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Monday Market Momentum – Still Up, But Slowing

darkow081809What a wild ride!

To think the S&P 500 was at 666 back in March and here we are, less than 6 months later with the S&P finishing last week at 1,026 (up 54%), just a point off Friday's high and up at levels we haven't seen since the first week of October, when we lost 800 points in just 5 days (see 10/3 weekly wrap-up).  At that time, I cautioned members not to be led into temptation to buy the S&P at 1,000 warning:

Keep in mind that governments are doing everything they possibly can to prop up the markets.  As I said a couple of weeks ago, this is very much like the government throwing sandbags behind the totally inadequate levees in New Orleans ahead of hurricane Katrina – it may look like they are doing something but if the storm hits us, all these efforts will quickly wash away like sandcastles in the tide.

My protective picks at the time were real virtual portfolio savers:  SKF Jan $100s were $19 and caught the move up to $200 in early January (up 420%), DXD Apr $55s at $14.20 caught the spike just a week later to $110 (up 674%) and SDS March $77s at $9..95 also caught the move on Oct 9th up to $130 (up 1,200%).  At the time, I set danger levels on the Dow at 10,650, 1,135 on the S&P, 7,400 on the NYSE (I was ignoring the Nas and the Russell as indicators as they were too volatile at the time – now we are used to the volatility so we watch them too). 

We were not surprised by the downturn in October – we were prepared for it as we had been skeptical of the stimulated rally from the start.  The reason I went down memory lane was to remind myself this weekend what it is that we fear now – in this "new bull market."  It is very difficult to keep buying covers when those covers keep failing and it's extremely tempting to take a bite of the apple and try to run with the bulls, even if you feel you are a little late to the party

This weekend we initiated a new $100,000 Virtual Portfolio with the goal of creating a $2,500 monthly income as a way to supplement a more conservative base of investments.  I pointed out to members that if $600,000 is returning 6% ($3,000 per month) then taking $100,000 out drops the core return to $2,500 per month but, if we can hit our goal and leverage that $100,000 to return another $2,500 per month, then we have increased the total return to $5,000 per month, a 66% increase in returns on the overall virtual portfolio.  When push came to shove we did, in fact, target the sale of  $7,310 in options in our first month with $27,785 at risk. 

There are only 8 trades involved at the outset, 6 bullish plays and 2 bearish covers.  I had considered the other ultras, which is what led me back to my October posts, which was the last time I had this creepy feeling that all was not right in the markets and, in the end, we used FAZ as one of our covers but let's discuss using our old reliable plays as covers for our other bullish trades.  Our last major bull blocks were back on August 9th when we had Pharmboy's Phavorites (part 1, part 2 came out this weekend) as well as my latest edition of the Long Shots Virtual Portfolio, which featured bullish plays on BHI, UYG and C (which is already up 40%) so we have plenty of longs to protect and, while our usual DIA covers are adequate, the ultra covers we used in October can be downright fun if they pay off even half as well as they did back then. 

[stocks]The original protective picks were made on October 1st in "Hedging for Disaster," also a good read if you have time are still good selections today but we are starting at much lower levels in our ultra-ETFs but we have a lower VIX so let's see what works as current "Disaster Protection."  The idea here is not to bet the house on the bear plays but let's say you we're concerned about that "double dip" in the markets and we want to protect against a retrace of 50% of the recent gains

XLF is up 31% since July 10th and up 141% since March.  A 15% pullback in XLF would be a 30% gain in SKF, which is currently at $27 so figure $36 would be our target.  Jan $29 calls can be bought for $4.10 and Jan $33 calls can be sold for $3.10.  That's $1 on a $4 spread with a 300% gain if we hit our $36 target.  If you are concerned that your overall virtual portfolio will drop 40%, you only have to commit 10% to this type of cover to protect you from most of the drop.  It's not an all or nothing play, as you fall out of the money you can expect to lose about 15% of your cover per $1 drop in the S&P and hopefully the 90% of your virtual portfolio is making more than the 2% it would need to offset that drop as the XLF rises 2.5% (which causes SKF to drop $1). 

DXD is the ultra-short on the Dow and is down from $50 to $37 (down 28%) since July 10th as the Dow climbed from 8,146 to 9,505 (up 16%).  Of course the Dow is up 46% off the March lows but let's assume just a small move that sends DXD back to $43.  October $36 calls make good protection at $2.95 and we would plan to roll out of that position, back to the Jan $35 puts for $2 more if DXD breaks below $36.  Then we would be free to sell some front-month covers (the Sept $38s are now $1.35) while we wait to see if we are in for another late September sell-off. 

SDS is more liquid and has fallen further, down from $60 on July 10th to $43.28 on Friday.  With $51 as our retrace target, the Dec $39 calls ($4 in the money) can be bought for $7 and the Dec $44s can be sold for $5.  That's $2 for a December call 10% in the money (S&P would have to gain 5%, to 1,077, to put you under) with a $5 payout (up 150%) if SDS gains .72 (1.7%) from here into the winter.  

Jeremy Grantham of Boston asset-management firm, GMO who, like me, encouraged people to buy in March also agrees with me now in saying the S&P 500 has zoomed right past what they consider fair value of about 880, based on earnings estimates and historical price-to-earnings ratios.  Mr. Grantham sees "seven lean years" of a sluggish market ahead, to atone for what the firm believes was a long era of overpriced stocks, according to his newsletter.  "The past 12 years have seen two bubbles that were really good for corporate profits," says Ben Inker, GMO's director of asset allocation. "Now things are unlikely to be anywhere near as good as people have gotten used to, because we're not going to have a bubble to help us."

We are going to continue to go with the flow but let's keep an oar in the water, just in case we spy obstacles ahead.  Barry Ritholtz had a great article this morning about what BS the home sales numbers are – something we discussed in Member Chat last week and you know how I feel about China's nonsense recovery so we can continue to enjoy the ride as long as we are ready to jump off before we head off a cliff.    These are not the super-aggressive covers we took in September, at that time we already had confirmation that things were breaking down – these are just our early positions, the "just in case we wake up tomorrow and the floor drops out" sort of positions and I'm very pleased to see the market holding up to give us good entries this morning.  You may not be able to fight the Fed but you can't fight Mike Tyson either – that doesn't mean it isn't worth putting on head gear if you do have to, right?

Why then, should virtual portfolio protection be any different?  The Hang Seng is back over 20,500 and the Nikkei gapped right back over 10,500 to finish at 10,581 for the day's session, erasing all of last week's losses.  The Hang Seng still has a way to go to get back to 22,000, where it topped out on Aug 4th, but 100% of this session was a pre-market gap up that was sold into all day so fake, fake, fake and we'll be picking up some $10 FXP calls if the US markets are red for a quick ride back to $10.50 or higher if we have even a hint of pullback

Europe is being less silly than Asia with half-point gains across the board at 9am.  EU Industrial Orders were a huge improvement in June but we know June was good, it's July we're worried about.  We'll see what this week's data will bring but, for now, let's take a few extra covers (and, if we have momentum, we can take the buy side of the above spreads and wait for a better price on the options we sell) and see what shakes out.  We have a lot of data coming in, starting with Case-Shiller (but it's June) and August Consumer Confidence, which has low expectations considering the "booming" market.  Wednesday is real (as in real scary) data with Durable goods at 8:30 and New Home Sales for July at 10am followed by Crude inventories at 10:30 – all three have the potential to disappoint.

Thursday we get our Q2 Preliminary GDP report and Friday is all about Personal Income and Spending with a little Michigan Consumer Sentiment thrown in for good measure.  So no major data reasons to turn back until Wednesday but the momentum is slowing and a 55% gain off the bottom for the indexes is a pretty big load for the bears to carry.  CNBC is working overtime to convince you that money is on the sidelines, shorts are getting squeezed, fund managers will be fired if they don't buy no matter what the values say… whatever it takes to keep GE afloat for another week! 

It's going to be interesting to say the least but please, be careful out there!

 


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  1.  Hey Phil…. BGU (Large Cap 3X Ultra) has made an upside technical breakout on the chart… SEP 50 calls are 1.60
     
    What do you think?


  2. Good Morning Everyone
     
    Welcome back to another week of "can’t go down" , "cant loose"  stockmarkets. Wanna know what to buy ? – anything !!



  3. DB, there are fewer and fewer of us around these days… and that’s a good thing!  I think sentiment has changed considerably after last week.  That’s exactly what we need.  Too many people have been looking over their shoulder for a correction.   But now, I feel a good bit of them will be throwing their caution to the wind.


