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Testy Tuesday – Things Start To Go Wrong

Over 100 people were killed by car bombs in Baghdad at about 3:30 this morning.

That got Europe off in a foul mood this morning and poor earnings guidance from MMM didn't help, nor did poor Industrial Production numbers out of Germany or new fears that Dubai World will cause massive losses (Nakheel lost $3.65Bn in it's first half report).  Then Moody’s Investors Service said today deteriorating public finances in the U.S. and U.K. may “test the Aaa boundaries” while Fitch Ratings downgraded Greece’s credit grade to BBB+.  Ben Bernanke told the Washington Economic Club yesterday that the U.S. economy faces “formidable headwinds” but, on the bright side Japan’s government backed a stimulus package worth 7.2 trillion yen ($81 billion).   

Before we know it, futures are off 100 points at 7:30.  Hopefully we don't break below 10,320 at the open as we covered our long DIA puts to that spot, more worried about a bounce up than a market move in our generally bearish direction.  We had a very nice day yesterday with our $100K Virtual Portfolio already making it's target $1,000 for the week so locking in the gains seemed prudent but maybe we could have been greedier…

Central banks and governments around the world are totally right in saying that the recovery is still very weak,” Philippe Gijsels, a senior structured product strategist at Fortis Global Markets in Brussels, said in an interview with Bloomberg Television. “Going into 2010 I would be extremely surprised if we do not see a serious hiccup somewhere.”  German industrial output unexpectedly fell for the first time in three months in October, led by a drop in production of energy and investment goods such as machinery. Output decreased 1.8 percent from September, when it advanced 3.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent gain,  off by 280%, according to the median of 38 estimates by "expert" economists in a Bloomberg survey.  

Moody's fingers the U.S. and U.K. among top-rated sovereign borrowers, saying they must prove they can reduce their bulging deficits or risk a downgrade to their AAA credit ratings. Under its most pessimistic scenario, the U.S. could lose its rating in 2013 if economic growth lags, interest rates rise and the government fails to shrink the deficit or recover its loans to the financial sector.

Our 25% lines held yesterday, other than the NYSE, and this morning we should get a proper test of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 and we'll be happy if they hold and DEEPLY concerned if they don't as it's a long way down (5%) to our retrace target levels at Dow 9,840, S&P 1,056, Nasdaq 2,100, NYSE 6,720 and Russell 576.  For the morning, I already commented in Member Chat that I expect the Russell to hold 600 and the S&P to hold 1,100 at the open as long as Retail Sales aren't worse than expected.  Sadly, they were...

ICSC Store Sales were out at 7:45 and show a 1.3% drop from the previous week.  This week ended on 12/5 and included the Sunday of Thanksgiving (29th) but not Black Friday (27th) and sales are up 2.6% from last year, which also included the Sunday of Thanksgiving so a fair comparison overall.  It's a little disappointing after Black Friday gave us a +3.1% week last week as tapering off so soon is a bad sign.  Another bad sign is people cutting back on McNuggets and MCD announced this morning that US same-store sales fell 0.6% last month.  Even more surprising, sales in Asia, the Middle East and Africa declined 1 percent.   This was, of course, much worse than expert analysts had predicted.

Asia was off about a point today and Europe is off closer to 2% ahead of the US open, where the futures are down 1% but we did get a nice bottom flush at 8:30 and we should have a little upward momentum into the open but we're not going to be impressed at all if even one of our lower levels (the 25% lines on our charts) is broken.  Congress will hear testimony on the foreclosure crisis beginning at 10 am and that should keep a damper on the buying.   

We're still short Commercial Real Estate (SRS at $8) and NY developer Tishman Speyer defaulted on a loan yesterday that was used to buy some of the Chicago towers that Blackstone Group flipped after its $39B buyout of Equity Office Properties in 2007. Privately held Tishman and partner BlackRock are also under pressure from rent disputes at its $5.4B NYC Stuy Town property.  Notice how they work together with a bad loan bailed out by another bad loan - that way the banks and CRE's can keep reporting to you how great everything looks – unitl the music finally stops and people need to find chairs anyway.  Zero Hedge has a very informative building-by-building look at the next shoes to drop.

Let's watch our levels and continue to be very careful out there! 


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  1. Good morning, Phil. Do you plan to play for a bounce at 10,250 on the DOW, or is your sense that this morning that level might not hold?

  2. Good morning all a pre-market basic question to members (as a newbie) on options. I scanned the new members guide and post archives but did not find the answer (maybe the question is too basic:) ), so I’d thought I’d ask here. Theoretically speaking, when 1) one has a long option where the stock has dropped to the point where the option is OTM more than ATM and 2) you do not want to commit more money to the investment, but your analysis says the stock should come back your way…. is the better action to sit tight on your OTM calls, or roll down to a more ATM call (even though you buy fewer calls because you are not putting more money into the trade). Again, advance apologies for the basic question, but it’s premium member day two for me…. I am learning slowly but surely. Thx. John

  3. Phil, what do you think about NYX here?  It has pulled back nicely and still has a 4 plus percent dividend.  I know trading volumes have decreased, but they still have a strong franchise.  thinking about 2011 jan 22.5 puts for 4?  slow money, but big safety net?

  4. Good Morning Phil shall we sell the dec or jan DIA  103 / 104 at the enicial drop or wait for further down ?

  5. bord,
    Most people here avoid holding naked OTM options except for very short-term trades since the long-term odds are against them. However, if you are in the situation you describe you probably do need to roll down to the lower strike calls. The OTM calls are unlikely to recover even if the stock bounces back to its previous levels, so you have to adjust to get your money back.

  6. Phil, sorry you answered my question in yesterday’s thread – sorry just caught up.

  7. Oh my, are we really this stupid? Oh very……

  8.  I’m wondering why the talking head on CNBC views Greece as an emerging market? Has Greece always been considered an emerging market? I thought they were part of the EU.

  9. bord,
    By not committing more money to the trade reduces your chances of getting your money back.  Either kill it or roll them down and/or add a few more as Eric has mentioned and sell a few front months against it.  This should increase your chances of at least losing less.  Be careful that you are not chasing a falling knife, though.  Keep your losses to a minimum (8 -10%) for the stock/option, and it should not be more than 10% of your portfolio…..

  10. Phil, do you like spwra right now at 23.70ish? I bought some deep in the money Jan calls last week and am up 35%. I know one never goes broke taking profits but it SEEMS as though alt energy has a lot going for it right now and while many Chinese solar plays are near their 52 week highs spwra is near its lows… I’m thinking of doubling down, your thoughts?

  11. Phil, do you like spwra right now at 23.70ish? I bought some deep in the money Jan calls last week and am up 35%. I know one never goes broke taking profits but it SEEMS as though alt energy has a lot going for it right now and while many Chinese solar plays are near their 52 week highs spwra is near its lows… I’m thinking of doubling down, your thoughts?

  12. Bounce/Judah – I always like to play for a bounce off resistance.  I was busy writing the morning post or I would have jumped on the futures when they spiked down.  You can still play oil at the $73 line to the upside, they can get pretty bouncy but $72.50 is a better point of resistance so maybe in at $73, out at $72.95 and back in at $72.55 with a stop at $72.40

    Leaps/Bord – That’s not a bad question but it’s a long one!  It depends really but we do not like to hold a lot of premium.  My main goal on this site is to teach people to sell premium, not buy it.  If you have a specific position I’d be happy to look at it and give you some adjustment examples along with my logic – that beats textbook answers…

    Trade Ideas from the end of last post:

    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.

