naked calls – only if your broker will let you. Selling naked calls (where you don’t own the stock) is considered high risk and you will need specific approval to be able to do it. This is because "in theory" the stock price could rise forever and you could lose infinite money.


  18. If FAZ is going to zero or thereabouts, you can sell the Jan115 calls for $4.
    Thanks Pharm


  19.  Adding to my august HOG puts… did a 2x onto my 1x… now have 3x puts with a very good average


  20. MARTD – in at .65 pre-close and out at 1.00 just after open.  Good on ya, Phil.   DS


  21. Housing here in San Diego fits the general trend that has been released nationwide (increases in foreclosures – up 30%), but buying is also picking up and prices are rising.  These data are in the less than 600K range though.  RealtyTrac says not all is due to foreclosures/quick sales, that people are actually buying due to the low interest rates.


  22.  Phil, what is the gameplan with GS?  I’m still holding 4 short July 150 and 5 long Aug. 145.  Do we let the July puts expire?


  23. DIA 86 puts for 36 cents …. gamble worth taking …


  24. Phil – Speaking of Nigerian rebels, there isn’t any real concern here (I’m in Nigeria at the moment).  I’m speaking with Shell and they are really only worried about the people (rebels) not shutting the wellheads properly after stealing the oil in drums they carry up in boats.  This is creating a huge and nasty environmental problem.
     
    On the other hand I still get taken to and from the secured expat camp in an armored suburban with a truckload of security folks frontrunning with lights and sirens.  They just hang off the side with thier AK’s and we barrel up the wrong side of the road pushing folks outta the way.  Scary stuff.


  25. TRIN is very high; although early morning reads can be misleading


  26. Not sure about the new OXPS software.
     
    OXPS lets you sell a put and a call on the same ticket. I don’t see a way to buy the stock and sell both options in one go though.


  27. merk
    The old saying when pigs fly.


  28. sgrundahl watch your unrealised profit on the short put. Don’t let it evaporate….


  29. merkhava- I am trapped by my  August callers
    what August puts  did you sell on HOG? thanks


  30. Meant call of course


  31. GOOG/Merk – I don’t think I’d waste much on the puts, maybe cover 1/3 as you have lots of time to recover and that money will evaporate on you immediately.  Good one on HOG!

    Woops, popped 8,650 way too easily, Nas flying to test, NYSE over the line, RUT over 515 – hell of a morning stick!

    3/4/Morx – Yep.

    YUM/Cwan – Not going well this morning but I do like them long-term.  They are getting hammered on outlook while the broad market rallies on improving outlook so a little strange. 

    TASR/Drum – You can play games either way depending on your momentum outlook but you can also, in most platforms, make a net offer on the spread to save the hassle.

    DIA/Dist – Keep in mind these were "craps roll" bets on the front-month and I just went DD at .15 on the $85 puts – hopefully it won’t be .15 out the window!  On the longer spread, our target is Dec $86 puts (2 roll ups from $84 puts) with 1/2 Aug $85 puts, now $1.90, sold against

    Philly Fed is -7.5, disaster!  -3.2 was expected. 

    SNDK/Pharm – I agree, short into the pump.  $17 puts are .29 and a fun day trade, stop at .20


  32. I’ve got S&P 928 and DJIA 8610 as minor support lines on my chart… indexes are testing them 


  33. $5KP/MAR – If we can get $1.20 (a double) we should take it off the table as the goal of this portfolio is quick turns back to cash whenever possible as we are opportunistically trading and need ready cash, not long-term holds.  So let’s call it a day here with a double.


  34.  I hear ya Phil… I got my GOOG SEP 440 calls at the open on my low bid… then sold my July 440 covers at my ask price when it shot up to 440.
     
    I’m just watching and enjoy the show now. I didn’t buy any puts yet. If GOOG makes a run to 450, I’m gonna look it the puts again just before the close today.


  35. Gabby – for the Short Strangles, with the strange moved up in VIX while the market jumped yesterday, I did roll up the PUT and used the money to roll the CALL up.   The RUTs are now RUT Sep 420 SHORT PUT, RUT Sep 560 SHORT CALL.   SPX short PUT are now 800 to 825 and short CALL are 980 to 1000.  These are near neutral spreads, so be prepared to roll down if the market drops.


  36.  How bout AIG… luvin that down move !!


  37. MAR/5K – As above, I bolted at $1.00.   Just over 50%?  I’m used to banking 3% on fatter day trades, so 50% looks like free money.  Was I a wuss for not waiting to double?


  38. Bought back my Aug $125 GS putters @ $.72


  39. The luck of the cursed continues.  Didn’t have the money to go into the MAR/5K trade.  EFF EFF EFF EFFFF
     
    The 200+ $83 DIA Put contracts with an average price of $.30 are worth $.08 right now. 


  40. MAR – out @1.10


  41.  phil, thoughts on mcd? leaps or  too scarry after yum and possible currency effects?


  42. Phil, what’s your thoughts on the SRS play by the OXEN group.


  43. From the current DIA idiot (I’ll get it together I swear – all the Provigil in the world can’t seem to square my multitasking and ADD some days).  Here’s what I’m sitting on for some reason – if you have a "pull-your-head-out-I’m-telling-you-for-the-last-time" set of tweaks to make (speculative or not) plz holler if and when you have remedial time:  DIA Sept 82 puts I paid 4.65 for and Dec 84 I paid 5.35 for.   Without going into detail, a handful of rolls/cashes on short puts or related have financed to a degree.


  44. dstill – Try adderall…..not that I’m making good trades with it or anything but it might work better than Prov.


  45. re 6 computers & 2 tvs; i got U babe, ( & the humminig birds)


  46.  Steveparker / Phil,
     
    Want to ensure that I understand recommended adjustment for the GS play.  The short July 150 puts have acted as great protection for the long Aug 145 puts.  Do you roll the July 150 puts to Aug. 150 puts for continued protection or…..


  47.  Steveparker / Phil,
     
    Want to ensure that I understand recommended adjustment for the GS play.  The short July 150 puts have acted as great protection for the long Aug 145 puts.  Do you roll the July 150 puts to Aug. 150 puts for continued protection or…..


  48.  Steveparker / Phil,
     
    Want to ensure that I understand recommended adjustment for the GS play.  The short July 150 puts have acted as great protection for the long Aug 145 puts.  Do you roll the July 150 puts to Aug. 150 puts for continued protection or…..


  49.  hmmm…  did not intend to triple post!!


  50. do any techies here know anything about virtualization,  running multiple versions of windows (1 vista, 2 xp) in a mac?


  51. For whatever its worth, I played Oxen’s SRS as a cheap Sept 17 call – not being sure it was a great day play (and I like my day plays to be clear by midday) but thinking it might be okay and that the basic analysis is right enough to either get out even today or let it ride for a week or so.


  52. newparadigmz – VMWare – unfortunately – you have to buy the Mac version.  What do you want to know ?


  53. confizz – LOL.  but on the stimulant scale, Adderall is a 10 – PV a safe 3.  Adder damn near killed me two summers ago – but it was fun being king of the mountain for a while! : )  remember i gotta offset any of it w adequate BP meds. 


  54. Naked selling/Miracle – If you qualify then sure you can do it, it’s called a short straddle generally.  It is very dangerous to sell naked puts and calls.  Generally, we don’t mind selling naked puts as long as we REALLY intend to purchase the stock at the discounted net price but but selling naked calls sucks because, if it goes against you, you have to pay and you don’t own anything at the end so a lose-lose there. 

    SPWRA/Merk – Well aren’t you lucky, they are right back at the lows!  See, that’s why chasing is dumb! 

    HOG/Merk – As I thought, it was hard for them to do as badly as expected.

    CAT/Where – about time.

    Down volume is 3x up volume – Mr Stick is being very selective with targets to keep us from falling.

    Cool Dstill!

    Foreclosures are out of control Pharm.  1.5M for the fiirst half of the year is 3% of all homes for the year! 

    GS/Sgru – Yes, we let the July $150 putter expire hopefully.  I think GS holds it through tomorrow unless we get a horrific sell-off so a stop at .60 is prudent

    DIA $86 puts/Cap – Good call

    Nigeria/Where – Cool!  I’m sure there’s no real concern.   As I often say, it’s nothing a half-dozen former green berets can’t take care of in a week if the oil companies really wanted to stop it.  Why don’t you guys set up a proper outlet to LET the locals have some free oil?  If you do that and just put a limter on it, how much oil could they possibly use?  Might be good PR…

    AIG – That was not a tough call to short…

    MAR/Dstill – Never think like that.  See the Strategy Section where I mention that once you are over 50%, you should be in pain the longer you don’t take it off the table.  If you do statistics, the number of times you go from up 50% to up 100% is probably 1/4 the amount of times you go from up 50% to zero or less!   Even with MAR, they will probably catch a downgrade tomorrow and, like YUM, take a further dive but, then again, maybe they won’t and wouldn’t you rather take 160% of your money off the table as a sure thing than risk it all on the hopes you gain 20% more?

    MCD/Jo – Well they never miss and last earnings they got a blah response but took off a month later.  I like them long-term at this price ($57) but they’re not breaking $60 so why not buy the Jan $60s at $2.30 and sell the Aug $57.50s for $1.50, which is net .80 and you can DD on the longs if they do well and roll the callers to 2x the Sept $60s, now .85 so even if you pay $3.50 for round two, it would put you in 2x the Jan $57.50s for net $2.15 with a $2.50 spread to the Sept $60 callers

    SRS/Sthom – I like the play, they are up about .20 from the low at the open and if they test $19.20 again and hold it I’d say that’s a good entry.

    DIA/Dstill – You need to spend the $1.20 to roll the Sept puts to Dec, it’s well worth it.  Then a 1/2 cover of the Aug $85s, now $1.94 and you are just fine.  $1.94 is collecting  .97 per $5.35 long in one month out of 4 you have to sell and you still have 50% of your downside protection naked – that is very reasonable insurance.   Whenever you have a chance to roll up one strike for .50 or less, you should do that and then we "leap-frog" the covers, adding 1/2 at a higher strike for each 100 points the Dow gains and then putting tight stops on the lower half.

    Oil back to $61.50, gold at $935.  Overall, feels like the rug can get pulled out from under the market any second.


  55. Phil are you inclined to DD on the CY puts or just hold on till next week as you said.


  56. MAR – Oh I never actually think like that.   Just checking re sense of missed opp.   Like I said, gimme 3-5% in a day and I’m golden, er, green.  Thx.


