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Thrilling Thursday Morning

And we are off!

AA beat earnings yesterday and the dollar continued to dive to the lowest level since July of 2008, when the $168Bn Bush stimulus package was considered highly inflationary but that didn’t stop oil from diving from $147.90 on July 1st all the way down to $35.13 in December and it didn’t stop gold from falling from $989.60 all the way down to $681 as quickly as October.  Gold has me particularly worried at the moment because half the investors are piling into low interest T-Bills and half the investors are putting all their money into shiny bits of metal and no matter what happens, half the investors are going to be very, very wrong.

Nonetheless, today seemed as good a time as any to put up a new Watch List for Members as we are way too bearish if we are going to make new closing highs and we need to balance out with some more bullish positions.  We’ll be looking for action that beats our best September closes of Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and RUT 620 to confirm that this really is a new rally and not just the double top we’ve been thinking it was.  Our plan for today is to roll our short plays along as October if we are clearing those levels but, otherwise, we will simply be scaling in and rolling our long put covers higher.

My overriding concern is still that the dollar is way too low and although it’s making China happy (their Yuan is pegged to the dollar so Chinese exports are super-cheap again), it’s making Japan miserable and Europe is starting to get very nervous as well.  Remember that China played this perfectly as they stockpiled 50% of the world’s annual supply of copper earlier this year as well as many other precious metals and then they began making comments that took down the dollar, giving them a huge windfall on their trading. 

Of course China is only the 7th largest Soveriegn Wealth Fund playing our markets with the cash we’ve sent them over the years.  China’s 3 SWFs rank only behind the UAS combined $709Bn from the Abu Dhabi Investment Authority and the ICD.  Saudi Arabia’s has just the one $431Bn SAMA Foreign Holdings to represent their interest in global commodity bidding.  China and the UAE are eclipsed only by our own Goldman Sachs (technically not a government fund despite the bailout), who have $884Bn in assets – now THAT’s market power! 

For comparison, this year’s Forbers 400 list of the richest Americans have "only" a combined $1.3 Trillion.  That’s just an average of $3.25Bn each – these are indeed tough times…  The CIC (China Investment Corporation) controls $190Bn worth of assets (still mainly cash) and is headed up by a guy who would not make the Forbes 400 list, or the Forbes 100,000 list if there were one.  The CIC is run by Lou Jiwei, who was formerly China’s Vice Minister of Finance and has been a card-carrying member of the Communist Party since 1973.  Not your normal profile for one of the World’s biggest hedge fund managers…

China’s other major fund, SAFE, is run by Yi Gang, who used to teach economics at Indiana University and later served as Deputy Governor of the PBOC before being put in charge of this $347Bn fund this year.  In addition to the Fund, SAFE also writes the rules and regulations governing China’s FOREX markets and they also manage China’s $2.1 Trillion of currency reserves.  And you thought GS had a lot of power

I point out the background of these fund managers because we need to consider that they probably have more cash on hand than any other fund on the planet and both men come to the table with very different agendas than your typical Western capitalist.  China’s SOVs are all about doing what is best for China because China is the investor, not the Forbes 400 looking to make an extra Billion this year. 

If China needs a cheap dollar, they MAKE a cheap dollar and if China needs cheap oil, they MAKE cheap oil.  There is no SEC looking over their shoulder – they are the SEC!  We’ve been trying to piece together who it was that is benefiting from such a weak dollar and it was only yesterday that I was reminded that the Yuan is pegged to the dollar.  China stocked up on commodities (which are priced internally according to strict controls) and THEN took down the dollar because taking down the dollar is taking down the Yuan and pushing money into the US markets at the same time makes the dollar collapse and commodity rally more palatable over here so consumer confidence goes up and Chinese workers can go back to the factory making Nike’s and Barbie dolls for the holidays

[retail1008]So that’s what we’ve been missing in the big picture, and we’ll have to stay on our toes as this is something new in the marketplace and we can’t rely on the old models to hold up.  While our markets are partying like it’s 1999, the Hang Seng was up just 1.2% today with virtually all of the day’s gains coming after lunch, when the Nikkei closed.  The Nikkei is, of course, not as happy as China is with the weak dollar and remains at a 2-month low 9,822, which is still 7.5% below the September 24th top at 10,600.  It is very rare for the Nikkei and the Dow to diverge this far apart (12.5% since 8/17) and we’ll be looking for a big move up in Japan to confirm the Dow otherwise it’s the Dow that will be coming down hard.  EWJ Dec $10 calls are just .30 (EWJ is at $9.84) and are a good way to play the upside in Japan, a nice cushion to Dow shorts.

Europe is up about 1% ahead of the US open but off their highs despite the fact that both the BOE and the ECB announced they would be holding rates steady.  Latvia is on the verge of collapsing and that will affect the Swiss banks, who are into them for about $45Bn in projected losses and I’m sure German and British banks would take a hit as well so we’ll keep an eye on that one. 

Retail sales looked very good this morning overall, albeit on very low expectations.  "Only" 521,000 peopple lost their jobs this week with Continuing Unemployment Claims falling from 6,112,000 to 6,040,000 so that’s another green feather we can stick in our caps.  We have Wholesale Inventories at 10am and they should be well down thanks to Cash for Clunkers so there is not reason we can’t get to new highs if this rally is real

I still think we’ve come too far too fast and this "great" data is already baked into the valuations but it doesn’t matter what I think – it matters what Yi Gang thinks so we’re just going to watch our levels and buy accordingly.


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  1. PHil
    DIA- I am in the Jan 98′s so, roll up to the Jan 100′s; sell Oct 99′s?

  2. Dollar just moved big time back up….0.55 to 0.4.

  3. Yeah, gold and treasuries both soaring again today — wild times. Someone does seem to be defending the dollar though in the pre-market, which is not the first time we’ve seen that this week. Now it’s hurting oil.

  4. Gold’s a short today if this morning’s dollar move gains momentum.

  5. Where have U been Eric – we shorted gold a week ago…and rolled up, and rolled again….LOL!!

  6. Didn’t Japan invade China for, Oh 1000 years stealing their resources to build their wood castles.  Then lightning strikes, burned the castles down, and then they had to rebuild (that is why there is nothing that ‘old’ in Japan.  Now China is getting back at them!

  7. Pharm, did I miss a roll in gold?  I am in the GLD Nov 100 put.

  8. Phil:
    This is from last month.
    MRK/Jo – With a 5% dividend they are easy to love.  Why own the leaps for $7.20 when you can buy them for $30.70 and sell the 2011 $22.50s for $9 and the 2011 $30 puts for $5.30 which is net $16.40/23.20 and you collect .38 a quarter (9%) while you wait? 
    I like these kinds of plays and have made several of them, basically trying to leverage the income from the dividend. But I’ve had several of my 2011 callers exercise relatively soon after entering the trade, blowing up the play. I realized it’s probably because the extrinsic value (time value) on the DITM calls tends to fall below the dividend payment (It’s currently true of the MRK example above.) At that point, the caller is technically ahead by exercising right before the ex-div date, sacrificing the extrinsic for the dividend.

  9. SS – no, U R right, I was being facetious.

  10. I was long GLD call diagonals Pharm :) . Got out a day too early though.

  11. Zion, GS not participating.  Huh.

  12. I remember the conversations b’w U and Phil ;)

  13. Good morning all,
    Well this is either the top or it’s time to drink the kool-aid. Discusted, David Fry will be buying EDC and XPP at 9:45 this morning…..Capitulation !!

  14. Nothing less than our September highs will satisfy us now that we have strong Retail Sales, a weaker dollar, lower oil, higher copper and gold, less job losses and some good earnings – there is NO excuse not to take out our highs if they were ever deserved in the first place.

    September highs were:  Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and RUT 620 and we are in striking distance across the board. 

    The transports are leading us up 1.8% at the moment but the SOX are red so watch the Qs if you are still in them, the $41s are up .30 at $1.60 and that’s 23% and we don’t let 20% slip away on those momentum covers so a 5% trailing stop on the profits (about .05).  Better to go to cash and play a different one than let the one you won turn into a loss….

    Absolutely we want to roll up out DIA long puts, hopefully to the Jan $100s, now $5.50.  The October $98 puts are down to $1.15 and the $97 puts are .77 so stops on those at $1.25 and $1 respectively as they have paid for our roll up, which is all we ever want to accomplish with front-month covers

    If oil can’t hold $70, that’s bad and watch gold at $1,050 and copper at $2.85.  All should be no problem in a proper rally.

    XLF also should be doing better than $15.14 so watch them for signs of weakness as well as SRS over $10. 

    I still, in my heart, don’t believe in this rally so I’m going with strictly mechanical betting based on the levels.  You have to take the emotion out of it when the market goes nuts

  15. Phil, had a big project due last two weeks and could only take advantage of a couple of your ideas.
    Again it seems we all face the same crazy market…..the fundamentals are improving in some areas but don’t seem to support this rapid rise. However, the market wants to go up and and the small dips get bought. Going against that trend has not made me much money except for quick flips.
    You nailed it in your commentary……begrudgingly it is going up and if we want to play we have to be long at least in part.

