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Monday Market Movement

Now what?

I wish I knew.  As I said in the Weekly Wrap-Up, we've been stuck in a range – which has been fine for us as 60 of 80 trade ideas from the last 2 weeks were winners and will be more so if we flatline or head south from here, as that's how we've been playing the market.  It's not that we WANT the market to fall, just like your doctor doesn't WANT you to have the flu.  But, when you show up at the office with a sore throat, headache, fever and congestion – he's going to tell you you have the flu and write you a prescription to help you get better.  That's what we do!  We analyze the market symptoms and determine a course of treatment.  We don't need to be bullish or bearish on any given day as it's far, far more satisfying to be right.

In Member chat this morning, we were discussing leap strategies regarding entries on (in this example) KO and we looked at the benefits and pitfalls of trying to establish positions at the top of a big run.  I mentioned that KO is not something I'd be looking at now as they are too near the highs and don't have any particular near-term growth catalyst (and the strong dollar may hurt their earnings, which are more than 50% international). 

In the Wrap-Up you'll see that the kind of long plays we went for were more beaten-down stocks that we still like long-term like SPWRA, VLO, RMBS. WFR, PARD…  Even in a great bull market like this one that may or may not be topping, there are still plenty of bargains to be had and, if we don't see any good ones today, it's still better to wait until earnings and bargain-hunt there rather than buy stocks just because your cash is burning a hole in your pocket (we went to mainly cash the last 2 weeks and many members are getting antsy already).  

Actually, having cash in US Dollars may be an excellent investment at the moment as those dollars could gain 10% as the dollar bounces back.  Commodities have certainly continued to fall over the weekend with gold at $1,141, oil at $74.71, siver back to $18 and copper $3.18 (our watch level was $3.20).   Futures are pretty lame overall, down about 0.3% at 7:30 but we’re still above our levels so don’t get too excited if you are a bear just yet.

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  10,388  1,105  2,194  7,182  602  1,926  22,324  10,167 5,289  5,785
27.5% Up 10,500 1,127 2,242 7,380 615 2,113 22,421 11,787 5,381 5,894
Recnt High 10,549 1,120 2,190 7,241 625 2,045 23,100 10,397 5,396 5,888
2.5% Down  10,128 1,077 2,139 7,002 587 1,878 21,766 9,913 5,157 5,640
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 7,200 600 2,062 21,875 11,500 5,250 5,750
Retrace 9,840 1,056 2,100 6,720 576 1,980 21,000 11,040  5,040 5,520

As I was looking at this chart, I decided to change the normal 2.5% up row (2nd from top) to the more relevant at the moment 27.5% up from the July base series, which is a more accurate reflection of levels that must be taken in order for us to take a move up seriously.  Notice that only the Russell has recently even broken that level in the past few months and they are now one of the indexes closest to failing the 25% line, just behind the NYSE, who already broke down.

As we've been tracking for a month now, the FTSE 5,250 represents a global negative if crossed below while the DAX 5,750 represents a bullish sentiment if held.   The Nikkei is closing the gap that was bothering me on the Dow (and now you can see why those EWJ calls made sense as upside protection) but the Hang Seng failed to hold 22,500 today and bounced just under our upside watch level in afternoon trading but, ultimately, failed as the market there fell 173 points on the day

Banks and the commodity pushers they speculate on have been leading the decliners in Asia and Europe.  The Nikkei got a pass as they are, like us, an import economy but, unlike us, they don't have a big mining and commodity sector to drag them down after leading the market higher like we do.  That's why EWJ was a good play for what we expected to happen – the stronger dollar popping the commodity bubble and causing a general global sell-off.  Keep in mind China's Yuan is pegged to the dollar so Chinese exports get more expensive when the dollar goes up, making Japan even more competitive

Over in Europe, Germany scrambled to pump another $12.5Bn into the economy while parliament was still in session, just a little spending money for the holidays.  One of the big news items holding Europe down today (and it may not do well for our industries either) as expectations mount that the US EPA is about to formally declare carbon dioxide to be a pollutant

An "endangerment" finding by the Environmental Protection Agency could pave the way for the government to require businesses that emit carbon dioxide and five other greenhouse gases to make costly changes in machinery to reduce emissions — even if Congress doesn't pass pending climate-change legislation. EPA action to regulate emissions could affect the U.S. economy more directly, and more quickly, than any global deal inked at this week's Copenhagen conference, where no binding agreement is expected. Electricity generation, transportation and industry represent the three largest sources of U.S. greenhouse-gas emissions.


The spokeswoman said that the EPA is confident the basis for its decision will be "very strong," and that when it is published, "we invite the public to review the extensive scientific analysis informing" the decision.  EPA action would give President Barack Obama something to show leaders from other nations when he attends the Copenhagen conference on Dec. 18 and tries to persuade them that the U.S. is serious about cutting its contribution to global greenhouse-gas emissions.  The vast majority of increased greenhouse-gas emissions is expected to come from developing countries such as China and India, not from rich countries like the U.S. But developing countries have made it clear that their willingness to reduce growth in emissions will depend on what rich countries do first. That puts a geopolitical spotlight on the U.S.

So we're going to be watching our carbon levels as well as watching our market levels to see which way things go.  We have already shorted the Transports last week (IYT) and we're already short the Dow (DIA) so this climate bill may just be the straw that breaks the camel's back this week.   Dubai still isn't off the table and metals and oil can fall hard, especially if we get a short-squeeze going on the dollar, which may become pronounced if we hold 76 today

We are not light on data this week with Consumer Credit today but then we have to wait until Wednesday for Wholesale Inventories followed by the usual Jobs Report on Thursday and Trade Data but Friday is unusually busy with Import/Export Pricing, Michigan Sentiment, Business Inventories and, the Big Kahuna for the week, November Retail Sales, which we already know were not good but that won't stop people from being surprised all over again. 

Volume should be light so anything can happen but we'll be watching copper at the $3.20 line and oil at $75 to see if things are really breaking down from a demand perspective.  As discussed in the Wrap-Up, we went into the weekend still loaded for bear but, if the levels do hold – we're going to have to respect that and we'll add some more upside plays, mainly to cover as we're not flipping until we have clear break-outs. 

We talked a lot about jobs last week and I wanted to leave you with this video, from Mish's great article on real unemployment numbers we carried over the weekend:




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  1. Phil, what are your thoughts on MTW.  The Leap Puts have some impressive implied volatility, probably due to their ongoing debt restructuring.  So kind of a play that they don’t go bk?

  2. Phil – too late to pick up some GLL? Don’t want to chase but could have a long way to fall.

  3. Phil:
    re bassdad’s AFL idea. (You wrote the response to me, but the idea/question came from bassdad.)
    But your response raises a question, because bassdad’s idea is  a double diagonal. You said you wouldn’t do it with GOOG. We were doing it with GOOG earlier this year, and I’ve stuck it out (it makes money if you roll your losing long.) What’s changed since earlier this year? Is it that GOOG has returned to being more of a growth stock, and hence now not a particuarly good DD candidate?

  4. Some short ideas for today:

  5. GM Phil: hope no stone-pain,
    what DIA position should one have???
    Next week I will not be able to watch and trade as I move,
    alos; like to trade the BIDU channels this week, what call and put to sell ??

