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Options Expriation Day – Back Where We Started!

"And now we're back where we started,
Here we go round again.
Day after day I get up and I say
I better do it again.

Where are all the people going?
Round and round till we reach the end.
One day leading to another,
Get up, go out,
do it again." – Kinks

That's right, we often talk about various market scams but there is no bigger scam in the world than options expiration day when all the stocks are herded back to prices that benefit the largest number of SELLERS of options while the buyers of options can only stare in shock as momentum shifts and trend-lines break and stock after stock magically settles into a value that wipes out the most possible premium.  There is something in options called the "Max Pain Theory" that says that stocks will always settle at the strike where the most puts and calls expire worthless but I think that's a self-fulfilling prophesy as options activity tends to center around the strike as it moves so of course the strike is surrounded by the most options.

What isn't a theory is what we can observe happening time and again.   This is why, at PSW, we primarily SELL options, not buy them.  Buying options is gambling, selling options is a business!  I often point out to members that options is the game in the world where you can be the "house" with no disadvantage.  In Las Vegas, you can bet with the house but they still have an edge but in options, there is no edge and day's like this remind us why selling options beats buying them – not EVERY time but certainly OVER time. 

Our last option expiration day was June 19th and I will give you today's levels to watch because they are the levels of June 19th:  Dow 8,540, S&P 921, Nasdaq 1,827, NYSE 5,934 and Russell 512.  All the markets have to do to take out the calls sold that day for a nickel or a dime is to hit those levels at some time today.  Of course, anything within 2.5% of those numbers is fine to as you can roll the calls you sold to the next month at no cost, collecting another premium for another month.  This is the centerpiece of our Buy/Write strategy, which we discussed last weekend and I will be putting up a new Buy List for Members this weekend as we now have about 30 of those plays from the past two weeks to review.

So all the excitement of the Dow going down 500 and then up 700 is all nothing in the grand scheme of things and we're right back where we were, or close enough to make option sellers happy.  And how did we get here?  Well mainly it was Meredith Whitney kicking off another media frenzy with her "bullish" change of heart.  Since that worked so well the MSM, led by CNBC yesterday, took Nouriel Roubini's latest comments so out of context (causing the 1:30 rally) that he specifically wrote an article complaining about it!  This morning, CNBC had the nerve to make fun of Roubini for "changing his tune."  Don't forget CNBC is owned by GE, who reported mixed results this morning and need a strong market to keep their shares up around $12.10, where they were on June 19th.

As you can see from David Fry's S&P chart, we are back in the top of our range and our last play in the $5,000 Virtual Portfolio yesterday was as speculative short using the DIA $87 puts at .57 (looking for .80+ today) as we expected some pullback today since we knew that Roubini was being quoted out of context (unlike the sheeple, we actually read the originals) and we also did not expect GE, C and BAC to be thrilling enough to justify a 10% rally on Whitney's say-so.  If you want trading ideas for the market, just go back to my June 19th post as I was suggesting members take bullish plays off the table, buy the QID $31 calls and the DIA $86 puts – the only difference is we can now change July to August for our strike month. 

Indeed GE, BAC and C were not that thrilling.  Don't get me wrong, we are the proud owners of GE and C in our $100K Virtual Portfolio and we are, of course, reaping the benefits of the same manipulation I like to complain about.  As I often say: "We don't really care IF the game is rigged, as long as we know HOW it's rigged so we can place our bets accordingly."  GOOG had a nice beat but a little light on revenues and we'll see how close they get to June 19th's $420.  We had a bullish play on GOOG last week but cashed it out on that run-up ahead of earnings and I'm willing to go bullish again if they give us a nice run back near $400.  IBM crushed numbers and I doubt they'll get back to last expiration's $106 today – if they do, I'll buy some!  Next week is light on data and our last data point of this week is Housing Starts, which beat expectations by 10% so no excuse for the bulls today not to keep things going if this rally is real

The rally seemed real enough in Asia, with the Hang Seng running up another 2.5% on the day.  The Nikkei was up half a point and the Shanghai held flat, still up 75% for the year – perhaps waiting for others to catch up to 50% gains (Hang Seng needs 21,000, Nikkei has no chance but 50% off the bottom would be 10,500) before making a break for 100% gain.  India jumped 3.5% and the Baltic Dry Index added another 5% and is back to 3,500 so expectations, at least, are very bullish in Asia.

Iceland EUEU stocks are up about half a point (9am), a bit off the highs but still fairly happy.  Financials are leading day 5 of the rally with the DAX matching the S&P as the top performing market, up 2.5% on the nose since last expiration day.  As we expected, NOK posted poor results but they took most of their medicine yesterday as one of the market's biggest losers.  Iceland did agree to join the EU after 6 days of debate and that's an encouraging sign.  Just ahead of the US open, the dollar is dropping like a rock against the Euro and other currencies and that is, of course, boosting commodities and the broader market, erasing all pre-market losses.  Isn't that special?

While we are comfortable getting back to the middle of our predicted range at Dow 8,650 et al, we're not happy with the low-volume super-rally that got us here this week so we will remain a little skeptical and cautious into earnings.  The Philly Fed Index was a disaster yesterday, coming in at -7.5 vs estimates of -4.8 and significantly worse than June's reading of -2.2 with zero being the expansion/contraction line.  The six-month outlook for general business activity dipped to 51.9 from 60.1 in June.  New orders (-2.2) edged in the right direction from a -4.8 reading for June, yet they still haven't tipped into an expansion phase.  Shipments, meanwhile, tilted back to a contraction reading at -9.5 versus 2.1 in June.  These are not the kinds of numbers you expect to break overhead resistance with….

We'll just have to see which way things go, they are manipulating the currency markets so it seems like the powers that be REALLY want to see a good finish to this week.  It really only matters to the Dow how IBM does as they outweigh C, GE and BAC by 4 to 1 in the price-weighted index.  The other big Dow movers, XOM and CVX, will be very dependent on whether or not oil can hold $62 for the week.  Since last Thursday, the OIH is up 12.5% and the XLE is up 9%.  XLE failed our $48.50 breakout yesterday despite the market move and OIH is right at $100 so they make a fun short there with the Aug $95 puts at $3.40 and we can stop out if oil breaks over $62.50 (doubt it).  This is a no trade if oil is over $62, which it may be at the open…. 

Not much trading to do today other than fun, speculative plays on the action.  We are going to be well-covered into the weekend with some speculative downside bets, especially if we don't get a pullback in today's action.  Next week it's all earnings and little data with 1/3 of the S&P 500 reporting and we will continue to pick our spots in the $5KP but I think we'll give it a pass over the weekend.


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  1. It’s a double top at S&P 955 and DJIA 8870 if we get another rally push today…
    It is an interesting technical chart setup for next week if Da Boyz can pull it off and make the technical traders have something to chat and chew on during the weekend.

  2. Phil … DIA 86 call was assigned…  can you help me understand???
    I entered the Jul 86 – Aug 90 call spread you suggested on Wednesday.  Just learned that the 86 calls were assigned to me.  Didn’t they still have premium even after the run up???  Why would this have happened???  Sort of kills the spread. 
    Any advice on how to unwind this now?  Do I just wait for DIA to trade below 86 and sell at a small profit???  Or is there a cleaner way to do it with the balancing Aug 90′s???