  4. We are going to have problems getting a correction with the dollar being sold so heavily.  Look at it again this morning.  I think there will need to be an external impetus.  I don’t remember if there was one specifiaclly linked to the Oct issues last year Phil was mentioning, but I can’t think of anything right off the top of my head that will bring this rally to it’s knees.


  5. WCRX – buys P&G pharma unit for $3B.  I will have to look into this one.


  6. Matt/Where – I dont think sentiment has changed much and also see nothing that will bring the really to its knees. The rally will probably fail on good news or when we are not looking. I have come to believe its only traders and computers who are in the markets, thats why the reality of the economy is being ignored. Everyone I speak too believes things are getting better because the stock market is up. If you ask what has got better FOR THEM they can only point to a worsening set of experiences.


  7. Hi Phil morning! New $100kp are these positions all good to go on please?


  8. NO opening volume – they’ll take it too the moon this morning.


  9. where
    The market will go where it goes.  Up, down, sideways, who cares?  I only have two goals with regard to the market.  One, figure out (if possible) which ways it’s going at the moment.  Two, figure out how to benefit from this movement, whether it be up, down, or sideways.  Right now it’s going up, so I’m long.  But I’m positioned for a reversal, with stops, some downside protection, and so on.  I try to remain unemotional and indifferent to market direction, but accept it and play it as it comes.


  10. Good morning!

    There are no levels today, any failure to stay green would be bad and we’ll have to see how bad later.  We have clearly broken out and holding it today will be very impressive but, so far, this is just another low-volume gap up that won’t mean much if we don’t hold it. 

    Gold is still getting stuck at $955, oil is at $74.50 and we know that’s not good.  The dollar is still weak and is retesting it’s low at 77.50, where we took a big bounce (3%) in early August. 

    No hurry on short plays obviously, wait until the music stops (if ever) and place our bets.  Watch QQQQ 40.50, XLF 15, SOX 300 (needs to hold) and let’s consider why the VIX is up 1% on a strong open…


  11. CTIC gets the nod from the FDA (normal review which takes 6-12 mo).  Warrants and $30M in capital were just put into the company, suggesting to some that they are building the sales force for the drug.  One to watch closely, and if they do not break out of the 1.8 range, if you are + on the trade, might want to cover the stock or sell it here with a stop as I believe the euphoria may be over.


  12.  Phil – I posted this in one of the weekend posts…I am interested in your opinion of what’s in store for commodities.
    —-
    DBC – Phil, my belief is that the US Government is at a juxtaposition: either defend the dollar & get subsequently resulting rising interest rates thereby stifling any hope of recovery or not defend it & continue to perpertrate the fraud we have seen the past several months.  Unfortunately it is also my belief that "they" will choose the latter, but if so, wouldn’t that lead to an increase in commodities?  I know you argue that, as consumers, we simply can’t afford higher oil, but as long as oil is denominated in USD, isn’t a weaker dollar and lower oil prices mutually exclusive?  I always try to understand both sides of an argument for a given direction in price so as not to be blinded by anything, and I’m trying to understand the reasons for a bearish position in DBC.  Thank you!


  13. Funny feel about today, Level 2 on SPY is all over the place. If you get bored take a look and see if you can get a feel for whats going on. Its wierd. (probably duw to low volume)


  14. ARIA, TBBK and TRMA are all doing quite nice…..


  15. They’re doing it again..   more financial engineering to unload bad debt on pension funds and insurance companies.  Only this time, the big difference is that they are being told the risks!  They have ‘good’ bonds for purchase and bad bonds.  Frankly, I’d rather buy the bad ones.  At least there, the homes and property has already been written off.  The good ones have alot further to deteriorate and are being sold as AAA investments for top dollar.  What kind of fool would buy these?  They are being used particularly for commercial debt redistribution.  I wonder why!
     
    http://www.cnbc.com/id/32535976


  16. Looks like /ES got rejected from the overnight highs twice. Wait and watch to see if we go up or down from here.


  17. BGU/Merk – I’m just not that bullish to go ultra long.  You can spend the same $1.60 on the $46/$49 spread and that way you’re $1.60 in the money with a double to the upside.  Beats paying $1.60 in all premium and needing $55 for a double (20%).

    Good market summary DB!  8-)

    Goldman/Iflan – Saw that one.  They are some EVIL bastards over there, screwing their own clients….

    Dollar/Where – Last summer, as part of our fabulous market rally, the dollar was slammed all the way down to 72 but was up at 80 before the markets started falling apart (with declining commodities).  Demand for commodities was 10% higher than it is now which is probably the number one thing that bothers me globally as we do have a massive commodity bubble but, because the bubble in oil is from $35 to $75 and not $60 to $140, everyone thinks it’s still cheap at $75 but that’s nonsense.  Copper is also still out of control, just 25% off the highs with 75% less construction globally. 

    $100KP/Steve – Today is more of a waiting day.  I’ll be sure to make alerts if I even place offers on the positions.  Like I said in the portfolio, those are the 8 positions we want this week but let’s buy the bargains first.  Of course, if anyone sees one getting cheap – let me know, I can’t watch everything all the time.

    Dollar/DBC – Sure a weak dollar will help commodities but it’s not strong now.  We are down 15% from Nov and March highs and that pretty much accounts for 30% of the commodity run – the rest is utter nonsense.  You are right, I would argue that consumers simply cannot afford higher oil but you don’t see me shorting oil either – we saw that logic totally fail last year because, in point of fact, oil can go from $50 ($2.50 a gallon gas) to $100 ($4 a gallon gas) in 12 weeks and all it costs you, the consumer who fills up a tank once a week, is an extra $30 per tank 12 times (not even as it ramps up).  So while the consumer CAN’T afford $4 a gallon gas, they MUST pay for it if that’s all there is and they can’t cut back fast enough to affect the rise in a short period as MOST consumers will come up with $300 extra for fuel over a few months before they seriously have to change their habits.

    Of course, if you get hit with food and fuel at the same time, suddenly other discretionary stocks start to suffer so that’s the right bet on rising oil prices rather than betting against oil, which can remain irraitional much longer than you can remain solvent

    Level 2/DB – Pleanty of sellers today but not panic selling, just profit taking I think.  As long as Transports and Oil can go up at the same time, they can do whatever they want with this rally.  Miners dowing well today, OIH at $110 and XLE keeping up at $53 but it won’t take much dollar buying to wreck this rally and BOJ has to buy dollars to get us back over 95 Yen or Japan won’t be able to break 10,600.

    Good spot for dipping toe in short plays from above post.


  18. Phil/COF- Bought back my 1/2 cover for a .65 profit, still own the 34′s but basis is now 1.25… should I roll them up to 1/2 of the 37′s or do you have a good suggestion for a new cover? Thanks!


  19. COF/Phil, Sorry forgot to reiterate I was talking about the 34 puts.


  20.  GOOG pulling and clawing its way up… just lifted itself over 467.50… can it hold?
     
    ICE over 98… will it get to 100 today?


  21.  ICE has resistance at 105 on my chart… that level is my target for scaling into a new short play on it


  22. Hmmm. I just got to roll my long EWT Dec 7 calls to March 2010 7′s for a nickel. Call me suspicious am I missing a trick? Nearly twice the timeframe for the same price? I was looking to maintain low theta on the leap long while I continue to sell the front month against it.


  23. MTW on the march up, following CAT….


  24. $100KP

    AIG 2011 $30 puts and calls for $24.40 still looks good, worth making the offer to get started.  Same goes for selling the Sept $33 puts and calls as they are still $8.70.  As long as your net spread is $15.70, it doesn’t matter what each leg is.  This is a single contract spread. 

    I have a problem with Wall Street Survivor as I can’t buy options in spreads so I have to leg in to each one.  That is NOT the way I woulld do it and may lead to some different prices in the tracking portfolio.   I’ll be seeing what Mark can do to improve that. 

    BAC can also be taken as long as the spread works out to net $12.62:  Buying 5 2011 $10 calls for $8.60 and 5 2011 $20 puts for $5.90.  Selling 5 Sept $17 puts and calls for $1.88.

    C $4 puts aree a no sell at .09, if we don’t get .15+ we don’t want to sell them (10 of these). 

    UYG also is fine if we get our net $2.60 spread:  Buying 10 2011 $4 puts and calls for $3.05.  Selling 10 Sept $6 calls for .25 and Sept $5 puts for .20.

