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Testy Tuesday – Topping or Popping?

I told you yesterday would be fun!

Will today be funner?  Is funner a word?  As you know, I have been determined to get more bullish and our Watch List is growing every day as I add more and more undervalued companies that still have room to fly if we are truly going to run the S&P back over 1,100 this year.  We remain skeptical but you can be skeptical and still make money, as you can see from Corey's (Afraid to Trade) very nice S&P Chart, you can do very well in this market buying the dips OR selling the tops – we kind of like to do both

Despite the low volumes, buyers are clearly in control of this market and, in Member Chat yesterday, I compared the situation to having a bet on the Raiders, who lost 44 to 7 on Sunday.  You can start out with a bet on the Raiders (in this case, the Bears) but there’s a certain point, perhaps when the 3rd consecutive possession by the Giants (Bulls) ends in a TD, that you have tgo admit you aren’t going to win.  

You have a few choices at that point:  You can be a perma-Raider and keep betting more and more on your team (not smart);  You can swallow your losses and leave the stadium;  You can swallow your losses and stay on the sidelines and watch the game; Or you can switch sides and start betting on the Giants, maybe even recovering some of what you lost.  You can keep some of your useless-looking Raiders bets, just in case a miracle occurs but what’s the sense of not betting on a clear winner when it's right in front of you?  Even if you are skeptical, that can be useful as it keeps you out of trouble as you should be wise enough to take your profits off the table

I never understand the "fan" behavior of market players.  If you see the market going up and up and up and up – perhaps it's time to make a few up bets.  Bears don't earn loyalty rewards or get frequent-complainer points from the market so, if your "team" is getting trampled, it's OK to switch sides – at least for a while – no one will think any less of you.  In the case of our bull-market bets, we have a great opportunity to switch sides at a very significant line this week, the 2009 highs of Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and Russell 620 – 3 of which held up yesterday despite the afternoon sell-off.  If we can confirm these levels on real volume today, it will simply be madness to be bearish until those lines are crossed again to the downside.  

If you are a football fan, consider it "mid-field" and consider that you are allowed to switch your bet to whichever team has possession of the ball AND has crossed their opponent's 50-yard line.  If this were a football game and the Giants, who were already up 31-7 at halftime, had the ball on the Raiders 40-yard line in the 3rd quarter and were about to take the snap – which team would you bet is most likely to score on that drive?  You can bet on either – the Giants, who have the ball, have crossed the 50-yard line and are 40 more yards from another goal, or the Raiders, who don't have the ball, are demoralized and confused, do not have control of the football and are 60-yards away from a score even if they did? 

That's the wonderful thing about the markets, you can have all this information and you can watch half the game and THEN you can place your bet.  If you could do that in Football I bet your bookie would be miserable but this advantage you have only works IF you use your ability to switch.  If you are a Raider fan and your answer to the above question is "I'd bet the Raiders will score," then it's not likely I'm going to be able to help you if you are also a bearish investor.  There is a point in any game where a clear winner emerges and you have to GET REAL.  You don't have to like or agree with the outcome but don't let that blind you to the point where you insist that red is green or you may be heading into one Hell of a traffic accident! 

Now, to be clear, we are NOT there YET.  We have drawn our line in the sand for the bulls and they failed to hold the levels yesterday but we have evened out our virtual portfolio as best we can and we are PREPARED to go bullish if we get our market crosses.  S&P 1,100 and Dow 10,000 are in sight and it would be a shame for the bulls to come this far and not pull the trigger but, should that be the case, we're not all that attached to our bullish plays and we also stand ready to get back to a 60% bearish posture.

As we like to do near market inflection points, we did pick up some (hopefully) cheap bearish plays yesterday as the market tested the highs.  Our selections included ERY, GLL and UGL (a pair trade), USO (short), TM, GS (short), DXD, CERN (short), and BAC.  Notice the MIX of bullish and bearish trades but still mostly bearish as we still haven't topped our levels with any authority but we ARE READY for anything. 

Cramer's CIT investors better be ready for anything today as it looks like they are getting little interest from bondholders for its debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely.  CIT is thought to favor a prepackaged bankruptcy, but sources say it may not find enough debtholder approval for that either, forcing it into a "prenegotiated bankruptcy."  CIT chairman and CEO Jeffrey Peek will step down at year-end. "Now is the appropriate time to focus on a transition of leadership," Peek says.  "Now?" – As in with the company teetering on the brink of bankruptcy?

Meanwhile, our gal-pal Meredith Whitney drops her rating on GS, until now her only Buy-rated stock, to Neutral  – possibly because we shorted it yesterday in Member Chat.  Whitney had upgraded Goldman to Buy on July 13th, and shares have risen 34% since then.  As recently as Sept. 10th, she said Goldman "still has a lot of gas in its tank" but that was 10% ago and both Whitney and I felt they were a bit toppy yesterday.  Earnings will tell on Thursday…

Asian markets were undeterred last night with the Hang Seng and Nikkei gaining about half a point while the Shanghai Composite shot up 1.4%, back to 340 and up 100% from last October's lows.  Despite the spectacular comeback, the Shanghai composite is still 40% off it's highs and still 20% off the August peak – for a global recovery that is mainly based on speculation that China will be leading us out of a recession, this premise seems just a little bit thin…   Also of note in Asia, top investors over there lost 35% of their wealth in 2008 according to a joint study by Merrill Lynch Global Wealth Management and Capgemini.

China's gain today was led by energy stocks, including coal as demand for energy is expected to bounce as manufacturers return to work.  Chinese automobile shares also advanced on news that passenger vehicle sales jumped nearly 84% in September from a year earlier lifting total sales in the first nine months of the year by more than 34% to 9.66 million units, more than were sold in America

This boosted all Asian car makers, who led the rally in that part of the world and that, in turn, popped the steel makers.  China's demand is, of course, driven by MASSIVE stimulus: "Auto sales rely heavily on policies, just like the stock market. It's hard to predict sales outlook for next year as we don't know whether the government would renew the tax cuts for small cars after they expired at the year end," said Qin Xuwen, an analyst with Orient Securities. 

Thanks to China's drive to drive, OPEC was able to raise their 2010 demand forecast another 200Kbd, to 84.9Mbd or 700,000 barrels a day more than this year.  Of course, this does little to reverse the 11Mbd DROP in demand we've experienced in the past 5 quarters of ACTUAL data but energy traders are making the most out of the projected 0.8% recovery and have bid oil up over $74 in pre-market trading, where we will be happily adding to our Nov USO put position

Europe is down about half a point ahead of our open (9 am) as the CPI in the UK falls to a 7-year low.  Germany's ZEW survey dropped unexpectedly in October and that has been enough to apply the brakes as both the FTSE and DAX bounced off their year highs yesterday.  The financial sector led the declines with LYG and BCS already down at the 2.5% line. 

That has put a damper on our own futures so today still may not be the day that we finally flip bullish, which is good as we are still sitting on a ton of bearish bets from last week.   Dow component JNJ had 8% lower revenues and missed forecasts for sales, despite having a nice 6% earnings beat on cost cutting.  Cost cutting will only get you so far it seems because after a while you have a great big, bare-bones operation and STILL no customers so I don't think this earnings season is going to just be about good earnings, I think investors are going to be looking for some good news on sales for a change.

The ICSC Chain Store Sales Survey did show a 0.6% rise in sales this week over last week and a 1% gain from last year and Redbook is backing that up with a 0.6% gain over last year, the best move upwards since April.  The report notes that Halloween sales are on track, boosted by earlier-than-usual displays. Redbook also notes that some retailers are marking down toys earlier than usual. The results offer an early indication of month-to-month strength compared to September. The Commerce Department will post September retail sales tomorrow in what promises to be the week's most important economic news.

So this is very good news – it would be a real shame if this can't get us past our levels


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  1. re-100,000K—Although it’s a tad early, the 5 Oct UYG call is within a flicker of being called away. For Nov do we go with the 6s or wait longer?

  2. Morning all! Hi Phil!
    Can I assume you are still positive on an entry into VZ here?
    Am looking for a long term hold, and was Considering Jan 11 20′s for about 9.30 coupled with half sale of Nov 31′s for .3 if I can get it although I am also tempted to wait for earnings before selling.
    Please help yet again :D

  3. JNJ posted a …..1% profit…..(cough) – Health care giant Johnson & Johnson on Tuesday reported a meager 1 percent increase in its third-quarter net income, as generic competition slashed sales of several of its top drugs and the recession hurt consumer product sales.

  4.  Phil … as a first entry to USO puts, what Nov strike do you recommend ?

  5.  Phil,
    I’m considering a few leaps in oil and agriculture. What indexes or equities would you use IF you were do so?

  6. UYG/Drum – Well. we’re not going to pay a premium and we will roll to the Nov $6 puts and calls, which should give us about $1 total.   Unless we break over, there’s still a chance of a big sell-off and also a chance I may flip to Jan. 

    VZ/Steve – I just saw a great commerical on Cable knocking FIOS.  It was BS but it was funny and clever as they had the FIOS salesguy show up with his mother who insisted he be truthful and negated everything he said about the service.  It was a great way of attacking the competition without seeming mean – would be smart for a politician to pick up this idea.  Anyway, I am nonetheless undeterred in my long-term view but I’m also not expecting them to rocket up anytime soon.  This is a simply long-term play in a solid, dividend-paying company.