  16. Have a small GLD short position (2 Nov 102 puts). I’m a weak had though and will definately cover by the close.

  17. I like the continued oil weakness. It’s either coiled for one hell of a breakout, or the rally there is just topped out. I think the latter.

  18. DIA/Pstas – Yes we ALWAYS roll up when it’s cheap.  As to selling, no, I’m looking for a naked play at the moment, my last bearish roar against this nonsense8-)

    It was most definitely a case of ‘less worse,’ with more than half of U.S. apparel retailers reporting a Y/Y drop in same-store sales, but the 21-to-5 beat vs. miss ratio is still impressive. has all the numbers.

    For reference:  $1.605 for the Pound, $1.475 for the Euro and 88.56 Yen to the buck.  Oil $69.44 (glad I quit the futures cover) and gold $1,046. 

    Ugly/Pharm – there will be hell to pay on the back end.

    The federal budget deficit tripled to a record $1.4T for fiscal 2009, which ended last week, CBO says (.pdf). The unprecedented flood of red ink flowed from factors including a big drop in tax revenues, $245B in bailouts, $200B for the stimulus bill, and increases in unemployment benefits and food stamps. The previous record of $459B was set just last year.

    How the hell did MAR beat?  That one amazes me.  Oddly, they are not doing so well this morning. 

    Japan/Pharm – I’m pretty sure Japan invaded China actually but let me know if I’m wrong.  I think both were very isolationist until the Europeans gave Japan the idea that they could get on boats and kick some ass across the sea.

    GLD/SS – Yes, I’m in the $101 puts with a DD already but very happy to get out even at $1.05 if I’m lucky (now .75)

    MRK/Chaps – Yes, that’s going to happen if the stock moves high enough to kill the leap premium but the solution is to just buy the stock again.  No big deal as you don’t get called away unless you keep all the caller’s premium.  Right now, for example, the 2011 $25s are $8.30 and that’s $33.30 for the $32.47 stock.  If we buy the stock for net $24.17 and they call us away at $36 or $40 or whatever, it’s still a gain of .93 and unless MRK flies up more than .93 that day, all you do is buy more stock and sell more calls.  If a guy wants to call me away with a .93 profit every other month, I’ll take the $5.58 profit and he can keep the $1.52 in dividends…

    Aug. Wholesale Trade (.pdf): Inventories -1.3% to $381.2B vs. consensus of -1%. Sales +1% to $317.9B, the fourth straight monthly increase. Inventory-to-sales ratio narrowed to 1.2 from 1.23 in July.

  19. Began to dig a little because I did not understand how we could have so many initial claims and not see continuing claims rising as well….
    A reminder for anyone who forgot (I didn’t know in the first place!)
    The continuing claims data don’t include the number of Americans receiving extended benefits under federal and state programs, which rose 2.9 percent to 3.7 million in the week ended Sept. 12 from the prior week, according to the Labor Department.

  20. Phil, I know you play OIH often.  What is it exactly and why is it moving so much higher while oil fails to hold 70?

  21. BIDU – anybody else see that strange 10 second chart spike to 480 and back down, wild to watch one of those!

  22. Phil, I want to open a put spread on TLT 2011s. How would I determine the strikes to use?

  23. Gold getting aggressively bought at every tiny dip in the dollar. Still way too much buying interest to short; I’ll try again later.

  24. Long/Ocelli – Yeah, I don’t believe we can go higher but IF we go higher, we can’t be standing there with out moths open watching things pass us by.  Everyone make sure they check the new Watch List, which I’ll be adding to every day now that I’m pretty much giving up on a real pullback (also capitulation).

    Just-released mortgage data for 2008 confirm that the federal government effectively took over home mortgage markets last year.

    GLD – Nov $98 puts

    Claims/Steve – Good catch.   There’s 100,000 people right there not being counted in continuing claims.  Scary!

    OIH/SS – They are the oil service companies and they make money from drilling activity so they don’t really care if the price of oil is up, they just care that production is up so they may jump on increased economic activity and demand numbers ahead of an actual increase in oil.  We’re about to get the nat gas number – oops, here they are, up 69Bcf, less than expected - and should give them a boost (and oil).

  25. CROX Oct $7 put? hold or BB?

  26. Phil: where is the watchlist located ?

  27. Natural Gas in storage is +69Bcf, I don’t know what the consensus estimate was.

  28. I have half covers on GLD. I sold the Oct 99c for 1.3, now down $3. I wonder if it works to take my loss and roll to the 101 Oct 101s for 2.5?. I am long the Jan 100s

  29. Phil/RIMM……..I own Dec 75 calls , expecting RIMM to ramp up steadily prior to Dec earnings.  Have you a better way to play this?   I’m using only a small amount of capital, so it’s a speculative play.  

  30. REITs getting pumped….

  31.  Phil,
    Just to clarify: when rolling up a dia put do you move from, say, dec. to jan, or do you roll from, say, 98 to 100, or both?

  32. RMM – The watch list was on his website this morning.

  33. Normal




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    Older Goat than me – (maybe) this was from a recent post. Maybe it will help.
    Rolling/Cwan – You mostly want to have over 60  days between you and the caller and once it gets to 45 days you REALLY need to roll.  Where you roll to is the same as where you enter any new long put, whichever one CAN’T be rolled up for .50.  In your case, Dec $100 puts are $5.30 and Jan $99 puts are $5.40 and Jan $100 puts are $5.95 so you roll to the Jan $99 puts and offer .50 to roll up to the $100 puts.  It’s all about maintaining a .50 delta which should give you about $3 on a 500-point drop (5%) and that makes it very easy to manage your front-month puts sold so you know, for example, that if you sell 1/2 the Oct $98 puts for $1.60 with a .56 delta that you are cutting back roughly 1/2 of your downside gains.   This is why, by the way, I didn’t want to cover but this morning we had no choice. 





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  34. Pharmboy – Listening to Shorebirds, thanks.  Pretty fun background music for trading, upbeat…

  35. O well. I saved as a txt doc but that didn’t help. Anyone know how to paste something here?

  36. Phil – GLD – the underwater JAN 105 long calls (last week) I rolled to MAR 110′s – and now sit about even. I did place a full short OCT 99′s, which are down 3.30. Mad Hedge Fund trader thinks gold will continue its upward rocket. Is it time to buy back/ take loss or wait couple more days?

  37. FWIW, I’m continuing to slowly add to put calendar positions that are way OTM. Today I’m bidding 1.10 on some March/Nov PCU 25 put calendars, 3.40 on RL April/Nov 65s, and 1.80 on COF Mar/Nov 30s. In each case these are stocks I don’t believe in long-term.
    The idea still is to have low-delta ‘self-sustaining’ positions (self-sustaining from front-month sales) that will perk up significantly if and when things go south. They also help me to sleep at night, because I’m still net bullish and will be surprised if we don’t take out SPX 1100 in the weeks ahead.

  38. XRT – just broke 52 week high, seems nuts.  Man do I want to short this long-term but can’t work up the nerve…

  39. Hi Phil,  PCU
    sold jan 30 call for 2.32 now trading at 4.40 any advise

  40. FMD today?  Starting to feel that way…

  41. 30-year fixed-rate mortgages contract another 7 points, descending to 4.87% and edging closer to their record lows of 4.68% earlier this year, Freddie Mac says in its weekly report. Falling rates helped boost home-loan applications last week to the highest level since May.

    Treasury’s Geithner trumpets meeting a goal of 500K mortgage mods on a call with reporters this morning. Mods are now increasing faster than foreclosures, Geithner says, but warned a housing recovery could still falter, and said the number of families facing foreclosure remains "unacceptably large." Of course some say mods just delay the inevitable.

    JPMorgan Chase & Co. (JPM) abandons its plan to sell One Chase Manhattan Plaza, sayinig bids were coming in too low. Manhattan office buildings have lost almost 47% of their value since peaking in 2007.

    Fannie Mae (FNM) and Freddie Mac (FRE) remain vulnerable, their regulator says (.pdf). "While a few positive signs of recovery in housing have begun to emerge, we remain concerned and recognize the risk associated with increasing numbers of seriously delinquent loans," FHFA chief Ed DeMarco told the Senate this morning.

    BIDU very scary! 

    Damn, oil spiked right up to $71, my original futures play was a good one…

    TLT/Blair – Well they peaked out at $120 and held it for a couple of weeks and the put spreads (vertical) don’t pay very well so it’s not all that attractive.  The most premium you can sell is the 2011 $100 puts at $11.50 but the $110 puts are $18.50 so $7 to make $3 if you are right, not a huge pay-off.  More fun to play TBT (ultra short 20-year) not to go lower than to play TLT TO go lower.  We discussed this Monday I think in the main post but you can sell the TBT 2011 $35s for $11.20 and buy the $28s for $16.20 so that’s $5 for a $7 spread that’s 20% in the money.  If you want to be more aggressive you can buy the $35s instead and sell the $40s for $8.20, which is $3 for a $5 spread and still 10% in the money.

    Gold/Eric – You are right, this is relentless.

    CROX/Morx – Still a lot of premium at .40 so I’d let them test $6.70 before worrying as it’s only a roll anyway.

    Watch List/RMM – It’s right on the main page this morning.  I’ll be moving it to the Portfolio Tab later.