  57. GS/Sgru – No, the July $150 puts have served their purpose and we don’t think GS is really breaking $155 without a pullback that should give us a profitable exit.  In a worst-case scenario, we may shift to a vertical but no need right now as we are right on track.  That answer goes for your next two questions as well!  8-)

    Interesting that they cut away from Paulson as soon as he said the world "panic."

    CY/Morx – Not much room for DD in the $5KP – We’re up .60 on one from yesterday and down .08 on this one so nothing to be upset about…

    Come on, just a quick dip in the Dow to 8,500 and I’ll be a happy camper!  A gap fill of 8,400 would be even nicer…


  58. what do you think of selling July $20 puts of SRS for .80?


  59. DIA – "Then a 1/2 cover of the Aug $85s"  I know its hard to tell, but I actually followed u via Kindle blog for months prior to joining.  Yet I’m still not quick on terms from time to time.  Whats the cover play here?  1/2?  Puts?  Short?  Out for coffee.  Thanks in advance.  


  60. partha / i just want to know if it can be done and what i would use to do it…1 mac machine running vista with 2 virtualized instances of xp


  61. Naked selling/miracle – yes, it’s dangerous to sell naked anything on individual stocks, but we can do it on indices or broadbased ETFs, especially OTM (Out of the Money).  For instance, we’ve been selling Russell 2000 index, shorting various strikes, such as RUT Sep 580 CALL for $3.3 credit.  580 strike is about 13% up from here (RUT is current 514).  If RUT doesn’t gain 13% in 2 months, we get to keep the $3.3.  Initial Margin requirement is 20% of 580 = $11,600 per contract (Portfolio Margin requires about $1,500 in margin, 10 x less because it’s way OTM and the risk is less).   Margin requirement will increase as the market goes up since the CALL would worth more.  However, as the CALL premium decreases with time, margin would also decrease with time.  Similarly we can sell RUT Sep 410 PUT for $3.4 credit, betting that the market doesn’t drop 20% in 2 months.  I would refrain from selling naked options on individual stock as they can go bankrupt or get bought out overnight.  Confused?  You’d need to practice.


  62. re "one from yesterday" – neither of the trades were filling at the end of the day so i decided to chase one and chose the wrong one (at the moment). A situation when chasing the other would have been a good idea. It was only for abt .02. But I agree generally, and i speak from experience, it is a bad thing to chase. (ICE last week for instance)


  63. Phil:  MOS is up $5 on take-over rumors to $49.62.  I own the stock.  Do you think it is a mistake to try to sell the July 55s to pick up .25 a share with the expectation that it won’t go up another $5 tomorrow on these rumors and then after expiration sell premium again?  Or would you go way out now and instead sell the December 75s? Or any other ideas?  Thanks.


  64. UNG – $12.90 woohoo!


  65. SRS/Roam – Sure, it’s a nice cushion.  Better to take a premium of .40 than pay it right?

    DIA/Dstill – A 1/2 cover.  If you have 20 DIA Dec $86 puts then that would be selling 10 DIA Aug $85 puts against them.  Really, the sentence at 10:02 was "On the longer spread, our target is Dec $86 puts (2 roll ups from $84 puts) with 1/2 Aug $85 puts, now $1.90, sold against." How would you want me to say that more clearly?  If you are going to ask me the same thing over and over again and then take one part out of context and say I am not being clear I don’t think it’s very productive…  I do assume you read both responses and not just the last one I answer or I would have to restate everything from scratch every time I get a question….  You need to take some time (and I’m happy to go over it on the weekend) to UNDERSTAND the strategy in the first place.  If you know WHY we are making the trade and HOW it’s supposed to work, you would have no doubt whatsoever of what it means when I say 1/2 cover of the $85s….

    VNO down 1.7%, BXP at 1.25% rule, VIX coming back up, XLF down 1.7%, C down 4.5%, BAC down 2%.  Oil just got rejected at $62 again, back below $61.50 very quickly.  OIH and XLE down 0.5% so watch OIH $97.50 and XLE 47.50 for signs of trouble in the energy sector.  Gold got rejected at $940 and back at $935 and it’s not a good party if all the boys are getting rejected like this! 

    MOS is up 10%, that’s 20% in a week and the Aug $45 puts are $2.33 and were $4.50 yesterday so let’s call that a naked buy at $2.25 with a stop at $1.75, looking for $3+.

    MOS/John – LOL, I wrote that play before I saw your question.  The rumor of offer is $25Bn, up 10% from here so I wouldn’t worry about the July $55s taking you out.  Frankly, I’d sell the Aug $50s for $4.10 and be thrilled to be called away with yet another 10% in my pocket. 

    UNG/Fab – Yeah, I like that they are not issuing more shares.   What’s been happening is the nat gas market has been freaking out thinking that prices will plunge without the ETF buying more but at these prices, gas subs for coal in electric production and people will flip more projects to gas if the prices stay this low for a few more months and then there’s always hurricane season….

    You don’t often see a 250-pont gap to fill on the Dow – this will be interesting…  Too bad expirations are tomorrow because I really feel strongly that, in a normal week, we’d be retesting 8,500.


  66. TTWO appears to be buyout candidate for eithe ATVI or ERTS.
    Currently at ~ 8.30, analysts figure acquirer could pay up to 15 and still improve acquirers earnings
    TTWO market cap 10% of larger cos.


  67. UNG – all out at $12.9


  68. Hey. I usually preface my clarification questions by saying I don’t need a quick reply at all or saying you can just point me to previous post. You were clear, I misuderstood. If you want to jumo my s**t, save it for after hours. I admitted I had lost track of the thread.


  69. Phil/ MOS: trying to understand the play. What I get is "wait for the Aug$45 Put to come down to $2.25 and then BUY"? Confussed on the "naked buy"; aren’t all buys basically naked?


  70. Phil – DIA mattress – sorry, been away for 2 days – I have 81 puts (cover) expiring this week, so should I be rolling forward the 82 mattress puts today, if so what cover, or do I wait?


  71. Very hard to pick earnings tomorrow because if GOOG, IBM, GE, C or BAC miss, we could tank the market.  If they all beat, we could go flying.  Best to take the day off in the $5KP I think unless somebody runs up way to high as shorting would be more fun than playing long. 

    BPOP has a fun upside play.  The stock is at $1.35 and you can buy the Jan $2.50s for .15 and sell the Jan $5s for .10 so net .05 is the most you should play for the $2.50 spread with a 1,200% return if it hits (not likely!). Even if they creep back to $2, this should be a double plus and it’s possible (but not likely) they get bought if things do improve in the financials.  The stock isn’t bad either as they pay a 5.9% dividend and you can sell the $2.50 calls for .05 a month!

    TTWO/Hinner – I like that company.  You can play that rumor with 2011 $10s at $1.73, selling 2011 $12.50s for $1.10.  That’s net .63 on the $2.50 spread and not too bad to the downside if they fade on you. You can also do a buy/write if you are into a LONG-term play by buying the stock at $8.35 and selling the 2011 $7.50 puts and calls for $4.50 for net $3.85 with the $7.50 call away.  Making almost 100% on an 18-month flatline isn’t bad in the first place but, if they do get bought out, you cash out early with that profit! 

    $5KP/CY – Stock suddenly going crazy, need to take our losses on the Aug $9 puts at .15.


  72. those were Sept 82 puts in my prev. message


  73. Merk. Great deal on AIG. Still was too dangerous for me, not followed.
    Cap: were I can find info about TRIN?
    Phil: What do you think about YUM Oct $35 calls at $1.60 ?    – Spider


  74. FCS has been on the march before earnings tomorrow, for .05 you can buy some JUL 10 calls if you want to play for a blowout.


  75. WHR breaking out on volume could target $60 in the near term and could get a boost on GE earnings tomorrow if they give good guidance for appliances


  76. MrM – is that UR 10 calls there??? U follow me…I follow U.


  77. Clarifications/Dstill – I don’t like to put things off if I have time but one thing that does annoy me is having to restate stuff over and over so sorry to be touchy about that.  I’m happy to discuss, in detail, the trading concepts when we have time after hours or on weekends but try to stay out of complicated trades until you do understand them, rather than having to go over every single step multiple times during a trading day on options expiration week.  Ideally, I want to be spending the bulk of my time looking for ideas like the last post.

    MOS/Sunco – Yes, I just wanted to be clear we were "going for it" and not covering the put.  The range was $2.25-2.35 when I posted it and I figured better to bid $2.25, which did fill through 11:45, then someone bought 250 contracts for $2.35 at about 12:45 and blew the curve.

    DIA/Concreta – What exact strikes and entry prices do you have?   Obviously, any $81 puts you sold will expire worthless (barring a miracle) but there’s no rolling, just take them out for .02 and wait for a dip to sell the Aug $84 puts for $2 (now $1.60) or, the $85 puts, now $1.95 for no less than $1.75 if the Dow runs up (and then very tight stops on 1/2).  On the long end, you are ALWAYS looking to roll up for .50 per $1 but, this time, you need to roll over to Sept puts, the $84 puts at least if you can’t afford the $86 puts.

    YUM/Spider – I like them better than the ones we have!  Our $35 calls are down to .70 and we’re in for $1.08 so tying up $430 is my main problem in the $5KP.  Still I like them and if it wasn’t a $5KP I’d DD on the Aug $35s too. 

    FCS/Mr. M – that would have to be a hell of a blowout! 

    WHR/Andy – Low materials cost and big China stimulus also help but I’d want to hear from GE first as they are up 30% in a week. 

    VIX back to 25.  XLF still below -1.25%, OIH and XLE positive – probably expecting a pump into NYMEX close to get oil over $62.  Volume 80M at noon, "normal" low-volume day so stickable later but I still want my sell-off. 


  78. Borowitz Report: "In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury."  According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is "a good fit" because "they’re in the business of printing money and so are we." 


  79. In real news

    Federal Deposit Insurance Corp. Chairman Sheila Bair believes up to 500 more banks could fail, a U.S. senator said Bair told him in a recent meeting. "She told us that unless something dramatic happens, we could lose up to 500 more banks," Sen. Jim Bunning, R-Ky., said Thursday at a hearing of the Senate Banking Committee on the foreclosure crisis. Bunning said Bair made the remarks in a recent meeting. "That means that people who make mortgages in local places …. people that could really help in a foreclosure will not be there," Bunning said.
     


