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Monday Market Melt-Down


We love the smell of pullback in the morning.  It smells like – victory!  After extensively reviewing our bearish positions in this week's wrap up and after calling for cashing out our bull plays last week and after taking a whole bunch of short positions – I would have been in a very bad mood this morning had we gone up 150-points instead of down so forgive me for being pleased with myself

Although we called the stick-save at Friday's close, even when I predicted it at 12:40 I said that: "getting back to there would be fake, fake, fake and failing there would be very bearish going into the weekend."  In my closing Alert to Members at 4:04 I said: "12:42 targets were:  Dow 9,350, S&P 1,005, Nas 1,990, NYSE 6,540 and RUT 570.  We got 9,321, 1,004, 1,985, 6,537 and 564 so let’s hear it for the 5% rule and Mr. Stick, who’s program is playing our tune.  This was, of course  fake, fake, fake, so we still expect our sell-off next week."   See, this stuff isn't too hard to follow – targets set at 12:42, targets failed at the close, stay short into the weekend… 

Speaking of targets, our first downside targets, which we went over in last Wednesday morning's post, should be tested this morning at Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550.  As that post was an extensive discussion of levels and ranges we expect and is still fresh, I won't get back into into it here other than to say how mean you are for not using THIS LINK to get a free trial of the PSW REPORT (just 2 weeks left on summer offer) and then using THIS LINK to refer 2 friends and lock in your own discounts.  We're starting a new $100,000 Virtual Portfolio this weekend and only members will get those trade live and I'll also be continuing the $5,000 virtual portfolio and it's a great time to start following now that we are back to cash there

While we are nowhere near as bullish as Cramer (seen here in Thursday making fun of us for being too cautious), we are also not perma-bears.  A nice sell-off here is not only long overdue but it's also healthy and, if we hold 80% of the move up since March, we're going to be thrilled to go long with a brand new Buy List.  Our last set of buys, which were publicly reviewed in the July 11th Weekly Wrap-Up are so ridiculously in the money that we haven't even factored them in for covers as we expect all 11 buy/writes to be called away and our 7 straight buys are all covered or cashed from last week's call.  18 for 18 is pretty good for picks in a week when the media was calling for doom and gloom (the dreaded "head and shoulders" scare).

As I keep saying, I'm not flip-flopping, I'm rangey.  At PSW we believe there are real values to stocks and that, over time, values will win out.  What I said on July 11th is true today as well: "So I said Cramer was an idiot to be herding his sheeple into stocks when the Dow was at 9,000 and now I am saying Cramer is an idiot for stampeding the herd out of stocks at 8,000?  Am I that fickle?  Not really, I just believe we are in a fairly tight trading range."  Now, Mr. Cramer, we are at the top of our range and it is prudent to take profits off the table rather than punch the buy button and make mooing sounds as you mindlessly follow whatever trend formed between lunch and 2:30.

Of course, to find the most ridiculously overbought stocks, we had to look down – all the way through the center of the Earth and out the other side to China, where last week we asked "Is China's Growth an Accounting Miracle?" and just this weekend, we featured Vitaliy Katsenelson, who said: "China GDP – Are You Kidding Me?"  At PSW, we like to check the numbers behind the headlines.  That's why a long FXP play (ultra-short China) has become the mainstay protection in our current $100,000 Virtual Portfolio - as we had expected China to lead the market correction in this cycle.  

This morning we were not disappointed as the Chinese market took a hell of a dive, with the Hang Seng falling 756 points (3.6% and saved by the bell) and the Shanghai got whacked for 5.8%, it's biggest drop since Nov 18th, when the index was over 40% lower than it is now.  Keep in mind that no single stock in China can lose more than 10% before it goes "limit down" so losing over 5% in a day indicates there were many, many stocks that were halted before they found a proper level.   The Nikkei had a rough ride too, falling 3.1% this morning (328 points), erasing all of August's gains in a single session as the Dollar fell below 95 Yen again and the Yen hit month highs against the Pound and Euro as well as money scrambled back to the relative safety of Japan's currency.

Everyone’s clinging to growth in the stronger economies such as China,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “If there’s a perceived hiccup along the way, it pretty soon flows through to much weaker share prices. We may have priced in a bit to much too soon.”  Speaking of hiccups: Reports last week showed that Chinese exports dropped in July, lending fell, and investment growth slowed, while Australia’s statistics bureau said wage growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment.  Foreign direct investment in China fell for a 10th straight month in July as companies stalled expansion plans amid the global financial crisis, the Commerce Ministry said today.  Isn't it interesting how many fund managers will get on TV saying China, China, China yet less and less of them are putting their money where their mouths are?

Boosted by the government's four trillion yuan ($585 billion) stimulus package, China, the world's largest steel consumer, recorded its highest iron-ore imports and steel production in July.  However, economic data for the month showed signs of a slowdown in infrastructure spending and real-estate development, two areas that between them account for more than 50% of China's annual steel consumption. That could indicate that the demand for iron ore and steel in the second half may plateau or even decline.  Commercial real estate and construction has also collapsed in Russia (the "R" in BRIC) and a recent visit by a Wall Street Journal reporter found most cranes idled. Stray dogs basked in the summer sun near gaping construction pits, and bored migrant workers stared from the windows of prefabricated temporary housing blocks.  Alexander Pivovarov, an unemployed foreman asking around the site for work, said he'd been turned down everywhere. "Everything's at a standstill," he said. "Where has all the money gone?"

Europe is down around the 2.5% rule this morning (8am) but bounced off that line.  UK home prices fell 2.2% in early August from the prior month, reversing the single month trend back up.  Swedish retailer H&M reported a 3% drop in July sales as Euro--zone spending fell so fast that the EU had a 2-year high trade surplus – not actually a good thing under these circumstances.  “We don’t believe that the underlying macro-economic fundamentals of the G3 economies, that’s Japan, the United States and the European Union, are sufficient for us to feel that from now we are going to have the beginning of a secular bull-equity market,” said Andrew Freris, senior investment strategist for Asia at BNP Paribas Wealth Management. 

We discussed CNB's shutdown this weekend and this is a big win for BBT, who will make a nice buy if they take a hit this week, hopefully around $26.  We're short on X (looking good per those construction articles) and OIH but we also know enough to take the money and run in this market (it is hurricane season).  Oil hit a 2-week low in Europe this morning, back at $66 and September gasoline also fell 4% to $1.93 per gallon, the lowest since July 29th, when OIH bottomed out at our $100 target.  “Commodities and the stock market have been building on good economic news,” said Bill O’Grady, the chief market strategist for Confluence Investment Management in St. Louis. “It’s clear that the markets can’t deal with any bad news.”  

We will be keeping an eye on our trading range and I'll have a Big Chart Review for Members tomorrow so we can establish our watch levels for this segment.  In our July 27th review, we set our sights on the 33% (off the top) lines for the top of this run and we made it over Dow 9,394, topping out at 9,437 on an Aug 7th spike.  The S&P never had a chance of making 1,056, nor did the NYSE have a real shot at 6,959 (topped at 6,634) but the SOX did briefly beat our 308 target by 1 point while the Nasdaq fell just 2 shy of 2,017 and the Russell was briefly 3 points over our target of 574.  These will continue to be our range tops, most likely until we get a major Transport rally back to 2,086 (now 1,870) and that's why we watch the Baltic Dry Index so closely (still holding our 2,750 line) as things need to go on ships before they go on trucks – fundamentals aren't that hard – it's just that they aren't quick and easy

Keep in mind that, in this sell-off, we're not as concerned with what fails as what holds up.  Hopefully we will be able to separate weak stocks from strong as we watch performance this week and it's the strong we are looking to invest in as we begin our new virtual portfolio next weekend.  If we do hold our 3% lines, then the bullish uptrend of the 15% run from July 10th will not have been broken.  We have a lot of Real Estate data this week with Building Permits and Housing Starts tomorrow along with PPI and Existing Home Sales Friday.  The NY Empire Manufacturing Index was much better than expect at 12, out of last mont's -0.5 and miles ahead of analyst's guess at 5.  PPI should be as depressing as CPI was so no going bullish until we get past that data and no going bullish at all if we fail our 3% levels as we look for 5% to hold after that.


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  1. Good Morning everyone.
    No comments ? Everyone firefighting pre-market ?

