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Will We Hold It Wednesday? My Rangeish Outlook

What a pretty picture "THEY" painted yesterday! 

I titled yesterday's post "8,900 or Bust" and it did look like a bust around lunch as we tested our hold targets of Dow 8,800 (8,811 was the low), S&P 946 (944), Nas 1,860 (1,892), NYSE 6,200 (6,084) and Russell 530 (518) but, just after 1pm, a miracle occurred and the buy programs kicked in, leading to an absolutely frenzied finish that brought us right around our upside targets of Dow 8,878 (finished at 8,915), S&P 956 (954), Nas 1,909 (1,916), NYSE 6,231 (6,154) and Russell 535 (525). 

Both the Russell and the NYSE were pumped up near their breakout targets first thing in the morning but both failed there and both broke below "must hold levels."  Keeping an eye on our levels allowed us to make bullish plays on ZION (hedged to $10.16 and another at $9), IWM (that one stopped out), C (bull call leaps) and CAL (hedged to $7.50).  We also added more YUM calls in our $5,000 Virtual Portfolio as well as a bearish ratio backspread on WFC, expecting them to have rough internal numbers, as are many banks this Q (something that kept us from being too bullish overall).  We covered all this bullishness by half uncovering our long DIA puts, still wary of a pullback but ready to re-cover (flipping bullish) if the Dow holds the nonsense move they made into the close.  As I said yesterday – keep up the nonsense for a couple of days in a row and it starts looking like firm support. 

Eps beat rate   BespokeAs we were discussing in Member Chat last night, perhaps it's not all nonsense.  Take a look at this visualization of earnings beats by Bespoke.  I said back when we went bullish two weeks ago that we need 66% of the S&P to beat estimates in order to sustain a rally and we are now well ahead of that pace with almost 72% of the reporting companies coming in BTE.  How bearish can you be in the face of such overwhelming results?  Yes the expectations were low and yes the "beats" are still coming in with revenues that are about 20% or so lower than last year but 20% is not 40%, and that's how far off the top our markets still are.  These numbers are market FACTS, as opposed to the rumors and panic that took us down to the low end of our trading range just two weeks ago, when I literally had to fight the bears off with a stick! 

In general, I am neither bullish nor bearish – I am rangeish as we have settled into the trading range around Dow 8,650 (5% up is 9,100, 5% down is 8,200) that I predicted almost a year ago as the "right" level for the markets given our outlook for the economy.  There is certainly nothing in this quarter's earnings so far to change our view on the lower end of our range and we still haven't had the move we need from our two broad indexes (Russell and NYSE) to justify us moving our midpoint higher to accommodate a move by the indexes over the June highs.  If we can get through the next 2 weeks of earnings with results like the ones on this chart – THEN we need to rethink the market's value but, until then, I remain rangeish and we will keep selling at the top and buying at the bottom until some real evidence dictates otherwise.

Currently in the market, there are good bull cases to be made and good bear cases to be made and every day we get "evidence" that adds to the argument for one side or the other.  Do you know what that means?  That probably means we are at a proper point of equilibrium.  Markets don't HAVE to go up or down violently by 20% or more.  Sometimes (in 9 out of 10 years on average) they stay within a fairly narrow trading range, moving up or down slowly over time.  While it's possible that program trading and other "black box" systems like the one stolen from GS may mean we will never return to calmer markets – I will point out that the market was fairly violent during the run up ahead of and after the great crash of 1929 and then proceeded to do nothing all that exciting at all for 40 years.  We entered a violent upswing in the late '90s, dropped down, came back and dropped down again – very similar to the move into 1930 and then again in 1937 but that second dip led to 7 years of flat-lining followed by 25 years of general market improvement. 

Historic Dow Jones Chart

Notice there is nothing that was predicted in this chart, from 2004, that has really been violated other than that silly bubble spike up that was driven by GS and other commodity pushers looking to steal all the peoples money, wipe out their competition and take over the government.  Now that they've accomplished all that, we are back to business as usual, very likely in a decade-long consolidation between 7,200 and 11,700.  Currently, we are in the lower end of that range but this chart is measured in years, not weeks and investors with a long-term view are very likely to be rewarded.  Previous consolidation periods lasted 18, 13 and 15 years – this one began in 2000 and is 9-years old.  Will it be the shortest consolidation on record?  Will it be the first time since the dark ages that the world economy regressed over 20 years and began to shrink long-term?  If not, then we are likely to be range-bound for quite some time and I urge you to consider that you don't have to be bullish OR bearish – it's OK to be rangeish…

Asia continued along the upper end of their range this morning with the Nikkei adding 1% and the Shanghai moving up another 2.6% after taking a few days to rest.  The Hang Seng looked OK but someone had a bad lunch and came back selling, dropping the index 400 points into the close and down 1.3% for the day.  I said to members yesterday, if the rally is going to break, it will likely start in China but the mainland index is up so not really a strong signal so far.  However, the mainland stocks were led by STIMULUS as solar companies and the chip stocks that supply them jumped up as China launched a massive plan to subsidize utility-scale solar power projects

That's right, while the US makes a lot of pretty promises about building a solar future, China quickly laps us by actually doing something about it, naming the initiative "Golden Sun," with a goal of installing at least 500 megawatts of solar farms in the next 36 months – enough to power roughly 400,000 US homes so perhaps 1M Chinese homes (they use less energy per capita).  In a notice posted on the Ministry of Finance website Tuesday, the government said it would subsidize 50 percent of the costs of building a solar power project and transmitting and distributing the solar power from that project. The incentive would go up to 70 percent for projects in remote areas without connections to the grid. The government didn't provide a budget for carrying out the initiative.  China is looking at installing 10 gigawatts of solar energy capacity by 2020, and some analysts expect more than 2 gigawatts of new generation could be added by 2011.  In related news, I will be heading off to China to build a rural solar power project as soon as I find someone with the other 30%! 

Other good news out of Asia is RECORD profits by LG Electronics, thanks to "robust sales of cellphones and flat-screen televisions."  Gee, and Apple had such "robust" sales of IPhones that they are running out of them.  What recession?  In the second quarter ended June 30, net profit rose 62% to 1.15 trillion won ($919 million) from 707 billion won a year earlier. Global sales rose 13.8% to 14.50 trillion won from 12.74 trillion won while operating profit rose to 1.13 trillion won from 856 billion won. The result was sharply higher than the average forecast of 743 billion won in a Dow Jones Newswires poll of seven analysts.  "Second-half earnings will be better," said Kwon Sung-ryul, an analyst at Hana Daetoo Securities.  Meanwhile, over in India, software giant Wipro posted a BTE 12% increase in profits and forecast a sequential growth in revenue from information-technology services in the current quarter, after posting two successive quarters of declines, underscoring recent optimism the worst from the global slowdown is over for Indian software firms. "We are starting to see the first signs of stability in the business as ramp downs start to taper off and volumes start to stabilize," Wipro's billionaire chairman, Azim Premji, said in a statement.

Europe is off very slightly ahead of our open (9am) and news is still mixed over there.  France had good consumer spending numbers, up 1.4% in June and, most importantly, up 1.2% from last June!  Of course France didn't have a stimulus last year, which I had pointed out gave the US impossible comps in retail sales and was one of the main reasons we were buying into the sell-off in early July as the bear case was largely based on "poor" US retail comparisons – silly old bears!  French Finance Minister Christine Lagarde said Tuesday the country was "at a turning point and that signs of a recovery were emerging in industrial and service sectors."   EU factory orders were not as bright, dropping 0.2% in May and down 30.1% from last May, worse than expected over there!

So we will wait and see how our levels go today but there's still plenty of room for bargain hunting.  BA's earnings were solid and they do have a "fix" for the Dreamliner so I love them long time!   Jan $40 calls are $5.50 and a nice way to enter BA and I like them so much I'd also sell the Jan $40 puts naked for $3.40 as we don't mind owning them for net $36.60 if put to us.


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  1. C’mon Phil….. The percent earnings beats mean little since the estimates were set soooooo low, virtually everyone should beat their targets. it should be already expected that graph was going up to a high number. Shouldn’t the thing to focus about for this earnings season is how much revenues are DROPPING?
    Shouldn’t we also be looking at how austere company cost cutting measures are being made? Isn’t that a good tell of what management really thinks about their future business prospects? Companies do not layoff people, close factories and get so nit-picky about expenses even so much as to shut down the office coffee mess and let office supply closets go empty if they think things are getting better and if they think many more purchase orders will come in!
    We all acknowledge that US consumerism drives our economy… even the global economy. Isn’t that consumerism dependent upon employment? And if we are looking at 13% or worse unemployment, the consumer activity is going to diminish significantly more than it already has, which means inventories can go lower and revenues will suffer even more. With so many companies leveraged with debt, minor revenue declines can translate to huge profit declines.
    Wasn’t this run up in the markets artificially engineered on low volume? Maybe it was specifically done to take out the fast money day traders, since that is all who is left to slaughter. The big fish…pension funds and other large retirement account "buy and hold" entities…. have already been robbed by the crash of 2008.
    This "rally" will prove short lived and is THE LAST GASP. When this foolishness finishes playing out, the markets will go down hard and fast as reality sets it that the chatter about green shoots was all theater and illusion.

  2. Phil – thx for last nites YUM notes. Won’t bore here but … I’m getting it, man. Will followup after close today.

  3. SDS – Anyone like SDS straight-up this morn? I’ve got a pre-open order in. DS

  4. David’s Oxen Trade today is ERY, read here. - Ilene

    Note: “If the market jumps out early on positive earnings, then wait to buy into ERY.”

  5. merkhava – I agree.  The financing for the last 10 or more years of market run -up (CREDIT) has been eliminated.

  6.  dstillwe…..yes, I do.  I bought SDS into the close yesterday expecting a reversal today.

  7.  Your market stalemate scenario agrees with my portfolio… right now the majority of my plays are all premium crush setups in various stocks using September options as place holders to crush the August options.
    I have half call spreads and put spreads…. so sideways is what I want out of this month

  8. Phil
    DIA- I am looking at selling some DIA August puts for covers and have been patiently waiting for a pullback to sell into for more premium. I have no covers now.
    I am looking for some quidance/general rules of thumb- Should I sell some now to be conservative or wait some more. Perhaps sell 1/4 now and wait for another opportunity to sell another 1/4 for 1/2 covers total? In either event- Which strike? Aug 86′s?

  9. Morning – Thoughts on TASR?

  10. Looks like they didn’t even have to reboot the computer this morning.  Same program.  Same direction.  Same insanity.  I’m out.

  11. Ok, I’m back in!  I wonder if I have a problem….

  12. Phil: finally played AAPL in a good way,
    yesterday closed callers positive, this am closed calls, opened again, then closed again: and it creeps up again.
    Oilo has reversed for the moment, the Oxen ERY is not (yet) attractive.