  6. MTW/Jo – They are a big bet on a recovery and seem to have a lot of overhead as they have been losing money despite decent sales so I dread to think what happens to them if sales decline.  I assume they took advantage of the downturn to book a huge loss and that has set them up well for a recovery but, if the recovery never comes, then their $3Bn in debt to $165M in cash ratio has got to be a little disturbing.  If they do restructure favorably (doubt it) then maybe play them AFTER they show they can hold $10 but, otherwise, I’d rather wait for them to crash again. 

    GLL/Samz – The time to get into these things is when other people on the board are rolling or doubling down as it goes the wrong way on us.  Now it is certainly chasing as we’re getting close to a 10% drop but, like I said, if the dollar has a good day today then this may be only the first small bit of a very big correction in gold.  We have the GLL Apr $11s at .50 and they are "only" .65 now.  

    Double Diag/Chaps – VIX was way higher then and we were being paid insane amounts of money from front-month sales. The GOOG Jan $580 puts and calls are $35 now (was $55) so I just have less comfort with the range.  Certainly if you play it over time and collect $55 a month in premium, the numbers are in your favor but, right now, it’s not the best entry. 

    Nice little push in the morning here on so-so volume but oil and gold are falling and they’re not fooling me.  We’re not going to go bullish until we see ALL of our highs taken out:  Dow 10,495, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605.  Also, keep an eye on the chart levels from this morning’s post. 

    Any of our break-down levels would be a bad sign:  Dow 10,2500, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 and we already have it on the NYSE so let’s say 2 of them would be very bad and 3 would be very, very bad (I suggested this warning system to homeland security but they like colors better).

    We’ll watch that $75 line on oil as well as 605 very closely on the RUT, 7,200 on the NYSE and 2,200 on the Nas.

    Solar companies are getting a big push on the climate legislation (yay SPWRA, yay WFR, yay AMAT!), which should support the SOX and the Nas while it lasts

    10,420 has been a key line for the Dow and, if we don’t break it this morning, then it’s much more likely the sellers show up in volume so let’s see how that goies early on

  7.  Phil, 
    Is it still ok to chase AMAT buy/write, how about KLAC, in the same category. 

  8. phil,
    aapl just closed (retraced) its final remaining gap up. guess we will see what is next!

  9. COF etc./Cap – They do look ripe for a breakdown but seems they are determined to move us higher this morning. 

    Stone/RMM – Pretty sure I’m done with it now.  On DIA, if you are going away just try to be as neutral as possible, maybe a 1/2 cover but it depends on the rest of the portfolio.  As to BIDU, they should have support at $415 so you can play up from $420 and down from $440 as a range but make sure they are going to bounce first.

    FDX making year highs – so much for shorting Transports (flat today).   BA also at year’s high – woo hoo!

    82:1 – the most recent ratio of insider sellers to buyers. 

    Gang of 12 pump job: Bullish words from JPMorgan this morning: "We find investors to be skeptical regarding the durability of the unfolding economic recovery, but our view is that it will have legs, with an improvement in labour markets confirming its sustainability. In addition, the stabilization in the credit markets, signs of house prices troughing, steep yield curve and the rebound in corporate profitability are the positives."

    And another: Brighter days ahead for credit-card stocks, Bank of America says, "as the economic recovery becomes more obvious." Card issuers typically move higher once chargeoffs reach peak levels, which usually happens when employment trends start improving – and Friday’s better-than-expected payrolls data "could serve as the fundamental inflection point that we have been waiting for." DFS +3.2%. COF +1.5%. AXP +1.5%.


  10. Phil – If everyone now knows the inverse correlation between the DXY and stock market can GS et. al. manipulate the dollar lower to keep this thing going?  I am not well versed on FX trading and its manipulation capability.  If it is possible we have much bigger problems than I anticipated.

  11. Phil:
    have been selling premium on my FAZ stock and getting closer to break even,
    have jan 21 callers and jan 19 putters,
    the callers are 60 % green,
    any suggested changes ?

  12. Good Morning Phil,
    Dia dec 104 sold for 1.70 now 1.13 shall I close? or wait

  13. KLAC/Balance – Here’s why I like AMAT better.

    Bought back DIA $103 covers at $1.15, good enough gain from $1.50 sale and now we’ll see if we have to cover with something else.

  14. Good Morning!  Phil, when you have time, can you offer an opinion on FUQI? Thanks

  15. AAPL/High – Not holding $189, does not look too good.

    AMAT/Balance – Oops, forgot to say, if you can still get close on net entry, doesn’t matter what the stock price is. 

    Dollar/SS – They already do that.  That’s what this whole dollar dive was about.  They were jamming the dollar down to pump up commodities and floating all the "news" they could in the MSM to get people to think their dollars were worthless so they would trade them in for shiny bits of metal.  Now GS has all the dollars and the sheeple have shiny bits of metal and suddenly you start hearing strong dollar stories and commodity bubble talk again.  It’s the same thing they did with oil and next year it will be lumber or sugar or homes, whatever they can get people to believe is "different this time."  I wrote about how silly everyone was being last week but, as I said then, 9,000 new suckers are born every day and the whole concept of the "blow off" is right out of PT Barnum’s book yet people fall for it over and over and over again – it’s amazing.

    FAZ/RMM – I’d just keep stops on the callers if we break $20, at least 1/2. 

    Speaking of blow-off tops, nice one in Transports maybe and IYT $73 puts are .80 with a week left so 10 in the $100KP.

    DIA/Yodi – hopefully you bought them back with my last Alert comment. 

  16. Phil:
    my DIA prot.puts are mar105 ?? ok ??

  17. Phil
    Good Morning!…. Many thanks for the comprehensive analysis of my Leap strategy. I’m learning, but a long way away from graduating.

  18. Phil, is there anything left that’s not manipulated?

  19. FUQI/1020 – I wouldn’t touch an ADR that holds metal.  How can you have any idea at all how they are operating?  They look pretty on paper but I’m just not into buying companies that are that small and halfway across the world.  I don’t know what jewelry demand is like in China, I don’t know their sales, setup, marketing, cost structures….  Doesn’t mean they are a bad company, just not the kind I’d touch. 

    DIA/RMM – You can roll up for .45 so why wold it be OK? 

    Leaps/Gel – NP, you just have to catch me in the right mood to do some ‘splaining.

    Nov. Employment Trends Index: +1.8% to 90.8 vs. 89.3 in Oct., the fourth straight month of increase. "This month’s large increase in the ETI suggests that job gains are imminent," Conference Board says.

    Gotta love playing the China card: Research In Motion (RIMM +3.5%) moving higher after announcing a deal to distribute Blackberry’s in China through Hong Kong-listed IT company Digital China. China Mobile (CHL) has offered the handsets in China since 2006, but hasn’t promoted them strongly.

    Early sector ETF strength: Solar– KWT +3.9%. Healthcare Providers– IHF +2%. Clean Energy– PBW +1.6%. Agribusiness– MOO +1.4%. Semis– IGW +1.3%.
    Weakness: Silver– SLV -2.5%. Gold Miners– GDX -2.5%. Gold– GLD -1.4%. Oil– USO -1.2%. Gasoline– UGA -1.2%. Heating Oil– UHN -1.1%.