  3. Mirachael … Buy to clover the DIA shares; sell DIA Jul 86 or Aug 86 or Aug 87 calls.

  4. Art Cashin … Major Solar Eclipse coming … LOL.

  5.  Citi saves the day !!!  LOL
    Look at the futures reverse back towards "unch" !
    I suppose today just might be another rally day

  6. Thanks Cap,  this is wonderful learning exercise.  I knew the trade was low risk, but still wondering why anybody would want to exercise the 86 calls…. then they exercised all but 1 and now I have a single out there just hanging…

  7. Double Top/Merk – I hope it doesn’t go that far today, that would be total BS. 

    DIA/Mira – Not a big deal, you were forced to sell them at $86 and you collected .70 so that’s net entry of $86.70 on the short play.    The Aug $90s are $1.05 so you are up .30 there but don’t be greedy, just try to get out even on a broken play.   Cap is right about selling the $87 calls, those are .60 it looks like and, since you don’t have callers anymore, it’s nice extra money.

    Damn, Yahoo charts are down, I use those a lot…

    Dollar is getting KILLED ahead of the open so it’s probably a total sham but we have to let it run it’s course.  Who knows, maybe we run right back to the highs? 

    We’re not worried about levels today other than breaking over yesterday’s highs and then we’ll be watching for 1.25% and 2.5% gains (see chart under post).

  8. Wow, oil jammed right to $62.50.

    I like the QID Aug $31s at $1.40 still, the Nas has a long way to fall if it does.

    I’m happy enough with the DIA $87 puts in the $5KP for now, hopefully we get a move down at some point.

  9. GOOG $430 puts for $1.35 are worth a small bet.

  10. Dow futs are dumping

  11. OIH not cracking $100 with oil over $62.50 so I’m liking those puts still.  Aug $95 puts at $3.65, stop at $3, looking for $5.

  12. GOOG was a quick double, now $2.20 on the puts – it’s the kind of trade you can make 10 times if they are going to gyrate around here

  13. What’s ur feeling on the Oxen short of LUV?

  14. TOS having awelful problems on pricing.  I have DJA up 87….

  15. looks like yesterday’s numbers in TOS that have subtracted todays numbers….

  16. Phil, I was under the impression that puts and calls were only assigned after expiration. I see that Mirachael’s were assigned today?

  17. Pharm
    I see what u mean, chart looks right just numbers off??

  18. LUV/Sthom – I like LUV and I’ll bet they hedged the hell out of oil at $35-40 so I don’t like them as a long-term short but that’s not what David’s plays are about and today was a good day to speculate on a sell-off after a nearly 10% run since last week.  They sure aren’t going to fight the markets if they head south. 

    Volume 105M at 10 to 10, when’s the last time we saw that?

    Speaking of fighting the market – ZION going up! 

    AAPL doing well on the assumption that they took market share from NOK and SNE but maybe the market just shrank?  I love AAPL but I think selling the Aug $150s for $6.50 is a good deal, you can cover with Jan $170s at $7.60 but you have to be willing to DD on the long side and roll caller to 2x something else if they have great numbers and fly up.

    Oil $63+ now, wild stuff!  Gold back to $940 and this rally is still about killing the dollar so far. 

    $5KP – Buying 3 more DIA $87 puts for .29, average on 6 is .43 and we’ll be happy to get out even.

  19. Phil just to verify the above OIH play is Buy Aug $95 Puts at $3.65?

  20. Hey Pharma. Great call on GOL airlines dew days ago. $7.50 Now, close to your 8 prediction

  21.  wow GOOG 430 puts at 4… hyperventilating…. LOL

  22.  Phil/CIT
    Do you think it’s worth taking a "gamble" on some shares?  Am tempted if they drop back into the low-mid 40 cent range.  Seems at this price, the risk is comparable to what we risk on some options, and if they do avoid bankruptcy somehow there’s lots of upside long-term.  What do you think?

  23. Assigns/Sunco – You can be assigned any time on a contract you sell.  It’s rare if they still have premium and very rare on sold calls.

    OIH/Sunco – Yes, that was buying the Aug $95 puts, now $3.30.

    CIT/Jofor – Effectively you are only gambling that there are idiots out there who will buy it.  GM and AIGs moves argue in your favor but keep in mind it’s a total gamble and you are very likely to lose.

  24. AIG? add more? I’m down about 20%.

  25. PHIL and ALL…I believe DIA pays a 19 cent div to those who own it today.    GABBY

  26. NTES – initiated short @ $40. 

  27. Damn, we should have bought the $87 calls the way this is looking! 

    It’s the same as usual, as soon as volume dries up it’s BUYBUYBUY and volume totally died since 10. 

    V is still flying, MCD up, Energy sector doing well with oil at $63.50 now, up $2.50 since the open. 

    We’re testing the pre-market top now, if we get higher than this it’s going to be another bear squeeze I think, including our own puts if they go down any further. 

    IBM $115 is 30 Dow points by itself.  XOM and CVX are flat and every dollar they add is another 8 or 9 Dow points so watch them.  GOOG is dragging the Nas, if they turn up they can get the Nas green. 

    AIG/Morx – I wouldn’t add – too crazy, just hope for sanity to return. 

  28. Phil:
    Bonjour du Tour de France from Colmar/France: after great sunny weather, now we have rain. but still this is the greatest athletic sports event in the world.
    you and me should be quite relaxed as we had no questioning exchange for many weeks, hope to ask short and precise questions and get a corresponding response, LOL.
    I see AAPL moving up, I like it of course as I have Aug 155 calls, BUT, due to earlier loss from rolling july 145 to aug 155, still down by 2.23$ net,
    now, I wonder how to manage these calls further by getting more time/covering ??
    Please advise but do not say it in French.

  29. Spider – NICE on GOL….HEB is next…..

  30. HK is just marching..

  31.  AIG looks like a pin on the 14 strike
    GOOG looks like a pin at 430
    Indexes have flat lined… I guess many have closed their sold July options and are starting their weekends early….
    which I’m very tempted to do myself…. yawwwwwwwnn

  32. OMG RMM is alive!!!!  Matt, UR buddy is back.

  33. 10:30 volume 131M.

    Hey RMM!  Hope you are having a nice vacation… 

    AAPL/RMM – Well I just made a play to sell the $150 calls against Jan $170s because I think AAPL is overpriced here.  You can roll to the Jan $170s for $3.30 and sell the $155s for $4.65 so you put $1.30 in pocket but you have to be willing to add to the long position if AAPL blows higher so you can do a 2x roll with the callers. 

    Well that was a retest of the pre-market pump, let’s see what they can do with it.

  34.  RMM, I was in vittel yesterday. Hope you are enjoying the heat ;-)

  35. Please let this be the turning point!

  36. Optrader:
    if its too hot for you, drink eau de VITTEL,
    but its cool now so its drinking Eau de Vie for me. I like Mirabel best.
    Are you trading from over there ? yes, I remember that you spend the summer in Europe.

  37. PETERD…….what’s your index play on NASDAQ??Technology>>>>>   Tks. for all your help……..GABBY

  38. Phil, from this moring you said "anything within 2.5% of those numbers is fine to as you can roll the calls you sold to the next month at no cost, collecting another premium for another month"…
    Is that the rule-of-thumb for rolling covered calls versus letting them go???  I’ve got some RIG covered with Jul 65 calls.  At current levels, stock is well beyond the 2.5% range.  Best to let them go???  Happy to release the stock as I think RIG likely to come down after oil futures roll and the price pump is over (seems you agree with OIH short call)…

  39. I can’t believe GOOG going near 400 again. Looking for support @ 428 but as usual there is usually one lower then first guess

  40. SBUX   Anyone have any opinions ahead of Tuesday’s earnings?

  41. Phil,
    I bought the CY Aug $9 put yesterday at $.15. where would you cash out on that?

  42. Gabby – unfortunately the nasdaq doesn’t have much premium to sell.  I only have a small position in it, NDX Sep 1275 short PUT and 1675 short CALL.

