3.7 C
New York
Tuesday, November 29, 2022

Subscribe

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

 

179 COMMENTS

Subscribe
Notify of
179 Comments
Inline Feedbacks
View all comments

lflantheman – good observation on not having naked shorts on earnings.  I used to do calendar spreads for IV crush that gives a 15-20% cushion either way when VIX is much higher.  But now VIX is at 22 that we don’t get a big cushion any more.  So I didn’t play any earning this quarter.  Well, if VIX is lower, we might even consider buying premium for earning plays!

100KP AMZN – man am I ever glad I bought those $110 calls!  I’m actually a little positive on delta and gamma at this point!

Phil,
With last nights earnings and todays news I would have thought "they" would have gone for it from the open. Do you expect a stick sometime today to try to retake our levels or is the selling volume too much for "them" ? 

phil,
when compared to sears (the orig mail order catalog company) amzn has half the sales, twice the growth, and 6% of the employees while having comparable gross margins. from that standpoint it is not a bad stock.

phil,
now i suppose you are going to point out to me that amzn’s mkt cap is 6 times sears! and i would have to reply who gives a shit about such details, they will grow into it in a ‘few’ years!!

Phil,
VLO up 3.73% oil down .73% should we go long USO /OIH? (Valero rule) 

magret,  VLO is up on an upgrade, but OIH might be entering a nice range for premium sales. I suspect that this pullback in the oil sector is part of a developing bull flag that will lead to much higher prices, unfortunately. The safe thing to do would be to wait for the pattern to fully form, but I’m long OIH calendars here.

phil,
was that a ‘jam packed store’ clip on cnbc during the msft interview? i saw two people and one was obviously a store clerk!

Phil on FXP buy the 7c and sell the 8c ?

Phil, since i can’t write and can only buy…any one sided plays??  I’m tired of sitting on the sidelines and watching you guys make money 🙂

BIDU pulling another jam the shorts job.
 
This probably means that they’ll sell off after earnings.

Gotta go …. need to go check out the MSFT store !
 
Nah, just kidding.

Phil: looking for a trade, stock, options, as these companies are expected to report Monday improved earnings:
LO, BIDU, EQIP, PCH.
what do you recommend ?

 Currently holding onto TZA naked Nov 11 puts, SRS 9 puts, and unfortunately CAL naked 13 puts …. any adjustments to this into the weekend ?   I really have nothing on the long side to offset the TZA and SRS plays in the short term.

Phil
I sold 125 contracts of the TBT Mar 45 puts. Would you cover  or just set a stop order ?

Cap, i can’t believe that people waited in line "all night" to go to the MSFT store.  Unemployment in AZ must be must higher than the advertised rate.

Phil: how many days before earnings reporting will you have courage to suggest a trade ?

Phil: ok, its ov er weekend,
what about Tuesday, Wednesday, Thursday, Friday, all next week:
CEPH, FPL, FSLR, SEPR, COCO, LZ, DUK ?????? All up on earnings expectations.

Hi Phil, do I have to wait till I finish reading/digesting the options trading book in order to understand what you are saying here?
eg SRS/Jrom – Lots!  Buy/write on stock, the current puts sold short, long calls and long bull verticals.  $9.40 is my buy point on them.  The most sensible way to play is either selling Dec $9 puts naked for .85 or the Apr $3/5 bull vertical for $1.20.
out sold short=buy long call, right? can i just buy dec $9 call?
 
eg #2, fr the email:
"NFLX went crazy and we sold 6 $52.50 calls for $1.40 ($840) and bought 4 Jan $55s for $1.70 ($680) and now we have the $52.50s at $3.90 ($2,340) and the Jan $55s at $4.10 ($1,640) and we have the same kind of squeeze as AMZN but here we need to roll to 2x the March $60s at $3.60 ($2,160) and that allows us to roll the callers up to 10 Jan $60s (now $2, $2,000) if we have to but, right now, the $52.50 callers still have $1.50 in premium so no need to worry.
if you sold $52.5 calls, why u have $52.5 at $3.9 since you got a debit from selling the call already.
I am only set up for level 2 option trades in etrade. I don’t think I can follow these recommendations
anyway to play along if I only have level 2, meaning I only could buy or sell options

 Phil,
The BIDU Mar Strangle is not BOLD, too risky? I thought the range is pretty wide.

 Phil
 
I’m in the DIA Jan 102’s and up on them – no/half/full for the weekend? How’s that for being undecided?

 Hey Phil,
Got killed on the NOV 16 puts in WFR this morning. Rolled to 2x Dec14 for a small credit. I cannot tell why their acquisition news was so terrible. Should I stay as I am? Get out?