    Nat gas – Actually it turns out they were expecting 59Bcf, I had thought higher.  It doesn’t matter as we are now at 3.66Tcf, which is a new record and every week they are now surprised that we can actually jam more gas into the pipes.  We’re 15% above the 5-year average and about the same over last year’s level which had nat gas below $3 (now $5).  I think this run in oil, now hitting the 2.5% rule at $71.30, is way ovedone and USO $38 puts at $1.70 have low premiums to play for the dip and I really like the $37 puts if they drop to $1.  Dangerous trades of course.

    GLD/Drum – You sold the $99 calls for for $1.30, now $4.50 and those can be rolled to Nov $101s at no cost so why spend money now?  If you wanted to put them into premium by selling the $103s for $1.50, that’s different but riskier.  As it is you are well protected and have a $2 roll-up that costs you nothing.  If you want to spend $2, why not use it to roll yourself to the March $100s, then you have 3 more months to roll your caller up $2 for free…

    RIMM/Iflan – I’d go longer but yeah, RIMM was the main stock I bought last week as $65 was just silly but we sold the $65 puts and took leaps.  With small capital, I like the March 75s at $5.90 and you can sell 1/2 the $80s at $4.40 for a net $3.70 entry and if they head down you can even sell 1/2 the $70s for a butterfly that doesn’t suck and gets most of your money out. 

    Here we are, 9,800 Dow, 1,067 S&P, 2,129 Nas, 7,000 NYSE and 609 RUT.  Volume 64M at 11:20 is kind of lame for a market breakout but I don’t want to be a party pooper

  42. SYNA – in for a daytrade again here, weak lately but bounces fast when it goes.

  43. Phil,
    Thinking of shorting ( long TZA ) at Russell 610, also R3 on SPY; if they can blow through it I can quickly pull the triger out for small loss.  Thoughts ?

  44. Natural Gas Inventory: +69 billion cf vs. expectations of +59 Bcf to +63 Bcf. Natural gas futures +2.8% to $5.039.
    Yeah, that makes sense!

  45. Does anyone else have this terrible feeling that we’ll eventually run right up through SPX 1120 (supposedly a major retracement level) and then keep going?  It’s a terrible feeling for me because, if fundamentals don’t show some significant improvement ahead of that happening, we will be setting up for a crash, IMHO.

  46. TBT/Phil – I don’t see those strikes on TBT 2011s. They’re not in CBOE or in my broker’s quotes.

  47. Hi Phil
    OIH hold oct 120 call short and 125 call long now trading at 122.91 you ar still bearish on oil any advise?

  48. DIA/OldG – There’s no rule.  You just try to go to the appropriate Jan put which, at the moment, is the $100 puts at $5.45 because you CAN’T roll them up to the $101 puts, which are $6 for .50 or less. 

    Thanks Morx!  I think we don’t react well to TXT docs but if you past something to an Email first and then here, it seems OK.  On my chat bar, I have a little clipboard picture that lets me paste from Word and strips out the noise – I don’t know if you guys have that or if it’s just and admin thing but worth a try. 

    GLD/Concreata – Kind of the same as Drum above.  You are in the Mar $110s, now $4.80 and yousold the $99s, now $4.50.  Rather than buy them out for $4.50 you can roll them to the Nov $101s even and for $4.50 you can put yourself in the March $99 calls instead, which puts you down to a well-protected $2 in the money.  If you really don’t think we’re going down, you can sell the Nove $99 puts for $1.35 too and stop them at $1.70 but that gives you added cushion on the way up to put towards the next roll.

    Long puts/Eric – That’s a good hedging strategy.

    PCU/Yodi – They are Jans so you can afford to grin and bear it for a while.  You sold them for $2.32 and you’ll have to give $1.70 of it back to roll them to the March $35s but your callers stil have $2 in premium so a little early to do that.  As I just mentioned to Concreata (and this is a common fix), you can sell the Jan $30 puts for $1.90 as an upside buffer and you won’t owe more than you owe now to the downside until PCU falls to $23.40, and that’s pretty doubtful.

    Uh-Oh!  California hits bumps in its bond sale, raising the yield on $1.3B in 20-year tax-exempt debt to 5% from 4.63% (that is up 8%).  The state took two days of orders from retail buyers for 33% of the tax-exempt portion and 31% of the taxable debt, less than half the demand at its short-term sale last month and at its last longer-term sale in the spring.

    TZA/JRW – I’m deeply concerned that we have a massive blow-off top before we head down so don’t buy anything you don’t want to roll with but $11.50 is super low for TZA and you can sell the Nov $12.50 puts for $2, which gives you another $1 to play with and those can be split to 2x the Jan $10 puts, now $1.30 so if you are willing to own them in Jan for net $8.70, then selliing naked puts here at $11.50 is a great idea.

  49. So I am happily driving down to work, takes 20 min….and this 70 pt move.  Come on….
    Eric, I am seriously thinking of sidelining until 1100 is broke on the SPY.  Then…….

  50. how about SRS, any play there?  new play, I mean?  or how about FAZ and FAS?  FAS looks awfully extended on upside to me, a straight short could be good,
    or buyiing FAZ and selling the 19 calls and puts?  Phil?

  51. What nonsense.
    AA has given up the bulk of its gains; so everything else is flying.  Energy; Financials; Retail; AMZN;
    SLG up a stupid $3+   — dying to short that …

  52. Thanks Phil on PCU you mike it look so simple

  53. Any suckers left in this market of momo traders; breakout trades and HAL ?

  54. Crash/Eric – The higher we go, the more likely it is but what can you do?  Just strap in and enjoy the ride while it lasts. 

    Those USO $37 puts filled for $1 and I DD’d the GLD Oct $101 ptus for .45, hoping for another sell-off to get out but a nice victrory if you get it from scratch.  Hopefully there’s a rejection at $1,060.

  55. Dow 10,000 is a very strong psychological barrier, is it not?    Seems we could very well approach this very closely, then correct.  That’s basically the way I’m playing it short term.  I’m 75% long, with stops, 25% protected short side.  If we reach 9950 plus, then I’ll go to cash on the longs and increase the shorts..  That’s what MY brain is telling ME.

  56. If and when we do get a blowoff top and head sharply lower do you think people will run to gold even more.  I know this is all speculation, but for some reason I am not feeling good about my GLD puts.  You mentioned earlier that you may suggest going long and short on GLD.  Any thoughts?

  57. REIS:  Regional Mall vacancies at highest levels on record !  Outlook:  "bleak".
    The stocks don’t care !

  58.  Man, resource bubbles are a lot of work!  I’m playing HK, RTI, SD, and SLW but always fully covered, and it’s roll, roll, roll lately…

  59. WYN loving those MAR earnings today, I’m playing the OCT 15s because they have virtually no premium so bid/ask runs pretty tight. 

  60. This is hot Chinese money at work.

  61. TBT/Blair – $28s VJZ-AB $16.35,  $35s VJZ-AI $11.30, $40s XRJ-AN $8.15 – those are last sales.

    OIH/Yodi – I would sell the $125s for $1.80 and if they break $123 then you can roll the $120 callers to the Nov $125s, now $5.40 and, if you need to re-cap, you can take the Nov $135s for $2.  So yes, I’m still bearish as I think the big oil cos will be announcing lower E&P sprending (low demand, low prices – would be strange if not) and that will finally slap the OIH buyers in the face. 

    Check out this rally.  Our top sectors are Autos, Materials, Construction and Oil – it’s the summer 2008 rally all over again and that didn’t end so well.

    SRS/DMan – I think just selling the Nov $9 puts for .80 is the way to go.  TOS charges $130 in margin to make $75 if they don’t fall 10%.  On FAZ, I like the Apr $16/19 bull call spread for $1.20 with the $3 upside.

  62. Still hanging on to FCX Oct 70 puts. Do you think they’ll recover? In at 3.50

  63. Mocha; MAR not exactly loving their own earnings …. they are down.
    WYN … as a company … its a complete POS … one of the worst.

  64. Holding a WFR short on the NOV 16 puts. Has not really gone anywhere. I think it can drop if the market sells off. Phil, should I continue to hold these?

  65. Cap, remember, fundamentals don’t matter.  I got WYN in my IRA as a buy-write at $7 and it’s always covered, so for now I roll and roll and roll until the madness ends

  66. 10,000/Iflan – It’s a good plan if we get there but until Japan perks up, I don’t see us seriously getting over our 33% levels.  It’s all fun to pretend that China’s economy can save us but it can’t.  They are 10% of the global GDP and we are 25% and Europe is 28% and Japan is 15% – THOSE are the economies that matter.  Unless China is going to grow spending 20%, they are not going to offset a 3% pullback on the other 68% of the global spending powers.  

    Penn Treaty, set to become the biggest insurer failure in five years, "is far more insolvent than originally believed" and may need $1B in additional funds to pay claims, Pennsylvania’s insurance commissioner says.  LOL – far more insolvent???  Darn, I thought they were only insolvent but it turns out they are even more insolvent than that…  Call Cramer, I think that makes them a buy pick for him!

    Gold/SS – There is no upsdide limit to a gold squeeze but I think that if we sell off based on on a slowing economy, they will not go up but if we sell off due to rising rates as Eastern Europe and California start defaulting on notes, then gold is going to look very attractive and this little move wil seem cute by comparison. 

