Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Which Way Wednesday – Fed Edition

What a great morning!

Well, if you are a futures bull anyway.  We keep telling you that's where the action is.  Last Thursday we gapped up 100, Friday another 50 and Monday another 50.  Wow, what a market right?  And where did we close a week ago Wednesday?  10,337.  And where did we close yesterday after 200 points of futures gains?  10,452.  So we LOST 80 points during real trading hours and gained 200 when no one was looking – yet no one is being arrested – go figure

I already made my skeptical note to Members this morning as the pre-market action tacked on another 50-point gain that pretty much started at 3am on the dot as the Hang Seng threatened to fail 21,500, which would have been a serious breakdown on a triple test over 5 days.  It still looks to me like the Hang Seng will be looking at a 10% correction in the very near future but the pump crowd aims to put off that day of reckoning for as long as possible.  

The Nikkei, on the other hand, had their own gap up, back over our 10,200 target (we went long on EWJ again yesterday) but failed to hold it and closed at 10,177, up 1%.  Once the Nikkei closed, the dollar was allowed to drop back to 89.5 Yen and the Euro was jammed up from $1.451 to $1.458 but that was nothing compared to the Pound, which went from $1.623 at 3:45 to $1.636 at 6:45 – a spectacular move that allowed copper to get back to $3.17 (up 1% from yesterday's close) along with 1% gains in Silver ($17.50), Gold ($1,135) and Oil ($71.50) all of which made great futures shorts at those prices.

Circular Economy Graphic

The dollar is being jammed down on whispers in Europe that the Fed will announce today that the US Economy is  much improved BUT they have no intention of raising rates in the foreseeable future.  This enables the burgeoning dollar carry-trade to continue and, as John Carney points out at Clusterstock, it allows the Fed to keep buying Mortgage Backed Securities from the Banks as fast as they can turn them over. 

The Fed can do this with confidence because the MBS's are, in turn, guaranteed by FRE and FNM who are, in turn, backed by the US Government – leaving US, the taxpayers, on the hook for Trillions of dollars of additional bank debt while the banks use their crap MBS paper to pay back our TARP loans.  What a deal – we gave banks cash when the dollar was high, they give us loans they can't collect, we give them more cash, they inflate the cash and pay us back while the dollar is worthless.  No wonder GS scrambled to be declared a bank last year!     

Meanwhile, actual lending activity by the top 22 TARP recipients fell ANOTHER 1% in October, the 7th straight month of declines for the group that we bailed out so they could keep lending to the American people.  Instead they continue to pull money away from the American consumers by reducing home equity loans, lines of credit, credit card loans and even commercial real estate lending was down.  Driving down available credit while driving up commodity prices is a recipie for disaster right out of the Summer 2008 play book but la di dah, the markets just move along as if they couldn't be bothered to think of such ancient history because, after all – THIS time it's different. 

Maybe it is different this time.  Next week, Congress will vote to expand our debt ceiling to $14Tn, almost 40% higher than it was in 2007 – now THAT's an expanding economy, right?  Let's think about this in terms of your own family's finances.  You are broke but your Uncle Sam has been bailing you out.  To do so, he has gone so far in debt that it will take him 5 years of every cent he earns to pay it back.  You start getting worried that he won't be able to bail you out any more and consider whether or not you really need that new Hummer but then Uncle Sam comes over for Christmas and announces the bank is going to let him go ANOTHER 40% deeper into debt, enough to last him all the way until next Fall!  Well I don't need to tell you what a great Christmas will be had by all as we celebrate Uncle Sam's (and our own) good fortune – everything is just going to be just fine…

"Just fine" is NOT the title of the latest Moody's report on the outlook for 2010 as the credit rating agency raised the prospect that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world.  It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”.  Moody's added that the sheer quantity of debt to be raised by Britain and other leading nations would increase the risk of investor fright.

Riot police clash with protestors during an anti G20 demonstration near the Bank of England. Moody's has warned future tax rises and spending cuts could trigger more social unrest. According to the report- Even if countries reached agreement on the depth of the cuts necessary to their budgets, they could face difficulties in carrying out the cuts. The report, which comes amid growing worries about Britain’s credit rating, said: “In those countries whose debt has increased significantly, and especially those whose debt has become unaffordable, the need to rein in deficits will test social cohesiveness. The test will be starker as growth disappoints and interest rates rise.”  It said the main obstacle for fiscal consolidation plans would be signs not necessarily of economic strength but of “political and social tension.”  Greece, where the government has committed to drastic cuts in public expenditure, has suffered a series of riots over the past year which are thought to have been fuelled by economic pressures.

Not to worry though, that angry mob of protesters is clearly in the minority according the the Bloomberg Professional Global Confidence Index, which fell to 58.9 this month from 60.3 in November but is still very close to the all-time high reading of 61.7 so everything MUST be fine.  The confidence gauge for Western Europe rose to 50.9 from 47.7 last month, exceeding 50 for the first time. Bloomberg users in Spain remained the most pessimistic in Europe even as its confidence index rose to 24.5 from 17.7 in November. Spain accounted for almost half of the Euro region’s increase in unemployment over the past year.  Sentiment dipped in Japan on concern the yen’s rise to a 14-year high against the dollar will threaten profits and market share for companies including Sony Corp. The confidence gauge for Japan dropped to 29.5 from 29.9, while Asia’s index rose to 76.2 from 76.  

Don't be fooled by the pre-market smack-down of the Dollar.  The Euro hit $1.45 in yesterday's trading, the lowest level since last October, when the dollar was 10% higher, and the Dollar briefly punched through that critical 77 line we've been expecting all month (by the way, investing in leveraged FOREX as it goes up 5% in a single month based on our pick is the kind of play that made George Soros a Billionaire!) as we get into the sqeeze zone that should take us up to about 80 again.  Sadly, we are not FOREX traders but we do have our UUP and our TBTs so we're pretty happy with the unfolding dollar story (and it doesn't hurt our commodity shorts either).  

The dollar bears are counting on the Fed to keep the spigot wide open, keeping the dollar in check, but there is little that Bernanke can do or say to loosen monetary policy any further than he already has.  If anyone can do it though, Bernanke can, as he's just been selected Time's Man of the Year for putting lipstick on this pig of an economy.   The last 30-year note auction had to be somewhat of a splash of cold water for the Fed though as notes hit 4.5%, which means the crack-spread on mortgages is down from 3% to 1.5% this year and, if there's one thing you can count on the Fed to do – it's to protect bank profits at all costs.  So the Fed may surprise us and say that they find it "necessary" to raise rates sooner rather than later but, more likely, they will try to talk the long bonds back down first as banks are concerned people simply won't buy mortgages with rates over 6% and then what are they going to do with all the homes they are repossessing?

We got our CPI report today and, as expected, we were up 0.4%.  Keep in mind that yesterday's PPI report was up 1.8% so even if that 0.4% number were taken at face value, it means Producers were unable to pass through 1.2% of their increased costs to consumers in November.  The reality is that the core CPI was 0%, DOWN from 0.3% in October and 0.2% lower than expected.  This is TERRIBLE for Q4 corporate earnings and I THINK we do still buy stocks for earnings, not just because some monkey on TV tells us to BUYBUYBUY, right? 

Energy costs were up a whopping 4.1% for consumers in November so it's no surprise they didn't have any money left to pay for anything else.  That is nearly triple the 1.5% increase in October, merry Christmas from Goldman Sachs' commodity department to you!  Don't worry though, average weekly earnings went up 0.1% so it will only take 41 months of wage increases for people to get caught up to this month's commodity gains – everything is "just fine."

We're already all nice and cashy for the holidays so consider these comments from the sidelines but the bets we are placing are more and more bearish every day.  Of course they are not working, but we play the market during the day and during the day is when the market goes down.  What we have neglected to do is play the futures pump for the past week as we keep expecting something very bad to happen and boy would we feel silly if we were just 55% bearish when this house of cards comes tumbling down

We'll see what the man of the year has to say for himself this afternoon.  Usually we play both sides of a Fed meeting and we thank the pumpers for giving us a cheap entry on the DIA puts to get started. 


Tags: , , , , , , ,

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. How many Times can TIME jump the shark ?   Bernanke is "Person of the Year".
    As sure a sign of the market top as any you will ever see !
    Abbey Jo on TV – 1250-1300 for 2010.    Has she EVER been right ??
    Bob Doll – 1250 for 2010.   Last time on TV he was at 1200 for 2009.   Still possible I suppose, but not very likely.

  2. Phil,
    I have a small position in UNG, (2 contracts), which I am learning with, (learning as in learning to drive nails by hitting my thumb with the hammer. A crude but effective way to gain insight into the preference for hitting the head of the nail.) I turned a long Jan11, 6C & 10P, covered by a sold 14C, into a Jan11, 6C & 11P by closing the caller and rolling the put about 2 weeks ago, net $7.30. I then sold Jan $9 putters & callers for net $1.25.
    I’m looking at rolling the front months up to the $10 strikes, which will leave me down .54, but with much better extrinsic to expiration. Just thought I’d see if you had better ideas & hoping for your input, (& I promise I won’t whine if you slap me around. May actually take my mind off of my sore thumb!)

  3. Hey Phil, cmon, Ben says the Fed never trades futures or other financial instruments and he has no knowledge and has never heard about others in the Govt doing so.  So what is theees manipulation of which you speak ??  Its simply lunar activity, the tide coming in, going out, right ?
    He ignored Bunnings question about "proxys" however.

  4. And since Ben is person of the year, we should believe what he says, right ?
    Just like we believe in the Goreacle.

  5. Speaking of TARP and crapping all over us taxpayers:  calculatedrisk:Citigroup’s "Massive" Tax Break

  6. FTC is charging Intel with unfair marketing practices for the past decade.  Chalk up the FTC as being another late to the party agency just like the SEC.  In the early 90′s I workded for Cyrix which competed with AMD and Intel on microprocers and math coprocessors.  Anytime we would get a foot in the door with IBM, Compaq etc. Intel would threaten to limit their orders thereby killing any chance we had with them.  We knew it was wrong then, but nothing was ever done about it.  Why are these agencies so damn slow to what is being done every stinkin day?  Is it like Dylan said yesterday that their bills are paid by the frickin lobbiest?

