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Will We Hold It Wednesday? $4 Trillion More Promised to Banks!

Man, I try to get bullish and then this happens:

The European Commission warns of a full-blown debt crisis for the eurozone, with half of the 16 nations at high risk of unsustainable public finances. "Governments will spend the next year and beyond balancing the urgent need to fix public-sector debt and deficits — without imperiling what appears to be a feeble economic recoveryFitch warns in a December report that particularly the U.K. (which isn't in the euro zone) and Spain and France (which are) risk being downgraded if they don't articulate more-credible fiscal-consolidation programs during the coming year given the pace of fiscal deterioration."  Even optimists expect a rocky road full of downgrades and bond-market punishment.

It's not like we didn't know this was happening, it's just that investors obviously don't want to know and, as Jim Cramer often reminds us – ignorance is bullish bliss.  Of course government debt doesn't seem to bother US investors so maybe we shouldn't worry about other global debt either.  The Trillions of dollars in stimulus spending bought the EU a 0.7% increase in their Leading Economic Indicators for November, now down less than 10% from it's 2007 peak after dropping close to 20% last fall.  Wow, stimulate a $14Tn GDP with $3Tn and get a 10% boost - why didn't we think of this sooner?   

Similar logic is being used today as GMAC will be getting another $3.5Bn injection of funds, adding to the $12.5Bn the Fed has already given them to them.  The new capital will likely allow GMAC to avoid placing its ailing mortgage unit, Residential Capital LLC, or ResCap, into bankruptcy. GMAC had set the end of the year as a deadline for deciding ResCap's fate after losses from loans made to borrowers with shaky credit dragged down GMAC's results in 2009. The mortgage unit lost $2.7 billion through the first three quarters of 2009 following $9.96 billion of losses in 2008 and 2007.

It's not GMAC per se that bothers me but the fact that clearly investors are betting on other mortgage financers as if GMAC is the only company losing money in 2009.  We know what's up with GMAC because we already own 34.5% of the company and they are coming to us for more.  The rest of the $11Tn mortgage industry that isn't FRE or FNM (who we've already pledged unlimited bailout funds to this week) are losing their money behind closed doors and sweeping those losses under virtual rugs, aided and abetted by FASB rule changes that were put into effect this year which allow lenders to mark their loans to whatever they want as we all go whistling past the graveyard that is the US mortgage market.

Of course, the GMAC bailout is simply an example of our government in action as one of GMAC's expenses in 2008 was $4.6M spent on lobbying while parent company GM spent another $14M and got themselves a $10Bn bailout.  You can see a chart here showing what the ROI for lobbying was this year, which also shows campaign contributions.  GM paid $916K while GMAC only $72K but BAC paid $5.7M to elect their friends in '08 and another $8.8M on lobbying them.  Was it worth it?  Absolutely!  BAC got $45Bn in TARP funds, a 309,335% return on their bribes contributions.

Kind of makes the people in this country seem foolish doesn't it?  They contribute hundreds of millions of dollars to various candidates but get nothing for it.  Imagine if somehow they were to get organized and were to contribute through an organization that looked after the interests of the working man.  Why if they did something like that they could even possibly get together and collectively bargain for better wages and benefits on their jobs with representatives that would be directly elected by the workers to represent their interests and coordinate their substantial group influence so people in Washington would HAVE to pay attention to them, the way they pay attention to banks and corporations.  Just a thought…

All right, before they bury me in the end zone of the new Giants stadium, let's get back to the capitalistic pursuit of making money!  Thanks to all those tens of millions of dollars spent on lobbying, the 1,279-page “Wall Street Reform and Consumer Protection Act” clearly protects only one thing – Wall Street!  The bill authorizes Federal Reserve banks to provide as much as $4 TRILLION in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around

The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy — there are more bailouts to come.  The bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours – that's right, Lloyd Blankfien put his foot down and will not wait more than 10 hours for his money next time so kudos to Congress for insuring themselves another $150M in bribes contributions from their pals in the financial industry and those of you who are lucky enough to still have jobs better get back to them and earn that $4Tn of our money that our elected representatives just pledged to our bankers.

$4 Trillion is nothing in the grand scheme of things of course.  Japan is looking to grow their economy by ¥150T by 2020 but it wasn't enough to pull the Nikkei out of a power dive that dropped them 150 points from what started as a huge gap up at the open as the dollar made new highs against the Yen.  The Nikkei fell on news that JAL possibly going into liquidation as that airline fell 23.9% in the session.  "It was not surprising to see substantial concerns about debt default at Japan Airlines, and this is actually not an isolated situation," said Richard Hastings, a consumer strategist at Global Hunter Securities. "Credit quality is still an issue even if debt markets are more liquid now than they were nine months ago." 

The Shanghai Composite managed to shake off the JAL news with a 1.5% gain led by the banking sector on expectations that the government has allowed over 300Bn Yuan ($43.9Bn) in new loans for December.  Insurers also gained ground after a state-run newspaper report cited officials at the Ministry of Finance and the insurance regulator as saying a change in accounting rules will boost insurers' 2009 net profit.  See, toss in a little cash, rewrite a few rules and it's rally time – who says making money is hard?

Don't be fooled though, the MSCI World Material Index is now at 234 which, according to Bloomeberg, is 81 times earnings for that sector.  This is why we like SMN as a short play as well as EDZ – just in case people aren't willing to pay 100x for commodities in 2010…

Europe has pulled back a bit this morning as have the US futures.  We'll see if we can hold our levels this morning after yesterday's exciting finish.


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  1. Phil – when looking to short a sector or index, is it generally better to utilize the options on the index, such as SPY, or the options on the ETF, such as SDS?  I would think with the index being more liquid, you perhaps get better bid/ask spreads on those options.  Just wondering what your experience has been.   I’ve been in and out of EFU (ultrashort eafe) and SCO (ultrashort oil) and may be looking to get back into those and would be interested in any option ideas you have for these two plays.  The new margin requirements on the 2x and 3x ETFs certainly make using options more attractive relative to buying them outright.  I don’t currently trade futures which i know you have mentioned re oil.   thanks.  I like the TZA feb and EDZ april bull call spreads mentioned this week and will look to get into these at some point.  


