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Weak Weekly Wrap-Up

This chart says it all (thanks Jesse).

In last week's wrap-up I said: "Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions."  I mentioned how tempting it had been to cash out all our longs and go 100% bearish when we hit 10,300.  Our downside levels told us to wait until the 16th, when Monday's move up was finally the last straw and we are out of the bull game (our last major Buy List was July 11th and most picks are up over 100%), probably for the rest of the year

This chart shows you that the S&P is primed for a 5% correction back to 1,050.  I don't know why Jesse didn't extend out the lower support line, which would take us right about to my pullback target of S&P 1,000/Dow 9,650.  I stuck my neck out on TV two weeks ago, calling for a 10% correction to those levels but we've been playing both sides of the fence until this week, when I finally had to put my foot down on Monday, after having discussed cashing out for the holidays in Member Chat over the weekend.  Our general plan this week was to cash out the winners and leave only longer-term, hedged bullish plays while adding more speculative downside plays for the short-term correction.   

Why the change of heart?  Well, something you don't see on this chart but is pretty clear on the Yahoo monthly view, is that virtually all of the gains (ALL of them if you include the spikes) in the Dow for the ENTIRE month of November have come on single days each week.  This week it was Monday (139 points), last week Monday (206 points) and Nov 5th was Wednesday (198 points).  Take those days out of the run from our Oct 30th close at 9,712 and we're up just 63 points to 9,975 despite there being only 1 losing day in the first week (11/3, down 16 points) of the month and one losing day in the second (Nov 12th, down 92 points).  That is one super-flimsy way to build a "rally" don't you think?

Getting 90% of our gains in on 3 days in 3 weeks indicates a certain lack of follow-through to these bullish market moves.  I outlined the nature of the manipulation that takes place in yesterday's post so I won't get into it here but, in the words of our favorite economist, Elaine Benes, this rally looks FAKE, FAKE, FAKE, FAKE… 

As George says in the video: "I know, I can tell - it's one my powers."  Watch this Seinfeld video and imagine Jerry is the average investor, who is totally fooled and Elaine is Goldman Sachs who tells Jerry "You never knew because I was gooooood."  The part of Alan Greenspan is played by Cramer who says "I know how to press those buttons, buddy."  Sadly, no one in this game is your buddy.  I told Members they should get the book "The Creature from Jekyll Island" and you can get a taste for what that book has to tell you about the Federal Reserve by watching this video with author Ed Griffin

Two weeks ago (11/6), we noted unusual activity in the dollar options on UUP and we began playing the dollar for a bounce.  On Wednedsday, the 11th, I called shenanigans on the global oil scam as they popped back to $80 for no reason at all so there should be no question about where we stand on this issue.  On Friday I was on BNN with Marshall Auerback, who has a great take on the Dollar, asking "Should America Kowtow to China?" - an article I suggest everbody read.  All that serves as the background for a very fun option expiration week, summarized as follows:

Just Another Manic Monday – Retail Edition

Japan is in a serious period of DEflation.  Perhaps that's why the ACTUAL demand for physical gold is down 34% while the speculative price of gold – which is based on inflation that isn't happening anywhere on the planet – is up 73% off it's 2008 lows.  Unlike speculators, real consumers vote with their pocketbooks and simply buy less of over-priced commodities.  Unless, of course, those commodities are vital necessities like food and fuel – where speculators are able to extort quite a lot of cash out of consumers' pockets before the finally break.  Ah capitalism(and part 2, part 3, part 4 and part 5)

My major market concern is that Retail Sales will disappoint (and they did on Monday) and that the holiday shopping season will be a bust.  That could lead to massive retail store closings, millions of lost jobs, the collapse of CRE and then another banking crisis.  Since that stuff MIGHT happen over the next 45 days, I think it's prudent to take our 100% gains on 5-month old long positions off the table at this point and go cash into the new year.  Does this make me a perma-bear? 

The Bull position is, of course, that the economy is so bad that the Fed will leave interest rates at 0.25% and the government will keep spending money it doesn't have and continue tax breaks for corporations and the investor class and they will keep bailing out banks and investment banks while millions of more people have their wages and benefits cut to maintain profitable levels of productivity and, if all that fails, OF COURSE we will get another stimulus package that we can spin into another quarter or two of record profits for the Financials.  These are all valid points (ethics aside) and make a great premise but excuse me while I take a break from the make-believe economy to enjoy the holidays. 

If they can ramp the markets up another 10%, we'll make some short-term plays but the long-term bets are off at the moment until we get a real feel for a long-term recovery.  If we make it through Jan earnings without a big pullback, I'll be happy to join in the fun, meanwhile, most of our plays are shorter-term with most of our bullish plays acting as long-term covers, just to make sure we don't miss out in case we're being too cautious.  It's all about the levels and our key levels to get more bullish for the week wereDow 10,300, S&P 1,100, Nasdaq 2,200, NYSE 7,200 and Russell 600 and I said on Monday:  "Anything less than that is going to be a disappointing week for the bulls, who must prove we’re not topping out here ahead of the short holiday week next week." 

