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Manic Monday – Stuffing the Futures for Thanksgiving

$SPXI noted in the Weekend Wrap-Up that 90% of our gains have come in one day each week.

I also pointed out that a vast majority of those gains occur in very thinly-traded futures, where unregulated (or jokingly regulated) traders can trade a few thousand index shares and move the US market values by Trillions of dollars.  That’s why you often see the title "Just Another Manic Monday" starting my weeks, because it is often manic (as in upbeat for irrational reasons) and, as noted by Trader Mark in his post last night – it’s pretty darned ordinary at this point.  In fact, anything less than a 1.28% gain on a Monday is below average.  

So we are going to be back to testing our breakout levels early in the week and the volume should be low enough to allow a run back to last week’s highs.  International traders took advantage of the Nikkei being closed and used the low Asian trading volume to make a statement on the Hang Seng, driving that market up over 200 points after lunch, improving on a 175-point gapped up open that has been flatlining until that final 90 minutes.  It was another commodity-led rally as the dollar dove back to 88.5 Yen and right back to $1.4975 to the Euro (where we shorted the Euro last week) and $1.66 to the Pound.  This led gold to fresh highs at $1,167 and copper touched $3.20 along with oil getting back to $78.50 – all tempting shorts but we’re happy to watch this nonsense from the sidelines after getting a bit more cashy ahead of the holiday. 

The big market-moving news in Asia was a rumor that a researcher under China’s State Council reportedly said the Chinese economy was likely to expand more than 10% in the fourth quarter.  That’s all it takes, you know – I know a guy who knows a guy who heard a guy who works in China said things are good there and BOOM – the Dow gains 100 points.  Forget the fact that a 10% gain in China’s entire economy is just $400Bn US Dollars – see this excellent NYTimes China/US compariston chart to get a better picture of how the two nations stack up and also please read the excellent article from Marshall Auerback this weekend, "Should America Kowtow to China?" to get a great perspecitve on the money game

"The market still has upward momentum as there’s expectation that Beijing won’t likely launch any monetary tightening measures by the year end," said Guosen Securities analyst Wang Junqing.  "Investors will likely remain cautious until they confirm U.S. sales results after Black Friday," said Min Sang-il at E*Trade Securities, referring to the traditional start of the holiday shopping season, falling on Nov. 27 this year. "Stocks’ valuations look less attractive after the Kospi broke above 1600 last week." 

As you can see from the above sketch on Saturday Night Live this weekend, Obama’s trip to China did nothing to support the dollar, either overseas or in the minds of US investors.  We expected the National Debt to become more of an issue as the year winds down and Congress if forced to raise our debt ceiling over $12Tn, which we expect will have a negative effect on shopping but the initial effect is to weaken the dollar and that trade is being used to boost the markets at the moment.  We went into the weekend 55% bearish and, like last Monday, we’re happy to play the silly upside momentum while it lasts but mainly, this is another great opportunity to place some downside bets. 

Europe is flying as well (also gapped up pre-market and flat since) and, like last week, we’ll be keeping our eye on DAX 5,750 (now 5,749) to give us a proper sign that international stocks are breaking higher while the FTSE 5,250  (now 5,330) would be our bearish signal if it doesn’t hold up.  

Europe is also flying on a commodity-led rally as the only consumer spending we can really count on is the involuntary spending that occurs every time these International Financial Terrorists manage to hold our vital resources hostage and drive up the cost of the things that the global population can’t live without - whether or not there is any actual increase in demand.  It’s good to know that, no matter how bad things get of the consumer, we can always FORCE them to pop another $50Bn into the global GDP by raising the price of oil a couple of bucks (and, what do you know, we’re up $2 since Friday’s close!).  

Some traders said the dollar may have come under pressure on comments by Federal Reserve Bank of St. Louis President James Bullard that he would prefer to keep the central bank’s asset-buying program active beyond its current cutoff date. In an interview with Dow Jones Newswires Sunday, Mr. Bullard said he wants to see the central bank effort to buy mortgage-backed securities maintained beyond the end of the first quarter of 2010.  Barclays Capital analysts said Mr. Bullard’s comments suggest "that the Fed will continue to underwrite the rally in risk and would leave the USD drowning in liquidity," while minutes of the Fed’s policy meeting should also be supportive of further dollar weakness.

Speaking of the Fed – Two Fed Governors (Steindel and Strauss) were on the team that put together the analysis for the National Association for Business Economics (NABE) - another one of those market-moving reports that is released to members ahead of the general public.  Reaffirming last month’s call that the Great Recession is over, NABE panelists have marked up their predictions for economic growth in 2010 and expect performance to exceed its long-term trend. “While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.  

While that does all sound very exciting, panelists also predict a relatively sluggish consumer upturn but look for a sizable housing rebound, low inflation, and further rise in stock prices. Importantly, panelists are mostly (though not entirely) optimistic that the Federal Reserve’s policies will not lead to higher inflation. At the same time, NABE panelists are “EXTREMELY” concerned about high federal deficits over the next five years.

We’re planning on taking it easy on this short, holiday week.  It will be interesting to see how our chart levels play out.  If they can hold near last week’s highs today, we should get a good pop in the Nikkei, which will finally be good for our EWJ calls, that have been terrible so far.  Jan $8 calls are just $1.35 with very little premium and are a nice way to play a pop in the global economy.  The nice kicker on EWJ is that they actually benefit from a dollar bounce, which still might happen one day.  Meanwhile, our chart levels are:

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  10,318  1,091  2,146  7,084  584  1,842  22,771  9,497 5,333  5,750
2.5% Up 10,575 1,118 2,199 7,261 598 1,888 23,340 9,734 5,466 5,893
Nov High 10,471 1,113 2,205 7,266 605 1,905 23,100 9,995 5,396 5,843
2.5% Down  9,772  1,042  2,059  6,784  565  1,764  21,283 9,259 5,199 5,606
July Base 8,200   880  1,750  5,600  480  1,650  17,500  9,200  4,200  4,600 
25% Up  10,250  1,100 2,187 7,000 600 2,062 21,875 11,500 5,250 5,750
Retrace 10,125 1,056 2,100 6,950 576 1,980 21,000 11,040  5,040 5,520

We see strength in China and Europe built not Japan.  The Dow and NYSE are already in good shape and the DAX is, as usual, critical at 5,750.  We need to see 3 of 5 of our US indexes hold those 25% lines to get more bullish but let’s not kid ourselves, with 3 days to Thanksgiving we’re not going bullish into the holiday anyway so it’s really a matter of restraining ourselves from making any bearish bets

We only have Existing Home Sales at 10 this morning.  For some reason they expect 5.85M homes in the October report, up a lot from 5.57 in September and that seems a bit doubtful but we’ll see.  Tomorrow we have revised Q3 GDP data and it’s now expected that it will be revised down to 2.8%, from the ridiculous 3.5% number that rallied the markets last time.  Case-Shiller’s September Index is out at 9am tomorrow along with consumer confidence and then FHFA Home Price Index at 10.  Wednesday is a datapalooza with Personal Income & Spending, PCE Prices, Jobless Claims, Durable Goods, Michigan Sentiment, New Home Sales and Oil Inventories so fun, fun, fun this week. 

Let’s be careful out there!


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  1. Morning all, Phil
    Could I seek some advice please as I notice LDK’s preciupitous climb I am short Dec 7.5 Call, short Dec 7.5 put, Long 1.5x Jan 11 10′s. This was a recommended recovery play on LDK from an old buy/write.
    Does this position need adjusting at all please?

  2. Phil, Re Dogs thanks for the advice. J

  3. Phil,
        Have sold JAN $15 calls on SLV.  This position just keeps running away from me, as sold these calls in Aug for $1.50.   Any suggestions to turn this around?  Was thinking about selling some puts, but still wonder if SLV won’t turn south by JAN.  Thanks 

  4. LDK at 9 pre-market on good earnings and outlook.

  5. This BS bugs bunny overnight nonsense continues !   Be careful folks; trim some longs; add some shorts.

  6. Cap: Any suggestions on some good shorts?

  7. I would look at financials, real estate, some tech, retail.   Depends on price levels.  Perhaps the indexes.  SPY around 111.

  8. If you have the stomach for it; short SLG or SPG here (SLG best payoff I think)

  9. Very simple levels today, we either hold our 25% levels and make new highs or we don’t:

    25% (up from July base) was: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.  As usual, it’s the Russell that gives us problems but the Nas isn’t over yet either so let’s see what happens.

    Watch last week’s highs for a re-test (but doubtful we’ll break any without all 5 indexes over the 25% line) at:  Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605.

    There is no volume to the move up in the first few minutes but that’s kind of the point for the bulls as they jam it higher.  The question is, what will happen when volume picks up. 

    Sure I wish we had been fully covered on the DIA puts but we weren’t and the DIA $104 puts (1/2 covers) are down to $1.70 so we WANT to buy them back and we’ll keep our eye on them.  Hopefully getting out at $1.50 or less but not letting $1.75 slip away.  That would be a $1 gain, which will pay for us to roll March $104 puts up to March $105 puts so that roll is worth doing as is the roll to the $106 puts (now $5.85) as that set’s us up to cover with Dec $105 or $106 puts if we have to.