 Phil
 
BTW – did you get my email?

TBT/Phil…. Thanks!…. Eventually they will get to 60, but hell may freezing first. I’lll just roll & wait.

gambling on ebay dec 29 calls.

Freddie Mac said on Friday its mortgage investment portfolio grew by an annualized 7.3 percent rate in September, while delinquencies on loans it guarantees accelerated.  The portfolio increased to $784.2 billion, for an annualized 3.4 percent decrease year to date, the McLean, Virginia-based company [FRE  1.35    -0.02  (-1.46%)   ] said in its monthly volume summary.

The portfolio size increased on a year-over-year basis. In September 2008, the portfolio was $736.9 billion. Delinquencies, which increase stress on the company’s capital, jumped to 3.33 percent of its book of business in September from 3.13 percent in August and 1.22 percent in September 2008.

The multifamily delinquency rate accelerated slightly in September to 0.11 percent from 0.10 percent in August. A year earlier it was 0.01 percent.

Agrium warns its profits will decline 95% in Q3. They are taking a page from APPL, setting expectations low for 2010.

DIA Cover – Phil I sold a half cover of the DIA NOV 100 P, should I buy back, add another layer.  Thoughts into this weakness?

That Alan Meltzer article in the WSJ was excellent.  One can only fantasize at this point that someone will actually step up and lead in this country for the people.. not their banks.
 
Took my 3.5% profit on shorting COF this am and called it a day.

C option IV is finally on the rise after falling for weeks. I think it may yet go higher, but I’m starting to re-build my position by selling Jan 4 and 5 strike straddles in a 1:2 ratio, which is a fairly delta neutral position at this price.
 
Since you’re playing for pennies on these, you have to do them in scale. I think of them in terms of 10 groups of 3 (i.e., 30 short straddles total, 20 5s and 10 4s). A 10 group of 3 uses about $2300 in margin in a non-PM account, but of course you should have some extra cash reserves in case the stock makes a large move, so say at least $3K margin per 10 group of 3. You don’t want to hop in and out of these either because commissions will quickly eat into profits, but you can easily adjust the delta later if necessary by either buying back a few 4 calls or 5 puts as needed.
 
I was short 90 of these straddles into earnings, and they were losing (= me winning) between .02 and .11 each every day for like 9 days. That was the closest I’ve come to having to a Citi ATM machine of my very own. Since earnings are far away, any gains will likely come more slowly, but it’s still a nice trade IMO. However, make sure you know the risks. Again, I’m starting small today, looking for even better prices later.

Hi, Phil, RE MSFT:
Just a few weeks ago, when MSFT was $25 or so, you weren’t quite interested in MSFT.  Earlier yesterday, there were discussions about what a lamb idea it was for MSFT to open retail stores, and nobody seemed to like Steve Ballmer.
What made you changed your view about MSFT, and turned bullish?  What’s your price target?
Thanks!

UK
This is the problem with zero or near zero interest rates, economists are scratching their heads going over all their little equations trying to figure out where the flaws are in their formulas. Art said it today, (velocity) there isn’t any and money is being horded by the banks, growth requires spending (credit). Banks are using the money to bolster balance sheets and take risky bets on the markets.

 

Phil,
I have a BAC November short strangle with 19C & 16P sold at $1.25
I’m considering taking out the strangle (at about .72) and selling the Nov. $15Putters for about .28.
Would appreciate your comments. (& yes, I know I passed on 80% up on Wed.)

There’s some amazing symmetry to those UK GDP numbers. We are at 100.7 of GDP level in 2005 and the FTSE 100 is at almost exactly the same price it was in Oct 05. Proof that fundamentals ultimately win out?

Phil,
 Had sold RIMM Jan-2010 $80 puts at 7.5 and $70 puts at 3.8 .. Both are now ITM.  Advice on how to roll ?
I do have the RIMM bull spread for Mar ($55-$65 calls) as you had recommended a while ago

Phil
How do you like the CYOU Bull PUT spread SELL NOV $34 and BUY DEC $32? They are reporting on Monday AM.

AMZN…..Continuing up, as expected.  Very high volume. I won’t short it until it surpasses 120, which I expect will be Monday or Tuesday.     

Would you believe I’m the G12 rep on my block?
 
 
BWHAHHAHAHAHAHHAHAHAHHAHA!

Hi Phil your latest on AMZN buy 2011 100c sell 120c aswell sell the dec 110 call I still short 5 Nov 105 calls what to do with these are now  14.17 minus 2.23 (I received) against me thanks for the advice

Stay Connected

159,636FansLike
407,692FollowersFollow
2,130SubscribersSubscribe

Latest Articles

179
0
Would love your thoughts, please comment.x
()
x