    USO/CMC – It’s a little chasey now but, overall I prefer the ERY (3x oil bear) at this price and you can sell naked Nov $10 puts for .65, which is a great price or you can buy the Apr $9 calls for $4 and sell the Apr $11 calls for $3.20 for net .80 on the $2 spread that’s $1.20 (10%) in the money.

    Levels are still: Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and Russell 620.

    $42.50 on the Qs is a good directional indicator as is, of course, 1,071 on the S&P.  They are working very hard to hold $73.50 on oil and $1,050 on gold so let’s keep an eye on those as well as $15 on XLF as always. 

    9:45 Dow volume is just 19M so no conviction to this morning’s selling so far so I continue to warn bears not to let profits slip away.

    ZION is also worth watching, yesterday they wen’t nowhere but today there are buyers and they are usually a good indicator of banking sentiment. 

  7. Phil – what do you think of AMD? The company has had a huge runup and bleeds money…. If Intel posts great #’s tonight and both Intel and AMD rally do you think tomorrow would be the time to short AMD and/or buy some puts?

  8. "The Food Retail group’s value trap designation has been well earned," Pali Research writes this morning, dropping shares of Great Atlantic & Pacific Tea (GAP -7.7%) and SuperValu (SVU -3.6%) to Sell. Investing in grocery stocks based on inflation expectations "represents ‘greater fool’ investing at its best," firm says.

    Lloyds’ (LYG -1.7%) exit from the U.K.’s rescue scheme will reportedly cost it £2B ($3.2B) in op-out fees. Lloyds needs to raise about £25B to pull out of the government’s APS, absent of which it could be forced by the EU to sell assets and potentially unravel its acquisition of HBOS.

    In a bid to reduce its debt, sources say the U.K. government is exploring raising funds by bundling government services into commercial companies and selling or listing them. The companies could ultimately compete for outside contracts as well.

    Woops – now THIS is volume selling.  Well, not really, just a burst of manly selling for a moment there…

    Now we’re testing Thur highs, which were Friday’s breakouts at Dow 9,826, S&P 1,071, Nas 2,140 (blown), NYSE 7,000 and RUT 612 – doesn’t look like we’re going to hold but, if we do, then jwe can play for a bounce

    SRS moving up nicely, watch them at $10 for a breakout and XLF would be the next to fall ($15) if we’re really heading down.  Qs are already below $42.50.

  9. SYNA – upgraded by Needem to buy with target of $35, downgraded by Jeffries to $16.  Are these random?

  10. RUT/pstas, what would you do with the RUT Oct 620 short CALL on this dip?

  11. Very clever Phil …. turn bullish so the market will drop … keep it up !   :grin:

  12. SYNA – Curtis thinks Q4 orders are tracking below guidance, “with stronger headwinds in 2010 due to share loss and a negative mix shift to modules likely driving another leg down in the stock.” The analyst estimates orders for Q4 at $130 million to $135 million, versus guidance at $140 million, due to inventory issues at LG and a delay in the ramp of two high profile wins – the Nokia X6 and the Research In Motion Storm 2.

    While Curtis says the capacitive touch screen market is likely larger than previously estimated – the analyst now sees the market reaching 84 million screens this year and 188 million next year, up from 50 million and 100 million, respectively – a shift to chips from modules means trouble for Synaptics,

    Curtis now sees EPS for the June 2010 fiscal year of $1.75, down from $1.88. 
    so that gives a P/E of 9 if price is 16.  Currently they are at 15.  Again, for a growth company, that is not so bad and a $26 target.

  13.  at least BIDU’s behaving…

  14. Oil & Ag/OldG – That would be the DBC play we looked at last week.  I think they make a great inflation hedge but now they are up almost 10% from where we liked them.  As a hedge, you can go for the 2012 $20 calls at $5.80 (DBC topped out at $45 last year) and sell the 2012 $25 calls for $3.75, which is $2.05 on the $5 spread that’s $3 in the money.  So it’s a 150% gain if oil and ags rise less 10% in 2 years – that should keep you in cereal for a while!  I do think we’re toppy now but back down at $21.50, I like this play a lot. 

    AMD/Jrom – Ah, it’s times like this I wish I could just pull up my old rants on stocks!  AMD is a joke of a company that exists for the sole purpose of giving INTC a competitor to point to so they can say "See, we’re not a monopoly, look at AMD."  Nonetheless, they are fairly priced down here and it depends WHY INTC posts good numbers (market share or sales growth) as to WHAT AMD will do.  Take a look at July 14th, AMD gapped up after INTC great earnings.  On 4/14, INTC disappointed and AMD went down, on 7/15 last year, a good report by INTC also gapped AMD up.   So not a connection you can really count on.  I would consider shorting AMD if they get too excited about Intel earnings, especially since INTC is powering so many AAPL devices to their success proves nothing regarding AMD’s business.

    Bullish/Cap – Still WAITING to turn bullish.  I just like to broadcast my capitulation points early and see if "THEY" can make it or not. 

    SRS over $10. QQQQs under $42.50, XLF at $15.11.  There’s about 50 Dow points below the above levels (Thurs highs) to the top of Thursday’s gap but then it’s another 100 points to Wednesday’s close and but 1.5% is very likely if we fail the levels I just listed at 10:01.  From there we bounce back to 1.25% and then we see what happens but a failure there gives us a good shot to the 2.5% rule tomorrow (although there is lots of data to turn things). 

    AMZN still green, RIMM still green – watch the horseys!

  15. Here is a reason to invest in gold….US wants bunker-buster fast, denies Iran is reason (AP)

  16. Phil,
    I was out of town for a while, did you post anything about the SKF Oct $24-$27 spread that we got into a couple of months ago?

  17. Phil, could you post a link where you explain 1.5%, 2.5% and 5% rules?

  18. Phil I am still sitting on 90% cash.  Would it be your advice to sit tight until we break either way?  Remember I sold Nov puts on dividend stocks I want to own long term 2 weeks ago.  Last week I closed them all out with 50% profit.  Should I do another round of this or hold off?  BTW, I am really interested in what CXTrading has to say about collars?

  19.  Phil,
    Re DBC. What about the regulators and commodity indexes?

  20.  Phil,
    What about MOO and HAP?

  21. Bunker-buster/Pharm – How many times can the same story be used to pump the same thing?

    SKF/Maxt – that was long gone when SKF went up to $28 early this month.  Now it’s down to .60 and you are best off either taking the .90 off the table and letting the $26 callers expire naked or rolling out to the Jan $21/24 srpead at $1.60.

    5% rule/Roth – In the Strategy section it references an article and in the article, in the comments, are lots of loose explanations, including the 5% rule.  The 2.5% rule and 1.25% rule are just subsections of the 5% rule as the major indexes tend to respect the 1/2 moves as well. 

    Most consumers plan to spend about the same amount this holiday season that they did in 2008, according to NPD’s Holiday Retail Outlook. 59% of those surveyed plan to hold spending steady (down from 63%), 30% plan to spend less (up from 26%), and 11% plan to spend more. Consumers said "value" has the biggest impact on where they shop and what they buy.

    Fitch notes with optimism that credit spreads among big-name financials with scheduled earnings announcements in the coming week (BAC, C) continue to firm up, even as liquidity narrows. "The magnitude of change in both CDS spreads and liquidity is an encouraging manifestation of longer-term stability for financials," firm says.

    Cash/SS – Yes, it should be the least of your problems!   If you can set up a watch list, maybe plug in our watch list plays and keep an eye out for bargains.  It is a good time to initiate a DIA protective spread, which you’ll need to cover bullish plays anyway (or the SKF bull call spread works too).  On DIA, the Jan $100 puts are still just $5.15 and you can sell a 1/2 cover of the Nov $97 puts for $2.08, that’s not bad coverage and a nice winner if we sell off before you have reaons to go long.

    Regulators/OldG – I don’t think it will effect the old basket ETFs, mostly the focused ones with high turnover rates and, of course, the ultras.   MOO and HAP are both specialized so the question is are you gambling or hedging?  You have much better odds of success with DBC as there is not stock that can tank you with earnings and it’s a diversified enough (Energy/Ag/Metals) that no single area will kill you either.  On the other hand, a major run in gold OR oil or Ags can easily give you the pop you need to make 150%.  If making 150% for a 10% gain doesn’t do it for you and you must find something riskier, have at it….

  22. Phil – SKF cover by selling FAS $84 puts… is this still a plan, maybe using the $81′s instead?

  23. Yawn, same old 50M at 11am but keep in mind that "normal" volume days (still low) have all been down for the last three weeks (see red sticks on above chart).  This is simply the car lot model playing out – all is well as long as no one is selling and the current car owners are all content to sucker in the odd buyer here and there but if they WANT to sell – they quicly realize that buyers are few and far between. 

    The Fed buys $2.949B in Treasurys of about $13.5B in debt maturing between 2016 and 2019 submitted by dealers. The buyback is one of the last operations in its $300B program, set to end later this month. Treasurys overall were higher: the 30-year yield -0.07 to 4.16%; 10-year -0.07 to 3.31%; 5-year -0.08 to 2.26%; 2-year -0.07 to 0.91%.

