What a morning it's been already!
Last night, at about 11:30 EST, Abu Dhabi gave a $10Bn bailout to Dubai (until the end of April, anyway) with the following statement from Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee: "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices." That was enough to send the Hang Seng from down 300 points to up 300 points in less than 30 minutes of trading (on both sides of their lunch break) while the Shanghai went from -2.2% to +1.7% and the Nikkei also reversed a 100-point drop, but only managed to get back to even at the close.
US futures trading also went wild, up over 100 points at the time but we've given up about half of those gains as of 7:30. Does it make sense that the Dubai crisis, which dropped us from 10,450 back to 10,250 when it came up, should be the catalyst to get us over 10,500 just because they were bailed out? Of course it doesn't – that's why we went to cash. This is one of the most ridiculously irrational markets I've ever seen. The other "good" news this morning is also the same old songs: Citigroup will repay their $20Bn TARP loan by diluting their stock by about 20% and GS says oil will go to $85 early next year.
I don't know why they even bother to pretend anymore – they should just put 10 market-boosting statements on a chip that randomly plays one of them whenever the MSM needs a quote for the morning. People don't seem to notice it's the same thing over and over and over again so why even bother with the pretense? Speaking of pretense – I mentioned in the Weekend Wrap-Up that we expected this nonsense this morning but, had I realized that Greenspan AND Cramer were going to be on Meet the Press yesterday, I would have gone more bullish as those are the two biggest market hypers GE could have used for this week's quotes.
Europe seems happy enough with Asia's recovery and all the bull*** commentary (that's bullISH – what were you thinking?) and they are up about a point ahead of our open DESPITE the FACT that Q3 euro area employment is down 0.5%, the fifth straight quarter of contraction. All sectors reported declines, except public services, health and education. October euro area industrial output was also down 0.6%, the first contraction since March. Production was down 11.1% vs. a year ago. Yes – 11.1% WORSE than last year. Economists, however, expected a steeper 0.8% decline so yay – I guess…
As we usually do on a Monday, we have to plan to switch off our brains and simply watch our levels. Other than the silly Dow, we are no closer to making new highs than we were last Monday. There is little change to our level watch in general as we still need to see those 27.5% levels broken to call this anything but a range top and the NYSE is STILL not even over the 25% line, nor are the Transports, who are still below their retrace level.
| Dow | S&P | Nasdaq | NYSE | Russell | Trans | HSI | Nikkei | FTSE | DAX | |
| Current | 10,471 | 1,106 | 2,190 | 7,125 | 600 | 1,920 | 22,085 | 10,105 | 5,314 | 5,807 |
| 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 |
No wonder our plays from 2 weeks ago performed so well last week – NOTHING HAPPENED! Since most of our trades are the selling of premium, we love it when an entire week goes by the market doesn't move. Sure it can go up 500 and down 500 – we don't care – as long as it ends up in the same spot and last Monday morning we were at Dow 10,388, S&P 1,105, Nas 2,194, NYSE 7,182 and Russell 602. So it was a big, fat nothing for the week last week but today they've got the hype machine cranked up all over again because 67,200 brand new suckers were born over the past 7 days and Cramer, Greenspan, Goldman and all the other carnival barkers are going to do whatever it takes to bring 'em into the tent.
XOM pitched in this morning with a $31Bn deal to by natural gas giant XTO and that's boosting the entire energy sector but it's an all stock deal, which is kind of like you buying 20% of your neighbor's house at an inflated value by pledging to give him 20% of your house at the same inflated value and then holding a press conference to tell investors: "Look how valuable our houses are!" Once again, at a birth rate of 6 suckers a minute, you can do stupid crap like this and make it work…
As a bullish hedge, I was struck by the still very high premiums in the Russell Index Futures that we can take advantage of as they sit right on the 600 line. You can buy the Dec $590 calls for $14 and sell the $600 calls for $7.50 and sell the Jan $560 puts for $7.50 which is a net $1 credit and you collect $10 more if the Russell holds 600 through expiration, at which point you can set a stop on buying back the puts or just ride them out for an additional gain if we stay bullish. I'll be making a similar play on IWM and other ETFs for members in chat this morning as we need some upside covers but it's likely to be more of a watch and wait day as we see how high they can push it.
