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Thrilling Thursday Morning – Beijing Bop

Hey Ho, let's go!

That is, of course, what residents of Macau are required to chant every morning in honor of Stanley Ho, who held the monopoly on casinos in China until 1992.  This morning it turns out Macau's economy contracted by 13.7% in Q2, it's 3rd consecutive quarter of shrinkage.  It's possible that the restrictions placed on civil servants in 2008 to stop them from gambling and to curb money laundering has caused much of the decline why is the decline accelerating if things are so good in China?  One thing about Macau is that all the US businesses that are now there make it harder for the Chinese government to pad the statistics and, taken at face value, Maccau is underperfoming the rest of China by 22%.

This is worth noting today as China is leading the market bounce as the vice chairman of the China Securities Regulatory Commission, said the authorities will promote a “stable and healthy” market, tempering investor concern that the government wants to curb equity and property speculation. Ministers from the Group of 20 nations are likely to suggest the global economy is healing when they meet in London this weekend, while the European Central Bank probably will keep interest rates at a record low today.  The Shangai composite index ran right up to the 5% rule today and has pulled a turnaround in global equities.  As noted in David Fry's chart, we were oversold and due for a little bounce anyway.   

copper chart

As noted by Ben over in our Chart School section, copper has climbed back into the "stupid zone" on that news but still has a ways to go before getting stupid enough to short again.  We'll be keeping an eye on the copper miners like PCU, FCX and RTP as well as BHP, who got a nice pop on a UBS upgrade this morning but it's a little early to short until we see jobs reports today and tomorrow.  

This is not surprising to us as we read the Fed minutes yesterday and the greenest shoot they could find was that things were picking up in other countries, a favorite ploy we discussed in Monday's post as the Shanghai was falling 6.7% that day.  Fortunately, we were playing bullish into the close as we know how this game works and I had said to members just ahead of the Fed, at 1:58: "Beware bears – I was just noticing that last minutes were May 20th and July 15th – both ahead of major rallies!"

As I had mentioned in yesterday's morning post, our bearish bets were already on from last week and yesterday was a day for bottom fishing as we picked bullish (but hedged) plays on TTWO, RT, DIA, DIS, HMY, ABX, STX, BEAT along with a complex spread on UNG and a short call sale on GLD betting they won't break $1,000.  So busy, busy yesterday as we liked the flatline even if we didn't like the Fed minutes that much and the sell-off into the close was very scary but, as we are well-hedged, we can afford to watch the nonsense and wait for clarity of direction. 

After reading those Fed minutes we are far from bullish overall.  The economy is NOT good at all and it's amazing to watch the MSM spin the Fed minutes as a positive this morning but here's an example of what I parsed out for members yesterday as I took the report and highlighted the facts and put the spin comments in red:

Bernanke in an interview on 60 Minutes said that he does see "green shoots of economic revival"!The information reviewed at the August 11-12 meeting suggested that overall economic activity was stabilizing after a contraction in real gross domestic product (GDP) during 2008 and early 2009 that the Bureau of Economic Analysis recently reported to have been greater than it had previously estimated. Employment continued to move lower through July, but the pace of job losses had slowed noticeably in recent months. A sizable pickup in motor vehicle production appeared to be under way. Housing activity apparently was beginning to turn up. Consumer spending dropped only a little further in the first half of this year, on balance, after falling sharply in the second half of last year. The decline in equipment and software (E&S) investment seemed to be moderating, although the incoming data did not point to an imminent recovery. The sharp cuts in production this year reduced inventory stocks significantly, though they remained high relative to the level of sales. A jump in gasoline prices pushed up overall consumer price inflation in June, but core consumer price inflation remained relatively stable in recent months.

Notice how the Fed minutes are crafted to allow the press to make fantastic quotes out of what they say even though the actual report is fairly dire.  "Economic activity was stabilizing" (at the lowest level since the Great Depression), "The pace of job losses had slowed" (from catastrophic to horrifying) and "Consumer price inflation remained relatively stable" (at a pace where inflation is outpacing wages by almost 10% this year).  Of course Uncle Rupert reads all this and orders a headline that reads: "Fed Expects Growth Amid Vulnerablility."

China also put their money where their interests lie and has agreed to buy $50Bn in IMF notes to bolster the funds lending capacity as the IMF seeks to keep weaker Asian economies afloat.  BRIC partners Brazil, Russia and India have also expressed interest in helping and the G20 will likely announce funding this weekend as the second round of massive global bailouts becomes necessary.  Also boosting the global markets before they break technical levels is an OECD report that sees a faster recovery than what they saw just 3 months ago.  It's interesting when you drill down to WHY they see this and notice that they are saying: 1) Economic news has been mostly favorable the past few months 2) Changes in data modeling 3) Spare production capacity and "low" commodity prices 4) Substantial slack and a weak recover means more stimulus will be necessary and that will be good for the economy.  Is that messed up logic or what?

We got some terrible Retail Sales numbers this morning (as we've been warning you all week) led by ANF down 29%, JCP down 8%, M down 8%, SKS down 20%, TGT down 3% and ZUMZ down 12%.  Expectations were for much better performance and this was the 12th consecutive month of declines as back to school shopping disappointed and the holiday weekend came late this year.  We'll get the ISM service numbers at 10am and they are expected to come in at 48.7, up from 46.4 in July but anything below 50 is still contraction.  570,000 people lost their jobs last week, 4,000 less than last week but 20,000 more than expected so keep digging for those green shoots and we'll keep being careful!


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  1. Phil, regarding BAC comment yesterday.  I’m still relatively new to your site, so I may have missed this or maybe it hasn’t been asked since I’m on board.  In the BAC statement above, where you say "when you see a call or put that you sold in your portfolio", I’m assuming that you mean you are breaking the straddle and selling the leg that has made money, in this case the 17 call being up 75%.  That makes sense to me, but everything I’ve come across previously said to close the whole position, not just a leg.  So wanting to confirm – selling a leg, as long as you aren’t leaving yourself unintentially uncoverend (e.g., leaving yourself with a naked call), is a good idea to take the profits when they present themselves.

  2. Interesting what you write about China.  October 1st is national day and the 60th year of the "communist" system. These events are a big cause for "celebration" and it is likely that the powers in China would frown upon signs of weakness from the stock market (or anywhere else) marring the celebration of the turning another decade of  highly successful communist rule…

  3. phil … is UNG unbuyable because of something not related to nat gas ? Can it go to zero with nat gas around  two bucks ?  Can nat gas  be free  or dissappear as a source of energy ? I you still beleive it s investable give me a number where you d morgage the house to buy it ? 

  4. Any update on Tuesday’s Dia 95 call  91 put spread?

  5. JAVA back at 9.11.  Deal closes when the EU gives the nod.  9.5 is the closing price by Oracle, so 39c gain or roughly 3.2%.  Not bad for a little work….

  6. Headline:  OECD Expects Faster Recovery Then Anticipated Just 3 Months Ago
    Article:  Because the economy continues to suck, we now feel a second round of stimulus spending will be necessary which will help the recovery!

  7. Drug Maker Dainippon to Buy Sepracor for $2.6 Billion
    now things are heating up in the Pharma business.  Japanese companies will be moving into the US b’c of their sales force.  Will have to scour the companies with sales forces, mainly those with specialized sales groups.  GILD, GENZ, BIIB, CELG, and SHPGY.

  8.  Phil – TZA - with run up in TZA  is buy/write still OK with TZA at 15.90 – you said this from last Monday: 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.

  9. Any justification for AMED dropping 10 points on management changes?

  10. For the Endo Pharma inquiry – Sept 2 (Reuters) – Endo Pharmaceuticals Holdings Inc (ENDP.O) said the U.S. Food and Drug Administration extended the review date for the company’s testosterone treatment by three months but did not request for additional data.  Wait for things to settle, or selling the 22.5 Oct09 P for 2 or offering 3.2 for the 20 Apr10 C and prepare to DD would make for a nice entries.  One would want to hedge carefully for that 3mo review…..JIC it is not favorable.

  11. Wow, lots of selling into this "rally" but volume still low, low, low.

    We’re still going to be floating between our two sets of levels, looking for a break one way or the other:

    We should get good support at Dow 9,200, S&P 980, Nas 1,950, NYSE 6,400 and Russell 550.