    CROX is fine with the $3.65 on the spread:  Buying 5 March $4 calls and 5 $5 puts for $4.40.  Selling 5 Sept $6 calls for $1.30 and 5 Sept $7 puts for .75.

    LZB is right where we want them:  Buying 500 shares at $9.21, selling 5 Jan $7.50 puts and calls for $3.80.

    I’m undecided on the covers but that falls under the rule of "When in doubt, sell half" rule so let’s pick up 2 units of FAZ and 5 units of PSQ for now.  Full plays are (changes in red):

    FAZ: Buying 5 Sept $17 calls for $6.20.  Selling 5 Sept $22 calls for $3 and 5 Sept $20 puts for $1.10 (just 2 for now)

    PSQ: Buying 10 Jan $50 calls for $3.25 and selling 10 Jan $55 calls for $1.95 (any net $1.30).  (just 5 for now).


  25. Sorry lots of posts from me this morning. Phil in the $100KP I am looking to establish the LEAP position at your levels first then sell the front month spreads. I don’t think I can put the whole thing on one ticket anyway. Is this the correct way to enter please?


  26. Can anyone verify what TDAmeritrade is telling me, that in an IRA account you can’t do calender
    or vertical spreads? Is this common to all firms or just their rules? Thanks.


  27.  Thanks Phil and the spread idea for BGU…
     
    I looking for DJIA going to 9900 to 10,000 as my target for the blowoff top of this leg of the rally… that’s why I was looking at BGU as a way to play the up move and get some extra bang for my buck using the bullish 3X ETF.
     
    Elliot Wave wise, this is supposed to be the big impulse wave #3, aka the "Recognition Wave", when the bears capitulate and everyone else finally starts to agree the bull market is real. But I’m not a believer in that count.
     
    The alternative count is that we are in the final  "C wave" of a bear market rally. That’s the one I think most probable given all the bad fundamentals you are exposing day after day in your blog. So I’m thinking the market makes one last final lunge in September towards DJIA 10K, then it will be down HARD and FAST!


  28. Phil: how many portfolios are you running? I get confused,
    the 10:28 comment: is this the start of opening for the 100000$ portfolio for income ?


  29. Ahhh…is that the BOJ?


  30.  GOOG has a nice linear slope on today’s intraday chart…. almost a straight line going up since the bounce off 465 at 9:53AM…
     
    the "HAL 9000" controls the stock today… chuckle


  31. Phil, I’ve signed up for Wall Street Survior following the link you’ve provided but I’m not sure where to find your trade portfolio there


  32. Phil, open to suggestions on an AXL play?  ….any ideas?


  33.  Hey Phil…. AIG strike 35 is proving a tough nut to crack the last three trading days… a triple top failure?
    so far doesn’t look the the bulls are giving up yet on the idea of a lunge to 40+….
    consolidation patterns are forming just under 35… might be the crouch before the next big launch
    I’m looking at AIG Sep 45 calls as a speculative play for a break out of 35.


  34. doro  165    ….    I aver.   TDA is very restrictive on IRA account acivities. 


  35. Doro,
    Re: Spreads in an IRA.  Sounds like a TDA rule.  I’ve got ToS and have a ton of calendars and verticals on both call and put sides so I don’t think its a regulation.  Hopefully TDA will adopt the ToS rules versus ToS adopting the TDA rules.  That would be a bad thing for my strategies.
     
    I think regulatory principle is that you can not do anything in an IRA that creates and "unlimited risk" position.  Example, selling naked calls.  The rationale is that you can’t simply dump more money into an IRA like you could with a regular account.  There’s probably also something about IRAs only being in "safe" investments but hey…we’ve seen how well that works, eh?


  36. Debt/Matt – I think this is like one of those scenes in a movie where the plane is going down and they keep thowing more and more important things out of the plane to try to keep it flying and, ultimately, they start chucking passengers out too.  Well I think the pension funds are the first set of passengers to be sacrificed for the "greater good." 

    I just heard an analyst say "Well shipping volume is down 40% but you can’t argue with the bullish chart on the transports."  That is simply insane.  Not irrational… insane!

    COF/Skas – There’s no real benefit to putting in more cash right now as all you can do is roll up to a strike that will hurt even worse if it keeps going higher and a DD here only moves your basis to $1.05 and that’s not worth it with the $34 puts at .85.  Once you get a chance to observe the channel it’s in, then you may want to take a shot at the top of the range to lower your basis but making moves off of spikes is rarely a good idea, especially with so much time left in the contract period.  Best lesson here – see how that 1/2 cover saved your ass!

    ICE/Merk – That may be the best way to short oil at the moment.

    EWT/Steve – That’s always a good thing to do when you have no premium in a leap and there are longer leaps available.  It is a weird thing but it happens a lot, you can even see the Oct $7s trading at the same price since they are DITM and the trading is thin.  Very nice job improving positions when you can.

    $100KP/Steve – See above.  It depends on your trading system.  I don’t have time to mess around with WSS so I’m just picking prices and throwing them in.  Next time I’ll do it ahead of trading hourse as I’m way to spoiled by TOS to be doing all this manual entry nonsense. 

    Ameritrade/Doro – That doesn’t sound right to me.

    By the way – Notice Whitney’s prediction that 300 banks will fail has gotten ZERO press over the weekend or today.  Nor have many other bearish calls been seen.


  37. UNG   how stupid am i seeling   sept oct 11 and 10 puts.   I m amazed by the premiums avail .


  38. sorry for typo  its SELLING not seeling


  39. DIA Covers – Phil you still naked on the DEC DIA puts?


  40. Hard and fast/Merk – That’s an interesting idea.  10,000 is not so far away that we won’t get there but, as with now – then what? 

    Portfolio/RMM – Right now it’s just the NEW $100KP, that’s it officially.  The Buy List from July was 100% called away and the $5KP just hasn’t been worth it.  I’ll probably set up another trading portfolio at WSS if I like the way this one works but give me a week to get used to it first. 

    GOOG/Merk – Notice they topped at $412 (up 10% from $375) in May and fell $50 ($384), then to $447 (up 16.4%) in June and down $50 ($395), now $469 (up 18.7%) in Aug and a fall to $405 is the next logical step in the sequence, looks like right after the holiday weekend….   $450 puts for $5.50 are a fun play if I’m right (big gamble).

    Wall Stret Survivor/Jlui – I’m not sure either, I’ll be chatting with Mark today.  This is my first day using it.

    AXL/Oncmed – Haven’t got a clue about them but their chart says short.  I’d sell the Oct $7.50s for $1.05, even if you want the stock and buy if they go over $6.50 to cover. 


  41. Phil/Witney = No one is mentioning the $9 trillion (25% over budget) deficeit either !


  42. What’s going on with FNM today?


  43. Hadn’t noticed this until an alert dropped into my inbox – Freddie Mac up 30% Fannie up 50% – what gives there ?


  44. $100kp – with the exception of BAC (I entered at 12.7 net) I don’t have the skill or tools to hit the prices listed.


  45. Phil: decided this am to try to take advantage of stocks popping or dropping: these are very active moves in and out in minutes,
    made 60 cents in AAPL going long, made 61 cents in DFS going short. These are good RoRs.


  46. I really want to short PALM. Someone tell me why this is a bad idea.


  47. AIG/Merk – Other than psychological value, I don’t think you can apply any sort of logic to a chart of AIG.   People in it either blieve in it or don’t but it will take some pretty bad new so shake the faithful out as I’d see a dip as a buying opportunity (for a long vertical). 

    UNG/Chantale – I like selling the naked puts, this is crazy low for gas due to an excess supply (storage is full, they have to give it away to get someone to burn it off).  This happened in Europe for about two weeks last year and then Russia cut a pipeline and gas flew right back.  Here a hurricane could do the same. 

    DIA/Bigs – Nothing else to do after getting popped this morning.  Dec $97 puts still $5.90 and still good for 4 months of coverage so no need to panic yet.  Sept $96 calls can be 1/2 sold for $2 (now $2.20) and that would pay for 1/2 of a roll to the Dec $99s, which would be Dow 9,750 and, if we really thought that was going to happen – why have Dec covers at all?

    $9Tn/DB – Shhhhhhhhhhhhhhh!

    FNM/Blair – FRE is up too, it was just their turn to get rally fever today.