    So for now, DIA play is to roll up to March $106 puts for .90-.95 and plan on being naked (buying back the current 1/2 cover) UNLESS we break out to new highs. 

  10. FCX Move – Phil thoughts on FCX Dec 85 Puts currently naked?

  11. ARIA – data to be released on a very early compound in clinical trials Dec 7 (no their big boy trial).  I expect them to drift up to the 2.5 area after the red tail last week.  I am going to pick up a few more shares (I have some already) and will be out if they move past 2.1.  Currently 2.23.

  12. You guys have to bear with me, I think I’m getting the flu and my head is killing me!  Waiting for drugs to kick in… 

    LDK/Steve – They came in good!  I’m doing this by eye but I think you can roll to 1x the Jan $8 calls ($1.40) and 0.5X the Jan $9 calls (.95) for about .70 better than even and you can roll your 2011 $10s down to the $7.50s for .85 so that’s a nice way to establish a long-term position now that we know they are performing for us. 

    SLV/Jim – Commodities are nuts but silver is trailing gold by quite a bit now.  I think if you roll to Jan $17 puts and calls at $2.40, you are still technically bearish but at least you are picking up $2 in leeway should they head higher.  If you roll to 1.5x it’s an even roll but it depends on the margin that way.  You can go out to Apr at no extra cost so it’s a matter of timing preference. 

    FCX/Bgb – Not down that bad but I’m not going to chase either.  Let’s just see if this nonsense holds up or not.

    If we’re going to top out, this should be about it but Europe flatlined at the tops so let’s not get too excited on the downside

    DXD $28 calls at $1.85 (.35 premium) are a nice speculative downside play.  They were $2.90 on Friday

  13. GLD / Phil – I have a small position in the GLD Leaps (Jan 11, 100) which is now up 30%. How do I protect the profits?

  14. ITMN is holding, buying here and selling the 12.5/10  C/P strangle for 85c.  Nice starter position to ease into.   (I bought them last week in here. One can also buy the 7.5 Jan11 C for a less capital position since there is no dividend.

  15. Selling My TNA here and picking up some TZA for the day. I went into the weekend 70% bullish, sorry Phil, so nice profit. Aside from the daily plays, I’ll be going short into next weekend as Black Friday can only surprise to the downside IMO.

  16. ARNA / Pharm – Need some advice. I had sold some Nov 4 puts at 68c and I got assigned this weekend. What do you recommend? Should I hold the position or sell them off?

  17. Phil
    plan to add AGNC to LTP, what is your opinion? do you think that dividends are safe in this market today?

  18. Flu/Phil – I think I picked up something last night too, but my head has been more or less killing me for the last week and a half. At least that’s my excuse later when I ask myself why I made downside plays today.

  19. Phil,
    What’s your opinion on GS I’m holding some Jan calls that are in the red. What do you think are their short and long term prospects.

  20. Wow, oil ripped up to $79.80.   Gold hit $1,174, nat gas $4.92, siilver $18.85, copper $3.20 again.  Seems Russia just bought a bunch of gold to give everyone a big boost.  Home sales way better than expectations too:

    Oct. Existing Home Sales: +10.1% to 6.1M vs. 5.7M expected and 5.57M in September. Month’s supply 7 vs. 7.8 prior. Median price -1.7% Y/Y to $173,100.

    NAR’s Lawrence Yun was suprised at the size of the gain in home sales, which he thinks may be a sign of last-minute buying before the homebuyer tax credit expires: "With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."

    Very program looking so far with uniform 2% gains across the board.  RUT is over 2.5% at 600 so they should have the most touble breaking over their high (605) but the Nas is stuck at 2,187 already and that’s not good for the bulls.  Don’t forget to watch also Dow Transports at 4,000 (now 4,019) and XLF $15 (now $14.89) which kept us bearish last week despite the moves up. 

    ZION up 15%!  News that they are swapping preferred for common.

    DIA $104 puts don’t seem like they are going much lower than $1.45 so now we don’t let $1.50 slip away, nice $1 profit locked in

  21. ARNA/Trad -  Not sure how many, but I have a large position in ARNA.  I am expecting them to partner and that will cause a pop in the stock.  If you want to be conservative, I would sell the 4 Jan10 for 30c, or just sit and wait.

  22. phil,
    ftse making run on 2%, cac & dax well above 2%

  23. Pharm – Thanks on the ARNA info. Also, what’s your timeframe on ITMN?

  24. Phil
    I have 5 UGL Apr 39 longs at 8.70 and 5 Jan UGL 41 callers at 2.7(now 11 ish) . From an upside viewpoint, it there something  that can be done here?

  25. GLD/Trad – I’d go the the Sept $111s at $12.95, taking $9 off the table and sell 1/2 the Jan 115s for $4, which is another $2 per long off the table.  If gold goes higher, you can easily buy more longs and your callers won’t hurt you much and if gold goes lower you could care less. 

    TZA/JRW – This time I’m going to agree with you on that one.  The Jan $12.50s are just $1.15 and make another fun bear play. Very nice job with the call!

    ARNA/Trad – You can sell Jan $3 calls for $1.15 and Jan $4 puts for .75 for net $1.42/2.71 off your $3.32 net entry.  That’s a pretty nice spread actually..

    AGNC/Tcha – I doubt the dividends are "safe" but I do like the Jan $22.50 calls at $3.80, selling Jan $25 calls for $1.75 and the Jan $22.50 puts for .45 for a net $1.60 entry on the $2.50 spread (56% upside) and it’s $23.60 if put to you (rollable, of course).  That’s a lot more than you’ll make at dividends and not a terrible entry if you like them long-term. 

    Flu/Kwan – LOL, yes, it does put you in a negative mood.  10:30 volume is 40M so super-light.  If this didn’t happen almost every Monday, I’d be more worried but we expected that 10,500 attempt and it was kind of silly of us not to realize that today was the only chance they had before all the data comes out for the week.

    GS/Josec – I think $180 is a fair price for them so not much action around this level other than sentiment changes.  To me, they don’t really pay well enough (selling options) for the risk you are taking in holding them so it’s not my kind of thing.  I was loving them under $80 and, don’t forget, that was only 8 months ago!

    2%/High – All that matters is DAX 5,750 and they just got the same insane mega-pump that we did to pop them to the 2.5% rule at 5,800 so we’ll see what holds. 

    I guess getting the market up to new highs for Thanksgiving makes sense to cheer up consumers and get them out to the mall so maybe this is going to last – depends on tomorrow’s data. 

    Sector ETF strength after one hour: Gold Miners– GDX +4%. Oil Services– OIH +3.2%. Coal– KOL +3%. Steel– SLX +3%. Homebuilders– XHB +2.7%. Heating Oil– UHN +2.7%. Healthcare Providers– IHF +2.6%. Russell 2000– IWM +2.6%. Energy– XLE +2.5%. Solar– TAN +2.5%. Commercial Banks– KBE +2.5%. Basic Materials– IYM +2.4%. Regional Banks– KRE +2.3%. Basic Materials– XLB +2.2%.

    Dow leaders after one hour: CVX +3%. AXP +2.9%. CAT +2.6%. PFE +2.5%. BA +2.5%. GE +2.3%. DIS +2.3%. JPM +2.2%. BAC +2%. XOM +2%.. No Dow components are currently negative.

  26. Phil/Flu…. Don’t overlook the medicinal properties of the Wild Turkey.. I have provided a permanent place for it in my medicine cabinet after last weeks success.

  27. CRE recovery will be long and slow, Moody’s says, noting CRE tends to lag the overall economy, "and is dependent on both business and consumers for demand." Cash flows for properties with short-term lease structures like hotels could bottom in early 2011, firm says, but the bottom for for office, retail and industrial properties will take longer to form – and prices will remain deporessed far longer than cash flows.

    Meanwhile, the co-head of BlackRock’s (BLK) Global Bond Portfolio Team, Brian Weinstein, warns deflation may still be in the cards: CPI remains "very, very close to zero," he says. "If you have another slide down in the economy, you could have negative CPI in the middle of the second quarter and into the third quarter."

    Zions Bancorp (ZION) +14.6% after announcing a plan to swap $140M of preferred shares for 7M common shares as it looks to boost its equity ratios. The offer, while a nearly 50% discount to face value, is close to a 25% premium to where the preferreds were trading Friday.

    ECB president Jean-Claude Trichet ratchets up the exit rhetoric, saying the ECB already has a strategy to pull back its stimulus measures, and urging euro-zone governments to do the same. "There is an increasingly pressing need for ambitious and realistic fiscal exit strategies and for fiscal consolidation," he says.

    For the first time in a decade, more people paid their credit card bills on time in Q3 than in Q2, with U.S.-wide delinquency falling to 1.1% from 1.17% last quarter. Taken together with an even more pronounced decline from Q1 to Q2, the results indicate that consumers are getting better at handling their debt.

    Oct. Chi. Fed National Activity Index: -1.08 vs. -1.01 in Sept. Three-month moving avg. -0.91 vs. -0.63 last month. A decline in production and income indicators offset small improvements in employment, personal consumption, and sales.

