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Which Way Wednesday – Fed Edition

Financial RoadmapWe're just waiting on the Fed today, as are the rest of the markets.

Yesterday's volume was the lowest since Sept 11th but not as low as Monday, which was our lowest volume since the end of June, just before we had a 5% correction.  June 26th and 29th were our last two consecutive ultra-low volume days but June 30th was much bigger (a down 100 day), July 1st was up again on low volume and then July 2nd was another big down day and we bottomed out on July 10th.  That was the time that the media was telling us we were forming a "classic" head and shoulders pattern and were doomed to revisit the March lows.  It was also the last time we enthusiastically bought stocks

At the time of that weekly review (7/11), we had CAL at $10 (now $16.82), CBS at $5.97 (now $12.58), COST at $43.45 (now $58.58), CVX – who we just shorted – at $58.20 (now $72.60), DIS at $22.41 (now $28.38), EXM at $6.05 (now $7.32), RT at $7.12 (now $8.85), SNDK at $14.47 (now $22.91), SPY at $87.96 (now $107.27), SPWRA at $22.35 (now $32.63), SUN at $22.09 (now $27.75), V at $59.86 (now $74.41), VLO at $15.57 (now $20.50), WFR at $16.61 (now 19.09), X at $30.77 (now $50.45), XLF at $11.10 (now $15.35), XOM at $65.12 (now $69.85) and ZION at $11 (now $19).  Of course our members had much better entries as we had been targeting our entries on all of those but anyone reading our weekend review on July 11th could have played along at home from those prices (we even spiked down at Monday's open) and when I say we are now bearish – it is that we are bearishly protecting these ridiculous profits – the kind of profits you usually don't get after 3 years, not 3 months!

Overall, the broader market is up 20% over that time so it can be argued that a monkey with a dart board could have made good picks at that time but, if you read that week's notes – you'll notice that this monkey was screaming for people to buy and was going against what pretty much EVERY other analyst was saying and I was confident enough to lay out my picks, my strategy and my fundamental arguments for everyone to see.  It would have really sucked if I was wrong, but I wasn't wrong at all…

I am telling you this in the hopes that you take me seriously when I tell you that the same logic and reasoning and observations that led me to believe that the market was oversold at 8,100 (which was the bottom of a 5% rule range we had been tracking since last fall) is just as overbought at 9,800 – which does happen to be 20% off the bottom and is SCREAMING for a 5% correction

IF we get my 5% correction (back to 9,277) and IF we find solid support at that line, I will be willing to raise the mid-point of our 5% trading range from 8,650 (which I hope we don't see again) to 9,100 or possibly even 9,300 (up another 0.25%), which would put 9,765 at the top of the range.  These are rough numbers because I would have to rechart the entire market and it's a real pain in the ass so I am loathe to do it but that's no reason to stay bearish and I've been promising members I would capitulate if we hold our 33% marks (Dow 9,394, S&P 1,056, Nasdaq 1,917, NYSE 6,959 and Russell 574) and that doesn't seem too much to ask the markets this week does it? 

As you may have gathered from reading my more recent posts, we've been trying to stay balanced in our picks the past week.  Yesterday we took a strangle on the Dow ahead of the Fed with the Sept 30th $98 puts at .90 and the $99 calls at .60 – looking for a 200 point move up or down, we don't really care which but down would make us feel a little better.  We got the hell out of our AIG calls at they ran up 100% and that left us naked short and that's working out great so not everything is going up non-stop.  We added EDZ, which was a very contrary play to the emerging market mania that's being promoted in the MSM but, of course, it's hedged so we're not looking for a home run on that one.  As I mentioned above, we flipped short on CVX ahead of today's energy report and we already have a winner with my 11:10 call to short FSLR who were kind enough to run down from there all day. 

We also went back to the well on SRS at $9, selling the naked Nov $8 puts for .80 for a $7.20 net entry (aren't options great?) as well as a Jan $6/8 bull call spread for $1, which pays 100% as long as SRS doesn't drop 10% – not too much to ask for…  MPEL was a bullish play at lunch (thanks Mr. M!), RSX was bearish (screw you UBS, GS and JPM!) but hedged as we are actually scared of those guys and we went bearish on BXP at $70, which is just silly!  That was it for our trading day, a bit more bear than bull so we'll see if things pan out.  My theory is there is nothing the Fed can say that can justify this run.

There are just a couple of things still bothering me in the economy:

I think Paul Vigna did a good job summarizing my feelings by labeling this a "Pinocchio Recovery:"

Now, I see a recovery that looks like Pinocchio: it wants to be a real little boy, but it’s really just a wooden toy that moves only when somebody pulls its strings. But everywhere, we hear people talking up the recovery as if the economy is sprinting into a new bull market.  I keep seeing all those strings pulling the economy, and wonder if and when they can be cut.

If this market is Pinocchio I guess that makes me Jiminy Cricket as I try to keep things in perspective but it took Pinocchio being turned into a donkey and getting swallowed by a whale before he learned to listen to that annoying voice of caution.  As Jiminy Cricket tells Pinocchio, "the world is full of temptations – they're the wrong things that seem right at the time.  Even though the right things may seem wrong sometimes and sometimes the the wrong things may be right at the time or visa versa." 

That pretty much sums up the current market – full of temptations and mixed signals and I can only follow my conscience when giving advice and right now my advice is caution.  It may not be fun, it may not be exciting, but it may stop you from being swallowed by a whale and feeling like a jackass! 

Speaking of jackasses, we'll see what the Fed has to say at 2pm.  Our last two Fed meetings ended June 3rd - which was a top we fell from on the 15th and August 12th – which was a top we fell from the next day.  We do have the G20, which is this week's Blue Fairy that investors are pinning their market wishes on but I'm skeptical that a wave of anyone's magic wand is going to work right now, and certainly not as fast as the current market is pricing in. 

When investing, always let your conscience be your guide!


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  1. Test – not seeing any comment traffic.

  2. Anybody out there?

  3. UYG/Phil – thank you for explaining "split them up" – it changed the way I look at these UYG calls – but then it occurred to me – why didn’t you suggest buying some more Jan 11 $4 calls for cover? In any case I have been wondering how a leap can in practice act as a cover for a current month short call – wouldn’t the exercise of a leap incur prohibitive expenses? Perhaps you have already explained this somewhere else?


  4. just you javaben….echo

  5. Pharm- chuckle!  Wasn’t able to log into this site last night, kept getting SQL error screen, so thought I was out to lunch already this morning!

  6. Phil
    You mention shorting CVX. Can we play any oct  PUTS on this. I missed your post that details the trade.Thanks.

  7. Good morning!

    Server had a problem last night but the boys had it back up and running by midnight.

    UYG/Red – I don’t like buying more 2011 calls because I’m not more bullish on UYG.  Also, since you are splitting them up and taking puts, you may find yourself owning more UYG at $6 anyway.  Less is more sometimes.  As to being exercised, if it happens and you don’t want it – sell it – it’s not that complicated.  Never make decisions out of fear of assignment – if you are worried about it, don’t play that stock. 

    Still watching S&P 1,056 and NYSE 6,959 as failure levels – both pretty far away.   This is just a wait and see ahead of the Fed day but I feel better about playing for a drop this week through Monday and dealing with the consequences of being wrong there rather than playing much up from here

    Naked on long DIA puts (Dec $99 puts with an order to roll to the Dec $100 puts for .50) and our Sept 30th DIA $98 puts are .80 and the Sept 30th $99 calls are .62 so down about a dime on the spread at the moment

    We’ll see what happens at 10:30, when we get oil inventories but it will be some trick to sustain $70 and that makes the USO $37 puts at $1.75 a fun play but very, very dangerous as oil is crazy stuff.

  8. CVX/Chakra – They are already falling but it was a "sell/write", taking the March $80 puts, now $10.80 and selling the Nov $70 puts for $2.20 and Nov $75 calls for  $1.70 and you will be off about .50 from our entries if you chase now, which is a lot but not so bad if you scale in slowly. 

    OIH is more fun to short now at $120 as I don’t know what they are smoking.  The $115 puts are $2.55 and I like them as a speculative short.

  9. Phil, you said VZ/Red – I think we did this in the weekend wrap-up but, with a 6.4% dividend, the play is to buy them for $29.50 and sell the 2012 $25 puts and $30 calls for $7.75 for net $21.75/23.38 so that’s 38% if called away and their $1.90 dividend is like getting another 8.5% a year which, on the whole, makes it a very nice place to park your money for 27 months.
    What do you think of a similar play with T.  Buying the stock for $27 selling the 2011 25p and 30c for $4.81 net $22.14/23.57.  If called 35%, annualized to 26% with a 6% dividend.  I think you mentioned T before, but I don’t remember if you like them as much as VZ or not. (T is not a good symbol to do a search/find in text)

  10. Phil sorry to do this while market is open, but for  2 days unable to contact admin about problem updating credit card info, will not update says must purchase subscription.

  11. T/SS – Cramer picked them last night so be careful not to get caught chasing the sheeple this morning.  T is a good stock with a 6% dividend – I just like VZ better because I see more potential revenue growth there long-term and, as I said yesterday, they already did their infrastructure building and took the hits on their books.  Also for $3 per share more, VZ makes .50 per share more than T so you are buying those marginal earnings at a p/e of 6 and if T finds they have to spend money to upgrade their own lines – that’s going to really, really hurt. 

    Update/B1 – You sent a note to admin at philstockworld dot com?   Anyway, I see the problem – you were on PayPal.  We don’t take PayPal anymore so effectively you have no subscription in our new system.  Greg can help you out with that. 

    Oil took a quick dive down to $70.50 from $71.75 at the open but bounced there.  Obama is working his usual market magic and turned things back up.  Inventory numbers in 10 mins. 

    Life insurers are calling on state regulators for looser standards on residential mortgage investments as they face higher capital requirements: a fivefold jump to $11B in the first half, according to the American Council of Life Insurers.

    August Mass layoffs: 2,690 layoff events (at least 50 workers) that affected 259K workers. That’s up 533 layoff actions from July and up 803 from the prior year.

  12. FWIW – JNJ is gonna layoff a bunch.  Not announced yet, but the earth in NJ is shaking.  Feel it Phil?

  13. Morning – Phil, what do you think will be the exit price for the OIH puts? I was rolling these up while on vacation so i am ready for a pull back but pretty deep in the hole from the rolls. I would like to sell a put after a bit of a drop to recoup some losses. Any thoughts on the bid i should place?

  14. JNJ – If they are indeed laying off a bunch of people, wouldn’t that boost the stock a bit? Typically such actions seen as cost savings etc. by the ‘Analysts’.
    With the stock now at $60.92, why then are the Puts so costly? e.g. Nov $60 Puts 1.35 and Jan $60s over $2?

  15. JNJ/Pharm – I’d be more worried about MRK if there were any people left to cut…

    Oil up 2.8Mb, gas up 5.4Mb!!!  Distilates up 3Mb!!!!!  In one friggin week?!?  That’s a build of 11.2Mb – more than a full day of imports.  Bye bye oil!  Congrats to all our CVX, USO and OIH short players as Ka-Ching is the expression we’ll be looking for.