    Early Dow leaders: BA +1.7%. AXP +1.6%. VZ +15%. WMT +1%. T +0.9%. UTX +0.9%. AA +0.7%.
    Laggards: BAC -0.7%. CAT -0.6%.




  20. SS – What are you the straight man in a comedy team?  Too easy, I’m not going to touch it (oops)…. 

  21. Pharm- This may be out of your area but do you know of any public biotech/genetic eng. cos. out there in the Agriculture area other that the usual suspects MON; DOW?

  22. Phil / Direction
    I’m 70 % cash; do they have the ammo to take it higher or do we short here ?

  23. LOL, guess not.

  24. Phil thanks I bought DIA IYT do not understand sell 10 dec 73puts ????????????????

  25. Phil I take it you sell the put of IYT you receive 800.00 on a margin of 14475.00 my question is it worth to block that amount of capital even that it would show a return if not assigned of 5%???

  26. Very interesting chart survey of jobs and earnings across the country.

    ABX Jan $37.50 puts can be sold naked for $1.15.

    Ammo/JRW – Don’t play the middle.  We either go up or down from here.  If we test 10,500, then it’s worth a few shorts and if we test 10,250, it’s worth a few longs but 10,420 is a tough spot to take a stand at. 

    IYT/Yodi – That is a buy.  If I’m saying sell, there is almost always the word sell there.

  27. IYT- is not opex the third Sat. each mo? So, FWIW- two weeks left rather than one.

  28. Dow volume at 11 just 55M so it’s all just the normal program trading nonsense this morning. 

    Over 60% bearish here again with naked long DIA puts watching that 10,420 line and 605 on RUT to change my mind

  29. which DIA long puts are we in now? 
    Naked short ABX puts?  When did we turn ST bullish on gold?

  30. Phil,
    I sold 12 EDZ Jan 5 P at .65 but haven’t filled my sale of 12 Jan 6 calls at .50. should I keep a GTC on those or move to .45?

  31. Phil/FUQI  Thanks for that. It looked compelling on paper. I should have known not to go near a company whose name I can’t say around the kids ;)

  32. Phil, one more, a infrastucture favorite of mine. PWR – Thanks for yor time…..

  33. Phil, I am in a SPWRA June 17.50 /22.50 call spread for $7.10/$3.80 ($3.3 debit).  Any adjustment suggestions given the move today?

  34. pstas – sorry, MON and SYT are the only two I know of that work on those things.  Lots of Ag Univerities work on it and then sell the rights to these two.

  35. Interesting chart on income by occupation. No wonder health care is so expensive. I don’t understand why people don’t hold surgeons and investment bankers in the same regard. They both prey on the weak to create truly outsize returns.

  36. Market Internals update at 12:00pmET – NYSE volume 380M shares, about 20% below its three-month average; advancers lead decliners by 1.2:1. – NASDAQ volume 830M shares, about 16% below its three-month average; advancers lead decliners by 1.2:1. – VIX index +3% to just under 22.00

  37. C was put to me this weekend at $5. Guess it will work out. Maybe they will pay the TARP and move on. The call premium is so low… would you suggest the 2011 $5 or even $7.50?
    How does that work, if you don’t mind? Like i have a CROX $5 long put, if i sell to close is it put to the someone who sold it? thanks

  38. DIA/JCM – Same old March $106 puts (now naked) with an offer of $1 to roll to the March $108 puts (hasn’t been accepted for 2 weeks).  On ABX, it’s an offset to GLL and ABX is a nice stock to hold long-term (if we even get them at 15% off).  If I buy 10 GLL Apr $11s at .50 and sell 4 ABX Jan $37.50 puts for $1.15, I have probably cushioned 90%

    Nice on COF Cap! 

    EDZ/Jomp – It depends how confident you feel.  I think if we don’t break higher this week then we’re just messing around ahead of a big drop and then we’ll be happy to be uncovered.  I don’t think being 30 points up today with oil below $75 and gold below $1,150 is the right time to give up. 

    FUQI/1020 – Yes, not really a stock you can talk about…  On PWR – that’s a nice American company and I actually like them for the fiber side of the operation more than the dull power transmission but, then again, we may get some infrastructure spending that will make transmission sexy again so they could be good.  They are stuck in a rut with the economy and gave crap guidance, hence the sell-off.  2011 $12.50s are $6.90 with $1 in premium and you can cover with 1/2 Feb $17.50s at $1.80 for net $6 on the $5 spread (1/2 covered) and, if they head lower, then you can sell 1/2 $15 puts and calls for probably $2.50 more and that would pay for you to roll down to the $10s (after, of course, you don’t get the $15s put to you).

    Oh good, Bernanke is going to tell us how great things are..

    Joseph Gagnon of the Peterson Institute reckons that what the world needs is a whole lot more QE (.pdf). He recommends the Fed buy another $2T in long-term debt; the ECB drop rates to 0.5%; BoJ should commit to 1% inflation and buy another ¥100T in debt; and BoE should pick up another £200B in long-term sterling.

    Noon Dow volume 70M – Weak program trading number on the nose.

    Thanks for update Steve!

    C/Morx – We have the 2011 $5s at .68, haven’t had reason to DD but looking to sell $7.50s for .50 if that opprotunity comes.

  39. Steven – U also have to think about the insurance for Physicians.  It is VERY expensive b’c if they sneeze on a patient, they get sued.  We live in a  litigious society, and sue everything (yes, even dogs, cats, cows, etc) in site when something goes wrong.  Hell, I sued the air in the men’s bathroom at LAX b’c the circulation was horrible…  :)

  40. Parker – certain forms of gouging are acceptable. You might even want your daughter to marry one. :)

  41. AMZN, my Jan 130/125 long PUT vertical never filled (as expected), and my Jan 170 short CALL have gained $0.9, so I’m out of AMZN as I have enough profit to shop there for a few months from this half hearted (but profitable) attempt at shorting AMZN.

  42. Barrons S should double, wow these guys were on the verge of BK not long ago

    Just got back from lawyers,  i gave a 3 year balloon mortgage loan at 11%…a big thank you to the banks for not lending

  43. Morx – Good point!

  44.  pharm you are right about the litigious nature of society and medicine……as a result if i dont get paid to take care of sick or morbidly obese patients, we will find reasons to punt!!

  45. Phil: all day so far Bidu shows no tradable channels. now a huge spike up, what is the news ?

  46. Jo – I remembered you were a phys…just didn’t want to speak for you.  Being in Pharma, we are so VERY distant cousins!! 

  47. kustomz, I’m pretty sure S has both doubled and halved nearly each year for the past 10 years.  you can almost always count on its management to make a boneheaded move whenever things are going well.

  48. Anyone use an RSS feed to keep track of Phil? How do you like it? 

  49. CEPH – might be time to move the truck back.  Now that the charts give confirmation… is an excerpt,





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    Cephalon, Inc.’s cancer drug Treanda [bendamustine] worked better than a standard chemotherapy regimen when paired with Roche Holding AG’s Rituxan [rituximab] to slow the progression of certain lymphomas," according to findings reported at the American Society of Hematology meeting. The standard cocktail, known as CHOP, "includes four medicines: the chemotherapies cyclophosphamide, adriamycin, vincristine and the steroid prednisone." Researchers found that in patients with "cancers known as follicular, indolent, or mantle-cell lymphomas," Treanda "delayed cancer growth for 55 months, compared with 35 months for those taking the regimen known as CHOP."
            MedPage Today (12/5, Gever) reported, "Bendamustine (Treanda) could replace the so-called CHOP regimen as the optimal partner with rituximab (Rituxan) as the standard first-line treatment for indolent and mantle cell lymphomas, researchers said." In fact, "the combination of bendamustine and rituximab showed substantially lower toxicity and better complete response rates in a randomized Phase III trial," according to a German researcher. The researcher also said the bendamustine-rituximab combination "’has the potential to become the new standard of care’ for follicular lymphoma, mantle cell lymphoma, and other indolent forms of lymphoma."

