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Jobless Thursday – REITs Turn Rotten

Look out below!

I warned yesterday that the end of the quarter may well mark the end of Goldman and their Gang of 12's Global pump job and what better way to pull the rug out from under the markets then for Goldman Sachs themselves to issue a report that warns that REIT valuation seem "stretched" and they are projecting "flat to down 15% returns next year" with concerns that they are "just beginning what could be a multi-year down-cycle."

Other headlined charts (and Zero-Hedge has the full scoop) are:

  • Still a long road ahead for a recovery in credit.
  • Cap rates to rise substantially.
  • Deleveraging process just beginning for the REIT sector
  • Despite pipeline reductions, development remains a risk

In other words, all the stuff I've been saying for for the last couple of months as they IYR has climbed 50% since July 15th is now the subject of a GS report on Oct 1st.  I was fine with the sector rising 20% (IYR $36) but the move to $46 was completely without merit and, as I noted in a post last week, we shorted it there and went very long on SRS (ultra-short on the IYR).  In fact, just yesterday, in the morning post, I discussed Friday's multiple plays on SRS.  We also have short positions on BXP and, of course, we're still overall short on the whole market as a correction in the real estate sector is not going to be an isolated incident.

Fortunately, at PSW, we don't have to wait for Goldman Sachs to tell us a sector is overvalued because we understand valuations and we practice sound fundamentals – something that is sorely lacking in the larger investing community.  There's a reason REITs usually trade at 10x multiples and it's the same reason commodity producers usually trade at 10x multiples as well – because the underlying commodity, whether it is land or oil or gold or copper, can fluctuate in price over time and will sometimes spike earnings up and sometimes spike them down so, on the whole, they are WORSE long-term investments than say AAPL, MCD, KO or PG, who tend to steadily grow their business over time and deserve stronger multiples.   

When the REITs were trading at 5x earnings in March, we were loading up on them but when they crossed 12x in August, we flipped negative.  That's called buying low and selling high, something GS and their traders (like Cramer – and congrats on that CIT call by the way, Jimbo) don't get or even worse, maybe they do get it but then they herd their sheep into the trades at the exact wrong time so that they can fleece them in order to make a few bucks for themselves.  After all, as Cramer himself says: "What's important when you are in that hedge fund mode is to not be doing anything that is remotely truthful…  It's a fun game, and it's a lucrative game."  Yes Jim, lucrative for you and your pals at GS but a poverty-inducing hell for hundreds of thousands of viewers who lose the shirts off their backs in order to make sure your hedge-fund buddies can continue to wear custom-tailored suits.

As we expected, Initial Jobless Claims for the week were worse than expected, with 551,000 pink slips handed out vs 530,000 expected.  This is all a prelude to tomorrows big Non-Farm Payroll report, which I'm also expecting to be a miss.  We did get a little bit more encouraging news from personal spending (up 1.3% vs. 1.1% expected) and personal income (up 0.2% vs. 0.1% expected) but the gains were entirely in the service sector, with manufacturing dropping $5.5Bn worth of payrolls out of a total gain of $19.3Bn.  Of course that 1.1% gap betwwen income and spending knocked $112Bn off personal savings for the month, down to $324Bn from $436Bn in July – so much for building up sideline cash to support the market!

Of course, maniacal consumer spending is just what the markets want to hear but notice wages are climbing slightly, which indicates there will be no more easy cost savings by cutting employess this year.  Corporations have hit rock-bottom on cutbacks and planned lay-offs are down to 18-month lows.  At this point, reducing more jobs will mean reducing long-term capacity to earn money, which means we'll be looking at companies that announce job cuts this earnings period with great suspicion. 

Speaking of cutbacks, GM's talks with Penske fell through and their only alternative is to shut down the Saturn division entirely.  Saturn directly accounts for 13,000 GM jobs and 350 dealerships that employ an additional 15,000 people have until next October to wind down operations.  That would be what they call an "unplanned" layoff and I can't believe this isn't a bigger news story today. 

Asian stocks fell for the first time in three days on concern the region’s economic recovery may falter after a Bank of Japan survey showed companies plan to deepen investment cuts.  China was closed for the holiday and the Nikkei fell 1.5% and South Korea dropped 1.7% on news that Japanese large enterprises plan to cut capital spending by 10.8 percent in the year to March 2010, more than the 9.4 percent reduction foreseen three months ago, according to the BOJ’s quarterly Tankan survey released this morning. Economists had estimated a 9 percent decrease.  “The current business climate is hardly enticing companies to invest,” said Yoshinori Nagano, a senior strategist at Tokyo- based Daiwa Asset Management Co., “The economy is not in good shape yet.”

Europe is down about half a point at the US open as LYG and RBS take hits on news that they spent $4.5Bn to cover losses in Irish real estate.  Today we're looking to see if we can hold a lower set of levels in the US indexes at Dow 9,650, S&P 1,040, Nas 2,086, NYSE 6,800 and RUT 597 and, failing those, we'll be looking down to our 33% levels of Dow 9,394, S&P 1,056, Nas 1,917, NYSE 6,959, and Russell 574.  No, it is not a typo, the 33% levels on the NYSE and the S&P are already blown – this is the top we've been following for weeks so no great surprise there.

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  1. Strange pump in crude futures this morning; no corresponding dollar move.

  2. i shied away from the "widow maker" yesterday, ya think its too late to get in the game? Maybe NOV 9s for $1?
    have you noticed TASR?

  3.  "This is all a prelude to tomorrows big Non-Farm Payroll report, which I’m also expecting to be a miss."
    Phil, have you thought of any "special" ways to play this?

  4.  Alert

    Hey everyone. I apologize for no post on Thursday. I will be answering questions throughout the day on my Wednesday post. Please if you have anything you need to know just ask, and I will let you know ASAP! Again very sorry.

    Since I missed today…tomorrow I will have 4 picks…ooo la la to make up for today. 


    David Ristau

  5. guess that TASR was a Etrade pre market glitch. Said they were up 17%. Had me whistlin’.

  6. Deflation signs: Consumer prices in developed economies fell 0.3% in the 12 months to August after falling 0.6% in the 12 months to July, OECD says. June marked the first Y/Y episode of deflation since the OECD began compiling data in 1971; as recently as July 2008, the rate stood at an 11-year high of 4.8%.

    Oddly enough, ERY is not going down while oil is going up so I’d say the move in oil is total nonsense and the above inflation data backs that up.  This is one of those cases where selling USO $37 calls naked for $1 is a nice way to take advantage of the wrong-way move.

    OIH Nov $110 puts are just $1.60 and I lik those as well as they’ll do great if a few service companies miss earnings OR oil falls. 

    Friday’s lows were:  Dow 9,650, S&P 1,040, Nas 2,086, NYSE 6,800 and RUT 597

    33% Levels are:  Dow 9,394, S&P 1,056, Nas 1,917, NYSE 6,959, and Russell 574.

    Let’s see what sticks today but no hurry to shift our 1/2 cover on the DIA $97 puts (or $98 puts) unless we fail yesterday’s lows.  Volume is still low, if we don’t have panic selling, it’s hard to break down but I am expecting a long trudge back down to 9,100 over time. 

  7. Wow, huge volume sell spikes hitting all the indexes. This just has to start weakening the bull’s resolve, it seems to me.

  8. SRS/Morx – I wouldn’t chase here unless we break to the next level (SRS over $10) then you can do a vertical like the Nov $8/10s for $1 to give yourself a free 10% cushion. 

    Tomorrow/Diamond – Nothing special.  Had we gone up today instead of down I’d be looking to go more bearish

    ISM at 52.6. way worse than 55.7 expected but Construction Spending was up 0.8% and Pending Home Sales are WAY better than expected, up 6.4% from 3.2% last month and only 1% expected.  A week ago that would have given us a 200-point up day!  This should give us some support at yesterday’s lows. 

