3.7 C
New York
Thursday, December 1, 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

Phil:
I always look at earnings projections, I prefer to set up a trade 1 to 2 weeks before earnings reporting, sometimes only a few days before reporting,
for bullish plays: buy stock or sell puts ??
for bearisk plays: short stock or sell calls ?
What is your macro-view about this strategy ?

Hi, Peter D & All,
Following Peter’s discussion on Portfolio Margining earlier this week, I contacted TOS about applying for PM.  They sent me a test that I have to pass at least 16/18 (>= 16 correct answers to 18 questions).  Whoa, that’s a pretty high mark!  I don’t recall doing that well since kindergarden 8)
I google searched and found the identical test questions at:
http://speedtrader.com/forms/PortfolioMarginTest.pdf
 
I studied REALLY hard and filled out the answers.  Before I send it to TOS, can Peter or someone help me?  You can post the correct answers here, like (1) A; (2) B…  Or, if you insist on private communication, my email is cwancalo at gmail dot com.
Thanks!

AMZN; what is interesting to me is that the 90, 95 & 100 puts for November have held value and even increased in value as the day has progressed.
 
So either they were mispriced earlier; or at some point this bitch will start to drop.
 
Or I am delusional.

Phil
Do we have any VZ plays towards earnings?  I may have missed your earlier recs?

Good oppty to sell some puts if you are so inclined.

Phil,

I am long Jan 11 FXP $5 calls – what do you advise selling against them if anything? Thanks

Nice all!  I go to meetings, come back and my whole screen is red (didn’t sniff any GLUU…I mean glue today, but my eyes are bloodshot!)  ITMN 12.5 Dec09 P – trying to sell a few for 1.30. 

Please can some one explain to my what is it with TOS normally stands for Terms of Service here we speak often about it.  Does not make sence to me Thanks

ITMN – Also trying to get the 10/12.5 Apr10 spread for 0.9.  For 5 contracts $450 risk, $800 payout.

Great timing on this sell off in the dollar

CAP/AMZN puts – does put/call parity mean that huge demand for calls will also drive up the price of the puts?

 OIH is at the bottom of its range over the past few days. I know how bearish you are right now, Phil, but do you have a good, conservative, bullish options play for this?

Come’on Phil…there is a little gold there in that Kindle.

Yodi – TOS is a broker, they are called ThinkOrSwim

Cap… How are you playing AMZN over the weekend ? Thanks

Thanks stevenparker

phil,
you are right on re the profit bump amzn realized on the kndle but you have to realize that  ‘it just doesn’t matter" !!

PSQ – Phil I have the Jan PSQ 50’s from the 100KP and actually we added in member chat so I have 1.5x for net 3.25 now $1
I am tempted to roll them down to Jan 45’s and sell the Jan 50’s for net  debit of about .60 – is it worth it?

There maybe some gold in them that kindle.. but not like ye olde iPod.  There really isn’t a substitute for an iPod.  Where there is for the kindle.. a real book.  I will NEVER buy one.  And it’s not because I don’t read.  I don’t.  Unless it’s in a newspaper or on a computer screen.  But because I would never curl up with a kindle.  Ick!  For alot of folks, there is no substitute for a real book.. just like there is no substitute for some for a real newspaper.  Add to that the fact that most folks don’t buy books and you have another pet rock in the making. IMO.
 
I will take a shot at shorting AMZN at the close.

Thanks Phil that explains it very well I think I have not ever seen a stock like this going up by 24.45 in one day something is crasy.

Let’s all short it together Matt, maybe we can become market movers….offer ’em a nickle!

BOY ! This day really stinks… That bear that came out of the woods left something nasty behind.

newparadigmz – Now I’m going to be depressed all weekend. 🙁

phil,
the mkt would like to break down but afraid of the possible stick! wounder what would happen it was a no show?

Looking to sell a small number of SPY 105/110 Dec strangles into the close for the weekend decay. Not getting too aggressive yet though, and happy to be in a lot of cash. I’ll sell the puts first and then sell the calls AH in the expectation that the SPY will catch a bid after hours.