    BA 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

    DIA/Yodi – If you are 1/2 covered then selling the $103 puts is a great idea at the opening drop but let’s make sure it’s played out first.  We certainly expect 10,250 to hold up so selling a lot of premium at 10,300 is not a bad thing.  Getting $1.30 for the DIA $103 puts is a good thing with a stop on 1/2 at $1.50

    If you are fully covered with DIA puts and the Dow fails 10,300 then BUYING the $103 puts (now $1.32) is a good way to manage that line but keep in mind you don’t HAVE to do these quick covers.  The $100KP, for example, lost just $500 on the 100-point dip so I’m 1/2% too bullish (my aim was to get neutral into the yesterday’s close).  That’s really not worth worrying about unless 10,250 fails to hold, in which case I layer the Mattress with another 1/2 (5) March $103 puts at which point we put tight stops on 1/2 the $106 puts, which are up to $6.70 now

    Today’s test levels are  Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 and ANY single index below these levels keeps us bearish. 

    On the while, I think we’re testing the bottom on bad news but we were lower than this at Thanksgiving so no big deal to test it again. 

  13. Inflation/Pharm – I like this idea.  We can all pay off our mortgages and other fixed debts!  Keep this in mind when they tell you what "surveys indicate."

    Greece/Jimmy – I don’t think CNBC has a clue.  3,000 year-old emerging economies are not the poster child for global growth….

    Wow, CRE of all things is leading the turn back up!  This could be a bottom, good time to sell those DIA puts.  $103 puts can be sold for $1.50

    Solar sector still moving up but SOX weaker today.  We are lucky IYT fell at all with FDX upside guidance so let’s get out even on that if they snap back ($100KP).

  14. SPWRA/Jrom – I like them but they are not a good entry point at the top of a big solar rally.  How about selling the Jan $24 calls for $2 to lock in profits and THEN, IF SPWRA goes over $25, you can add to your long positions and roll the callers higher (to more premium)?

    Dow volume at 10am is 33M, very slow so no conviction to the selling.  Could end up being a nice bullish test of the bottom of our range.

  15. Pharm, Nice video.  Don’t you want more people like that so you always have some guy on the other end of your trades? (I’ve always taken that to be PT Barnum’s main point--a sucker being born every minute is a good thing.)

  16. I think REITs are up on the news of SPG buying more outlet malls.

  17. Woops – despite my best efforts to the contrary, $100KP ended up making another $1,000 this morning!  8-)

    That’s another reason not to panic into a big market move, the bid/asks on the positions you hold can get distorted and don’t give you a true picture of where you are. 

    AAPL back over $190.  AMZN bouncing a little but now tough to get back over RUT 600 and S&P 1,100.  If Dow can’t retake 10,300 then it’s pathetic and maybe we head lower.

    SPG/Eric – Good point!

    Research In Motion (RIMM) +2.6% after deepening its partnership with China Mobile (CHL) to offer Blackberry handsets to personal users and small businesses in China, and on plans to introduce a Blackberry running on Chinese-developed 3G technology. Until now, Blackberrys have only been available in China to large corporations.

    China is experiencing "a clear V-shaped recovery," Zhu Min, vice-governor of the People’s Bank of China said Tuesday. China analysts believe recent rhetoric, including a vow to "strictly" control new investment projects, suggests that 2010 fiscal policy will be much less accommodative than it was this year.

    Oct. Job Openings and Labor Turnover: Job openings unchanged at 2.5M, down 48% from the most recent peak in June 2007. Hires little changed at 4M, down 29% from the peak. Turnover remains low at 3.3%

    Mortgage and credit-card delinquency rates should decline next year, ending a trend of unprecedented year-over-year increases that began in 2006, TransUnion says in its 2010 outlook this morning. Mortgage loans 60+ days overdue will decline to 6.39% from a current 6.56%, due in part to more conservative underwriting standards, and as problem mortgages work their way out of the system.

  18. REITs holding up market ?  SLG at 48 + ??  That is crazy !!

  19. SLG gave an ‘in line’ outlook this morning. No reason for them to rally, but any news like that is an occasion for a short squeeze.

  20. Morning all hi Phil
    Seek some advice pls am Long 1.5x LDK Jan 11 7.5 Short 1xJan8 and .5x Jan 9 – position now about delta neutral and LDK showing continued strength
    Would you recommend any adjustment pls?

  21. SRS is up today

  22. EricL … FYI that "inline" outlook is 10% lower FFO than 2009 (due to dilution).
    Also, their dividend will remain at 40 cents (<1%) for 2010 and probably beyond (their own guidance) which is completely sucky for a REIT.
    The guidance was from yesterday, not today, from their annual investor day . 
    There were far more negatives / cautionary info in that presentation than positives.
    Their big spin was that they claimed NYC would rebound strongly, but the data does not fit with those claims. 
    Stabilized yes.  Turned corner, no.
    Its a good company; but highly leveraged and significantly overvalued.

  23. The MCD nonsense is finally coming to an end. You can always count on this one to fail to hold over 62. WMT also never holds 55; looks like it’s coming in too.

  24. sorry I mean SRS is down

  25. SRS should be up today; but it isnt

  26. YET

  27. I saw that too Cap, and I agree with you.

  28. Crazy/Cap – There’s just no stopping this thing is there?

    Oil punched through finally – we’ll see if they hold it this time. 

    This is the 2.5% rule off 10,549 (10,285) on the Dow.  Other 2.5% lines off the week’s highs are S&P 1,090, Nas 2,158, NYSE 7,095 and RUT 590 and those were pretty much our bounce levles today so we EXPECT a 20% retrace of the drop – anything less than that is still bearish and we can assume a 1.25% follow-through tomorrow

    Best to give up on YRCW:  YRC Worldwide (YRCW) -7.9% on news it will be deleted from Dow Jones’ Transportation Index come Friday. Dow Jones notes that a potential debt-for-equity swap would give YRC noteholders control of 95% of the company’s common stock, and would likely force a bankruptcy filing. YRC to be replaced by Delta Air Lines (DAL -0.1%).

    Down volume is more than double up volume – going to be hard to get me to flip bullish here..

    LDK/Steve – Just roll the 1x Jan $8s to 1x March $9s (about even) when you feel you have to.  Meanwhile they are good coverage and you can add 2011 $12.50s (now $1.90) at around $2 if they break over $9.50 and that would set you up to stop out the $7.50s on a downturn or to DD your callers at a higher strike. 

  29. I meant the FY ’09 thing FFO being at the low end.

  30. Phil, do you have an opinion on ERX. Seems that energy bull has gone down considerably in the last few weeks.  Would this be a good play for a bounce?

  31. Phil/ SPWRA
    yesterday, after market closed, on CNBC some clown was very bearish on solars, said that 50% of solar market in Germany and they plan to change support system and kill solar industry, what do you think about it?

  32. Phil/ EDZ
    we hold Apr 3s calls, do you plan to cover them somehow?

  33. Phil,  am I rushing an opinion, or would you say that the 10,300 level is NOT holding, and with SPX nowhere near getting back above 1100, when do you decide to buy DIA puts outright?

  34. "BA 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"
    See if I understand this trade (I just finished reading about bull spread this wkend)
    1. Buy 2012 $50 call and sell 2012 $65 call for a total debit (cost) of $6,
    2. sell 2020 $40 put for $5
    3. buy 2011 $30 put for $1
    4 total cost for this trade is $2/share
    5. will readjust/roll in 2011
    Am I understanding this right? why is this a 12 month disaster protection plan? why would there be $1500 payoff? There is no underlying stock purchase, right?

