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Monday Mandarin Market Meltdown

The Shanghai Composite fell 6.7% this morning!

I mentioned our love of FXP (ultra-short China) in our August Market Review and the short sale of FXP puts (a bullish play) was our primary cover in the last $100KP since early August for exactly the reason we are seeing play out today.  Of course China's problems were my theme on Friday and on 8/16 we warned that China's GDP wasn't real and on 8/7 we pointed out that China's 2009 growth was nothing more than an accounting trick after my August 6th article in which I pointed out that GS was desperately working to pump China up at the top (likely while they were dumping their own shares on unsuspecting suckers).  Do fundamentals matter?  Sure they do — evenutally.  But we had to roll and DD our August FXP short puts (big winners now) as it always pays to remember the words of John Keynes: "The market can stay irrational longer than you can remain solvent."

We nailed the move in the Shanghai, which is now down 25% since we turned negative on it but the Hang Seng, which is much easier to manipulate as it's controlled by foreign IBanks (our beloved gang of 12), has mysteriously flatlined near their August highs, maintaining the myth of the Chinese recovery so Uncle Rupert could run his almost daily articles telling you how great the global economy is on the other side of the world, where you can't see it.  Interestingly, in China he's running stories telling them how the US economy is leading the way back and in Europe he has total control of the media so whatever he wants to tell them is the truth anyway. 

By the way, this is your LAST week to get Stock Market Truth with a FREE Trial Subscription to the PSW Report

China stocksLer's see how rational the markets get as mainland China falls to it's lowest level since May and let's keep in mind that "limit down" on the Shanghai is 10% so a 6.7% drop in one day indicates that scores of companies were likely halted at 10% down.  It's going to take some really big plate spinning by GS et al (already attempred by GS last night with this idiotic release calling China a "bright spot" and raising outlook 50%) to get this one back on track.  As I keep saying – the one thing "THEY" can't fight is a volume sell-off, that is just beyond their physical ability to manipulate so we'll be keeping a close eye on market volumes to see to what extent the US markets are likely to participate in a correction. 

Concerns about a glut of Chinese stocks come as investors have become increasingly worried that Chinese banks are turning off the gusher of credit opened earlier this year to help jump-start the economy. Much of that credit is believed to have found its way into the stock market, powering a furious 103% rebound in the Shanghai index from its low in November 2008 through early August.  The market's swoon since then "confirms speculation that bank liquidity had been going into the stock market," says Citigroup head of China research Lan Xue. She says the market's retrenchment will likely force some of the planned stock offerings to be delayed.

The August decline possibly signals a realization that while China's economy is recovering before the rest of the world, it is not going to reach the same heady, export-led growth rates as in years past.  "People have it in their heads that the conditions of the boom years are normal, " said Arthur Kroeber, managing director of Dragonomics Research & Advisory. "It will take a while for people to readjust to the new reality." 

Another reality people need to adjust to is the reality of the global markets.  China cannot "decouple" from the US and save the universe much as your tire can't decouple from your car to avoid an accident.  Unless you turn the wheel and get the whole car moving together, that wall you hit is going to hurt either way!  China and India, which account for roughly 40% of the world’s population, consumed about $2.5 trillion of goods and services.  The US, with 4.5% of the world's population has $10Tn of consumer spending.  A 10% drop in US consumption would need to be offset by a 40% increase in China and India's consumption – it's not going to happen folks!  Just this weekend, in Member chat, our main topic was dead and dying malls (anecdotes by members) and poor retail sales.  China can't keep manufacturing goods if no one is buying them – Economics 101.

My favorite article of the weekend that was ignored by Mr. Murdoch, his oil-pumping friends at CNBC and most of the MSM (who collect a lot of money from oil advertisiong) is a report that China has put foreign banks on notice that Chinese State-Owned Enterprises my UNILATERALLY terminate derivative contracts that provide over-the-counter commodity hedging services.  It did not name the banks or the firms in question but cited a SASAC official as saying that almost every SOE involved in foreign exchange or trade had some exposure to derivatives such as crude oil, non-ferrous metals, agricultural commodities, iron ore and coal, although only 31 SOEs were licensed to do so.  Remember all that copper stockpiling we said would come back to  bite traders in the ass?  Time to cover boys!  

Of course, you can't blame Chinese investors, those poor bastards are having a Financial Forum on September 23rd and being presented to them as a Keynote speaker on the global economy, right up there with Bill Clinton and Desmond Tutu is everybody's favorite moose hunter, Sarah Palin, who will "enlighten" the masses at what is called: "Asia’s premier investment conference."  Palin – who’s never been to East Asia and isn’t exactly famous for her mastery of public speaking or her expertise in finance and international affairs, will address 1,300 global fund managers from 32 countries, representing more than $10 trillion in funds under management.  CLSA spokeswoman Simone Wheeler says that orators at the forum often come from outside the securities industry. “Our keynote speakers are always notable luminaries."

Speaking of losing politicians in Asia – Japan's ruling party was shown the door this weekend in a landslide defeat after almost 50 years in charge.  The DJP (Democratic Japan Party) is big on stimulus, wants to fight global warming and increase Japan's military role in the UN.  "For now, the highest priority in conducting policy is to make sure the nation exits completely from the economic crisis," said Mr. Mitarai, head of the Japan Business Federation, or Nippon Keidanren, a business lobby.  "We need to see changes," said Kunio Takahashi, 65, who backed the DPJ. "Although we still don't know how it will turn out, it's better that a different party will try to change our government." 

Consumer prices in Europe fell another 0.2% in August despite rising energy costs and Germany's Conservative Party took heavy losses in regional elections against the left-leaning Social Democrats with a month to go before the general election.  Sunday's elections were a triumph for the Left party, an alliance between the heirs of East Germany's former ruling Communists and radical leftists from Germany's West. The Left's popular leader, former Finance Minister Oskar Lafontaine, helped the party win more than 21% of the vote in Saarland, his home state, and beat the Social Democrats in Thuringia and Saxony.

EU markets are trading down about a point ahead of the US open with the FTSE closed today for a holiday.  That gives us an interesting dynamic because, if we close lower than Asia probably follows through to the downside and then the FTSE, who normally lead the EU markets, will open trying to catch up to the downside tomorrow so things can get really ugly tomorrow if we can't hold our levels in today's trading. 

We're still looking to see how our upper levels hold up:  Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575 and below that is another 2.5% drop, back to 9,100 on the Dow and 984 on the S&P.  That would be back to the top of our expected range and a positive test there could still lead us to raise our mid-point so let's keep an open mind.  As I said in my "Rangeish" article, it's not that I'm long-term bearish, I just felt we had risen to far, too fast and a little correction is just what the markets need.   We are 100% prepared for this drop and now we can just sit back like we have front-row seats at a concert and just see what happens next. 