  7. That should be microprocessors.

  8. Our target: microprocessors. Yes, those. I don’t know what they are, you don’t know what they are, who gives a f**k?…
    great movie…but not better than the original version that got no credit

  9. Cwan/PM, Sorry for the legal-speak, I’m a recovering lawyer.  Mine is still an academic understanding of PM calculations, as I have read extensively but don’t trade with PM, and I would appreciate anyone on the board confirming or correcting my understanding.  I do think that PM is a more accurate way of calculating risk than traditional margin calculations, in that it is a net risk calculation, and thus rewards something that Phil stresses--Balance.  It is like a Ferrari in that it gives a lot of power (leverage), and also like a Ferrari in that it provides a lot of maneuverability.  So, when the market drops 5%--a deer jumping out in front of the speeding Ferrari--an experienced trader/driver, like Peter, doesn’t panic, adds a few put verticals, rolls down his short strangle, all of which is permitted and rewarded with PM, and so he steers around the deer.  An inexperienced driver yanks at the wheel and crashes into a tree.  (Me, in my minivan with kids in the back, I’m driving so slowly that I have time to slow down and let the deer cross.)
    On the TOS website at the bottom of the page there are some dramatic examples of PM calculations, especially this one: 
    Long 50 calls IBM APR 85 @ $8.99
    Short 50 calls IBM JUL 90 @ $6.82
    Short 50 calls IBM JUL 95 @ $4.12
    Long 50 calls IBM APR 100 @ $1.16
    Strategy margin requires full payment for long options and appropriate margin on short option positions or  $214,500.00
    Portfolio margin requirement is     $    4,638.00

    I’d love to see what some real world examples looked like in a short strangle/SPX crazy play.  My sense is that the strategy only really works with PM.

  10. ss / Yesterday
    Sorry I couldn’t get back to you, I had to catch a plane. I was in TNA from 10:02 to 11:02 and TZA from 2:45 to 3:59.

  11. Abbey Cohen goes for 1,300 as here 2010 S&P target so another 15% or so next year – FANTASTIC! 

    Exact same level comments as yesterday:

    Our major highs were:  Dow 10,549, S&P 1,127, Nas 2,242, NYSE 7,380 and Russell 615 and we have quite a long way to go to get there. 

    I’m still more inclined to look downward at: Dow 10,250, 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.  This is the same comment I made last Monday so not exactly brain surgery to watch these levels very closely.

    We’ll see if oil can hold $70 after inventories but gold has already broken over $1,130 and is looking bullish again (but no way woud I play it that way).  Copper is all over the place but silver failing $17 would be a very big deal (now $17.59) so we’ll keep an eye on that.  All these are up a bit from yesterday but nothing too impressive.

    XOM $70 is also worth watching.  Dow is not likely to make new highs if XOM can’t come along.

    DIA $105 puts are now .65 and I’d love to get them for .50 ahead of the Fed but I don’t know that we have the gas for it so 1/4 at .60, 1/4 at .50, 1/2 at .40 = .475 avg so that’s what I’m going for.

    On the upsde, we have our RUT and IWM longs, which are looking good and we can pick up the DIA $105 calls at .65 right on the 10,500 line with a stop if the Dow goes below it.

  12. JRW – It’s official you are "Money".  What’s on the radar today?

  13. judahbenhur /PM
    I’m testing now PM on my paper account and I found that main adv. is a margin of naked puts and calls: it is around 8% but normal requirement is 20%
    Peter, is anything else I’m missing?

  14. How much will you wager Judah? A thousand talents?
    Massala:  " A thousand talents! A thousand talents???"  
    Sheik:  "If you think it is too much…."
    Sorry – I’ve seen that movie a hundred times. Classic.

  15. Phil/EDZ,  Nothing to ask, really, just a mini-rant.  So, most nights, like last night at 3 am when my child wakes me, I check the overseas markets and see the Hang Seng crashing and think, This is the day when my EDZ strategy pays off.  I like EDZ, following my plan, waiting for the correction. Then, by morning, the US market opens and EDZ drops 3%.  Jeez.

  16. Phil – what do you think the bounce-off level is? Want to jump into SRS again, especially for under $7.80.

  17. Abby J. Cohen had a 2009 year-end target of 1100. She’s supposed to be this uber-bull, but embarrassed herself by under-shooting. Like the rest of us, even she can’t believe this is real.
    I’m surprised she didn’t shoot higher for 2010: SPX 1500 at least (her 2007 target).

  18. Also – does your view change on C for a short-term bet (I mean well-educated thoughtful position) given the tax forgiveness?

  19. ss / Today
    Maybe TZA at 10:30 or so, but yhey are pushing for 62.20  first.

  20. Phil,
    I;ve been in and out for the past few days and have not been able to concentrate on this.  Would you initiate an RUT or IWM long position HERE, or not?  I’m uncomfortable bearish but since we haven’t had a meaningful sell-off in a week, I’d hate to initiate a long position at a short term top.

  21. Zion with a snapback.

  22. ssdirk: We should be fair, the FTC has investigated INTC multiple times.
    But the other players kept settling with INTC and agreeing to paper over the closet doors (behind which were allegedly hidden skeletons).  For example, in 1994, Cyrix settled their 1990 case against INTC.  And I believe again in 1997.
    PS:  Long ago, back around 1989 – 1991,  I was at AMD and worked, among other things, with a team on a clean-room version of the x86.  But AMD and INTC made up and AMD shipped a licensed version instead.  I sometimes like to claim that I was responsible for the Pentium name because I was one of the (assumedly several) people who suggested that AMD file for a trademark on 586. ;-)

  23. VIX is low. Do bull call spreads on VIX make sense?

  24. UNG/Bassad – Doesn’t sound too bad really.  There’s not much you can really do with the play other than just keep selling premium but, sadly, the premiums are very low right now and don’t accurately compensate you for the actual volatility of the position, which means you have a much greater chance of being burned by a big move.  The kind of spread you are using is for either stocks that are less volatile or stocks that pay so much front-month volatility (like GOOG) that you can probably make up for any large move over time. 

    Fed/Cap – It really has become a joke but what can you do.  We just need to nod and play along.

    PM/Judah – The problem is you need to keep in perspective that you still have $214,500 worth of risk in that IBM position.  That’s the danger of PM because a lot of people will take that math and go out and take on 50 times more positions and end up with $10M worth of risk and, if ANY one of those positions has their black swan event that month, you can be out $200K very fast.  To me PM is useful to wipe out the silly margin requirements, like a day trade on a naked put or call where I’m NOT going to let it move 20% on me (hopefully) so why should I get hit with 20% margins?  Also some long spreads can be mantainied that would otherwise be unattractive or naked short put leaps to raise cash.

    EDZ/Judah – I do the same thing all the time but what can you do.  It’s a long-term play based on fundamentals.  In the short run, obviously, anything can happen. 

    Bounce/LLorens – A lot of cross-currents right now and the volume is low so I’m not going to bet against a low-volume rally other than QID $19 calls at $1.15 with a stop at $1.

  25. Reinharden – I agree that INTC was scrutinized before, but nothing was ever done.  Those settlements were over patent infringements not unfair marketing.  I know this is old dirt, but just saying.

  26. Come on SPG, pull yourself together. I’m not done selling calls on you yet.

  27. 20 QID Jan $19 calls for $1.55 in $100KP

  28. Phil – Zion, our canary, was minutes ahead of this little pullback.

  29.  ssdirk — Yes, but the FTC often used such cases to launch antitrust investigations.  Of which nothing much ever happened.  INTC was slapped on the wrist and sent forth with an edict to sin no more.  The slaps will undoubtedly be larger this time around simply because the FTC was about to be embarrassed by Mr. Cuomo’s run for higher office, um, I mean his diligent pursuit of justice as the New York Attorney General.
    All of which is to say that INTC is currently on display as an example of a company which has thoroughly trounced its competition, has a commanding market presence, and is the only company left standing with the ability to innovate in microprocessor foundries (AMD, for example, can’t even afford to build a next generation fab).  Going forward, even if they have to pay multiple billions in fines (which they most likely will get out of *again*), they will have increasing yields, decreasing costs, increasing margins, and, over the next few years, a return to growth in their markets.  Once the world economy starts to turn, INTC, the stock, should perform exceptionally well.  Intel, the company, already is.
    Of course, I hate the current stock market, thus my long absence from these boards.  So I’ve settled most often for buying INTC the stock rather than INTC options ’cause I’m willing to sit it aside and ignore it for 3 to 5 years (or more).

  30. Phil, has David with the Oxen Group fallen off the face of the earth? Did he quit?

  31. I don’t believe the health care takeover bill will be defeated, but if it is, will the market goose way higher?

  32. Rein- Agreed.  Intel is a solid co. no matter their marketing.

  33. Phil/PM,  Thanks for the useful distinction, and I’m not looking to leverage my risk 50 times.  I have been looking into PM mostly in the context of Peter’s plays, which I believe is consistent with your comment.  If I sell a put on an index at a point 15% lower than the current trading range with a plan to adjust if the market begins to move dramatically against me, I want the flexibility to make the adjustment.  I don’t want to get hit with 20% margins for that play.   Next week, Fidelity is adopting something called Rule Based Requirements, whatever that is, instead of Portfolio Margin.
    As for EDZ in the short term, yes, "What are you gonna do…" is part of my vocabulary.

  34. Phil,
    …could use some advice on my LYG position.  I have shares w/ 5 callers & putters…..the 5putters were adjusted to $1.42 cash.  Any good words?  Thanks.

  35. JRW – I am in TZA at 10.62 where do you see resistance on IWM?  Could it be yesterday’s low of 60.80?

  36. AMZN; FSLR dumping … will financials and reits and market follow ?

  37. Good morning Phil,
    I do not want to inlarge yesterday’s discussion but in deed for Dummies
    December 16th, 2009 at 10:14 am | Permalink  
    20 QID Jan $19 calls for $1.55 in $100KP  Translation :  BUY /SELL 20 Jan calls of QID for 1.55 well the sell is 1.55 the buy is 1.65 I guess we aim for the sell

  38.  yodi, i will try and translate for Phil for you. 
    BUY 20 QID JAN $19 calls for $1.55

  39. Yodi – Phil is obviously more bearish.  So he is offering to BUY QID calls, which is a bullish call on QID, which is a bearish call on the Q’s.  He is offering 1.55 and will pay that if the price comes to him.