  80. LOL – Phil (sad thing is….how true!)


  81. HA HA!  I admit I was scared up until the point he said US Treasury!


  82. newparadigmz – You can run VMWare on a Mac that is running Vista, create 2 virtual machines – each running WinXP.  No problem.  You can do this for free – to try it – VMWare lets you trial their products. and even give away a free version of their product for Windows.  Email me at parthas@yahoo.com – if you want more details. 


  83. Ok, PD. I’m not going to argue with you over how and when you should reply – esp to new member. I’m happy to wait on almost all queries. The DIA stuff isn’t complex, it just requires and active attention to detail. Something I admittedly lack the days. But! I do have a timely question – next post. Let’s have fun, man!


  84. Phil, is that DIA spread you posted yesterday (Buy Aug 90, Sell Jul 86) still looking like a good play if can get in for $0.05 or less?   Or is it less attractive since July 86 will be less premium and more intrinsic value???
    Market seems to be tenuous in the gains today, but wild card will be tonights earnings and potential to really goose the markets with some decent earnings and good visibility… 
    New to this sort of spread concept, so not sure I understand risk profile.  You mentioned a roll if it moves up, so I assume this is adequate insurance to still enter the trade…


  85. are we concerned abt SNDK yet? Maybe we are underestimating the inclination to pump!


  86. newparadigm,
     
    partha is right on. I run VMWare and it is very good. You can set up multiple virtual machines and it runs at reasonable speeds. It can tag into USB, DVD drives, etc and you can move files from your Mac desktop to the Windows desktop. I have been using it for a long time without any major problems. One note, I did have some Windows corrupted file and rather than rebuild everything, I was able to restore by using a day old save from Time Machine. VM also lets you save the Windows status with backups, but I find it interrupts the computer too much so I rely on Time Machine if I need to rebuld.


  87. I thought GS had already merged with the Treasury.


  88. Europe closed up half a point in the end so still bullish there.

    This is interesting:  VIX Aug $25 calls are $5, VIX Aug $25 puts are .75 with the VIX at $25.40!  High VIX is down market and that’s a massively imbalanced set of bets there!  I like selling the Aug $25s for $5 "against" the Dec $25s at $6.60.  They are not really connected (see weekend VIX discussion) but it seems like a reasonable way to sell $4.50 in premium over 30 days.

    Waiting/Dstill – If I don’t get to them now, I don’t backtrack by the way, you just need to reask later.  Don’t worry, you’ll be an old hand in no time!

    Nice article on Las Vegas Economics.

    ICE coming down with oil testing $61. 

    DIA/Mira – Not the same play now as there is much less premium to the $86s but if you can get a nickel then sure as we still think things fall from here.  Obviously, if it goes down, maybe you have .10-.20 left and that’s your win.  If it goes up, you gain about .24 before your caller get’s $1 and then you can roll them to Aug $89s at $1 and either stay in the vertical bear put spread or spend that dollar to put yourself in the Aug $87 calls, now $1.85, which would put you into a bull put spread.   As long as you don’t spend any more money – any time you net more than .05 you can get out. 

    Lot’s of positive sentiment holding p the markets.  IBM up 1.2% ahead of earnings, GOOG hanging onto gains, GE down a point, C trimming losses, BAC down 1.25% still…. 

    JPM down 1.3% after those wild earnings – what does a company have to do to get some love?

    SNDK/Morx – Just a rule stop at .20, they either tumble or don’t.

    GS/Sun – Hostile take-over is not the same as a merge….  8-)


  89. I forgot to mention that Treasury employees already get their orders from their old bosses at GS. I understand that a prerequisite of working at the ATreasury or the FED is having worked at Goldman.


  90. Morx – SNDK got in at 24, out at 30.  For new members, I usually wait a few minutes to see how things chart out b’f jumping right in.  Many times i get  a better price (nickle or two).  not to say I usually sell at a lesser price as well, but the concept (% gain) is still the same.  Patience young Jedi’s….


  91. I’m still a few weeks from naked trades with ETrade. One Augen trade idea (urs too I imagine)
    I’d like to try today or tomorrow is selling ATM straddles that lose nearly all value by end of day tomorrow. Easy to find, huh? LOL. In any case, absent naked trade ability, I guess I have to make such a trade against positions I hold (given paper losses on some – would have to be careful which tho I suppose). Can I/we craft this kind of volatility collapse trade picking from my current positions? Or buy-writes? Will post my selection of positions if worth looking at.


  92. Credit cards:
    COF up to $27 from 20′s a week ago.  Earnings next week Jul23.  Any suggestion on this one?


  93. JPM! No kidding. I bought August 37 calls looking for an earnings bump. Is the whole sector sucking them down? Oop! Its fricking July 37 calls in the play portfolio. Shall I correct my mistake by rolling up to August or just get away?


  94. Phil/VIX: I don’t understand ""against" the Dec $25s at $6.60." I am trying to get in a play today and don’t want to wait till tomorrow which would give me time to research this phrase to find the answer, so I thought I would just ask.


  95. VIX /  Quote form "VIX and More Blog":
     
    When short-term volatility measures become substantially out of line with longer-term volatility measures, the divergence is most likely to be resolved by the short-term measure ‘correcting’ in the direction of the longer-term measure. With the VIX:VXV ratio recently hovering around 0.85, this means a VIX spike is more likely to take the ratio back toward equilibrium than a substantial drop in the  VXV index.
     
    Because that I do expect VIX options valuations are more in related to VXV than VIX itself. Current VXV = 28.73
     
    And because nature of VIX, it can spike to 70 on Aug and the Dic cover not follow to that hight. So be careful on that pay folks. – Spider


  96. Sun – Buy Dec, sell Aug.


  97. Another question on the VIX. What is the symbol for the VIX tradeable options?


  98. thanks pharm & phil. Does it make sense to wait & watch as they rise today then short them just b4 closing? ie SNDK & CY.


  99. Peter D/ Naked Strangles…I was just wondering why you picked RUT over IWM, the latter has much more open interest so I assume you’d have better liquidity for any rolls.


  100. Sunco/VIX   VIX is the ticker for the volatility index and it has option chains like any stock.  BE VERY CAREFUL trading the VIX however, particularly if you are used to doing spreads.   The months basically trade semi-independently, so you don’t have the same kind of coverage that you do with stock spreads.


  101. Morx – paper trade ‘em to C how you do, I am done with SNDK.  CY not worth chasing (mine did not fill yesterday).


  102. Straddles/Dstill – That’s a tough play on earnings periods.  You can get a massive market move one way or the other before the open and then you are blown out.  Best to try that strategy in the 8 less-volatile months of the year… 

    COF/Spider – All CC’s doing well on JPM talk that CC defaults were getting under control.  Even AXP is still going up, V touched $65 already so I don’t think I’d short COF, not with the government just giving free money to the banks.  I also wouldn’t go long though but we’ll see what happens with C and BAC. 

    JPM/Dstill – We’re short on them so I don’t like the calls at all.  Just like GS, I think people have simply (for the moment) forgotten how much risk is in their model. 

    Speaking of V, the $65 puts are .85, just .25 in premium, good for a ride down with a stop at $60.50 (now $60.40).


  103. ephmen – AMEN to that VIX.  Not worth it.


  104. Yeah I think those of us not approved for naked call sales will not be able to do the VIX play.
    I would also worry that if VIX goes up the imp. vol in the sold call will go through the roof as well hitting you doubly hard.


  105. VIX Play: thanks for the info and the warning. I will just paper trade for this one. Yahoo has the options grayed out for VIX but Fidelity does show the options. thanks again.


  106. Mattress:  I have Sep 86 Puts as my long and think it is time for me to be rolling it out…should I look for something like to Dec 87 for $3?


  107. Straddle play – ok.  JPM – stupid.   I didn’t see the short reco and just played the earnings.   Believe it or not, this is how I got really really good at poker.  Real money, some early losses and then up the curve.  I have to experience the pain or pleasure to modify behavior.   I read a ton – but in and out, brother, until I’m playing real stakes.  Thanks.   


  108. Calif is run by idiots.  Legalize Marijuana and and you open up whole new can of worms.  Like can you smoke and drive, how do you enforce bans on smoking M but not Cigs?  And what about public health? Chit, I don’t want to be smelling that stuff at a baseball game.  Cigarettes are bad enough. Caif is run by complete idiots and that’s why I moved out of that stupid state (though I have to visit it).


  109. MrM. FCS reported today, so I would consider reversing those $10 calls!!!


  110. partha / ocelli…thanks guys, a few questions
     
    1. If I do the evaluation for VMware, will it just stop working after 30 days?
    2. Would Bootstrap work also (the running of multiple instances)?
    3. do you need a full license for each of the Windows instances?


  111. Brian – CA is run by idiots, but we passed all the referendums, props, etc.  As for M, that is a debate for after hours.  I say tax it, and all illegal drugs for that matter.  We have bigger fish to fry.


  112. LOL Jamie, I was off Monday so I thought today was Wednesday and I had ‘buy FCS Wed’ on a post-it on my monitor!  Too funny.  Sorry Pharm, perhaps the 7.50 puts for .05  8)


  113. Visa: Am I reading the play correctly: it was stopped out at $60.50?


  114. hey, I used my SNDK gains, and bought 1/2.  No worries!  There is always "tomorrow, tomorrow…"  never mind, don’t get Cap started.


  115. Yes it is a slow(er) day here in biotech land…


  116. Visa: Am I reading the play correctly: it was stopped out at $60.50?
     
    I think he meant 64.50


  117.  Phil/LYG
    Picked up some shares on the dip last week.  Is now a good time to sell the Aug $5 straddle?


  118. MrM -I did follow (I believe) yours and Caps HK pick.  Nice little gain on the 18 Dec09, 1/2 covered with 22 Aug09.


  119. VIX/Sunco – Against as in the Dec $25s are your longs and you are selling the Aug $25s "against" them.  The reason against is in quotes is because there is not actually a direct relationship between one VIX month and another.  The Aug $25s could double and the Dec $25s could barely budge so they are not proper covers.

    Yeah and what Spider said!

    VIX/Sunco – Aug $25 calls are VIXHE, Dec $25 calls are VIXLE

    SNDK/Morx – Tough call as we get into stick territory without a pullback.  I’d say the trade didn’t do what we hoped and if you can get out with a small loss then do it.