    Damn, $1,061 as we speak. 

    FCX/Japar – I doubt they retake $3.50 but you can roll out to the Jan $65 puts at $3.80 (+3.10) and sell the Nov $70 puts for $3.05 so it costs you nothing and either your putter is wiped out (and you have 2 months left) or you roll them down to the Jan $60 puts, which are now $2.45.  Even if you spend $1.50 to roll them (which you wouldn’t have to do unless they were in the money), you’re still in the $5 spread for less than net $5.

    AP’s upsetting but not surprising revelation from Tim Geithner’s calendar: "Even during his most frenzied days, when Congress is demanding answers or the president himself is calling, Treasury Secretary Timothy Geithner makes time to talk to a select group of powerful Wall Street bankers." And Simon Johnson wonders how anyone can build an accurate picture of a crisis by chatting with a few top bankers.

    WFR/Roth – Well the idea is that we do want them for net $15ish.  If you don’t want them, get out.

  67. FSLR – Sorry, I am looking for longs but some idiot is willing to buy the $155 calls for $6.10 and I have to sell those naked.

  68. Phil I am still holding GLD Nov 98 puts you reccommended days ago (SEEMS AGES AGO)…..Should I roll up to the $101 at a cost of 0.90c….. As a general rule when are roll ups / downs  triggerred eg you roll up when a $1 roll up on a put starts to cost you say over 0.50 c……….thus you are buying a $1 spread for $0.50. Obviously,  if the market is going against you, the more you procrastinate the  more expensive the roll……and, alas, I am suffering the consequences with these wretched GLD puts.
    Please excuse  me if the question is stupid, and if need be I can submit it again after hours….Although the rolling concept is not easy to grasp for newbies like me , I believe that it’s  use is crucial when markets are so capricious and completely ignorant of fundamentals…….

  69. Suggested stop on the FSLR?

  70. Pharmboy - PARD puts are very hot sellers today!

  71. Dollar collapsing - stocks and  bonds rallying -
    Makes no sense to me -

  72. hi Phil the FSLR OK nacket at 6.10 but 5 calls run in to over 15,000 in margin would it not be saver to sell the 155/160 vertical for 2.40 margin 1300.00

  73. SLG starting to give it up; a lot more to go.
    Either we are in 1999 or this is a blow off top.  Too many crazy moves this week.
    AMZN — 88 to 96 this week.
    BIDU – 372 to 420 this week
    EOG — 83 to 89 since yesterday.
    OIH – 111 – 123 this week
    etc etc and so forth …

  74. Pharmboy - PARD puts are very hot sellers today!
    Surprising, on my screen the stock is down a hair and the Dec 5 puts are also down a hair, so some IV coming out. Maybe people buying them because they are a little cheaper?

  75. I agree we can’t do anything about a possible crash Phil, except try to figure out ways to hedge against it, or profit from it. I will say though that if it happens a second time, a whole generation of investors will likely leave the stock market forever.
    Bidding .70 on some WYN Feb/Nov 15 strike put calendars.

  76. This is relentless.

  77. GLD/Magret – Ah but you did not get out at $101 as recommended.  That’s OK, I didn’t either..   Like the FCX adjustment for Japar above, once you are behind you try to get even, not ahead.  Step 1 is we can get paid $1 for selling the Oct $93 puts and that pays for a roll from the Nov $101 puts to the Nov $103 puts right there.  Those Oct $103s can then be rolled down to the Nove $99 puts if things do turn our way and we’ll be thrilled with that

    FSLR/Roth – Yes be careful on those as I’m willing to go down in flames with those guys but I see a clean even roll to the Nov $175 calls and that’s my intention if they head higher rather than a stop.  They spiked to $163 on the 22nd so that is a possibility and then I may have to go to Dec $175s if they hold that.  As with other fixes today, once you do that it becomes possible to sell puts (not that I want to own them).  For example, the Dec $135 puts can be sold for $7 so between that and selling the $175s for $6 (effectively) you have a b/e spread of $122 to $188 in December.

    PARD/Diamond – That’s my fault.  Ilene promised an article to and she gave them our last buy/write article, which had the PARD spread in it. 

    FSLR/Yodi – Yeah, if you don’t have portflio margining those are painful calls to sell.  Certainly cover if you are not willing to stick with them per what I just told Roth.

  78. Wow, Euro just went vertical, now $1.481.  Pound is $1.61 and Yen up to 88.28 for a buck.  Copper at $2.89, gold $1,058, Oil up at $72.05 but silver hasn’t broken $18 yet, still $17.87, which is worrying if you are a metals bull

    Here we are, 9,829 and we’re 2 short of 1,071 on S&P, 10 off 2,146 on the Nas, 30 off on NYSE (7,047) and 9 off on the RUT (620).  This is exciting stuff!

  79. Phil: with SAP up 2$ does it make sense to roll dec48 caller to march50 about even ? Or should I ignore this event ?

  80. FSLR – pretty sure some folks were paying 190 for it admittedly after hours on the last earnings release..

  81. Guess all of those central banks buying dollars to try and stem the decline need to stash them back in treasuries.

  82. This market is driven upwards now by emotion. The fundamentals do not support these numbers. Historical five year average on the S&P is 16.49 P/E – We are at this point with a P/E of 17.50 plus, with record unemployment, bankruptcies everywhere, and very weak profits. My question is – what is driving the emotion, other than a lot of hopes by dopes ?

  83. Phil, I think you meant selling Oct 103 puts for $1 to roll from presently held Nov98 to Nov101 puts ……….

  84. GOOG taking a day off after yesteday’s workout, 510 puts are mighty tempting here to cover some morning gains.

  85. Huge reversal in the long bond. 30 y. auction with above average yield (4%), and a big drop in indirect bidders (foreign CBs) — 34.5% vs. 46.5% prior.

  86. That’s probably what just kicked us back from the 1070 level.

  87. So watch — now people will run back into the dollar because we had a mediocre auction of dollar-denominated bonds and things suddently look ‘risky’. Too funny.

  88. Hi Phil LFC been trading this one for some time  how does a strangle 75/62.5 looks to you nov exp at credit 2.20

  89. DBC 22 puts are .10 if you think the commodity bubble may pop by OpEx.

  90. Phil – TBT – Bought the TBT Leap 35/43 call spread (recommended earlier) for 4.50 (thats buying the 35 and selling 43) did I do this correctly? Just want to make sure.

  91. Phil, noted a trade on the 100KP today as tracked at WSS: buy 5 CZLOA @.70, crox mAR 10 5 PUT.  I already have this, so are you increasing the position to 10, or was it a fill from previous?  I haven’t seen any 100KP notes for today.

  92. PARD – sorry, I have been busy.  Original play Aug 25 was -  Stock is at $7.70 (up 300% from March!) and you can sell Dec $7.50 puts and calls for $5.40 for net $2.30/4.90, a very nice triple if called away.
    If they blow through here, it is a long way down for that gap to fill…Data are due in December, so either someone leaked info or people are covering gains.  P/C ratio is3.6 (YEOW).  Maybe the Officers that have purchased 30K shares this year are covering.  One bought a bunch in August with you all…..I am not playing that one FWIW.  just don’t have enough funds.  Just remember, biotechs are dirty rotten _______…among other things.

  93. Note auctuion seems to have gone badly but I missed the numbers. 

    SAP/RMM – Well you want protection I assume and the caller still has $1.40 in premium, as long as it’s more than 25% I don’t think much of rolling early.  Better off aiming for an even roll to the Jan $49s and be patient. 

    FSLR/Steve – Oh no way would I chance that to earnings but they just had theirs.

    Stash/Samz – Well think of the alternatives…  That’s why it’s such nonsense to talk about the dollar losing it’s status.  It’s like saying gold will be replaced as the metal of choice in favor of platinum – you may be able to come up with a logical argument in favor of it but good luck making it actually happen…

    Driving/Gel – As I said in the post, you have SWFs pouring money into foreign assets and China murdering the dollar to keep their factories humming (which was the disconnect that escaped me last week) and Europe reading how everything is going to hell in a handbasket having to choose betwen US equites, up 50% and Asian equities, up 100%.

    GLD/Magret – That’s right the $103 puts!  Already they’re $1.20 on the turn. 

    Housing’s not at a bottom and has another 10% to fall, Nouriel Roubini says, as "massive, massive losses" in CRE get realized, stressing banks. He sees a U-shaped recovery more likely, with a 20-25% chance of a double-dip recession.

    Totally great article on the dollar and markets:


    On the surface, the weak dollar may not look so bad, especially for Wall Street. Gold, oil, the euro and equities are all rising as much as the dollar declines. They stay even in value terms and create lots of trading volume. And high unemployment keeps the Fed on hold, so anyone with extra dollars or the connections to borrow dollars wins by buying nondollar assets.

    Investors have been playing this weak-dollar trade for years, diverting more and more dollars into commodities, foreign currencies and foreign stock markets. This is the Third-World way of asset allocation.

