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Thrill-Ride Thursday: Jobs, What Jobs?

Yesterday was very hard for us.

Our theoretically conservative $100,000 Virtual Portfolio dropped 6% in one day as we had a farily bearish position into options expiration that I stubbornly refused to adjust this week.  Surely, I thought, after running up 250 Dow points from Thursday, 10,000 would act as some kind of resistance?  We're also up a neat 500 points for the month of October so that's our 5% rule and to not get a 1% pullback, even in the most bullish of markets, is very rare indeed

So we stayed bearish yesterday and got crushed by the AMZN $90 calls we sold as well as UYG calls we sold and our PSQ calls we bought for protection got slaughtered as the Nasdaq flew up not 5% but 5.5% for the month and up 6.2% from it's October 2nd low.  While we are disappointed, we're not terribly concerned as we're only going to roll the calls to November anyway and I did promise the members that, if we hold our breakout levels for 2 closes, then I'll be shifting more bullish.  I've been trying to identify more bullish positions this week but our mix has still tended bearish as I'm just having so much trouble buying into this rally. 

In yesterday's Member Chat, my comments on the current situation was:

I do wish we were more bullish, this is a very smart group of people and we’re pretty bearish but so is the general investing public or there’d be volume to this rally.  I have a hard time ignoring the fact that 600,000 more people lost their jobs this week and, even if it’s "only" 500,000, I still think that’s not really a sign of a healty economy.  I think the REITs are off in fantasy land and I think so is the government, who cannot keep borrowing money at these low rates.  The dollar has dropped 25% of it’s value since March so the market is only 25% ahead of the currency fall which means a flight back to the dollar, which could happen very suddenly if an EU nation like Spain collapses, could send our market down as fast a 9/11. 

That being said, we have no choice but to follow the technicals and now that we can look at nice, easy support levels like Dow 10,000, S&P 1,100, NYSE 7.200, Nas, 2,200 and RUT 620 and simply call that the mark at which we’re 60% bullish.  I’ve given some thought to what kind of protection we should use in a market like this and I’m thinking of taking some higher-percentage payers for protection as the higher we go, the more likely we have a scary correction as some point but, on the other hand, we want to try to minimize our capital at risk on the short side because once we’re over these levels, there’s no reason we can’t just go up another 20% because Dow 12,000 is no stupider than Dow 10,000 – we’ve already maxed out the stupid meter and the next stop is panic buying by the herd. 

How’s that for a bullish sentiment?

So please pardon us as we go through this transitional period from expecting a pullback to giving up and running with the herd.  This isn't really a new plan – I said in Tuesday morning's post that it would be foolish not to switch sides if the bulls can pull this off.  That lecture was aimed primarily at the bears on our site but I also need to take my own advice and at least pretend to cheer for the bulls if the market can actually plow it's way onward from here.  I'm a bit too much of a macro-economist to promise I'll be a die-hard fan but I do promise to stand up and cheer whenever the wave hits my section

As you can see from the above chart, following our $100KP (which is now pretty bearish), we went through our Euphoria stage as we went well ahead and are now back between fear and desperation as we drop back to $93,000 but I often tell members to ignore single-day moves and that's what we did yesterday as the markets have a way of skipping you from panic to relief very quickly but not if you capitulate and flip your positions the minute they hurt you or you can just get whipsawed on a bounce and find yourself in a real "lose-lose" situation.

Yesterday's trade ideas included DIA puts (rolling our Jans up), ERY, short OIH, DIA puts (Octobers), DDM, IWM & UYG spreads (upside hedges), DIA calls (to pay for the puts), short SLX, short SPY and long CIT (on rescue rumors).  So it was a pretty crazy mix of plays for a pretty crazy day. Jobs data and C earnings were our biggest concerns going into this week and I just couldn't see changing our game plan just because we crossed 10,000 on the Dow, especially when you consider that TRV ($48) and CSCO ($24), who weren't in the Dow until June, account for 576 of those 10,000 points (it's about 8 points per $1 in this very stupidly price-weighted index).  Swap GM ($0) and C ($5) back in and we're back to 9,500 (not really as they'd rebalance, but you get the point).

Japan got the point last night and the Nikkei gapped back over the 10,200 mark that we also consider very important.  Sure they drifted down the rest of the day but they finished at 10,238 and, as the great Fernando used to say: "It is better to look good, than to feel good."  Likewise the Hang Seng fell 250 points this morning but that was after gapping up 362 points at the open so we have a marvelous looking up 112.60 but, sadly, all that hard work left us at 21,999, which gives us a very un-marvelous double top at 22,000.   Gee, who would think that 100% up from the March lows would act as resistance?

Resistance was futile in Europe yesterday as the Dax made a new high at the 2.5% rule but the FTSE and CAC stopped at their September highs, up "just" 2% on the day and this morning they are off about a point as the ERBD (Bank for Reconstruction and Development) issued it's semi-annual report on Eastern Europe showed that the 29 country block, which includes mother Russia, will shrink their GDP a combined 6.3% in 2009, an 18% downward revision from the May report. 

The EBRD stressed that the recovery will be "fragile and patchy," and that the differences between economies will widen, largely reflecting the degree to which their banking systems have been damaged by the crisis.  "It is also clear that the social costs of the global economic crisis are only likely to be felt in earnest next year, when corporate bankruptcies and unemployment will continue to rise," said Erik Berglof, the EBRD's chief economist. "Growth over the medium term.. is also likely to be below the trend experienced over the last decade."

We "only" lost 514,000 jobs this week so yay, I guess.  Continuing claims are back under 6M and our core CPI is "only" doulbe the 1% increase expected by the Fed, who are really keeping a lid on inflation in their minds.  We did get a huge number from the Empire Manufacturing Index, which jumped to 34.57, up from 18.88 in September.  Sure the prices paid shot up while the prices received index was negative – indicating dangerous margin contraction but, Hey, doesn't 34.57 look marvelous?  We get the Philly Fed Report at 10 am and if NY is coming on strong I would think Philly won't be far behind so look for them to beat the 13.5 expected of them.

GS had their expected beat but it isn't very exciting compared to JPM and C "only" lost .27 per share vs a loss of .38 per share expected and that should keep the shares around $5 so our spreads are right on track.  There have only been 4 misses all week and they all came since yesterday's close:  STLY missed but is being forgiven, HOG missed by 50% and is being forgiven, MNI missed by a penny and is selling off and UMPQ missed by a mile and is trading up so, despite some early market disappointment, we are still in a positive earnings environment and we'll take advantage of the morning dip to press some of those upside plays – just in case we get a proper breakout. 


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  1. Crude futures are looking remarkably unconcerned with today’s inventories. In the last few days, oil has gone from relative weakness among commodities to relative strength. Any guesses why?  I’m going to wait out inventories today, but if it stays strong I’m scaling back my short position.

  2. Funny little factoid: TIAA-CREF’s REIT, which is not exchange traded but is (supposedly) well-managed is down almost 25% this year and down 33% over the last 12 months. There’s some ‘REIT reality’ free from the influence of speculators.

  3. COF getting killed pre market as chargeoffs continue to rise (had a ridiculous pump yesterday)
    AMZN getting killed pre market as GOOG is getting into the online book biz (also had a ridiculous pump yesterday)
    REITs and Energy still looking to hold up the fort.
    RVSN (i mentioned yesterday) getting a boost as CSCO buy of Tandberg runs into snag (those pesky shareholders want more $$).  Let’s see if this runs today.  I have a few shares but will look to sell on a good pump job.
    SCHW gets an SEC Wells Notice for something (not sure what) and reports earnings.

  4. SCHW … revenues; eps MISS.   Trading revenue fell 4.4% as average daily trades fell 5%.
    So much for the retail investor piling into the market !
    But we already knew that, didn’t we ?

  5. Here’s a good article on why we’re going up.  It’s been said before.  Cheap money.  We are experiencing an asset bubble in the equity and commoditiy markets.  Once CBs start raising rates, money will come back out of equities and commodities and flow into bonds.  So we’re waiting for rates to go up.  That’s going to be a long wait.  I’m sure we’ll get a pullback before year end.  But I’m pretty convinced it will just be a pullback.  Not a top.  I just wish I could trade it without puking!

  6. Doug Kass is shorting AMZN on the GOOG news …. this should be interesting … will it hold 95 ?  I don’t think so.
    Yesterdays stupid close = 97.56

  7. Phil – CIT did not fill for me…FYI

  8. Phil, what do you think about NUAN and IMAX?

  9. From Mish – The number of households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.

    The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.

  10. F’r U day traders, ARNA is moving….UP.

  11. Were you in ACOR Pharm? Wow.

  12. dow < 10K

  13. Crude/Eric – It’s because they rolled to November contracts so it’s like rolling to a November option, there’s more premium and they are less likely to fall hard on a dip.  Most other commodities are priced on the spot market so they respond directly to the daily auctions.  CREF is interesting, I didn’t know that. 

    To me, those GS earnings say buy more JPM as they are obviously a better-run firm at the moment.  Of course GS sacrificed some profits to push the markets higher, maybe it’s JPMs turn next Q…

    RVSN/Cap – Nice one on that!  Good observation on SCHW, that’s a good thing to watch as the brokers report.

    Rates/Matt – It’s bound to happen one day although keep in mind that Japan has kept rates near zero for about 20 years now.  I still like those TBT spreads from last week as the best way to play that. 

    AMZN/Cap – That thing is like just unkillable, an amazing thing the way they’ve run up to a FORWARD p/e of 45 (but at least it’s reasonable compared to the current 65).  So if you give AMZN a dollar, it will only take them 45 years to make it back – Excellent…

  14. AMZN / the prop job so far today is amazing; sme for the overall market !

  15. Ah, thanks Phil — I don’t follow all that futures stuff.
    C short straddles are up huge this morning. I swear these things make money every day.

  16. Eric – no, but I saw the gap down and thought to myself, what are they doing…..they met their goal, and then, WHAM today… about a short squeeze.  Hence my rather large ARNA position now….