  2. TALF being extended/expanded from December to March.  The commercial equity part of it will go until June 2010.  No suprise there.  It won’t be a suprise when they extend the 1st time homebuyer program either.  In the end, the Fed will have most toxic loans, commercial and residential, on its books.  Thank goodness they are willing to risk our country for us!

  3. Good morning!

    Today’s breakdown levels are: Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550 – hopefully we hold them as we do want a healthy market but it won’t be too tragic to get back to our midpoints – 5% below there. 

    So, effectively we’re looking at roughly a 2.5% down day today and then subsequent 2.5% drops if we fail those.  This is nice and easy to watch but the way Asia looks at the moment, if we finish below 2% this afternoon, they are good for another 5% drop, which will drop Europe and then us….  In a nutshell, it’s all up to us to stop the global slide. 

    The other key levels we’re watching is where we were on last Options Expiration Day (July 17th – Dow 8,800, S&P 940, Nas 1,900, NYSE 6,000 and RUT 520).  As we discussed last week in chat – the markets have had a tendency to return to within 1% of the previous expiration by the next expiration day – wiping out the maximimum number of puts and calls sold.  This version of Max Pain is perfect for buy/write positions and I’m not worried about our old $100KP but I will be putting out a final update on that one by Wednesday. 

    Mostly watching and waiting this morning, volume should preclude a morning stick save and volume would be key – the bigger the better so we can see where the real buying interest is

    On the DIA Mattress Play.  If you have the Dec $95 or $96 puts 1/2 covered by Sept $93 puts, which should open at around $3, it IS a good idea to roll them to 2x the $92 puts, which will be all premium.

  4. Took a speculative position in SDS calls at the close Thursday.  I, uh, sold a bit too soon on the Friday plunge.

  5. DIA Clarification:  Sorry about that but I should have specified the AUG $92 puts, now $1.30 is what the 1/2 Sep $93 puts, now $3.30 can be rolled to.  They have $1 each in premium that will expire on Friday and can be rolled back to Sept $88 puts so you are gaining $5 in posiiton for .70 out of pocket

  6. DIA- mattress- clarification- roll to 2x to the Sept or Aug 92′s?

  7. FSLR broke the key 140 level momentarily.
    Phil – thoughts on the how the shenanigans might go this OPEX week?

  8. Media is already turning too negative.  This correction is nothing so far and volume is coming in pretty light (15M in 5 mins) considering how many sell orders must have been backed up from Asia and Europe at the open. 

    I like the guy on CNBC who just said "I’m teddy bearish" – that’s kind of how I feel.  Of course we went too far and of course there are still terrible problems out there but we’ve certainly proved we can handle it – eventually – so whatever levels we fall to, there is still a buying opportunity in many places. 

    Only S&P and Dow are hanging on at the moment.  XLF 13.75, needs to hold 13.50.  OIH $99.61, needs to take back $100.  XLE $49, needs $50. 

    VIX up a whopping 15% already at 28, nice bonus when you have long puts…

    DIA/Pstas – Hope that helped, 2x the Augs…

    YRCW hammered all the way back to $1.79.  What an amazing stock!

    Shenanigans/Trad – I think they want to bust down to last months expiration day levels.  Only 3% further so laying down here and another 2.5% sell-off through the week is a 5% rule finish and all the callers wiped out – what could be better?

    Oil at $65.50, Gold at $933….  ICE $86! 

    This is what I meant Friday when I said we wouldn’t have time to chase down if we broke on Monday. 

    Even MOS is falling so you know things are bad! 

    Damn, we could have just held those FXP $11 puts in the $100KP instead of rolling - They are back there now, up 20% since Aug 3rd!

  9. Phil, 1% above last months oe is still way down from here.  Loogout below!
    Made a NICE 10% on my ultra short silver etf (ZSL).  Locking that one in  but will watch.. looking for bounce on IYR right now but not holding for long..

  10. Already bouncing off 980 on S&P now.

  11. Nice pull back on GLD.  Would you enter here by scaling in?  I am looking at rolling my Dec 90s to March.  Some support here, but otherwise it is back to the 88 range.

  12. Pharm, you out there?  Is that MTXX play done?

  13. Matt – still holding for a bounce.  I am watching the options volume and seems to me that $5 is the playline, so I sell the 5 puts when they bounce down.  Someone just took a calendar spread at the 7.5 price, so I am thinking that they are waiting out an FDA OK.

  14. What is the deal with COF?  I can’t seem to get shares to short to save my life.  Can’t tell you how many times I’ve tried.  Is Scottrade the only one abiding by the new ‘no’ naked short rule??  BTW, MMs are still free to short naked as much as they want.  As long as they deliver the shares to themselves in a ‘timely’ fashion.  ROFL!

  15. Matt, market makers have to be able to short or we couldn’t have options.

  16. 10 am and Dow volume just 35M – not a big deal at all.  If we do less than 30M for next 5 hours, that’s under 180M at 3pm and not too far over the 140M stick level and I very much doubt they would wait if they are going to try it.  Volume and movement for the next hour is critical.  If we come into 11 with less than 60M, the bears may have lost their opportunity. 

    Right now, down volume is 40x up volume and we’re ONLY down at the 2.5% mark.  That’s kind of strange.  Watch those levels (see chart above) very carefully.  Dow and S&P still aren’t giving up but I think you need to see SOX (now 286) buying if the Nas (now 1,941) is going to recover.

    GLD/Pharm – If I had no gold, yes, I would buy some here with the intent of roll, roll, roll, DD, roll, roll, DD all the way to $850 if you have to. 

    COF/Matt – Holding up nicely actually.  Why not sell $35 calls ($1) or buy Sept $34 puts ($2.35)?

  17. Out of IYR, picked up SRS again.

  18. steve, I was referring to naked shorting.  That’s not necessary for options is it?

  19. Phil, which GLD calls would you buy?

  20. The SPPI Sept 7.5 and 10 options are moving.  I am trying to DD on my original entry of  6.70.  Looking for a bit more of a pullback, right above support @ 5.85.

  21. PHARMBOY!   You clearly aren’t reading my posts.  8-)  That’s ok.
    Is the MTXX play done?  It’s coming back from a huge pm drop.. I’m underwater and just looking to salvage what I can.  Thanks.

  22. phil:
    should my BUCY sep 33 PUT at 3.6$ be rolled to oct 31 , and UNG sep14 PUT at 2.1$ to oct 13 ??>???

  23. Hey Matt yeah I think so. If you want to buy a put off them they have to be able to sell the shares sharpish. You’re right though, tons of ripoffs out there….

  24. I am reading them Little Buddy, and no it is not done (in my mind).  I told Morx on Friday (you should read that one!) that the FDA info should come back by October or so.  Still playing ‘fer a move up.  Not sure of your entry price, but if it was in the 6.4 range (like my original play) then selling the Sept 5s for $1 or  jan10 for 1.70 so should be cover a majority of your losses.

  25. COF is up because I have COF puts. If I sell them it will immediately join the sell-off. :(

  26. Looks like Friday’s pattern. Down, Sideways, Sideways, Sideways, DownFake, STICK,STICK,STICK !!!

  27. Hello, Good morning. Seems i will be around for some more time :-D
    COF = they are running into opposite side (green) despite the news: 
    "Capital One Financial Corp’s U.S. credit-card defaults and delinquencies rose in July, sending shares down 4.7 percent in premarket trading, as more Americans lost jobs and struggled to pay their debts"
    "Capital One shares fell 4.7 percent to $33.50 in premarket trading. The stock is up 5 percent this year and has more than tripled in price in the past five months, coming off a 13-year low"
    I’m  getting some puts. But its a strange behavior. Maybe there is some hidden issue there.  So I open small (1/3) position.

  28. GLD/Mampcs – I’d go with the Jan 89s at $6.75 on the same principal you take the DIA puts – you want to roll down $1 for .50 or less whenever you can and try to have your callers pay for it.  You can sell 1/2 the Sep $92s for $1.75 and that will pay for almost 2 full rows down on the back end.  If GLD falls further, you just do the same leap-frog cover we do with DIA put plays – cover with 1/2 a lower call and set tight stops etc, etc…  This strategy requires commitment to roll down and down and down and eventually DD (once your leap is down about 30%) and, of course, putting more money in to roll back in time when appropriate. 