  43. Pharmboy/HEB/Swine flu: I’m living in London and in recent days Swine flu has become a huge story. Gov’t forecasts are that up to 65,000 could die this year, 3x the ‘usual’ flu outbreak level for a year. In the last week, cases have soared. A number of the small biotechs are trying to position themselves as pureplays on various flu vaccines, including H1N1, and it seems HEB is on that list. It looks like VICL could be on that list as well. Are you playing HEB as a swine flu play? Any thoughts on VICL? Seems like about 30% of market cap is cash, no debt, and some irons in the fire on a H1N1 vaccine. Cheers

  44. Rolling/Mira – You roll when you feel you are still going up and you can get a good price for the next month.  You let them go if you think the next call you sell won’t provide adequate coverage or the premium you are being paid isn’t worth the risk of holding for a month.  You should always ask yourself – "Is this the best thing for me to tie my money up in?" 

    RIG is up with oil so it depends on your outlook on RIG and your outlook on oil.  $75 is a little high I think but they are a great long-term company.  The July $65s are $9.30 and it would cost you $3 to roll them to the Aug $70s but are you sure they will hold $70 through Aug?  If not, let them go…  Yes, they are a big part of the OIH and I don’t think earnings will be good but oil over $65 could help them a lot. 

    Speaking of oil, rejected at $63.50, now testing $63 and XOM and CVX did not like that.

    GOOG/B1 – I was not all that impressed with earnings.  They are not developing new revenue streams and we’ve certainly given them enough time. 

    SBUX – Total wildcard but they are close to last year’s levels and I very much doubt they did as well as last year.  Last Q was an easy beat but this Q analysts want to see MORE than last year so I’d lean short if betting.

    CY/Maxt – I wouldn’t sell it into this madness.  They should hold a dime through next week so just hope for a market correction to get .25 or .30.

  45.  RMM, yes I am on vacation. Just spend 4 days in Vittel with familly, mostly playing Golf and eating good food. Back to the south of France right now, and the US next week.

  46. DIA $87 calls .. who knows where we end?.. Maybe it pins at 87 and both, put & calls, worth 0.
    I’ll keep the puts till end, maybe I collect few bucks ;-)
    HEB / Pharma = whats going on this one? This pharma stocks are crazy bets, even more crazy than playing with options expiring in hours… As I understand, the only wining there are the ones with insider information and or FDA leaked info. I can be very wrong, but .. whats the potential on HEB?

  47. Anyone else having e-trade fits/ basic site down, pro trade spotty, Love this on option ex day…

  48. MTXX – buying here, selling the Oct 5P for 80c, and Jan 10C for 90C.  MTXX has a bit of a problem with Zicam nasal spray….but it appears to be a false reading.  See below.  Risky again with the FDA involved, but I think they will get it sorted out.

  49. Colberg,
    I’m having same problems and the phone lines are jammed.  Anybody hear from Etrade when this will get resolved??? 

  50. Phil, thanks for hand-holding.  Seems there is no rule-of-thumb on rolling, but does require some common sense.  I’m a bit anxious at the moment with E-Trade site down and flying blind after the bizzare assignment of DIA 86 calls…  Really wanted to sell some more July DIA calls into that morning spike, but missed it thanks to the E-Trade problems…

  51. etrade – me too. just wound up buying 3 puts twice cause it didn’t register as going through!

  52. I’m short the July BIDU 320 straddle, since it seems to like that number this morning.

  53. ETrade site is locked up. Can’t get into accounts or anything.

  54. At least the power etrade program is working or I’d be really annoyed.

  55. Not even getting E-Trade pro to respond, totally blocked out of my accounts at the moment.  TOS is looking better and better…

  56. Power E*Trade Pro is working

  57. Never and Spider – HEB has a drug for cronic fatigue syndrom in review by the FDA.  Don’t ask me how, but someone found that their drug makes the H1N1 treatments 100X more effective than treatment alone.  Japan is looking at co-dosing HEBs drug with H1N1 treatment.  EU is looking at the same.  So, the FDA would look mighty stupid if they did not approve the drug, and the EU/Japan did.  Now, the FDA has rejected drugs before that are approved in other countries, but with the ‘pandemic’, I say they have no choice (they do, but again, I am playing odds here).  HEB’s drug is safe from what I can tell, it all comes down to interpetation of the clinical trials.  That is my bet with HEB. 
    As for the other players in the vaccine dept, whomever gets their first, wins.  Not playing the rat race games (CITL, NVAX, etc).  Big Pharma is also there e.g. NVS, (I think Chiron has/had something) so my bet is on them.
    MTXX – order is in for 6.15.

  58. Looks like I am not the only one having ET issues. Power ET Pro also very spotty.

  59. ETrade Pro may not be accurate – I was in the morning from yesterdays session and graphs seemed current but accounts were not updated yet (still showing the full position on the short DIA 86 calls I was "assigned" in the pre markets), so I logged out and now can not get back in…  So be careful regarding information ETrade Pro is showing, it may not be accurate…

  60. My ETrade mobile pro is working, but a little spotty.

  61. Phil why are you here talking then ? you must be pissing the kids off.

  62. IBM FCX JPM holding up the Dow….

  63. Peter D= Do you have an education page about your strategy? I understand you sell premium on RUT and NDX among others. I will like to take a deeper look into your ideas. TY – Spider

  64. Anyone else having trouble with etrade ?

  65. This is how stupid the Dow is:  $125Bn market cap GE would have to lose 1/3 of it’s value to offset the effect of $150Bn IBMs 3% gain.  Due to price weighting AA, BAC, DIS, GE, INTC, PFE, T with about 1/3 of the Dow’s market cap, have less effect than IBM by itself.  Now it would be fine if the Dow was just silly and we ignored it but ALL the indexes move in tandem more or less so that simply means that the Dow, and especially the big Dow components, have a ridiculous, outsized effect on the markets.

    Speaking of Dow silliness – C is up on those "eanings" because they sold Smith Barney for a $6.7Bn gain.  So there’s a block of revenues they will never see again, which gave them a $6.7Bn gain to offset $4.3Bn of operating losses.  I still like C and think they will be a nice, ordinary bank long-term but these earnings are nothing special at all….

    DIA/Spider – You didn’t sell the calls?  I doubt you’ll see .50 offered again but you never know. 

    Oil held $63, taking another stap at $63.50. NYMEX crooks have it down to less than 60,000 contracts for July with Tuesday as settlement and they’ve already traded them over 180,000 times.  They probably only need to dump 30K by Tuesday so they can make oil do pretty much anything unless some rogue trader decided to dump out this afternoon and screws them up.

    ETrade – Oh that does suck!  What a day for it too.  This is why it’s good to get all your rolls done by Weds of expiration week – just in case!

    BIDU/Eric – Very surprising they are holding up since GOOG wasn’t that thrilling. 

    Kids/Micro – What???

    FCX/Cap – What???

    Speaking of RIG – someone is liking them today.

  66. Sold MTXX 5 Oct P, waiting to sell the Calls.

  67. don’t close ET. I can’t get back on at all now. Help the whole world is coming to an end. :)

  68. VNO and BXP both testing 2.5% to the downside.  SRS much improved from yesterday.

    Volume at 11:30 is 162M, 30M in an hour so low, low, low after a good start.  I’m wondering if they blew the whole stick save budget for the day holding things up at the open but, after yesterday’s amazing afternoon run-up, nothing would surprise me.  Right now, I’m looking for lower highs followed by lower lows in the hourly waves otherwise we have to bail on the short plays…  I’d like to see 8,700 break before noon followed by a rejection trying to get back over it. 