  35. EWZ is coming into support in the 74-6 area. My short condors from last week are now flipping bullish, so hopefully it holds.  If EWZ fails this area, then the emerging market stocks are in bigger trouble, IMO.

  36. Just got out of xom dec 70 puts for a small loss – started off with 10 contracts and ended with 100 after a series of  doubledowns – reduced basis to .43 and got out at .38.  Happy with small loss on this one.

  37. lynn, the $1500 I think comes from the leap spread, you have the right to buy BA for 50 and sell it for 65 which is $15 x 100 per contract = $1500
    While $1500 would be the payout, given that you paid $2 for it (x100 per contract) = $200 I think that leaves you making $1300 profit, or 650%.
    Disaster protection refers to the sold puts which protect most of your investment if BA falls all the way back to $40. Obviously if it does fall that far, the protection would be exhausted and the position would need adjusting along the way.
    There is no need for a stock purchase in this structure.

  38. Jomama – Congrats. are you getting back in on the call side?

  39. John Harwood is such an Obama fanboy it is pathetic.

  40. Phil, AIB, a good bottom play here?

  41. Morx, that was hard work to get back to even.
    will buy xom 75 puts when xom shoots back to 75.

  42. Morx, that was hard work to get back to even.
    will buy xom 75 puts when xom shoots back to 75.

  43. RIMM AAPL MOT PALM (lol) all green while NOK heads lower

  44. Phil,
    I did a MNKD buy/write back in Nov/Dec when it was around 12.50. Here is what I am left with:
    MNKD Bought at 12.08 (now 7.38)
    STO MNKD Jan 7.5 Call at 1.50 (now 1.1)
    Would it make sense to sell the Jan 7.5 Put at 1.30?  Or just take my chances with the sold calls?  At this point I’m not sure I want to own any more MNKD.  I’m more concerned with getting out even

  45. Hi Phil do you recommend rolling the SRS 9p dec to Jan ?

  46. ERX/Sthom – I don’t know if going out on a limb with an ultra is the best way to play for a bounce.  I’m barely able to get even in the futures and those trades have no premium at all.  I think the dollar has a lot further to go up so oil could go down a lot further and also that ERX is a bet on the sector, not oil itself and Lukoil’s earnings today should put you off playing the energy sector for now. 

    Germany/Tcha – That is the standard story they use every time they want to bring solar lower.  If Germany doesn’t work they release news about Spain being 1/2 of all solar and that they are cutting back.  I wrote a whole long post debunking that BS earlier this year. 

    EDZ/Tcha - Cover them because they are working?  No, as long as the US markets look weak and commodities look weak, then our premise is intact.  Of course, you can always offer to sell the Apr $4s for $2 so you have a .20 spread that’s $1.40 in the month if you want to lower the exposure. 

    BA/Lynn – You have it right.  The 12-month disaster protection is the $30 put since you are pretty screwed on this trade if BA sells off below $40.  Obviously, the protection only lasts a year and then you need to decide if you feel safe (maybe BA is at $80) or you want to roll to some 2012 cover or maybe just spend $2 to buy out the 2012 putter, which would put you in for net $4 (or $400) on the $15 (or $1,500) spread.  The $1,500 number is based on the difference between $50 and $65 being $15 and the fact that options are sold in 100-contract blocks so $15 times 100 = $1,500, which is the maximum pay-off (meaning the amount you will get paid at the conclusion of this trade) at $65 or higher.

    Or what Steve said!  (I really do have to read ahead before answering)

    EWZ/Eric – That’s why I still like the EDZ

    XOM/Jo – Good one.  They have been annoyingly stable this month.

    XOM/Morx – Find Lukoil’s report.  This is why I liked the XOM shorts in the first place. 

    AIB/Jrom – Very tempting but I think some of these banks are getting close to panics again.  Maybe if Dubai blows over later this week but more likely it snowballs (although you couldn’t tell from SRS). 

    While the big banks go to battle to unshackle themselves from TARP’s chains, regional lenders (SNV, ZION, RF) choking on real-estate loans are unlikely to be exiting TARP any time soon. Regional banks are almost four times more concentrated in CRE loans than the biggest lenders.

    "Strikingly weak," "mortifying," and "old and ineffective medicine" – critics comment on regulatory reform aimed at the three big ratings firms (S&P (MHP), Moody’s (MCO), and Fitch). "The Big Three object that the legislation proposed by Congress could make them more vulnerable to legal action. But they otherwise do not sound particularly exercised about much else that is likely to become law."

    What’s it worth to be too big to fail? At least $14B. That’s the total premium two Philly Fed researchers figure banks paid in acquisitions from 1991-2004 in order to reach a threshold where they not only have significant market power, but also a de facto backstop from the public. (research paper, .pdf)

    President Obama (live stream) proposes tax cuts for small business, to encourage hiring. The capital-gains tax on new investments would fall to zero for a year, and investment-expense tax breaks extended through the end of 2010

    Pushing hard to get back over our levels.  Maybe we should raise Dow watch to 10,350 and lower NYSE watch to 7,100 so they would all line up at the same time

  47. Well, I guess you can just disregard my previous question Phil.  The market seems to have answered my question and I;m glad didn’t act on the impulse.  That’s another benefit I’m learning from this site.

  48. Bord, I think from my massive ( :D ) 1 year experience, option position sizing is the single most important thing. You can debate whether you should buy options or sell them (selling is a usually a much higher probability of a smaller reward), but sizing is critical. If you are not prepared to add money to a position when it goes against you, the position was too large to begin with. IMHO this is the single most important lesson that I have learned.

  49. Phil, Per LEAPS/Bord reply, I actually have 3 positions in mind. Pick one if doing 3 is too many.
    1) Long BAC Feb 18 call, BAC now below 16.
    2) Long AAPL Jan 200 call, common now around 190
    3) Long FCX Feb 90 calls, common now around 77
    FYI, I did these trades "PP" (Pre-Phil, am a 2 day old member now), so I did not scale in, use smart stops, etc…. result is I am in the hole pretty deep on all three right now.

  50. Phil -
    What’s the current strategy on the dia covers (to complicate my life I do spy) anyway – if we are now full covered – wait it out – or did you roll half?

  51. Taking another shot at selling 5 ABX Jan $37.50 puts for $1.20 in $100KP

  52. Phil,
    I’ve pretty much ignored Dow levels, since it’s been inflated relative to the other indexes for quite some time now. I’d be OK with a recalibration to make it more relevant.

  53. Thank you Pres. Obama, uhm where were we… o yeah selling off the markets

    Do not read unless you want the song stuck in your head ALL DAY

    Why do you build me up (build me up) buttercup, baby
    Just to let me down (let me down)and mess me around
    And then worst of all (worst of all) you never call, baby
    When you say you will (say you will) but I love you still
    I need you (I need you) more than anything, darlin’
    You know that I have from the start
    So build me up (build me up) buttercup, don’t break my heart


  54. Market Internals update at 12:00pmET – NYSE volume 455M shares, about 4% below its three-month average; decliners lead advancers by 2.4:1. – NASDAQ volume 910M shares, about 7% below its three-month average; decliners lead advancers by 1.5:1. – VIX index +3.5% to just under 23.00

  55. On the BA bull spread again:
    assume it does falls to $40 and I do no adjustment, the max risk on one contract is $200 loss, right? Plus I might have the put assigned to me, meaning I have to buy BA at $40 (assuming i didnt buy back the 2012 $40 putter).  Also,  the $30 put should increase in value, reducing my $200 loss?
    But most likely by then, i will have to ask Phil how to fix this….(yay, I feel like I almost understand  what u guys are talking about all day long :)

  56. TBT March 46/42 spread.  We did this for about a $2.15 debit a couple of weeks ago and it’s now at a about a $0.35 profit.  What do you think of it?  Stay put?

