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Monday Market Movement – Pattern Recognition

Here’s a scary chart pattern for you from our Chart School:

Elliot Wave Trends points out that the S&P has fallen into a fractal patten that may be repeating the behavior of the great drop of ’08, right here, right now.  Of course patterns do SEEM to repeat themselves all the time – until they don’t – but it will be interesting this week and next to see if we follow-through with a flatline, followed by a drop to 1,000 from which we falsely back to 1,050 and then plunge to our doom as Santa foresakes us and we run all the way back down to our lows.

That’s where they lose me.  Charts are fun and all but I see no basis for going back to our lows as our lows were ridiculous and caused by panic-selling in a doomsday scenario.  Hard to imagine things will fall apart that badly between now and Jan earnings although I do believe we will have a rough time — just not that rough! 

Economy barrons surveyBarron’s surveyed Money Managers this weekend and they don’t seem to think things will be rough at all.  52% of those surveyed think there is NO WAY we will have a double dip recession.  76% believe that the decline in corporate profits has ended and 68% believe our GDP wil grow more than 2.5% in Q4 while just 10% believe it is possible for commodity pricing to fall in the next 6 months.  You know what they say about when everyone is on the same side of a bet of course! 

These are the people we give our money to – the biggest and "brightest" of hedge fund managers who control over $1Tn of assets under management.  Favorite stocks in the group are: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LEG and QCOM.  Stocks that are considered overvalued are: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO.  Ony 7% think Asian stocks are heading lowed, just 1% less than 8% who feel oil is going down; 92% don’t feel oil will go down

Everybody likes Tech (just 0.9% think it will be the worst performing sector) and nobody likes the Financials (22.5% think it will be the worst performing sector) followed by Consumer Cyclicals (20.7%) and, oddly, Utilities (15.3%).  The sectors picked as the best performers for the next 6-12 months are Tech (18.9%), Energy (17.1%) and Health Care (17.1%).  Only 1.8% of those surveyed thought Transportation and Utilities would be leading sectors over the next 12 months. 

Is it just me or do these people seem insane?  Let’s try to figure out this premise – We’re not going to ship anything, production is so low that it impacts the utilities, the consumers won’t be buying anything BUT Tech will be popular and energy prices will keep rising.  This is the same idiocy we saw from Fund managers back in (uh oh!) mid 2008, when they were almost uniformly on the wrong side of a market collapse betting that oil would go to $200 a barrel and Health Care costs (and profits) would keep skyrocketing but that this would not affect the jobless consumers who would continue to BUYBUYBUY on credit or government stimulus checks.  How did that plan work out for everybody?

Hmm, maybe we should take those Elliot Wave guys a little more seriously!  The crux of their pattern rests on the S&P failing to retake 1,056, which is a key watch level for us as well so let’s take a look at our own chart and think about the key support levels we’ll be looking at for the next week or so:

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  9,712  1,036  2,045  6,739  562   1,784   21,620   9,802  5,075   5,418 
2.5% Up 10,211  1,092  2,149  7,128  594  1,870  22,295  10,284  5,170  5,549 
Prev Close 9,962  1,066  2,097  6,955  580  1,825  21,752  10,034  5,044  5,414 
2.5% Down  9,712  1,039  2,044  6,781  565  1,779  21,208  9,783  4,917  5,278 
July Base 8,200   880  1,750   5,600  480  1,650   17,500   9,200  4,200  4,600 
20% Up  9,840  1,056  2,100  6,720  576  1,980  21,000  11,040  5,040  5,520 
Retrace 9,512  1,020  2,030  6,496  556  1,914  20,300  10,672  4,872  5,336 

Not a very pretty chart but notice that Europe and Asia have NOT dropped 2.5% and the US indexes are sitting right on that line.  This means the game is ours to win or lose today but we are not going to be very impressed with a market move back up until we see the full 5% back up to the 2.5% up mark.  The Transports topped out at 2,045 in Sept so they should have no trouble getting back over 1,870 if there is any life in the economy.  The Dow is down from 10,119, needing a new high to break up.  The S&P was up at 1,101 so the 2.5% goal is within their grasp and the Nasdaq was at 2,190 just 6 sessions ago so they should have no trouble getting back over 2,149 – especially with 18.9% of the fund managers targeting Tech as their favorite buying opportunity.

bear kabongThe NYSE has a long way to go to get back to their high of 7,241 and we’re still using 6,900 as our on/off switch for bullish plays while the Russell is still going to be our canary in the coal mine, coming off highs at 625 and 594 will be a real challenge for them as it’s also the 50 dma and I WOULD consider it a nice bullish move if they can get back over that mark – which is pretty much where they began last week

Action in Asia was interesting this morning as the Hang Seng did, in fact, open at the 2.5% line, which was down 600 points from Friday’s close but then staged a SPECTACULAR rally back to down just 0.6% as the Shanghai Composite climbed 2.7% a report showed the nation’s manufacturing industry expanded at the fastest pace in 18 months (which was just 0.2% better than last month but – if we can’t blindly celebrate the same number over and over again, what’s the point?).  Unfortunately Asian fund managers aren’t as easy to fool as the fools who are polled by Barrons: “I can’t expect government stimulus measures to continue to shore up company earnings,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $14 billion. “Doubt is rapidly growing that corporate profits will continue to improve next year.  The global economy can’t stand on its feet yet without government support, an end to stimulus is an end to a recovery.”

The Nikkei was not as lucky as the Hang Seng as big names like Toyota, Sony and Mitsubishi led Japan lower as the dollar once again lost ground against the Yen, barely holding on to 90 during the trading session after falling below 89.5 Yen in late Friday trading.  The Nikkei, like the Hang Seng, dropped like a rock at the open but, unlike the Hang Seng, they had a very mild recovery that barely got them back over 9,800 and down 2.3% for the day.  There is a great (and scary) article on Japan in the Sunday Telegraph by Ambrose Pritchard where he says: "Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return."  Very good reading but not if you are trying to stay bullish…  

As noted in the chart above, Europe is drifting ahead of the US open.  The European Union statistics agency Eurostat said the unemployment rate in the 16 countries that use the euro rose to the highest level since records began in 1999. The euro-zone jobless rate inched up to 9.7% in September from 9.6% in August.  Data from Germany’s Federal Statistics office showed retail sales in the euro zone’s largest member fell in September for the second straight month, down 0.5% from August, when retail sales posted a fall of 1.8%, despite an only modest rise in the country’s unemployment rate.  "With auto sales also down sharply as payback for the surge in the first half of the year, German consumption clearly contracted sharply," said David Mackie, an economist at JP Morgan.

In our October Overview this weekend, I mentioned that we had decided to go 55% bearish into the weekend as we expected some form of government intervention to prop up the markets this morning as well as the usual tendency to get some kind of bounce off the 5% rule.  We didn’t have to wait long as, just after Friday’s bell, the FDIC announced revised rules to allow banks to keep loans on their books as ‘performing’ even when the underlying properties no longer cover the outlay.  This is HUGE as over 50% of the $1.4Tn of commercial mortgages that will mature in the next 5 years are currently underwater.  Allowing banks to ignore this pesky fact is just another subtle way our government can shower the banking sector with hundreds of Billions of dollars in stealth aid. 

According to the WSJ: Banks have generally been keeping a lid on commercial real-estate losses by extending these mortgages upon maturity. However, that practice, billed by many industry observers as "extending and pretending," has come under criticism by some analysts and investors as it promises to put off the pains into the future.

Now federal regulators are essentially sanctioning the practice as long as banks restructure loans prudently. The federal guidelines note that banks that conduct "prudent" loan workouts after looking at the borrower’s financial condition "will not be subject to criticism (by regulators) for engaging in these efforts." In addition, loans to creditworthy borrowers that have been restructured and are current won’t be reclassified as "high risk" by regulators solely because the collateral backing them has declined to an amount less than the loan balance, the new guidelines state.

Critics say the new rules are yet another example of a head-in-the-sand approach by regulators, pointing to the relaxed accounting standards last year that enabled banks to avoid marking the value of the loans down. This is doing long-term damage to the economy, they say, because it ties up bank capital, preventing them from resuming lending.