  13. matt – do you want us to offer our opinions? :)

  14. Merk, I do agree on many points. But it will not be the world end.  :-)
    WFC: I was tempted to buy back the 3 callers at $.35 … maybe to sell again on a bounce.
    I leave question for Pharmboy:  Whats the Deal with AKRX.  For what I see, its a nice company, but  have not made profits from long. There is any reason this will take off? Or just speculating with A-H1N1 thing?   – TY

  15. uhhhhhhhh….

  16. 8 Legged Creature – AKRX – pure momentum play.

  17. 10% already on AKRX

  18. Am struggling to feel this GS short at the moment. Long Aug 150 puts uncovered. Thinking of going vertical with putters at 140 or 145 – what do you guys have?

  19. Watching AGEN – they have already moved a bit, but OH resistance is broken.

  20. AEZS – another that has moved a bit, but is above OH resisance.

  21. Earnings/Merk – Beats mean little, what I see is that companies are earning about 70% of last year’s revenues in a market that is down 40% – how is that complicated?  Companies overexpanded and overcharged at the top, causing inflation.  Gee, that NEVER happened before.  We’ve never had a BUSINESS CYCLE that expanded and then contracted – that would be crazy.  What’s more likely is the economy goes way up and then goes all the way back to where it was 20 years ago despite the fact that there are 1.5Bn more people in the world and inflation alone should have added 30% right?  Yes, the run-up in the markets TO 14,000 was artificial and wrong, but that doesn’t mean 9,000 is wrong.  If you see no value in any stocks and think that the global economy is going down and down and down and will never stop – then go short!  You can.  In fact there are now hundreds of companies trading within 10% of their all-time highs and some of them ARE reasonable candidates for shorting but I dare you to short BA, X, VLO, GE, C or BAC for more than a quick trade.  We’re not buying every stock in the market – just the ones that are cheap!

    SDS/Dstill – It’s a nice gamble that we don’t break out here and pull back (we still need one badly) but the way we came off those futures, I wouldn’t go too heavy on the shorts.

    ERY/Oxen – It’s a brave call ahead of the inventory report.  If we get a good build it will be hard for oil to hold $64 so $20 is a good speculative entry going for .50 or so in profit but this can turn down on you fast so maybe better off just selling the $19 puts for $1.40 naked.  

    DIA/Pstas – Rule of thumb in covering the mattress is to try (with 4 weeks left to expiration) to get about $2 for the covers so that’s the Aug $89 puts but we think 8,900 is high for the Dow until we see the NYSE and RUT break out so selling the $88 puts for $1.60 seems safer.  From there it’s a function of how much you feel the market may drop vs how worried you are about it going up.   A full cover at $1.60 pays for you to roll up 3 times (300 dow points to 9,200), that’s pretty safe.  So safe that maybe a 1/2 cover is fine for now and you can always cover with another 1/2 the $89 puts AFTER the Dow, S&P, RUT and NYSE all make their levels. 

    TASR/Morx – They may have a rough quarter but they are my stock of the next decade so I’d buy them low.

    Keep in mind our highs were: Dow 8,878, S&P 956, Nas 1,909, NYSE 6,231 and Russell 535.

  22. In AGEN @ 2.08.

  23. Phil, What do you think of MCD?  It’s reporting earnings July 23 before market open.
    As I recall, we had a play on MCD a few days ago.

  24. LOL Matt! 

    Nice RMM – Congrats on sticking it out (through thick and thin)!

    WFC/Spider – I was tempted to make that call but then I remembered how we got suckered doing that with YUM too early, as they dropped to 1/2 the next day. 

    Speaking of YUM, what a crazy stock.  Aug $35s .65 just now and pulled back.  Very close to sell target of .77 (even).  IF the market breaks out, they could fly but we don’t have too much confidence in that if just yet….

    GS/Steve – You would be selling puts at their lowest price.  What’s your net basis on the $150 puts? 

    MCD/Cwan – They are at the high end of my range.  I wouldn’t bet against them but I also don’t think they get much past $60.  On the whole, I hope they miss and fall to $50 where I BUYBUYBUY.

    Oil inventories down 1.8Mb, gasoline up 800K, distillates up 1.2M so the report is pretty much a wash, maybe not enough to break $65 but not really bearish either.  I have to find the report to see what import numbers were like.

  25. OK, done with AGEN @ 2.15.  Gotta get to work. 

  26. Ags:
    MOS today AMC
    POT and BG tomorrow BMO
    Fertilizers prices have been cut big time. Farmers margins suffer and they use less fertilizers. With the recession there is less cash available. Farmers can get the fertilizer in exchange for future crops.
    Im doing a bet on BG at 0 "almost" cost, with risk if stock get killed, but since I like this one, I have no problem to own it at big discount (and later sell puts and calls): 
    Buy 1 Aug 65 put  for $4 and selling 2 Aug 60 put $2. 
    Stock has to go down to $55 (-14%) to bring us in problems.  Max profit will be at $60
    ($4 from putters + $1 from put = $5  – commissions)

  27. Perhaps it’s a bit premature but..
    FMD! FMD!  If you’re short that is..

  28. MCD/Phil – My wife likes their coffee very much.  Believe me.  She is very picky taste-wise.  So, they may not go very high.  But I won’t bet on them missing too much.

  29. GS – not proud of my net basis it’s 6.48 including commissions.

  30. Phil
    TASR- curious comment above- "my stock of the next decade". Care to expand on that?

  31. F-ing YUM.  In re yesterdays posts, I failed to point out I’d added the short covers late (several days after getting sucked into oct 37.50 calls of my own free will) – figure from the looks of things I’d just pocket the short premium cuz theyd never make $35 by exp and during my run would roll down.  what the hell up with the YUMs today, man?  Geez.  Aarrrggghhh.

  32. Phil.. the idea was if the caller loses 70% I take out and sell back later.  I was in at $1.05 and the exit target was $.30, very close to the .35 I saw.  I understand your point (on YUM case) and i didnt taked out because it actually is our cover. If they expire worthless we have the calls for free. If i kill the trade and keeps going down we are uncovered.
    Pharm: Rgr im watching AGEN.. you crazy! :-)

  33. And why the heck isnt LUV crashing and burning?  (unintended image for anyone flying today) Can’t knock their planes out of the sky (good of course) but why can’t we beat their stock down a little today and for the next few days?

  34. Maybe I should DD on hopefully a spike today perhaps if we retouch 160, which seems to be holding so far.

  35. ERY.  Too late for the puts for me as sub for David’s trade.  But I think we’re dripping down.  Come on, Ox.  You’re my boy.

  36. Die S&P, die!

  37. dstillwe: by dripping down you mean the dow or the ery

  38. OIH and XLE not too pleased with oil numbers. 

    So far on WFC, we were in for -$40 and we retain $200 of value on the 2 Oct $27s ($1) and the 3 Aug $26 calls are worth .45 ($135) so that’s net $65 more to kill it now.  I said if we are up $100 we should kill it as making $100 in a day is always nice.  If we try to get fancy, by saying WFC had a top-line beat and this sell-off may be a bit much, we could take out the Aug calls for maybe .35 ($105) but then our Octs would be down to maybe $165 and we are risking our profits naked.  Just so you know, that’s what I’m mulling over.  The idea was to make profits and get out in the $5KP, not to end up with 3-month naked longs….  On the one hand, you can say it’s a high-percentage play but if we take that cash and work another backspread that pays $100 per day, then we could do a lot better like that than waiting on the Oct longs! 

    Agen/Pharm – That was nice and quick!

    MOS/Spider - Coming down very nicely today, see how meditation helps Morx?  I like the BG play, $55 would be a pretty harsh sell-off. 

    MCD/Cwan – Oh I’m not saying they miss, I’m saying I would love it if they miss so I can buy.  $60 is a bit steep, even with coffee sales. 

    GS/Steve – That’s not too bad, they’re still $4.50.  You can roll to the Sept $160s, now $9.45, for $5 and sell Aug $150 puts at $4.50 to cover most of it.  That leaves you in for $7 with a $5 spread and more time for the market to turn down. 

    TASR/Pstas – Quick story is:  Imagine watching Star Trek and they all whip out their phasers and stun the bad guys except this one officer who pulls out a Barretta and blows a guys brains out.  In our world, he’d get his ass sued off right?  What’s kept TASR down this decade has been lawsuits that using a Taser was dangerous.  I predict that in the next few years, we will start to see lawsuits filed against police departments for using guns and NOT using a Taser.  20 years from now, the idea of shooting people with bullets will seem barbaric…

    YUM/Dstill – There is nothing wrong with YUM.  They beat expectations but gave cautious guidance and, since they reported early, everyone took them seriously.  Now people are thinking maybe the company is too conservative in their outlook, which means the stock is way undervalued.  The 50 dma of YUM is $34.14 so we expect resistance there.  It’s also almost exactly 5% over their low consolidation of late May so we should not be put off by resistance here, or a 20% retrace of that $1.50 run back to $33.80 and, if we see that line hold on the pullbacks off this 5% resistance – then it’s very likely they break up.  They are not likely to do so against a weak market though…

    Good play Spider.

    LUV/Dstill – They made a profit in a rough quarter for the sector.  Again, as I was saying early this morning, that’s the kind of company you should invest in.  Their outlook was not at all perky but, unlike YUM, no one is taking them too seriously. 

    ERY – Oil going up, not down.  $65.50 being tested.  Gold up too so it’s a dollar chop that’s moving the markets.

  39. Spider – pure momentum plays.  The dollar stocks usually do not follow the general market trends.  Damn, missed the top of AGEN…OH well, 4% ain’t bad.  HEB being scalped today, Whoa!

