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How to Have a Happy and Safe New Year with Hedges

"Now is the accepted time to make your regular annual good resolutions.  Next week you can begin paving Hell with them as usual."  ~ Mark Twain

"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day.” ~ Edith Lovejoy Pierce

I'd like to take this opportunity to wish all of my readers a very happy New Year.  2009 was challenging to say the least – clearly it was the best of times and it was the worst of times but if 2009 has taught us anything it's that there is always an opportunity for the perseverent.  We went from the depths of despair in March straight into a 9-month rally of epic proportions.  While we may question the wisdom of the underlying fundamentals, we cannot question the evidence of just how resilient our economy and our people really are and that, if nothing else, gives me great hope for our future.

I myself have gone from being the lone market optimist back in March (see our Crisis, Year One Review) to being one of the 11% of the remaining pessimists as the market takes back over 50% of it's losses (I am arguing that it's less than 50% in my Last Charts of the Decade).  Whether we are, as I think, at the apex of a very normal Fibonacci retracement or whether we are at the mid stage of a full recovery back to our 2007 glory remains to be seen but for now, I can re-use the same statement I made to Members when I argued the media was too bearish in March (click on image for great video):

"Television is a powerful and emotional medium, it is very difficult to go against the will of ALL these "experts" when they get on TV and all tell you to sell (or buy) and then their TV station backs them up with bearish news and bearish guests – it’s a natural bias that develops, they aren’t going to make their own paid personalities look foolish by contradicting them with facts and dissenting opinions." 

Substitute bullish for bearish and we have my quote of the day for December 31st, 2009.  If you do nothing else today in the markets, at least consider the idea of establishing some hedges – just in case we open the new year on a down note.  On December 9th I wrote an article called "Hedging for Disaster" and we've taken hits for being cautious early but having the downside hedges has allowed us to let our bullish positions run.  We can revisit those trades as a way to give ourselves some easy holiday weekend protection as well as building a long-term cushion against which we can make some bullish bets if the markets do break over our levels next week:

  • DXD Apr $26/33 bull call spread was taken for net $3, now net $2.40, down 20% – I still like this one
  • FAZ July $20/35 bull call spread at $2.80, now $2.60, down 7% – I still like this one
  • FAZ July $14 puts sold for $2.10, now $1.70, up 19% (pair trade to offset the above) – I still like this set but with the $15 puts sold at $2.10 now.
  • SDS March $38/50 bull call spread at $2, now $1.10 – down 45% – This was our high risk trade with a 6:1 payoff and a new $2 spread can be made with at $34/44 but it's just a 5:1 payoff with the lower VIX so not as good as the above plays.
  • SMN Apr $11 calls at $1, now .50, down 50% – this was another high-risk play that we have rolled down to the Apr $9 calls, now .85 as it makes sense that if the economy begins to fall, materials will pull back.

So that is the cost of insurance but (and you can read the original articles for the full logic and details), if the market does turn down sharply, putting just 5% of your virtual portfolio into those hedges can save you from a very bad situation.  Our actual entries were at much better prices because December 9th was an up day and we waited until that Thursday, the 11th, to trigger the covers, just 100 Dow points below where we are right now.  The time to buy your insurance is when it's cheap and the combination of a low VIX and a market at 52-week highs makes your downside protection as cheap as it's likely to get so Happy New Year!

McClatchy has a great article this morning claiming that our friends at Goldman Sachs and other IBanks ran what amounts to a $1.3Tn ponzi scheme on their own clients from 2002-2007, secretly packaging a new breed of offshore securities, and giving prospective investors little hint that many of the deals were so risky that they could end up losing hundreds of millions of dollars on them. 

McClatchy claims to have documents that include the offering circulars for 40 of Goldman's estimated 148 deals in the Cayman Islands over a seven-year period, including a dozen of its more exotic transactions tied to mortgages and consumer loans that it marketed in 2006 and 2007, at the crest of the booming market for subprime mortgages to marginally qualified borrowers.   In some of these transactions, investors not only bought shaky securities backed by residential mortgages, but also took on the role of insurers by agreeing to pay Goldman and others massive sums if risky home loans nose-dived in value — as Goldman was effectively betting they would.  Goldman. of course, said those investors were fully informed of the risks they were taking. 

saint-peter2.png image by Hx3_1963Whether Goldman was evil or "lucky" or simply, as Lloyd Blankfein says "doing God's work" remains to be seen but, either way, this makes me wonder if GS can ever earn the returns people are betting on on a go-forward basis since the money they made betting on a housing crash and the money they made this year using HFT programs in a relentlessly up market were possibly a couple of unique situations that investors can't count on GS repeating in the future

Hong Kong and Japan were closed this morning but the Shanghai added 0.5% to their streak, heading for a triple test of 400 early next week.  Europe is flat and closing early, much more sensibly than our markets with Germany not even bothering to show up at all.  