Yes, everything old is indeed new again and the solution to our problems seems to be doing more of the same thing that got us into trouble in the first place.  We remain bearish but cautiously so until we get below Friday’s lows.  We have an ISM report at 10 am along with Construction Spending (if any) and Pending Home Sales (if any).  Congress is conducting a hearing on Residential and Commercial Real Estate at 11:30 so that should be fun to watch and we had a big beat from F this morning with earnings also coming in from CLX, CSE, CTB, DF, HUM, L and SYY this morning with APC, AXS, CAR, CHK, FST, HL, KGC, MNKD, PFG, RSG, SM and VMC on deck this evening. 

Watching and waiting today until we get a clear signal but let’s be careful out there…

 


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  1. Hi Phil,
    I have sold 5 RIMM NOV 60 C and 2 March 60 C, both down alot – any suggestions?
    Thanks


  2. Phil,
    Sorry on last post it should have read P not C I sold


  3.  any news on ldk?  thinking about selling jan 2011 5 puts for over 2.5?  thoughts?


  4. EricL, I am sending GNW up to your straddle.  If you would, please kindly take your profits and then return them down to me.  I promise to take my profits when they come back down.


  5. Good morning!

    Let’s see if the markets can take back Thursday’s close:  Dow 9,962, S&P 1,066, Nas 2,097, NYSE 6,955 and Russell 580 – this should not be much to ask after such a wild week. 

    Key difficult areas should be near Wednesday’s lows at Dow 9,800, S&P 1,045, Nas 2,060, NYSE 6,800 and Russell 570.  Anything below there is nothing more than a very weak bounce and, as I said last week, the downside follow-through gets very ugly. 

    DIA – there is no need for the protective 1/2 cover now and we can buy back the $99 puts for $2.88 and just need to put them back on if we cross 9,775 on the Dow.  The position we have now is 1/2 the Jan $103 puts (now $7.50) and 1/2 the Jan $96 puts (now $3.60) and we can buy another 1/2 of the Jan $96 puts if we break down (below 9,.700) and then put stops on the Jan $103 puts, which is taking 1/2 of our cover cash off the table and still leaving us with good coverage at a .45 delta

    Big data at 10am so we’ll see how it goes.

    Lost decade? With 42 trading days to year-end, S&P 500 needs a 42% gain to break even for the decade.

    Human Genome Sciences’s (HGSI) experimental lupus drug Benlysta was successful in a second large clinical trial, paving the way for approval of the first new treatment for the disease in 50 years. While not as strong as the results from an initial study, the results released Monday should be enough to secure FDA’s go-ahead. HGSI +34% premarket.

    Congrats to all who played that one – that is a grand-slam home run! 


  6. Hi Phil,
    I must confess that I have been too busy with other things and not paying attention to a trade that has gone sour.
    Basically I scaled into 200 shares of AIB at 8.57 selling the Feb 7.50 C&P.   I stopped out of the shares BUT I forgot about the options.  Selling the calls was a great idea as this stock may never see 7.50 again.   I have the 7.50 Feb Puts to contend with.  Seems like the financial panic in the EU has caused a massive sell off.  Worst case is that I will have to buy 200 shares of AIB at a scaled in price of 6.27.  Seems these shares are on their way back down to .76c again.  Any ideas on minimizing the loss?
    Secondly I liked your C Jan 2011 5/7.50 bull spread and have 110 of those at .58  I am not going into a panic on this long shot BUT I am getting very pessimistic on C    Should I just sit on these and wait it out?


  7. I like seeing AMZN continue to slide.   Would like to see 95-105 by options expiration !


  8. Take back Thurs close ?   Highly unlikely


  9. Thanks ss, done.
     
    RIMM could be a nice short here soon — *just* holding above a major gap up.


  10. Liftoff, lol.


  11. RIMM/Jomp – I would sit tight but keep an yey on the roll to the Jan $55 puts, now $4.80, which will cost you about $1.20 to improve yourself by $5.  You don’t want that roll going past $2 on you. 

    LDK/Jo – I haven’t looked at them lately and we really should before backing an ADR, especially when the industry changes so fast.  I find I sleep much better with SPWRA at these prices than LDK. 

    AIG/Sea – Yeah they really died hard but it’s a panic thing in Europe as the regulators are forcing backs to downsize and AIB may or may not be in their sites.  That was a good move stopping out of the shares but I would hold on to see how they handle $4.50.  You can always roll the Feb $7.50 puts ($2.80 with .30 premium) and the $7.50 calls (.40, all premium) to the May $5 puts and calls, now $2.75 so it’s a little premature to panic at $5.  That would have them put to you right around $4.50 so, as I said, watch that 200 dma.  C is just a long-term gamble and you either think C has a better than 1/3 chance of surviving (because your payout is 5:1) or you should kill the trade. 

    10am volume just 27M on that spike so low-volume BS so far but what a whopper of a spike they just hit!  Oil is still under $77.50, which is where a rally starts to look real and gold is testing $1,060 so we’ll watch that too as well as copper $3 but they are a nickel under that one. 

    ISM was 55.7, much better than expected and we are now officially popping!  Construction spending up 0.8% but last month revised from +0.8% to -0.1%.  Pending home sales are up 6.1%, miles better than 1.2% expected but probably reflects a rush to sign contracts to try to capture the tax credit.  Still these are very good numbers and must be respected. 

    DIA stance then is taking the Jan $103 puts off the table at $7 and that leaves 1/2 X of the Jan $96 puts, fully covered wiith the Nov $99 puts at $2.50.  Our goal, as always is to roll up our long puts .50 per $1 whenever we can and we will add more puts on the way back down but this should flip us nicely bullish in the portfolio and we’ll see how far it goes.


  12. Phil,
    I have the RIMM Mar 55/65 bull call spread bought for $620.(I think it was reccom last month) ..It is down approx. 28%. I was thinking of selling the Nov  55 puts for $1.14 and/or the Nov 60 or 65 calls ( 1.96 /.63 respectively) in order to try to recover part of the loss.  Probably selling the call is a better idea as this reduces delta. What do you think….


  13. Phil Thinking about a MOT verticle  in April 2 010   your thoughts?


  14. what do you think of
    RIMM
    Sell Dec 50 puts at 2.06
    Sell Dec 55 calls at 5.10


  15. Currently have SLV -30 Jan 10 15 call 
    Any suggestions for a coverup play?


  16.  Phil
     
    Jan 96′s fully covered by the Nov 99′s? I thought we were keeping two strikes up on the callers? Sorry – lost you somewhere on the adjustment. I’m at Jan 102′s half covered by the Nov 98′s – whence from here?


  17. Thurs close/Cap – Well here is the attempt, we’ll see how it goes. 

    Don’t forget our bounce levels are Dow 9,696 (which we bounced off), S&P 1,056, Nas 2,088, NYSE 6,912 and RUT 600 – do not be impressed by anything less and we’ll be thrilled to buy back in to the DIA puts as they get cheaper

    NTRI right to new highs. 

    RIMM/Magret – I don’t like selling the puts until things get more hopeless.  If we head down further, then the puts get more expensive and if we don’t head down further, then the original play is probably fine.  So, if you get down 50% and think it’s ridiculous but want to bail on the call spread, THEN you can sell the March $45 puts for $310 and all RIMM has to do is hold $45 to get you even on the trade.  Otherwise, you are just compounding your downside risk, which is fine if you are scaling in but not if the loss is uncomfortable for you. 

    MOT/Colberg – I haven’t warmed up to them yet and you going out to April is a pretty strong bet on their phone being successful as the data will be in by then.  As you have a limited upside with the call spreads, perhaps consider just selling the $8 puts for .79 as that pays 20% of your margin and has 10% cushion before MOT hits $8 and 20% down before you are out of pocket.  That seems like an easy way to be bullish on MOT. 