    We get auto sales over the rest of the day, those will be interesting. 

  9. Sell volume looks much heavier than the pops back up, so staying very defensive this morning.

  10. OIH Nov $110 puts are just $1.60 and I lik those as well as they’ll do great if a few service companies miss earnings OR oil falls. 
    Phil- Did you mean OCt 09′s 110 PUTS?

  11. I see three option chains for OIH in OCT in the TOS system. Whats the diff and which is our play?

  12. Woops, so much for holding our levels.  Volume coming in now and not too many are buy orders!!!

    Aug. Pending Home Sales: +6.4% vs. July (consensus was +1%), and +12.4% vs. a year ago, the seventh straight monthly rise. The index is at the highest level since March 2007. The rise "shows buyers are returning to the market and signing contracts," NAR’s Lawrence Yun says, adding that some deals aren’t closing due to "complex new appraisal rules."

    August Construction Spending (.pdf): +0.8% to $941.9B/year vs. consensus of -0.1%, and 11.6% below the year-ago estimate. July estimate revised to $934.6B. In the first eight months, spending was $629.5B, 11.9% below the same period in 2008.

    Sept. ISM Manufacturing Index: 52.6% vs. consensus of 54%, the fifth straight month of expansion (+50%). While the growth rate moderated slightly vs. August’s 52.9%, the recovery broadened as the number of industries reporting growth increased from 11 to 13.

    Comcast (CMCSA -6.75%) denies reports it has struck a deal to buy NBC Universal from GE (GE -1.4%) for $35B. "While we do not normally comment on M&A rumors, the report that Comcast has a deal to purchase NBC Universal is inaccurate," company says. Which doesn’t mean it isn’t kicking the tires.

    This reminds me – the ratings on NBC are TERRIBLE.  I am no expert but the chart I saw in USA Today showed ABC and CBS with 11.something ratings and FOX around 10 and NBC at 7.6!  That’s gotta hurt GE (who we are short on in the $100KP). as should this REIT stuff. 

    OIH/Chakra – Oops, sorry about that.  OIH has these wacky irregular options and TOS sometimes gives you too much info.   I thought those were Novemebers but they were just the irregular Octobers so I prefer the OIH OCTOBER $110 puts, now $1.82, to the November puts

  13. hi, Phil, with a fresh $100,000 how would you best use it right now?
    how about this:
    buy EDZ and sell the Oct. 7 calls and puts
    Buy SRS and sell the Oct. 10 calls and puts
    Buy TZA and sell the Oct.  13 calls and puts
    just wondering to take advantage of the spike in vol. and this big down move…finally..

  14. OIH PUTS- Phil, What are you looking for in these?

  15. Phil:
    with the drop, some of my callers have low premium left,
    would you close or roll out 1 month ?
    DE oct 46
    MDT oct 38
    WMT oct 50
    MTW dec 10.

  16. In case anyone is interested in bond ETFs, I’m looking to enter a short position on treasuries, which I haven’t been at all tempted by this year until now. But everything I’m reading suggests that they are getting badly overpriced, much of it a result of retail investors piling staggering amounts of money into bond funds this year (right through the biggest stock rally in decades, lol). Here’s one of the things I was reading, which summarizes the situation fairly well:

    I’m preferring TLT put spreads to TBT calls spreads because of the leveraged ETF decay issue, and because TLT option B-A spreads have improved considerably from when I traded them last year. Thinking of buying a few March 105 puts now with a plan to sell Nov. 95s on a dip. Starting small though.

  17. PLS some one translate :prefer the OIH OCTOBER $110 puts, now $1.82, to the November puts. Does this mean buy or sell the put thanks

  18.  Pharm – November looks like THE month for HGSI with an IV of 148%. 
    Selling the premiums (calls and/or puts) seems almost irresistible! 
    Have you heard/read anything that indicates which direction to put a bias towards?
    -- "IF" you were a betting man that is.  ;-)

  19.  What’s something oil related with good open interest in calls and puts?

  20. yodi – he is buying the Oct. 110 puts for $1.82 each contract

  21. thanks partha

  22. Phil — GS 15% down call on REITs includes gains from dividends.  Their actual price downside for REITs was larger, about 20-25%.
    Falling knife bounce play:   RVSN below $6.   Dwon 32 % on CSCO buyout of competitor.  CSCO accounts for mucho revenues for RVSN, but this selloff is overdone IMO.   Been buying shares down here.
    Dangerous game of course, but I think mid 6′s today possible; I would get out there; maybe even 7 in a few days.

  23. Phil – X – steady drop  from 50 to 43 over last 5 days returning to where it started run-up month ago. What’s your read – continued bearish or is there a conservative bullish play?

  24. Mr. Stick is trying to get something going off today’s bottom; but keeps getting rejected — so far.

  25.  Phil – FCX puts. Target was 5 on Oct puts now at 4.85 or so. I guess it is time to sell and run?

  26. $100K/David – Well the last thing on earth I would do is put is all on one-way directional bets and I sure wouldn’t chase this drop down until we confirm a breakdown on the levels.  Frankly, right now you should be looking to establish your upside protection, picking up long-side positions that get cheap and then going for the short-side plays to cover.  URE, for example, is down 10% in 2 days and you can sell the Jan $5 puts and calls for $2.10 and buy URE IF they go over $6, which would put you in for $3.90/4.45 on the buy/write and, otherwise, you have the naked short strangle with a b/e at $2.90 and that becomes your upside hedge  (with a 20% gain if SRS goes against you) to then start woking your way into an SRS play. 

    OIH/Chakra – A retest of the 50 dma at $110 at least. 

    Natural Gas Inventory: +64 billion cf vs. consensus of +62 bcf. Nov. natgas futures now -6.5% to $4.52.

    Drop/RMM – I would think by now that you know my answer is I would do nothing based on a one-day move other than follow the normal rule of taking 50% or greater gains off the table (by setting tight stops).  DE does look hopeless but I don’t know your basis – those I would take out and hope for a bounce off $42 but be ready to sell 1/2 the Nov $42s for no less than $2.50 (assuming you feel compelled to stay in DE of course, which I wouldn’t).  MDT also is worthless so sime situation with Nov $36s (those I do like long-term), WMT is a stop issue and MTW is just a jumble of WMT and Dec is way too far away to worry about unless you have some reason to think they are collapsing, in which case – why are you even in it?

    TLT/Eric – Rates MUST go higher.  When is the only question.

    OIH/Yodi – That was buying the puts, still $1.80.  I must say that if you don’t know whether it’s a buy or a sell, why would you do either?  Don’t take plays you yourself have no opinion on.  I have enough trade ideas that you can try just the ones where your own market outlook is in-line with mine on a position.  That way, when you enter it, you are able to have conviction and it can be something you yourself can track as information comes in that either supports or denies your investing premise. 

    HGSI/Diamond – Financially, they scare me so I’d go with an artificial buy/write of the Nov $15s at $6, selling the Nov $19 calls for $3.80 and the Nov $12.50 puts for $1.60, which puts you in the $4 spread for net .60 with a 566% upside at .50 over the current price and the possiblity of having just 1x put to you at net $13.10, which is 28% down from here (and of course, short of bankruptcy, you can roll them out to Apr $7.50 puts, which are now $1)

    Very nice job by Bespoke getting to the bottom of the market move on Chicago PMI yesterday:

    While everyone likes a scandal these days, a deeper look at an intraday chart of the S&P 500 and the firm that compiles the Chicago PMI (Kingsbury International) shows that there was most likely nothing nefarious taking place. The S&P 500 certainly did decline prior to the official release, but traders should be aware that anyone who wants early access to this report can do so provided they are willing to pay for it.

