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Wednesday – Beware the Beige Book Blues

consumercreditIs our economy really improving?

At 2pm we get the Fed's latest Beige book, an anecdotal view of the economy gathered through roughly the end of August.  Most of the good data we've been "celebrating" in the markets has been June data with a lot of disappointments in July and next week we get our first look at August statistics where we'll see just how well Q3 is really going but yesterday's data on Consumer Credit, which dropped $21.6Bn last month (a 10% annual rate) turned us bearish into yesterday's close.

Not that we were all that bullish anyway but this was a last straw for us as the Dow was jammed up 50 points in the afternoon on very little volume, right up until the last 5 minutes when 45M shares were exchanged (1/4 of the day's volume) as Mr. Stick ran headlong into a seller that took full advantage of an opportunity to get out near 9,500.   Consumer credit is actually worse than it seems as the drops are accelerating RAPIDLY.  The drops began in March at 0.5% but April was down 1.6%, May -2.2%, June – 3.1% and July -4.2%.  Compare that to last July, when consumer credit was UP 4.9% and you can see how far and how fast we are falling.  And that figure, by the way was BOOSTED significantly by July's "Cash for Clunkers" program.  Were were expert economists on this issue?  They expected a $4Bn drop in July, a miss of 440% by 31 economists polled by Bloomberg – the same ones who expect a turnaround for the economy. 

CapitalismposterOut of 31 Economists who are paid to watch numbers like this for a living, just one had predicted a $12Bn decline with the rest missing by miles.  Perhaps we can forgive them as the Fed missed too with their original report listing Consumer Credit as declining by "just" $10.3Bn in June.  That number was revised up 50%, to a loss of $15.5Bn yesterday. 

Ooops….  As we noted in last week's Fed minutes examination, the actual data is MUCH worse than the Fed's outlook would have a rational person believing.  So the Beige book will be interesting this afternoon and we're not expecting a good report.  The Fed gets a bad report tomorrow too, with the release of Ron Paul's new book "End the Fed."  This is going to be fun and a few weeks later we get Michael Moore's latest film: "Capitalism, A Love Story" in which Moore goes Ron Paul one better and calls for a tear-down of the entire system

Speaking of torn-down systems.  Check out this 30-min documentary on China that Kustomz posted yesterday.  Whole cities of millions are shut down and it makes you realize what nonsense it is to depend on China to pull us out of this crisis when they have close to 50M "officially" unemployed workers who can't find jobs that pay $4 a day.  Tens of millions of China's migrant workforce have already returned to their family farms, where the whole family's income is generally less than $2,000 a year.  Still, in a country with 1.3Bn people, that is 1/2 of the nation's GDP - just don't expect them to be buying a lot of $100 sneakers in time for Christmas…  

After a significant downturn this morning the futures markets came on strong once Asia closed and we are once again riding the low-volume, pre-market pump for all it's worth.  Today's spin came from Gang of 12 member Lloyd Blanfein of Goldman Sachs, who said at a conference in Frankfurt that "the worst of this crisis is off the table" – meaning, I'm sure, that his bonus is intact and there is no possibliity of any of his destroyed rivals coming back from the dead, leaving Goldman with their pick of tens of thousands of unemployed financial workers willing to enrich the GS partners as they are lucky to be getting jobs at all now, so there's no need to promise them a share.  In a brilliant stroke of "luck", bonuses are also out of favor (and, in fact, restricted at most GS competitors) so GS doesn't have to offer them to their junior work-force, laying the foundation for the most profitable decade in GS history over the next 10 years.  GE also boosted the market today by re-raising their outlook on GE and other industrials, which CNBC (GE's network) is gleefully reporting every 15 minutes..

Daily S&P Swing 

We're having a wild ride on the S&P and it ain't over yet as the index is at the 1,030 line, which is 55% off the bottom and 35% off the top.  So it will just take another 55% run to get us back to 1,600.  It only took us 6 months to get this far – who knows what the next 6 months may bring?  Since breaking the 40% (off the top) level at 1,000 on the S&P on August 3rd, we have done a pretty good job of holding it.  The Dow's 40% line was 8,413 and we left that in the dust as well and even the SOX are now near the 40% mark at 330, so we'll be watching that with great interest along with the Transports, which closed RIGHT ON THE LINE yesterday at 1,867, just one point under the 40% mark

Getting our two lagging indices over the 40% line leads us to a proper test at 33%, just 1/3 off those crazy market highs of late 2007.  I know that every single one of you out there feels that we certainly are no worse off than we thought we were (but it turned out we weren't) in late 2007, when oil was $90 (now $71), gold was $800 (now $1,000), copper was $3.50 a pound (now $300) and unemployment was 4.6% (now 9.5%) – so I won't go into a whole thing pointing out that that's just silly.  Instead we'll put up our next major break-out levels of Dow 9,394 (past it), S&P 1,056, Nas 1,917 (way past), NYSE 6,959 and Russell 574 (right there).  We stayed out of trouble yesterday morning by watching that 577 line on the Russell as planned in the morning post

That helped us make good short plays at the open but, as I mentioned above, we didn't expect it to last and we played for the afternoon stick, even though it came in weak on low volume.  We did short gold again at our $1,007 top target and we picked up a few longs as we wait patiently for the market to give us some real direction but, as I said, that Consumer Spending data turned us bearish into the close and that's how we stand this morning.  We got Redbook Retail Sales this morning and they were "only" down 2.4% last week with discount stores still leading the way.  The real news is the Beige Book and I am very worried about that as Fed Governor Fisher is scheduled to speak at 1:55 and I can't imagine they would have stepped on the release of the book if it contained good news that didn't need spinning.

Consumer Confidence Index, September 8, 2009.In more news you won't hear on CNBC or read in the WSJ unless you look REALLY hard:  Last night the Consumer Comfort Index fell another 6.7% to -48 from -45 last month with just 45% of Americans rating their own financial outlook positively and only 8% of the American people have a positive outlook on the national economy.  Only 27% of the people surveyed thought it was a good time to buy things, despite the retail discounts and "clunker" programs.   

Manpower Employment trends are, not surprisingly, off 18.5% from last year with hiring plans at the lowest point in the history of the survey.  Also in fun news – kiss $81Bn given to Auto companies goodbye according to a new report by the Congressional Oversight Panel who say the Auto Task Force "failed to disclose to the public both the factors and criteria it used in its viability assessments, the scope of outside involvement in its evaluations, and its basis and reasoning for selecting particular benchmarks and taxpayers are unlikely to recover their $81B investment."

So plenty of reasons to be skeptical about our "V-shaped" recovery as the only people calling for it are the same idiots who were off 400% in their assessment of consumer spending and, last I heard, consumer spending is 70% of the US economy, which is 1/4 of the global economy – that's quite a big 400% to miss on don't you think? 

We'll see what the Beige Book has to say this afternoon and, as we often like to do, we'll be looking to strangle the Dow ahead of the Fed.  That means we're likely to pick up the DIA $94 puts at the open, hopefully for about .75 and, if we get a good dip, we'll try to balance out with some $96 calls, trying to keep the combo as close to $1.20 as we can. 

Be careful out there – it's going to be a wild one!


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  1. Boy they are really chasing down the Gang of 12 lately.  Now Physicists are on the hunt trying to connect all the dots that lead back to the 12 people who actually control the global economy!  It will be interesting to see if this study actually gets published or if it disappears before the Review comes out.

    Dollar getting dumped again since the EU opened for business and the Yen is heading back up now that they are done boosting the Dollar for the Asian audience this morning.  Oil still hovering around $71 and gold just under $1,000 and the futures are inching positive and looking like they are heading higher after being down half a point at 3am.

  2. OT: I speak tommorow in front of the London Petrophysics Society on the same stage and in front of the same chairs that Darwin (and other naturalists) addressed so many learned folks over the last 200 years.  I bet I’ll be the most average intellect ever to grace that auditorium! 