  2. Opinion of INVESTOR PLACE
    Tech Stock #1 – Amazon.com (AMZN)
    The world’s largest online retailer, Amazon.com (AMZN) is currently trading for over $130. Fueling the surge has been a stunning Q3 report where the company obliterated earnings estimates, prompting shares to skyrocket 26% in one day. And shares have continued to race up in December on strong holiday sales and the dominance of AMZN’s Kindle e-reader. I rate this stock a bargain for anything less than $150 a share, so buy with confidence.


  3. okay, so SPY is an ETF too so I meant to compare options on straight up long ETF that mimics the index/sector 1 for 1 versus 2x or 3x long/short ETF. 


  4. Two questions this morning: 1) Has anyone read McMillan’s "Options as a Strategic Investment" and what is their take on it….? 2) Has anyone dabbled in strangles/straddles (long or short) using the 3x ETF, particularly FAZ and FAS. Seems like a lot of premium ripe for a short straddle, but maybe it’s just too risky to try. Thanks.


  5. McMillan is supposed to be options trading bible -
    it’s a good reference but it sure is boring – also all the stuff about trading costs is outmoded with electronic trading – don’t know why they didn’t edit that in the latest edition.


  6. Bord – agree with samz on both counts.  I have started straddles in BIG companies, not the 3X ETFs.  If VIX moves up, those could be killers and not worth the headache.


  7. Wow, what an early stick.  I hope they use up all of their firepower now.


  8. Oh, I forgot.  The Chicago PMI, which is bought 15 mins early, is/was out.


  9. Good morning!

    Gold down to $1,088 – that’s promising.  Oil still over $78.50 ahead of inventories which are probably not going to be as big a draw as last week.  Copper is staying way up ($3.34) over the strike news. 

    Looking to hold all our levels today:  Dow 10,549, S&P 1,127, Nas 2,242, NYSE 7,380 and Russell 630 – if we start failing those we could have some real issues but the volume is so low that they can keep it up no matter how many of the remaining participants want to sell.

    Same as usual with the big Nasdaq pump to take us higher but it’s the S&P we want to watch to see if they can take back 1,127.

    Chicago Dec PMI was up huge at 60 so they’re happy.

    Stopped out of the DIA 12/31 $105 puts with a small profit in $100KP and will likely reload to try to win another nickel later but we have to see how high they can take things first.


  10. Hi, Phil,
    What’s the official DIA stance now?
    I’m still covered by the Dec 31 putters.


  11. What you think of long/short on aapl/hpq?

    Almost finished reading Lords Of Finance, almost makes you think Bernake is right with his printing inflation system. But they should want gold to go up then.

    What you think of short on HYG. I figure if inflation comes and fed tries to control it than these high yielders would have tougher time getting investors. But whad I know, that’s y I ask what would Phil do.


  12. Phil -
    I have the IYR Jan 48 puts – should I be looking to turn this into a vertical by selling other jans or hold off.
    This is the Jan 45 – 47 spread we rolled up – to the 48s -
    Thanks


  13. Are we still in our EOG Jan 100 puts?  I’m up a bit in the ones I own and the stock looks like it could still come in a bit more, but curious for your thoughts on it…


  14. Sectors/Terra – Futures are very dangerous so if you have to ask you probably shouldn’t be doing it.  You get fantastic bid/ask spreads in the futures, maybe .05 on the Dow and .25 on the S&P but each penny is $1 on the Dow and .50 on the S&P.  The Dow futures spiked 50 points in 2 minutes just now so you need to really know when and when not to play with them.  If you can afford to lose $100s, I would suggest starting with single contract purchases if you want to play along there.  SCO is a great idea, you can sell the Feb $13 puts for .90 and that’s not a bad way to go short on oil.

    AMZN/Yodi – Yep the upgrade police are all over the Nasdaq this morning with AAPL getting big upgrades too.  APOL is up in the Nas along with RIMM, ADBE, SNDK, JOYG, CYBS – they are working those 4-letter names to kick-start the market this morning..

    McMillan/Bord – Read a long time ago.  It’s a generally recommended book.  Straddles/strangles on ultras are nowhere near as safe as they seem but if you pick sensibly, it’s not all that much more dangerous than any other.  Of course that goes totally out the window in a crisis market. 

    DIA/Cwan – Which putters?  Looks like even the $105 puts will expire worthless but we still have until tomorrow afternoon (are we closing early?).

    HYG/That – I like HYG because of the $4Tn thing discussed above but they sure do look stretched here. I’d have to stay away as it’s kind of uncertain.  Don’t forget the fund is doing well because they are loaded up with very high-paying bonds from last year that now look to be much lower risk than originally thought – that’s not too likely to change.

    SOX up over 1%, that’s a big Nas booster.

    IYR/Samz – I’d wait until next week if you can.  Today could have easily followed through way down if everyone hadn’t scrambled to stimulate this morning although you could sell to cover short-term after that nice $1 move down.

    EOG/JCM – Yes the Jan $100s are up a bit now but that’s one I’m sticking with until next week. 


  15. phil, any oil short plays for inventories (USO puts?)


  16. Back in the DIA $105 puts at .30 but just scalping nickels (hopefully) and expecting a disappointing oil inventory.


  17. Phil
    what do you think about sell ERY puts again here?


  18. USO/Foss – I like the Jan $38 puts at .60.


  19. ERY/Tcha – They are not really paying enough.  Interesting play with them is to sell the Jan $9s for $2 and buy the Jan $10s for $1 and you are in the $1 spread for a $1 credit (must be net $1 to work), which means you get free money if they drop.  I don’t think they’ll drop that far but did I mention it was free?