Be careful out there.
TOS is great, but it does not hurt to ask others their charges and say that TOS is giving you X. Can they beat it? If so, use that email back to TOS and ask them if they can beat OXPS, IB, or whomever. You wouldn’t buy a Chevy if we all told you it was great….you would still shop around…try it, it just might get you a better rate. you can always fund a small TOS account and use the interface, but trade out of somewhere else. OXPS was not too bad.
LFC/Yodi – That’s a good one! It doesn’t sound like you are protecting yourself though as just selling puts is just adding risk in a sell-off. They don’t pay a dividend so you can just take $46 off the table by switching to the 2012 $50s at $31. Then you can sell Apr $80 calls for $5.30 and you don’t need to change the puts or you can get aggressive and roll to the July $67.50 puts at about even (you can always roll back) and you have loads of time to sell and roll with just $26 left in play.
GS/Yodi – Risk to both sides as they were at $250 pre crash and $47 last November so it’s not the kind of play I would do. Don’t forget the margin goes up as you get closer to either side. I’d rather play the 2011 $145/185 spread at $19, which has a $20 upside and then you can sell the Apr $175s for $9.40, which puts you down to $10 on the $30 spread. Once you establish that, you can work on a put leg and you can start that by putting on a protective momentum cover of the 2011 $185 puts (now $36.40) IF GS goes below $160. Then you can look to cover that one up by selling the 2011 $145 puts (now $15.35) for hopefully $25 so you are in for $10 on the puts side (below $185) and $10 on the up side (above $145), which means you locked in a $20 profit AND you can still sell puts and calls in the front months.
SRS/Yodi – Yes, we are going to roll but there’s no major benefit to doing so now. Probably Wednesday unless SRS goes even lower but this is our buy point on SRS.
TOS/Lynn – If you only trade a few contracts, the $1.50 system makes more sense (you have to trade 6 to pay $9) but if you are a bigger trader, the $9.99 + .75 begins to work out in your favor at about 18 contracts, which is kind of a lot to commit to and, if you are trading 20 contracts at a clip, you are very likely to be well over 1,500 contracts a month anyway.
SRS/Ban – Because SRS is crazy enough! Also, we’re used to it and it behaves well in it’s channel. Don’t underestimate comfort in something you trade often…
Lottery/Gel – I’m not sure that’s legal so officially I say now and I also say 10,250.
Seeing/Boonie – I love that stuff. Most people don’t think of numbers like math people do. My brother can hear a symphony in his head by reading sheet music but to me it may as well be a rorschach test – people’s brains are just wired for different things. I read an interesting study the other day regarding health care costs and they pointed out something pretty obvious that most people won’t undersand and still won’t accept – even after you tell them. The point was that cheaper screenings can cause massive cost overruns and they used breast cancer as an example. It sounds good to be tested often as preventive care but, even if you ignore the fact that the test itself can cause cancer, the test is only 95% accurate in catching cancer and only 0.5% of the people tested have cancer. Obviously worth catching but also the test yields 1% false positives, which require the same follow-up lab work as actual cancer. So if you test 1M people, 5,000 may have cancer and you’ll miss 250 of them so you’ll send 4,750 people in for testing. That logically argues for frequent testing since your chance of catching the 250 you missed next year is nearly 90%. BUT, the 1% false positives yeild 10,000 additional people who require lab testing who do not have cancer so the cost of attempting to improve your catch rate by 5% is 10,000 additional full work-ups. If the test costs $300 and the lab work costs $5,000 then the first run of the test costs $300M plus $73M for lab work on 14,750 out of 1M people but to catch just 250 more cases costs the same every time you re-screen, driving the total cost per cancer from $78,500 per case to $1.5M for the next 250. This is why Congress can argue this stuff for 20 years and make no progress.
ERY/Tcha – I don’t have the same conficence now that oil has come down so much. I’d just let them expire for now and wait for a better opportunity. Also, VIX is very low right now and that’s not the best time to sell puts.