The Dow needs to do very little to hold a 20% gain for the year, up 61% from the March lows while the S&P is right on the 25% line.  Both indexes don't hold a candle to the Nasdaq, up 45% in 2009 as tech was the place to be in an early cycle recovery.  There's a lot of interesting things going on this last day of the year so I'll just mention a few (from Seeking Alpha Market Currents):

  • NWS and TWC seem to have no deal today and Fox will be removed from Time-Warner Cable systems at midnight.  Bad news for Uncle Rupert if none of the viewers complain.
  • It turns out that retail traffic was actually LOWER than last year, according to ShopperTrack but "consumers purchased more per trip."
  • Online holiday spending rose 5% to $27.1B, although per-customer spending was down slightly, comScore reported. Large e-retailers like Best Buy (BBY) and Walmart (WMT) outperformed smaller online shops.
  • Dec. ISM New York Business Index: 59.7 vs. 62.9 in Nov. for a fifth straight month of expansion. Six-month outlook broke the lofty 80 barrier, reaching 80.2 vs. 74.4 last month. Cost pressures remain contained.
  • After numerous extensions, YRC Worldwide (YRCW) says it finally got enough support to complete its debt-for-equity swap, allowing the trucking company to defer payments coming due. CEO Bill Zollars called the results "a major turning point" and said, "With our significantly restructured balance sheet and enhanced liquidity, we will move forward from a more solid financial foundation."
  • China central bank Governor Zhou Xiaochuan says 2010 will be a crucial year for strengthening the country's recovery and 'defeating' the financial crisis. Zhou’s New Year message reiterated that China's 'moderately loose' monetary policy will continue.

So the madness continues right into the new year.  I hope yours is a happy and healthy one.

All the best,

- Phil


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  1.  YRCW spikes up to 1.42 (40%) on news of their successful debt-for-equity swap.  Short a whole bunch of Jan 1 P’s at .40, having felt that even with a bankruptcy filing the equity may only drop to around .60.  Anyway,  I find this event to be interesting in that the debt-holders were major banks, who most likely already reserved against the non-performing debt and apparently they decided to take the equity.  Maybe this is a hint that there is indeed more appetite for risk, even by the banking industry.

  2.  YRCW now back down to 1.07!  I guess people are realizing the swap dilution is as painful as the bk filing would be.   May pick up more (short) Jan 1 P’s at the open if I can get .30 or better.

  3. Phil -
    What’s your sense – we going to break on through to 113 on the SPY on the morning pump and be able to hold it?
    Have not been able to hold at that level all week – light volume – guess it could go either way .
    I have end of the month calls and puts to close out.
    Thanks and Happy New Year from snowy CT

  4. TBT play/Phil: Can you give me your thoughts on this?  I’m not sure I have my math correct; any input is appreciated!
    Considering this article about where MS & GS thought the 10-year rates were going in 2010, I found the duration of the Barclays Capital 20+ Year U.S. Treasury Index (16.12 years) and compared it to MS & GS’s forecasts.  If MS is correct, we would see the 10-year go from 3.8% to 5.5% (+1.7%); if GS is correct,  it would go from 3.8% to 3.25% (-0.55%).  To be conservative, I compared what the predicted changes in the 10-year would do to the 20-year index.  So, (if my math is correct), a +1.7% change would cause the 20+ year index to fall 27%, and theoretically, TBT to rise 54% to roughly $75+; a -0.55% change would cause the 20+ year index to rise 8.9%, and theoretically TBT would fall 17.8% to $41.10.

    1)      Play 1: BUY JUNE $55/$60 bull call spread, write JUNE $42 put for $0.05 debit.  If TBT goes nowhere, we lose $5/contract.  If rates rise 0.62% (just 1/3 of MS’s prediction), TBT should rise to $60 & pay us $5 per $0.05 outlay.  If TBT falls below $42, we own it for $42.05.

    2)      Play 2: BUY JAN ’11 $55/$60 bull call spread, write JAN $42 put for $0.90 credit.  (Same logic as above, but gives thesis more time to play out).  If TBT goes nowhere, we make $0.90; if it falls, we own it for $41.10. 

  5. Claims are " better than expected " so no reason not to expect The Stick !

  6. Risk/Lv – Well if you give me money at 0.25% interest and promise $4Tn to bail me out if my bets go bad, I might have a strong appetite for risk as well!

    YRCW back to .95!  I like them long-term now that this deal is done but it will be a slow road to recovery. 

    SPY/Samz – I just picked the ultra-shorts on them above and I am still shorting the futures at 1,125 (just hit this morning, now 1,123) per our conversations early this week on them.  Oil touched $80 and triggered my short there too but right the hell out of there if they cross over it.  Gold is even a tempting short at $1,105 but too many things to watch….