  20. Pharm, are you going to dd on OSIS puts..


  21. Phil,
    With an hour in, the sellers should be done, at least untill 3:00; or are THEY really having a problem here ?


  22. International air passenger demand rose 2.1% in November from a year ago, IATA says, while air freight climbed a healthy 9.5%. IATA was cautious about the rise, noting the improvement was accentuated by a sharp drop in traffic at the end of 2008. Demand is up 6.4% from the Q1 bottom, but still 6% lower than the early-2008 peak.  Wow, an honest assessment, that’s confusing

    Oil down 1.5Mb, refinery utilization up 1.3% so distillates only down 2.1M and gas down only 400Kand that is all bad news for oil as they are still not importing any.   Even worse, they just announced that the SPR is filled to capacity, which means the only possible thing that can/will happen at some point in the future is that oil is released from the SPR.

    EIA Petroleum Inventories: Crude -1.5M vs. consensus of -1.7M. Gasoline -0.4M vs. +0.4M. Distillate -2.1M vs. -2.1M. Utilization 80.3% vs. 80.1%. Feb. crude

    No big reaction yet but if they try to test $79.50 again I’d short that on the futures.


  23. Hour/JRW – I think they did a big emergency save already this morning as our futures were 60 points lower than this (below 10,500).  The internals are still weak but they are selectively jamming up whatever they can.  If oil doesn’t sell off then you may be right and we hold up but I think oil will fall and then we’ll see the sector pull back and that can start a commodity domino effect that will take the markets lower. 

    Silver blew $17 – now $16.84!

    Sector ETF strength: Semis– SMH +1.1%. Oil– USO +0.6%. Gasoline– UGA +0.6%. Heating Oil– UHN +0.4%.
    Weakness: Silver– SLV -1.7%. Gold Miners– GDX -1%. Oil Services– OIH -0.7%. Healthcare Providers– IHF -0.6%. Retailers– XRT -0.6%. Gold– GLD -0.6%. Solar– TAN -0.6%. Steel– SLX -0.6%. Cons. Discretionary– XLY -0.6%.

    Dow leaders after one hour: TRV +0.5%. T +0.5%. AA +0.5%.
    Laggards: AXP -0.8%. MSFT -0.8%. GE -0.7%. DIS -0.6%. MCD -0.5%. BAC -0.5%.

    Notwithstanding the recent uptick in M&A, takeover advisers say it will be years before merger markets return to previous levels.

    Russia, one of 2008′s most despised markets, topped the list of emerging-market stocks in 2009, even after a 126% rally prompted Finance Minister Alexei Kudrin to say shares are too expensive. Templeton’s Mark Mobius agrees: "People are waking up to the fact that here’s a place you can’t overlook… it’s not overpriced. There are still opportunities there." (ETF: RSX)

    Dec. Chicago PMI: 60 vs. 55.5 expected, 56.1 prior. Employment index 51.2 vs. 41.9 prior. New orders 63.5 vs. 62.8.

    Kaufman boosts its Apple (AAPL +0.7%) target to $253 from $235, saying it expects a "blowout" FQ1, despite continued difficult macroeconomic conditions and ever-rising investor expectations. Firm says Apple could ship 9.5M iPhones, topping its prior quarterly record of 7.4M.

    Kaufman hikes Marvell (MRVL) and Nvidia (NVDA) to Buy on expectations of an improving PC market. Firm also says MRVL stands to benefit from its efforts to diversify outside its core storage business, while NVDA shares could see gains after Intel (INTC) recently de-emphasized its efforts to gain share in the graphics chip market. MRVL +1.6% premarket. NVDA +1.8%.

    IMF’s A Fistful of Dollars: Lobbying and the Financial Crisis finds (gasp) that the riskiest U.S. lenders were also the fiercest lobbyists against regulations related to mortgage lending.
    "Our findings indicate that lobbying is associated ex-ante with more risk-taking and ex-post with worse performance. This is consistent with several explanations, including a moral hazard interpretation whereby lenders take up risky lending strategies because they engage in specialized rent-seeking and expect preferential treatment associated with lobbying."

    An unprecedented 22% of U.S. consumers didn’t finish their Christmas shopping this year, as fewer discounts kept many wallets closed, the lowest number on record. Many said they couldn’t afford to spend more, while others opted to give cash instead of presents.

    Ah, here we go!


  24. Tchay/Emerging Markets
    I guess I must be a PSW contrarian when it comes to emerging markets. I personally feel these markets have prospects for growth in 2010, assuming interest rates will continuue to be low and the economy improving. The charts do not show these markets as weak, and they have done well in the recent past. I have been doing a lot of study and many of those following these markets are quite bullish. The amount of stimulus that has been committed for worldwide is positive for this position. The emerging markets in my opinion, should do better than the US this coming year. One thing to consider, of course, is if the US market starts to weaken, then the 3X bull etf will also drop along with the US market, just because of the overall market sentiment. I personally will be doing a lot of my hedging through the FOREX, as the currency moves coming in 2010 will be somewhat volitle, and will have a profound effect on the stock and bond markets.IMO


  25. Phil:
    after weeks of stress and lots of work of selling a house and buying a house and moving, I am hooked up again and find the following ( I had no time watching/trading for weeks now):
    had sold BMY calls jan 24 on 11/16,
    now today it says that I sold assigned calls BMY package, so now I am short 400 shares BMY,
    but I also have jan 20 2011 calls which are of course up and overall I am not in a hole.
    However I need to do something:
    either buy BMY shares, and keep the 2011 LEAPS,
    or close the 2011 calls and satisfy the shorts.
     
    What does Phil suggest in this situation ????


  26. OSIS/Marg – holding out for now to set direction.  I eased in because with shooting stars, one likes to see confirmation. I took a chance on it, and and one could DD, but the chart is now broken. Safe bet would be to cut now.  I will roll to the next month if it continues up.  Interesting that the P were less an hour ago on the fly up, but now have settled and GAINED due to the rising VIX.