    Persistent deflationary signs aren’t swaying TIPS investors, who have driven the inflation-protected securities to a 7.9% gain this year vs. Treasurys’ 2.8% loss – the biggest outperformance since TIPS were first issued in 1997.

    FAS/Morx – In the trade we talked about yesterday, sure that’s fine.  The advantage is you can sell one put for $8 and that covers 4 $2 losses on the other spread and, if you win on SKF, you can roll the FAS down next month and do it again. 

  24. Phil, Are you still holding DIA 98/99 spread? or did you stop out?

  25. Phil,
    Have you read Mastering the Markets by Tom Williams? It looks like it’s been around awhile but it is new to me so just wondering what you thought. I’m only halfway through but it is very insightful regarding institutional money flow and trader psychology, especially as it pertains to using gaps, tests, fades, etc. to work "the herd." 

  26. DIA/Foss – I still have the Nov $98/99 spread as I didn’t get what I asked for it yesterday.  It’s still .54, which is why I love these protectors and, with all my bearish plays, I’ll be thrilled to take a nickel loss on them. 

    OIH coming down nicely, those are so hard to ride out.  FSLR back to reality at the moment. 

    Williams/Aclend – If that’s the one that focused on FOREX then, yes, I read it. 

  27. Willaims/Aclend – Keep in mind that book was written pre Hal 9,000 when things weren’t so manipulated and we could count on good old detective work to uncover a trend in the making.  Much of the improvements in institutional trading programs in the past decade have been aimed at covering up exactly the sort of signs Williams is looking for.  This is not to say that there’s anything wrong with the book – it’s very important to understand the mechanisms that underly market movement, even when they are not functioning properly.

  28. BIDU – like a slasher from a Halloween movie, it just cannot die!  That’s because I’M SHORT!

  29. What’s up with DRYS? Looks like oddity / no?

  30. Phil – BIDU – have you suggested buy back short 430 naked calls at this point? Or wait?

  31. Where is this ramp coming from ??  What a joke …

  32. Hi Phil , Bought quite a while ago 10 Jan 45calls of JPM for 6.35 thinking this was the bottom, I saw them going through their lows and hang on now trading at 3.60 even saw 4.00 yesterday what is the best way to come out on top our even, selling some puts or higher calls. your thoughts on the matter thanks

  33. If it’s of any interest Bernie Schaeffer has great news for me today. This is such a relief, as yesterday he told me I only had a few hours left….

  34. Any body see any news moving WFR ?

  35. Very interersting SYNA play just went through…qty 10 on Jan11 — 35/40 with 50/55 calls, and 60/65 with 75/80 puts.  Is that bullish?

  36.  Phil,
    Intel and JP Morgan may drive the market up by opening tomorrow. Would it be a good idea to buy something like SWGJC or DAVJT now to take advantage of that in the morning?

  37. Europe finishing down about a point.  FTSE at Thurs high, DAX at Thurs high and CAC at Thurs high so we are outperforming as long as we hold that line (they finished pretty much at day’s lows).  Hang Seng is at Thursday’s high too but Nikkei is close to 5% over so very interesting.  Oil is 2.5% over and gold is right there ($1,061.50).  Copper is $5 below ($290) and silver is a touch under $18.  What does this mean?  I don’t know but it’s interesting when so many things line up at once… 

    Since we haven’t had any volume since Thursday, perhaps this indicated that this is the real market top and Friday and yesterday will ultimately be a low-volume spike we ignore on the charts.  That makes tomorrow very critical and I did say last week we could go 300 points either way tomorrow with all those earnings and data hitting us at once. 

    Halloween/MrM – ROFL!

    DRYS/Thatway – Got upgrade today after reaching agreements with lenders. 

    BIDU/Concreata – No buy back – happy to roll them to Nov whatevers if they don’t expire worthless. Mr. M should note the huge advantage to selling calls vs buying puts…

    Search ad spending seems to be on the mend, with U.S. spend up for a second straight quarter. "Traditionally, search has been a leading indicator" of a broader advertising recovery, search marketing firm Efficient Frontier said in a report yesterday.

    Joke/Cap – Come on Cap, whoop it up – We’re green again!

    Volume 72M just before noon.

    JPM/Yodi – I think, like GS, they may be a little overpriced up here.   I would roll out to the March $43 calls at $5.70 (+2.10) and sell the Nov $45 calls for $2 and the Jan $41 puts for $1.85 as that takes you down to net $4.50 in the $3 spread with plenty of time to roll the caller.

    Speak of the Devil:  JPMorgan Chase (JPM) says it’s bringing peers in on a proposal to the government to expand mortgage modification and allow interest-only periods on reworked loans – though it says it understands the trade-off: bringing more homeowners into the program, but possibly just postponing defaults.

    LOL Steve!  Every marketing guy I ever talk to tells me to do that "Act now or else" crap…. 

    WFR/B1 – That’s odd

    If you regretted not buying some short plays earlier – here we are again!

  38. I think this silly little pump is related to an attack on the dollar; Barclays Capital is short the dollar and held a conf call this morning pumping their position.

  39. Whoop Whoop !!
    or, Big Whoop !

  40. Has anyone ever succesfully complained to a broker about a bad roll. I know the MMs are responsible, not the broker, but I perhaps you can complain to the broker to get them to complain to the MM.
    I rolled up some SPRWA short calls from Oct to Nov on the dip this morning. I put in a bid that was .15 under the mid-point at the time, because the roll seemed too expensive. Well, I got the fill, and then the spread proceeded to widen another .40 as the stock went up — and this was rolling to a more bullish position. So I overpaid by at least .40 on each of three legs. Frustrating and also a rip-off.

  41. SWGJC/OldG – Do you SERIOUSLY expect me to have every possible option symbol in my head???  Sadly, I do know that’s the SPY $107s but why on earth would I want to pay a .70 premium with 3 trading days left?  If you are that gung-ho positive that SPY is going to higher than $108.30, surely there are ways you can do it that will give you a better return…   As I mentioned in the last post, I’m not sure I accept the premise that JPM and INTC will be so fantastic that the market will say: "Wow, what was I thinking – I’m only up 60% off my lows, NOW we need to rally!

    It could happen, we could be on the verge of the greatest run in stock market history as we erase that silly sell-off and get right back to 1,500 on the S&P because INTC manages to earn almost 2/3 of what it did last year and JPM gets back to 1/3 of what they earned in ’07 and ’08.  It COULD happen. 

    BUT, if you want to make a bullish play, why not be satisfied to sell the DIA Nov $95 puts for $1.25 as they give you a 500-point cushion or perhaps the DDM Jan 36/38 bull call spread for $1, which pays 100% if the Dow simply doesn’t go down or the DIA Nov $98/99 bull call spread at .55, which pays you 80% if the Dow goes up 25 points by Nov expiration?  For you to make 80% on the $1.38 Oct $98 puts, you need the Dow to get to 10,050 by Friday, that’s 150 points better in 1/40th the amount of time…

    See Cap, that worked!   8-)

  42. Hi Phil,
    Just joined the club after reading your posts on Alpha. 
    How would you play the Irish Banks AIB, IRE at this point?  I’ve enjoyed an up ride since July but stopped out at 9.14.  Seems like they are headed down.  Should I buy back in on the dip and sell covered calls?

  43. Stevenparker
    A few hours left…. don’t get your hopes up – that is just the first out of 100 warnings…. much like death and taxes, you can’t get away from it.

  44. Phil – TBT – Need some help understanding how spread leaps work. My TBT 35/43 call spread (4.50 DR) when TBT was at 43.50 is still showing a small loss even though underlying TBT is $2 higher? Is this typical for leaps, thanks

  45. Bad rolls/Eric – I made BAC give me back a ton of money many years ago.  It was an order that CLEARLY should have gone through and didn’t but it still took 2 days of fighting with 5 layers of manangement.  On the whole, it’s easier to find a better broker. 

    Policymakers are happy the dollar is falling, Irwin Kellner says, though they won’t admit it. But with the Fed already rumbling about sopping up some of those greenbacks swimming around in the global seas, it’s not likely to stay down for long.

    Welcome Seaquill!  Make sure you take the time to read our New Members Guide, a lot of this stuff makes more sense if you do…  We often use a buy/write to scale into a position like AIB, buying the stock for $8.53 and selling the Feb $7.50 puts and calls for $3.50 for a net entry of $5.03/6.27.  What that means is you have a net entry of say 100 shares at $503 and you will be called away at $7.50 with a 49% profit if AIB holds $7.50 through Feb.  If they fail that level, however, then another 100 shares will be put to you at $750 and you will own 200 shares for $1,253 or $6.27 each.  So, if you would LIKE to own 200 shares of AIB again at $6.27 per share, then you can initiate this play by buying 100 shars now and you either get the deal you are looking for or you get called away with a $247 gain which, even against your fully intended $1,253 commitment, is a 19.7% gain in 4 monhs.