  3. That is very cool where.  Just as off topic – you can use this bitchn’ link as part of your presentation.  It’s a computer model of "The Origin of Species" as it was revised over time.  Very interesting if you’re into that stuff as it shows how Darwin and the publishers had to dance around the phrasing of certain concepts from time to time so as not to offend the Church.  As I guy who is often asked to censor his views – I can certainly relate!  8-)

    I forgot you do that for a living.  What’s the latest on BP’s gulf find?

  4. Phil – I’m not doing anything as ground breaking as redefining evolution!  I work as a petrophysicist and reservoir engineer.  I developed a new process for recording downhole production in oil and gas wells that works much better in today’s highly deviated wellbores.  I published a few papers on it last year and am just giving a quick talk on it to a bunch of greybeards (I’m 29 so they all take me with a bit of salt!)
    BP’s find is really cool as it demonstrates the advancement of drilling technology.  As for reserves, I’ve heard 2.5-3.5 billion in place.  I have no idea what the permiability of the reservoir is, but if its similar to other Gulf reservoir rocks we are talking about 500 mD perm and 20% porosity, though it’s lower in the strata so maybe less quality.  Anyway it’s going to be pricey to produce this reservoir and it won’t come online for a while.  But in reality, if it were on-line today and we got 30-40% recovery from it we’d have enough oil for the world for 2-3 years max?  It’s that nasty peak oil thing again.  At least nominal $ divided by peak oil is well on it’s way towards parabolic.   

  5. UNG – thanks God we have used up all the excess nat gas and resolved the regulation issues (since Friday morning)!!!

  6. where
    "…the most average intellect…"  ha ha ha ha! you go boy
    Not only that you almost got an argument on evolution started. Darn. guess it will be another boring day.

  7.  Phil , I have 30 jan 14 slv calls. I bought at 1.32. They are at 2.90 ask. Should I roll, sell, what? I’m new at this.

  8. Phil, the article you linked to above by those physicists is already out. I’m skimming it now…

  9. Ah, there’s a free pre-print here if you can’t access the actual article on the publisher’s website.

  10. Oil/Where – Well it’s not that much but every year helps as we get closer and closer to developing viable alternatives.  Thanks.

    DIA $94 puts still .72 (see play in post) and $96 calls at .71 so that’s $1.43 and we really want to get $1.20 for the set as a strangle.  I’d take the puts at .65 and then wait for a nice sell-off to pick up the calls for .55 hopefully

    UNG/CDS – LOL!  Well we expected this to be a great play off the bottom.  All it takes is a strong breeze in the Gulf and we can get back to $12.

    Evolution/Morx – That’s worse than politics!  What do creationists call fossil fuels anyway? 

    SLV/Oldgoat – This trade is a candidate for our patented 2 step process for locking in gains:  Step 1) Take the money.  Step 2) Run.  If those steps are unclear to you, I will be teaching a remedial class this weekend.   8-)

    No real change from yesterday as it’s all about Russell 577 as a make or break mark and our other levels to break up are: Dow 9,600, S&P 1,030, Nasdaq 2,038, NYSE 6,700 and Russell 577

    Voume is looking the same as yesterday with a big push to get momentum in th emorning that will likely fade by 10:30, probably shy of 9,520, which has become strong resistance. 

    It’s all about the dollar at 92 Yen – Japan simply can’t afford to let it fail there and this rally is all about pushing down the dollar to boost commodities and stocks artificially (what good does it do you if your GOOG stock goes to $500 when it buys less gold and oil than it did last week?).

    If we do break over, we just have to go with the flow.  As I said, watch the RUT, if they are over 580 then we have strong positive momentum and we can wait on buying those puts for an even better price, maybe .75 on the DIA $95 puts instead

  11. Thanks Kwan!  Direct link to the PDF is here.  I love the fact that they quantify what I have been telling people for years, that less than 100 people/corporations control over 80% of the global wealth with the top 20 controlling half of that.  This is really disturbing stuff but, strangely, it doesn’t bother people as it’s too abstract to think about.

  12.  GE/Phil – looking to roll my buy/write from Septembers…currently have the $13 calls/puts & have had the position a few months, so my net basis is somewhere in the $9-$10 range.  Any suggestions?

  13. I didn’t think it was possible but I found an etf harder to trade then FAZ.  SRS is a real ball buster.  To think I switched from FAZ to SRS because I thought there would be less games at play.  Wrong!

  14. Can I go long on the DIA Dec 98 puts here?

  15. a few months ago, i did a buy-write on TIE at $8.34 for the stock and sold Sep 7.5 calls at 1.15 and the 7.5 puts at .4.  you have mentioned that you like this stock, and what would you do at this point since it looks like it could be called away.

  16. Here in Central time… It is now 09:09:09 on 09-09-09!
    Translated from German that would be No:No:No on No-No-No!

  17. Oops a minute early.

  18. Here in Central time… It is now 09:09:09 on 09-09-09!
    Translated from German that would be No:No:No on No-No-No!

  19. Now I got it.  Happy 9 day!

  20. phil, what do you think about the March 10 – MCD veritcal  57.5 and 60′s.    Sorry couldn’t find a better way to describe it.  thanks.

  21. Translated from German that would be No:No:No on No-No-No!
    Reminds me of my interactions with my German girlfriend when I was young…;-)

  22. Pharmboy…. I’m thinkin about gettin some VVUS and was wondering if you had any insights or advice?  TIA

  23. Phil, do you think we will get an asset class bubble before we see classical inflation?  Personally, I think we are seeing it now in equities and commodities.  But if the Fed continues it’s monetary policy until it sees a loaf of bread and gallon of milk go up.. couldn’t we wind up in the same situation we were before (housing bubble)?
    Big picture till the end of the year:  You’ve said ‘they’ll’ want to show 10% in the markets to lure in sideline money.  Well, we’re already there in the Naz, RUT and S&P.  It seems like the dollar is going to weaken till year end.  Seemingly, commodities and equities will go up as a result of that.  So where is the pullback?  If we don’t, we’ll be way over 10% by year end..

  24. Notice CNBC is going to hammer home that theme:  Weak Dollar and Strong Chinese Commodity Demand, over and over and over until people start believing it.

    "If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” – Joseph Goebbels.

    GE/SS – Why can’t people be happy with 30% profits?  GE got 2 upgrates and flew up from $13 to $14.60 in 2 days.  You have great protection with the calls and you can take out the puts for .05 and your worst case is you get called away with a huge profit.  If GE stays up, you can roll to the Dec $15 puts and calls at $2.70 so you are a good $1 away from having a problem breaking up your caller and if GE goes back down to $13ish, you will be right on track with a roll to October. 

    SRS/Matt – LOL, they are the new darling of the manipulators as you can really jerk the whole sector around with that ETF.  My new way to play CRE down is the IYF Nov $54 puts at $5.40, selling the $51 puts for $3.60 so net $1.80 on the $3 spread (66% upside) - a much mellower way to lose money than SRS!  Those can even be hedged with the URE March $4s at $1.90, selling March $5s for $1.35 so .55 for the $1 spread (80% upside).  If you put $3K into the IYF puts (pays $2K) and $1,500 into the URE longs (pays $1,200) you are very unlikely to lose both and there is a chance both can win and an excellent chance that one will win and you’ll be able to salvage the other with a small loss. Be aware that shorting any CRE with BXP over $60 (now $61.36) is a bad idea! 

    DIA/Blair – Sure you can.  We still think this move is BS but make sure you have an upside hedge into the BBook. 

    TIE/Drum – I do love them long-term, especially at that entry.  As with SS’s GE play, it is a moral imperative to buy out the putter at .05 with 10 days left.  That leaves you with just the $1.65 $7.50 calls and those can be rolled to Jan $10 calls at .90 and Jan $7.50 puts at .60 if you feel the need but there’s no hurry as you currently have a nice call away with great insurance. 