  50. I knew Bernanke would make everything better – he’s never let us down has he?

    Actually what Ben accomplished was getting the dollar to sell-off again, very sharply down since his speech began.

    Being a bank/Kustomz – Interesting.

    BIDU/RMM – No news, just Bernanke reminding people that the dollar is still a dangerous investment compared to oil or gold or risky equities.  But they came right off $420 so perfectly in the channel anyway.

    OK so we got a move back up timed on Bernanke but al it did is take us back to the morning open so not too impressive yet.  RUT right at 505, NYSE over 7,200 and Nas right at 2,200 (and Dow over 10,420) so we’re not going to fight it if the Nas confirms and it has no excuse not to with the SOX up almost a point.  Also, very strange that oil is still under $75.

    1:15 Volume hit 90M so no volume strength to the move but still a big push all up right now. 

  51. Interesting that SRS is staying put (no pun intended) at $8 with the market rising to 46+ points. Good play for the afternoon if the market decides to pull back?

  52. The Treasury has summoned the big mortgage servicers (including BAC, C, WFC, JPM, MS) to Washington today to discuss how they’ll meet a year-end deadline to make permanent the trial refinancings extended to at-risk homeowners. Banks are blaming delays on borrowers failing to turn in paperwork, and confusion about eligibility.

    Bernanke on the Fed’s frequently asked questions: The economy’s still recovering but faces "formidable headwinds." Inflation is affected by a number of crosscurrents, including resource slack and rising commodity prices, but is liable to be subdued for some time; some observers are "uneasy," but Fed is committed to inflation control.

    More from Bernanke’s FAQs: A fundamental crisis cause was firms (and regulators) underappreciating risk; we can better avoid future crises with some unsparing self-assessments for regulators, and tougher regulations. Stress tests provided lessons learned on systemic risk. Congress should create a new resolution regime for giant firms, and a systemic oversight council.

    WSJ is liveblogging Google’s (GOOG +0.6%) presentation featuring its "heavy hitters" showing off some new search features.


  53. word.. Nextel (debt)

    VZ T marching higher

    Leave it to Bernanke to quell fears of a stronger dollar

  54. POT at the 5% rule and for some reason Dec $125/120 put sporead is just $2.50 so I like that play (GS just upgraded them).

    AMZN going down despite the market. 

    SRS/LLorens – I like them at $8 regardless. 

    Liking DIA $103 puts back at .70 again, stop at .60.

  55. Other trading question -
    Anyone know of an order type that uses a trailing stop where you can set a trigger price -
    Example – I wanted to use a trailing stop on SPY covers this AM but I only wanted it to get triggered after the contract broke $2.15 cents – then have a ten cent trailing stop.
    I thought this was a market if touched with a trailing stop – but at IB, at least, it actually does the reverse of what I want it to do – you put in the buy order below the market price with a trigger $2.15 and a trailing stop of .10  – the trailing stop actually works in reverse - as the price moves up the stop moves up – if the contract goes to $2.50 – then backs off by .10 cents – your market order would go in at $2.40 – this makes no sense to me because it means you are buying higher and selling lower –  in addition if the initial $2.15 get violated – this triggers an immediate market order – no help at all – when would someone want to use this – I guess with comlex hedges?
    Is this how it works at TOS – looking for a way to automate my buying back of DIA / SPY covers – cannot always be at my computer for the am pump – I read on the web – that a Market If  Touched (MIT) with a trailing stop – worked like a trailing stop except with a trigger price – guess not at IB.
    I was told the best I could do was put in a limit order at the price I wanted – UGH

  56. Pharm, what time horizon would you put on a CEPH trade?  The Feb 55/60 call spread is about $2.10 or would you go to May?

  57. AIR taking off and our other Boeing Buddies, TIE and BEAV doing well too!

    Limits/Samz – Yes, I find the best you can do is use the delta and set a last price stop where you expect it to be.  Also helps to sell 2 1/2 chunks intead of a whole so you don’t get an entire unfilled or poorly fillied order.  Of course hard stops should only be used if you have to.

    CEPH/Mr M – I think they are a long-term winner.  Contracts don’t pay very well as sales but you can buy 2011 $60s at $6,80 and sell 2/3 Jan $60s at $1.30 for net $5.93 to start.  Goal is to collect $5, which pays for roll to the $50s (now $11.70). 

    I think that was a good top call on the last comment!

  58. MrM – I am thinking of the P side to leg into….Otherwise, May.  I know Phil mentioned them last week and there are some big dark areas on their chart to fill UP.

  59. Mothers Against Texting While Driving….gotta get short telecoms

    Being a bank…banks make my money worthless. Clearly the banks have no interest (literally) in lending. Why should the bank hoard my money while i collect under 1%. There are many opportunities and I’m very selective to whom i lend.
    Helping people with hidden assets ;-)

    I pinched my nose and bought AMD last week, in and out is the way to go

  60. CEPHs just filled at 1.25/6.7. Sold a few of the 50 Jan10s for 60c.  When the chart confirms, will sell a few of the 55s.

  61. That would be selling the 50 Ps…and 55 Ps Jan10.

  62. Does a fake print mean anything?

  63. What causes it?

  64. My first day as a premium member, so I have a bit of a newbie question for Phil or anyone.  Please bear with or refer me to previous articles, etc. if this information has already been covered. I have an 401k account where margin is not allowed, and thus I cannot be short options, only long. Are there effective ways I can build  "hedged" options strategies using only long options. For example, assuming I was wanted to be long BAC, obviously I would buy a long call, but how could I effectively hedge with a long put option (buy an ATM puts? buy OTM puts? is there a call/put buy ratio involved? how to prudently leg in/out to protect profit/limit risk, etc). Sure, there are straddles/strangles but they seem to be expensive from a time value erosion standpoint and also erode if volatility stays low. So I am looking for alternatives.  Many thanks to Phil and others for their experience and expertise!

  65. Phil: is cold weather driving UNG and NG issues up ?
    my single highest looser is UNG LEAPS 2011, jan 10.

  66. bord  – can you move your 401k to think or swim – you can do any option strategy you want with a defined risk – no naked calls – not sure about nake puts – its defined – perhaps others know

  67. While capacity is being removed from the trucking sector, Broughton explained that not enough is being removed to offset the amount of lower demand.

    According to Lana Batts, a partner at Transport Capital Partners the trucking industry still has too much capacity and rates would be higher than they presently are had more capacity already been removed. She said that when tonnage is down along with the supply and demand drop in rates, many carriers are forced to go out of business.

     is not a secret that when capacity shrinks, carriers will raise rates," said the executive. "There is enough capacity out there right now for existing carriers to pick up any slack should more carriers-including YRC Worldwide-were to exit the market."