  40. Actually I very much agree: LUV is a great company in just about every way.  I’m on the other side of a trade tho, so…

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    Variable Annuities
    One of the best investments of the past decade was one of the most derided: the variable annuity. But investors who want in on the action now are in for a shock, as the juiciest deals have disappeared from the market.
    Variable annuities, a tax-advantaged investment account that holds a type of mutual fund, are sold by insurers, and most offer some form of investment guarantee for an additional fee. For years, they were attacked for being too expensive. Why pay for a guarantee to protect against a stock-market decline, the argument went, when stocks continued their inexorable march upward?
    Then stocks plunged, and variable-annuity guarantees no longer looked expensive. In fact, insurers, in a move to build market share, had underpriced many of them. Suppose an investor owned a variable annuity that tanked in value last year. No matter. Under the most-generous contracts, insurers pledged to pay customers lifetime retirement income based on past market gains in their underlying funds, plus minimum annual increases in years the market is sluggish or down.
    Because of such guarantees, many holders of variable annuities actually saw their accounts increase 6% or more in value last year, when the Standard & Poor’s 500-stock index dropped nearly 39%.
    "When I watch friends bemoaning the market, I feel guilty saying anything, actually," says Amy White, a 67-year-old retired accountant in Dallas. She and her late husband invested hundreds of thousands of dollars in variable annuities early this decade, and their funds rose as the market neared its 2007 peak. While they fell last year, the guaranteed amount — on which Ms. White’s retirement-income checks will be based — is still more than double the invested amount.
    "I know that I’m doing quite well," she says, while her friends are "experiencing real pain."
    An estimated $300 billion of these retirement-income guarantees are outstanding, compared with $3.7 trillion in stock mutual funds.
    Variable annuities still have some notable drawbacks. Among the biggest: There is no lump-sum option for cashing out the guaranteed amount. Instead, the higher guaranteed amount is payable by the insurer over time, with 5%-a-year payouts common for those in their 60s when they start receiving checks. If you cash out all at once, you get only the shrunken sum that remains in your funds. Another concern: The insurers have to stay healthy enough to cut all those checks.
    So far, though, it is the issuers’ stockholders who are getting the raw end of the deal. To meet their annuity obligations, the roughly two dozen insurers who dominate the field have boosted their claims reserves, which has hurt earnings, and have raised fresh capital, which dilutes existing shareholders. Hartford Financial Services Group Inc. and Lincoln National Corp., two big issuers of variable annuities, also have accepted money from the U.S. government’s Troubled Asset Relief Program.
    Variable-annuity sales were down 27% in the first quarter, as stock investments of many sorts took a dive. Those buying typically are in their 60s, says Thomas Hamlin, a top broker at Raymond James Financial Inc., though 40- and 50-year-olds are increasingly interested. "People are sick of sliding back down to the base camp after they felt like they were about to put their flag in the top of the mountain," Mr. Hamlin says, and the guarantees are the investment-world equivalent of "rope and ice spikes."
    The guarantees are no longer as sweet, yet what is still for sale is "better than the alternative: mutual funds with no downside protection," says Mr. Hamlin.
    In scaling back the products, many insurers are reducing the size of the minimum annual boosts to the guaranteed income base — or the value of the underlying investments combined with any investment gains and minimum annual boosts. For instance, the "Accumulator" variable annuity of AXA SA’s AXA Equitable Life Insurance Co., a year ago offered an income-base guarantee calculated with a 6.5% minimum annual-growth factor, while the new version uses 5%. Many also are reducing the annual withdrawal payouts by about one percentage point, while fees are up about a fifth of a percentage point, according to Milliman Inc.
    Some formerly big players have suspended sales of guaranteed variable annuities entirely. Of those still available, MetLife, like AXA Equitable, promises to boost the income base by 5% a year in most states, if there aren’t investment gains greater than that on contract anniversary dates. Ohio National Life Insurance Co. also has an offering with a 5% minimum annual income-base boost, and 6% versions still for sale in some states.
    Around since the 1950s, variable annuities originally were pitched for their tax-deferred buildup of investment earnings; they’re akin to 401(k) plans in that taxes are paid as the money is withdrawn. Insurers in the 1980s began tossing in a "death benefit": If your underlying funds perform badly, your heirs will receive at least your original principal, less withdrawals.
    Critics included Moshe Milevsky, a finance professor at the Schulich School of Business at York University in Toronto, who crunched data in the 1990s and concluded that consumers were being "grossly overcharged." At the time, variable-annuity fees approached 3% of the account balance, more than twice that of a typical mutual fund.
    His findings were widely circulated among consumer advocates, financial commentators, regulators and plaintiff lawyers. One of the big beefs has been that many insurers pay big commissions to salespeople, which may encourage them to push the products regardless of their suitability, including to many elderly people who would need access to their money during periods when surrender penalties apply.
    In recent years, the landscape has shifted. In a bid to cash in on baby boomers’ fears of outliving their savings, insurers were adding "living benefits" — investment guarantees that kick in while the owner is still alive. So two and a half years ago, Prof. Milevsky updated his research, making an about-face: "Some insurance companies are not charging enough," given the cost of risk-management instruments that insurers can buy to protect themselves, he wrote in 2007 in Research Magazine.
    Some on Wall Street, seeing a bargain, bought annuities for their personal portfolios. Consider Colin Devine, an insurance-stock analyst at Citigroup Global Markets. He has been bearish on some insurers as stock investments because of the guarantees, even as he owns guaranteed variable annuities from MetLife Inc., Lincoln, ING Groep NV, Manulife Financial Corp.’s John Hancock Life Insurance Co. unit and Pacific Life Insurance Co.
    Prof. Milevsky recommends that individuals who lack old-fashioned pensions put a portion of their savings into the products to create personal pension plans. Even with the cutbacks, "overall, I still believe that these products make sense for individuals approaching retirement," he says.
    Many in the industry are eager to see consumers’ response to John Hancock’s newly launched "AnnuityNote." The investor’s money is invested in an indexed stock and bond portfolio. After five years, the contract guarantees a 5%-a-year lifetime withdrawal based on the total amount invested or the value of the fund investments at the fifth contract anniversary, whichever is higher. There is no automatic income-base boost in bad market years. Total annual fees: 1.74%.
    Such streamlined guarantees are expected to proliferate. Just this week, MetLife introduced "Simple Solutions," to be sold through banks, which similarly locks in investment gains annually but promises no minimum income-base boost.
    Erin Botsford, president of Botsford Group in Frisco, Texas, used to be an "anti-variable-annuity person," but became a convert after the tech-stock crash. Advisers often focus on performance and fees, she says, when the client really wants to know: "Where should I invest my hard-earned savings in order to ensure I can have a comfortable retirement that I cannot outlive?"
    China’s Shanghai Composite is currently up 81%, and as shown in the chart below, down days in recent months have been few and far between.  Even though rest of the BRIC (Brazil, Russia, India, China) countries have posted big gains year to date, China has broken away from the pack.  Overbought has become the new norm for the Chinese equity market, and anyone that has bet on a pullback has gotten absolutely crushed.  Remember, however, that the sharper the increase usually means the sharper the fall, so when a correction does finally come, watch out.

    Even though a few more companies have to report this evening, the current tally of US companies reporting earnings this season is now at 191.  Of these 191 companies, 71.7% have beaten earnings per share estimates.  In the first quarter, 62% of companies beat earnings estimates, which marked the first quarter over quarter increase since the start of 2007.  Investors were worried heading into this earnings season that last quarter’s numbers would be difficult to top, causing the market to struggle.  However, the current earnings season has come in much stronger than last quarter so far.  No wonder the Nasdaq has been up every day since earnings season began 10 days ago.
    Share prices at both Wells Fargo and Morgan Stanley got off to a bad start after investors didn’t like their respective earnings reports. A British journal, the Daily Telegraph picked up on analysis from JPMorgan Securities stating that Barclays bank and the Royal Bank of Scotland Group would need to raise capital of £12.8 billion and £8.5 billion each in order to expand under a revised regulatory regime. Both pieces of news are enough to remind investors that sitting at the best index price for the S&P in eight months doesn’t necessarily mean we’re out of the woods.
    Rating Agencies
    Credit rating agencies would face a raft of new disclosure rules and restrictions but would not be forced to overhaul their business models under proposed US legislation sent to Congress on Tuesday.
    The plan by the US Treasury is aimed at reducing conflicts of interest at rating agencies, boosting the regulatory authority of the US Securities and Exchange Commission over the agencies and reducing the financial system’s reliance on credit ratings.
    But critics said the plan, an element of the Obama administration’s broader financial regulatory blueprint, fell far short of what was needed. The proponents of an overhaul of ratings agencies charge that they overlooked the risks of investing in complex, “structured” securities linked to risky mortgages, many of which carried triple A stamps of approval.

  42. might switch to prayer – esp OIH.

  43. pharmboy / HEB
    HEB Hemispherx Biopharma Conference Call Summary on update on Global Pandemic Influenza Initiative  (2.40 -0.91)

        In the influenza space, co says the basic problem with pandemic flu is mutation. Co is trying to make existing vaccines effective. The vaccines remain suspect until either the virus is either not mutating (which does not seem to be the case) or something is introduced into the cocktail so that it can deal in more robust manner with mutation… Co is targeting 25-50 mln doses per year of Ampligen. Co is also targeting to get the capacity of at least 100 mln doses of Alferon Low Dose Oral (LDO). Co says it will be expending more than $10 mln to meet these goals… Co is working with partners in Japan and is about to send more materials for studies there. Co has initiated talks with groups in other parts of Asia and other parts of the globe… Co expects some more completes results from partners regarding Ampligen in August… Co is working on publication on Alferon Low Dose Oral in monkey study… Co notes that the regulatory agencies have the animal rule, which allows them to circumvent clinical trials. Co still does expect to conduct customary clinical trials.

  44. Phil we should roll up our GS puts?  i got 150′s….also, what u think about adding AAPL putters here?  still in the Jan – Aug spread… thanks

  45. Perhaps we won’t get a pullback in the Naz until more shares of QLD trade then QID.  It’s been a while.  Today QID(the ultra short) is through the roof compared to QLD.  I just think the majority of traders out there are looking for a pullback and until they (we) stop looking.. ‘they’ might not give us one.

  46. MOS put update?

  47. AXP and AMZN coming out with earnings on friday. What play do you think is good?

  48. TASR- interesting take. God help us if it pans out (lawsuits). The flaw however, is that my Berretta .45 is very effective @ 10yds and unless they have/develop an equivalent, it’s too up close & personal for my taste. We’ll see.

  49. Thx. new…HEB

  50. PHIL
    HERO- I did a buy / write on this back in April which got called away for a nice gain (37%). Looking to do it again using Oct 2.50 for $1.55; net $2.05/2.27. Not quite as good if called away this time but still attractive. Comment?

  51. phil – WFC question   In my IRA, I bought some WFC preferred witha 7.5% yield (…If I remember, you are not so interested in the preferreds, but my question is more about if there is a way to hedge this kind of holding.
    I was happy to see that there was not a dump of these today, in spite of the concern with loan losses…Clearly it’s a good company with solid management…
    If my holding period is indefinite, in your opinion, is there a way to hedge this, asuuming that I would not feel comfortable with owning more (by selling puts)?

  52. It’s kinda amazing that once we get to a certain point, it can take very little to squeeze up or down to the next level.  They moved QLD from 40.50 to 40.57 (which is the second highest high for the day) with about 7000 shares.  Not much.  If I had a mainframe capable of analyzing every order in the book six ways to Sunday a billion times a second, I think I might actually be able to make money in this market.
    I maintain we will still have a down day.. but boy is this gut wrenching.  If we break the high for the day on the Naz I’m going to cover until tomorrow.  In the meantime, would people just get over aapl already!  8-)

  53. Phil: what is your view about GS ? They have shown again they still know how to make lots of $$.
    if bullish, I sell put aug155, if bearish I sell call aug 160 ???

  54. mtxx – how many people have to sue them for us to get nervous? Seems like every time i check there is someone new.  oh yeah, Lord give me peace. Found a cucumber hiding in the weeds that was as big as a small watermelon. That’s what one hopes for a stock they own.

  55. made 3.97 on ERY. Evry little bit helps

  56. Volumes gone so the market moves up.

  57. Phil; are we playing SNDK. I believe earnings are today after hours.

  58. I’m starting to think they are going to paint another great day for Mr. Bernanke’s performance on the Hill.  This is nuts.  The Naz is being propped up big time.