  40. Phil,
    ….get some Jan OIH 130 callers here?  Also, u have any thoughts on TSO?  Thanks again.

  41. Yodi, I think Phil’s terminology is very consistent in that if he means "Sell" he says "Sell".  When he doesn’t say anything, he means Buy.

  42. Phil – last question on C, promise. What price interests you as an entry point after the offering tonight and the Abu Dhabi deal reneg issue is cleared up?  Sub $3.00? 50 cents?

  43.  You can not look at Phil’s comments out of contexts.  You must read the conversation before and after.  In his previous comment he said 
    "Bounce/LLorens – A lot of cross-currents right now and the volume is low so I’m not going to bet against a low-volume rally other than QID $19 calls at $1.15 with a stop at $1."
    So it does not make sense for him to be SELLING calls 5 minutes later.
    Phil treats the board like he is having a conversation.  If you follow along and read every post then it is almost always obvious whether he means buy or sell.

  44. Yodi,
    Would you really want to be selling naked QID calls in this market?  I assume you know that QID is 2X short the Q’s.  I guess if one assumes that Eden has arrived and the market is just getting primed for the blast off then go QID naked.  Phil says sell when he means sell and buy when he leaves out the verb.

  45. Sthompson – David sent out an email saying he had to attend to some personal things….
    GILD has fallen nicely into our lower range.  Lots of support here, but the force of the selloff makes me think they will move through 44 and test the lower end of their 52wk lows (42ish).  Again, selling a 1/2 position of he 43 or 42 Jan10 P is a nice starter entry.  Those can be rolled down to the 41/39s Feb10s even or DD on the roll out at the same strikes.  Their pipeline is stronger than most big pharmas.  I would not enter any LEAPs until they show an uptick.

  46. ss / TZA
    I.m already out; made $0.20 waiting for direction. I still expect a push, but this is NOT impressive.

  47. Market Internals update at 10:30amET – NYSE volume 227M shares, about 15% below its three-month average; advancers lead decliners by 2:1. – NASDAQ volume 447M shares, about 16% below its three-month average; advancers lead decliners by 1.6:1. – VIX index -4% to 20.61.

  48. ss,
    Sorry, yes 60.82

  49.  AMD – Conversely, longer term, AMD’s current bounce is pretty stupid.  Nothing about the FTC starting what will likely be a multiple year investigation is likely to return AMD to profitability in the near future.
    Shrike and, was it Slim, were going to save AMD by the end of 2009.  Now it’s Bulldozer and Bobcat by 2011.  Which AMD hopes to have fabbed at 32 nanometers.  By which time INTC is planning on moving towards 22 nanometers.  Which means INTC would be pulling nearly twice as many parts from the same piece of silicon.
    Oh well, at least AMD has "a plan".

  50. I’m picking up some EDZ if it crosses below $5. I have to type it here to make myself do it when it happens.

  51. Phil,
    Been following the VIX trades the last week or so and wondered how you might handle them. We got in the 22.5/24 call spread around .35-.4 and I added more a day or so later. In a couple of days it went to about .6 as the market fell a bit. I was busy at work and couldn’t ask your advice so I sold 70% of them….fine. But the remaining contracts didn’t improve as I thought they might--we keep drifting higher, except yesterday. You even noted them over the weekend as not behaving as we hoped. Now I have time to ask how you would have handled them last week without knowing how the market behaved this week…….1) you got >20%, sell stupid, 2) it’s a spread and you have some protection, so watch it for a few days before acting, 3) if it falls, roll to Jan…..basically, when should one act on this as it rose and then fell…….what ideas would you use to make a plan particularly as we approach expiration and the decay increases rapidly…..

  52. Look at AIR, they got direction to the Moon

  53. Pharmboy – you had an iron condor trade I think late Friday with something like $1600 potential downside and $800 upside.  You asked Phil if there was a rule of thumb downside/upside targets before entering trades like this.  I did not see the answer, did I miss it?

  54. SRS/Llorens – I do like them at this price ($7.80).  You can sell Apr $7 puts naked for .85 and buy the Apr $5/7 spread for $1.30 so net .45 with a $1.55 upside on $3.50 in margin and a put-to price of $7.45.

    1,500/Eric – I think that was Abby’s year-end target for 2008 so she really has gone conservative hasn’t she?

    C/Llorens – It was a known fact that was just "discovered" by the media.  I’m ignoring it. 

    RUT/JCM – No, not here.  We sold the 610s so that’s my Friday top target (at most) but the whole bullish IWM/RUT play was simply a cover for the nonsense we’re seeing today and no a reflection of my expectations for the week or the month on them.  A massive amount of effort has been put in this week to keep us up near 10,500.  Maybe they plan to punch us over this afternoon as the "Man of the Year" puts a word in the statement that all the bulls can key off of and go wild but I’ll be selling into that too as I may not be omnipotent but I can sure as hell read a paper and the World is NOT 75% recovered and it sure as hell isn’t 80% recovered and the levels these markets are recovering too weren’t even real in the first place as they were based on BS-inflated earnings, Trillions of which were reversed through write-downs and losses so when idiots like Abby Cohen have the nerve to get on TV and say we should stage a full recovery by the end of next year – I simply KNOW they are lying because no one can possibly be that stupid…

    Hey Reinharden!   Wassup in tech land?

    ZION/SS – Yeah they are the best at that still.

    Cuomo/Rein – LOL!

    Oxen/Sthom – He is on vacation this week.  Said he may post tomorrow or Friday.  Unlike me, some people actually take vacations (or so I hear).

    LYG/Oncmed – It’s such a damn mess now it’s hard to say.  I guess you can roll the putters along to the "normal" jan $5 puts at $1.45 but there’s no good strikes to sell now as $3.65 is an awkward spot for LYG.  I would just do that and not even sell calls.  It may be a month or two but if we do have a real rally, then EU financials should recover. 

    3.7Mb draw in crude.  Gasoline up 900K and Distillates down 2.8M on a 1.1% decline in refinery utilization.   That should get oil to $73 but that’s about it as the gas number is still weak and, judging from the refinery decline, I’d have to guess this is nothing but a curtailing of imports last week.   

    Gold touching $1,140 now.  GLL $9 calls have very little premium if they can be gotten for .65 but a very risky play.  They were $1 yesterday so be thrilled with .90 if it comes. 

    QID/Yodi – If I want to say something, I say so.  If I put up a trade like that it’s a long idea and, again, context is key.  Am I long on the market looking for a breakout or do I feel it’s toppy?  Also, WSS sends out an Alert from the $100KP detailing the trade.  I will NOT instruct you to Buy or Sell – if you can’t accept that, contact Greg and get a refund and that is the last I want to hear about this issue from you. 

    OIH/Oncmed – Bullish on OIH?  Not me!  I’d sell the $120s if they weren’t only $1, which is not enough reward for the 3-day risk with OIH right on the line.  TSO I don’t like at all but VLO is my favorite and they are still cheap.  You can still sell the Jan $17.50 puts for .95, which is a net $16.55 entry on them.  Funny to see X at $49.62 but no one seems to need any fuel to go with the steel – madness…

    C/llorens – We just did a DD on C 2011 $5 calls at .36 in the $100KP.   That’s about the only C position I like at the moment as I think it will take a good year to resolve itself.  Abu Dhahi doesn’t matter, they are selling $25Bn on the open market today and seem to be finding buyers. 

    Nice little doubles on EWJ from yesterday, maybe we get a triple at .15 but don’t let .10 slip away!

  55. Guys I thank you for the comments no I would not trade the short But as an Eng. I would not like to trade the real platform with a I love or we can pick up just simple take the guess work out of it . If you build  a dam it does not allow guess work or assumption you have to work with clear facts. I ask myself is it that difficult to replace it with the words buy or sell?

  56. Hi Pharmboy, do u think it is possible to do an Iron Condor on GILD, or is it too risky [$0.95 credit]?
    CALL Vertical 48/50
    PUT Vertical 42/44

  57. Phil, yeah I meant 2008 for Abbey’s 1500 prediction. 2008 was a banner year for her because her game, as I understand it, is to make a prediction that at the time sounds wildly bullish but vaguely plausible, but which in retrospect proves laughable. So missing by 700 or whatever points last year was a tough act to follow, admittedly. I guess I should cut her some slack for accidentally nailing it this year so far.

  58. CMN – now that is a run!  Missed that med device maker….

  59. Ebn – no, didn’t get answered….and I didn’t get the fill… my readings, a 50/50 or better is most likely worth the risk, but I would still like Phil’s opinion AH on iron condors…and I know it will depend on the stock, volitility, etc..
    GILD/EMC – I would rather do the one I noted yesterday 48/43 sell both sides, for the same amount approx, but today, more like the 46/42 C/P.  I will be buying back the 48s C from yesterday, and sit on the 43 P.

  60. Well I am having a good today I hope you all are too!
    I have a suggestion for the site, perhaps it would be useful if we had this place to discuss trading ideas (just perfect as it is already), and another place, perhaps a chat room, to discuss option mechanics, margin and stuff that risks cluttering up this board.
    Just an idea :) Phil if you created this you may not even need to participate in it…

  61. With the best – and worst – market timers equally distributed in equities, Mark Hulbert says it may not be the best time for all-or-nothing stock market bets.

    EIA Petroleum Inventories: Crude -3.7M barrels vs. -1.7M. Gasoline +0.9M vs. +1.4M. Distillate -2.9M vs. -0.6M. Utilization 80%. Crude futures +1.5% to $71.73.

    Sector ETF strength: Heating Oil– UHN +2.1%. Gold Miners– GDX +2.1%. Insurance– KIE +1.6%. Silver– SLV +1.5%. Solar– KWT +1.5%. Semis– IGW +1.5%. Broker/Dealers– IAI +1.4%. Commodities– DBC +1.4%.
    Weakness: Commercial Banks– KBE -0.6%. Biotech– BBH -0.5%.

    Dow leaders after one hour: AA -2.4%. DD +1.6%. KFT +1.2%. AXP +1.2%. BAC +1.1%. MSFT +1%. HPQ +0.9%. CVX +0.8%.
    Laggards: INTC -1.9%. BA -1.3%.