    EU just closed near their highs, up about a point so they were probably a lot of the buying action we see over here.  Now we’ll see how well we hold up without the weak dollar driving overseas orders this afternoon.

  69. Phil, I agree re: BIDU, which is why I think they pin 320 today. Then down Monday perhaps?
    That straddle was sold for 3.20 half an hour ago: now 2.02. Amazing (I have a stop at 4.20, though).

  70. Phil
    I will ask early – I am long Sept and Dec DIA puts with 1/2 covers on both. Still trying to get some better rolls on the Sept’s.
    What’s your "guidance" for cover over the weekend?

  71. ETrade running now

  72.  Phil/GOOG
    Would you re-enter the $430 puts here?

  73. eTrade – not in the UK

  74. Yawn.  C’mon market, is this all you’ve got after such a fun week?

  75. LEN — Options too illiquid to trade?  Zero movement on the AUG $9 put during a 3% move by the stock.  (Also tried shorting at $9.96 [now $9.64], but there were no shares available to borrow.)

  76. OT, but I just visited a friend in his "Earthship" home in NM. It really blew me away at how far they’ve taken this idea. Beautiful home inside, huge greenhouse with lots of light, all modern amenities (nice kitchen, home theater, high-speed internet, etc.), very comfortable temperatures (72 F on a 95 F day).
    All of this is completely off-grid for water and power; he has only a small propane tank for his kitchen stove. Really no compromises in his lifestyle at all.
    I feel like a total chump for living in an ordinary home now, lol.

  77. Hearing so many heads recommending MSFT bothers me but maybe on a small drop they are good for a few points? They might actually do something right.

  78. etrade — yep — fubar

  79. mos going up forever?

  80. I wonder how much of an affect there is on the market cutting off ETrade clients from selling?  It certainly keeps the volume nice and low so those with direct connections can move things more easily…

    Straddle/Eric – It’s great to play if you manage your stops well.

    DIA/Pstas – Over the weekend I’d go with 1/2 cover of Aug $85 puts, which are now $1.60 but hopefully will be $2+ by the close

    GOOG/Jo – No because they are more than they were before and GOOG is already lower than it was.  We have to assume they are trying to hold $330 so I’d rather see them test and up move and get in real cheap (assuming they don’t break $434) or maybe on a test of $427, I’d like to take a shot on the $430 calls for .50 (but, again, only if they hold it).  In about an hour that premium just collapses on you so its only a very short-term momentum play at best. 

    LEN//Swell – Lots of call options trading – dead on the put side though. Looks like the calls were sold, not bought but that makes sense as they are up 20% for the week so people cashing out ahead of earnings.  

    MOS/Morx – Buyout rumors prevail.  All Ags moving up with oil and gold but I think we’re topping on commodites.

    Oil just failed $63, there’s that rogue trade I warned about.   Makes sense someone would want to cash out barrels after 10% run-up. 

    Pushing it right to the 12:00 line with my below 8,700 move, the Nas needs to crumble, maybe GOOG can do us a favor and sell off now…

  81. Phil-
    I have a question about selling calls.  Let’s say you own BA and wanted to be called away at a premium.  You bought the stock for $41.90 and sold $42 calls.  The stock then goes down the next day.  SHould you buy out the $42 calls (which are now way less) and re-sell the $41 calls?  Is there any risk to not being called away at $41 as long as the price holds above $41?

  82. Would you buy OIH July 100 put for 0.30 ?

  83. Phil, have you heard anything else about that MOS rumor? We are at the 20 % down mark from yesterday and are in doubledown territory.

  84. Nasdaq Red, but QQQQ up .92%.

  85. Phrama:  MTXX  / HEB  thanks. I will look them in deep.
    Phil:  DIA its a put, cot a call, only one contract,  I will wait .. $.26 now  It never reached $.50

  86. Volume 170M at noon.

    Didn’t really break below 8,700 so not too bearish and not enough time to be right at this point.  I’d say if they top 8,725 on the Dow in this 1/2 hour cycle, we have to seriously consider killing the puts.

    Oil jumped back over $63, that’s pretty much the whole story for the markets. 

    Calls/Celeste – It depends on your outlook.  If you think the sell-off was without merit and you are comfortable going back to being uncovered then sure but generally, I want to be up at least 50% on the caller to take him out.   If the price is over your strike on expiration day, you WILL be called away.  I’m pretty sure it’s automatic at the broker. 

    OIH/Hagyar – I’d say yes for fun (now .22) but probably a waste of money the way they are pushing oil today.

    MOS/Craig – I would rather wait to be 40% down and DD (maybe roll) than at 20% because the rumor may be true and that’s a lot of exposure over the weekend.

  87. Bot a few MOS 55 calls, that should stop the upward momentum.

  88. Pharma, do you know or have any thought on TPI?   Link:

  89. 1 hour outlook – The bears need to see a run down to 8,690 or lower before we turn up again and we must be rejected at 8,700 on the bounce or pack it in.  Keep in mind that your put premium is being measured in hours now, not days and you will lose 1/3 of your July put premiums PER HOUR so it’s very expensive to "wait and see."  Also, out of the money puts will become illiquid in the last hour

    Good job Mr. M! 

    $63 well defended on oil and $938 holding on gold. 

    Woops, there goes the Dow already, punching up to the 10:30 high.  They topped out at 8,730 about 15 mins later so about 12:35 is the last chance to get a good sell-off going.

  90. Phil OIH play day moves or longer term/ "OIH not cracking $100 with oil over $62.50 so I’m liking those puts still.  Aug $95 puts at $3.65, stop at $3, looking for $5.’ from am comment?

  91. Wow, talk about a flatline – check out the Dow 15-min chart!  This index hasn’t moved less than 100 points in a day since last month! 

    We need more rogue traders to sell oil! 

    WFMI continuing to kick ass.  HOG still going up.

    OIH/Colberg – I like them over the weekend but hard to hold the way the market is holding up.  They touched right about $3 but not below. 

  92. Worked like a charm, I stopped MOS dead in its tracks at 54.15.  Short away boys.  FYI, I also bot some DIA 87 calls to stop the stick save, so take the rest of the day off guys, nothing more to see here (except for HK and TC, my gems…)

  93. Great article on US/China economic ponzi scheme.

    LOL Mr M!  I’m glad you are able to harness your powers for good! 

  94. Wow. CIT double up on the day!  Good call Jofori, I hope I didn’t talk you out of it.  All it took was a rumor that JPM and GS MIGHT do a credit deal with them.  No one knows the details of the deal or how it affects shareholders (maybe 1,000% dillutive preferreds) but, boom, all the way to .90 on that rumor before selling off.  People are THAT stupid!

  95. ETrade – Oddly, during the website insanity, the mobile version of ET Pro (Blackberry) was working fine.  Something for future reference.  Sorry I didn’t alert earlier.  DS

  96. Phil- your comments and insights on market pivot and hold points with a 1-2 hour outlook have been very reassuring and helpful.  Thanks for that extra bit of insight…. Please keep it coming…
    E-Trade back on line and finally got to figure out situation with the assigment of DIA 86 calls.  Got a pile of cash and a bunch of Short positions on DIA at the moment.  Not a big deal, I can even the short on my own timing…  a nice quick sell-off would certainly aid in my desire to get back to neutral for the weekend…

  97. The Daily Options Report guy was pointing out recently that S&P options IV is still above 30 day historical volatility.
    Hard to believe with the VIX pushing toward 24, but it suggests that SPY options, and probably others, are still a good sale here.

  98. Learning my way thru DIA options (separate and apart from your running DIA threads, PD), I shorted July 87 puts yesterday.  I’m up just over 5% at this moment.   Thoughts on letting them run or taking the money now?