  27. Phil – I’d like to start working into a long gold position. Any suggestions? I was thinking of selling april UGL puts.


  28. Gel
    in long term probably you r right, but if we are expecting market correction here, emerging market ussually drops twice as much than US, so this is what I guess we betting for


  29. Phil: another assignment, IHI, here I had the shares, they were called based upon dec 50 calls which I had sold,
    still have feb 50 puts,
    what would you do here now ??


  30. Phil – what do you make of the Pimco funds selling off?


  31. Pharm – Thanks for your advice on ARNA. I have been holding the stock naked.
    Another question. What about SPPI? Still a takeover target for next year? The stock has seen some pullback. DD now?


  32. RE: Emerging versus US Markets – Marc Farber just said the following for what’s it’s worth:
    "My feeling is that the US market will outperform emerging economies in the first six months of 2010. It remains to be seen whether that will be in a context in which markets continue to move up or because emerging markets will give up their gains faster than the US."


  33. I am with Tchay on Emerging Markets long, long term, ESPECIALLY when compared to US equities. But I also believe the folks here that a big correction could be in the offing. That said Phil, what about a bull calendar spread using Leaps as the long component, rolling out the short side as needed and strategically selling puts/calls to reduce basis? 


  34. SPPI/Trad – DD is fine here.  I have been thinking of it myself.  They have very little debt, trading at 1.8X book and 4X rev.  Are they takeover bait, well, if they can show an increase in their rev’s Q over Q for their cancer franchise, then I think that Bayer or some mid-tier could find them attractive.  Their management is something to be desired as well….but, overall, I think they move to 7-8 range over the coming year.  Again, expanded sales for their cancer portfolio will determine their future. 


  35. AMZN having a bad day.  Nobody upgraded them I guess…

    Welcome back RMM!  Good day to be short BMY on the whole.  I wouldn’t go exercising the leaps, that blows all your premium, just buy back the stock while it’s down and give it a chance to come back.

    Gold/Roast – I don’t believe in gold at all and UGL can burn you pretty badly.  If you want to use it, you are better off doing a vertical like the July $42/47 bull call spread for $2 and, IF UGL heads lower, THEN you can sell some puts for $2 so you are break-even at worst (other than having UGL eventually put to you).  Right now the July $33 puts are about $2 so figure you can sell the July $30 or lower puts for $2+ if UGL starts to fall and that gives you a 33% safety net but a 150% upside if UGL heads up to $47 (was $55 in November).

    Markets bucking like a bronco on the way down.  Pound up to $1.60 for some reason, Euro under $1.43 and 92.5 Yen is holding so Pound is just strange..  Gold still $1,090, Oil holding $78.50 with a big bounce and copper still $3.33.

    IHI/RMM – Those I think are toppy.  Take money and run for now.

    Pimco/Hunter – I don’t know the details on them, link me if you have something.


  36. Appears to be due to premium to NAV – got it off of Briefing.  Wonder what the play is if any.
    others listed :
     
    Here is a list with some closed-end funds that trade @ a very large premium to NAV as of last nights official closing prices
    Note that some of these trade very little volume/liquidity so keep some on your radar heading into yr. end.
    The % represents the premium to the current NAV, not any sort of 1 yr. return.
    PGP +71.3%
    GUT +62.5%
    PHK +55%
    CRF +44.75%
    CFP +42.7%,
    CLM +38.6%
    AGD +35.4%
    BEO +33.3%
    SRV +32.2%
    DPO +28.2%
    AOD +27.4%
    DNP +23%
    ERH +22.6%
    RCS +21.8%
    PFL +20%


  37. Phil: so on BMY. cover and buy the 400 short shares ???
     
    I also like to surf the BIDU channles: what puts and calls would you consider for selling ?


  38. Phil: what do you think of AGAM? I have some shares at 14.5$.


  39. OK, seriously WTF?  How do we reconcile this with the Chicago PMI?

    Dec. KC Fed Manufacturing: 10 vs. 17 in Nov. Six-month expectations index 19 vs. 36. Much more subdued reading in this lightly-followed index than in the Chicago PMI data earlier.

    This makes no sense – it reminds me of the Chewbacca Defense

    Tuesday’s increase in consumer confidence was fueled entirely by a rise in the Conference Board’s Consumer Expectations Index, while the Present Situation Index actually declined – somewhat surprising given its high correlation with labor markets, which have improved significantly in recent readings. The index suggests consumers may be skeptical about recent employment data.

    Bull spread/Bord – I’m confused, what are you looking to play bullish? 

    Thanks Hunter, I don’t know enough about that dynamic as I don’t follow funds closely but it’s worth looking into if you remind me over the weekned (unless it’s just a year-end closing thing).

    BMY/RMM – Well you didn’t want to be double long and you had is assigned short on a day they dropped .50 so that’s very lucky.  Something about not lookinig a gift horse in the mouth.  On BIDU, I don’t know what channnel you are looking at but I think you have a downtrending channel which should test $400 so selling puts right now is probably not a good idea at all. 

    The U.S. International Trade Commission unanimously approves duties of 10-16% on Chinese steel pipe in a record trade case against China. The U.S. tripled imports from China to $2.74B in pipe in 2008.

    AGAM/RMM – Never heard of them.  Too new, not the kind of thing I would mess with.


  40. Tchay/Emerging markets
    Yes, you have properly evaluated my strategy. I am more of a long term trader. Good example is my position in TBT. The dollar movement today is hurting, but I executed a DD on one of my positions to take advantage of "scaling in" theory. The payday is coming sometime in the future, but like weather forcasting, I can’t say when


  41. Hey guys,
    Is the market open for a full day tomorrow?
    -XLF’d


  42. You have to admit, Mr. Stick can be impressive !


  43. The markets are up because Art Cashin said they’re overvalued. He’s been a pretty good contrarian indicator.


  44. The Chewbacca Defense just lifyed the market 20 points real fast.  Damn, he’s good!


  45. Hi, Phil, RE DIA covers this morning:
    This morning when I posted my question, I was covered 1/2 by Dec 31 $105 and the other 1/2 by Dec 31 $104.  But I got a call and had to step out and didn’t know how long it would take.  So, I put in limit orders to buy back both covers.
    I just came back, and discovered that both orders were filled.  Made some quarters.  So I am naked now.
     