    IRE is very similar but, as it was as low at .66 and is now $17.50, I prefer AIB, which is $8.50 back from .72!   So let’s say we want to set up a more cautious play on IRE.  They don’t pay a dividend and aren’t likely to so, rather than risk a lot, you can buy the Jan $12.50 calls for $5.90 and sell the Jan $15 calls for $4.20 which is net $1.70 on the $2.50 spread.  That pays 47% at $15, which is 14% LOWER than it is now and your break-even is way down at $14.20, almost 20% down from here.  If you were thinking of buying the stock and risking 20% ($3) then you could buy 2 of those spreads for $3.40 and they pay $1.60 with the stock 14% lower wheas making $1.60 on the purchase of the stock requires a 10% gain from here.  That’s how you can use options to minimize risk and maximize reward at the same time. 

    TBT/Concreata – Yes, that is what sucks about veriticals, unless you get very far in the money, your caller will gain as much or more than you and you really don’t get ahead until you get close to closing.  Verticals are highly targeted plays, you must be right on the move AND the timing.  On the bright side, when you are wrong you get just as much of a break so they are very forgiving.  Our premise was we thought TBT would go and stay up at some point.  The vertical stopped us from burning premium and we didn’t think we’d be right so soon but now we have to wait anyway for the premium to burn off our callers. 

  46. Thanks Phil I figured it’s probably not worth it for $120 (although as I always say, $120 is $120. My family is sick of hearing it). This was with ToS which is usually fine — this is one of the worst I’ve ever made.

  47. Concreta, one other thing on ITM leaps like your TBT 35s is that the bid-ask spread can get so wide that it sometimes will have a mid-point below the extrinsic on the option. This is slightly irritating since it can look like you have a loss when in fact the position is fine. With options, you sometimes have to remember that in-the-money American-style options are not like stock in the sense that they may be worth more than the market price in some cases (because the market price may show a bid less than the intrinsic value, and the option can always be assigned).

  48. any thoughts on STEC? Seems like it ought to be getting close to a buyable price.

  49. Phil,
      What are your thoughts on this articles in WSJ?
    Moody’s Cautions on Spanish Banks

    Spanish banks are failing to recognize the true scale of their losses amid a deep slump in Europe’s fifth-largest economy, Moody’s said.

  50. My Buy/Write play today has a 41% discount. I love this stock for its near term growth prospects, as well as the fact the company is China based. I bought the stock (CGA) – China Green Agriculture, Inc. (organic fertilizer) Also wrote a short straddle, selling the March 15′s.

  51. REITs still not getting with it today. Maybe people are starting to question their valuations.

  52. Roll/Eric – Do you set a limit on your roll order?

    I love ISRG but I can’t bring myself to buy them for $249.50 (as we were buying them for $90 earlier this year).  I do like them for $170 though so we can sell the Apr $210 puts for $17.80 and the Apr $280 calls for $22.50 and that puts the b/e points at $169.70 and $320.30, that’s a prety wide spread for break even!  

    STEC/Morx – Ugly chart!  If you want to be brave you can do the Nov $17.50/22.50 bull call spread for $3.50 with a $5 payoff (42%) if they ever do stop falling.  I think they’ll hold the 200 dma at $19 but that’s 20% lower and they head-faked two bounces already so be careful.

    Spain/Malai – LOL, that was my worry from May – I can’t believe it took them this long to notice!  I think Spain’s unemployment rate is up around 20% so, unless none of those people had any loans – you would think that’s going to be bad for the banks.  Also, the EU countries can’t print money the way we do to finance deficit spending so they just go down and down and down until the global economy improves.  Bad luck for the banks if it doesn’t happen fast enough.

    CGA/Gel – Doesn’t seem like you are likely to go wrong feeding people in China.

    REITs/Eric – But SRS still can’t hold $10.

  53. Phil, oh always. The prices quoted this morning were way off. I think it was probably the MM crashing the bid on the October option this morning, not the broker.
    Dollar at the low of day, but the market’s not looking that happy about it.

  54. New York Fed President William Dudley: "Interconnectedness" means a bigger emphasis than ever is needed on capital standards. Calls for triggers that would limit banks’ ability to pay dividends, compensation and bonus payments during a crisis – a "dampening measure" for banks that might want to appear strong but aren’t. Lack of transparency in valuation, prices, and risk concentration exacerbated the crisis.

    Egypt’s EGX70 Index fell the most in almost two months after the stock exchange suspended trading on 26 small and medium-sized companies on concern that their share prices may have been manipulated.  “The suspended companies had their share prices increase significantly in a very short period,” said Khaled Seyam, deputy chairman of the Financial Regulatory Authority. “There had to be a bold decision.” The suspensions remain until the companies disclose their “future plans” and appoint an independent financial advisers to determine the shares’ “fair price.”  Mokhtar Ibrahim, a provider of construction and contracting services, has risen 127 percent since the beginning of the year, while Rakta, a paper maker, has soared almost three-fold. - LOL, they would have to shut down 90% of our market!!!  

  55. Phil,
    I didn’t know GS had an office in Egypt !!!!!!

  56. GS foreclosed on Egypt …

  57. Olympia Snowe; now that is one ugly woman (?)

  58. Fed Vice Chairman Donald Kohn: Expects a gradual strengthening of economic activity, though employment remains quite weak; doesn’t think a V-shaped recovery is likely, as credit remains tight, housing has oversupply and business has excess capacity. Deflation remains a greater risk than inflation.

    FXP is always worth a toss if you need a short play.  The Nov $10 puts can be sold naked for $1.50.

  59. Egypt/JRW – If there were stocks on the moon, they’d be there…

    LOL – BIDU $405 – to think they had us worried for a while…  8-)

    Health Care sector getting hit this afternoon.  Volume still not there, just 100M at 2.

  60. Dollar touched on a double-bottom on the weekly and then snapped higher. Someone’s a buyer there.

  61. BIDU — yeah, really ….worked out nice …

  62. Phil,
    What do you think of a volatility crush play on intc earnings?

  63. Cap
    Olympia Snowe, yes Cap!  Notwithstanding the apparent visuals, the ramifications of this stupid move, on her behalf, are REAL UGLY. Nationalized health care and all of the UGLY ramifications that will ensue can be blamed on her when the dust settles. The health care sector is dropping like a rock today(very good signal indicating where this is going). Say good-bye to anything positive that this country contributed to the betterment of health care, as the efficiency of the post office is in your future regarding the next time you need medical attention.

  64. Earnings tonight are ALTR, CSX, INTC and LLTC. 

    Tomorrow ahead of the Bell is:  ABT, ADTN, CBSH, HST, JPM, PGR, GWW

    Tomorrow we have Import/Export Prices and Retail Sales at 8:30.  We have Business Inventories at 10 and Fed Minutes at 2.  Oil is not until Thursday because of the holiday.

    Tomorrow night we get:  CCK, LSTR, OHB, SPTN, STLY (BDK doubled guidance), STLD, WDFC and XLNX. 

    Thursday ahead of the bell is: BAX, SCHW, CIT (CEO resigned just now so maybe earnings are not good), C, CY, FCS, HOG, HOMB, KNL, NOK, ORB, BPOP, PPG, SWY, LUV, USAK, WSO, WGO

    Thursday Data is Jobs and CPI at 8:30, Philly Fed at 10, Oil says 1pm but I have no idea if that’s right. 

    Thursday night is AMD, GOOG, IBM, PBCT and TCSM.

    Friday morning is: BAC, FHN, GE, GPC, HAL, MAT, MTG

    So busy, busy and this is nothing compared to the next two weeks!  CSX may disappoint, INTC may surprise up, JPM very unlikely to do BTE, PGR may miss.  Retail Sales are iffy, and the Beige book is always a huge mover.  CIT can drag everyone down Thurs morning if they are going down and if our CPI is cool like UK and oil has a build, that sector could drop fast

    Those are our speed bumps ahead….

    Let’s keep an eye on those Thursday highs:   9,826, S&P 1,071, Nas 2,140 (blown), NYSE 7,000 and RUT 612 – that’s where we’re likely to finish today, a bit lower than here. 

    The biggest wildcard is the Fed minutes, if they decide that it strengthens the dollar, then commodities could collapse with a dollar bounce.  It may be possible that the dollar breaks down too.  That’s what has to happen for us to get another 10% out of this market.

  65. Phil, i am new. If my option account is not set up to sell options….can i just buy the Nov 12 call for ERY instead?

  66. Lol how did the post office become a target?
    - it’s cheaper than UPS
    - they never lost my parcel (unlike UPS)
    - they collect from my building every day without lying that they came when they didnt (unlike UPS)
    - I can redirect my own delivery (unlike UPS)
    - they don’t get completely confused when the shipper puts the wrong zip (unlike UPS)
    - they don’t hold up my shipment in a nearby facility for 3 days because I didn’t pay more (unlike UPS)
    - my boxes usually arrive undamaged (unlike UPS)
    - I can print my own postage (just like UPS)
    - I can track my shipments electronically (just like UPS)
    Where’s the beef?

  67. also, how can one get real time dollar, oil, gold price? any symbol (not the ETFs)?
    phil, would u consider Citi b4 earnings?