    LOL Grant – I dated a girl in Germany who sounded like that…

    MCD/Jo – I like MCD at $50 and don’t like them at $60 so I’d rather buy the $50s for $6.60 and sell the $52.50s for $4.90 for net $1.70 on the $2.50 spread.  That makes .80 at $52.50 vs the .80 spread at $57.50 that makes $1.70 at $60.  I’d rather, on the whole go for the lower call spread and pay for it by selling the $45 puts at .90 so you make $1.70 at $42.50 and your worst case is you own MCD at net $45.70

    Damn, Chaps, now my joke sounds dumb!

    Asset bubble/Matt – We can’t get a real inflationary move with this level of unemployment.  All this nonsense is based on expectations (as I poined out in the Fed minutes) while people ignore the reality of low demand.  Think of the economy as a pile of wet logs and the Central Bankers are trying to start a fire by dumping more and more matches on top of it.  At a certain point, you can make the pile of matches big enough to start a good looking fire, but they will burn out quickly and you are still left with wet wood.   If you run out of matches you are simply screwed.  Right now, we have a match fire and nothing more – there is no real evidence of ANY segment of the economy turning around but a match fire will still burn you if you stick your hand in, which is why the bears are getting screwed and can’t understand why it’s happening.

    I am starting to think that 10% market gains at the end of the year is a global goal (and remember, only 11 of the top 20 market holders need to agree on this) but I do expect a proper pullback before a Santa Clause run, most likely based on new stimulus in late October/early November.  If they don’t save Christmas, millions of people and hundreds of retailers and then the banks they owe money to will slip over the edge and "they" just can’t allow that to happen, there’s not enough slack in the system to provide a comfort zone…

  25. Hi Phil,
    I am the lucky owner of 1300 stk of C at 30.00 Like to recupe some of the losses by selling 10  25 puts of  Jan 2011 
    at about 20.50 and bying  10 Jan  5puts at 1.61 Delta of the 25 put is -1 should the stock go up put will fall at the same rate if the stock goes to 0 the Jan 5 put will give some protection. what do you think?

  26. Phil – thanks for the suggestions.  Please don’t misunderstand my attempts to build a longer-term position in GE with greed or unsatisfaction with 30% profits.  I appreciate the buy/write strategy and am still learning how to use it most effectively.

  27. Interesting how the RUT and Naz are tracking each other while the Dow and S&P do their own thing.   

  28. VVUS/Onc – they are thought to bebest in class for this area, but two things remain…1. Qnexa is a combination of generic diet drug phentermine, and an epilepsy drug topiramate, which is released slowly to minimize side effects. 
    Phentermine is commonly known as one of the chemicals in the three-drug diet drug fen-phen, which was removed from use in the early 2000s. The other two chemicals in fen-phen were what caused the cardiovascular issues that resulted in a ban.  2.  FDA approval….
    They just upped ARNA….ARNA is the other in this area, and is also one of the fen-phen pieces ‘remodeled’. 
    I would wait on VVUS.  Too far, too fast.  I doubt very seriously that any big pharma will touch them.

  29.  Phil
    Where are you at with DIA covers into the BB – half or full?

  30. Pharm,
    Who just upped ARNA? I am considering doing a buy/write on them. They are a bit under 5 right now and the Sept 5 straddle brings in over $1.

  31. VVUS popped ARNA a bit, and if ARNA can write their press release as good as Orex and VVUS, then they will move into the 7-8 range (if not, they fall to $2).  Interesting that Orex gained as well, as these companies are competing against each other (for a very large market)….thus there is plenty of room for all of them.  Think individualized therapy.  Since the Orex and VVUS are just reformulations, they may get a better price point than ARNA since ARNA is patented.  T’will be interesting to see how this plays out.

  32. Pharm,
    PS: Do you have any opinion on ARNA?

  33. Pharm, Thanks.

  34. Allen – Phil and MrM had some good entries a while back on ARNA.  If you can minimize the risk using Sept/Oct calendars, might be a better way to go.  ARNA is supposed to release at months end (seems the companies are releasing a bit earlier than expected to boost their market share (raise more capital)?  I am NOT playing ARNA, too much at risk.  I am heavy into BEAT and ARIA.

  35. as well as GILD….

  36. For those in CRIS…. now that is what I call a nice 75%.  I recommended them a few months ago at 1.3-1.5.
    I am off to KC for my ‘lil bros wedding.  I will be in and out, otherwise, C U all next Monday.  Good luck.  Please knock down gold for me….

  37. ssdirk – if GE gets called away from you and you are still bullish longterm on them you can do a GE 12.5/15 2011 vertical for 1.2.   That is a good set it and forget it type of play – If GE isn’t 15 by 2011 we got bigger problems and chances are the rest of your portfolio is gonna look like dogshit anyways.

  38. Holy Cow – If anyone can see an intraday chart of the Yen you can see the dollar drop like a rock between 7 and 10.  We just bounced off 91.5 yen .  The pound and the Euro were also punced up 1% but the Euro has been rejected at $1.46 and the Pound pulled back of $1.66.  A few weeks ago, the Pound was at $1.70 but gold was $100 lower – it’s just that, at the time, CNBC wasn’t pumping the weak dollar, strong gold story to keep things going.   At the time they were busy pumping oil, trying to get GS’s $85 target.  That didn’t work out so now they’ve moved on to gold. 

    C/Yodi – Ouch!  So you had $39,000 worth of C, now $6,000 and you want to make $33,000 back?  I’d go for 100 2011 $5/7.50 call spreads at .55, which pays $25,000 if C makes $7.50 and not mess around with the rest as this ties up no margin and you can move on and do other things.  As long as you don’t mind a DD to lower your basis, you can sell 100 March $4s for .58 and pocket $5,600 against $20K in margin.  You could also do that play in Dec at .38 and plow the profits (assuming there are any) into more 2011 calls along the way

    Another fun way to play C is the 2011 $2.50 calls at $2.50 and the 2011 $7.50 puts for $3.50 which is $6 for the $5 spread and you can sell Oct $5 puts and calls for $1 with the ability to roll to any $1 strike down the line.

    GE/SS – Oh and don’t misunderstand my general commentary for comments on your trading.  I just need to point those things out to people when the situation comes up.  Generally, I like to look at something like GE there as you made 30% fast and are we sure there’s nothing better to do with 130% of your money than plow it back into GE with a longer time-frame for a lower expected rate of return? 

    Speaking of lower returns, VIX back to 25.

    DIA/Deano – Back to naked on Dec $98 puts.  Not sure what to do ahead of the Fed though.

    DRYS taking off.  CROX having a good day.  SBUX getting bids.  NFLX too – someone is liking the consumer here…

    Gang of 12er DB says of SNDK (upgrade to a buy): "Transformation into a more asset-light model has boosted the balance sheet, should improve free cash flow, and provide for margin stability going forward,"  Firm notes flash market remains "one of the few high-growth markets."  That’s got the SOX moving and the Nas.

    Job openings fell to a record-low 1.8% in July, Labor Department says, which equates to 2.4M jobs – half of the 4.8M job openings at the peak in 2007. In July, there were 6.04 unemployed for every job opening; in Dec. 2007, when the recession began, that number was just 1.72.

    Assistant Secretary Barr, in his testimony on the Treasury’s efforts to stabilize the housing market, says over 360,000 mortgage modifications have been initiated under HAMP, on track to hit a goal of 500K by Nov. 1. Still, even if HAMP is successful, "we should still expect millions of foreclosures," he says.

    Service Sector Revenue: -0.4% from Q1 and -3.3% from Q2 of last year to $274.3B. Employment services took the biggest hit, down 2.7% sequentially. Legal services revenue was up 2%.

    The rich get poorer: Wealthy individuals’ Chapter 11 filings jumped 73% in Q2 from a year ago. They typically have large homes, two cars, and kids in private schools. "You’re living on the edge, you’re juggling those financial balls," one strategist said. "When one ball goes, they all fall down."

     More BS from Blankfein: "Saving Lehman may have made things worse, because it could have sparked a public backlash that would have led to even bigger failures down the road."  Yeah it could have been worse for GS so, of course, it didn’t happen. 

    Whee, and off we go!