There were big merger deals announced today by BHI and DIS, both of which make for nice buying opportunities in those companies as they are very good purchases.  DIS stole MRVL and we'll be buying them at the bell ($26.30) and working into a buy/write later. 


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  1. Phil…..Great call on FXP last week.  I didn’t make a play on it but it did induce me to buy more downside protection in the US markets (which will follow ) on Friday.

  2. I had forgotten one of your mneumonics  "when you buy calls you are long when you buy puts you are short" when I sold

    FXP 9  puts early last week is it too late to double down? I sold at 0.35

  3. Indeed…good call on FXP.  I’ve had those short puts from long ago but sadly cashed in my gains @ 76% on Friday afternoon.  Can’t argue with good money in this market, but I was sort of expecting China to bounce back up at some point, I thought today but now later this week perhaps.

  4. red/FXP – You sold $9 FXP puts?  You should be just fine then, what’s the prob?  You are looking at gains this morning.

  5. Oh…and $ showing some significant strength overnight.  I’m wondering if that’ll carry over into open.  If so should knock down the commodities prices today.

  6. GS already tried to pump China last night. They released this (and Bloomberg duly pasted it on their front page) right as things started to turn sour.

    This time it didn’t work. lol.

  7. Thanks Eric!  I got that into my post!

  8. Supposedly Bob Prechter sent out an EW client alert to go to full short positions.   FWIW; I know little about his track record but he does have a following.

  9. phil … how do you think window dressing will affect this session ?  If i was running money i d like to show some
    C , BAC AAPL and a few others on my report card.

  10. Hey to all – Who was it that was talking abt XOM when the option his $1.50…. Is that something that is occuring as we speak?

  11. Wheee, what fun! 

    We’re holding Thursday’s lows so far so don’t get excited bears. 

    Break-down levels are: Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575 and below that is another 2.5% drop, back to 9,100 on the Dow and 984 on the S&P.

    Once again it’s a good time to sell the DIA $95 puts at $2 as the volume on this sell-off is not at all exciting so far.  As long as the Dow holds 9,450 (now 9,475) it’s a good play.  That goes for full cover on the long DIA puts too.

  12. There goes 9450 and 2000 on Nas. Next stop 6600 on NYSE.

  13. So let me get this straight, as the futures are down 60, SRS is at 11.55.  Now that the actual Down 95, SRS is at 11.48.  Yes, this makes perfect sense!

  14. Dollar getting pushed back down, GS article (thanks Eric) indicates today is NOT the day they are willing to let the markets fail so it all depends on the selling volume, which is 23M in the first 20 mins but 50M for the first hour is pretty normal (and low).

    S&P 1,010 is going to be our big test now that the Dow broke.  Nas lost 2K already, RUT broke it, NYSE right at 6,600…

    FXP/Red – Don’t chase, remind me to look for a long play if we break down here.

    Looks like I set a bottom on DIS at $26.30, let’s see if it holds.  Next move would be to sell naked puts on further downside.  Combining DIS and MVL is huge on many counts – one of whick is Universal (Disney’s only real rival park) only has MVL rides on the over 12 age range.  From a movie standpoint, DIS just locked in a whole other age group to move their audience from the Wiggles to Miley and Jonas and now to Wolverine and Spider Man (expect more female heros soon).  Also, Jobs is with Disney and now you’ve given Pixar the superhero franchise, not more Incredibles now that they can use proven brand names.  Another big seller in this mix is going to be digitally delivered comics on the new IPad – all cool stuff that’s been kicked around for years but MVL didn’t want to eat into their dying paper business but DIS will happily jettison that revenue stream to modernize.  I’m very excited about this!

    +76%/Where – Oh that is such a sad story…

    Speaking of sad:  A leading Chinese economist calls on the U.S. to provide "details of how its countermeasures against the financial crisis will not lead to serious capital losses" to China’s U.S. holdings. China has already lost over $800B on U.S. Treasurys.

    Global chip sales climed 5.3% in July to $18.2B from $17.2B in June, the fifth straight month of sequential increases. The modest recovery is being driven by consumer products like netbook PCs and cell phones, industry group SIA says

    Chicago PMI was 50 vs. 48 expected.  That plus the chip sales make this a very good time to hedge for some upside.  

  15. Re SRS – do you advise getting out of the $11 Sept puts even, as they are now or trusting in it staying above $11 thru Sept expiration?

  16. morx – I think it was me you are referring.  I usually straddle xom 70 calls/puts when it hits around 1$ on either side.  currently i have no position – been busy with my real job.

  17. SPPI moving today most likely on all the take over chatter.  Currently they are in unchartered waters (ATH – all time highs). 

  18. Window dressing/Chantale – You would think but I would say most of that was done last week, not on the last day and, having been able to show that they were on the books on Aug 31, many funds may be able to get the hell out today or certainly tomorrow.

    Oil testing $70, another leg down if they fail there.  Gold holding up at just under $950, dollar being ground down slowly but surely. 

    SRS/Smasher – I know, I give up, wave the white flag on that damn thing!

    SRS/Morx – Personally, I’m sick of them so I’d say yes unless you are really just using play money.  Keep an eye on BXP, still over $60 and VNO ($56.83) as SRS isn’t going anywhere until they break and we’ve already witnessed the insane amount of firepower that’s being used to support that sector. 

    Volume off a cliff already – just 31M at 10:12

  19. Phil, the puts I sold for SRS end up tying up a significant amount of my trading capital… I am currently averaged around $17/share with them….. I don’t mind just hanging around for a while…. but what do you feel about long term that I’ll be alright? or should I cut the loss?

  20.  Phil,
    Is there a put you’d  rec on aig at the moment? Aig is at 47.16.

  21. SPWRA back where you have liked it before. FYI

  22. thanks Jomama; get back to work. :)

  23. Selling naked DIS Oct $26 puts for $1.15 as part 2 of buy/write.  Next stage would be selling Oct $26 calls for $2 (now $1.45) or selling Oct $25 calls for no less than $1.70 (now $2.05) if they fall that low (hopefully not)

    SRS/Roam – Which puts did you sell?  If you sold the Sept $17 puts, now $5.75, those can be rolled to 2x the Oct $12 puts at $1.75 and 2x the Oct $13 calls at $1.  That won’t help margin right away but it does put your caller into 100% premium and the only way you don’t gain ground is if SRS moves more than 20% past your strikes.  Alternaltely, you can cut your margin requirement by about 1/2 by buying the 2011 $7.50 puts for $1.55 or you can buy 1x of those and roll the Sept $17.50 puts to 2x the Apr $11 puts at $2.70, which, I think, would be a net gain in margin from where you are now.  Although I am sick and tired of SRS, I do firmly belive it will be up 50% by no later than spring. 

    AIG/Oldgoat – I wouldn’t touch them right now.  We made our bed going short and rolling to higher leap shorts last week (great payoff now too) but that was easy to do at $55, at $45 they are like a coiled rattlesnake and could lash out in any direction. 