    Now our breakdown levels flip to breakup levels (see, we recycle!): Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575

    As we didn’t get our big move off the Fed, it’s not really worth sticking with the DIA $95 call/$91 puts straddle and they are about even so better off out and we can pick a play later.

    The DIA $94 puts are $2.09 and we will stop out half even at $2.25 if we head back down.  If we do that and then reverse, our next sale will be the $95 puts on 1/2 at $2.50 (now $2.69).  To be clear, right now it’s the DIA Dec $98 puts, fully covered with the Sept $94 puts at $2.25 and we’d like to take 1/2 off at $1.75 or less if the Dow heads higher

    There’s a lot of effort being put into getting the markets back up (even a GOOG upgrade by BAC) so very pathetic if they can’t. 

  12. Anyone/$100k – do we know where we stand on the BAC calls?

  13. Re BAC calls – the longs are at.83, the shorts are at .454

  14. re BAC – oops that should be short call is at .545

  15. concreata / TZA – I think you will be able to get into that spread at a better level later today

  16. Defensive retail names (Cost, WMT, BBY) doing very well this morning after those poor reports.
    Copper now going red after selling all morning. Pretty poor showing by the bulls so far.

  17. GILD also should benefit from the swine flu pandemic that is supposedly coming …  they receive royalties from Roche for Tamiflu….Good support in the $45 area.

  18. COST   My only position is a Jan 50 short put that I’ve had for ages and planning to let expire.  Could I sell Sep/Oct call on this run up to set up a nice rollable, strangle?

  19. Copper going red….gold is a lovely hue of golden green….

  20. JRW /TZA – do you have an entry point in mind, thx.

  21. Interesting … HAL 9000 wants to pump, but can’t; everything getting sold into.

    Do you still like the BMY long Dec 22calls and 2X the 24 calls?

  23. Drum – I own the stock for the dividend (have since it was $19).  I sold the long calls at 22 Dec09s.  Yes, I still like BMY.

  24. LOL Pharm. Don’t look now but the miners are rolling over real quick here.

  25. IBM  My position is +3 Jan 110, +1 Jan 100 / -3 Sep 120, -1 Oct 115.  Should I be killing the Sep callers completely or doing a 3 Sep 120 --> 1 Sep 115 roll for a credit and half cover?

  26. I’m going to short the Qs on the next little pop.

  27. HMY.  Thanks for this one, PD.   Here’s my latest (as stock appears to be on the move some):  underlying shares (quite a few – multiple of 6 for our purposes) at an average cost (after a few expired writes) of $9.69  (including letting my open short call expire – it’s Sept 10).  I don’t know that I’m so in love with this stock that I have to have it long-term (unless maybe theres a good long option play thats low maintenance) – the div yield blows.   So I can let it get called away at 10 for maybe a 3% gain since June – or?  Thoughts?  Thx.

  28. Phil, I have WFR Jan 14 Calls for which I need 4.80 to break even. I didn’t get a spread opened when I originally picked them up. Do you have any recommendation on what I should do with them?

  29.  Phil:  Your thoughts on EDZ at this level ($9.56)?  Thanks.

  30. concreata / TZA – 15.55 is probably the best you can hope for now. ISM was not good enough to spin for the bulls.

  31. BAC/Java – I do not want to give the impression that the answer to this is "always" but anytime you make 70% on a put or a call you sold, under any circumstances, with more than 2 weeks to expiration, the RISK you are taking by sticking with the position outweighs the reward by more than 2:1.  In any situation, if you continually play ANYTHING where the odds are 2:1 against you, you have to be extremely lucky not to lose.  BEFORE you buy back the caller/putter, you should evaluate where that will leave you and then decide if you are comfortable playing for a bounce or now.

    Take AIG for example.  We had a spread of the 2011 $30 puts and calls and sold the Sept $33 puts and calls.  We wiped out the putter and bought them out.  Rolled up the long puts to the $55 puts while AIG was at $55 to lock in the gains on the $30 calls.  We then held that naked (2011 $55 puts and $30 calls and short Sept $33 calls) until Tuesday, where we sold the $34 puts on the dip.  Then yesterday we bought back the $33 calls at a small loss anticipating a move back up and today we will probably sell calls again to go back to a full cover now that we have a 20% move up again.  So what would be the "simple" answer to the question?  Each of those moves worked perfectly but each time they were based on my observation of AIG and the overall market and what I had targeted for their next move and each time I have to decide what I want our spread to look like for the move in the stock I anticipate next.   It’s not the sort of thing that you can just say "whenever this happens, do that."

    China/Steve – That’s a great point.  I think we may have to remain bullish on China through September in that case as there is no way they want a shadow on that.  If we break I doubt they can hold it up by themselves though so it still depends on what’s really going on in the US markets for the next 30 days.

    UNG/Chantale – I made a very clever spread on them yesterday (if I do say so myself) but that’s the only way I’d play them, looking for violence one way or the other.  Nat gas can briefly go to zero, as it did in Europe last year as gas companies must clear pipelines if they get overfilled.  In Europe, they PAID commercial users to take gas out of the system (presumably into local storage) while they worked off their oversupply for a few days.  Long-term, nothing can be free as it takes men to man the pumps etc and $2 is more than fair as the "lowest" reasonable number for nat gas but that has NOTHING to do with UNG’s value, which could implode if invesors bail and they are forced to churn $2 contracts for a while. 

    ISM 48.4, right about what was expected.  Not a market booster.

    Too Big/Cap – People are having great success challenging their mortgages as most banks cannot produce the actual contracts and/or prove clear title to the chopped up mortgage, voiding them – a fun scam…

    JAVA/Pharm – What if they don’t?

    OECE/Matt – Yes, quite a joke.

    Sales forces/Pharm – Sounds like a good weekend post to me!  8-)

    TZA/Concreata – A little bit chasing here but it’s all about the net and our comfort zone.  At $16.05, you can still get $3 for that put and call combo but it’s no longer good with a $1.20 higher net entry.  The Oct $17.50 puts and calls are $4.90 though and that’s $11.15/14.32 and I think the extra .88 on the downside is worth the risk as long as you REALLY want to own this ultra long-term.  Note that the reason the ultras have crazy put sides right now is because people are buying up puts in case the SEC forces them to unwind and collapse or the new margin requirements lead to mass selling

    By the way, I don’t have the stats but it seems to me there are a lot more people sitting in 3x and 2x bullish financials than bearish financials right now and, if those start to unwind, that could lead to a pretty big sell-off in those sectors…

    AMED/Aclend - It was the COO and the CIO suddenly leaving so the concern is something is very wrong with the company or maybe they are heading off to a competitor and will eat into AMED’s business and, of course, either way the company is missing two key people right after getting a UBS downgrade so I don’t think I’d be trying to catch that falling knife this morning.

    Speaking of falling knives, there go yesterday’s lows!

  32. LDK.  Remedial Follow-Up Question WARNING!  Who knows what side of the bed Phil got up on this morn – depends on the kids.  Are they back in school up there?  So, I punt to team if needed – trust you all of course.  Avert your eyes if you must, PD.  Relevant portion of related answer for me yesterday: 
    "At $9.60 you can take the March $5/9 spread for $2.20 which is almost a double at $9 vs you needing $9.60 just to get even.  Say you have 1,000 shares at $9,600 and you buy 10 spreads at $2,200, which will pay $4,000 if successful plus the $6,400 you cash out here is $10,400 so you can cash 3/4 out of this annoying position and leave just $2,200 on the table and you’ll still make 5% if they get back to $9 by March…" 
    Should I just "know" that "take the March $5/9 spread" means selling the cheaper call against the more expensive to get my total purchase price down to $2.20?   Thx.

  33. Phil – I have a WFR spread you laid out a while back.  Jan 14 calls half covered with Sept 17′s.  Spread is fairly under water.  Thoughts on adjustments?  Thanks.

  34. JAVA – if the EU doesn’t approve (US Justice Dept rubber stamped it w/o judgment), I think the US would open up a can of whoop a$$ on the EU. 