    $100KP/Blair – I am just dropping offers into WSS and seeing what fills today and then I will adjust around it.  It’s not optimal but I don’t have the patience to try to finesse it as I’m not used to the entry system yet.  My premise is the market will go up and down this week so, given time, pretty much everything I ask for will fill at my strikes so each leg is entered as a separate GTC limit order that gives me my target or better.   This would be much smarter to do with spread targets since I wouldn’t fill anything where the other end of the spread gets away from me but, if this is a top, then I’ll get all my cheap puts today and all my cheap calls by Wednesday

    Pops and drops/RMM – Absolutely great way to play in this madness.  Just remember, if you can make 1% on a day when you’re bored, that’s an annualized 200% a year so not a bad way to play when the market is too iffly for longer trades. 

    PALM/Blaire – No bad reason other than they are a stock and, as DB pointed out this morning – all stocks go up.


  48. Apologies if this was already posted, but it’s worth noting, I thought (and it’s from last week, before another 30 points of upside Friday and today):
     
    http://www.ritholtz.com/blog/2009/08/chart-of-the-day-sp500-pe-ratio/
     
    Large spikes in P/E ratios are normal coming out of downturns, as corporate earnings are negative and buyers anticipate future positive earnings, but this time, it’s really something else.


  49. Phil, perhaps you didnt see my question in the 100k post – what’s your current take on DRYS and SPWRA? I got called out of my positions.


  50. Phil: where is this WSS ?


  51. RSS – there is a link to it at the bottom of this mornings $100,000  – income article by Phil


  52. opps – i mean RMM


  53.  AIG… I hear ya Phil… only reason why I’m playing AIG is because it has been so active for price and volume… and it is still one of the most heavily shorted stocks on the market
     
    I’m playing the idea that "they" are squeezing the AIG bears… the more it goes up, the more unbelievable, the more bears come to DD their shorts, and so the more bears get killed…. until they all totally give up and we have a crazy quick blow up spike
     
    Only logic I have for AIG price is to look at price history and try to guess where "They" made thier bets last year before AIG collapsed. I know playing AIG calls is stupid, but it seems in this market that playing the stupid bullish positions is the money making way for me right now… LOL


  54. S&P/Eric – I don’t think much of those charts as they include the insane write-downs of AIG and others that wipe out the earnings of the 420 non-financial companies.  The p/es are out of whack but not by that much. 

    DRYS/Barf – Be happy to be out of shipping at the moment.  The actual rate of traffic is awful and the BDI just broke below 2,500 this morning (and holding 3,750 was a breakdown!).    As to SPWRA – I would expect a retest of $25 or a gap fill at $24 to be a nice entry .  The 50 dma is $27.50 so as long as they are below that, they aren’t going anywhere.

    SHLD with a nice shakeout move this morning! 

    $35,000 per square foot! New sales estimates for Apple’s (AAPL) Fifth Ave. emporium would make it the ritzy avenue’s highest-grossing retailer ever – almost double the $18K Tiffany (TIF) pulls in.

    Another Vitaliy article on China asking if they are where Japan was in the 80s?


  55. Phil: is the 100000$ poortfolio on WSS ? If yes, under what name ?


  56.  uh oh Phil… you are going with 450 puts on GOOG?
     
    I’m in GOOG Sep 500 calls for 1.95 this morning…
    I was figuring if the DJIA goes for 10K this month, then GOOG should make a run for 500…     since the rising tide lifts all boats


  57. COF/Phil: I have a bear spread Sep 35 Puts bought @ 2.4 and Sep 24 Puts sold @ 1.95.  What do you sgguest?  Buy back the putters for some profit?


  58. Peter D:  I’ve got the Sep RUT short strangle at 590/420 with an even ratio.  Do you recommend adjusting the trade right now?  I’m wondering whether to roll the call to 610 and/or create a 3:2 ratio…your advice?   Thanks.


  59.  Down HARD n FAST/ Phil… then what?  My guess is a retest of March 2009 lows.
     
    With all the bad fundamentals you write about, I’m very nervous for this so-called recovery.
     
    As far as my industry goes, there are a few more job openings being posted, but I’m not seeing any sort of recovery activity like we had back in 2003 after the dot.com implosion. Back in 2003 we had new fabs being built, fabs were converting from 200mm tool sets to 300mm tool sets, and engineers like me could get a job almost immediately at any fab of our liking…. and get the pay we wanted and asked for.
     
    None of that is happening right now in the semiconductor world, and companies are able to dictate pay and choose from a long list of very highly qualified applicants. It’s a very tough "recovery" out there.


  60.  GOOG just broke over 470…. yay


  61. Phil: DIA puts oct and dec, both naked: hanging in as I expect a downturn ??
    FAZ stock doing poorly: base 28.5,  what to do ?


  62.  Intraday shakeout happening on ICE right now…. I’m buying the ICE Sep 100 Call … I’m anticipating a bounce right here


  63. $100KP/RMM – I don’t know how the link works yet, waiting to hear from Mark, who runs it all.  I did manage to get my trades in but accidentally entered 3 EOD and not GTC.  As I said on the weekend, expect a week of glitches until we get it all on track.

    GOOG/Merk – Sure, they are still $5.15 and make a nice gamble.  I don’t subscribe to the premise that we go to 10,00 as if it’s so easy so I will take a few bearish pot shots that have good potential payouts.

    UNG is taking off!

    COF/Cwan – I assume you mean the $34 puts sold for $1.95 othewise it’s kind of obvious.  Sure take the more than 50% profits off the table.  That’s one of our only trading guidelines – Buy back contracts you sold that are up 50% with more than 2 weeks to expiration unless you have a very firm better target.  You really should have stopped out of those already.  So that $1.10 gain leaves you in for net $1.30 and the $35 puts are $1.10 so far from tragic.  You can slel the $36 puts for $1.40 and roll yourself up to the $38 puts at $2.35 which drops your net basis to $1.15 with a $2 spread that’s in the money. 

    March/Merk – Ow, not that hard!  I think a normal 1/3 retrace of the 45% run up so maybe a 15% drop from here which is right back to good old 8,100 on the Dow (the bottom of our 8,650 range) and 880 on the S&P, 1,725 on the Nas, 5,750 on the NYSE and 500 on the RUT.  If we can hold that line through the end of October, then we could be ready for another nice rally that does take us up to 10,000+ and sets a new mid-point.  I agree this is a totally jobless recovery, all companies are doing is hiring to fill slots they overreacted to in emptying earlier this year as things aren’t quite as terrible as they thought but that is nothing like healthy.  This is like a restaurant owner getting fed up that no one is eating on Friday at 7pm so he sends half the staff home but then a party comes in at 7:30 and he frantically calls to get a few people back – it doesn’t mean that business is now good – it just means that a few orders came in and he let too many people go home.

    GOOG just got rejected – Yay! 

    DIA/RMM – I don’t know, I warned you to get out of the October puts a week ago and this is why but the answer to all is wait.  Either the market is insane or you are – take your pick…


  64. Phil:
    CROX in $100K portfolio: You said we’d lose $3.40 on the longs if the declare BK. But we’re out $4.40 for the longs and own $5 puts (collecting $5 on BK), so we’d be up $.60 on the longs under BK, wouldn’t we?


  65. Here we go!


  66. Phil: SPWRA puts sep 27 2.24 to 1.65, and sep 24 , 0.99 to 0.55 , take the gain ??


  67. CROX/Chaps – Oh you’re right, that play is BRILLIANT! then…  I’ll have to fix that (the description, not the trade) – thanks.

    Ah, now I’m getting my fills on the downside!


  68. On ICE the  95.5 level held as support all day last Friday… lets see if it holds now…. my fingers crossed… chuckle


  69. Phil:
    CROX: You said you went conservative on the covers due to the BK risk, hence sacrificing premium. You wouldn’t change the covers now?


  70.  GOOG yays… LOL… you slam dunkin on me Phil??…. LMAO


  71. Hey!  Who let the rogue program in???????????  Stop that!
     
    Bwa, ha, ha, haaaaaaaaaaaaaaaaaa.


  72. Come on Matt – It just means the Stickmen wont get a lunch break :-)


  73. Careful with the reversal call !.. it s hard to predict when somebody on coke will stop dancing !


  74. Phil, IYO, what’s going on right now?  Seems kinda abrubt for it to be a concerted effort to sell off.  I think it’s a fund dumping.  Do you think its more?  Could snowball from here though…


  75.  ICE bounce zone 95.5
    GOOG bounce zone 467.5
    SPY bounce zone 103
    AIG bounce zone 34.1
     
    If those bounce levels don’t bounce but instead breakdown, then I’m stopping out all my bullish call plays and going to all cash


  76. CROX: Actually, we are exposed to $4.40 on BK with the covers.  Out net entry is $2.40. We’d collect $5 on our puts and owe $7 to our putters on BK.