  39. Pharm or Phil,
    Pharm: have a good trip.
    Phil: could you elaborate on why a calendar might minimize risk in ARNA? I just did a buy/write, bought the stock under 5 and brought in 1.10 credit (22%) on the short straddle. I have not mastered calendars yet (the adjusting part) so i don’t see how that might work in this situation.

  40. Hi Phil in your fun way to ply C you mean sell 100 2.5 calls at 2.50 and sell 100  7.5 put at  3.50 that is a hell of a lot of money surly some thing is wrong there?

  41. Well it looks like we’ll get those DIA $95 puts for .75, now the question is – do we still want them?  For me, it’s a yes but a very risky play of course… 

    Have fun Pharm!

    Calendars/Allen – I think Pharm may have been looking at a backspread.  At the moment, I’d be inclined to play ARNA selling the $5 calls for .50 and buying the Apr $6 calls for $1.60 as those should hold value wekk and the Oct $7.50 calls are .65 so easy rolls.  If you scale in at net $1.10 you can always buy more Aprils if ARNA jumps up and then you can roll callers to 2x whatever and you’lll be in great shape.  If they fall, you can roll down and sell more.  It’s also attractive to buy the Apr $2s at $3.40 and sell the Apr $5s for $2 as that’s net $1.40 on a $3 spread that’s $1.40 in the money for break-even.  The Apr $5/8 spread is .80 so you are risking (roughly) .60 on a big drop against a $1.60 gain if they just make it to $5 – not a bad risk/reward profile.

    C/Yodi – No that was BUYING both 2011s to lock in $5 on the long end  and selling front-months to generate an income.  You only have to make .10 a month to have a 150% return of capital at risk ($1). 

  42. Let today be final proof that no news is needed to move the market.  We’ve blown through some pretty strong technical resistance with almost NO letup.  Un-f-ing believable.  New highs here we come…

  43. Backspread, yes…off I go.  Enjoy.

  44. Oil puinched up to $72.50 and rejected there.  Gold can’t seem to keep $1,000.  

    FTSE closed just under 5,000 on a Free Money Day, CAC made it to 3,500 on the button, also in a great up all day session and the DAX finished at 5,574 so the EU indexes are well above their 33% levels. 

    Only the Dow has not broken our watch levels, which is strange with GE up again and XOM and CVX still strong.  C upgraded MA & COF based on a "stabilizing credit-card sector" which is a nice way of upgrading themselves as they have tons of cards out.  Why is V red? 

    I still like the DIA $95 puts at .75 but they are now more speculative than we intended with all this level strength.  The $96 calls haven’t moved too much, still .92 (+ .20 from 10 am) so hardly a frenzy to join the rally.

    Seeing a stabilizing credit-card sector, Citigroup (C) upgrades Capital One Financial (COF +5.1%) to a buy with a $44 target, and MasterCard (MA +0.8%) to hold, with a $209 target.
    After yesterday’s consumer credit numbers!

  46. This was posted on the Market Ticker.  This is what one person has to say about the "stabilizing credit-card sector".

  47. Phil, what do you think of DRYS, it’s up over 6% today. I’m in at $5, is it going higher or can I buy it back for under $6 next week?

  48. blair, there is enough incongruous action/information it’s making my head pop.  I’m giving myself the rest of the day off..  Even though I haven’t ‘earned’ it.

  49. To think COF was $9 just 6 months ago.  They are up 400% now.  And they still aren’t profitable!
    But I didn’t have the balls to buy them then.  And I don’t have the balls to short them now.  Maybe that should be telling me something..

  50. Hi Phil: Need your advice.  On 9/2, started  Sept.$38 buy/write on STEC for net $36.89 w/call sold for $1.31. Today buy/write is at $38.10 w/call at $3.70 and stock at $$41.80.( up $2.66 today)
    Should I roll to Oct. $42 calls for $3.80? Thank you.

  51. GMTA Blair!  It is amazing isn’t it.  You would think C would say "As we derive 20% of our income from Credit Card fees, it would be inappropriate for us to issue statements on industry players," but nooooooooooooooooooooooo….

    Credit Cards/SS – I like this girl, too bad she WILL be in court soon.

    DRYS/Jhat – The BDI popped up 2% today so you can afford to be greedy on DRYS if the index moves back up.  We are having a "recovery" shoved down our throats at the moment and if we survive the BBook then there’s not much data to argue against things until next week.  Oh and by data I mean headline data, not the stuff I point out that gets buried by the media. 

    MCO gives the UK a AAA credit rating today!  Isn’t that nice of them?   Maybe now the UK won’t sue them for crappy ratings on the banks that the UK had to spend $800Bn to bail out (but which didn’t affect their credit rating as that money came from magic fairies in the Queen’s garden). 

    Here’s something fun to keep track of.  China’s $300Bn sovereign wealth fund has been said to be investing (in the past week, boosting sectors) in US REITS, Commodities, US Mortgage Debt, Gold, Solar Stocks and now, infrastructure is getting their lovin’.  So far, they haven’t actually spent a penny but they’ve bumped up these sectors by hundreds of Billions by leaking their intention to buy everything that isn’t nailed down.  Let’s start posting all their theoretical moves…  Here’s an interesting thing about the CIC – They raised their capital through a 15% bond sale and they must make $300M a year just to pay their interest – that is going to lead them to riskier bets… 

    Balls/Matt – Sometimes the winning move is not to play…

    STEC/Dflam – They are up on the sector upgrades and a specific one by JPM.  Again this goes back to trying to be happy to cash in a nice 3% gain in a week vs turning it into a trade that once again puts you at risk.  STEC doesn’t pay a dividend and the puts still have a ton of premium at .70 and the $38 calls have .70 in premium so you are thinking of spending $1.40 in premium to move the caller into a position that gives him another month of gains and lowers your protection.  I think you should simply look at your total on the $38 puts and calls (about $5) and look at the fact that you can roll to any Oct put and call combination you want for $7.50+ and simply not worry about it.  If that relationship (+$2.50 for the roll) starts to deteriorate, THEN you can do something about it but your Sept putter and caller WILL lose $1.40 by next Friday FOR A FACT and that’s 3% of your total investment in 10 days that you stand to collect.  Why throw that out?

  52. NEM doesn’t look like gold is going through the roof.  Niether does ABX with that idiotic plan to deleverage at $1,000 (which of the Gang of 12 is behind that one?).

    AAPL stating to move ahead of Jobs taking the stage (or so they say). 

  53. FXP still cheap at $9.31, no reaction to 200-point dip in Hang Seng this morning.  I still like the Dec $7/9 call spread for $1.10 or less (break even $8.10, 72% upside at $9).

    IHI up 3% today ahead of Obama’s speech, that’s interesting.  Been way ahead of XLV since I picked them. 

    $100KP:  I just got a not from Mark at WSS, he says the links to the $100KP are now available at:

  54. Phil – CAT caught me - Last Fri, I sold Sept $46 call naked at 1.55 , now 2.80.  Any salvage play roll you suggest? thanks

  55.  Phil  I sold some grmn Sept 35 calls awhile  back  It is $1.30 now, Is this a good time to roll
    to Oct. for about a buck?   thanks

  56. Where are the traders? No volume

  57. Phil, I have FXP shares and short Sep 11 put at 1.11 now 1.85.  I already covered my 12 caller for a profit.  I am thinking of rolling to Dec.  What do you like?

  58. Phil: have been away and also still sick with Valley fever and not really able to watch what is going on,
    please comment on the following:
    MTW caller oct 7.5, base 0.32$ and oct 5 putter, base 0.25$.
    BUCY stock base 33.26, calls oct 27, base 3.11$, putter oct 31, base 3.34$.
    SAP caller oct 50, base 1.42$.

  59. COF – The White Whale’s a terrible beast! I held onto a couple of 34 puts at .75 that didn’t even get a chance to stop out this morning (thank god I got rid of most of ‘em) to roll, to sit, or to cut out with a significant loss on ‘em… those are the questions… My guess is that they’ll have sone sort of pulllback but this whole market is making my head spin! Just a reminder of how novel Eric’s strategy is with selling the front months.