  99. Four consecutive peaks on the DIA roller-coaster, it looks like a bored trader could buy 87 calls at 87.10 and scalp a nickle or dime off each run up…

  100. dstill, if it were me I’d set a buy-stop on them at some price that locks in a profit for you if it triggers, and that way you can take a shot on getting the rest.

  101. TPI – haven’t heard of ‘em, spider.  So no comments there.

  102. Seems DJI is squeezing into a flag for the day…  is this a valid interpretation?  Is it likely to slog thru in such a tight range for remainder of an expiry day???

  103.  Phil/CIT
    For once I wish I didn’t listen to you :)  I ended up not buying…

  104.  Phil, does it appear that the market is being help up or held down today?  After GOOG and IBM didn’t implode I expected a better day for QLD than this, so it seems like there’s a blanket on the market.  DIA is a dead even for the day so we basically pinned 87 at the open, seems dull compared to recent OE days.  Or perhaps this week was just too much too fast…

  105. MrM – which mos calls did you buy? might be good to have a little protection.

  106. DIA hit 87.10 for you brave scalpers.

  107. GOOG over 4 million shares, 3rd day out of 5

  108. Morx, I bought some QLD calls at 39.75 this morning so I made some quick coin on them an hour later so now I’m just spreading around the profits looking for a ten-bagger, that’s what I do on OE days.  For MOS, I bought some JUL 55 calls at .50, it’s an all or nothing play on MOS gaining 10% like yesterday. 

  109. Oil at $63.95, keeping everything up including coal stocks. 

    That’s putting XOM and CVX on a run and adding Dow support.  IBM stopped dead at $114, BAC down at 2.5% rule.  VNO down 3.6%, BXP down 2.4% – watch out if they break below 2.5% ($47).

    X is up huge over $37.50, EXM up at $8, SNDK at $18, WFR almost $19.

    Outlook/Mira – Well don’t get used to it.  Just slow enough that I figured I’d give "eyes" to the Etrade crowd.

    Speaking of outlook – We are at a critical test on DIA of 8,700 again and the bears are running out of time.  Anything that doesn’t take us below 8,690 before going back to 8,720 is very bad for bears.

    SPY/Eric – Well the VIX was way low (comparitavely) this past month.  Now back to 24.50 so depends when he wrote that post too.

    DIA/Dstill – As above outlook – I’d take it off the table unless you really want to risk it.  Maybe give yourself a few pennies leeway but they are out of the money and expiring in 2.5 hours.

    Roller-coaster/Mr M – yep that’s likely the best way to do it if you can day-trade like that.

    Flag/Mira – I still think we drop into the close and get back to 8,650 or lower but that’s a guess.  Right now I think they are selling the hell out of Aug calls to cover and, when they are done with that, they will drop the market.  Of course they can always ramp it up for a BIG finish to the week – they did that in China, so it’s not worth taking a chance other than just a pure gamble.

  110. I also bought a few DIA 87 calls, BAC 13 calls, and some TC calls around noon, c’mon stick!

  111. Jofori = CIT is 100% up, but culd also be 90% down, halted or whatever.  Is like a color bet in roulette. 18/37 or 18/38 on double 0′s ones.
    Zion = -7%   Im not longer holding positions on them. Earnings on Monday AMC.  What do you think about, Phil?

  112. Phil – For the past several months I seem to remember a brief sell off the week after OPEX. What are your thoughts?

  113. phil;
    i am holding 2011 C $2.50 calls for $1.10 , i have not sold the $5 calls on them yet, i was holding out for something better so the spread will cost less then .50. is that wise or am i just being greedy ? i figired with int the next couple months we might get a spike. 
    what you think ?

  114. Well that was painful for the DIA $87 puts!  That’s why that 7,825 line was a bad break before, we went off pattern. 

    In the $5KP we have 6 DIA $87 puts at .43 ($258) now worth .05 ($30).  Since we can buy 10 more for $50, there’s no reason not to as it lowers our basis to .19 and we will be happy to get out for .10.

  115. ZION/Spider – I like them at $10.70, which they seem to hold, not so much up here. 

    Sell-off/Cafords – If we don’t get a sell-off into the close, I would realy expect one next week. 

    We are now matching up with yesterday’s spike high into the close on the Dow.  The SOX are way over yesterday’s top and so is the Nas.  Volume 202M at 1:45 so we’re up on good volume – if we hold it the bears may be covering into next week as well but I just can’t believe we are going to hold it…

    C/Micro – Well their earnings were taken well so no harm waiting and seeing but just don’t let it get out of control if they start to head lower. 

  116. I can’t believe it either …. what nonsense.

  117. Phil,
    What is your opinion on puts on cake and cpki??

  118. Phil:
    I waited with roll/cover action for AAPL aug 155 calls, that turned out ok,
    when is earnings report by AAPL?
    well, just rolled even to oct 165 calls, now a cover with aug 155 for $5.30 is possible,
    a partial cover might be best, 60/70 %, what do you think about this ?

  119. boy! you would think aapl would drop at some point today!!! its way over r2 and volume has come down some!

  120. AAPL earnings is TUE, july 21.

  121. CPKI/HP – I’d go more bullish as they are cheap eats and their costs are WAY down over last year.  I’m not happy that they are way up from $12.50 to over $15 so I think I’d 1/2 sell the Aug $15s at $1.15 and buy the Jan $15s at $2.50 so in for about net $1.90, which is almost the price of the $17.50s ($1.40) so you can survive a $2.50 drop and spend a buck to roll down to the $15s if things go wrong and, if they go well, you are 1/2 covered with plenty of time to roll.

    AAPL/RMM – Earnings on 21st.  I would full cover because you will be screaming bloody murder if the fall, you can always add some next week but AAPL is up more than 10% since last week – that’s a lot!  In April they went from $115 to $125 during the month on fantastic earnings.  They started July at $144, fell to $134 and now at $151 but I think if someone is willing to give you $5.50 (now) for the $155 calls, which need another $9 move just for them to get their money back, you should take it.  Sure do 8/10 if you really want but we had a big, big run…

    $5KP We’re at goal on the DIA $87 puts already (.13) – don’t lose .10 if it heads back, downside resistance at 8,725 now and, if they hold that, get out!  If you can day trade, fun to get back in at a nickel later, but not an official play.

  122. could we work on some mental telepathy format. I sold the DIA for a nickle b/c of the erosion warning and 2 sec later you post to buy more! could i come (i’ll bring my own chair) & sit next to you to prevent such things?

  123. Phil: first got 35% AAPL 155 aug callers for 5.3$, now 50 % for 5.5$, so have 85 % coverage, so average is 5.45$.

  124.  Phil, what is your current thought on the GS play??  Would you roll the short 150 july puts, for continued protection.  Certainly seems that GS is headed straight up!!!

  125. OIH now $2.90 do you let us know when it is time to bail? (stop was $3)

  126. Phil,looking to Monday HGSI they has been pumped today but, thier lupus drug Benlysta is no sure thing to reach the market, given disappointing early trial results as well as a history of multiple prior drug failures in an indication that does not readily lend itself to treatment.
     Might want to take a stand aginast this one…

  127. $5KP/DIA $87 puts – Done at .10.

    Telepathy/Morx – It’s really about risk/reward at each juncture.  With the $5KP, we were in for $258 and would get $30 back.  Adding instead 10 more (buying them from you, thanks) for $50 increased total risk by 20% but return (if it works) is getting back $160 on $308 invested and there was the slim possibility that we luck out and do better.  At 3:15, I would not have made the same decision. 