  59. OIH/Morx – We’re still waiting for earnings from that sector but our fear is $65+ oil will give them an excuse to guide up.

    Good time to cover some GLD longs if you have them.  We got in at $90, now $93.50 so it’s greed not to sell anything.  Aug $93 calls are $2 for a nice 1/2 cover here.  Can be rolled to 2x the $95 calls or even to Sept $96 calls and that takes us to $1,000.

    GS/Oncmed – Same as play for Steve above except 1 bracket lower if you want to stick with it.   You could sell $155 puts and go to Sept $155 puts about even and if you set 25% stops and 50% stops on 1/4 of the putters, that’s a nice play. 

    Pullback/Matt – Out of about 130 reports since yesterday’s close there were 17 misses and just 5 companies lowered guidance (6 raised).  "THEY" are now the entire S&P 500, telling you they are beating expectations (the ones that dropped us back to 8,200), not by a penny here and there but by 10%!  AAPL 10%, BXP 10%, GLD 5%, HBHC 10%, IBKC 5%, NBR 15%, PTV 25%, PTP 40%, STX 100%, SBUX 20%, YHOO 10%, MO 5%, APD 8%, BA 15%, CSL 100%, LLY 10%, ITW 5%, NITE 30%, LII 10%, MEG 200%, NTRS 75%, PEP 5%, PJC 50%, USB 20%, WFC 40%, WHR 100%, WIT 20%…   The average year/year revenue decline (and this is a very rough look) is about 20-25% and almost 1/2 of the companies are in single-digit declines.  If the economy was really as bad as you think, how could it be possible for 50% of the companies reporting to be down less than 10% in sales?

    MOS/Oncmed – They are up from $40 on a rumor they will be bought for $50.  If the CC doesn’t substantiate that and earnings are not good, they will be $40 again very fast, maybe lower.

    AXP/Miracl – I think they are a bit ahead of themselves, like WFC, and even good earnings won’t be enough.  AMZN I wouldn’t touch.   That stock is crazy!  I wouldn’t short AXP because I like them.  I like to short companies that suck like FSLR when they run hot, not companies I wish I had bought more of at $20 like AXP or AMZN….

    TASR/Pstas – Well they have 10-yard cartridges now for the guns and they are just launching a "shotgun" that has a 100-foot range and fires a wireless projectile that apparently gets the job done.  If that company can take the money they spend on lawsuits and put it into R&D, I doubt very much there will be a solid reason for police to use a gun in 5 years. 

    HERO/Pstas – Well they were a total no-brainer in April.  Up a lot since then but that’s a good price as long as you don’t mind the possiblity of being "stuck" with them if energy prices collapse again.

    WFC/BC – You can’t really hedge a preferred because you’re really in to make 7.5% so to cover a drop so severe that your 7.5% won’t get paid will cost you more than 7.5%.  Even if it cost 3%, what would the point be.  Now I could argue that if you have $24,000 tied up looking to make $1,800 a year and you are worried about "protecting" yourself then you are better off selling 10 Jan $20 puts at $1.88 for $1,880, which would tie up (at 50% margin) just $8,120 of capital to make the same $1,880 in just 6 months and the only way you "lose" is if WFC drops almost 50% in 6 months, something that would hurt you much more than that in your current position.  If you are gung-ho to keep the stock and collect dividends, then selling the 2011 $17.50 calls for $9.30 is effectively selling your stock for $26.80 in 18 months (up 10%) and you still get your dividends but you also get 40% of your money off the table that you can put to work elsewhere. 

    It’s not just AAPL Matt, LG’s earnings were fantastic.

    GS/RMM – I said this morning that, over the long run, they are probably better than XOM (eanings-wise) and they are trading at 1/4 of XOMs value.  I think I would play them by buying the 2011 $125 puts at $15.30 and sell the Sept $150 puts for $5 and just keep doing that every couple of months for an income.  If GS does tank for some reason, the roll down to the Jan $125 putters is even so you would still have a $10 net horizontal spread with a 1-year advantage but, if things go well, then $5 is 30% every 60 days on your investment (there is the $25 spread margin of course)

    SNDK/Joe – People seem to forget they are burning capital.  They lost $2 a share this year and are not expected to turn a corner on profits until 2011 (Q4 2010).  They missed earnings by a mile 3 times last year but beat last Q because they lost .48 and not .76 expected.  Nonetheless, they went nowhere at the time.  They are good candidates for a 2:3 backspread with 3 Aug $19s at $1.35 ($405) sold to buy 2 Oct $20s for $1.77 ($354) but I also like the $19 puts for $1.60 and waiting to sell the $18 puts, now $1.15, for no less than $1 but hopefully for much more if there is some panic selling later today (but taking a .40 gain and getting out if it comes first).

  60. Here comes the big opportunity for YUM to break up.  They held $33.80 (5% pullback rule) and now need to break over $34.15 on this leg.

  61. Bit early for a stick – what happened ?

  62. thinkorswim – can someone point me to the link where you guys talked about opening new accounts / getting new rates there?

  63. How about a "Free Money Year" in China:


    Stick/DB – Lunch happened.  Europe closed (up 0.25%) and our guys go to lunch so it’s time to move the markets up a notch.  I do think it is possible that GS is just dumping everything into this top.  They just "got away" with everything but the kitchen sink being thrown at them in the media and they just reported a record Q and they just announced record bonuses and NO ARRESTS WERE MADE so what do you think they are going to do in Q3?  More of the same….

    TOS/Fab – Email

  64. Vix diving.. nice spike.
    WFC Thinking on his morning values,  the 3 putters we sold 1.05 re-bougt at  .35 for a  profit = $210 At same time  we sold one call at $.90  (entry was  $1.60) for a loss $70. Net will be $140.
    So We en with a Oct call with a cost of $.20  Very easy to recover selling premium or whatever…  Sadly I figure this very late.  Next time I will be faster :)

  65. Phil, Sorry, I don’t buy it.  This is a complete show.  Yes, earnings aren’t as bad as people expected.  And as you point out, some company’s revenues are only 10% worse then last year.  But others are 20% worse.  And that’s off 2008 which, some would like to forget, is the first year of our recession.  The unemployment picture is MUCH worse now and continues to get worse.  Unemployment checks will run out.  Alot of those jobs aren’t coming back.  At least not for a while.  So if the stock market is so forward looking.. why isn’t it anticipating things getting worse for businesses and the consumer.  Not better?  Cramer tells us folks smart folks are buying in anticipation of an end 6 months from now.  I would like to know the end of what?  A technical indicator that says ok, the gov’t has pumped enough money into the system that the gdp is now not going down anymore.  WTF does that prove?  Nothing. 
    By all means, enjoy the show.  But to me, that’s all it is.  And I’m not buying a ticket to it.

  66. Boy just slap me if I think of shorting anything!  What a crazy market….

    S&P almost 960, RUT 531, just waiting on the NYSE to add 34 points (0.5%) and we are broken out baby!

    I have an idea to double the productivity of Congress – Make it a crime to thank anyone for showing up at a hearing or thanking them for "years of service" or talking about their own history in office or what one of their dopey constituents said to them….  We could get through these hearings in 45 minutes!

    WFC/Spider – By Jove, I think you’ve got it.  As Steve Martin said in the Jerk "Ah, it’s a profit deal – that takes the pressure off!"

  67. Phil – Slap, Slap - Crazy yes -maybe exhausted

  68. phil now that we are broken out what’s your advise related to QQQQ’s. I’m short QQQQ right now, its crazy too go long after they have been up 11 days in a row but seems that’s what’s working right now.

  69. FAZ/FAS put buying question; what would be the optimum strike and how far out?  Front month?  Thanks.

  70. selling puts and calls against bac is very profitable.

  71.  I just want to let you guys know I’ve been short and capitulated.  May be helpful information and indicative that we are close to a top.

  72. jomama
    what exactly do you mean. how would you do it, spread?

  73. Ahhhh Ha!  I’ve got it!!!!!!!!!!!!!!!!!  You told me to think like GS and I didding it! (mispelling intentional).
    I copied this from a comment on DB’s link,
    For the technicians out there.  The head & shoulders top is 956 and some change.  If we close today above that, which seems to be the plan, negate the pattern in the same way breaking the 879 neckline to the lowside validate it?
    My point is, EVERYONE, but Phil, was looking for a decline due to the head and shoulders pattern being validated.  Only SUPRISE!  It didn’t happen.  Now, GS, will do it the other way.  They will all but invalidate the pattern today.. or maybe they’ll blow it out of the water, but then and ONLY then, we’ll start to go back down.  Again, just to f with everyone’s head.
    Barring a turn around today, which doesn’t seem likely, I’m looking for the technical ‘ball buster’ pattern!

  74. OK – thoughts on getting out of OIH alive:
    Cost basis is $3.31; 600 shares; DD at 1.70 gets me down to 2.51; that doesn’t seem good enough considering the range it’s been in. DDD only gets me to $2.24; very iffy relative to your last post. We were there this morning but will we get back? Any advice would be appreciated.

  75. My 2 cents..what’s going on in the NAZ is complete BS.  One day here soon the market will fall hard and that will prove to be the top as we then move sideways and then fall back to 1400-1450.  If for no other reason to fill the gap up on intel earnings. 

  76. Qs/Sheen – I don’t like swithing directions after taking a loss, it’s often the worse time as you are not only capitulating but potentially compounding it by getting whipsawed on a reversal.  What Qs do you have and what’s the basis?

    FAZ/FAS/Hy – There is no real optimum strike for buying puts as the premiums are unacceptable.  We looked at them last time we made a play and decided it is best to just actually short both stocks at $45.  That was a $90 total 2 weeks ago and now the 2 ETFs total $89.90 so not too exciting so far but no loss at least. 

    BAC/Jo – Oh they’ve been a buy/write all-star frozen at $12.50 like this. 

    Thanks Bigs!  Actually it’s very helpful as people capitulating is often a great turn indicator.  I would urge you to go back to read the posts during that first week of June where many people capitulated right at the top.   You should take these levels very seriously as it was the failure of the NYSE and that alone (and they hit 6,232 on the button one day) that kept us bearish as we had those relentless stick saves day after day after day. 

    By Jove, I think Matt’s got it!  8-)

    OIH/Morx – I’m going to guess you have the $95 puts, now $1.90 so that answers your question on can we get back…  Rather than spend $1.80 to DD, why not spend $3.30 to roll to the Sept $100 puts, which have a delta of .40 vs your current delta of .25 and you can sell 3/4 the $95 puts for $1.85 (now) which is net $5.40 per long (current price $5.10) with a $5 position advantage over the callers. 

  77. miracle, for BAC – i sold Sept 12 puts for 1$ yesterday and sold aug 12 calls for .96 today against BAC 2011 Leaps which are not that expensive IMHO.  Rinse and Repeat.  Prior to earnings i had sold 14 august and 13 aug calls which i bought back when bac went under 12.  BAC is gonna channel between 12 and 14 for the near future (again IMHO)  BAC has juicy premiums.