SRS/Roamer – I would expect that 3x from any price is the most you can reasonably expect in a major sell-off so, right now, $27 would be about max and that means your goal should be about $15. If $15 doesn’t do it for you, then you probably need to risk too much to make the play work.
Before I landed up with TOS, moons ago I started to open an acc with Tradestation they did have as well a siphysticated trading platform I see they now on their webpage charging 1.00 per option contract no ticket charge no minimum just if any one wishes to investigate possibly they even go lower for a group like us. Just a suggestion any comments?
Pharm
OXPS for succers who buy options not sell them – they don’t use standard margin requirement (20%) for short options and set up margin individually for each stock ( very often 40 – 60% just for regular stocks) this margin will kill you
Mocha – HK — did ok; sadly; I had already sold a bunch; the rest was pretty much covered; so just ok …. timing ….
Jr – what do you use to set levels
Well, etrade is offering .75/contract https://us.etrade.com/e/t/pricingandrates
too bad they only let me do buy to open, sell to close.
Kustomz, agreed AMD’s laptop cpu offering is really quite poor and always has been.
I think their desktop cpu’s are stunningly good value, but in that segment their brand marketing simply doesn’t stack up to Intel. People seem to like having "Intel Inside" even though it makes about as much difference as buying a blue ballpoint pen or a black one.
The other place to watch AMD is in the corporate datacentre, where their current lineup is quite competitive imho.
SRS … sorry, this does not behave well due to built in decay.
What we need on SRS — IYR, REITs to sell off. Market to sell off.
$9 will be a tough hill to climb at this point.
This thing has just gotten killed.
How is the charting on TOS –
Cannot get IB to do anything more than a day bar so cannot do weekly charts – very annoying
Anyone have a clue why TIE is moving up so much? I am happy as I am long, but also confused. Is it just because the 787 is going to fly?
Steve i don’t know what to make of it, I’m just worried about INTC margins in the coming Q and lots of rumors of NVDA buy out…just looking for a smart way to play it
BA actually lifted the nose of the 787 off the ground, set to fly tomorrow at 10am i cant express how excited i am to see her finally fly!!
On my REIT positions I’m already selling January strangles above my long puts on a 1:2 or in some cases 2:3 ratio. This worked last month and from the looks of things may wind up being the only way these position make any money in January too.
Transports look very bullish. Even though we’re due for a little pullback, it’s darn tough to make a case for the bears near-term (barring an outside event, as usual).
This is a great day to add to XOM positions… doubled my position in stock for a long term play.
BA – THat’s right people!!! Let’s give props to the great NW!!!! We have brought you Boeing, Microsoft, Starbucks, Hendrix, Grunge Rock…… AND AMANDA KNOX!!!! As a U of Washington grad, I am proud! 🙂
$100KP:
Only want them at offer.
TIE/Steve – Yes, people are finally believing this will actually happen now.
Jromeha… good list of winners – but you overlooked one of my best winners FFIV ( F-5 Networks ) GREAT prospects!
Phil,
I was expecting a pump today, as it is MONDAY, but tomorrow we get news. Thoughts on the close and overnight possition ?
Jromeha… I have a home in W Vancouver… my friends say I have a tan in the winter. No so… that is RUST from all the rain. With all the rain in the NW, everybody is at work, I guess.
FSLR reminding us why it’s the most dangerous stock on Earth, jacked up another $7 today. It’s always hard to wait patiently to short them.
Volume is so low this month that I’m always surprised when it’s 3pm as nothing has happened all day. Just 100M on the Dow at a quarter to 3 and we did about 100M in the first hour on the day we gapped down.
IWM $60s at $1.25, selling $61s for .62 and the $60 puts for .36 is net .27 with $1 upside if RUT stays up. This is not a bad offset if you are too bearish as it pays about 4:1 by Friday if the week closes higher but, sadly, you would be stuck with IWM stock you almost certainly don’t want if they head down (roll to the Jan $55 puts is about even so 10% leeway).
REITs vs. Homebuilders.