  68. Phil,
    DIS is trading at 31 which is a couple of bucks off its all time highs of 35. Are there any plays here. The resistance at 35 is pretty solid with several attempts unsuccessful made to broach that level over teh past 5 years.
    WFC….currently trading at 26.50 …what about buying APR 30 Calls and funding that purchase with Apr 23 Puts both around 1.30.
    Finally DD (Dupont) has experienced a small pullback to 32 from a nice run to 35. What about selling the Jan 30 Puts to scale into a position.

  69. samz: yes on naked puts in 401Ks using TOS. No margin, so if selling a $20 P for $1, $19 cash is tied up.

  70. Nice, 20% gain on DIA puts alread – don’t blow it!  All out if the Dow retakes 10,400 (doubt it).

    Fake print/Roamer – You mean like a spike in the chart from a sale that never happened?  It happens a lot and is generally caused by shenanigans and exused as a key-entry mistake or some form of computer error.  Of course, they only tell people that long after the damage is done.

    Welcome Bord!  That’s a lot of questions but first of all contact ThinkOrSwim or other brokers and see if they allow you to sell contracts in a 401K as that’s just silly.  There is no margin in selling a covered call.  If not, you can certainly have stock positions in your 401K that you hedge in a totally seperate account but that does require a bit of an understanding of what you are doing since you have to connect all the dots across two accounts. 

    BAC, for example, we like to play with a bull call spread, buying the 2011 $10 calls for $5.10 and selling the 2011 $17.50 calls for $2.50 which is net $2.60 on the $7.50 spread that is already $6 in the money.  If BAC can make $17.50 by Jan 2011, you make 188% – that should motivate you to find a better broker! 

    By the way Bord – If I highlight a trade idea like that it’s an idea that is good for anyone, as opposed to a trade ideas that are specific answers to questions.   Make sure you read the New Members Guide (top of page) and do your homework.

    UNG/RMM – Actually it’s up over some investments in LNG going on in Asia.  The dream of all nat gas companies is LNG becomes viable and they can take 10x more gas and store it in the ground so they can pretend there is a shortage again.  I wouldn’t count on this trend continuing. 

    Capacity/Kustomz – Well, what does that say about the broader economy?

    Damn, forgot about shorting CREE and now they are dropping fast….

    DIS/Oncmed – A bit high now to play, wait for a nice sell-off to at least $30 I think.  WFC trade is a good idea but make sure you REALLY want to own them at $23.  DD could get much worse (see Kustomz note about trucking) we are too far off the bottom (over 100%) to be buying into DD with the market this toppy, also probably a good entry at $30.  After last week’s dip, I think even considering selling puts in DD is extremely brave..

    DIA puts at $1 now, close to 50% so inexcusable to blow .95 now (there’s our quarter!).

  71. Phil — I’m learning — I bought the DIA’s at  .79 (couldn’t move quickly enough to get .70) and sold 30 minutes later for .98.  Figured you’re right that there’s no excuse to not take 20% in half hour.  My question though is if we are still overall bearish, and want to play a move back to the 10,250 area, then where do you get back in?

  72. RUT 600 and S&P 1,000 hanging tough.  This range is getting very tight

    3pm Dow volume looks like 125M, very stickable still so be careful.

    DIA $103 puts stopped out at .95 so we need to cover with DIA $105 puts, now $1.95 if they go down to $1.75 but hopefully not as volume can easily take us lower

  73. Peter – my AMZN wild play has made it to the "sweet spot" of the curve.  Thanks for introducing me to the wild thing.  On your short straddles do you ever have more than one month trade open.  I have the Jan RUT wild play on when do you start thinking about Feb?

  74. Thanks for the detailed answers Phil and everyone. I appreciate your thoughts and advice.

  75. Speaking of wild thing what is the over/under on Tiger?

  76. Phil,
    I think the BAC spread you speak of is between the Jan 11 12.50s and 17.50s, not the 10s and 17.50s as you describe, because the Jan 11 10s are $6.80, while the Jan 11 12.50s are $5.05 (essentially the price you quote for the 10s). 

  77. phil; did you say cover dia puts ?

  78. Phil, just a friendly reminder.   Please answer when you get a chance:

    December 7th, 2009 at 11:54 am | Permalink  
    Phil, I am in a SPWRA June 17.50 /22.50 call spread for $7.10/$3.80 ($3.3 debit).  Any adjustment suggestions given the move today?

  79. consumer credit falls another 3.5 billion – see wsj breaking news

  80. BAC, for example, we like to play with a bull call spread, buying the 2011 $10 calls for $5.10 and selling the 2011 $17.50 calls for $2.50 which is net $2.60 on the $7.50 spread that is already $6 in the money.  If BAC can make $17.50 by Jan 2011, you make 188% – that should motivate you to find a better broker! 
    You mean the 2011 $12.50 calls for 5.10?

  81. Ya think
    Dec. 7 (Bloomberg) — Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s.
    S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.

  82. Peter D, I was reviewing your posts from last week on short strangles/SPX crazy plays--really good stuff, by the way--and I couldn’t quite make out how many of the short strangles you run without the SPX crazy play.  That is, do initiate SPX and/or RUT short strangles 6-7 weeks from expiration and then add the long PUT verticals depending on market conditions, adding 1x, 2x or 4x vertical for every short strangle based on your sense of the market, or do you nearly always embed the long PUT vertical in your short strangle at the same time?    Or have I confused the strategy…

  83. Phil,
    Play for The Stick ?

  84. MrM - RF has been breaking down over the past few trading days….!!!

  85. Pharm - but if I short RF, it turns north and I ruin the short for you, so I’ll steer clear.  Thanks though.

  86. Hi Phil: What do u thinkof this trade on TXN:
    Buy April,2010 $25C at $2.84,sell April $27.00 C at $1.73 and sell April $24 P for $1.07 for net of  $.04

  87. DIA/Jcmn – If I’m going to double dip (and I wouldn’t here because this has been a strong support level (10,350, S&P 1,000, RUT 600) I’d go for the $102 puts at .62 as they only have a .29 delta so if you are wrong and the Dow goes up 25 points, it should only cost you about 1/2 your losses and if you are right and we fall 100, then you make another 50% on those, which is .30, which is another 30% more than the $103 puts so nothing to complain about. 

    Tiger/SS – Is this really a big deal?   Perhaps he loses a couple of sponsors but I think it makes him more interesting.  Look at Letterman – ratings are up for him.

    BAC/Bill – You are right I did the wrong math!  I still like the $10s as the bottom of that trade at $6.80 but that makes the spread $4.30 with a $7.50 upside (just 74%) and a break-even at $14.30.   Of course, in a trade like that, if we get a shap sell-off you can sell something like the $10 puts (now .78) for $2 to reduce the basis (assuming we think they’ll bounce back).  

    Cover/RMM – Absolutely full cover if we break over 10,400 again but my covers already triggered in $100KP as they had a trailing stop at $1.83 but that portfolio is very bearish and another $1,000 ahead today so worth protecting.