    If stocks double but the dollar loses half its value, who beyond Wall Street are the winners and losers? There’s been a clear demonstration this decade. The S&P nearly doubled from 2003 through 2007. Those who borrowed to buy won big-time. Rich people got richer, seeing their equity bottom line double. At the same time, the dollar’s value was cut nearly in half versus the euro and other stable measures. Capital fled, undercutting job growth. Rent, gasoline and food prices rose more than wages.

    Bond/Eric – here it is:

    Treasury sells $12B in 30-year bonds at 4.009% (.pdf), the lowest yield since March. Bid-to-cover ratio of 2.37 vs. a recent 2.65; indirect bidders take 34.5% vs. a recent 48.6%. Treasurys turned lower afterward, with the 30-year yield +0.02 to 4.02%; 10-year +0.02 to 3.21%; 5-year +0.04 to 2.2%; 2-year +0.02 to 0.89%.

    LFC/Yodi – The Shanghai has been closed all week so I’d wait until next week to place a bet as they could jump out of the gate when the market reopens.

    DBC/Mr. M – That’s pretty tempting as DBC was $21.50 on Monday.

    TBT/Concreata – Yep, $4.50 with $3.50 of uside (77%) and break even at $39.50 (10% down) is all good.  TBT goes below $42, then we can take a look at possible adjustments. 

    CROX/Java – That was an old fill on the put side so I guess we’re finally at the top of my expected range.  I always tell people to be patient but that one took about 6 weeks to fill!  As to the rest, it’s a disaster if we stay up here and I’ll have to contemplate what to do tomorrow.  Like I said, this is all BS if we can’t take out the highs on such fabulous news today. 

    It seems to me people are expecting some massive jobs stimulus from Obama, which you all poo poo’d when I said that may be what was happening last week.  If he doesn’t have something to give the markets, they may get disappointed

    Sector ETF strength: Homebuilders– XHB +4%. Gasoline– UGA +3.3%. Steel– SLX +2.9%. Coal– KOL +2.8%. Heating Oil– UHN +2.7%. Oil– USO +2.6%. Commodities– GSG +2.6%.

    Sector ETF weakness: Healthcare Providers– IHF -0.9%. Semis– IGW -0.7%

  94. PHARM
    After hours, if you are so inclined- drop me an email –
    Would like to ask you some things about God’s country that you call home. :)

  95. "But my main reason for caution about gold is that inflation is still unlikely this year and next. The idea that loose money will trigger inflation is based on past experience. I know that we all are aware of the risks of saying “it’s different this time”. But we are in an unprecedented economic situation."
    Link. Comments?

  96. I was talking with my uncle who used to work in the US bond market (selling/buying).  He said the spreads do not mean anything anymore as at one time you had to be a primary dealer to play with the Feds.  Not so anymore, as anyone can play an the primary dealers can move their money to the market..  The move in gold in his opinion is the Middle East conflicts, and IF something happens there, the dollar will rally hard and gold will soar (I think Phil mentioned this in passing as well).  Monday morning (Sunday night here), London bought a ton of gold before the market open.  People buying now might make a buck or two, but the retail investor is holding the house of cards now, b’c the In Goldman we Trust is highly protected by the retailer supporting/hedging their position.  He also noted that the mutual funds #1 goal is to beat the Index.  Thus, if the market moves, they are one dimensional, and thus they will feed the frenzy (up or down).  Since we are going up, well, you get the point. I am moving to 95% cash very soon.

  97. Phil: I see in your watchlist is MHP: I have stock at 26.41$, no options, WHAT IS YOUR THINKING HERE, WHAT PLAY, BULLISH ?

  98. Phil
    I just did a Buy/Write – Short Straddle on Nomura (NMR) as a long term play, Selling Apr. 7.5 c&p. (31% discount) They bought much of the Lehman assets and looking aggressively for growth. Also a play on our weakening $.

  99.  Phil, Looking at the jan dia puts, the largest o.i. is for the 90′s  and the heaviest vol. is for the 84′s. Could you comment?

  100. Lots of talk about the eventual marriage between Verizon and the Apple iphone. Does anybody have a concrete time target for this announcement ? This surely will be positive for VZ.

  101. Phil: learning from you: I have another SAP caller, nov 50, this has plenty of premium, so do NOTHING. Yes ?

  102. Chart of the day and keeping VLO down:

    This is why I just can’t buy into this rally.  That is an unprecidented drop in demand for distillates, which are used by Truckers (diesel) and consumers (heating oil) as well as various chemical products that are used in manufacturing.  And this 35% higher than normal stockpile includes last year’s lack of use in the average.  Imports are way down and US production is way down and still we have a 26-year high in inventories?  

    10% of the population not working simply consume less stuff.  China is not going to make up for that and they may have goosed retail sales with a late Memorial day and extending unemployment benefits and a 50% market run but what are they going to do for us next?  At the moment, it looks like the plan is to have another 50% market run as nothing else is being done to actuallly fix the economy.

    Hey BDC!  Is it different this time?  Yes, that’s what I was writing this morning.  This has never happened before where the US was passively sitting around waiting for China or someone to invest in us.  We don’t have loose money, all the money is being used to pay off losses.  Consumer credit doesn’t tighten when money is loose, consumers want stuff (the ones that have jobs) but there is no money to be had for regular people.  Here’s an example, if I hook you up to an IV and put 3 quarts of blood into you, you would inflate with all that extra blood but if you were hemorrhaging blood, 3 quarts may not be enough to keep you alive.  That’s where we are now, if our banks/insurers wrote $300Tn worth of derivate contracts and lost 10% then $20Tn worth of global stimulus still isn’t enough to fill the hole and you have to stop the bleeding before you can schedule dancing. 

    Gift card purchase values are down, Archstone Consulting reports, meaning the holiday gift-card market will stay flat at $24.9B at best, and may decrease up to 5%. Average value of cards bought is down 11.5% to $46, and practical cards (from restaurants and big retail) are outselling those for discretionary items.

    Bonds/Pharm – That’s a good point.  Another way that this time it’s different.

    MHP/RMM – I would look for them to get back to about $28, hopefully you can sell the Nov $30s for $1.35 (now .90).  If you wan to play more conservative, you could take $6 off the table (22%) selling the Jan $25 puts and calls.  I think MHP is good for about $30 over time but if you take $6 now with a $25 call away, that’s $31 right there…

    DIA/OldG – That’s just people gambling with cheap puts.  Nothing wrogn with that but they’re not really targeting $84, just looking to make 10-20% and get out.

    VZ/Gel – I haven’t heard more than rumors.

    Reich/Pharm – Well we knew that…

    Good article, if we are in month 21 of job losses then recovering here would be an unlikely trend break:

  103. Pharm
    Very interesting analysis re gold move. Fear of war is the biggest catalyst at the moment, IMO as the $ has not dropped that much on a percentage basis in order to create this exhuberance. If the Iranian threat is not diffused soon, then Isreal will DEFINITELY take remedial action, (are they buying gold?) The Isreali’s did just this in Iraq previously for defensive reasons that parallel the Iranian threat. Maybe the Brits have been watching the planes in Isreal getting fueled.

  104. PHil,
    OIH- My cowboy hat was gathering dust over in the corner so I put it on and picked an OIH Nov 120 Put for $6.65 (where I was SURE the 119.50 was the top) ; rolled up to the Nov 125 this AM. I am considering a DD if OIH goes to 125 and sell a cover. What would be your suggestion?

  105. thanks Phil, very interesting. I had GLD Mar-10 89 calls from way back (entry 8.50) that I got out of at 16 to reduce exposure to gold in case of a pullback, but still expect gold’s long term trend will continue (and TBT will get killed off by 2011 so I’m taking on a lot of Jan11 TBT puts).

  106.  Phil, For a jan dia call (dia at 98.12), the call to buy would be the 100 at 2.98. Is this correct?

  107. UBS starts coverage of 10 big regional banks at "sell" or "neutral," saying the stock prices aren’t reflecting "meaningful" credit strains. The bank’s cautious take on Wells Fargo (WFC) contrasts with Goldman Sachs’ more bullish stance this week.

    SAP/RMM – That’s right, don’t buy premium.

    OIH/Pstas – I love shorting them here and you can sell Jan $105s for $3.60 to offset additional upside, which seems safe enough and surely for a 1/2 cover as you can roll those down to 2x the March $80 puts and, as that price I’d buy OIH myself.

    TBT/DBC – You do realize those are ultra-SHORT the 20-year right?  If gold goes up then TBills lose value and TBT goes higher. 

    DIA/OldG – Yes, we’re into the Jan $100 puts, now $5.55 naked.

  108. Phil,  CROX/Java – That was an old fill on the put side so I guess we’re finally at the top of my expected range.  I always tell people to be patient but that one took about 6 weeks to fill!  As to the rest, it’s a disaster if we stay up here and I’ll have to contemplate what to do tomorrow.
    Was the last comment just about the other Crox legs, or the whole 100kp?

  109. Phil: yes, do not buy but sell a lot of premium, but, sometimes I do not mind spening 30 cents and get another chance.
    Many times you recommend selling an option and you say: sell for 1.35 (now 0.90); how is this executed, just watching or entering an order for 1.35???

  110. Yawn

  111.  Phil, Could one just use deltas as the criteria for picking options? Slightly negative  for puts and positive for calls? 