  57. who is the fellow playing the ZION game look it is climbing up again today !!! I enjoy this stock

  58. Eric & Phil – Copper is holding the line.  I have some shorts in PCU for long term, but looking at a quick rebound to 35 as they have support here.  Looking at the 30/35 Jan 10 bull call spread for 2.5….opinions?

  59. lyn I think your max loss is $2 (net premium paid to enter the position) plus $10 (the difference between the put strikes) = $12 if BA expired at $30 and you made no adjustment.

  60. Pharm, I agree. I rolled my PCU puts to March 30s about a week ago, and covered them with Jan 30s this morning for a rebound.
    Selling the Jan 30/35 bull put vertical has a tiny edge right now (.025). You could put a bid in on each and see which fills first.
    By the way, that little roll (to the March 30s) coupled with the recent pullback was enough to flip the whole position green on the year. Gotta love that.

  61. ouch, $12 is a huge loss on a $2 investment. So at some point if BA falls, its better to buy back the $40 putter as Phil suggested to avoid having the shares put to me

  62. When Yodi asked about selling DIA this morning, Phil said:
    "DIA/Yodi – If you are 1/2 covered then selling the $103 puts is a great idea at the opening drop but let’s make sure it’s played out first.  We certainly expect 10,250 to hold up so selling a lot of premium at 10,300 is not a bad thing.  Getting $1.30 for the DIA $103 puts is a good thing with a stop on 1/2 at $1.50. "
    1. I thought Yodi asked about selling DIA call
    2. what should Yodi already has to be 1/2 covered
    3 how can u have a stop on selling the DIA 103 put for $1.3
    4. I did read the mattress play. but for someone like me, how to start the mattress play as everything that’s discussed here is based fr previous position

  63. MNKD/Daveo – Ouch!  Well they have no plans to make any money at all until 2012 so it all depends on why you are in it.  Biotechs are the kind of things you try to buy on bad news and sell on good news.  You were in for net $10.50 and they are now $7.50 but calls are on target at $7.40 so not much to be done with them.  Selling the puts adds risk but it also knocks $1.30 off your basis to bring you down to $9/8.25 – if you can live with owning 2x at $8.25 then sure, why not?  The why not for me is that they were $5 in mid October and I have no reason to think they can’t be again but I don’t follow them so, like I said, it depends why you are in it.  As a neutral observer of the stock I’d rather take your net $6 and buy 2x the May $2.50s for $5 and sell the May $7.50 puts and calls for $5.70 which puts you in 2x at about net $7 or pays you back $11.40 at $7.50. 

    SRS/Yodi – I would say wait until tomorrow at least, maybe Friday. Unless we think SRS is going below $8, there’s no reason to buy back a putter with any premium.  Let him put it to us if he wants to and we save an extra dime. 

    10,300/Jcmn – Sorry, I missed that one.  This is why we watch ALL our levels to get back over.  Don’t forget that’s because they ALREADY broke down so we are strict about making them prove they can get back up.  Also, per the 2.5% rule, a 0.5% bounce off those lines is a gimme so we’re not at all impressed when the Dow falls 300 and bounces back 60.  In fact, that’s exactly what it’s supposed to do in a downtrend!

    Scaling/Bord, Steve – Steve is right, learning position management is more important than any other skill – including picking winners!  Check out the strategy section for the article on scaling in if you haven’t already and feel free to ask questions as we have lots of new people and I’m in the mood to pontificate further since the market is dull.

    Bord List – Based on earlier premise that these are your leap positions, you do not want to commit more money but you are still bullish:

    • BAC Feb $18s at .38.  I’d sell the Feb $17s at .63 and roll down to the Feb $16 calls at $1 so that doesn’t cost you anything but puts $2 closer to the money with a max payout of $1 at $17.  If you have margin you sell the 2011 $12.50 puts for $1.65 and sell the 2011 $17.50 calls for $2.30 and buy the 2012 $12.50s for $4.70 plus your .38 is net .37 more to put you in a $5 spread at net .75 to your current position and you are 100% in the money now so all BAC has to do is flatline for you to get your $5 and no real penalty unless they go below $13.50, where you still walk away with $1.
    • AAPL Jan $200s, now $4.70.  I’d sell the Dec $195s for $2.45 and roll down to the Jan $195 calls at $6.60 (+$1.90) so that drops your basis 10% and your stike by $5.  You can roll the Dec $195s to the Jan $210s, now $2.20 so up is not a problem and, if we don’t hold up, you can get out with the extra $2.45 or Sell the Jan $190 calls for $9 and roll to the Jan $180 calls at $15.40, which would put you $10 in the money on the $10 spread.
    • FCX Feb $90 calls now $2.  We were short on them at $90 and I think they have plenty of room to fall if copper and gold head lower so I would seriously consider that you are lucky to have $2 left at all.

    Bord – Note that you are the "sucker" that we sell calls to.  You are paying huge premiums on stocks that have already gone up in the hopes that they will keep going up so far that they will not only get to your break-even point, but then return some sort of profit.  While all that is very exciting when you get it right – statistically it’s a losing strategy 9 out of 10 times. There are 80 plays in the 2-week wrap up and 80% of them were winners with many returning well over our 20% goal and you’ll notice that naked options (purchases, not sales) are the exception rather than the rule. 

    The vast majority of the money is made SELLING options because when you sell an option you are GUARANTEED the premium you collect from the person you sell to.  Whether you win or lose, if you stick with the position you WILL collect that premium, which is why I will sell you those FCX $2 calls every single month for the rest of my life because I know for a fact that’s $24 in annual premiums you are paying me and that means every 3 years I collect 100% of the price of the stock and in 9 years I get 300% and in 18 year 600% so if FCX doesn’t make it to $456 a share in less than 20 year – I win!  I only have to be lucky some of the time not to lose - you have to be lucky every time or you get zero.

    DIA/Samz – Well 10,300 was the stop line so 1/2 covered under there and full cover over.  The $103 puts are still $1.33 at the line.  In the $100KP I swtill have a full cover of the $105 puts and it’s costing me (back down to $103,791 now) but I’m figuring we drift along here and maybe get a stick into the close.  If not (or if we fail 10,250), I’ll have to roll ‘em to Jan puts.

    Recalibration/Chuaeu – It’s tempting.  I’m kind of a purist so I don’t like to change levels just to make them neat.

    BA/Lynn – Good job, especially the part where you realize the situation will be very different by then and we can look at adjustments.  Don’t forget that there will, at some point, be 2013 puts to roll to so you may be able to roll to the 2013 $30 puts, that’s why selling long puts for funding like that doesn’t bother me much (as long as you are truly intending to play a long game on the stock). 

  64. Lynn, yes you would manage the position along the way and Phil will always have ways of doing that.
    I am on my little soap box today (and I don’t know why) but sizing is crucially important. The risk/reward on the trade is about even, but it is highly efficient with capital needing only $2 to make (or lose) $12-13. Personally when limiting this trade to be a maximum % of my portfolio, I would assume it is a $12 entry not a $2 entry.
    We will never run out of trading ideas, but we can always run out of capital!