    SPWRA/Morx – I still like them for sure but I’m not ready to start bottom-fishing just yet.  Nat gas storage is hitting critical levels, now more nat gas in storage than has ever been attempted this time of year (and due to temperatures, that’s an issue).  Oil could take a tumble here and drag everyone down with it including the solars. 

    Oh nooooooooo – there goes oil!!!! 

    Sequenom (SQNM +14%) spikes on rumors a Brown University study demonstrated its SEQureDX Down Syndrome test had more than 99% specificity in detecting Down Syndrome.

    Cerberus plans to raise money to buy distressed companies and debt after investors pulled almost $5.5B. The firm says the huge redemptions – representing 60% of all its funds – were mostly due to money managers with liquidity problems, and don’t reflect a loss of confidence in Cerberus.

  24. OIH held up by BHI deal but nothing else.  $100 puts fun gamble at $1.90.

  25. Out of DIA 94 Puts @ 1.50 for 30% up.  Thanks again Phi.

  26. DIA/Iflan – Gotta love those things!

    Gasoline down 4.8% (UGA), USO down 4%, heating oil (UHN) down 3.5%.  Whole DBC is dragged down 3% and OIH is struggling to retake 2.5% at the moment.  Copper futures with a big rejection of $3, down to $2.835 now.  Oil hovering just below $70 but gold over $950 and the dollar is getting thumped again in order to keep things looking good. 

    11 am Dow volume a very sad 48M well within stick territory.  Don’t be ashamed to go back to the well on shorting those DIA puts if we test and hold 9,450 again.

  27. Good morning Phil, taking profits on TZA, going long TNA for the day. Did you see that bill in the senate that gives the President the authority to pull the plug on the internet in case of an emergency, like, oh I don’t know, say A BANK HOLLIDAY ? J.R.

  28. Phil: Have you changed your prev recommendation to buy "C" Jan. 2011 $ 2.50 calls  and sell Jan .2011 $5.00 calls . Bought for a net spread of $.58. Now net spread is $1.37 Thanks.

  29. Phil the AIG roll of the put to a $55 for $16 didn’t happen immediately!!! Patience?

  30. MTN is like a REIT and they are falling hard this morning on no particular news but they were way overpriced at $34.

    Speaking of REITs:  Government efforts to prevent the commercial-real-estate sector from imploding could be undermined by a surge in foreclosures on properties whose debt was packaged and sold as bonds – the same scenario that sent the residential mortgage market into freefall.

    Junkdex tracking shares of AIG, FNM, C, CIT and BAC may be reaching a blow-off top:

    Of course this chart could also be pointed to as a very strong uptrend that survived a full 66% Fib retrace and has moved on to new highs but it is an interesting look at our financial "leaders."

    TZA/JRW – You may want to get back in if they crack $15.  I haven’t heard the Inernet story, that sounds kind of crazy to me as cutting off the web would CAUSE a national emergency, not help it. 

    C/Dflam – Well, as with any play that is up 150%, you should have a stop at 125% at least.  It’s a good spread and you are very likely to get $2.50 if you wait but you’re up 150% now and it will tak you 15 months to get up another 100% so your monthly ROI will drop from 150% to 12% as you stick with it, even if it does work out.  The sooner you make profits, the more sense it makes to take them off the table….

    AIG/Morx – We’re not going to get that roll if AIG doesn’t head back up.  They simply aren’t that liquid so you do have to be patient. 

  31. Where/FXP:     I had sold  Puts – Oct 9′s and this morning it cost me 0.45 to buy them back – Actually I DD’ed to buy them back and I am now long but I see no gains – only on the stock.

  32. Phil:
    If you haven’t taken any position yet on AIG in the $100K portfolio, what would you do now?

  33. Nasdaq defended the 2000 line 3 times so far

  34. Good article on Cerebrus this wknd in the WSJ.  They are trying like crazy to spin but the bottom line is that they made a very and unsuccessful wager on Chrysler and GMAC.

  35. Does anyone know what time we are suppose to get the details on the FED’s lending and special programs ?

  36. Fed/ JRW – The judge got a very special phone call, the Fed now has 30 days to “contact the Solicitor General” (see: destroy evidence)

  37. JRW please elaborate on the Bill in the Senate that allows the Prez to shutdown the internet.
    That would be a real pisser……think about the orderdesks of all the online brokers, the phone systems would blow up immediately.

  38. FED / josiah – They should have a good week to get that done durring the coming BANK HOLLIDAY!

  39. COF- Incredible. Still green. I need to just take this off my watch list before it drives me batty.

  40. ITMN – watch them closely.  Should they get to 14.5 or so, might want to consider scaling into the 10 Jan10 C for $5 or better.  Charts look like they hold a trading range of 14-16.

  41. COF – You’re not kidding. I don’t understand this one.

  42. AIG/Chaps – I’m not happy with the huge jump in the pricing of 2011s so I don’t think I would trade.  Taking the Feb $42 calls for $13.60 and the Feb $50 puts for $17.80 is $31.40 for an $8 spread ($23 in premiums) and you can sell the Oct $45 puts and calls for $18 but it’s a pretty risky play if it goes too far wrong on you as you don’t have the same kind of time to fix it (of course you can pay up to roll back).

    Your TARP money at work:  Wall Street lobbying to prevent overhaul of derivatives trading.  This relates to ICE as Five U.S. commercial banks, including JPM, GS and BAC are on track to earn more than $35 billion this year trading unregulated derivatives contracts. At stake is how much of that business they and other dealers will be able to keep.  "The five biggest derivatives dealers in the U.S. — JPMorgan, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup Inc. — held 95 percent of the $291 trillion in notional derivatives value of the country’s 25 largest bank holding companies at the end of the first quarter, according to a report by the Office of the Comptroller of the Currency. More than 90 percent of those derivatives were traded over the counter, the OCC data show."  Bloomberg makes a point that these guys are loving the health care debate because it lets them get their lobbying done on the QT.   This is a great article if you want to get an overview of this major issue.

    Fed/JRW – I haven’t heard a peep since they got their extension last week.

    Great article on balance sheet shenanigans in the solar sector.  Check out slides at the bottom, I like this guy!

    LOL Josiah!  Hey, shredding takes time you know…

  43. FED / chuckb 74 – Cybersecurity Act 2009, Fox news article 8/28, also posted at Trim Tabs Investment Research, and on Jesse’s Cafe.

  44. COF looking shortable here … window dressing its way higher on low volume ?

  45. ITMN/Pharm – You could save time by selling Oct $15 puts for $1.05 and planning on selling more for $1.50 and $2 for a $13.50 avg entry if put to you.

  46. JRW/Chuck/Internet Bill- It was a Drudge headline, the language allows the government to turn off the Internet in case of cyber attack so far as I understand. If they can shut down airports or anything else in case of war it makes sense, IMHO. The potential for abuse is there but that’s the case with any ‘homeland defense’ bill. The funny thing is that those who supported the Patriot Act hate this one. But I digress with the politics…

  47. josiah / Senate bill – Guess who would determine what emergency means. If they can shut down the banks and the markets, why not the internet as well ?