    BUCY/RMM - Why not sell the Aug $30 puts for .70 and see how that goes first.  You have little to gain from rolling to Oct other than giving them time to bounce.  If you are ahead – there’s noting worng with just taking profits either.   UNG is the same story – you would be paying up for premium to make this roll on a day when the VIX is up almost 20% so what exactly are you trying to accomplish.  Also, I have no faith at all in a short play on UNG that terminates in the middle of hurricane season. 

    COF/Blair – Ah thanks, I knew there had to be a logical explanation…  8-)

    Hola Spider!  If delinquencies were "less bad" than expected, that could account for move up but I like them for the quick short as they have had trouble at $35 on up days and they expired at $26 last month so they are really stretching something here – one would think.

  29. HI Phil,
    I seem to remember you wrote buy/writes on TIE last week or so – I didn’t enter. Am now looking at the Sep 7.5′s with $1 in premium, any thoughts pls?
    Maybe I should just wait for the new portfolio :)

  30. COF … wtf ?    Just banged a short out at 35.19

  31.  PHIL,
    I have a few investments from a 401K (Vanguard) or for my children’s college saving Smart 529 Select (Dimensional Fund Advisors).
    I’m skeptical about this market!  Up too quick, hyperflation, worsening mortgage (consumer but more so corporate), unemployment, and the lack of savings on average for the average american. Bloomberg this weekend repeatedly ran an interview with a woman representing China’s market who looked like she was lying through her teeth about how strong/stable their market is becoming.  Besides… how long can Goldman Sachs and the US Government prop up this market???
    So my plan is to exchange out of a "full equity" balance, into a 90% "fixed income (bond)" balance leaving 10% still in equity. I will leave my automatic investment to continue in the "full equity purchase" so I’m buying during we CRASH.
    I’m interested to hear what your thoughts are about this plan and more specifically if you have any preference in the bond market.

  32. Phil: sorry, my  10:17 comment: these are all putters, not PUTS.

  33. and covered at 34.95 … that was too ez.  Gotta take 0.23 in 3 minutes !
    COF probably heads way lower today, but I don’t need to sit and watch.
    Oops, now 34.80 and dropping !!

  34. Steven/Matt – Option market makers cannot naked short any more.   Moreover, if you have a short call assigned, they will liquidate your position if they can’t find shares to maintain the short position as a result of the assignment.   The SEC removed the MM exception on naked shorts last october.  I was killed on Friday by having my short AIG calls assigned and then my short position sold at the market because the broker could find any shares.   Here’s the SEC rule link:

  35. TIE/Steve – Yep, $7.50 is the magic entry number but I’d go October $7.50s at $2.25 for net $5.50/6.50 off $7.75.  You can wait on the call sale, watching the $7.50 mark or enter the whole thing with just the naked put sale – lots of ways to play.  They are just down with a general XLB sell-off, which we played last week so this is great – we cash our XLB profits and buy the XLB component we most believe in! 

    COF/Cap – Getting worse more slowly still brings em in.

    Bonds/XLF – I’m not a big bond guy, I’d rather see you do $100K-style dividend plays if you can hedge out in that fund.  Your plan is generally sound as long as you are protecting for inflation as well.  Again, if you can sell calls at least, then the GLD leaps make for good protection.  You can put 5% of the portfolio in a 2011 $120/$125 bull call spread for .75 that pays $5 if gold takes off (inflation) and that puts you up over 20% of your whole portfolio at $1,250 gold and, if the infaltion risk fades in 6 months, you are still likely to get about half your money back. 

    Putters/RMM – Ouch on those then.  Well that makes the opposite true.  Like the DIA play this morning, you WANT to sell into volatility.  Yes to BUCY but UNG not really worth it as that sell-off can reverse with a strong wind over the next 30 days so no hurry to roll the Sep $14 putter as you really need to go 2x the Oct $12 puts anyway. 

    SEC/LV – I saw that, that’s ridiculous.  It pretty much makes it less attractive to sell anything DITM as you never know when you need that premium cushion.

    Looks like we’ll be hitting 65M shares at 11am – back to "normal" already.   No one is recovering but no one is failing either – so far. 

  36. Phi – sorry about not getting with you yesterday about the wiki – turns out I had a pretty busy day. How’s next Sun instead?

  37. Man this is weird action.  These programs must be on the ‘time kill’ setting.  It’s crazy to trade when all indices are flatlining.  I would expect a headfake in one direction followed by a move in the other direction.  Ohhh those bastards!  8-)

  38. lvmoda, I was talking about something I read recently on the rule past in July of this year.  I don’t know if there is a difference between an option MM and an equity MM but what I read is that for retailer traders, shares have to be identified for shorting BEFORE the shorting can occur.  MMs still have the 3 days, or a timely fashion, to find shares for shorting AFTER they short.  Therefore, it’s a naked short until they find the shares to borrow.

  39. Phil – 65M at 11 is normal? I think there was very little volume after the initial opening volume. Does that mean that we will get a stick like on Friday?

  40. TIE = I dont see Oct options. MAybe you are speaking about Dec ones?  Dec calls are $1.20 and puts $1.05  so i think those are the $2.25 you said…

  41. SEC/LV – Happened to me two or three times earlier in the year with WholeFoods and KBH. My broker (eTrade) gave me 3 trading days to buy back the shorts after assignment. If I hadn’t bought them back then eTrade would have liquidated at market the 4th day. But at least they gave me the 3 days on the shares they couldnt find.

  42. On the earlier DIA communication there was no rec to roll the DEC 96s lower, was there? I hate to see all that green disappear on a stick.

  43. Hey folks,

    Couple updates from me on the day:

    If you missed my picks. I had two short sales on The Gap Inc. (GPS) and Ryland Homes today (RYL).

    What might be even more interesting are my weekly picks. These are a couple of longer trades that I like for the entire week. So, if you don’t like the single day trades, you can check these out. I chose on my buy for the week Ultrashort Proshares Financials (SKF) due to what I see as a really weak week for financials. My sell of the week was Regions Financials. You can read all my analysis for those here.

    Let me know if you have any questions.

  44. PhiL; yes I see it that way too. TXS.
    with this drop and possibly more, which sectors will be most affected ?
    technology. financials/banks, commodities ?
    I nwonder which ones could be shorted ?

  45. Looks like 980 is holding up as a floor for S&P. Now the big question is – will we break 980 or get a stick like Friday?

  46. anybody dblin dwn on LDK today?

  47. Phil : last week, I bought HUM shares at $33.23,now $ $36.07  ( up 8.5%)
    sold Nov. $34 calls @ $$3.23,now $4.80 and Nov. $30 puts @ $2.30 ,now $1.30 Should I close out puts?
    On VLO, time to sell puts?

  48. Pharmboy, re: SPPI
    Sorry i wasn’t following your previous posts about SPPI. What do you think about a buy/write with selling a Sept. strangle of 5 puts and 7.5 calls. Premium is about 1.25 right now.

  49. Phil, What would be a good entry point for C?

  50. C.A.R.S. – Interesting conversation FWIW…I may be late to this news, but I had an interesting conversation with a car dealer this weekend who said they were suspending their "Cash for Clunkers" program because they could no longer afford it!  He is currently owed over $250k & can’t get responses from the government on those claims…they have no idea if/when the claims will be paid.  
    Hooray for government-sponsored programs…let’s rush through to a government-run healthcare system too!

  51. Good article on "How you process information influences your trading results."  Always good to think about the way you look at things from time to time. 

    Wiki/Kwan – Either day next weekend, this weekend was just a crazy family one for me.

    65M/Trad – "Normal" is 140M at 3pm, which is stickable and that’s 5 hours in so 30M per hour is a normal, slow pace we’ve been having.  The slower it is the easier it is to goose into the close, which is usually about 40-60M higher than 3pm.  So figure stick firepower is enough to imbalance 60M shares traded by a big margin, probably takes 50/50 to 65/35 which is close to 2:1 so we can say that Mr. Stick, on a usual day, can jam 40M shares up and, with a Dow average of $50, that’s $2Bn to throw at the Dow.  We suspect they use a lot less as all these trading programs allow them to trade mostly with themselves but the 40M is key. 

    So we’ve been working under the premise that they do run out of ammo on rough days or if they try to step in early to stop a slide.  It’s possible they sought to hold the line on the Dow at the open and the Dow was the only index not to fail 2.5% all morning so a logical place to make a stand.  If we mosey along here (2.5% line) on very light volume then we can assume Mr. Stick still has enough to at least push us 1/3 back into the close (if 3pm is less than 150M).  See, easy!