  • WFR Jan buy/write at $10.82/11.66 – on track at $12.08
  • VLO Jan buy/write at $15.15/16.32 – on track at $16.47
  • XLF Jan buy/write at $13.25/14.13 – on track at $14.60
  • UYG Jan buy/write at $4.73/4.87 – on track at $5.63
  • HOV Jan buy/write at $2.84/3.92 – on track at $4.06
  • C 2011 Jan $5/7.50 bull call at .40, still .40 – even
  • SRS $8 puts sold for .45, expired worthless – up 100%
  • SRS at $8.57, now $8.91 – up 4%
  • USD May $25/30 bull call at $2.50, now $2.10 – down 16%
  • DIA $104 calls sold for .90, expired worthless – up 100%
  • PARD June buy/write at $0/.85 – on target
  • PARD 2011 $2.50/5 bull call at .10, now .39 – up 290%
  • PARD June $5/10 bull call at .05, now .15 – up 200%
  • FXP Dec $8 puts sold for $1.05, now ,.85, up 28%
  • TBT artificial buy/write (too complicated to summarize) – on track
  • EWJ Dec $9 calls at .75, now .45 – down 40%
  • UUP $22 calls at .35, finished .44 – up 25%
  • UTI Apr buy/write at $14.02/15.76 – on track

Wow, I didn't realize how busy we were on Monday!  As you can see we mainly covered our long plays while takings some bearish pot-shots.  PARD was great for us as we played it for the dip last week and swooped back in to buy it again but it's just playing with profits now, which is how we like to own our Biotechs.  I noted the weak volume and level failures in my not to Members at 1:48 and the market turned down shortly after, mostly due to Meredith Whitney (who started this leg of the rally in July) coming out and saying: "I don’t know what’s going on in the market today.  It doesn’t make any sense.  There are no fundamentals to this."  As I complained to Members in Chat at 3:36: "Oh great – Meredith Whitney says she doesn’t like the fundamentals and HER they listen to!!!"

25% Off the Top Tuesday

I pointed out that we were stuck in a zone between 25% off the 2008 highs: Dow 10,500, S&P 1,162, Nas 2,100, NYSE 7,750 and Russell 637 and 25% above the July consolidation points (where we went long the week of July 11th) at: Dow 10,250, S&P 1,100, Nas 2,187, NYSE 7,000 and Russell 600.  As I've been saying over and over again since we got to this level – We are AT our upside targets.  In fact, we were pretty much done with this thing at the 20% line last month and this last 5% has been a bonus rally that we've reluctantly participated in but, with holidays coming up and light volume skewing results, the risk/reward profile of being a buy and hold investors has gotten a little too skewed to the risk side to bet on going 30% up and 20% off the top. 

I pointed out the ridiculous disparity in valuations of the market and several stocks and commodities made no sense and that we would need to engage in realative valuations at these ridiculous levels in order to pick winners.   Speaking of winners, we jumped on SPWRA as they came back to our buy price on accounting issues but it remains to be seen how severe the damage will be to the company long-term

  • SPWRA June $17.50/22.50 bull call at $3, now $2.50 – down 16%
  • SPWRA Dec $21 puts sold at $1.15, still $1.15 – even
  • SPWRA Dec $24 calls at $1.15, now .55 - (rolled to 2x $22.50s, net down 22%)
  • RF Jan buy/write at $3.95/4.08 – on track
  • XOM Dec $70 puts for .48, now .45 – down 6%
  • XOM Dec $80 calls for .24, now .18 – down 25%
  • DIS artificial buy/write (too complicated to summarize) – on track
  • BSX Feb $8 puts sold for .60, still .60 – even

 

At 1:55 I was getting really fed up with the BS market movement and I said to Members: "Oil back to just under $80, Gold back to $1,140 and the miners are going nuts again.  Energy sector also moving on up so I guess this is the big push for the day already.  I don’t even thing they crack yesterday’s high (10,430) on this sad volume but you never know.  I see FDX moving on up (because volume will be up 8% this year vs last year, when the world was ending and FDX was trading at $60).   Madness!"

Will We Hold It Wednesday – 10,500 or Bust

oecd demand

I decided to put my foot down, not even waiting for 10,500 and called for shorts on the morning futures on the Dow at 10,420, copper at $3.17, oil at $80 and the Euro at $1.4975, all of which worked beyond fantastically.  I pointed to this chart of Peak Oil (DEMAND) to illustrate how ridiculous $80 oil was from a fundamental standpoint.  The entire frenzy to jack up the price of oil and overcharge you began when demand started trailing off back in early 2000. 

My logic was easy to sum up in the morning post: "Keep in mind that we still think the dollar is about to wake up and rally off the 75 mark, although every possible effort is being made to push it lower.  At this point, pretty much everyone is betting the dollar down but I flipped bullish this month (we mentioned our UUP bets) and George Soros has joined me in warning that betting the dollar lower may soon become hazardous to your financial health.  Since it’s the falling dollar, and not demand, that has been fueling the speculative bubbles in gold, oil and the dollar and since the energy and materials sector have led the markets up, a dollar rally is very likely to be short-term market poison but it’s also the best way to put money back into people’s hands ahead of the holidays as it’s the quickest way to drive down food and fuel prices, which make up close to 1/3 of non-fixed household spending."

  • DIA $104 puts at .55, finished at .75 – up 36%
  • UUP Dec $22 calls at .60, now .75 – up 25%
  • BRCD Jan buy/write at $6.30/7.15 – on target
  • SRS Dec $9 puts sold for .90, now .72 – up 20%
  • SRS Dec $8 calls at net $1.02 (roll), now $1.20 – up 17%
  • EDZ Apr $3/5 bull call at $1.10, still $1.10 – even
  • ERY Dec $11 puts sold for 1.10, now .70 – up 36%

After watching and waiting for the bulls to show us something real, I sent out an Alert to Members at 1:07 saying: "I think this is toppy and there is no reason to risk bullish positions that are unhedged as a catastrophic fall is more likely than a catastrophic rise."