  35. Hi Phil, I had the UNG Sept 13 puts. Should I roll it to Oct or Jan?

  36. BAC/Red – We were hoping for a bounce (if you are still naked) but not very bouncy right now. 

    Cost, etc/Eric – They were the "bright" spot in the report.  As Cap noted in his supermarket article yesterday, even the stores that have sales are selling discounted, low margin merchandise.  There’s going to be a lot of coal in people’s stockings this Xmas…

    COST/Eph – I would certainly either take profits on the Jan put or sell a call up here.  The $52.50s are $2.50 with $1 in premium and that’s a nice naked sell off a 10% run.  Those can be rolled to Oct $55s, now $2.

    RUT with a big old bounce off our 550 target, let’s see if they hold it!

    43M at 10:30 – Average volume.

    Nat Gas build is up 65Bcf – neutral but not at all helpful since they are OUT OF ROOM.  They seriously are not sure if they can put more gas in the pipelines.  CHK is a good short on this number

  37. RUT, I forgot who still has the RUT Sep 590 short CALL (I do).  It’s looking good for expiring worthless.  If you want to reduce the upside risk further, you can roll it to RUT sep 600 short CALL for $0.9.

  38. Phil – Ultra Etf’s - Best to avoid right now for longer term positions? How about doing same trades (buy/writes and longer term verticals) with the 1x short ETFs such as RWM (short Russell 2000), and SEF (short financials) and DOG (short Dow)? Remove risk and more predictable?

  39. concreata / TZA – I use the ultras as a day-trade vehicle; or if you are confident of a trend,as in last Nov or FEB, you can own the ultra and day-trade the options.

  40. Phil – what’s the best way to play expected poor Xmas store sales, I believe you recommended a strategy previously, but I cannot find it.

  41. $100KP has some of those ultra short ETFs.  I also have a SDS Jan 2010 spread.  They are low-maintenance protective plays.  Should we be concerned?  If so, what will be the alternatives?

  42. TNA play – buying a Sept 36 put, selling a Sept 35 put and selling a Sept 42 call costs nothing and returns $100 per contract.  Should work if down or chop sideways for the month.  Might have to watch the call if things melt back up.

  43. where / TZA – Nicely done !

  44. I have no idea about the stpck or the story, but I do know that AMED just got an upgrade down 23%

  45. IBM/Eph – Well they bounced off $115 and that’s down $5 from Tuesday so shouldn’t you be thrilled to take out the callers and wait to see if $115 holds or not before deciding on a roll?

    HMY/Dstill – It would help if the question was not in the form of a fortune cookie.  You have stock at $9.69 but what contract did you sell that will be called away at $10?  If they are naked, you can just slel Oct $9s for $1.60 and lock in $10.60 if you want but, if you don’t like the play, why not just get out at $10.30 now?  If you have the .60 $10 caller you can buy him back and sell the Oct $10 puts for .70 and then sell your stock for $10.30 and, if you get it put back to you at net $9.30, you are up $1 to start and if the stock keeps going up then you pick up the extra .70.

    WFR/Blair – I’d sell the Oct $16s for $1.25 and roll the calls (now $3.30) to the Apr $13s for $4.50.

    EDZ/John – In light of the China anniversary on 10/1 I wouldn’t buy EDZ until we see the Shangai falter again (tempting though it may be).  If they recover 20% then EDZ can drop back to $7.

    LDK/Dstill – Come on, I am my usual bright and cheery self this morning!  Actually kids are back at school and it is nice and quiet around here now… I don’t know if you should "just know" it but I credit you with enough comprehension of options trading that you can discern, as you seem to have (and congratulations on that), that is was the bullish $2.20 credit and not the bearish -$2.20 spred, which would only pay you if LDK falls below $7.80 and would be kind of the opposite of everything else we were discussing in that context. 

    WFR/Bg – Jan $14s are $3.20 and $17s are .35 and the net on that spread was $3.65 if you did a half cover (even if it didn’t occur to you to cover more as they fell).  At this point, you can take out the $17s for a net gain of $1.25 and spend $1 per long (net .40) to roll down to the Jan $12.50s at $4.15, which would put your net at $4.05.  Then you can sell Oct $16, now $1.15, for no less than $1 if we head lower and that puts you in a $3.50 spread for $3.05 so no problem there as we wait for a rebound, prehaps using stops at $1.40 and 1.70 on 1/4 of your covers in case they take off again. 

    Fitch adds 432 commercial real-estate loans totaling $5.2B to its ‘Loans of Concern,’ a 7% increase. To date, Fitch has identified almost $81B in commercial real estate loans (17% of its rated U.S. CMBS portfolio) as having declining performance or defaulted loans.

    UNG/Jluiung – You can roll to the Oct $11 puts and $9 calls for $3.50 and anything betwen $9 and $11 saves you $1.50 (from the current $4) and even $8 would be just $3 owed instead of $5.  Of course you want to have a stop on 1/2 the calls in case they take off or maybe be brave and just do the put roll with the intent to cover on a bounce (if it gets worse you can always sell the $8s).

  46. just looked into the story; Prez, COO resigned.  I think I will pass.

  47. GLD is off to the races….holy crapballs Batman…

  48.  LDK.   I hate fortune cookies.   Sorry. You’d think with Google Chrome and 15 or 20 screens open I wouldn’t miss any details.   I wrote 1:1 against the underlying stock at (yuck) a mere 15 cents.   Trying to sneak in some extra income after cashing others last week – and before it showed real movement.

  49.  HMY fortune cookies I meant – not LDK.

  50. "The great recession of 2007-2009 may have long-lasting financial and psychological effects on millions of people, and therefore on the nation’s social fabric," according to a large survey released by Rutgers (.pdf) this morning. Two thirds of unemployed say they’re depressed, over half have borrowed money from friends or relatives, and a quarter have skipped mortgage or rent payments.

    Ultras/Concreata – Yeah, I wouldn’t put too much into them until things settle down.  The 1xs won’t be affected but I’m not very enthusiastic about plays right here as we have no clear indication of whether we are going to go up or down 300 points as we are flatlining at the 2.5% mark between 9,100 (top of our assumed range) and 9,550 (5% over that).  9,325 is right in the center so not much to be gathered from the last 48 hours so far. 

    Xmas/Concreata – That was shorting the TZA, already been there and done that.  On a run back up I’d do it again but, as I just said, right now I’m waiting for clarity.  RTH also worth a look and, of course, our REITs will suffer.

    SDS/Cwan – I’m not THAT concerned as SDS is based on the S&P, not a commodity and we don’t care if the S&P falls on that one.  I’m just concerned things may get strange or some of these funds may shut down suddenly and it’s more the hassle factor (like when FAZ and FAS reverse split) than anything else.

    TNA/Where – Nice plan, would be way too strange if they don’t move at all for 3 weeks.

    Gold $995 for a moment there!  Oil back below $68.

    LDK/Dstill – Fotune say: Guy who was worried about losing money and covered his ass should be happy to get out even…

  51. Phil,
    AAPL – What are your thoughts on moves before Sep 9 and where do you see it going from here?

  52. Phil, just want to clarify: are you saying my options to roll my sept 13 puts are:
    1) sell Oct $11 puts and sell $9 calls for $3.50 or
    2) sell Oct$11 puts and sell $8 calls or
    3) just sell Oct$11 puts

  53. VIX is really coming down today.

  54. AAPL/Emo – Why Sept 9th?  I doubt they get much higher than $170 or much lower than $160 so pretty dull as we wait for the market to resolve itself. 

    The U.S. junk bond default rate rose to 10.2% in August from 9.4% in July, S&P says, noting defaults could strike 18% in a worst-case scenario, after falling below 1% in 2007. S&P’s more-likely outlook of 13.9% would be the worst since the Great Depression.

    Expect a ‘rather uneven’ recovery, ECB President Trichet warns at today’s press conference, "given the temporary nature of some of the supporting factors and the ongoing balance sheet correction in the financial and non-financial sectors of the economy."

    JPMorgan drops Deere (DE -2% premarket) to Underweight, saying the livestock sector will likely remain under pressure, squeezing crop consumption and prices. Total cash receipts from crops seen off 10% this year, while cash receipts from corn could drop 20%, firm says.