    As far as I can tell, Dec 31 is a normal trading day, ie, NO early closing, which shows how hard American people work!  Please correct me if I am wrong on Dec 31 closing.
     
    So, what’s the official DIA stance?


  46. Phil, The calendar bull spread was in reference to Tchay’s (and mine) bullish stance on Emerging markets. My question to you was could we be long term bullish on emerging markets yet plan for a short term pullback using a calendar call spread.


  47. Well, you can see why I use the $78.50 line for oil – keeps us out of trouble.  Oil back at $79.27 now and I still WANT to short at $79.50 but I don’t think it’s such a good idea now with this BS they are doing with the Pound (up 1.5% since 7am).

    DECK having a great day. 

    Chewbacca/JCM – Damn thing works every time!

    Tomorrow/Cwan – I don’t see a half day and that’s confusing me because I thought it was and that does show what an insane society we have here.  Hopefully Friday we’re closed because I’m damn well not going to be here. 

    Emerging/Bord – If you want to do that you want to sell front-month premium against longer-term calls, not a vertical, where you will lose more than your caller.  You can sell EEM Feb $41s for $2 and plan on buying June $39s, now $4.90, at perhaps $5.20 to cover but otherwise seeing what you get away with on the short calls (unless you need the margin, then the spread is fine as you can roll down to the $36s for $2).

    Good call on the day’s action so far JRW! 

    Here’s the spin that’s pushing the markets:  The most encouraging nugget from this morning’s Chicago PMI data was from the labor sector: After 24 consecutive months under water, the employment index finally broke 50, jumping from 41.9 to 51.2 – a sizable increase that signals a broad-based surge in demand. Production rose to 65.8 from 57.6, and should continue to rise as both new orders and backlogs rose by the fastest rate of expansion since June 2007 and August 2008 respectively.  It’s like the KC report didn’t happen.


  48. This is NYSE’s official web site.
    Scroll down and read the footnote marked as **.  It mentions early closings on Dec 24, etc, etc.  But NO MENTION OF EARLY CLOSING ON DEC 31.  So, looks like full trading day tomorrow.
     
    Thank God (or is it GS?) that I found Jan 1 listed as a holiday!


  49. Sorry, I forgot to link to NYSE web site on holidays:
    http://www.nyse.com/about/newsevents/1176373643795.html


  50. Speaking of DECK, I was just going to mention that I sold some Jan 100/105/110 condors for 3.95 (!). Looking for a little more upside and out in a few days hopefully with 30-50% gains against net cost (net cost = 1.05).


  51. The government’s decision to roll the dice on subsidized housing by keeping Fannie Mae (FNM) and Freddie Mac (FRE) afloat is becoming an epic disaster for taxpayers, Peter Wallison of the American Enterprise Institute writes. "The decade-long congressional failure to more closely regulate these two GSEs will rank for U.S. taxpayers as one of the worst policy disasters in our history."

    Thanks Cwan (and thank Blankfien)!

    Nasdaq having an early day as they evacuate the building – oh yeah, I sure want to be long overnight in this mess…

    Oil blew righ through $79.50 but now back there.  Gold hit $1,095 before calming down.  Bomb squad is coming to check out a van and if it’s all clear – maybe we can have a relief rally over nothing.


  52. Lots of commodity names with what’s looking like a failed attempt to break higher today (ANR, OIH group, X, etc.).


  53. Somebody dropped 10,000 puts on TER.  BA attracting some put buying too and DIS, which is probably due to holiday terror fears. 

    COF still heading down AXP not so hot, MA heading down but V going the other way.  V would be the way to go if we start dropping off, maybe the Jan $85 puts, now .74 as a mo play.


  54. QID- I am long Jan 19′s avg $.725. Short of a pop by Mon/Tues, I need to make a move on these as premium erosion will kill them if we continue in this range. Could sell some puts; roll to Feb, etc. Lots of choices. This is a good learning position for me so could you expand on some whys and wherefores of different adjustments if you have the time to get into it today?


  55. Hi Phil :  I bought  1500 shares of WFR at $13.37 and 500 shares at  $12.11  for average cost of $ 13.06. Sold 10 Jan. $12.50 P  for $1.25 ,now $.15 and sold 20 Jan. $14 calls for $$.50 ,now $.30. I’m thinking of rolling to Feb. $14 calls for $.80 and Feb. $13 puts for $.85  This way, I can lock in the profit and reduce my risk if market  turns down in Jan. What  do u think?
    dflam


  56.  Bought some fcx 80 feb puts for 4.55 – looking to sell some 75′s for a nice spread.
    decks – saw a lot of women wearing ugg’s over xmas – so not surprised.  very little change in design, so margins aare probably pretty good.  seeing a ton of kindles around the hospital among nurses and patients.  


  57. It’s looking like IYR may be heading to the 50 MA around 45, where there is additional chart support.  That would probably get SRS up to about 7.80.


  58.  Phi. AMZN…it looks like somebody went into a 2500 contract 115/85 put spread. any ideas? I cant sell options in my IRA.


  59.  oops thats PHIL, not Phi.


  60. GILD holding up nicely, that was a good call Friday Pharm.


  61. Now they are saying YRCW may go BK this weekend!  That seems strange as the debt/equity offer was supposedly 84% tendered but they extended it twice so maybe if they can’t fill it all falls apart.   UPS could be a winner there as people shift some smaller (for YRCW) shipments over to them.  UPS doesn’t suck anyway and you can pick up the Apr $57.50/60 bull call spread for $1.15 just to see how things work out.