  68. Steven, interesting point.  Last Christmas we had a major snowstorm in Seattle, UPS trailers got backed-up at the UPS lots.  When the storm abated, they unloaded the trucks Last In, First Out and it took them a week to get our packages out of the trailer, which was after Christmas.  So my kids got half of their presents after Christmas.  Doubtful they’ll use UPS when they grow up!

  69. INTC/Wii – They barely pay enough to take the risk but a short strangle on the Nov $20s pays $1.95 and you can roll them around once earnings hit. 

    Welcome Lynn!  I am not a big fan of JUST buying options as it’s best if you avoid paying premiums where possible.  I’m sure that you can sell options, they just need to be covered by stock or another option (but check with your broker as I may be wrong).  With ERY, you can play the upside by buying the Jan $11 calls for $2.30 and selling the Jan $15 calls for $1.15.  That puts you in the $4 spread at net $1.15 and you can stop out at .60 with a potential gain of $2.85 (247%) if it does hit $15 by mid Jan.  If you cannot do a covered spread, I would not play this stock as it’s too volatile to take a chance on in an uncovered or low-covered position

    Note with ERY in the spread, you can risk just $115 (1 contract spread) and make $285 profit.  To make $285 with the stock, you would have to buy 100 shares for $1,200 and they would have to gain more than 20%.  This is what’s nice about options but only when you SELL premium, buying premium is rarely a good idea.  If you want to buy a naked call, you are better off with DUG, which is a 2x ultra-short on oil and is currently $13.07.  You can buy the April $11 calls for $3.20, which is a $1.20 premium over 6 months or .20 per month.   That is a reasoanble fee not to tie up $10 of $13 in the stock but only as long as you actually have something better to do with the $10 that will make more than .20 per month. 

    Post office/Steve – Don’t forget that, very unlike UPS, they will hand deliver a letter to Hawaii or Alask for 44 cents (for that matter, UPS won’t go to your neigbor’s house for .44).  Also, they don’t charge extra for Saturday delivery and they even save and protect your mail for you when you go on vacation at no charge…  I always think it’s amazingly ignorant when people say the Post Office proves the government can’t do big things right. 

    Despite another strong month (and September to boot!), mutual fund investors continue to pull funds ($11B) from equities. What this means, from a contrarian perspective, is that if markets were to turn down from here, "it would be one of those extremely rare occasions in which such a move was widely anticipated by the typical mutual fund investor."

    Real-time/Lynn – I think if you get even a practice account in ThinkorSwim you can track the futures (and they are all off a pull-down list there).   As to C, we have already sold $5 puts and calls, expecting very little movement from them.  Long-term on C, a favorite play of ours is the bull call vertical spread of the 2011 $5 calls and the $7.50 calls for .50, which pays a 400% profit if C makes it to $7.50 by Jan 2011.  To that end, as a naked play, you can buy the 2011 $5s for $1.17, obviously it’s twice as risky but, if we ever do get the all-clear on the economy, it could be twice as profitable too.

  70. Stevenparker
    No Beef… The principal difference is range of service – Fedex and UPS are very succesful entities that have provided innovative services that never previously existed. The government is not an innovator, and is a very inneficient provider of any service. Fedex and UPS earn money and pay a lot of tax into the treasury – wheras the great government run postal service sucks money out of the treasury ( projected loss this year alone is 7 billion). Plus… I’m very tired of getting other peoples mail and missing mine at my post office. It should be simple, but is unfortunately challenging for the quality of people their hire.

  71. Re: The POST OFFICE.. How many billions are they going to lose this year!!!

  72. Phil
    roll BAC C/P  tommorrow from Oct 17   to Nov 17   ?

  73. Gel … no kidding …. she’s is so myopic holding out for whatever bribes she can get.  After all its "the process" that’s so important to these dumbass legislators.
    Its a kabuki dance … the odds are still high that the Dems fail; this effort and the details of all the FUBAR bills are highly unpopular.
    The tricks the Dems played to improve the CBO score are phony and transparent.  The article below lays that out pretty clearly.
    Also of interest:

  74. Phil, how would you play EWZ if you were bullish on it? 

  75. thanks Phil, I think I need to learn more in the option book b4 I should ask more qs…but could u explain "you can stop out at .60 with a potential gain of $2.85"—what stop out? do i need to set a stop loss?

  76. Post office: The post office could easily break even – and perhaps even make money – if they were not constrained by Congress. Before condemning them you might want to read their proposals. Just one little point (among many): I recently took a road trip through rural areas and every tiny little hamlet had a post office – huge overhead for little return. The PO management has wanted to close those for a long time but Congress prohibits it. They have many other proposals to generate income but no dice. They do a good job given the constraints they operate under. 42 cents to have a letter delivered across the country in a few days with a 99.99% success rate.

  77. Why are people always comparing government entities to private companies – they are apples and pears and that is supposed to be understood by all – surely its just ignorance of the functions of government to keep doing this?

  78. Hi, Pharmboy,
    Is MTXX a good play?  I sold Oct $5 puts at 0.50 a while ago.  They just went down to 0.05.  I took advantage of TOS’s "no commissions to buy back shorts < 0.05.  I am now thinking selling Nov or Dec puts.
    What do you think of the company?

  79. UPS/Mr. M – Yeah, kids are very impressionable like that.  My kids wanted to try ordering Dominos on TIVO and we did it and an hour later – no pizza.  I called the store and they said coming and 30 more minutes, no pizza.  Manager said the guy got lost, I told him don’t bother coming and my starving kids go cold leftovers.  If you even mention Dominos to them now,  they will tell you how much Dominos sucks.  Same with Taco Bell, that tainted food thing was on TV I guess at just the right time and theire whole pre-school was talking about it and none of those kids will go to Taco Bell to this day.  I was like that with Jack In the Box, who had a food poisoning thing when I was a kid and I never went to one again until I visited Tina’s family in Texas (where they are everywhere) only a few years ago. 

    Oh I just realized I won’t even be here for the Fed minutes tomorrow, I’ve got to leave by 1:30 tomorrow!  It’s somewhat tempting to take the DIA $97 puts for .25 (now .28) and the $100 calls for .25 (now .25) into the Fed tomorrow as a 200 point move in either direction is a nice win.  As with yesterday, Dow, S&P and NYSE are over the line but Nas and RUT are under only today the line is the considerably lower Thursday high, not Friday’s high so I don’t think much of any finish in which even on of our indices can’t close this deal.

    On the other hand – look at ZION go!  8-)

    Speaking of being bearish, my DIA Nov $98/99 bull call spread just stopped out with a nickel gain (10%). 

    Post Office – Of course they lose money, they are charging the least possible amount of money for their service as mandated by their charter.  If they want to make money, they can simply charge ten more cents on the 100Bn letters they deliver each year and they’d have a $10Bn profit.  Come on, surely you guys understand the concept of non-profit?  The post office is technically a cabinet position run for the benefit of the American people and they have not received taxpayer funding since the early 80s.  Last year they lost $2.8Bn on $75Bn in sales due to $4 gas and a sudden revenue slump caused by the market crash.  Did any other companies in America lose 3.7% on revenues last year that should be shut down?

    BAC/QC – Yes, most likely.   I’m going to wait for Thursday to make adjustments I think since I won’t be around in the afternoon tomorrow. 

    EWZ/Soul – Jan $69/73 bull call spread for net $1.30 returns 207% if they gain 12 cents and hold it.  I am not bullish on them but you can hedge that somewhat with EDZ Apr $7s at $1.60 and you can even sell the $9s for $1.10 for a net .50 protection that covers your spred pretty well on a big move down.

    Stop/Lynn – I don’t advocate a hard stop unless you are unable to watch it but just an idea to give the parameters of the strade.  Read the strategy section though, you should always have a  stop-loss in mind when you trade. 

  80. also phil, if there is inflation or hyperinflation….will DBA go good and any option trade with that?
    I am also in GLD. what’s your thought with it?

  81. Yesterday’s quote from (prediction market) relating to the probability  of the passage of health care legislation before Dec 31st was 27%. After today’s senate action, I’m sure it will go much higher. The bill that will eventually be voted on is merely the "back door" method to achieve a full nationalized health care system in the country. The public option provision in the legislation will effectively destroy the traditional health care insurers, rendering  the government as the only provider. This horrible chain of events will diminish innovation in all areas of health care. Today  was the wake up call for all investors in this sector

  82. We could very easily do w/out the post office.  Its now driven by mostly junk mail and of course bills.
    Not much of value in my mail box.
    Between email; fedex and ups for packages and overnight delivery, ,many of us could do without it.

  83. Re post office… They balanced at least….. their service is commensurate with their annual losses.

  84. Phil – yes, wise to steer clear of Taco Bell, we got food poisoning there twice and will never go back.  Taco Time rules!

  85. CWAN – FWIW i have bought MTXX a couple times as it drops below 5.5 and gotten out at 5.75+. Looking to go again. Be interested in what Pharmboy has to say.

  86. DBA/Lynn – I don’t like DBA compared to DBC, which has metals and oil and was discussed earlier.  The chance of their being food inflation but NOT metal and oil inflation is almost zero but it is possible for metal and oil to go up without food.  Of course TBT (discussed yesterday) is a better pure play on inflation.   GLD I wish I was still in.  We did a pair trade on it yesterday and you may want to consider a little GLL to cover your gains as it’s so cheap now.  