    SPWRA/Leon – Sorry I missed that one.  If you see me answering questions later than yours, safe to assume I missed it.  There’s not much to be done with such long bull spreads.  They are still $3 apart and only time is going to get you that extra $2.  What you can do, since you KNOW you have $2 coming at this price ($24.42) is take the Jan $26 puts at $2.90 and sell the Jan $24 puts, now $1.80 if you have to but the goal is to just catch the dips now and pick up $1 here and there while you wait for your $2.  Only if you are into day trading of course! 

    Consumer credit: Falls for a record ninth month – but significant revisions to earlier data show that debt didn’t decline as steeply as thought in 2009. Outstanding balances fell in October by 1.7% annualized ($3.51B, vs. expected $10B) to $2.482T. Revolving debt dropped 9.3% annualized; nonrevolving debt rose 2.6%. Total debt outstanding at September’s end revised higher by $30.6B, to $2.486T.

    BAC/Oncmed – see above. 

    Sector ETF strength with an hour to go: Solar– KWT +4%. Telecom– IYZ +1.9%. Clean Energy– PBW +1.6%. Healthcare Providers– IHF +1.2%. Agribusiness– MOO +1.1%.
    Sector ETF weakness: Gold Miners– GDX -2.4%. Real Estate– IYR -2.3%. Oil– USO -2.2%. Gasoline– UGA -1.9%. Regional Banks– RKH -1.9%. Financials– XLF -1.8%. Commercial Banks– KBE -1.8%

    Dow leaders in the session’s last hour: VZ +2%. BA +1.9%. T +1.4%. WMT +0.9%. MCD +0.9%.
    Dow laggards:
    PFE -2%. BAC -1.9%. JPM -1.3%. CAT -1.2%.

  88. Options/Kustomz – Wow, about time we had signs of rational thinking!

    Stick/JRW – I covered the DIA puts in the $100KP but that’s because that one is imbalanced so I didn’t want to take a chance.  It’s fine to day-trade the stick like that but you need tight stops and a 1/2 cover into the close is the more prudent way to go.

    TXN/Dflam – I like that trade, good support at $24 in a strong sector and we like them long term even if they do fall.

    BA still making new highs!

    Here goes 10,400 – now I’m glad the covers triggered…

  89. ssdirk/RUT/SPX – There is nothing much to do, except to watch my account balance goes up today.  Having overlapping months is quite usual (2 or more months of short strangles at any given time).  But frankly for this month I haven’t looked at February spreads yet as it seems too far away as we have December to get through.  Will re-check once the VIX is up a bit more, and let the market plays out.

  90. Move along folks, nothing to see here:

    With landlords struggling to keep commercial tenants, delinquencies on CMBS rose to a record 4.06% in the third quarter. Loans that were at least 90 days past due rose to 3.43%.

    AAPL still going down and woo-hoo on AMZN.

    Transports leading downside – I’m very pleased with that put so far.

    Very iffy movement otherwise.  Probably a futures pump tomorrow as long as China doesn’t melt down.    FTSE held 5,250 (bounced right off it) today and DAX is over the line at 5,,784 so not expecting a major global meltdown tomorrow (but, then again, we never actually expect them do we?).

    Pretty much steering neutral into the close and keeping full cover on DIA puts as it’s just been the norm to get the spike up and I’d rather scramble to layer in the downside than get burned to the upside again

  91. The rest of the investing public is cathing up with our CELG trade.  8-)

  92. Phil,
    Where are you with SRS now? Tx.

  93. Actually if CELG cures cancer, this country would be BK in about 10 years as the SS system couldn’t handle the longer life-spans!

    SRS/Boon – Still happy to draw a line in the sand at $8.  Sold both Jan $8 and Dec $9 puts, both are ahead at the moment. 

    Bespoke Commodity Charts:






  94. Phil – a big thanks for warning me on my appl bull spread leaps and vertical calendar spreadl ast week.
    I was able to close out the trade with a small profit by legging out of the long calls first – and watching the near month contracts drop  – wish I had had the stones to be naked the calls -

  95. 300K shares of AMZN dumped dropping price by $1

  96. BOOYAH
    (AMZN Quote): Even though the bears hate Amazon, said Cramer, the stock is up nearly 250% for the year, and Cramer said it still has room to grow by 74 points. He reminded viewers of the stock’s 1,449% move in the late ’90s.

  97. Well that was a pathetic stick save.  Plenty of sellers taking advantage but they did manage to finish the Dow greeen. 

    Stones/Samz – Take money and run, not take money and make the opposite bet to the one you believed in…

    AMZN/Oncmed – That Cramer clip from the Thursday post (Wed night for him) just gets funnier and funnier as AMZN sells off!

    1,449%/Kustomz – Really is he allowed to use the madness of 1999 as investing advice today?  That may be worse than Blodget…

  98. My 9:29 am picks turned out ok.
    COF  -0.40   (but down 1.40 from where it opened).
    SPG  Down 1.80
    SLG Down 1.65

  99. SLG Investor Day today; some spinning going on there for sure.  Trying to argue for 5.5% to 6% NYC cap rates — good luck w/ that.  Meanwhile 2010 guidance down 10%; occupancy and rental projections flat to down.  I maintain overpriced at this level !
    Oh, and big deal to de-lever balance sheet thru a structured sale fell thru b/c lender would not assign the mortgage.

  100. This site is beginning to open my eyes to how much manipulation of stocks there is. Did Calyon really not consider covering AAPL before? ROFL
    AAPL Calyon Initiates AAPL with Buy, price target: $260
    AAPL Hearing Morgan Stanley making positive comments (timing uncertain) – cites recent NPD data showing strong sales during Black Friday for Mac computer sales.

  101. judah, you weren’t confused.  There is no rigid rules on adding the long PUT vertical.  With the market looking toppy, it’s recommended that we have at least 1x of the vertical for every short strangle, especially if you are new to the scheme.  I did a 4x when the VIX was high enough to finance it and still have a positive Theta.  In general, we would have more long PUT verticals when we are more bearish. 

  102. Peter D, Thanks, again. I’m going to start with the Jan SPX short strangle--you gave me target numbers last week.  I’ll probably give myself a little extra cushion on the first one.  I have a lot of cash I’m otherwise not putting to work and I’m too bearish right now to jump into many new positions.

  103. SLG/Cap – They are all scrambling and only the fact that most banks don’t want the properties at all is keeping this charade going.  

    Ah, now that the markets finally closed they are able to get the S&P and the Nas green in the futures, making a nice show for the Asian audience.  They ran the dollar down to 89 Yen but now back to 89.50 and I’m sure they can get to 90 before Tokyo opens.

    Copper $3.20 on the button.

    Caylon/Steve – Timing is everything isn’t it?  Of course, I don’t think anyone actually cares what Caylon thinks.

    What the heck happened to CELG?  Big dip all of a sudden after hours…

  104. Going to drink…..
    Alcohol Cuts Risk for Heart Disease by One Third

  105. CEPH/Phil – they released some data, popped and now the run is over.  I think I noted last week that it was baked into the price so we should cover a bit harder.  I thought you were referring to CEPH at the time, since we were discussing it.

  106. Sheeze, now I am confused.  Celgene you mentioned and the price was baked in (CELG), we talked about Cephalon (CEPH) earlier….whew.

  107. CEPH/Pharm – Oops, I got them mixed up! 

  108. September beef plus beef variety meat exports were down slightly from August, with the January-September cumulative total falling further behind last year’s pace, as beef exports continue to struggle amid market access restrictions and difficult global economic conditions.