    On the company’s website, Kingsbury describes the Chicago PMI as, "a proven monthly ‘first look’ at business, government and NGO economic activity in the USA." They then go on to say that subscribers to Kingsbury’s data will receive "access to this market-moving data 3 minutes before public release." In other words, Kingsbury will ‘leak’ the report to anyone who is willing to pay at least $200 per month.

  27. Diamond – HGSI is up on rumors of a buyout (from GSK?).  I don’t see it.  I don’t gamble on things like that though. I lied, ARNA is one I am playing for a partnership/buyout for their drug.  Phil may be able to spot something that has a good payoff ratio.  I think they go down, but that is MHO.

  28. SPX about to break Friday’s lows. This could be a bounce point, but I’m not going to play it (I will play 1030 for a bounce if we get there).

  29. I meant /ES 1030 (now 1035).

  30. Oil/OldG – USO is the most actively traded and USL is also not bad.  XOM is like pure liquid on the options, you can go in and out of 1,000 contracts at a time on them usually. 

    GS/Cap – Thanks, I didn’t catch that.  I think 25% is about right at they are at p/es of 14 and need to come down below 12 in the least.  I don’t know that RVSN is overdone as CSCO is 40% of their revenues BUT, possibly not 40% of their profits.  I’ve consulted with companies whos single biggest problem was their single biggest customer – it all depends on how scalable their operation is and how much marginal revenues CSCO really is for them.  I very much doubt that RSVN didn’t get an offer from CSCO first that they turned down already as it’s doubtful CSCO is going to go through the massive hassle of switching over on what is probably marginally better technology at best.  So that means either CSCO wants to eliminate RVSN (and their own) competition in this area or that RVSN got an offer from CSCO and thinks they will be better off without them.   The Dec $7.50 puts are $1.80 if you are brave but I’d scale in carefully. 

    X/Concreata – Good catch as we do like X when they are cheap  but I’m not sure $43 is cheap, maybe $34, where we could hedge it down to below $30.  Don’t forget we haven’t gotten a real sell-off yet and the dollar is still way down and the VIX is still just 27 so there are lots of ways this play can still get more attractive for us. 

    FCX/Ken – Oh absolutely!  Close enough to get out.

  31. UNH has dropped from the 30 level to 25. Is there something fundamental going on, or are they caught in the crosshairs of the healthcare bill? thanks

  32. diamond – HGSI
    With those great premiums you could do a buy/write of the Nov P/Cs for $8 buying the stock for about 18.25 so it costs you $10 and you get 7.75 profit if called away, not bad.  If HGSI goes down you are obliged to buy them at $18 less the $8 you received for your shorts or $10 for a 2x cost of $14.12.
    Another way of putting it is a buy/write at 18.25 net 8.00/14.12

  33.  Phil,
    Any idea of a short term bounce play on BIDU? or keep on shorting…

  34. Phil,
    Regarding your comments yesterday about the huge difference between selling calls vs buying puts, and the relative movement required in the underlying before realizing a profit (I understand perfectly) ….but since we can’t be short calls inside an IRA (which is unfair IMO since it takes away  an effiecient means of shorting). I’ve sometimes been buying DITM puts when I want to "short" a stock.  Do you have any suggestions on better ways to do it?  Also,  i noticed today that you recommended buying the OIH Oct 110 Puts rather than selling calls to play for a drop in oil. Why? or did i misunderstand.  Thanks for your comments.

  35. boonie, one simple thing you can do in an IRA is sell the call as part of a short call vertical (e.g., buy some way OTM call option for .025 and then sell the one you wanted to sell originally). Since it’s now a ‘defined risk’ trade, your margin is just that required by the spread and it is legal in an IRA.
    /ES 1030 coming right up; didn’t take long! Will buy those SPY calls I sold at yesterday’s close around 1031. They’re now obliterated, poor things.

  36. My stock screen doesn’t look too bad C is the biggest loser at  -4% otherwise most range from -1% to -2.5%

  37. RVSN … I don’t know; just seems to me that there is no certainty that 40% of revenues disappear.   Maybe, maybe not.  Maybe some, maybe all, maybe none.  Also, the CSCO buy is only announced … when does it close ?  sometime in the future … or maybe not ….again, no guarantee.
    For these reasons, a 32% haircut is probably overdone; at least until more info is known.
    In any event, its just a swing trade play for me; but I think the trade makes sense to the long side; and its been paying off nicely so far.

  38. Selloff still not too severe.   TRiN over $3; market seems to have stopped in its tracs.
    AAPL, RIMM, etc. not getting smacked too hard; this is a pretty meek selloff; but relative to all the stick BS we have been putting up with it seems bigger than it is.

  39. Time to take profits in Saks (SKS -4.5%), JPMorgan says, dropping shares to Neutral. While liquidity concerns have mostly disappeared, firm finds recent insider selling by CEO Steve Sadove and a $100M disconcerting, and may suggest Saks’ management believes recent gains are overdone.

    Suddenly the Gang of 12 is on the downgrade warpath – clearly they have re-positioned negative.  This just came out an is whacking the retail sector.  On the more green-shoot side however:

    S&P Equity Research remains positive on equities, at least for the next few quarters. "Beyond that, we believe too much uncertainty on the developments of the private sector exists for anyone to have absolute conviction," firm says. "In the meantime, the risk-reward profile of equities is superior to that of other investable asset classes."

    OIH blew $115!  XLF $14.67, QQQQ 41.22…   Nothing bullish until those guys reassert themselves. 

    TM holding $77 and getting a little bit more interesting but I think they are lying about mat issue and they have to actually replace accelerator pedal so I wouldn’t buy here.

    UNH/Drum – That sector is insane.  Sometimes when the Bill looks like it’s passing they go up, sometimes when the Bill looks like it will get blocked, they go up too.   I don’t think the bill is bad for UNH or CAH, who are cheaper and I like as a flu play.  By the way, I was in a WAG yesterday and they have huge displays all dedicated to masks, vitamins, gloves, disinfectants…  Also, they have shot stations set up to innoculate people (apparently the 24-hour ones have the inhalable one, which I’d rather do) so this is looking like it will be big business this season. 

    BIDU/Balance – Don’t forget China’s closed.  If they come back from their break next week and find us down 500-points, BIDU can have a down 20% day.  They are still higher than our target of $370 (on the $390/$370 puts spread that morphed into a $400/370 puts spread) but that is one crazy-assed stock to play.   If you want to have fun, the $350 puts are $4 and could be $9 very fast (on a $20 drop) but are unlikely to lose more than $2 if they try to test $400 again so you can stop there with a $2/5 risk/reward ratio.  Obviously though, you should be thrilled to get $1.  

    Shorts/Boonie – The reason I went for the OIH puts was that they have a controlled risk vs selling the calls and selling the calls is most effective when you do it INTO a run UP, when the premiums are getting higher than they should be.  With a rising VIX in a falling market, you can burn yourself trying to sell calls if the market bounces.  Using OIH as an example, if I wanted to naked short them in an IRA (and I would not do this now as I like to short calls when the stock is topping, not moving down) then you can buy the Apr $145 calls for $3.40 and sell the Oct $20s if they get back to $4, that leaves you with a "covered" play with $25 in margin, less than the naked call sale and the delta on the Apr $145s is just .23 so a $5 drop would cost you $1 (but you still have the calls and you can use them over again).  If you think OIH will drop more than $5 in 3 weeks – then you SHOULD be buying the puts, right? 