    The Japanese rally is over, says Credit Suisse, recommending investors lock in their profits. Nikkei -0.6% today.

    An early economic indication from Japan’s new government: the likely redeployment of ¥5T ($54B) of stimulus out of "wasteful" programs, according to a key lawmaker, who stressed the importance of the Bank of Japan’s independence and doesn’t expect interest rates to rise quickly in recovery.

    While the U.S. service sector has yet to move out of contraction, the global services sector posted its first expansion since May 2008, with JPMorgan’s Global Services PMI up sharply to 50.5% (.pdf) from 46.5% in July. Fastest rates of expansion were seen in Hong Kong, the U.K. and Germany.

    Glad I found one green shoot to top off that batch of news!

    UNG/Jlui – I’m saying if UNG CONTINUES to fall then you may want to sell the $8 calls but right now I would start by just rolling to the $11 puts for -$1.50 with the plan to sell collect $1+ selling some UNG call, hopefully the $10s but there’s no need to do that if they are holding $9 as nat gas can still spike up if there is any interruption in supply.

    VIX/Where – Yes, notice how I lost interest in Buy/Writes today after doing a half dozen yesterday.  This is what I keep telling people about having an idea of what constiutes "expensive" or "cheap" contracts as the prices for selling puts and calls yesterday where the driving reason for taking some plays while we were getting top dollar for our sales.   

  55. Phil,
    AAPL has an IPOD event that Steve Jobs might be a speaker in.

  56. GLL (2x short gold) at $13.20, out at $13, looking for $13.50+.  Also, crazy premium on the Apr $13s allows you to sell them for $2.25 and buy Apr $11s for $3.25 (net $1) and have a 100% gain if gold doesn’t get over $1,000 by then.  This is not a bad offset hedge if you are long on GLD or other inflationary plays but a risky stand-alone as I do see many ways gold can break $1,000 by April.  (this is not bold on purpose – very dangerous play)

    Bailout Russian Style - Mining/steel/power giant Mechel (MTL) up 16.1% after Prime Minister Vladimir Putin arranges government support, including urging state banks to buy $313M of the company’s bonds and setting potential tax breaks for a coal deposit development that could be Russia’s largest. The firm already had debts of $5.8B as of March.

    20% bounce zones (recent highs to lows) to watch:  Dow 9,280, S&P 999, Nas 1,978, NYSE 6,510, RUT 561  Those are the weak bounce levels on the 5% rule and failure to get back over those today indicates a more likely consolidation for a move down than up.  So far, Only the Dow has been bouncy enough and that’s our least reliable indicator as any single stock can sway it.  

    AA upped guidance for the year and is boosting all metals, BAC and C are having good days, CAT is up despite the DE downgrade (gosh I thought they were in the same business) and JPM, who has been making manipulative calls all over the place is up 2.5% with WMT also on the upside.  KFT, MRK,  PFE and T are the only Dow boys down more than 1%.

    AAPL/Emo – That was to be expected but I’m very worried about how he looks.  One bad picture of him and that stock can drop 10% again. 

  57. How’s this for out of balance reactions:
    Moodys and S&P must defend a lawsuit (big deal, they have insurance and offer opinions).  So must Morgan Stanley (which has more liability for sure in these cases as underwriter and seller).
    Moodys and S&P down about 10%.   Morgan Stanley up more than 1%.
    Short attack on Thursday of LD weekend creates oppty.
    I almost missed this one !

  58. Phil, I’m currently mostly in cash and don’t have the DIA Dec 98 Puts. Is there a position to take now or should I just wait it out for the next indication of direction?

  59. MCO/Cap – Great catch, that is crazy.  Very nice entry on Oct $23 puts as a naked sell for $1.60.

  60. Cap – I would think the difference is that MS is a much more diverse business than S&P/Moody’s are, so the lawsuit touches them less.
    That is, indeed, if any rational explanation is possible….

  61. Cash/Blair – You can take things like the MCO play and the BEAT, RT, STX and DIS playsd from yesterday that haven’t gotten away yet and if we either go way up and you have profits to protect or break out mid-point (which is the levels I just put up) to the downside, then you can grab some covers as you have something worth protecting. 

  62. Silver is outperforming gold today.  Why all the talk about gold?  It’s really incredible.  Another bubble being made. The herd mentality is really amazing.

  63. I said herd mentality.. and it is a herd chasing it.  But it all starts of course with the computer driven buy program.  The same friggin games (manipulation) are being played in gold and silver as were being played in equities. 

  64. Phil

    I bot 10 YRCW Sept $1 calls for $1.25 by mistake – I thought I was buying the 2011′s but since it is currently trading at $2.2

    can’t I just exercise them and then sell them for $2.2  ? Or is there a catch?

  65. GOLD going for it.  Seems like back ratio spread on a breakout is a good play here.

  66. How friggin timely.  CNBC comes out with an article at 1:08pm saying gold could hit a new high.  Just as it does.  THESE PEOPLE NEED TO BE INVESTIGATED!!!!!!!!!!!

  67. how bout GLL in at $13? or less. Think its still worth it?

  68. TRMA is moving once again.   Hit $8 a few weeks back, pulled back to 6 (Where the CEO bought it) and is at 6.6 (10%).  Going in for a second dip….(I sold at 7 on the down part of their chart.  6.55 is my buy point….

  69. ERTS seems cheap enough at $18.15.  Selling Oct $17 calls for $1.85 and $18 puts for $1.10 nets $15.20/16.60.

    BSX is in my favorite long-term space (medical devices) at $11.25.  Jan $10s are $1.90 and the plan is to sell the $12.50s (now .60) for .90+ for a $1 spread that pays $2.50 if it works.

    VZ touching the 200 dma at $30.  Apr $28s are $3.30, hoping to sell Oct $31s for $1, now .54.

  70. Phil/BSX you describe a spread and then say "if it works" – what do you mean  by that?

  71. Phil
    September 3rd, 2009 at 11:34 am | Permalink  
    IBM/Eph – Well they bounced off $115 and that’s down $5 from Tuesday so shouldn’t you be thrilled to take out the callers and wait to see if $115 holds or not before deciding on a roll?
    I know by your rhetorical tone that you think that the answer should be obvious to me, but it’s not.  Since I’ve been working full-time I don’t have a chance to trade the market, I only check in periodically.  Right now (first time I’ve been back since I asked the question around 10:10) IBM is trading for $115.90 and the Sep $120 callers are .60.  I wouldn’t pay $4.70 in premium for 15 days to go long if I had no position, and if I can save $180 that’s a good thing.   Alternatively, turning 3 Sep 120s --> 1 Sep 115 brings in a credit and is basically a wash in terms of extrinsic value.   Plus I’d be at 1/2 covers if IBM moves up.   Both seem like reasonable choices.

  72. VZ/Phil – I believe you meant to buy VZ Apr $28 CALLs @ 3.30, and wait to sell Oct $31 CALLs for $1?

  73. Emotrader/AAPL…….I play AAPL a lot.  My stance for September is owning April 175 calls and selling September 175 calls against them.  Any variation of this would work, as the play figures AAPL is good for the long term but as Phil says, if Jobs looks bad on video (and he will) then a short term 10% drop is likely.  I wouldn’t buy straight puts on it, as I follow a rule that there are certain stocks you shouldn’ t short naked……AAPL is one of them. 

  74. stevenparker; yes that is true; but still this represents a big disconnect.

  75. Gold/Matt – Well you can see how the shorts get squeezed.  I sold the naked GLD Oct $98s for $1.50, now $3.50 and if I couldn’t roll up to the $102s at $2.20 and DD because it was a small scale, I might be one of the people capitulating and buying gold.  Of couse this was a cover after other bullish gold positions were laid in so I’m not too upset but I am surprised. 

    YRCW/Red – If you do nothing they will just be assigned to you for another $1.  You can cover with Oct $2.50 calls right now for .55, which isn’t a bad deal as you have $1.25 at risk now and that will drop you to .70, then on Sept 19 you move to $1.70 at risk and break-even with a $2.50 call away (up 50%). 