    Holiday shopping to date is at a five-year low, with consumers saying they’ve completed just 46.7% of their purchases despite early promotions. "All season long, we’ve heard that consumers are continuing to wait until they think that they’ll get the best deal possible," NRF says. "Some people are just hesitant to spend their money on something when they might get a better deal closer to the holiday."  Yeah, that’s it – they are all waiting until this Saturday, Dec 19th, to hit the malls and do 40% of their shopping.  Everything is fine, just wait until Saturday and you’ll see…  Holy cow do they really think we are that stupid?!?

    Greece quietly raises €2B in a private placement at Euribor plus 2.5%, putting a pause on the intense scrutiny it faces.

    Besides wounded pride, Abu Dhabi’s fight to extricate its sovereign wealth fund from a costly deal to invest in Citigroup (C) is fueling suspicion that the Gulf nation – saddled with neighboring Dubai’s woes and its own speculative investments – may be facing near-term liquidity problems.

    80% of fund managers predict economic growth in 2010, up from just 69% a month ago, according to BofA Merrill Lynch’s monthly survey. Expectations for corporate profits are at their highest level since December 2003, and respondents predict global stock markets will offer investors 7.7% returns next year.  At this rate 91% of fund managers will be bullish in December and 102% in January – FANTASTIC!

    A new survey suggests U.S. consumers are losing interest in foreclosed homes over worries about hidden costs. Those somewhat likely to consider buying a foreclosed home now 43%, after peaking at 55% in May. Meanwhile, 24% of homeowners said they’re somewhat likely to consider a trade-up, and 88% of those are somewhat likely to consider a foreclosure.

    Secret stimulus du jour:  The world’s banks could get ten years to transition to new capital rules that will take effect in 2012, sources say. The news lifted shares of some banks, with MUFG (MTU) and Sumitomo Mitsui Financial (SMFJY.PK) surging more than 14%. The Basel Committee’s new rules will likely take a broader view on the definition of liquid assets and core capital, while the minimum capital threshold will likely be raised to help buffer against future losses.

    Not-so secret stimulus du jour:  ECB lends banks €96.9B in its final tender of 12-month funds, exceeding forecasts of €75B, as banks lock in cash at record low rates. Analysts said the outsized tender indicates banks don’t expect a change in rates (the loans are indexed to the ECB’s rate), and will allow market to remain liquid.

    EDZ/Llorens – $4.90 was the 12/4 low.  We did buy that day and made a quick 10% about 2 days later.

    VIX/Ocelli -  VIX is very much a take the money and run sort of play.  Any vertical that makes 25% in the first week should be cashed out unless you have some very serious conviction and, of course, there’s the overriding rule of thumb that we don’t want to hold ANY Dec contracts (that we bought) after the Wed before expiration.  My big loss in the $100KP is strictly from violating that rule as the Dec IYT puts went from winners to hopeless losers over the weekend (I forgot to sell it even though I told people to in chat).  Also, those VIX calls expired yesterday I think – you’d better check that! 

    VIX March $20 puts are .35, which is interesting if you are bullish as the VIX could go to 15 if we get a nice breakout to higher levels – kind of a fun way to play for a triple or better and the Jan $20 puts are .35 and the Feb $20 puts are .35 so they seem like they should be pretty durable.

    AIR/Tcha – That’s whay we expected.  They just needed to see a good test flight of the 787 and then they could start flying.  TIE too – That’s why I call them my Boeing Buddies.

    Condor/Eben – I don’t remember that quesiton so I doubt I answered it.  Happy to look at it if you guys want to re-post. 

    Oops, now Goldman tries to put a lid on the dollar rally before their commodity positions go down the toilet:  Goldman Sachs bets against the recently rising dollar, saying clients should buy euros that it forecasts will rise to $1.55 in three months. “The recent positive growth impact from the inventory cycle and fiscal stimulus is likely to taper off during 2010," the bank said, adding that the dollar tends to weaken in the last two weeks of December. Currently: Euro at $1.4579.  Really – how in the world is it OK for a company that makes money buying commodities to NOT JUST COMMENT BUT DRIVE CLIENTS INTO THE DOLLAR TO SUPPORT THEIR POSITIONS?

    Abby/Eric – This was a year for her to rebuild credibility.  Notice she disappeared for a good, long time after turning into a joke last year.  This is some form of GS rehab strategy as she was one of their most reliable pump tooks but they burned her out last year.

    11:30 Volume is 55M on the Dow, well below our normal low volume.   I’m thinking they may see today as a good chance to have a big sell-off in the afternoon and they can blame it on the Fed if they should dare indicate in any way, shape or form that they may not just keep giving money away for another year or two

  62.  Tech summary:  Nothing worth mentioning just yet.  You still play with AAPL and GOOG, they’re probably still the most interesting to me, but the next $50 could just as easily be down as up (although I’m biased to the upside on both).  I’ve already mentioned INTC.  MSFT was more interesting in the teens than at $30, but they’ve probably got a little more room to run.
    Believe it or not, I still like FNSR.  And ZHNE.  But those are probably better as personal favorites.
    The semiconductors as a whole aren’t yet cruising and until they start to turn, the rest of tech is generally uninteresting to me long-term.  And the current market is way to irrational for my tastes (or limited talents).
    I still like the companies behind ATHR, BRCM, GLW, STX, and TXN.  But they’ve all already doubled since their lows, so the dead simple money has been made (although GLW *might* have a bit more).  I still wish there was an easy, liquid way to buy Samsung in the US.  None of these folks have any real pricing power right now — especially GLW, STX, and TXN.
    I love the networking side of MOT, but they’re still stuck inside MOT which overall is horrible.  As is NOK (NOK is so far beyond horrible that I can’t even start to enumerate the ways in which they’re currently lost deep in the woods).  PALM, QCOM, and RIMM are all overrated.  PALM is unlikely to survive 2010 as an independent entity.  And to be fair, I’ve thought RIMM overrated forever, so I’m probably still wrong about them.  It’s a mystery to me how they can be an astoundingly profitable one-trick pony with an absolutely horrible product for so long.
    CSCO is boring, but they’re still finding ways to make money, so I shouldn’t neglect them.  Especially with a PE in the 20′s.  Now if only they could find some growth.
    I’ve expected LVLT to get bought for the last several years.  I still do.
    I like the management at SCMR although their recent performance has been horrible.  On the other hand, they’ve got a price/book of something like .6!  And no debt.  Maybe I’ll buy some more…

  63. Gonna short some $SLG here …. getting too ridiculous for words

  64. Condor/Phil-Pharmboy  — I think if you guys are going to be around AH we can revisit Pharmboy’s condor question then…agreed?  I’ll go back and find the post.

  65. Cap – SLG is a beast.  I have been short them for awhile, rolling up with them and selling tons of front months to keep losses to a minimum.  One day the beast will fall, but that day sure ain’t gonna happen soon enough.

  66. tchayipov & judah/PM,
    You are all correct.  In the PM disclosure document, it says that PM works well for shorts, but doesn’t give any leverage for longs.  With OTM shorts, we can leverage more than 20x as the risk is deemed insignificant when we start the spreads.  As Phil said the liability is always there, so I’ve never been leveraging that much, just stick to the worse case for PM, which is 8% margin for large cap index and 10% for small cap index, plus a chance to double down.  There is no way to double down with Reg-T with a 20% margin, isn’t there?
    The flexibility is immense and we are using it to the full extent to beat the returns on Reg-T accounts.  Why not?  If the market takes a few years to recover from a Black Swann event, it takes us much less time to recover using PM.  We are all saying there is risks, and we are doing the analysis to ensure that the risks on PM is less than the risks on Reg-T account.  Selling shorts is like being the House in the Casino.  We win most of the time, but sometimes, a gambler would win big that set the house back a few days of profit.  We just need to kick those gamblers out of the casino with our adjustments.  That’s what we are here for, to alert ourselves and make adjustments if necessary.

  67. Phil – IYT – the short DEC$75Call from two days ago (cost .63, now 1.00) what is the plan – roll or hold for a drop?

  68. Condors/Pharm – I rarely do them but it is all about the risk/reward.  When I do use them, I often end up turning them into double diagonals to get more flexibility.  We can look at examples later.

    Mechanics/Steve – Sage had an educational thread on PM when it first came out, maybe we could pull it back up and then people could use the comments there for general discussions about margins et al. 

    Tech/Reinharden – Cool, thanks!  I also think the easy money is gone and the same with AAPL and GOOG – if there is any upside, they should be it.  We like WFR at this price but not too much else although we did go for RIMM below $60 because, like them or not, they do have a model that makes money. 

    Finally round 2 of the rally seems to be running out of steam – such an annoyance! 

  69. Rein:  ZHNE looks very interesting especially since they specialize in components that improve broadband network performance. Why have they been declining since Mid-October? We’ve been looking for a penny stock to jump into – wonder if this is it.

  70. Hi Phil,
    I had bought UNG Dec $10 calls for $0.60 and now it is still in the money ($10.12), should I just sell it to take a loss or should I roll? I also sold FXP Dec $9 puts for $1.40(now $0.90). Should I take the profit or should I get assigned and sell calls later?

  71. Question regarding TOS accounts:  I am in the process of moving some money over to TOS from TDA in order to get portfolio margin.  At TDA my cash is swept into a money market account backed by US Treasuries for safe keeping until I use it for trades.  It doesn’t look like TOS has this option.  What is everyone doing with cash when not in use at TOS?

  72. IYT/Concreata – Same plan as original, roll up to Jan $77s by Friday if we have to (doubt it).  Keep in mind they are only "worth" .63 so there’s no point at all in paying them $1. 

    HOV is flying, TOL is slow out of the gate so I like the Jan $17.50s for $1.40.

  73. IMO, condors are usually a better sale in this market than a buy. Although it seems low, IV still tends to over-price the actually moves we are seeing (SPY is up only $2 in 3 months!).
    Remember that you can construct a short condor to express directionality. E.g.; you feel bullish so you sell the put vertical short with the short puts just ITM, say, and then sell the call vertical further up OTM. If the stock moves up to (but not deep into) your short call vertical by opex, you do very very well — typically much better than a bare stock or option purchase, e.g. If the stock drifts or flatlines you also do very well.