  40. My posturing in this market has been a little too "bullish" of late. I now know how the Bull feels as he quickly becomes a Steer. I believe I will take advantage of this downdraft andclear off some of my over-rolled short calls andanticipate a bounceback tomorrow.

  41. Excuse the sloppy typing – no anasthetic during surgery

  42. Spxla

    Looks like 1,041 needs to be taken back before getting bullish on anything so let’s watch that line closely!

    Those ERY $14s from yesterday are $1.65 already (up 55%). Good place to take 1/2 off the table and stop the rest at $1.35 to lock in a 42% gain.

    BAC seems pretty fine with Lewis leaving.

    Dow volume only 100M at noon, about 20M over a normal low day so this is far, far from a capitulation event. 

    F sales down 8.9%, not terrible but not good. 

    The Treasury will sell $78B in notes and bonds next week (.pdf), along with another $60B in short-term bills. Treasurys have moved significantly higher; the 30-year yield -0.08 to 3.98%; 10-year -0.09 to 3.21%; 5-year -0.10 to 2.22%; 2-year -0.06 to 0.89%.

  43. An article that lays out the crude oil correlations:
    Basically, it concludes that oil price is ignoring supply/demand fundamentals and geopolitical events, and is being driven by dollar hedging (negative correlation) and equity prices (positive correlation).   Common sense observation with some empirical evidence, that helps me with the longer view on oil.   I still think markets are not factoring the impact of failed diplomacy with Iran…but the markets are also not factoring the huge supply overhand also…some weird kind of draw, leaving equity markets and dollar movements as drivers.

  44. RVSN/Cap – I’m not against the play at all, just looking at both sides…  You’re right, we’re just so used to even tiny sell-offs getting quickly reversed that a dwon 2% day seems shocking.

    Speakng of 2%, RUT is first to test the 2.5% rule at 589 so critical if they hold this or not.  Nas is next at 2,068 and then S&P at 1,031 and NYSE at 6,730 and the Dow is way far away from 9,450 so another 100 points down for the Dow if the RUT and Nas fail – I don’t think they will but, if they do we will sell 1/2 Oct $95 puts for $2 (now $1.50) and hope for a bounce to get the other 1/2 sold off the table

    An upside speculative play from here would be the DIA Nov $92 calls for $5.40, which were $6.50 yesterday and which can be covered with the $94 calls, now $4, for $4.40 on a small bounce but maybe covered for $5.40 on a big bounce for a free $2 spread

  45. Lunchtime …. less people around …. easier for HAL 9000 to goose the market !

  46. Phil
    October 1st, 2009 at 11:06 am | Permalink  
    To be clear, Phil,
    you say we can buy URE here and sell the Jan 5 puts and calls, or just sell the strangle naked first
    and only buy URe if it goes over  $ 6 ?
    and then later on  buy SRS?
    $100K/David – Well the last thing on earth I would do is put is all on one-way directional bets and I sure wouldn’t chase this drop down until we confirm a breakdown on the levels.  Frankly, right now you should be looking to establish your upside protection, picking up long-side positions that get cheap and then going for the short-side plays to cover.  URE, for example, is down 10% in 2 days and you can sell the Jan $5 puts and calls for $2.10 and buy URE IF they go over $6, which would put you in for $3.90/4.45 on the buy/write and, otherwise, you have the naked short strangle with a b/e at $2.90 and that becomes your upside hedge  (with a 20% gain if SRS goes against you) to then start woking your way into an SRS play.

  47. Oil/Lv – You have to factor in the fact that OPEC (and that is almost entirely Saudi Arabia) has 4-5Mbd of production off-line already and US drillers have cut back 30% from last year and Canada and Mexico are below capacity and they would all LOVE to ramp up production if they thought they could get $60 a barrel for it but the problem the producers have now is that, even with close to 10% of the normal global output off-line, we’re still running global builds of 1Mbd so adding even 1Mbd back in would cause a glut that would drive the price of the other 85Mb down $20 so they all have no choice but to comply with the cutbacks. 

    If however, Iran were to unilaterally stop sending oil (and bankrupting themselves in the process) that by itself would do nothing but help the other countries get back into production.  If Iran attacks ships in the gulf, then they go to war with OPEC and that, in the long run, would destroy the price of oil as well as giving us an excuse to kick their asses and OPEC is very painfully aware of the fact that Iraq is no longer a member – they sure don’t want to lose Iran as well.  Don’t forget war is the single best way to get out of a recession – we have an excuse to build things and then blow them up, perfect consumption!  This is something else Iran is well aware of and I doubt they believe we don’t want it…  Not only that but all we have to do is take the leash off Israel and they’re toast!

    Don’t forget that anything less than a 20% (of the drop) off the lows is meaningless.

    URE/David – Right, in that play, you are still bearish and URE is a hedge.  If URE turns up, then you know you can buy it at $6 against the short strangle and make 20% if they keep going up.   That way you have a 20% hedge against the bearish plays going against you BUT, since URE has to fall 50% before you lose a penny on that spread, it allows your profits to run on the other side without worry. 

    Consumer loan delinquencies struck record highs in Q2, ABA says, citing the "cumulative effect of the longest recession since the Depression." Bank card delinquencies were up 26 bps to a record 5.01% and home equity loan delinquencies rose 49 bps to 4.01%, while secured credit lines rose a modest 3 bps to 1.92%. Auto loan delinquencies were actually lower.

    Ford (F) September U.S. sales: -5.8% to 109,939, vs. estimate of -9.7%, excluding Volvo sales of 4,716. Cars declined 3.9%, trucks and vans fell 0.9%; sport utility vehicles -9.5%.

    Another crash is all too possible

    S&P 500 AD Line

  48. An upside speculative play from here would be the DIA Nov $92 calls for $5.40, which were $6.50 yesterday and which can be covered with the $94 calls, now $4, for $4.40 on a small bounce but maybe covered for $5.40 on a big bounce for a free $2 spread
    I own the $94/$96 spread @ $1.21. Thought this was closer for a quick move upwards. Can you clarify the last statement
    "but maybe covered for $5.40 on a big bounce for a free $2 spread. "

  49. CAP, for ‘falling knife’ examples, look at CAH and SYNA, I caught those knives and have only blood to show so far…

  50. chakra he just means wait to sell. If you can buy the 92′s for 5.40 and then on a bounce up sell the 94s for 5.40 you have a free spread.

  51. Phil let me understand this correct DIA buy nov 92 call for 5.40 sell ( when you say cover)?? with the nov 94call 4.40 difficult to understand?

  52. MRM – SYNA - I am with you on that one, but they have strong support here.  If they fail 24, they will be burnt toast.

  53. Phil,
    Right.  Good thoughts thanks, the risk aspect is evident, and I always try to be covered somewhere (if only in a correlated trade) but I’ve got to learn to watch the direction of the VIX more as getting the right price on the options makes a big difference….I haven’t been doing this that long, and this is something I need to work on.  Also, need to develop consistence in having and keeping with the escape plan.  I hate this market, but they are turning your cash into trash, so you kind of feel compelled to play….good practice on staying balanced.  Thanks again for comments.

  54. Phil/Pharm
    FACT refused the offer from BIogen this morning and the recent run up was purely based on this offer as they dont seem to have any catalyst. Biogen already has a partnership with them and I dont expect them to increase the offer. They can wait. I was thinking that FACT Nov 17.50 PUTS may be a way to play any drop. They will fall to the sub 10 level if the market drops. Any thoughts on this?

  55. TRIN = 4.63 !
    We should be crashing with that kind of reading !

  56. Cap, can you remind me what is TRIN and how do you follow it?

  57. I’m not sure if any of you are familiar with Raghee Horner’s "Wave", 34-period EMAs separately plotted on the high, low and close but the indices are pulling dead into the middle right now (on the daily chart), which is as far as they came on the last 2 pullbacks and then continued the rally. I don’t have a screen capture thing but it is easy to plot if you want to see what it looks like.
    Do you have any of those yummy 2-4 months-out buy/writes that we should be looking to scale into about now in case the market doesn’t keep going down?