    EXTORTION!: Ryanair (RYAAY -1%) threatens Boeing (BA +0.6%) that unless it gives Ryanair a break on future orders, the Irish airline will go public with its order deferrals and cancellations. Ryanair is trying to take advantage of cost savings in the 737 program, while using falling demand as leverage.

    Why AIB is freaking out: Royal Bank of Scotland (RBS) down 7% after saying in a brief statement its negotiations with the EC are in their final stages and "will include some divestments not initially contemplated" – which may include selling its U.S.-based Citizens Financial arm. Over the weekend, RBS was rumored to have struck a deal with the U.K. that will enable it to escape the state-backed asset protection scheme within a year.

    September Construction Spending (.pdf): +0.8% to $940.3B/year vs. consensus of -0.3%, and 13% below the year-ago estimate. August estimate revised down to $933B from $941.9B. In the first nine months, spending was $715.2B, 12.1% below the same period in 2008.

    Oct. ISM Manufacturing Index: PMI: 55.7 vs. 53.3 consensus and 52.6 prior. Prices index 65 vs. 63.5 prior. Inventories 46.9 vs. 42.5 prior. New orders 58.5 vs. 60.8 prior.

    Sept. Pending Home Sales: +6.1% M/M to 110.1 vs. consensus of +0.7% and +6.4% prior. Y/Y +21.2% vs. +12.4% prior. The year-on-year gain is the largest on record, and the index is at its highest since Dec. 2006.

    A deal giving Comcast (CMCSA) control of GE’s (GE) NBC Universal could be announced as soon as next week after a tentative agreement was reportedly reached Friday. GE would contribute $12B in debt to the new entity, and retain 49% ownership, while Comcast would kick in several billion dollars and its stable of cable networks for its 51%. Talks with 20% stakeholder Vivendi remain the main roadblock to a deal.

    Lawyers in California have asked a judge to bar AIG (AIG) from transferring money out of the state for 90 days, out of concern it won’t have enough readily available assets to back its policies.

    DIA Jan puts – current target is $100 puts but no hurry as they are $1.75 more than the $96 puts but an offer of $1.50 for the roll is prudent.


  18. F  ….    Here’s an oddity.  The Nov 8 calls bounced up to 1.41 (now .19), even though the stock only went to 7.73 (now 7.55).  It’s a very heavily traded option so it’s probably real.  Makes one wonder whether this happens often.  If so, the implication is that  such movements could be played effectively .  Is such a huge swing in heavily traded options at open common after an earnings event?  How does that happen Phil?  Is someone actually offering 1.41 for this option at the open, even though yesterdays close was .18?  They must have, or it wouldn’t have traded.     


  19. Phil,
    I am also a bit confused on the DIA strategy. I seem to have lost something somewhere. I am long 1/2 Jan 102′s and 1/2 Jan 96′s with 1/2 short on Nov 99′s.
    The moves you are suggesting seem counter intuitive so I assume I am missing a part of the equation. Please clarify.
    Thanks,


  20. Phil, can I get your thoughts/insight on YRCW – earnings miss, revenue down, debt exchange etc.  …thanks.


  21. Oh crumbs that CIT spread filled for me sold Jan 2 puts bought Jan 1.5 puts for .5 credit
    I can’t lose. Can I?


  22. Granted I don’t think I can win lol


  23. RIMM/Jim – I think it’s very tricky targeting RIMM that closely.  I think RIMM should be higher than $62 by Dec and that is your upside b/e so it’s not a play I would get into, especially when you consider that the callers have a higher delta than the putters so you can fall behind quickly if you get goood RIMM news (although I can’t imagine what it would be right now).  Also, earnings are 12/17 so those contracts will hold their value annoyingly well for what you are trying to do.  Better off selling Nov puts and calls knowing you’ll get good Dec prices to roll to because of earnings. 

    SLB/Jim – You sold 30 Jan $15 calls?  Basis price would be helpful but those are $1.95 and SLV is at $16.36 so .60 of premium still to burn off and I’m still hoping commodities calm down by Jan so I would do nothing.  Keep in mind you can always sell $16 puts for .95 to offset 1/2 but then you are kind of bullish so it’s not the kind of move you want to make until you have to.  Silver is $16.65 so worry if they bust over $17. 

    Dollar is being knocked down again today, $1.484 to the Euro (up 1% from Friday) and $1.64 to the Pound (flat) but the BOJ is back in the game, pumping the Dollar back to 90.5 Yen before Japan falls into the sea

    DIA/Deano – Yes we WANT to generally be ahead of the caller and we will be by EOD but, for now, that was a very quick way to flip bullish and take advantage of the move back to 9,962.  The idea was to stop out the higher Jan puts and just have the 1/2 position of the new Jan $96 puts remaining at net $3.80, which we fully cover with $2.50 of Nov $99 puts.  That takes 1x $7.25 (avg) of Jan $103 puts off the table, locking in the profits so the 1/2x Jan $96 puts are now effectively a free play and we can take the $2.50 collected and roll them right back to the $103 puts if we want to.  All this will play out by the day’s end but we could see this move coming so why be on the wrong side of it intraday?

    F/Iflan – There’s a reason Rule #1 is: ALWAYS sell into the initial excitement.  No matter how liquid options may seem to be they are totally illiquid compared to stock and any excitement in a stock drives suckers into options who think that a $7.62 stock should justify a $8 option at $1.42.  When you catch those, they are a gift and you should not think but sell them.  On a play like that, you could sell the calls and then cover with F if it went over $8 and it’s still a very nice return. 


  24. Long SRS …


  25. Sector ETF strength after one hour: Gold Miners– GDX +4.3%. Coal– KOL +4%. Steel– SLX +3.7%. Commercial Banks– KBE +3.1%. Regional Banks– RKH +3.1%. Basic Materials– IYM +2.7%. Oil Services– OIH +2.7%. Financials– XLF +2.5%. Energy– IYE +2.4%. Silver– SLV +2.2%. Energy– XLE +2.2%. Agribusiness– MOO +2.2%. Basic Materials– XLB +2.1%. Insurance– KIE +2%.
    Weakness: NONEThis is great, we alternate days now of no strength followed by no weakness – Yeah, that’s an efficient market hypothesis! 

    Dow volume a bit hot at 11 at about 62M

    According to a study released this morning by EU bank regulator CESR, "a significant proportion of companies failed to comply with mandatory disclosure requirements relating to financial instruments."

    DIA – Looks like we want to buy the Jan $100 puts at $5 to add to the same number of Jan $96 puts, now $3.25.  That leaves the position 1/2 x the Jan $100 puts at $5, 1/2 x the Jan $96 puts at $3.80 which is 1/2 covered by the Nov $99 puts sold for $2.50.  IF we break higher then we want to go to full cover with a sale of the Nov $100 puts for no less than $2.50 (now $2.90) at which point we put a .25 trailing stop on the Nov $99 puts (now $2.40) so probably around 2.10.

    DIA/Pstas – The idea was to stop out the higher Jans with a profit and buy back in on the bounce (per above comment) if you missed the move it’s no big deal as you are right about where we want to be coverage-wise.

    YRCW/Oncmed – They are the poster child for why I can’t buy into this whole rally.  That company is in the middle of interstate commerce and their business totally sucks….


  26. Hey, Phil, I’m getting dizzy each day, up and down 150 on the Dow daily, when will this ever stop?  maybe not.
    If you had all cash, how would you enter the market here, and what would you do with SRS, FAZ, TZA,  ERY, etc?
     
    would you buy them and do covered calls for November?  or sell puts on them today since all these inverse funds are down today?
    thanks
    David


  27. DIA- Phil, so if I understand this, you have taken off the Jan 103′s which effectively reduces your DIA protection by 1/2 with a "plan" to add them back later , lower?


  28. Hi Phil Sell in the exitment  HGSI sell dec c for 2.64 your thoughts


  29. Volume at 10.30 pretty much even to 3 month average


  30. Phil, i like buying SRS here and selling NOvember calls for 80 cents, make 7% return if higher than 10  in 3 weeks
    and then you can sell them again and again, if SRS is a little bit below 10,
    your thoughts?
    David


  31. Phil/YRCW  Ya but 50% !!??


  32. magret, given RIMM plowed down through 58 I wouldn’t touch it on the long side until 50 just my opinion.