    TIE/Spider – Sorry those are December.  That doesn’t count towards my senility concerns as I always screw those up – I assume the next month is the one after the one I just looked at…

    DIA/Morx – No but I did consider it so good man for looking!  The idea of the DIA puts is DISASTER protection, not 2.5% pullback protection.  The interim roll of the 1/2 X Sept $93 puts to X Aug $92 puts (now $1.50), which sets us up for a roll to the Sept $88 puts, which is another 400 points down before they even get their money back and that would be another $2+ (25%) on the Dec $96 puts and THEN we want to take some off the table

    IF THE S&P fails at 980 AND the Dow fails 9,120, it is a good idea to add 1/2 x the Oct $91 puts at $3.60.  AFTER THAT, IF the S&P breaks back over and the Dow breaks back over 9,150, you can THEN stop out 1/2 the Dec $96 puts at about $8, which leaves you in a fairly bullish spread. This is an actual mattress layer in action – something we haven’t done in quiete a while. 

    LIKE IN agu ??

  53. Allen,  good by me.  I am holding naked FWIW.  I think they are going higher, but one cannot argue with that % gain if called away.

  54. Drop/RMM – It’s not a drop, it’s a pullback.  Doesn’t make sense to start establishing short positions when you can still have your head handed to you.  The time to short was last week, when things were stupid high, we’re off 300 points already and maybe we get 500 more max to go back to 8,650 but I don’t think that’s likely as we had pretty firmly established that the range was bumping up to where we are now so the more likely test is just another 250 down from here (3%) unless the news flow turns really ugly.  Remeber last Thursday I said "This is a good time to short anything you regretted not shorting this morning."   That was because we tested 9,300 and recovered back to 9,400 and we were still bearish, 9,100 is not neccessarily the same good opportunity to short. 

    LDK/Morx not with oil down near $65

    HUM/Dflam – For sure you want to take out the putter – you can always get another one.  The caller is great protection now (at least) and you can afford to wait because your next move would be to take your $6.10 obligation ($4.80 + $1.30 cash you are putting in to take out putter) and roll caller to the Nove $36 puts and calls (now $7.20) or something like that but no hurry as HUM could still have a nice sell-off and give you a much better prce. 

    C/Sthom – I think they will be tough to kill but the premiums really uck on the $4s.  I would just scale in, selling Dec $4 puts and calls for $1.35, which is $2.65/3.33 – not a bad price regardless and you have all of 2011 to roll to.

    Clunkers/SS – That’s not surprising at all.  The dealers raced into the program and sold it out in one week.  Doesn’t excuse the Government, who should have been prepared but if you ever sprang a major deadline project on a room full of government workers – you’ll understand what’s going wrong….

    Selling puts/RMM – too early.  How about watching and seeing what holds up and learning something today?   That’s my plan….

  55. Phil:
    does the drop so far justify going long on anything or selling any puts ?
    or you wait as most likely the next days further decline is possible ?

  56. Phil: ok, ok.

  57. Phil, I have VIX long DEC 25 and short AUG 25 from your 7/16 play. It was looking better on Friday than today but still nicely profitable.  Would you suggest rolling this or just closing it tomorrow right before it expires?

  58. VIX – Reminder to those of you with VIX plays, tomorrow is AUG expiration.

  59. Hello phil hope you had a great weekend.
    Well for the ones have mostly cash now, when should we start getting in and with what ? i am listing some things from you form befor that i liked but am not in now: 
    TIE (you mentioned above)
    ZION ?? too hi ??
    VLO ?? to hi ??
    BA (too much bad news ??)
    some C spreads ?
    so which is is dive in head first or feet first :) ?

  60. I agree , too early to sell puts, but not too early to buy puts.  Because it’s options expiration week, look for more correction downward before the week is out. 
    Note health care insurers avoiding today’s downward trend.   These companies have great control over the health care dollar and have the ability to ‘tighten up’ their dollar outflow as things get tougher.   Just Friday I argued with a Cigna "payment stopper" (as I call those who control outflow of dollars to health care workers and hospitals) about a nonpayment for a specific patient who received the care authorized by them.  They refused to pay because care was not given in a ‘timely fashion’.  Typical.  Wanna sell some puts?  Try  UNH or CI

  61. ifl: good answer: too early to sell puts but not too early to buy puts.
    they often drive markets down during OPEX week,

  62. Those X call short sales finally worked. COF on the other hand — WTF?

  63. Phil:
    I like to have more protective DIA puts, which ones ?

  64. AMZN.  Y’all know I’m a fan of AMZN.   But the August $85 calls seems like a heck of a writin’ opp at around $.50.  

  65. If we break 9100 what would be our next play? I’m looking at the Sept 89/90 puts but I guess it depends at what they’re at IF we get there.

  66. Let’s keep in mind that what we are seeing today COULD BE a SIGNIFICANT change in the character of the market; no more "mr stick will save me" type action.
    This is options expiration week and we could whipsaw in both directions but this could well be an important day.

  67. you could be right about AMZN dstillwe

  68. COF is finally breaking down a bit

  69. BAC – I’m still playing the AUG 17 calls like last week, it’s a fun OpEx play. I’m buying on dips and getting out 20% higher – sometimes just a few minutes later.

  70. Thx, Cap.  I just sold a boatload of ‘em.   It’s a pretty big chunk of pure time premium this late in the game.  Any thoughts on other "free" time premiums still hangin’ around?  I only pay attention to stuff i otherwise follow.

  71. VIX/Mr. M – They don’t settle Friday, they expire tomorrow!  You need to roll those along and you can get + $1.40 for the Sept $27.50s so why not as you can always roll them lower.  Oh, I see you knew they expire tomorrow – good job!

    List Micro – Let’s see tomorrow.  TASR is good because it’s near the $5 strike, FRE was just for fun and ran its course but would be nicei if they sell back to $1 again.  TIE, just did. CMCSA same as last week, ZION too high still, GE too high, done with JRCC, VLO $16.50 is BUYBUYBUY, BA too annoying (but a buy at $40), LYG $5.50 would be nice, PFE pinning $15 for expirations is a buy and C as above. 

    CI/Iflan – Be careful shorting them because they are evil.  For shareholders that’s doing their jobs, which is why the whole system needs to be discarded entirely…

    DIA/RMM – I’d go careful with more puts here as they’re up over 20% from Friday.  Part of that is VIX so if you buy them here and DIA goes up and the VIX goes down, you will get hit very hard.   If you want to buy more, buy the mattress layer of the Oct $91 puts, still $3.35, as they at least can be cheaply rolled out and you can remain well-covered with your other puts. 

    AMZN/Dstill – I agree it’s a great % play and those can roll up to the Sept $95s so why not if you don’t mind sticking with it?

    DIA/Skasia – It’s those Oct $91 puts from the 11:25 Alert.  Didn’t everyone get this?

    Volume 90M at 12:30 so down to 30M an hour on avg already!  FEAR THE STICK BEARS!

  72. Hi Phil,

    Thanks. I just checked to make sure but for whatever reason I dd not get that price alert.

  73. Wait, found it. Sorry about that. Also, have you ever thought about doing a podcast? It could be a great way to get new people interested. There are hardly any good options podcasts orinveting, for thah matter. Maybe a bi-weekly/monthly kind of thing. You could work on your ‘radio voice’. ;)

  74. Phil-  How do you find stocks like GMCR, VNO, COF, etc….essentially overvalued stocks that have no business being that high.  It’s an amazing feat considering almost all of the stocks are overvalued and most of them don’t drop…yet you’re able to find the ones that DO end up dropping.  FSLR was another one….perhaps your gutsiest call of all….saying that it would not go to $200 after announcing ridiculously positive earnings…..and you were right.  Is it a certain kind of scan (52 week high?)?  Thanks in advance.
    And, I don’t want to take the whole credit for the rise in SRS, SMN, SCO, etc…..but I DID say that as soon as I got rid of my SRS calls (after holding them for weeks…from the point SRS was at $15), it would take off :) .

  75. Pharmboy, Re: SPPI
    Could you post any info or your perspective on the fundamentals for SPPI? Sorry if you already did this.

  76. Allen, PharmBoy’s SPPI write-up is here.

  77. PharmBoy, any thoughts regarding whether OREX will continue to bounce off of 7.50, its recent low?  I’m watching to re-enter.

