15.5 C
New York
Saturday, October 1, 2022


Frothy Friday – Churn Baby Churn!

What a wild week we are having!

We dumped our shorts as planned yesterday morning, getting a very nice dip at the open and my 9:36 Alert to Members was even titled "Take Those Short Profits!" and our upside targets were set (as they were in the morning post) at: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623.  Where did we finish?  Dow 1,081, S&P 1,092, Nasdaq 2,165, NYSE 7,182 and Russell 613 – so a bit short of all of our targets but not bad considering we were opening 167 points below that on the Dow so perhaps I can be forgiven for a 6-point miss

If knowing about massive market moves in advance would be helpful to you – please consider subscribing to our service.  If you are already a member and know someone who might like to try our newsletter, you can send them a free trial subscription using this link and you can earn yourselves discounts on membership renewals for each friend who opts into the free trial.  We have over 19,000 people on our Newsletter list now and I want to see if we can break 30,000 by the end of the year now that our new mail server is up and running (we've been on hold for a month as we filled up our old server!).  Your help in this matter would be greatly appreciated.  PSW Report Members can extend their subscriptions at no cost simply by referring others to a free trial report – my little experiment in viral marketing…

Even our free PSW Report readers would have done great just following the trades we had in last week's Wrap-Up (Report subscribers get to read our articles without the 48-hour delay).  We had GS Nov $210s shorted at .87, now .35 (up 60%), CERN short $85 calls at $4.15, now $3.10 (up 25%), ISRG Apr puts and calls sold for $39.20, now $36 (up 8%), PARD at $6.87, now $7.35 (up 7%), NTRI at $18.60, now $19.15 (up 3%)… 

We had other trades that are still in progress.  ICE notably burned us so far, but we rolled them up and shorted them some more yesterday  (now $106.56).  We've had a wild mix of short and long trades this week as we TRY to get more bullish on the markets but yesterday's run-up had us reloading Thursday's successful short plays as that set made 20% or more across the board in less than a day.  Note on David Fry's chart, that we bounced off resistance but a test of the 50 dma on the S&P still seems likely

We have plenty of long plays we like if we cross our breakout levels but our goal is to keep the emotions out of the trade and just play our levels.  That's why we pretty much sat on our hands through most of yesterday's trading.  We took a long position on SRS as we feel the REITs are way overpriced and we added more bullish TBT plays as that is our second favorite long-term play.  We did go long on TASR and short on COF (bad idea!) and POT (good idea!) and a BMY hedged play caught our eye at 2:30 but at 3pm we realoaded short plays on the DIA, FSLR, MS, AAPL and longs on SRS, TZA and CAL as the run seemed way overdone. 

At 3:22 we looked at 8 earnings plays and we'll see how they work out in the Weekend Wrap-Up.  Thank goodness we hedged AMZN and it will be interesting to see how the 5 Jan $100s at $4.80 /4 Nov $95 at $4.55 spread will work out.  I very much regret not taking our short AMZN play off the table in the $100KP and that is going to require some serious adjusting but, if we don't break over our watch levels today – I don't think I'm going to be worried about the spike up with 4 weeks to go until option expiration day. 

AMZN did indeed have amazing numbers and this $100 stock is well on its way to earning $2 a share this year – Booya!  In fact, if all goes well next year, AMZN thinks they may make $2.50 per now $107 share.  Wow!  That's an ROI of 2.3%, almost as much as you can get from a 12-month CD in the bank!  As I ranted last Monday, the concept of Risk has gone completely out of this market – as evidenced by the VIX dropping to 20 this week despite the fact that this has been the most volatilie week in the market in quite some time as we went from 9,940 on the Dow Monday to 10,100 Tuesday, back to 10,000 Wednesday, down to 9,940 again on Wednesday and then opening at 9,920 on Thursday morning before running all the way back to 10,100.  And we used to make fun of the Chinese markets! 

We'll see if the combined forces of AMZN and MSFT can take us over our bullish breakout levels today.  We loaded up with bullish plays from our Watch List as well as during chat this week but, sadly, all our big winners have still been coming on the bear side as these little moves up turn out to be just that – little.  Our earnings plays for today were:

  • 4 AMZN $95 calls sold for $4.55, buying 5 Jan $100 calls at $4.80
  • DECK Dec $100 calls sold naked for $3.10
  • 6 NFLX $52.50 calls sold at $1.40 against 4 Jan $55 calls bought at $1.70
  • SPWRA Jan $30 puts sold short at $2.40
  • SPWRA 2011 $45s for $4.20, selling Dec $35s for $2.05.  This is a spread where more money will be put into the longs if they do well and otherwise we roll down to establish a long position.
  • WDC Dec $34 puts sold naked for $1.10 (STX did good). 
  • CACH at $4.90, selling June $5 puts and calls for $2.50 nets $2.40/3.70
  • MSFT 2011 $22.50s for $5.45, selling Jan $26 puts and calls for $2.60 nets $2.85 on the $3.50 spread