  78.  PHIL,
    What ever happened to the negotiations with ThinkorSwim?  I’m curious if you where able to improve on the deal?
    I have $1.50 per option contract and $5 per stock purchase. But anything better would be welcomed. Thanks for all your heard work!

  79. PD – Do I still love PGH?  And if so, how much? (lol)  I’m up 3% on 1000 shares – uncovered.   If I should refer back to hedged-dividend play articles for guidance, no prob – just say: "Go look, dude!"
    Other uncovered longs mentioned in previous posts re good income stocks (u asked me to remind u re those u hadnt had time to comment on) – after hours or weekend replies fine – were SO (love ‘em), WMT (not in love), PEP and-or KO.  No options connected to any of same right now.

  80. Phil, you think the oil market gives you fits?  What about this guy Schork?  He must have it bad!
    I love the word contango and now backwardation.  I have to admit though I’ve got no idea what they mean!
    ‘In other words, the market is paying you to build supplies by virtue of the discount on nearby material. If the recent run-up in price was based on real demand for wet barrels, then this discount would disappear, i.e. the market would be moving from contango toward backwardation. That is not the case at this time. ‘

  81. Goldman and CS say S&P is going to 1060ish.  How often does the market reward the sheeple that follow these recommendations on the day they’re published.  Has making long $$$ in the market become so easy that all you have to do is follow the advice of big banks like GS and CS that exist to serve only them and advice that comes out at a significant top after an outsized week of gains?  Has this market gotten that mindless?  I hope not.
    The S&P sells off over the next month from these, breaks 860 and sells down to 810.  From there we rally up 1060 as "investors" expect BIG earnings next time.  That does two things: it screws the people that think we’re headed to 1060 NOW on an aborted h&S pattern, say by the end of these earnings, and that followed GS advice to a T.  It will also screw the people who think the top has been put in after the S&P forms a double top here and sells off.  It’s the perfect plan to trap longs and shorts. 

  82. PS if that h&S on SP was going to validate, the neck line should have been broken with much more authority, not the dribble it pierced it with.

  83. U r right, the 95′s but i think you picked up the $95 cost of $3.30 instead of the $100 at 5.25.  If my shoddy math skill is correct that moves me to net $4.09.  Or am i totally missing the mark?

  84. Phil / Head and Shoulders Pattern:  Looks like the S&P is close to taking it out but the RUT is much further away.  What would the NYSE have to close at to take it out?  Is it further then the RUT has to go?

  85. "even after the significant rally off the March lows, which he claims was triggered by the easing of mark-to-market standards."
    In other words, this market rally is the result of (among other things) govmnt sanctioned Enron-style accounting: lie about the real value of your assets until the assets catch up to where you want them.!--Bull-Sees-Dow-10000-By-Year-End?tickers=%5Edji,%5EGSPC,qqqq,kre,xlf,skf&sec=topStories&pos=9&asset=&ccode=

  86. Phil,
    do you have any thoughts on UAUA, it feels like a broken stock in a broken industry ?

  87. Boy, those guys are really pounding the 8,900 level on Dow.  Shouldn’t it have broken by now??? 

  88. Brianma =  yes that new pick my attention. But he is based on current rates. If rates start climbing his theory is not valid. We all know that rates are held low artificially. 

  89. Phil:
    Do you like any short puts on AMZN with idea of long term acquisition of stock?

  90. RUT outperformed today as it tries to catch up from yesterday, so it’s a good candidate to short.  Selling RUT Sep 590 CALL for $3.6 looks good (12% upside cushion), or if we are aggressive, we can sell RUT Sep 580 CALL for $5.15 credit.  Let’s also cover by selling PUTs, such as selling RUT Sep 430 PUT for $3 or Sep 420 PUT for $2.4, both with a nice -20% downside cushion for any big fall.  Watch your margin requirement on naked shorts of course.

  91. PharmBoy – thanks much for the great trades, I’m thinking you should have your own tab!  I stopped out of HEB today with a 50% gain.  I made 70% on your ITMN trade.  And my OREX calls are up 80% at this point.  That friend of yours that bought $500K of OREX on Jun 11 is now a millionaire, so if you need an angel investor for your startup, he might be a prospect :) .

  92. Sorry for late reply, sthompson.  I thought I detected oil dropping when I posted.

  93. I’m noting that many of the larger banks have reported…some spectacular earnings… and the SKF has not dropped susbstantially past its lows.  When do we get the next leg down in the SKFs?  If the banks aren’t going up now what will make them go up?  A second stimulus?  LOL. 


    SDS – lflantheman – what shall we do?

    <<July 22nd, 2009 at 9:32 am  dstillwe…..yes, I do.  I bought SDS into the close yesterday expecting a reversal today.>>


  95. Charlie Gasparino at war with Zero Hedge, calling it Zero Intelligence…. 

    Nas/Bri – I certainly hope we don’t fall that hard. 

    CIT still inching down but blew our stops at $1 yesterday. 

    TOS/XLF – They will only negotiate with people on an individual basis.  The BS I got from Scott is "If we were a casino, we wouldn’t comp your whole group a free room, just the highest rollers."  There is some logic to that and Scott has been taking pretty good care of the people who Email him directly, but they wouldn’t engage in a negotiation for the group as a whole.  You should contact him and let him know that you understand there is a PSW discount price and don’t be afraid to ask for a low one.  After all, it is a negotiation and it never hurts to ask. 

    PGH/Dstill – Those are really a dividend play (.09 per month) which you can cover with Jan $7.50 puts and calls for $2.05 to net $5.95/6.73 and you still get $1 a year in dividends!  Remind me on the others EOD.

    Good plan Brianma – are you working for GS?  As to S&P, we need more volume, not higher numbers, to prove out the move.

    OIH/Morx – I have $3.30 original cost basis + $3.30 for the roll less the $1.20 (net) for the 3/4 cover = $5.40.  Not sure where you get different. 

    NYSE/Matt – 6,232 would do it.  Once you are over the "head" any technician would have to throw in the towel.  The RUT needs that 535 move. 

    Asset lies/Bri – We had this discussion back then.  If you have a 30-year asset and in 2 of the 30 years there is a spike down that is generally perceived to be an outlying event – should you be forced to liquidate on that spike?  That’s the net effect of the old mark to market rule.  Since it is not in the best interest of the country to destroy the banking and real-state industries at the same time, the government allowed the banks to reclassify their assets. 

    UAUA/Maxt – I got out at $3.55 ahead of earnings.  They are a useless stock with no good premiums to sell.  CAL is much more fun, as is LUV or RYAAY if you want to play the space. 

    Oil back down to testing $65 into the close.  Oil report is same old nonsense, they are importing 1Mbd less than last year and producing 3% less as well, which is another 4.5mb for the week we are being shorted

    AMZN/Gel – Well I like the Sept $75 puts at $1.75 but that takes $35 in margin and has a big risk.  On the other hand, you can buy the Sept $75s for $15 and sell the Sept $85s for $8 and that’s net $7 that makes $3 if they flatline (42%) or go higher and has a break/even at $82.

    RUT/Peter – Good idea picking on the leader!

    Banks/Bri – We have to get past about 1/2 without too much shock.  Right now the "assets" are very quesitonable and it will be hard for banks to get traction until property starts popping again.  We have housing numbers tomorrow so there’s a possible booster…

    SDS/Dstill – it’s still an earnings play.  No one has posted good earnings yet in that space – just nothing so bad that the sector is shocked. 

    Gee, I hope the Nas doesn’t snap it’s 11-day winning streak….

  96. MrM – UR welcome, and thanks.  That’s what we are all here for….opportunities.  You and Cap have done me well with HK!
    Speaking of which, Phil – I have the HK 18 Dec09 covered 1/2 with 22 Aug09.Should I roll the 18s up to take some $$ off the table?  Thx.

  97. $5KP – Goal is to buy out 3 Aug $26 calls for .50, now .55, ($150) and THEN sell our 2 Oct $27s for no less than $1 (now $1.15) to clear $50 on top of $40 we already have

  98. Looks like the stick is warming up.

  99. STJ - Wow, I followed Oxen into this one but luckily got out EOD yesterday on earnings worries.  My quick scan of their earnings didn’t seem to warrant a 10% dump in the price, any of you guys follow this one and think there’s a bounce play in it?

  100. I have to agree with MrMocha.  I have only done few little trades (as i think we always have to do in this cases, even with Phil recomendations) and looks great.  I think he deserves at least one color in the chat, that way I miss less post from him – TY  :-)

  101. HK/Pharm – Well I think they’ve had a good run so yes, I’d roll up to the Dec $23s at $3.45 (about 1/2) if you think you may be done or the March $23s at $4.40 ($2.35 credit), both of which you can always add back to if you need to roll the callers to 1.5x or 2x a higher strike down the road. 

    STJ/Mr. M – Yes, they are great if you didn’t start out in them yesterday!  It all comes down to worries that BCX is taking market share from them and they confirmed 2009 guidance of $2.50 a share which means I’ll want them cheap but give them a day to get a downgrade first.  $35.50 should hold and, if not, it’s got to get back over there to be a buy. 

    Color for Pharm – I’m up for that!

  102. Color / Pharm: I’d give him mine but it might break his streak.

  103. Peter,
    would that same trade for the RUT work with the IWM?

  104. Could someone help me understand if there is a difference between a buy/write and covered call? It seems I need to own shares in the stock for both. thanks
    If anyone has some easy naked calls or puts it would be much appreciated. I still don’t exactly understand all these spread trades. Yes I am in middle of reading up on them but they are taking time to digest.

  105. Sorry Peter, I’m going long on UWM till close under the premise that they’ll want to paint it as close to 535 as possible.

  106. re OIH – were you looking at Sept? Then i’ll be quiet.

  107. Fall baby, FALL!!!!!!!!!!!!!

  108. ICE failed $90, that’s interesting. 

    Buy/Write/Miracle – A covered call is just selling a call.  In a buy/write you are selling calls and puts against your position. 

    OIH Morx – You have Aug $95, now $1.90 right?  My idea was to roll it to the Sept $100 puts, which are now $5.20 so + $3.30 for that move.  Then you sell a 3/4 cover of the Aug $95 puts to some other sucker and that is net .75 x $1.80 or $1.35 collected per long share so your net cost of the roll is $1.95 added to the $3.31 cost basis is $5.26 cost basis to put you in the Sept $100 puts which are currently trading at $5.20 with a 3/4 cover of the Aug puts that are $5 out of the money to you so no downside losses and hopefully OIH doesn’t fly higher. 

    Uh-oh, not too sticky this afternoon.  Volume is right on the 140M line at 3pm so same old programs as usual…

  109. Phil,
    What’s your feeling on POT. They report tomorrow and have been coming down over the last several days. I have some long calls. I have been reading that the Ferts earning are expected to decrease.?