  28. Phil/ PCLN
    I bought $185 put @1.9 now just a 1.0 do you think it time for DD, and do you think I should roll it higher?

  29. $100KP Entries

    • 10 SRS Dec $9 puts sold for .75
    • 10 EDZ Jan $5 pus sold for .60
    • 10 DIA March $106 puts at $5.70

    Keep in mind this is what I’m offering.  We don’t know if they’ll fill but WSS should notify us of that. 

  30. Hello Phil – speaking of 100K (the old one) in the weekend post i think, you said something like we have closed out the old one.  Aren’t there still some positions left open? Such as PSQ, CROX & C? I didn’t miss something did I? Hope you feel better for the holidays.

  31. GLD
    Just when I think I’m getting it right …….
    Short 2 Dec107C basis 3.07 now 8.25
    How would you adjust this, still about $0.50 in premium left

  32. Phil, My basis in PARD is $4.10 after keeping the premium of the caller.  Do you have any recommendations to repair this position at this point?  Want to be careful though since I saw someone’s post saying that they have about a year left at the current burn rate.

  33. r u saying u r buying TZA Jan 12.5 call?
    confused about SRS. you are selling Dec 9 put? The Oxen is buying into SRS

  34. SPX short strangle update – SPX Dec 1150 CALL jumped $1.95 to $5.1, and the 975 PUT lost $1.2 to $1.87.  So with a big market jump, the spread only lost $0.75 on paper.  Now we are getting sucked into this rally.  Should we chase it by rolling up the 975 to 1000 PUT for $0.75?  You guys let me know.
    January strangles – let’s use this surge to stalk out the January strikes.  SPX Jan 1180 CALL at $5.75 is very temping short (to sell into the excitement).  But it’s more prudent to start with Jan 1200 at $3.15.  To get us to learn these set ups, I’m looking for discussions from folks in setting new strangles, rather than just throwing out suggestions.  For example, would someone tell us for the market to rally 8% from SPX 1110 to 1200, how much money needs to be put into the market (in trillion)?  If the market grinds up, what is the next likely head (or hump)?   Would the 20 days moving average crosses the 50 moving average for SPX in the near term?

  35. SRS – Lynn – selling the puts is bullish – so is buying the stock – just different bullish strategy -

  36. Lynn,
    Two ways of making the same play.

  37. samz3700. true. thz for pointing out the obvious. I am still adjusting to these terminology

  38. FAZ is looking might enticing – trying to remind myself I cannot "know" which way it is going to break – hard to do.

  39.  Peter D,
    I bought back the 975 put for a profit instead of roll. My take is tue/wed data is bearish so that’s the time to sell put again (two day theta is < 0.4 so I am willing to take the chance).. 
    As for RUT, I followed Phil’s suggestion and sold 1/2 Jan RUT 620 when it’s at 600 this morning. No put yet. 

  40. Peter D – hard to estimate how much money to move SPX 90 points – becasue if the future are moved up on Sundays/Monday AM – on very low volume and the level holds – look at each of the past monday – as Phil has pointed out – doesnt take a whole lot of money to cause it – if no one challenges the move up.  Using eyeballed number – it took about 35 Billion worth of contracts or so – to move us up from Friday Close and leave us at 1111 on the futures.  Is this the right way to figure it out ?

  41. WSS already driving me crazy as they are now using the new option symbol formats so the coding is a bitch to get used to!

    UGL/Drum – You can roll the Jan callers up to 2x the $49s for about $1.70 and you can roll yourself up to 3x the July $50s at $6.40 and that’s a $5+ credit so you put net $3 back in your pocket and, worst case, you roll the $4.80 Jan $49 calls up to 1.5x the Apr $55 calls (now $4.60) and you put another couple of dollars in your pocket and you have a $5 bull call spread.

    Turkey/Gel – I can’t even think about that at the moment!

    PCLN/Tcha – I think, at the moment, we should be thrilled to see a pullback against our bearish plays that gets us even.  Not looking to press bets now as we’ll need cash for bullish plays if we do break up from here.  I’m not ready to run away yet but bear technicals are weak right now.

    $100KP/Morx – In my last post on it (2 wednesdays ago) I put up rolls for those looking to stay with them.  Anytime you have a question on them (assuming you stuck with them) feel free to ask but, even if they make it into the new portfolio, I have to treat them as new positions from scratch anyway. 

    GLD/Edro – Best on those is to take advantage of the high premium to sell 2x the Jan $115s at $4 but you need an upside escape plan like selling Jan $110 puts for $2.25 and buying March $118 calls as momentum covers.  Gold is just so dangerous right now, it’s hard to get it right in either direction.  You can also cap you caller with the March $111/118 bull call spread at $3 as that negates all additional gains through $118 but also costs you 1/2 of the drop if they pull back.

    PARD/Leon – Almost every biotech has about a year left and any given time.  Something to be concerned about but also just a part of the game in that sector.  If you are worried, you can just sell the March $2.50 puts and calls for $1.60, which drops your basis to $2.50, which is just as good as doubling down now.  If you are worried about giving up upside, you can buy some 2011 $5 calls for .55 (or be cheap and go for the $5/7.50 spread for .10) but there’s not much else to do other than be patient.

    TZA/Lynn – Yes, I think I did say that!  On SRS, the short sale of the puts is like a buy at net $8.25 so either a cheap entry or the putter expires worthless and I just keep the money.

    FAZ/Samz – July $15 puts can be sold for $3 and the $15/25 bull call spread is also $3 so doing both is a possible $10 gain on $0 invested (anything over $15 is profit) or you own FAZ for $15 in July (rollable of course)

  42. Good exercise Peter.  On the first question, my take would be to take the increase of 1.20 and spend 0.75 of it to roll up to 1000.  If I extrapolate my SPX channel I have drawn, the lower channel will be well above 1000 by expiration in Dec.    Also, looking on TOS risk profile I only loose about 2% probability of expring worthless.  Anyway, my reasoning may not be sound, but this is what I think and hope to learn from any bad reasoning.  The second question will take me a while to think about.

  43. Peter – On the Jan strangle questions, I think the next hump would be at 1140 on the SPX if it were to continue higher.  If we have sideways action for a few weeks then the 20dma could cross lower on the 50dma.

  44. Phil, Thanks for your recommendation Friday re EDZ.  I held off until this morning (anticipating the Manic Monday trend) and sold puts, but didn’t buy stock or sell options, which were the other two pieces of your recommendation.  Any compelling reason to complete the other two legs of the trade, or better to just stick with the puts?

  45. Phil - I think etrade had also sent out an email saying that they would also be rolling out the new option format sooner than everyone else.

  46. Phil
    do you naked with DIA puts now? at which price you recomend cover half?

  47. ITMN/T – I am looking for them long term.  Their main drug is for IPF (interstitiial pulmonary fibrosis) and should be filed and approved in the Jan10 (filed) – Jan11 (approve).  This is a small, but lucrative market as the disease kills in 1-5 years.  There is NO competition at the moment as no one knows the mechanisms of how ITMNs drug works.  The drug is in trials for kidney, liver fibrosis as well, and these would be add on revenues if it clears the trials.
    The ONLY problem I see short term is the manufacturing data…as many biotechs fail this.  I am naked the stock and the long call, but have an order in to sell the strangle.  I have been buying, riding, and dumping.  Repeat. MrM and Cap do this as well on a few stocks they follow (HK is one example).

  48. Peter
    I believe January will be good for the S & P. Thinking of selling the January puts on SPX @ 55.00. Would you prefer a strangle?

  49. 100KP – Hi Phil, I am fairly new to the site, I really like the ideas and info.  What is the strategy of the new $100KP?  I don’t have a $100K to invest, but would like to follow these trades on a smaller scale depending on the strategy.  Thx!

  50. Gold futures are up sharply, +2% and at a nominal record cresting $1,170/ounce, but Mark Hulbert notes strength in the bullion is nothing compared to today’s rally in precious-metal miners.

    This chart explains why the U.S. dollar is effectively worthless. "The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing."

    The U.S. government faces a fundamental disconnect between the services they are providing and want to provide, and the additional taxes people are willing to send the government to finance those services, Miller Tabak strategist Dan Greenhaus says. And don’t ignore "the damaging effect these tax policies may have on the path of consumer spending and economic growth going forward …"

    With the national debt now topping $12B, the government faces a payment shock similar to the one that sent overstretched homeowners into default on their mortgages once interest rates start to rise, NY Times says. "The government is on teaser rates," one watchdog says. "We’re taking out a huge mortgage right now, but we won’t feel the pain until later."

    Gartner reverses its 2009 PC sales forecast to +2.8% from -2%, or 299M units, noting Q3 shipments were much stronger than expected. However, dollar sales still seen diving 10.7% year-on-year to $217B due to "unprecedented declines" in ASPs as customers settle for "good enough" – a trend it says is likely to continue.

    The smallest of small businesses are borrowing again, leading to hopes for renewed job creation, according to a PayNet study. So-called microbusinesses (with less than $100,000 in outstanding debt) increased borrowings and reduced delinquencies in what the group said may be an "inflection point."