    Consumer confidence fell in October, with IBD/TIPP’s Economic Optimism Index slipping to 48.7 from 52.5 last month, the below-50 reading indicating a shift back to pessimism. Another indication the mood in the U.S. is increasingly becoming glass half empty.

    What’s important to watch during the ‘fascinating’ Q3 earnings season is not whether firms beat the Street, but how traders greet the expected good news, Jack McHugh writes. Noting shares of Alcoa (AA) have declined steadily following surpisingly good earnings last week, he warns "a correction or worse might be in the offing."

    Wow, that’s the bell already?  Today went fast…

    A little better finishe than expecteed but still very lame.  Now it’s earnings time!

  87. Cap/Gel1  Damn!  You Both can be a real drag……

  88. allen; you must not use the P.O. much.  Stamps are 44 cents.

  89. Post office.  Of course they lose money Phil; but not b/c of the service they provide.  Its the union wages; benefits and rules; and the pension obligations.  Same things that killed the autos.

  90. i knew damn well that someone was sitting on aapl. i took my daytrades into after hours and made almost $2 per share. aftermarket can be your friend but only if you really keep an eye on it.

  91. It seems INTC doesn’t trade after hours.
    Earnings .33 vs .28 expected.

  92. INTC:  4:45 pm.
    DIA up 40 cents from close

  93. Intel will resume trading at 4:45pm.

  94. INTC sounds like a huge beat.   Will be interesting to see if its enough to move the nas, who finsihed just under the 2,140 line.  INTC is hallted but the rest of the nas should be doing more than this.. 

    Gross margin for INTC 57.6% vs 54.6% expected, that’s pretty damn good, maybe too good.   They are guiding down revenues slightly but Q4 margin projected to be over 60% – Ah, it’s good to be a monopoly….

    Unions/Cap – They employ 650,000 people and pay another 400,000 pensions all for .44 per letter (and it was .19 when I was in college but the college is now up 300%).   How do you blame unions for this?   Every penny on a stamp is a Billion dollars for them, they make exactly as much money as they should and they do provide service to every silly town in America and they do provide service to the guy who lives up a mountain road all by himself that takes a mailman 30 minutes up and 30 minutes back etc…  If they cut out just half of that stuff they’d make a fortune.  Also, it’s the post office that organizes zip codes, that by itself is a constantly changing massive expense that they just give away to UPS, FDX etc, without which they wouldn’t be able to function.  

    Now if you want to talk about a bloated, wasteful government organization that we could save hundreds of billions by shutting down – look at the Military! 

  95. Wow, look at the SMH after-hours. They liked that INTC forecast.
    I wish most of the medical centers in my area (Gulf Coast) were run as well as the USPS. Most of them are pretty poor, although there are a few exceptions.

  96. A non-trading question for all the experts out here. Need some advice regarding a good broker for IRA account.
    I have a 401k account with Fidelity, who charge very high fees for trading stocks/options. So, I am thinking about transfer my account to a broker where I can trade options in an IRA and pay minimum fees. Who would you guys recommend / use (key criteria being minimum fees with maximum reliability)?
    Possible options that I know of:
    - ThinkorSwim
    - InteractiveBrokers

    Anyone else?

  97. Woops – Nas futures gapped up 1%, now we have a reaction. 

    I don’t know about this.  Last October INTC was trading at $14 and announced .35 earnings on $10.22Bn in revenue.  This quarter, INTC is trading at $20.50 (up 50%) and announced .33 (6% less)  income on $9.4Bn in sales (8% less) and their guidance is to get to 10Bn next Q. 

    Like I said on the weekend, LOW expectations! 

    This is like you were going to buy a home in Houston but there’s a hurricane and the house on the left is destroyed and the house on the right is badly damaged but the house you wanted to buy just has some scratches and a hole in the roof so the seller tells you you have to pay 50% more now because it’s in such good shape.  Perhaps in the very short run, the house is in comparably better shape but if the cost of building a new home on the left lot and the cost of fixing the home on the right doesn’t drive their base price up 50%, then you are going to be really screwed one day if everyone goes to sell at the same time.  

  98. Well INTC off like a rocket up to $22.   If I thought this market were rational I would short them there but what’s the point?

    401K/Trad – I hear TOS has good, flexible terms but I haven’t compared.

  99. John Lott
    October 12, 2009

    Baucus Bill Encourages Americans to DROP Insurance Coverage
    Mr. President, if this is what you meant when you said that you wouldn’t "mess" with people’s insurance if they were happy with it, we don’t need your help.

    What if you, and every member of your family, had the chance to save $4,000 each?. Would you be interested? Under the terms of what’s being called "the Baucus bill" — Washington-speak for the bill the Senate Finance Committee will vote on tomorrow — that is how much you could save by dropping your health insurance.
    People might have thought that health care reform would lead to an increase in the number of people getting health insurance coverage. Indeed, the Congressional Budget Office claims the Senate Finance Committee’s health care bill will reduce the number of uninsured in 2019 by about 29 million," but the financial rewards are huge for people if they drop their insurance. Amazingly the CBO makes this prediction of 29 million more insured Americans without ever once analyzing the financial incentive for those who are already insured to drop their insurance.
    Consider some numbers. In 2008, the average price of an individual insurance policy was $4,704 and it was $12,682 for a family of four. But the Baucus bill explicitly states that insurance companies "would be prohibited from excluding coverage for pre-existing health conditions."
    Thus, you may wait until you have been diagnosed with cancer or are pregnant or have some other problem to purchase insurance. True, there is a fine if you do not buy insurance but it is very small compared to the actual price of the insurance. The fine will eventually reach "$750 per adult in the household. This per adult penalty would also be phased in: For 2013, $0; $200 for 2014; $400 for 2015; $600 in 2016 and $750 in 2017." Even if the cost of insurance didn’t rise by 2019, which is extremely doubtful, paying the fine and waiting until you’re sick before you got insurance would easily save you $4,000 per person insured. — Every American could save thousands of dollars, every year, by waiting to buy insurance until they are seriously ill or get pregnant. This would affect a lot of people. Although not everyone may immediately feel comfortable dropping their insurance, especially those with minor health problems, many people will. And more and more will do so as the price of the "same" insurance keeps on increasing.
    Could you imagine what it would be like if you could buy auto insurance right after you have had an accident and then be allowed to immediately drop it again once the car was fixed? Everyone would understand that’s not how insurance works. The "insurance" fee would be the price of what it costs to get the car fixed plus the administrative costs of handling the "insurance."
    The same applies to health care. — The more people who shy away from buying insurance when they are healthy, the higher the price of insurance will be for those who buy it when they are ill. — There will be a quick unraveling of the insurance system as everyone suddenly realizes that insurance has become something you only need to buy when you are really sick. Of course, this means that insurance companies will stop insuring people and, instead, health care will be transformed into a fee for service system.
    The proposed "Baucus bill" health care reform would thus both dramatically reduce the number of people with insurance and dramatically increase insurance premiums. Of course, that’s just the opposite of how the program is being sold.
    Mr. President, if this is what you meant when you said that you wouldn’t "mess" with people’s insurance if they were happy with it, we don’t need your help.
    John R. Lott, Jr. is a contributor. He is an economist and author of "Freedomnomics."

  100. Phil – house analogy:  Yes, it doesn’t make sense, except if the Government is going to spend $2 million, creating mansions out of the other two.  LOL

  101. hey Phil : let me know when you leave for lunch tomorrow.the last time u did it, the mkt went up several hundred points

  102. Well INTC reaction seems positive. On a related note I think we have naked PSQ calls in our $100KP and I *think* this is the only hedge we have that has no element of self hedging to help pay for it.
    Should we be doing something to somehow cover this position do you think?

  103. Go INTC, I have them in my IRA account, with a basis of $25 four years ago!!!  Good thing is they keep paying dividend, so my breakeven point is lower than $25.   In hind sight, what was I thinking at the time?  Their revenue didn’t go anywhere, was $38Bn in 2005, 37.5Bn in 2007, and maybe $35Bn this year.  At least, their stock doesn’t go to zero.

  104. Phil,
    I deeply appreciate your welcome and your suggestion but I must admit that conceptually I am having a little difficulty flying with you on this one.
    Let’s assume that I am reasonably confident that AIB will rise in value by Feb 2010 above my purchase price of 8.53
    Am I correct in your example below that you are saying that buying 100 shares of AIB at 8.53 and then selling a Feb 750 Call and Selling a Feb 750 Put will provide an additional 100 shares of the stock such that the average cost of the 200 shares is now 6.27?  It appear to me that this strategy works  if I was thinking that the stock was going down not up.
    Welcome Seaquill!  Make sure you take the time to read our New Members Guide, a lot of this stuff makes more sense if you do…  We often use a buy/write to scale into a position like AIB, buying the stock for $8.53 and selling the Feb $7.50 puts and calls for $3.50 for a net entry of $5.03/6.27.  What that means is you have a net entry of say 100 shares at $503 and you will be called away at $7.50 with a 49% profit if AIB holds $7.50 through Feb.  If they fail that level, however, then another 100 shares will be put to you at $750 and you will own 200 shares for $1,253 or $6.27 each.  So, if you would LIKE to own 200 shares of AIB again at $6.27 per share, then you can initiate this play by buying 100 shars now and you either get the deal you are looking for or you get called away with a $247 gain which, even against your fully intended $1,253 commitment, is a 19.7% gain in 4 monhs.