    GLD spread buying Jan $105s for $4.40, selling Oct $99s for $3.10 is $1.40 on the spread and the Oct $99s can be rolled up to Nove $102s ($3.50) better than even so figure $3 per month is a $99/$108 vertical if gold keeps going up and a nice cheap inflation/disaster hedge if gold doesn’t hold $1,000 on this run

    Another possible explanation for gold’s pre-Labor Day run: ETF inflows stemming from the now-closing Deutsche Bank (DB) oil ETN (DXO). Gold +1.9%. (earlier)

    Home nursing/hospice provider Amedisys’ (AMED) shares recover a bit, but are down 25.7% after the resignations of its chief operating officer and chief information officer – though Stifel Nicolaus analysts "anticipate a seamless transition" and recommend holding stock.

    GLL/Morx – Sure, $13 is what I expected to hold (but looking shakey).  This is just gold as the dollar is same as yesterday (better against Yen) and oil is back at $68 so I’m still thinking this reverses. 

    BSX/Red – If it works as in if BSX finishes over $12.50 at Jan expiration.

    IBM/Eph – If you are trying to spend no money that’s good logic but the markets are holding up well on not very good news and volume is low and there has been no stick for 3 days and IBM is a great value at $115 so I would take out the callers as they are down to .55 from $1.50 on Tuesday and $2.50 last week so if you at least take them out now you still have the Oct $115 caller (now $4.60), which were $6 on Tues and $7.50 last week.   The Oct calls won’t give up the premium because Earnings is Oct 15th, before expiration and IBM, if they hit numbers, will log close to 50% y/y earnings growth on slightly lower earnings so you are far better off selling the Sept $15s, now $2.45, which will at least give up the premium in 3 weeks and you can always roll out to October.  I wasn’t advocating staying naked, just saying that you have a bounce off support at $115 and that’s a good time to take out callers and wait to see what looks good to cover with later.  IBM can be up $3 tomorrow morning with a kind word from an analyst. 

    VZ/Cwan – Yes calls.  Unless I forget I write the word "puts" out but not so much calls as I’d be writing that word thousands of times a month.

  76. Playing with the option prices in SGP (not SPG), I think MRK is going to break through the 30 barrier.  Call it a gut feeling, but my buyback of the 27 Sept09 C on SGP was VERY quick!
    MTXX – now that is a wild stock….

  77. Interesting to see Basic Materials, Transportation and Energy lead a rally on a day we get poor retail sales.  It’s as if someone is a reverse fundamentalist and figures that poor Retail Sales numbers must certainly lead to a demand for all the things it takes to get goods to market…

  78. Pharmboy, the buy/write that Phil laid out a few days ago on PARD is still at the same prices.  Stock at 7.84 selling the Dec 5′s for 5.40.  This almost seems to good to be true.  What is your take on PARD and this play?

  79. IBM  Thanks, nice explanation.  I hate spending money unnecessarily, but since I have to eventually do a 2X (3X?) with that Oct 115 caller if IBM moves up, I should take out the Sep 120s, while the taking out is good.
    GLD  I’m short Sep 94 callers as a partial cover of Jan 85s.  I have an order in for a 2X roll to Sep 98 for .50, but wonder if I should be rolling to something higher in Oct for a credit.

  80. GLD spread buying Jan $105s for $4.40, selling Oct $99s for $3.10 is $1.40 on the spread and the Oct $99s can be rolled up to Nove $102s ($3.50) better than even so figure $3 per month is a $99/$108 vertical if gold keeps going up….
    Phil, I lost you on the roll from the Oct 99s to the Nov 102s, and how did you figure a $99/108 spread. Could you explain when you would roll and why? thanks.

  81. VZ – just filled 10 @ $3.30; market @ $3.35

  82. YRCW/Phil

    when you say "cover with Oct $2.50 calls right now for .55" do you mean sell Oct $2.50′s for .50  which si what the bid is right now?

  83. YRCW/Phil

    when you say "cover with Oct $2.50 calls right now for .55" do you mean sell Oct $2.50′s for .50  which si what the bid is right now?

  84. Hello folks..
    I’m some away this days, and checking time to time positions and PSW post. Just drop to ask if is there any "reason" for the jump in silver and gold, but silver in special.  Wondering if for some reason the ones in oil hedging for a dollar fall switched to those metals or what? (probably after BP news they realize we have oil for all for free? hehehe :-)

  85. Pharm – MTXX still dint hit my sell price but i think i will trust it more next time it dips to 5.15.

  86. Cap
    Your comments drive the markets…. could only get a partial fill on MCO short puts. Next time – whisper in my ear first.

  87. Another way to play VZ is to notice that it’s been range-bound between abouth 29 to 32.  So, buy the stock (or keep selling puts until they are put to you).  And then sell covered OTM calls when it gets above 31.  When it gets back to 30, buy back callers and sell OTM puts.  Repeat ad infinitum.
    I have stock put to me a while ago, and have been doing this for a few months.  That’s on top of VZ’s 6% dividend yield.
    You have to be patient with selling calls/puts, though.  The stock doesn’t move fast.  And make sure you want to own the stock long term.

  88. pharm,
    look at AEN, I’ve been watching, waiting for .30, apparently I missed.

  89. Gel, yeah, MCO coming back a bit.  Below 24 still a good price IMO.  Buy stock; sell covered calls.

  90. Oil closed just below $68 – failure for the day.  Gold down $6+ to $993.50 already. 

    GLD/Eph – Evidence is compelling that this is a squeeze with no fundamentals.  You have Jan $85s and can roll your callers to 2x the Oct $95s at $4.30, which is double what’s in your pocket now and you can always spend that $4.30 to roll the 2x callers up to the $100s (now $2.60) if gold breaks up but, if it breaks down, you are nicely locking in profits.  GLD was $93.50 yesterday morning, your longs are way up – why be greedy?

    PARD/SS – I still love that play! 

    Rolls/Allen – Sept $99s to Oct $102s is even roll so we assume that roll to Nov $105s would be even, then Dec $108s and Jan $111s actually so I was lowballing it….  A big mistake people make is not being conservative enough with the covers.  If you have a clear path on rolling AND you don’t let those rolls get away from you, then there is no reason not to take conservative covers.

    VZ/Diamond – Nice job, never hurts to ask and be patient!

    YRCW/Red – Yes but I’d sure ask for the nickel (see Diamond’s VZ play above).  Obviously a nikel isn’t life or death but it’s always good to try to get them, you’ll be surprised what fills.

    Metals/Spider – No particular reason but there is market unrest and rule changes at the CTFC that may have commodity-minded traders rushing to gold and silver as they seem "safe" places to park money.  There’s also the new government in Japan messing things up and oil losing it’s appeal and ags are already falling and copper faded at $300 so money flows to whatever’s left but I’m not expecting gold to hold this level – it’s too early for them to break out but it will happen one day.

    MCO – Good call Cap!

    VZ/Cwan – Excellent strategy and I don’t consider it a negative that VZ is a slow mover

  91. Gel .. and how did you miss it ?  My post on this was 2 hours ago; plenty of time to get in.

  92. FWIW, I bought some stock and sold 26 strike Sep calls.

  93. Volume right at 100M at 3pm.  140M is "stickable."  Mr Stick stopped coming after he got hosed on Monday with someone(s) selling like crazy into the attempted closing pump but "they" jacked it up pre-market on Tuesday and got their money back Tues am at which point they les the market slide to (hopefully) get rid of the jokers who had the nerve to sell into the stick.  After an almost 72 hour rest period, I think Mr. Stick is tanned and rested and ready to put a positive spin on this week into the holiday weekend.   That’s my market story at the moment.  I’ll be right if we get a move either into this close or possibly a pre-market pump into a Free Money Day tomorrow that jams us back to 9,500 on very low pre-holiday volume. 

    Those DIA $94 puts are still $2.15 and I still like them as a way to play for a move up.  The $95 puts came down to $69 as the bulls have lost faith and that makes them a fun play to get back into as well.

  94. Thanks Phil.  Im for a small position on ZSL 500shares at $6

  95. The $95 puts came down to $69
    You meen the 95 calls came down to .69 yep ?

  96.  Phil-  If you were bearish on commercial real estate and wanted to give yourself a few months for your bias to   realize what would options would you consider?