  17. LAZ - bought some OCT 40 calls at the open expecting a bounce.

  18. SYNA – playing the bounce today with OCT 20s

  19. I’m giving AMZN short straddles a few more minutes and then I’m out with a small profit. This thing is nuts. I bet Kass saying he was shorting them brought in money to force a squeeze. Idiot.

  20. I much of the infrastructure money is still in play from the ‘stimulus’, and CAT has a 19 or so P/E, one would think that CBI would move up on to that territory as well.  EPS are about $1 less, but ROE and ROA are much better at CBI….

  21. Pharmboy
    Any thoughts on SVA ?

  22. MrM – SYNA is a bugger.  I am out of he call side, sold $20 Jan11 puts for ~5.   MACD is still negative, and we are in no-mans-land….

  23. SVA – vaccine maker in China.  No, sorry.  From the looks of it, the # of shares short are the average daily traded…I would avoid for scale in VERY slowly.  Again, for vaccines, I trust the big boys here….but in SVAs defence, all are looking to expand their capabilities.

  24.  GLD, Phil what is current position on that. GLD showing weakness.

  25. FBI arresting dozens of folks in NYC area involved in mortgage fraud.  Good folks like brokers and agents.  Say it ain’t so!  Thing is, they need to do this all around the country.  It’s going on everywhere.  They are at the tip of the iceberg.  The taxpayer is being swindled in a massive way by the FHA programs out there. 

  26. Good Morning. Phil, any thoughts on NOK? Thanks

  27. SHLD is on a hell of a run-up, just broke over $73.

    CIT/Pharm – Yeah, I didn’t fill either and it isn’t worth a nickel to gamble on trying to fill the legs individually as you are risking the purchase price and that’s plenty on that trade. 

    WAG out of flu vaccines.  I still like RAD at $1.58.

    NUAN/Jrom – They are on a pretty solid track and not expensive.  I think the buy/write at $15.59, selling the Jan $15 puts and calls for $2.80 for net $12.79/13.90 is a nice early entry as they should get support from the 50 dma and, if they fall to the 200 dma at $12.50, then you can just DD and sell Apr $12.50s to knock off another $2 and if you don’t want 4x of the stock at about net $11, then you sure don’t want any at $15.59! 

    IMAX/Jrom – That’s one I always like to buy when they are cheap, which they are not right now.  I would go for hoping they miss earnings (maybe early Nov) and then you can pick them up on a dip back to $9.  Of course, if you plan to be committed, you can slel the March $10 puts for $1.05 and that’s $8.95, which is a nice discount if you regret missing the run.  Let’s say you wanted to buy 100 shares.   If you buy 100 here then a buy/write at $10 may net you about 10% and the straight stock would have to go up past $13 to give you the same percent return you get from selling the put for $105 against 50% margin of $5, especailly when you consider that net of cash you are just committing $3.95.

    LOL – Phill fed missed by a mile at 11.5 and Santelli is spinning his ass off trying to keep it positive.

    Sept. Philly Fed Business Outlook: 11.5 vs. 14.1 last month and consensus of 12. Employment index -6.8 vs. -14.3 last month. New orders up to 6.2 from 3.3. Shipments 3.3 vs. 8.2. Inventories -31.8 vs. -18.1.

    MAPI quarterly business outlook: While the economic recovery in manufacturing is likely to be marked with numerous rough patches, signs are finally emerging that the sector can expect brighter days ahead. MAPI’s composite index rises to 38 from 24 in Q2, still squarely in contraction territory, but forward-looking indexes are at much higher levels.

    3.5M Foreclosures/Pharm – Wow!

    Foreclosure filings rose 5% in Q3 to 938K, but declined 4% in September from August, RealtyTrac reports. Bank repossessions jumped 21% during the quarter, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays.

    Capital One’s (COF -4%) net charge-off rate – debts it believes it will never collect – rose to 9.77% in Sept. from 9.32% in Aug. Accounts at least 30 days delinquent – an indicator of future loan losses – increased to 5.38% from 5.09%.

    Keep an eye on AIG please (it’s in the $100KP with a short sale of the Oct $40s):
    Watching AIG. Chatter about Buffett (BRK.A) clearing the way to buy stock.
    AIG’s (AIG +0.1%) plane leasing unit, ILFC, will repay a short-term $2B loan today through funds provided by its parent, easing liquidity concerns.

    Levels today:  Anything red is bad, anything green is good.  Any questions?

  28. 100KP: Phil, did I miss a link for the 100KP adjustments or are you still waiting for the a second close today to see if the levels hold? Getting a little close to expiration…. 

  29. Here’s an amuzing read about Las Vegas housing lunacy:

    It makes a good prolegomena to this article, which argues that banks serve no redeeming social function:

  30. Phil what do you think of selling OIH Nov 115 or 120 puts to cover the cost of rolling up the longs? Thanks
    How’s your couch?
    Eric did it.

  31. SPX/mad play that is bullish, but pays the most if the market drops a little (for Portfolio Margin only) that is similar to the AAPL plays a few weeks back:
    - Buy SPX Nov 1,080/1070 PUT vertical for $3.7.  This pays $10 if SPX is below 1070 at Nov expiration, a $6.3 profit froma $3.7 investment.
    - Sell SPX Nov 980 PUT naked for $4.85, netting a $1.15 credit.  We are selling Nov 980 as we are trying to get bullish and bet that the market won’t drop 10% in a month.  The margin is around $15 for PM, $200 for normal accounts.
    If SPX stays above 1,080, we get the $1.15 net credit.  SPX between 980 and 1070, we get the most profit of $11.5.  Breakeven is 968.5.  There are all kinds of adjustments we can make as the market moves up or down.  For instance, if the market goes down, we can sell the Long PUT, and be super bullish on a upturn reversal.  If the market goes up, we can also sell the Long PUT, betting it keeps going up, OR buy back the 980 short PUT as it would have lost most of its value, and thus betting that the market would go down, making a gain on the vertical.  I would do nothing for a while as it’s well hedged.  We haven’t sold CALLs yet.  The SPX Nov 1180 can be sold for $1.85 and we don’t loose until the market is a full 9% up from here.

  32. You’ll pay for this morx.  Everyone knows it was apple juice.

  33. Pharmboy – GS upgraded HGSI … 

  34. Sure GS did (HGSI), they want to get out…..

  35. Jeff Augen (author of The Volatility Edge in Options Trading) has a useful article in SFO Magazine this month.
    I have set up my ToS Charts to display his daily standard deviation histogram (from the book) and have added the discussed Intraday Volatility and Overnight Volatility calculations to my Volatility graph which also includes Implied and Historical Volatility.
    If anyone wants the ThinkScript Code for either graph, just let me know.

  36. phil,
    boy cnbc talking heads love to tout the wisdom of the free market, but did you see fear on their faces when mark mentioned them being spun off in an ipo??

  37. Morning Phil, I see your remarks on CIT had a fill yesterday at .45c your comments pls

  38. Phil
    RUT- Looking for your gut call on any news or whatever which may have an impact on the RUT index today?
    I have my short caller leg right at the money (Oct 620 which I sold for $440 back when RUT was @ 580). I am going to close this out today one way or another as today is the final trading day. Just looking for a decision point or I may choose to just hand hold this until the close.

  39. pstas, here you are.  I tried to ping you a couple of days ago on a nice dip that I moved the Oct 620 short CALL to Nov for very cheap.  We need to watch shorts that is close to the money in expiration week and take avantage of any moves in our favor.

  40. Wonkish but worth it: Fitch explains why Basel II will lead to more – not less – complex derivatives.

    Volume is pretty good at 37M at 10:12.  We’re not going up on volume once again but not going down either so far.  Here’s a nice green shoot:

    The U.S. commercial paper market grew for a ninth straight week, up $27.1B to $1.326T. Analysts say the market, which the Fed had to rescue from paralysis last year, is functioning much more smoothly than a few months ago.

    "When the government stops buying assets (such as mortgage securities), who will be the substitute buyers and how will that reduced buying affect Goldman’s (GS) business?" Meredith Whitney asks on this morning’s call. CFO David Viniar: "There’s plenty of other buyers with lots of cash to spend. It won’t affect us becuase our profits are not based on positioning, but on velocity."

    C/Eric - The earnings premium is draining right out of them on the flatline. 

    AMZN – No way should they be played short-term, there literally seems to be no limit to how many sheeple they can drive into that thing with the same news (Kindle sales) over and over and over.  One day, they’ll have to either come up with AAPL-like earnings (forward p/e 26 and THAT’s a bit high) or come down to earth on the stock price but don’t count on that day being too soon.  They only have to beat .33 per share on 10/22 and the next 5 Qs are projected at .50 or better so this shouldn’t be too hard.

    CBI/Pharm – Excellent pick!  IF CAT, CMI and DE are priced "right" then CBI is priced way too low.  They’re working through a projected loss for this year but I like the $1.20 bull call spread of the 2011 $17.50/20.  Let’s say you were willing to risk a 10% loss on your $20 shares and that was going to be $500 on $5,000 committed.  You can instead buy 10 contracts for $1.20, tying up just $1,200 and put a stop at .70 and the return is $1,300 if it hits (108%).  $5,000 worth of CBI would have to get to $26 to pay you that much on the stock although buy/write with the Jan $17.50 calls at $4 and $20 puts at $1.80 nets $14.76/17.38, which isn’t a bad initial entry and if you start with 100 shares, you clear a quick $274 if they hold $20 on $1,476 committed (18.5%) so that’s good too!

    GLD/Ken – I went off GLD the other day in favor of the GLLs (ultra-short gold).  We paired it with the UGL on the 12th:

    • GLL (ultra-short gold, now $11.50) Apr $12/13 bull call spread for .40, returns $1 if gold finishes around $900.

    • UGL (ultra-long gold, now $42.40) Apr $40/41 bull call spread for .40, returns $1 if gold doesn’t drop.