    SEC enforcement director Robert Khuzami says the agency’s ready to move its focus beyond the policing of equity markets to the sometimes opaque world of derivatives. The SEC will "roll back the curtain on those markets and look at patterns across all markets," he said at a conference on hedge fund regulation this morning.

    Man, I give up!  What a totally oddball mix of horrible news along with people telling you how much better things are getting.  This market is just insane but maybe it was driven that way by all these idiot economists.  You don’t have to be right to have a successful career anymore and that’s the problem.  It used to be that a person lived or died by their record but now there are people who are paid to be bullish and people who are paid to be bearish and people who are paid to boost oil and people who are paid to boost gold (and when you visit a "gold bugs" web-site you are paying the buy-side people’s salary with your ad revenues) and what we end up with is this insane-sounding noise

    I don’t have a solution, it’s the nature of modern markets and media but you can tell that the guy who writes one article can’t possibly have read what the guy in the previous article wrote.  Once upon a time there were papers that, once a day, presented both sides of issues and the next day there were some letters and, if necessary, on the weekend they would do a follow-up.  Now people just spout off whatever nonsese they feel like it and, if it sounds exciting, it’s immeditately spread around the planet, whether right or wrong. 

    OK, enough complaining…  Where are we?  Dow rejected at 10,500, Transports failed 4,000, S&P still over 1,100, Nas failed at 2,187, NYSE right on 7,200 and RUT failed 600.  XLF never broke $15 but DAX finished the day at 5,801 as if they were only following orders and the FTSE finished at 5,355, right about where they closed last Wednesday.

    Dow volume 77M at 12:25.  Pretty lame but we’ve certainly seen worse. 

  51. Argggh … I knew I should have shorted this 10 am pump job !

  52. Hi, Pharmboy,
    Are you still bullish on BEAT?  I sold Nov 7.5 puts (Ouch!) and rolled them flat to Dec 7.5 puts last week.

  53. I know there is a bunch of doom and gloom out there, but I have to add my 2c. "Wait until April"….according to my uncle.  His other recommendation to me is selling WSFS (no options though) – he thinks it will lose 1/3 or more of its value over the next 6 mo FWIW.

  54. Cap,
    Yeh, you’re usually ahead of me on that !!

  55. Pharmboy, is this the same uncle that you were posting about on 11/12 that was saying to short RF?  Because I took that advice and RF is up 20% since then!

  56. Hi, Peter D, a strategic question shorting SPX calls/puts:
    At what point do you roll a position going against you?  Do you roll when it’s very close to ATM (say, around 5 points)? Or do you roll when it’s ITM a bit? Or a lot?
    Or is it best to stick to your guns and wait until the last few weeks to expiration?
    I know this question is kind of too general.  I just want to get a feel of your thinking process.

  57. If you like the China growth story ( 10% annual for as far as the eye can see, with commodities in perpetual demand), then here is a Buy/Write with terrific growth history and potential. CLF (Cliff’s Natural Resources) . I did a short strangle – January p & c @ 45.00 for a 17 % discount.

  58. Pharmboy
    what will April bring. ?

  59. phil,
    pattern in europe today was up early, flat for a while, then further up into the afternoon with a slight retracement in last half hour. looks like we might copycat this also?

  60. Yes, and it is up, but I have been hedging it up/down so it is not hurting as much (yet).  Same one that said last year March that C to $6, WFC to $15, etc, etc.  His expertise is in the financial arena…..

  61. EDZ/Judah – No compelling reason just yet.  That’s why we did them that way in the $100KP this morning.  Of course $5.25 is a really good price for EDZ too if you are looking to sell the calls but we’re not selling the calls on our play UNLESS the stock is put to us in Jan and then we’ll flip to a buy/write.  Look at the math, we sold 10 $5 puts for .60 so collecting $600 against $1,900 (at 50%) in net margin (24%).  If we bought the stock for $5.28 ($5,280) and sold the Jan $5 puts and calls for $1.50 that’s net 3.78/4.39 so we can make $1,220 but on $4,390 in net margin (27%) and our put to price of $4.39 on 2x is actually the same as our put to price selling the $5 puts for .60.  So we tie up almost 2x more margin to make 5% more and increase our exposure by 100% to the downside in the buy/write.  Since we are only establishing small scale-in positions in a new portfolio – we need to place a premium value on staying flexible and limiting the exposure of any single position going bad

    New Option Formats/Trad – WSS just let me know that CNBC is already posting options that way on their lookup if anyone needs it.  Apparently Reuters has shifted their feeds early, which is why WSS went early as that’s their supplier. 

    DIA/Tcha – Yes, naked March $106 puts but will 1/2 cover with something again when the market turns back up (or into he close).  When in doubt, whatever pays you about $2.25 is good.

    $100KP/Dfran – Our max INTENDED position size is $5K but we will certainly be doubling down to $10K on some at certain points.  Actually the DIA puts are already over but they are downside protectors.  Each position is being played to win but the mix is important as we are going to try to keep more or less balanced.  The idea is to buy bullish plays you like no matter what and bearish plays you hate no matter what and ride out the cycles that go against you while cashing out the winners.  Make sure you read the strategy section (tab above) and maybe you want to paper-trade it for a while so you can get used to the ebb and flow of the trades.

    After talk a year ago of decisive government action to address the crisis, the administration seems to be working scared, Paul Krugman says, but President Obama’s hand-wringing about the deficit becomes comprehensible "if you suppose that he’s getting his views, directly or indirectly, from Wall Street."

    The Fed backed itself into a corner

    According to the AP, the precipitous decline in U.S. newspaper circulation may be even worse than it appears. A recent change in auditing rules allows newspapers to double-count subscribers to paper and digital editions, even when they’re sold as a package.

    Europe/High – I think the bottom line is they finished up 1.5%, that seems more likely than a move up again but you never know at these volumes. 

    Oil flew back below $78.50 but gold doesn’t care.

  62. April brings showers from my living in the midwest….I am not suggesting armageddon, just a larger than normal correction. 
    I was just in London, and speaking with many there they are very worried about their financial economy as they are mainly dependent on banking…..

  63. OK, now we have heard from the usual crew, except tchayipov on the strangle play, let’s see what we have:
    - Dec SPX 975 short PUT: mixed comments on this one.  Balancenv goes completely bearish here by buying back his short PUT and added the RUT 620.  I like ssdirk lower channel that would be above 1000 at Dec expiration, so let’s roll it up to 1000 short PUT.  Note that we get a credit for it, now $0.8, but I’m in no hurry so offering $1 credit for the roll.   Since we are taking another bullish bet on this short PUT leg, let’s keep an eye out for it.
    - With the next hump of approximately 1140 on SPX, and the 20 days would have a bearish cross with the 50 days moving average if we continue with the current pace.  Thus, at some point in time in the next few weeks, there would be a sell off, i.e. Out Of the Money callers would be toasted at that time.  This means, I like the 1080 short CALL better than the 1200 short CALL.  It’s $5.05 now, so let’s offer to sell it at $7, just fishing here.
    Gel, I think you missed the Strike in your post.  Which strike are you thinking of?

  64. Phil:
    Anything you like as a stick inti close?

  65. Peter – here is a SPX chart as well.  Looks like 1200 is very safe….

  66. Stick/Bvar – Wow, is it 1:30 already???  I was just looking over some.  Annoyed at how poorly the TZA and DXD positions are doing.  I don’t think I want to play for the stick – I’m pretty sure we had the stick at 1:30 am and into 10:30 this morning.  There were certainly a lot of people taking money off the table at this level (last week’s highs) last week and I’m sure they will be happy to sell to all the little buy-bots this week as well. 

    The Treasury sells $44B in two-year notes at 0.802% (.pdf). Bid-to-cover ratio of 3.16 vs. a recent 3.07; indirect bidders take 44.5% vs. a recent 43%. The Treasury also sold $61B in short-term bills – the closely watched three-month bill at 0.041% – to kick off a big week in debt sales.

    Treasurys remained lower after the $44B two-year note auction that saw an increase in indirect bidders, but a decline in direct bidders, 4.7% vs. a recent 11.4%. The 30-year Treasury futures -0.44% to 120-11; 10-year -0.18%; 5-year -0.13%.

  67. Peter.. I must be getting a little whippy. That was the Jan 1150 put short naked. – was $55.00

  68. All filled on WSS – Did everyone who signed up get notifications?

    I’m looking for bullish plays but the low VIX makes me not like any.  Speaking of VIX – here’s a fun spread, the VIX Feb $22.50 puts at .85, selling the Dec $22.50 puts for $1.25, which is .40 for the even calendar spread.  VIX is strange but this is a pretty nice advantage

    Peter Schiff disagrees (video, 8:06) with Nouriel Roubini’s gold-bubble thesis, saying governments are changing fundamentals by printing money -  so buy gold. Eddy Elfenbein wonders, though, up to what price? $5,000? $10,000?