Thrill Ride Thursday – CRE Crash?

Actually, the CRE data wasn't all that bad, but also not all that good so it didn't change our opinions.  As you can see above, we had built up enough short-term bearish positions earlier in the week that we already had scored a victory early Thursday morning so we were able to take quick profits on the table and we ended up riding into the weekend just 55% bearish after making that big score as the Dow fell from Wednesday's close at 10,425 all the way down to 10,260

  • TBT March $42/26 bull call at $2.20, still $2.20 – even
  • VLO artificial buy/write (too complicated to summarize) – on track
  • GLL at $9.60 (assigned through sold puts), now $9.56 – down 1%

That may seem like a slow day but we were also in an out of DIA puts and calls over and over again, as we like to do on expiration weeks, when the premiums are low.  Otherwise, we were just riding our bearish positions downhill.  We even sold the DIA $103 puts for .50 (they expired worthless, up 100%) as we got more bullish in the afternoon as I had called a turn in my 11:56 comment to Members. 

Friday: Dell Misses, I Goldman Sachs Stupid or Evil?

GS had pumped up the markets on Monday morning with an upgrade to DELL and you would think they must know something to paint such a glowing report just days before earnings but, as it turns out, they don't know a damn thing.  I wonder if their trades will reflect the fact that they were dead wrong on tech this week and, if they don't, I wonder if there will be an investigation as to how they can say one thing about the markets publicly, yet then spend the entire week betting the opposite of that call, making Billions of dollars off the poor investors that they steer into positions they are dumping?   It will be interesting to see

  • DXD $30s at .40, stopped at .60 – up 50%
  • EDZ at $5.58, now $5.60 – even
  • EDZ Apr $2/5 bull call spread at $2, still $2 – even
  • VLO Dec $17 puts sold for $1, still $1 – even
  • HOV Jan buy/write at net $.85/2.92 – on track
  • UYG Jan buy/write at net $4.55/4.78 – on track
  • EDZ artificial buy/write (too complicated to summarize) – on track
  • DIA $103 puts at .20, stopped at .30 – up 50%
  • PCLN Dec $185 puts at $1.90, still $1.90 – even
  • RIMM 2011 $40 puts sold for $4, still $4 – even
  • RIMM 2011 $55/65 bull call at $4.40, still $4.40 – even
  • UGL Apr $53/54 bull call at .25, now .35 – up 40%
  • GLL Apr $9 puts sold at .90, now .95 – down 5%
  • EDZ Jan buy/write at net $3.82/4.41 – on track

So Friday was another busy day and we snapped up a lot of EDZ as we feel a rising dollar or a falling Asia can both punch down the emerging markets.  We already have our upside play on Japan in case the global markets rally as well as TBT covering a fall in the dollar and we got our bargain-hunting in on VLO, HOV, UYG and RIMM with two-way bets on gold using GLL and UGL.  All in all, a pretty even spread of bets.  Also, you'll notice the pattern to the betting as we go short, long, short , long, short – this reflects how close we are to the middle in our betting at this point. 

As I said, it was still 55% bearish into the close as we simply think that a sudden crash is more likely than a sudden break-out over the weekend.  Next week we'll be watching to see if we can get more bullish above our 25% lines at: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.  If we fail to hold those lines (and it’s doubtful they will be taken back) we are going to be looking at our long-expected retrace levels of: Dow 9,840, S&P 1,056, Nas 2,100, NYSE 6,720 and Russell 576.  Each one of those levels that falls make the next one more likely.

Nonetheless, we bravely begin a new $100K Virtual Portfolio Next week, as planned, on Wall Street Survivor which people will be able to follow along using their new spy function to track all of our entries and exits.  Members check your mailboxes for aspecial alert waiving the sign-up fees! 

 


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  1. AMZN – It’s stuff like this that will help keep the price up for now, at least. The numbers don’t add up to the lofty valuation but who cares?
    http://www.bloomberg.com/apps/news?pid=20601109&sid=azBjsoux51D4&pos=11
    In any event, I need clarification on your suggestion from Friday on adjusting my AMZN short call positions.
    My question was:
    AMZN- Now that we are going to be past Nov opex; I am starting to think about my options re: short calls. I have – all Dec- 1 105; 1 110; &  2 120’s. Basis is $3.65; $6.58 & $4.45 respectively. Sitting tight for now – planning on rolling forward until sanity returns. Other action I could take under consideration?
    You replied:
    AMZN/Pstas – You just want to roll to max premium.  You are in for about $20 avg on 4 and you can roll to Jan $120s at $13, either rolling 1.5x to put them in 50% premium of rolling 1x and selling Apr $110 puts for $6.20.  I like the spread because you are selling $11 in premium, double what you sell with just the calls and I know it is very tempting to just play AMZN to die but they’ve been super-solid since they went up and it’s going to take a lot to shake all those investors that came in above $120 out of that stock.
    If I understand corrrectly- the choices are:
    1. Roll em, roll em
    2. Roll all the short calls to 1.5x (approx) Jan 120’s @ 13.
    3. Roll all the short call to 1x Jan 120’s @ 13; sell April 110Puts at 6.20.
    My questions are:
    1. Under option 3, is it 1x the Jan 120’s plus 1x the April 110 Puts?
    2. I am a bit margin challenged right now and needing to hold some in reserve. What about rolling just the 105 & 110 to Jan 120’s for now plus 1x short April puts?