  78. Thx MrM. 
    SUNH looks like a nice little bullish engulfing.  Pulled back hard I assume for earnings (which they met). Came up on my ticker for % gainers.  Bounced off resistance @ 8.  Could retrace to ~ 10.  Picking up a small lot here @ 8.34.

  79. MRM – done with OREX.  Two compounds that are generic.  I think now one waits for final review from the FDA (which still is not a given).  ITMN is on my radar, and I am considering a re-enter here (not sure if you still have them).

  80. Phil – UNG – I hold long position at 12.50 cost, short Aug 12 puts (full), short Sept 13 calls (1/2). What’s your short term and long term opinion? thx

  81. Pharm, I’ve been out of ITMN since last month’s OpEx, looking weak since then, please post when you re-enter.

  82. Phils advice?  ….obv. no rush w/ AAPL jan 170C and aug 150 callers as you said earlier, but wanted to play some aug 155 callers and roll down to sept 140 callers if it finishes below 150 on Fri……thoughts – help?

  83. Phils advice?  ….obv. no rush w/ AAPL jan 170C and aug 150 callers as you said earlier, but wanted to play some aug 155 callers and roll down to sept 140 callers if it finishes below 150 on Fri……thoughts – help?

  84. Hey pstas – I responded to your question yesterday in the Friday post (in case you hadn’t looked there)

  85. Pharm, JAZZ is certainly painting a Shakespearean 10-day chart - "full of sound and fury; signifying nothing", look at that quick retracement back to the $6 line.

  86. FRE back to the 1.30 you wrote abt last week. Guess we are just watching for the day, right?

  87. Phil- On FXP….reading through your morning post, noticed the comment about Chinese stocks being capped at 10% daily losses.  What implications does that have on the following day?  Are the above-10% losses carried over to the next day (kind of like what our gov does with unemployment numbers…except we add the job losses to the prior month and hide them from the most recent report)?  If so, FXP would be a good play for tomorrow right? 

  88. MRM – what’s ur next buy in price for BAC? Abt $.30?

  89. KO strong in a declining market

  90. Peter D
    Is this a good day to sell the deep OTM calls/puts on the likes of RUT SPY or TNX

  91. dstille …. cof 36 calls

  92. thx, Cap.   I can’t write these naked yet – same w AMZN – so I’m usually selling against LEAPs.  Worth it here? 

  93. Morx, good call, I got out of this morning’s BAC buy at mid-day and just now picked up a few at .33 because 16.70 seems to be holding, so if you can get it at .30 you might be in a good place.  But watch closely!

  94. Phil:
    opened DIA puts oct 91 for 3.45$.

  95. I don’t know; I would not buy leaps in either one.
    You can do it via bear call spreads …. AMZN  85/95;  COF 36/38

  96. So now the news goes into the other side:
    "CORRECTED-WRAPUP 1-US credit card defaults stabilize
    (Corrects third paragraph to show defaults fell to 13.81 percent, not 13.82 percent)
    Bank of America, the bank with the highest default and delinquency rates among the top credit card issuers, said its charge-off rate — debt the company believes it will never collect on — inched down to 13.81 percent in July from 13.86 percent in June. "
    So, lets do the math :  (100-13.81) / (100-13.86)=1.00058045043
    Now  that’s close to a 0.06 %  improvement !!! VERY BULISHHHH

  97. Phil…..In your opinion, any prognostic value to the absence of a stick save, as regards the next day’s market movement?

  98. By the way… i wonder what error propagation margins they use to compute those numbers. Im very sure those margins are well over the improvement we are speaking

  99. Spider,
    if that figure was their apr, the default rate might actually go down radically as people could actually pay down the debt. right now walking away is the only smart thing to do for many people..

  100. Is Mr. Stick really Mr. Short?  That’s what Bob Pisani and others would have us believe.  And under that premise, today should NOT have a stick save.  We dropped for 15 mins from the open.  Therefore, there haven’t been many shorting opps today.  And since there haven’t been any opps, there won’t be that many shorts covering this afternoon.  Therefore, no stick.
    What today will be a good opportunity for is to put this theory to the test.  If we don’t dive from here between now and close then we should have a an old fashioned boring afternoon up until close.  One thing is for sure, volume is incredibly low after the open and we are essentially flatlining.  A very strange day that has the markings of being manipulated all over it.  We shall see..

  101. Drum – Yes, the higher VIX the more profitable the deep OTM short strangles are.  Both the PUTs and CALLs premium went up due to higher VIX.  RUT/IWM, SPX/SPY, NDX/Qs are all attractive.  I play TBT rather than TNX.  Make sure you scale in as it might drop another 3-4%.

  102. Podcast/Skasiah – I don’t know what I’d say or how to do it or who the hell would want to hear it but, other than that, sounds like fun!

    Overvalue/GS – Not a scan, mostly patence.  I watch things for ages and, when they get to the point where I consider them ridiculous AND they are approaching some natural resistance AND I feel the sector doesn’t have any upward momentum AND I think that newsflow may finally turn against them, THEN I tell you about it.  As to SRS – you are absolutely Da Man!  Your anti-timing may give Mr. M a run for his money.  8-)

    OK kids, we all know what being stuck at the 2.5% rule means for the next day…  1.25% of follow-through at least!

    UNG/Concreata – It’s a hurricane play and nothing more so you either "luck out" (profiting from a disaster) or don’t.  There is absolutely no shortage of Nat gas in this country and nat gas is a local product, not shipped around like oil (although they are trying with LNG, it hasn’t taken off and the recession has killed it for now).  That means that $3.50 is a "fair" price for gas, now $3.05 and the only reason to own UNG is as an energy hedge or to sell premums, which are pretty large.  Until you get way ahead on your basis, it doesn’t pay to take a chance, you should sell ALL the puts and calls every month.  If you sell Sept $12 puts for .70 and Sept $12 calls for $1, that’s $1.70 on your $12.50 stock or 13.6% in a month.  That’s 150% a year annualized return so who cares if you get called away?  Just remember why you’re in the trade in the first place (to make 13.5% a month)

    AAPL/Oncmed – If I understand correctly, you have a $150 caller, now $11.35 and you want to ALSO sell $155 callers and roll them down?  That’s very bearish.  I’d rather roll 1/2 the $150 (x) callers to 2x the $160 callers, which are $3 of pure premium or $6 per current $150 call that you roll.  The other half still give you plenty to the downside and THOSE $160 calls can be rolled to lower Sept calls if AAPL breaks down but they still have almost the same downside delta (.59) as the Sept $155 call (.67) so you don’t miss much by staying in Aug for now and they have .75 a day in time decay alone.

    FRE/Morx – Last week was a catalyst, this week not.  I wouldn’t want to be brave with FRE above $1.

  103. DIA/RMM – Don’t forget the main reason to take those is to take longer DIA put profits off the table if we turn back up!

    Credit/Spider – Good point, such BS spun on these "news" channels.  Certainly didn’t fool the markets yet but it’s kindling for the stick man to light a market fire with. 

    DDM $33 calls at $1.20 are a fun way to play for the afternoon stick.  Stop at $1 and they were $2.20 in the money on Friday.

  104. Highlander= Sry I did not understand you. What you mean with "apr"?  Do you mean April? And how can "walking away" will bring down default rate?  I dont know if you are writing ironical comments or do I’m missing something?

  105.  Phil, I’ve got srs $13 Aug calls. What should I do with them. I bought them at .35 and now they’re at .70.

  106. 2.5%/Phil – What do you mean by 1.25% followthrough? I assume that means a continuation of the current trend or down in this case, correct?

  107. Phil: UNG, I see your concreata comment,
    I have sep 14 callers and putters and sep 13 callers and putters,
    should I roll to lower strike, closer to ATM ?

  108. sorry Phil, I was selling 155 putters!  …and rolling to sep 140putters if under 150 on fri…….what ya think?

  109. Phil, re: MA
    I have 2 long Sept 190 puts (bought for 3.41, now 4.4) and 1 short Aug 195 put (sold for 150, now 1.875). This was a roll from some positions earlier in July that I took a 3.00 loss on. What makes the most sense at this point? Rolling the short 195 put down to a lower Aug or Sept. strike (I cannot sell the Sept 190 puts because I am long those)? Or keep it as is because my deltas on the 2 longs are still close to double the delta on the 1 short put.?