  112. oops, well I only have 12 TBT Jan11 30 puts. Maybe go with TLT puts instead. In general I don’t like having long positions in these ultra-short funds anymore. Awhile back we discussed a 3x short-long pair (FAZ/FAS?, or something, can’t remeber) that BOTH lost 90% of their value over 2 years. Something is rotten in Denmark with these things. Maybe being short TBT isn’t bad after all just because the instrument in the long run isn’t trustworthy (like SKF).

  113. Phil, we don’t talk much about pair trades here, but some of the Fast Money regular guests like them.  What about long PBR as an offset to short OIH, seem like an interesting pair?

  114. Phil: one more check on low remaining premium of caller: LDK dec10, I have this one, base is 1.5$, remaining  is 55 cents, this is low, what would you say ???

  115. Hi, Phil, earlier today, I took out the 1/2 DIA cover as per the "$0.50 rule" (buy back the putters if profit >= $0.50).  Now I am naked on the DIA play.  Do you suggest sell 1/2 cover again?  Or leave it naked overnight?

  116. DIA cover / Phil: Just saw your post after refresh my browser.  Naked it is.

  117. Macy’s up 5% with a new 52 week high…. Must be b/c their #’s are so good, beings as their same store sales were only down 2.5% from last year…

  118. Phil – DIA – Am I wrong in thinking that this rally will mostly likely continue tomorrow and for those with bearish bias in portfolio, they might establish full DIA cover (or even 150% cover) for overnight - fearing another gap up?

  119. Macy’s up 5%?  Must be b/c my wife bought a bunch of things today. 8)

  120. Phil,
    Today’s chart looking a lot like Monday; Any thoughts on tomorrow, trade balance deficit should be up with the dollar down.

  121. We are running real close to volume of Tuesday when 30% of days volume came in the last 15 minutes

  122. EDZ back to fun prices at $6.52.  You can sell the Nov $7 puts for $1.20 (net $5.80) or you can buy the ETF and sell the Nov $6 puts and calls for $1.65 for net $4.87/5.43, which is 23% if called away.  I also like the Apr $5/7 vertical for .70 but notice they all have about the same b/e so you have to be willing to own them long-term.

    Disaster/SS – That was about the whole $100KP, unfortunately, which dropped $4K as we got killed on AMZN and our PSQ covers.  It’s all rollable/fixable but it’s never fun to see your value dip.

    Selling/RMM – When I specify like that it’s meaning to wait for target.  Like those CROX puts that filled after 6 weeks today, if you set up a trade right, you can work your other legs while waiting for the final leg to fill at your price (as long as you have the margin).  With CROX, we went for March puts and calls to cover the sale of Oct puts and calls.  Since we were near enough to target and generally bullish on CROX, there was no reason at all to pay more than we wanted for a March put just because the trade got off to a bad start.  It’s very, very hard to sit and do nothing – that’s actually a huge advantage of having a place like this to go every day – it gives you something interesting to do while watching the markets.  Sitting around obsessing over short-term moves can only lead to trouble…

    Commercial paper jumps by the biggest amount in a year – $67.6B, or 5.5%, to $1.3T – marking a large increase in corporate borrowing and suggesting companies are rebuilding inventory as they see an accelerating recovery.

    TBT/BDC – The thing about TBT is you have to figure rates are near enough to zero where they are unlikely to spike lower, which is what kills these ETFs as they try to keep up.  On the other hand, rates could easily spike up 10% (like Cali bonds did today) and send TBT up 20% and then another 10% (another 20%) and another and pretty soon you have a nice double.  The 20-year is at 4.12% so a 10% move up is 4.42, then 4.86, then 5.34%.  That’s all it takes to drive TBT up to $76.32 while a 10% drop to 3.71 and 3.34 and 3%, which would be the Dec low last year.  That would take TBT down to $35.47, $28.37 and $22.70 respectively.  So you’re not buying these in a vacuum, you have to have a premise to play an ultra but you buy the 2011 $46s for just $5.55 and sell the $50s for $4.55 and you’re in a $4 spread for $1 so a 300% upside if TBT moves up just 15% is a pretty good way to test your premise of higher rates.

    Pair Trades/Mr M – To me that’s a neutral pair trade.  I’m not a big fan of those.  I’d rather short OIH and do a buy/write on a major component I really like, like SLB, who are still cheap at $62 and you can sell Jan $60 puts and calls for $10.70 which is $51.30/55.65 and then you pair that with something like OIH Apr $130/Jan $120 puts spread for $10.  So you figure you are good for a double there if OIH sells off which is like having a $10 additional cushion on the calls.  The buy/write makes money on a flatline so you can make money on both sides by Jan and let’s say you have 100 shares at net $5,130 then you expect to sell for $6,000 (17%) and you cover with $1,000 spent on the spread and the Jan $120s ($3 out of the money) are $8.25 so you figure as long as OIH doesnt go much over $130, you should at least get your $10 back.  As you can see, it’s a lot easier to call out a pair trade than to actually explain it and walk people through it!

    Sovereign wealth funds invested $3.5B in the second quarter – just half the value of Q1′s deals and the lowest spending since the end of 2004, according to Monitor Group, whose report called it a "time of reflection." Leading SWFs are meeting today in Baku, Azerbaijan to discuss strategies. Guess who doesn’t have an SWF and isn’t even invited to this meeting in the Baltics (interesting location choice).

    These end of day stcks are getting dependable again but much weaker than what we used to get. 

    LDK/RMM – Depends what your plan is.  As they are $1.70 out of the money you should have a pretty good reason for paying $2.20 in premium. 

    DIA/Cwan – Good question as every naked overnight we’ve taken has killed us and yesterday’s cover made us money.  I think since the Oct $98 puts are still $1.10 we may as well sell 1/2 of those, at least they pay for one roll if we get gapped.  Concreata is right too!

    M/Jrom – I know, craziness.  You just have to beat low expectations and you’re a superstar.

    Tomorrow/JRW – I don’t think people care about the trade deficit.   More about the Fed speak tonight but, like I said, they are waiting for Obama to wave the magic wand and will be disappointed if he doesn’t have 2M jobs up his sleeve.

    oreign direct investment into emerging markets is set to top that in the developed world for the first time, according to a director at the Economist Intelligence Unit. Flows are slowing everywhere, but more so in the developed world (-52% to $441.3B) than in emerging markets (-35% to $533.9B).

  123. HOV with an amazing recovery from last week’s dip, I forgot to buy some more…

  124. Dow volume 135M at the moment (3:20).

  125. DIA Nov $98/99 calls spread at .54 is a nice way to prevent getting killed on a big move up.  Pays double if we break over and hold it, limited losses otherwise (the $101/102 spread is .33)

  126. phil: In this market, if i’m’ up 50%  on the Jan. $35 puts,now $.70, sold in a buy/write (GSK), do u recommend I take the profits? What about rolling up to the next strike at $37.50 for $1.40 premium.

  127. Phil or anyone,
    Stupid question but on Nov DIA 98/99 call spread – do you buy the 98 and sell the 99?

  128. D – R U Crazy…..take the money and run.  I would not sell the next leg up for now.  GSK looks toppy here and there is a gap to fill on the way down.  GSK is looking at Dr. Reddys…interesting.  All generic makers are fair game now.

  129. Jo – yes.  Debit is 50c.  If they move up,  you make 50c max.

  130. pharmboy; appreciate the input.

  131. GSK/Dfalm – If you REALLY do want the stock for net $34.30 then why should you pay .70 NOT to get it?  That’s the deciding factor do you actually want to have a long-term postions (and don’t forget to consider that will be the question AFTER the stock drops 15% from here)?  If so, then there is no need to worry but if it was just a trade, then 50% is a lot of money and Jan is a lot of time for something to go wrong. 

    More causes and effects in holiday retail weakness: The American Trucking Association is seeing "very little" if any pickup as holiday freight season begins; businesses could be using excess inventory, but that doesn’t make the outlook any brighter. And refiners that are already running under capacity may have to slow down to cut diesel inventories as demand stays low.

    Damn, you would think they read this site to see what we’re discussing and then make news items out of it!  This is what I mean when I say you can be too ahead of the curve with fundamentals.   We were concerned that the BDI was failing last month because, based on the time it takes goods to cross the ocean, that indicated to us that holiday freight would be weak.  This is how long it takes the rest of the market to figure it out – they have to actually see trucks in the US not shipping, as if they might have magically gone to ports and picked up the containers Santa dropped off when the ships didn’t show up…

    DIA/Jomp – Yes, it’s a bullish spread where you take the $98s and sell the $99s, half your premium is covered making it a more reasonable way to play to the upside.  We’re not looking to hold it long, just until we’re reasonably sure that we’re not breaking over our levels.  If the DIA drops 100 points, we can expect to have the value of the $99/100 spread, which is .55 so little or any loss expected there (but you never know for sure) if we head lower and, if we head up 100, then we are 100% in the money and in good shape.

    Let’s say you figure you will lose 10% on a $100K portfolio if we gap up 200 because you are 60% bearish.   If you buy $7,000 worth of that spread you offset 70% of the damage to the upside and if things go your way and we start dropping, then you lose perhaps 20% of the $7,000 ($1,400) but make $10,000+ on your bearish portfolio.   So you are giving up 14% of your gains but protecting 70% of your projected losses.  That’s what hedging is all about.