  33. Would love to hear Volcker’s opinion on where he thinks rates should be


  34. RL is popping nicely ahead of earnings. I’m looking at some conservative bear trades, such as asking .70 to sell the Nov. 80 call and buy the Dec. 85 (currently .60).
     
    I’m also starting to scale out of the bull put spreads from Friday on GS, OIH, and AAPL. I will keep a few into the close, but all are up well over 10% (as measured against net margin), so I’m not being greedy here.


  35.  Phil,
    I have a delta long position in LDK. I have a short dec 6 put. Any suggestions for a clean roll down?


  36. CIT/Steve – No, you can’t lose but that miracle is not too likely and that’s what it takes to make money on it. 

    Wow, and down we go already.  You’ve gotta be quick to make those DIA moves but, as you can see, doing nothing doesn’t really kill you – that’s the beaty of the non-committal 1/2 cover! 

    Global chip sales post a seventh-straight month of gains in Sept., +8.2% to $20.64B. For Q3, sales jumped 20% sequentially, but were down 10% from Q3 2008, to $51.7B. PC and cell phone sales "continue to run ahead of earlier forecasts," SIA says, while demand for industrial chips – a sector that had declined sharply – "showed initial signs of recovery."  This is virtually all smart-phone driven, not all that bullish on the whole.

    Overall retail sales are expected to be flat this holiday shopping season, but online sales seen up 8% to $44.7B, Forrester says. Contributing to the growth: tighter inventories at brick-and-mortar retailers.

    Yay, Math time!!!  If overall retail sales are flat BUT online sales are up 8%, what happens to in-store retail sales?  This is not good for REITs either but the evidence is likely to be ignored until sometime after the last moment. 

    Cash/David – Go to the end of Thursday’s post as that’s pretty much what I’d do.  Set us a nice, hedged portfolio with some disaster protection and hope to make 20% between now and Jan but staying mainly in cash to take advantage of a real melt-down, like RIMM is having right now….  I would not be loading up on a bunch of bear ultras as that’s the best way to lose all your cash if we hold these levels.   If we go flying up to test our highs again, then the ultras get interesting but right now we are in the dead center of the Sept pullback to 9,500 and the top at 10,100 so you may as well bet heads or tails as bet those ultras here (although with heads or tails at least you won’t be eating a premium and a spread as soon as you place the bet).

    DIA/Pstas – Yes.  If there were 5 DIA Jan $103 puts and 5 Jan $96 puts covered by 5 DIA Nov $99 puts then first the 5 Nov $99 puts were bought back, then the 5 $103 puts were stopped out at $7, and then the $99 puts were put back on at $2.50 and then 5 DIA Jan $100 puts were added at $5, leaving us with 5 Jan $100 puts at $5 and 5 Jan $96 puts at $3.80 covered by 5 Nov $99 puts at $2.50 at the moment with an offer to roll the 5 Jan $96 puts to the Jan $102 puts for $1.50 (now $2). 

    HGSI/Yodi – Well the move looks fair to me, based on the positive study data so I sure wouldn’t go shorting them as the upgrade police may show up and pop them another 20%. 

    SRS/David – The problem with buying an ultra and getting a 10% cover is a 3% move in the IYR will put you under water.  You can just sell the $10 puts for .70 and get the same effect or sell the $9 puts and have a much lower b/e point. 

    YRCW/1020 – 50% may be a bit extreme but it’s not like they haven’t been there before.  I do like them long-term still and you can sell the Jan $1 puts for .45 so I guess I like that play well enough to pick it but it is a gamble.  I also like the "maybe YRCW survives" play of the 2011 $2.50/5 spread for .30 but I think they should be gotten for .20 if the stock doesn’t bounce soon.

    RL/Eric – How about selling the $75s for $4.90 and buying the Jan $80s for $4.60?  If they misss, you keep whatever retained value and if they hit, you just buy some more Jans and roll the $75s up to the Dec $85s.

    LDK/Roth – They are on target, what’s the problem?  You have a b/e (from here) of $4.90 and the stock is at $5.79 and those puts can be rolled to March $5 puts.  The only time you need to worry is if that roll starts costing you money. 

    Live webcast of President’s Economic Recovery Advisory Board Meeting, starting now.


  37. Yes, I like that better Phil, thanks.


  38. DIA- I think you meant to say roll the 96′s to 100′s, Not the 102′s? Correct?


  39. Listening to the President’s Economic Recovery Advisory Board Meeting is really interesting.  The main thing that these people don’t talk about is how we have outsourced (to other countries) all of our manufacturing jobs.  I like to say we have been "Wall Marted" (notice it is Wall and not Wal).  We cannot have good paying jobs AND be able to buy a DVD player for $30 at Wal Mart.  We cannot have good paying jobs AND be able to buy a child’s bycicle for $25 at Wal Mart.  Thanks to Wal Mart and other companies looking to drive their stock prices up to appease the analyst on Wall Street, we have given our manufactoring jobs away so that we are able to buy goods at cheaper prices.  We can not make these goods here in the US for those prices.  For me, I would rather pay $150 for the DVD player AND have fellow Americans put to work.  I just don’t see how we undo the damage.



  40. I don’t know about everyone else, but I’m somewhat inclined to short rallies at this point, or at least take long-side profits quickly. I think Friday’s action was pretty telling. However, I’ll wait until near the close to do much today.
     
    C looks like it’s going under $4. I still have my straddle trades going, but I’m holding a downside bias. If it starts closing under 4, I’ll re-position, either by selling 3 strike straddles or getting out altogether.


  41. GS fading too now. I’m out of the last of those bull put verticals.


  42. Despite new guidelines that should keep a lot of delinquent commercial real estate mortgages in service, Realpoint sees delinquency’s upward trend resuming (see chart) and predicts walkaways: CRE jingle mails all the way.

    DIA/Pstas – No, the offer is for $1.50 to roll the $96s up 6 positions.  That roll is paid for by the sale of the $99 puts at $2.50, which then become well covered by the $102s and, of course, the remaining $100s, which would also have plenty of money to roll up if the the $99 puts expire worthless. 

    Damage/SS – They system works well until, like musical chairs, you run out of chairs.  It was no problem outsoucing our manufacturing as long as we kept inventing new, cool stuff to make as the value of our intellectual property exceeded the cheap labor we were outsourcing but the whole thing falls apart as we de-emphasized R&D as well, leaving us with pretty much nothing of value here at all.  What do we export?  Entertainment is our biggest export – we are the world’s minstrals at the moment and if that plan fades we supply food, drugs and cigarettes – quite the game plan isn’t it, I think we’re about one rung up the ladder from being Afghanistan!

    Chips/Steve – I think it reflects the major move to HDTV and DVRs as well as the smartphone bonanza.  Better than nothing though.

    Rallies/Steve – I want to see some more strong-volume rejections.  We may get one today.  C under $4 now.

    Copper zoomed from $2.93 to $2.98 today on our good data reports but still can’t crack $3.    Oil at $78.50 and gold over $1,060 so we still have to respect the rally.

    Don’t forget to watch ZION.  So far the y are not participating and SRS is holding $10 nicely while XLF is closer to $14 than $14.50 and the Qs are just 41.28 so not an impressive move up overall.


  43. LDK: Phil, I’m in the LDK buy/write from back in August when I bought the stock at 11 and shorted the Sept calls and puts. We rolled the short puts and calls down to the Dec 7.5′s (break even on the Sept options), bringing in 3.50 in premium which would have brought the trade to a break even if LDK was above 7.50 at expiration. I recently closed the call side for a 1.86 profit, hoping to sell them again on a bounce. But with today’s news my puts are way underwater (sold them for 1.08, now over 2.10). I don’t see an obvious adjustment at this time. Any suggestions?


  44. I’m guessing you may have meant that last rally comment tor me Phil, but yes, it’s not broken yet. Basically I’m back to a lot of cash.