    The UGLs popped to .60 and can still be stopped out at .50 and you can stil buy the GLLs for .40, I think it’s the best way to play gold as directional bets are just so crazy and this one makes 150% if you get it right and hold it through the end but look how fast UGL made 50%.

    Natural Gas Inventory: +58 billion c/f vs. consensus of +52 bcf.

    NOK/1020 – I learned from trying to stick with MOT that once these guys hit a down cycle, you shouldn’t try to save them.  They’re too low to bet against but don’t bet on them coming back anytime soon.

  41. EricL/Vegas I toured many foreclosed homes and sadly, the cnbc report is very accurate. It’s a mean thing to say but most of those homeowners that trashed their homes never should have left the shelters they were living in…. BTW, hows the "garden" ;)

  42. Peter/RUT
    Just out @ $380.
    I missed the dip the other day. I was on the road all day and away from my desk. I am going to wait for next week to re-load on NOV. Hoping the fog clears a bit.
    Thanks for the advice.

  43. The SMH has now fallen below its price ahead of the Intel announcement. I hate to sound even remotely bearish, but there sure seems to be a lot of selling the news going on.

  44. Phil,
    Sold a SPX 1095/1010 call spread two months ago and it’s getting very close. Do you recommend roll it to Nov or just hang in there?
    Peter D,
    Your SPX play doesn’t have to be today, right? Thanks for Phil’s hint, my application to TOS Portfolio Margin will take a couple of day to be processed. 

  45. Hello guys…
    Spain: Phil, you mention "For example if Spain collapses" in a yesterday post. Can you please tell me what you mean with that? What type of collapse are you speaking about? I have firends in Spain, some worried because the current situation and hoping for a recovery and I have interest related to Spain so  your words make me worry.. TY – Spider.

  46. Any thoughts on GOOG for an options CRAPS role ahead of earnings?

  47. Phil/Pharm/CBI   Dosen’t CBI build refineries and CAT,DE and CMT heavy equipment/engine manufacturers?

  48. that should be CMI not CMT….

  49. Oil – popped above $76 off the dying dollar

  50. $100KP/Allen – I mentioned in the morning post that we’re so bearish we’re pretty much trapped just rolling to Nov so there’s no urgency to do that today on the off chance we still get a nice sell-off.  The pressure you feel, that "it’s getting close to expiration" and you should capitulate and buy out your callers at the highs, it just what they want you to feel…

    Prolegomena/Eric – Good word!  That’s a great article, thanks.

    OIH/Morx – Oh sure, the $115s though, not the $120s as you sure don’t want to be stuck with OIH if it dips to $110 on poor earnings.  Couch smells like apple juice for some reason…  8-)

    SPX play/Peter – Very nice!

    Volatility/CTX – That sounds cool, please let me know how it works out over time.

    CNBC/High – Oh yeah, that’s their pensions at the mercy of the market and they know they suck.  I bought commercial time on their station bidding $20 for a 30-second spot and won on several occasions. 

    CIT/Yodi – .45 is not good for a fill.  You are collecting $450 and will owe $500 if they go BK.  We were not looking to risk $50 on that stupid stock.  The idea was it was a fun trade if you have low trading costs and could sell for $500 so you just risk $10 on the trade with a "possible" $500 upside and no additional downside.  Also, since you can’t lose, there is no margin so you are literally putting down $10 to win $500 (on 10 contracts) but the odds are similar to any raffle that pays you $500 for $10.

    RUT/Pstas – If I were already bullish I would be super concerned that the RUT can’t stay above 620.  That’s a really critical spot, which is why we looked at the ultra longs on that one yesterday as they can get a good pop going if they break over. 

    Oh no, big draw in gasoline jumped oil up $1 and got the whole sector excited, causing gold to go up too:

    Petroleum Inventories: Crude +0.3M vs. consensus of +0.6M b/d. Gasoline -5.2M vs. +0.7M. Distillate -1.1M vs. -0.1M. Utilization 80.9% vs. 85% last week and consensus of 84.6%. Crude futures pop, +1.1% to $76.05.

    Sector ETF strength early on: Gasoline– UGA +0.6%. Agriculture– DBA +0.4%. Utilities– XLU +0.4%. Biotech– BBH +0.4%.

    Weakness: Solar– TAN -2.6%. Semis– IGW -1.9%. Commercial Banks– KBE -1.8%. Broker/Dealers– IAI -1.8%. Gold Miners– GDX -1.7%. Semis– SMH -1.5%. Financials– XLF -1.5%. Silver– SLV -1.4%. Regional Banks– KRE -1.3%.

  51. GOOG plays:

    Buying the Nov $550 calls for $10.70 and the Nov $510 puts for $12.30 ($23) and selling the Oct $530 puts and calls for $24.  Big win on a flatline and if GOOG pops $40 one way or the other you owe the winning caller or putter $20 but your long position is $20 in the money.  Not foolproof but a pretty good percentage play.

    March $550/580 bull call spread for $11, pays $30 on a good run

  52. Thanks!

  53. Any changes to the ERY trade based on inventories?

  54. BIDU – closed my 430/420 put spread, it took a few days but finally paid off nicely.  Thanks Cap!

  55. Food Retailing Industry
    Huge Setback for Inflation Bulls, Deflation Accelerates to a Massive 250 Basis Points
    §         Deflation has accelerated once again.   CPI Food at Home is running (2.5%) in September, compared to (1.7%) in August, and (0.9%) in July.  We believe deflation continues to serve as a meaningful sales and gross profit headwind to the grocers. 
    §         We believe deflation trend set to continue.  We continue to believe that deflation is likely to remain for the next several months (at least) and the bull expectation for inflation materializing in 2010 is becoming increasingly less credible.  Rising unemployment and escalating competitive price activity do not make for an environment where pricing power is a reality.  Please see our note from 10/13/09 for more commentary on our thoughts on inflationary trends and our outlook on the grocery industry.

  56. awesome mocha

  57. I’m in a TBT bull call spread (own jan11 38c at 10 and short jan10 50c at 1.30). I have a nice gain in this now. Would you stick with it or cut and run? I think long bond yields have plenty of room to go up but I have a little more money in this play than I’d like and wanted to take some off the table. Thoughts?

  58. roaster, Phil’s rule no 1 applies here. If in doubt sell half!!!

  59. Roaster -
    If you have a "little more" in it than you want – why don’t you take half off the table?

  60. BIDU – I took a little of my profit on the puts and bought some 410 calls, hoping to cover with the 420s at the same price on a run up later in the day for a free trade.  Gotta have a little fun today!

  61. good points. As is often the case, the simplest answer is probably the best one here.

  62. Trashing homes/1020 – I just don’t get that.  Maybe I think too much of people…

    Mortgage rates for 30-year fixed U.S. home loans rose to 4.92% from 4.87% last week, according to Freddie Mac’s weekly survey, ending a two-month downtrend that was reflected by a drop in mortgage applications earlier this week. All in all, though, rates are probably not far from where the Fed would like them to be.   Man, we can’t sell homes with 5% mortgages?   What happens when they go to 9%?

    The credit quality of rated corporate, sovereign and banking debt issuers improved significantly in Q3, Moody’s says, with the downgrade/upgrade ratio falling to less than 4:1 from 9:1 in Q2. Still, despite the overall improvement to issuers’ creditworthiness, "current watchlists and outlooks speak to a continued difficult credit environment," firm says.

    C having a tough time with the 5% rule during the CC. 

    SMH/Eric – Shhhh….

    SPX/Balance – You mean one that expires tomorrow?  They’re at 1,088 right now, need a 6% move up to get in the money.  In fact, that makes me think they don’t expire tomorrow as that’s too ridiculous so you’d better check.   

    Spain/Spider - They have almost 20% unemployment and a broke government and the EU won’t let them print any more money so if their economy doesn’t improve on it’s own, things can get much worse fast.  Spain’s stimulus program is winding down this month and it’s the only reason their economy looked better this past Q.  Spanish banks have a LOT of loans out to South America and if they turn down, that’s another "varas" in the back of the market (see above image).  

    The EU commissioner in charge of new bank capital rules drops plans to publish them before his term ends at the end of the month, leaving the issue for his successor to take up next year. The banking industry, which had opposed the rules, now looks to see if a replacement commissioner will take a harder line on regulation. 

    GOOG/Andy – Hey GMTA!

    CBI/1020 – They build all sorts of things but a lot of energy infrastructure so I like them on the clean coal demand as well as possible nat gas developments.  Another good thing about them is, despite the name, they’re Dutch so they get a lot of International business from countries with real currencies. 

    Dollar/Fab – Yep, back to lows of the day on the dollar. 

    ERY/Mbaisly – Other than wishing I didn’t have it, no…  It’s early in the cycle for Dec contracts and they are already jammed up with 331,000 open contracts and they have to dump 300,000 of them by Nov expiration so we may get a couple of down days ahead.  If oil is breaking higher next week, then we need to roll or something.

    BIDU – Nice!  Congrats to all the faithful on that one.  Now if only AMZN could get that rational.  By the way, very dangerous to ride successful BIDU short plays out through GOOG earnings as you never know how BIDU will react tomorrow

    Deflation/Cap – I think that there is a very finite amount of consumer money and if they run up the price of gas it comes right out of food and other stuff at the moment.  That’s why I think oil at $75 is so insane, I just spent $45 bucks at the gas station yesterday and I was wondering how long people with maxed out credit cards can handle that 4 times a week for a family with 2 cars.

    TBT/Roaster – I have plenty of confidence in that spread but you don’t need to have a .76 delta as your caller’s is .38 so you can take $4 (33%) off the table by rolling up to the $45s, which still have a .62 delta 50% more than your caller with another $4 to go (10%) before they are even in the money and a year to roll. 

    S&P drops the credit rating of Southwest Airlines (LUV -4.4%) a notch, citing cash-flow effects of lower demand and higher fuel prices.