  132. This lady from Morgan Stanley talking on CNBC is the anti- Meredith Whitney.  According to her the banks are in great shape.  One of them is way off.

  133. From Seeking Alpha:
    More causes and effects in holiday retail weakness: The American Trucking Association is seeing "very little" if any pickup as holiday freight season begins; businesses could be using excess inventory, but that doesn’t make the outlook any brighter. And refiners that are already running under capacity may have to slow down to cut diesel inventories as demand stays low.

  134. We know you believe in Santa Phil, otherwise you wouldn’t be in the stock market — you’d be a bond trader.
    XLF with a pretty weak showing today. Qs not looking so hot either here at the end, frankly.

  135. Thanks Phil for the patince to explain

  136. DIA mattress: Instead of selling puts for 1/2 cover, I’m taking 1/2 the 98/99 call spreads.  Is that a reasonable trade?

  137. URE/ Strategy information:   I’ve had excellent results recently playing URE call options.  The recent chart has been undulating in a very favorable way, allowing me in at the bottom of the wave, out on the upswing.  I’m using the Nov 6 calls to play this, usually with 30% plus profits on each move.  Today, out at .55 .  Will wait now for pullback and repurchase calls when they are .25 or less.

  138. Well that’s not where the Bull’s wanted to close the day !!

  139. AA – ends the day up 14 cents !
    On what CNBC breathlessly reported as BLOWOUT earnings last night !

  140. Here’s something that has rarely failed: if you want to sell index calls, you’ll get some of the best prices after the market closes on an up day, as these AH idiots run them higher. Just sold some SPY calls against my longs for almost a dime more than the 4:00 price.

  141. MS/SS – I missed her.  BAC just targeted 1,200 on the S&P in 12 months. 

    Santa/Eric – LOL! 

    Trade/Cwan – Sure, it’s all protection. 

    URE/Iflan – those are the best way to protect the real estate shorts, especially SRS.

    Timing/Eric – Good point.

  142. The DIA daily looks so much like an evening star…..only problem is we are making higher lows….

  143. Incidentally, that AA call vertical that Credit Suisse was telling everyone to buy ahead of earnings (long Jan 14s selling the 17.5s) was a loser, as I suspected. Not big, but down about a dime. I had a feeling that was a bad trade since they had people buying a lot more extrinsic ahead of earnings than they were selling. If they were really bullish they should have gone deeper ITM on the longs. Dummies.
    I couldn’t find an AA earnings trade that I liked yesterday. Too bad.

  144. Short Strangles
    I have not seen Peter D post lately and he seems to be the resident guru on the subject so I am looking for some advice/comments. I dipped my toe in the water with a short strangle on RUT- selling the Oct 620 call and the Oct 540 Put. Trying to be cautious to make sure I am on track. I assume this will expire next Friday; I am still good on the short call but could be a problem with a continuation of the excitement. So, what do I look for in possibly rolling the short call? Handle like any other ? This could come down to the wire so what happens if it finishes in the money (say, I get hit by a bus next Wed/Thur)? Anything else I should be on top of? Thanks,

  145. Phil- a minor annoyance re: alerts
    I got the Morning Levels alert at 8:54 central and the THrilling Thursday report alert came in at 11:09 central. Backasswards.
    Seems to happen irregularly. FYI

  146. AA/Eric – My play for them from yesterday’s chat at 1:09 was a good game plan and applies to lots of stocks that you are unsure about:

    AA/Yodi – I’m not too bullish on them up here but maybe that’s because we were buying them at $5 in March so $14 seems like a lot.  10% isn’t really that much to pay for the uncertainty and $15 would be very tough for them to get through so why not wait for data and have a plan, like if they run up to $15, you sell the Jan $15 calls naked for $1.50 and buy the stock for $15.50 if they hit it and if they head down, you THEN sell naked puts once they stop.  There’s also the 2011 $15s at $2.90 that have a .56 delt so AA could go up $2 (7%) and they’d only be $4 and $1 in the money vs. $2.90 and out of the money now so you wouldn’t even miss anything to the upside by waiting…

    You don’t have to buy ahead of earnings, you can wait until you have the information and then play off the stupidity of the herd.  Those Jan $15 calls opened at $1.75 this morning and dropped .50 already so that’s a quick 28% without taking the risk of guessing earnings.   The key is you need to be willing to get in to cover the calls you sell if they keep going higher but as long as you are willing to tie up the money, the position really can’t hurt you. 

    RUT/Pstas – I assume RUT was at 580 when you started?  I’m not positive that those futures expire Friday so check with your broker but conceptually, you’re just going to let the put side expire and roll the call side along so no big deal.  Right now the $620s are $4.40 and the $540 puts are toast so a good trade I imagine.  The Nov $660s are $4.45 so unless you absolutely don’t want to be in November, you can just ride it out to the last day and roll if you have to.  The Nov $550 puts are $7 so really hard to see a bad outcome likely here. 

    Alerts/Pstas – The programmers are doing a huge project to put two new mail servers on that they swear will fix everything, hopefully by the weekend. 

  147. EricL,
    I saw that AA play from CS as well. I took a look and for the life of me could not figure why they thought that was the best way to play their earnings.
    I didn’t even get into the numbers behind the trade, it couldn’t even pass my visual smell test when modeled on ToS.

  148. The U.S. falls to third in the World Economic Forum’s ranking of financial development, behind the U.K. and Australia. There’s a trade-off, though, Nouriel Roubini says: "Countries with more regulation in financial systems are more stable, but access to credit is much weaker."

    Yet another decline in consumer credit has some people relieved and others worried about the recovery. Edward Harrison peers into the non-seasonally adjusted data and sees it actually up $7B, with an increase in nonrevolving credit making up for the decline in credit-card debt. Wait until the data incorporate "cash-for-clunkers," he says, to see if consumers are really deleveraging.

    Just as housing is stabilizing (or is it?), policy makers’ worries shift from Fannie and Freddie to the Federal Housing Administration – where 20% of its loans insured last year (and up to 24% from the year prior) face serious troubles, including foreclosures. Commissioner David Stevens assured Congress today that the FHA has $30B in cash and still won’t need a bailout.

    Senate Democrats introduce legislation that would extend unemployment insurance benefits for up to two million Americans, some of whom could collect for up to 99 weeks.  This is the positive jobs news everyone was expecting?  Oh well, better than nothing I guess….

    House Speaker Nancy Pelosi says lawmakers are considering levying a windfall profits tax on health insurers to help finance reform. The revenue would help make up for a proposed tax on high-income Americans, which is being scaled back. 

    As I’ve been complaining, huge jump in p/e ratios in 7 months.  Note that 26.82 for materials is OUTRAGEOUS, normally, you don’t even pay that for tech….  Note consumer discretionary is skewed because GM was removed, giving them a nice boost:


  149. Barry nails it with "The Most Hated Rally in Wall Street History"

    U.S. home sellers cut their asking prices by a total of $28.4 billion to attract buyers as the real estate recovery stalled," Trulia Inc. said.  The average discount was 10 percent as of Oct. 1, the San Francisco-based real estate data provider said today. Homes listed for more than $2 million were cut the most, with owners taking an average of 14 percent off the original price. Luxury homes accounted for 25 percent of all of the reductions.

    Sales of existing U.S. homes unexpectedly fell in August for the first time since March, according to the National Association of Realtors, signaling the recovery will be slow to gain speed. The median price dropped 12.5 percent from August 2008.  Be sure to see the table:  jump . . .

    12 Month dollar chart showing 20% drop:

  150.  Good point on materials Phil.  Just a while ago UYM made a great short at $30 and we may be getting there again. 

  151. Phil – your sector analysis of P/E is it forward or trailing? Over what length period? Thx!

  152. Pe/Steve – Trailing, if it were forward we’d be really screwed!

  153. Phil/Eric – TBT vs TLT – Is there a leveraged decay issue when you do a buy/write or leap vertical spread which would favor TLT over TBT? With TBT, I would think any longer term cumulative leverage against one position (short or long) would be offset by opposite movement in the other position, so would decay net to zero?

  154. "    Just as housing is stabilizing (or is it?), policy makers’ worries shift from Fannie and Freddie to the Federal Housing Administration – where 20% of its loans insured last year (and up to 24% from the year prior) face serious troubles, including foreclosures. Commissioner David Stevens assured Congress today that the FHA has $30B in cash and still won’t need a bailout.    "
    So is the FHA saying that 20% of it’s newly insured loans or 20% of its total loan amount that was insured last year face serious trouble?  Either way that’s bad… I guess in some ways it’s worse if it were for new loans originated last year.  That would take alot of fraud to pull that off.  Which I am sure there are people willing to perpetrate.  They need to turn off that friggin spigot.

  155. Phil
    I liquidated positions in all of my healthcare insurers some time ago when the political rhetoric became toxic for them. This is big business and may or not be in the future, depending upon the passage of pending leglislation. Since risk and volitility plays well into option profitability, without a preditcion as to how the legislation will settle out, do you have a spread strategy that might be logical at this point ?