  65. stevenparker, I know! I am too ashamed to tell you how much money I lost last yr. So I am desperately trying to learn how not to do that! Thanks for generous input

  66. Lynn,
    With the DIA we normally trade the puts  The matress I hold is the 108put long I did not have any Dia dec 103 this morning at start. Now it was clear the market was going down so my long 108 march put is goin g up at the low -125 this morning I sold 1/2 the 103 p dec and 104 jan p as the value was high 145 / 272 so as and if the market goes up again the value of your short put goes down and you make up your mind when to buy the short puts back again. Now when the market is at the bottom you do not sell a call here you could still buy a call of DIA 104jan and as the market goes up you could double gain but I stick to one side. I hope you follow

  67. Lynn
    sorry shoulfd be Jan 103 DIA not 104 !

  68. TBT/Jcm – It’s a spread that’s made to make $1.85 in 4 months so .46 per month.  That means we are right on track (see earlier comments on that subject) and there’s nothing to do.  If we were up .90, it would be foolish not to take the money and run, even .60 (30%) is worth considering in the first month but, unless we have changed our mind about our target and premise – that’s the nature of this trade, slow and steady wins the race. 

    ZION/Yodi – They’d be more fun if they had more predictable tops but those bottom plays are great. 

    Copper/Pharm – My line is $3.20 and if they fail $3 then the 50 dma at $27.50 won’t even save PCU.   I can see taking the call spread as an upside cover to your winning puts but I wouldn’t play them on their own.  You can take them with a $1 stop loss and then reload $2.50 lower with a $1 stop loss and then reload $2.50 lower with a $1 stop loss and if they bounce before dropping more than $7.50 you are about even or better and if they fail to bounce at $25 then I’m sure your puts are in such good shape you’ll forget about the $3 in losses on the covers.

    Loss/Lynn – It’s only a $12 loss if BA is put to you at $30 and then you own BA for net $40 down 25%.  If you don’t WANT to own BA for $40 then don’t sell $40 puts (and, like I said, they can be rolled anyway).  I mentioned that in my original set-up that $40 was our entry so I’d be thrilled to get them again at that price (assuming it’s a general market drop and not some specifiic thing like wings coming off 787s in mid-flight). 

    DIA/Lynn – My assumption is Yodi was talking about our standard position, which is March $106 puts, 1/2 covered with Dec $105 puts from yesterday.  In the $100KP, since it was VERY bearish and we were ahead of target, I decided to do a full cover to balance it out.  The stop is a little tricky.  It’s not a stop that you are going to set but based on your ability to warch the 10,300 line on the Dow and we cover or uncover depending on which side of the line we’re on.  Now it would be silly to cover and uncover on every single cross but you have to make a decision when you feel a breakout is coming and I usually say something (like in the last comment I said I’m standing fast on the full cover of the $105 puts, even though we’re below 10,300 becuase I have faith in Mr. Stick and, failing that , I have faith in rolls).  A good NEW mattress position would be the March $104 puts at $5.25, selling 1/2 the Dec $103 puts for $1.25 as that’s net $4.60ish with an easy roll to 2x the Dec $101 puts and then the Jan $96 puts and that would put you $8 above your caller and at our target double. 

    Woo-hoo, here goes oil with a big pop!  Non-greedy stops if you were playing it but we should be able to get back to $74 but .15 trailing ($73.15 at the moment) is fine

  69. It’s all about that 600 line on the RUT and that has held up nicely since they got back over.  If that breaks down, then we are probably heading lower.  Now they have gone from being the lone breakout to the lone holdout (along with the silly Dow, who don’t really count) at our 25% line. 

  70. Phil – as you are in the mood to pontificate I would like to double my value for the day and ask for a second advice :)
    I am in a Jan 21/26 bull call spread on SKF, net entry is $2.10 currently $2.93
    I like these verticals you give us as portfolio protection, but this one feels like it is getting a bit close just over a month out. I am minded to take my 80 cents profit now and construct a new vertical in April. Do you have any thoughts please?

  71. Chance to reload on oil if they cross back over $73 but I’m not sure why the sudden sell-off just then (in everything, not just oil).

    Top U.S. CEOs still see sales rising over the next half year, but expect labor markets to remain bleak, according to Business Roundtable’s Q4 survey (.pdf). Verizon CEO Ivan Seidenberg, who chairs the group, says it could take 12-18 months before any growth filters through to employment, even as 40% of executives expect capital spending to increase.

    Dubai World loses control of the W Union Square hotel in New York, as LEM capital bids $2M for debt backed by the luxury property at a foreclosure auction.  They couldn’t come up with $2M and people have some fantasy that they will refinance $35Bn in loans???

    SKF/Steve – It’s a $5 spread that’s $4.39 in the money and you are willing to walk away with $2.93?  I think you are better off buying a $29/26 bear put spread for $2.20 as that runs your net entry up to $4.30 but you either get $5 or $3 no matter what happens and, at $25-26, you get both.  If you think buying the put spread is silly because you are still bullish, then that answers your question as to what to do now.  If you are considering this play, just get ready to buy the $29 puts on momentum when SKF fails $25 (now $25.30) and then cover when it turns back up.  If you are lucky, they fall back to below $24 and you get $3 for the $26 puts, which is where they were yesterday. 

  72. Oh no – Copper $3.15!  

  73. Phil, what do you think about getting into KR at this point given the 11% drop.  Maybe buying some stock and selling puts?

  74. Phil, last week you suggested that I roll my disastrous GLD holdings to the Mar 118/Jan 110 call spread.  Well that has worked wonderfully.  My position is almost even.  Is the plan to get out even or to roll the Mar 118 down, or just let the Jan 110 expire and see where we’re at?  thanks

  75. dollar failing 76.22 would be bullish for markets but i don’t see it stopping there…if this is a real move in the dollar then 76.50 shouldn’t be a problem

  76. KR/Leon – They missed and cut outlook.  A UK supermarket also missed and cut guidance today so I’d stay out of this sector. 

    GLD/Daveo – I’m glad that worked!  Shouldn’t you just be happy to be even and back to lovely cash?  You still have what I consider the very wrong March $118 calls as the play was just to cover the upside in case I was wrong and gold didn’t tank.  I think you should count your blessings and enjoy a holiday free of starting at gold prices.  You can always do a vertical if you feel very bullish long-term but I’m waiting for about $850 to buy, maybe a poke at $1,000 if they look like they’re holding it. 

    Oil back up at $73.05 now, nickel trailing stop over $73.10 but hopefully NOW we get to $74 into the NYMEX close. 

  77. great week to have C put to me! oh me oh my.

  78. Phil/SKF – hmmmm I like that – THANKYOU!

  79. Phil/ 100k
    what did we do with our DIA 105 cover?

  80. Offered to sell 10 DIA $103 puts for $1.30 in $100KP, which would give me 2x coverage.  Once those fill (if they fill) I put a stop on the $105 puts, now $2.55 at $2.75.  Since I collected $1.83 for the $105 puts if I stop at $2.75 that”s down .92 less the $1.30 I collect on the $103 puts is net credit of .38 and that means Dec safely is 10,262.  Then I can simply buy puts below the 10,300 line to cover.  

    Whether gold is a good hedge against inflation depends on where you want to start drawing the graph, says Matthew Lynn. Plenty of alternatives exist: Property, oil, equities, luxury goods, PE funds.  

    Dollar/Kustomz – 76 is all they need to hold I think. Major effort being made to pin them to 76 but that will fail as the weight of the Forex contracts comes around. 

    C/Morx – At least the VIX is moving up. 

    SKF/Steve – NP!