    CNBC’s David Faber says GE (GE) CEO Jeff Immelt will soon offer Vivendi a deal to sell its 20% stake in NBC Universal for roughly $6B, giving it the choice to exit, or register its stake for a 2010 IPO. Faber thinks Vivendi will take the offer and never look back.

  63. Phil

    I just noticed I have 400 shares of FXP (@ $9.33 average price )but no calls sold only Nov 9 puts – any ideas?

  64. My CGA Buy/Write play is flying – China Green Agriculture (organic fertilizer) . Maybe they have figured how to blend all the Bullshit coming out of Washington into their products and make better profit.

  65. Trash/Phil  What’s worse is that a couple of these homes are in the Red Rock country club on the west side of Vegas – Toll homes, 3 to 4 years old and one – another Toll, where the guy took everything including most of the duct work.
    These are 1  to 2 million dollar homes. They looked good from the street but when you go inside….. So when the neighbors noticed that Charley spent all that time "cleaning the place up"  You soon found out why Charley did not hire the cleaning service to "tidy" the place up……

  66.  Phil,
    Sorry I meant 1095/1100 call spread, with Google and IBM earnings today, a little scary..

  67. The fact that the couple in the Vegas article found building a brand new house on the (presumably) far edge of town to be their best option is just unbelievable.
    I badly underestimated how desperately people would value deck chairs as the ship goes down.

  68. Wow, refinery utilization was down 4%.  We make 19Mb per day of product, that’s taking 5.3Mb of product off the table this week, no wonder they got a draw in gasoline, those friggin’ criminals!  We’ve had major hurricanes that didn’t knock 4% of our refining capacity off-line….

    FXP/Red – If we don’t finish greeen, you can just hang on.  As they are so volatilie you can alwys roll the putter ($1.10) over to the Dec $8 puts (.65) and $10 calls (.50) if you have to but those rolls will be there for quite a while. 

    CGA/Gel – China, Green and Agriculture – what can go wrong?  8-)

    I think we’re drifiting as earnings today were inconclusive and tonight we have AMD, GOOG, IBM, PBCT and TCSM and tomorrow we have BAC, FHN, GE, GPC, HAL, MAT, MTG so plenty of things that can go wrong or right

    Noon volume 80M, about average (the new, low average anyway).

    Our goal at the moment is to be pretty neutral.  I’m still 55% bearish, probably through the weekend but if you need bullish plays, I still like these from yesterday but they got a little more expensive today:

    • DDM Jan $37/39 bull call vertical at $1.20, now $1.30, (67% upside) with DDM currently $40 so a nice cover to bear plays.
    • IWM Jan $60/62 bull call vertical is still $1.20 (67% upside) with IWM currently $62.
    • UYG Dec $6/7 bull call spread if .40, now .45, (150% upside) with UYG at $6.31

  69. Jomama – notice XOM? I m sittin on my hands, though.

  70. Hi Gel1 I took your advice on CGA good run so far, try to buy more today but stock is trading already at 14.22

  71. 1020 – yes, they are a different segment compared to CAT and Deere, but my premise was that with very little debt 150M and  tons of cash for building infrastructure they could be a good bet.   Most of and steel prices falling, so I thought they should have a good ROI and move up with the rest of the sector FWIW.

  72. EricL/Vegas   My advice to them would be to rent. The builders put up homes anywhere in Vegas, as long as they have all the utilities they need. With all the Public land (BLM) and other vacant dirt, they may never get a sense of community that most of us want, not to mention the 30 minute drive to 7-11…..

  73. about GOOG play above – did you see the Nov 550′s for 10.70? I see the 550′s at 13.70 and the 560′s around 10.70.

  74. Pharm/CBI   Thanks to you and Phil for the helpful views.

  75. Phil, as a person whose bestfriend used to own a smaller (around 30 agents) real estate firm in Vegas I hear about what goes on there frequently. 1)Banks are not working with people – they are not reworking loans. 2) Cant remember what it is called but banks used to make a reasonable payment to the people whose houses they were forclosing as an incentive for leaving the house in good condition. Banks have been reducing and eliminating these payments. Owners, (although this isnt an excuse) think f*ck it, if they banks not going to help me why should I leave the house in good condition. One business (of course its not legal) that is THRIVING in Vegas is teams of laid off construction workers stripping houses of EVERYTHING (AC, countertops, carpet, appliances, lights, ie ANYTHING that can be taken besides the frame) usually working for the forclosed owners and/or shady real estate agents. WHen the bank discovers what happens the house that wouldve auctioned for 100k sells for 30K (often to the same owner and/or agent) who then pays the construction workers to reinstall everything and after the required holding period (cant remember if its 3 or 6 months)they sell it for 80k .
    THe forclosed houses in good condition usually go to friends of the bankers, who in turn get kick backs…. THe amount of shadiness going on out there is unbelievable. It ain’t called Sin City for nothing….

  76. Phil – Bidu – holding the 430 short calls – couple days ago we were going to hold through expiration or roll - now is the plan to buy back because Google earning? Pls clarify, thanks

  77. CBI – has booster rockets on … to the MOON, and BEYOND!

  78. jromeha/Vegas  Wow!  I did not know Charley has a business!  You’re right, only in Vegas…..

  79. Still liking ITMN @ 14.  In at 13.89.  Sold the 12.5 puts yesterday for 0.7c  Waiting for the 15 Nov Calls to see the confirmation tomorrow on the charts.

  80. Pharm – Did you get some of that?

  81. Pharm – that was some of CBI

  82. Good article:

    When a bank says its loans are worth much less than their balance-sheet amount, that means a large portion of its capital cushion may be illusory.  Such gaps arise because loans don’t have to be carried on the balance sheet at fair value, giving lenders lots of wiggle room to play with.  One irksome problem: Sometimes the numbers in the fair- value footnotes look more like mark-to-make-believe than mark- to-market, particularly when weak banks say their loan values are rock-hard.

    Citigroup, which is audited by KPMG, estimated its loans had a fair value of $601.3 billion as of June 30, just 0.2 percent less than their carrying amount. By comparison, the fair-value shortfall was 7.3 percent at Bank of America Corp., 4.3 percent at Wells Fargo & Co., and 2.5 percent at JPMorgan Chase & Co. PwC audits Bank of America and JPMorgan, while KPMG audits Wells.

    Trash/1020 – Thas it crazy.  See, now THAT should go on a person’s credit score more so than the fact they missed a payment. 

    1,095/Balance – Still, it’s far away and you are short the spread.  Worst case is you roll your loss up tomorrow but if that doesn’t appeal to you then try to get out on a dip. There is really no point in entering vertical spreads if you do not intend to either take quick, small profits or ride them out to the end as they tend to pay off maybe 20-30% on a good move any time but then not more than about 60% until almost the last minute.  When you have that 30% profit, you have to decide then how you will act if it goes back the other way and then do you really want to risk 30% in the hand for 2 30%s in the bush.

    Deck chairs/Eric – Exactly!

    Curse XOM for not having $72.50 puts anymore.   Still, going for the $75 puts at $2.60, stop at $2.40, looking for $3+.

  83. Phil,
    DIS, I have the Stock at $26.29 and have sold OCT $26 puts and calls. Do you recommend rolling the Putters and callers or just let it get called away?

  84. CBI/1020 – did not get the fill on the bull call spread as the moat is wide….1.25-2.  not going to chase.  Going to wait for a pull back and most likely do an option buy/write.

  85.   Phil:  I am deeply in the hole on ERY with an average cost of $16.07 on long shares (I started buying when David Ristau recommended ERY at $18.35).  I’ve also sold ERY November 11 and 12 puts, and January 12.5  puts (which I’ve rolled down from higher strike prices).  If we see ERY move up, my strategy will be to sell Jan 15 covered calls for $1 or better to start digging myself out of this hole.  Do you have any better ideas?  Should I cut my losses and run at some point?  Last year the market was irrational about the price of oil for a long time. Thanks.

  86. Go ARNA go….

  87.  I am going for xom  nov 70 puts.  70 has been magical!

  88.  Phil,
    If i bought a dia put for 3.80 and it dropped to 1.76 and the delta is -.277, is the following correct: 3.80-1.76= 2.04 divided by the delta .277 = 7.36. 7.36 being how far dia has to drop for the put to recover to its cost???

  89. Yep, Yodi…. CGA will be flying for some time to come. Their yearly growth is 45%, and they are projecting the same for the next three years on an annual basis. Chemical and Pesticide free products are experiencing an exploding market growth, primarily with the 300 million middle class. This company is the market leader, and the Chinese central government has precluded any foreign competition through import tariffs.The company’s many products are patent protected. ( yes, even China is protecting patents now). For the last 3 quarters, the company has beat  profit estimates on average by 28%. Future P/E is only 8.47, and current profit margin is 41.08 %. ROI is 58%. Debt/Equity ratio is only .10. Insiders own approx. 25% of stock – provides incentive continued growth IMO.
    No need to send anything from Washington – tariffs too high, besides their numbers are just fine!

  90. Hi Phil — I’m a new member. Thanks for all your ideas and commentary. Regarding XOM, you’re advocting buying October $75 puts?

  91. make that ‘advocating’

  92. RUT/pstas, the roll from RUT Oct 620 CALL to Nov 650 CALL is still available for $3.5 credit.  Or to Nov 660 CALL for $1.1 credit.  The market doesn’t look like jumping, but if RUT does jump by $10, then the Oct 620 to Nov 650 roll is $0.6 debit or so.  So not rolling means you have 50-50 chance of pocket $3.6 if RUT opens below 620 tomorrow, or loose $4.1 if RUT jumps $10 (1.8% roughly).  GE earnings is tomorrow morning and GOOG is tonight, so who knows where the market is going.  Rolling the CALL and sell an OTM is the safest.  Would you wait or would you roll?