  77. SPWRA/RMM – Of course take 50% gains with a month left!  On the puts, a little more iffy but, as I said above, they aren’t getting over $27.50 that easily so it’s the logical place to take a chance. 

    CROX/Chaps – No, I was thinking about a buy/write at first and then switched to the spread to get rid of that risk after deciding the monthly revenue was good enough.  And there is still a BK risk as long as we are selling puts…  If I strongly felt CROX would BK within 3-6 months I wouldn’t touch them anyway.  I’m very worried about XMas (for all retailers) but as long as they pay those premiums, I want to sell them.

    Dunk/Merk – Premature jubulaition is your problem, not mine!  8-)

    LOL Chantale – Great analogy!

    Wassup/Matt – Same as Friday.  Stick was all pre-market and front of day.  I said right in second comment that there were sellers out there on L2 and the dollar is still gettting bought up which is spooking our commodity leaders and you know how much I despise commodity-led rallies anyway… 

    Cash/Merk – That’s an abrupt end to the bull call.


  78. hmmmmmm… tough to hold on my calls right now…. getting trigger happy with that sell button, but not just yet
     
    c’mon market, get back over those lines !!


  79.  chuckle… abrupt end?!?….ohhhhhh  not yet… gritting my teeth but still holdin my calls
     
    but ya know I’m a rambling gamblin day trader… gotta be flexible and quick on the trigger… LOL


  80. Flexible/Merk – It’s the only way to be.

    Oil at $74.25 with an hour to go at the NYMEX.  Gold at $945.  They can’t get the dollar past 94.5 Yen but we’re back to $1.43 to the Euro and $1.64 to the pound. 

    FXP topped out already which makes me think not too much to this bear leg or they’d be anticipating worse in China.

    Vol 106M so about normal for 2ish. 


  81. Well, that was the pullback we’ve been looking for.. guess it’s time to buy, buy, buy again!   Things are starting to get interesting.  Finally.


  82. Phil, what are your thoughts on the UNG etf – do you think they may get liquidated and then reflect ftheir lower NAV (this would be bad for puts that i have sold)  I read an article on that on seekingalpha this wkend.  Would love to hear your thoughts.  Any news on Ford today – or do they trade inversely with the clunker program?


  83.  I tried to add a 2X buy to my ICE 100 calls when stock was hanging at 95.5 but MM wouldn’t fill my bid… usually good sign, but I’m not gonna chase the bid
    Trying to add to my BGU calls at 46.5, but so far stock has bounced up on me
     
    Was able to add to my AIG and SPY calls… now have 2X positions in those….
    hoping for Mr. Stick to show up now…. c’mon Mr. Stick !!!


  84. Phil – a few weeks ago, you recommended a GS diagonal spread for income – buying the Jan $125 puts & selling the Sept $150 puts.  I am up nearly 75% in the $150s (but slightly down on the overall trade).  Is this a trade you look to adjust when one leg goes significantly well or do you let the short puts expire and resell then?  


  85. Phil, regarding the S&P P/E ratio, don’t financial stocks like AIG constitute less than 15% of the current weighting? And since the index is value-weighted, I don’t see how now relatively small cap companies like AIG could produce the bulk of the distortion that the index shows.
     
    The WSJ lists the current 12 month trailing P/E at 68.26, so still very high. I know that incorporates a very bad period for earnings, but it also incorporates the period to early Oct. when the index was 20% higher than now.
     
    In any case, huge earnings expectations are now priced-in


  86. Phil: You had expressed interest in SHLD as a buy.  Are you selling SHLD puts at this level?  If so September 55 or 60s?  Your thoughts?  Thank you.


  87. Finally/Matt – {Phil waves his hand mysteriously} This is not the pullback you’ve been looking for…

    UNG/Jo – I have never, in my life, heard so many opinions on such a complex subject by so many clueless people as I have on this UNG thing.  They are not "liquidating,"  they stopped issuing new shares (good if you already have some) on Aug 12th because of uncertaintly in the new CFTC regs, which most likely mean that UNG (and USO) are over the limit as they control too much of the front-month gas futures.

    They’ve run a swap deal of some sort and that should take the pressure off them (they already did one so this 2nd is not even a big deal) and that should let them reduce positions without too much urgency.  I know a lot of people are aguing that it’s only the LACK of issuance that’s holding them up (if you can calll  $11.50 "up") in the face of record low nat gas but I will tell you that you (the investing public and idiot bloggers) are being stampeded out of this fund which will move with Nat gas so it may go to $6 if nat gas falls to $1.50 and it may go to $3 if nat gas is .75 and it may go to $1 if nat gas is being sold for .25 (at which point people will start smoking it) but it also means that if Nat gas goes from $2.75 to $4, this fund jumps to $17 and if nat gas has the nerve to go to $6 (1/3 of last year’s highs) then UNG will be back at $25 in no time.  You have to decide which is the most likely to happen over the next year.

    GS/SS – I would take out the Sept $150s (now $1.25) and spend $1.75 to roll up to the Jan $135 puts (now $4.90).  That puts you in position to sell the Sept $150 puts again if they hit $2+ or the Oct $145 puts if you have to (now $2.67).  Hopefully though, GS behaves itself and pulls back near the 50 dma at $155.

    P/E/Eric – They don’t weight the p/e.  They take the P of the entire S&P and divide by the total average E, which has all those nasty losses built in.  I wrote a post about how ridiculous this methodology was a few months ago with all the proper citations.  I think, as an investor, you have to look at trailing revs as a tragic accident that hopefully won’t be repeated and look to the current Q only and forward guidance as a guide and, doing that, I think you’ll find a p/e of around 17, which is historically high but nothing worth sparking some massive valuation correction over. 

    SHLD/John – We sold the $65 puts for $5 on earnings.  They are now $4.20 after touching $5 again this mornign (I had told people who missed it last week to wait – hopefully they did).  I still like $5 but 20% less is a very big difference if you are selling the puts so you would only want to scale in a small position here. 


  88. Phil: the UNG is up today,
    my sep 14 putters could be rolled to jan 12 ? agree ?


  89. Phil: roll 1x to jan 12,
    or more than 1x to  ???


  90. Countdown to the the stick !!!


  91. Phil,
    "They don’t weight the p/e."  Ah, thanks. You’re right that doesn’t seem to make sense.


  92. OK, what do we see on the Stick-O-Meter?


  93. Computers are back. SPY getting pushed


  94.  Da Bears tried to take the market down around 1PM…
    but they got   buh-buh-buh-Bounced  just after 1:30… how ’bout that intraday (1:25PM) comment call Phil?!?… chuckle
     
    Now let’s see what the final hour of trading has to offer


  95.  well… hear come Da Bears… trying again to sell stuff down… let’s see if they can do it


  96.  Phil:  You mentioned ACAS in your $100K portfolio post on Sunday as a stock that you consider to be "cheap."  With the S&P downgrade today of its debt ratings and the drop in price, do you consider the stock a buy now, or do you feel that it has further weakness ahead, especially if we get a real correction? The company is in default with its lenders and still has not been able to renegotiate its debt covenants as have a number of other BDCs.  I own a large position and I am asking myself if it is time to add to the position.  Any thoughts would be appreciated.  Thanks.


  97. The SPY computer just changes sides !


  98. UNG/RMM – You are one tropical storm away from wiping out those Sept putters, why not wait?

    Stick – Volume is low enough at 122M (was about 300M on Friday) so stick is possible but I still see too much selling interest so it doesn’t seem likely Mr. Stick wants to catch a falling knife unless he has to and has to would be around -100.

    ACAS/John – I will have to reevaluate, which I haven’t had the chance to do.  They didn’t make the cut this weekend because they were a little stretched If you own the stock , keep in mind you can sell Jan $2.50s for .75 ($3.25 buyout) and STILL add more if you feel it’s recovering or simply wait for your Jan callers to expire and then DD cheap but I wouldn’t put in more money now. 


  99.  no kahunas, then no glory….
    I’m adding a 2X buy on my GOOG 500 calls for 2.70 right hear… I don’t think the bears can get it down and done


  100.  I am not stopping out of my ICE 100 calls….
    gonna do a gut check and add a 2X buy right here at 2.70 bid… see if I can get it… see if the MM gets chicken again on my order


  101. F 7 strike puts are pretty juicy here. I’m selling some more against Jan ’11 7.5 puts for a delta-neutral premium play.