  110. Watch PFE for market direction.

  111. Cap: Hurricane Bill is on the move, and its not Clinton,
    Sat.night ran into your favorite target  to bitch – at the Phoenician.

  112. GLD/Phil: For the GLD play you recommended earlier today, how tight should the stop be on the 1/2 Spt 92 callers?

  113. Phil, regarding your UNG comment.  I have been doing kind of a ghetto pair trade.  I sell UNG 12 puts for a $1 usually one to two months out and i buy the forward month puts for xto.  Been working very nicely.
    What do you think about Lowes here? P and G looks like it has found a floor around 52.

  114. i think "their" new trick is to lull all the traders to sleep.

  115. Prognostications/Iflan – Yes, I think the lack of an attempt to save could indicate the money has moved to the bear side but I doubt we would have seen Friday’s ridiculous move if "THEY" had lost interest in propping up the markets.  Of course "they" know when to hold them and they know when to fold them and they know when to walk away and they know when to run so they will get while the getting’s good so the best indicator we get is going to be a finish near the lows that picks up where it left off the next day – which is what we will likely have if they can’t get us back over 2% on our indexes this afternoon. 

    Volume is just 109M at 2pm – we are now LOW for a summer day!

    Margin of error/Spider – I would think BAC has an exact number. 

    SRS/Oldgoat – Please tell me you are not asking what to do with a front-month call that’s up 100% with 4 days to expiration!  For future reference, there are two steps to handling a position like this:  Sept 1) Take money  Step 2) Run.  If you need these steps explained in further detail, I will be available after hours where we will work on these concepts using the classic book "Fun With Dick and Jane" concentrating on the actions of Spot, who has step 2 down pat….  8-)

    Seriously, if you want to "stay in the game" on SRS, realize you are still only 50% in the money so you are far better off cashing out 75% to lock in a 50% profit and take your remaining 1/4 and buy 2x the Sept $13s for $1.70 and sell the Sept $14s for $1.30, which is a net .40 spread so you should get about 40% of your total number of current calls in the spread.  That way, if SRS goes up to $14, you get back .40 more (57%) per current call than you have now while risking just 25% of what you could cash out.

    1.25%/Blair – Yes, if we finish inside the 20% bounce zone on the 5% rule (which includes 2.5% or 1.25% moves) then we usually get a 50% follow-through the next day.  So if today was 2.5%, tomorrow we’d be looking for at least a move of 1.25% more and that will make the 4% (from today) line very critical as a breakdown tomorrow.  With this volume, I’ll be very surprised if they let it go that far.

    UNG/RMM - It depends on your basis and how long you are in for.  It seems to me the $14 callers are already a win so why not take them out and roll the remaining calls to a more aggressive cover at $12, puts are always good to roll down but don’t go crazy as a good hurricane can wipe out the $13 callers fast so you don’t want to spend too much morney on them.  It costs you .70 to roll them down $1 – not much incentive to gain .60 in premium.

    AAPL/Oncmed – Well, that’s a very different play.   I never mind those as long as you actually intend to own AAPL and, keep in mind, you can always offset a move down that boosts your putters by selling some callers to offset the drop since the calls can’t go in the money until the puts give back their gains.

  116. why is AET up in this downmarket ?

  117. Pharm, IBB has done a quick dump from 80 to 75, I’ve got a long spread that I’m thinking of doing a DD on here, do you think it’s going to bounce off of its 50MA?

  118. what’s your favorite recipe? gotta start cooking dinner when school starts next week.

  119. What’s the biggest indicator of a ‘stick play day’ or are they for the most part assumed/instinctual?

  120. Speaking of hurricanes…. check out Hurricane Bill….

  121. Phil, thoughts on stryker here?  they really havn’t participated in the rally 35 to 39.  I don’t think this health care mumbo jumbo is really going to effect them – they have already seen a decrease in margins, are reducing costs extremely aggressively, & are increasing volume.  (the last bit is anecdotal from stryker reps)  They decreased their rep count considerably and have lowered commission to these reps.

  122. phil, would you cover/protect gold leaps here – i.e. do you anticipate bounce up or another leg down based on fundies.  Just bought back some aug 91 calls :)

  123. I feel the stick just around the corner. I went to sell SPX 985 puts and they moved the BID $1 as soon as I appeared.

  124. OK, a little downtick and Im in. Cmon stick!

  125. Whew, watching the BAC chart right now is about as exciting as watching banana slugs race across my lawn…

  126. Hey Folks,

    So, I returned the Oxen Gamble today. It is now the Oxen High Risk Trade of the Day.

    Today’s pick was Cardinal Health Inc. (CAH).

    I liked it because of the sector’s positive earnings, and CAH’s laggard nature compared to its competitors. This could mean a nice jump for an earnings beat. The company consistently beats estimates. Further, the company is way undervalued on its EPS estimates when looking at what the company expects for its full year earnings.

    More of my analysis is here, but I am hoping this will be a reversal of my prior fortunes. It also was sent out as an Oxen Group Alert.

    Thanks and Good Investing!

  127. Peter D
    Thanks – I did see your post. I still don’t understand the delta issue. Must be missing something.
    In the example of the earlier RUT short strangle, the original deltas at the time were: Sept 590 call=.125;
    Sept. 420 Put = .076. As of the close last Friday- the deltas were .351 for the call and .015 for the put respectively.
    Now, how does that translate into what you refer to positive or negative delta? Thanks again.

  128. MrM – IBB looks like it wants to move a bit lower.  They have had a great run, filled the gap back up and there’s a littly tiny gap at ~ 73.14  to go back and fill (7/22) and support there as well.    Kinda looks like a doji day.  Tomorrow, as Phil says, should be ….???

  129. Phil- On FXP….reading through your morning post, noticed the comment about Chinese stocks being capped at 10% daily losses.  What implications does that have on the following day?  Are the above-10% losses carried over to the next day (kind of like what our gov does with unemployment numbers…except we add the job losses to the prior month and hide them from the most recent report)?  If so, FXP would be a good play for tomorrow right?

  130. Phil: with hurricane potential, what cover with callers and putters would you take ?
    sep 12 callers 1/2 x ???
    sep 12 putters 1 x   ???

  131.  Phil
    I have DIS stock, in at $20 fully covered by AUG $24 calls, any suggestions for a roll at this point or wait another day? Thanks,

  132. Buying some TNA calls here for the stick, hoping I don’t doom us…

  133. Yes…folks, I did jump into the $1.20 DDM calls……hence why GS decided to not pull out the stick save today.  My apologies LOL.

  134. GS, Same here. I’m my own best contrarian indicator!!!

  135. Hey, we three could get our own posting here – Phil’s Phailures!

  136. Looking at the SPY 10 day chart.  This is the only day with an immediate drop-off at open, with a level hold.  It’s a different pattern than the others.  Someone smarter than me out there must have seen this pattern before.  Not sure it means anything, just an observation of something that looks different and unusual.

  137. I think today is one for the book.  I just can’t remember a day like today… anyone else?  Something must be wrong.  Are they trying to prove that the market is stable!  Or is it simply enough to kill time/premium?

  138. China Stocks May Drop 10% More as Bank Lending Slows, Xie Says

    HONG KONG (MarketWatch) — China’s $200 billion sovereign wealth fund, China Investment Corp., is preparing to invest up to $2 billion in U.S. mortgage securities under the U.S. Treasury-backed Public-Private Investment Plan (PPIP), according to a media report Monday.

  139. MrM: LOL, perfect.

  140. MA/Allen – I would A) take money and B) run on one of the Septs.  You are up 30% after being killed for ages, the Aug putter looks like he’ll expire worthless and, even if he doesn’t, you can roll to a Sept Vertical all the way to the $180s so it’s not like you’d be missing anything.  Both V and MA have been collapse proof and if COF can’t be stopped with those delinquency numbers, V and MA are not likely to be your slot machine. 

    PFE - Case in point on something that is still too cheap.

    Gold/Cwan – You don’t need a tight stop as you have plenty of time to a 2x roll.  Worst case to the upside is you don’t make a lot.  Don’t forget gold goes up and down $40 in a normal channel (5%) so if you are going to set a stop with a $1 loss, you are better off burning the dollar and staying out of the play. 

    Lowes/Jo – Do you mean LOW, the beaten-down HD competitor?  Just like any other major miss with no bounce – it’s best to wait for the downgrade police to have their say (see SPWRA) and then come in if they prove themselves at support, which in their case would be the 200 dma at $19.50.  I like LOW at $20 but I’d like HD much better if they fall back to $23.  I’m not sure if they will miss like LOW did. 