  93. Oopps, missing a word in my last post:  selling OTM PUT (maybe the Nov 550 PUT) to complete the short strangle.

  94. SPX/balancenv,  yes, the play doesn’t have to be today, but you might not get the same amount of credit due to the daily decaying nature of the options.  If the market drops violently, you’d get more credit as the SPX 980 PUT would worth more and the Vertical doesn’t gain as much.  If the market is slightly down, flat or up, you’d get less credit.
    Good luck on the PM application!

  95. OSX (oih services) – selling a neutral spread for Nov: Sell Nov 230 CALL and Nov 180 PUT for $3.45 credit.  Normal margin is $46 (20% of 230), PM is variable, from $9 initial and can increase to $23 if the short is ATM.
    XAU (gold and silver) – selling a neutral spread also: Sell Nov 205 CALL and Nov 150 PUT for $3.4 credit.  You can work out the margin by now, right?

  96. Is it time to DD on the OIH Nov 125 calls sold yesterday for $5.75?

  97. LAZ – closed the OCT 40 calls from 10am, up 65%, now that’s fun!

  98. Wow, is everyone sobering or still drunk (with dow at 10,000+)?

  99. LVS/1020 – I think for $150,000 you can live in a suite for 5 years the way they’re giving them away now ($100/night).  No taxes, no utilities, maid service, furnished - that’s the way to go….

    GOOG/Roaster - Damn, you are right, I read the wrong one.  Still not a bad play for net $2 but much riskier!  

    LVS/Jrom – Sounds like an enterprising young man with questionable morals can make a killing over there.

    BIDU/Concreata – Are you joking?  They are down to .40, why on earth would you even consider risking that massive profit to get 40 more pennies?  We talked about holding on when BIDU was at $425 and people wanted to roll and I said it was better to wait and roll them if we have to as we were behind but had faith they would go down eventually.  This is TOTALLY different. 

    Sector ETF strength: Gasoline– UGA +3.7%. Oil– USO +2.6%. Heating Oil– UHN +2.4%. Oil Services– OIH +1.6%. Commodities– GSG +1.4%. Energy– IYE +1.2%.

    Sector ETF weakness: Silver– SLV -2.6%. Solar– KWT -2.5%. Semis– IGW -2.2%. Gold Miners– GDX -1.8%

    Howard Lindzon says the "four F’s" (friction, flexibility, frustration and fear) have him staying "long, but small" in many areas, but avoiding real estate and banking (where "prices are all rigged and broken").

    CEOs’ attitudes are turning up, according to the latest survey from the Business Council, which found 60% of leaders expected their own industry conditions to improve, vs. 90% in February who said things were worsening. But in more cautious findings, they expected growth of 2% or less in the first half of 2010, and nearly 46% think the government should be unwinding asset purchases.  So "only" 40% of business leaders think things are getting worse – Woo hoo!!!  We know financial guys think things are great so there’s 20% off the table and we also know that 60% of the Ameican people believe their home prices have gone up in the past 6 months so of the bullish 60%, we take 20% off the top for the Financials and then discount the remaining 40% by 60% to account for the idiot factor and we are left with just 28% of the corporate leaders who can be reliably considered to be optimistic for good reasons.  I’m just saying

  100. SRZ – For any of you looking for a buy-write candidate: I have the shares naked from springtime but just covered with the NOV 5 puts and calls, you can get almost $2 selling these if you time your entries, that’s a nice return if it flatlines for a few weeks.

  101. Phil – ERY 12 Nov calls – would you move this down to the spread or abandon (I recently DD).  Not seeing the weakness in oil now…

  102. Fair Value of Bank Loans:
    Do not forget that the calculation for fair market value of a loan is not based solely on credit.
    Example: $15 million loan on student housing at the University of Texas – Austin may have been underwritten at 65% LTV and a 5.5% rate.
    That is about as rock solid of a credit as there is in CRE and yet it is likely that the fair market value of that loan is below par due to the fact that if it were underwritten today, it might be at 6.0% or 6.5%.
    This fact has bigger implications for mid-tier regional banks and smaller since there is presumably less noise in their balance sheets and tend to be more solely focused on lending than bigger banks.

  103. Hi Phil, What are you doing to OIH that place is on fire is there any hope to run out of gas? I am covered with my 125 short call until 130  sold for 5.75 (Nov) any thoughts on the matter.

  104. Is C going to take the whole market down?

  105. I’m in a strange naked strangle on PARD, and some of my puts will finish in the money tomorrow. Does anybody still llike this puppy? I can take the stock, fold, or roll. Awaiting words of wisdom…

  106. Notice how virtually every company that has reported has seen whatever gains it had initially, disappear.
    How come they don’t notice that on CNBC.
    Oil playing market prop role now today.

  107. Bar/PARD –
    I don’t know the stock but assuming the put side of your short strangle are the 7.5s, what about rolling 2 or 3X to the Nov. 2.5s and letting the calls expire?
    3X should use the same margin as you have posted now for the short put position. If you get put to on that roll, you are in for 300 shares net $2.10

  108. Pharmboy – I posted a few days ago that VNDA goes nuts every expiration week, here she goes again…

  109. Phil,
    Would you recommend adding more  C Jan22 2011 7.50/10 vertical call spreads on the pullback of C today?

  110. Barfinger, Pard:
    Pharm or Phil can answer on the fundamentals. I have a bunch of buy/writes on PARD. You can sell the Nov 2.5 puts and 7.5 calls for 2.50 or do the same with Dec for almost 3.00. Not bad for a 6.80 stock. Of course if their expected news is bad….

  111. Phil – DIA covers – where are you on these for overnight and google earnings?

  112.  Phil,
    Am I an idiot or not?
    I wait nervously for your reply to my message posted at 1:08. 

  113. COF looks shortable here at 38.  A helluva pump from its intraday low on very bad credit news.

  114. Peter D/ RUT- per my earlier post I closed out my Oct 620 caller @ $3.80 this morning for a small gain. Adding my gain on the almost worthless short PUT, I have a $335 gain which required margin commitment of approx. $7000 for 3 or 4 weeks nets a return of about 4.5% which I can live with nicely, thank you very much. This was the first one of these trades for me and so far, so good. I prefer to remain cautious until I am more confident on the ins/outs of short strangles. Your explanations and guidance have been most helpful.
    As to NOV; these levels make me nervous. However, I have been wrong on my general market calls since July. As Phil said this AM, if 10,000 is silly, do I hear 11,000? Why not?
    In any event, I will be watching for entries as the smoke clears from my horizon. Looking at RUT 560/660 .

  115. VNDA – yeah, heart attack time for them.  I do not like the water that is underneath….
    PARD – i agree with CXT on the put side.  Allen, I think the science is fine, but I thought several others were as well (SPPI, CLDX) and they have fallen a bit.  IF you can pay for 1/2 the stock on a buy write and it goes up….then why not.  I am not in the PARD trade, as I have enough biotech (as well as I work in one!!!).

  116. MrM… Very nice play on SRZ. I caught the b/w for a 30% discount with the Nov 5 premium income. Thanks!

  117. CXTrading.  I would like to get the volatility code.  I have noticed my profits being eroded by improper timing of entry/exit on verticals and would like to understand this more.  parthas at yahoo dot com is my email.  Thanks

  118. Mr.M….Let’s hope the stock flatlines and not the heart monitors connected to the residents.

  119. pstas, very nice return indeed.   These are intended to return 3-5% on average, taking into account possible losses in some months.  Sorry, I misread "Just out @ $380" as you closed the short PUT not the short CALL!

  120. pstas, Peter D – if you could post your Nov. strikes for strangles.  I would like to follow along.  Have done a few strangles with Phil – but never on indices …  Thanks.

  121. Analyst Dick Bove: Goldman Sachs (GS) is the best-mangaged firm in the financial sector. Citigroup (C) stock is the cheapest.   Yeah, and 6.5% cheaper today!

    XOM – stopped out, I was too early on that one but I give up.

    DIS/Maxt – I’d roll those to the Jan $28 calls and $26 puts at $3 (even).  They have Scrooge with Jim Carey in IMAX 3D and that ToyStory thing just did well and park numbers should be good because there are so many deals to go down there so I think they are safe up here.  If you can roll up $2 every 3 months for the next couple of years, that’s very nice…

    ERY/John – I’ve been trying to roll down the the Nov $11 calls for .30 but can’t get a fill.  I suppose oil could go to $80+ if the dollar keeps going down but let’s see where you are, which is not very good.  You have the stock at $10.97 and you already sold the puts so why not roll everyon down to the Jan $11 puts (now $1.70) and sell the Jan $11 calls for $1.70.  Then you can swap the stock for 2x the Apr $8 calls at $3.60 so you are taking $5.47 off the table and you still have the same number of open positions as you have now (the uncovered 1/2).  If ERY stays below $11 but not below $10, you should have a nice gain and if they take off, you should have a nice gain too.  If they do go much lower, then you have all that cash on the side to roll the calls out and lower in strike and try again.  Meanwhile, you can hedge against disaster by buying the ERX Apr $51/52 bull call spread for .40, those pay .60 (150%) so if you take 20% of your ERY commitment and use it to hedge, you’d make 30% on a drop and this is an April spread so you should keep 1/2 even if ERY works out for you in Jan. 

    DIA/OldG – It’s not that simple as the Delta changes with each dollar the DIA drops but that’s roughly it.  You get a better idea by looking at the delta that is halfway to your goal and error on the side of caution so assume that the strike 3 lower has the right average delta for the ride down.  I hope you don’t need that 700-point drop by tomorrow! 

    Welcome Chuck!  No, that was just a momentum play that didn’t work.  We like to do those on expiration week but otherwise I don’t do those that often.  The dollar is still getting crushed and they are running oil to $77.50 into the NYMEX close (2:35).  That helps bring buyers to XOM, who are already up on the headline gasoline draw (even though, as I pointed out earlier, that was caused by XOM shutting down refineries and refusing to produce gas, not demand). 