  102. Phil – Oil is at it’s year’s high and given that summer is almost over, it might no go over much further. Can you recommend any good plays to effectively short oil? 


  103. Oil to natural gas ratio hits a new record:

    Oilnatgas824

    Oil finished the day below $74.50, not many traders think last week’s ridiculous drawdown numbers can be faked, er recorded, again…

    ICE/Merk – Be careful because either nat gas is going to double or oil is going to fall 20% (back to $60). 

    3:30 and no stick but the FXI (China) thinks it’s coming and is getting bought off the bottom so mind your shorts!

    We can sell those DIA $95 puts for $1.98 as a full cover against long Dec puts, taking 1/2 off if we fail 9,500 on the Dow and going to 1/2 cover overnight regardless.


  104. yeeeeeeah boyyyyy…. Mr Stick is gettin a lil rise goin…. is that a premature jubilation coming?… LOL


  105. EricL,pretty funny,  I had sold those f 2011 puts at one point but bought them back when ford hit 8 and change.  Plan to sell those again when they hit 2.5.  That is a potentional 50% gain on 2500$ in margin plus i dont mind owning them at 5.


  106. Phil – 100KP – filled on the CROX Mar 10 put/call at $4.40.  Sept shorts at $2.05 currently trading at $1.825.  Guess I’ll go with GTC on this and others?


  107.  I hear ya Phil… I’m targetting ICE 105 resistance… then I’ll go short on them


  108. jomama, you have more patience than me, lol. This is a 5-10%/month trade if F can hold between about 6.7 and 7.6.


  109. Oil/Trad – Well, you missed it earlier when I said ICE was the best way to short oil, that was about 3% ago.  I like ERY from an excitement point of view but OUCH if you are wrong…  ERY is now so beaten up at $15.90 that you can do fun things like buy the Oct $12.50s for $4 and sell the Oct $16s for $2.20 so in for $1.80 on a $3 spread that’s well in the money.   Also, since you can sell the Sept $17s for $1 and those can be rolled to the Oct $20s, now $1.10 then sellingthe Sept $17s against the Jan $15s at 3.50 is a good spread too. 

    CROX/Java – Yeah I’d wait (and I think I am) for a better fill as we’ll get it if we drop and the VIX shoots up anyway. 

    Well that 1/2 on the DIA didn’t last long, just a nickel loss, worthwhile stick insurance but now we have to worry about if we’ll have to roll remaining 1/2 cover of $95 puts to full cover at $92 puts but we can wait for tomorrow at least.


  110. Eric i sell longterm puts for about 25% of my portfolio – i do leaps for 25% – cash 30% – rest 20% is loosey goosey.


  111. Piil: my sep DIA putters are green, do you  still want  to have 1/2 cover fo tomorrow,


  112. Java, me thinks you are gonna have to pick a direction! I sold the Calls on CROX and am waiting for a put fill.
    Look, they even drew us a beautiful inverted hammer on the daily DIA chart, so we are all supposed to go bearish now. Baaaaaa.


  113. DIA/RMM – Yes, 1/2 covers for tomorrow.  Maybe follow-through down, maybe not so 1/2 cover.

    Volume mounts with no upside progress – big win for Da Bears!


  114. For those in MTXX, one can sell the Sept P for 50c…..Low for the yr was 4.4 or so. 


  115. Pharm thx so much for the CTIC exit reminder this morning. I made a bottle of wine or two out of it, so I’m good :)


  116.  Da Bears tried to sell off the market… but the "HAL 9000" saves the day !!  
     
    fun for an "unch" day stalemate… hopefully tomorrow is profitable


  117. Someone took a big dump on that stick.  Oooh, Poo Stick!


  118. I’m in key west, euro and pound doing all the spending here
    only a hand full of stores for rent very surprising … Duvall was dead n there
    a cruise ship docked .. The last 2 weeks saw a big drop in tourism
    via front desk


  119. Well, that was interesting – I’ve never put prices in and just waited…..usually I just hit the mid between the bid/ask.  Sorta like doing it this way!


  120. Well thats the pullback on the S&P for the week !


  121. Oh man!  On the 100KP, in moving the trades from Day to GTC, I inadvertantly dropped the TOS ‘trigger’, which had the shorts being triggered by the purchase of the longs.  The BAC shorts traded, leaving me exposed on the 5 Sep $17 puts and calls for $1.88!  How bad does this look? 
     
    Should I cover at market on open, or buy those shorts back, or is this not too big a deal?  I have never sold naked calls before; puts, yes; calls, no.


  122. Hi, Phil,
    I apologize if my question has been answered 1000 times.  What’s the rule of thumb in terms of how much protection we need to protect our longs.  Let’s take an even number.  Let’s say we have $100,000 worth of longs we want to protect.  Let’s further assume that S&P 500 index pretty much reflect the mix of our longs.  How would you come up with the amount of protection we need and what options would you suggest?
    Thanks!


  123. $100KP – Well I got about 1/2 my offers filled today but I did just clean it up to make sure everything was GTC.  I doubt I’ll be making any changes to my offers until Wednesday. 

    Patience is quite the virtue Java – also very important discipline to learn.  The naked "short strangle" is not a big deal, you will just buy longs to cover.  TOS is generally very good at reconizing this and adjusting margin back but just call tech support if you have any trouble.


  124. javaben….You piqued my interest when you said "I usually hit the middle between the bid and ask".   I do it differently.  If I’m buying options I place my bid lower than the bid, by at least .05 or .10, many times much more.  If I’m selling options I place the price higher than the ask, again at least by .05 or .10.  Surprisingly, you will get what you want much of the time.  I recall one morning I looked at calls on FSLR which were selling one month out for $6.00 (I can’;t remember the strike price).  Anyway, I felt the stock was going to take a hit that day so I put in an order to sell calls for $10.00.  Incredibly, the stock spiked at 9:30, the calls sold for $11.00 and by 10:30 had contracted back to $5.00, where I bought them back.   I made over 50% in an hour on that trade.  It was a great learning experience.  At all times now, I pay only what I am willing to pay and receive only what I am willing to recieve for options, or I don’t make the trade.  And don’t worry about missing trades.  Another one will be along in 5 minutes.   


  125. Protection: I think I found the answer for my question on how much protection.  Here is the quote from Oct 1 2008 post.  (The link to that post was provided by Phil in his main text above.)
    As far as hedging goes, if you are 50% invested and 50% in cash and you are worried about losing 20% on the stock side in a major sell-off, then the logic of these hedges is to take 40% of your cash (20% of your total) and put it on something that may double while the other positions lose.  If things go down, your gains on the hedge offset some of the losses on your longer positions.  If things go up, you can stop out with a 25% loss, which will "only" be a 5% hit on your total portfolio but it means we are breaking through resistance and your upside bets are safe and doing well.  That is not a bad trade-off for insurance in this crazy market.


  126. The BAC trade was presented as long 2011 10 put and 2011 20 call, short the Sep 17put and 17 call. If BAC goes to 21, your account will be tapped for the $21, right? and the put expires, What do you do the next month with BAC at 21?


  127. BAC/barfinger
    Phil’s orig post from "Income Production"

    BAC: Buying 5 2011 $10 calls for $8.60 and 5 2011 $20 puts for $5.90.  Selling 5 Sept $17 puts and calls for $1.88. 

    Cost $6,310, Margin 0, Net $6,310.  Sept cash $940.


  128. Phil/Any other experts/COF – About .10 away from being even on those 34 puts… It’s hard for me to part ‘when even’ because it’s been so much hard work getting back here! I’m also still thinking that they haev room to drop by September exp. Would the advice be to set a tight stop after even or to pull for that +20% mark i’ve been working so hard for? Don’t want to be greedy but still feel that the 34 puts are right- as I’d buy them now in a fresh trade… any advice would be appreciated.


  129. Hi Phil: You do very nice work & I’M learning from you every day, but with the several portfolios in progress it takes a lot of time to keep up which I don’t have. I would like to suggest that at the end of the day ,you publish a  schedule of positions recommended with your recommendations as to buy/sell for the positions recommended  with a $ range for the next day.This would give your readers guidance for the next day without having to read all the daily entries.
    Again,I appreciate your work.
    dflam
    ps: If you can recommend  some reading materials that corresponds w/your trading methods, I would appreciate it. 