    AET/RMM – Health care bill is "off again" and that boosts the souless bastards who are skimming those tens of billions in profits off the status quo. 

    Recipie/Morx – Spaghetti with thick meat sauce.  Lots of ground beef and mushrooms and garlic – Kids love it and you can make enough to put half the sauce in the fridge for a free meal later in the week (all you need is more pasta and microwave veggies).  Also, you can use the meat sauce as beef dip for a nachos night (just add some guacamole and salsa with sour cream and tomotoes and you look like a genius).. 

    Stick day/Roamer – Mostly the low volume and NEED.  If there’s no need, we don’t usually get it.  I would have to call today a need day for the bulls and we’re barely hitting 120M into 3pm so, in theory, these guys can go nuts this afternoon. 

    SYK/Jo – I think long-term they are fine.  Margin squeeze is pretty nasty but it seems like they are working to control cost although cutting reps, especially specialized reps, does not give me the warm fuzzies about their internal outlook.  I’d say if they fall back to the mid $30s, it’s a bargain but up here, they need to prove they can hold $40.

    GLD/Jo – Absolutely I’d take the premium on the 1/2 cover (see above).  Gold is currently more likely to go to $850 than back over $950, especially if we have another down day in Asia and Europe and the Yen starts to look iffy again. 

    Oil was jammed over $66.50 into the close.  OIH will still give us the first rally signal if they pop $100.

    FXP/GS – They just stop trading.  There is no after hours FXI et al are really forward projections of what China WILL DO tomorrow, not so much what they did do yesterday.  Today obviously caught people by surprise and they have pretty much flatlined since the open which seems to indicate no one has a clue about tomorrow. 

    Hurricane/RMM – Depends on if you are in it to gamble or if you are in it because you can make 13% a month selling premiums.  I’d go with 1/2 as gas is so low it’s hard to say it goes lower but those could be famous last words.  Also, if you are selling puts then that’s more reason to sell calls our you are double screwed on a drop.

  141. Morx, they’re trying to shake me out of BAC,, here comes your shot at .30.

  142. thanks phil, i was  referring to lowe’s the  homebuilder.

  143.  Phil how long below 980 would you give it before adding the Octobers layer to the mattress?

  144. DIS/Deano – That’s a tough one as you "lucked out" with the caller.  I wouldn’t be too quick to give up the protection but you can always offer to roll the caller to the Sept $25s even (now .15) and see if you get lucky.  You should also consider stopping out 1/4 of the calls at $1.45 and 1/4 at $1.70, which would leave you with 1/2 at $1.70 and an easy roll to the $25s or maybe even the $26s.

    DDM – not getting much out of them.  This is NOT an overnight trade, within 15 mins of close, even is good!

    SPY/Iflan – They just tend to obey their targets better than the others.  980 was a major cross so it wasn’t likely they take it out in one day but skirting along it all day on low volume does not bode well of Mr. Stick can’t drive them higher than the pre-markets can take them down tomorrow. 

    Today/Matt – Well they could be taking it down hard, selling a ton of puts and then looking to shoot right back up as if nothing happened.   They also could be selling calls here to all the bottom feeders before the next leg down.  Check out the price of calls – The AAPL $160 cals are $2.40 – for just 4 more days!  That’s $12 a month of pure premium – lots of fun to sell!

    China/Kustomz – Yeah but after a 100% run, that’s a normal pullback.  That Sov wealth story was up this morning but suddenly now they are making a big deal of it.  Now China investing is supposed to save us? 

    Oh no, not looking good at all here!  Will 3:30 pass without a stick? 

  145. As I said a few hours ago – Looks like Friday’s pattern. Down, Sideways, Sideways, Sideways, DownFake, STICK,STICK,STICK  – Just had the down fake, now the stick ?

  146. 980/Bigs – Well the Dow is over 9,120 so that means I’d give it longer.  You’re looking at bumping your delta up 50%, not something you want to be wrong on and, in the overnights, it’s probably not worth it as you can get whipped with a big open tomorrow and it’s not like your other play is "in trouble" if we drop 200 points at the open.  The idea of adding a mattress layer is to cushion a rapid fall – now we are just drifting down. 

    Good call on the head-fake DB.  Never trust anything that happens within minutes of 2:30, 3 or 3:30…..  Of course we get false sticks as people (like us) begin buying ahead of those times and then a quick dump when we give up on the idea…

  147. Phil, your thoughts on what to do on some callers….. got STT at 45 covered w/ aug 27 and 34callers   -  also CSCO leaps coverd w/ aug 19callers…..would you roll these?

  148. RE: MA
    Phil, Just to be clear, you suggested closing one of my long Sept 190 puts but keeping the short Aug 195 put. Is that correct?

  149. I look for flaky bullish stories, they tell me the bulls are getting desperate

  150. Is there a reason why DELL should exist?

  151. No stick today. :(

  152. Ouch. This thing is rolling over. S&P already under 980 today. Nice way to keep everyone on their feet.

  153. Did anyone notice that NDAQ is leading the drop today and DOW lagging? Typically, during the drops we have seen NDAQ holding up fairly well.
    Phil – Any thoughts as to why?

  154. STT/Oncmed – What?  You have Aug callers $18 and $11 below you?   Unless you want to do something drastic, you are getting called away.  As to CSCO – Market having a bad finish so best to keep the covers.

    MA/Allen – Yes, You have a nice gain and your caller is still way out of the money so why risk both long puts when you don’t need them.  Worst case is they fall $5 and you end up buying another put and rolling the putters to 2x whatever but it’s the old bird in the hand kind of thing.

    Flakey/Kustomz – That’s an interesting take.   As to DELL, they do make a lot of PCs but they have sure lost their raison d’etre

    Stick/Blair – Oh the day is still young!  Not really, I think we are screwed tomorrow.

  155. Stick/Phil – I just flipped the DDM calls to puts. I hope it continues the trend tomorrow.

  156. Phil: what to do with LDK putter sep 11, 1.25 to 2.5 today, roll out to  ??

  157. Out of the DDM calls at $1.10.  Better safe than sorry.

  158. Phil – Thoughts on what will happen tomorrow? Given that there’s no stick today, are we going to see a follow through of the 2.5% rule? Another 1.25/2.5% drop?

  159. Singapore Steve: are you still around ?

  160. If we hold 980 and dont break down, im buying AH and selling in the morning

    I think the FED extending the TALF says lots and investors are getting skittish

  161. Wow, what a day.

  162. phil,
    what bullshit !!!!!!
    cnbc reporting europe down about 1% when in reality ftse was dwn 1.5% ; cac down 2.2%; dax down 2.0%

  163. RE: MA
    Phil, It is too late for today but I had no calls. I was long  2 Sept 190 puts and short 1 Aug 195 PUT. I took some money off the table and closed 1 of the long Sept 190 puts but I also closed the short Aug 195 put because MA closed at 196 which is kind of close and there was no stick save. So now I am long 1 Sept 190 put with no cover. Just wondering what you think I should do in this situation now.
    Trying to learn how to manage these trades….

  164. I saw a twig on the end of today’s action.  It was pointing down!

  165. Looks like folks were going short and made that stick dip! 

  166. Drop/Trad – Actually, that was going on last week too.  Nas just had further to fall but, magically, everyone ends up at their support levles at the same time…   That’s why I’m always saying 3 of 5 or 4 of 5 or 5 of 5, outlying data is very trickly to deal with – you can’t be sure until you see real correlation.

    DDM/Blair – That’s a very dangerous way to play.  Effectively you hit a point at which you have to stop out and, rather than roll or DD there for a pullback, you shift to a positiion that will hurt you again if things finally go your original way.  If you get caught guessing wrong in a channel, it’s just loss, loss, loss, loss. 

    LDK/RMM – No hurry, they held up pretty well today considering oil fell to $65 and the market fell 2.5%. 

    DDM/GS – Absolutely.  Better to lose .10 on 3 tries than .30 once as you get 3 tries to be right. 

    Tomorrow/Trad – Oh yes, that’s the 5% rule (or in this case the 2.5% rule) stocks ran down to 2.5% and did NOT pull back 20% to get back over 2% so they establish a zone in the lower end of the trading range where it becomes much more likley that they break through to the next zone.  Even with poor momentum, that let’s them easily slip to the next test (which is always 50% of the previous move) and, failing that – on to another 2.5% loss where 4% becomes very critical as that would be the bounce off the 2-day 5% move so we expect strong support there but we also have to check out other overlaps. 