  48. Cap/COF – I would agree that they look shortable, which, coming from me, means you should go long.

  49. Thank you OIH puts, come again.

  50. JRW – No! No politics. Same person who declares federal or state emergencies now. Those are subjective, too. I’m not getting sucked into this one… perhaps after hours.

  51. Uh, Jim Goldman, "Its only rock and roll…: is a Stones song…

  52. ITMN – That you could…thx Phi.

  53. Those EDZs work a lot better than FXPs, need to remember that from now on. 

    Internet/Josiah – Well I’ll wait for a more reliable source than drudge but that’s like saying they can cut off your phone or cable or electricity at this point – I just don’t see how they can or would do such a thing. 

    Oil now testing $69, gold looks likek they stopped trading it at $951.50 – just frozen there.  Almost 1% dollar dip not helping at all this morning. 

    9,450 still holding strong and NYSE 6,600 not giving way and Nas still holding 2,000 and S&P never thought about 1,010 so watch the RUT at 570 to lead the charge up if we are coming back this afternoon

  54. Phil/Drudge – Indeed, that was my point by referencing him- to show that the actual bill almost surely differs from the headline.

  55. Phil/Drudge – Indeed, that was my point by referencing him- to show that the actual bill almost surely differs from the headline.

  56. Oh your all gonna love this one.  Great visual on the bank failures:

  57. Oh yeah be sure to use the zoom feature and go to the Atlanta area. No Problems there huh!

  58. Phil/Today – Granted this isn’t a good day for the Dow today (until it gets stuck), but if Shanghai follows down tonight (10% rule, after all) what do you think of the possibility of September opening with a bang?

  59.  Any reason LZB feel 10-20% this morning???  That is quite a fall!!!!

  60. Intenet – I found it, as usual, Drudge is a tool and a half, perhaps if this measure were aimed at shutting down HIS site I could get behind it.  Actual text is:

    The President--


    (1) within 1 year after the date of enactment of this Act, shall develop and implement a comprehensive national cybersecurity strategy, which shall include--


    (A) a long-term vision of the Nation’s cybersecurity future; and


    (B) a plan that encompasses all aspects of national security, including the participation of the private sector, including critical infrastructure operators and managers;


    (2) may declare a cybersecurity emergency and order the limitation or shutdown of Internet traffic to and from any compromised Federal Government or United States critical infrastructure information system or network;

    6) may order the disconnection of any Federal Government or United States critical infrastructure information systems or networks in the interest of national security;

    The other 23 sections deal entirely with how to protect the Internet as a vital national service and find ways to make it my secure.  In fact, mandate #7 for the President’s panel is to assess for the President: "whether societal and civil liberty concerns are adequately addressed."

    From this that pycho Drudge makes a BS headline and then it’s distributed on CNET as if it’s true – really sickening how they can count on their readers to never check any actual facts or listen to any dissenting opinions in order for their total BS to be "the news."  Oh and by "they" I mean anyone who has no regard for the truth and uses any word they can find anywhere on a document, no matter how insignificant, to launch another in an endless series of smear campaigns.  This could apply to any political party or anyone at all so it’s NOT a political rant.  This is poor behavior no matter what depraved group of individuals choose to practice this kind of rhetoric and it debases our country for allowing it (patriotic background music please…).

    Banks/Chuck – Nice chart.  Fortunately they don’t count LEH or BSC or the black spots would block out the rest of the country (which itself would be an insignificans spec under AIG). 

    Bang/Josiah – I thought we’d hold up today and tomorrow would be the sell-off.  Acutally, there is a good chance that this IS holding up…

    LZB/Sgrund – I see nothing.  Very strange.   Could make for a nice entry point if it’s some sort of wrong rumor.

  61. iPhone – Anyone using iPhone needs to DL the iPortfolio Live app, great one for realtimr quotes.

  62. UNG  …at this rate nat gas will be free in two weeks

  63. josiah – i use PortfolioLive in the Operating Room – works great.
    Phil, what do you think of GLW here?  I don’t see any great play i like besides perhaps a covered call.  Puts have pretty shitty premiums and the 15 2010 Leaps didn’t really budge with the drop.

  64. Anyone know how Lehman’s doing today? I hear their company’s making a comeback… It’s amazing they were able to work through over $160 billion worth of debt and a total lack of confidence. AIG – I’m lookin at you, too!

  65. DNA is a hot area today, SQNM is up 17%, HLCS is up 70%!!!!

  66. Jomama
    What kind of surgery are you doing?

  67. LZB is a great commercial for the buy/write strategy.  We bought the stock in the $100KP at $9.21 and sold the Jan $7.50 puts and calls for $3.80 for a net $5.41/6.45 entry.  Now the stock is down to $8.20 and not only could we not care less but we have another $1 to go before we’re even off our target price.  That’s an 18% drop before down is even a concern and we just get to hang out and watch the fun, looking to get called away with a 42% profit at $7.50 in 4 months.  This is exactly the kind of play you want to make in a retirement portflio or any portfolio where you don’t want to deal with the day to day volatility of the markets.

    I still like that trade on LZB $8.20, selling the Jan $7.50 puts and calls for $3 is still $5.20/6.35 but we don’t know why they are down yet.  I checked out their earnings and can’t imagine it’s something that will change my long-term outlook but you never know.

    1pm Dow volume 74M, very stickable into the close.  9,520 should be the target and very unlikely they can break over 9,560 again. 

    The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.1 in July, up 0.3 percent from its June level. However, the RPI still remained below 100 for the 21st consecutive month, which signifies contraction in the index of key industry indicators.


    Looks just like the Home Sales Index we debunked over the weekend!

    Should be stick time after a blow out bottom - I still like those DIA $95 puts sold naked for $2+, looking for .25 to .50.   Out if we can’t hold 9,450 (and watch Nas 2,000 of course) on the rebound.

  68. qcmike – i pass gas – (i.e. anesthesia)

  69. jomama……..If you DO use a financial website in the operating room, DON’T post it here.  Remember what happened to that surgeon who scrubbed out for a few minutes to do a bank transaction?    Shhhhhhhhhhhhhhh !!!!!!!!!!!!

  70.  Phil you may have cover this  what is your play on the swine flu and its impending impact
    on the health stocks and the economy?  thanks

  71. iflantheman, i have a lot of time between cases.  My day isn’t as efficient as it could be. 

  72. SLG, SPG have a nice little selloff going;  other RE as well.   Much more downside potential in those names …

  73.  Jomama
    TOS has an iPhone app that not only allows realtime quotes, graphs with studies and ability to perform trades realtime as well as set alerts. You obviously need an account with TOS.