  58. Even if, as Phil says, we grind down to 9100ish, it’s probably good for a little rebound pop tomorrow…or later today!

  59. DIA/Chakra – Whenever you enter a vertical like that you should try to make a little momentum play out of it, picking up your long call first if it’s heading up or selling the caller if it’s heading down and then filling to cover.  On that play, since it’s November, we can afford to wait and see if we get a big bounce that lets us sell the Nov $96 calls for $5.40, perhaps back at yesterday’s high.  If that doesn’t work, there are many ways to adjust ourselves to a lower spread, wich we’d need anyway like the Dec $87/89 spread for net $1.60.

    2nd test of 2.5% rules coming, then possibly stick time.  I still don’t see enough bad news to get us past the 2.5% lines for the day.  We’re off 3.5% from the top at 9,550 but let’s call the median top of this run 9,820, which was our signigicant watch point.  97.5% of 9,820 is 9,574 so THAT’s the 2.5% line on the Dow.  If we don’t hold that, we have another 2.5% to fall an that’s 9,329.  S&P lines are 1,043 and 1,016, Nas is 2,096 and 2,942, NYSE 6,894 and 6,688 and RUT 604 and 589. 

    Since S&P 1,040 also was Friday’s low, it becomes super-significant (and see chart above) so nothing is more important than that 1,041 area on the S&P to show us direction.  Nas 2,086 is the 33% line and also 2.5% off the top so big deal there and we’d have to call RUT 600 a very big deal and they blew that already so not taking it back is very bearish and the RUT is right on that 589 line so it looks like they will be a major failure indicator if they blow it.  

    Crashing/Cap – Well consider the possiblility that this may be as big of a crash as we’re going to get…

    SRS $10.24 – Woo hoo!   The look like they’re consolidating for another up move here

    Porsche September U.S. sales: +8.4% to 1,581 vehicles. Boxster/Cayman sales up 67% and 911 model sales up 40%. Cayenne sales down 28%.

    Chrysler down 44.4%!  Down 38% was estimate – man, they suck! 

    Gold struggling to hold $1,000 and oil trying to hold $70.  Volume 115 at 1pm.

    Buy/writes/AC – Not yet.  We’re not even down 5% yet, you may as well buy CIT at $1 if you are so anxious to gamble.  There are some puts you can sell like maybe X Jan $40 puts for $4 if you are so anxios to be in something.  That way you are in X for $36, close enough to where we want it anyway and, if they break that way, you can always sell Jan $40 calls )now $6.60) and buy the stock for about a $30/35 spread but starting with the Jan put is less commitment, keeps you flexible and still pays 20% (assuming $20 margin) if X goes up.  Still, I think it’s too soon…

  60.  Pharmboy
    What do you think about a buy/write on hgsi  thanks

  61. Looking at your S&P graph we seem to be sitting on the earlier low around 1035

  62. PHIL/others…….what’s your opinion of      COMS   as a buy/write???????? specific options ???    GABBY

  63. Phil holding AMZN Oct 80put and 90 call both short shall I get out now before they go up again?

  64. If UAUA falls another .75 I may have to start considering a new round of buy/writes….

  65. Bill – C my comments above on HGSI.  Not interested in playing them.  Too risky.

  66. HI Phil: I bought LYG at $7.50 & sold Jan. $7.50 calls for $.80 for net of $6.25. Current price is $6.34 for stock & $.50 for call for net of $5.84  I’m thinking of selling Jan . 45 puts now at $. 45. Your opinion? Thank you

  67. Daimler (DAI) September U.S. sales: -13.4% to 17,799 vehicles. Mercedes-Benz -9.6% to 16,985, and Smart -54.2% to 814.

    Hyundai (HYMLF.PK) September U.S. sales: +27% to 31,511 vehicles. Sonata sales -9% to 7,898; Elantra +104% to 7,513; Santa Fe up 50% to 7,010.

    1,035/Stever – Yeah it looks like a spot that damn well better hold or this market’s going down fast. 

    COMS/Nob – I would have loved them 3 weeks ago at $4, at $5.05 they are not as exciting but a good long-term play to work into.  You can take $1.20 off the price selling the Jan $5 puts and calls and that’s net $3.85/4.43, which is a fine price to be in them for as long as you are sure you want to DD on them at $3 and be in the long haul for about $3.70, just in case the market really tanks again.

    AMZN/Yodi – Well if you shorted the $80 put, I don’t see that as a problem but those $90 calls are really dangerous and you should be thrilled to escape after a $3 pullback.

    UAUA/Steve – Yeah, all they did is sell shares to raise cash, which I never mind but others always do.  I wouldn’t be the knife-catcher but those Dec $7 puts already sell for $1.10 and if you can sell the Dec $6 puts for $1, that would be great.  Since that is the case, then selling the Dec $7 calls for $1.70 naked now is a no-brainer and your goal is to sell the $6 puts for $1 and, if it goes the wrong way, you sell the $7 puts for $1 and either way you have a $2.70 cushion and you didn’t even buy the stock yet.  You don’t need to buy the stock at all if it goes down and, if it goes up and you buy at $8, you’re in for $5.30/6.15 with the stock at $8 and a 34% profit if called away at $7.

  68. Took profits on RL short calls – another Cramer-Inverse play that did well.

  69. Phil – EDZ – short opportunity to hold for tomorrow correction? Run up looks toppy – like 5 days ago?

  70. Porsche 911 sales up 40% – It is the preferred choice of the hedge fund managers so September was healthy for them.

  71. JPM bouncing off 50-day dma. GS advising clients to buy calls ahead of earnings as they expect better-than-concensus results and the calls have lowest volatility amongst financials. I’m not saying I endorse it, just passing along info.
    Phil, what do you think about a play on JPM ahead of earnings?

  72.  gel1 – Yeah, those Cramer-Inverse plays are great money makers!

  73. Oops, "50 dma"    …brought to you by the Department of Redundancy Department.  :-)

  74. LYG/Dflam – You bought the stock at $7.50 and sold the calls (no mention of puts) at .80 for net $6.25 (math doesn’t work) then what do you care if stock is $6.36?  Wasn’t the plan to either get called away at $7.50 with an 20% profit or turn and sell the Apr $7.50s for another .80 (about) and lower your basis to $5.50?  So all that is right on track and it seems very premature to sell the $5 puts as you are in nowhere near enough trouble to need the money and if things improve you can sell the $7.50 puts (now $1.65) for 2-3x more money.  Heck you can do a 1/3 sale now and collect more than you would on a full cover on the $5 puts and you would have 1/2 as much margin and a lot more flexibility and the only way you owe the putter a penny is if the 3x number of $7.50 calls at .50 are totally wiped out.  

    RL/Gel – That Cramer am an anti-genius!   8-)

    I love this GE/CMCSA thing.  This morning they were reflexivley lying and denying but this afternoon they are now going over the deal in minute detal.  This is fallout from the DIS/MVL deal which made it game over for Universal Theme parks as well as movie or TV deals for Marvel heroes.

    GM September U.S. sales: -45% to 156,673 vehicles. Total car sales -42% to 68,323 units. Chevrolet -41% to 102,538; Cadillac -9% to 11,339 vehicles; Saturn -84% to 2,993.

    Nissan (NSANY) September U.S. sales: -7% to 55,393 vehicles. Infiniti brand -15% to 6,610 units. Altima -24.3% to 12,149; Maxima +18.1% to 5,901.