  60. HI, Phil, when is market going down????

  61. Phil., I have AAPL Oct 150s covered with Sept 165s. Should I adjust? I want something safe and just want my callers premiums. I guess there’s not much premium left, so I should just close the position?

  62. Phil
    What adjustment would you make to enter this position?

    BAC CALL 10 Jan 11

    BAC CALL 17 Oct 09

    BAC PUT 17 Sep 09

    BAC PUT 20 Jan 11

  63. phil, i don’t see the post on URE and IYR, please tell me what time it was, thjanks

  64. CAT/Concreata – I wouldn’t worry until 2:30 or really Monday but if you pay $1 to roll them to the Oct $50s, you are still in them for net credit of .55 so no big deal unless CAT goes totally insane. 

    GRMN/Bill – Same as CAT, it’s too early to panic.  We’re back where we were last week – so what?

    Volume just getting to 100M at 1:30 very stickable but Fed may trump that in 30 mins.

    FXP/SS – Amazingly, this is the thrid play in this post where waiting is the answer!

    Hey RMM!  Valley Feve?  Doesn’t sound good.  MTW – I assume you have the stock so you are right on track.  I’d offer .05 to take out the putter, then you can consider repositioning if they head up or re-selling if they head lower.  BUCY you know I don’t like but you have a low caller and you’re on track.  SAP I would take the money and run on at least 1/2, that’s up 50% on two huge days.

    COF/Jos – Those upgrades were murder for the shorts.

    AAPL says they sold 30M IPhones and 1.8Bn Apps – that’s pretty amazing! 

    Welcome David!  Market is going down at 2pm, maybe a head fake first…

    AAPL/Ajay – Nothing earth-shaking at the conference so unless you have a great reason to hang on through Ocober, you can take net $15+ and run.  Your delta is the same as the caller so you have nothing to gain by staying there and rolling the caller to the Oct $170s even is a little speculative as you need $165 to hold and the best you can do is make $5 on the $15 you risk.   If you want $5 more upside, you can buy the Apr $175 calls for $19 and sell the Apr $190s for $12.75 so in for $6.25 on a $15 spread, better than risking the whole $15 but I’d just take the money and plan to buy back on a dip or a clear break-out.

  65. Phil, EDZ is down to $8.05. I’ve done the Jan $6/$8 call spread. Should I take out the $8 call for a profit now?

  66. BAC/QC – The premiums have gotten a bit high on that trade.  I’d rather start with the Feb $13s and $20s at $9.30 for the $7 spread and roll back to whichever side is cheap in 2011 on the next big move.  You can sell the same $17 puts and calls for $2.35, which wipes out your long premium on the first sale. 

    URE/Dman – 10:44 comment to Matt (in bold). 

    5 minutes to Beige Book…  DIA $95 puts up to .90 so if you are naked on 100 at .75 you can sell 83 and have 17 as a free ride if you don’t have the calls.  The $96 calls are just .87 but I can’t bring myself to buy any as I just don’t see us going higher but finger is on the trigger – just in case.

  67. Phil: I have no MTW stock, so only those callers and putters,
    what about the following;
    have SPWRA stock, base 25.49$,
    callers oct 25, base 2.54$,
    putters sep 27, base 2.24$,
    putters oct 23, base 1.34$.
    LDK stock, base 11.0$, no options.

  68.  totally non-market related…but kinda funny and sad…

  69. Can someone talk me out of getting more PARD buy/wright?  It is still 7.90 for the stock and the Dec 5′s have increased to 5.75.  I thought I did OK getting the the 5′s at 5.20.  Is there a ticking bomb in this one?

  70. EDZ/Jlui – I’d put a stop on it, not just take it out.  Those calls are still $2 and all premium so kind of greedy to go naked off a small gain.  Remember Rule #2 – "When in doubt, sell half" (or in this case, buy back 1/2).

    Keep in mind the BBook is huge so any reaction right away is just nonsense.  No way can someone digest it in less than 5 mins

    Book results:

    • Stablilizing
    • Weak Commercial demand
    • Weak Retail
    • Tight Loans
    • No Jobs
    • No Wages
    • Auto sales can’t be sustained without rebates.
    • Auto production coming off bottom.
    • Some improvement in manufacturing
    • IT spending improving.
    • Wage freezes in governments.
    • Nat gas in excess, prices falling (duh!).

    No very exciting at first glance but not really terrible.  We’ll see what the markets decide to do and I’ll pull out the interesting parts in a few….

  71. Pharmboy - my two ARNA plays from June are OCT 7.50 calls in one account and a JAN 4/10 spread in another, both are up 25% so far.  Small positions, pure Hail Mary stuff just for fun.

  72. BB lets be serious no one gives a crap….robots don’t have emotions

  73. Phil
    thanks, i just set it up

  74. Pharmboy / Phil
    Any update on SPPI & PARD?

  75. On this day, 9/9/09, I would be happy with a close of 999 on the S&P.

  76. The Federal Reserve said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
    So does this mean the Fed will mop up all the excess liquidity.

  77. Beige Book highlights and lowlights:

    The majority of Districts reported flat retail sales… inventories… in line with low sales levels.

    Most regions reported some improvement in residential real estate markets. Downward pressure on home prices continued in most Districts. Reports on commercial real estate suggest that the demand for space remained weak and that nonresidential construction-related activity continued to decline.

    Loan demand was described as weak and many Districts reported that credit standards remained tight.

    Most Districts reported improvements in manufacturing production.

    Labor market conditions remained weak across all Districts. However, staffing firms in Atlanta, Dallas, Richmond, Cleveland, Philadelphia, Boston, New York, and Chicago did report a slight pickup in the demand for temporary workers.

    Wage pressures remained minimal across all Districts.

    Consumer prices were described as being steady in most Districts, although Kansas City and San Francisco noted some downward pressure on retail prices.

    Consumer spending remained soft in most Districts.  The majority of Districts reported that retail activity was flat…  Shoppers remained focused on essentials and continued to refrain from purchasing discretionary and big-ticket items. Kansas City and San Francisco noted weak restaurant sales. Richmond, Philadelphia, Chicago, Atlanta, and Boston remarked that retailer inventories were being closely monitored and were keeping them in line with low sales levels.

    Most Districts noted that demand remained stronger at the low-end of the housing market. Boston, Cleveland, Dallas, Kansas City, Richmond, and New York indicated that the first-time home buyer tax incentive was spurring salesReports on house prices generally indicated ongoing downward pressures, although Dallas and New York noted some increases. Construction remained at low levels overall, although Chicago and Dallas reported a small increase in activity.

    Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts.

    Mortgage activity declined modestly according to the Philadelphia, Cleveland, and Kansas City Districts, while Richmond reported increases attributed to improved demand for starter homes. Dallas noted an uptick in refinancing activity. Commercial and industrial lending declined in the Philadelphia and Kansas City regions, and was steady according to Richmond. The lack of available credit was cited as an issue for both residential and commercial contractors in Cleveland, and for commercial real estate borrowers in Atlanta. San Francisco reported an increase in venture capital investment.

    Further deterioration in credit quality was noted by Philadelphia, Richmond, Dallas, and San Francisco, whereas Cleveland observed some improvement in credit quality. Chicago also cited improvements in credit quality, apart from home equity and commercial real estate. Dallas and Chicago noted increases in consumer bankruptcies, while rising delinquency rates were reported by New York and Cleveland.

    Most Districts reported modest improvements in the manufacturing sector.  The near-term outlook among manufacturers varied, but the majority of reports indicated that manufacturers were cautiously optimistic.

    Labor market conditions remained weak across all Districts, but several also noted an uptick in temporary hiring and a decline in the pace of layoffs. Richmond reported that most service-providing firms continued to cut employees, while Minneapolis and New York noted additional layoffs in the manufacturing sector. Cleveland reported modest job declines in the banking, commercial construction, and coal mining sectors. Further job cuts are expected in auto manufacturing according to St. Louis, and Dallas indicated further staff reductions are anticipated in the airline, energy, and residential construction sectors. Staffing firms in a majority of Districts reported a modest increase in the demand for temporary workers.