  74. Should be any time now.

  75. Wow, sorry, that chart came out way too big! 

    Paul Krugman misses Richar Nixon.

    Iport/Josiah – I have enough trouble keeping up with the regular ones…

    UNG/Chantale – There was a week in Europe about 2 years ago where they PAID people to take gas out of the pipleines and store it commercially as they were totally over capacity.  Chemical companies like Dow and utility companies can store or switch to gas and pull a couple of week’s worth out of the pipelines if they are motivated and it only took one week to fix Europe’s surplus issue.  It will be interesting to see what plays out here…

    More statistical idiocy being spewed by the MSM and analysts:  "The Savings Rate Has Recovered (if you ignore the bottom 99% of the population)."

    They are having trouble keeping the dollar down.  People are getting worried…

    The WTO rules that Brazil can implement $294.7M in sanctions on American goods to make up for cotton subsidies that benefit companies like Archer Daniels Midland (ADM -1.4%), Bunge (BG -2.1%) and ConAgra (CAG +0.8%). Chinese demand has driven cotton up 27% this year.

    GLW/Jo – I think they are going lower, especially if the market fades.  I do like them long-term and would love them at $13 .  I suppose you can buy/write at $15, selling the Jan $14 puts and calls for $3.20 for $11.80/12.90 but it would have to be a scale in, just in case. 

    CIM is a fun 9% dividend paying REIT but they really just buy securities and distribute the profits.  They make a nice offset to SRS calls at $3.67 and you can sell the March $2.50 calls for $1.35 and the March $5 puts for $1.70 for net $.62/2.81 so no net gain other than the dividend below $2.81 but everyting from there to $5 is a win.  It’s very important that you get the premium listed on the leaps or you have a much increased chance of assignment, which is more likely in this play than usual anyway

    LEH/Josiah – They are on pink sheets now, wouldn’t touch them with a 10-foot pole. 

    Swine flu/Bill – Pharm had a couple in his reports and I liked MMM but they are up 40% now.  I’ll have to look around for deals.

    1:30 – 2nd most common stick time (2:30 is most, 3pm 3rd, then 3:30, 3:45).

  76. Josiah/LEH….I have a friend who worked at a high level for LEH and has given me the play by play .  Put that thought out of your head.  They are dead, dead, dead.

  77. Phil, what is the source of the options chart you showed on your weekend wrapup? I am sure it is some subscription that I may not want, but I find the graphics helpful……thanks.

  78. DIA/Phil: You recommended sell the DIA $95 puts at $2
    I wonder if a buy of DIA $95 CALLs the same as a sell of DIA $95 puts?  Just wanted to learn your logic behind selling puts versus buying calls in this case.

  79. Phil, I’ve gotten CROX March $4 calls & $5 put for $3.7 in the 100KP. But I wasn’t able to get the Sept $7 put and Sept $6 call at all. What other alternatives I can do?

  80. Phil how does EDZ works better than FXP? What’s the trade?

  81. Phil/LEH – Sorry I was being sarcastic about that one. It was a stupid joke.

  82. Phil….My apologies if I missed this on your posts……….What vehicle do you use for the stick play?

  83. Bill – there are several swine flu plays, but I like the big pharma for these, as they are the ones with manufacturing capabilities.  NVS, SNY, GSK are the big boys here.  HEB (played a while ago), NVAX, and others, but not going to play those for now unless you have house money from other gains. 

  84. Boy, these pullback days are a joke.  Given the change in shorting rules, the limitation of shares available for shorting and the lack of competition amongst IB market makers.. is a downturn even possible anymore?
    Laugh of the day:  CNBC now saying even though we might have a pullback.. doesn’t mean you have to go along with it.

  85. Im going to stick my neck out here and say we get the stick, its like watching the movie ground hog day

  86.  I hear the stick coming

  87. Chart/Ocelli – Investools.  I subscribe to the whole service ($699/yr I think) just to get those charts.  They also have a nice options grid for looking up contracts but it’s hellishly slow to load DIAs or others that have a lot of strikes as it displays the entire strip at once (which is what I like about it normally). 

    DIA/Cwan – Not at all the same.  When you buy the DIA $95 calls, you are paying $1.45 and you have a .36 delta to the upside and you NEED an up move before you can make a penny.  With the DIA $95 puts sold naked, you collect $2 with a .54 delta and, if DIA goes against you by less than $1.65, you make money and a flatline pays you $1.35 and a .35 move up in the DIA is a 100% winner if it holds.  Buying the calls, you need Dow 9,845 to make $2 (on expiration day).  To make $2 selling the $95 puts, you need Dow 9,500.  Whenever you take any position, you should always think – "Is there a way I can accomplish my goals by SELLING premiums instead of buying them?"

    CROX/Jlui – at this point, you can just sell the Sept $6 puts and calls for .95 if you can get it.  If not, the Oct $6s are $1.60 so not terrible if you miss Sept but also not worth skipping as long as there is hope for getting .90 at least.

    EDZ/Red – It was multiple plays on Friday.  EDZ is a general ultra on emerging markets while FXP is China specific.  They are up 10% today while FXP is up just 4% and with EDZ, we get a bonus if Brazil or India or Russia have a bad day too.  You can still buy/write them at $9.72 with the Oct $10 calls at $1.45 and Oct $9 puts at $1.10 for a net $7.17/8.09, still 25% if called away at $10 but not as safe as it was last week.

    Sarcasm/Josiah – Yep, sorry, we don’t get much call for that around here. 

    Stick/Iflan – See above comment on short selling DIA $95 puts.

    Sad that we are conditioned like rats not to get too bearish for fear of the stick!

  88. kustomz: I saw your posting on the ipad Friday. Nice report. I got the impression you have a little expertise. I am going to purchase something this week so i can be away from my computer and still follow this site and make some trades. What phones or phone companies do you recommend?

  89. SNY – I already own quite some – most from way before 2009 (and Swine flu). I think it can quickly jump up on the next scare and/or set of headlines. I own it for its otehr drugs and prospects with Swine Flu as a bonus. It pays a decent dividend and should benefit with us$ weakness too.
    Stock has been in a nice uptrend and soon we can see if it is going higher than $34 and a breakout or the $34 level is resistance and it retreats from there…See
    It did briefly jump above $34 earlier today AM, but I am waiting for it to close above $34 and perhaps stay there a couple of days to be convinced of much further upside. If it retreats, I plan to sell $35 Calls – currently Dec $45 is $2 & Oct $1.

  90.  Phil – I am negative on TOL.  How would you play the options on this?  Thanks.

  91. kels, i would watch out TOL is a MSM favorite.  Won’t take much for Cramer to pump that stock up.  I agree with you, they should be shorted since it’s more diffucult to get a jumbo loan (and they are "luxury home builders")

  92. Stick TIme!

  93. TOL/Kels – By negative I assume you mean bearish and not upside down on a position you have.  Those builder stocks have simply refused to go down so I’d be inclined to do a bearish diagonal, selling the Oct $23 calls afor $1.40 against March $27 calls at $1.50.  So it costs a dime plut $4 margin at worst and if TOL doesn’t break over $24 by Oct expiration you’ll have a nice profit.  If they do break up, the Oct $23s can roll to Dec $26 at least and you have a still bearish spread that’s much tighter.  It’s a wimpy but safer way to play them until we see some proper breakdowns (BXP is STILL over $60). 