    Most likely this is a snap-back off the BS numbers they put up the last few weeks as it seems pretty impossible that we could have a 9% drop in consumption in a single week but, as I keep saying – those fundamentals do eventually catch up.

    Now we’ll see how much damage this does to the overall market.  If $67.50 holds on oil, then no big deal but if that fails – big trouble for the overall market.  

    Gold is at $1,011 at the moment.  The Dollar is at 91.43 Yen and $1.476 to the Europ and $1.64 to the Pound.  If people get out of oil they create a demand for dollars so we have to watch carefully now

  16. PHil
    I am in the Oct DIA 98 puts ; basis $2.78. Your thoughts on rolling up to 100 puts by selling the 96 puts to pay for it?
    BTW-still out here in SoCal-hotels not busy but stores, restaurants etc.are crowded – but then everything here is crowded. R/E may be down, but still not "cheap" .  Huntington Beach- beach front 3 br; 2 bath; – $1.4MM and up. Carlsbad- 1/2 mile inland- 3br; 2 ba; – $500M and up.

  17. Bottom fell out of OIH.

  18. MRK is gonna have a ton more b’c of the SGP deal.  Word is that it is PA site that will be effected, as basic research over there will take the brunt. Clinical will expand there.  SGP has the Keniworth/RY sites, so they should be fine (for now).

  19. Exit/Morx – I don’t have one specifically.  Usually that’s just for mo plays.  As with EVERY play, I’m thrilled to get 20% so at that point I set a tight stop – all this is detailed in the Strategy section.  Let’s watch the $67.50 line as a likely bounce zone and figure that’s $5 down from $72 so $68.50 should be the bounce from there and that means it will also be a stopping point on the way down.  What OIH position do you have (and what basis)?

    JNJ/M2 – That "usually" happens but hard to say now as many companies have already pared back and additional cutbacks now represent long-term retreats from revenue targets.

    DIA/Pstas – I don’t like getting into verticals on the Dow because time is not your friend in this market.  It’s more a take the money and run kind of environment.  Better to sell the Sept $98 puts for .90 and rolling to the $100s and worry about getting into a vertical later.  Your goal should be to get even now, not ahead and you have a better chance of that by playing it safer.   Anything you do ahead of the Fed is a huge gamble and it would have been nice if you had scaled in and had a basis more like $2.25 so you could be pulling out 1/2 even on this dip at least. 

  20. EDZ – still a good play to buy the stock and sell the Oct. 7 calls?

  21. Phil, thanks for the advice on T above.  I have a large sum of cash that I want to park for maybe 16 months so this fits in with my thinking.  I have been doing some digging on other similar plays that pays a dividend and has the cash to withstand another possible leg down and maintain their dividend.  I can do a similar buy/write on the following stocks and recieve annulized returns of between 20% to 36% if called away and dividends of 3% – 6%. What is your view on these:  T and VZ (I already know), SUN, COP, BA, HON, MRK, DD, PM, KFT?  Any others you might add?

  22. Life insurers want looser standards on mortgage investments?  It’s because of times like these that they have standards.  I just can’t get my head around what is happening in this country.  Everyone wants a bailout or an exemption from something that they consider onerous.  I think the moral hazard perpetrated by our government is irrepairable.  The proverbial toothpaste is out of the tube.

  23. JNJ has issues, as noted in my second write up.  They NEED something big to replace a few ‘blockbusters’ they have and will lose in patent life.  The Pfizer consumer brand will help offset some of the revenue loss, but it will not do good things to profits.  I think they will move back down to the $55-8 area.

  24. Pharmboy,
    ARNA, are you buying the stock or options for your long term play?

  25. ARNA/Max – I own the stock (5.16 basis), sold the 5 Oct/Nov P, waiting for the calls.  Probably over exposed to them a bit, but long term I think they should do OK (unless disaster happens on the manufacturing end – think SVNT).

  26. CNBC dropped their headline on oil building despite expecations for a drop.  No article on the whole site.  They are shameless. 

  27.  Pharmboy, was wondering if you had any thoughts on ISIS and SQNM? 

  28. what index symbol should i enter to track crude oil?
    tried to google it but all i got was a bunch of gurus trying to sell me subscriptions to their websites. can you imagine the nerve of these guys  :)

  29. AZO is getting hammered on an earnings miss. Fundamentals rarely matter for long with this stock, and it has decent support at 145, so I’m trying a small long position buying the Jan 135 call and selling the Oct 150. I’m expecting it to hold here, but will exit if it fails 141 (Aug. low).

  30. Hi Phil in respect to VZ  my suggestion verticals sell 2012  sell 25p buy 20 put  and sell 30 c and buy 35 call or even go to sell 35c and buy 40 call??  buy  stk for the profit

  31. Matt/Life insurers
    Not all life insurers.  The larger mutuals like NYLIC Guardian and NML are largely out of the mortgage market because of the inability to determine market pricing.  They are building liquidity.  Expect to see them reduce their dividend interest rates they credit their owners--their customers.
    Repeal of Glass-Steagall with enactment of Gramm-Leach Bliley a/k/a FiSMA or the Financial Service Modernization Act opened the way for life insurers to take greater risks with investment portfolios in pursuit of new business.  Piper will be paid with increase in life insurance prices which have declined for 6 decades.  Expect invasion by foreign insurers with continuing eradication of dollar.

  32. Phil
    BAC  what is the stike on the puts, for 100k

  33. ISIS and SQNM/Soul – I am not a fan of either.  My second writeup has ISIS.  SQNM had false data, and thus they are where they are now.  Another genetic test just came out, but time will tell with them.  Scale in closely, but i think they will fall again when the issue with the manufacturing of data is released.  JMHO.

  34.  Ok thanks, I appreciate it. 

  35. EDZ/Dman – Selling Oct $7 puts AND calls for $1.20 is a good play with the stock at $7 for net $5.80/6.40.

    On OIH and USO – as we cross 50% gains, you REALLY don’t want to let 40% get away from you (10% of the profit trailing stop).  If you can’t be satisfied with that on a 90-minute trade, you should stick to slot machines.  Keep in mind that if you take 1/2 off the table at 40% and then put runs all the way to 100% gain, you still have an average gain of 70%, which is pretty damn good (70% of max possible gain).  On the other hand, if you don’t take 1/2 off at 40% and the put snaps back to 20%, you make 1/2 as much as you would have vs 75% of the max by taking half at 40% and 1/2 at 20% – get it?

    List/SS – Remind me later but I’m generally not thrilled with the current prices on those and I do have a better list but I’ve been waiting for better prioces.  Unless you have some massive urgency to buy immediately, you should probably wait a bit too.  Just because you CAN withstand a 20% drop, doesn’t mean you SHOULD does it?

    Standards/Matt – This is where years of deregulation and toothless enforcement gets you. 

    Marriott International (MAR -0.5%) will write down $760M on its timeshare business in the third quarter, as leisure travel and investing fails to pick up. Timeshares are also shrinking as part of Marriott’s business, to 14% of revenue from a year-prior 16%.

    CNBC/Matt – Criminal Narrators Boosting Crude

    Oil/Morx – If you peg oil to USO, you can track oil to almost the penny all day.  In Stockcharts it’s $WTIC and if you get the free TOS account, you can just pull the live futures chart down under /CL, which is what I watch.  As to gurus – I am ashamed to be associated with those guys!  8-)

    Wheee, here we go!    Don’t get too excited, volume just 50M at 11am so not much oomph to this selling.

  36. Phil, on the WSS Transaction web site, would it be possible to also have the stock symbol posted, either in it’s own column or via a description?  The opra is good, but I have to research each one to translate over to the stock position, so I would find it helpful.  Thx

  37. AZO/Eric – I do like them but watch out for the downgrade police.  I usually like to wait at least until the next day shows a firm bottom before attempting to catch the knives.  They do have freakishly low option prices on the put side (Nov $135 puts are $2.75) so either there’s a ton of confidence in them or the contracts are way mispriced.  If they don’t get back over $150 within 5 sessions they will "death cross" the 50 dma right below the 200 dma at $150, which would make them an exciting short actually.  I think the March $130s at $21.50 paired with those Nov puts at $2.75 puts you in a good place to play for the bounce and hopefully sell the $150s for $5 or the $145s for $7 on a move up. 

    VZ/Yodi – What???  Are you saying take a 2012 $25/20 bear put spread and a 2012 $35/40 bear call spread?  I’m not sure what you are trying to accomplish overall.

    SOX and Nas holding things together this morning.  VIX is down at 23, not very concerned with today’s action.

    BAC/QC – We have 2011 $20 puts at $5.45, now $5.56.  Put sale never filled and we’re waiting for a sell-off.

    See, the only kind of bear you can be is the very quick profit-taking kind of bear!

    WSS/Java – I’ll pass it on to Mark but it’s not my site although I would prefer it to. 

    Isn’t this amazing, just 10% of the day’s volume up to 11:15 has completely reversed the sell-off over the next 20 mins.  Stock Market Magic! 

  38. Thanks Phil, you’re probably right that today is too early. IV on AZO options fell off a cliff this year as the stock drifted within a $15 range for months. If that changes, then those puts are a great buy.

  39. Hi Phil, VZ my intention is to limit the loss in both direction and buy stock of VZ out of the option credit

  40. Phil, I had bought UNG OCT $10 calls for $4.50 a while back. With only 24 days to expiration, do you think I should roll it or  I should wait?

  41. Phil – what kind of BS do you think the Fed is going to serve up at 2? Do you think the usual, "things are bottoming, we see greenshoots but the recovery remains weak" will be enough to turn the market for the positive or will they have to give us an extra portion of BS to turn sentiment to the positive. Market seems to have held up pretty well after the inventory report

  42. Phil,    Re EDZ you sell the put / call AND BUY THE STOCK, I presume….

  43. thank you diamond. great resource. I was hoping to put it in my index watch list but this works good too.

  44. Phil, I sold the RIMM Dec 100 put for 2.77 now 4.00.  The 4 bucks is of course all time value.  RIMM is 87.13 and climbing fast.  Should I adjust?

  45. When you have a moment please comment on these strategy questions. In Sage’s book, he strongly urges that the collar trade (long stock, long ATM put, and short call) should be the foundation of one’s trading approach but I rarely see you implement that technique. Wassup wit dat? :-)
    Also, you advise not to buy premium but often implement debit spreads which are essentially buying premium, just paying less through the offsetting sale. Can you give your rationale? (Am I correct in recently observing that most of your debit spreads are ITM and therefore intrinsically valuable so you are using "premium" in the sense that is the value beyond intrinsic and not total value of any option?)  Other thoughts?
    Relatedly, and I know this may be too broad a question but, if one has a stock with a price appreciation target, say 25-40% over the next 6 months, what is the best approach to capitalize on that considering all the factors (capital outlay, time decay, etc.) while following the very important rule of NOT losing money? What is the problem with buying a call 6 months out and giving that trade 3-4 months where time decay is negligible, likely catching most of the move? What is the better alternative? Thank you in advance. I thought I KNEW some sh-t before I came here!   LOL  …learning every day though. Thanks in advance.