  81. Looking for a commodity short? I’ve been short PAAS for days with no luck but tomorrow may be the big day – just overlay the PAAS and SLW 10-day charts and it would appear that PAAS has some catching up (or rather down) to do…

  82. MNKD – looked into the company, and I must say that IF they get approval, they should come out of the gates like a ROCKET.  The marks against them is that PFE had the same technology (inhaled insulin), as they bought Exubera for 1.2B…yes Billion – and canned the program last year!  That being said, MNKD has a bit of an uphill battle as past inhaled insulin has a link to cancer (warnings have been put on the boxes).  MNKDs is an insulin analogue (not natural insulin), and it has been in a ton of patients.  Now awaiting the FDA and how they will address the ‘cancer’ issue.  Might be worth a flier as they are beaten down (on purpose???).  Decision is due in January, but I would play for a quick rebound and then out b’f decision day….my guess, FDA delay for more time to review, and that will send them down again. JMWAG on the delay, but this topic is touchy right now.
    On another hand, GNBT (did someone mention them here??), they have an insulin spray, and if they gain traction (currently 53c), they could also explode upward.  Here is an article on both MNKD and GNBT here from SeekingAlpha.  Buying GNBT here, and MNKD 10/12.5 Feb10 bull call spread for 40c (THIS IS ALL OR NOTHING).  10 contracts are 400, payout is 2100.

  83. One other note on MNKD, their product is the size of a cell phone….and their newer Dreamboat is smaller….and a clarification – they have NOT seen cancer with their product…but PFE and others saw an uptick of cancer with theirs.

  84. CELG – has moved back – buying 50 Jul10s for 8.5, also selling the 55 Dec09 C for 1.1 and 52.5 Jan10 P for 1.5.  Dec C can be rolled even to 57.5 Jan10s if they move up.  Puts one in at about $6.

  85. Phil,
    So what % probability do you put on Mr. Stick today ?

  86. any chance we get a stick save today??

  87. Oops, now the RUT can’t get OVER 600.  If it doesn’t happen soon it’s not going to.

    2:15 volume is 132M, a little on the high end to be stickable (140M at 3pm is about the max). 

    Oil couldn’t get it going and gold just failed $1,140.  Copper is holding $3.15 at least but silver is down to $17.73.  Euro can’t get back off the $1.47 line and the Pound can’t get back over $1.63.  88.4 Yen to a dollar in Japan.  These are all not bullish. 

  88. Stick i say chances are pretty slim, GS spiked to yesterdays 163.70 and sold off.. you can see the QQQQ holding up waiting for TXN for guidance

  89. Hi Phil: I’m not clear on what SRS puts your’e selling. Are u selling Jan. 2010 $8 puts currently at $.62 ?

  90. Phil,
    Do you have a suggestion on how to play TIVO?  Here are my assumptions.  They have a significant case against Echostar, which they won at the district court and which was appealed by Echostar on an expedited basis to the Federal Circuit court.  Arguments were held last month.  I expect TIVO’s stock to gain or lose 30-40% based on the outcome of this case, maybe more.  I think TIVO is going to lose, because the district court order was unusual and it came from a Texas court, which has a rocky relationship with the Fed Circuit court.  But I’m not so confident that I would want to get stuck with puts in case I’m wrong.  One other angle--a win for TIVO would most likely be announced earlier than a loss.  The Fed Circuit typically issues "affirmed" orders in a little over a month, but can take two months or more when it reverses a lower court.   So, a win announced by Feb, but a loss announced by the Spring. 

  91. MNKD/Pharm – Nice, thanks.  Makes it much more interesting. 

    Stick/JRW,Jbird – I think this is the blow-off bottom of the W that takes us higher and, if not, I have to buy more puts in the $100KP!

    Oil hit secondary buy target at $72.55 and is now much better behaved at $72.71 so .10 trail stop already, adding .05 per 10 up to .25.

    Gold is a tempting play for a bounce here with $1,135 the exact 2.5% rule so I like them here too for an upside play with tight stops.

  92. What DIA puts would you initiate at these levels?  I flattened out the other day on the sell-off and have nothing in DIA right now, but feel I ought to, no?

  93. DIA $103 calls at $1.12 have a .49 delta so an easy way to make .20 if we head higher, stop at $1, looking for $1.25.

  94. Phil,
    So you’re saying blow off DOWN today and then UP, or this is a bottom and we close higher ?

  95. SRS/Dflam – Yes, .62 is a nice payment for selling the Jan $8 puts.

    Very hard to hold bullish plays as this looks very ugly.  The most stressful part of being a fundamental trader…

    TIVO/Juda – At $9.89 you can buy the 2012 $7.50s for $4.75 and sell Feb $10 puts and calls for $3 so that’s $1.75 on the $2.50 spread with lots of time to roll.  The 2011 $7.50 puts are an even roll from the Feb $10s but you’d better be willing to own TIVO at net $8.50ish to make this trade.  To avoid the put issue entirely, the 2011 $10/15 bull call spread is $1.40 and you can cover that with the 2012 $15/12.50 bear call spread at $1.60 so you get $2.50 back if TIVO goes belly up and we can assume you won’t lose more than .80 on the bear side if TIVO does well and then you collect $5 in Jan 2011 less whatever you lose on the long bear play.

    You guys are moving MNKD higher!

    DIA/Jcm – I’m bullish at the moment so not too excited about new DIA puts until they break 10,250.  Since you can sell the DIA $103 puts for $1.50 with $1.10 in premium over 8 trading days, you should and you can cover that with the purchase of the March $101 puts at $4.20 with the intent of using that $1.50 to roll up to the $104 puts eventually.  Depending on which way things go, you can add more long puts or just roll up and stay full covered.

    Bottom/JRW – That’s what I thought until the dollar broke to new highs (but is falling against the Yen) and sent gold below $1,130.  Oil held $72.50 or I would have given up already but I’m certainly concerned at the moment and if Mr. Stick is dead, then so is the 2009 rally. 

    SOX are going red, that was the sign I missed.  OIH testing $110 – ROFL! 

    This is it, we’re double testing the morning low coming into 3pm on the dot – how exciting!

  96. Just sold an Apr 180P on AAPL for 12.55 because I wouldn’t mind owning them at  167.45. How’s that Phil?  :-)

  97. Double bottom right here….

  98. Dammit, who just messed with my DIA charts….that’s twice today.

  99. Bottom/JRW – Not sure at the moment but I was playing for Mr. Stick by 3pm and it has gotten pretty dire as miners and OIH group are in panic mode so even if someone did want to save the market, they have a lot of weight to fight off. 

    I’m looking at XOM and CVX being huge drags on the Dow and MMM and MCD both off on news and none of them have found buyers yet.  Those 4 could be good for a quick 40 points if someone decides to bottom fish.  I think stage one of the stick is stopping the drop and I think a seller is playing into that.  The question is – how big is the seller and how determined is he to get out at all costs?  

    It’s really just a percentage game.  We’ve held these levels since early November and I’m not convinced that we have enough bad news to make today the day we break it.   Today makes 4 out of 5 down days (and yesterday was hardly an up one) and that hasn’t happened since 10/30 (where we gapped up the next day) and before that 10/1 – also the bottom of a sell-off  Between that, the 2.5% rule and the 25% lines, the odds are very much in Mr Stick’s favor – if not today then tomorrow

    Gold $1,126!  Wish I had taken more GLLs in $100KP…

  100. My alphabet soup of gold positions really tastes funky today… must have been Bernake dipping his beard in it yesterday. Selling out all GLD positions, and selling puts on all gold miners for a pump up and then out until the soup improves.

  101. AAPL/AC – That’s perfect but make sure you are being realistic.  Are you sure that after Jan earnings and Apr earnings and AAPL is below $167.45 that you STILL want to own them (I do!).