  74. Thx Phil – It was more selling the Iron Condor, but instead I decided to take selling the premium outside the range, buying if the stock moves to within a dollar of the call, and I do not mind owning if it gets put to me there.  Stock was GILD – so no worries on that.

  75. That’s what I was thinking Eric – thx.

  76. Pharmboy; I hear ya about SLG.   Picking my spot here; this is an IYR pump job across the board.  Gravity should take hold soon.

  77. BTW; I know some others are shorting SLG here as well; fwiw.   Nobody should follow me; this is risky stuff today.

  78. MGPI – look at that one OMG.  I owned them in 2006 for 7.5 and rode them up to 14, then they exploded to 25.  Back to 58c at the beginning of the year, and now at 9.5.    Better than the banks!

  79. Pharm – more upside on that one in your opinion? Why the rejuvenation?

  80. ssdir/cash sweep, TDA had problems last year when we could not access the cash in the cash sweep vehicle, so no adjustment was possible, yikes.  Now I don’t want that feature.  I’m not sure if TOS has it or not, but we can always ask.

  81. Pure alcohol play llorens, and not gonna touch them with a 10ft pole as I don’t know enough about the biz or space- I played them ’cause of ETOH.  If you go to Atchison, KS, where they are headquartered, you can get drunk on the fumes.  Maybe Obama is gonna continue the ETOH craze.

  82. thanks for the guidance – looks like the kind of stock that could wipe away lots of hard earned gains in a single day or two.

  83. UNG/Jlui – You should be out of it one way or the other.  I’m bearish on gas but you can roll along for .40 if you are not.

    TOS/SS – They used to pay .09 under Fed funds but now that would be -0.65 so better off not doing it with them!  MER used to pay good money on sweeps but sucked otherwise so it’s all a trade-off I guess.

    Now XOM says just kidding on XTO deal (if legislation on drilling goes through) - so friggin funny as it boosted OIH 5% on their say so.  XTO Jan $47 puts are $1 as a speculative play.

  84. If you shorted SLG; you can either cover for quick gain and look to do it again; or hold for more.  I covered some and will short it again given the oppty.

  85. llorens:  ZHNE isn’t really components (I think of FNSR as components).  ZHNE is more broadband/networking/telecomm equipment in that they sale actual boxes instead of parts.  So, for example, you can buy two boxes and drop a gigabit across a fiber optic link.  Or you can buy a concentrator box and a bunch of customer premises boxes and run plain old telephone service, DSL, etc.  So if you’re a municipal telephone provider, for example, ZHNE can pretty much set you up with everything you need to provide phone and networking services.  They’ve a variety of FTTP offerings as well, however, that market hasn’t taken off as quickly as people had hoped.
    Fundamentally Zhone has pursued an "any media" strategy that uses essentially the same box to support any physical media — so you can attach copper wire, fiber optics, ethernet, ATM, or even some forms of wireless to the same concentrator to provide services to end users.
    The downside to Zhone as that the economic slump hit them hard.  Their revenues dropped precipitously and their profits disappeared.  They’ve burned through a fair chunk of cash and will likely have to seek additional financing this year.  I think they will be profitable in 2010, but who really knows what the world economy is going to do.
    On the other hand, I expect Zhone (and probably Calix which is unfortunately private) to do moderately well once the broadband stimulus funds are released.

  86. UPDATE 1-Finning sees 2010 revenue below 2009 level
    Finning, the world’s largest Caterpillar (CAT.N) equipment dealer, said on Wednesday that it expected business conditions to improve late in 2010. Based on the current outlook, the company anticipates earnings in 2010 to be up modestly over 2009.

  87. Condors/Eric – Good point, selling is better in many cases. 

    S&P drops Greece to BBB+ from A-

    Here comes the dollar… 

    Roubini:  Since gold has no intrinsic value, there are significant risks of a downward correction. Eventually, central banks will need to exit quantitative easing and zero-interest rates, putting downward pressure on risky assets, including commodities. Or the global recovery may turn out to be fragile and anemic, leading to a rise in bearish sentiment on commodities – and in bullishness about the US dollar.

    Another downside risk is that the dollar-funded carry trade may unravel, crashing the global asset bubble that it, together with the wave of monetary liquidity, has caused. And, since the carry trade and the wave of liquidity are causing a global asset bubble, some of gold’s recent rise is also bubble-driven, with herding behavior and “momentum trading” by investors pushing gold higher and higher. But all bubbles eventually burst. The bigger the bubble, the greater the collapse.

  88. thanks a ton for the insight Rein – very helpful. Do you think their chances to secure additional funds are high given their recent contract wins in the UK?

  89. Hi, Peter & balance & All Stranglers,
    The discussions are truly great!
    So, to be on the safe side, with PM, Peter advocates that you reserve $20,000 margin per SPX strangle.  That’s 2X of the worst case of $10,000 if one end of the strangle gets to ATM.
    Now my question is: If for some unforeseen reason, I can’t log into my computer for several days, say, a friend is in an emergency, and ask me for help, and one of my SPX short goes ITM while I am away, does the margin requirement goes even higher?

  90. Phil/Mechanics/PM. FWIW, I found the discussion on PM useful as it is intricately connected to a trading strategy that is widely discussed on this board.  I have made extensive use of the educational archives and read a month’s worth of posts before beginning to make comments here.  I think it would be cumbersome for members to use separate tabs for trade ideas and trade mechanics. But it is your board, your ground rules.  Sorry if it was a distraction.

  91. Hello Phil;
    Too late to get into the UUP ?
    if not what makes sense ?

  92.  llorens: Oh yeah, as to why ZHNE has been slumping the last month or so.  I don’t really know.  I didn’t really understand the jump from $0.40 to $0.70, so I won’t pretend to understand the slump back down since.  On the other hand, seeing as how you could buy ZHNE for as little as $0.08 earlier this year (which I thought was ridiculously cheap), I’m not complaining about the current price point.
    But I suspect that some number of folks are taking their profits and tucking them away.

  93.  llorens: I believe that ZHNE would be able to secure additional funding if they require it.
    1) Their CEO has always found a way to secure additional money.  And, as he’s the guy that sold ASND to LU for $20 billion, people like to think that he’ll find a way to make ZHNE work out.
    2) ZHNE has a history of finding under capitalized companies with excess cash on their books and buying them for less than book value.  I suspect that they’ve a list of candidates lined up.
    3) ZHNE has a 10% customer that accounts for something like 1/3 of their accounts receivables ($10+ million of $30+ million total).  That should improve this quarter, but they should also be able to monetize it regardless.

  94. Nice little site that gives data on companies market direction……title of this group:  Top 1% Stocks by Signal Direction for Dec 15.  There are many others.

  95. Phil,
    Any suggestions on playing RIMM into earnings tomorrow? Maybe a straddle or just wait and see?

  96. I remember from yesterday someone mentioned
    It looks like a very good at showing the open interets at different level and their Current Pain chart shows the current open interest since the last month. This should help for many pinning trades that people may be interested in. I am planning to get a subscription.
    What has been your experience?   

  97. Phil -
    Naked still strategy on DIA covers ? I know – sure you are not any more bullish than on monday but wanted to check

  98. S&P lowers ratings on Greece to BBB+ from A-, moving the country into the lower medium grades and warning of more to come: "We believe that the government’s efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome."

    Distraction/Judah - I wasn’t distracted at all but if others are, we can set up a place.  One thing is that there is no way I ever get around to going anywhere but my current post to chat.  I just don’t have time so, as far as I’m concerned, everything should be here as I do like to read what people have to say anyway.

    UUP/Micro – Actually I have some Jan $23s at avg .225 and they are still .25 so not so bad.  That one is playing for a dollar squeeze.  On a longer-term basis, I favor the verticals and those are still good terms like June $22/24 bull call spread at .85 and you can even sell the $22 puts for .55 if you are greedy but I think 127% upside with no margin req. is a nice little way to bet the buck.

    Barchart/Pharm – I used to use them but too much data!  I like data too much so things like that just end up distracting me. 

    RIMM/JBird – I like the March $75 calls at $3, selling the Jan $70s for $2.32 as there are Jan $73.375s you can roll the caller to and you can roll yourself down to the March $70s for about $2 (guessing) if they pop for a reasonable vertical.

    DIA/Samz – Still very painfully naked and VERY annoyed at all the pumping.  Well, one hour to the Fed so I’m either rewarded or skewered by EOD I think…

  99. Hi Phil : When u say  DD on an existing position, please conform u mean to increase existing position by 100 % not 200%. In otherword, if I have 20 options in the position I will add another 20 options,not adding 40 options.Thank you
    Ps; What do u think of entering a bullish position on CAT now

  100. I’ve got a BAAAAAADDDD feeling they are gonna PUMP this baby after the Fed…….and then ROCK us back down.  Don’t they call it a SQUEEZE???

  101. PM/distraction – Juda I wasn’t distracted. To be honest I was thinking more about the discussions around how to execute trade ideas that Phil posts, option mechanics etc. which might fit well. Phil has built a really nice community here and I was just thinking that a way of us helping each other without polluting the this main thread may be really cool. Another site I use supports the main author in this way using a chatroom and I think it works well. It was just an idea lol nothing to apologise for (I hope :)

  102. EUR/USD has been falling steadily ahead of the Fed and now pushing the day’s lows. I seriously doubt these traders are expecting the Fed to sound bullish on rates, so any post-Fed rally may have to work uphill against this move.

  103. oncmed
    I signed up with them but you need to be trading with one of the acredited brokers they seem to prefer Ameritrade so you need to open an acc with them to get stream trading They do not take TOS

  104. oncmed – I posted the optionpain link – I haven’t subscribed I just use the free version to run a number of symbols, I find it a little easier than adding up the open interest manually on a variety of different stocks, and it shows you graphically how much weight there is on the highest OI strike compared with its neighbours.
    If you do subscribe I would be thrilled to hear how you get on.