    Commodities, phooey look at beef prices if we believe there’s a global recovery. People that make money eat dead animals. Cant eat copper.

  109. Hi, Peter D,
    I’ve been looking at RUT.  Due to the "35% concentration rule" of PM, I begin to branch out to RUT.  A few questions on RUT versus SPX.
    (1) What’s your estimate of margin requirement if a short RUT option all of a sudden becomes really close to ATM?  In comparison, you mentioned $100 (per share) for SPX.
    (2) RUT’s options’ bid/ask spreads seem to be narrower than those of SPX.  Is that correct in most of the months?  Can you get filled more easily?
    (3) Do you play put spreads on RUT (ala "crazy plays")?  I guess they should provide the same level of protection.  I’m thinking maybe 1 RUT strangle + at least 1 put spread.
    (4) Do RUT strangles generate about the same percentage of profits as SPX strangles?
    BTW, I tried to buy more SPX put spreads today, as IV goes down, and they are cheaper than last week.  But I have a hard time getting filled, even though my offer is at mid-point between bid/ask.  I am wondering if an offer to buy RUT put spreads would be easier to get filled due to their seemingly narrower bid/ask.  I might give it a try tomorrow.
    One more question: I’m curious what happens if the "35% concentration rule" is triggered?  Is it something you have to scramble to fix within 24 hours (sort of like a margin call)?  I hadn’t pay attention to this rule until I saw your post last Friday.  Thanks for the warning!

  110. I’ve been watching NYX, getting into a range here where it may make for a decent trade

  111. SPX strangle/Judah: I started playing with SPX strangles under Peter’s guidance about 2 months ago.  You are in good hands!
    One little suggestion from a 2-month-old strangler: Sell 2 (or some even number), so that later you can apply the PSW rule "if in doubt, close 1/2".

  112. cwan/RUT – good questions.  The answers are as follows.  Have fun!
    1- The margin is directly proportional to the underlying price.  RUT is at 603 and SPX is at 1103, so RUT margin requirement is 55%-60% of SPX.
    2- Yes, the Bid/Ask is much smaller on RUT.  The fills are similar to SPX in my experience.  Both are slow, except the first and last hour.
    3- Yes, the RUT are also hedged with the crazy plays.  I wish they have $5 strikes in RUT as $10 strikes are wider than I like, but it works for the crazy plays.
    4- The RUT should generate more profit than SPX as the options premium are higher.  However, the wider strikes and higher volatility kinda reduce the profit margin as any adjustment is more "costly" to do.  This is a "soft" point that is hard to explain, but you’ll see it after 6 months.
    5- When the 35% rule is triggers, the margin goes up.  If you have enough cash in the account, it’s not a worry.  Otherwise, it’s a normal margin call, which you can trace back to the 35% rule.

  113. Phil:
    On stocks that you like long term, say BA, how do you manage gains? BA is on a nice move up. Not clear what your rules are for taking profit on stocks you like long-term, or how you decide to cash out.

  114. Really?, why am i surprised…this country is done done done..

    China State Construction Engineering Corp, the largest contractor in China, has bagged a subway ventilation project worth about $100 million in New York’s Manhattan area, marking the construction giant’s third order in the United States’ infrastructure space this year.
    The contract was given to China Construction American Co, a subsidiary, the Wall Street Journal quoted a source as saying.
    "The new project, along with the $410-million Hamilton Bridge project and a $1.7-billion entertainment project it won earlier this year, signals China State Construction’s ambition to tap the American construction market," said Li Zhirui, an industry analyst at First Capital Securities.

    In the first three quarters of this year, the Chinese construction giant signed more than $2 billion worth of contracts in the US market. China State Construction was also the contractor for a high school, a railway station and the Chinese embassy in the US.

    But, while the financial crisis may be growing, Dow Jones reported that Bank of America Corp. bought an additional 8.4 percent stake in China Construction Bank Corp. for $7 billion, so it now holds 19.13 percent of China Construction Bank with an intent to exercise an option to buy more shares in the bank.

    When are Americans going to wake up, its all coming together Mayor Bloomberg

  115. Indeed, excluding Monday’s deals, portfolio managers this year have already snapped up more than $132 billion of dollar-denominated bonds from companies with credit ratings below investment grade, according to data provider Dealogic.
    That’s still shy of the record $143.5 billion in 2006, but is nearly three times the $47.7 billion worth of bonds sold in all of 2008.
    The market for investment-grade debt has also been strong, setting a record with more than $1 trillion sold this year.
    And more firms are expected to take advantage of conditions before buyers turn their attention to 2010.

    Ford Motor Credit launched its $750 million 10-year bond with a yield in the area of 8.375%. The latest deal marks the fourth time Ford Credit, which carries a highly speculative triple-C credit rating, has tapped the junk bond market in 2009, having raised $3.85 billion from its three previous forays this year, according to data provider Dealogic.

    Current coupon agency mortgage-backed securities were flat for the day, but bonds made up of mortgages with higher interest rates were fairing better, according to Kevin Cavin of FTN Financial.
    The reason is that prepayment speeds, the speed at which more expensive mortgages are refinanced and taken out of bond pools, were slower.
    "Basically it means that even though rates are at an all-time low, the borrowers that are credit impaired just can’t prepay their mortgage, they can’t refinance," Cavin said. "That means there’s less prepayment risk in those higher coupons, so they’re worth more."
    The current coupon spread over a blend of 5-year and 10-year Treasurys was flat at 138 basis points.

  116. Cwan, Thanks for the suggestion, and I learned from your questions to Peter as well.  Sounds like you are moving from SPX to playing both SPX and RUT for January.  I’ll be a month or two behind you.

  117. My point about BAC, they chose to destroy shareholder value instead

    BofA could sell at least part of its stake in China Construction Bank, which it values at around $9.2bn. Barclays Capital analysts noted that BofA would not reduce its stake until 2011 but said the terms could be changed if the US bank agreed to compensate the Chinese state-owned lender. Moreover, BofA has agreed to issue $1.7bn in restricted stock to employees in lieu of cash bonuses this year

  118. Kustomz which part do you think is destroying value?
    Assuming the restricted stock vests over a few years, it could be much better for shareholders than paying out cash.
    Besides if the debt market is tapped out, why not go for an enormous interest free loan from your employees…..

  119. Kustomz which part is destroying value?
    You could argue that over the long haul restricted stock is much better for shareholders than paying out cash.
    Besides, why not grab an enormous interest free loan from your employees. It’s gotta be cheaper than issuing debt……

  120. Celgene (CELG) fell today also because it is buying a private biopharma for 340M upfront, and an additional 300M if certain milestones are met.  With this dip and the Revlimid data, I would go long on them.  We should wait for the charts to confirm, b’c for now they show a downward movement.
    ARIA – for those who bought in many months ago from one of my posts, they are moving up again after a dip to 1.75 (I hope you bought in there).  Their PIIa (proof of concept – POC) drug works to some extent in blood cancers.  They are looking to partner the project, so they should move up to the $3 range again.  I would not chase here, but you could sell the front month 2.5 P for a nice entry tomorrow if they fail.
    CEPH – one of their mAbs failed in a clinical trial today (for a small market endpoint).  More data for a larger trial in asthma is due next year.  After hours they are moving up, so looks like that gap will be filled.  I would sell the 55 Ps tomorrow at the mid/end of the day to make sure movement is in the right direction.