  156. pstas/Short Strangles,  you are one lucky man that I get to read today’s thread.  Just a little busy getting a $100+M software project off the ground by year end.
    Like Phil said, the risk is manageable as you are still Out of the Money on both legs.   The key is to look at the rolling possibilities.  Since your Position Delta is currently negative (bearish) and the value of the Short PUT is small, you don’t have much of an upside protection, yeah little upside protection.   A dip in the market anytime in the next few days will work in your favor and kill the RUT 620 CALL value.  If we have a 3% drop to RUT 590ish level, the 620 CALL would likely to expire OTM, but if the market keeps inching up, you’d want to roll to Nov 650 CALL or 640 to give you more room.  Once you do that, your spread will become even more bearish, so it’s prudent to roll the PUT to Nov 540 PUT, maintaining the cushion to the downside.  You can roll it to 650 PUT or higher if feeling bullish, but I’d like to be 10% or more OTM if possible on the PUT side with 5 weeks to go, and especially when we have rallied 4-5% in the past 4 days.
    Another factor to watch is when the CALL is ITM, your paper loss will quickly accelerate and you’d get less credit for the roll to Nov.   I just also remember a trick from the MacMillan book that you can roll more OTM, but increase the number of contracts, e.g. roll to Nov 670 and adding short CALLs so that you’d get a credit for the roll.
    In short, if the market stays flat or heads down, you’re in good shape.  If it breaks out, then roll quickly.  Good luck!
    Expiration pricing is determined on Friday Opening price for RUT and the last trading day is Thursday next week.  It’s a cash settled options, so you won’t have any stock put to you, or called away, hence no margin issue if you are a bit ITM.  You’d pay cash for the difference between the RUT settlement price minus the strike price x 100.  Eg. If the Settlement price is 623.2 and you have the short CALL at 620, you’d pay $3.2 x 100 = 320 per contract + exercise fee.

  157. Oopsie, a typo – rolling to RUT 550 PUT or higher (650 PUT or higher is incorrect)

  158. I have a new Health Care post here:
    Phil, surely you will agree, like always … :wink:

  159. Peter D
    Thanks for the info.
    Another question- assuming you do these each month, is there a time frame for when you enter the next trade? I.e., do you try to make your sales at some optimal point each month?
    Also, any other index’s or stocks you do these short strangles on regularly? If so, what do you like for NOV?

  160. pstas,
    Yes, there is a timeframe to get into next month.  It’s when the rate of decay of next month option (that we want to roll to) is higher than the rate of decay of this month.  For example, the RUT Oct 540 PUT is $0.425 (average Bid/Ask) with 1 week left, but the RUT Nov 540 PUT is $5.65, which is over $1.1 decay per week, 2.5x the October CALL.  So I rolled mine last week.  The only reason for not rolling the short PUT is to bet that the market would go down as the delta for the October’s is less than November’s, so we’d loose less on paper by having the October PUT.  On the other hand, the rate of decay for Oct 620 CALL is more than the Nov 620 CALL, because it’s closer to the money.  That’s why we are better wait for a dip (if it ever come), before rolling. 
    Besides this, when the market rallies, the CALL value tends to be overpriced (due to a bunch of us buying CALLs).  So selling into the excitement would yield more money than usual.  Same thing for selling PUT on the downswings.  Market timing skills would be useful here, but not critical.
    I’m into SPX (40% of my profit), RUT (40% of profit), OEX, NDX, TBT, TNA, UPRO, BGU, EDC, OSX, ERX, MDY, QLD, QID, USO, FAS/FAZ (treat with care).  AAPL premium is not much better than SPX, so I don’t use it.  IBM and other blue chips option premium is even worse, and thus I’m not taking risk on individual stock.  A buy out or bad news can kill our short strangles. 
    I tried to be 15% or more Out of the Money on the PUT side and 10% OTM on the CALL side.  This is because the market can drop 10% in no time, but it takes a longer time to gain 10%.  The rolling piece is the key to Short Strangles.  I use the rolling for protection most of the time, meaning if the market has dropped far enough, it’s unlikely to recover, so I roll the CALL down a few strikes.  The opposite is true for rolling the PUT up, but usually more cautious.  I also keep money for doubling down on spikes.
    I’m also into December, which you can be 20% OTM, increasing the chance of end up OTM at expiration.  The good thing is that the December options that are 20% OTM will be close to zero in 4 weeks, if the market moves less than 5% each way.  That’s all.  Practice makes it perfect.

  161. Peter D
    Thorough and precise as always. Thanks.
    If you care to share, what strikes are you in for Nov SPX?

  162. (I am in Asia time so … Not sure if Peter D will see this):
    Peter D, Thanks for the detailed explanation. So is it fair to say if the front month theta is bigger (or smaller in absolute value) then roll? In your case, RUT 540 Put theta is -0.18 and -0.19 for Oct and Nov so roll, while 620 Call is -0.58 vs -0.26 so no roll (yet). 
    In your comments of "That’s why we are better wait for a dip (if it ever come), before rolling" for the case of 620Call. But what if the dip never comes? Is there a general guideline of rolling, like wait till Thru 3:50PM? 

  163. Good morning!

    TBT/Concreata – Remember our little FAS/FAZ experiment?  We have now learned not to be prejiudiced against ultras as we have discovered some are poorly constructed and some are welll constructed.  Whatever they did to FAS and FAZ since the split "fixed" them so they correlate 3x to they IYF without deteriorating over time (in fact, we shorted both at $45 and now they total $104).  Take a look at the excellent 5-year correlation of TBT and TLT – I don’t think they suffer from a lot value deterioration

    FHA/Matt – They are treating the years like they are wine vintages and giving the quality of each year.  Effectively they are saying that one in 5 loans written in 2008 are already in default and one in 4 from 2007.  Consider those were low-income loans and this is to be expected with 10% unemployment as the average low income home has 2 wage earners and if either one loses their job then they likely are unable to pay so 10% unemployment applied to 2 people per household can give you a 20% number.  Overall, about 7.7% of the FHA loans (411K out of 5.2M) are in default but, because it’s back-weighted, it’s 7.7% of the values.  The FHA is currently writing 6,000 loans a day and accounts for about 25% of all home sales this year.

    Health care/Gel – Hmm, I wrote about this back in August, I love the IHI companies, they’re not affected by this nonsense as much as drug makers or providers, especially the makers of disposable items.  I sitll like going long on them but a bit more scary here than they were at $47 at the time.  That’s the sector to watch for bargains.  Remind me over the weekend and I’ll see what I can add to the watch list. 

    Health Care/Cap – I put my .02 in at your site, hopefully it will wake up one of your ditto-head readers. 

    Strangles/Pstas – I will add that (and this is hard because it goes against human nature) if I am going to roll up to a higher strike due to a rally I consider overdone (like this week’s), then I will FIRST sell the Nov (or whatever next month) call I intend to roll to and I will wait to see if things calm down before buying back my October caller.  This is very hard to do (we discussed this strategy re. AMZN in the $100KP Wednesday) as you already have a loss and you are now doubling down but, in the case of AMZN, we had a $3.90 Oct $90 caller that went to $5 and we sold a $6.10 Nov $95 caller. 

    Since I already collected an extra dollar, I can afford to set a $6 stop on the Oct $90 caller or, like yesterday, just ignore the nonsense and ride it out until I really decide to give up (and the fallback plan is to sell more puts and roll the Oct calls to end up with 2x the Nov $95 callers).  I don’t know how Peter feels about it but my attitude is, if you are consistently selling $4 in premium each month, then you are simply selling your normal Nov $4 plus $2 more as the stock went high and you face a $2 loss in October.  If you view your months as a series then you can keep in perspective that +4,+1,-2,+3,-1,+4,+1,-4,-2,+4,-3,+2 over 12 months is +6, which would be a crappy return for the year but the point is that you don’t have to win every month and if you are selling 10% out of the money calls with 20% stops (especially if offset by puts) every month, then a move against you in a single month should not be a bother. 

    Rolling – Also a good rule of thumb if you are rolling is to attempt to get a discount of 1/2 your callers remaining premium (assuming we are in the last week) to rolll to the bid price or less of the caller you are aiming for.  So if I have the RUT $620 caller at $4.40 (not that I would roll him based on my targeting) and I wanted to roll up to the Nov $660 with a bid of $4.40 and ask of $4.50, my calculation would be that I have $4.40 of pure premium so I would offer to roll for a credit of $2.20 (1/2 my caller’s premium gone subtracted from the current bid). 

    The Nov $660s have a .17 delta and the Nov $640s have a .29 delta so I assume that a $20 move up to $627 on the RUT will wind me up with a $7 $620 caller and the current $660s would go from $4.50 to about $9 and, Presto!, I would still get my roll for a $1.50 credit.  That means that doing this roll now even is pretty silly unless I think the RUT is due for a 5% run before expiration day and, if I think that, I should just buy them back for $4.50 and wait or possibly sell 1/2 the Nov $570 puts (now $10) as cover. 

    There are always moves and countermoves to make but, when you are selling premium on both ends of the play and playing the long-term game, there are many, many ways to win. 

  164. Hi Phil,
    any thoughts of playing the financials earnings coming up from Next wk? Citi reports next Thurs premarket? I am wondering if Citi calls are worth getting?