Phil,
So 50/50 over the weekend ?

DIA  What mattress covers are advocating…sell more on this dip? 

EricL, you can sell calls (trade options) AH? I thought you can only trade stocks
 
anyone looking at UNG?

If we keep plummeting I’ll go with 105/109s.

All I’ve got to say is if we get another day like yesterday on Monday I’m gonna go nuts.  I mean how could the top not be in with today’s action?  A total sell into the news event.  It’s been like that all of earnings so far.  The up days have come on nothing.  Yesterday it was 3M and Travelers?  C’mon!  We’ve sold off on all the days with marquee names reporting.  I’d say be the farm but these mother f-ers f so much with investors who try to use logic that they don’t know if they’re cumin or goin.  Seriously, how do you explain that BIG FAT RED CANDLE IN THE RUT on today’s news other then to say the top is in for now?
 
Someone tryin splain it to me…

lynn, you can on indexes like SPY, but only until 4:15.

Tell me how your REALLY feel Phil!  LOL!  I don’t play AMZN, GOOG, AAPL…too much for my nerves.  Biotech is much more fun!

newp, thats the price we pay for progress (they) we are actually paying less due to China taking the lead in manufacturing all that garbage we buy from them…sad… would like to know if China has had a rise in Autistic children which is becoming prevalent in this country, some say due to pollution

They def dont want a close below 1077 on the S&P

hi phil,thoughts on IDCC possible put write?

KINDLE/Phil
The price of ebooks for the Kindle is almost the the same cost as buying the real thing.
SuperFreakonomics
Kindle version:  $12.95
Hardback Book:  $16.47
For a difference of $3.50, I would rather have the paper version.  I can then loan it to a friend or sell it used.  I only now purchase books on Kindle when: 1) I need it RIGHT away (rare), or 2) I am traveling and don’t want to carry the extra weight.
For Kindle to be a huge success for Amazon they will need to sell content, not Kindles.
Either Amazon is getting too greedy on the kindle book pricing, or else the publishers are squeezing them too tightly.(unlike Apple who negotiated a terrifically  low price for music content with the record labels, which really made online music purchasing a volume business)

AMZN: Phil, are you suggesting the 2011 vertical (100/120 calls) as part of the 100KP? If so, how many do you suggest? Right now I am short the Dec 110 calls as you suggested and I am trying to learn patience….  🙂

 MATT – Look at the 20 EMA on the daily charts for the NYSE, DIA, SPY and QQQQ. We are still in a short term uptrend. I have sufficiently shut off my brain to the fundies and cannot get too bearish until the technicals REALLY tell me so. This still could be a short term retrace.

Kindle lets be serious people you can take 1000 books with you when travelling

Here comes the stick.

Phil
Do you have a write-up on Implied Vol or Vol before earnings that I can read? Even any online source is good if you have one. I just want to learn a bit on premium and the collapse of such.

TOS PM Test / Phil: Oh, no, no, no.  It’s not cheating.  I just want to know what the correct answers are.  I’ll send in the test the way I filled out. I swear 8)

I think the action today on AMZN for shorts was almost a perfect form of torture.  Water slowly dripping up hill… all.. day.. long.
 
Couldn’t short it.  Scottrade didn’t have any shares.   I had tried earlier too.  Can you believe that over the course of the day people weren’t closing their shorts and thereby making them available for other daredevil folks?  I think this was a serious squeeze placed on the shorts today.  I think it will all be better on Monday.

Kustomz lol we’d have to be travelling a long time to need 1000 books. i don’t get kindle. I take a netbook with me when I travel. If I *need* a book I can download it there. My netbook also makes phone calls, plays movies, charges my phone, provides internet access, contains all my contact details, and let’s me play games.
Maybe I am a luddite (happens a lot) but I don’t see the purpose in a $259 device that can only read books. If they gave me the reader for free I would consider buying more content from them though…..

Well Steve Bozoz or is it Bazoz i can never get it right,  thanks you for being in the minority

Stay Connected

159,614FansLike
407,691FollowersFollow
2,140SubscribersSubscribe

Latest Articles

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