  110. Phil; I have MOS and undecided about selling into close. what do you think?

  111. Somebody call ’them’ are tell them it would be really fun to watch a quick stick up to 9,000 now from right here!  I’ve been thinking all week that ‘they’ would do something bold like that just to prove show off…

  112. Phil/Miracle,
    the names of option strategies is sometimes variable and confusing.  According to some sources such as Investopedia a covered call and a buy/write are the same…….I have also found this confusing at times……are these short strangles in conjunction with the underlying stock……maybe after hours you can address this…….thanks.
    What Does Covered Call Mean?
    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.

    This is also known as a "buy-write".

  113. John & Joe :  i have done a bet on BG, 0 cost. I profit if it goes ~8% down  and i will be in trouble if they go down more than 15% or so.  I think if you like POT / MOS you can do that. Profit will hedge your long position, unless they get hit hard. And if this occurs, as you like those companies, you buy  them at 15% less.
    But better wait for Phil answer.
    This is  the idea (you have to find your options)  the puts you sell have to be half price the one you own in a -2x +1x ratio and you have to check margin requeriments:
    Im doing a bet on BG at 0 "almost" cost, with risk if stock get killed, but since I like this one, I have no problem to own it at big discount (and later sell puts and calls): 
    Buy 1 Aug 65 put  for $4 and selling 2 Aug 60 put $2. 
    Stock has to go down to $55 (-14%) to bring us in problems.  Max profit will be at $60
    ($4 from putters + $1 from put = $5  – commissions)

  114. ocelli7, you are correct about the textbook definitions but of late Phil uses "buy-write" specifically to describe trades where we buy the stock and sell both puts and calls.

  115. Phil, any marquee earnings coming out tonight or tomorrow am?

  116. Margin/PeterD – Hi, Peter, on TOS platform, how do you see margin requirement before entering a short call/put position on RUT?  Is it on the "confirm" page?  On that page, there is a negative number for "buying power".  Is that the one?

  117. Whodacha call MrM.  Here it is….

  118. POT/John – Oh I don’t like that whole sector.  Lots of price pressure and slower sales.  People think they are cheap because they ran up with commodities last year but oil is still 55% off the highs but POT is back near $100. 

    MOS/Joe – If you wouldn’t take it off the table at $50 while we were shorting it your’re going to have trouble getting out now.  They may announce a possible deal and shoot back up or they may miss and say nothing about a deal and you’ll be down 20% by lunch.  If you are thinking of holding them, you can sell the Sept $45s for $6.20 and that’s $51 for your $48 shares if called away, not far off the high and better than 12.5% protection if they fall the other way. 

    Buy/Write/Ocelli – What do you want me to say?  I agree with what a covered call is but I would not call a covered call a buy/write simply because it’s called a covered call.  Yes, what we call a buy/write is selling a short strangle (or straddle if the strikes are not the same) against an undelying stock purchase.  In any case, it’s about the concept – we are buying a stock and writing options so you could umbrella them to all include "buy/write" but you can count the number of times I do a straight covered call on one hand per year.  

  119. Margin/PeterD: Oh, almost forgot.  Is the formula for margin requirement the same for all brokers?

  120. ocelli7
    Thanks for the help. I am in middle of reading the options book recommended and also reading investopidia to get an extra understanding. I use ameritrade and a call/write looks to me liked a covered call. I don’t understand where I am selling a call and put against my position. It seems to just sell one.   Any easy naked calls or put plays? They are so much easier to understand and trigger.

  121. matt / Contango / Backwardation
    Contango is normal conditions: IV higher in the back months (Oct, Dec) than the front months (Aug)
    Backwardation is not normal: IV higher in front months than back months, this happened end of last year (great for calendar trades)
    When talking about crude, replace IV with (price of the futures contracts)…that article specifically is talking about how if you own crude and they are in contango, then you should hold on to your barrels because you can sell them later at higher prices, because oil is being priced as more expensive later on than it is now.

  122. Earnings/Matt – Oh tons!  ETFC, EBAY, IRBT (I just like them), NE, QCOM, SNDK, TEX, WLT, MMM, T, BMY, BG, CME, DO, EXP, ETH, FITB, F, GR, HSY, HBAN, JBLU, KMB, LLL, MAN, MCD, NYT, NEM, NOC, NUE, OXY, ORI, PM, PNC, POT, RSH, RTN, RS, R, HOT, TRAD, UNP, LCC, WYE, XRX, ZMH….  That’s all before the bell tomorrow along with 100+ others.

    HOT is the most tempting as a short in the $5KP but I’m going to sit this one out as the market is a little weak today and I’d rather see what the reactios are to more earnings and housing starts tomorrow (and jobs!).

  123. WFR earnings are tomorrow.  Nice run up on the China Play.  I have the stock covered with 19 Aug09, going to sell the same puts now.  Call option volume is pointing up.

  124. Nas up 11 days in a row.  QID $29s at $1.20 is a good way to bet it won’t be 12 but risky! 

  125. STJ – Mr. M.  I played them straight up with Oxen.  I let them ride over night (liking them generally and figuring I wouldnt mind owning them long AND assuming theyd be close enough on earnings that I wouldn’t get killed today) and promptly dumped at my 3% stop.  But I’ve played back in with $40 Jan calls financed partially by $40 Aug call shorts.  I’m not endorsing the play because I’m not tight enough on the math and greeks yet – but that’s my general idea [Phil - no screaming].  I will work on it and adjust as required. 

  126.  GS/Phil – This morning you posted an idea "buying the 2011 $125 puts at $15.30 and sell the Sept $150 puts for $5 and just keep doing that every couple of months for an income.  If GS does tank for some reason, the roll down to the Jan $125 putters is even so you would still have a $10 net horizontal spread with a 1-year advantage but, if things go well, then $5 is 30% every 60 days on your investment (there is the $25 spread margin of course)."  Can you take me through this?  Are you expecting to own GS at $145 come September, and if they’re not below $150 then, owning them for $115 in January ’10, with the 2011 $125s as protection?  Sorry, I’m lost on this one…Thank you in advance.

  127. POT / MOS = Funny , Phils answer is much more easy and simpler :-)
    I neither like them. But i do like "very much" BG and ADM.  They do agribusiness and food products, still BG is messed in fertilizer and energy as part of their business.

  128. Well, went into a meeting and miss the last hour of trading, at least it went my way (down).  Whee, still dropping after hours.
    Maxt1234 – Yes, it works for IWM.  The numbers and credited amount will be just divided by 10.  To get the same profit, we’d pay 10 times more trading commission on IWM.
    Matt – hihihi, the RUT Sep 390 CALL is now $3.2, lost $0.4 on just $1 move down in RUT.  And better still the PUT didn’t gain much, so it was an easy 10% on the credited amount, 1% gain if you take margin into account.
    cswan120 – yes, you almost got it correct.  The Negative Buying Power minus the Credited Amount is the Initial Margin Requirement.  In other word, the Credited Amount was added to the Negative Buying Power, so the Initial Margin requirement is the difference of the two.  Once you have the position, you can display either the Margin Requirement or BP Effect in the Position Statement screen.
    Each brokerage may have a different schedule for calculating margin.  They are similar though, within 5-10% of each other.  Some stock have crazy margin requirement (especially the 3x ultra) so watch for those.

  129. Phil/buy/write,
    No criticism intended and I am sure none taken--you know we love you. I just needed to respond to Miracle because it took me a bit to figure out that what you doing with buy/writes when I first started following you.

  130. STJ/Dstill – Sounds reasonable to me.  As I said earlier though, I would have rather waited until tomorrow to see if they catch a downgrade but my initial entry on them would be selling Sept $35 puts, now $1.35 for a buy-in 20% lower than yesterday’s close. 

    SNDK looks pretty good, QCOM beat but no one seems happy about it, ISRG kicked ass again…. 

    EBAY so-so, probably not supportive of run-up. 

    GS/SS – I’m not expecting to have to own GS.  The expectation is that, if GS drops, then the Sept $145 puts can be rolled to the Jan $125 puts for about even and that would turn it into an ordinary calendar spread against the 2011 puts.  The idea isn’t to own GS at all but to take advantage of the fact that there will probably always be people willing to bet against them more than they should ($5 for puts that are 10% out of the money is a lot).  This is an income-producing play but, worst comes to worst, you own GS at a big discount and you are already covered against a sell-off with the 2011 $125 puts. 

    Let’s say you do get it put to you for $145.  That puts you in for net $155 (including the cost of the long puts)  and you can’t get less than $125 so all you have to do over 18 months is sell $30 worth of calls and you are in a no-lose trade.  Since I can sell the Sept $180s ($20 out of the money) for $2 or the Jan $165s for $14 ($2.15 a month) I’m not too worried.  If I get SNDK put to me at $140 with a $155 basis then I can sell the Jan $145s for $14 and my new basis is $141 with a year left to sell and no chance of getting less than $125….  If I then get called away at $145 I have a $4 profit and still have the 2011 $125 puts… 

  131. DB, I didn’t know things were so bad over there!  Not that they’re much better here.

  132. Buy/write/Ocelli – No biggie, I just get testy when 500 people each ask me if I could use their favorite terms to describe things.  I should publish a book of all the Emails I’ve gotten telling me the "proper" layouts for trades and terms – each one is different and some you would swear can’t possibly be describing the same things! 

    QCOM really getting hammered.  All those IPhones and LGs being sold you would think they would do better.  SNDK did seem to benefit from all the smart-phone sales sucking up global memory supplies – they actually raised prices and generated more royalty revenues than last year. 

    Once again about 50 companies reporting this evening and only 7 misses and the rest beats (86%) with 1 lower guidance and 4 raised.  Only 22 companys have lower revenues than last year…  I still say "Show me the misses!"

  133. Matt – not much difference but I think the uk is slighlty worse off. One difference is that Pritchard writes for a mainstream newspaper in the uk and I don’t see equivalent copy in the us press.

  134. As one newbe to another let me try the buy/write definition:
    Street Talk:
    Covered Call: You already own the stock and you sell a Call on that stock (a single leg option). The call you sell is "covered" by the stock that you already own.
    Buy/Write: The 1st item on your ticket is to "buy" the Stock; the 2nd leg is to "sell" a Call on that stock (a 2 leg option). You buy the stock and write (sell) an option.
    PSW talk:
    buy/write: You buy the stock and sell a Call (or multiple calls depending on the strategy) and sell a Put. (a 3 or 4 leg option ticket)

  135. PS for newbes I have an Excel spread sheet that I set up to do "what-if" senarios. I use it to paper trade these call outs and then I can visually "see" these trades and run different senarios for results. IE if stock trading at $40 the result is X; if trading at $30 the result is Y. It uses intrinsic value only (no greeks). It works well at expiry date w/o the greeks. If anyone wants a copy.

  136. SNDK in the AH’s…..crazy movement, down to 17.50 then up to 20 & back to 17.50.  The BACK\RATIO short play looks pretty good as of 5:47 pm!

  137. sunco – that sounds great.  would love a copy.  any other handy excel templates you’d reco for trading? 