Homebuilders have given back 30-65% of their recent gains (KBH for example was up to $22, now 13; LEN was 17; now 12).
REITs are plowing higher.
Makes no fundamental sense of course; just gotta wait I guess.
Fisher has aggressively expanded Caterpillar’s presence in engine rebuilding in recent years. Remanufacturing had largely been left to independent rebuilders and service shops. By leveraging its manufacturing technology for new diesel engines, Caterpillar has been able to capture additional revenue from doing high-quality restorations of older, worn-out engines
CAT helping rebuild worn out engines, part of the going green initiative or a sign of continued drop in spending from customers
Forced dieting
India..Food inflation, according to the weekly data announced earlier, had shot up by 19.04 per cent during November recording the sharpest increase in the decade.
Hi Phil Sorry I am not clear on the LFC trade The 46$ I think are actually meaning 16.00 . buy rolling to the 2012 jan 50p I get a credit of .10 possible. the 50p 2012 trades for 4.70 to 5.20 do not understand the $31 the rest is OK thnks
Phil
December 14th, 2009 at 2:10 pm | Permalink
LFC/Yodi – That’s a good one! It doesn’t sound like you are protecting yourself though as just selling puts is just adding risk in a sell-off. They don’t pay a dividend so you can just take $46 off the table by switching to the 2012 $50s at $31. Then you can sell Apr $80 calls for $5.30 and you don’t need to change the puts or you can get aggressive and roll to the July $67.50 puts at about even (you can always roll back) and you have loads of time to sell and roll with just $26 left in play.
yodi
December 14th, 2009 at 1:04 pm | Permalink
Hi Phil
I have done very well with China life Ins. LFC actually started with them at 40.00 now trading 77.00 sold some time ago the 60 put 2011 for 16.21 now 4.85 what would you do as I am thinking of rolling the 60 put 2011 to the 70p for an other credit of 3.95 tks
Negotiating with Brokers / Pharm:
Hey! That’s not a bad idea negotiating like that! Can Lynn or someone give that a try, and report back? We’ll then all go to TOS and do the same.
ETrade commissions / Lynn: That’s NOT 0.75/contract. Instead, that’s $6.99 + $0.75/contract. You have to click on "Detail" to see… well, the details. So for each trade with 5 contracts, it’s 6.99 + 0.75 x 5.
Cwan/others fyi I use a broker that people don’t seem to like (excessive margin reqs for one thing), traded 1500 contracts last month and pay $1/contract with $10 minimum. Hope this helps 🙂
Oh, and if anyone can tell me I should be paying less pls bring it on heehee
Hi, kustomz,
Can you elaborate on "NVDA buy out" rumor? What is it?
Sold my NKE position today. With CEO Knight saying he is in full support of Tiger – WOW. Might work in a counter-culture society, and it does exist in areas of the US, but overall who would buy a Nike product for a child with this character flaw advertised on all products. Sheesh not woosh imo!
Watch AMTD looks like a decent bounce play
Phil: sell Jan. 11 $4 P on C for $.94 naked? stock is at $3.69,dn $.25
dflam
cwan
http://www.cringely.com/2009/12/intel-will-buy-nvidia/
Gel – keep on perpetuating that constant rain stereotype about WA/British Columbia – keeps people from moving there… Since I am going to school in Dayton, Ohio now I would KILL for that rain!
Pump/JRW – My thoughts are CASH. Any money you have in needs to be pretty much play money as there is no volume so nothing you see happening is meaningful and the market can snap up or down 200 points any time for any or no reason. I’m sticking with the very bearish side because, as we discussed the last 2 weeks, I feel much better being 80% in cash and 100% bearish than playing along with the game that’s being run on the markets. Sure, if there’s an obvious long play, I’m happy to take it but I have been looking at longs for 3 days and finding very few I like.
Speaking of long plays, taking 25% and running on the FDX $85 calls in the $100KP, nice profit for 1 day…
VNO $70 puts are fun if they can be had for .75, offering for 10 in $100KP.
jromeha… so right – it is really a relative issue. You are fortunate to call Seattle home!