  46. Phil, also on the WSS Transaction page, need a way to sort on the symbols.  I’m  trying to check for differences in my trades and the 100KP.  For instance, I’ve got an open AMZN -5 Oct 09 90 put position that I don’t see on your current ‘open positions’ WSS page.  In trying to find if you ever traded this on the transaction page, I’m having to scan multiple pages for the opra QANVR, so it’s a little awkward without being able to sort the transactions on the symbol.

  47. It looks like all that is left in this market is to juice AAPL GOOG and RIMM in the hope others will follow.

  48. VZ/Yodi - Why not JUST sell the 2011 $30 puts naked for $5.10, which is in for net $24.90 and you use (at 50% margin) $15 in margin less the $5.10 cash you collect which is $9.90 committed to make a 50% return in 15 months.  No fuss, no muss and your worst case is you own VZ for net $25 and then you can roll to the 2012 $20s and if you don’t think VZ is worth $20, why buy the stock in the first place?

    The EU has released its finance-overhaul plan ahead of the G-20 meetings, and it calls for a super-watchdog with the power to overrule even Great Britain. "The European system can also inspire a global one and we will argue for that in Pittsburgh," says EC President Jose Manuel Barroso.

    Wow, refinery utilization was down 1.4% (2Mb) and we STILL had those massive product builds… 

    Here’s the oil chart BEFORE today’s 11.2Mb build.  The key is we genereally are at a low in August and then build through the spring.  By starting at this level (and don’t forget the massive OPEC cuts it took to get here) now, we can be back at 370Mb by Jan – it’s just 30mb away now and look at this week’s build!:

    SOX are still holding ups up and now the Nas is green along with the Dow and S&P so let’s watch SOX 335 for a directional clue.  330 would be bad if the SOX fail it again.  XLF is holding 15.33 and USO holding $35 (oil $68.50) so no major change in sentiment so far. 

    UNG/Jlui - If nat gas builds tomorrow the way oil built today you’ll lose another 50% fast.  I thought we had this conversation but if you are determined to get back to $4.50 using this ETF, your best shot is the 2011 $8/13 spread at $2 and then just forget about it and hope there’s a hurricane between now and next fall.  If you don’t have enough faith to bet UNG rises to $13 in 15 months then why on earth would you not be cashing out and walking away from this trade now?

    Fed/Jrom – Don’t forget this is just a statement.  About 3 paragraphs and if they change 20 words from last time it’s a big deal.  The main issue is going to be what they are doing with their plan to buy $1.25Tn in mortgage-backed securities by the end of the year as they have bought about $800Bn so far (that we know of).  Also, the $300Bn Treasury purchase plan expires in October and the Fed has already run through that – if that means we are going to have a real auction soon, then rates may spike.

    Bernanke has already said that we are in recovery so there’s no way they go back on that.  Last time they said: "economic activity is leveling out" so this time they need to be a bit more positive or people will freak.  They are also probably going to restate the BS that "inflation will remain subdued for some time" which is amazing with gold at $1,020 and oil at $70 and other metals climbing and wages supposedly improving but what can you do? 

    Here’s Phil (no relation) Izzo’s summary of the changes from the June to August Fed statement:

    The August Fed statement was largely unchanged from June, with just a few new phrases. (Read the full August statement.)

    Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out.

    Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing.

    The shift from contraction to leveling out indicates that the recession appears to be nearing its end, if not already over.

    The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

    The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

    The passage on inflation was identical to the statement from last month, as the Fed continues not to see inflation as a serious risk.

    In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

    In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

    The Fed didn’t alter the size of any of its programs to purchase long-term debt, but it did extend the timeline for its Treasury acquisitions. The extension buys the Fed a little more time to see how the economy holds up in the coming weeks. It offers the central bank some wiggle room to either ramp up purchases if unexpected deterioration occurs, or scale back the program if further signs of recovery materialize. But if the situation continues as forecast, the Fed is likely done with these purchases.

  49. Phil, on Rimm I sold the calls not the puts.

  50.  aclend that book was written well before last year (2007-ish i think?) so it’s hardly a surprise that the same strategies don’t apply anymore since the market conditions have changed so drastically since then.
    in fact i remember reading something on abnormal returns a few weeks ago that basically said the most surefire way to go broke is to try sticking with the same strategy while simultaneously ignoring changing conditions..

  51. Hi Phil, anyone.
    When you have some time would you pls comment? No rush.
    I am still working my way out of the RIMM strangle and learning I am not experienced with these!
    Am currently  short Oct 90′s, Long Oct 95′s, Short 1.5x Oct 75 Puts. (just rolled up from 85/90 and 70 for even)
    I breakeven (small profit) if RIMM expires between 75 and 90.
    I am slightly long delta to help pay for the next roll up if required.
    RIMM falling through 75 seems unlikely to me at this point.
    Could I improve this? Sorry it’s long. Thx

  52. where does the photograph of the woman and two children come from???..this is a photo from the mid 1930′s no??
    sorry not financial

  53. EDZ/Magret – Yes, whenever I do a net breakdown like $5.80/6.40 it’s the sum of the stock and the sold contracts (see the most recent "How to buy a stock for a 15-20% discount" article).  On the occasions that we discuss the naked short straddle, buying the stock only to cover – I’m pretty specific with entry points and I wouldn’t do it with a 3x ultra as they just move too fast to take a chance like that.  

    RIMM/SS – I have to think you sold the call, not the put as the put is $16.  I would say no to adjusting – it’s way too early and they are 15% away from putting your caller in the money.  The March $110s are $4 so it’s back to the question of the day – If you think RIMM is going to hit $110 (up 30%) by March – then why the hell did you short it in the first place?  If something happened and you now think RIMM is worth $110, then you should be THRILLED to escape with a $1.30 loss on the $100 calls – just get out and short a stock you are not 30% bullish on.  If you don’t think RIMM can rise 30% from here – then there’s no sense in worrying about a little 10% run-up is there?

    Collar/Aclend – I just don’t like them.  They are too limiting and are very poor performers in these choppy markets but they are very safe so it depends on what your investing goals are.  As to not buying premium, if I buy the RIMM Dec $100 puts for $16.50 and sell the Dec $90 puts for $10 with the stock at $87.50, I’m not buying premium at all – I’m in a short position at net $93.50 with not one penny of premium and I gain every single penny from $93.50 to $90 before I get "called away" from the short.  Obviously we do buy premium every time but the concept is to TRY to sell more premium than you buy whenever possible.

    Essay Part2/Aclend – That is way too broad, how about a specific example of what you are thinking of.  I guess you missed the discussion a couple of weeks ago where I tried to explain that the answer to 99% of these "rule-based" questions is "IT DEPENDS."  You start this question with a statement that, if your stock is going to go up 25-40% over the next 6 months…  You lose me right there.  If you are so sure that is going to happen, just buy a naked call.  I was sure OIH and USO would go down on inventories today so I bought naked puts but I got the hell out when they moved 2.5% lower – I don’t know how you can possibly have the balls to buy calls and just sit there for a 40% gain on the stock without hedging or be so positive in your outlook that you can burn 4 or 6 months waiting for your move.

    Juice/Cap – When in doubt, beat the horsemen…

    Good point Kwan!

    RIMM/Steve – You have a month and you are more or less on track but I’m not a very big fan of plays like that unless you have a great risk/reward ratio.   I’d roll the $95s to the Dec $100s to lower your Delta for the pullback, which is going to slap you on the puts anyway.  If the stock goes up, the $1.80 (per X) from the put will pay for you to roll the callers to the Nov $100s and if the stock goes down, RIMM has to hit $70 before you net owe the caller and putter more than you do now. 

    Photo/Don – It’s a depression photograph I picked up in a Google search.  I’m a big fan of old black and white photography – back when it was an art form! 

  54. Phil,
    Is it time to short FSLR yet?

  55. Hi guys… Great call on OIH Phil  .. im only 100 buks short to break 60% gains, in less than 11 months… im done!
    If you had a chance to take part on a forum to hear Einstein, Darwing and "science monsters" like them.. or if you had the chance to see a race between Senna and Gilles Villeneuve you will miss?  Well, in few minutes starts Kasparov vs Karpov (match 3 out 12 programmed). Its just demostrative and this guys are getting old so their performance is not as in past.   Here you can follow with live IM analysis:

    This guys are the best and new WC arent skilled as they were. Probably the only one in their skill was your american fellow Fisher… not anymore among us…

  56. Pessimistic retailers are expecting holiday hiring to be very light. About 40% of the 25 biggest American retail chains say they will hire between 5% and 25% fewer temp workers than even last year’s poor season; last year the same survey found 29% of retailers saying they’d cut workers.

    China should stop piling up dollars, Justin Fox writes, but it won’t – as internal suspicions persist that letting renminbi appreciate against the dollar could cause a Japan-style "lost decade." The G-20 will meet resistance as it tries to get China to stop hoarding.

    Great ArticleSo who is borrowing? By and large, it’s not households and businesses, which are reluctant to borrow during a recession. Rather, it’s hedge funds and other investors, who have been using the money to buy stocks, corporate bonds and commodities, driving prices to levels unsupported by the business and economic fundamentals.  The excess liquidity is even being used to finance a new "carry trade" in which global investors borrow at U.S. rates and buy government bonds in places like Australia, where prevailing rates are higher. Because the carry trade involves exchanging dollars for foreign currencies, it has been a major contributor to the recent decline in the dollar.

    Green shoot de jour:  The acquisition machine is "turned on again" at Google (GOOG +0.6%), says chief Eric Schmidt, who anticipates doing one small buy per month instead of staffing up. The company paused its shopping earlier in the year whe Schmidt said prices were too high.

  57. Stop Losses – someone mentioned an odd fill on a stop a few days back, well today I’m seeing it to.  I have DIA OCT puts with a stop at 2.20, the LAST is 2.18 and the BID/ASK has been between 2.10 and 2.15 for an hour and the 2.20 stop hasn’t hit.  I’ve never seen this with trading DIA before, usually stops hit within 3 pennies.  Be warned.

  58. CSCO  down 1.71% …. reckon its a good buy/write candidate….alas premium very low (stock highly stable)

  59. Speaking of RIMM, it would be nice to find an earnings trade for tomorrow (I would not enter until tomorrow afternoon though, since IV will likely go higher between now and then).
    One possibility at this price would be buying the 75/100 Nov strangle and selling the Oct 80/95 strangle, which will probably be for a small credit (assuming a little more IV rise) against $500 margin, but there are probably better trades. A beat is likely but *seems* priced in already.

  60. CNBC just reminded me of F….Phil, thinkin of a buy/write;  you like F here?  …any recs?  TIA

  61. MCO is one busted stock. Finally coming into support in the low 20s, but if it fails there it might actually head for its March lows. When’s the last time you heard that phrase?

  62. About $4.9 trillion has been restored to U.S. equity markets on signs that the more than $12 trillion spent, lent or committed by the U.S. government and the Federal Reserve has ended the credit crisis and revived the economy. Bond sales by investment-grade companies are 10 percent more than the record pace of 2007, Bloomberg data shows. Borrowing costs fell to the lowest in four years.