  2. USG- your thoughts on a buy/write on USG- Jan 11 15’s p/c for 6.84 +/- means about $7/$11- 114% call away.
    Or- what about the Jan 10/15 call spread?


  3. Hi, Phil,
    I have some issues with WSS.  Several people reported similar problems on Friday’s post.
    It looks like we have to enter the coupon code in two different places.  I only entered in one place.  I went through the whole check-out process.  I am charge $49.95/month.  I don’t know how to reverse it.  Can you check with WSS?  My login name at WSS is tttrading.  Thanks.


  4. Update note on signing up for following the $100KP on WallStreetSurvivor (see last night’s alert).

    It seems you have to input the code twice.  Look for where it says "Coupon or Gift Card" and put it there and they should NOT charge your credit card. 

    If you did get charged by accident, contact WSS customer support at:  http://www.wallstreetsurvivor.com/Public/Content/Contact.aspx

    And let them know you had problems with the coupon sign up.  Sorry but we have no direct control over those guys. 

    Thanks,

    - Phil


  5. This is just too friggin’ funny.  My Goldman article got hundreds of comments on Seeking Alpha, which served to remind me why I went private in the first place as so many of them are nonsense but one particular guy, Mark Anthony, is your typical oil company/NYMEX apologist – who literally wrote about 10 pages of various comments filled with the usual double-talk that tries to steer people into irrelevent side issues. 

    Finally, this one guy got annoyed and blasted him with a comment that was so good and so funny that I asked Seeking Alpha to see if he’d like to turn it into a column (if he can calm down enough to make it more general, rather than a shredding of Mark).  Anyway, it’s way too funny and too long to post here but this is the link

    Do me a favor and give it a thumbs up if you like it.  That’s another interesting thing about comments on SA – anti-oil comments seem to gather thumbs down ratings as soon as they are posted.  Very few other kinds of comments get ratings of any kind but say something bad about the oil industry and your comment quickly is "debunked" and de-rated.   Just a coincidence, I’m sure…


  6. Phil, why after paying 250 a month do we have to sign up for ANOTHER service that is trying to charge us 50 a month… I’m a big fan of you and your service but this is ridiculous…why are you not posting this on your premium service website!?!?


  7. Phil — I signed up to watch the 100k portfolio, and was not charged. However, I can’t see on the site where it is I’m supposed to follow what’s happening.  I know you don’t control the site, but I must be missing a simple step or tab somewhere?


  8. Service/Jrom – I don’t think you saw the Email Alert that was sent to you at 6pm last night or the comment yesterday at the same time.  I’ve arranged for this to be free to Premium Members (we are paying into it for you).  I can’t afford to build a back-end tracking system like that nor do I have the inclination to do so or the time to manage it but I have been able to arrange for you to use it at no additonal charge.

    I will still be posting the trades here on the site during member chat and, as you know, we will be discussing them here and setting them up long before they are actually traded on WSS.  This is an extra benefit I have arranged to provide at no additional charge so I’m sorry if you feel it’s ridiculous – you would think I would learn by now that it’s simply not worth the effort I go through because people complain no matter how much you try to please them…

    The gold market disconnect: Where futures prices are soaring, but demand for physical gold is 34% below a year ago – and where one mint (Austria’s) is cutting production of the metal coins on lower expected demand, while the U.S. Mint plans to resume making coins under an ounce in weight on Dec. 3


  9. WSS/Jcm – I have already asked WSS to clarify the coupon code and that is already done.  Having never spied on a portfolio myself, I really don’t know how it works but, since we have no trades and it’s a brand new portfolio, I’m not too surprised if there’s nothing to follow yet.  I have a very busy day today but if you really need me to be customer service for WSS tomorrow, I’ll try to work that in along with my plans of actually researching stocks I’d like to pick for the $100KP. 

    If you are in some way confused by the Survivor Spy product or are not able to use the coupon to get it for free – DO NOT SIGN UP FOR IT!  I am NOT going to be supporting them.  It seemed like a good way to add live functionality to the SAME EXACT trade ideas I always have, and will continue to feature in our daily chat.  It is an addional thing, it is NOT what my service is and I thought it would be fun and nice to do for the members but I will NOT allow it to become a time sink for me


  10. From David Fry:

    I was reading Bloomberg news from Europe early this morning and noted a pathetic quote (no, I didn’t save the article) from a money manager lamenting the sorry fact that given monetary conditions “we are forced to buy”.   This is a remarkable but very real condition for many equity managers.  Yields on short-term rates or cash are negative so some portfolio managers go about their business reluctantly.   Plus, WS trading desks are still flush with taxpayer money to trade. 

    Options expiration is usually accompanied by heavier than average volume as traders need to match up exercised positions or avoid being exercised period.  But today volume was again quite light with the 2:15 PM Buy Program Express leaving the station about 30 minutes early.   Some just say it was “dip buying” while if our money manager friend is right it’s “dips buying” (snicker). 

    So, volume was light and breadth mostly negative.


  11. Phil,
     What about those of us who can’t afford the premium service and have basic membership. Will we have access to your 100k trade ideas? Will you still post them under the portfolio tab like you’ve done in the past?
    Also, have you ever considered offering a student discount for your service? Just thought I’d ask, being a student and all.