As with the Tuesday trades we looked at in Wednesday morning's post, the idea is to make a series of small bets where we cash out the winners and work the "losers" into longer-term spreads as none of these positions is something we don't want to stick with long-term (unless the earnins report changes our fundamental outlook).  So far, starting with $1,000 in each trade we have STX even but on track, SONC down $200, TUP up $350, APD even, CAL was already moved to 2x the Dec $13 puts but we'll call that down $800 and MS is up $875 so a net of up $325 (5.4%) on $6,000 at risk for 3 days.  Our biggerst loser, CAL is a stock we would be happy to own 160 shares of at net $11.80, which is our current risk on that play as we rolled the Dec $15 puts to 2x the Dec $13 puts

By diversifying your risk like this, you can cash out, for example, SONC, APD, and MS for $3,675 and leave STX and TUP to mature (as they are on track to do very well) and put $1,000 back into CAL (which we did) to end up in a position (the Dec $13 puts sold at $1.20) that can become a stock position we DO want to allocate capital towards.  The leaves us wit 3 spreads we REALLY like and $2,675 of our cash back to reload for the next set.  This is how you can build a virtual portfolio of good spreads – take small shots at these earnings plays, which pay us very good premiums, and then, AFTER we have the facts from the earnings  reports, keep the good ones and get rid of the bad ones. 

Asia had a very nice morning with the Hang Seng up 1.7% and the Shanghai up 1.9%.   The Nikkei was flat and the movement of all 3 was the usual afternoon stick-save nonsense but we're bullish now so we'll pretend that it's normal and not dwell on it.  There is no news in Asia – they are rallying because we are rallying and that's about it.  Europe is more interesting as they are up 1% (9am) DESPITE a HUGE miss in UK GDP (the World's 6th largest economy) as the economy there SHRANK 0.4% vs the +0.2% expected by economists.  Of course, a 300% miss is nothing unusual given the quality of the people they have forecasting the economy and, even as I write this, our Forecaster-In-Chief, Ben Bernanke is doing a song and dance on TV trying to tell US investors to not worry and be happy

"The third-quarter [gross domestic product] data are a real shocker and desperately disappointing," says Howard Archer, chief European economist at IHS Global Insight in London. Going forward, the U.K. economy faces significant hurdles to sustained growth. Unemployment is at 7.9% and in early-2010 the restoration of value-added tax to 17.5% from 15%, an increase in a social security tax and an increase of five percentage points to 50% in the income tax of the highest earners will couple with a program of spending cuts that will take money out of the British economy.  Underscoring how painful a reduction in government spending is likely to be, Friday's figures showed that the public sector had been the only area of the economy with any life, with growth flat for the quarter after a decrease of 0.2% in the previous three months.  "It is becoming increasingly clear that the recovery, when it does begin, will be slow and bumpy," said Hetal Mehta, an economist at the Ernst & Young ITEM Club of economic forecasters.

So, despite the urgings of Mr. Bernanke, I do remain a bit skeptical of the rally but, like a good little mindless bull – I will keep my promise and initiate some more bullish trades if it looks like we are going to hold our levels for the day.  MSFT reported an 18% drop in profits and are being treated like they invented the IPhone or something and AMZN, who did invent the Kindle at least, have gained $8Bn in market cap since yesterday's close – pretty good for a stick that was less than $35 on March 9th! 

Since we are already short the Nov $95 calls, our most likely play will be to sell the Dec $110 calls, prior to rolling the Nov $95 calls up to the same spot, creating a 2x short position at the Dec $110s.   We may also choose to sell puts if we get a good price so stay tuned in member chat for the adjustments. 

Let's not go crazy today, we need to hold our levels on strong volume and then it's the weekend anyway so we're probably going to try to be 50/50 into the close anyway as it's not possible for us to see a sustained hold of our levels until Monday.

Have a good weekend,

– Phil



Notify of
Inline Feedbacks
View all comments

new …to Phil’ stock world…..I am short AMZN……from 90 ….and shorted today…..Reminds me of X steel and the coal stocks last year

I don’t know about Monday Matt, but I agree that AMZN was a nasty short squeeze. I’m almost certain big trading desks were pushing it up hard all day knowing they would force short covering — we’ve seen this all year. It will probably fall just after the shorts finally give up.

ok Phil, market closed now. I just don’t understand why I can’t just buy SRS, FAZ, TZA calls if I expect market selloff. I know your way of doing spreads and straddle is more conservative and safer as its not just directional. However, with my status at Etrade L2 temporarily, I still hope to be able to use options to profit…
so if you can help me out to explain those 2 examples I asked, it’d surely enlighten me greatly

call gs on shorting amzn. they will do them naked! all you have to do is promise to bring in your shares in about a week or so (wink wink) and have  $1B or so in the account.