    Volume 92M at 2:40 and under 140M at 3 is an easy stick

  94. Phil, I’m taking profit on TNA today; do you sugest long TZA overnight ?

  95. Curious action in HCBK considering….Prime fixed-rate mortgages made up one-third of delinquencies, up from one-fifth a year earlier. The bankers group said rising delinquencies on prime mortgages are the result of rising unemployment.

    morx….i provided a link to the story that i posted on Friday…..AAPL is in the best position for global dominance :-)
    I like NOK i thought they were cheap at 12 but have run up since. MOT may be a good turn around story but have yet to show any sign of innovation kind of like MSFT.. Its all about the software and apps….AAPL is king and they have barely scratched the surface…AAPL jumped into a crowded market and have dominated since i cant see how you can go wrong with AAPL….MACs Ipods Iphones Itouch and soon to be Ipad…i think they got it pretty well covered…its all about the data

    I spoke to a sales person in BBY and was told people buying Macs point and say i want this one, no sales pitch needed unlike PC’s where most folks want to know whats inside and who has the best bang for their buck….

  96. I did not realize … Yankee game on TV … see ya cnbc….

  97. Cap, that’s almost Haiku.

  98. DIA mattress- I am long Dec 98′s with full cover – SEpt 95′s.
    Stategy for close and over night?

  99.  Phil,  Well actually both are true.  My Sept. put spread is down but I’m also still bearish on TOL as well as the indutstry but my timing has been awful.  Thanks for your thoughts.

  100. I’m a poet and didn’t know it ?

  101. COF; brutal; insane.

  102. Bad news; yankee game is a replay of yesterday’s game.  (good news, they win).
    Real game tonite in Baltimore.

  103. i think phil said no poetry.

  104.  That stick needs some sildenafil.

  105. Selling everytime the stick bids up the market…not a good sign for bulls

  106. AS a White Sox fan all I can say is DAMN Yankees!

  107.  That stick needs some sildenafil.

  108.  Phil – For clarification – OIH $100 Puts – was this intended to be a day trade?  What are you looking for in these?  Thanks!

  109. BIDU a close second to GOOG..
    Around 271.7 million handset-based online searches were made in the China market during the second quarter of 2009, increasing by 0.1% on quarter and 120.2% on year, according to China-based consulting company Analysys International

  110. thanks Kz. I think i got your message!

  111. kustomz, yeah. And commodities going down even more, and bonds flipped back up all of a sudden.
    COF’s still going up though, so that’s bullish.
    Lots of chatter on the web about today’s dollar/S&P divergence, which apparently is the biggest in a while. While I still think this rally has a way to run, this could be significant.

  112. Phil you havn’t mentioed TNK in a while? I own it at an average cost of $9.55.

  113. Ya, Phil flunked poetry class …so there ya go …

  114. I see lots of bullish stories on GOOG, one to watch of this market turns

  115. look out Cap, we’re going to get a lecture. he’s probably looking up Casey at the bat riight now

  116. Seems like Mr. Stick has a lot of sellers to choose from today.

  117. Check out the 30 min chart on PG straight up she goes

  118. Why is PG up up up?

  119. TZA/JRW – I like them as a buy/write at $14.80, selling the Oct $15s for $1.85 and the Sept $15 puts for $1.15 which is net $11.80/13.40 but you can almost certainly roll the Sept $15 puts down to the Oct $12.50 puts (now .75) so less risky than it seems to the downside.  I also like the Jan $10s at $5.50, selling the Jan $15s at $3.25 for $2.25 on the $5 spread, just in case Santa doesn’t make it this Xmas

    HCBK/Kustomz – "The bankers group said rising delinquencies on prime mortgages are the result of rising unemployment."  You see, that’s why they get paid the big bucks – who would have ever guessed there would be a cause and effect relationship like that?   Actually, it’s frightening because I think investors actually are that stupid and this IS going to be a surprise to them… 

    Haiku/Blair – LOL that is.  A witty observation.  That made me chuckle…

    DIA/Pstas – If you can take out 1/2 for $1.75 then do that.  Tomorrow is Auto Sales, which should be the greenest shoot of the week but not until Afternoon.  China has no reason not to contninue down overnight and FTSE has some catching up to do in the morning so we are likely to open down (Construction Spending at 10am, ISM at 10am, Auto Sales all day) but who the hell knows after that so the 1/2 cover keeps us more flexible.

    Volume 110M at 3:30.

    OIH/SS – Well they didn’t do much and oil is always an overnight gamble so safer to kill them on the whole.  More fun to reload if they have a silly run up.

    BIDU/Kustomz – 0.1% on the Q after 120% on the year sounds like they hit a hell of a wall?

  120. PG had a debt offering and sold their pharma unit.  Tons of cash, so they will be on the hunt for products.

  121. Maybe the fund that was dumping its ‘safety’ stocks like PG on Friday had a change of mind today, lol.

  122. Oh, well Pharm’s answer sounds better.

  123. PG also has a gap to fill in the 3mo chart to 55.50 b’f they hit OH resistance.  Might be a good time for some long calls buying …how about 50 Apr10 for 6.  Waiting to see where it settles at 55 and selling the Sept09s for 75c or better.  Also coudl sell the 52.5 Oct09 P for 1.05 for a nice entry.

  124. PG has mountains of debt, if they can refi on cheap :-) like they did then all is well and the divi is safe

  125. TNK/Red – They are just drifting around our target so not much there.  I will be liking shippers again if the BDI turns back up from 2,250 and if the markets hold on this pullback.

    GOOG/Kustomz – Very simple vertical on them with Dec $400s at $70, selling Dec $450s at $35 has a b/e of $435 with a $15 profit (42%) if GOOG holds $450.  If GOOG heads down, you can sell $400 puts for $20+ and that lowers your b/e to $415 but below $400 you own it for net $415 (rollable of course).

    Bonds/Kustomz – I don’t understand why anyone is buying those at all.

    PG very strange, seems to be a split rumor. 


  127. Took profit on TNA. Buying TZA to hold overnight.

  128. Surely you mean BEHOLD THE POWER OF THE stick!

  129. This is a good one:  China ADRs (the stocks we buy here) outperforming (some would say overpriced) the actual Chinese stock by 30% -

    Shanghai Composite 0831

    Most overbought ETF list (most above their 50 dmas)


    Camel cigarette maker R.J. Reynolds (RAI) has joined other tobacco makers in suing the FDA to challenge the regulator’s new authority over tobacco, saying its First Amendment rights to free speech have been violated and the law’s provisions "severely restrict the few remaining channels we have to communicate with adult tobacco consumers."