  12. Can everyone give Phil a break on WSS -
    It works fine if you enter the coupon code every time they ask for one – if you get it right they won’t ask you for a Credit Card.
    If they are asking you for a Credit Card, you did something wrong so just start over.
    Sam


  13. GS Artical |  Scam Fairy… funny.


  14. Peter/ OSX
    I see resistant at 210 and 225
    support: 175, 160, 140


  15. Peter,
    couple of words how and when you move your strangle up or down will be appriciated


  16. Peter,
    what I found worst about iron condor – when market get creasy, bid/ ask spread became so huge, it is imposible to adjust your position – it is loose/ loose situation,
    I think with short strangle it is little bit better because less options involve


  17.  I’m getting the invalid coupon code after clicking the "checkout now" button but before entering the billing info at WSS.  But when I type in PhilStockWorld as coupon code and click "update cart", no error message is displayed.  Did we max out or am I doing something wrong?


  18. Phil — I totally get that the Spything is an added bonus, and that it is not to become a time sink. I hope my question did not imply otherwise.  I’d never have expected that and frankly I’m not sure how you manage your time as it it.  I’m relatively new here and am very much enjoying this  — I just wanted to be sure I wasn’t missing something obvious.


  19.  oops, nm, I’m going to contact WSS directly to ask what’s up.


  20. Best part of that rant from SA?
    "I now have no hair left in my head, its all on the floor, and I need to call the hospital cause im so blue i could be the cousin of brainy smurf over here."
    That made me laugh. I’d rate the guy up but it’s not letting me give him a thumbs up.


  21. hi Peter D:
    re: chaps/4:16PM post – no, I meant that your callers are In The Money, so that you lower your breakeven point and lower the potential loss.  For example, stock ABC is at $50, I’m suggesting to sell the CALL at 48 or lower if you can.  You’d get less extrinsic (therefore less profit), but you don’t loose the full profit until ABC is lower than $48.  This is why I’m avocating to start buy/write at a bottom so that we have more confidence to sell ATM.
     
    Sorry, that should’ve been obvious to me. You mentioned selling the PUT OTM, so I take it you’re selling the PUT at the same price – i.e., still selling a straddle, but at a lower strike. One nice thing about selling the CALL ITM is getting your caller to pay the intrinsic for the month ($2 in your example), essentially lowering your net investment cost (by $2 in your example), and hence boosting the yield the extrinsic is giving you on your reduced investment cost.
    A problem with selling CALLs ITM in these stocks is in the months where the ex-div date falls within your current front month (assuming you’re trying to capture these dividends, which I am.) For instance, BP went ex-div on Nov. 10th. When the Oct options expired (Oct 16th) and it was time to roll to Nov, BP’s price was about $55. The highest strike where the call was ITM was 50 and the extrinsic on that call was $.19 on Oct 16th. The dividend was $.84. If the call stays ITM and the extrinsic stays below the dividend, you risk getting called away before the ex-div date and missing the div pay day. I suppose you could adjust things one out of three months to avoid this. I currently manage my calls in such months to avoid getting called away.
    When you say starting a buy-write at a bottom, I assume you mean a market bottom. If so, I’m not sure how you find one. I think the market is currently high, but I don’t trust my market timing instincts.
    Thanks for the input on using PUT verticals as hedges. Versus the theta neutral mattress, that would be a recurring cost versus a fixed investment in the mattress. I’ll run that scenario.
     


  22. Peter/tchayipov – in this market what strategies are you employing mostly:  buy/writes, short strangles etc.?


  23.  chaps – I have been following your posts.  Thanks for adding so much to the board.  How long have you been using your buy/write strategy with protection?  Are you on track to achieve your 40+% profitability using your strategy?  I am really interested in what you have been posting as well as Peter’s strategies.


  24. ssdirk:
    It’s new to me. It’s a work in progress. I’m running it as an experiment with a limited % of my portfolio.
     
    I consider myself a novice and I’m not advocating this or any other strategy to anyone. About a week and a half ago, I posted my thoughts on why I found this potentially interesting. A number of people, including Phi, responded with curiosity and interest. Since then I’ve just been thinking about it, watching it my portfolio, and talking to folks about it.


  25. I put the thumbs up on seeking alpha. I can only nicely suggest and remind others to follow suit :)
    here but this is the link.


  26. My God, that Mark Anthony rebuttal was so funny, my sides are hurting from laughing so much.


  27. Mark Anthony
    So, how do you give a thumbs up??  Do you have to register?


  28. Need to be weary of the impending Eurozone (Greece) problems and "Japan pronounced the economy officially in deflation for the first time since 2006". Will money look to gold or the dollar for safe haven in the coming months?


  29. Phil,  Contact me about your hedge fund.
     
    PS   Best opening for SNL in a long time.  The whole skit was about how the Chinese don’t ever think they will get their money back from us.


  30. Chaps/Dividend Stocks:  Interesting article:  http://www.cnbc.com/id/34046554


  31. Thanks, ssdirk.


  32. Hi Phil, Re Dogs question from last week, I would prefer 5 dogs that have failed business models. AMZN as overvlaued as it might be fundamentally, still has a great business model. Would perhaps MCO be one of these? Tks J


  33. chaps, I did a related post in the Friday column, comparing buy/write, iron condor, short strangle and straight stock purchase pros and cons.  I think ssdirk & tchayipov got to them, just want to make sure that you know about the post also.