  105. DD/Dflam – Yes, that would be by 100%, otherwise I would say Triple Down (very rare).  And, generally, I’m looking to DD number of contracts, NOT the initial investment.  In other words, if I allocate $5K to buy the TOL Jan $17.50s, I’ll by 10 at $1.30 ($1,300) and 10 at $1.10 ($1,100, avg $1.20) and 20 at $1 ($2,000, avg $1.10) so in for just $4,400 on the full position.  If the call falls all the way to .70 at that point – I could allocate just $2,800 more (50% over budget) to drop the average basis to .90 with the call at .70 (so maybe I would sell a call to offset or something).  That would put me in 80 for $7,200 and currently 80 $17.50s are $10,800 (at $1.35).  As always, you need to have a pretty good idea that you would REALLY like to own 80 at .90 before you buy 10 at $1.30 – otherwise you should only be looking at it as a momentum play with tight stops….

    Fed/Eric – I can’t think of what the Fed can say to feed the bulls.  Not that they need a real reason but is the Fed really going to say "The economy is great but we’re never raising rates"?   That’s what’s priced in..

    Air still going up – cool!  Kind of hitting greed levels here with a 20% gain on the underlying.

  106. Pharmboy, That’s what happened the last few announcements. Big question in my mind is what happens tomorrow. Last time around I sold into the announcement pump, then was feeling pretty damn smart from 3-4pm that Wednesday—- then the next day the market went up even sharper than the the pre-announce pump and I got my ass handed to me.

  107. The Alabama State Port Authority on Tuesday digested reports of a $16.2 million loss at the Alabama state docks in fiscal 2009.
    Low volume, the result of the ailing economy, meant revenue below 2007 levels, said Jimmy Lyons, docks director. Lyons pointed to coal shipments, particularly imports, as a barometer of the year’s performance, and said he doesn’t expect any recovery until at least the spring quarter.

    Coal accounts for about half of the docks’ business. Factors contributing to the depressed demand for coal include cheaper natural gas and the region’s industrial customers curtailing capacity, Lyons said.
    "Coal is coming in here (from overseas) but it’s not going out," he said. "In normal times we would load 20-25 barges a day, but are down to an average of about 12."

    On the docks, 25,000 fewer cars rolled ashore in 2009. Steel imports fell 57 percent. Empty cargo containers are flooding back to Houston, while loaded container traffic has dropped. Fewer ships are sailing in — 2,948 so far this year, a 10 percent drop from 2008.

  108. Phil
    we try to roll our DIA 106 to 107 for 0.5
    but even when we were less than 0.7 point away still didn’t get anything
    do you interpret it as a top because of that?

  109. COF is  just a silly stock (and way overpriced).   Options activity suggests a $40 pin on Friday FWIW.

  110. Cap – as I noted yesterday, AXP, COF and JPM are all intertwined.  I was discussing them with my uncle and he noted that they leverage them all against one another depending upon which one is in favor at the time.  As much as he would like to short them, they are not worth the hassle.  He recommended MS to short to $25. 

  111. Shipping Kustomz – Great data but what planet is that from?  It can’t be the same one as our stock markets are traing in…

    Rolls/Tcha – Yes, it means no one is giving up their puts very easily which is why it’s kind of a self-policing system, you only get the roll when you really need to get the roll.  In the $100KP I got fed up and just bought the $108 puts and I’m just waiting for a nice dip to sell the $106 puts now (waiting nervously as it’s too many DIA puts).  Of course, then I read something like what Kustomz just posted and I’m tempted to DD on the $108 puts! 

    Note XOM is still heading lower, despite $73.25 oil.

    V Jan $85 puts at $1.93.

  112. Thyssenkrupp is building a huge new steel plant right by the Alabama docks. Should be interesting, given the collapse in steel imports there.

  113. Does any of this coincide with all the bullish calls for growth in 2010

    Nucor Corp. (NUE) said Wednesday that it expects to break even in the fourth quarter, citing a seasonal slowdown in steel demand.
    The largest U.S. steel producer by revenue said it would break three quarters of losses with a "breakeven to slightly positive" performance in the three months to end-December.
    Nucor cited a drop in volume and seasonal factors "separate of the general economic slowdown," but the guidance fell well short of the consensus among analysts for a 28-cent profit in the quarter.

    KeyBanc Capital Markets upgraded US Steel Corp (XN) to "buy" from "hold", citing its stable domestic cost outlook for 2010,

    Steel giant ArcelorMittal SA said Tuesday it will cut an unspecified number of jobs next year and stick with plans to use 70 percent of its capacity in the current quarter.
    The company plans to cut jobs through attrition and "optimization of production," spokesman Bill Steers said in an e-mail.
    The Luxembourg-based steelmaker hasn’t decided about production beyond this year, he said.
    The Wall Street Journal, citing unidentified sources, reported this week that ArcelorMittal would use 70 percent of capacity for four more years and planned about 10,000 job cuts worldwide, with most likely to occur in Europe and the U.S.

  114. JRW – do you have a IWM key pivot point?  I know you see no resistance to 62.40ish if things break higher.

  115. Pharm — MS is at 30; probably a good one.
    Here’s the thing … we know COF is crap.   AXP and MS are better companies w/ less problems.
    I can manage it; make money on COF 90% of the time or more.

  116. Steel/Eric, Kustomz – Oh, that’s OK, we’re just having one of those "non-steel" recoveries.  Actually that makes sense since we no longer make anything in this country so what the heck would we do with the steel even if they did make it?  How many auto plants are shut down?  How many people did CAT and DE cut?  Is anyone building new buildings or restaurants?  See, we don’t need steel to recover – just steel stocks that Wall Street can pump up…

    Sector ETF strength: Heating Oil– UHN +3.3%. Oil– USO +2.8%. Homebuilders– XHB +2.3%. Gasoline– UGA +2.3%. Semis– IGW +2.3%. Gold Miners– GDX +2.1%. Commodities– GSG +2.1%. Oil Services– OIH +2.1%.

    Sector ETF weakness: Biotech– BBH -1.6%. Utilities– XLU -0.2%. Livestock– COW -0.1%. Pharma– PPH -0.1%. Industrials– XLI -0.1%. Retailers– RTH -0.1%.

    You know it just would not occur to me to go long on heating oil into the Winter because I just can’t believe that it can be a surprise to people that it gets cold in the Winter and demand for heating oil goes up.  This is why I need to watch Cramer more often – he tells people something like this like he’s revealing the secrets of the Universe and, judging from the 3.3% jump in UHN – I guess that he is to most people…

    10 minutes to Bernanke (that’s my Rain Man impression).

  117. PRU at 51….again

  118. ss / IWM
    61.41, over 61.66,  62.20;       TZA Target 60.37

  119. Just another tricky day, just another tricky day for you ….

  120. today past away the brightest economist in Russian history – Egor Gaydar

  121. kustomz, I hadn’t notice PRU, thanks.
    I’m going to try a few of those short condors in PRU, which is up on the news of profits on a sale of a component. My idea is that the stock pulls back into the congestion area in the upper 40s, so selling Jan 50 calls and 49 puts and buying the 44 calls and 55 puts and asking 3.20 (may not fill; but maybe in the post-Fed hysteria….). Slightly bearish here, slightly bullish $2 lower.

  122. JRW – something we may want to think about for next FOMC announcement is buying a TZA or TNA straddle at the ATM strike right before the announcement.   I think a TNA 40 straddle for a day trade would work nice today.  Just poking around.

  123. ok …. well looks like time to short slg again …

  124. Re: Distribution/Judah 1:00pm
    Phil, I like to imagine this site as a BIG trading room filled with trading desks (ours) and YOUR  desk is in the middle and elevated!  As we trade we hear the "buzz" of others in the room and bounce ideas off of you . Priceless…

  125. ss / staddle
    Good point, may have to carry it over the weekend but……….

  126. Fed sounded much more bullish,  i think the dollar rises

  127. What was that BS pump that just knocked me out of my short calls

  128. Sounds like nothing from the Fed.  MBS purchasing winding down in Q1.  Other liquidity winding down in Feb, that should put a damper on the market party but we’ll see what the dollar does.

    Full Statement:

    Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

    With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

    In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

    So not a supportive report by any rational stretch.  Nice head fake but down we go – should be great for the DIA puts!

  129. JRW – As a reference I paper traded a Jan 40 straddle bought for 6.05.  I guess I could have done the Dec for 1.65.  I’ll keep on eye on it and let you know how it goes.

  130. That’s TNA.

  131. I got knocked out of QID – set the trailing stop too close. DANG

  132. Trading room/Silent – I like that. 

    Pump/Samz – There is very often a head fake and, of course, this move down could be the head fake as the volume is super-low.  We’re at 105M at 2:30 so very easy to stick us back up into the close.

    QID/LLorens – It’s very tough to work with stops.  Realistically, you need to go into the trades prepared to take lumps if you are wrong and ride out a move (if you are trading around volatile events, that is).  Right now, I am trying to think of myself managing different sized funds and reading this report and looking at how many trading days are left to the year and thinking about how much I’d be willing to leave in the table and, so far, I still feel bearish – in other words, I think the average fund manager does need to lighten up – especially with 80% of them already bullish.

  133. thanks Phil. The consolation is that I got in when you listed the position ($20.15) so I still left with a small profit. Better than a sharp poke to the eye, or listening to that British guy on CNBC.

  134. Dollar strengthened further after the announcement.

  135. Wow, a pretty muted reaction thus far.

  136. Euro back to pre-Goldman pump lows at $1.452.

    Pound still stronger at $1.6333 but Yen fell, now 89.93 to the Dollar.  Copper right on the $3.20 line, silver $17.71, Gold $1,135, oil $72.66 (nice short at $73) and nat gas $5.46

    Dow futures are 10,408 vs 10,468 on screen – big discrepancy and DIA even sillier at 104.88 so I’m still liking the DIA puts at the moment as I’m betting the DIAs catch up a bit to the downside.  

  137. cwan/margin, the margin would not go up any further than the stated percentages for PM or Reg-T account.  However, the account balance can continue to go down due to the increasing value of the options that we are short on.  There are always 2 things that can affect the available cash amount, the margin and the value of the shorts.  Ooppsie, talking about margin again, is this a distraction to the group?  heheheh.