  105. No developed country on earth is in worse economic shape than Ireland…. tread carefully with those bank shares. 

  106. Colberg,
    That is a false argument regarding pre-existing conditions and health insurance from John Lott on Fox News. First of all, in states like Massachusetts where they do not consider pre-existing conditions when applying for health insurance, there have not been any mass cancellations of health insurance. One obvious reason is because you still have to apply for insurance, which takes time, and policies do not begin after they are approved until the next month. So without insurance one is not covered for emergencies, i.e., serious accidents, heart attacks, strokes, etc. That argument is pure BS.
    Actually it is infuriating, because the ability of insurance companies to exclude pre-existing conditions has kept millions and millions of Americans from getting insurance (that’s okay, they just get sick and die) or locked in jobs and lives they hate because they can’t risk losing their insurance. My wife and I have pre-existing conditions so I know about that.
    To use pre-existing conditions as an excuse to preserve the current system is perverse.

  107. Phil
    I know we have the DIA 98/99, DDM 38/36 as "stop bleeding" plays into a very busy week. Do you reccommend anything else going in tomorrow that would allow us to lick our wounds if the markets race 200 pts up.
    The scenario I am looing at is that earnings expectations will be met by 8/10 companies and the forward guidance will also be encouraging. However, any upward move has already been priced in adequately and there will be many Analysts who would want to save their ride up by shifting to neutral like Meredith did. What would anyone do if they hold 30%+ gains on a neutral recc for the next 60 days? I would expect some profit taking going into this quarter.
    I am not a perma bear but  a 300 pt sell off is normal if we have made this kind of a move and everybody is only meeting "low" expectations. But hoping never made anyone money.

  108. Sequil, have a look what happens if the stock expires above 7.50 in Feb.
    Hint. You effectively sold it for $11.

  109. tradansh
    I switched from Fidelity to Think or Swim a couple of years ago, for both a 401k and an IRA (long story).  Anyway, they paid for the transfer, and it took about 7 days.  Although it may seem obvious – it’s a good idea to close positions before the tranfers rather than the "like kind" transfer.  I underestimated how fast TOS would initiate the transfer and had a couple of open positions that I was locked out of for 7 days.  Fortunately very little – but just beware – TOS actually has prompt customer service :)

  110. allen060,
    I tend to agree, and perhaps I have just been fortunate (or unfortunate as I still have a day job ;) ) but I haven’t had any issues with getting health insurance despite having a pre-existing condition (heart attack — died and was later revived).  Life insurance on the other hand is a no go until I hit the 10 year mark; 3 more to go. Anyway, in hindsight, my own fault..I was overweight, a smoker, and pretty lazy.  I’ve been with Blue Cross, United Health, Etna, and back to United in the past seven years at three different jobs.  I can get short term COBRA in between or continue to pay 80% of what my employer pays for the rest of my life if I choose to do so.  Like I said, maybe I’m lucky, and just ignorant to how things work outside my little world; but I don’t understand the denial for pre-exiting issues deal?
    I’m a fan of everyone having health care – just not a fan of having to pay more taxes when billions are being squandered right before my eyes.  If it’s a great plan as advertised, then why doesn’t the administration dump what they have and move onto the new and improved government plan?  or even better, why not dump thier retirement plan and join the social security ‘plan’ like millions of others.  My point is that I think the government has the resources to provide this already if they treated the budget as actual money.
    BTW – Regardless of the results of the healthcare plan – I’ll continue to make contributions for those less fortunate, perhaps there will be a healthcare fund we can all donate to, government matching, company matching, vountary tax deductible withholding of pay?  I don’t know why people need the government to force their hand — For those that think its a great idea — perfect — pull out the wallet and put your $$ where your mouth is — or be quiet.  If not enough people think it’s a great idea (the majority), then it probably shouldn’t pass as this is still a democracy.

  111. Here’s a link to an earlier paper on the collar article you posted over the weekend:

  112. Health Care/Colberg – I don’t mind if you read ignorant crap like that but please do me the favor of not posting the whole article on my site thank you.  A short summary with a link letting us know that you actually read ridiculous nonsense like this and consider it news will suffice.  Of course you have to phase a mandate in, you can’t just slap it on people without warning.  We have a real-world experiment in the U.S. that used this exact system. Massachusetts has been requiring all residents to buy insurance since 2007, the only state with a mandate. In the first year the fine was $219, rising this year to $1,020—half the cost of the cheapest individual insurance premium. The percentage of uninsured residents has dropped from 5.7% in 2006 to 2.6% now, with an additional 428,000 residents covered; about half signed up the first year despite the low penalty for failing to do so.  In 2008, 86,000 residents paid the fine rather than take insurance, while another 71,000 were exempt because they did not meet minimum income levels.  Those are facts, loopholes are easy to close over time but articles like this aren’t about fixing anything, they are about attacking health care reform any way they can while another person dies every 13 minutes due to lack of coverage. 

    Mansions/Rich – That’s actually a valid point…

    Several hundred points/Dflam – Looking at the futures, it seems we may open there!  We’re up 1% already.  I’m so glad I went for that DIA spread, nice pay-off on the call side maybe. 

    PSQ/Steve – Yes, that is going to suck with the Nas making a new high.  We did ride out a move up to 2,165 on 9/23 and these are Jan calls but we do need to take an offsetting bullish tech play if this move looks like it’s going to break us out tomorrow. 

    INTC/Peter – We were loving them at $13 in March, it’s just $21 that doesn’t get me too excited.  Last Q they lost .07, which was a huge miss but they went up on guidance – now they beat by .03 but that puts them on track for, at best, .75 this year so a p/e of 28.7 at $21.50.  Nonetheless, BAC is rasing guidance this evening to $27, which is right back at the 2007/7 highs.  Is this going to be the new "normal?"  Do we now pay 30 times earnings for totally average performance where "growth" constitutes getting back to 2007 earnings by 2011?  This is nuts but, sadly, we’ll have to go with the flow if that’s the way things are breaking.

    AIB/Seaquill – As I said, you do need to read the Strategy section and New Member’s Guide to get familiar with these plays but this is fairly simple.  You buy 100 shares for $853.  You sell the Feb $7.50 calls for $235 and you sell the Feb $7.50 puts for $115 (we are taking advantage of the extreme market uncertainty regarding AIB).   That means your net outlay is reduced to $503.  If AIB is a penny above $7.50 at Feb expirations, you will be called away at $750, this is $247 more than you paid (49%).  The puts expire worthless (out of the money) so you have no obligation there.

    In order to make $203 on a purchase of the stock only, you need 100 shares of AIB to rise from $8.66 to $10.69 (23%) wheras my system gives you ths same $203 as long as AIB doesn’t DROP 13%, so there is a 36% cushion for you to make the same money.  If you buy the stock and it drops, you are simply screwed out of whatever you lose but if you execute the buy/write on the stock, then your break/even point is way down at $6.27 and, if you really are a long-term investor, then a setback between now and February that takes them down 27% to $6.27 is simply an opportunity for you to buy 100 more shares.  If you bought the straight stock and dollar cost averaged another 100 shares, you would have to ride out a fall all the way down to $3.88 (down 55%) before your basis was lowered to $6.27 on a double down. 

    If you want to be more gung-ho bullish on the position and simply buying more well-protected shares doesn’t do it for you, then you can, instead, buy the stock for $8.66 and sell the Feb $10 calls for $1.20 and the Feb $7.50 puts for $1.15 and that puts you in the stock for $6.31/6.91 and then you get called away at $10 with a 69% profit.  In that example, AIB has to get to $10 (up 15%) in order for you to make 69%.  If you buy the straight stock and want to make 69%, it has to rise to $14.63 and if you REALLY believe it’s going to be $14.63 by February, you can just buy the Feb $12.50 calls for .65 and they would return $2.13 at $14.63 (up 227%) but that’s gambling…

    Hey Anton!

    Wow, they are doing the whole package this morning, the dollar is being destroyed!  $1.49 to the Euro, $1.60 to the Pound and 89.94 Yen to the buck.  Copper is back to $2.85, silver is over $18, oil is $75 and gold is $1,070 so it’s breakout or bust tomorrow

    Good news for us MHP owners: Bloomberg agrees to acquire BusinessWeek from McGraw-Hill (MHP). Terms were not disclosed, but sources say Bloomberg paid $2-5M in cash plus assumption of liabilities. From Talking Biz News: A historical perspective of BusinessWeek.

    Delinquencies among U.S. commercial mortgage-backed securities surged to by a record amount to 3.64% in September, vs. just 0.54% one year ago, Moody’s said today. Hotel loans were worst off, rising to 4.97% from 4.18% in August. Mutifamily delinquency rates hit 6.09% from 5.51%.

    OK, this story amazes me because earlier today there was one saying that CDS spreads are firming up.  So the banks are acting against all logic in pricing risk again – nothing at all has changed since the crash….