  45. Eric,
    My daily chart sais they either break north or fail right here.


  46. SRS: Phil, I am looking at the Jan 2011′s for SRS. It seems you could buy a 10/20 vertical (buy the 10 calls, sell 20 calls) and sell the 7.5 puts for roughly break even, give or take. But will SRS, being an ultra short, have its premium degrade over that amount of time so that there is a good chance it would be put to me at 7.50, even if CRE does not do well.


  47. BAC – Bought some Nov Calls. Stop is if BAC below last Friday’s lows of $14.5. Sell target when BAC in mid $16s. See chart http://finviz.com/publish/110209/BACc1dl1227.png


  48. LDK/Allen – We’ve been down here before in March and the answer was to ride it out (they went from $3.75 to $14).  The Dec $7.50 puts are $2.30 and have (at 50%) $3.75 in margin and they can be rolled to 2x the Mar $5 puts (now $1.25) with $5 total margin and 1x March $6 calls can be sold for $1.20 for additional coverage (or you can just roll to 1x on both sides).  In either case, you can cover with the stock if it heads over $6 and that that so, as with many of these plays today – there’s no need to rush into anything unless that roll looks to be getting away from you.

    Man, they would have been better off flatlining today than attempting a rally and failing!

    SRS/Allen – That is a very long time to take a bullish ultra play.  The spread is $1.55 and I see that you are "paying for it" by selling the puts but what you are really doing is compounding your downside risk.  Why not just take the $5/15 spread for $3.15, which is $5 in the money as the $7.50 puts you sell cost you $3.75 anyway and this play has a break even at $8.15 with a max loss of $3.15 (but you can pull the plug at $1.50) and you make $6.85 profit (200%) at just $15.

    Oil was nicely rejected at $78.50.

    BAC/M2 – I do like them down here.  Was interesting that they are on the radar of Barrons fund managers too.

    Looks like we’ll be hitting 100M by 1pm (96M at 12:42), still just slightly better than stickable volume but let’s look for an increase in rate as we sell off here.

    DIA – Very worthwhile to spend $1.90 to roll up to Jan $100 puts from Jan $96 puts.  That leaves 1/2 Jan $102 puts, 1/2 Jan $100 puts 1/2 covered with Nov $99 puts, which are back to $2.80


  49. EricL, thanks for sending GNW back my way. 


  50. YRCW: Looks like their stock is being massively diluded:
    http://www.reuters.com/article/pressRelease/idUS133248+02-Nov-2009+PRN20091102
    It might go down to < $1.  Be careful.  Play with fun money, maybe.
     
    I have a small position on YRCW.  For the fun of it, I am keeping it, and see where it goes.


  51. Individual investor cash is off the sidelines, at least, as new data from AAII show cash holdings at 19% of assets – the lowest level since July 2007. While allocation in equities and fixed income went up, investments in equities are still below their 21-year mean.

    An interesting new study suggests that active and passive investing end up with pretty much the same returns – not because active managers are better than we thought, but because buy-and-holders move in and out of indexes in cyclical ways, and with horrible timing.

    Does anyone else find it scary that Jon Najarian doesn’t know that FAZ is a triple, not double short when he’s telling people it’s a key position for him?

    I wish I could short AMZN here (but I’m already too short!).  The $110 puts for $2.25 can be a double if they break down here. 


  52. Phil: are there commodity plays you would recommend ?


  53. AAPL Nov 165 puts .90/.94.
     
    If you dont mind owning aapl at 165, and have the margin … good play


  54. They better regain that 50 MA on the major indices in the next couple of days or I think the selling pressure will increase. 


  55. VLO heading toward 17 .  TSO p/e of 5.6 .  Getting cheap enough Phil? It can’t always go to 16.50 !


  56. Phil, do you still like PDS? it is much cheaper now


  57. ss, I got out of GNW this morning too, thankfully. I was about to short GS an hour ago, but had to go to a meeting and decided not to. That meeting just cost me $400!


  58. Research In Motion (RIMM) now down 6.7% after a downgrade from Citi’s Jim Suva to Sell, highlighting threats to the BlackBerry: "Simply put, there is an invasion of new phones, applications, and competition." Elsewhere: MOT +3.9%; AAPL flat.

    Commodities/RMM – Other than shorting gold up here, no.  I think this commodity rally is way overdone as people simply can’t afford to buy what they are selling.  It’s just another speculative bubble with (as noted above) 90% of the fund managers betting commodities will stay this high or go higher.  That is not a trade you want to be a late bag-holder for! 

    AAPL/Cap – Very nice play, especially if you have PM.

    VLO/B1 – I don’t know, so far waiting has paid off 100% of the time…  TSO I can’t stand, even though they seem cheap.  If VLO falls in half twice and drops to $5 I’d be thrilled to buy more – with TSO I’d be out with a loss.  Of course, since $16.50 is our target entry and you can sell the Dec $17 puts naked for .95, that’s not a bad spot to start scaling in but if oil crashes, they could be back at $13 so you have to REALLY want them.

    PDS/Tchay – I like all those Watch List plays but no hurry while we’re below our levels.  Those were plays to take if we are breaking OVER our targets.  If we fail to hold the floor here, then we see a Dow test of 9,650 and below that is a 5% no-man’s land back to 9,100 ish (S&P 880) and who knows how freaked out people will get once we turn red for the year. 

    Dollar back to $1.476 to Euro, $1.637 to Pound and 90.23 Yen.  Imagine the market carnage if the Dollar ever has a good day!!!

    Oil $77.24, Gold $1,055, Silver $16.45, Copper $2.95.  


  59. Phil,
    another question: my wife hold 1000 shares of ECA (she works for them) and wouldn’t like to sell them, I’m thinking to buy ITM puts and start selling ATM calls and puts, any recomendation which Puts to buy


  60. ERX – Hey, chart guys, can you look at the ERX 3 month chart and tell me what you see?  What I see (as a non-chartist) is that ERX has bounced reliably off of its 50 MA, and it’s there again; plus when the RSI gets where it is now, it bounces nicely.


  61. ROFL – What a friggin’ surprise.  CNBC runs to interview the BCS guy (with his permanent set-up at his office) as soon as the market looks sick so he can tell us the economy is on the road to a huge recovery (BCS is  the worlds largest holder of equities).  Notice the total lack of disclosure and they bring in Steve Leasman to AND Dopey Dennis to agree with everything he says. 

    He thinks we’ll have a "moderate" decline in jobs on Friday but the Fed will stay loose with policy. 

    By the way, tomorrow we have Sept Factory Orders and Oct Auto Sales.  Wed is Challenger Job Cuts, ADP Employment, ISM Services, Oil Inventories and the Fed Rate Decision.  Thurs is Productivity and Jobs.  Friday is Non-Farm Payrolls, Wholesale Inventories and Consumer Credit. 

    Sector ETF strength: Coal– KOL +2.1%. Agriculture– DBA +1.5%. Gold– GLD +1%. Healthcare Providers– IHF +0.9%. Oil– USO +0.7%. Gold Miners– GDX +0.7%. Commodities– DBC +0.7%.

    Sector ETF weakness: Regional Banks– KRE -2.2%. Solar– TAN -2.1%. Broker/Dealers– IAI -1.5%. Telecom– IYZ -1.4%. Clean Energy– PBW -1.3%.


  62. That BCS guy was reading from a script


  63. PRU continues to look very weak with every pump failing. Still short.


  64. MrM – agreed on ERZ.  Here is a good Chart….


  65. Regarding ERZ, I will just add that OIH is starting to break below its uptrend line on the 3 month chart. Not a reason to get short yet since it could be a false break lower, but something to keep an eye for ERZ longs.


  66. Phil:: the last 3 days of trading in October is where the hedgefunds did reshifting: is that true ? If yes, then staying away those days would have been better.
    Is earnings reporting finished ?
    What major events typically happen in November ?
    Which 1 or 2 are there to either go long or go short ?


  67. Sorry, mine was ERX….sticky fingers from all the candy!


  68. i don’t think we can respect this rally anymore. Are there any specific plays we should be setting up for?