    OIH/Sarah – Too early in the cycle for me to DD.  On a first entry of a short call, I am more inclined to do a roll-up first, to 2x the $135s, now $2.90, which would put us in at net $7.70 and down 27% but with a $7 cushion before they go in the money.  If they cross over $130, then I would consider selling the $120 puts, now $2.50, for maybe $2 and using that money to roll the $135s up to the $140s and, if OIH goes past $135, THEN I’d probably consider a DD as that’s way past 100% off the bottom and another good resistance point. 

    Sobering or still drunk/Peter – What, we can’t be going the other way?   8-)

    SRZ/Mr. M – LOL, remember how cheap we were buying those for in March?!  Gosh, I though up 1,000% was good enough.  Excellent idea on the buy/write at $5.12, but I just like selling the Jan $5 puts and calls for $2.50 for a net $2.62/3.81.

    ERY/Pharm – As above, I offered for the roll at .30 first.  With a 3x ultra, being down .60 is just not a big deal with a month to go.  If oil keeps going up, I’d rather offset with ERX than pull these below $80.  Unfortunately, the only way to play oil short is with conviction.  You have to plan on going from 1x to 4x before getting a turn.  If you look at ERY as being 1x that’s down 50% at the moment, the sensible path is the .30 roll first as that’s 1.25x, then a DD at 50% off that brings you up to 2x but in the $11 calls.  If you repeat that, you could be in 4x the $10s at about net $1.35 and the $10s are currently $1.50 so we’re not off track yet and, when we started, the $10s were $3. 

    LTV/CTX – Oh sure, it’s not apples to apples but it’s certainly scary when you think that a bank like C has a $100Bn "fudge factor" in their numbers. 

    OIH/Yodi – See above to Sarah.

    PARD/Barf – We still like it but it’s bound to be hugely volatile.  The money is huge on the puts and calls, no reason not to do it as a gamble.  PARD at $6.86, selling Nov $5 puts and calls for $4.60 (I’m not kidding!) nets $2.26/3.63, over 100% if called away 30% lower in a month.

  122. Phil – BIDU – actually I asked the same question 2 days ago when BIDU was 405 -410 (not 425), thinking it might be good to take some off the table – your response below:
    October 13th, 2009 at 12:08 pm
    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…

  123. Earnings/Cap – Yes, if that trend keeps up, it can be very profitable to follow. 

    C 2011 $5 calls (bottom of our favorite vertical) now $1.02, usually $1.20 so a good deal.

  124. Phil,
    Thanks for DIS.
    I have a GLD collar with long Jan $100-$105 and short Oct. $100 for avg. price of $2.60 (callers). When I roll the caller, roll to Nov. $100 for $1 or  to 102 even?

  125. VIX got crushed, meaning nice profit on existing short strangles, but we’d need to work harder next month as the premium is less.  A nice market drop would turn the VIX higher, so a strategy is to sell OTM that is say 15% OTM, then we’d be prepared to roll them up 5% if the market drop 5%, i.e. the PUT would be 5% OTM at that time, betting that the market would hold at 5% down.  If there is no drop, we’d take the credit and run. 
    Now for the Calls, we can start selling November calls that are 8-10% OTM as it would be a stretch for the market to extend another 8% without a pull back.  Any pull back would kill the callers as more time has passed and there may be a week or two to November expiration.  This is one of the ways to collect a few percent per month, without guessing the market direction, but banking on the support that the market won’t drop 10-15% in a month. 
    Well, in one of the article posting in PSW yesterday (SCHWARZMAN SEES “MORE THAN GREEN SHOOTS”, JP MORGAN TROUNCES ESTIMATES): "JP Morgan actually lost money on the lending side of their business as well as their card services segment (the consumer is still very weak), but they made up for it in their trading and investment banking where they are helping to shower the market with secondary offerings and trading this Fed induced liquidity rally to new highs… ", so there are huge incentive for these banks to keep trading the market up (on low volume) as they don’t make money in their other businesses.  And they probably has a deal with Blackrock, because Blackrock said they would keep the bullish bias.  So we should too, but we have a 10-15% downside cushion on the indices.

  126. Thanks CXT. I have the 7.5s as you surmised – I got 1.40 for them and they are only .64 in the money last I looked – so any way I cut it, its a winner. As Phil suggests, I think I’ll let them come home to roost, let the calls expire (wow, was that free money!) and use those shares as an entry for a buy/write.
    Oh, and volatile is good.

  127. Phil,
    Forgive the suspension of rational thought, but if we get bullish do you have thoughts on the next level of resistance?  2%-3% up from here 1120 S&P; 10,300 Dow?

  128. bar/PARD – If you have the space in your margin, Phil’s trade is preferable. i actually just did a naked sell of the 5s myself at $1.45. (1/4 position). If the PARD comes in, I will add the B/W position.
    BTW – PARD was my nickname growing up. Can anyone name the movie it is from?

  129. I’ve seen some insane moves in this market; but COF from 36.70 to 38.40 on such bad default rate news is taking the cake !

  130. partha, here they are:
    SPX short strangles: sell 950 PUT, sell 1180 CALL for the conservative.  Recommended if you have just starting, as this gives more cushion to the downside.  Sell 980/990 PUT and 1180 CALL if you are bullish.
    RUT short strangles: 540 PUT and 680 CALL for beginners.  570 PUT and 670 CALL for the aggressive traders.
    Make sure you let us know which strikes you are at when ask questions, as we don’t post step by step moves on these.

  131. SPX / Peter D: I just got in and saw your SPX play.  To practice, I entered a tiny position.  I got filled for 1080/1070 puts for 3.65.  But 980 puts are now 3.80/4.50 bid/ask.  I have a limit order for 4.85.  Wait?  Or, I could go for 985 puts?
    By the way, how do I apply for Portfolio Margin?  Any downside with PM?

  132. Phil, wasn’t there a strategy on FAZ/FAS (??) when they got to $5.  I am asking because we should watch FXP and SRS with the way the are falling.

  133. Strategists have raised their S&P 500 price targets for year-end to an average of 1,050 – which is where the targets were at the beginning of the year, and is 3.8% below the current value.

    The junk-bond rally is missing one key set of buyers: Wall Street. Banks and broker-dealers that typically facilitate secondary-market debt are staying away, leery of holding a hot potato if the market turns again. The average high-yield bond has gone from 55 cents on the dollar to 91 cents since December.

    Xstrata (XSRAF.PK) drops its £29.2B ($47.4B) offer to merge with Anglo American (AAUKY.PK) into one of the world’s largest mining companies, five days before the U.K. Takeover Panel’s "put up or shut up" deadline. Xstrata can’t make another bid for six months without Anglo’s agreement or another company getting involved, and Anglo can proceed with any planned restructuring.

    So what do they call it when the mergers they celebarate on a Monday to boost the whole sector are pulled on a Thursday?   What a great scam, offer to buy others in your sector and then everyone’s stock goes up, then pull the bid for one of a dozen reasons and it costs you nothing, you get tons of free press and you even get to test the waters as to investor reaction if you do ever want to seriously buy someone.  

    C/Seaquill – Yep, good call, I’d go with the $5s at this point as you are buying another $2.50 for .55. 

    PARD/Allen – Good point on that, if you are buying PARD and they have a bad study, be prepared to be in them for a year or so before getting your money back (if ever).  I was attracted to them because a VC fund gave them a very nice open-ended commitment of $60M, not something I think they would have done if they weren’t 90% certain of the decision but that doesn’t mean they’re not totally wrong…

    DIA/Samz – No change, the Jan $102 puts 1/2 covered with Nov $98 puts, now $1.52

    Idiot/OldG – I don’t know about that but patience is not your strong suit…  8-)

    COF/Cap – I have to agree with Lindzon (1:37 article), "avoiding real estate and banking (where "prices are all rigged and broken")."

    BIDU/Concreata – Sorry, I’ve had so many people asking about BIDU I can’t remember all the time-frames and strikes but the concept is we had the conviction to ride it out and the gain at the time still had a huge amount of premium to win and we did not mind the risk of having to roll up.  Now, when we are only able to "win" .40 more, the risk/reward ratio is up by a facor of 10 (more really) so we don’t do it.

    GLD/Maxt – Well I’m not bullish on gold at all between now and Jan so I’d go with tight covers.   What’s your endgame though if you are horizontal to the callers?  Not much upside and the calendar is ticking…

    Note volume died and we went up, 130M at 3pm is stickable and we shure have gotten it with the Dow up 50 in the last 2 hours.  Oil closed at $77.50 and gold finished at 1,052 with copper at $2.86 (huge comeback off $2.78) and silver at $17.45.  GOOG better hit a home run tomorrow to support the Nas, who are up against the SOX today. 

    Spending on home remodeling is showing signs of stabilizing, according to a study by Harvard’s Joint Center for Housing Studies. Home improvement spending seen down 12.6% to $105B this year, not quite as bad as the 13.6% drop in 2008. Center sees a potential return to growth by Q2 2010, but notes distressed sales are discouraging homeowners from undertaking nonessential projects.

    OK, REALLY do we have to call this a green shoot?  We started in 2007 with  $134Bn in spending and it dropped to $118Bn last year and now ONLY fell to $105Bn so, unless growth is 30% next year, we are a while away from real improvement.  I mean really, come on…

    Cantor Fitzgerald notes that the Fed’s buying shorter-maturity debt that "will naturally run off," making for a built-in exit strategy for quantitative easing. The Fed balance sheet has more than doubled since the crisis began to $2.1T, with $400B of that maturing in one to four years.

    Next level/Mbaisley – I think we can just base off 10,000, looking for 10,250, 10,500 and 11,000 as key resistance points.  The way things are going, we should be there by next Wednesday….  8-)

    PARD/CTX – In a movie as in "howdy Pard?"  I think I saw that one…

    $5/SS – Yes, once an ultra gets that low we just buy/write them down to $2 if we have to.  That’s what we did with FAS them now (of course they split but still good). 