    No doc loans are back in bidness

  63. FSLR/Emo – You missed it yesterday, we got $4.80 for the $170s and they dropped to $2.50 this morning before stopping out with a $1.80 gain.  Now they are $3.70 but I’d rather wait and see if we get a Fed spike to sell into. 

    Treasury autction did NOT go well this time, that’s interesting!   Rates are jumping already:

    Treasury sells a record $40B in 5-year notes at 2.47% (.pdf). Bid-to-cover ratio is 2.4 vs. a recent 2.34; indirect bidders took 44.8%, vs. a recent 52%. Treasurys immediately headed lower. The 30-year yield +0.04 to 4.24%; 10-year +0.02 to 3.48%; 5-year +0.02 to 2.44%; 2-year +0.01 to 1.03%

    60%/Spider - That’s great, congrats!  Chess is cool, thanks.  Kids today don’t even play the game, it’s very sad but it just seems so dull to them with all the other stuff available.  On the other hand, I doubt Kasparav could handle defeat a level 80 Tauren Hunter in combat the way my daughter did this weekend with her level 73 Elven Death Knight…   8-)

    Stops/Mr. M – That’s messed up.  It’s a shame you can’t trust those things.

    CSCO/Magret – More to the point, how come they are not seeing what INTC and STX claim to see?

    YRCW having a hell of a day (again).

    RIMM/Eric – If they hit the $1 per share estimate for the Q they are on track to make $4.15 for the year so a p/e of 22 at best.  $90 calls can be sold for $4.30 so they SHOULD be sold for $4.30 on principle and those can be covered with March $100s at $6.60 with a .40 delta so by the time you owe the $90 callers $5 back at $95, the March $100s should be worth $11+.  It’s not fool-proof but it’s a nice earnings play with lots of time to adjust.

    F/Oncmed – Not with the Cash for Clunkers backlash about to hit.  If they dump out I’ll like them cheaper. 

    MCO/Eric – They will be a good buy once all the smoke clears but I like MHP better, who are down for the same reason but more diversified (I picked them a couple of weeks ago and the logic is the same).  Speaking of which:

    In what may be a significant first sign of changes to the ratings industry, state insurance regulators approve Realpoint to join Moody’s (MCO) and S&P (MHP) in evaluating mortgage-backed securities. Realpoint provides analysis to subscribing bond buyers, while the other agencies are paid by issuers. And Reuters reported that regulators may yet ditch Moody’s.

  64. "MCO is one busted stock."  What’s the plan for the Oct 23′s? did i miss that already?

  65. Phil : On the VZ  2011 $30 puts u advised Yogi to sell naked for $5.10, I get  a ROI of $5.10/$30.= 17% times or 34% if on 50% margin. I don’t  see how u get 50% ROI.
    Since I really like this approach,I really need your help to explain how u get to 50%.Thank you.

  66. Watching level 2 i see jumps on the buy side volume then a big drop, then a huge jump on the sell side bringing last sale down quickly

  67. Phil: still not recovered from the 4 week virus attack and doctors do not know what it is,
    have had little energy to focus on trades and market,
    are there 1 or 2 trades which I could get into, just 2.????

  68. Kindle space gets crowded and AAPL hasn’t even entered the ring yet:

    Dutch firm iRex enlists Verizon Wireless (VZ), Qualcomm (QCOM), Best Buy (BBY) and Barnes & Noble (BKS) for help in its new e-reader to be sold later this fall. The new reader crowds into a market featuring devices from (AMZN), Sony (SNE) and soon from Plastic Logic.

    MCO/Morx – Those went from $1.60 to .60 ages ago.  You’re still in them at $2.60?  Not a big deal as you can roll them to the Nov $21 puts near even but geez, at least stop out when you blow 50% of your profits or when you get back to even or if you lose 50% —-- something!!!

    VZ/Dflam – You have an obligation to buy the stock for $30 so you have to set aside (at 50%) $15 in margin but you collect $5.10 in cash and that is added to your portfolio and increases your available margin again.  According to TOS, the net buying power effect of selling 10 2011 $30 puts for $5 is $5,717 with standard margin so much better than my calculation (but I like to estimate conservatively) as you are collecting $5,000 so that’s an 87% return on commitment.  If you want a proper explanation you should talk to your broker’s margin department, who should be able to explain this to you better than I can. 

    2 Trades/RMM – Well I do like that long naked 2011 $30 puts sale on VZ for $5.10, it’s a nice, mellow play you don’t have to do much with.  I also like the naked sale of MHP 2011 $25 puts sold naked at $5.20 for the same reason.  Great ROI on stocks we wouldn’t mind owning long-term

  69. Virus/RMM – That sucks by the way.  Make sure you have downside protection in case the market tanks on a day you’re not up for watching it.  Hope you feel better soon! 

    15 minutes to the Fed – the last few meetings have not gotten extreme reactions the same day but within a week there is usually a big move. Here’s what people are looking for:

    That’s right, with absolutely no one expecting the Federal Reserve’s to tweak the benchmark Fed Funds rate, the market’s attention will be acutely focused on the bureaucratic prosody of the statement published by the Federal Open Market Committee, the chief rate-setting body at the central bank. It’s due at 2:15 p.m. EDT.

    The financial markets are intensely interested in whether the Fed will offer any hints of changes to its purchases of mortgage-backed securities (MBS) and debt from federal agencies such as Fannie Mae and Freddie Mac. They’re also zoning in on possible tweaks to its Treasury buying program which has beefed up demand for the U.S. government’s debt and helped keep interest rates low. We gathered thoughts from bond watchers on areas of the statement they’ll be zoning in on for changes and what the markets might do in response.

    Kevin Giddis, Morgan Keegan’s head of fixed income sales, trading & research: “What you should look for from the Fed meeting is any reference to their Federal Agency and MBS buying programs. They have already set a limit and time frame for buying Treasuries, next up is whether the MBS buying program will be extended.”

    Eric Lascelles, chief economics and rates strategist at TD Securities: “Key phrase is that [rates] are on hold for an ‘extended period.’ Any change to that would cause severe market dislocation.”

    Guy LeBas, director of fixed income at Janney Montgomery Scott: “Look for the FOMC to significantly upgrade their comments on business investment, as corporate spending appears on the start of an upward trajectory. Even though the improvement in corporate spending is fairly evident, a Fed acknowledgement of this trend should be taken in a positive light from the markets and could result in a modest back-up in shorter term interest rates.”

    Zane Brown, fixed income strategist at Lord Abbett: Watch the section on economic conditions which “warrant exceptionally low levels of the federal funds rate for an extended period,” according to the last release. A change, such as altering the “extended period” language to “for some time,” for instance, would convey the message that “the Fed recognizes the need for an exit strategy, to reduce liquidity at some point and avoid inflation.”

    Ward McCarthy, Jefferies & Co.’s chief financial economist: “We also expect the FOMC to continue to indicate that the economy has improved, with an acknowledgement that the recession has probably ended as Bernanke indicated last week. The FOMC will probably again expect inflation to remain subdued for some time, but there could be some acknowledgment of the likelihood that headline inflation indices – the CPI, for example — will turn higher in the months ahead, with core readings being more subdued.”

  70. <!--

    Gov. Patrick says state will boycott Hyatt if it doesn’t rehire workers
    By Katie Johnston Chase, Globe Staff Governor Deval Patrick plans to direct state employees to boycott the Hyatt while conducting…
    September 23, 2009

    WTF category
    how difficult it is to manage through the current economic challenges without compounding the disruptions the times have caused," Patrick wrote. "But surely there is some way to retain the jobs for your housekeeping staffs, as other hotels have done, and to work with them to help the company meet its current challenges, rather than tossing them out unceremoniously to fend for themselves while the people they trained take their jobs at barely livable wages."

    The three Boston area Hyatts — the Hyatt Regency Boston, the Hyatt Regency Cambridge, and the Hyatt Harborside at Logan International Airport — fired their 98 staff housekeepers on Aug. 31 and replaced them with $8-an-hour employees of the Georgia-based Hospitality Staffing Solutions. The staff housekeepers, some of whom had been cleaning rooms at the hotels for more than 20 years and made more than $15 an hour, said they had been asked to train some of these new employees over the past few years and were assured they would not be replacing them. The cleaning company and the Hyatt deny these claims.

  71. I sold FSLR 155  Oct calls for 10.50, now 9.30. Are we getting nervous holding this?

  72. Phil, there’s something still not right with the alerts, assuming of course that they are supposed to be timely.  The 10:36 AM alert on Huge Build in Oil Inventories just now arrived at 2:12 PM.  I’ve noticed this for a while.

  73. Phil, thanks for sharing the article written by Steven Pearlstein.  He is absolutely my favorite financial journalist.  I don’t get the Post during the week anymore so I missed it today.  He called the stock market an asset bubble, too.  I think I made that call back in May!
    I’ve got a real tuff question for you.  Do you think it’s possible for the Fed to have it’s cake and eat it, too?  In OTHER words, do you think it’s even remotely possible for the Fed to insert all this liquidity into the banks by buying their crap assets without us having inflation?  First, I’ll make it a little easier.  Let’s assume deflation is out of the picture.  So, they’ve snuffed out the recession and now want to remove the liquidity before inflation takes off.  Keep in mind Bernanke is bound and determined not to repeat the ‘supposed’ mistake during the Depression and more recently by Japan of removing liquidity too quickly and snuffing out the recovery..  and also keep in mind that asset bubbles don’t factor into the classical definition of inflation. 

  74. Phil: Virus is sapping my energy, its 30 % better the last few days, TXS for wishes.
    your VZ and MHP:
    MHP looks good, getting it at 25$ is not bad,
    VZ is already 30.35, with puts at 30$, will possibly lead to quick assignment ? wrong ?
    Downside protection: have dec99 DIA puts, not enough though,    to protect against a 200 point drop, how many do I need to protect say 50000$ uncovered positions ??

  75. For gold (GLD), I know that the 100 Oct were mentioned at 3.5, any reason not to go after the Novs for roughly  the same price?

  76. WTF is the deal with this market!?  There was nothing they could say to the positive that would be that great.  Just more of the same.  But to the negative, alot could be said.  But you know they won’t!   Who does this $hit jamming the market up and down on NOTHING??

  77. Take today for example. When the Masters of the Universe (GS) come out with JAH as a new conviction buy with a price target of 56% upside potential over the next 6 months, I feel pretty comfortable making a small play on that, if for no other reasons, than 1) most of their picks on that list seem to realize enough of those gains most of the time and 2) enough people track that list that it can become self-fulfilling prophecy anyway to drive the price near those levels, and 3) they have a vested interest in making good calls and the power to back them up. Obviously, I don’t blindly buy especially after a gap up but I do want to get in on something like that. Depending on what the chart  looks like/share price level/option premiums, I might sell a naked put as a scale in (or collect premium if it never comes down), do a buy/write, buy the actual stock (dividend considerations), or buy a straight call. However, I do not have a formalized system for choosing; I just go with what I think is best at the time. THAT is what I am trying to develop here. So, specifically, would you make a trade on JAH and, if so, how?  Do you pay attention to that list?