  97. I’ve been trying to figure out why we have a huge movement in gold at the same time that we are seeing so much buying of the Long bond. This action being counterintuitive  as gold protects agaist inflation and the long bond is adversely affected by inflation. What I think is happening is that this is a paired trade by those who see very little growth in the medium term and want to secure a 4% yield and are hedging against dollar devaluation with the gold. Therfore this is a zero growth and /or stagflation play. If I’m right, then the powers that be have concluded we have reached the top of the market and they are laying down their long term bets

  98. Phil / TNA – Bought the dip this morning about 10:30 @ 34.70; I’m thinking of taking profit befor the close. What do you think ?

  99. Cap… was out for a luncheon, and as usual the good stuff always happens when I am at play!

  100. Pharm & Phil – do you include FOE or CZZ in the category of commodities to be careful of? I have no ETFs but i do have positions in each of these. thanks

  101. Phil is this Mr stick or did someone leak the employment numbers? Check w/’Bamas staff like last month.

  102. Phil / TNA – Out at 36.36; thinking of going long TZA into tomorrow. Thoughts ?

  103. Rolls/Allen – Sept $99s to Oct $102s is even roll so we assume that roll to Nov $105s would be even, then Dec $108s and Jan $111s actually so I was lowballing it….
    Phil, Sorry, but I still don’t get the concept. I’m a relative newbie so that’s the excuse. Your original recommendation was to sell the Oct 99s and then roll to the Nov 102s. I see the difference right now is roughly .40 between the Oct 99s and the Nov 102s, and the delta on the Oct 99s is slightly higher than the Nov 102s. So, 2 scenarios:
    1 – GLD goes down or stays the same, premium on the Oct 99s declines and I assume you would roll to Nov 99s or lower to collect more premium. That I have learned to do.
    2 – GLD goes up, premium on Oct 99s also goes up faster than for the Nov 102s so rolling up would result in an overall loss, taking into account the commissions, the spreads, and the higher delta on the 99s. Okay, but the long call would I guess compensate so does that justify the roll? — except it seems to me that that each roll would keep reducing your profit every time.  I am obviously missing a basic concept here.

  104. concreata / TZA – @ 15.50 if you want some.

  105. Stick Man - Hey Ho, let’s go!

    $69/Spider – Er, oops!  Yes that was 0.69 on those DIA $95 calls, paying $69 per contract would be excessive.   Those are already up to .76, 5% in 40 mins is a good trend!

    CRE/Kels – I’d still have to go with the SRS vertical like Apr $7s for $6.50, selling Apr $11s for $4.30 so $2.20 on the $4 spread that’s 15% in the money with a 27% cushion before you have a loss.

    Gold/Maxt – Very possible but I think it’s the money sloshing around from the dislocation in other commodities and the ETFs coupled with overall market nerves. 

    TNA/JRW – I’d leave some on unless we get a ridiculous mega-pump now, so far my premise is working. 

    FOE/CZZ/Morx – I’m sure not worried about CZZ as sugar does seem short.  FOE should be good too as specialty chems are a good market. 

    Stick/Colberg – Whatever the reason it’s just the logical follow-through I predicted in my last comment.  Of course there is no vast market conspiracty but IF there were one, that’s how I figured it would play out.  Thank goodness there’s not one, of course…

  106. Maxt1234 – I was looking into same pattern.  Bond yields going down and precious metals up. Its some sort of opposition or contradiction there. Maybe as you say are paired. But how we can have so many investors doing the same at same time? For me looks more like some are playing the inflation and others the deflation and some both just to keep neutral.  And from fed minutes we still have all to ambiguous so the inflation/deflation dilemma still present.
    Here, we had the cash for clunkers in Aug-2001 and we went into total collapse 4 month later. Still, this is a very different country than yours, but i will try to give a very brief image of what gone here then….
    We where several years in recession, mainly because our currency was in a "dollar-standard"  1-to-1 and the dollar was so strong that we can import but we can not be competitive to produce and export. Budget was a disaster and many problems. Finally the dollar standard was broken and the currency devaluated gradually to a 3:1
    The problem was that nobody has cash. Now the banks where feed by govment (think in a QE) but the banks will not lend the money. Why? because we where almost all broke. They will only give money to the ones in exports business. So after massive devaluation prices DO NOT RISE. So a house costing 120,000 us$ or pesos was still selling at 120k pesos or less, that is after a 3:1 conversion 40k dollars.  But because the massive bank run and other big problems, if you had the cash, say 25k usd the house was yours….  now 8 years later this house worth 150k us$  And im not kiding because the example above was real and i done that (bought at 25k)  and sold at 50k less tha one year ago. And now that house will not sell for less than 150k. 
    So, I dont really know what will happen in USA, but if there is a big mess, cash will be king, but later, when things get better you can regret  if you dont buy at fire sales.
    Land, great one, was at $1000 per hectare (~2500 acres) or less in the crisis. now same surface costs $8000 and when we had the soy at $600 per ton some lands where sold at $12000 to 15000 …. very sad for the ones selling and great for the ones buying.
    Besides all that, Land is the way to go in a world where every day we are more and more food is necessary. Its finite. Only 3% of world land is fertile.  Dont know  the costs there in usa, but if i had the cash in a big crash i sure will be buying land, as much I can for my grandchilds. Land much better than gold wtich does not produce nothing.

  107.  rah rah Mr. Stick !!!

  108. Phil / Tza – Bought 10 k TZA at 15.40; hope jobs are a -20% surprise.

  109. SS – PARD play – what Phil said.

  110. CAF which tracks the Shanghai market up only 2% today, someone is betting the run in China won’t continue.

  111. PhiL:  I’m in LYG w/ Jan. $7.50 covered calls for net $6.25. Thinking of selling Jan.$7.50 Puts for $1.60 . What say you?

  112. SPWRA bounced nicely at support.
    Max and spider, today at least the bond/PM markets were in some kind of alignment; if only for one day.

  113. Phil
    Re: DIA / mattress – Fortunately, green shoots are sprouting big time in my neck of the woods lately and business has picked up substantially over the past month. Keeping my fingers crossed it is for real but not convinced , at least not yet.
    In any event, this calls me away from the screen most of the day and I am looking for some advice on how best to maintain this insurance policy. I can set up rolls for the longs and can set up buy backs/sells on the shorts with hard stops, etc in the morning ( I usually have to hit the road long before the market opens but I dream about the futures) . What can you offer?

  114. Or is it Sickman???

  115.  Phil
    DIA $94 puts – still fully covered as we never hit our targets?

  116. ELN option IV went up considerably today. Any news Pharm?


  118. ELN/Eric – none that I know of.  JNJ put the money into them a few months ago or so.   Tysabri (MS drug co-marketed with BIIB) court info is in the works as ELN could buy out the BIIB portion of Tysabri, so that could be the movement???