  69. Continuing with my rotation out of domestic equities and into Asian opportunities (growth arbitrage purposes, as well as diversification), I executed a Buy/Write on CPBY ( China Information Security Technology, Inc) which manufacturers high tech security products. Bought the stock, and sold January 7.50 c & p for a 21% discount. Fast and solid growth is the catalyst, which is superior to most dividend plays on Buy/Writes IMO

  70. The median price of homes sold in September was $174,900, falling 8.5% from a year earlier.

    Purchases of existing homes rose 23.5 percent in October compared with a year earlier. The median price fell 7.1 percent from a year earlier, to $173,100

    housing data looks bullish, not so much for your homes value

  71. Home sales/Kustomz – I don’t like they y/y comparison because last year at this time banks were shutting down and nothing was getting done so I can’t imagine a bunch of people were running out to sign contracts in October.  That’s the problem with housing, you just can’t get a straight answer out of thses people! 

    After today’s upside surprise in existing home sales, Case-Shiller prices come out tomorrow, and Bespoke wonders which of the 20 cities will be the first to turn positive Y/Y.

    Fitch lowers Mexico’s credit rating a notch, to BBB, as the country’s deficit swells. And Mexico’s central bank governor will likely keep the benchmark interest rate unchanged this week as speculation grows that a new chief is on the way.

    $100KP: 5 RTH Jan $90 puts for $1.40

  72. Taser marks it’s 100th lawsuit dismissal. That’s got to cost them to keep defending themselves.

  73. Hi, Peter D,
    You said shorting "1080 Calls"??  It’s ITM, and is about $30-something!

  74. /ES still selling off from the open. A lot of mixed signals here with the dollar strengthening. Look at the outflows from GLD today:

  75. Gel, selling the Jan 1150 PUT would be super bullish play as the PUT is 4% ITM.  The risk/reward does not favor selling the Jan 1150 PUT as you’d be toasted if the market crash 10%, that PUT would be worth $155, a loss of $100, driving the account balance to zero very quickly.  If you need to be bullish, look at the CALL side, SPX 1150/1160 CALL vertical is $2.7 and pays out $10 if SPX is above 1160 in Jan.  We usually sell the short OTM to give us the cushion to survive such crashes, so we are looking at Jan 925, 950, 975 strikes for the Short PUT, but have not taken any short PUT position yet.

  76. The biggest percentage gainers today are REITs.  What complete idiocy !

  77. Phil
    did you sell RTH put just to ofset SRS position?

  78. i think thats a buy on RTH. what do y’all think?

  79. oh, never mind, you bot RTH put, I got it

  80. TASR/Morx – I am so annoyed by that.  Why is it they can be sued weekly but not the other gun makers or tobacco?

    REITs/Cap – Not really pushing SRS higher, must be residential REITS. 

    RTH/Tcha – No, those are the same bets, that retail will suck and that, in turn, will take down commecial real estate.

    RTH – Yes it’s a buy, already executed at $1.40 at WSS.

    Comming down to test this morning’s gap level.   Watch that S&P 1,100 line!

  81. Doesn’t say sell…. buy ‘em.  TGT

  82. they are being sued by the criminals!

  83. Peter
    Many thanks… I told you I was a little whippy today. My play was way too bullish and quite dangerous. I really prefer to be an investor, and not a gambler. I like your suggestions on the put side and will structure a strangle tomorrow based upon your guidance, for which I have much respect.

  84. TGT doesn’t look strong at all. 
    KR looking goodagain.  They filled that gap nicely when we spoke of them back in Sept.  Not a sexy company, but nice dividend and selling strangles could add to the profits every month.

  85. VIX / Phil – Interesting play.
    I know the basics of VIX options but how will a calendar spread work on VIX puts? Can someone please explain?

  86. VIX / Phil – Interesting play.
    I know the basics of VIX options but how will a calendar spread work on VIX puts? Can someone please explain?

  87. Oil bouncing around $77.50 into the close. 

    $100KP – SPWRA 5 Dec $20 puts sold for $1.25.

  88. Thanks, Pharm, for the chart!
    cwan, 1080 must be a typos, sorry.  1180 is correct as I always sell OTM.
    If I have a firm answer on your 12:48 PM questions, I would have developed a program for it already.  It’s a complex combination of the market direction, the position size, where we are with respect to expiration, VIX, what other positions we have in the portfolios, as well as fear and greed.  Worse, these factors do change every day.  There are some rules of thumbs, but we don’t need to follow them:
    - Consider rolling out of danger when the short strike is getting close to ATM, especially within a month of expiration.  The cost of rolling will be much greater if it gets ITM.  This means we got the short strike wrong and got ran over.  However, I have some cases where I didn’t budge on the short and won big when the market reversed.  I understood that the odds were against me when the shorts are ITM, but the reward is higher.  So if other positions are bullish, I don’t mind having a bearish short ITM as a cover.
    - Sometimes, rolling when the shorts are 3-4% OTM is very cheap.  So we’d weigh the benefit of spending money for the roll, against the chance of a market reversal, and thus saving the money on the roll.  No hard rules on this one.
    - Position sizing is critical.  You might get a margin call even before the market moves to the strike of the shorts, so calculate carefully on how many contracts you can get.

  89. SPWRA / Phil – Dec 20 puts are only 85c. Did you mean 21?

  90. Phil,
    Was that a typo on the SPWRA Dec 20 Puts?  I’m seeing a bid/ask of .80/.85

  91. Oh boy, I forgot that there may be some short covering today as folks are being assigned from Nov contracts.  With Thanksgiving approaching, I’m dreading the following headlines next Monday that can drop the market 300 points:
    - DISMAL sale numbers from the day after Thanksgiving shopping spree.  Consumers are weight down by unemployment and high gas and commodity prices.
    - Sale numbers are a slight improvement from last year, but most of the sales came from heavily discounted items.  Consumers are strapped.
    Sounds familiar?

  92. Phil,
      I’ve got 25 GLL Dec 9 call at 0.88. Questioning at roll to Jan 8 for 1.40 vs. selling a put though I’m having trouble deciding on one. thanks

  93. Phil,
    Also need help to adjust FCX. I’ve got 10 long Jan 65 puts for 3.75 and 10 short 80 calls at 8. Thanks

  94. Wow, POT jumped to 118 today, then fell back to 113.  Soros bought more of ‘em as well (as of Sept)….but he was most likely buying in at the $80-5 level. 

  95. Nikkei futures up 1%

  96. VIX/Trad – The calendar is the illusion of safety.  You are wagering on 2 different horse races at two different times (months apart) and the performance of your horse in the first race has no bearing on the actual performance of your hose in the 2nd race BUT it may slightly influence the odds.  That’s what I’m counting on.   We already have a .40 lead on the spread so if the VIX drops 5 points, I ASSUME we’ll be about where the current $27.50 puts are ($5) and then we can ASSUME the Feb puts will be about where the current $27.50 puts are ($3.20).  That would NOT be good but we can still sell Jan puts so we should be able to put a dent in the $1.40 potential loss.  That’s how we handle a huge move down.  In a huge move up, we could care less because we’re in for a .40 credit so ANY value the Feb puts retain after Dec expiration is a bonus. 

    $100KP/SPWRA – Sorry, I did mean the Dec $21 puts for $1.25 but if you sold Dec $20 puts for .85, those are good too.  My $21s are not filling so far at $1.25. 

    I do keep looking for a reason to sell Dec DIA puts to cover the March puts but I keep not seeing one. 

    Dow volume very pathetic 109M at 2:42.  Unless a seller shows up, they will probably drift us in around here (10,420-10,460).  I don’t see much else happening until the get the RUT of 600, the Nas over 2,187 and XLF over $15.

    GLL/Japar – You can roll to the Apr $9/10 bull call spread (net .40) and sell the Apr $9 puts for $1.10.  That takes $1.40 off the table so you are + .52, which is a 10% buffer to the downside (and, of course, you can roll the putter) and your upside is you keep the cash you collected PLUS up to $1 on the bull spread. 

    FCX/Japar – Ouch on both ends.  Great lesson on why not to double bet but, other than that, ouch!  I would ignore it as this whole metal thing is silly.  Meanwhile, you can always momentum trade Dec calls against big swings but it’s way early to worry about this so early in the cycle.  Of course those $65 puts are way out of the money so you may want to sell Dec $80 puts for $1.72 and roll the Jan puts up to the $80s (+ $2.60) as it gives you a much better delta. 

  97. Phil
    Tried to actually copy your symbols from the WSS it worked on EDZ but tried RHT and they said can not find symbol how do the get these symbols in the first place they completely different to the market symbols ?

  98. Thanks, Peter.

  99. I believe Gold has a way to go upwards with the weakening of currencies and demand for financial security. A safe entry is EGO (Eldorado Gold) with a Buy/Write, selling Jan 15.00 C & P for a 18 % discount. This was my play today, adding to my other positions in precious metals – a currency play for me, as well as foreign diversification in equities. If a correction comes sooner than expected, then I will DD and roll the weak side as the position is in scale mode.

  100. DIA mattress: 1/2 cover overnight?  What would be a good strike?

  101. Phil,
    If itr closes here, it’s a shooting star on the Russell, just like 9/29 !

  102. No notifications yet Phil on WSS for the sale….FYI.  Just your email.

  103. I got emails from WSS, on every one of Phil’s orders.
    I don’t know if I got "filled" notices, though.

  104. Phil,
      Re FCX: selling Dec 80 puts suggests that you think that FCX will be above 80 (or at least 78.28) by expiration. Is that right? Also, you suggested I buy the 65 puts but maybe I misunderstood. Anyway, thanks for the help

  105. Hi, Pharmboy,
    You might have missed my question at 12:34pm.
    Are you still bullish on BEAT?  I sold some Nov $7.5 puts months ago.  I got greedy, and didn’t close them when I had approx 40% profit.  Then BEAT went down.  I managed to roll short Nov 7.5 puts to Dec 7.5 even.