    Richmond Fed President (and inflation hawk) Jeffrey Lacker says the risk of a double-dip recession is down, but that the Fed will need to raise interest rates as soon as the recovery is firm, even if unemployment is near 10%. The growth outlook is "more fundamental than labor-market conditions."

    EDZ/Concreata – They are still good as long as we close red (pretty likely).  Don’t forget China is sleeping and has a lot of ground to make up.  Taking some off the table is a good idea but no way would I ever short this ETF.

    JPM/Aclend – Oct 14 is a long way off and the premiums aren’t that great considering the volatility of the stock.  I suppose if I could sell the Nov $40 puts for $2 (now $1.75) I’d find that interesting as I wouldn’t mind owning them long-term at $38 but, other than that, it doesn’t appeal to me. 

  75. Oil futures keep trying to nose their way back to green. I’m wondering whether there is further upside for crude as soon as things turn around.

  76. Big sellers are still not done. Zero Hedge reports Goldman saying that the jobs number tomorrow will be worse than forecast:

  77. Phil,
    XLF just broke through Friday’s low of $14.48, with next support down around $13.79.  Any suggested plays with SKF or FAZ, assuming possible short-term bounce as we get the long-awaited correction?

  78. Phil – EDZ – I didn’t get into buy/write yesterday. Play still viable ?

  79. Phil, GNW from yesterday’s short straddle is nearing 11. Were we going to buy at this level? I’m thinking of stock or a leap call.

  80. Phil/Anti-Genius…. Only laugh all day for me. Forgot to fill the pool before I dove in (not enough covers)

  81. The double short on FAS/FAZ at 45 each for 90 total is finally coming down.  It has been a long time.  I did sell Puts against each to cover some losses.

  82. ssdirk – its been a long and very painful wait on that one.  did some adjustments – but mostly just bore the pain :-(

  83. Oil/Eric – Look at the consumer spending report.  It cost people $100Bn of savings last month just to live and that left $300Bn.  We consume 500Mb of oil a month and a $1 mark-up in oil usually gets about .75 in refined mark-up too so let’s call it $2 (for the other pass-throughs from manufacturers) or $1Bn per $1 per barrel out of people’s pockets each month.  The Savings Rate is annual so a $10 rise in oil wipes out over 1/3 of people’s savings and a $20 rise in oil wipes out all of it and $30 more per barrel means people must borrow money for fuel.  This really can’t happen anymore as we already tapped out our piggy banks and the banks aren’t going to give everyone loans so they can drive to the unemployment office instead of walking.  Things will have to do much more than turn around to change this formula. 

    Jobs/Eric – Hey I said that this morning!  Why doesn’t ZeroHedge write an article when I say it?

    SKF/Chuaeu – Where were you for the past few weeks when we set all those long spreads up?  Why does everyone want bearish plays AFTER we get a big move down?  Oh well, SKF is still very low and could go incredibly high.  You can do a Jan $23/27 vertical for $1.90 for a 100% gain at $27 (.40 higher on SKF) or you can simply go for the Apr $30s at $4.20 as SKF could easily head back to the $40s and give you a huge gain

    EDZ/Concreata – Now I’d go for the stock at $7.59, selling the Jan $7 calls for $1.95 and the Jan $6 puts for .85 for a $4.79/5.40 net which is 46% up if called away and 29% off if put to you.

  84. I forgot to tell you guys I sold some covered Oct SRS 11 calls about 1.5 weeks ago.  That should have been your sign the stock was set to rise.  I’ve managed to do this perfectly with ERX (on the way up) and SRS (on the way down) in the past few months.  Selling way out of the money options for what should be low probability low reward plays that somehow land in the money.

  85. Partha – in one account I actually covered the FAZ short for a really nice gain last week.  I still have the short of FAS.

  86. GNW/Eric – No hurry in a bad market.   If they keep going down, then great, we’re good until $9 naked.  If they head back up, great, we’re good until $12.50 so $11 is around where I’d buy AFTER they come back from $10, not on the way down unless we really, really think this is going to be a floor (and the 2.5% rule is not usually a floor). 

    Laugh/Gel – So at least the day’s not a total loss.  Gosh I don’t understand how you guys could have been bullish this week – do I need to buy buttons that make bear and train-wreck sounds to go with my posts???

    Double shorts/SS – Yes, that was an experiment that has not been going well.  Now we’ll see what happens.  Of course you do know I advised taking out FAS at $20 a while ago and riding FAZ naked short?!?

    Honda (HMC) September U.S. sales: -23.3% to 77,229 vehicles. Car sales -20.4% to 41,982; light trucks -25.4% to 27.877. Acura -30.3% to 7,259. (all figures on daily selling rate;

    Kia September U.S. sales: +24% to 21,623 to finish its best-ever quarter. Optima +214% to 5,986 vehicles. New compact sedan Forte sells 4,449 units.

    Toyota (TM) September U.S. sales: -12.7% to 126,015 vehicles. Toyota brand -19.1% to 108,076; Lexus +7.3% to 17,939. Passenger cars were down 14.5% and light trucks down 18.7%.

    BMW September U.S. sales: +3.6% to 19,175 vehicles. BMW brand +2.1% to 15,047; Mini brand +9.7% to 4,128.

  87. Phil, I also get confused when speaking about shorting an inverse ETF.  You said to cover the FAZ short and ride the FAS naked short.

  88. Phil,
    Have been playing financial ETFs for a move down already – this was for a retirement account, where I’ve been much more conservative.

  89.  Phil – Shure wish I had bought FAZ of TZA at the close yesterday.  What do you see for tomorrow’open, on down to 9300, or a bounce ?

  90. Phil
    Would you take profits on the OIH at this point or would you want to ride it to the earnings?

  91. ssdirk – LOL – that also gets my brain in a knot. ie the FXP & SKF spreads.

  92. Looks like Korea is taking the lead

  93. Phil, when the Treasury Secretary calls you more often than anyone but Bernanke (as Paulson did with GS during last year’s crisis), Zero Hedge will probably publish your predictions too.
    I’m looking to sell some lightly bearish SPY strangles into the close, which should do o.k. even if we go up tomorrow (IV drop).

  94. Eric, what strikes and month?

  95.  "… do I need to buy buttons that make bear and train-wreck sounds to go with my posts???"
    Phil – Maybe you could borrow Cramer’s.  ;-)

  96. FAZ/SS – We started by shorting FAS and FAZ each at $45, when FAZ dropped to $20, that was a 55% gain, which is as much as you can ever expect to get on a stock short so we take it off.  That’s not complicated, that’s just sound investing strategy.  That left us short on FAS for net $70, less the money we collected selling the monthly puts.  So now we wait for sanity to return to the markets and hopefully get a chance to buy back FAS for $40 or less. 

    Conservative/Chuaeu – Well then certainly stay away from FAZ!  The spread is a much safer play as the b/e is $24, which is about SKF’s record low. 

    Tomorrow/JRW – We’re finishing at the 2.5% rule so most likely a 1.5% follow-through tomorrow to test the 4% line, which is the 20% retrace off the 5% line so should provide strong support.  As a rule of thumb, breaking below to touch 5% tomorrow and finishing below 4% is very bearish.  Finishing at 4% to 3.5% means likely test of 5%, which should hold coming off that finish.  Finishing above 3.5% is a little bullish and holding 2.5% tomorrow is very bullish but I wouldn’t trust it into the weekend. 

    At least we’re getting some volume now – 178M at 3:30 as we drift along the bottom

    Overall Auto Sales rate for Sept dropped to 9.22M from 14.6M in Aug so Cash for Clunkers made a blip that was immediately erased, especially when you consider the 9.22M figure INCLUDES the 14.6M spike. 