  119. Ahhh, there we go…Lundbeck could aquire ELN…..speculation….

  120. JRW -TZA – I was out and missed the close, thanks for the heads up, good luck tomorrow.

  121. Man, the news is flying for September 3 …
    What: FDA to decide on Spectrum’s cancer drug
    * When: Sept 7, Monday
    * Analysts expect a positive response from FDA
    By Anand Basu
    BANGALORE, Sept 3 (Reuters) – Analysts are expecting a favorable decision from U.S. health regulators on the additional use of Spectrum Pharmaceuticals’ (SPPI.O) cancer drug Zevalin as a first-line therapy for non-Hodgkin’s lymphoma (NHL), which will give a much-needed boost to declining sales of the drug.
    The U.S. Food and Drug Administration (FDA) is expected to reach a decision on Zevalin as a first-line consolidation therapy for NHL on Sept. 7. Zevalin is already approved for the treatment of patients with relapsed or refractory NHL.
    In July, the FDA denied approval for Zevalin as a first-line treatment for patients with NHL, requesting the company to submit data sets from the late-stage study to verify a subset of the data that was under review for the proposed labeling. [ID:nBNG174679]
    "Based on the data that’s been submitted, the feedback from the company and the fact that Zevalin is already approved in the third-line setting, the potential is favorable for an approval," said Rodman & Renshaw analyst Reni Benjamin, who gives Zevalin a 80-85 percent chance of winning approval.
    Morgan Joseph & Co’s Shiv Kapoor also believes an approval is on the way for Zevalin.
    "We expect several key catalysts for the company in 2H09. We expect approval of Zevalin in the first line consolidation therapy of NHL on Sept. 7," Kapoor wrote in a note dated Aug. 14.
    Sales of Zevalin could touch $150 million if it gets an approval, said Benjamin, who has a "market outperform" rating on Spectrum shares.
    Zevalin sales have been dropping since its launch in 2005 when it reached about $20 million. They declined to about $16 million in 2006 and to about $11.4 million last year.
    Spectrum spokesman Paul Arndt said the company’s goal would be to stabilize and reverse Zevalin’s declining sales trend.
    Arndt, who did not give any outlook on Zevalin sales, said, "If we stabilise revenue this year we will consider that a win."
    He also said the company would market the drug on its own and had enough cash and a sales force to do so.
    As of June 30, the Irvine, California-based company had cash, equivalents, and financing receivables of $106 million.
    Rodman & Renshaw’s Benjamin said Spectrum could hold an edge over rival GlaxoSmithKline’s (GSK.L) NHL drug Bexxar as it already has a sales force in place to market Zevalin. (Editing by Himani Sarkar)

  122. vz/cwan120 – I’ve been doing the same thing as you.  Noticed the narrowing channel.  Looks like it’s gonna blow one way or the other in Oct!  Over the years I’ve had some really good plays on these range bound wave patterns – have you noticed any others that aren’t thin and have options?

  123. Pharm, thanks.

  124. DZZ – Bought some in AH. A Bit risky, but being contrarian and betting that Gold backs down tomorrow.

  125. Gold better back down by OpEx.  I rolled my callers deeper ITM thinking this was crap.  I have been watching the setup for a week thinking they were on a short squeeze ride…..if I am right, then I come out a very happy camper.  If not, my gain is protected and I walk way from gold until the $1000 is breached or the pullback to 800.  I think Phil noted this a while back in his Gold post.

  126. TZA/JRW – If we get a good reasonless pop back to 9,500, sure!

    Rolls/Allen – That play was a bearish play so anything to the downside or flat is a win, pure and simple.  The danger was to the upside and I was only trying to illustrate that it was very managable if gold kept heading higher as you already have a NEAR even roll to up $3 and out on month.  You are looking at Deltas as if gold is going to go straight up all in one day and you are ignoring Theta decay as well as the fact that the premiums on the call side are very stretched as we have some noodnick paying $3.10 for a $2 out of the money call that needs gold $1,020 before he gets his money back. 

    We can then extrapolate that, should gold keep going higher (and it doesn’t all happen in the next 15 minutes), we can keep rolling up $3 and out one month.  Since we have the months of Nov, Dec and Jan to roll to and 3 times 3 is $9, it means we will end up in the Jan $108s (I was right the first time) with our caller and we would be in the Jan $105s for net $1.40 and the only reason we’d be there is because gold kept going higher and we kept rolling up.  I do not care about the value of the Oct going up faster than my Jans as I’m only going to roll them to Nov $102s before that spread goes negative on me and, if GLD goes past $100 and my roll to the Dec $105s looks like it will turn negative, I will roll again and then, if gold keeps going higher and I think the roll to the Jan $108s may turn into a debit on me, I will roll it again, leaving me with a vertical spread. 

    The point is that you have an exit strategy to the upside on this bearish bet.  The goal of the trade is to get to October and have the $99 callers expire worthless leaving you with a 3-month call.  Since the November (3 months away)  $112s ($15 out of the money) are $1.60, we can play under the assumption that gold would have to drop below $930 for us to lose out on our $105s.  None of this is an exact science, the volatility can change on the front months or the long months (they don’t have to stay the same) and gold can do 100 things in between over the course of 5 months.  When you enter a long spread you just need to have a rough idea that you are comfortable with your target and your upside and downside exit or rolling strategies the time you spend worrying about specifics in advance would be far better spent studying the fundamentals of your position so you don’t get caught on the wrong side of a trade in the first place.

    For example:  I didn’t spend all day looking at the DIA $95 puts to find the optimum entry point based on the relative delta to time value etc to pick a .69 entry at 3:07.  I watched the Dow and the volume and checked the newsflow and watched the market leaders and then, when I thought the Dow would move up, I looked for the best entry to profit from it as that moment but the concentration, the 99% majority of my efforts, are on the fundamentals of the trade, not the options greeks.

    Good thoughts Spider, thanks.  The only problem with land in the US (and many countries) is they can tax it away from you if you’re not careful.  That is the crisis faced by many fixed income people here as their homes can’t be sold and the property taxes are making them broke (not to mention crazy utility bills). 

    LYG/Dfalm – Yes, I still like them but you have a pretty good chance of owning 2x at net $6 so make sure you really want them long-term.

    Insurance/Pstas – Well it depends what you are protecting but take a look at last Monday’s 3 cover plays and the SKF cover play I think I outlined yesterday or the SRS vertical above.  You just want to think of which sector’s collapse would most hurt your portfolio and go with protection on that.  Of course there’s always the good old DIAs.  You don’t have to mess around with them every day – I just like scalping quarters when I can but you can set that up with (starting from scratch) the Dec $96 puts at $6.50, selling 1/2 the Sept $95 puts for $2.50 for net $5.25 and the Sept $95 puts can be rolled to 2x the $93 puts ($1.45) and those can roll to the Oct $89 puts ($1.50) and those to the Nov $84 puts and PRESTO, you are $12 in the money to your putter with a $7+ profit so you have a clear path to a 100% gain on your cover and the net $1.25 per long you are selling as your first cover pays for you to roll your longs up to the Dec $98 puts so you don’t need to take any action at all unless the market moves up or down 200 points (AND you expect it to keep going).  That is the entire extent that you would need to monitor this position.

    DIA/Deano – A little late (sorry) but yes, still fully covered as we’re right on plan at the moment. 

    Gold/Pharm – 1,007.70 was the last big top in Feb didn’t last too long…  

  127.  CRE/Phil  Phil, I don’t see any April 7′s or 11′s priced close to 6.50 or 4.30.  So I’m confused.  
    Can you elaborate on this spread that you mentioned.  Thanks.

  128. Hi, javaben,
    Another one I’ve been playing is MCD.  It’s range is approx. 50-60.  I bought some last October @ 55-ish.  I’ve been selling calls/puts and driving my average down to about 50.  So, about 10% annual profits from selling premiums + 3.6% dividends.
    For MCD, you have to be even more patient, due to its large range.

  129. CRE/Kels – CRE is "Commercial Real Estate"   The play was on SRS.

  130. Crazy Kim is at it again I wonder if this will cause a stir in Asia tonight, or if everyone’s just used to it by now. I loved "Team America’s" Kim, he really is like the super-villain from 80′s cartoons who threatens the UN to get attention.

  131. Team America clip.


    This is from “News from 1930” website

    “There’s a large amount of money on sidelines waiting for investment opportunities; this should be felt in market when “cheerful sentiment is more firmly intrenched.” Economists point out that banks and insurance companies “never before had so much money lying idle.”

    -August 28:, 1930

    The more things change . . .

  132. For those holding positions in solar, in case you missed it, WSJ sees Spain’s abandonment of govt. subsidies as having significant negative impact on LDK and other solar companies globally:

  133. Phil – re Rolls/Allen – great explanation on the GLD trade thanks - and a question - when you say: 
    ". . . The goal of the trade is to get to October and have the $99 callers expire worthless leaving you with a 3-month call.  Since the November (3 months away)  $112s ($15 out of the money) are $1.60, we can play under the assumption that gold would have to drop below $930 for us to lose out on our $105s. . . ."
    If the Oct. 99 caller expires worthless, isn’t the idea to write more calls each month until Jan? This seems obvious but just wanted confirmation.

  134. CRE/SRS  Phil,  I understand that and was only using cre as you did.  So, on the SRS I still don’t see the options in April that you mentioned.  What am I missing?