    VIX/Steve – Yes but keep in mind you are being paid to buy back VIX at $30 AND you would make something on the long most likely.  VIX has been below $32.50 since early May and the NORM for the VIX is 15, not 30. 

    DIA/Eph – The optimum DIA Dec put is the $88 at the moment (the first one that can’t be rolled for .50).  Those are $6.80 and you can sell 1/2 the Aug $85 puts at $2 to pay for $1 of the $3.40 you need but, if you go to the Dec $86 puts for $1 less, there’s really not much harm as both rolls up are .50 and you can do them if you are forced to cover the other 1/2 later.

    Reality/Dstill – That’s fine, everyone does it but keep in mind that you learn just as much losing 1 contract trades as you do 10 contract trades. 

    California/Bri – Well I think keeping 1/4 of the population stoned is generally a good idea if we are going to have a prolonged recession.  Pot smokers are better at getting through life having fun with very little money than almost any other segment of the population – I learned that in college! 

    Volume just crossed 100M, very stickable today but this is real nosebleed area for the indexes and they are clearly working without a net.  If earnings miss tomorrow, we could drop like a rock and I don’t think the PPT can do much about it so maybe they are just giving us a very high start, just in case we drop 300 points tomorrow. 

    For the second day in a row they are treating Roubini’s comments that we will have a weak recovery in developed nation as some sort of major capitulation from the bear camp.  I guess if you repeat something often enough it becomes the truth….

    Roubini actually says:

    The aggressiveness of policy measures has significantly reduced the probability of a near-depression. Economic activity fell off a cliff in Q4 2008 and Q1 2009, with two consecutive quarters of sharp contraction--by 6.3% and 5.5% respectively--in line with our previous forecasts. The general consensus is that this recession will end sometime in the second half of 2009. While we expect more quarters of negative real GDP growth in 2009, we also expect the pace of contraction of economic activity to slow significantly. We forecast negative real GDP growth in Q2 2009 and Q3 2009, and for real GDP to remain flat in Q4. After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010, and then at a very sluggish rate, well below potential.

    Even if economic activity stops contracting by the end of 2009, that might not mark the official end of this recession. Recessions are not measured exclusively by GDP contractions. Unemployment, industrial production, real manufacturing, wholesale trade sales and real personal income (less transfer) are all considered when it is time for the National Bureau of Economic Research (NBER) to put dates around recession periods….  U.S. real GDP will stop contracting at the end of 2009, but it is likely that many of the above indicators will not bottom out (or peak, in the case of unemployment) before mid-2010.

    Not only does the U.S. economy face downward risks to growth in the medium term, but potential growth might fall as well. The U.S. population is aging. With employment still falling--and another jobless recovery on the horizon--the rate of human capital accumulation will fall. Moreover, workers who remain unemployed for a long period of time lose skills, while young workers that enter the workforce, but don’t find a job, don’t acquire on-the-job skills. Reduced investments in worker training and education, coupled with lower capital expenditure, are a recipe for lower productivity ahead.

    There are also signs that a double-dip recession could materialize toward the second half of next year, or in 2011. If oil prices rise too much, too fast and too soon, that’s going to have a negative effect in terms of trade and real disposable income in oil-importing countries. Also, concerns about unsustainable budget deficits are high and are pushing long-term interest rates higher. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, there is a risk of a sharp increase in expected inflation that could push interest rates even higher. Together with higher oil prices, driven up in part by this wall of liquidity rather than fundamentals alone, this could be a double whammy that would push the economy into a double-dip or W-shaped recession by late 2010 or 2011.

    Oh yes MSM, break open the champagne bottles because Roubini has capitulated…  Do you think any of these people actually read these things before they pontificate on them?  This is what is sickening about the markets sometimes, that the media is able to spin BS and stampede people in and out of things witout warning.  There are no funadmanetals in short-term trading when you can drive the markets into postive territory by calling the above report "good news." 

    The timing was great, they saved oil from the $60.50 line and now they are well on their way to a pump back to $62 for the NYMEX close at 2:35.   The indexes will retest the highs and the banking sector jumped a point on the logic that Meredith Whitney caused a rally so Nouriel Rabini must be good for one too.  What a scam! 

    Meanwhile, the DIA $87 calls are .24 and the $86 puts are .33.  If we top out again at 8,650 and those puts drop to .25, they could be a good gamble for tomorrow and even the pair of them as I very much doubt that GOOG and IBM report and the market doesn’t move 100 points one way or the other…


  120. newparadigmz – I am not sure what happens after 30 days (I think it will just stop working) till you give it a license code.  One license for Workstation is all you need, you can create and run multiple Virtual Machines (each a different type if you want).


  121. AMZN going crazy again; up an insane $8+ this week.


  122. short modest amounts of AXP and AMZN right here ….shares


  123. V/Sunco – Sorry that was a stop if they go over $64.50 but, given this move, may as well kill it even.

    LYG/Jo – Yes, safer to do it now ahead of uncertain earnings tomorrow. 

    Damn, should have just watched VNO and BXP – they decided it was party time at noon and the markets followed.  I guess everything is just perfect in commercial real estate now….


  124. DIA looks like it wants to go to R1; around 86.80; maybe re-short there ?


  125. Pharm – yes HK has turned out to be a really fun trading vehicle, thanks to Cap.  I started buying at 22 and then bought more with every dollar drop, now have a good basis and am covered with August calls.  It’s also a fun option to daytrade because it makes good swings and has dollar increments.


  126. Someone is going big on SGP staying range bound.  2 5K lots moved through the 26 C and 22.5 P Aug09 contracts.  MRK is purchasing for $10.50 in cash and 0.5767 shares of MRK (26.46 at current prices).  4% premium here.  I am selling 22.5 Aug puts with this geezer.


  127. Good stuff Mocha !


  128. FDX going nuts as well, went right through $60 to $61. 

    Dow back at day’s highs.   $86 puts at goal (.25) but not looking very pretty right now

    RIMM starting to move up, watcdh GOOG to get going and AMZN to break $85 and we could be off to the races with the Nasdaq, which is just hitting 1,875 now. 

    Amazingly, 13 of 30 Dow components are still red!  If XOM and CVX go green it’s all over for the bears and oil is already punching back over $61.50.


  129. The reason for the big pump in VNO , BXP: US home builder housing market index rose from 15 to 17 in June.
    Talk about an index that means nothing.


  130. Phil; looking at DIA 87 puts if this baby hits 86.85 or so


  131. So is the SRS a bust now?


  132. Phil teaches everyone what to do.  I’ll teach you guys what NOT TO DO…..in this case, unfortunately, by having done it.  Those damn DIA $84 and $83 puts that I bought on Tues and didn’t unload the same day [based on the most pathetic logic ever - I wanted to save my daytrades for options expiration which is happening this Friday.  Exiting from those two positions on Tues at break-even would have burned two daytrades.].  So first rule, value the risk of potential losses higher than your daytrades.
     
    Anyhow, stupid logic got stupid-er on Wed as I saw the Puts had dropped big time in value (from $1.13 to $.36 for the $84 puts and a similar percentage drop on the $83 puts).  Not wanting to take a combined $2K loss on the two positions, I bought $84 puts throughout the day with each drop (bought some at $.36, some more at $.29, a huge chunk at $.24, some more at $.18 and $.16) until I wasted every single penny in my account thinking the market was going to reverse at any point and the puts would go back to $.30 or something.  Lesson number two is to cut losses early even if they seem like a lot because they could double or triple.
    Then today comes and I notice the $84 puts are running between $.05 and $.10 early in the morning so I come up with the brilliant idea of selling the only other equity I had (PPHM) and using that money to buy a bunch of $84 puts at $.06, hoping they’ll go back to up $.10 or maybe even $.15 and I can get rid of everything.  Lesson number three is never expect things to go your way, especially when you’re desperate for them to do so.  I’m in sales and I already know that theory (desperation leads to the opposite result of what you need to happen)  holds true in business, romance (girls run from a guy who seems desperate) and pretty much everything else.  Turns out, it also holds true in the market.  This rule/lesson is difficult to follow because so often, when you sell something for a loss (i.e. I sold my Dell puts for $.04 this morning thinking they’d never go to $.10 or $.15), it recovers right away at times and you think "I should have just held the damn thing".  But the laws of nature are such that when you hold expecting a miracle, it doesnt’ come through and when you sell not expecting a miracle, it can sometimes occur.
     
    Anyway, I’m currently stuck in one of the worst trades I’ve ever made.  I have 350 contracts (yes, THREE HUNDRED FIFTY) of DIA July $84 puts at an average price of $.21236 and the current bid/ask on them is $.02/$.04.
     
    Hopefully, this post will help others (and myself in the future) avoid similar mistakes.  I’m also open for suggestions on what to do. 

     

     


  133.  I like the dia straddle.  i buy xom 60 calls or puts – whichever is under a dollar.  sounds a little retarded – but it really work$$
    Congrats phil, signed up for another year so that means this is year 4 for paid service!!!


  134. When my SNDK puts stopped out I switched to calls, that’s working better for now, paid for my FCS boo-boo.


  135. In for DIA 87 puts for 65 cents; wish me LUCK


  136. DIA 86.86 is R1 … DIA kissed it.


  137. IBM  Any predictions on earnings.   I’ve been away from the markets for a couple of days so I didn’t have a chance to roll my Jul 105 caller is now well ITM.  Think we might be having "buy the rumor sell the news" in which case I’ll keep it until tomorrow or should I roll it now.   I’ve got other positions, but my overall IBM delta is 48


  138. 20M shares traded on the Dow in the last hour to give us this rally.  There are simply no sellers out there. 

    Housing/Cap – I know, this is lunacy!  I don’t know if you can short anything in this market.  I still think they yank the rug tomorrow but they can drive us up another 100 today. 

    Oh there goes oil through $62, OIH just turning green and XLE up half a point so a long way to go if they get moving. 

    SRS/SThom – I’d say a bust!  Of course NOW they look very attractive ahead of earnings as it will be more of a shock than a surprise if the Real Estate sector has fantastic earnings.  $16.78 was the spike low in June so $18.50 is very interesting for an entry.  I like the AGu $16s at $3.20, selling the Aug $19s for $1.70 for a neat $1.50 on the $3 spread.

    DIA/Conf – Don’t worry, we’ve all been there.  You should not day trade at all if you are going to tie your hands behind your own back over trading limits.  There’s not much you can do with what you have except pray we get a turn-down either into the close or tomorrow.  Even a 100-point drop from here if its’ tomorrow, won’t do much as that’s still 75 points over your mark.