  130. Dflam – I know it wasn’t directed at me but the strategy link above is good an the new members area has an options e-book that’s a quick read. Good to brush up on some basics or learn some more advanced things.


  131. I’m confused. There’s only 1 active portfolio….


  132. Here’s some more economic good news:
     
    Social Security payments to retirees are not expected to increase for the next 2 YEARS  (No COLA – cost of living adjustments).
     
    And … due to the fact that medicare premiums are deducted from Social Security checks, retirees can actually expect to receive LOWER net payments from Social Security ….
     
    Goldman gets bailed out; retirees get screwed.
     
    all is well ….


  133. Phil,
    I have a few questions. I used to be a premium member but found that it was not appropriate for my current situation or impulsive personality type, though very educational and informative. Now, I am "just" an Alerts member so I am curious:
    1) Can Alerts members have questions answered? Is this comment box the correct venue for my questions?
    2)  Do Alerts members have access to all your relevant information regarding the 100K portfolio? I’m assuming some questions will be asked in member chat but that you will address all pertinent ones in a broader format.
    3) Aside from those housekeeping questions, I am curious about updates on the "fills." For example, I put several combo orders in today based on the portfolio but did not get filled and, based on the discrepancy between what you said we should expect versus actual price, it does not look promising right now. Do you typically leave them until they get filled or until it is clear that they will not be filled? How often will you be updating on this aspect of the portfolio? Perhaps I don’t know where to look but I have no idea if you or the other members got filled on anything today. As you can imagine, I am uber curious about the status. See my point?
    Thanks for all your hard work and guidance. It is immensely appreciated.
    -Aaron


  134. Hey lvmoda, sorry, I was out all day and just got around to read PSW.  If that is the September RUT Short Strangle you have, then you can roll the 420 PUT to 500 PUT for $1.2 credit.  I would leave the 590 short CALL as is, to bet that the market would pull back or going sideway for another week or two.  Then put an order to roll it up to 600 CALL for $1.2 to give more cushion on the upside.  The back up plan is to roll it to Oct 600 or 610 for a credit, given that you don’t have margin issue.  If we can roll up 1.7% to 3.5% with the market every month (and hopefully out of trouble), that’s a 20-40% market move against our bets that we can withstand per year.  Plus we can sell Oct  480 PUT (now $4.15). 
     
    You can also DD, by selling RUT Sep 620 CALL and 510 PUT for $4.8, and look to take profit on the second spread when you are up 50%.  Make sure that you have stops on the 2nd spread as always with DD.


  135. FRE. Thx for this play from last week, PD. Cashed it all at non-greedy gains today.


  136. SIRI. I played these as March $1 calls. They are way up. Given the cheap in, shall I let it ride?


  137. SO. PD – Remember the SO play you reco’d a few weeks ago. I don’t recall div yield right off hand, bur ur play bettered it w less cap outlay. So I have my long calls in place and just watched our August shorties expire. But I’m not sure what to write for September. At close, nothing looked so hot. Thoughts when u have time?


  138. $100K. Thx for this new folio reco. Question for you and all. ET will allow me to do a two-leg spread only. So when a trade calls for, for example, buying puts and calls and then shorting (essentially four legs), is it best to pair the long and short twice? As in naming nets for both long-short legs? Or? Sorry for end of day flurry.


  139. On Bloomberg: Judge orders Fed to release emergency loans records. Can’t link to it from my phone but I doubt these records will bode well for C, BAC… good for democracy, though.


  140. Phil – COF vertical – I have been long Sept $40 put (cost 6.60, now 4.20), the short AUG $34 put expired worthless (for a $1.45 credit). With COF closing today at 36.41, what’s best cover for Sept – write another at $34 or $35, half or full? thx


  141. Peter D:   Thanks for the advice.  I actually rolled the 420 PUT to 490 and left the 590 CALL alone for right now.  I think I may roll the 590 CALL to 600 or 610 next week, AND DD into the new spread possibly later this week since I have spare margin.  There is a huge premium set to expire on the calls, which reflect the massive bull run of the last few weeks, but I’m ready to wager that the momentum is fading.  If I’m wrong I’ll just roll as you indicated to Oct for protection, using the collected premium from the puts.   Thanks again for a great trading strategy.


  142. Protection/Cwan – (I got your wiki Email by the way but haven’t had a chance to get back)  keep in mind it depends on what you expect out of your hedge for one thing.  In general, you want to spend as little as possible for as much protection as possible.  Our DIA covers are a little different because they are, through the sale of short puts, aiming to tread water while your long side gains so it’s aprropriate to cover more aggressively. 

    In this morning’s ultra covers – you need to assess the potential damage of a down market move to your bullish positions and then decide how much of that damage you want to mitigate.  Ideally, let’s say you have $50K in buy/writes that are covered for a 20% down market move and will make 15% if called away.  So, in a flat to up market, you KNOW you will make 15% of 50% of your portfolio or 7.5%.  In a 20% drop, you will pretty much break even and in a 30% drop you will lose 5% AND have a lot of things put to you.  

    If you want to guard against a 30% drop that will cost you 5%, you can go with the SDS play with 5% of your portfolio, which will return 12.5% if the S&P drops by Sept expiration.  If the S&P doesn’t drop, you are assuming you will make your 7.5% and, hopefully, not lose all of your SDS coverage.  If the S&P does drop, you have 12.5% cash to use to make your rolls and double downs on the plays that are put to you.  It also depends on where you are in your scale.  If you have a lot of first round entries, you may HOPE that you get a bunch of new stock put to you for 20% off, especially when you just got a bonus 7.5% cash from the cover play to help you buy round two. 

    Unfortunately, like many intelligent strategies – it depends.  I know everyone wants a formula and I often have to say to people "what’s the formula for rising to the top of your profession?"  That probably seems like a silly question to you but that’s what people are asking for here – as if there is a formula or two that can be used in ignorance of all other factors to deliver some kind of miraculous performance.  As with any professional skill – there are guidlines but mostly there is practice and experience that you must work very hard at over time. 

    I think the big problem is that so many web sites tell people there’s a magical secret that people kind of expect there to be one and when I say there isn’t it kind of sucks (as the truth often does).   Anyway, this is good stuff because the reason I like these new portfolios is the details of the set-ups bring about a lot of good questions and, while there may not be easy answers, there are often answers and the more you hear them and apply them over time, the more sense they will hopefully make.


  143. Great point on bid/ask Iflan!  Everyone should consider the idea that if they just make .05 more on 1/2 of their trades, that’s an extra $1 profit per 20 trades – quite a lot and it really ads up.   By skipping trades that don’t offer you a "good deal" you increase your chance of success by a wide margin.  If you add $1 per $20 and your average target gain is $1 then you have turned 7 winners and 7 losers and 6 break-evens into 8 winners and 7 losers and 5 break evens!  If your average stop-loss is .50 and win is $1 then you change 7w 7l and 6e into 7w 5l and 8e – either way, a very significant impact on your winning percentage.

    BAC/Barf – Not sure what you mean by "tapped" if BAC goes to $21 my spread is still worth $11 and if it goes to $100 my spread is worth $90 and if it goes to zero my spread is worth $20.  The only variables are I paid $4.50 in premium and I would hate to see it washed away early (as it would indicate I am out of position) and my goal is to surround my putter and caller with my long puts and calls so they can’t possibly hurt me.  I find that worrying in advance and trying to come up with "what if" scenarios for one of the largest banks in the world to suddenly jump 25% in 30 days is not the best use of your trading brain.  Best to set reasonable tolerances in your spreads (being prepared to deal with 20% moves at worst) and simply dealing with crazy emergencies when you have to.

    As far as what to do with the putter and caller – at $21 the $17 puts and calls I sold for $1.88 would be worth $4 but I have $1.88 on my pocket so I’m down $2.12.  In whatever way I would reposition the long contacts to cover and then roll the $4 $17 caller to a put and call combination with another $1.88 in premium so the month would be a .14 loss plus my own long premium decay of .30 so -.34 for month one of 15.  Hopefully I have a few winners along the way to offset it.  Selling $1.50 a month in premium means I get $22.50 worth of chances to make more than the $4.50 I’m risking.  As a formula, over 15 months I need to have (at $1.50 a month) 7 winners, 4 losers and 4 ties or whatever keeps me at least 3 ahead of the game… 

    Since the above loser is based on BAC moving 20% in a month, I can hope it doesn’t happen 4 times in the year (for an 80% gain).  If you are worried that BAC is going to blow you out of the water 4 times in one year like that, then A) it’s not the right stock for this kind of play and B) you can offset that with a vertical like the 2011 $22.50/$25 calls for .60, which pays $2.50 if BAC finishes at $25, which would be a nice offset to a blowout if you believed that was going to happen, which I don’t. 