    Can we make 9,520?  This is so much fun…

  130. STICK/Steve – You dare doubt the POWER?!?

    Actually theyh are getting knocked around at 9,500 – someone is leaving the building at that price… 

  131. Damn pump monkey crooks !!

  132. DIA Sept 85′s- out at 1.70.
    Positively, freakin, amazin!

  133. Fake, fake, fake!  I never get tired of this clip, I just imagine it’s GS talking to retail investors….

    Crooks/Cap – Yeah but they’re our crooks now.  Steal us another 15-20% every afternoon is fine, fine, fine…

    Have a good afternoon folks, more fun and games tomorrow!

  134. EricL, whats happens when the Fed cant stop deflation…uh O

  135. That was 95/Sept puts

  136. Morx; so long as he doesn’t start dropping Amiri Baraka on us, I think we’ll be ok …  LOL.

  137. I cant see why there’s so much hostility towards the stick, i use it to my benefit. The market has never been this predictable in the past. I like it.

  138. Fake Fake Fake …. behold the power …. they stick it to us again….. fake.

  139. kustomz, then we may get to find out if 666 holds as support.

  140. Spoke to a realtor in upstate NY, shes trying to sell the Mayors home (Monticello) was worth 600k cant sell it for 200k.. She’s living off the profits she made in 05 and sounds very desperate. How many people are in this position. For some reason we aren’t hearing much of the bad and much too much of the so called good or green shoots. Just a matter of time before the bad outweighs the good.

  141. I think news sentiment has begun to shift. “Global sell off” does not a buy buy buy headline make.

  142. Actually, the WSJ headline for the market today is:  "Stocks, Crude Falter, But Still Up on Month."

    Finally got a CRE graph also from the WSJ (with a smaller headline).  Avert your eyes if you have just eaten:


    By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won’t be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn.

    CMBS, of course, aren’t the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year.  But banks’ losses from commercial mortgages have the potential to mount sharply, and the high foreclosure rate in the CMBS market could play a role in this. Until now, banks have been able to keep a lid on commercial-real-estate losses by extending debt when it has matured as long as the underlying properties are generating enough cash to pay debt service because relaxed accounting standards have enabled them to avoid marking the value of the loans down.

    Still, most of the $6.7 trillion in commercial real estate is privately owned. Also, it is unlikely commercial real estate will benefit much from an early stage of an economic recovery. What landlords need is occupancy and rents to rise, and that means employers have to start hiring and consumers need to shop more. So far, there are few signs this is happening.

  143. PG – it would surprise me if there’s a split.  The general consensus is that PG is a "50-70$ stock" and the company likes the kind of investors that brings in.  It will hang in that range for a couple/three years and then bang, it makes a run for 110 over 24 months, flatlines, then splits and hangs for another 2-3 years.  Historically the stock has split after an extended period in the 108-120 range.  That said – new CEO and new CFO – maybe there’s a new target price in town.  That would be a surprise because The Who’s "same as the old boss" was practically written about PG but…who’s to say.
    I suspect the move is more driven by the debt raise and the pharma sale.  They picked up about $3B in cash on that transaction and said the intention was to support stock repurchase and dividend payment.  Today might have been their first day in the market putting that cash to work on the buybacks.

  144. Here is how people are cheating the banks (TIME magazine article):,8599,1915962,00.html
    Less Vegas: The Casino Town Bets on a Comeback:
    ….. Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that’s about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they’ve been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it’s willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit….

  145. SIRI.  I’m still diggin’ them – maybe even more since ur original reco, PD.  Was thinking about picking another chunk of Mar $1 – but should I just buy the stock?  Suddenly March is feeling right around the corner. 

  146. Phil, I am wrestling with this question: when you initially outline a trade, you pick strikes that are with a reference to the price of the stock.  Take AIG’s initial trade in the 100KP, you picked the call/put strikes of $30 and the caller/putter strikes at $33.  I understand why.  Now, however, if you had to do the trade again, would you still go with the same strikes or pick something that is similarly close to the current price?  E.g. call/put strikes at $40 and caller/putter strikes at $45 (i.e. sell the ones as close to at the money as possible to maximize caller/putter premium sold)?
    The reason why I am confused or why I ask is that very often you point out that even with the older setup, if the stock moves on you, you are not concerned because of the balance inherent in the combination of call and caller, put and putter.  So if you are OK with the older balance, that is what is confusing me, if you had to start out a new trade in AIG, or in other stock (looking at TM myself right now, similar setup) would you still do the old strikes (that may realistically be where AIG is at come 2011, or would you go for the new strikes around $40 or $45?

  147. Bloomberg is being a bit more negative than the WSJ, but that could change in 10 minutes.

  148. TZA/Phil: Is the TZA play you recommended this afternoon a "protective" play?  Is it like the other protective plays you outlined a few days ago (eg, the SDS spread)?

  149. AIG.  I gots a different AIG question.  I’m playing out the position as reco’d Phil.  But, I wonder, if we had to make an AIG play fresh – still as part of $100K – or not – what would that look like?  Knowing what we know now – or seeing what we’ve seen.  Just curious.  Anyone? 

  150. Transparency, you say? Citigroup has sold undisclosed credit card portfolios to undisclosed buyers for an undisclosed price. Now you’re informed!

    Another good chart by Calculated Risk:


  151. undisclosed / unbeilevable.
    Kudlow was decidely bearish tonight.  He had Douglas Kass on who called the March rally calling a market top now. 

  152. Phil
    Can you elaborate on your DIS trade? I don’t get your recommendation re: sell naked Oct 26P; "NEXT"- sell Oct 26 calls or Oct 25 calls, etc.

  153.  Douglas Kass….A very savvy dude, more often right than wrong.  If he thinks we’ve topped, well……..I’ll give 55 to 45 odds he’s right.  And that’s all you need to beat the market………a bit of an edge.  

  154. Man, I just realized you can still collect .62 for selling the C Sept. 5 straddle against 1.00 margin. Hedge a little with stock if you’re worried about the upside.

  155. Phil,  Where do I send you an email with an attachment?  No, it’s not my middle finger.  I spent some time over the weekend going back over the past couple of weeks pulling $100KP clips and putting them into a document.  It’s in Open Document Format (.odt), which can be read using Sun’s text program Write.  It can also be saved in .doc format, but I didn’t think everyone has purchased that program.

  156. Phil,
    100KP – I never got a fill on the AIG.  Any recommendations?

  157. RE: 100K
    Phil, Are you doing an update this week?  thanks.

  158.  Good morning Phil & all,
    I got mutilated yesterday in that sellof. I posted the blood and gore for the curious.
    I’m planning to capitulate my bullish call positions today at the open so I can have cash for a reload. I’ll take a breather, see what Phil is doing and scale into new positions. 