    Did I tell you guys how totally perfect my Apple Store experience was this weekend?  Totally packed to the gills but they have a special table in the middle of the store with pre-gift wrapped phones and IPods.  There were more than 20 salespeople and every one had a credit card reader on their IPhone so you just grab a person, ask them a question, they give you a bag, take your card and you’re done (they ask if you want a printed reciept or if they can just Email it to you).  I watched that table do $5,000 worth of buisness in about 10 mins.  This is a GOOD company!

    Gold/Gel – Oh dear you are still in that?  Down $90 in 3 days is not a very good sign. 

  102. I’ve been busy all day.  Just got in and haven’t read anything on the board yet.
    But I noticed that the RTH Jan $90 puts has gone up quite nicely.  My cost basis was $1.10 (a bit lower than the trades in $100KP).  What’s out profit target on this trade.  30%?  Or are we expecting more?  Take the profit and run?  Or sell puts to cover?

  103. USU nice channel break to the upside if anyone still following that

  104. I’m playing for a little GLD pop with a few Jan call verticals; small position though. And keeping my EUR short going — that one’s finally working very well.

  105. Agreed on AAPL ownership.  The guy from Twitter developed those plug-in card readers. He was on CNBC this morning. They are hoping to give them away so everyone could accept payments that way and they would take a percentage of the transaction as their revenue model.

  106. Eric, I am in the AMZN wild play and it reached the sweet spot of the curve.  I want to unwind it a little.  Is it best to just close the put vertical turning it back into a strangle?

  107. Or Peter on the AMZN question.

  108. Phil,
    Do you see a play on selling the AMZN Dec 135 puts for 4.
    I am short the 115, 125, and 130 calls.

  109. Phil:  all day I try to figure out what put FVWXH  it is the stock/ETF it relates to ? any idea ??

  110. RMM/FVWXH – FXP Dec 8 put

  111. ss, do you mean sell the AMZN long options (call and put) leaving you naked short the strangle? I personally still like the protection of the mutant condor: currently long the Jan 125 put and Dec 145Cs, short the Dec 130P/140Cs. If you’ve been in this a few days it should be well ahead, though, so it wouldn’t hurt to take some profit.
    Also been holding on with the GNW 11 straddles, and my MA double diagonals (short the 240 P/C there). All working perfectly. I was thinking of killing the GNW straddles today, though — I mean not bad right here, lol.

  112. Phil — I took your advice and sold the DIA dec 103 puts and bought the mar 101s to cover.  Do i need to keep a quick trigger finger on the dec puts?  Even though I’m theoretically covered, is there a stop level on them?  I sold them at $1.47.

  113. You know, it says a lot about a product when the company that made it is using it to run their day to day operations. I watched a guy last week put someone in the queue at the genius bar on his iPhone in less than 10 seconds. He literally didn’t have to stop talking to the guy while he made a spot for him on his freaking phone.
    And then he rung me up with that card reader device less than a minute later. And the woman behind me shortly thereafter…

  114. Eric, I had the short strangle and added a put vertical to it yesterday.  The vert quickly made a nice profit so I just took it off.  I still have the short Jan 110/160 strangle.  Since this was my first time playing the wild play I wasn’t sure how best to take profits.
    I also still have the GNW 11 straddle.  I am up around 45% on each leg.  I also don’t want to overstay my welcome on that one.  How exactly is that MA double diagonal structured?

  115. Phil/Gold… Yep, still in. Must have been sleeping in class!

  116. ss, I’m long the Jan 230Ps, 250Cs, selling the Dec. 240P/Cs. It has sat around 240 for days, and so may be ready for a move. Or not.
    I have some modest bear MA positions too (put calendars).

  117. Under 162 and GS sells off hard

  118. Hi Phil still stuck with a DEC OIH short put 125 at 4.75 now 13.70 done well wth the calls 135 for 4.92 short now 0
    but where do I roll the put to ?

  119. Phil
    I think we’re at full cover on the DIA’s overnight – is that right?

  120. RTH/Cwan – I expect more out of them as I’m still not seeing any actual positive retail data outside the Apple Store.  It depends on your mix of course as it’s a fairly low-delta bear play in the $100KP so it’s not one of the first positions I would pull at just 10 puts ($1,125 committed). 

    I don’t think you guys look at you WHOLE portfolio.  ALL your positions CAN’T do well at the same time.  If they do, you are probably hideously unbalanced unless we are flatlining, in which case that’s our goal.  That means at any given time you have to accept losses on some positions and gains on others and the real question at any given time is do you want to ride out the next cycle or do you feel that you’ve reached a point of diminishing returns.  Take C 2011 $5 calls for example, I don’t care if 20 calls are down .20 ($400) as it’s one of my few pure upside plays and the rest of the portfolio is outearning it by a mile.  I will be happy to DD at .38 if C goes lower and my average would be .53, which is right about where we are now so 27% down is "on target" for that position in the context of the overall portfolio. 

    The ABX puts dropped 20% already but I don’t care as it’s just 5 and I’ll be happy to DD there and the only ones I do care about are the DIA $105 puts I sold that are down 50% and I’ve taken action to fix that.  So, in the whole portfolio – only one trade was out of balance and needed repairs.  If you keep trying to "fix" every trade that turns red, that’s all you’ll have time for and you’ll end up overtrading and buried in fees.  BALANCE is the most important thing about a portfolio – if you have good balance, you can cherry pick the winners at will and let the rest mature over time

    USU/Steve – Nice find!  Good buy at $4.05, selling Apr $4 puts and calls for $1.30 for net $2.75/3.38 so 45% upside or 20% off.

    Volume is burying the poor little stick. 

    UGL Jan $44/47 bull call spread at $1.40 for you gold lovers.  Out if gold can’t hold $1,100

    AMZN/Oncmed – As long as you don’t mind owning them but you probably will never have to as it’s an easy roll lower so sure, I do like that – especially with your hedges.

    GNW/Eric – Right on target.  I love that stock!

    DIA/Jcm – No, you’re just working into a long-term position.  There are ways to deal with it no matter which way things go and you are fine for a good 100 points either way.

    AAPL/Kwan – I think they should outsource their store operations and revolutionize retailing.  That right there could add a point to our GDP through efficiency gains. 

    OIH/Yodi – Once you cross your total sale (ie $10 lower than $125) is the time to roll.  They have no premium at all but you can sell the $110 calls for $3.30 to knock at least $2 off (unless OIH goes back over $125 you make $2) and once that’s done you can roll to a Jan spread like the $115 puts at $7.35 and the $110 calls at $5.90 which has an excellent chance of knocking another $8 off.

    Sector ETF strength: Commercial Banks– KBE +0.3%. Healthcare Providers– IHF +0.1%. Regional Banks– KRE flat.
    Sector ETF weakness: Gold Miners– GDX -4.1%. Silver– SLV -2.9%. Oil Services– OIH -2.9%. Steel– SLX -2.9%. Gold– GLD -2.2%. Coal– KOL -2.1%.

    Dow leaders: VZ +0.6%. KFT +0.01%.
    Dow laggards: BAC -2.8%. DD -2.5%. GE -2.4%. MCD -2.3%. HD -2.2%.

    Damn, stopped out of DIA $105 puts in $100KP so now full cover of March $106 puts with Dec $103 puts at $1.30.

  121. Phil, I have noticed that whenever the Dow is weak VZ is usually strong.

  122. VZ/SS – Yes I like those guys and T and they are both considered safety stocks and dividend payers, which is a big help. 

    Well that was a strange way to get over $104,000 in the $100KP but we’ll take it.  That’s goal for the month so I’m happy to be full-covered on the DIAs in a fairly neutral position.  I still think we gap up overnight but not worth risking with the $105 puts sold short so had to follow plan and kill them.