    COF/Skas – Question number one is:  Did you spend money to get even?  If so, then THAT money needs to come back off the table for sure.  Also, you are NOT even, you are up 30% from being down 30%, which was 20% away from total disaster so even is a HUGE victory, not a defeat.  On the "go for it" side, you have a whole month to go and yes, the trade still makes sense but our oginal premise that COF would have trouble at $35 is totally blown and so my attitude is we don’t understand this stock and should be happy to walk away even(ish). 

    Thanks Dfalm!  As to several portfolios.  We really only have the $100KP, the old one is dead and now we have a new one that I will follow in detail.  The $5KP was fun but we’re too volatile and uncertain so I haven’t touched it since we went to cash and if you think I’m going to create portfolios for all of my other 30 or 40 weekly trade ideas and sit down every night and track them and verify the current prices and put them all into spreadsheets and make notations for guidance and ranges the next day on each one (after I look over 100 charts and check all the sector performances and plot out the resistance points and calculate the 5% rules)  then you must be needing the Super Deluxe Insane Membership which is $150,000 a year and comes with an accountant and a psychiatrist for me because I’d be a freakin’ basket case….  8-)

    In all seriousness, I have learned that one tracked portfolio per quarter is all I can manage – just look at all the comment traffic it generates.  The more detailed we follow something the more, not less, questions there are about it.  While I appreciate that you just want "guidance" without all that annoying learning I try to impart with the trades, you’ll have to consider it the terrible price that must be paid for my trade ideas.  As to reading materials, the EBook, written by OptionSage, is the best one for me.  He and I are working on a new book together and that will be the new best one but we are both so crazy busy that it’s a very long process. 

    SS/Cap – So what else is new?

    FRE/Dstill – Very nice!  For SIRI, never hurts to take some off the table and set stops but it is a long-term play.  On SO, we liked it because we DON’T expect them to move much so the Sept $31 puts and calls for $1.30 would be the way to go but, as you say, not looking too exciting with that rotten premium.

    Spreads/Dstill – Just try to fill your pairs for a good price.  If you have to break up your legs than offer a bit less for each side and, when one fills (and there is always a "losing" side) then you have a little more leeway on what you can ask for the remaining leg.  So if you are trying to fill the BAC play above, then you can either pair the 2011/Sept puts and calls as two diagonals or you can first see if you get a good price on the leaps (since they have a wider spread) before selling the Sept short strangle.  You could also sell the naked strangle first and not even bother filling the long end unless you have to.  The real key is that if you understand why you are in the trade and what you are trying to accomplish, you will have the freedom and flexiblility to do all sorts of adjustments – you’ll get there with time…


  144. Loan records/Skasiah – That should be good for our SKF longs!

    COF/Concreata – So you are in for net $5.15 and it’s down to $4.40.  It would be nice to drop your basis to $3 but that would reaquire selling 3/4 cover on the $37 puts ($2.35), which leaves you little upside.  I think, where you are now, you can wait to see if they drop more and happily sell $36 puts, now $1.85 for $2+ on a dip as a 1/2 cover but, if you step back on this trade, you need COF to hit $33 to make $2 with $5.15 at risk but if you roll your spread down to 2x the $37/$35 put spread at $.95, you make the same $2 (total) at $35 with just $1.90 (total) at risk. 


  145. Update on our Best Beaches Posts of a couple of weeks ago:
    Sandals buys closed Bahamas resort, plans upgrades
    26 minutes ago
    (AP:NASSAU, Bahamas) Sandals Resorts International said Monday it would buy a high-end resort on Great Exuma in the Bahamas that closed earlier this year as the recession cut deeply into the region's crucial tourism industry.

    Sandals, based in Jamaica, will buy the Four Seasons Resort Great Exuma at Emerald Bay for an undisclosed sum and reopen it in January 2010, after investing at least $12 million to upgrade the 500-acre property, CEO Adam Stewart said.

    Sandals is prohibited from disclosing the purchase price by a nondisclosure agreement, but Stewart said the original developers invested more than $300 million on the property, which first opened in 2003 and includes 183 suites, an 18-hole golf course designed by Greg Norman and a 133-slip marina. "We are acquiring one of the most spectacular pieces of real estate in the Caribbean," he said.

    Stewart told The Associated Press his company plans a number of upgrades, including outdoor cabanas for spa treatments, an authentic British pub, a piano bar and a new half-acre pool that will be three times the size of the existing one. They also will build a retail arcade to replace the casino.

    The acquisition comes as tourism struggles in the region. Atlanta-based PKF Hospitality Research reported this month that Caribbean hotels had an average drop in profits of 16 percent in 2008 and projected "further profit deterioration" this year amid steep discounts and special offers.

    "It has been a very tough year for everybody ... but our company will definitely come back stronger when things come back," Stewart said.

    Sandals Emerald Bay, as the property will be known, is the company's 14th resort and the third in the Bahamas, an Atlantic island chain southeast of Florida.


  146. lflantheman – thanks for the suggestion.  That’s why I’m here; wanting to clean up some of my bad habits!


  147. Sandals/Chuck – Hmm, I’ve never tried them, wouldn’t have thought they’d have that kind of cash but I’m sure they got the property dirt cheap…

    Data heats up tomorrow:

    7:45 ICSC Retail Store Sales

    8:55 Redbook

    9:00 S&P/Case-Shiller Home Price Index

    10:00 Consumer Confidence

    10:00 FHFA House Price Index

    10:00 State Street Investor Confidence Index

    10:00 Richmond Fed’s Manufacturing Index

    5:00 PM ABC Consumer Confidence Index

    I didn’t know about all the retail data, that should be fun! 


  148. Good Morning Everyone
     
    FTSE down 0.5% ish this morning yet S&P futures still getting pumped back into the green from overnight, However from Phils last post it looks like the open could depend on the data. (As much as it ever does these days !)


  149. Come on DB, you know the routine – The Hang Seng was about to break below 20,200 after lunch (2:36 HKT) and the machines kicked in and started buying like mad to prevent it.  I have to say it is scary to see a globally coordinated stick save like this but there are the exact same drops and spikes back up in the HSI, Nikki and the S&P, Dow, Nas and Rut futures.  All that happened ahead of the EU open, which saved your futures from a big gap down. 

    This is why I’m so wary of being bearish into the closes, especially after last week’s nonsense.  The Hang Seng gained 300 points after lunch to end up down just 100 for the day.  Our futures were down about 0.5% and heading lower at the time.  The BDI keeps falling towards our 2,250 "must hold" level and the last time the BDI dropped 50% was the March crash and the time before was the fall crash last year and the time before that was Thanksgiving ’07, when the market also tanked into Feb along with the BDI but THIS TIME IT’S DIFFERENT (end extreme sarcasm font).


  150. Phil/COF- Thanks for knocking some sense in to me! You’re absolutely right that even is good. I didn’t add any money besides what I made from my covers, but I’ll be taking it all off of the table tomorrow, regardless. I’m pretty tired of trying to navigate my way through this trade, anyways. It’s time for a new "relationship", as you put it.
    Phil/Everyone here/Thank you – What everyone here with their insightful comments (including yourself) has helped me with is that I’m greatly increasing my ability to trade more psychologically neutral, although I’ve got a ways to go. Two years ago I’d wake up early and my heart would race if futures weren’t pointing exactly how I wanted… I’ve noticed an exponential leap in my discipline skills especially over this past two weeks. The old me would have ran with that trade for profits without even asking. Now I know that there are ALWAYS more trades and that I have PLENTY of options to turn a bad trade even. Also, it’s more logical and less emotionally draining which lets me focus my faculties on my wife, college, my job, and studying for the ol’ Series 7. Would it be safe to say that one of the most important skills to develop is the ability to adjust? I’d love to get to the point where I can look at a bracket and know, for example, what I need to sell for cover in what month in order to get my desired results. Both COF and my past DMM venture have been excellent learning experiences. Thanks, everyone. I look forward to further lessons.


  151. Phil,

    I bot LYG at $7 – what should I sell the Jan 7.50′s for ? I must have missed that?