  139. DIA/Eph – The optimum DIA Dec put is the $88 at the moment (the first one that can’t be rolled for .50).  Those are $6.80 and you can sell 1/2 the Aug $85 puts at $2 to pay for $1 of the $3.40 you need but, if you go to the Dec $86 puts for $1 less, there’s really not much harm as both rolls up are .50 and you can do them if you are forced to cover the other 1/2 later.
     
    Since we’ve a nice runup, would it make more sense to buy Dec puts now and look to sell the Sep puts on a pullback?  Assuming I can afford the cash, that seems reasonable.


  140. INTC rocking; want to see that crack so the market can crack …. AMZN looks ready to go down.


  141. I agree Phil; although hopefully we’ll see some sanity come to fore before the close today;   INTC now looks like it might reverse.


  142. there is definitely a battle bot at play, rebuffing every attempt to start a push lower.


  143. They are being real stingy on the DIA puts.  During this run up, the MM has been moving nickles when I put in my bids for 89 Dec09 P.  Not too worried about the run up YET.


  144. Cap – Another day of punching through the top of the charts, right?  Lot’s of luck on those puts!  I like the entry but very scary…

    Congrats Jo, well done!

    IBM/Eph – Well there is earnings tomorrow and they are not likely to miss other than currency issues but the $105s are $5.30 and you can get an average of $5 by splitting them up to the Aug $105 and $110s at $6.50 and $3.50 so that gives you a little more room to the upside with the same protection and more premium sold than riding these out….

    Oil closed right at $62 – not a big reaction from the energy sector so far (maybe because it was totally fake).

    DIA/Eph – Well you can’t leave them naked unless you are willing to take another hit in the morning but a 1/2 cover of the $84s or something is pretty daring for overnight.    You always want to sell enough to pay for at least one roll up to cover a 100-point rally. 


  145. confizzled
    I feel for you.  I owned a ton of DIA $85 calls that I had to kiss goodbye early last week when they were practically worthless.  Remember last week when the world was going to end and we were hovering around 8100 on the Dow?  I learned my lesson for sure!
    I think we are being pumped and the rug will be taken out.  GS doesn’t have govt. cash to keep pumping and you can bet they bought at low and will sell at the high.  My nose is bleeding from us being so high right now.


  146. Our VLO position has grown Large,  we really loaded up on the Aug 16 puts the last couple weeks, now showing some big gains.  I still like the position and plan on staying in .    Can you recommend some protection?


  147. Mort Zuckerman calling the economy a disaster; needs more and massive stimulus.
     
    So let’s rally !


  148. That should read we’ve sold VLO puts.


  149. VLO/Atlas – You sold the naked puts?  I don’t see those as needing protection although you could put a 20% stop on 1/4 and stop another 1/4 at 30% but we went into that play WANTING to own VLO for $16ish, obviously, that’s not going to happen but we’ll be happy to take the cash at the end of the month. 

    $5KP – Understand that this is EXTREMELY risky but we’re up nicely overall so buying 3 DIA $87 puts for .57 is a fun gamble into earnings tomorrow.  Most likely, we’ll be getting .20 or less back but could be a double or better.


  150. Hello Phiil;
     
    is the TTWO trade still good with the tad hight stock price and the less money on the buy/wrote ?
     
    thanks
    david


  151. Roubini rally??? Oh My the worst is behind us he says.


  152. Now if Roubini were as smart as he thinks he is; he would buy a boatload of puts and then clarify his comments that were used to pump up the market this afternoon !


  153. Think I’ll hold those CY puts we bought yesterday.    CY has run away, it’ll have to come back.


  154. Think I’ll hold those CY puts we bought yesterday.    CY has run away, it’ll have to come back.


  155. Taking out my DIA putters and going  naked, and see what happens here.


  156. Thanks Phil.  The thing is, I only had like $10K total and already lost $6K on this trade along with losses on Dell and my boneheaded move of only doing the YUM trade halfway. 
     
    The question is….do I take the $.03 I can get for the $84 DIA puts now?  Selling the 350 contracts at $.03 would mean I’d still have a Thousand bucks left [and we can start a new account on SeekingAlpha called Confizzled' $1K portfolio which you can help me get to $5K in three months] to live and trade again with.
     
    Or do I wait until tomorrow hoping the $84 Puts hit $.06 and I can get $2K for them instead of $1K?

    I realize you can’t predict the future…although your’e pretty damn close at times….so please feel free to throw out a guess about what YOU would do.
     
    Thanks


  157. Phil; doubled down at 54 cents; entry was key; have a mental stop where I would get out.   Still in decent shape.


  158. TTWO/Micro – As long as the net spread is the same it’s fine.

    Roubini/Colberg – See my notes on that above.  I can’t believe we are getting a move like this in the markets based solely on the fact that the Media counts on no one actually reading what Roubini said….

    Robini/Cap – Hey that is a good plan!

    Wow, DIA $87 puts paying off alread, now .60!  Ideally, it’s not something I’d burn a day-trade on but if we get to .80 or better into the close – why risk it if you don’t have to?

    DIA/Confiz – When in doubt, sell half would apply here…


  159. PETERD…….tks. for help…..any other indexes u like….do u prefer SPX over SPY??…..GABBY


  160.  would be nice to get out of dia calls once dia puts become a free ride!


  161. sold aug $18 puts srs.good premium $1.50


  162. MA, V, FDX, UPS all still going up and up – Someone is bettting huge that the economy is coming back strong

    XLF back to flat.

    Somehow YRCW is down 11% – makes a nice speculative entry at $1.37.

    Airlines sitll not going anywhere.

    Volume just 147M coming into 3:30 – still way lower than yesterday, which was about double.  Could still get fireworlks into the close…


  163. Confiz, the DIA 84 puts are currently .01 on my screen, and I wonder if your broker would charge you .03 to close them
    Remember commissions, because if you end up paying out money to close the position I really wouldn’t….


  164. Phil BAC or GE plays for tomorrow? Or Prediction of market impact, re Intc like or No affect JP Morgan like?


  165. DIA $87 calls are .50 now so that pays for the $86 put side, now .18 and it’s a good idea to take them off and just gamble on the free ride for tomorrow (or just kill the trade for a 20% profit!).


  166. Phil, a cpl wks ago you helped me get my NAFC trade in better shape and finally today it has gotten in the green. thank you. i thought abt putting covers on it before earnings on the 29th but it is in the form of puts and i am not approved to sell calls necked. (i live in the south) do you have any suggestions on how to protect it other than just keep a close eye?


  167. okay just to understand. If I see IBM currently selling for $108. The august $100 puts sell for $2.50. Which means if my broker allows me to sell the puts without owning the stock for $2.50, and the deadline for the august puts comes and the price of IBM is at $101, do i get to keep the $250 from the puts I sold? If so, whats the big risk when we are dealing with a stock that is out of the money and has very little chance of getting to that price?
    Thanks phil


  168. Geez, just got back- who the hell turned up the thermostat?
    Phil,
    Any adjustment on the Aug 90/ July 86 Calls?


  169. WTF?  This is just amazing.  We’re going to get called out of all our longs at this rate….

    NAFC/Morx – You have to give me the positions again. 

    IBM/Miracl – Yes, you keep the put money no matter what.  What the putter has is the right to force you to buy IBM at $100, no matter what the actual price.  So, in effect, he’s not going to make you buy it if IBM is over $100 but under $100, think if it as he has a bunch of IBM to unload and he paid you $2.50 to make sure that’s the least he gets.  Also, you will be charged margin as if you bought the IBM for $100 as soon as you sell the puts.  The risk is always that IBM crashes to $90 on poor ernings and you are forced to buy it for $100.  You have to figure your odds, just like any option play.

    DIA/Pstas – I don’t think it should be adjusted as we may fall back tomorrow but this is the worst-case on that trade playing out with the $86s at $1.44 and the Aug $90s only $1.03.  The good news is you can roll the  calls to the Aug $89 puts even but no reson to do it while they even have a nickel of premium to give up.


  170. Huf, huf, huf… I just got back in.  Someone yelled to me from across the street.. Are happy days REALLY here again??


  171. Phil,
    OK- no adjustment but you lost me on the potential move the the Aug 89 Puts? Please explain.


  172. I think they’re setting themselves up for tomorrow right now!
    Goin the other way.


  173.  just bought some aug qid calls.


  174. Hey – Did you miss me ? What a scam $87 pre-market on monday $94.51 at high today. Whats that 8-9% in 4 days ? I just hope I’m short when the market comes crashing down. (Although I’m sure Phil will tell me off for think such thoughts !)


  175. Wow, what a squeeze they put on!  A full week of craziness.  But looks like it’s all over now.  Tomorrow we’ll reverse.  Despite IBM’s continued success.  Probability:  70 : 30.


  176. Phil,
    Also- re DEC puts- I already rolled up to the 86′s this morning. As a general guideline, I follow the logic of up for =/- .50; I put in for a cheap roll to the 87′s late but did not fill. In a case like this latest madness, is it generally better to take the roll up with a sudden move?


  177. That’s right Matt – they fixed everything since last Friday.  I’m telling you, when Obama left the country, the markets fell apart and as soon as he gets back, it’s happy time.  Maybe he’s the one that has Goldman’s secret trade codes….

    DIA/Pstas – If you roll the July $86 CALLER, now $1.25, I meant, to the the the Aug $89 calls, now $1.35, then you get another dime and are in the trade for -.05 and the spread is about .30 so you are down .25.  Then you just hope for a nice sell-off that hurts the caller or you can make further adjustments in size or whatever to adjust. 

    What a crazy day, they are seriously crediting Roubini with this rally – I urge people to read that link above and decide for yourselves. 

    Short/DB – No, we’re getting there now.

    GOOG misses big-time on top-line revs!!!    Yay puts!


  178. re NAFC (sorry) i have 15 aug 30′s at 3.79. (puts) maybe they don’t need covering. Earnings look at least decent.


  179. Oops – CNBC got it wrong.  Revenues are actually fine.  Earnings are $5.36 per share on $4.07Bn revs.  Expectations were $5.09 earnings and $4.06Bn revenues.  On the whole, that’s in-line (6% beat) and they’ve already had a good run so not likely the go crazy on it in either direction.


  180. IBM also beat earnings: $2.32 vs $2.02 expected.  Revenues were a tiny miss:  $23.25 vs $23.59 expected.   That’s a plus for IBM.