  135.  Phil
    I Have GLD Jan ’11 75′s  3/4 covered by Sep 95′s. What adjustment would you suggest from here? Thanks,

    Optiver Inquiry Stokes Fear Over Firms That Shape Markets

  137.  Phil
    Sorry – should have been Jan ’10 75′s, not Jan 11 75′s.

  138. MCD/cwan120- Thanks for the heads up on that one.  Look like it’s bumping the bottom trendline that began in March, so maybe sell some puts now?

  139. Phil, thanks for the explanation about rolling. But please watch what you say about the nudnicks that pay too much for overpriced options. Until recently I was one of those!
    (probably still am sometimes – bad habit.)

  140.  Phil, I received a notice saying my PSW subscription expires 9/5, but I just renewed quarterly on 7/12. Are you guys having some issues?

  141. Spain/Concreata – This article is a good example of why I’m tempted to quit reading the WSJ altogether.  They are spinning Spain’s economic crisis, which is causing the government to cut funding to solar as somehow proving that the US should not push for solar power.  Spain’s econmy may be in the toilet but the 3,500Mw of power plants (actually about 1/5th of the world’s total) they built are still being produced at virtually no additional annual costs with no pollution and should continue that way for decades.  Spain may have taken a lead (and the fact that they led last year was only because Germany halted subsidies last year and the US, which has well over 3,000Mw under construction currently, is on a cycle to be up and running in 2010).  You can see how poorly researched the statements made in the WSJ article are here (note that the top 10 are measured in Terra-Watt hours, while Spain is measured in GWH so their 143 solar production is .143 in the top 10.

    Solar energy is currently less than 1% of the world’s energy production and there is a massive PR campaign in the MSM to keep it that way.  The joke of it is – all energy is solar energy.  Plants absorb sunlight, dinosaurs eat plants, plants die, dinosaurs die and millions of years later we squeeze the energy back out of the goo that’s left over.  This is probably the silliest way to get energy imaginable since more solar energy strikes the earth in one hour than the whole planet consumes in a year and it’s right there for the taking with solar power.  The fact that you can have a small country like Spain build 3,000Mw of solar means that if every country did something similar in terms of GDP, then we could have 60% of the world’s energy consumption converted to solar in 5 years.  That would cost the oil companies and OPEC close to $2Tn a year so to say there are people who are willing to kill to keep that from happening is an understatement.

    Think about how ridiculous it is that we know a way to get energy from the sun, we’re even getting 1% of our energy that way now and business models have proven out that the investment pays for itself over time and it gets more efficient every year yet rather than investing 10% of our planet’s annual fuel bill ($5Tn a year) into solar, which would replace our need for 10% of our fossil fuels each year, we continue to consume and explore for more fossil fuels even though we know they are going to run out and, once you build the solar plants they run forever on sunlight.  Nellis Air Force Base in Nevada only had to agree to let Renewable Ventures install a 140-acre plant at their base and, with a 20-year contract, they are able to buy electicity for 2.2 cents per kWh vs. 9 cents from Nevada Power. 

    The power plants we have now were built with massive government subsidies over the last 100 years and there is now a much better, cheaper, cleaner way to generate electricity yet those same companies that are now part of the US Energy Cartel are doing everything they can to stop it.  It’s a damn shame but they are also fighting the tide because what RV is doing at Nellis and other places makes too much sense to stop.  They can only slow it down with their negative media campaigns and paid political assasins who try to kill every funding bill that hits the floor of Congress.  That’s why China is number 1 with 50% more rewewable energy production than us already and it would be 500% more if we didn’t have Hoover Dam and Niagra Falls, which were New Deal projects that account for 2/3 of the US’s renewable energy production.  It’s not that we can’t do it, it’s just that we won’t.

  142.  Nevermind, I think the notice was in regards to my newsletter subscription I had tested when I invited a friend. My Premium Membership is still valid through 10/12. Please disregard earlier comment.

  143.  Nevermind, I think the notice was in regards to my newsletter subscription I had tested when I invited a friend. My Premium Membership is still valid through 10/12. Please disregard earlier comment.

  144. Rolls/Concreata – Keep in mind it’s a bearish bet on gold and, at $1.30 in, if I have $2 left on the call in October (which is the plan), I’d be inclined to take it off the table unless there was a really attractive risk/reward in the next sale. 

    SRS/Krels – The April $7 calls (SKWDG) were last sold for $6.45 and the Apr $11 calls (SKWDK) were last sold for $4.25 and if you subtract the sale of the $11 calls from the cost of the $7 calls you get $2.20, which would be the net cost of your spread so, effectively, you "own" SRS for $9.20 with the stock currently at $12.58 and your max gain is capped at $11 (because you sold the calls) so you would make a profit of $1.80 (81%) if the stock is called away at $11 in April.  As long as SRS doesn’t fall below $9.20 by then (27%) you will break even or better.  

    GLD/Deano – I’m not too wild about he Jan $75s as you have a .95 delta and no premium at $22.85 while the March $86s are $14.55 with $3 in premium and a .76 delta.  So you can either take $8 off the table (presumably profits) with very little virtually change in your upside delta or you can buy 50% more calls in March and then the same $$$ coverage will leave you with much more upside.   I would do the roll, take profits off the table and, IF gold goes up more, you simply add to the March position and roll the callers to a 1.3x or 1.5x or whatever it takes to put them into all premium in October.  Meanwhile, I’m fairly sure the Sept $95s, which can be rolled even to the Oct $98s, are fine for now.  Taking the money off the table ups your coverage from 10% to 17% so you effectively double your coverage (and gain flexiblility) just by taking some money off the table and all it costs you is .19 delta.  Also, it’s worth noting that $2.47 (75% of $3.30 you collect from your caller on a sell-off) doesn’t pay to roll the Jan $75s down to the $70s ($4.80) but it’s just .40 shy of paying for your roll to the March $82s, not to mention more time = more sales and one extra month of selling $2.47 in premium pays for your delta loss 10 times over). 

    MCD/Java – $50 is a "must buy" spot for them so if you don’t mind rolling then you can sell the Oct $55 puts for $1.25, which is the same price as the Jan $50 puts so that’s the roling path. 

    Noodnicks/Allen – Sadly, it is my job to point these things out.  It takes a very long time to convince most people that you can make more money selling options than buying them.  I often point out that millions of people go to casinos and virtually none of them are as rich as the guys who own them and the only difference between those guys and you is those Billionaires have the discipline and patience to take favorable risk/reward bets with small payouts over and over and over again while millions of people are willing to take the opposite side of that bet on the slim chance they beat the odds and get a big win.  Gambling has been around since the Romans and never, in thousands of years of history, has it been smarter to be on the long side of the bets over time yet that doesn’t stop anyone today. Selling options is about the purest way in the world that the average person can “be the house” as you have the ability to to take other people’s proposition bets on almost anything and you don’t even have to give them free drinks! 

    Subscription/Ajay – That’s what I figured it was.  Your quarterly is fine. 

  145. good morning
    Land : As I said above, I dont know your regulations taxes and so. But I doubt the taxes are over 30% production (much more than a 35% net gains) and USA has always subsidized farms, so they take in taxes but you get some back. A good quality land in a place with good weather can give you in a year something like:  10 ton corn or 5 ton wheat  or 3.5 ton soybeans per hectare. Thats around $1000 per hectare and its translated (aprox) into $400 per acre/yr.
    Just a simple math: If I can rent the land in exchange of 30% production (commercialization costs free)  and I use 50% of that to pay taxes and other expenses I get net 15%.  Thats is $60 per acre / year. Now I (and many other people) use to price things by comparing to bond yields.  So $60/yr equals a $1500 invest in a bond that pays 4%/yr or $1000 invest in a bond that pays 6%/yr.  Land additionally can make profits in many other things including some not so standard like tourism,  or long term production like wood (the man who planted trees?), greenbonds.. etc
    That was a very (or extreme) simple math, because you have to do a deep analysis before buying land. And I bet  land in USA is well over $1000~$1500 / acre. 
    The idea of my post is because the GLD talk. And there are other alternatives. Gold produce nothing and besides can be a vehicle to several things, like trading or strategic position in a portfolio. I’m really against those gold bugs stockpiling gold as if we where in the end of worlds.  The funny thing is that in crisis you can not eat gold and when you go out there to sell you maybe dont get what you expect…