  159. Good morning!

    Crazy futures – we were doing great until the PMI came in bad, now down about 1% but it’s a more than 100-point Dow drop since the EU opened and we’re below yesterday’s lows already.  It’s funny as it’s what we expected (UK leading us lower) but not the way we expected it…

    Euro zone manufacturing shrank less than previously thought in August, with Markit’s PMI index up to 48.2 from 46.3 in July and a flash estimate of 47.9. France and Germany exceeded expectations, while the contraction in manufacturing accelerated in Spain and Italy. Below 50 indicates contraction.

    Euro area unemployment rose 0.1 points to 9.5% in July (.pdf), the highest level in a decade. The smallest year-over-year gains were in Romania and Germany, while the largest jumps were seen in Lithuania, Latvia and Estonia.

    Realtor/Kustomz – See, and she’s considered "employed."  That’s the real fallacy in the whole system, unemployment is so much worse than we think if you count underemployment and reduced wages.  Combine that with persistant high energy prices and there’s no way the consumers recover.  Also, I’ve notices that our gas and electric bills are no cheaper than they were last year and that makes no sense at all – another place the consumers are being ripped off?

    Tuesday’s economic calendar:

    Motor Vehicle Sales

    7:45 ICSC Retail Store Sales

    8:55 Redbook

    10:00 ISM Manufacturing Index

    10:00 Construction Spending

    10:00 Pending Home Sales

    5:00 PM ABC Consumer Confidence Index

    U.S. mergers and acquisitions (M&A) activity plunged to a 15-year low in August, while global fees for completed deals hit their lowest level since at least 1998, preliminary data showed on Friday. Thomson Reuters data showed announced U.S. M&A for the month totalled $13 billion, its lowest since February 1994, while global M&A stood at $72 billion, the lowest since February 2003.

    That’s $13Bn INCLUDING DIS and BHI yesterday, which were almost half of that total.  So, if companies won’t buy each other and insiders won’t buy their own companies (see our Insider Zone), why should we?

    Vegas/Peter – That’s BRILLIANT!

    SIRI/Dstill – Don’t go too crazy, they are getting a huge boost right now from clunkers but what happens when the smoke clears.  If they get a good pop, it’s probably a good time to cover or cash out (at least half) and wait for a bad auto report (probably the next one) to buy back on the dip. 

    AIG/Jordan – There are two components to consider when establishing an option:  Maximizing your premium collected (not the amount collected, the amount of premium) and your target for the stock on expiration day.  With AIG, I haven’t got a clue where they will end up so I concentrate on getting the most premium for my money.  As a new entry, that would be the October $45 puts and calls for $17.30.  That covers AIG for a 20% up or down move and even then, with this stock, I wouldn’t feel safe if I didn’t have a very long time to adjusts by rolling them back.  Since I can see that I can get another $25 for the Jan strikes and I know (from experience) that the strike I need to roll to if we have a blowout will move up in price on a big move, I’m pretty confident that I can withstand a 50% move in AIG betwen now and Oct expiration.  Even so, it needs to be noted that, in a $100,000 Portfolio, I only sold 1 (ONE) contract because this is a RISKY trade and could easily blow up in your face so do not try to draw some great trading guidlines from it.  The reason we took the trade was because they had (at the time) a fairly low leap price ($24) and a very high front-month payout ($9) that made it worth the risk.  Otherwise, I wouldn’t have touched them in the first place and it was only the insane premiums we collected in September that saved this trade when they did pop. 

    TZA/Cwan – Sure a 3x Bear fund on small caps is protective!  JRW got me looking at them this morning and they fit in with my theory that Xmas will be cancelled this year.  Also, I read an article that big firms are killing small firms by slow-paying on one end and aggressively collecting on the other as they scramble for cash – this can’t have a good outcome…

    AIG/Dstill – See above.  I don’t like them as much now.  There was a unique opportunity to buy relatively cheap leaps to our anticipated rate of collection.  Now the Jan $45 puts and calls are $36 (+50%) and Sept $45 puts and calls are $12 (+33%) so the trade is about 20% worse than the trade I made.  This is just another form of chasing trying to get into it now.  I identified a bargain entry in AIG so compelling I was willing to take a chance in a conservative portfolio but options must be re-evaluated EVERY period and even during the period as the conditions can rapidly change.   Having seen what we’ve seen (an almost 100% jump in AIG), I like this stock even less now as they should be paying me MORE to take that kind of risk selling front-month contracts, not less…

    Kudlow bearish?  Surely we are doomed…

    DIS/Pstas – That’s just working into a buy/write over time.  Usually I can’t be bothered because (as we see here) it just generates a lot more questions but it’s always good to work your way into a trade if you can see it.  What can we see with DIS?  They got a sell off because they spent money to buy someone and that’s a typical knee-jerk reaction.  I love the fit with MVL and I think it was a good price and I think DIS is a good price so I was willing, pre-market, to plan on catching a falling knife and buying the stock on the way down at $26.30, which was my quick calculation of where I thought the stock would settle down.   I also know it could fall further so I hold off on selling the put end of my buy/write until I thought we had a bottom.  Once I saw that and selected a strike, I waited for my price and made that entry.  After watching DIS move I also decided that I was willing to hold out for a better price on the call sale so I’m willing to patiently wait to get a better price when other analysts catch up to me and figure out this is a winning combination.  Also, implied in the decision to own the stock and the naked puts is the fact that I am happy to own 2x of DIS at an average entry of $24.50.

    China/Eric – Doesn’t anyone read my posts?  8-(

    C/Eric – It’s a fantastic play, also you have the Oct rolls to any $1 strike at $1+ so you really have 20% leeway on C and you can still make the roll.

    Attachment/Java – Send it over to Greg (admin at philstockworld dot com).

    Barry/Cap – A little slow on the uptake but he’s getting there!

    AIG/Java – See above, just let it go unless we see a good reload opportunity. 

    $100KP/Allen – There’s an update under the portfolio tab and there will be one every week.

    Mutilation/Merk – Ouch, you went into the weekend bullish?  Go back to last Monday and check out those cover plays.  They don’t hurt much to the upside but they’ll save your ass when the market moves against you.

  160.  Weekend/ Phil
    Yeah… I was bullish into the weekend. I was counting on a blow off top to close out August. Sometimes I get parnoid and have to wonder if I didn’t post my trades online, would it have been an up day??… hmmmmmmm… sigh
    Right now it looks like Friday’s gap up open could have been the blow off top I had been looking for, only it didn’t get all the way up to my targets. I was anticipating SPY to get over 105 and AIG to get over 60 on Monday so that I could unload by calls and switch to puts. But we got a gap down day. Yuck.
    Oh well… I’ll go to cash this morning and see how the market shakes out.

  161.   Phil…

    Here’s why I targetted AIG to  60+.   I posted the chart with my  60.4  resistance line from Oct 7, 2008.