  34. Phil, i have a rare request – can you please set up a thread under the "Books" tab in the education tab so that members can suggest books they like or have found helpful.  I would also suggest a tab on the DIA put strategy since this comes up twice a day, it may warrant a special tab.  Just a sugggestion.  Thanks again, i have enjoyed  membership on this site from day 1 of this paid service.  I don’t know the ongoing particulars  of the stockclub in detail, but i hope that is resolved and hasn’t cost you undue harm.  How has your hedgefund done in this environment?  Have you been pleased with its performance?


  35. Peter, thanks for your very educative posts …..i have prepared an excel sheet which caters for purchase / sale of stock and 8 different option positions. Obviously you have to input strikes prices etc . I linked it for realtime prices using IB platform but it failed to update more often than not. The sheet gives you a chart and p/l. If you wish i can send you a copy tomorrow.


  36. Phil : Am I missing something. I don’t see an update to the $100k porfolio or Watchlist since early October.
    dflam


  37. Student discount/Japar – If you refer enough other students, you can get a 100% discount so, yes, I have considered it.  Students are generally our top commission earners on the Referral/Afflilate marketing program with one college guy having referred over 300 people in his business school and is MAKING over $2,500 a month on referrals already.  I see you’ve referred 7 people so you are well on your way! 

    WSS Coupons/Chen – I have already told them they need to up the coupon limit.  Do let me know if the code is not being accepted. 

    Managing time/JCM – I am BARELY managing at the moment.  That’s why I was very frustrated yesterday morning (especially after a hectic expiration week) but I’m all better now having had some nice wife and kid time this weekend and getting more or less caught up on my ToDo list. 

    Thumbs up/Edro – Yes, I think you need to be registered but you should all be registered at Seeking Alpha and following me there anyway as that’s our back-up chat if this site ever goes down.  All they need is a name and Email address and you are done – Just go here and click on the "Follow" button under my picture if you haven’t already.   That puts my stocktalks right on SA’s main page for you and you can bookmark that link as a backup. 

    Fund/Stock – I’ll drop you a line.  I used the SNL open on Marshall’s post on the main page.  The whole show was better this week.  They must have finally found a good head writer to replace Tina Fey. 

    Goldman Sachs (GS) spokesman Lucas van Praag responds to the New York Times’ questions about its exposure to AIG (AIG), pre bailout. While admitting that "a collapse of AIG would have had a very disruptive effect on the financial system, and that everyone benefited from the rescue of AIG," he maintains – despite evidence to the contrary – that Goldman’s exposure "was close to zero."

    Dogs/Jamie – Well there are problem companies like ALU, AMR, BZH, PALM, and PIR but what’s the point if they are not trading too high?  I much prefer to short things that are simply overbought like FCX or anyone in the mining sector if metals fall and anyone in the XLE if oil falls back to the $60s.  FDX hit my radar this week and they dropped nicely and we just hit PCLN on Friday as they got a bit ridiculous.  I think the problem is that fundamentals aren’t really driving the markets so even the bad stocks go up on good days.  That means it’s a little better just playing the overacheivers to fall off a little harder when the market falls off or just stick to shorting overbought sectors like RTH.   No way on MCO, we bought them and MHP when everyone else was selling for a nice win.

    Books/Jo – I’ll see about the page idea.  As to the fund, we’re opening the new one shortly.  Performance discussions, of course, can only be had with accredited investors who’ve been vetted, which is why you never see anyone discuss their fund on TV or on the web other than to say "I have one."   I thought we had a tab for books once but no one ever used it so it got bumped but I dont’ see why we can’t put a page in for members to make comments.  I guess the same goes for the Mattress Strategy – I do keep meaning to rewrite that post anyway…

    One of the main questions being pondered at Guangzhou Auto show this week is whether Beijing will continue its generosity, which has boosted the market by 45% YTD. GM China chief Kevin Wale thinks it will, which would be a boon to GM, given its commanding market share.

    Robert Shiller wonders if the recovery is just an optimist’s self-fulfilling prophecy: "After all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again – in turn, generating visible signs of recovery.   This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility."

    Barry Ritholtz makes an excellent counterpoint to Schiller:  "Not Totally Irrational: One of my complaints about economics is it over-emphasizes people as rational, unemotional actors. However, when it comes to sentiment, economics seems to make the same mistake in the opposite direction — it assumes that people are foolish, unthinking creatures unable to engage in ANY rational thought whatsoever. All sentiment, no rationality at all.  The reality is quite different: Sometimes, people behave the way they do because they have figured out a problem and are responding to it intelligently.  "

    $100KP/Dflam – The old $100KP (which became pretty much the AMZN portfolio) was closed out a week before Wednesday as we rolled out the last positions.  As I said at the time, I will be tracking follow-up on the AMZN play and if anyone has questions on the other positions, I’m always happy to help but we will now be using the live portfolio to track the new $100KP, which will be a little more opportunistic and following, for the most part, the buy/write strategy. 

    Wow, yet another attempt to take down the dollar: The Israeli shekel’s fair value is 21% above the current rate, Merrill says, noting Israel’s current-account surplus is set to triple this year. "Our fundamental model shows the shekel is massively undervalued." (ETF: ISL)

    You want to know what’s really scary – just play this animation:

    US EU by County


  38. “Our conclusion is that if small firms aren’t captured well in the advance GDP data, the economy may be growing less quickly than suggested by the recent official data.” -Jan Hatzius, Goldman Sachs economist, Recession Shows Shortcomings in US Economic Data

    We’re in the midst of a deflationary trend that is temporarily being masked by inventory restocking and free lunches like Cash for Clunkers. Consumers are done with borrowing. They’ll keep refueling the deflation by going through their attics and garages to find stuff they can sell on Ebay to raise cash.” Bloomberg -Gold Tells You U.S. Bubble Hasn’t Popped Yet

    In his weekly address, President Obama warned the U.S. should not return to credit-fueled growth, urging people to spend less and save more, while calling for a greater focus on exports to Asia. He also said it’s important the upcoming jobs forum "not undertake any ill-considered decisions, particularly at a time when our resources are so limited."