    Only the financials can kill us now and those are all in the morning. 

    Even DELL is going up on this news! 


  181. Cap
    What/where is your blog? Can we post comments? I’m not done with health care.
    Thanks,


  182. How does CNBC get Goog’s numbers wrong?  Are they really a business channel?  Or just entertainment..



  183. pstas …. you can post comments …. just click on my name.
     
    If you want to write an article,email me at capcube@gmail.com and if I like it I will post it.
     
    Matt, I am with you on that thinking; I figure we need a good 150-250 point sell off tomorrow.  The past 4 days are waaaayyyy crazy.   Held my DIA puts (risky move) so we’ll see.


  184. I really think we reverse completely tomorrow.  Despite the good earnings. There was huge volume selling into the rally starting at 3:40pm.  That’s not a little profit taking.  That’s a directional change.


  185. I bailed on my jul SPX calls after sitting pretty on them all month. I was so confident that Google would stoke the market at the open Fri. Now, about all those regular calls I felt so smart about all month …..


  186. Cap,
    Where are the comments?


  187. I realize I may never have specified, I’m always short all options.


  188. stevenp-  Yeah, I’ll keep an eye out for that.  I use Intereactive Brokers and they charge $.15 per contract (in hundreds) so even selling a penny option (100 shares at $.01 = $1), I’d still get $.75 back.
     
    Depending on what happens tomorrow, I probably won’t be seeing you guys for at least a week…until I can put more money in my trading account.  Without money to trade with, logging in and reading about winning trades will be like salt on my wounds so…yeah..break time. 
     
    Considering the combination of bad luck and my bad decisions over the last three days, maybe it’s a good thing.  Seems kind of surreal that I had $10K at the beginning of the week and now I’m down to less than $1K.  Effin fake rallies and my "it’s bound to turn around soon" little voice.  Oh well.  It’s only money right?


  189.  Looks like I’ll get my premium crush on GOOG….  I can chew on that…. yum yum
     
    But HOG just boggles my brain… only made .08 when estimates were for .24… and the stock flies 8% up !?!?!
    They will layoff 1000 and close a factory and institute all kinds of draconian cost cutting to counter the fact their sales are going to crap… but you’d think the damn stock posted a Goldman Sach’s  sort of earnings beat the way it went up… 
    So…. JPM beats and stock goes down, HOG misses terribly and stock ignites a rocket ride up…. sheeeeeeesh… what a screwey day
     
    Funny how S&P topped out just over  942 just where my 2x SPY put order was sitting until I yanked it before it could fill. We’ll see if "they" got the balls to push up 950 tomorrow since that is where I’ll be waiting for them.


  190. There was a 2 second data point on CNBC about the decline in foreign treasury purchases. Does anyone see a story out there? I cannot find anything.
    The dollar took a huge dive after the report, and Matt, we may not get your reversal after that one.


  191. Matt -  I just looked – there was the same volume sell off into the close yesterday and look what happened today!  I personally dont believe there is anyone in this market apart from a handfull of traders like us and a mass of computers. The selling was just the computers offloading. They will start buying again in the pre-market. Pump it up at 11.30 and 1.30 and offload into the closing pump. Wash and repeat.


  192. DIA/Pstas – Just take the roll up when it’s cheap.  If it’s not cheap, you don’t want it.  Don’t forget you are effectively rolling to stay in at least a .50 downside delta so you capture at least 1/2 of a 300-point drop, probably more like 60%.  The idea of the trade is to roll yourself up and up, using mainly the money from front-month puts you sell and then you get a big bonus when there’s a big drop. 

    GOOG actually selling off a lot after hours, down to $430. 

    NAFC/Morx – The Aug $30 puts are still $3.30 – do you already have the covers?  With the stock at $27.30, you have effectively locked the stock to neutral ahead of earnings.  I don’t like that as I think the stock is plenty low enough and if you are nervous, let someone pay YOU a premium and sell 10 Aug $25s for $3, that covers your 1,500 with $2 per share so you are good to about $25 and you still keep 1/3 of the gains over $28 and all of the gains to $28 as that’s effectively what you are selling 1,000 of your 1,500 shares for.  Doesn’t it make more sense to have someone pay you $1,000 in premium than for you to pay $1,800 in premium?

    Cap’s Blog/Pstas – Click on his name and the link takes you there.  

    CNBC/Matt – I know, they whacked the stock down and I think it’s still down because now the impression is "something’s wrong."  

    LOL DB!  I love that guy!  He leads off with the answer "Well, Goldman Sachs are scum."  You can’t go wrong with that opening…

    Volume selling/Matt – I don’t know what market you were watching but the Dow volume finished at a lame 216M.  There was just no way that "they" were going to waste 2 days of relentless up movement to have some jokers blow it into the close. 

    SPX/Barf – Ouch, not the best week to be short….

    Futures taking a small dip but very little damage.  Nothing really matters until we hear from C, BAC and GE. 

    Out of our bullish hedged picks from last week ONLY CAL is not up 10% – that’s out of 18 stocks.  Not at all normal!


  193. CaFords, I read today about foreign countries dumping treasuries in May..  but that’s it.  That’s pretty old news to be reporting today but that’s CNBC for you.  Anything that supports there agenda.  What time frame are you talking about for treasuries not being purchased?  When was the auction? I thought we’ve been having ‘strong’ demand. ;-)


  194. Matt – Not sure, I missed the blurb. I also read previously about the treasury sales, but I was looking for some more current reports/data. This is important I think because it compounds the liquidations.
    They said an additional $20B less in foreign purchases, and did not mention sales. Is this a more rapid precursor to accelerated inflation? I’ll try to find it on the Gov websites.


  195. I don’t know what market you were watching "
     
    Matt/Phil…There are many options for this  NDX, COMP, SPX, INDU.  What symbol do you watch to determine volume?


  196. Phil, I was looking soley at the Naz.  Maybe it was just people locking in gains ahead of goog and ibm.  I know I sure as hell would / did.  I’m uncovered now on QID.  But I guess I shouldn’t  rest on my laurels.  I know.. I’ll keep both fingers crossed and my one good eye on it!
     
    Called away?  I wish I had your problems…


  197.  I hereby dub this rally as the  "The Anti-trader Rally"… chuckle
     
    all about those damed secret artificial intelligence trading algorithms GS invented against all us lil itty bitty market traders trying to scrape a few dimes off the street…  ;)
     
    Da Boys must be running out of those good fishing grounds of big fish, so now they are trying to catch the minnows


  198. Dollar/CaFords – I haven’t seen that yet but it’s just another way to goose the markets – timing is everything.

    Tomorrow/DB – I don’t know.  If the banks are in-line or close, then they can hold this close for the week and kill the head and shoulders talk but if 2 of the 3 miss we could have a huge sell-off.  Back to 8,500 easy.  Not likely but there has been no volume supporting any of these moves.

    Yes, isn’t it interesting the GE’s station completely misrepresents Roubini’s comments and then float tidbits like treasuries are being dumped to knock the dollar lower ahead of the parent company’s earnings?   GE is up close to 20% this week, it’s a nice cushion for a miss and they did get a lot of dumping into the close.  I like GE a lot but I can’t see how their mix of media, commercial real estate, jet engines and massive infrastructure projects is going to beat estimates, even though they are really low (.23 vs. .54 last year, when they were at $25). 

    Volume/Bri – ETrade has a Dow volume number that I use.  I don’t think it matters what you use as long as it’s consistent and you know when it’s "good" or "bad."  Since I play the DIAs a lot, I like to watch the Dow number and, also, it’s easy to track a number that goes between 150 and 400 rather than the NYSE, which goes from 500 to 2,000 (millions of course). 


  199. When the MSM is constantly telling you things are horrible, time to go long.  When they are in la la land, time to short.  I seriously think the traders are moving in the opposite trend as CNBC, Fox Business, whatever.  Not that I am complaining, by portfolio is green, but just playing the ride.


  200. Nevermind, The report was published yesterday and the data is for May.


  201.  2 of the 3 miss we could have a huge sell-off"
    Can banks "miss" if they can set the value of assets on their books to whatever they feel is "market value"? 


  202. Phil/ Cap Good call the recant or clarification from Roubini cane just after 5:00 eastern! Amzing Check for that Boatload of Put! LOL!


  203.  Did GOOG spice it’s earnings this quarter by using a too low tax rate?
     
    Does that mean they will have to catch up with their tax rate by thier 4th quarter report?


  204. Roubini says huh?

    It has been widely reported today that I have stated that the recession will be over “this year” and that I have “improved” my economic outlook. Despite those reports – however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.

    I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19months into that recession. If, as I predicted, the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010.  Simply put I am not forecasting economic growth before year’s end.

    Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.

    I have also consistently argued – including in my remarks today – that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.

    I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates (because of concerns about medium term fiscal sustainability and because of an increase in expected inflation) and thus would lead to a crowding out of private demand.

    While the recession will be over by the end of the year the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector; and now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.

    Also, as I fleshed out in detail in recent remarks the labor market is still very weak: I predict a peak unemployment rate of close to 11% in 2010. Such large unemployment will have negative effects on labor income and consumption growth; will postpone the bottoming out of the housing sector; will lead to larger defaults and losses on bank loans (residential and commercial mortgages, credit cards, auto loans, leveraged loans); will increase the size of the budget deficit (even before any additional stimulus is implemented); and will increase protectionist pressures.

    So, yes there is light at the end of the tunnel for the US and the global economy; but as I have consistently argued the recession will continue through the end of the year, and the recovery will be weak and at risk of a double dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.

    RGE Monitor will soon release our updated U.S. and Global Economic Outlook.  A preview of the U.S. Outlook is available on our website: http://www.rgemonitor.com


  205. Someone really needs to pull the plug on CNBC.  They are becoming more and more flagrant with their manipulation.


  206. By the way Matt – you wanted to do some Quant trading? Take a look at this for a base.


  207. Not enoughmoney in the world to service US debt !!!! Another must read


  208. Hi Phil-
    Looking forward, I have to say that we may sell off a little before month’s end, but I am not sure if it will be catastrophic.  Then maybe some more buying for tape painting the week of the 27th.  Then I think the beginning of August there will be another sell off, maybe a major one.  Starting tomorrow or Monday, what would be the best put to cash in on the eventual fall?  Do I buy $87 DIA Aug puts and offset them with $82 DIA Aug calls?
    BTW, I am really pissed.  My $85 DIA calls that were initially good to me (I did make a little on them here and there) and were eventually ALL taken away from me would have been worth $XXX,XXX today.  Instead I lost some $.  I am licking my wounds, but I am telling you this rally is bogus and will not last and I intend to cash in on the way down this time just like my buddies at GS will.  Last sell off I did not buy puts and shook my head at everyone buying so many puts.  Phil, I learned a lot this month and I intend to make good on buying you a case of champagne by the end of the year.  Shoot, maybe even a Bentley!  :  )  Lord know those GS guys can share some with us little people.