    AAPL/RMM – So keep in mind you are 85% of $5.45 covered so $4.63 against your longs.  Always important to have a solid idea of your risk.

    Oil closing at $63.50, couldn’t break $64 but that’s still pretty good for the day (or bad if you consume it).

    GS/Sgru – I think I’d give it the weekend and see where we are.

    OIH/Sunco – If you are willing to buy more, it’s worth holding.  I don’t think they will sustain this BS move in oil through next week. 

  128.  Noted, thanks!

  129.  Spider/CIT
    Point taken, that’s a fair comparison.  I guess my rational in considering the trade (i did not buy) was comparing it to some of the option day trades we make in expiration week, where we risk/gamble about the same amount $.40-.50.  For example I lost about the same amount on the DIA $87 puts play.

  130. Hey Spider, yes, I did publish the strategy on this board "Profiting from Short Strangles – Part 1, the Basics" back in January 2009, but didn’t save the Permalink.  However, I’ll be publishing a more detailed update in the next couple of weeks, so hang on for a few more trading days.

  131. Well, VIX under 24!

  132. Phil:
    if AAPL moves down next week, the 85 % cover will be fine,
    if AAPL moves up next week, what action is useful then ?
    I do have a similar situation with GS:
    have calls aug 165,
    roll to oct 180,(180 is very high though)
    cover with aug 165,
    any comment?

  133. HGSI/Colberg – That is Pharm’s expertise.  I am very shy about biotech as it’s very complex with all the studies and nonsense and the rumor mill on these companies is simply insane.  Unless they go mainstream, like DNDN, where I can get a feel for what the masses are thinking – I generally avoid that sector. 

    Stick or the Anti-Stick?

    Profiting from Short Strangles Part 1 & Part 2 - Excellent stuff!

  134.  Phil, thanks for the lecture on AAPL "you will be screaming bloody murder if they fall", you prompted me to finally let go of my JAN 75 leaps; I bought those at your urging on the Jobs scare last fall and I made a nice 237%.  Can’t cover them in my IRA, so a good time to move on…

  135. Phil,
    DIA short July 86 play- time to roll to Aug 89?

  136. Phil, I agree; this is the 6th green bar day for OIH.

  137. Thanks, Phil – I gave up looking for the links under Archives.  What’s a better way to search for articles in PSW?

    Thats the best way to search for educational articles.

  139. Philadelphia … next crisis …city stopped paying vendors.
    All is well !

  140. AAPL/RMM – Well it’s earnings so stocks probably won’t help.  If they do well you just have to DD and roll them to 2x September whatevers.  It’s a long-term position, not a one-month play.  On GS, why not just take money and run?   You can see if they test $160 and if they go over there, that’s your stop.

    AAPL/Mr. M – Good call.  If you are up 237% and still want to play, take 20% of it and buy something speculative but don’t risk that whole thing.

    DIA/Pstas – Well it’s an even roll now, probably not going to do much better so I’d ask for .05 credit and give that 1/2 hour before giving up and taking even roll.

    Search/Peter – Google silly!

    Education/Foss – That works too.  One day I’ve gotta get someone to make a glossery or something.

  141. Jofori / thats the idea. We regret from the money "we are missing to win". You have to look into your cash and how much you didn’t gamble in that one. I bet GS rocop-traders  where buying big time under $.40 cents and now dumping at $.90 Volume is over 300Mn, and remember, 75% plus+  come from computer trading ;-)
    PeterD = Ok, I  will look for it. TY.

  142. Stick or Anti Stick ? – Oh come on ! since when are the markets allowed to go down ?

  143. Enron could announce earnings and the market would go up :-)

  144. Phil: GS calls: have a loss sow ill have to continue working with them,
    what %age DIA PUT covers over weekend ? my long protective puts are dec86,

  145. 32 Dow points from IBM, otherwise we’d be red on the Dow. 

    Philadelphia/Cap – Well we could have guessed that from the Philly Fed, that city is as dead as Flint.

    GOOG right back to $430 but not going over.  AAPL at 2.5% rule.  MAR taking a big hit (they were bombed this morning in Asia), Ags getting tired, C back to red, XLF down 0.75 but over $12, Qs right at 37.50 so good inflection point to watch.  VNO settling down 2.5%, BXP down just 1%. 

    Techs moving up like QCOM and CSCO.  Lots of 4-letter stocks getting bought into the close.

    Notice even though Dow sold off some, DIA puts still .10 – that’s the problem with holding them into expiration, you need a really big move to get traction.

    Enron/DB – They used to announce great earnings! 

  146. While you are on the subject of education, is there anything on Phil’s website about adjusting calendar spreads that go against you – or anyplace else on the web where that might be covered succinctly. I googled it but did not find too much.

  147. DIA/RMM – 1/2 cover with Aug $85s, now $1.80, hopefully $2

    GOOG/Allen – It doesn’t help much unless you know a title.  I wrote something on rolling once, check the K1 Project or remind me on weekend. 

  148. WOW… I will take a screenshot on CIT today chart and save to later review the madness and psychology  behind that!!

  149. phil : I’m thinking of a buy/write on UNG  with Oct. $13 call. UNG now at $12.55 with call at $1.425 . I think natural gas will improve with economy & I’m getting paid to wait.What do u think

  150. Phil: you mean DIA aug 86 ???

  151. CIT/Spider – Now worse than a penny stock…

    UNG/Flam – I like it but you are not selling the puts?

    DIA/RMM – Sorry that was Aug $86 puts, now $1.81 – making very slow progress. 

    Hey last chance for DIA $87 puts for .05 for you crazy last-minute shoppers!

  152. Dear Phil,
    GOOG 530DEC is at $6 last week while google is around 400.
    Now it drops to $4 but google is at 430.
    Can I still hold this position?

  153. phil,  any thoughts  on market for next week?

  154. LOL Phil.. I only have 1 (One) Contract.  I’m wondering if i keep to last minute or I sell now and buy an ice-cream to my daughter with the proceeding :-)

  155. What do you think about GS for next month: I STO Aug $140 put at $4.10, now $2. Take my profit and run or see what next week brings?

  156. After this week, my  portfolio is like a race horse that needs to pee — all my  bullish diagonals are scrunched up against the callers and about to flip bearish. Badly need a little pull-back here, lol.
    BIDU coming in for a perfect landing. Dear BIDU: I love you.

  157. Who, nice volume on MOS

  158. GOOG/Lafitu – That one was supposed to come off at $8.  That’s what happens after earnings, big volatility drop.  I’d hang on today, see what GOOG looks like next week.

    Next week/Foss – We have a correction ahead of us, this is total BS – that’s what I think….

    CIT/Spider – Hey, I love Sundays!  That’s a winner you can be proud of. 

    See, DIA $87 puts STILL .10!  Although now they look a little better but just 25 mins left!

  159. Phil, how about GE as day traders get out?

  160. wow. digggin the MOS move. What did youdo?

  161. GS/Sunco – Well you are past earnings and looking good so no reason to pay them $1.90 really.  Maybe a stop at $3, just in case.

    Look at MOS fall! 

    Volume 243M and starting to get interesting.  8,710 seems to be defended on Dow but if someone big starts selling we could still fall pretty hard so volume is key right now.

    GE/B1 – They may get a downgrade.  Both GE and IBM got a lot of revenues from government contracts (stimulus) – that’s nothing to base a long-term investment premise on…

  162. Damn, those DIAs hit .05 again!  It’s funnny because trying to shake out the put holders they end up making a nice channel between .05 and .10….