    OIH/Chakra -  We only have 2 Rules and Rule #2 is "When in doubt - Sell half!"  As I said to JRW above, if we don’t get a 50-point stick into the close, then we are VERY likely to move another 1.5% down tomorrow and we’d absolutely want to take profits ahead of the weekend so the MOST you can get is another $1, which means taking 1/2 now will cost you .50 of your max likely profits at most. 

    Calls/Eric – I told Timmy to stop calling.  Was that a mistake?  8-)

  97. ss, Nov 101P, 105C. Asking 5.95, but may lower the ask if we don’t get a rise into the close.
    By the way I have a bullish SPY position already, so I can’t lose to the upside.

  98. Bond and Dollar rally today caused my train wreck. The fundamentals are not there for this kind of movement, so I feel my losses are only temporary, and a reprieve is in my future. My Porsche is for sale to one of the manipulators who are responsible for this unexpected mess.

  99. Phil – Are you going half covered on DIA’s for tomorow?
    Your own Sound Effects.

  100. OIH/Chakra – Oh sorry, I just realized you might have meant the $110 puts from this morning that are up 40% in a day – Of course you take those off the table.  That’s an annual ROI of 14,600% – surely that must improve your overall investment returns enough to want to lock it in???

  101. Phil, this is what I was refering to:
    Double shorts/SS – Yes, that was an experiment that has not been going well.  Now we’ll see what happens.  Of course you do know I advised taking out FAS at $20 a while ago and riding FAZ naked short?!?

  102. Porsche/Gel – Sorry but it seems they are buying the new ones… 

    Sonds/CaFords – That is great!  Now I can have my own TV show…

    Wow, volume piling on and no upward movement, Mr Stick has met his match at the moment.

    FAZ/SS – Damn, that was me mixing it up.  Of course we took out the FAZ for $20 and rode the FAS naked short, not vs. vs.

  103. ssdirk – he has a typo – he meant FAZ at $20 and riding FAS naked ..

  104. Now everyone but the Dow and S&P have blown 2.5% and we all know that 3 of 5 = Bad!

  105. Phll :I bought LYG at $7.05 ,not $7.50. I like the 1/2 sale of $7.50 puts for reasons stated,but will hold off until tomorrow.Thanks .

  106. DIA – Phil
    We can still trade until 4:15 – any thoughts ??

  107. Whee, this is great! 

    Looks like someone stuck it to the stick man or, perhaps, there is no more stick man or why would GS and JPM be issuing negative outlooks on the same day.  If they flipped bearish, now they will do a downgrade here and a downgrade there until they hit their next targets and then they’ll BUYBUYBUY while Cramer tells everyone to SELLSELLSELL and we’ll be ready to start the cycle all over again. 

    I guess we’re going to end the week with a bang – later all!

  108. Wow, with today’s action I can now retire 1.25 days early!  Of course, after tomorrow, that will most likely be erased and I’ll have to work an extra 2.  Banks were just getting dumped all day.  I know the % rules and will respect them.. but this is a set up for earnings.  Just like in July?  Right??

  109. DIA/Edro – Not the way they mess with the Futures and, with China closed, they have super low volume through Europe’s open.  Of course I’m biased short but 9,500 does have a chance of holding and that’s down from 9,900 so 4% on the button is a dangerous place because a 1% move back up is normal. Short story – stay away unless you need coverage badly.

  110. According to the International Monetary Fund’s "Global Financial Stability Report," commercial banks have already recognized $1.3 trillion in write-downs globally through the first half of 2009, but they face another $1.5 trillion of potential asset write-downs ahead. That means, according to the IMF, the financial sector has only recognized slightly less than half of its expected losses.

    The report says:

    Even though bank earnings are recovering, they are not expected to be big enough to offset fully the anticipated writedowns over the next 18 months. The insufficient earnings, combined with continuing deleveraging pressure, means banks will have to raise more capital.

    Additionally, banks must refinance a massive amount of maturing debt over the next two to three years. An unprecedented $1.5 trillion in bank borrowing is due to mature in the Eurozone, the United Kingdom, and the United States by 2012. (More on that from The Deal here.)

    Also causing stress on earnings are defaults on consumer credit; however, the way this will effect the financial sector won’t be even, according to senior Morningstar Inc. (NASDAQ:MORN) stock analyst Jaime Peters.


  111. Phil, I own SRS at 10.20 and am short the Oct. 10  calls at 80 cents, for net of 9.40.
    What would be a goo dnext step to either lock in or hedge this potential profit in 2 weeks, if the SRS ends up above 10.00 ?

  112. Phil… Piss on the Porsche, now worried about the house. Oh well… your humor is helping!

  113.  PHIL, I understand the explanation of how they drive the markets up,  I think there is a way they can do the opposite to make the markets go down, but I can’t figure out exactly how it would work.  Could you explain how to use HAL9000 to make the market go down.

  114. Craig, BIG players….they flood the buy side and drive up the markets and others follow along raising their bid….. then they switch over to the sell side and flood the market with sell orders filling all those guys that followed while simultaneously taking away their bid leaving the followers holding the bag…really is that simple

    Once the big money takes away their bid, there really is no floor and thats what happened at the end of the day

  115. 100kp
    TVFVB – STO @  2.00 now .45/.60
    Time to close??

  116. 100kp
    Also CJP @ 0.11
    BYOJQ @ .41
    CZLJA @ .10

  117. EricL/Bond ETFs,  yeah, we’ve been playing them.  I’m not sure I understand the rational behind the spread your 10:32 post (Long TLT Mar 105 PUT and short Nov 95 PUT) .  That $10 spread is $8.45 now, and you might get it for $7.45.  The Mar 105 PUT has $4.1 extrinsic and we’d loose $0.8 every month if TLT is flat in the next 5 months.  Selling the 95 PUT would net us $0.95 credit, but we might get it for higher on a dip in bond.  If bond rallies (against our imagination), we might not get the December for $0.95, so you might be in for a loss.
    An alternative is to sell the Short Strangle (in non IRA accounts), selling Nov 95 PUT and Nov 105 CALL for $1.5.  However, we are bearish on Bond (i.e. interest rate must go up soon or later), we can sell Nov 102 CALL as we can roll them every month, netting $2.25 credit for the strangles.  The margin for TLT is 20%, so we need $20 in initial margin to make a maximum of $2.25 for 6 weeks, which is a better deal than the diagonal spread in my opinion.
    For TBT, we’d just sell the Nov 41 or 42 PUT plus selling the Nov 48 or 49 CALL, as it got wacked today and we can roll them to the next month if needed.

  118. Good morning!

    Just 19% say personal finances are getting better and 45% say they’re getting worse, according to Rasmussen’s most recent Consumer Confidence index. Among investors, 25% say things are improving, while 38% think they’re still going downhill.

    Yesterday’s unexpected drop in the Purchasing Managers Index is symptomatic of a more frugal U.S. consumer, but the bad news is Americans haven’t even begun to save. "The increase in savings must come out of spending," David Goldman says, and "the Red Bull high of government spending won’t last long."

    The big three automakers had predictable sales declines after the CARS plan wore off (GM sales down 45%; Chrysler down 42.1%; Ford (F) down 5.8%), reminding us what car sales are like without crutches: Those that were struggling are still struggling, and those that were offering value (Hyundai sales up 27%; Kia up 24%) are continuing their trajectory.

     Uh oh. "Goldman Sachs today said the economy probably lost more jobs in September than it previously anticipated, citing ‘disappointing’ economic data, including the number of people receiving jobless benefits." Firm now pegs tomorrow’s nonfarm number at -250K vs. a previous -200K and consensus of -175K.