  209. Ephmen & Gabby – Howdy?  Sorry, I’m just back to my desk after many hours of meetings.   IWM works for smaller accounts and RUT works for larger account as RUT pricing is 10x larger, saving me 10 times in trading commission.  It’s much easier to do 20 RUT contracts than 200 IWM contracts, although the RUT liquidity is bad, but I’m dealing with it fine. 
     
    Same for SPY and SPX.  For larger accounts, we’d save lots on trading commission by dealing with SPX.  Plus we don’t get the risk of being assigned with SPX.  SPX Bid/Ask spread is much worse than RUT and the premium is lower, so RUT became my favorite index to sell strangles.


  210. Thank you for the response which was:
    "NAFC/Morx – The Aug $30 puts are still $3.30 – do you already have the covers?  With the stock at $27.30, you have effectively locked the stock to neutral ahead of earnings.  I don’t like that as I think the stock is plenty low enough and if you are nervous, let someone pay YOU a premium and sell 10 Aug $25s for $3, that covers your 1,500 with $2 per share so you are good to about $25 and you still keep 1/3 of the gains over $28 and all of the gains to $28 as that’s effectively what you are selling 1,000 of your 1,500 shares for.  Doesn’t it make more sense to have someone pay you $1,000 in premium than for you to pay $1,800 in premium?"
    Great plan, problem is i am a level 4 and not approved to sell calls without owning the stock. It is actually what i tried to do and got rebuffed so i called you. (Hopefully i understood that correctly as selling a call)


  211. Table/DB – That’s a little uneven as the chart is of the total debt and then below it they talk about a 3-fold increase in debt purchases as if $30Tn needs to be converted.  The reality is we must sell 20% of what is on that chart this year.  Using that figure, we can look at where we run into real trouble.

    $800Bn needs to come from Intragovernmental holdings.  That’s no problem, Bernanke has an open checkbook and, as Ron Paul points out, no one audits him!  $600Bn needs to come from Foreign and International holders – also no problem as China already kicked in $177Bn in the first half (just reported increase in their Forex holdings).  Mutual Funds need $120Bn, tha’t's easy as over $500Bn in payroll salaries flow into mutual funds every year. 

    State and local governments are your first real problem so let’s call that a $100Bn hole.   Federal Reserve is back to Bernanke, no problem as long as no one asks how it is we lend over $1Tn to ourselves (by the way, 1/2 the National Debt is just that, money we owe ourselves).  #6 is Other Investors for $90Bn.
     

    7&9 are pension funds and just $90Bn between them and 80% of the people are still working, so a $16Bn shortfall at worst.  8 is savings bonds for $40Bn and 10 and 11 are Depository Institutions and Insurance Companies for $60Bn. 

    Even if you slasy those last 3 in half, that’s $50Bn short pus $16Bn from the Pension Funds and $100Bn that we’re assuming State and Local Governments don’t have.  So that’s $166Bn short out of $2Tn and clearly money has been flying into bonds and treasuries as the rates are so low so theres probably an extra $200Bn laying around to cover things. 

    I’m just saying, don’t take this stuff too seriously.  Look at GM – how do you think they got $300Bn in debt with a market cap that was never more than $50Bn at their all-time high? 

    As long as you can service your debt, you can borrow forever and, when you no longer can and your debt is big enough - it becomes your creditors problem, not yours.  Look at GM – out of bankruptcy and back to losing money in less than 90 days!   The only number that really matters is $450Bn, that’s the amount of money we need to service $10Tn in debt.  Since the "cash-flow" of the government is $2Tn a year, we are MILES away from our borrowing limit. 

    Obviously, I think this is a huge and terrible problem in the long run but, in the short run – don’t use it to assume everything will come crashing down tomorrow – or this year, or next.  I freaked out when Kirkorean said he was buying GM in 2006 and I pointed out to everyone how there was no way they could be saved and that it was a money pit, blah, blah….  That did not stop, not only Kirkorean but many other people from buying GM up on their way to zero and every single one of those people was a total idiot but that didn’t stop them from perpetuating that farce.  The problem is, it’s a farce that everyone is participating and I doubt anyone is going to want to call an end to this game anytime soon. 

     

    Buy/Write Strategy with covers:
     

    Catastrophe/Celeste – As with DB, don’t get too far ahead of yourself calling a drop.  You are right thinking of hedges but make sure you have some mix of upside plays and not a 100% bearish portfolio. 

    Let’s say you want to be bearish on the Dow.   We can start with something basic like the DIA Dec $88 puts at $6.38, selling the DIA Aug $86 puts for $2.  Since you have 4 months to sell to pay off your $6.38, you need to sell $1.50 a month in premium, not $2 so you can just cover with 3/4 the Aug $86 puts.    The Dec puts have a delta of .52 and the Aug puts have a delta of .42 and at 75%, that’s effectively a delt of .31 so you will outgain your putters by .21 per 100-point decline in the Dow.  That’s a simple cover strategy that will pay you .21 per net $4.88 per 100-point Dow drop. 

    If you had a balanced bullish portfolio of $50,000 and anticipated losing 5% ($2,500) with each 100-point drop in the Dow.  The quesiton is, how worried are you and what will it take to cover the drop?  If you want to mitigate 1/2 the damage on the way down, then you need to make $1,250 per 100-point Dow drop.  At $21 per contract (.21 x 100), you need 60 contracts to cushion 1/2 your anticipated downside losses.  60 contracts at net $4.88 is $29,280. 

    So with $50,000 on the plus side, you will make 5% (that’s an assumption, your mix can be whatever) per 100 points up and that’s $2,500 per 100 while your insurance loses $1,250.  On the way down, you lose $2,500 on the long positions while your puts gain $1,250.  As you can imagine, once you have your balances working, it’s pretty easy to make small adjustments to get your whole portfolio a little more bullish or bearish without stampeding in and out of all your positions. 

    Couple that proteciton strategy with hedged entries, like the buy/writes, which already give you 10% or better protection on your longs and you considerably lower your need for coverage (as the Dow has to drop 10% before your long side even begins to lose money) AND, BEST OF ALL, using the buy/write strategy – if the market flatlines you still get your 10% gains for the month AND you wipe out the puts you sold so you get the gains AND FREE INSURANCE!  

    I know it doesn’t seem like it but MOST months end up within 5% of where you started.  You can run a strategy like this and do very well for yourself over time but you must be PATIENT!  Even this expiration, assuming we finish around 8,650, is just 111 points over June 19ths 8,539.  Effectively, we haven’t gone anywhere since last expiration day!  If you go back and read the Buy List posts under the Portfolio tab from the first one, you’ll see that we rode up and down and all around but did NOTHING until expiration week and it all worked out fine until May, when the big finish called us away and we let ourselves go to cash while we waited for the next dip – which took until last week but so what?  It was sure worth waiting for as every single one of those plays is up huge.  You don’t HAVE to make 10% every month to do very well. 


  212. NAFC/Morx – I’m confused, I thought you owned the stock and wanted to protect it?  What is the actual exact position you have with entries and what is your outlook?


  213. Phil,
     
    Glad to see you were on top of the Roubini comments for us……there is enough difficulty wading through all the information without having the masses misunderstand/misread his comments and guide the market the wrong way. The misinterpretation was so widespread he had to come out and clarify--how funny. It’s nice to have someone like you around who doesn’t get fooled by this!


  214. NA, MRK @ 26 means that would be a price of 25.5 for SGP.  Din’t fill the 22.5s, but will try again tomorrow.


  215. I think Roubini took my earlier comment to heart; shorting the market and coming out to say he was misquoted (well we don’t know if he shorted the market, but read on …)
    http://zerohedge.blogspot.com/2009/07/roubini-my-views-were-taken-out-of.html
     
    A snippet:
     
    From RGE Montior:

    “It has been widely reported today that I have stated that the recession will be over “this year” and that I have “improved” my economic outlook. Despite those reports – however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.
    “I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19months into that recession. If, as I predicted, the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.
    “Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.
    “I have also consistently argued – including in my remarks today – that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.
    “I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates (because of concerns about medium term fiscal sustainability and because of an increase in expected inflation) and thus would lead to a crowding out of private demand.


  216. oops, sorry Phil; didn’t see you had this covered….


  217. pstas … comments…. at the end of each article, one can post a comment.


  218. GE – never underestimate the incompetence of CEO Jeffrey Immelt.


  219. Joe Biden sez:  We have to keep spending so not to go bankrupt.
     
    Don’t mess with Joe.


  220. I cannot recall an options expiration day week like this one …. straight up for 4 days.


  221. "re NAFC (sorry) i have 15 aug 30’s at 3.79. (puts) maybe they don’t need covering. Earnings look at least decent."
    I sold the puts months ago. Don’t own the stock. You have assisted me in rolling (should have bought the puts long ago but that’s another story) Finally it looks like they may do me some good if things don’t tank before the 29th. That’s why i was looking for a way to cover incase they creep back. Is buying puts the best  way?


  222. Again a full action day, missed many posts and now re-reading all of em.

    DIA PUTS /   Folks, with so little time for Option-Ex this is dangerous, VERY.  Phil can explain better than me, but allow me to give an advice on this and how I play this ones…

    When I trade options,  I usually  invest $1000 at max in the initial entry.  If it comes down 20% ($200) I will think on DD (an extra $800) or kill the trade. Usually I do not go for a 2nd DD, and many times I don’t allow going down into 20% in first case. This is explained very well in Education section.

    BUT, when playing on those puts/calls at edge,  since its is a craps roll I will only go in with $200 Max. This way, if I lose the trade (100% loss) it will be like a normal option trade went wrong and stopped at 20%.

    Yesterday I Get in $85 Puts, 5 contracts at  $0.32 = -$160  Today, at $.10 I decide to DD. So that was the bet. Now holding 10 DIA $85 puts at $.21 avg, for a total -$210. Looking for a spike to sell half on them.  Didn’t work.