  121. Beef/Kustomz – That makes sense to me.  NYX will be interesting if they get back over $25 but you can always dip a toe in with the 2012 $25s at $4.80, selling March $25s for $1.50 for net $3.30 as that gives you a $5 cushion and if you DD at $6.50 on a $3 move up, then you are in for net $5 on 2x at $6.50 with 2x June $29 (now .95 ) covers

    Managing gains/Chaps – You should write down a target on a stock when you first buy it.  So for BA (which we scooped up at $40) my target was $65 – a 50% retrace of the drop from $90.  It’s a nice, conservative goal and then you think about the realistick timeframe we’d be happy with and, since $65 is more than 50% up, we should be trilled to see it in a year.  Now we have a schedule, looking for a $2 gain per month on the average so we are either on or ahead of or behind schedule each month.  Any time we start getting way ahead of schedule, we need to seriously consider killing the trade.  ANY time we are behind schedule, we need to seriously re-evaluate the position. 

    As a rule of thumb, you should be looking at every single front-month roll you make against a long position as if you are doing the position brand new from scratch.  You have to always ask yourself "Is this the best use of my $XXX?"  Like for BA, let’s say we have the 2011 $40s at $5, now $17 and we sold the Dec $52.50 calls for $3 and the $49 puts for $1. 

    Now the $52.50 calls are $3.60 and we have to decide how we feel about rolling.  We can roll to the Jan $55 calls at $2.75 and Jan $52.50 puts at $1.10 and that does take care of the roll but you can’t lose sight of the fact that BA is up 10% since last expiration and could fall back to $50.  I don’t really want BA put to me (we have the leaps already) and we’re already up 200% on the longs so what are we doing?  What are we hoping to accomplish as we tie up net $13.50 for another month? 

    As a position matures, the strategy you started with may not be the best one to stay with.  Also, the overall conditions change.  Do we think BA is strong enough to ride out a market correction or will they sell off with the rest?  Am I willing to cash out here and play for a dip to buy back in that may never come?  How badly do we want to be in BA compared to other opportunities that are out there?  The other day, I grabbed TIE and AIR as BEAV was taking off and those were both much easier to hedge than BA and are essentially the same group so maybe it is time to stop out of BA and just manage the new buddy trades. 

    If we don’t want to feel we are missing out on some fun, we can buy the 2012 $50/65 bull spread for $6 and sell the $40 puts for $5, which you can cover with the 2011 $30 puts at $1, which drops your net entry to $2 and, according to TOS, only takes up $350 net in margin per contract.  That’s not bad for a possible $1,500 pay-off.  Of couse, a new decision has to be made in 2011 and another $1 may have to be spent to roll puts but it’s nice 12-month disaster protection.

    So, that’s it – just look over your current positions and think about if it’s the best use of your money.  With BA, you’ve got $13 tied up and you HOPE to make another $13 if things go well and this way we take almost $10 of that money off the table, playing wth about 25% of the profits to make another $13. 

    China Construction/Kustomz – I wonder if they hire Americans or use US steel?  If so, it doesn’t really matter that the company winning contracts is Chinese?  We have really blown it though and it all started with corporate greed in this country leading to outsourcing where we taught the rest of the world how we do things.  Those unions everybody hates were right, you ship jobs overseas and it hurts the country – even worse than we thought it would at the time, because the damage is permanent.  But that was "commie talk" and good old Reagan told them to shove it and now we reap what we have sown. 

    Futures are falling hard now that Asia closed shop and the EU started.  Not that Asia was any great shakes either.  They barely held 89 Yen to the dollar during Nikkei trading, even with massive Japan stimulus announcement and now we’re back at 88.55.   The Pound has dropped to $1.63 and the Euro is $1.48 with oil at $73.50 (woo hoo!) andf gold at $1,154. 

    Probably they’ll hang onto RUT 600 and S&P 1,100 at the open but this is already looking like a bad open unless retail sales come in BTE.  MMM outlook spooked a few people and there were multiple bombs in Baghdad that killed a lot of people and that is the kind of thing that concerns EU investors so maybe people cashing out on that prodding. 

  122. phil anything we can do about our full covers – don’t really want to short after the drop

  123. Phil:
    This is from Friday night, concerning my trying to understand what 55% bearish means to you. My take-away is that if a $50,000 portfolio gains $5,000 (10%) on a 100-pt Dow drop, then you say you’re 10% more bearish than bullish, so 55/45 bearish. Actually the whole portfolio could be in bearish bets that have a beta of -10 (-10% for a 1% market gain). That’s fine. Just trying to understand that this is what you mean. Have I got it?
    Percents/Chaps – You can have $80,000 in bullish bets and $20,000 in bearish bets and still be 50/50 – it’s all about what the net effect is of a market move on those positions.  So the main thing I look as is what is my net movement on a 100-point Dow move up or down.  If the Dow drops 100 points my portfolio goes up $5,000 on $50,000 worth of positions than I was 10% more bullish than bearish.  Of course that needs to be confirmed by a move 100 points up taking me $5K the other way but, luckily, that happens every other hour in this market.  So I’m not staring at deltas or running massive calculations or setting up spreadsheets – I just want to know what I’m going to make or lose in a big market move.

  124. Covers/Samz – Yes but the covers allow you to short with impunity.  We already sold them for $1.83 so that covers us to DIA 10,317, we can play anything below that line aggressively bullish as a move over that line is a loss for the putter so it’s almost a free ride as long as you stick with the upside stop.  We’ll see how we open but I think, if anything, I may roll 1/2 to some Jan puts while they are jacked up in price and we can alway roll the remaining $105s down to 2x the $103 puts, perhaps along with adding a long layer to our mattress. 

  125. %/Chaps – Yes.  Why worry about deltas etc when you have a very good measuring stick – the total value of the portfolio.  Hopefully you can identify which positions are bullish and bearish and, using that, we know where we need to press to get more bullish when we need to.  This is also helpful in building a portfolio.  Let’s say you notice that 10 SRS Apr $7 calls at $2 ($2K) then to gain 10% on a move down in the Dow but only lose about 4% on a move up.  So if you want to balance a little more bearish, they become good places to put more money into.  We are constantly stress testing our positions and we get rid of the underperformers and add to our champs to build a stronger overall portflio. 

  126. Phil:
    And this is from last week, so this shows how to determine how many mattresses you need.
    In the grand scheme of things in a balanced portfolio, ideally the naked DIA puts make you about 60% bearish and a 1/2 cover makes you 55% bearish and a full cover makes you neutral (to get more bullish than that you can kill the covers entirely or just buy more upside plays).

  127. Phil could you pls clearify for me one thing about nutral condition of portfolio ( when you have time and good mood)
    right now my portfolio little bit bearish ( by Beta weighted) and I check Analyze graph of TOS and it is showing that if tomorrow market drop 10% my portfolio will be very bulish by delta ( something like 70/30 bullish),
    so by logic to keep portfolio balanced I will need to add bearish positions, but from other point of view I probably need at that time cash out my winning shorts and add to loosing longs ( or add new longs) which make my portfolio even more unbalanced ( more bullish)
    so how we should handle this situation?