  78. Matt – Who?  The people who are determined to be elected or re-elected.  Millions at stake for them!

  79. Hyatt/Kustomz – Well ain’t that America?

    Speaking of America: Credit-card defaults in the U.S. rose to a record 11.49% in August, Moody’s says. Delinquencies also rose for the first time since March, suggesting more losses lie ahead.

    FSLR/Barf – The problem with near-the-money calls is they could announce a big contract or Obama could announce a $50Bn stimulus for solar or something.  Long-term (with a plan to DD and roll etc) I’m fine shorting them at $160. 

    Oil could not crack $69.50, which was the $1 bounce off $68.50 and is now testing $68.50 again (as expected).  Once they slip below that they are in trouble as that’s 4% and finishing the day below 4% is strong indication of follow-through move in 5% rule

    Those bullish interest plays we made last week are rockin’!

    Fed minutes are out:

    Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.  Conditions in financial markets have improved further, and activity in the housing sector has increased.  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.  Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

    With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

    In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.  As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

    Very Bullish statement, especially when you consider that by "promote price stablility" they mean $70 oil and $1,000 gold…  No talk whatsoever of withdrawing liquidity so it’s like someone tapped a new keg and put on some more music!

    That being said, I’m taking .85 for the DIA $99 calls and doubling down the $98 puts at .55 as I still don’t see that as being enought to override the other news

  80.  Phil,
    If buying an April SLV call with SLV at  about $17 which strike would you buy?

  81. eh well it gives us the matress roll up to 100

  82. Wow, what did you guys do to the market? On Friday I bought lots of puts for Phil’s sell-off this week to 9600, clearly it’s time to regroup!

  83. LOL, got to google "Tauren Hunter" to realize what your daughter was fighting!!.
    Round 3 ended, Karpov in white won his first point. Score is Karpov=1 Kasparov=2 now.
    Round 4 just started, Kasparov in white. This guys, after the openings are done and tactical play starts,  are matching 75% of computer recomendations moves. I’m playing at same time the games… they have brains, and the computer is a core2Duo at 3.16 Ghz, programs serchs up to 20 depth ahead moves.. and many this guys come with something better and/or more creative!
    Sorry again for the offtopic… wohoooo, in mean time i broke 60%. Sorry but the BULL IS MAD!

  84. Everyone sing along………10000 here we come right back where we started from

  85. Dow 10K with a big stick?

  86. Selling a few RIMM 90 calls naked here; will cover with either Nov 95 or March 100 calls by close.

  87. Smack the face of a housing recovery…..good story
    As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

    Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.

  88. Phil
    I own OCT 70 PUTS on CVX .I could not get out this morning. Any thoughts?

  89. Oct $98 Put (bought $2.22), now $1.44   bought 2 additional contract for every 1 I already owned.
    Phil, Give me a heads up on when you think it is smart to cover if needed before te close.

  90. Well, make that .92 on those DIA calls and it looks like .53 on the puts.  Maybe not a great move as it looks now like they can get us to 10,000 on the Dow.

    Oil closing at $69 but gold jammed back to $1,018. 

    Alers/Java – There is a whole system rewrite and hardware change going on there, we hava already outgrown our Alert system.  Notice the one I just sent out got delivered right away. 

    Fed/Matt – It is possible because they are giving money (OUR MONEY) to the banks at 0% and the banks, in turn, are not giving it to us but are, themselves, putting it into the markets and higher-yielding notes.  That way the banks can make Billions in profits using our money without any nasty inflation since WE don’t get any of it to spend.  To remove liquidity now the Fed will "incentify" the banks to give back OUR MONEY, which they hold at 0% before they do something silly like loan it to people.  So the Fed will offer banks something that amounts to a point for giving back loans ahead of schedule.  That summarizes to lending $1,000,000,000,000 of OUR MONEY at 0%, which WE are borrowing (in the form of long-term debt) at 4% and then asking for just $990,000,000,000 back and letting the banks keep the $10,000,000,000 as our thank you for agreeing to use OUR MONEY to jack up commodity prices and foreclose on our homes and businesses.

    VZ/RMM – Nope, you are selling the put for $5 so if the guy puts it to you, you are in for net $25 so no problem.  The put holder has no incentive to do that unless VZ drops to $25.25 or lower but, over time, that b/w mark moves up so you do have to want the stock – as is true with all puts you sell.  As to the DIAs – You don’t need $50,000 in protection, just what you expect to lose if the Dow drops 5% (450 points).  Figure that costs you 20%, which is $10,000 and you can buy those Dec $100s (better now) for $4.70 with a .55 delta so they’ll gain about $2.25 on a 450 point drop so figure 30 of those contracts ($14,100) should pay off about $6,750 on a 5% Dow drop and that mitigates close to 70% of your downside damages.

    Fed/Matt – Well we sure didn’t expect them to say anything bad but this was a little much to the bull side…

    JAH/Aclend – I agree that getting in on GS buys relatively early is a good strategy.  I don’t know that I’d want to play JAH as I don’t think the consumer is as fine as the Fed does but you can buy Jan $25s for $4.80 and sell the Jan $30s for $2 and the Jan $25 puts for $1.60 and you are in for $1.20 on the $5 spread that’s $2.20 in the money with a 316% upside and worst case is the stock is put to you at net $26.20, which is still 7.5% lower than it is now so, based on your premise that GS knows something, that’s a very good risk/reward ratio! 

  91. Phil, I went fully covered on my Dec DIA 99 puts with Oct 98 puts before the fed.  I bought back the Oct 98 puts and used that gain to roll up to the DEC 100 puts.  Should I at least 1/2 cover over night?

  92. Nice intra-day reversal in Treasuries which have taken back all the losses from the comparatively ‘weak’ auction. Demand here clearly remains huge and dips continue to get bought.

  93. Phil, thanks for that illuminating picture of darkness.  I think my head is going to explode.
    Kustomz, with that many foreclosures yet to hit… even with the extension in time of the Fed buying FRE and FMN bonds.. how does the real estate market not get crushed?  Again, they are delaying the inevitable.  I guess in hopes the market will be back to normal by then and can absorb all those great houses.  What a friggin pipe dream!!  I have got to find a way to make an investment now, with no time value decay, that I can put away for the inevitable to happen.  Something like SRS without having to pay dividends, management fees, and the other bs that goes on with it.  I think a short on treasuries might be the answer.  I just need to study how they work more.  The only thing I can say for sure is that the govt will NOT get their money as cheap as they are now.. unless deflation sets in!  Unfortunately, even with enough time, there are no gaurantees.

  94. SLV/Oldgoat – I wouldn’t, I think silver is overdone and the option prices are unattractive.  You can sell the Jan $16 puts for $1.10 and all they have to do is hold $16 to make you money but I wouldn’t trust that. 

    Here’s how many words it took for the market to gain 50 points – stop capitulating just because it’s fooling the sheeple!

    Go Spider!

    Volume just 130M – this is not a rally folks.

    Shadow market/Kustomz – Also, don’t forget the millions of homes and businesses that are in workout limbo.  Banks love that as it keeps them off the books for a month or two.

    CVX/Chakra – No change really.  Oil is down for fundamental reasons and the market is up for no reason.  Nat gas inventories tomorrow should help as pool closing season begins (major users of nat gas).

    DIA/Xlf’d – At net $1.70, just make sure you take 1/2 off the table when we get back there.  Escape strategy if we head higher could be selling 2/3 the 9/30 $99 puts for .60 and rolling up to the Oct $99 puts for + .40 and the 9/30 puts can be rolled to the Oct $95 puts even so no downside worries and you’ll still be able to get 1/2 out even on a dip. 

    DIA/SS – If we get a nice sell-off then yes.  I wouldn’t cover up at $99 though, annoying as it may be. 

  95. MCO

    Analyst blows whistle on Moody’s ratings, reports Wall Street Journal
    Wednesday, September 23, 2009
    The Wall Street Journal reports that former Moody’s analyst Eric Kolchinsky has reported his concerns about the agency’s CDO ratings to congressional investigators, and is due to give evidence to a congressional committee on rating reform tomorrow.
    According the article, the whistleblower wrote to officials of the rating agency accusing Moody’s of issuing a rating on a CDO in January 2009 which it knew to be wrong, and pointed to other examples of overgenerous ratings.

  96. If that’s true about MCO after everything that happened over the past five years, it’s just outrageous.
    I bought some *very* conservative RGLD diagonals long the Jan 35 C and selling the Oct 45 which provides nice cover, but limited upside (but excellent premiums if they flatline too).

  97. AZO looking bad — glad you talked me out of it Phil.

  98. MCO – LOL, where were you guys at 1:31 when I posted the same thing?

  99. FWIW, I hop in and out during the day because of my job, so I miss some comments.
    My job costs me money; I’m not sure I can afford it, lol.

  100. Short UNG at 11.7 – good idea?

  101. Eric, lol, that can be so true.
    So Phil, what’s going on here?  Wasn’t the Feds announcement everything a little greedy bull could hope for?  Is this just a suckers selloff?  So they can say we had a pullback before blasting higher?  They are probably just confident now that they can continue their farce for at least the near future so go ahead and take some profits now?

  102. Uhmmm matt heres what a gold bull has to say about the matter

    the commercial real estate market and its associated derivative sewage is much larger than the derivative sewage associated with the residential real estate mortgages that went bad.
    We’re going to go through another round of this. This round looks like it’s going to be worse than the last round. And any hogwash about people thinking the economy is back on track and all this stuff from Joe Biden that a million new jobs were created, that’s just nonsense.

    First, the Chinese, in layman’s terms, put a stop loss on their derivatives, which they’re taking a bath on. These were sold to them from the likes of Goldman Sachs. This is a huge development. In other words, the Chinese are basically saying it’s a fraudulent transaction. Goldman Sachs sold these same instruments to Iceland and what took the country down were the derivatives, right? So, knowing that, now the Chinese government says we are putting a stop loss on our losses on these instruments and we’re simply not going to pay anymore.

  103. Job/Eric – Such an annoyance!  8-)

    Hey, I think Cramer has set a new speed record for being totally wrong!  Congrats Cramer….

    UNG/Jrom – Still hurricane season, I wouldn’t touch it.  We played them to go UP from $9 in September with 2 months of Hurricane season left and that was easy, now we”ve got just one month left and there hasn’t been a single hurricane – too risky.

    Fed Matt – It’s just what I said at the beginning of the day.  There is nothing the Fed can say or do (within the acts I could imagine they could do) anything to justify this run.  Clearly we were up in anticipation of the Fed saying something that would make this 20% rally look risk free but they didn’t so profit taking begins. 

  104. Covering RIMM short calls with Nov 95s at 3.40 to keep this trade cheap and dirty. RIMM must now be over 99 at opex for me to lose money on it.

  105. Anyone that matters already knew the Feds direction, they just sold off billions in profit and locked them in. Was this the top, certainly didn’t look like it too me. I think we get the blowoff top accompanied by a quick selloff that continues for days.