  163. Mosaic: Bloomberg is now running another headline saying VALE hasn’t made any offers for fertilizer acquisitions

  164. Dear phil
    Own a calendar spread of Sept RIMM 75 calls at 4.5 and Sept  65 puts at 5.5. Have sold Aug 70 calls at 3 and 70 puts at 3.7. Starting to get worried about my Sept 65 puts, which are down about 3 dollars. Agonizing over next step. What is recommended?

  165. I meant for a short term pop on GE ie oversold because of day trading.

  166. Well.  I took the 5 cents on the DIA Put. 
    Those 5 bucks will transform in the happiness of my little girl  with her strawberry & chocolate ice-cream.  Priceless!
    Im not sure if i will tell her about the other 40 ice-creams lost in the same trade, hope not lost to GS-robocop-trader but to some other nice guy doing the same!

  167.  xom, looking pretty weak, didn’t react well to oil pump (even if it is fake).  buyng some aug 65 xom puts for .91

  168. No volume so no sell-off, just 251M now so 8M in 10 mins.  Happy to get that last nickel back on DIA puts now.

    Obama is supposed to speak but not showing up. 

    RIMM/Drum – Remind me later and I’ll take a look.

    Well, same old play as usual into the close – amazing 40-pont run on no volume and now probably back to 8,700 on the button to make sure all calls and puts are wiped….

  169. No volume so no sell-off, just 251M now so 8M in 10 mins.  Happy to get that last nickel back on DIA puts now.

    Obama is supposed to speak but not showing up. 

    RIMM/Drum – Remind me later and I’ll take a look.

    Well, same old play as usual into the close – amazing 40-pont run on no volume and now probably back to 8,700 on the button to make sure all calls and puts are wiped….

  170. No volume so no sell-off, just 251M now so 8M in 10 mins.  Happy to get that last nickel back on DIA puts now.

    Obama is supposed to speak but not showing up. 

    RIMM/Drum – Remind me later and I’ll take a look.

    Well, same old play as usual into the close – amazing 40-pont run on no volume and now probably back to 8,700 on the button to make sure all calls and puts are wiped….

  171. Damn it, RIMM — I’m a trader, not a witch doctor!

  172. That was strange, first time I got triple comments. 

    What a finish!  8,745 on not much volume.   Very strange with S&P red and everyone else flat – someone is painting a pretty picture on the Dow. 

    XOM puts/Jo – I like shorting them if they hit $70 again, tough at $68 with oil up.

    Well that was loads of fun – have a great weekend everybody!

  173. Sorry to jump in late.  What!?  You guys leaving?
    HPQ pinned at 40.00!  I had a covered call July strike $40.  Yahoo!

  174. phil,
    easy to paint the dow when ibm gives so much leverage. it is bullshit that dow then drives other indexes. what a deal for manipulators!

  175. Feh !    IBM and an APPL upgrade on opex Friday.

  176. Good riddance option writer rally!  Now where’s my bourbon..

  177. At 12:38 I said "short away boys" regarding MOS, next time I do that remind me to take my own advice!

  178. Pinning/Cwan – I know, such fun! 

    I can’t believe that Dow move at the end, that was wild!  S&P pinned 940 but I think Mr. Stick just bought Dow stocks into the close, which makes sense as a high volume day means you can’t move the other indexes. 

    Yes, a great deal high. 

    LOL Mr. M – You are AMAZING with that superpower of yours!  You actually have extremely good instincts but I think you mistake tops for breakouts and that leads to trouble but you seem to catch the inflection point very often. 

  179.  True, Phil, my top goal for trading is to understand the inflection points better. I’m not always wrong – I called a perfect top on MOS and a perfect bottom on QLD today – but it’s a lot of work just to breakeven!  I will continue to listen and learn…

  180. Still can’t believe the week!  Outside of possibly May 26th or April 21st, this week, starting with Monday was the most significant save by ‘them’ since March 10th.  Just defies belief that it’s possible to move the markets the way they do.

  181. Hehe MrM, you were right and i confess.. i took a look into 55puts after reading your post, but I didn’t jump in. GRRRR.
    Never more true than sell the news (or rumor in this case).  AND if its run on Opt-Exp day Its a explosive combination!
    Well, have a great week end! Cya
    - Spider.

  182. reminding you of my 3.43 pm regarding my RIMM spread

  183. I haven’t seen an update on our FXP straddle, unless I missed it. The closeing at $11.37 is close to our short Aug $11 Put. Should we be rolling that to an Aug $10 for a net gain of $.04? (less broker fees of course)

  184. "THEM"/Matt – Don’t forget that "they" only have to nudge a very small portion of the $11Tn in cash that is on the sidelines to greatly influence our $25Tn market.  Back when we had a $40Tn market, there was only $3Tn of cash on the side.  As I mentioned this week, market pricing is not really efficient, especially on low volumes.  IBM went up $5 today and added 40 points to the Dow all by itself (the whole gain) but just 20M shares were traded for $115ish ($2.3Bn). 

    IBM actually has 1.3Bn shares outstanding and they gained $6.5Bn on the move.  If you  assume a fairly even number of buyers and sellers in that 20M share turnover today, then it wouldn’t take much of an imbalance to kick the stock up a few bucks if you really wanted to.  Heck, if you have one of those fancy Goldman trading boxes, you don’t even need anyone else to trade with, you can just buy 100,000 shares at $110.10 and sell 100,000 shares at $110.09, then buy 100,000 shares at $110.20 and sell 100,000 shares at $10.19 – you lose $1,000 every time and it would take you 50 steps to to get to $115, costing you $50,000 to trade the same $12,500,000 (average) 50 times, accounting for 1/4 of the total IBM volume for the day. 

    If it weren’t illegal, I would tell you you could do this yourself with a penny stock.  It’s not magic, pumpers can’t keep the whole $152Bn (now) company at $115 but look how easy (and cheap) it is for them to make it LOOK like IBM gained $6.5Bn in value today.  This is what they do to take what you or I or any rational person may think is negative or ordinary news or earnings and "spin" it to make it look like the investors are loving it. 

    That’s why the Dow is so scary, IBM, all by itself, accounted for 130% of the day’s gains.  AA dropped 2%, AXP down 1%, BA – 1.6%, BAC -2%, CAT -0.5%, DIS -1%, GE – 6%, JNJ flat, KFT -1%, KO -1%, MMM – 0.8%, MRK – 0.7%, MSFT – 0.6%, PFE – 0.7%, TRV – 0.3%, UTX – 0.3%, WMT flat, XOM flat.  18 down or flat. 

    That’s pretty awful right?  Who were the Dow winners that gave them a 32-point gain on the day?  CSCO up 2%, CVX 0.3%, DD 0.5%, HD 1%, HPQ 0.8%, IBM 4.32%, INTC 1.6%, MCD 1%, PG 1.29% and VZ 0.3%.

    That’s how you give the Dow a 0.4% gain on the day.  IBM boosted tech outlook and took CSCO, HPQ and INTC up with it.  PG had no news but is a safety stock and a big weight on the Dow at $50 and, with just 13M shares traded today out of 2.9Bn outstanding, think how easy that one is to manipulate in a pinch!  Perhaps HPQ and MCD were random up moves – there’s bound to be a couple.   Effectively though, all the bulls have to do is jump on good earnings from IBM with a little program trading and they can reliably expect the tech boys to follow and it doesn’t take much else to keep things going.  Don’t forget, someone like GS makes broad market bets and if they can goose IBM up 4% and guarantee a payoff on their longer bets – that’s worth hundreds of millions easily….

    That’s motive, means and opportunity – case closed!

  185. phil, RHT (redhat) had a BS move up after hours because it is joining the S&P. Any thoughts on shorting it via buying PUTs, or writings calls or other means.