    X/Eric – Don’t forget that boost was from stell tarrifs.

    QID/Pstas – If you are worried about getting crushed over the weekend you can sell the Feb $19s for $1.05 as they have the same delta as you.  If we go up on Monday, your delta will increase faster then theirs and if we go down, you should hold ground and then you can roll with that $1 they gave you to either the Jan $17s or the Feb $18s.  I wouldn’t sell puts, they just aren’t offering enough with VIX below $20.

    $32Bn in 7-year notes sell at 3.45% with a strong 2.72 bid/cover AND they re-open the Nasdaq at the exact same moment – A Hollywood movie couldn’t have staged a better scene for the triumph of capitalism! 


  62. LOL on DECK; this is a nice breakout.


  63.  UPS should also see a bump from AMZN.    i think ups is their preferred provider.


  64. Pound up .0174 vs decrease in euro and yen; just shorted the pound. 


  65. Tchay/Emerging Markets
    Further to my earlier comment on this subject – The London office of GS has just come out with their recommendation going into the New Year – Go long the BRIC markets ( Brazil, Russia, India, China), and go short the equity indexes of the G-7 nations including the US.


  66. Check out PHK today (which Hunter listed above as way above NAV). That is scary. Too bad that list isn’t optionable.


  67. DECK still flying!

    Oh wait a minute – the van had been parked there a day or two and they only just now evacuate buildings?  What the hell is going on in this country?

    WFR/Dflam – Sure, you beat the Jans so it’s fine to move on.  Collecting another $1.20 is 10%, nothing to sneeze at.

    Kindles/Jo – I’m getting very anti-kindle because of this BeamItDown app on my IPhone.  If they can do that on the IPhone, then what chance can Kindle have?  Also, it points out the concept that Kindle can’t win because they are a 1 app pony while the IPhone (and other smart devices) will always have the latest and best ideas for delivering content.

    Speaking of cool IPhone Aps – Dragon Dictate (free) is amazing!  You can just talk to the thing and send text or Email from the phone – very cool and very productive.

    IYR/Eric – About time they cooled off. 

    AMZN/Big – I’m just generally short on them but they are sooooo dangerous.  If you want to play along, the Feb $115 puts at $2.35 can be nice movers if AMZN breaks down (the $120 puts are $3.40) and should only lose about .75 if AMZN goes back to $140.  It’s OK to shorten my name, I shorten everyone else’s.  8-)

    UPS/Jo – 2 reasons to buiy them then.

    The Treasury sells $32B in seven-year notes at 3.345% (.pdf). Bid-to-cover ratio of 2.72 vs. a recent 2.74; indirect bidders take 44.7%, compared with a recent 61.2%. Treasurys are flat overall; the 30-year yield -0.01 to 4.63%; 10-year flat at 3.80%.

    GS/Gel – That’s big – I’m surprised it’s not getting press.


  68. Based on volume, I’d estimate someone threw away at least $2m this morning on some bad PHK trading.


  69. Hi Phil,
    I’ve been watching CIM for a while.  They are a recently created REIT that invests specifically in all sorts of mortgage assets.  Since its a slow day again, I was wondering if you could take a quick look at them and see what you think…  Thanks.


  70. phil,
    sox starting to give up its gains. if so look out, it is the only effective prop left in todays market.


  71.  Phil…Ive got X jan 55 puts. in at 1.71. Should I cut them loose or stay with it?


  72. Gel
    I don’t know about BRIC as a whole, but I’m bearish on Russia and I’m bearish on oil
    by the way, last week they finally open oil pipeline from new russian east sibirian fields to China,
    I guess China will buy much less oil at the market which should put some pressure on oil price


  73.  Phil…about the GS rec to short everything but the BRICs…Id say thats very bullish for everything but the BRICs.


  74. Gel
    this is probably why EDZ is not cooperating today


  75. It’s nice to see both SRS and TZA hitting intraday highs for once.   Probably won’t last but at least we know it’s possible!


  76. This should be the last ( third ) Bear Trap of the day .


  77. CIM/Bill – I like them for the dividend alone!  Looks good to me and if you can sell the June $2.50s (calls only) for $1.50 against the $3.87 stock, it’s even a very safe-looking way to collect 16%

    SOX/High – I think we’re going to be like yesterday, with a sell into the close.

    X/Big – I don’t know enough about the steel tarrifs and how they will affect X in particular but, since the smell of protectionism is in the air, X may not be the best thing to short at the moment.  Taking the small profit and running will give you a happier new year.

    GS/Big – Could be.  I sure don’t trust them but they usually get a day going their way off almost any dumb-assed statement they make. 

    Nomura’s Richard Koo, an expert on the Japanese 1980s bubble (whose 20th anniversary is this week), says China seems to have learned key lessons from its neighbor’s mistakes, and thinks Beijing policymakers deserve high marks for their all-in effort to prop up the economy through a period of global balance-sheet shrinkage. (ETFs: FXI, PGJ)


  78. Tschay/Emerging Markets
    Russia is the weakest of the four. As you know, I’m sure, Russia depends upon oil for 65% of their revenue. That is big !! I have been told the western Siberian oil fields are petering out, and now the focus for activity will be in eastern Siberia..I understand also, the future activity will include the Arctic and Continental Shelf for production. This is more expensive, and Russia will have to revise their ownership regulations thus allowing more help from outsiders for the needed technology and equipment sophistication. I see oil going to 100.00 as the worlds’ economy recovers, mostly driven by demand and not speculation. By China buying all that oil from Russia, it is still a tight market. I understand China has made an investment in Canadian oil production in order to assure supply.The wild card will be played if Isreal sends a suprise gift ( Bam) to Iran. Oil price will go balistic. A long play in the emerging markets I like is the long CH (Chile). position.- good fundamentals with a pretty decent government should make for a good outcome, My stuff in Korea is also doing very well. I guess you really have to pick through the details and throw out a strategy that is broad.