    Wage pressures remained low across all Districts. Several Districts noted businesses and local governments imposing wage freezes or even reducing employee compensation in some instances. Boston noted that several manufacturers who have cut wage rates do not expect to restore pay levels until next year. Kansas City, Philadelphia, Chicago, Minneapolis, San Francisco, Dallas, and Richmond noted an increase in the cost of some raw materials, including fuel, metals, and steel. Chicago and Dallas mentioned that excess supply was putting substantial downward pressure on natural gas prices. Retail prices were described as generally steady in most Districts, although Kansas City and San Francisco noted continued discounting and downward pressure on consumer prices.

    Drought and weak market conditions were significantly affecting livestock industries according to Kansas City and Dallas. Dallas reported that some ranchers had liquidated portions of their cattle herds, while hog producers in the Kansas City District were said to be struggling as a result of lower pork prices.

    Atlanta, Dallas, Kansas City, and San Francisco noted increased oil and gas inventories as a result of reduced consumption. Contacts in the natural gas industry noted that subdued demand continued to suppress prices and has lead to cutbacks in extraction activity. Cleveland indicated that weak demand for electricity prompted coal producers to scale back production and capital investment. Kansas City noted that although coal production in Wyoming had risen, it remained below year-ago levels. Dallas and Atlanta remarked that oil and gas drilling activity continued to decline in the Gulf of Mexico, whereas Kansas City and Dallas reported that the number of rigs operating on land had increased.

    So, in short, not a great report but not much of a sell-off, just back to good old 9,520 on the Dow and the volume is still non-existant (and therefore stickable into the close).  We’re at 120M at 2:30 in Dow volume so there was very little reaction to the Fed’s book but, as you can see from the highlights – it’s nothing at all to get excited about.

    Nice bump in the DIA $95 puts to $1.10 so half off the table there at least!  I’m still bearish on this data but there is no more data this week so don’t expect much if the bears can’t take some control this afternoon.  At best, maybe we retest yesterday’s low (Dow 9,450) this afternoon but if we finish down there without a stick save, then a nice sell-off may be in store tomorrow. 

  78. Phil, Kustomz is right.  This is total ‘bot trading.  And totally infuriating!  If two IB’s have enough cash to control the market 85% of the time.. does that break any anti-trust laws?  This simply can’t be right.

  79. Phil,
    I’m out of my short, near term BAC callers & putters. Up about a buck last week.  Is there any reason to look at selling the September callers & putters again or should I be selling Octobers now.  I’m assuming that the $17′s are still the right strike.

  80. RMM List:  MTW – well, you are still on track, right?  SPWRA – Too far away, just enjoy the ride.  LDK – You can sell the Dec $10 puts and calls for $3.50 and that drops your basis to $7.50/8.75, which would be like you doubling down at $6 just to get the "put to" basis.  Also, the only way you make $2.50 is if LDK goes up to $13.50 from here (up 26%) and the buy/write pays you that if they just hold $10 – how could you not?

    California assemblyman is in some hot water after having a hot conversation picked up by a hot mic before a recent hearing. But he’s not talking about sex with just anybody — this is hot, steamy sex with LOBBYISTS!  "So, I am getting into spanking her," says the Orange County Republican. "I like spanking her. She goes, ‘I know you like spanking me.’ I said, ‘Yeah! Because you’re such a bad girl!‘"  The lobbyists reportedly represent utility companies. Duvall is vice chairman of the Utilities and Commerce Committee. KCAL9 identifies Duvall as a "family values" assemblyman. Bad assemblyman!

    Funny how they don’t care that the guy he’s telling this too thinks all this is just fine…  Thanks New – I needed a good laugh!

    PARD/SS – I can’t talk you out of that, I love this trade but keep in mind it is a biotech and could go to zero for pretty much no reason.

    SPPI/QC – I’m not even playing them.  Pharm’s on vaca. 

    Ouch – Gold tested $990.  Great for the GLD puts!   Oil back at $71 without much dollar action.

    11 of 12/Kustomz – That spin is way misleading once you read the report.  Don’t forget the bottom levels of activity we are "stabilizing" at are significantly lower than they were in March, when people thought the world was already ending

    BOT trades/Matt – That’s why I quoted Goebbles to start the day.  The truth is the mortal enemy of the lie – this report is truth and "THEY" damn well know it and you can’t sustain this nonsense forever once the data starts coming out.  Next week is very heavy with data that is very unlikely to be any kind of improvement and probably will show how good June numbers were mainly a blip and July’s clunker economy is already fading fast. 

    BAC/Bass – We could get a good sell-off from here. If you have no cover, I’d sell the Oct $16 calls for $1.78.

  81. Capacity utilization, the proportion of factory volume in use, remains near its historic low. It rose in July to 68.5 percent from 68.1 percent in June, its lowest level since record-keeping began in 1967.

    Someone please explain how there are signs that the RECESSION has ended. The Fed has created the illusion of stability, for that i say thank you Ben. I get it, this is a clear sign of a bottom. No where to go but up from here.

  82. Phil, are you saying that it’s better to wait till expiration for EDZ?

  83. If they want to keep this market going you can bet your bottom red Dow stocks will be green tomorrow so I’m picking up some MCD and PG

  84.  Phil
    Full cover on the DIA puts in anticipation of the stick?

  85. It was fun  daytrading ERY today. They had a little dip, then partial recovery.

  86. Duvall/CA: Spanking is a good, old fashioned family value, right?

  87.  Phil one suggestions for your programmers.  If there was a way to index say your last 
    5 comments on a stock or option so people instead of asking you the same questiuon
    about say GE we could look at your last 5 comments about that stock and probably
    find our answer.  Save you a lot of time repeating yourself  What do you think?

  88. billman if you have google task bar you can type lets say GE into the search window then click the little magnifying glass and it will bring you down the page with every click highlighting that word or phrase.. just something that works for me

  89. EDZ/Jlui – Well it’s a spread meant to keep you safe and give you a nice return.  By buying it out early you up your risk and exposure considerably and change the profile of the trade.  You can always day-trade your covers if you want to but in a vertical you go from low-risk to extreme risk when you do so.

    MCD/Kustomz – Good logic and $55 should hold for them without too easy a cross.

    Stick/Deano – Gosh not off that report.  I just can’t do it.  As with yesterday, if you are inclined to cover, the DIA Oct $94 puts make a good half cover at $2 but Gold is flopping and oil inventories may be bearish tomorrow and nothing supportive is coming out of OPEC who NEED to cut production to make it through the winter over $70 so I think we need a correction and if we don’t get it now, we’ll get it next week

    Indexing/Bill – It’s a great idea, one I’ve wanted to do.  Essentially, we’d all have to tag our comments or somehow format them and it is being considered but not a front-burner project.

  90.  thanks  Kustomz

  91. Phil: Any suggestion on the DIA mattress play before market closes?  I believe we are all naked right now.  Go 1/2 cover or keep naked? Or roll up the puts?
    [If I think hard enough, I can make the above sounds like some orgy.  I'll try next time.]

  92. DIA mattress: Phil, I think you answered the question about 4 minutes before my post.

  93. phil are you saying oil inventories may be bearish for oil or for the market? So the correction would be for . . .
    and how do you see VLO thru this senario. TSO has been outperforming VLO recently

  94.  Phil what do you think about buying PARD stock and selling dec. 7.50′s  calls for $1.80 thanks

  95. Sorry that was 2.80 for dec calls

  96. Is the stick getting sold into?  Seems like they are trying to take it up.  I just don’t trust this market as far as I can throw it.  Just all over the place.  Cap said he thought yesterday was annoying.  Good thing he isn’t here today!

  97. Corporate debt defaults have risen to 12.2% of companies, a number last touched in 1991, Moody’s says, adding that the rate is expected to rise to 13.2% in the fourth quarter and drop to 4.1% in a year.