  106. Phil,
    I’m not in anything for the BAC trade. How would you advise entry from here?

  107. This is a rather broad question, but for some of you guys out there that are doing this full time, what amount of cash do you feel is necessary to generate 100K in income consistently year over year?  I realize the larger the amount of cash I start with is reflected in a lower required return, which should translate into lower risks having to be taken. 
    Would $1 Million provide enough low risk opportunities that it would be a reliable endeavor?  That would be 10% a year….not something I can currently generate. 
    I’m asking because there’s a real possibility I will be laid off from my job soon.

  108. T – Cramer was pumping it heavily yesterday. It is one of the few still 3% in the green today – a lot for a slow moving heavily owned stock. Perhaps a candidate for being bearish on it? It can jump up in a hurry if their exclusive iPhone contract gets renewed, so be careful…
    On the charts it does indeed look like a breakout, but I think a false one and if the rest the market retreats some more (say S&P ~ 1050), then T will go back down.

  109. Uh…Houston….we have a cracked stick.

  110. Phil,
     Pre-market pump tomorrow ?

  111. Elvis has left the building

  112. Any chart readers / technicians want to comment on the double top at 1080 on s&p?

  113.  I wish the bell wasn’t in a minute…in the words of Clay Walker…."FALLLLL GO ON AND FALL APART!!!!"

  114. java if you want to make a million in the markets, start with 3 million thats the general rule ;-)

  115. That was a rather orderly sell off.

  116. Hi, Phil,
    I have SDS Dec Call spread 39/44 bought at 2.10.  This was one of the protective plays you suggested a while back.  Now the position is about 1.65.
    I am using this as example to learn how to manage a spread if the market goes against it.  Note that this is an ITM spread.  I believe that it’s supposed to be low maintenance.  Is it okay if I leave it alone for now?  If the market continues to go up (and thus SDS goes down), at what point should I worry about it, and what’s a good strategy for adjustments?
    I am more interested in your logic on how to manage spreads than on adjusting this particular position.

  117. RIMM/Eric – That’s a good adjustment.

    BAC/Aclend – I’d wait and see what kind of pullback we get.  Could still be a good financial scare ahead of us. 

    SPX performance on the average "Fed day" has exceeded non-FOMC days by 7.5 times (see chart, via). Though today may be an exception.

    $1M/Java – That is plenty, plenty.  The trick is to play conservatively and follow Buffett rule #1 (don’t lose money).  Go back to the Portfolio tab and look over the last $100KP, which we played more aggressively than the current one and did MUCH better (20% in 4 months).  I’m starting another one after this exiraiton period, maybe sooner and that should be great for you to follow.

    T/M2 – I love to short bad stocks he pumps up but T isn’t a bad stock.  All Cramer did was cause an overdone move of $1 that will be mostly erased now that his bagholders overpaid all day.

    Double top/Smaz – Yes, there was a top and then there was a second top.  8-)

    Oh that was just perfect!  DIA $98 puts finished at $1.18!

  118. That was a nice illustration of how fragile the rally is: as soon as big volume hit the indexes at 11 minutes before the close, the bid collapsed (because as we know, it’s incredibly shallow).

  119. Transports red today, wtf oil is lower….this is an odd market 8-)

  120. Java – I have been looking at Sage’s "Collar Trade" as a way to generate very low risk returns.  Take for example MO: Buy the stock now at $17.80, Sell the Dec $17 Call (@$1.20), Buy the Dec $17 Put (@$0.38). Net entry $16.98, with the only "risk" of not collecting the $0.34 dividend due in December.  Assuming you collect the dividend, you get a 2% "riskless" yield in 3 months, and are out of the stock shortly thereafter.  Do this 4x per year & you have a "riskless" 8% yield.  Combine this with some of Phil’s "Buy/Writes" and/or his "Overnight 20%+" trades, and you can be at your "low risk 10% per year goal".  Good luck! 

  121. Phil, I finally followed one of your pieces of advice, "When in doubt, sell half." It worked out pretty well and I pulled my basis down on something I was behind on.
    Now if I can learn some patience I will be all set.

  122. Kustomz, are you saying you think we’re going to get a blow off top after the blow off top we had today or were you referring to todays?  I’m glad you qualified that comment you posted as being from a gold bull.  But boy, what a statement.
    It’s ironic, or I think more like hypocritical, that the government is complaining that Wall Street goes for short term profits at the expense of longterm growth when that is exactly what the goverment is doing by crushing the dollar, creating new bubbles and saddling us with unimaginable debt just to make the near term look better.  In the long term, we’re doomed.
    Today has been a brutal day for me and I had very little money in play.  I just seriously confused and conflicted.  I need a time out!

  123. Phil, are we expecting a follow through tomorrow on this move down?

  124. They’re jamming the futures up hard now — nothing to see here folks!
    matt, I lost almost 3% yesterday on some spectacularly bad entries. I had little hope of making it back in one day, but I actually made more than that today. So you just have to keep at it ’cause things can turn around real fast with options.

  125. Phil,
    T – Good point. I agree T isn’t a bad stock, so shouldn’t really short it. In a perverse way, with rest of market down and it being a defensive stock (not that Cramer said THAT was the reason to buy it), it may not even give up the $1 it gained too quick…

  126. Phil
    Paraphrasing you from an earlier post
    UNG/Jrom – Still hurricane season, I wouldn’t touch it.  We played them to go UP from $9 in September with 2 months of Hurricane season left and that was easy, now we”ve got just one month left and there hasn’t been a single hurricane – too risky.
    What would be a possible strategy if one believes that a hurricane is a real possiblity? This is not a trick qn , just curious.

  127. Phil,
    With 1/2 of the market moves overnight, and the other 1/2 in the 1st and last hour of our trade day, your insight in that regard would be greatly appreciated as a standard post with 15 to 30 minites left to trade. Is that a posibility ?

  128. SDS/Cwan – See, that’s why I love those plays!  That was 3 weeks ago and the S&P is up 5% and this ultra hedge is just down about 20% (still have until Dec too).  There shouldn’t be much to manage as hopefully a 50-point run in the S&P gave you plenty of offsetting long profits but looking at the hedge by iteslf (and check out the huge volume into the close), you can roll down the $39 at $4.30 to the $36 at $5.80 so $1.50 for a $3 improvement in position.  That also cuts your premium from $3 to $1.80 so you are really getting your money’s worth.  The Dec $36 call can be rolled to the March $40 call about even so for your $1.80, you are buying 4 more months of protection and the only reason you won’t make money here is if your long plays are doing great.  These plays are all about balance, if you are generally bullish, you SHOULD be making more money on your bull plays than you are losing here, if you are bearish, then the recent move up should have hurt you somewhat but still offset by your bullish covers.  Days like today are great balance checks. 

    Transports/Kustomz – They have been moving in tandem with oil for a long time.  Which makes no sense at all but I guess that’s what the Bots are programmed for.

    Collar/SS – That’s what they are good for, protecting dividends but a little risk can go a long way in a balanced portfolio too.

    Learning/Blair – That’s great, one step at a time…

    Follow-through/Sthom – I think so.  Europe was flat today so they aren’t going to like our results and Asia just needs the smallest push to fall off a cliff anyway.  $68 Oil is a 5% drop in Asian energy stocks tomorrow if it sticks overnight and a poor showing in Asia will only spook Europe more.  The ONLY thing that’s been supporting us since last week is pre-market pumps – I have no idea what will happen if we actually open in the red for a change.  There’s no major support until we test our breakouts of early September and that’s around 9,600 Dow (down 150), 1.040 S&P (down 20), 2,080 Nas (down 50), 6,850 NYSE (down 200) and 595 RUT (down 18) – that’s about 3% for most and holding those levels would be nice so we’ll have to wait and see.

    UNG/Chakra – That would be the 2011 $8/13 spread for $2 I outlined for Jlui at 12:29. Keep in mind that it has a 150% upside and, if UYG should climb $3 next month, then you could assume you’d get the price of the $5/10 spread, which is 3.30 so a 65% gain at about $14 if you want to kill it early.  Since it’s safer than pretty much any short play you would construct, you can logically go 2x there and take 1x off on a good spike, leaving you in with a very low basis.  This is, of course, an aggressively bullish strategy.  I would just be happy with the 150% in 15 months…

    Insight/JRW – Sounds good but not realistic.  I’m trading too and answering questions and sometimes I have something to say and sometimes I don’t.  Also, I don’t try to predict the overnights because it’s too ridiculously random.  The G20 can say a sentence tomorrow that sends the markets up 5%.  I’m more concerned with what’s real and what’s not like the tremendous buying opportunity on the DIA $98 puts earlier.  Those kinds of plays come when they come and that is the kind of thing I drop everything to get out as quickly as possible (although we did spend 2 days preparing ourselves to be in the right place at the right time).

  129. Phil,
    Do you have any advice on how to play MSFT for the upcoming windows 7 launch? I have been using the final version for weeks and consider it more robust and fast than XP.

  130. Really nice day for me for a change.  Was on the road for a bit (flying to Germany) so I left things pretty hedged, but still a little bearish.  As other folks have pointed out (on other sites), we didn’t really do alot of technical damage to the bull case today.  I know that that last 45 min had a whiff of the panic sell about it, but I’m not convinced at this point.  I think I’ll be leaving a good deal of my covers on for tommorow as I’ll be only be able to check in in the morning, but I honestly think a bit of caution is needed before anyone goes full on grizzly.

  131. MCO, talk about an attack of the hyenas.   They can’t short banks.  They can’t short REITs.  No TARP TALF whatever for MCO MHP.   Earnings for MCO will continue to be good.  They are a huge beneficiary of all the financings going on; they rate them all.
    The short side is a crowded trade there.  IMO, one of the few "values" left in the market.  Highly doubtful they get nailed in litigation.

  132. RMM — swine flu ?  Get healthy …

  133. Dude nailed on insider trading for Dell / Perot deal…

  134. Candle stick reading, can today be considered upside down hammer to establish the top? Or does gs upgrade goog and we go mountain climbing again.

  135. SDS / Phil – Thank you for your detailed explanation.  I got most of it.  But I don’t understand two sentences:
    (1) You said, "That also cuts your premium from $3 to $1.80 so you are really getting your money’s worth."  Where do the numbers $3 and $1.80 come from?
    (2) "The Dec $36 call can be rolled to the March $40 call about even so for your $1.80, you are buying 4 more months of protection."  The reason we want to roll from Dec $39 down to Dec $36 is because SDS goes down.  So, I imagine if we want to roll again, it would be because SDS goes down more, and in that case, we want to roll to a lower strike (and possibly further out in months).  So, why are you rolling from Dec 36 to Mar 40?
    Thanks again!

  136. matt todays action was a sell on the news event as i did with VZ and ATVI……going to buy back ATVI…VZ was up due to T and i would get back in on a decent pull back. I dont think it was a blow off top, im thinking 150 plus points on the dow or over 10000 and you can stick a fork in it. S&P keeps ratcheting up their numbers now its at 1022

    Strategists at Wall Street’s biggest securities firms can’t keep up with the Standard & Poor’s 500 Index after the steepest surge since the 1930s.
    The benchmark gauge for U.S. equities has climbed 57 percent since March 9 to 1,060.87, leaving it above all but one of the 10 projections by forecasters in a Bloomberg survey this month, the first time that’s happened in data going back to 1999. The average forecast for the S&P 500 from the strategists is 1,022, about 4 percent below the index’s current level.