  134. Hi Phil so far I followed on the OIH but do not understand the 2.00 to roll up to 140.00 you are selling the calls so where do you need the 2.00 to buy what. Thanks?

  135. Paint Your Wagon with Clint Eastwood popularized PARD

  136. CGA/Gel – what month and strikes do you have on this buy/write?

  137. Phil,
    GlD, my goal is to use the money from the callers, assuming GLD stalls here for a while, to roll my $105 Calls down to $100 and then play it directionaly.

  138. Matsui Banking ; " We can no longer stem the wave of weakness in the U.S. dollar "  50 yen / $ !!

  139. Phil,
    GlD, my goal is to use the money from the callers, assuming GLD stalls here for a while, to roll my $105 Calls down to $100 and then play it directionaly.

  140.  ERY – very thinly traded options … they move the ask as soon as I place on order to sell Jan calls at 1.7

  141. Check out the 6 year old in a runaway helium balloon!!!

  142. OIH/Yodi – That’s like 3 moves from now, selling the puts to pay for the roll from the $135 calls to the $140 calls IF the other 3 things happen within that time period. 

    Clint/CTX – Oh, he was in so many great ones but I’m not sure the musical qualifies…  

    GLD/Maxt – That’s fine but keep in mind you’re losing $1 per month in premium in that position.  I’d roll the Oct $100s at $3 to the Nov $102s at $3 (even) and sell the $99 puts for $1 as you can roll those down to the Jan $93 puts even so no harm there and they give you more upside cushion.  Then you can spend $2 to roll to the March $100 puts which gives you time to ride out a dip (and you can roll down and adjust) or time to roll callers further up from you if gold takes off. 

    Matsui/JRW – That’s odd as the dollar is at 90.66 Yen, best level of the week. 

    ERY/GMC – Yes, you just have to put in a GTC order and be patient. 

    MSFT snuck up 2.5% today.  FAZ up 3% – that’s interesting…  SRS up 2%, odd sort of rally…

  143. BIDU looks like it’s attracted to 400 again this month. GOOG earnings make pin games way too risky right now, though. Will watch tomorrow.

  144. It’s not a 6 year old, it’s Sarah Palin’s political career!!!!!  Where’s Orson Wells when you need him :)

  145. fyi Just got a fill for $1.00 on some more of those C Jan 11 5′s

  146. picoplatin later this year for small-cell lung cancer, which would put it in direct competition with Sanofi’s blockbuster Eloxatin

    Read more:
    Bar/PARD -CXT trading strategy, is fine…re company. Picoplatin, their drug ,is a cytotoxic platinum compound   "pico" is a prefix denoting a factor of 10^-12 in the International System of Units. So a picometer is a millionth of a micron, or a thousandth of a nanometer. This is smaller doses of a  platinum derivative hence their claim of an  inherent safety improvement on an already approved  therapy. Market size ok on SMLC cancer but they will compete with Sanofi …the base drug a Platinum derivative. Still, this will produce side effects as do all cytotoxics…maybe a “less bad,” peripheral neuropathy is acceptable. The product is  an “approvable one based on previous approvals”…but maybe not a block buster. This could be enough to make them an ultimate takeover target, or just another me too drug/company. Most patients refract, fail their cancer therapies so there will always be a market. PARD’s other indications look more like low hanging fruit  “colorectal cancer,” which will respond to many agents and potential fall back targets if this one fails. That approach maybe good business, but sends a less than confident message.  Over all I would be neutral on the Company, but look at them to see how long it would take you selling puts and calls to cover your risk.

  147. cwan120,  I got a quote for $3.6 for the 1080/1070 PUT vertical from TOS just now.  My trade was executed this morning and I entered 3 legs at the same time for $1.15 credit.  For TOS users, you can enter 3 legs by choosing a Butterfly, then change to Custom, then change the Buy/Sell, along with number of contracts.  This way you don’t have to worry about fills for each legs separately.
    PM application, just email TOS.  They’ll send you a Test questionaire and a Disclosure form.  You’d need 3 years of option trading experience to qualify and a minimum $125,000 in account balance.  If you flung the test, you can ask us for answers on this board!  The downside to PM is that it’s a Ferrari and you can crash it at high speed.  With restraints and proper position sizing, you’d be doing extremely well.  For risks, the clearing firm has their hands on any Long position in the account, so if the clearing firm goes bankrupt, you might not get 100% of the long positions back.  This is spelled out in the Disclosure statement.  If you have shorts, there is no additional risk due to bankruptcy of TOS or the clearing firm. 
    PM margin is usually 2.5 times less than normal margin for large cap broad based index and 2 times less for other broadbased index and stocks.  This is when the shorts are At the Money.  So for positions that are 10% OTM, the margin is 5 to 10x less.  If you have the same position size as you have currently, you’d be unlikely to get a margin call again.

  148. Another deflation data point: Colorado – one of 10 states that tie minimum wage to inflation – becomes the first state to reduce its minimum wage. It’s not a big impact per person, but it could have a stimulative effect, possibly in housing.

    LOL – The Brits almost gave Maria a heart attack by suggesting that GS et al should be giving back 1/3 of their profits to the government since the government gave them that percentage to offset their losses which they then turned around and leveraged back into these record profits. 

    Balloons/1020 – Now you’ve got this song stuck in my head

  149. COF / Phil … good point !

  150. I don’t think the RUT is going to hold it… 

  151. Portfolio Margin / Peter D:  You said: "For risks, the clearing firm has their hands on any Long position in the account, so if the clearing firm goes bankrupt, you might not get 100% of the long positions back."
    Are you saying any stocks I own?  And SIPC protection no longer applies?

  152. ssdirk.. Re CGA… I have the March P & C on the short side

  153.  Phil/Oldgoat/Impatience……..Some observations:    I’ve studied the markets and how people trade them, for years.  I’ve studied myself the most in this regard.  A great enemy of the investor is impatience.  It takes TIME for many investment strategies to play out and yield a profit.  Witness the AAPL October 190 calls which I sold short at $5 a few weeks ago, then waited (patiently) for them to lose value to $1.20 when I bought them back this morning, one day prior to expiration.  You must make a plan, carefully, then be patient enough to let it play out and give you a profit.  This brings me to my second point:  As your subscribership increases, how are you possibly going to respond to every inquiry?  Have you thought about this?  And Phil, this is just food for thought.  No reply to this post is necessary.  :)

  154. IBM is AH today, right?  Here’s hoping for a "sell the news" moment so my 125 callers expire….

  155. Phil,
    OIH/Sarah – Too early in the cycle for me to DD.  On a first entry of a short call, I am more inclined to do a roll-up first, to 2x the $135s, now $2.90, which would put us in at net $7.70 and down 27% but with a $7 cushion before they go in the money.  If they cross over $130, then I would consider selling the $120 puts, now $2.50, for maybe $2 and using that money to roll the $135s up to the $140s and, if OIH goes past $135, THEN I’d probably consider a DD as that’s way past 100% off the bottom and another good resistance point
    I sold the OIH Nov 125′s for 5.75
    With OIH currently at 129, a 2X Roll up means: Buy back Nov 125 for 8, Sell 2X Nov 135′s for 3
    To me this sounds like I lost $2.25 on the first leg and got $6 in for the second leg.
    So on a per share basis I am in the green for $3.75 for 2X of the stock i.e $1.82 per share
    How do you compute that this puts us in at net 7.70?

  156. Phil / PARD – What do you think about selling the Dec puts/calls for 5.35 or higher? Or do you prefer the November?

  157. ssdirk – Re CGA…oops, it is March 15′s sold on the straddle

  158. Bought 100 shares of goog to roll the dice tonight.  Gotta do something..

  159. Good day Mr. Stick.

  160. Gotta love the stick! A person could make quite a living just buying the 2x-3x ETFs an hour or so before close…

  161. Inflantheman…just like marriage – it takes a lot of patience to make it work!

  162. There goes GOOG. Let’s see if it holds this time.

  163. Kid in balloon …. yikes !!
    GOOG … market likes
    IBM …. looks light … market no like.

  164. "For risks, the clearing firm has their hands on any Long position in the account, so if the clearing firm goes bankrupt, you might not get 100% of the long positions back."
    Now that is an interesting snippet. Any idea who TOS’s clearing broker is? On a point of detail, you are also indirectly exposed to the other customers of TOS’s clearing broker. If another customer of the same clearing broker goes bang the clearer is on the hook for it, and at least in principle they could go bang as a result.

  165. I’d put a stop on that GOOG now matt. Good job.

  166. Yeah.  Booy.  Too friggin ez.

  167. MAtt,
    get that goog ticket in iBM is a miss

  168. Totally being sold into.  Then again, it’s only been 7 minutes.  Since I can’t sell until 4:15 anyway.. what’s a fair value for goog to be trady at now?

  169. I will sell half at 4:15 ish and hold the other half to see what happens.. unless it continues to sell off.

  170. The House Financial Services Committee approves a contentious provision exempting banks with less than $10B in assets (and credit unions with less than $1.5B) from proposed on-site exams. "The 1.4% of banks that would need exams under the CFPA have 77% of all the assets and 74% of the deposits and they are the greater contributor to the crisis," says Chairman Barney Frank.

    OK, that makes no sense, if the smaller banks had more money I’m sure they would have lost more.  97 of the 100 banks closing this year were under $10Bn. 

    It’s become a mantra for banks to blame the subprime meltdown on "nonbanks," all those not-so-careful brokers and companies pumping up the bubble. Joe Nocera gathers what Chase, for one, was actually pushing in 2005 – and it’s no-doc loans and exclamation points.

    Holy cow, someone punched the buy button all of a sudden.  Didn’t help BIDU, they lost $400. 

    Impatience/Iflan – I agree and one thing I like about having this site is it gives me something to do while waiting patiently for things to play out.  If you just sit around staring at the wiggly lines all day, it’s too tempting to over-trade.   As to subscriptions, there’s different levels of membership and Premium members will always be limited so the majority of add-on members will be "view-only."  