    Oil/B1 – I think we are due for a bearish report – or at least not bullish enough to justify $70.  VLO seems to have a very hard time getting past $19 and that’s the top of our range anyway (we buy at $17.50). 

    PARD/Bill – Kind of risky if they have a bad study.  They can drop more than 20% fast.   Oops, $2.80 is a bit better but I like the buy/write better as it allows for more downside (which is what let us stay in DNDN when they tanked before they gained 1,000%. 

    Stick/Mat – Volume just 150M with 15 mins to go but it seems like they are going to jam it into the close.  That’s not very bullish as it means they can’t sustain a move but we’ll be up 100 for the week and that’s all people look at in the end. 

  98. I don’t see it getting sold into, i think no one’s in a hurry to sell. Very calm and orderly trading.

  99. Billman & Phil, re: PARD
    Why not buy PARD at the current 7.80 and sell the Sept. 7.5 straddle for 1.30?

  100. Phil : We have unemployment claims tomorrow morning.

  101. Speaking of oil:

    The latest forecast from the Energy Information Administration calls for weaker oil demand and higher supply, resulting in a projected daily world surplus of 70,000 barrels. Meanwhile, OPEC looks like it has consensus not to change production targets in its meeting.

    And, in Trade Wars Part 1:

    The Commerce Department has reportedly decided to impose duties of up to 31% on Chinese steel pipe because of unfair subsidies. The average duties on the annual $2.8B in imports will be 21.3%.

    PARD/Allen – Too much risk.   They could open down 25-30% overnight and then you are just stuck.  That’s just me and my fear of Biotechs – as a fundamentalist I hate things that run like roulette wheels so I go for more cautious trades.  You can sell Dec $7.50 calls for $3 and Dec $5 puts for $1.50 and you’re in for $3.30/4.15 with a 127% gain if called away and the stock about at half price if put to you – THAT’S how I like to play a biotech!

    There’s a little selling into the stick!

  102. Another very bullish close. REITs keep storming higher.
    I like selling COF 36/38 strangles here with the high IV. This is on top of some OTM put calendars.

  103. Just spank me, baby !  LOL.

  104. Kustomz, you must not have been watching FAS!

  105. Unemployment/JRW – Another 560,000 jobs lost an no one will care. 

    Another fun day bites the dust.  Last week, Tuesday was our selling day and we recovered 1/2 our drop into Friday’s close.  Now we are all the way beack to where we were the Week of the 24th and we had finsished Aug expirations, just 3 weeks ago, right at 9,500 on the Dow (after a massive run-up) so a flatline here through next Friday will squash all callers and putters sold at last expiration.  So I would guess either a flatline or a drop back to 9,300 (where we were in early Aug) is most likely into next week.  I’m just not seeing what can be done or said that would let the market break higher here but you can’t fight the tape if they manage to paint it…

    REITs – I do find the BXP Oct $60 puts to be very tempting at $2.75, we’ll have to see what happens but this is just nuts, even their CEO thinks its nuts…

  106. Matt, yes good thing I had to leave early to go to an investment conference.  Got back around 3.30.
    More than totally annoying; this is BS ….. autobot craziness.  And if the market shows any cracks, just upgrade crap like COF good for $2+ or 5%+.  What a friggin joke.
    Take your profits quickly boyz and gals.

  107. EricL – COF – could you clarify which OTM put calendars you selected?

  108. concreata, I’m long COF Jan 32 and 35 puts and short Sept. puts against them. This has worked well in the volatility, although of course they lost today.
    I like the OTM calendars for put trades right now, because while the premium collection isn’t as good as, say, a daigonal, the delta falls if the trade starts to move against you (vs. going up in the case of diagonals). So losses are kept smaller. If you short strangles on top of a position like this, you get lots of premium collection too.
    If I were starting afresh, I’d go all the way out to March with my long options since who knows how long the nonsense will continue. I’ll likely be rolling to March soon myself.

  109. check out today’s charts on
    just a coincidence, I’m sure.
    [phil, is there a sarcasm emoticon ?]

  110. Part of what’s so nasty about this market is that we have good reason to think that the bid is very thin. It’s likely that these trade bots are just passing a few thousand shares back and forth as running things higher. As soon as a volume seller arrives, the bid collapses since there is little to support it. I suspect that’s what we saw last Tuesday, someone big wanted out, and there was no real depth to the bid.
    So we go up until a big seller arrives, and then we get slammed down extra hard. Then we must hope the trade bots can bail our boat out again.

  111. Cap, I wondered about that very thing: someone just runs it up after every sell-off, like the indexes.  I’m short SPG 60/65 strangles, and it’s not working (yet).

  112. About 1/3 of the day’s gains vanished in the futures as soon as the market closed – that’s a sign of complete and utter BS!

  113. Denninger is a must-read today.  He goes deep into the consumer credit issue I discussed this morning with multiple charts:

    To say that these figures are ugly would be an understatement.  In fact, there is simply no way you can spin this – while this contraction in credit has to happen it has horrifying implications if our Washington policymakers don’t get on the stick and deal with the underlying issues here and now instead of pretending that everything is ok or worse, try to "borrow our way to prosperity."

    The important point is that we have never been here before in the post-Depression era.  Any and all claims that "The Consumer has reached a bottom", or "The Recession is over" (based on July data) or any such is pure nonsense.  There is not only no sign of a bottom there is no change in the second derivative – that is, the rate of change continues to be essentially straight down!

    But don’t worry, TXN just raised guidance and saved the futures so all must be well (note the theme of everyone boosting tech this week?).

  114. Erice, FWIW, I spoke with my brother today, who used to work for COF, and he said he feels they will be strong through the end of the year but that Q1 will be different when the media starts harping on the impending changes to the CC industry.  The COF CEO said he expects a couple of ‘sour’ quarters as a result of the changes.  That would mean definately Q2 if not sooner.. especially if we have a weak Xmas. 

  115. Eric, I agree.  Its not just SPG … its most of the REIT’s, particularly the big liquid ones.  Clearly some type of autobot manipulation is going on, just look at IYR and SRS as well.

  116. Thanks matt, I really don’t expect them to suddenly melt down or I’d be a lot more bearish. With front-month options typically trading around a 50% IV (on a stock that hasn’t really moved that much lately), I’m happy to sell ‘em. The stock is also in a congestion area from last Oct that they can’t break over yet.
    Incidentally, one of my best trades last year came on 9/19, which was the day COF was added (late) to the no-short list. The stock exploded in the morning with the short covering and I bought puts into the madness. Chris Cox did all us put buyers on COF a huge favor that day, lol.

  117. Eric, I’d forgotten the day so thanks alot for reminding me that I was short COF when they were added to the no short zone!

  118.  does anyone know why these low price energy stocks (EXXI, DPTR, CPE) and others like them are breaking out?

  119. newparadigmz, probably signals the end of the bear market rally

    This country has come to feel the same when Congress is in session as we do when a baby gets hold of the hammer. It’s just a question of how much damage he can do with it before we take it away from him.
    -Will Rogers

  120. I don’t mind buying a bear market rally…

  121. Goldman says the Earth does not orbit the Sun you stupid fool, the Earth is a stationary object in space!!

    All hail Goldman

    In all seriousness i cant believe there are people out there spreading such disinformation on the Internet why dont they stick to TV like CNBC

     GS on a path to global domination, these guys are taking root in every branch of the Gov
    Sept. 9 (Bloomberg) — Robert Hormats, a Goldman Sachs Group Inc. executive nominated for a top State Department economic post, said today he would raise human rights concerns with China and discourage international investment in Iran.
    “I expect to be working in China a fair amount if confirmed,” Hormats, 66, told the Senate Foreign Relations Committee at his confirmation hearing in Washington. Human rights will be “an important topic” in conversations, he said.
    President Barack Obama nominated Hormats to be undersecretary of state for economic, energy and agricultural affairs. In addition to 27 years at New York-based Goldman, he served as deputy U.S. trade representative from 1979 to 1981 and in other posts at the State Department.