    The most significant thing that happened is the S&P failed 980 right at the close.

    Only the Dow hasn’t failed yet.  We were looking for Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550 – pretty much where we are at the moment…

  167. Guess Pisani was right.  It’s just short covering at the end of the day.  There is no Mr. Stick.  Yeah, right!

  168. They did everything in their power to buy the markets up in the last few minutes, but it sisnt work

  169.  Phil do you still stand by full mattress cover for now?

  170. I sold DDM 32 Puts against my DDM 33 puts as I forgot to factor in settlement (I know, lesson learned and BIG whoops) so closing out would have put me close to the trading with partial unsettled funds rule. I’m lookin to get out ASAP (wouldve loved to hve been out today!) but at least I can worry less about a push in the morning. Phil, any recommendations for what I might have rolled into that wouldve been smarter? Thanks.

  171. Whoa I meant DDM Calls NOT puts

  172. Which ETFs do you folks play with Mr. Stick?  And do you stop out a few minutes before close if He is nowhere in sight?  Or do you use a hard stop, such as 0.1 below your entry or some %?
    I played twice: last week with long DIA calls, paid 1.10, stopped out 0.1 below entry.  Today I tried long TNA calls, paid 4.05, stopped out 0.25 below entry.  I guess Mr. Stick likes to play hide-and-seek with me.

  173. Did Pisani call today a Victory For Da Bulls ?   LOL !

  174. pstas, oh, it’s Position Delta that I’m trying to explain, not the simple Delta.  Per TOS: The Position Delta is a way to see the risk/reward characteristics of your position in terms of shares of stock, and it’s how thinkorswim presents it to you on the Position Statement on the Monitor page. The calculation is very straightforward. Position delta = option theoretical delta * quantity of option contracts * number of shares of stock per option contract.
    So in simple terms, how much money in dollars the position would loose or gain per $1 move in the underlying.  Volatility does affect the final gain/loss, but the Position Delta gives a good indication.

  175. Pisani – Yes, quite the bullish victory I guess…  we could have fallen 5% like China did…. 

    Mattress/Bigs – Sure, the Aug $92 puts are $1.35 so a small victory on the day but they are just .40 in the money so you have .95 that will expire in 4 days.   We’re thrilled to make .25 a week on our covers and here is .25 a day!   The delta on the Dec $96 puts is .63, which is still higher than the $92 puts (.55) so we have little downside worries and the Sept $88 puts are $1.40 so we have an even roll to 400 Dow points lower (+$2.52 on the Dec $96 puts).  What’s not to like?  If the Dow goes up just 50 points – these puts expire worthless and pay for us to roll to the Dec $89 puts. 

    DDM/Skasiah – I looked and didn’t like any rolls as the premiums were crazy.  As to funds rules – it’s very important that you are aware of your exits BEFORE you initiate a trade, some trades are just not going to be right for your account.  If you had long-term faith in the Dow, you could have sold the $34 calls for .50 and rolled to the Sept $34s for $1.60 but we were just playing for the possible stick and stick failure left us pretty bearish about tomorrow (which would now be good for you to some extent). 

    ETFs/Cwan – I like the Dow, you can see from DDM what happens when you try an ultra. 

  176. This is not good news:

    Lets hope we see some real improvement here soon (absolutely none so far). The stock market eventually figures out how to discount severe credit-contractions:

  177. Solars – go TSL – now there are results to cheer about! (even though the stock appears not to have reacted much)
    I agree with Jomama – companies focussing on the top end of the value chain (module production and installation) are doing better than those focussing on the bottom end (polysilicon and wafer production) – notwithstanding 1/4 of their profit came from currency hedging….
    Fingers crossed for SPWR :)

  178. Phil- Thanks for the advice. I’m getting more introspective about my trading strategies by the day. I’m satisfied that I got the sell to open at my limit, as it offers me some protection, but now I’ve changed direction in an indirect way so I’m not sure whether I should leg out if it dips in the morning (hoping for a small bounce later) or just close the spread and get out. If we start down hard I’m guessing there will at least be some turn during the day, however temporary. Which would you do?

  179. I entered my SPX 985 puts, getting $12.40 with the Index at 982. The advantage of this approach is that if things go wrong in the immediate term (like they did today), you have sold 9.40 of premium and can afford to hold it overnight. In fact, my breakeven for this at settlement is 972.60. Always find something to SELL for these plays, not something to buy.
    I closed out 1/2 the position at 13.70, losing 1.30 per contract ($130).

  180. Chez Phil – in the article from 2007 re mattress plays, "Stock Market Parachute", you talk about purchasing another put each time the DOW drops 100 points and when you get to the 4th you sell the first entry. Have you since then decided against that? At this point I think all our downside protection is in the DEC 96. Is that because we aren’t expecting a major drop, just a correction?
    I have found it is easy to teach someone what is obviously right or what is obviously wrong. It’s all those inbetween things that just take time and sensitivity.

  181. Good morning from Scotand everyone!
    Still searching but I can’t find a reason why oil jumped over $2 overnight.  Back above $69.  I saw the price rise yesterday after coming down strong on monday pre-market and it makes sense as a saftey play in this market, but a $2 gap up!?  What gives? (/ES has a gap too.  I guess I have not been in the game long enough to see gaps in futures.  Usually they are pretty continuous)

  182. Good morning!

    Lending/Eric – That is bad, same thing in Asia but not too much concern from the markets.  You do have to trust the Fed on this one – that’s Bernanke’s whole thing, that the way to avoid a Great Depression is to practically toss money out of a helicopter if you have to.  The governement didn’t realize it fast enough in the early 30s but the Depression turned up quickly when Roosevelt took office in Jan ’33 and put a stop to that laissez faire nonsense.  I don’t think anyone is going to accuse this administration of being hands off…

    HD had a nice beat!  So much for getting them cheap…

    TSL/Steve – Those ADRs still scare me but they do look solid.  SPWRA has become a long-term patience play.

    DDM/Skasiah – This morning will be a good example of why we don’t flip flop.  If you sold $32 calls to cover you may want to (if you have margin for it) grab Sept $36 calls to cover, which will give you a positive delta to your callers.  As we top out (if we top out) you can then take your Aug $33s off the table, leaving you with a bearish spread.  Remind me at the bell and we’ll see where that trade is. 

    Good point Barf!

    Mattress/Morx – Ah, that article was written, once upon a time, when a 100-point move in the market was a big deal – not "lunch."  As you saw in Monday’s comments we were iffy about layering in the Octobers and mostly as a way to take Dec profits off the table as we do think this is a correction more than a major drop.  Of course, we have a 250-point drop in 2 days so a 50-point gain is not a change in direction – we’ll have to see if they can break back over 9,250 this morning. 

    Oil/Where – The September contract expired (and no one wanted delivery) so now we are into October, which didn’t fall as much. Overall, the oil strip is down about 5% since last week.

    106,000 contracts were traded 320,000 times yesterday and we had Sep 106K, Oct 230K, Nov 110K and Dec 164K.  Typically, at the start of a new contract period, the front 3 months have about 500K – it will be interesting to see how much barrel rolling was done yesterday, which will be mainly reflected by a rise in the October contracts. 

  183. By the way – The answer to the question, when will the stick save start, was 7:45 – that’s when the futures began their run-up, ahead of the Japan and China opens with the S&P hitting 984 (where it is now) in the futures at 10:25.  That pulled the Nikkei off a gap down open but they tested 10,200 in the afternoon, just ahead of their own stick save

    That was silly of us, we didn’t realize that it is MUCH cheaper to stick the markets after hours and, since the only thing they care about is paining a pretty picture for Asia, it’s mission accomplished by 10:30.  The dollar was also creamated last night on no news and we’re down 1.5% against the Pound and the Euro but UP 1% against the Yen – it’s like magical fairies are trading the market who can make anything happen, even if it makes no sense! 

    The Hang Seng dropped a couple of hundred points in the morning but got the big stick after lunch with a 150-point gap up to punish anyone who wasn’t a buyer at breakfast.  What’s more significant is that they DIDN’T break back over 20,400, which is where they broke down on Monday and had been the bottom all of August.