  106. BEAT/Cwan – sorry, I started a post and then updater took it away b’f I posted.  BEAT is expecting reimbursements to be lower, but they have no debt and the population is aging.  Dr’s want to know the vitals b’f patients arrive on the ambulance, so I still like BEAT long term.  They are really beaten down here (pun intended), so I have bought a few shares and have sold calls into their spikes.  I also have 5 Feb10 Ps that are hurting, but will used them to sell more calls against if put to me.

  107. Symbols/Yodi – Apparently CNBC has them on the option lookup screen or you can figure them out yourself using these charts. which is the way I’m doing it for the moment.   Im worried why you say RHT – I did not pick them.  Is that something you are doing on your own? 

    Gold/Gel – Make no mistake that gold can go to $3,000 or more for no reason.  HMY was my junior miner pick, still pretty cheap at $10.79 but it’s $1 up from where we entered.  ABX was my favorite in the spring but we took $40 and ran and it’s hard to get motivated to buy again at $44.  NAK was another one I liked but they are up more than double from where we took them.  I just can’t get into buying gold here, other than double spreads to just take advantage of big moves either way. 

    DIA/Cwan - Well, using the "whatever is about $2.25 near the close" rule of thumb, that would be the $105 puts, now $2.11 but we just made $1, which is 4x what we need to make per day so I think we are fine going back to a 1/2 sale on the $104 puts, now $1.65, which is a more bearish way to be overnight but, up here, I am more bearish. 

    Star/JRW – How reliable do you think that is?

    WSS/Pharm – Thanks, I’ll check.

    Fills/Cwan – I don’t know if they even send fills.  I think the idea is just to set up the orders so people can follow.

    Wheeee, down we go!

  108.  Phil
    FYI – got the order placement notifications from WSS.

  109. Eric, are you going for another short straddle on GNW?

  110. Adjusting my KRE position now long March 20 puts, short Dec 22.5s in a 3:1 ratio, which has unlimited downside but holds up very well on a move as high as 22.5 by opex.
    Also, since Friday I’m selling AMZN iron condors with me buying Dec 120P/135C, selling Dec 125P/130C. Below that I’m long April/Jan put calendars at the 115 and 110 strikes for downside. Condors should make money while I wait.

  111. ss, I hadn’t even thought about it. Kinda tempting though with IV around 60%, now that you mention it.

  112. Phil,
    What’s your feeling on GOOG. Time to buy some puts?

  113. FCX/Japar – No, it’s really just saying that your $65 puts have such a low delta that FCX can fall to $70 and you still won’t be even but if you roll to the $80s and FCX falls to $80, you may be even and if it falls to $75, you can roll the Dec $80 putter to the Jan $75 putter and you have a $5 bear put spread and you may still end up ahead and if FCX stays up, your putter expires worthless and at least you got 1/2 your money back.   Maybe I’m confused – did you BUY or sell the $65 puts?  I took it that you bought the $65 puts and sold the $80 calls. 

  114. Speaking of BEAT, 100 5 Jan10 P just went through…so someone is either protecting their investment or wanting them for 4.55.  They generate $6/share in revenue, Q revenue growth is 6%.  It is not a stellar, sexy business, but they are not losing money.

  115. Eric -
    Why so bearish on KRE – CRE loans?
    I am having a hard time figuring out how many of the KRE components actually have major CRE exposure -

  116. Phil,
    % Bearish ?

  117. Thanks Phil it is RTH just inverted the letters I will look up the chart

  118. Eric, what do ya think?  Dec 11′s?

  119. PCLN doing nice shooting star today, hope will be crushed this week

  120. Phil – in now.  Never mind.

  121. samz,  CRE exposure, plus lack of trading desks, plus loss the of much of their standard home loan business, plus congressional reductions in overdraft fees they charge (fees are a major part of their income), and finally a regional banker friend who keeps telling me how bad business is for him and his buddies.
    I’m long some banks that have trading desks and, as reserve banks, full access to free fed money (GS, BAC, JPM), so it’s something of a pair trade, I suppose.

  122. ss, that’s what I was looking at too. I have a bid on a few for asking 1.35 — see if it fills.

  123. Phil/Gold…. I hear ya, and understand your reluctance. You are rational, but many who do not understand the fundamentals are jumping in at the late stage of the bull story. There will, IMO, be a big spike upwards sooner than later, and when that takes place, it will be my signal to head for the exits.

  124. VLO, WFR / Phil – Both have continued to fall. And getting to their LOY (low of year).

  125. I’m with you.

  126. Eric, I’m in.

  127. Phil,
    Thanks for the explanation/clarification. It makes perfect sense to me now.

  128. Also samz, KRE is showing nice intra-day action. It almost always sells off late (like today), so I’ve been very successful rolling up into strength and finishing near flat on the up days. I don’t know if that will continue, of course, but so far so good.
    Just got filled on those GNWs.

  129. GOOG/Josec – Too dangerous to short them.  I do see the tempation though.  Much better to short BIDU.  If GOOG goes down, they go down.  For BIDU I like selling the Dec $420 puts ($9.20) and buying the March $400 puts ($28) for net $18.80.  The deltas are similar and if you can get away with 3 sales like that it’s a free play.

    Bearish/JRW – 60% as we have more short-term bear plays now so even the 1/2 cover is still 60% bearish.  Technically, the long DIA puts are not necessary when you are skewed bearish but I hate flipping them on and off so they end up being just another bearish hedge. 

    RTH/Yodi – Sorry, I forgot about those.  I filled RTH1016M90 – you have to always remember that the options expire on Saturday, not Friday for date purposes. 

    PCLN bucking like a bronco, trying to shake off those shorts!

    DIA March $106 puts 1/2 covered with Dec $104 puts at $1.66 is official position into the close (55%+ bearish).

  130. Eric -
    Thanks for the info – been wanting to make that trade.

  131. AMZN, AAPL near vertical into the close.

  132. Hi, All,
    I’d like to ask a question on DIA Mattress.
    What are your experiences with DIA mattress plays, on the selling covers part?
    My experiences have been that I usually can’t match Phil’s trades in terms of prices.  These things move fast, and usually I don’t catch the "best" prices.  For example, last Friday, I sold Dec $104 at about 2.35 (instead of Phil’s 2.45), this morning I bought back about 1.65, instead of Phil’s 1.45.  So, for me, I got a profit of 0.70, instead of Phil’s 1.00
    This is not a complaint.  I’m just offering my experiences.  After a few attempts to match Phil’s prices, I finally realized that I just couldn’t do better than 70% profits overall. A big part of the reason is because I can refresh my browser maybe every 5-10 minutes at best.  I am grateful that I can get that much.  I also began to think that I should do the trades myself.  Last week, I began to ask "nude? bikinis? full dress?" without asking which strikes.  (But I broke down and asked today.)  After all, as someone posted last week, we are here for *education* and trading ideas.  PSW is not a trade signal service.
    What are your experiences?  It would be interesting to share.

  133. hi Phil : have u updated $100k portifolio or Watchlist lately?

  134. market closed. I want to ask this:
    when u sell Dec 9 put when SRS is at 8.65, its a credit trade, how would u get called away or have to buy the SRS etf at 9?

  135.  Hi Phil,
    WSS email notifications came in nicely today for me and I saw all the positions that got filled.  Thanks for setting this up.  Hopefully it goes smoothly from here on out.

  136.  correction (to avoid any confusion): I don’t get notices about orders filling, just the limit orders you put in.

  137. cwan/
    when you close or open DIA coverage, try to use trailing stop, I guess you will improve your P/L

  138. Hi Phil, I know you are not feeling well, as my questions last night on the wkly wrap up is not urgent, so pls answer when you do feel better.

  139. VLO, WFR/Trad – That’s good, we’ll get good prices to scale in!  My goal in picking them was to find some good stocks that can still be had cheap.  Both are out of favor at the moment so we can pick up cheap long-term entries.  CVX and XOM both got upgrades today with refinery revenues accounting for about 1/3 of each company.  LDK just had blow-out numbers and raised guidance and WFR is beaten up because they acquired Sun Edison for $200M, which I think will turn out to be a bargain. 

    HPQ at $1.14M – In-line and right on the nose with pre-announcement.  Big deal…

    DIA/Cwan -  That’s why I tried to be way far ahead today but the problem I get when I say at $1.75 that I want to buy back at $1.50, is that half the people think we’re buying back at $1.75.  I don’t get this morning though, they drifted around $1.47ish for ages until I got bored with them.  Perhsps your platform executions aren’t the best?

    $100KP/Dflam – Well we just started a brand new $100KP today but there is no Watch list for it.  I don’t like to put out Buy Lists or Watch Lists when we aren’t at a clear bottom and this is by no means a clear bottom.  Right now, we’re going to concentrate on the new $100KP and there will be no write-up this weekend but you can expect one the weekend after this. 