    I talk to peope that want to get into the markets all the time, and they feel safe buying banks for the long term.
    They think AAPL is a safe investment for the next decade etc etc. I trade very short term so its hard for me to be
    comfortable with that type of thinking. Anything can happen so i choose not to have my money tied up into anything
    that exposes it to risk for any longer than a few days to a few weeks. 15000 shares of ATVI and making .68 is a decent trade for 3 days of work. RIMM will either send this market higher with tomorrows guidance or it could be one of the precursor’s (we have many) to the sell off.

    August 21st, 2009 at 12:34 pm | Permalink  
    I have gotten more bearish the higher this market has run, i have to tell you i haven’t felt this bullish in a long time.


  137. That August 21st statement is conflicting but if you think about the implications you will realize that its human nature to feel positive about something and that feeling usually overrides the negative. Markets have people in a state of panic, anxiety and euphoria, some people spend thousands on drugs that bring about these feelings all i have to do is trade the markets.

  138. Africa the next piece to the puzzle, $200 oil… sure GS was an advisor

    One of the four scenarios that were war-gamed was a test of how Africom could respond to a crisis in Somalia — set in 2025 — caused by escalating insurgency and piracy. Unfortunately, no information on the details of the scenario is available.

    Far more information is available on the other scenario — set in 2013 — which was a test of how Africom could respond to a crisis in Nigeria in which the Nigerian government is near collapse, and rival factions and rebels are fighting for control of the oil fields of the Niger Delta and vying for power in the country which is the sixth largest supplier of America’s oil imports.

    The list of options for the Nigeria scenario ranged from diplomatic pressure to military action, with or without the aid of European and African nations. One participant, U.S. Marine Corps Lieutenant Colonel Mark Stanovich, drew up a plan that called for the deployment of thousands of U.S. troops within 60 days, which even he thought was undesirable….

    As the game progressed, according to former U.S. ambassador David Lyon, it became clear that the government of Nigeria was a large part of the problem. As he put it, "we have a circle of elites [the government of Nigeria] who have seized resources and are trying to perpetuate themselves. Their interests are not exactly those of the people."

  139. thatway, it looks like a bearish engulfing candle on the daily charts for the indices.  The 15 minute charts look like a bunch of people jumping off a cliff on high volume.  Not much damage on the weekly charts.  Another 2% drop can cause some sort of panic selling, then the market needs the buyers to step up with their daily sticksaves to hold the levels.  Since many people are used to buying on dips, we may bounce on SPX 1040, 1020, 1000 and 980.  Once a level is broken, a few stop loss may get triggered, pushing the market lower.   Well, just some thoughts and keep in mind that I’m not the expert on candles.

  140. MSFT/Wii – Kind of ran up a lot already don’t you think?  My play on MSFT would be to wait for them to overpay for ERTS (if rumors are true) or wait for disappointment that Win7 isn’t picked up right away as NO ONE is going to pay for an upgrade this year or probably next.  If you really want to own MSFT now, then just fork over $2.75 for the 2012 $30s and sell the Nov $26 calls for $1 and the Nov $25 puts for $1, which puts you in the long for .75 and the stock put to you at no more than $25.75 (the current price) if they fall.  On the downside, if MSFT drops to $22 and it’s put to you at $25.75, you can get even by agressively selling calls and you still have your leaps so no regrets if the stock takes off. 

    If MSFT goes higher, aside from the fact that you can roll and roll and roll, you can also scale in by adding 2012 $25s at $4.75 which would be in the money by the time you needed them and a good purchase.  That would put you in 2x in 2012 and you can roll the callers to 2x whatever and roll and roll and add more leaps whenever you want until you are so deep in the money you pretty much own the stock, but 4x more than you would have at $25.71 for probably less than $20 net (per 4 contracts). 

    Technical/Where – No damage yet to speak of but finally a rational-looking move and that’s got to freak out the bulls.  I am NOT bearish, I am correctionish and I will be thrlled if we pull back to 1,020 on the S&P and hold it along with Dow 9,300.  It’s fine to be bullish and to believe the markets will recover and believe that LONG-TERM, stocks make a great place to allocate assets but let’s just not be stupid about it.  I do not understand why the same people who go to 25 car dealerships looking at Mercedes and Lexus and Audi etc and shop for price and check out all the features and go from dealer to dealer trying to save a few thousand dollars… 

    Why those same EXACT people are willing to by 500 shares of AMZN for $95 ($47,500) when it was just $25,000 6 months ago and no one has EVER, even when they thought the economy was going to go up forever and China was going to double every 5 years and India was right behind them and Russia and Brazil were going to be markets the size of Europe and Europe was going to grow like gangbusters and housing would double every 3 years — EVEN when they thought ALL that — STILL no one EVER paid more than $101.09 for AMZN and even that was just one idiot on a spike in October of ’07.  Since then, a handful of people paid $95 into the end of ’07 but ’08 averaged $62 and ’09 has averaged about $73.

    I love AMZN, I think they are a great company but 65 times earnings?  45 times next year’s optimistic projections (+28% of this year)???  I mean, would you go look at the exact same Mercedes SL for 3 months at $84,000 (AMZN was $84 so this works) and then, just because some deal ends and it shoots up to $95,000 for 2 days you run out and write a check because you’re worried it will go up to $100,000 next?  Of course not – you would negotiate and look for a deal and, if push came to shove and you couldn’t get your price – you might even walk away because there are lots of nice cars out there and it’s not life and death to own that one.   WHY SHOULD STOCKS BE DIFFERENT?

  141. matt
    "Kustomz, with that many foreclosures yet to hit… even with the extension in time of the Fed buying FRE and FMN bonds.. how does the real estate market not get crushed?  Again, they are delaying the inevitable."

    Of course matt everything that the Government is doing is just a cushion and any residual effect that it has on the economy is a short lived benefit. We are headed for the shitter to put things mildly but it wont be like turning off a light switch it will come on slowly. I’m betting retail sales will be OK for the holidays due to hard to beat sales which in the long run wont bode well for manufactures and resellers as margins plummet.

    With every kid over the age ten wanting a new phone i think RIMM does ok tomorrow. Can you imagine, there are more teenagers textn with blackberries than there are professionals. Crayz i tell ya.

  142. With another 300+ banks yet to fail they better get on the ball. I figure they have enough in reserve for 5 medium sized banks

    Sept. 23 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair is “actively considering alternatives” to imposing a second fee on banks and said asking lenders to prepay next year’s levy has “a lot of advantages.”
    Bair, speaking in an interview today, said the agency is considering options to avoid adding costs for banks that “have some challenges” in rebounding from the financial crisis. The FDIC meets Sept. 29 to act on its options.
    “We haven’t made any decisions yet but we are actively considering alternatives to a special assessment,” Bair said in Washington.
    The deposit insurance fund has dwindled to $10.4 billion after regulators seized 94 banks this year. The agency, required by law to replenish the fund when it dips below a certain level, had signaled since May that the industry would be required to pay a second special assessment before December.

    Sept. 16 (Bloomberg) — Federal Reserve supervisors are examining the vulnerability of medium-sized lenders to falling commercial real-estate values to gauge the size of potential losses across the banking system.
    The Fed is focusing on banks smaller than the 19 largest lenders examined in detail in May, a central bank official said on condition of anonymity. The process involves gathering data from individual banks and comparing it to their peers, an approach known internally as a “horizontal review.”
    HMM wonder where all the money that was pumped into banks is hiding? I find this statement most interesting
    "Policy makers need to estimate the timing for a revival in bank lending when deciding when to withdraw emergency credit programs and record monetary stimulus. While the Fed has pumped billions of dollars of liquidity into financial institutions, total bank credit to the economy grew just 2 percent in August compared with the same month last year, according to Fed data. "

    “There is a fair amount of concern about the commercial real estate credit that is going to be coming due,” said Kevin Fitzsimmons, managing director at Sandler O’Neill & Partners LP, a research firm in New York.
    With property values in decline, few banks will want to refinance loans unless they can get more equity from borrowers, he said. “This would have a ripple effect” of pushing commercial property values down even more.
    Banks had $1.08 trillion of commercial real estate loans on their books at the end of June, according to Federal Deposit Insurance Corp. data.

  143. Sanctions on Iran, is this a reason to get bullish on oil?

  144. MCO/Cap – Yep it is getting a little silly and the negative newsflow being thrown at them is relentless.  Still, I’d rather wait for Congress because who knows what whacko regulations they will slap down on something they clearly do not understand by any stretch. 

    SDS/Cwan – You own the $39 calls at $4.30 with the stock at $40 so $3.30 in premium.  If you spend $1.50 to roll down to the Dec $36 calls at $5.80 with the stock at $40, you are $4 in the money with $1.80 in premium so your $1.50 buys you +3 in intrinsic value and cuts your premium by $2.50 - if you are actually bullish and you intend to hold the calls for 3 months (during which you WILL lose 1/3 of $2.50 per month on the $39s) then that is what they call in mad scientist school, a no-brainer. 

    As to part 2, I have a new rule about not discussing potential rolling scenarios to death as it’s like discussing the 7th chess move down the line of attack from your initial move – there are, at that point, 250,000 variables to take into account and it’s all totally meaningless if the very next move doesn’t go just the way you thought.  The gist of it is, IF SDS continues to go lower THEN your bullish plays should gain and THEN you will have $1.80 to roll the calls back 3 more months to MAYBE the $40s or MAYBE the $38s or whatever but the point is you can roll your protection and then sell more calls above them and THEN roll them down and THEN you are right back where you started at a grand total (MAYBE) of $1.80, which means your insurance policy costs you about .60 a month.

    I think the real problem people have with these hedges is they don’t have the right long plays.  If you have dumb-ass long plays that need a 20% gain in the S&P to make 20% then taking a hedge that will cost you 10% of your portfolio over 3 months is pretty dumb as you are hedging potentially no gains.  If, however, I have a buy/write of 100 SPX at $1,060 ($106,000 – there goes my SL again!) and I sell 1 Dec $1,040 call for $58 ($5,800) and 1 Dec $1,040 put for $39 ($3,900) then I’m in for net $960/1,000.  So you make $8,000 IF the S&P DOESN’T FALL MORE THAN 20 points between now and September.  You lose NOTHING if the S&P DOESN’T FALL MORE THAN 60 points between now and September. 

    So what do we need to cover?  Well, our concern is that the S&P may fall more than 6% in 3 months.  Keep in mind that if you believe the S&P will fall more than 10% in 3 months then you are a massive idiot for taking the bullish position in the first place and the faster you lose your money and put it back into circulation, the better off society will be anyway.  So, where was I?  OK, so we bought our bullish buy/write, looking to make about 8% in 3 months and we have a cushion of a 6% drop before we lose money.  Looking at the S&P chart, we can see that the S&P has gained 160 points in 3 months so let’s say they give up 1/2 of that and fall to 980.  Well 980 on the S&P only costs us $2,000 – that’s hardly worth hedging against is it? 