As we predicted, Apple’s Mac business had a monster November, according to NPD Group data analyzed by Piper Jaffray analyst Gene Munster.
In a note today, Munster reports:
Mac sales for Oct. and Nov. are now tracking up 21% year-over-year, over the Street’s 14% consensus, and up from 7% year-over-year growth in October alone.
It’s still early: Half of the quarter’s Mac sales typically occur in December. But the November data "increases our confidence in slight Mac unit upside in the quarter," Munster writes.
The new iMac and Mac mini were huge: Desktop sales are up 74% year-over-year this quarter so far.
REITs/Cap – Citi says they are great investments and they should know, they are almost bankrupt from lending to them!
Food inflation/Kustomz – Oh yeah, I don’t know if I mentioned it here but if you removed the increase in food prices from the retail sales numbers, then retail sales were off 0.4% last week.
C/Dflam – I’m a little worried about C here but fine if you are set to roll and DD to 2012 $2.50 puts (now .41).
DIA – Still naked bearish of course into the close. Have $108 and $106 puts but I am looking to sell the $106 puts when they get even (hopefully better).
AAPL desktop sales are up 74% year over year? Can you say that again please? And put it in bold? That is AMAZING.
kustomz, thanks for that link to the article on Intel buying NVDA rumor.
AAPL iphone euphoria dragging desktop popularity upward. This company is an expert at cross-marketing!
PHIL,
What’s your view on POT what do you think is a fair price for them and what’s your outlook for the stock?
Thanks
Phil, when u say DD on DIA 106 put at $5, u mean the Mar 106 put, right and now u said you have 108 and 106 put, are they dec?
Anytime C
Speaking of C, whens the reverse split going to be announced
AAPL/Kustomz – Well if their desktop sales are up 74% this year and you subtract that from other Retail sales then we have a VERY serious problem in the rest of retail.
POT/Josec – I would consider buying in at $95 but we shorted them at $125 so that’s the range to me. It would not surprise me at all to see them head lower. It’s the kind of stock that has a great story (easy to make, everyone needs food so lots of demand) but no real defensible market position, which becomes a problem in a downtrending economy. They made $3Bn last year but will be lucky to make $1Bn this year yet they are valued like $3Bn is coming again soon. It’s the same silliness that is driving up oil companies and other commodity players and that’s the danger with the way we’re recovering – the speculators are driving prices back up miles ahead of the people’s ability to pay and all they are doing is making the situation worse and worse.
DIA/Lynn – No I mean I have the March $108 and $106 puts that we’ve been talking about for 3 months. I did not suddenly buy Dec $108 and $106 puts but next time I’ll remember to specify.
Phil, 20 IYT calls at 0.65? Isn’t that a whole lot of margin being used up?
Whichever move we make out of this compressing range is likely to be big. Selling Dec. calls or puts naked is very dangerous here, IMO.
Nice monster move by MGM today. Why? BECAUSE I’M SHORT!!!!
Funny mocha – I know for a fact that some traders wait and wait until I open a position to drive the stock in the opposite direction. Take COF today for example..
llorens – I share your pain. Last year for fun I would post my trades here labeled as ‘anti-trades’, and I counseled people to do just the opposite of me. It might still be a good strategy given my performace over the last two weeks, Phil’s gotten me all bearish but that’s been a painful strategy so far….
Screw Mexico look at NY and Kaulifournya
New York Governor David Paterson said he is ordering $750 million withheld from aid payments this month to schools, local governments and health insurers to avert a cash squeeze after the Legislature in the third-most populous U.S. state didn’t cut spending as much as he wanted.
Lawmakers’ $2.77 billion plan for reduced outlays and generating additional revenue approved earlier this month isn’t enough to ease the state’s December fiscal bind or close an estimated $3.2 billion deficit for the year ending March 31, Paterson said at a news conference yesterday in New York City.
New York has the second-highest amount of state-backed debt at $56.9 billion, trailing California with $66.4 billion, Moody’s said in July. As a percentage of residents’ personal income, the New York total ranks fifth, the credit rating company said.