  79. Gel
    I agree that Israil/Iran conflict can send oil price to the sky
    another point on Eastern Sibirian oil: you know that more than half of profit oil companies in Russia pay to government as a Royalty? For Eastern Sibirian fields they cut it to zero for next 2 years at least, I work on one of this projects now, it is a lot of very good quality oil (which was not at the market yet) there and Russian government already sold this oil to China for fixed price in advance for exchange of huge loan


  80. Must now go endure the airport mess just as things look interesting. I think I’m going to wear a pair of Depends stuffed with dumplings to snack on while I wait.


  81. Phil, any thoughts on PAA?  They seem to have some insider buying going on.


  82. phil,
    interesting in that big ‘chip’ movers on the sox do not own fab production nor develop their own fab technology as does real chip companies such as intc and ti


  83. Phil: any adjustments to my:
    jan 21 caller, base 4.10$
    jan19 putter, base 2.29$.


  84. Oil/Gel – My problem with $100 oil is that is yet another $400M a day plus refinining so about $200Bn a year you are expecting global consumers to cough up on top of the $500Bn a year they are paying for this year’s boost and that’s assuming oil prices don’t lead to other higher commodity prices that cost global citizens another Trillion because the sum total of all global wages is just $20Tn and before you know it, asking for a trillion here and a trillion there to support your energy prices may actually backfire and crash the whole thing again.  It doesn’t matter how much you WANT to charge people for oil – if it gets to the point where they can’t afford it, they won’t.  Then it’s a matter of how badly the rich people want oil and if they are going to pay enough to offset the loss of the rest of your customers.  I don’t know why people think the basics of supply and demand don’t apply to oil…

    Good luck with that airport plan Eric – Have a Happy New Year!

    PAA/Leon – Those are good little businesses.  The problem with them, for me, is at $53, the option contracts don’t pay well enough to make them attractive.  Big dividend payers tend to have poor call sale prices so you can barely protect yourself.

    Want to protest the bailouts in a tangible way? Arianna Huffington and former Soros manager Rob Johnson launch a site – with data from Institutional Risk Analytics’ Chris Whalen – to help you move money from too-big-to-fail banks to high-quality community banks. Rolfe Winkler: The crisis wasn’t all the fat cats’ fault, but this is still a great idea.


  85. Fab/High – That makes sense, those lines go out of date so fast I can’t see how you can ammortize them quickly enough.  Makes it smarter to rent someone else’s unless you are as big as INTC.

    Sorry RMM, you stumped me on that one!


  86. I bought some SRS Jan $7 calls at $0.65.  Now it’s about $0.50.  Should I wait and see?  Sell some calls to make it into a spread?
    Thanks!


  87.  Phil
     
    I have the AAPL Apr 160 Calls 2/3 covered by Jan 200′s – any suggestion for taking something off the table? I’m generally long on AAPL but looking to remain cautious into ’10. – Thx


  88. Phil: sorry, ITS FAZ callers and putters,


  89. Phil, any thought on shorting NYT up 33% in a month on practically no news? Thanks


  90. Phil/GS
    The GS economic team in London made the recommendation regarding the short positioning on the US indexes ( long on others) based upon their assessment of the weakening US$, which has depreciated 15% since last fall. Their primary concern is the growing US deficit and they estimate the 2010 deficit to be 1.6 T which will be 10% above the GDP for the period. They also acknowleged that the intrest alone on the debt consumes 20% of all tax receipts which equals 40% of all income taxes. It sounds to me the extraordinary imbalance, in this regard, will probably have a cast of negativity on the markets – got to be good for the bears, eh !


  91. JRW – You gotta let us know where you got that crystal ball.


  92. Gel/GS
    another good reason for market correction. But history shows that when correction was started, first where investors start close their positions  – in emerging markets and as a result, they collapse more than US
    But in long term, I agree with you( especially Chili, Argentina, Brazil)


  93. phil,
    my point is that we are killing our true chip companies such as intc by keeping (i.e. legislating) them out of such lower tech markets as graphics and thus making better use of older fabs instead of just writing them off. this shit goads intc big time but they are helpless to do anything about it.


  94. Phil/Oil
    Your reasoning is basied with logic, and will to a great extent play out should oil reach 100. The negative projections resulting from 100 oil are difficult to accept by society, however the oil market is worldwide and is market driven. If the price goes up, then it is passed through to other products sold with oil as a component. At the gasoline pumps the increased price acts as an incentive to either drive less, or use an alternative means for transportation. It appears China has taken measures to assure supply…. Why do we here in the US ignore this hedging strategy? The Chinese market for autos will very soon be the largest in the world. What will they do with the billion + bicycles they have after the auto becomes the preferred method of transportation. Maybe sell the refurbished units to us here in the US.


  95. Hi, Phil, RE DIA cover: 1/2 maybe?


  96. Nice little wedge forming on the daily DIAs….now, which way are we gonna take the pennant?
     
    OSIS is still holding up, ASEI on the other hand is gonna pop….one’s gotta give.


  97. ss,
    kustomz gave me Blankfien’s phone number six months ago !


  98. phil,
    some of those pictures from iran are starting to look serious.


  99. The civil disruptions are heating up in Iran…. I think I’ll trot out a few of my gold-diggers for the next few weeks, and follow the fireworks.


  100. SRS/Cwan – I’m still of the mindset to ignore this week and last.  The volume is a joke and none of the things we were worried about (other than Retail Sales) have really changed.  They are up a bit today but you don’t want to let them expire of course, maybe revisit tomorrow but, on the whole, you may be better off selling the $7 puts to get your .20 back than waiting for SRS to hit $7.65.

    IBM is being used to push the Dow up. 

    AAPL/Deano – Wow, those are deep aren’t they?   You are well protected and you can take $21 off the table by rolling to the Apr $185s or $20 on the June $190s.  That maintains your spread with good advantage and puts cash in your pocket with a lower downside delta and you can add back or roll down on a pullback.