  69. I meant ERX too and was blindly copying Pharm. The OIH potential breakdown looks real though


  70. PCU is hugging and bouncing on its 50d MA.  Eric – I think you have a small long put position (as I do).  There is quite a fall in store if they move through….


  71. I was talking this weekend with some friends at ARNA.  They are quite upbeat (David R posted on them this morning as well) and have had a revolving door of Pharma coming through.  IMO, I think ARNA will sink a bit lower, as the big boys are watching and waiting.  Their market cap is less than $400M.  Just store it away for a rainy day, as I do believe their time will come (as long as they do not mess up the FDA filing as Neurocrine did a while ago).


  72. Hi Phil M2 was buying BAC calls I would be interested which calls you suggest to buy Nov 15 or ?


  73. ECA/Tcha – I think the Jan $50s at $1.95 are a good price for a short so I guess you can use them as protection.  If you want to hold those 1,000 shares long you can sell the 2011 $45 puts for $5 and $60 calls for $7 and that’s 14% downside protection, no obligation until they drop 20% and you only get called away with another 10% gain (and, of course, you can roll it from there). 

    AIB at $5, selling May $5 puts and calls for $2.70 nets $2.30/3.65 as a non-BK play.

    Wow, Charlie Gasparino with yet another GS apologist piece – so sickening! 

    ERX/MrM – It bounces reliably because oil is manipulated and that trade works great until it doesn’t. 

    October/RMM – Many hedge funds end their year in October but the end of their year may spell the end of their manipuluations to pump the market.  Maybe they cashed out and will now let the market drift back down to its natural level. We’re only in the middle of earnings reports (about 60% done) and the major event of November is Thanksgiving so volume dies that week (the week after expirations) and then we usually have our Santa Clause rally.  I think retail sales fail and we head down sooner or later so very hard to go bullish here. 

    Plays/Sthom – I had a bunch of disaster hedges at the end of Thursday’s post and you really should consider having one or two at least until we retake some of our upside levels. 

    In text for a lecture at Kansas State University, FDIC’s Sheila Bair says the banking industry is using fear to fight reforms and keep taxpayers on the hook – and "that makes me angry." She repeats calls for a resolution authority, systemic risk council, derivatives regulation and consumer protection.

    David Rosenberg points out the story of Q3 is a continuing credit contraction acting like a tourniquet on private-sector spending. And it’s not that the GDP was so nice at 3.5% – but that it wasn’t higher considering the stimulus.


  74. Pharm, I do indeed still have some PCU put calendars (rolled longs out to Mar). I would up buying call diagonals above them and so was bullish for a while, but it may be time to get short again.


  75. Someone might have linked to this already (sorry if so), but I thought this was a nice discussion of stocks and the dollar carry trade by Roubini:
     
    http://www.ft.com/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html?nclick_check=1


  76. Today’s late morning selloff coincided with the House Oversight hearing on commercial real estate. Fed’s John Greenlee sent a chill through markets when he said (.pdf) banks remain at risk of "sizable additional credit losses" given the outlook for production and employment, adding, "Poor loan quality, subpar earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions."  Seriously, is it really possible that there are people who are surprised by this???

    ARNA/Pharm – I still like them as a speculative play.  Now the Apr $4s are interesting at .75, selling 1/2 the Dec $4s for .30

    BAC/Yodi – I think the 2012 $15/20 spread at $1.60 is a reasonable way to play if you are patient.  Otherwise I would stick to selling puts like the Jan $12.50s for .85 – those give you a good amount of leeway. 


  77. KRE chart is starting to look bad. Mar/Dec 15 strike put calendars for .45 each are a pretty conservative way to play for a further breakdown here. They are at least a double on a close between about 13.5 and 17 at Dec opex.


  78. Just got those filled at .45, fwiw.


  79. Pharm, is OGXI on your radar? Any thoughts on them?
    Thanks


  80. Tuesday:
    Economic Factory Orders (0.9%), Auto & Truck
    Earnings Archer Dan (ADM), Cognizant (CTSH), Emerson (EMR), "ICE" (ICE), MasterCard (MA), Oshkosh (OSK), Royal C (RCL), Steve Madden (SHOO), Polo (RL), Dolby (DLB), Excel Maritime (EXM), Kraft (KFT), NetLogic (NETL), Solera (SLH), STEC (STEC), True Religion (TRLG)
    Wednesday:
    Economic Weekly Crude, Challenger & ADP (NA, -190K), ISM Services (51.5)
    Earnings Agrium (AGU), AMBAC (ABK), Comcast (CMCSA), Garmin (GRMN), Molson (TAP), Neutral Tandem (TNDM), Pulte (PHM), Time W (TWX), WellCare (WCG), Allstate (ALL), Cisco (CSCO), FTI (FCN), Goldcorp (GG), M’Libre (MELI), Qualcomm (QCOM), Prudential (PRU), Whole Foods (WFMI)
    Thursday:
    Economic Weekly Claims (520K, 5.75M), Productivity (6.5%)
    Earnings CIGNA (CI), CVS (CVS), Fuel Systems (FSYS), Lamar (LAMR), MGM (MGM), NASDAQ (NDAQ), Royal G (RGLD), Time Warner Cable (TWC), Blue Nile (NILE), Choice Hotels (CHH), LEAP (LEAP), Public Storage (PSA), Red Robin (RRGB), Rovi (ROVI), Starbucks (SBUX), Verisign (VRSN)
    Friday:
    Economic Jobs Report (-175K, 9.9%), Wholesale Invs (-1.0%), Consumer Credit (-$10.3B)
    Earnings Aircastle (AYR), Lifepoint (LPNT), Mirant (MIR), Smith & Nephew (SNN), Sun Communities (SUI), Suncor (SU), Tsakos (TNP)


  81. Phil,
    If they can’t take back 1056 on the S & P on todays news, I don’t see any rally this week, but maybe a BIG selloff. I;m currently in TZA from Fri.


  82. Phil, regarding LDK: Have 100LDK at 11.13 from the Sep buy-write.  How do I get out of this one ? Don’t have any puts/calls open for this one.


  83. Phil – DIA mattress puts - Just arrived and saw number of changes – but prices are off. I am Long 1/2 JAN103 and 1/2 JAN96, covered 1/2 Nov 99.  Wait for rally to sell 103′s (price is 7.50 not 7.0)? Or just hold?


  84. Hello Phil;
    What is going on with C ?
    what is your take/feeling on them ?
     
    thanks


  85. phil,
    You still like the amzn 110 puts below $2, for a speculative bet on a breakdown?  suggestions for a stop if it moves against? 


  86. Cramer’s buddies need out of AMZN before it collapses; so here is Jimmy to try to pump it … no affect.


  87. Jimmy, would you buy AMZN ?   no answer …. "uh uh uh it just had that big spike"   but no answer.


  88. OGXI/Soul – they have been on my radar for a while.  Friend of mine talks them up all the time.  Stocks that have moved like that scare me. They say a licensing deal is in the works by years end, but nothing thus far.  I do not know if the ‘deal’ will disappoint, but the drug does work better than DNDN’s technology.  I am not inclined to catch a falling knife, but a 220M market cap for a company that could generate Billions is tempting.  If one wants to buy, ease in SLOWLY.  Support at 25.7, otherwise 18s.  Here is a link.


  89. PEET making new highs and I still like SBUX Apr $19s at $2.14.

    S&P 500 chart on 85 dma makes a little sense:

    Citigroup (C -4.4%) leads financials lower and dips below $4 for the first time since August, after Dick Bove says not only isn’t the bank in the too-big-to-fail group, "in reality, Citigroup does not exist any longer." Like other firms, after its "near-death experience," Citi has built its cash hoard to $244B, nearly double that of a year ago. James Kwak says what the bank needs most is a strategy.

    Thanks Kustomz!

    TZA/JRW – A fine choice if we do break down.   Be careful as we are still technically oversold and we did fill the Mid-Aug gap and we’re now holding the line at 555.  Below that you are good for a huge drop.  At the moment, the Dow has the most downside catching up to do so I like playing them while the RUT is the downside leader and may get the most bounce. 