    Yay us!   A large survey of buy-side investors and sell-side analysts finds 42% read blogs for stock market research, and 12% use social networking sites. Of those surveyed, 12% cited "new media" as a top-three source, vs. just 5% for business media, and 58% believe new media will become increasingly important in helping them make investment decisions.

    Hang Seng and Nikkei both hit 2.5% rule for the day (down of course) and that’s 7.5% off the top for the Nikkei and 6.5% for the Hang Seng so it’s looking like we could be heading to a 10% correction if jobs are near Goldman’s outlook (especially if they are over). 

    The FTSE is down just 3% off the top, 4.3% for the Dax (but they had that silly election run-up on Monday) and the CAC is down 4.2% too so it looks like everyone can test 5% today on a poor jobs report.

    Oil is down 1.5% from the pumped-up close, back to $69.72 at 4:30 but the morning pump usually comes an hour before the open and gold is back just under $1,000 with the Dollar up at $1.45 to the Euro, $1.587 to the Pound and buying 89 Yen but we can expect that to get a boost pre-market as well. 

    It’s all about the Non-Farm Payroll Report at 8:30 and the second most important thing is Ireland voting on the EU again.  If Ireland votes it down (again), we can expect the Euro to take a dive, which means a dollar rally next week and a plunge in commodities and almost certainly our markets will fall to the 10% line.  The most important part of the "Lisbon Treaty" (we discussed this in depth last year when I was sure it would be rejected, now 50/50) is that it will no longer require a unanimous vote to pass treaties like this, which has ground EU policy-making to a halt for 2 years.

    Off topic – New oldest woman fossil found, 4.4M years and significant because her tribe lived in forest, not plains. 

    On the opposite end of Human evolution:  Rising Sea Levels Putting New York at Risk

    Friday’s economic calendar:
    8:15 Fed’s Rosengren speaks on inflation and financial markets
    8:30 Nonfarm payrolls
    9:00 Day-two of Washington Ideas Forum
    10:00 Factory Orders
    4:35 PM Fed’s Fisher speaks on the new global economy (webcast)

  119. Banks/Kustomz – I would think people know this already and it won’t be too shocking.  Banks made $2Tn in 2007 so they can absorb the losses over time but, of course, the $2Tn was based on BS math so let’s say they are capable of making about $1.4Tn a year so it’s a year’s losses and maybe knocks 20% off mean value (assuming that’s all there is) but it doesn’t change the fact that many banks are still good deals at 50% off the highs.

    SRS/Dman – Well you can let yourself get called away for a 6% profit or you can roll the caller to Nov (the Nov $11s are $1.30 so no hurry) or you can roll to a Nov buy/write like, let’s say you roll the caller to the Nov $12s at $1 (even) and sell the Nov $9 puts for .75 so that’s another 7.5% in your pocket for the next month and you widen your spread considerably with another 15% before you get called away. 

    House/Gel – I think everyone in America should walk away from their mortgages.  I’m pretty sure that, if we can get 20M people to do that all at once, instead of in dribs and drabs, the banks will be willing to negotiate much more realistic terms – either that or we can just buy them back for half price anyway. 

    Why are banks held harmless in this transaction?  The banks are investors that sought to make a profit by being the money partner in the home transaction.  You were the working partner, they put up the cash and you promised to work for 30 years to pay them back with interest so you are PARTNERS, both hoping to profit from the home.  They are not generous partners either as you pay all the fees, you pay for inspections they mandate and you pay for their due dilligence (title searches) and you pay for their appraisal and, even after all that, you paid them processing fees.   Now it turns out YOU BOTH OVERVALUED THE ASSET and your cash flow may not by what it seemed.  Why is this 100% your problem?  People need to say:  Hey bank – my $700,000 home is now worth $450,000 and I can’t make a monthly mortgage payment of $5,000.  You can take my home and pay the taxes and utilities and maintain it while you hope to sell it for the $550,000 balance or you can restructure my mortgage back to $3,000 for 5 years, $4,000 – 10 years, $5,000 – 15 years, $6,000 – 20 years through completion so we can give me a chance to get on my feet and give OUR home a chance to regain value. 

    How hard is that?  The bank collects $24,000 a year less for 5 year but still accrues interest so they are eating into your same deposit but just at a slower pace.  Meanwhile they help you get through a rough time and give the economy time to recover without chucking everyone out of their homes.  This is what partners do when businesses have problems, why are banks treated better than any other class of investor?

    Hal 9,000/Craig – If I told you I would have to kill you…  Kustomz has it right, all you need to do to drive the market down is not buy but if you want to trigger big selling, all you have to do is issue a report that REITs are overvalued or job losses will be bigger or some sector is overvalued and then you pay Meredith Whitney to say something negative and have some of your media buddies toss some dirt around and, Presto!, panic selling…  

    You can’t think in terms of "How could they make me sell" – it’s more like you (an intelligent PSW reader) are standing in the middle of a herd of sheep and wondering how the guy with the stick and a dog is going to make you go one way or the other.  You are not the target, most of the investors are sheep and they don’t need to get all of us, just enough to tilt the game the way they want it. 

    TWM/Edro – Depends on Jobs.  I think TWM tests $31.50 (50 dma) but that could be today as it’s just 3% higher on the ultra but if Job losses are over 200K, I think we can hold it for the weekend as we should be able to get this one back to $34 in that case.   On the others, of course you should offer .05 to close if you can and set a stop on the BAC call but they are trending down so no reason to pay premium to buy them back unless we REALLY think they are heading back to $17 in 2 weeks.

  120. By the way, I mentioned paying Whitney to say something negative but it’s not a knock on her, she’s negative. 

    Independent analysts, even very honest ones, are tools of the IBanks.  If I’m GS and I want a negative report on the banks, I pay Whitney and several other anlaysts to study certain things that I think will yeild poor results.  Before I ask for the report I write up a contract that gives me exlusive ownership of their work product so, when I get the reports back – I just shred the ones I don’t like the results of and take the one that has the spin I wanted and send it down to my PR department, who calls all of our media contacts and pushes out the report and books Whitney on CNBC etc. so she can discuss here "shocking" finding and the people who disagree with here have already been paid under contract by me and are UNABLE to even go on TV and discuss their dissenting views. 

    So when I talk about a "conspiracy" to control the media, it’s just shorthand for the many ways any motivated player can game the system to give them the results they want, when they want them.  The real conspiracy is having a governenment and media that puts up with it but why is that?

    Well the corporations contribute to governement and own the media is the easy answer.  Also, gutting the media and turning it less profitable by dilluting content and turning people’s attention away from news and more towards Kate + 8 is one way to do it.  The less profitable media can’t afford to do their own research, they can’t afford to send news teams to dig for stories, they can’t promise to protect wistle blowers or have a Whitney-caliber analyst on staff full-time and, even if they did, they sure don’t want to piss off their sponsors. 

    When I was a kid, I watched the News.  There were 3 networks and you watched one of them.  I also watched 60 Minutes and I don’t think I was that strange, I think a lot of kids watched it with their parents, maybe because we only had one TV and there was nothing else to do after dinner on Sunday but I remember when the networks had integrity and actually investigated things and broke stories – now stories break on the Drudge Report and get picked up by the media but 99% of the population is watching reruns of Seinfeld at 6pm anyway, not the news.

    Speaking of news, Ron Paul was on the Daily Show the other day.  John Stewart’s a great interviewer. 

  121. Hey this is funny, I got a ton of referral links from the Christian Science Monitor all of a sudden so I had to track that down:

  122. Phil, way off topic.  Recently you said that you use several computers to drive your various monitors.  Have you tried the program Synergy that allows you to use just one keyboard and mouse to drive all of the computers?  It really is seamless, easy, works great and is free.