  138. Now the boulder is rolling.

  139. Apple broadens distribution for global market coverage, reaching 10% global handset market share — roughly one-third of the smartphone market — by the September 2012 fiscal year.
    In addition to greater high-end smartphone penetration, Apple introduces products with more affordable hardware/service plans, increasing its handset market share further to 15% (roughly 50% of the smartphone market) in F2012.
    Apple drives for handset market leadership by forgoing carrier subsidies and shifting the iPhone profit pool to content, services, accessories

  140. Did I forget to say – Wheeeee!

  141. Phil, after close can you explain why the Dow futures and the actual are usually 40 – 60 points off.  I’ve noticed this for quite some time.

  142. yay Phil!  weeeeeeeeee!

  143. If we hold here we won’t even have filled the morning gap, so be careful getting short.

  144. Futures/Eben – I think it’s simply because, like the VIX, the futures cash settle and you don’t own anyting so you are effectively engaging in parimutuel wagering with other investors based on what you THINK the index will do.  Since the Dow is the wildest moving index, it is subject to big swings and big gaps but there is probably more to it than that because the Dow is almost never less than 30 points over the futures and usually about 40-50, 60 is a bit much.  

    Taking .90 and running on DIA puts as they are too annoying bouncing along 10,450 and the premiums are too high to even consider sticking with overnight.  If we head down more, I have my eye on the $104 puts, now .42.  

  145.  You want to sell those 105 puts as covers also?  Or just your mo trade?

  146. Zion holding on to 12.83ish for dear life.  Could be big if it breaks below

  147. Hi, Peter,
    Now I recall that, for PM accounts, TOS looks at Net Liquid Equity, (not Buying Power), and if it is below $100,000, you get a margin call.  I recall it’s in the PM agreement.  So, if a short goes further into ITM, your net liquid eq goes further down.  Both Net Liquid Eq and BP are displayed on the top left corner of TOS platform.
    BTW, if this is distraction to other people, let’s postpone our discussion until after 4pm.

  148. Tchay/Gaydar.  I remember Gaydar from the early 1990s.  He was really young then.  Those were some hopeful, heady days.  Where you in Russia at the time?

  149. Distractions – No more suggestions from me! :)

  150. discussion doesn’t bother me. If i get a brief lapse from my ADDness then i might learn something.

  151. Juda
    I’m in Calgary now, but originally from Moscow, He was just 53, very sad, I don’t believe they even didn’t say anything in CNBC

  152. $105s/Bgb – I was thinking about it but no, if anything I would cover with the 12/31 $104 puts, now $1.20 but I still think this is a big breakdown and the long puts are March so I don’t have to be right today or tomorrow – the bottom line is that we’re not wrong about the top.

    ZION/SS – They told us in the Matrix – it’s all about ZION…

    Now we are trying to hold the BS gap up from last Thursday, that’s what we’ll be watching out for tomorrow if we can’t take back 10,450 into the close. 

    AMZN $128 – Nice! 

    QID Dec $19s good enough at $1.50.  Jan $19s can be stuck out, now $1.75, also up .20.

    That’s the good and bad about playing the front-month in the last week – you dare not take your profits! 

  153. Can we have a no stick day for once please ?

  154. Why would Citi want their trading halted while they price the shares?

  155. So are you bullish on IWM and bearish on DIA?

  156. very good day, ABX, HOV and AIR made me very happy

  157. Dare not not take your profits that was…

    They are making Mr. Stick work pretty hard this afternoon but he is pushing to get us back to 10,450.

    C/Sthom – If I were C I’d want the trading halted just so people would stop selling me! 

    IWM/Jimmy – I’m not bullish on IWM but, of the indexes, I thought they made the best upside cover for the week with the best combo play (from what I felt safe with) to make a nice return against my non-working short plays. 

    This sell-off isn’t doing much for SRS is it? 

  158. Phil – since 10,450 looks like it may hold and the VIX hovering at 21, do you think we have a better chance of going negative tomorrow? I’m short V and long QID (again).

  159. Here we go with the obligatory last minute pump via the REITS.

  160. That’s it? lol — not much of a pump but no one in a hurry to sell either.

  161. Tomorrow/Llorens – I’m sure they’ll say something to pump us back to 10,500 overnight but yes, I think the dollar will be hard to keep down in Europe and Asia and I think commodiities will sell back off and take down the markets a bit but it’s expiration week so not at all sure.  My naked March (and March is a long time) DIA puts are very risky and it’s a conviction stand that there is no justification for topping 10,500 but the markets are far from logical so not much to hang my hat on. 

    Well, that was a fun day.  It would be nice if just ONCE they don’t pump up the futures but good luck with that…

  162. Phil, here was Pharmboy’s Iron Condor question:

    December 11th, 2009 at 3:29 pm | Permalink  
    Celgene appears to be range bound over the past 6 mo.  Phil, on selling a iIron condor, is there a rule of thumb on risk reward?
    I am looking at selling an iron condor 55/60C and 50/45 P is a 1.62 credit with a breakeven of 48.38/56.62.  On 5 contracts, max loss is 1690, and gain is 810.

  163. FSLR rocking after hours on guidance; sold off initially then Zoom

  164. FYI – selling SPY – Dec 31  111 calls - $1.50 or better – don’t owe until 109.5 – seem like an easy roll lower into Jan.

  165. Phil Oh no it is Yodi again.
    Contrary to your statement I am not given up that easy. I can see your frustration just in the sentence of yours below.
    Well I do have a suggestion for you. I invite you for a free stay at out hotel in Cancun- Puerto Morelos  not the four season but you survive free stay for a week you even allowed to use our enternet connection. You only have to pay for the flights. I will be back from the 2nd of Jan 2010, spending the festivities with family. We will enjoy a good bier in our German Biergarten! You see I can read even between the lines!
    Oxen/Sthom – He is on vacation this week.  Said he may post tomorrow or Friday.  Unlike me, some people actually take vacations (or so I hear).

  166. Hi, Peter, continue on PM:

    Paragraph (6) of TOS Portfolio Margin Risk Disclosure Statement:

    "6.) If an account falls below $100,000 this will create a Portfolio Margin deficiency."

    From the context, this $100,000 seems to refer to net liquidating value.  A PM deficiency must be met within one business day.

    Maybe there are two requirements.  One is your account’s net liquidating value; another is margin requirement.  If either one goes below certain threshold, you get a deficiency call or margin call.  In either case, you have one business day to respond.  So, if a SPX short position get deeper into ITM, the net liquidating value may get below that $100,000 threshold.
    What do you think?

  167. Thanks Eb.  I was looking for that myself for AH.

  168. cwan/PM, good question as I probably confused you.  Let’s use TOS teminology for a minute.  There are:
    - Option Buying Power or Available Dollars: we’d get a margin call if it’s below zero, whether it’s PM or Reg-T
    - Net Liq & Day Trades: which is the real cash in the account.  This amount needs to stay above $100,000 for PM accounts.
    Maintenance Margin for Reg-T is:
    The greatest of:

    The current marked-to-market value of the option plus 20% of the underlying stock less any amount the option is out-of-the-money; or
    The current marked-to-market value of the option plus 10% of the underlying stock value; or

    The second part of these 2 equations, the 20% and 10%, would not change even if the short strikes gets into the money.  The first part related to the option value does increase as it gets into the money.  So the worst case for Reg-T account is 20% of the underlying plus the option value is the total collaterals.  The option value minus the credit obtained when we sold them is the paper loss that would affect the Net Liquidated Value (real cash), while the total amount from either equation 1 or 2 would affect the Option Buying Power/Available Dollars.  These two limits (real cash and buying power) can be hit independently.
    For PM, we can substitute 8% versus the 20% for large cap index such as SPX, and 10% instead of 20% for small cap index (RUT).

  169.  anyone know a good free program to recover a deleted file on a mac?

  170. balancenv, thanks again for the simulation.  I’m not sure if you saw my reply in yesterday’s post.

  171. New – check out , I use a program called "restoration" for the PC. I am not sure if there is a program out there for Mac though.

  172. newparadigmz
    you don’t use time machine? recommend to strart using it

  173. Peter D
    For PM, we can substitute 8% versus the 20% for large cap index such as SPX, and 10% instead of 20% for small cap index (RUT).
    Where do you get the 8% (SPX) / 10% (RUT) from? I’m juust starting to read over the PM calculation details. OCC, when discussing how PM is determined, talks about a price range over which option prices are calculated. They segment that range and then they take the max option price (from an option pricing model) across those segments and the two endpoints to determine portfolio margin. For indexes like SPX and RUT, those ranges vary, depending on whether they’re large cap, small cap, etc. Smaller cap indexes have larger ranges, etc…
    In contrast, the 20% from traditional Reg T is 20% of current market price. You seem to be saying to substitute 8% (or 10%) of the market price for the 20%. I don’t see a reference to that substitution anywhere. How’d you come up with it? Thanks….

  174. chaps, here is where I got the 8% from:
    "Stock and option positions are tested with +/- 15% price changes. Small cap broad-based indices are tested with +/- 10% price changes. Large cap broad-based indices are tested with +6%/-8% price changes. The high to low range is divided into eight equidistant points, and the loss on the position is calculated at each of the eight points and the two high and low points."
    The test of -8% price change is essentially the 8% margin to my experience.  Should I not make that leap in the interpretation?

  175. Phil, good morning.
    I am naked Dec puts GILD and XOM. Unless I roll the stock will be put to me tomorrow. I intend to roll down to a price at which "you would really want to buy them". I was thinking the GILD May 10 $38 and XOM Apr10 $60 ( dd) for a small credit. Would you reccommend owning GILD and XOM at $38 and $60 (both prices being the stocks two years’ low)? Thanks.

  176.  Peter, 
    Yes I saw your comments. Personally I think VIX is a lagging indicator  
    I will try to using your SPX put spread to see if for those extreme cases, the gain for the put can be used to roll down the put before things get ugly. 
    My intention for this simulation is not to design an auto-trading system since I don’t believe there is one. 
    The point is to systematically analyze the base strategy, identify hot spots, and experiment with various ‘remedies’. 
    One important factor still out is the money management, but PM margin calculation seems quite complex. I will check with TOS and see if they’re willing to ‘share the code’. 