    Former CBO director Douglas Holtz-Eakin says the U.S. is headed toward a deficit iceberg. Obama’s lukewarm reception in China may be a sign foreigners are interpreting the suicidal rush to increase healthcare spending as "a dramatic statement to financial markets that the federal government does not understand that it must get its fiscal house in order."

    NPR’s Planet Money spends a day with Barney Frank’s Financial Services Committee. "We talked to 13 congresspeople, 12 of whom admitted that they don’t understand this at all. And the guy who thought he did really didn’t."

    Let the debate begin: Senators Lincoln and Landrieu indicate they’ll vote Yes on the motion to debate the Senate health care bill. Both also say they won’t vote for cloture on the bill unless the debate process leads to further concessions, especially on the public option. But post-debate, the bill only needs 50 votes to pass. (via)

     


  39. Lloyd Blankfein delivered a presentation about Goldman Sachs last week in which he explained what Goldman Sachs is and what its plans for expansion are. His comments were made at the Bank of America Merrill Lynch banking and financial services conference in New York City.

     

    The presentation basically made three points:

    • Goldman, despite its reputation as mostly a prop trading outfit with lots of conflicts of interest between its own profits and those of its clients, is mostly a client oriented firm.
    • Goldman is focused on expanding in the BRIC countries, Brazil, Russia, India and China.
    • Goldman is not only one of the most financially healthy financial institutions in the world, it delivers the best return to investors while also managing to pay its people more than just about anyone else on Wall Street.

    In short, the presentation was about why Goldman is totally awesome.


  40. I don’t know how to feel about this one.  This guy co-opted my work and turned it into a powerpoint.  At least he credits me but it’s strange to see my stuff chopped up like that…

    Senate Republicans blocked a Democratic effort Wednesday to immediately freeze increases in credit card interest rates, fees and finance charges.

    Of course there was not a vote to spare Friday asDems overrode the Republican fillibuster on the Health Care Bill by exactly 60-39.

    Great NYTimes comparison of US and China rankings.  Despite the recession it’s good to know that we have 359 Billionaires in the US but China is catching up fast with 79.  China’s GDP is listed here at just $4.3Bn, which I think may be the real number, not the $8Tn that is often quoted in the press (quoted so often that I’ve given up and started using it myself to avoid all the corrections I get). 


  41. Peter D: thanks for your 12:17 post.


  42.  Actually, finally got WSS to work.  I was actually entering the wrong code.  Was typing in PhilStockWorld instead of spyonphil.  So it was a legitimate error in typing in the code and not that it ran out I believe.  Looking forward to seeing how this works out.


  43. Gold being pumped to 1165 now. How far will they push this?


  44. Jamie:
    I saw your post re comment on "dog" stocks, not Petco or such, but stocks that are overvalued by today’s standards and are likely to shrink in cap value over the near term. Having just gone through a rehab program ( thanks to Phil) in order to adjust my trading attitude from "bullish be damned" to a more balanced approach, which better reflects the markets today for what they are, ie a mix of both bull & bear, I have researched a few selections for you that I feel might meet your criteria.
    These stocks, with their trading valuations, far exceeding  their true business performancem, are trading well over 20 times cash flow and are at less than 5% on ROA and declining. My top choice is HOG (Harley Davidson) which is trading at 137 times cash flow, revenue expected to fall 22% for 2009, and declining further for 2010. Current price is 27 times earnings, and debt is becoming a problem. I think this company is a good short in the current economic climate, as their products are discretiuonary and targeted toward many who are suffering ecomomically at the moment.. Others on my list are TZOO, ROG, CNS, all  for equal concerns, but all fall into the category of overpriced status, and all face difficulty in the near future, IMO Good Luck !


  45. Hi, chaps, a question about your strategy:
    Option strikes on some stocks are so widely spaced that it’s hard to pick a strike to sell.
    For example, if a stock is at $31, and its options have strikes at $25, $30, $35, etc (ie, $5 between strikes).  Which ones do you pick for selling calls/puts, $30 or $35?
    Thanks!


  46. Hi, sorry to have misplaced the info…can someone tell me who to email to get the discount fr think or swim. btw, I am finally understanding this site a bit more after reading more of the option book


  47. Question:
    In Chapter 7 (collar trade). in the example where u buy the stock at $45 and a leap 45 put and sell a leap 60 call for $3/share credit. IF the stock falls to $30, one would be protected by the put since we can exercise the option to sell at $45, right. But the example went on to teach 2 adjustment to the trade instead of selling the stock since the put would be worth 200% profit, so instead of exercising to sell stock at $45, 1st adjustment  says to sell the put for the gain (200%) and 2nd adjustment is to buy back the call since it’s now drop fr $3 to .5. Then it went on to suggest buying a new $30 put and sell a $45 call.
    So my question is:
    1. you don’t have to sell the stock at $45 even if the 45 put you purchased allows you too
    2. Why do you have to buy back the call? Wasn’t that supposed to let it go expired and lowered your cost with the $3 credit fr selling the Leap 60 call?
    3. Is it true that when you make adjustment to the trade, you never sell the stock, but just sell the put and rebuy a put ($30 in this example) plus sell another call ($45 in this case) called rolling the collar trade
    4. is there a one stop trade where you actually do a rolling collar trade, or you have to enter selling the put, rebuy new put and sell new call all separately?
    Appreciate feedback to make sure I understand it. I made too many mistake in trading option before so i hope to avoid it. 
    Thank you