    IBM/Eph – Yikes, that’s risky! 

    OIH/Oncmed – You didn’t lose $2.25, you sold the 2 $135s for net $3.50 ($5.75 credit less $2.25 spent to make the roll).  I added the loss as my obligation to the $5.80 in callers  to come up with $7.70, which is my net damage outside of cash collected but you can look at it as simply $3.50 cash remaining against the $5.80 value of the two callers so down $2.30 on the 2 calls at $2.90 each. 

    PARD/Trad – I very much prefer Nov because there is an excellent chance that you will get away with Nov expiration before the results are announced and that means you can collect ANOTHER $4.50 for Dec anyway. 

    GOOG beats but IBM not taken too well, I think we played those correctly!

  171. PARD – here is the fire water on them  = We expect top-line data from the SPEAR Phase III trial in 4Q09 with a possibility for a full data presentation at the EORTC/NCI/AACR meeting on November 15-19th.
    OGXI – look at that volume at 9:15 PST.  Someone knows something.  If you look a the Cougar chart (JNJ bought them), same thing happened a day or two before.

  172. PARD has been a real lesson for me. The sold options are just not decaying as IV skyrockets towards this event. I am wondering if this means we will need to hold through the event in order for the vol to drop out, as I had originally hoped we would be able to dump the options for profit beforehand. Fortunately it’s sized correctly ie SMALL.

  173. cwan, below are the text.  Feel free to ask TOS on this matter
    "thinkorswim, Inc. and/or Penson Financial Services, Inc. has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid. Accordingly, to the extent that a customer does not borrow against long options and margin equity positions in a portfolio margin account or have margin or have margin requirements in the account against which the long options or margin equity securities can be credited, there is no advantage to carrying the long options and margin equity securities in a portfolio margin account and the customer should consider carrying them in an account other than a portfolio margin account."
    "For the reasons noted above, a customer that carries long eligible positions in a full portfolio margin account could, under certain circumstances, be less likely to recover the full value of these positions in the event of the insolvency of thinkorswim, Inc."

  174. Steve, biomed positions tend to b hedges for insiders as much as traders…Long term protection and sources of income on less liquid assets.  You may be in this one until the Market moves enough to motivate people to sell for cash. Others wise you tend to ride these rockets into nirvana or the wall…
    OncoGenX is the old Sonus Pharma, a buddy is on their board, former CEO. They found oncology much more lucrative than being an imaging agent company. So many internal changes following many miss steps, that said, their lead product makes a great combination with docetaxel chemotherapy. Their previous work with docetaxel makes this a natural. So you have a company making a product that will extend the life of Big Pharma’s existing products, and possibly create new IP…They maybe on a lot of folks radar.

  175. Phil – Is the drop in IBM overdone?

  176. More biomed for thoes of you interested CRIS, AND OXB.L CRIS the company working on the hedgehog inhibitor, also involved with Dan Von Hoff, top onc,M.D.. in the US a nice new approach to cancer therapy. The OXB.L Brit company with very cool gene therapy approach to Parkinson’s. Google them worth long term looks. As always highly risky in this space.

  177. Phil
    I am no technician and just want your two cents on GOOG. Do you see this run up holding tomorrow? My expecatation is for tomorrow to trade the same as today , i.e. +-50 pts as the news will be mixed bag.

  178. Could someone who is more familiar with rolling things up 2X please explain this math to me:
    OIH/Oncmed – You didn’t lose $2.25, you sold the 2 $135s for net $3.50 ($5.75 credit less $2.25 spent to make the roll).  I added the loss as my obligation to the $5.80 in callers  to come up with $7.70, which is my net damage outside of cash collected but you can look at it as simply $3.50 cash remaining against the $5.80 value of the two callers so down $2.30 on the 2 calls at $2.90 each.
    Here’s what I have so far for OIH:
    I sold the Nov 125 Call @$5.75:           +$575 Cash in my account
    Currently OIH is trading at $129.
    To roll up 2X to the Nov 135 Calls:
    I buy back the Nov 125 Call@$8:        ($575-$800)= -$225 cash in my account
    and Sell 2 Nov 135 calls@$3:              $600-$225= $375 Cash in my account for 2 Nov 135 Calls 
    If all goes well and the 2 callers expire in Nov, I have made $375/2 = 187.50 per Nov 135 call ie net 1.875 per share.
    Is this the right way to think about this? I dont understand how Phil comes up with selling the two Nov 135′s for net $3.50.
    Thanks in advance.

  179. ETFs/Jrom – Yes, I bet you could back-test that and turn $10,000 into $1M with DIA calls since March.  

    TOS/Steve – They are Ameritrade now. 

    GOOG/Matt – Wait for Cramer at 6 I think.  He should be drooling over this one.  Overall, GOOG just justified a return to $600 over time.

    The market is now up 9 straight days, and XOM 10 (INTC went down today):

    Also a good chart:


  180. IBM/Rich – No, I think running the stock back to it’s all-time high in a clearly contracted economy is what was overdone.  I was a big fan of IBM at $85 and even $100 but over $120 is a bit much but this is always a stock you want to own long-term. 

    GOOG/Chakra – As I expected, they peaked out on Cramer at $548 and it’s very likely the give us our flatline into earnings, just to pin all the suckers who bought calls.  You never can tell with GOOG, though, depends how excited the global markets are about it in the morning. 

    $350/Oncmed - You collected $575.  You have a caller.  The caller goes up to $8.  You spend $226 (not $225) to roll to 2 $135 callers at $2.87 (not $3) each.  So where are you?  Essentially, you have $349 of caller cash still in your account and you have sold 2 $135 calls, which are now priced at $287 each.  So you have $349 in cash and owe $574.  If those calls expire worthless, you will make the $349 you have left in your account. 

    As to the other math, I don’t even know what the roll was at 2:29, when I was originally asked the question so don’t even worry about it.  I’m pretty sure all I did was take the obligation of the 2 calls at $2.90 each ($5.80) and added the cost of the roll ($1.90) and called that a total net obligation on that play of $7.70 AT THAT MOMENT.  So if I look at those calls now and think how much it will cost me to close down that trade, the answer is CURRENTLY $3.20 x 2 ($6.40) plus the $1.90 I spent to roll = $8.30.  I’m not running an accounting system so I’m not trying to reconcile it with the cash in my account, I just want to know how far behind I am on my current open position. 

    My broker screen shows a loss of 2 x .30 but it’s not very useful to me to forget about the fact that I spent $1.90 to get to that place so I look at it as a $2.20 loss on the existing position.  I don’t give a damn what’s in the account, that’s my money and I have no intention of giving it back to the caller if I can avoid it.  I want to focus on getting those callers to expire worthless but worthless has to include the money I put into the position along the way. 

  181. Phil
    "As I expected, they peaked out on Cramer at $548 and it’s very likely the give us our flatline into earnings"
    Your "flatlien" is $530 I presume?

  182. PHil
    Clarification on the BAC play from the other day:
    I believe it was buy Jan12 17 Calls; Sell Jan 12 22.50 calls ; a bull call spread. There was also selling the Nov 17.50 Puts and calls each month for income? Pardon my density on this one but I don’t get the strategy. Thanks,

  183. Flatline/Chakra – Yes, $530 would be ideal for the butterfly play but that’s why I paired it with the upside play too.  I thought long an hard about whether to hedge down but I just couldn’t get behind a bearish play on GOOG.  So the bull call spread kicks in as soon as we start losing money on the Oct $530s ($550) but having GOOG bop back down to $530 would still be better as we have 5 months to be right about the vertical and just 20 hours to be right about the Oct $530 spread. 

    BAC/Pstas – That’s just a bull call spread.  The net cost is now $1.80 and it pays $5 (up 177%) if BAC goes up 22% in 2 years.  That’s just straightforward targeting but why buy a single share of BAC for $18 when you can buy 10 of these spread contracts instead?  The 10 spreads will give you back $50 if BAC gets to $22 while you need a $32 gain (177%) in BAC to make the same money.  On the risk side, the 2012 $25/30 spread, which are $7.50 out of position, is still $1.  So a $7.50 drop in BAC would (theoretically) cost you 10 x .60 = $6 vs $7.50 (of course) if you owned the stock.  There is also the factor that a big drop in BAC would likely boost the VIX and help you maintain long value. 

    Of course, you shouldn’t use options to leverage risk like that, what you should do is say:  I have $2,000 to put into BAC and my target is $25 by the end of next year so I hope to make 39% or $800.  Since $800 is 177% of $450, that means you can hit the same target profit by risking just $450 on the leap spread, so you buy 3 contract for $540 and they will pay off $1,500 (up $960) if BAC gets over $22.50 and holds it.  Meanwhile, you can’t possibly lose more than $540, which is 27% of the $2,000 you were going to commit and we already demonstrated that a $7.50 drop should only cost you about $240 or 12% of your planned commitment.

    That’s the proper way to use options – not to increase risk but to DECREASE risk.  To keep more cash on the side to make adjustments and to diversify your portflio

  184. Oh – $100KP Update is up on the main page…

  185. Phil
    BAC- sorry, I should have been more specific in my question. I get the bull call spread. What I don’t understand is the reference to "sell 1x the monthly …… a $20 of collections ahead…..".
    So, my question is how does end of the trade , the selling the monthly straddle tie in to the bull call spread trade. That is the strategy I don’t understand.
    BAC/Peter – At the moment, divdend is .04 so not enough reason to collar the stock to me.  I’d rather go 2x the 2012 $17.50/22.50 bull call spread for $1.80 ($3.60) that pays $5 ($10) at $22.50 and sell 1x the monthly straddlle (Nov $17.50s are $2.30) as I doubt BAC jumps $5 in one month and, even if it does, I make $6.40 on my longs so I don’t mind giving the caller $2.70 more than I collected.  Meanwhile, there’s only $3.60 at risk on the long side and $20+ of collections ahead and, if it’s put to you, it’s still cheaper than buying it