    LDK/Mampcs – I’d flip to 5x the June $4 calls at $2.50 and sell 3x the Jan $5 puts and calls for $2.40 with an upside of 3x $1 ($3) and unlimited upside on 2x if we get a recovery.  If you get away with this sale and can sell 3x March puts calls for another $2.40 each, then you will have collected almost $15 against your $5 position.  If you don’t want to take on margin or downside risk, the 2011 $5/7.50 spread is just .40 and pays $2.50 so you can cash out and buy 4x for $2 which pays $10 and you are back to $13 if LDK does better next year. 

    DIA/Concreata – Yes, as I said earlier, we just take advanatag of the opportunity to take a little off the table but the overall position is fine as is.  You do want to offer to roll up to the $100 puts (from the $96 puts) for $1.50 – just in case you get it.  If we have another run up and you don’t get it, that’s when you may want to just roll anyway. 

    C – see article above.  The hyenas are circling them but I’ll be BUYBUYBUYing if they get back to $1.

    AMZN/Mbais – Yes, I think those are cheap enoguh to gamble on as that chart is teetering.  If they get back over $119 I won’t be too thrilled…

    Insider buying inched up last week but remains "abnormally lopsided" compared to selling, with sellers outpacing buyers 10 to one. "Insiders continue their resounding vote of no confidence in the companies they run," Pragmatic Capitalist says, and wonders whether insiders managed to pick the top in recent weeks.


  90. ECA/Phil thanx for quick responce, but wife’s broker doesn’t allow to sell naked put,
    what about to buy 11′ put (let’s say 70s) and start shorting ATM puts and calls?


  91. SPX crazy play update – I’m looking to cash out 1/2 of the SPX Nov 1080/1070 PUT vertical.  It’s around $7 now and max payout is $10.   Set a sell of 1/2 PUT vertical position at $8 to see if I get it in the next few days.
     
    Same for RUT crazy play, I have the Nov 610/600 PUT vertical that is now $8.9.  Given the maximum payout at $10, let’s set 1/2 sell at $9.


  92. CNBC comments about MOT and RIMM are laughable….no one i mean no one will trade their BB for that new MOT phoney..they  did the same thing with PALM PRE

    Markets move make me think we get a buying spurt in the last 10 min, but until then its downward pressure


  93. SPX / Peter D: Hi, Peter, are you talking about long SPX Nov 1080/1070 put spread & short 980 put?  And you are cashing out 1/2 the long 1080/1070 spread?  Just want to make sure.
    Thanks.


  94. WOwwww, bot TBT 11 48/49 calls just for 0.1 and sold in couple of hrs for 0.3 good 200% in 2 hrs


  95. ECA/Tcha – Well if your primary goal is just not to lose money, you can sell the 2012 $60s for $10 and buy the 2011 $60 puts for $12.80 and sell Dec $50 puts for $1.35 so you have $5 of downside coverage and the sold calls and if you can manage to sell $12.80 worth of puts along the way it’s free protection.  Note that the Dec $50 puts can be rolled to the Jan $40 puts (now $1.20) so you’ve got a decent amount of protection that way.  

    Spurt/Kustomz – It does feel like a pre-stick move but volume is 175M at 3:10 so they will have a rough time getting there.  I think a great effort has already been made to move the markets up and has failed but the Fed is on Wednesday and hope can spring eternal until then (maybe they will start paying the banks to borrow money!). 

    TBT/Tcha – Hmm, I forgot to include those as good disaster protection too…

    VIX $25 puts still cheap at .85, if we rally they can go to $1.50 pretty fast but, of course $1.25 is great.


  96. Here’s a chart of the total credit market debt as a percent of GDP… Are we doomed or what?
     
    http://www.theoildrum.com/files/DebtGDP.gif


  97. SPX / Peter D: But, wait a second, Peter.  Isn’t the long 1080/1070 spread kind of a protection over the short 980 put?  If SPX goes further down, don’t we gain in the long and lose in the short?  When you take 1/2 long off, are you more or less bullish between now and expiration?


  98. Credit/Soul – LOL, if America were a company, would you invest in it?

    The stick lives!  Money running out of bonds now too, maybe staging for a move up tomorrow so be careful.


  99. Hi, Phil, A strategic question on "when to sell" protective plays:
    I have a TZA spread TZA Apr $7.5/12.5.  This was one of the protective plays you recommended a while ago.  Cost was 2.32.  Now it’s about 2.70.
    Is now a good point to cash out?  Or keep it for continuing protection?
     


  100. Out of TZA, into TNA


  101. DDM $39s are always good for a pop at $1.25 for a quick .50 on a move up.  Topped out at $1.55 today and makes a good overnight if you are worried you are too bearish.  I still like 55% bearish here so no change to overall positions.


  102. The late day spike in REITs are similar to what saw on Friday.
    Behold the manipulation !
    Again, take a look at SRS or IYR or SPG chart intraday.


  103. LVS – if you followed me into the NOV 17 puts last Friday, take some off today, 45% is a good ROI for one day.


  104.  Definitely not w/ my retirement $ Phil


  105. Strategery/Cwan – On plays like that you just need to do math.  Your max gain if TZA makes $12.50 and holds it through Apr (6 months) is $2.68 so that’s .40 per month.  Therefore, any month you are up .40 you are on target and you can’t really expect to get more than about $4 until almost expiration anyway so you’re already up 15% and if you have any reason at all to cash out (or maybe ask for net .50) then do it.  You can ALWAYS get another spread that pays 2:1 AFTER you take .50 off the table.  Cash out 5 time in 6 months for .50 and you have a free play.

    This is, by the way, the most BS of moves – driven by the Dow and other indexes barely green (Transports down 0.7%, Rut down 0.5%)

    URE is still the way to cover SRS.  My comment on Friday still holds:

    URE is $5.31, you can buy it when it’s over $5.10 (catching it on the way up) and sell it when under as a momentum play to pick up 15-20 cents here or there and to protect your longs.  If they break back up you can raise the bar there before they damage you too much on SRS. 


  106. LVS/Mr M – Nice call!

    Retirement/Soul – Sadly, we are all involuntary contributors…

    Another pretty good volume day.  Not sure if this late-day move is going to fool Asia but slightly bearish is safe enough until we get past the Fed.


  107. Thank you RIMM, ciao for now gotta love this craziness


  108. PALM trying to catch up with RIMM. Both very ugly.


  109. With all its problems, I still rather live here than any other place on earth. What does this say about the rest of world? I’m from Brazil so I know all about the third world. 


  110. Well that was fun! 

    What will Volker say?

    Brazil/Soul – I saw this sick movie where some kids went to Brazil on Spring break and ended up drugged and taken into the jungle where they were carved up for organs – makes it hard to relax on the beach!  8-)

    Hey I travel the World but I love this country and yes, all countries are screwed up but that doesn’t mean we shouldn’t try to do something to make this one better where we can….

    Later all. 


  111. cwan, yes, that’s the play.  It’s correct that the 1080/1070 PUT vertical is a protection for the 980 PUT.  However, the protection by itself is already doubled, and can only give us another $3 protection at a maximum, so I’m taking the profit first.  If the market turns up, the 1080/1070 vertical would loose value quickly, so taking 1/2 of the profit off is prudent.  If you hadn’t sold the short CALL yet, then you can sell 1100 CALL (which is the top of the October run), making up a short strangle, plus 1/2 of the 1080/1080 PUT vertical remaining.


  112. Right now I’m thinking the safest upside hedge plays are commodity-based. Apparently this market only goes up on a weak dollar, and if the dollar is weakening it’s almost certain to push the commodity names higher. Tech is looks iffy here; it’s due for an oversold-bounce, but lots of scary breakdowns there.


  113. POT, out of the super bearish spread of Nov 90/80 long PUT vertical and 120 short CALL.  The original spread was sold for $0.07 credit and was closed for $2.1 earlier today.  As the Long POT 90 PUT is still OTM, I’d chose to take profit, than continue to wait for the $10 maximum payout at $80.  Margin was about $12 ($2 on PM), so a nice gain.