    FAZ/RMM – Do you own the stock or were you just doing a short strangle?  Either way it’s right on target so nothing to do but the caller is toast so you may as well take him out.  You can close the whole thing as a nice win of course too.

    NYT/Magret - The Newspapers are doing much better than people thought and if the economy is really coming back, they should continue.  We backed GCI in May and they tripled – NYT is just getting there.

    Weak dollar/Gel – Seriously, that’s their story?   I’m didn’t know people were still playing that song.  Yes the US has a deficit but so does everyone else (except China).  None of their stats are news in any way and this market certainly doesn’t seem to be concerned.  I think it’s insane to bet the US will fall but emerging markets will do well when the US is 1/4 of the global economy, Europe is 1/4, Japan and China are 1/4 and then there is everyone else.  That’s like saying you are going to win the Indy on 3 tires, maybe 2…  I agree, just the idea of short US coming from GS should send us flying down yet nothing seems to be happening – was this a private report or published?

    INTC/High – I agree but INTC can still take their $5Bn profit and cry all the way to the bank.  If they were allowed to do graphics then their low cost of production would wipe out that competion too and they would stop advertising "Intel Inside" because, in a few years, people would say "what else is there?"

    Oil/Gel – We are about $10 of oil away from global riots.  People just don’t have the money for it anymore.  Yes it would be nice if people drove less, etc but supply of oil is not the issue.  We have more spare production capacity now than we did while oil was at $20-30 for 15 straight years.  All this is is manipulation and greed and one day the bottom will fall out of that market but it will take leadershp, which sure as hell won’t come from this country.  Probably China will take action and purposely wreck the speculators at some point.  Bankrupt a few speculators and they’ll stay away for a while..

    DIA/Cwan – You sure can if you want.  It’s a sensible move, maybe the Jan $104 puts at .90 but I’m just hanging out naked with the Dow finishing below target (and the S&P and the NYSE and the RUT)


  101. No wonder.  The Lord’s crystal ball works every time.  Can you call him for the close?


  102. Phil: yes I have the stock FAZ,
    I will close the caller with 87 % gain.
     
    Txs
    .


  103. Hi Phil : I don’t hae any gold in my portifolio. Is it time to start now & if yes, what do u suggest?
    dflam


  104. Phil/GS
    The reportwas given to me privately… however the source is very reliable.. I’ll try to get a link.


  105. Phil,
    What should be the maximum percentage of one’s portfolio for writing puts? Is there a rule of thumb or something?


  106. Here comes the stick…………..


  107. Holding up better than yesterday afternoon but yesterday afternoon we were green until 3:45 so still a tough call.

    Gold/Dflam – I put up a UGL play earlier for Roast but I do not like gold until they get a proper pullback, hopefully to $950. 

    GS/Gel – Thanks, that explains why no reaction yet.

    Puts/Ac – Generally you have to assume 50% of what you write will be put to you so make sure you can afford to carry that in a big crash.  That’s about as aggressive as you want to be and, obviously, it’s still dangerous.  Generally selling puts naked should be an act you take in lieu of buying a stock at the moment so you wouldn’t allocate more to selling puts than the actual amount you intend to own.

    Relatively affluent women in their 20s and 30s have started to create demand for a new segment of the Japanese real-estate market: apartments to share.

    Iran protest pictures.


  108. Phil/GS
    The info regarding the GS projections did not come to me directly, however was published in an article written by Don Miller, associate editor, on Dec 30 in a publication named ‘Money Morning, I believe to be an internet publication.


  109. ss
    Out of TNA now as anything can happen, but if they can, I think THEY will try to push higher tomorrow, if THEY can’t, THEY will try to HOLD until Jan.


  110. That was a wishy-washy finish with a huge effort made at the end to get the indexes green. 

    They really beat up the dollar today but it didn’t help copper break $3.35 at least.  Silver finished at $16.82 and gold finished at $1,092 with oil at $79.30 but nat gas pulled back a touch to $5.71.

    Looks like we have a full day of trading tomorrow for what it’s worth. 

    We have to expect, even if bearish, that they can and will push the market higher tomorrow and maybe Monday too but then we’ll find out what’s real.


  111. Bearish sentiment is at the lowest leves since April 1987.  Please look up April 1987 on the charts…


  112. ASEI is very interesting (body scanning).  They are up 10% this week but plenty of room to go if they begin to get serious orders.  July $80/90 bull call spread is $3.50 and you can sell Feb $85s for $1.75 due to the excitement.  You can put a $3 stop on the Febs and it’s a nice combo.



  113. DPO- cut dividend due to low VIX.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=a4CnvKAGEEpk&pos=5
    I bought some of this back in the $6′s. May be one to watch if it gets oversold in a general correction.


  114. Phil/GS
    Check http://moneymorning.com/2009/12/30/u.s.-debt/
    The next to last paragraph states the GS position re US indexes. Like you say "this is big" – could it be another "lost in translation"episode?


  115. PHil/GS
    Re us stock indexes – http://moneymorning.com/2009/12/30/u.s.-debt/
    The second to last paragraph states the GS position.


  116. Phil – ASEI has shot up very quickly and I do not believe it will hold.   OSIS looks stronger and the options play from Andrew just came out.  I appear to be wrong on that one (OSIS) and it appears to be headed higher.


  117. Good morning!

    Black Monday/Pstas – Ah, good times!  DPO is a good idea if they crash on a lower VIX but very dangerous up here as a the Dow is so high and their protection is so low.

    GS/Gel – There’s no context, I can’t tell when they said it from that.  Still no news on it and there should be (unless everyone is on holiday).

    OSIS/Pharm – The long-term winner of that one is still going to be GE, who are likely to build large-scale scanners for airports but I liked ASEI because they haven’t gone as crazy as OSIS, who also seem good but are already pinning their ATH on the news.