    Editor’s Note: Here is a visal from Our Executive Hunt Team is working on a comprehensive document that will detail where Goldman Sachs’s executive go and what they do. When completed, we will publish it on the Internet. If you are interested in volunteering on this team, send an Email to The piece below is just a very basic visual I wanted to share . . . but it does not even scratch the surface. As an analogy, the visual below would be a glass of water in comparison to the Olympic sized pool of information we are compiling.

  122. Hi Phil,
    well you have got an old man pussled at the below answer of you. As a new comer to your program reading through the comments is like morse code! When you talk about a call spread do I understand a vertical credit or debit spread and in the case below it looks like a debit vertical spread but 100 options only would give you 12,500 if and if C goes to 7.50???
    C/Yodi – Ouch!  So you had $39,000 worth of C, now $6,000 and you want to make $33,000 back?  I’d go for 100 2011 $5/7.50 call spreads at .55, which pays $25,000 if C makes $7.50 and not mess around with the rest as this ties up no margin and you can move on and do other things.  As long as you don’t mind a DD to lower your basis, you can sell 100 March $4s for .58 and pocket $5,600 against $20K in margin.  You could also do that play in Dec at .38 and plow the profits (assuming there are any) into more 2011 calls along the way
    Another fun way to play C is the 2011 $2.50 calls at $2.50 and the 2011 $7.50 puts for $3.50 which is $6 for the $5 spread and you can sell Oct $5 puts and calls for $1 with the ability to roll to any $1 strike down the line.

  123. Denningers charts are very interesting. I have to ask a questions on his first chart – what causes yoy consumer credit to decline?
    Is it actual debt or is it unused credit lines that have been reduced? If citibank reduced my $100K line of revolving credit with them, given I never use it anyway, the impact on the economy is absolute zero.
    If it is actual debt that consumers have no hope of ever paying being written off by issuers, but still held for collection, then that sounds very worrying indeed.
    If it is actual debt that consumers are paying down, then I would imagine this is healthy activity and we have an EXPLOSION of consumer spending to look forward to as and when this process completes. 
    As usual and sorry to be a pain, I find even this analysis to be too light on actual detail to really reveal things to me.

  124. Hi Phil,
    As well on the sell of 100 4 puts of C March 10, I take it  it will bring some 5,500. I will be only loaded with a margin of
    5,000.00 break even would be C at 3.44 but all stock I hold does not help if the stock goes to 1 or even 0 ???
    C/Yodi – Ouch!  So you had $39,000 worth of C, now $6,000 and you want to make $33,000 back?  I’d go for 100 2011 $5/7.50 call spreads at .55, which pays $25,000 if C makes $7.50 and not mess around with the rest as this ties up no margin and you can move on and do other things.  As long as you don’t mind a DD to lower your basis, you can sell 100 March $4s for .58 and pocket $5,600 against $20K in margin.  You could also do that play in Dec at .38 and plow the profits (assuming there are any) into more 2011 calls along the way
    Another fun way to play C is the 2011 $2.50 calls at $2.50 and the 2011 $7.50 puts for $3.50 which is $6 for the $5 spread and you can sell Oct $5 puts and calls for $1 with the ability to roll to any $1 strike down the line.

  125. GS/Kustomz - It’s hopeless, we’ve already lost the Earth, time to move on to another planet and start again…  8-)
    C/Yodi – By my cacluation if you buy 100 contracts of the 2011 $5 calls at $1.30 that would be $13,000 and if you sell 100 constacts of the 2011 $7.50s for .75, that would be $7,500 which is a net of $13,000 – $7,500 or (assuming my calculator isn’t broken) $5,500.  You have 10,000 options to buy C for $5 and if C should finish at $7.50 you would be called away with a net $2.50 profit (the difference between $7.50 and $5) and $2.50 times 10,000 is $25,000.  I’m sorry if I confused you with the "morse code" but I assumed that since you were mixing up your puts and talking deltas in your question that I shouldn’t waste your time over-explaining and I went crazy and gave you 3 different ways to play it. 

  126. AAPL    My favorite stock to play……Took a slight spanking today after Jobs took stage and after some articles appeared suggesting that GOOG may be on the way to becoming more of a threat to them.    Not unexpected.  But what will happen next?  Likely that AAPL will see more downward pressure in the short term, but will persevere over the long haul.  How to play this?  I believe it’ to own the stock, or ITM/ATM calls many months out (that’s the long term play), and sell near-term calls (that’s the short term play).  I own April 175 calls and have covered with Ocober 180′s.   Anyone with other, or better , ideas?

  127. No ones talking about this subject much anymore

  128. Good morning!

    AAPL/Iflan – My new mission is to point out better trading plans so don’t take this as criticism but I’m taking the opportunity to teach where possible.  The Apr $175s are $17.50 and are all permium with a .53 delta so you will lose $2.50 a month in premium decay (theta) no matter what.  You are also $4 out of position so AAPL has to rise to $196.50 ($3 per month) just for you to get out even. 

    By selling the Oct $180s for $3.20 you are barely keeping up with your time decay (as it’s 6 weeks away) and you are capping your upside (if AAPL should spike up) while you still have $7.50 of premium more than your caller while your downside protection is less than 20% of your long giving you (looking at the bracket of the Apr $180 at $15.60) barely $5 of downside protection.

    The problem is simple, you are buying premium, not selling it and that puts you in a tough position. 

    If you want to own AAPL, you can give yourself a 15% disount by buying the stock at $171 and selling the Ap $170 calls for $20.20 and the $150 puts for $10.70 for net $140.10/145.05 but I’ll assume you don’t want to own AAPL straight up and I’ll also eliminate the 2nd best play on that same basis, which would be selling the same put and call combination against the Apr $120s at $55 which is net $24.10 on the $50 spread but, of course, the downside obligation and margin.  The nice thing is, obviously, it pays 100% if AAPL holds $170.

    My floor on AAPL is $140.  That’s the point at which it becomes an irresistable buy so I can sell the Jan $170 calls for $15.10 and sell the Jan $150 puts ffor $6.70 and buy the 2011 $185s for $25.40.  If you have a margin issue, you can also buy the 2011 $130 puts for $13 as they only lose $1 a month and you’ll sell much more than that in premium.  Collecting $21.80 against a $25.40 call leaves us in for $3.60 and our caller has a $15 position advantage – something we can clearly roll up over 12 months.

    Of course we have $21.80 in our pocket against the $15 spread and that money is our reserve and it can be used to roll ourselves down to the 2011 $145s (now $45.20), where we’d be in at $25 with a $170 caller or it would pay for us to roll our putter down $30 or $40 should AAPL take a sudden massive drop. 

    If AAPL finishes between $150 and $170 in Jan then you own the calls at $5.40 or the put and call combo for $18.40 and the April $195 calls and $140 puts are $18 (just 7 months away) so figure if you are within that range by Jan you should be in good shape. 

    Hopefully that’s a good starting point to think about different way to play the stock.  Good topic for discussion if we are having a slow day.

    Fed/Kustomz – They got their delay, that dropped it off the front page (people have zero attention span).

  129.  Phil
    I have NVDA stock fully covered by Sep 12.5 calls, now deeply buried. Oct premiums are low – any adjustment suggested or is this one to let go? Thx

  130. Another nice AAPL play is buying the Apr $105s for $68 and selling the Apr $145 calls for $35.30 and the Apr $145 puts for $9.20 nets $23.50 on the $40 spread which is a 70% profit if AAPL holds $145 but keep in mind that’s agains a $72.50 margin as well so call it a 17% gain on commitment over 7 months. 

  131. NVDA/Deano – Well the calls are $3.40 but $12.50 is very low (and obviously, your basis is lower) and you can add 20% by rolling to the Dec $15 puts and calls even, which is not bad for 3 months.  The $14 puts and calls are even safer at $3.80 and that’s .30 right in your pocket (not to be scoffed at as it’s an annualized 10%) and still + 12% on the call away.