    Especially since I can just roll my puts and calls lower and VERY ESPECIALLY if I am a good boy and I’m scaling in, in which case a drop all the way to 900 would only trigger me to DD at $90,000 and be in 200 SPX at $950 average with the stock at $900 and I would be pretty sure I can sell the March $900 puts and calls for $95, which would bring me down to $855/878 and that’s about 18% lower than here.  At THAT point, with $190,000 in play on that position and having to DD at $878 ($175,600) I may be wanting to make sure I’m protected from the S&P revisiting 800 as that would mean I’ve gone 6 months with no profits and I’ve plowed $365,000 into it. 

    When the S&P was at $850 in April the SDS was at $70.  I’ll assume we will only gain half of that if we revisit it again so looking at $55 as a target to be conservative.  There are two ways I can go to protect my position.  I can go with the March $41 calls at $5.40 and sell the March $49 calls for $3.40 – net $2 on the $8 spread.  My main concern is missing out on my $16,000 of income I was trying to get so I can cover for $8,000 of it by taking $4,000 worth of that spread, which should give me back $16,000 if the S&P is so cruel as to fall back to 850 and wipe out first two buy/writes. That means I will have paid $367,500 for 400 SPX calls and the SDS calls and, if SPX ends up at $850, that would be 400 x $850 = $340,000 plus the $16,000 from the SDS = $356,000, a total loss of $9,000 with the S&P down 200 points.  Not terrible…

    The other way I can cover is to go with a deep vertical.  If I go for the SDS $30/40 spread for $5.30, I get $10 back if the S&P even flinches lower.  That means in order to get my same $16,000 I would have to put up $16,000 but I can’t lose it UNLESS I win on my bull trades and 2 of those pay $16,000.  A big bonus to this strategy is UNLESS SDS falls to $35.30 or lower, I don’t lose a penny on my hedge and I STILL gain 100% of my buy/writes becasue they too pay off if the S&P simply doesn’t fall.  In fact, my SPX buy/writes pay off if the S&P drops OR goes up and my SDS hedge pays off if the S&P drops OR doesn’t go up TOO much so it’s very possible that I can collect on both ends on anything less than a 10% move in either direction. 

    Looking at SDS, I can see that it NEVER has been lower than $38.35, which is a winner for me.  That’s even when the S&P was 1,500 it wasn’t that low.  You can also combo cover with 1/2 of the low vertical and 1/2 the higher play or you can partially cover the long SDS calls so you have unlimited upside in case they fly back to $100 (100 x $100 is $10,000 so that’s your bonus if you go 9/10th covered and the market crashes!).  As you can see, the more you discuss what you can do, the more like chess it becomes and there are dozens of moves to be made – the point is to get you thinking about these kinds of covers and try using some. 

    As with anything – practice makes perfect and sadly it takes many months to watch these unfold but there’s no better way to start than to take 1 SDS March $30 call and sell 1 SDS March $40 call for $200 and then watch what happens every day.  Once you get comfortable with the tool you will be able to use it effectively and once you have a toolbox filled with useful tools, nothing will phase you and you will be able to build or fix anything….

  145. War games/Kustomz – Oh come on, now we have to take those things seriously?  These are just canned stories that the oil pushers roll out whenever they need price support and oh boy do they need it now!
    As to Iran sanctions – more BS as we get ZERO oil from Iran.  Sanctions agains Iran are a huge favor to our pals in OPEC, who have cut over 4Mbd of production this year (10% of their total) and this is a nice way of hanging Iran out to dry so they can get more cash and we take the heat.  That’s why this comes up at a UN meeting, it would be too obvious if we "officially" met with Saudis and Russia and Nigeria about this but today Obama could do a few quick handshakes and screw Iran totally while sending some much needed oil money over to our "pals". 
    Here’s a list of who we buy from (Iraq is probably double that now but, as you can see, no single country is going to kill us, especially when we had a 1.5Mbd build/surplus last week):

  146. Oops, image didn’t load, trying again:

  147. Oh yes, it’s also good to point out that we have a 700Mb Strategic Petroleum Reserve and 350Mb in commercial storage and 25 days of imports already on tankers en route (average), which is another 250Mb so IF Nigeria sends us NO oil starting tomorrow, it would take 25 days before we missed the first million barrels and then we could cover the shortfall for over 2 years from reserves even if none of the other producers could put up a single extra barrel to cover it.

    That’s why those scenarios are idiotic – how long is the overthrow of Nigeria going to last when 60% of the GDP is oil exports and even with that the country runs massive deficits.  If there’s an army, their paychecks would cease within a week after the rigs stop pumping and any government that can’t send us a million barrels a day would be overthrown by starving people within a month. 

    The ALWAYS play these silly war games and there are ALWAYS public records of them.  The manipulative bastards like to roll them out through their press buddies as if it’s news whenever they need a price bump, that’s all this.

  148. Phil, there you again representing facts and your rational point of view which really has no place in the real world.
    GS makes a wish its bound to come true.

  149. Just a matter of time before these whispers become deafening

    Housing Crash to Resume on 7 Million Foreclosures, Amherst Says

    Sept. 23 (Bloomberg) — The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

    The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.

    Helping to stoke speculation the housing slump has ended, an S&P/Case-Shiller index for 20 U.S. metropolitan areas showed the first month-over-month increases in values since 2006 in May and June, reducing the drop from the peak to 31 percent. Echoing other mortgage-bond analysts including those at Barclays Capital Inc., Amherst cautioned that a change in the mix of foreclosure and traditional sales over different parts of the year lifted prices in the period, as the distressed share shrank.

    “The favorable seasonals will disappear over the coming months, and the reality of a 7 million-unit housing overhang is likely to set in,” they said.

    The amount of pending foreclosed-home supply has been boosted by more borrowers going into default, fewer being able to catch up once they do, and longer time periods to seize properties because of issues such as loan-modification efforts and changes to state laws, the New York-based analysts wrote.

    A Limited Aid

    Accounting for efforts to have more loans reworked to avert foreclosure makes “not much” of a difference in the shadow inventory, with optimistic assumptions leading to a 1 million reduction in the amount, they said. “And many of these borrowers would default later, if they remain in a negative equity position,” they added.

    Goodman is the former head of fixed-income research at UBS Securities LLC whose team there was top-ranked for non-agency mortgage debt in a 2008 poll of investors by Institutional Investor magazine. Amherst is a securities firm specializing in trading and advising investors on home-loan debt.

    The analysts didn’t forecast home prices. The Barclays analysts including Glenn Boyd, who earlier this year wrote that once it starts, the housing recovery will be dulled by a “pent- up supply” of homes from owners who have put off sales during the slump, this month predicted 8 percent further depreciation.

    That’s better than the New York-based Barclays analysts’ previous forecast of 13 percent because of their view that recent data show that the end of the crash is “decidedly under way,” they wrote in a Sept. 11 report. Foreclosed-home “supply should sap the strength of the recovery in all but the most optimistic of scenarios,” they added.

    To contact the reporter on this story: Jody Shenn in New York at or

    Find out more about Bloomberg for iPhone:

    Sent from my iPhone

  150. Thanks Kustomz, you’re on a roll tonight.  Again.  :-)
    You, too Phil!     …. ‘you are a massive idiot for taking the bullish position in the first place and the faster you lose your money and put it back into circulation, the better off society will be anyway’.   Luv it.  8-)

  151. I knew I loved this guy,
    Tonight Larry Kudlow said that Glass-Stiegal should be reinstated.  He said taxpayer dollars should not be subsidizing the risk of banks trading equities.  Risks such as potentially burning through cash that they get for their crap assets from the government and ultimately failing with the FDIC on the hook to pick up the pieces.  Makes alot of sense.  If I’m not mistaken, I suggested that back in February.  He’s a little slow but catching on.  ;-)

  152. Too funny:  Barney Frank WANTS  Death Panels put into legislation so they can be used to shut down flailing financials.  That Mo is funny.

  153. Curious about Obama’s soporific clunker of a speech at the UN ?

  154. Phil, you have the patience of a saint – i have seen you calmly explain the same rolls and reasoning over the last couple of years. 

  155. Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn (thanks to TRILLIONS OF TAXPAYERS DOLLARS).  Conditions in financial markets have improved further, and activity in the housing sector has increased (thanks to TRILLIONS OF TAXPAYERS DOLLARS).  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit (even with feds fund rate at zero).  Businesses are still cutting back on fixed investment and staffing, though at a slower pace ( even with trillions spent on the economy); they continue to make progress in bringing inventory stocks into better alignment with sales ( company bankruptcies).  Although economic activity is likely to remain weak for a time(even though TRILLIONS OF  DOLLARS were dumped into the banks and the economy) , the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization (the fed will print for the foreseeable future) in a context of price stability.
    With substantial resource slack (more fed printing) likely to continue to dampen cost pressures and with longer-term inflation expectations stable (hahahahaha), the Committee expects that inflation will remain subdued for some time ( fed takes the place of the consumer).
    In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability (print a shit load more money).  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period (folks in other words your fooked).  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt (did i mention the fed was printing boatloads of money).  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010( lies lies and more lies).  As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities (we’re printing a shit load of money)  in light of the evolving economic outlook and conditions in financial markets.  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted (dammit we need more ink)

  156. Good morning!

    Lots if interesting data etc. today:

    Thursday’s Economic Calendar:

    8:00 G-20 Pittsburgh Summit

    8:30 Jobless Claims

    9:00 Paul Volcker Speaks on Systemic Risk

    9:30 Senate Banking Committee, Emergency Economic Stabilization Act: One Year Later

    10:00 Existing Home Sales

    10:30 EIA Natural Gas Inventory

    10:30 Chicago Fed Conference: Have the Rules of Finance Changed?

    11:00 KC Fed Mfg. Survey

    1:00 PM $29B 7-Year Note Auction

    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet

    Jobless claims will hurt if close to 600K, Volker is a wildcard, Senate is BS, Home Sales ifffy, Nat gas could push oil below $67.50, KC should be up, another bad note auction will be hard to spin, Money Supply may send gold over $1,020 and Feb Sheet is sheet but it’s a weekly thing so not going to be shocking unless you didn’t realize their primary asset is the $1.5Tn worth of Treasury notes and bonds they bought (with checks written against a Treasury account) along with $700Bn in (ROFL) mortgage-backed securities that they took off the banks at face vale.  Those are the "assets" of the Fed

  157. Phil – Wow…wow. 
    The vision and inate grasp of the options world you posess is rather staggering.  It’s this type of experience that I really hope to develop.  I’m afraid I still can’t see the moves, but I WILL learn.  I cannot thank you enough for the patience, knowledge and effort you put into this place.  Please keep it going!

  158. I second where’s statement. I am a relatively new customer and have learned more in less than 3 months than my previous 15 years. Many good other people here too that have been helpful. Well worth the $.
    Phil, are you giving new buy/writes soon?