  186. Catching up after a long morning/afternoon of meetings in biotech land….Human Genome – Lupus, stroke are graveyards for drugs.  If it works, then more power to ‘em.  Options volume is crazy there. 10K of $10 Jan10 C and 13K of the $2.5 Aug09P sold.  Someone is gonna be rich.

  187. They are mostly computer algo’s and a few of us dopes.
    Everyone else has left the casino.
    What a joke.

  188. RIMM/Drum – OK so you are in for $10 and you sold $6.70.  Your longs are now $6.40 (ouch) and the puts and calls you sold are $7.05 – Ouch!  First of all, what went wrong?  First of all, your play, if it worked perfectly, would have left you in at net $3.30 with a $75 call (and the Aug $75s are $2.49) and a $65 put (the Aug $65s are $1.02) so you only would have had $3.51 if everything went off without a hitch.  The main problem is, by selling calls and puts that were on the money and taking your own positions out of the money, you effectively took on much more premium than your caller and putter. 

    The caller or putter each had an excellent chance of being $5 in the money to you and, even if you gained $1.50 on the other side, you would still owe the caller $3.50.  Since a $5 out of the money call is not worth $3.50 on RIMM, chances are this would not work out.  Conceptually, a butterfly calendar spread is a good thing but not for selliing just one month.  With one month, starting at $70, you sold a $70 call for $3 over 30 days (.10 per day) while you paid $4.50 for 60 days (.075 per day).  BUT BUT BUT you are not taking into account that you also are $5 out of the money.  That means your effective premium is $9.50, not $4.50 and, over 60 days, you are losing .16 per day, 60% more than your caller!  

    That, my friend is a dysfunctional trade!  The put side has the same problem.  The rule you violate here is that you are buying premium, not selling it.  If you are going to take up a neutral stance on a stock for a spread – you damn well better be sure that the premium math is in your favor.  Not every stock is good to do this with, you need to find a stock with lower long-term volatility than short-term and you need to make sure you have a selling plan with an excellent chance of paying off your long position, especially if you are out of the money. 

    RIMM earnings are 9/24 and one trick you should use for positioning is keep your long positions behind the next earnings – that helps you maintain value.  The Dec $65 puts are $6.03 (+$3.72) and the Dec $75 calls are $8.30 (+4.18) but they allow you to sell Sept, Oct and Nov calls and puts, in addition to Aug so the total outlay is $14.33 and you need to collect $3.50 a month in premium to pay off your longs completely while your original $10 worth of puts and calls required you to collect $10 in premium in one month – which you failed to do (because it was impossible).

    Is there a "fix" to this?  Well you can roll back for more money and let time do it’s work.  You can also take out the $65 putter for $1.02 (we have a rule and you already beat him by 72%) and roll yourself back to the Dec $70 puts for net +$5.90 ($5 of which you are using anyway because you are using margin) with an eye on selling the Aug $75 puts, now $5.05 ONLY IF YOU HAVE TO but mainly playing for a pullback.  Since you ended up bearish on that leg, now you need to come up with a good play on the bull side that won’t screw you if RIMM heads north and hurts your puts. 

    You are in the puts for $8.70 ($5.50 original, $5.90 to roll less the $2.70 profit on the puts you sold) and we are confident that we can sell $2.50 a month in premium ($8 + $2 out of position) if we have to so no hurry there.  As we are bearish on RIMM for next week (looking for a pullback off this run and also – if AAPL has great IPhone earnings, that’s not really good for RIMM), you can keep the current spread or roll the caller up to 2x the Aug $75 calls, taking them from $2.50 in premium $2.50 in the money to $2.50 in premium $2.50 out of the money) and you can buy yourself one more set of DEC $80 calls at $6.30.  By keeping the Sept $75 calls, you knock out part of the premium and get better upside delta in case RIMM does take off but if RIMM goes down, the Aug calls completely pay for your Sept calls AND you have the Dec puts protecting you as well, which should gain as much as the Dec $75 calls lose.  Just keep in mind, on the way up, you need to sell Aug puts but you can manage your play by simply covering and uncovering the put side once you are set up. 

    I hope that’s pretty clear.  This is why I stopped doing those butterfly plays last year – much more explanation than the play was worth but it’s a tactic well worth learning.  Of course, if you want to sell premium, nothing beats Google and the Jan $410 calls are $48 but you can sell the Sept $430s for $19.25 so $28.75 for a $20 spread +4 months.  You can pair that with the Jan $450 puts at $47.50 and sell the Sept $430 puts for $19, which is net $28.50 on the $20 spread.  What’s cool about this trade is that you have the $500 calls and the $550 puts so you CAN’T be worth less than net $40 in January and all you paid is $57.25 (risk of $17.25) for the ability to sell about $20 a month in premiums.  Of course GOOG is a crazy stock and could move more than $40, which is your safety zone for September but they’ve only moved $50 since April earnings and, obviously, no one seemed to thrilled with these.

    It’s a really great play if you have the cash to add to and roll the longs when the play goes against you but, at net $3K per spread contract, it’s not for ameteurs.

    FXP/Sunco – Do you mean the naked sale of FXP for the $100KP?  There’s nothing to update, that is our downside protection if the market sells off and, if we end up owning FXP, we don’t mind.  Is there a different one I forgot?

    RHT/Foss – I don’t know if surprise S&P inclusion is BS.  It’s a small stock ($3.8Bn, avg volume 2.5M ($50M)) and a lot of indexes MUST buy it now.  Once they are done, then it’s probably good to short but give them some leeway first as it take a lot of day’s trading to fill this one out. 

    Someone/Pharm – Could it be GS?  They seem to be the only ones (and JPM) actually making big market money…

    Joke/Cap – Yeah, today is one of those days when it does actually piss me off! 

  189. Anybody know why oil is up AH?

  190. Yes it was the  $100K P Play – Speaking of selling naked puts.  FXP Aug $11 puts at .75 so in at $10.25, which is very low for an entry and you can sell Aug $14 calls for .53 right now with the stock at $11.67 so figure you should have no trouble collecting $3 a year on your $10.25 investment and, if you are scaling in, then a DD at $7 would average you in for $8.63, just $1.63 out of the money (20%) even if the stock drops 40% and you can still sell $10 calls for .25 and make $3 per year (34%) while you wait for a dip in China.  Let’s call that 20 in the $100KP, net $9,500 used ($11K in margin less $1,500 collected).
    I am not sure I read this correctly but I STO Aug $11 Puts and STO the Aug $14 Calls for a credit $1.20. If I get Put I am in for $9.80. Now if I roll down to the Aug $10 put and get put I am in for $8.76?

  191. When I bought into this play I looked at it as a straight straddle because FXP has traded between $11 and $14 for several months and I felt it was a good probability that they would stay there. They have never traded below $12 for more than a day.

  192. FXP/Sunco – I’m sorry about that.  I was discussing the possibilities of what you COULD do IF the stock were put to you to explain why I was not worried about holding the naked puts.  Luckilly, if you sold both naked the calls sure didn’t hurt you but I rarely advocate naked call selling and certainly not in an ultra-ETF.  The Aug $14 calls are .40 and I would suggest taking them out .  The nice thing is, even with the dip, the Aug $11 puts are just .78 and still .37 out of the money, despite a pretty good move in China the last couple of days.  That’s because the Shanghai ran out of gas and FXP is based more on the Shanghai than the Hang Seng.   I know this works as a straddle and you can keep it that way but that wasn’t the risk we were assuming in the $100KP, where these puts are downside protection for us.

  193.  Interesting news out of China…. huge increase in reserves of USD !!

    China had reserves of 2.13 trillion U.S. dollars in June, the largest in the world.