  177.  barfinger,
    thanks for the note. I swear 2001 data was bad (I even filed a complaint to iVolotility on this!) … 
    On your revision as ” I devised a strategy that had no exit – in which I set up new strangles around the original edge strike whenever the original was breached. There is a more complicated, daily-trading version of this that I found quite exciting. All I can say is that you write, say, the 1110 calls and the 1105 calls for Jan, letting the winner ride and cutting the loser when the contract price goes $7 against you. Or you can close the winner when it goes $10 positive. You can set up a trade a day. You operate at least more than 2 weeks away from expiry. It takes advantage of the fact that you are selling HUGE pure premium on both sides and on average, you win 63% of the time.“
    Seems a bit complicated, can you elaborate more?

  178. The latest "MarketWatch Options Trader" by McMillan came out today and it’s the first time he turns ‘cautious’. Some of the quotes are: 
    "In summary, SPX remains in a trading range of 1080 to 1110 — and while there seems to be a slight bias to the upside — there is no guarantee that the bulls can put together a year-end rally..”
    McMillan then went focus on VIX and VIX future:
    "Volatility futures have retained large premiums all throughout the fall, and they still do. December futures expire today, so January futures are the front month. They settled with a premium of 3.56 today, which is huge by historic standards. But the February futures settled with a premium of 5.91 and March and April are higher than that. As long as these large premiums are present, this is bullish confirmation for the market. But if they begin to decrease to "normal" values of 1.00 point or less, that would be a sell signal." 
    I don’t quite get the last part of high premium being bullish, so I googled and found there’s actually one free monthly letter from CBOE called Futures in Volatility, primarily authored by him too. In the Nov. version he explained 
    "These are large premiums, and can generally indicate one of two things: A) futures traders are bearish on the stock market; thus they discount a forthcoming rise in VIX and remember that the SPX generally has to fall for VIX to rise, or B) there is heavy demand for protection, and puts (and thus calls, too) are bid up in price by hedgers. This usually results in traders who are both long stock and long puts." 

    So it seems that he’s interpreting the high VIX future premium as more of hedging than bearish sentiment. 

    However in the end of the Marketwatch newsletter, McMillan wrotes (and this one really confuses me.. ):

    "Trader’s Insight: How bearish are the VIX futures?
    For months, traders have been trying to say that the longer-term expensive VIX futures are bearish market signals, but they have not been to date. Each month, the premium shrinks out of the front-month futures as time passes and no significant decline develops in the stock market.
    This is somewhat reminiscent of December, 2007 — at least in terms of VIX futures action, if not necessarily in terms of SPX action. Back then, the market had sold off sharply in October and November, but bounced back in December. VIX plunged below 20 and the Dow was up nearly 1,000 points on the month. Moreover, analysts were uniformly bullish, expecting the normal year-end bullish seasonal tendencies to push the indices even higher. However, the VIX futures did not follow VIX on down. Rather, they remained elevated, and by Christmas Eve, the front-month VIX, January 2008, VIX futures settled at a whopping premium of 4.26. That is still one of the largest premiums on a front-month futures settlement, to this day.
    This year, we are seeing some but not all facets of the market as being similar to that time in 2007. The stock market has rallied (although not so much during December) and VIX has declined. VIX has not plunged below 20 yet, but it looks like it might, so that by Christmas Eve, we could easily see VIX another couple of points lower, with VIX futures remaining at huge premiums. Moreover, traders are quite bullish today, as evidenced by today’s release of the Russell Institutional Managers Survey, in which 80% of those managers were bullish.
    The day after Christmas, 2007, the market started to sell off, and a very nasty bearish market developed – one that took SPX down 220 points in about three weeks. I’m not necessarily predicting that will happen again, but the setup is eerily similar in terms of VIX futures."

    So on one hand he claims high VIX future premium is bullish, but in the end he’s cautious because of the high VIX future premium??


  179. Phil – What’s with the gap up in oil after the market close yesterday?

  180.  Peter,
    Recall out of 8 losses in 9 yrs of SPX simulation, 5 are due to Put, i.e., market dropped too much. I did a walkthru (by hand) of the following:

    When initiating the strangle, if the current SPX price is X, then supposedly the strangle put target is -10% of X.  if we take Y = -9% off of X (Y=.91X), and buy a put vertical of (Y-10, Y).
    For those 5 cases, the spread is always less than $1 (makes sense since it’s almost 10% off the current price). And if we buy two spreads for downside protection.
    When the first time the daily closing is lower than (Y-10, i.e., the lower end of the spread), we sell the spread to roll down the Put leg to as far down as we can go.
    Guess what, we will come out winning in all 5 cases!!
    I will have to put in the real run to see how much impact to the overall P/L since other 81 cases we’re paying the extra for insurance.
    This is getting more and more interesting..

  181. Peter D:
    Should I not make that leap in the interpretation?
    I’ll learn more about PM over time, but I’ve got to believe your practical experience is as good as anything. There seems to be a lot of moving parts in the PM calculation. As best as I can tell so far, all positions relative to some underlying are considered and gains on some positions are allowed to offset losses on other positions. Black box…..
    Since we’re all using TOS, I’d be inclined to use the Risk Analysis tool to estimate what happens to you on significant prices moves towards one of the short strikes. That would be my novice approximation to your practical experience.

  182. Good morning!

    Looks like we’re getting that dollar squeeze we were looking for, which is unfortunate for the futures market.

    Gold is flying down to $1,122, copper $3.15 again, silver $17.45 but oil up to $73.60 after being jammed up to $75 at the open of trading (not sure why). 

    Condor/Eben – Short condors are fine if you play them regularly.  You WILL get burned once in a while, probably more so with biotechs but at least you have a limited loss (and you can roll the losing side if it’s not too out of hand).  While there is no rule, you have a 1:2 risk reward so you’d better be right at least 2 out of 3 times or you are wasting your time.  It’s not so much about "will CELG stay between $48 and $56 for a month" as it is what you plan to do next?  What will you do if you win, what will you do if you lose?   Just like a buy/write, it helps to have a long-term strategy for managing your play. 

    The best stocks to play this with are stocks that have recently been volatile but you think will be calming down (as you get better premiums) or, like CELG seems to be, ones that are active movers but range-bound.  As I’m expecting a market correction that can break everyone’s lower trend-line, these are not plays I would want to be locked into for Jan.  My play on CELG is to hope they test $40 again and then do a buy/write.

    FSLR/Cap – The luckiest company on Earth.  Combination of high copper prices on China stockpiling and low industrial demand for tellurium makes them look like geniuses. 

    Based in Phoenix, Arizona, First Solar designs, manufactures and sells solar electric power modules using a proprietary thin film semiconductor technology. The company’s solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. It sells its products to project developers, system integrators and operators of renewable energy projects primarily in Europe with a distinct focus on Germany. First Solar also focuses on designing and deploying commercial solar projects for utilities in the United States. 

    First Solar enjoys a distinct cost advantage over its peers due its reliance on low cost thin-film cells. However, the advantage is ebbing fast due to falling polysilicon prices. First Solar’s growth potential and that of the solar industry in the aggregate requires a prudent long-term focus on technological enhancements, capacity build-out and cost minimization. Balancing all the three aspects would be an uphill task. 

    Competition in the field is becoming tougher by the day for U.S. solar players such as First Solar, who have a huge German exposure in their top line compared to Chinese counterparts such as, Suntech Power Holdings Company Ltd (NYSE: STPNews) and ReneSola Ltd (NYSE: SOLNews) both of whom mainly thrives on their domestic market. Solar subsidies in Germany are falling fast, and First Solar is actively scouting for new markets for its products. We maintain our market Neutral recommendation on the shares.

    Cancun/Yodi – Thanks, that sounds great but too far.  Hopefully I’ll get a chance to do a little skiing in Vermont - that always makes me feel better!  A long weekend or two is all I’m going to have time for this winter.  

    Deleted/New – I’ll skip the basics and assume you know you can check the trash folder.  There’s something called Disk Doctor and also Data Rescue but, like Tcha says, start using Time Machine for next time.

    Rolls/Magret – I think those are both fine entry points for a long-term position.  Neither went far below that in the crash and that’s still a 50% market drop away from here.  Kind of tedious waiting them out but as long as you don’t mind that, it’s a good play.

    McMillan/Balance – Thanks!  I’m a little worried about that middle part, maybe McMillan’s getting old.  For a FACT a high VIX has meant a declining market and it’s even called the "fear" indicator by old-timers although it’s really just an indicator of heavy activity and I generally think of it as a "wrongness" indicator – the VIX goes up whenever people feel the market is heading in the wrong direction, forcing them to lay down a lot of covers.  So, if there were 80% bears in the market and we headed up, the VIX would go up but, since there are 80% bulls in the market at the moment, down is considered the "wrong" direction that leads to increased volatility. 

    Oil/SS – I think it was just Asia reacting to the inventory drop.  I doubt it will last. 

  183. VIX-
    So on one hand he claims high VIX future premium is bullish, but in the end he’s cautious because of the high VIX future premium??
    Does seem to be counter intuitive. Much the same as the market indexes being up and while a lot of money is staying in Treasuries at paltry returns. I see both as indicators of uncertainty/fear. A bit like the calm before the storm. Enjoy the sunshine while it lasts but be keep an eye on the brewing storm out on the horizon and be ready to head for port.

  184. balancenv/PM calculation – see this link.  The "PM Analysis" tab roughly calculates maintenance margin requirements on a short strangle (currently with a non-PM account, but easily changed).  Send me an email – ssdirk at gmail dot com – & I can email you the .xlsx file if you want to get the VBA code from it.

  185. balancenv, we are getting more excited about your simulation.  I’m trying to understand the PUT vertical (with the Y parameter) in the 6:35 comment.  It looks like the verticals are at around the short PUT strike.  Let’s say if SPX is exactly at 1,000, then Y is 910 and (Y-10) is 900.  The short strangle strikes are 900 and 1100, so we have:
    - 1x 900 short PUT, 1x 1100 short CALL
    - 2x 900 short PUT, 2x 910 long PUT
    The next question is how far down could you roll with the "rolling down the (short) PUT leg to as far down as we can go".  If the above example is correct, when the first time that the market close below 900 (Y-10), the PUT vertical is just in the money so the delta is about 0.55.  2x spreads would give us $11, and we can roll the short PUT about 30 SPX points, to about 870.  Does this sound correct?