  48. The more I think about the above example, the more I dun understand
    1 why buy back the call since its a credit trade and if the stock fell to $30, it will never touch $60, thus u dun have to worry about having to sell the stock, one can keep just keep the credit of the short call
    2. is it always true that after u short the call (sell the call), you can buy it back after it decayed at lower price as long as its not expired? what is the effect after you buy back the call, does it mean you don’t have to cap your profit at $60 and have unlimited upside?


  49. Also, Phil, when you say "XLF Jan buy/write at $13.25/14.13 – on track at $14.60" , does that mean buying the jan put at 13.25 and selling the Jan call at 14.13?
    and "C 2011 Jan $5/7.50 bull call at .40, still .40 – even" does it mean you are buying the bull spread of C, as in buying the jan $5 call and selling the Jan 7.5 call?
    How come you buy both put and call?

    XOM Dec $70 puts for .48, now .45 – down 6%
    XOM Dec $80 calls for .24, now .18 – down 25%

    I am sure I still dun understand a lot and I can only learn little by little, I hope I am not annoying anyone here.


  50. what is  "mattress" that’s been talked about here?


  51. Good morning!

    Crazy futures action.  Dollar jammed back down to 1.4975 Euros (where we shorted Euro futures last week) but Pound is lower than it was at $1.6618 so it’s a no-trade on the Euro although tempting.  The Yen is 88.8 to the dollar but the futures went crazy at about 1:30 with about a .75% run in 2 hours but they’ve flatlined since 3:30. 

    We expected nonsense on what should be a low-volume week into Thanksgiving and it was better safe than sorry to cash out last week. We’ll have to see how the open goes and we’re only watching the same levels we watched last week as they still have to prove something to the upside.

    Gold zoomed up to $1,165 and oil is $78.38.  Gold is just too insane to short (we did a neutral spread this week) and if we’re breaking back up then we can go long on some oil stocks.  

    We’re liking our banking sector to the upside (same as last week, BAC, C, GE, RF UYG, XLF) and not too much else (still like VLO, HOV, WFR, SPWRA) until we get either a nice pullback or a big breakout. 

    It’s already a crazy day – let’s stay on our toes!


  52. Lynn – sorry, a little busy this morning but remind me of your questions at the end of today and I’ll try to give you good answers.  Mattress Plays can be found in the strategy section or just google "Mattress Plays."


  53. cwan: re: which strike to sell. The ones where the combined extrinsic value (calls plus puts) is highest.  Let’s say i’m investing $100K and on average I can sell extrinsic value that’s about 4% of the value of my underlying stocks per month. So, if I can capture all of that premium , I’d make 4.2% (1 / ( 1- .04)) and would pocket $4,200.
     
    When the market goes down in a month, my putter will go into the money, and I’ m losing against that 4.2%. So I’d be dynamically increasing my hedge in this case, trying  to capture as much of the 4.2% as possible.
     
    When the market finishes the month up, I’ve made the 4.2%, but the strikes for the next month with max extrinsic value are higher. My portfolio is now worth $104,200, but I’m trying to treat this investment somewhat like a bond with a $100K principal (I don’t want to keep pouring more into the principal just because the market went up that month.) So I’d pocket the $4,200 (think bond coupon) and once again invest $100K in the buy-writes in the new month – selling max extrinsic, etc.
     
    This requires staying on top of your hedges, which is work – no doubt about it. This is a reason why this may not be appropriate for most people. Peter D mentioned just investing in a hedge at the beginning of the month and forgetting about it. You can do that, and I haven’t really evaluated the numbers thoroughly, but I think what you’d get is a hedged, traditional buy-write where the cost of your hedges are more expensive than the direction I’m considering with hedges. Nothing wrong with what he’s suggesting. I think it’s just a different investment.
     
    One way to think about this is look at a P/L curve of the buy-write intra-month at every moment during the month, instead of the buy-write P/L curve at expiration, which is how we normally think about buy-writes. In a perfect world, my hedge would always continually be keeping my delta at zero on the continually-changing intra-month P/L curve – at all times intra-month – and then the theta effect of the options I sold would inflate my return during the month up to a 4.2% gain, without the cost of the hedge. That perfect hedge would cost something, so I make 4.2% minus the hedge cost, but I’d get a relatively predictable return.
     
    That perfect hedge is not possible, so I’m approximating it by adjusting my hedges – more when the markets going down, less when it goes up.
     
    It’s kind of like calculus, where you work with approximations (linear approximations in the case of calculus) to a what’s really a continuous process. The better your approximations are, the more powerful the tool you’ve created.
     
    I’m interested in this, because if I can reduce the uncertainty about my return (that uncertainty is always high with a standard, unhedged buy-write), I might be inclined to add leverage. That would make it even more worthwhile to put in the work to adjust the hedges – in my case with my portfolio.
     
    Caveat: this is an idea and an experiment. I’m not trying to start a crusade…..lol


  54. no problem phil. maybe after market close. not urgent,