Selling the SPY calls here on this little run. Phew, finally done for the week. Wild.

What we saw today w/ AMZN was ridiculous.
You would think they cured cancer or something, instead of selling a few more low margin electronics and books.

shorted AMZN earlier today as it hit 113/114 as did many. Good report but it wasn’t THAT good. Returned to office a few hours later and WTF……who is buying it up here? Even on a bad tape it rises…….nice.

OMG!  What an AMZNing day!
I was out this morning.  By the time I logged in, AMZN was 118.  I just couldn’t resist on shorting it.  But instead of selling naked calls, I went for selling Dec 125/130 (selling 125C & buying 130C) for 1.50 credit.  My profit is limited to 1.50, but my downside is also limited to 3.50.
I’d rather sleep like a baby than sweating like an adult !

roth87, thanks.  I’ll check it out.  With AMZN up 26.8% today NOTHING would suprise me.

100KP on WSS
Originally WSS showed open positions, completed trades and  open orders.  Recently it is only showing open positions and trades.  Is there a way to display open orders??

 Phil:  I sold a substantial number of naked AMZN calls today since the price action seems insane.  I sold Nov 130s at $1.42, Nov 135s at $.675, and Nov 140s at $.4. I need to establish spreads both to protect myself and to use up less margin.  Since there are no Nov or Dec strikes above 140 how do you suggest I do this?  (Regrettably, I also sold some Nov 115s yesterday before earnings at .4 (these are now $7.6.  You suggested  earlier that I sit on these until expiration and then roll once the premium has been eaten up).  Any thoughts would be appreciated.  Thanks.

Thanks for the Vol article. That will make my weekend reading. A second request, do you have anything on when to use a trail stop or trail stop limit when we are racing to the sky with an entry. I am finding it difficult when spreads are involved. Thanks.

AMZN….For all of you guys under 30, just to put this AMZN thing in perspective.  It ain’t the first time this stock has done what they did today.  Pull out your MAX chart and note that AMZN was about $1 in 1997, and by mid 1999 it was $100.!!  Some of us rode this phenomenal ride on this stock.  I bought it myself at $13 and rode it to $100.  As I’ve said before on this site, I took a small portfolio from about 50K up to about 400K in 18 months, largely on the back of AMZN.  So am I surprised by today’s action?  Yes?  Am I shocked?  Uh, no.  I’ve seen it before.

Iflan, those were the days!  But the Kindle is not a game changer as AMZN was when it first opened it’s virtual doors with the anticipation that it would close many doors in the brick and mortar world.  Not sure that it has lived up to that hype even today.
Whoever makes hand sanitizer is going to have a blow out quarter next time.  Our office is about out and the manager said Staples has a backlog on it for a week due to demand.  Who makes Purell?  Btw, in  a pinch it’s also good for a snort!  Pharm, you should try it!  😎

matt….those certainly WERE the days.  Back then my wife told everyone she saw that I was a very very smart investor.  Truth was almost anyone could buy a dot com stock and make bundles of cash.  There were very few naysayers at that time.  98% of those I saw on TV discussing the markets thought it would last forever.  Only a few knew better, and said so, some putting their careers at risk by ‘talking negative’.  But eventually it all imploded, as you know, and many of those ‘smart investors’ just became what they were before….average people trying to learn how to make money in the markets.  But it’s because of that experience, and more recent experience in the markets, that we know it can all turn around very abruptly.  No, AMZN is not worth what they were willing to pay for it today.  Some of us know that,  and we will profit from the retraction of the stock in the coming weeks.

Amazon’s price went up all day despite the fact they cut the price of the international version of the kindle by $20 to combat the the Nook. I don’t know what people are smoking but I think I might want some. Especially since my brain is now officially off.

I hate these F-ing computers !
Its all about the options; the prop desks at GS etc made a killing on AMZN today.

  Any comments on Elan? Is Tysabri dead?

cwan/PM test – I sent you an email

Japar – good question, and I am not at liberty to guess on the FDA decisions, nor do I agree with some of them.  You die with MS, you die with the drug, maybe a little faster with drug as there is not cure for MS  –  take your pick.  Mine would be drug, but that is me. 

106 less banks this morning.

For a naked intra day trade which gives the most bang for the buck, otm, itm or atm? If otm or itm how many strikes away from atm?

Capmark Financial Group (one of largest CRE lenders) is getting ready to file for bankruptcy
Has the house of cards started to fall?

Stay Connected


Latest Articles

Would love your thoughts, please comment.x