    Wound licking/Chakra – Oh there’s lots of things to do if we break our high levels, including our whole Watch List. Since the Oct DIA calls expire on Friday, they have very little premium and will make great momentum plays but we still haven’t had a day holding our breakout levels but at least we can use them as stop-out points on our bullish plays.

    Charity/Dlastor – The problem with volunteer charity is that some liberal schmuck like Bill Gates or Ted Turner give Billions to Charity to provide basic necessities for people while people like TBoone, who give slightly less, use their comparative cash advantage to manipulate the markets in their favor and drive up the price of energy, forcing millions more into poverty who then require more aid.  In reality, Gates could do more for the poor by leveraging his cash to crash the commodities markets than he can by paying for insulation on poor people’s homes.  The fallacy of capitalism is the assumption that wealth is not a zero sum game.   This is what the much reviled Joe Stiglitz and the EU are trying to accomplish by counting health, happiness and free time for the workers as a commodites that is expended in the process of creating monetary wealth. 

    So productivity is not really productivity if you are getting your workforce to work 10% more hours for less money if you place an actual value on the workers unused time.  I appreciate your sentiment that you think that the government shouldn’t tax you for inefficient programs when you feel you can direct your money more effectively but the reality is that, like taxes, the top 1% give much less back in the form of charitable contributions than the next 9% and, since the top 1% have more than 10 times the wealth of the next 9%, it’s a broken system.  That’s why, sometimes, the most efficient use of your charitable money is working to elect and support a government that’s going to tax people properly. 

    I would prefer a straight out flat tax or VAT that simply took 1/3 of everything for the government (state and local).   That would be $5Tn a year to run the country and leave the rest of us alone otherwise.  In theory, no one should complain about a 33% tax if there is nothing else and eliminating deductions and streamlining the collection process will bring in extra hundreds of billions in compliance.  No deductions, no shell corporations no BS depreciation of assets – you buy something because you need it, not because it’s a tax break.  Imagine how much time we would save in Congress by simply eliminating tax breaks as a political tool and weapon….

    This also aligns the government’s needs with your own.  They get more money by increasing the GDP.  Also, people would buy things and make investment because things are worth it, not just because they get a tax break.  With $5Tn a year (1/3 of GDP) in tax collections we could run our current budget ($3Tn), provide health care for all and pay off the Debt in 10 years, not a bad plan.

  113. Bank of Japan keeps its overnight call loan rate unchanged at 0.1% (.pdf), and contrary to expectations, makes no mention of whether it will end measures to supply funds to the market by buying bank-owned corporate debt, suggesting it’s still concerned that its termination could choke off an economic recovery.

    They have to stay loose or you’ll be getting 75 Yen for the dollar.  Even at 89 Yen this morning, the exporters tanked the Nikkei.  If you want to test the breaking point of an economy against a weak dollar, Japan should give us a real good clue of how much someone can take.  They need us and China (pegged to dollar) to export to, they import our manufactured goods cheaper than they can make their own yet they have to buy commodities from others at full price.  They also hold $1Tn of our dollars on reserves and their banks are heavily invested in US assets, also priced in dollars. 

    This is no different that when our banks were too invested in Brazil and their currency was collapsing and their inflation was going nuts.  We absolutely got burned on that one and Japan is in WAY deeper than that. 

    JPM running into steadily climbing expectations:


    C does not have that problem at all:


  114. Speaking of Japan getting screwed by cheap Chinese exports:

    China’s exports fell 15.2% to $115.9B, the smallest drop in almost a year, and substantially less than consensus estimates of 21%. A recovery in exports "is one more piece of evidence that the global economy is getting stronger," strategist Brian Jackson says.

    Codelco, the world’s largest copper producer, predicts demand will weaken and producers will restart mines closed during the economic crisis last year.  Global output will exceed worldwide demand this year and next, Codelco Executive President and Chief Executive Officer Jose Pablo Arellano said today in an interview in London.  Demand will be “not that strong” compared with previous quarters, he said. Rising prices for the metal used in plumbing and wiring will prompt companies to restart shuttered mines and attract more scrap metal to the marketplace, he said.

    Copper prices about doubled this year as China, which now consumes a third of the world’s supply, boosted spending on infrastructure such as bridges and roads. Chilean state-owned Codelco will boost output by 150,000 metric tons this year as it seeks to stem four years of declines, Arellano said.  World copper production will exceed demand by 370,000 metric tons this year, because of fewer purchases of the metal outside of China, said the Lisbon-based International Copper Study Group, which is financed by producers. The surplus may widen to 540,000 tons next year, the ICSG said.

    China, the world’s largest steel producer, is working on plans to curb excess capacity as the nation faces “severe oversupply,” according to the nation’s third-largest mill.  Steel prices in China have dropped 23 percent since reaching a 10-month high on Aug. 4, as overproduction offset rising demand created by government stimulus spending. Some steelmakers have incurred losses at current prices, Deng said.  

    Whatever you do, do not read this story if you are trying to be bullish:

    [stuvesant town and new york real estate]One of the biggest, most high-profile deals of the commercial real-estate boom (ALL the building in the picture and more) is in danger of imminent default, signaling the beginning of what is expected to be a wave of commercial-property failures. The sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town — acquired for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit of BlackRock Inc. — is running out of cash. As of the end of September, it had $33.7 million left of the $400 million in interest reserves set up to service its debt, according to the people familiar with the matter. At its current burn rate of about $16 million per month, the reserve could be depleted before the end of the year, the people said. Others have said the venture could avoid default until February.

    Paulson and Co just bought $78M of CNO (10%) in stock and warrants at $6.50.   I like the stock, probably at $5.50, selling the Jan $5 puts and calls for $2 for a net $3.50/4.25 entry.

    Japan’s producer prices fell for a ninth month as oil traded lower than last year’s levels and demand for materials waned.  The costs companies pay for energy and unfinished goods declined 7.9 percent in September from a year earlier after sliding a record 8.5 percent, the Bank of Japan said today in Tokyo. The median estimate of 27 economists surveyed by Bloomberg News was for a 7.9 percent drop.

    Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America’s financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it’s no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth…  Excess government spending leads to inflation, and inflation plays dollar savers for patsies—both at home and abroad.

    By the end of 2019, according to the administration’s budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation’s entire annual economic output through 2019. 

    If you were a foreign government, would you want to increase your holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus?

  115. This is almost funny but then it makes you mad because they are serious:

    Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers. The oil-rich kingdom has pushed this position for years in earlier climate-treaty negotiations. While it has not succeeded, its efforts have sometimes delayed or disrupted discussions. The kingdom is once again gearing up to take a hard line on the issue at international negotiations scheduled for Copenhagen in December. The chief Saudi negotiator, Mohammad al-Sabban, described the position as a “make or break” provision for the Saudis, as nations stake out their stance ahead of the global climate summit scheduled for the end of the year. “Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message.

    Best job growth areas give us a clue of best industries to invest in.


    AIG’s(AIG) “retention bonuses” went to hundreds of employees in the insurer’s troubled financial products unit, including a kitchen assistant who received $7,700 in March, a US government report will reveal on Wednesday.

     A surge in imports of low-priced steel from China has India’s steel manufacturers, among the most profitable in the world, up in arms demanding protectionist measures. Steel imports jumped 9% to 8,000,000 tons in August from the year-ago period, showed data published by the steel ministry. Steel prices in China, the largest producer and consumer of steel, have tumbled by a fifth to around $500/ton level at the end of September from their August peak, making cheaper imports replacing Indian products a possibility.

    Rental values for apartments in Dubai continued to fall faster than in any other part of the UAE during the third quarter of 2009, new research has showed. Three-bed homes were worst hit as they plummeted 13 percent between July and September, a report by property services company Asteco said. Average prices for the largest apartments fell to AED139,000 compared to average prices of AED173,000 in Abu Dhabi for the same type of property. The rent fell by just one percent in Q3 in the UAE capital, statistics from Asteco revealed.

    Very good article titled: "Zen Lessons in Market Analysis:"

    One of the major debates among investors is between buy-and-hold investing and market timing. Think of the market as a big hat that has both red and green marbles in it, red corresponding to declines, and green corresponding to advances. The buy-and-hold investor essentially believes that it is impossible to predict which color marble will be drawn next, but that on average the marbles will be green. So the buy-and-hold approach simply holds on, regardless of prevailing conditions. The market return expected by a buy-and-hold investor is the “unconditional expected return” – something that has historically been about 10% annually. Let’s call this E[R]

    In contrast, a forecaster does believe that the next draw can be predicted given some information “X”. As that information varies, forecasters will decide to buy or sell. But forecasters typically do something extra. Generally speaking, forecasters are not content with dealing with the present moment, and instead are prone to making bold forecasts about the next month, quarter, year, or even an entire stream of future returns (bull markets and bear markets).

    The problem with this, in our view, is that it implicitly assumes that the information set “X” will remain constant. Worse, the size of the forecasts is generally far too large to be rational. A good forecast is most often a humble one.

  116. Tax consumption, not production. Yes! I had forgotten how much I love that.

  117. Lol OptionsXpress is worried about AIB too, they will charge 90% margin ($675) for each 7.5 put sold in a non PM account