    "Today our net long exposure is perhaps the highest it has ever been in our portfolio," says hedge fund manager John Paulson – still long on stocks and credit even after this year’s rally.

    Economic growth is returning in 2010, ISM says in its latest forecast, but there are risks from a weak dollar. Manufacturing revenue is expected to grow 5.7% and services revenue 1.3%. That gap shouldn’t be unexpected, Daniel Indiviglio says: The weak dollar – and stimulus, and pickups in business spending – all should benefit manufacturing more than services.

    Ouch, CNBC says just 19% of CEOs surveyed plan on hiring in next 6 months!

  123. AAPL – your idea could help the job market too. If Walmart tried that they would have to hire 30 people at the door to check bags & receipts then people to restock all the stuff in the bags that wasnt paid for.

  124. Having all my positions going the right way at the same time is a dilemma I’ve yet to face in my life.  If I ever find myself there, trust me, I will consider that a high class problem.

  125. Peter D, Months like this one sure point to the benefits of your SPX short strangle/crazy play.  Are you still in December, or have you made your play for January yet?

  126. Phil, is it good idea to roll tomorrow our DIA Dec 105s to Jan 103s?

  127. judahbenhur/peter d, I have been reading many references to the SPX short strangle/crazy play, but after looking through the archives, cannot find a description of it. Would either of you mind giving me a couple sentences detailing what it involves, or sending a link with the information? Thanks. 

  128. i woke up in the middle of the night fretting abt taxes. this is the 1st full year of trading. I would rather not deal with an accountant; normally do my own taxes. Does anyone have a program that does all the work for you? :) I was looking at Gainskeeper and a free one called Portfolio-Tracker.  Any help would be appreciated.

  129. bord, I can’t paste the links or I’d give them to you, but I can direct you to the right place--go to the Trading Education section of PSW, then to the Educational Archives, and scroll to the bottom for Parts 1 and 2 of a post Peter wrote at the beginning of the year on short strangles.  In addition, if you look at member chat over the past 2 weeks, Peter has responded to many questions on the topic, which are easy to spot since Peter’s comments are in green.

  130. morxlntway – I use TradeLog.  You export trades from your broker.  Import it into TradeLog.  It matches up all of the trades.  You check it. and then export/import into your tax software.  Everystep is nicely outlined for you in Tradelog. 

  131. morxlntway -
     I used Gainskeeper last year, seemed to work pretty well in generating various excel spreadsheets in a tax-filing-friendly manner.  However, they charge per trade so it might get expensive if you have a ton of trades.

  132. Morx,
    Turbotax can import online directly from many brokers. I am told TOS can do it this year…….I used an accountant once and in the end I had to do all the hard work to get the items they wanted anyway… why not just import it yourself.

  133. ABC Consumer Confidence Poll: -47, back down from -45 last week, and just above its 2009 average of -48. Just 44% of Americans rate personal finances positively; 8% rate the national economy positively; and 28% think it’s a good time to buy things.

    AAPL/Morx – Hey, I didn’t even think of that.  They just put my stuff in a bag with no reciept and sent me out the door like I was a customer they trusted.  That’s a very pleasant part of the experience I hadn’t even noticed.  At BBY they pat you down and verify each item like they can’t believe you honestly paid for it. 

    Dilemma/Jcmn – If you set up a balance of bearish plays that pay off if we go down or flatline and you set up bullish plays that pay off or flatline and the bears and bulls pretty much balance out then on up days you are neutral and down days you are neutral and on flat days you make money on both sides.  The nice thing is that when you don’t touch them (because you are balanced) and the up days and down days cancel each other out over a month, then that’s just as good as flatlining every day.  If your tolerance is 10% up and 10% down (well within a buy/write) to make money on both ends, then you should make money most months and the ones you don’t you just adjust.

    DIA/Tch – Where were you today?  Yes, that roll has been done. 

    Taxes/Morx – Gainskeeper and TradeLog seem to be the best but make sure it interfaces with your broker platform because, without that, there’s no point.

    TXN ups guidance but not enough to stop a sell-off.  This market really is turning a bit sour…

  134. Money and Quicken also do the import from TOS for taxes….I use MS Money, but it is out of print I believe….

  135. Talking about taxes, do you folks set up an LLC or something, so that, among other things,  you can deduct your trade-related expenses?  What are the pros and cons of doing such a thing?
    I also receive promotional materials from and; They claim to help you set up an LLC to save taxes.  Any experiences with them?

  136. cwan, something i was reading said if you do "lots" of trading (no clear definition) then the IRS looks on you as a business and all of your expenses are deductible.  I wonder then what benefit an LLC would be?
    Any pros or cons to using the mark to market approach?

  137. Hi, Morx,
    You have to declare yourself as a "Trader" (as a term defined by tax laws) in order to enjoy the tax benefits.  IRS won’t do it automatically.  Once you make such a declaration (there are forms involved, I believe), you are more likely to be audited.  The rules of being a "Trader" is quite strict.  You have to trade a lot, and the trading size (dollar amount) has to be substantial.
    To set up an LLC, I believe, is to get around the rules.  You don’t have to trade as much, and the size doesn’t matter as much.  And it is believed that IRS is less likely to audit you.
    The advantage of "marked to market" (m2m) is (1) to simplify your accounting; (2) no hassle of the wash-sale rule.  The basic idea of m2m is quite simple.  Let’s say at the beginning of the year, you have $100,000 cash and invest it into various securities.  At the end of the year, you look at your portfolio and pretend you liquidate all positions to the market values (marked to market), and you have $150,000.  Then you report $50,000 profit on your tax returns.  That’s it.  You don’t have to worry about each individual trades.  Then at the beginning of next year, it is as if you take $150,000 cash and put it back into the same positions.  (It is not that you have to actually liquidate on Dec 31, and re-invest on Jan 1.  You are just computing the marked-to-market values.)
    I’m not an accountant.  These are just tips from my readings of various materials.  Don’t quote me.

  138. One more thing, you have to be a "Trader" or set up an LLC in order to do m2m.  And to declare m2m accounting, you have to file yet another set of forms and follow yet another set of rules.  I vaguely recall that you have to declare m2m way ahead of time.  It’s kinda like you have to make the declaration in the middle of the year, and then, and only then, you can begin m2m NEXT year.

  139. m2m – you should elect this if you made big losses that you want to offset against anticipated future gains. You have to do it by the close of the tax year.  M2M does not help you much if you made a profit and expect to continue making a profit.
    I’m not an accountant either.

  140. Mattress – grrr I’m still half covered with Dec 105′s sold at net 2.30, not the end of the world will have to adjust tomorrow.

  141. M2M – I think you actually have to elect earlier in the year – you cannot wait until the end of the year.

  142. Eric, Peter – When you get a chance tell me what you think of a Jan 20/26 short strangle on GNK for 1.52 credit.  Breakeven points are 18.47 and 27.51.  The stock currently is 22.69 and has mainly stayed between the BE point since May of this year.  The volatility is high on this stock so the premiums are nice.

  143. Phil, same stock different angle.  What do you think of a buy/write on GNK now 22.69 selling the Jan 22.50′s for 3.70 with net entry of 18.99/20.75.  Or selling the Apr 22′s for 6.85 with net entry of 15.84/18.92.  Also, is it feasible to combine a buy/write with a short strangle?

  144. Cwan, sorry to labor the point hehe but I think the other major difference with M2M is that you are not limited to a $3000 capital loss carry forward.