  138. MrM, yesterday, you warned us: "I just had lunch with a friend who’s big into Elliott Wave and he, along with his three trading buddies, all agree that we’re starting the big wave 4 down to DOW 5000 between now and October.  Giddyup!"
    Although unlikely, it could happen.  If we take DOW 8,900 and apply the biggest drop in 4 months in the past 15 years, which was 42.8% that occured in September 2008, we’d get to 5,090.  So DOW 5,000 is not out of the question given historical data.   If we take the Jan 2009 drop of 26%, we’d get to 6,600, which is around the March low.  There is a possibility that Wave 5 bottom is around the March low as mentioned by Corey Rosenburg.
    With that said, it would take a few extraordinary events to drop the indices that far, given the beats in earnings (albeit low expectation), revenue that are only off 20-35% from last year, and lots of cash on the side.  Nevertheless, I do have a game plan for this possibility.  First, my portfolios are positioned to have negative delta to combat the first down leg of THE drop, then in taking advantage of the zig-zaging that the market would do, I would roll the short CALLs and PUTs down.  Since I’m starting out with the short PUT -20% OTM, I only need to roll another -6% to the March low.  Plus I have another month of rolling in October that gives me another 4-6% downside cushion, so accommodating a 26% drop in 4 months is relatively easy.  The 42.8% drop would be a killer.  I would look to aggressively buying PUTs and have just the Short CALLs when we have dropped that far.  If we survive that, then we can make tons of money selling PUTs when the DOW is at 5,000 as the VIX would be through the roof.  Just a thought!

  139. NE: $1.49  thats $6 a year. P/E=5.33
    As a driller is not a big player, but their result are very good.  I have been looking into other OIH members, and there are few getting results like NE.
    MOS made .33 and its a $50 stock, and if i not recall bad, WHR made $1+ and its also a $50 stock.
    I understand diferent sectors has diferent P/E ratios. But this is a no brainer. Probably Mr. Mrkt. is punishing them because they move away from US…. if not… what?

  140. Phil,
    On a related note, I think you should consider writing a book or a primer on the methods you use, particularly the buy/writes, DD strategies, rolling, and salvation plays. I am sure you are familiar with what is out there, but even the advanced texts don’t really go into strategy in a meaningful way. I can read all I want about how vega is computed, but it doesn’t help me very much salvage my options that are misbehaving .
    Of course, who has time to write a book? I considered it once for my field and quickly came to my senses. With your schedule, it would be quite interesting to see how you might do it, but you have so much fodder to choose from already.

  141. From  Blackrock – Bob Doll
    Following a month-long correction, which appeared to be induced more by profittaking
    than by any reversal in economic trends, equities rallied strongly last week
    to approach their previous highs. The Dow Jones Industrial Average rose 7.3% to
    8,744, the S&P 500 Index advanced 7% to 940 and the Nasdaq Composite added
    7.4% to close the week at 1,887. US earnings surprised on the upside last week,
    building on the string of supportive economic data seen over the past few months.
    As a result, the market averages managed to erase much of the losses from the
    prior several weeks’ correction. Equities held up even as the flight-to-safety premium
    in Treasury securities staged a small rebound.
    So far, second quarter earnings look pretty good. Although it is still early, of the few
    firms that are reporting, more than three-quarters are either hitting or beating
    estimates, usually via aggressive cost-cutting. Year-on-year revenue growth remains
    weak and currency remains a headwind. Guidance going forward is increased from
    the prior quarter and is reasonably good and, as a result, third-quarter bottom-up
    estimate numbers are starting to move up. We give corporations high marks for
    cutting costs. Once sequential revenue growth returns, probably in the fourth quarter,
    margins should once again start to expand.
    We find that many market participants are still skeptical and appear convinced that
    there remain significant downside risks from continued deleveraging by an overstretched
    US consumer. Given the depth and nature of the current recession, and the
    underlying structural headwinds (i.e., deleveraging), skepticism in the recovery is particularly
    high. Investors are likely to remain sensitive to changes in the economic data
    and profit figures, and the debate about the sustainability of the recovery will continue
    for some time. However, we believe a lot of investors will be induced, through positive
    economic and earnings news, to join the recovery story in the coming months. It will be
    critical for the equity market that policy remains stimulative and that earnings reports
    are decent enough as investors wait for better news, and we think that will be the case.
    We have been in, and perhaps will see some more of, a critical testing phase—that
    is, whether reflationary efforts will translate into a recovery process around the world.
    Currently, there remains an intense standoff between reflationary forces and debt
    deflation pressures, a theme we have argued since the beginning of the year and
    which, at the moment, has created somewhat of a stalemate in risk assets. We
    continue to believe that reflationary policies will ultimately win out, allowing global
    equity prices to move higher. At this juncture, the US equity market is back to levels
    consistent with a bad recession, though it appears prices have not yet factored in
    much of an economic recovery. Our bet is that the US economy will enter into a
    cyclical recovery phase later this year and, if that is the case, share prices will
    need to move somewhat higher to reflect this.

  142. What ifs/Sun – That sounds like a good tool!

    SNDK – I don’t know, I thought it was a good report.  I think I’d be a buyer at $17.50 (or a seller of Sept puts). 

    Elliot Waves/Peter – I don’t know, just because a chart system works 10 times in a row does not mean it’s going to work on the 11th…  Somehow, we’ve gone from recognizing an historic "black swan" event to now predicting the market will swing up and down 30% every 6 months?  Bubbles take 20 years to inflate, then they burst.  Once they burst it’s kind of hard to just blow on what’s left and think you are going to get another bubble, then burst that, then blow it up again, etc….  Certainly the VIX doesn’t think it’s going to happen again but, of course, the VIX was no predictor whatsoever of the crash as it was about 17 last August, closer to the 52-week low than high.

    NE/Spider – Now that’s an energy company I could buy.  Norm for that sector is about 9 for p/e.  RIG is a 6, DO at 9, NBR 10…

    Book/Ocelli – Ask Ilene, she has a first draft but has been too busy to edit.

    Doll/Pharm – I hope he’s right.  I still think we need to resolve foreclosures and unemployment before we get real growth traction….

  143. I might have spoke too soon. I haven’t been able to figure out how to attached a file to this post. I can send it by email. Anyone have any suggestions?

  144. Phil – mattress management question - Current position: I hold Long DEC DIA 88 puts, 1/2 cover short AUG DIA 86′s. I am wondering if I should roll up long position to DEC 89′s financed by rolling short position to a full cover AUG DIA 88? Second (hypothetical) question: If DIA goes down to 80 in the next week, what should I then do with my short /long positions in DIA? Thx

  145. Conc – here are a few posts in the past on DIA plays.  UR question may be answered here.  For all newbies, bookmark ‘em, read ‘em, read ‘em and paper trade ‘em.  They are frustrating in the beginning, but then things start making sense as to how to keep the losses to a minimum.

  146. OR the gains for a nice hedge.  Don’t jump in on them, again, they are easier to manage when you paper trade to learn how things move in concert.

  147. In other words, this market rally is the result of (among other things) govmnt sanctioned Enron-style accounting: lie about the real value of your assets until the assets catch up to where you want them.
    I do have to question this and I do think it is important. I assume you are referring to the reversal of FAS157 in June 2009. Let’s remind ourselves that those rules were only introduced in November 2007.

    I hear people questioning is this a reversal to "enron style accounting".
    I think this is exactly the wrong question. What we should be asking is, should these rules ever have been allowed to be introduced in the first place, and did they in fact play some part in CAUSING the financial meltdown that happened only 6 months after their introduction.

  148. Pharmboy – really appreciate your help, I will read these closely. Thx.

  149. I obviously meant to say FAS157 was reversed in April, not June. It is an opinion (I subscribe) that these accounting rules were a major factor in pricking the bubble and pushing the financial system to near collapse.
    While not responsible for liar loans and all the other bad stuff, they were akin to a doctor chopping off your leg to find out if the bone was broken. Even if the doctor was proven correct, chopping your leg off was hardly the way to find out.
    Consider it at least suspicious that meltdown happened almost immediately after these new rules were introduced…

  150. Concreata, if the dow went down 800 or 900 points as you suggest, I would consider closing out your long puts for a giant profit. You would at least set a stop and take them off on some kind of reversal.
    We are sometimes advised here that they are there to protect us against 300+ point drops.

  151. Spider – NE does look interesting doesn’t it!
    Now here is a company that is issuing special dividends when it’s stock is at 60, and switching to share buy backs when it’s stock is at 20.  Everyone else was buying back shares right at the top of the market and cancelling dividends at the bottom.
    While hardly a deciding feature, this  *has* to endear you to management!

  152. Phil
    TASR- see link- this story just caught my attention given earlier posts. Some days it just doesn’t pay to get out of bed. I can see the lawsuit now: " Why, your honor,  if they had only used their Berettas, my client would not be suffering , blah , blah , blah…….

  153. Futures green (shocka, i know); and Hang Seng up 400+ (another shocka).
    Party on Wayne, Garth ….

  154. Phil (and thanks Pharmboy for the articles) – reading these real world examples are a little like drinking from the veritable fire hose, but if I understand properly in answer to my question of rolling up long DIA 88′s to 89′s, since I cannot do this for 50cents or less, I should hold for now? Correct? Regarding the 1/2 covers at 86′s, if we are trading at the upper trading range and now more bearish than bullish – at least for Aug exp. stick with 86′a, possibly go full cover? Not sure on this but appreciate your analysis. My previous email is shown below:
    Phil – mattress management question - Current position: I hold Long DEC DIA 88 puts, 1/2 cover short AUG DIA 86’s. I am wondering if I should roll up long position to DEC 89’s financed by rolling short position to a full cover AUG DIA 88? Second (hypothetical) question: If DIA goes down to 80 in the next week, what should I then do with my short /long positions in DIA? Thx

  155. Peter, thanks for the follow-up and I’m learning from your strategies but all of my accounts are either IRAs or too small to support the margin requirements, so I’ll need a different play for profiting down to 5,000, probably will just always keep something like TZA in the portfolio and sell calls on it to keep it from bleeding me as we keep going up…

  156. concreata - you’ve got the right idea.  Paying more than .50 for a roll up is too expensive unless you have some other portfolio objective that makes you want to be deeper in the money; just wait and the price will come to you.  I just keep an open order to roll up for .40 at all times and let it hit when the price comes to me; sometimes like now when the market is moving quickly against my mattress I will wait and pay .30 for a roll to preserve capital until the market turns south, then I catch up on the rolls I missed so I’m positioned for the downturn.  Phil is pretty good about reminding you when / how to cover but once you get the hang of it you’ll probably just do it yourself.  These days I just decide when and how to cover based on what’s happening in the market and my portfolio, for example now I’m 2/3 covered with the AUG 88 puts.  Just be careful not to sell puts at the strike price that you might need if the market turns quickly, for example since I’ve sold the 88s I can’t buy a bunch of them in a rush to cover a downturn, so I’m forced to buy the more expensive 89s.  In a choppier market I might cover with the 87s so I can quickly buy a bunch of 88s on a quick turn down.  I hope this helps.