    Reaching the close I decide to sell them for whatever I can get: $.04 and with those $40  bought 1 DIA $87 put at 42 cents. Now, I’m a bit over my limit (-$212). To break even I need at least -200 points in the DOW. Very unlikely after the earning reports after market close. But if we open red, only -100 points will give me back half of my money. In such case I set a stop and let it go as far it can go. I other case… well, I lose my trade.

    This bets are crazy. I do not play them often and always in a measured amount. This tarde is like the one proposed by  Phil on June 25, 2009 – 3:34pm Email alert:

    " IWM had a nice move today, the June 30th $50 puts are just .36 with the low VIX.  It’s pretty much a double or nothing bet but, as they are up 2.5% on a ridiculous day, its fun for a craps roll. "

    You have to think how much are you willing to bet.  You can win huge but you also can lose all position. Now think about other details: If you bough 300 DIA $87 puts and you win big time, you have to consider about having the money to exercise them in case you cant sell them. It’s an unlike situation in such a liquid underlaying. But in other cases you have to take that into account!. (Think Porsche anyone?). Those 300 contracts represents more than $2.5Mn …As said, its crazy!

    YUM/ Phil ty for advice, I got those Oct $35 and sold half  Aug$35

    Have a good night a Cya!
     


  223. Good Morning Phil & all


  224. Asia/Pacific Markets    Friday, July 17, 2009
    (The following is from Yahoo, please confirm with other sources)   

    Australia All Ordinaries*                 3,992.90        5.10    0.13%
    Nikkei Average*                             9,395.32      51.16    0.55%
    Shanghai Composite*                    3,189.74        6.00    0.19%
    Hang Seng*                                 18,805.66    443.79    2.42%
    Seoul Composite*                          1,440.10       7.88    0.55%
    Singapore Straits Times*                2,430.96      29.94    1.25%
    Bombay Sensex                          14,758.26     508.01    3.56%
    Baltic Dry Index                             3,501.00     177.00    5.32%

    * at Close


  225. Asian Markets Rise, But Jakarta Blasts Cap Gains

    Most Asian markets extended gains Friday as key U.S. earnings reports beat expectations, fueling hopes that the global recession is receding, but deadly explosions at two Jakarta hotels weighed on Indonesia stocks and the rupiah. The yen gained broadly and oil and gold edged down.The blasts at the Ritz-Carlton Hotel and the Marriott Hotel in central Jakarta killed as many as nine people, sending Jakarta stocks down 2 percent and lopping 0.7 percent off the rupiah, which has been Asia’s best performing currency so far this year.

    Japan’s Nikkei losed 0.6 percent higher after strong results at JPMorgan boosted optimism about corporate earnings, but gains were capped by political uncertainty ahead of an election next month.

    South Korea’s KOSPI finished half a percent higher with gains fueled by techs.

    Hong Kong shares posted a fourth straight day of gains as data from China and a slew of strong corporate earnings from the United States supplied fresh evidence of a global economic turnaround.

    Singapore’s Straits Times Index finished 1.25 percent higher after a brief period in the red following news of the Jakarta explosions. 

    China’s Shanghai Composite Index was virtually flat as investors built up ammunition for next week’s mega initial public offering.

    Bombay Stock Exchange’s Sensex was sharply up at 3.56 %. Indian equities continued upward march supported by positive global cues. Sentiments had also turned bullish a few days ago when the finance minister had assured that disinvestment process was still on the cards.


  226. Euro Shares Set for Best Week Since Nov. ’08

    European shares rose for the fifth straight day on Friday led by banks and commodity stocks ahead of earnings from Citi, Bank of America and General Electric. The FTSEurofirst 300 index of top European shares was up 0.5 percent at 871.06 points, after hitting its highest closing level in a month on Thursday.

    Banks were among the top gainers, with Deutsche Bank, Banco Santander, Societe Generale, HSBC and Royal Bank of Scotland up 0.6-1.4 percent. Swedbank reversed earlier losses to trade up 3.3 percent despite posting a bigger-than-expected second quarter operating loss, hurt by huge provisions for souring credits in the recession-hit Baltic region.

    Commodity stocks also traded higher, with BP, Royal Dutch Shell and Total rising 0.3-0.9 percent.

    In the mining sector, BHP Billiton, Rio Tinto, Anglo American and Xstrata took on 0.8-2.2 percent.

    In Europe, Alcatel-Lucent, ASML, STMicroelectronics and Infineon were up 0.6-3.1 percent. Heavyweight Nokia, however, was down 2.8 percent, extending Thursday’s 15 percent drop after the world’s top cellphone maker cut its profitability and market share forecasts due to tough competition at the top end of the market.

    Carrefour, the world’s second-biggest retailer behind U.S. group Wal-Mart, lost 2 percent after saying second-quarter sales fell 1.2 percent, hurt by weaker western European markets, lower petrol prices and exchange rates.

    Around Europe:
    FTSE    4,396.69     34.85         0.80%
    DAX    4,997.12     39.93         0.81%
    CAC     3,226.97     27.29         0.85%
    SMI    5,576.93     38.36         0.69%


  227. Oil Slips Below $62 on Economic Outlook, Dollar

    Oil fell below $62 a barrel on Friday, undermined by concerns over the outlook for the world economy and by a stronger dollar, which rose ahead of a raft of U.S. corporate results.

    U.S. crude oil [ 61.71    -0.31  (-0.5%)] for September delivery was down.
    London Brent crude [ 63.37    -0.38  (-0.6%)] fell.

    "Sentiments on oil are split between those who believe a recovery is on its way and therefore prices should climb higher, and those who are looking at the supply-demand fundamentals and believe that the market is still very weak," said Victor Shum, a Singapore-based analyst at Purvin & Gertz.

    In China, refiners in the world’s No.2 energy consumer boosted production by 6 percent in June to a record high after a rise in domestic motor fuel prices aided margins, although higher inventories and rising exports suggested domestic demand was lagging.

    Dollar, Yen Firmer Ahead of US Bank Earnings

    The dollar and yen were firmer against other major currencies on Friday as caution set in before more key U.S. corporate earnings later in the day.

    The dollar index was up 0.4 percent at 79.529 after falling to a six-week low at 79.131 the previous day.
    The euro was down against the dollar [1.4103    -0.0043  (-0.3%)] and the yen [132.38    -0.49  (-0.37%)] .
    Sterling was down versus the dollar [1.6301    -0.0137  (-0.83%)] and the yen [ 152.98  -1.40  (-0.91%)] .
    The U.S. currency [ 93.84  -0.08  (-0.09%) ] eased against the Japanese currency.

    Gold flat after fall, ETF holdings inch up

    Gold stood at $936.70 as of 11:33 p.m. EDT, slightly higher than New York’s notional close of $936.35 on Thursday, when it fell about $2.

    Holdings by the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, rose to 1,094.85 metric tons on Thursday, up 0.31 metric tons from the previous business day. It was the first rise after falling for six straight weeks from a record of 1,134.03 metric tons hit on June 1.

    Silver and platinum remained unchanged at $13.27 and $1160.50 respectively. While, palladium fell by $1 to 244.50.


  228.  Gooooood morning Phil & all,
     
    It Friday !!        July Option Expiration day !!!….    wooo hoooooo
     
    Hey Phil, last weekend we were discussing if we were at the bottom of the channel. You think "they" got enough in them to push the market to the top of the channel by the end of the day?
     
    I’m looking for harsh double top resistance on S&P at 955 and DJIA at 8870


  229. CNBC : GE Earns $0.26 a Share in 2Q Vs. Est. of $0.23 a Share; Revenue Short of Estimates

    WSJ : GE earnings drop 47% on continued finance woes.


  230. Good morning!

    Thanks Ocelli.  I love the Internet for that reason, it’s so easy to check facts but, sadly, it’s also so easy to spread misinformation and the masses don’t check facts (nor does the media, it seems!).

    MRK/Pharm – It could be they are expecting MRK to make a large acquisition that will take them down a bit.

    Cap – Totally crazy week but, as I mentioned, we are only back to where we were last expiration day so a very nice flatline for buy/write players who ignore the noise!

    NAFC/Morx – So you just have the Aug $30 puts at $3.79 that you own (not sold naked) and you are bullish on the stock looking to cover?  No wonder I couldn’t figure out your position!  I’m sorry but there is no good cover as the $25 puts are just .80 and the stock is already at $27 so wiping you out on good earnings is not at all out of the question.  The best coverage for this position is to cash it out.  Even if you went with a bull/put spread and sold the $35s for $8, you would be in for a net credit of $4.21 with a break even at no less than $30.79, which is so bullish that your ownership of the puts is pointless.

    Nice strategy Spider!

    Channel top/Merk – I highly doubt it today.  I think we are flatlining so we expire with most of the June expiration day strikes expiring worthless. 

    Well, everyone came in pretty-much in-line but is in-line enough?  I think it’s very possible that we reverse the "Roubini rally" that started at 8,550, which is EXACTLY where we were at June expirations. 

    Oil not holding $62 despite a rally attempt overnight and gold pulled back to $934 (from $940) on a not too exciting dollar:  $1.409 to the Euro, $1.628 to the Pound and 93.69 Yen.


  231. Hello, Morning all.
     
    Merk.. I do closed most longs on Wednesday and remaining yesterday. Keeping only some few stuff. But I keep half of my mattress, so im balanced to the bear side. Probably I anticipated my move and with todays earnings… well see.
     
    Bac reports .33   vs .28 expected  +18% … have to say wow?


  232.  Phil…. I was trying to figure why HOG could miss earnings so badly and yet jump up over 8% yesterday.  Then I saw that article in The Pragmatic Capitalist which showed HOG was the 9th most shorted stock in the S&P500.
     
    So I figured I got caught in an MM manipulation to squeeze the high short interest. What better way to drive a bear bonkers than to jack up crazy a bad stock on the day its horrible earnings are reported?!?
     
    What’s your opinion about plays on heavily shorted stocks?
     
    BTW I’m still holding my 3x august HOG puts since I don’t need much down movement of the stock to get out even.


  233.  I hear spider… going to cash on Friday’s has become a regular routine of mine too…
     
    I’ve got GOOG Jul 440 calls sold that I’m hoping expire worthless today, sold  against GOOG Sep calls.
    Also got puts in AIG and HOG. I sold out of my SPY puts yesterday just before the close. I hope to be all cash by the end of the day.