  114. BAC Hail Mary + high risk: Buy Jan’11 20 CALL, Sell Jan’11 25 CALL for 0.85 debit, sell Dec 13 PUT for 0.37 credit.  The payout is $5 if BAC is at $25 in 14 months.  Stocks would be put to you if below 12 in Dec’09.  Dec 18 CALL is $0.21 and can be sold if BAC bounces back.  With this scheme, we risk 7 weeks plus another month of having shorts and margin, then if the Hail Mary hits, we’d get $5 payout.  A few of these Hail Mary’s can make a different in your yearly returns.
     
    The breakeven point on the CALL vertical is 20.85, which may be high.  If we buy the Jan’11 15/20 CALL vertical for $1.6, the breakeven point is $16.6, but we’d have more money at risk.  Dec 12 PUT and Dec 18 CALL can also be sold for 0.37 + 0.21 to recover some of the cost basis.  We’d need to successfully sell the PUT and CALL at least 3 more times to recover the the premium (then we’d get the CALL spread for free).  Note that the Jan2012 15/20 CALL vertical is $1.58 that gives us more time to be right and more time to sell the PUT or CALL.
     
    This also works on JPM, WFC, MA, and AXP but to a lesser extend with XLF and V.


  115. Well, I need a spell checker for the last few posts!


  116. Peter D,
    Thanks for the advise for the RUT strangle adjustment, luckily I did it in this morning’s session..
    Do you have similar SPX crazy play on Dec?
    On spell checker, if you use google’s chrome, the spell checker is built-in. 


  117. Phil,
     
      What do you think about YRCW? Are they done or worth a speculative gamble? If yes, how’d you play them.


  118. DRYS getting close to the $5 mark. Premiums not that great as far as I can tell.


  119. Good morning!

    Wow, futures took a nose dive at 2am, going from up 30 to down 25 (so far). 

    I’ve gotta say if you guys don’t read "Phil’s Favorites" once in a while you are missing some kick-ass stuff:

    Michael Mandel at BusinessWeek claims that By overlooking cuts in research and development, product design, and worker training, GDP is greatly overstating the economy’s strength. Here’s a riddle: If a scientist or engineer is laid off, does it affect gross domestic product?  The third-quarter GDP figures, released on Oct. 29, showed the economy growing at a 3.5% annual pace, breaking a string of four consecutive negative quarters.  The trouble is that those GDP and productivity growth figures could be significantly overestimated—perhaps by one percentage point or even more.

    That’s because the official statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There’s ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can’t compete in a knowledge-based global economy. Yet you won’t see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction…

    Then there’s this one on how poor Ron Paul’s bill to audit the Fed has been gutted:

    There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”  Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.  See, "THEY" only have to get to one key guy to kill something – very cost efficient!

    Our man Dylan ratigan says "It’s Time to Fire Tim Geithner":

    A year ago it was revealed to the American people that our banking system is a legalized Ponzi scheme in which bank and insurance CEOs pay themselves billions of dollars in personal compensation to lend and insure assets with money they don’t have to customers who can’t pay back the loans.  Yet in the past 9 months, not only has the administration failed to fix anything, they have actually made things much worse for anyone who isn’t a Wall Street banker. Therefore, we are past the point where anyone in power still gets the benefit of the doubt — the process of taking back our country for all citizens must begin now.  

    This one is relevent to Japarikh’s question on YRCW:

    YRC WorldWide is tanking over 50% on bankruptcy speculation.  The large trucking company has been entangled in brutal labor renegotiation’s and is at the heart of the economic downturn with their highly economically sensitive transport based business.

    On Friday the company reported a $158.7MM loss which was followed up by a debt exchange announcement this morning.  Investors are growing increasingly concerned that the announcement could result in an eventual Chapter 11 filing.  Although the company is having cost difficulties (primarily labor related) the weakness at the company is primarily economically related.  On the conference call CEO Bill Zollars detailed the economic struggles which we continue to see across the entire real economy.  His comments would be most unwelcome to anyone who has bought into the recent stock market surge which is now not only very expensive, but pricing in very optimistic economic and earnings growth in 2010:

    “The operating environment remains very challenging as we continue to face a difficult economy that appears to have stabilized, but is not showing any signs of sustained positive momentum.  We remain cautiously optimistic that the economy has bottomed out, but it remains too early to know for sure.  We’re not anticipating any growth in the economy for the remainder of this year and at least for the first half of next year.”

    I think it’s safe to say that the stimulus based recovery is almost entirely non-organic.  Without further aid from the government and the Federal Reserve this liquidity driven market is likely staring at a very difficult road ahead, if not the dreaded double dip.

    So YRCW remains a purely specluative play.  I suggested earlier that selling the Jan $1 puts for .45 (possible .55 loss if BK by then) or the 2011 $2.50/5 bull call vertical for .30 (hopefully .20) were the two ways I could see taking a chance but clearly these are gambles.  With their market cap down to $79M and one of the largest trucking fleets in the US, I am thinking that they may get bought before they go BK, but only if one of the big boys believes the economy willl be turning around in the near term and feels the capacity will come in handy. 

    Also, if YRCW does tank – 80,000 Truckers and about 40,000 support people are out of work! 


  120. Another good read from SAlpha – "Cramer Does It Again with CIT Call":

    When will the SEC start regulating game shows masquerading as investment advisory? This weekend, CIT Group filed Chapter 11. Merely four weeks ago, Mad Money host and TheStreet.com (TSCM) founder Jim Cramer said he would buy CIT (CIT) (”Citi and CIT are Primed for Upside“).

    Cramer CITI

    This type of incredibly speculative advice is as radioactive to the general investing public as a post nuclear explosion site.  As you can see in the chart above, Cramer recommended to buy CIT at the exact top. Thus, if “In Cramer You Trust” (like the CNBC commercials tell you to do), you are probably going to have lost 90+% of your investment by the open on Monday.

    When Jim reads this he will probably email me again and ask me to remove the post and apologize to him. I suggest his remaining viewers email him and ask him to remove his stock picks from Mad Money and TheStreet.com as well as apologize. If Cramer was an honest guy and didn’t pathologically believe his own spin, he would add himself to his Wall of Shame. Unfortunately, if you now attempt to manifest the mission of his new book “Getting Back to Even”, you need to find an investment in which you can double your money. Vegas, anyone?


  121. Funny, looking up Cramer I came across our June 13th Weekly Wrap-Up and you should read that while looking at the Dow chart at the time.  We had the same conditions – it was a huge run-up off the March lows, the MSM was in a frenzy but we weren’t hitting our technicals so I refused to get bullish.  We dropped about 1,000 points over the next 30 days and THEN I was ready to get bullish again with our July Buy List. 

    I especially liked my comments that day: "Convictions or cash are your best alternatives (even though cash is losing value fast!)" and (very good advice): "Meanwhile we are mostly in cash and picking up the occasional fun trades and yes, it’s dull but boredom is no reason to make random bets is it?"

    See, nothing changes – how many times in the last two weeks have I said "we’re just not in the right place for a play"?  I guess I have to roll out my old "War Games" speech ("Sometimes, the only winning move is not to play") for the newer members…


  122.  Phil,
    Good morning. I have IWM JAN 60/62 bull call spread now deep in the red (IWM 55.58 and today’s not looking good ..).
    I was thinking of selling the 60 call and sell the JAN 50 put to make it a strangle. Or shall I wait for things to calm down more? or Sell the put and then sell the call when there’s a bounce? 
    Is this a general ‘fix’ strategy for bull call spread that’s under water? 
    Thanks. 


  123. Phil et al, have you seen the endless pumping by cNBC of the book by Gasparino? Of course they are expected to mention it on air, but this seems to go way beyond any reasonable pumping……..it’s all inbred opinion, we haven’t seen the book to evaluate it…..so much for any objectivity IMO.


  124. insights into research & development problems relative to health care:
    seekingalpha.com/article/170164-healthcare-profits-assessing-company-sensitivity-to-obamacare