    SRS/Lynn – You sell the Dec $9 put for .75.  It doesn’t matter at all what price SRS is right now.  What you have done is created an obligation for yourself to purchase SRS at $9 from the person who gave you .75 (the putter) through expiration day.  Technically, any time he wants to, you can force you to take his stock for $9.  If that stock is put to you, your broker gives you the stock and takes $9 out of your account and you keep the .75 you collected in the first place, putting you in the stock for net $8.25.  In practical terms, if SRS stays above the net of the stock minus the put value by more than .10, then it’s not very likely to be put to you as the putter is simply selling you the stock for .10 less than he could on the open market. 

    WSS glitches – Clearly this is NOT something I can help with since some of you got stuff and some did not.  Please contact WSS (assuming you properly registered, of course) and let them know what’s wrong.

    Question/Lynn – Please re-post and I’ll get to after my nap!

  140. VLO, WFR/Trad – That’s good, we’ll get good prices to scale in!  My goal in picking them was to find some good stocks that can still be had cheap.  Both are out of favor at the moment so we can pick up cheap long-term entries.  CVX and XOM both got upgrades today with refinery revenues accounting for about 1/3 of each company.  LDK just had blow-out numbers and raised guidance and WFR is beaten up because they acquired Sun Edison for $200M, which I think will turn out to be a bargain. 

    HPQ at $1.14M – In-line and right on the nose with pre-announcement.  Big deal…

    DIA/Cwan -  That’s why I tried to be way far ahead today but the problem I get when I say at $1.75 that I want to buy back at $1.50, is that half the people think we’re buying back at $1.75.  I don’t get this morning though, they drifted around $1.47ish for ages until I got bored with them.  Perhsps your platform executions aren’t the best?

    $100KP/Dflam – Well we just started a brand new $100KP today but there is no Watch list for it.  I don’t like to put out Buy Lists or Watch Lists when we aren’t at a clear bottom and this is by no means a clear bottom.  Right now, we’re going to concentrate on the new $100KP and there will be no write-up this weekend but you can expect one the weekend after this. 

    SRS/Lynn – You sell the Dec $9 put for .75.  It doesn’t matter at all what price SRS is right now.  What you have done is created an obligation for yourself to purchase SRS at $9 from the person who gave you .75 (the putter) through expiration day.  Technically, any time he wants to, you can force you to take his stock for $9.  If that stock is put to you, your broker gives you the stock and takes $9 out of your account and you keep the .75 you collected in the first place, putting you in the stock for net $8.25.  In practical terms, if SRS stays above the net of the stock minus the put value by more than .10, then it’s not very likely to be put to you as the putter is simply selling you the stock for .10 less than he could on the open market. 

    WSS glitches – Clearly this is NOT something I can help with since some of you got stuff and some did not.  Please contact WSS (assuming you properly registered, of course) and let them know what’s wrong.

    Question/Lynn – Please re-post and I’ll get to after my nap!

  141. Lynn -
    If you sell the put and it expires In The Money – i.e. stock is below 9 – you are most likely going to get put the stock – you will have to buy it from somone at $9 even if it is trading at $7.
    So your net cost of entry for the stock would be $9 – (minus whatever premium you received for selling the put – Phil was not going to sell it for less than 75 cents )
    Your cost basis would = $8.25 

  142. trailing stops on DIA / Tcha:  Are you talking about placing a stop order to the broker?  I tried stop/limit at TOS.  That is, putting in an order with both stop and limit.  The price went against me and went WAY beyond my stop.  (Bid/ask and last trade prices all went beyond my stop.)  And guess what!  Nothing happened to my order!  I canceled the order and did something else.
    It was a hectic day.  And I had no time to call TOS.  I know I should.  But after that experience, I just don’t trust stop orders anymore.
    What are people’s experiences with stop orders or stop/limit orders at TOS?

  143. cwan, I don’t play DIA mattress (as I already have plenty to monitor with short strangles), but if you want to get ahead of the curve, you’d need to analyze why Phil does these kind of moves.  He usually covers (sell front month short PUT) when there is a short term bottom, or when the indices break the levels.  Then the covers are brought back at a short term top.  Short term can be intraday or a few day period.   Looking at a particular strike, you can see the historical option price (TOS has charts for these), and see how they move.  This is like stock, where you try to sell high and buy low.
    Options does move fast, so you don’t usually get the optimal pricing by following someone else’s trade.

  144. Cwan – on DIA – there is enough volume that you don’t need to put in a stop – limit order in most cases – others might disagree.
    If you put in a stop or trailing stop, you will most likely get an ok fill – might not be great – but probably better than missing the trade because of the limit – you also might need to set your limit further away from the stop but this kind of defeats the purpose of the stop – limit order anyway.

  145. DIA / Phil: This morning, I followed the "rule of thumb" of buying back after 0.50 profits on the covers.  I actually lowered my order to 0.70 profit.  That was part of my "trading on my own".  I’m much less experienced in market timing than you are.
    Besides, I didn’t see your post on the DIA cover until after I already bought back the 1/2 cover.
    So, it had nothing to do with my trading platform.

  146. cwan/
    for trailing stop you can use just regular stop order (which became a market order when your price will be riched) it is not recomended for options in general, but because DIA options very liquid I geuss it is OK
    stop-limit order will not be garanteed to you

  147. Point to Ponder …….What if Black Friday’s numbers are much higher than expected? 

  148. Phil, Not an urgent question, but I’m looking for a strategy to play RMBS leading up to its big DRAM antitrust trial against Samsung, Hynix and Micron, which begins Jan. 11.  The trial was postponed in September, but the January date looks like it will stick.  If you aren’t familiar with the case, Nuke John has a decent summary on Seeking Alpha, but the nub of it is this: the defendants have already admitted guilt to DRAM price fixing in action brought by the Justice Dept. (executives went to jail, companies paid hundreds of millions in penalties) and the judge in this case ruled that the guilty pleas are admissible.  RMBS alleges damages of over $4 billion, which can be trebled in a case of this sort.  Its market cap is under $2 billion.   RMBS’s stock price bounces around like a rubber ball, though it seems to have good support in the $15-16 range because of the antitrust case.  I’ve made good money all year on the stock’s volatility, but the January trial is the real deal for the stock.  RMBS should win or get a good settlement offer, and while you never can tell with juries, I like their odds with a jury as a local company up against foreign competitors.  The Samsung, Hynix and Micron lawyers must know the same thing.  All that said, I’m looking for a smart way to play it.

  149. Phil:
    Based on your initial input, I’ve stuck with double diagonals on GOOG and ISRG, despite the fact that both stocks have zoomed up considerably since I started. By rolling the long puts, they still make money – probably about 20% annualized.
    Obviously with perfect hindsight, there were better ways to exploit these stocks, but that’s not the point. The point is that this strategy seems to do pretty well unless you get totally blown out, in either direction, in a short amount of time. Do you concur? My feeling is that you have two advantages: selling front-month premium where neither front-month short can seriously hurt you – due to having longs with better position. Second, the ability to widen the final value of your longs when the stock has had a significant move in either direction over time. Has anything changed your opinion on this strategy overall? I’ve started using it for stocks like INTC, UNH, and UPS. The premiums for the longs seem quite reasonable against the front-month premiums you can sell.
    Plus I keep finding these DDs attractive in retirement accounts, especially versus buy-writes. Since there’s no margin in retirement accounts, you’ve got to fully cash cover naked sold puts in a retirement account. With the DD, you generally tie up much less money to sell the same front-month puts and calls. Specifically, with the DD, you total investment in the longs is typically quite a bit less than 1x the cost of the stock. With a buy-write in  a retirement account, you’ve got to set aside 2x the stock price to sell the same front-month puts and calls (i.e., buy the stock, plus set aside the cash for the sold puts.)

  150. Phil
    for 100k you bot DIA march 106 puts, you plan to hold them naked for now? and cover later after some kind of correction?

  151. Thank you all for your suggestions on DIA mattress plays.  I’ll try to incorporate your suggestions into my trading.

  152. Black Friday; sell into whatever excitement they can make of it.
    Network News report tonite says consumer surveys plan to spend about 10% less $$ than last year on holiday shopping.
    How on earth do people expect that holiday sales will be really good ??

  153. Hey chaps, for the Double Diagonals, we called them IRA plays for retirement accounts here in PSW roughly 18 months ago!  You can gain by adjusting the longs towards the money, selling for $0.6 on a dollar and buying the other leg at $0.4 per dollar.  They do work, but keep in mind that they are in fact a variation of a short strangle, just reducing the margin requirement.  The disadvantage is that the longs also decay with time.  Applying these DD into indices would usually be profitable over the long run.  These are not recommended on individual stocks as you can get blown out of the shorts.

  154. Phil,
    WSS works great for me. Getting email updates and all (at least so far). Thanks,

  155. Hi Peter:

    re: You can gain by adjusting the longs towards the money, selling for $0.6 on a dollar and buying the other leg at $0.4 per dollar.
    I’m confused. How far ITM are your longs? Are you saying you’d roll your long calls up on an increase in the underlying (and opposite for puts)?