  157. Good Morning Phil & all

  158. Asia/Pacific Markets    Thursday, July 23, 2009
    (The following is from Yahoo, please confirm with other sources)   

    Australia All Ordinaries*             4,072.60        3.70         0.09%
    Nikkei Average*                         9,792.94      69.78         0.72%
    Shanghai Composite*                 3,328.49      31.88         0.97%
    Hang Seng*                             19,817.70     569.53        2.96%
    Seoul Composite*                      1,496.49        2.45         0.16%
    Singapore Straits Times*            2,484.90      34.07         1.39%
    Bombay Sensex                      15,231.04     387.92         2.61%
    Baltic Dry Index                         3,407.00     -48.00         -1.39%

    * at Close

  159. Asian Stocks Close Higher After Early Losses

    Asian markets clawed back into positive territory to test the previous session’s 10-month highs Thursday, reversing earlier losses after a mixed performance on Wall Street.

    Japan’s Nikkei bounced back into positive territory to close 0.7 percent higher, to hit a three-week closing high as exporters climbed on a weaker yen. The broader Topix ended up 0.1 percent.

    In South Korea, the KOSPI inched up 0.16 percent to close at a 10-month high as media stocks rallied after parliament passed laws aimed at deregulating the sector.

    Australian shares ran out of steam to break a seven-day winning streak. The S&P/ASX 200 closed 0.1 percent lower.

    Greater China markets gained ground led by a 3 percent jump in the Hang Seng Index. The index hit a 10-month high as investors scooped up banks and property plays.

    In South-east Asia, Singapore’s Straits Times advanced 1.4 percent

    Malaysia’s KLCI rose by 0.3 percent.

    Buying in nonferrous metals bolstered the Shanghai Composite up 1 percent, thanks to strong metal prices.

    Bombay Stock Exchange’s Sensex closed at 15237.94, up 394.82 points or 2.66 per cent. Indian markets ended sharply higher as sentiments turned bullish with better than expected earnings from companis and release of core sectors data indicating economic recovery.

  160. Euro Shares Rise for 9th Session, Banks Up

    European shares rose for a ninth consecutive session to hit a 6-1/2-month high on Thursday, with reassuring results from Credit Suisse boosting banks and drugmakers advancing after Roche raised guidance.

    The FTSEurofirst 300 index of top European shares was up 0.2 % at 892.17 points after touching 894.28 — the highest level since January and the longest winning run since late 2006.

    Banks were among the top gainers, with the DJ STOXX banking index up 1 %, after Credit Suisse said it made a net profit of 1.6 billion Swiss francs ($1.50 billion) in the three months to end-June, against an average forecast of 1.4 billion Swiss francs given in a Reuters poll.

    Credit Suisse was up 4.7%,while Standard Chartered, HSBC, Lloyds, Royal Bank of Scotland and Societe Generale gained 1.2%-2.3%.

    Drugmakers also gained ground after Roche gave a bullish forecast for the next two years following its $47 billion acquisition of Genentech and said it would expand capacity for H1N1 flu drug Tamiflu.

    Roche was up 3 %, while Elan Corporation, Actelion and Crucell rose 0.4-1.8 %.

    Miners advanced after slipping in the previous session, with the DJ STOXX basic resources index rising 2% to a five-week high.

    BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose 0.8-2.3 %.

    Swiss engineering group ABB jumped 4.4% after it said cost-cutting measures had limited a fall in profit in the second quarter.

    Porsche’s board of directors in an all-night meeting endorsed talks to sell a stake to the Gulf state of Qatar and to boost its finances with a capital hike of at least 5 billion euros. Its shares were up 0.6 %.

    Dutch telecoms group KPN fell 3.2% after it lowered its revenue outlook as it saw no signs of an economic recovery so far.

    Around Europe:
    FTSE     4,484.79    – 8.94        – 0.20%
    DAX    5,112.76    – 8.80        – 0.17%
    CAC     3,283.36    – 21.71        – 0.66%
    SMI    5,657.09      20.07          0.36%

  161. Good morning!

    File/Sunco – You can use .  They will let you upload the file, then post a link to others.  It’s nice because you don’t have to register (the penalty for not registering is you have to wait 30 seconds before you can download…

    Mattress/Concreata – You should always look to roll up your longs for .50 or less per $1.  You should be able to get to the $89 puts for that price.  The idea is this always keeps you with at least a ..50 delta, meaning you would get at least a $1.50 gain on a 300-point drop.  Since you are 1/2 covered with the $88 puts, you know a 300-point drop will put them $2 in the money and that’s no problem at all.  A 600-point drop (to 8,300) would put your putters $5 in the money but you know you will gain at least $3 but, realistically, your downside delta improves as you go more in the money too.  So, with the 1/2 cover and a 300-point drop, you gain 25% on the long but your putters only get their money back (and, of course you sell Sept whatever).   In a 600-point drop you gain 50% and you have a 1/2 cover at $5 so you will roll them to 2x the Sept whatever is $2.50 (unless we think the market is going much lower) and your 50% gain will be well covered.  All those are the IFs – what matters is that you ALWAYS take advantage of the opportunity to roll up the long side.  This is, of course, all under the assumption that you have something on the bull side that is making money while this is going on! 

    Oh great, thanks Pharm!   I do need to read ahead before I answer….

    Commercial Real Estate/Pharm – I’m finding that my main concern as well but we’ll see what VNO and BXP have to say.

    Rules/Steve - I agree, these "rules" are fairly arbitrary.  Why should a performing loan of any type have to be marked down?  So a bank lends out $100Bn with $10Bn in cash and 94% of thier loans are performing.  If we put those away then we are looking at $6Bn worth of assets where the loans are not performing and we say they are worth 50 cents on the dollar and that makes a $3Bn liability for the bank, not a $50Bn liability by forcing them to mark all assets to market.  This is how all these reasonable sounding people can have such grossly different views of the market.  If defaults climb from 6% to 12% and current asset values fall to 40% then 12% of $100Bn in loans are at risk and the bank is on the hook for $7.2Bn if they have to foreclose and sell the assets but a mark to market argument would say they are now $60Bn in the hole and must remedy the situation immediately.  FAS157 was the ammunition used to take down the market.  It was the "proof" Whitman and Roubini needed to declare the financial system insolvent 

    DIA/Steve – Good point.  Of course we would roll down at least on a drop like that.  If you follow the full mattress strategy, you would also be adding layers on the way down.

    Taser/Pstas – note the end lines:

    O’Callaghan also said that while Mitchell did burst into flames after the Taser was deployed, it wasn’t immediately clear if the stun gun actually sparked the fire.

    "There is a very strong possibility the fire was caused by the lighter in the hand of the offender," he said.

    I think it will very easy to sue the police, especially ones who do have Tasers available, when they blow a hole in someone they could have stunned.  Once a precedent is set there, they can push rulings out to start saying that all police departments should employ non-lethal measures first. 

    Rolling/Concreata – The easiest thing to do is to always offer .45 to roll up to the next long strike (assuming you have a roll funcition with your broker but, if not, you can call with those instructions).  Once you spend all of your putter’s money, THEN you need to think about your coverage.  Again, it’s kind of self regulating.  If you are 1/2 covered with $86 puts you sold for $1.80 (.90 per long), by the time you spend $1 rolling up 2 strikes, the Dow must have gone up at least 150 points and you would be at the $90 puts, $4 in the money to your putters who probably lost 1/2 their value at least.  At that point, you can get another $1.80 (assuming we think the Dow is still going higher) by selling 1/2 the $88 puts and now we have money for EITHER 2 more rolls up OR buying back the $86 puts with tight stops if we head back down. 

    At this moment we do NOT want to go fully covered on the DIA puts because, until the NYSE breaks and hold 6,232, we are still expecting a correction at some point.  So yes, you should roll up to the Dec $89s while it’s cheap and no, you should not add more puts and you should, in fact, set a stop on 1/2 the $86 puts if the Dow fails 8,850.  Once those are stopped out, you will be looking to re-cover with whatever pays you about $1.80 on the way back up. 

    Rolling/Mr. M – Good point too (boy, you guys are getting good at this!).  There is no hurry to roll up when the market is moving up.  My standing order for .45 is meant to take advantage of spikes up but once one triggers on a big move up, you are better off waiting and seeing where the music stops.  Another factor is selling against supports you think will hold.  Like, at this point, we are prety comfortable selling $88 puts for $1.80 because we are pretty sure 8,650 won’t break that easily on the way down (before we have time to make an adjustment). 

    Dstill List:

    SO (5.5% div) – I think they’re a great deal down here, earning about the same $2.40 as last year (total) but trading at 10% off with a solid-looking dividend.  I would think utilities should be doing well as their input costs probably fell faster than prices.  I like the stock at $31.78, selling 2011 $30 puts and calls for $7.05 for net $24.73/27.37.  That makes the $1.75 dividend more like 7% and you get a nice 20% bonus in 18 months if called away at $30.  Another nice way to play them is to go with the 2011 $25s at $6.85, which have virtually no premium and sell 1/2 the Aug $32s at .50.  If you can pick up .25 per month for 18 months, that’s $4.50 back on your $6.85 (65%), which is better than dividends and much less capital at risk.

    WMT (2.2%) – I like them down here ($49.17) as a value but $55 is a fair price for them so not too thrilling.  I think growth estimates for next year may be a little ahead of themselves because it’s extrapolating the boost they got from the onset of recession and I doubt MORE people will be heading to WMT, even if things get worse (as people will just shop less period). So a nice 20-year hold kind of stock and you can sell the Sept $50s for $1.08 and don’t knock getting .50 a month in premiums as it’s $6 a year, which is 5 times more than your dividend payment. 

    PEP (3.2%) & KO (3.3%) - What’s the difference.  They both are dependent on global sales and I prefer PEP because they are a bit better diversified and have a better chance to grow. PEP is at $55.89 and you can sell the 2011 $50 puts and calls for $13.25 and that’s net $42.64/46.32 which makes the $1.80 dividend 4.2% and close to 20% if called away 10% below the current price (and entry is around the March lows).

  162. dstillwe/Phil Here is the link to my Excell "what-If" sprd sht: I have also included my multiple portfolio SS where I keep track of trades by each trade for each newsletter author in a seperate portfolio and compile by total of all portfolios.
    WARNING! This is not a commercial product. It is a "work in progress" (meaning it may have flaws).This is a open spreadsheet (no cells are locked). RULE #1; never ever use the original file, make a copy and use the copy. (you will screw-up a cell or two guarnteed). Then you can always start over by making another copy from the original. You need to know how to use a spreadsheet in order to insert extra lines, adjust formulas for the inserted lines etc.
    If anyone knows of a data base program that does this please pass it on. ie Yahoo can do multiple portfolios but they don’t handle info after the sale or expiration and they don’t compile. Also let me know if you have suggestions for additions or improvements or questions on use. (Very few directions are on the spreadsheet)

  163. Phil and Mr. Mocha – Sorry I was late getting back to you (out most of today) but thanks for your thoughtful replies yesterday – I think I get most of it  (Delta’s throw me a little – how do you easily calculate?), anyway thanks for taking the time to answer.