  156. Hi, chaps,
    Thank you so much for the long reply in the weekend post.  I read it but haven’t really digest all of your ideas yet.  As all PSW members agree, your comments in the last few weeks have been really interesting and educational.  At some point of time, I wish you can collect all the comments and edit them into an article.
    Meanwhile, I have a trading question: How do you avoid getting your dividend-paying stocks called away on the ex-div day?  Last Thursday, I got my JNJ called away.  Friday was JNJ’s ex-div day.  I was so furious!  It took me hours to calm myself down.  In my case, it was a DECEMBER, not Nov, $60 caller.  The stock was 62.20-ish on Thursday.  The dividend was $0.49.
    When I sold the calls on October 20, JNJ was 60.50-ish.  I sold the calls at 1.55.  But I don’t think it mattered how much I sold them for.
    If I sell JNJ calls today, I think selling Dec or Jan calls should be safe, as the next dividend day will be in Feb.  But then what do I do in Jan?  What if the stock goes up more and I have to roll the Jan calls?
    Thanks again.

  157. cwan
    Re ex-div. I believe the only solution to avoid being called away is to monitor your callers after the dividends are announced, and roll your strike above the total of the stock price plus dividend. A trailing stop might work. I have experienced the same situation.

  158. CNBC’s claiming the recent monday surge in the past few weeks is from mutual fund. How does one read the pathetic volume if this is indeed the case? 

  159. chaps, let’s look at a SPY example:
    - SPY is at 110.82 today
    - Say we have the Dec10 90 CALL and 130 PUT as the long strangle
    - If SPY drops 10% to 100, and we want to reposition the longs.  Then rolling the 130 PUT to 120 PUT would give a credit of $8.4 or so (by looking at a Dec 140 to 130 PUT roll).  On the other hand, rolling the Dec10 90 CALL to 80 CALL would cost $7.35 (by looking at a Dec 100 to 90 CALL roll).  So the gain (difference between the cost and credit) is $1.
    - If SPY then gains back 10% to 110, and we want to get it back to the Dec10 90 CALL and 130 PUT.   It would cost $7 to roll the PUT higher, but you’d get $8.3 credit for rolling the CALL higher too.  The gain is $1.3
    So re-centering the long strangle would always give you profit.

  160. Peter D,
    But doesn’t the Index normally trade within a 10% range.  If I spend $40.50 on a $40 spread "deep-n-money", then how can we expect to make money within 30 days to OpEx?  In the example above, I suppose you’re selling CALLs & PUTs at the money; but how well does the work when the index is capable of moving quickly over your short option in one day…..especially when we get close to OpEx; a short option can get killed quickly.

  161. Good morning!

    Well I feel a little better, other than now being up at 2am…

    DIA/Cwan – My logic on taking out the putter at $1.50 is that, at $1.50, the delta had run down to about .40 vs my March delta of .60 so the half cover was .20 to .60 and really not offering much protection anymore (this is the same logic, but opposite reason, we went with the $104 puts as a 1/2 cover into the close).  Since a 100-point rise in the Dow would only yeild another .20 after we had already made .50, we were at the point of diminishing returns so that became the spot to buy back the putter as we were better off waiting 25 more up points naked and slapping on a higher cover than sticking with the $104 puts.  Always we are just looking to pay for our rolls up but it’s very rare that we make a whole dollar off our putter like we did today.  Since it’s rare, we know to grab it.  Don’t worry though, it’s one of those things you get better at over time.

    Trailing stops – I prefer, at all times, mental stops as you can get spiked out of anything.  In fact, more often than not we get head fakes that are specifically designed to flush stops before a big move.  Of course there’s a reason that "When in doubt, sell half" is one of our two PSW rules!   A hard stop on 1/2 or 1/3 is a good warning to start paying attention to the rest of the trade. 

    Black Friday/Iflan – Then the market will rally most likely but if we are still under last week’s highs going into the weekend, then we can assume they will offer some resistance and I still expect to go into the weekend (and Wednesday) 55% bearish (but mostly cash anyway).  I have to leave at 1pm Wednesday so hopeuflly it won’t be too crazy…

    RMBS/Judah – Actual trial results can take a while but it is a very good story on them.  People seem willing to pay up for calls and you like the stock so why not go for the May $15s at $5.30 and sell the Dec $17s for $1.11 and the Dec $16 puts for .85?  That’s net $3.34 on the $2 spread.  As long as you are willing to DD on the longs then no big deal if they break up and the Jan $19s are $1.20 so that’s your roll.  I also like the 2011 $7.50 calls for $10.60, selling the $17.50 calls for $6.20, which is $4.40 on the $10 spread with a break-even way down at $11.90

    RMBS – There is also an interesting play if you REALLY want to own them at $12.50.  Buying the 2012 $10 calls for $10.50 and selling the 2011 $17.50s for $6.20 and the 2011 $12.50 puts for $3.70 is net .60 on the $7.50 spread.  If RMBS falls 25% to below $12.50, you are in for net $13.10

    Double Diags/Chaps – I like that strategy a lot but, like any strategy, it should be one of several in a portfolio.  The weakness of it is that, in a major market correction, everything can blow through safeties at once.  The Diag offers very good but not perfect protection and are an excellent way to lock in premium sales every month. 

    $100KP DIA/Tcha – Yes, I intend to cover them when we hit a bottom.  I did not feel like we hit one yesterday but I’ll have to 1/2 cover over the weekend (when in doubt…).

    10% less/Cap – I don’t think people are going to buy jack until they see 50% off signs.  Japan is having severe deflation and it’s amazing how analysts like to pretend we are so different.  We have similar levels of debt, we both import a ton of commodities and we’re both being out-manufactured by China.  Unlike us, Japan had much less bank problems, they have a much stronger currency and their people are savers so their banks aren’t seeing record defaults but the Nikkei is reflecting the economic reality of Japan while our markets are off in fantasy land. 

    Dividends/Cwan – If you let the callers slip too far in the money on you, then you are very likely to get called away.  For the caller, it’s simply a math function, if calling your stock away at strike plus dividend is more than the contract they are exercising, then they do it.  Before dividend day, you need to roll your ITM options to more premium.

    CNBC/Balance – Now that we (me and other bloggers) have been pointing out the shenanigans, there are suddenly a lot of "reasons" for the ridiculous rallies being floated in the MSM. 

    Well, 3am an no futures pop so far.  We’ve been down pretty steady since the close.  Nikkei futures were 100% wrong and they fell 2.2% in one fell swoop, which must have bankrupted some people!  If you guys can see the Nikkei futures, check that out and keep in mind that some poor bastard was on the hook for $500 per point on those contracts! 

  162. Jingle bells?  After continuing negative same-store sales at Foot Locker (FL -2.4%), S&P downgrades the company to B+, expecting "ongoing performance difficulty."

    From Calculated Risk, a reminder that existing home sales aren’t as crucial to the economy as new home sales, housing starts and residential investment; and the "distressing gap" (caused by a flood of distressed sales) is still distressingly large.

    Bubble watch, aluminum edition: The metal has rallied 32% this year, and Barclays Capital forecasts a 29% increase in its surplus next year. How can the price keep rising when warehouses hold enough aluminum to make 69,000 Boeing 747s?

    U.K. bankers are bristling, privately furious at being the global lab for financial overhauls with new rules for capital, liquidity and bonuses. They’re threatening to pass costs on to customers, but Simon Nixon says drastic reform is essential.

    Corporate bond sales in the U.S. reach a record $1.171T, surpassing the previous high in 2007, as borrowers take advantage of low rates to load up on financing. Pent-up demand from last year’s credit freeze began to see some relief with a record $385.9B issued in Q1.

    Despite many investors holding grudges from the bust, the return of the risk trade has made technology look more tempting, with many stocks at less then half their average 10-year P/E. Pros highlight five names in particular.

  163. Well they got their pre-market pump.  Relentless bulls**t.

  164. XLF’d, the example is for Dec 2010 long strangles.  There should be a short front month strangles in the double diagonal.   The deeper the longs are in the money, the less premium they have and it would take less time to break even.  The Dec 2010 90 CALL and 130 PUT long strangle has roughly $8 in extrinsic value.  We have 13 months to recover $8 premium by selling shorts, which can be a tall order.  The 80/140 has $4.7 extrinsic, and would take less time to recover the premium.  If we can re-center a few times for $1 each, then the shorts are profit. 

  165. PeterD,
    That’s what I thought you were doing…..I’ve been contemplating about making that type of trade for awhile, but I’m worried that I’ll get too far behind on the front month position if the market moves too quick.  When do you normally  move the shorts to the next month….after you’ve collected $1-$2 or do u wait until 3-5 days left

  166. XLF’s, a rule of thumbs that we can move the short when the rate of decay for the next month is higher than the current month.  For instance, SPY Dec 100 PUT is 0.28 (4 weeks) while the Jan 100 PUT is 0.83 (8 weeks), so it’s slightly better to be in the Jan’s.  Note that this is for IRA accounts where the margin is 100%, so the long strangles is half or less in margin.  You’d get a 20% margin deal with normal Reg-T account, so there is much less reasons to do Double Diagional on a Reg-T account, then you are back to just the short strangles.