    Nice snowy day should encourage traders to leave early.

    Now we’re watching our breakdown levels of:  ow 10,549, S&P 1,127, Nas 2,242, NYSE 7,380 and Russell 630 – if they can’t hold these then we can’t be bullish.

    Yesterday I wrote my chart post and the levels to watch there for break outs to the upside are now: Dow 10,457, S&P 1,135, Nas 2,314, NYSE 7,389 and Russell 638

    In either case, 3 of 5 over the line confirms a trend.

  7. Gas is up 5% for the week and VLO is going down – that is the very definition of a fake commodity rally!

    SOX and RUT are our leaders at the moment with the Transports dragging us down (lots of truckers who thought they were going to take YRCW’s business are selling in disappointment). 

    SNKD past 2.5% already, WFR up 1.5% but AAPL having some trouble moving this morning. 

    Dollar getting close to 93 Yen!  Not so good against Euro ($1.437) or Pound ($1.617) though.

    Copper at $3.36, silver $16.93, gold $1,101, oil $79.73 and nat gas $5.845.

    Generally weak so I like the those DIA Jan $103 puts at .56.

  8. Phil/charts.  I was out yesterday (and my holdings went up without me, go figure), so I’ve only now gotten a chance to look over your chart post.  Very illuminating, and thanks for having earlier adjusted the levels to smooth out the March yo-yo.  My pet peeve this year with respect to the financial media has been the relentless referral to being up 30%, then 40%, 50%, 60% from the March lows.  It is all a feel good, cheer leading message.  Think if the financial media only referred to the 2000 Nasdaq high for every reference point (now we’re down 40%, 50%, 60%).  It would no doubt discourage investment.   Anyway, I just wanted to comment that I think the smoothing adjustment you made is very helpful.

  9. I was already in the DIA Jan $103 puts so I added a layer of Jan $102 puts in $100KP.

  10. Phil, how is KMX still so high? Got some Jan puts and that company is driving me crazy! Last I looked, sales #’s were still dismal….

  11. Thanks Judah – that’s the "art" part of the 5% rule and the reason I have no respect for charts – they tend to use those points as a reference, no matter how ridiculous they are.  It’s like my mom going to her first baseball game when I was a kid and they hit 7 home runs in the game and the next time we went to a game she thought it sucked becuase there were only 2 home runs – you can’t allow black swan events to shape your expectations…

  12. Phil, something wrong with your Dow break up/down numbers.
    Dow breakdown level 10,549 (higher)

    But breakup level 10,457 (lower)

    Shouldn’t breakdown level LOWER than breakup level?

  13. KMX/Jrom – They have been putting up good numbers in a tough market so people figure they can really pop if the economy is coming back (the pent-up demand theory).  It’s not a stock I’d bet against but I sure wouldn’t bet them higher from here. 

    Freddie Mac weekly mortgage survey: 30-year mortgage rate edged up to 5.14% from 5.05% a week ago. It’s the fourth straight week of expansion, and the first time in a long time that the average rate was above its year-ago rate – in this case 5.1%.

    The Pragmatic Capitalist has done an awesome job of tracking 2010 outlooks from various and sundry Wall Street firms, gurus, analysts, hedge funds and investors. Here’s the full list. And SA’s collection of 2010 predictions.

  14.  YRCW now at .85.  Interestingly, the Jan 1 Puts are relatively unchanged at .35/.40.  Buying the stock here at .85, and hope to get assigned on my short puts for a net basis around .70.   My premise is that with banks holding 95% of the equity post-tender, selling will subside to some degree and the propensity for banks to lend to themselves (as equity holders) will be enhanced allowing YRCW to continue to operate for the mid/long term.  Hopefully there will be call writing opportunities down the road on a large share base.

  15. YRCW / lvmoda: Are you sure YRCW went up to 1.43 today??  I looked at yahoo & google finance web sites, they both said the daily high was 1.03.
    Anyhow, it went down to as low as 0.82, recovering back to 0.9-ish right now.
    Maybe good for day trading…

  16. Strangles- I have been placing orders on TOS for SPX strangles at the midpoint of the spread and not getting filled. Peter or others on this game – anyone have similar experience ?

  17. Break levels/Cwan – You are right, I should flip those.

    Poor Tiger – now T is dropping him.  

    Volume at 10:20 is just 15M on the Dow so nothing to get excited about in this action.

    V coming down nicely since yesterday’s short. 

    Whee, down we go again – isn’t this the best game?  Dollar coming on strong and S&P below 1,120 so woop, woop on those futures puts.  Oil back to $79.25, which is the boucne zone so stops there.  Gold heading back to $1,095.

    If we have a major sell-off, Monday could be ugly as Asia and Europe play catch up.

  18.  YRCW/cwan120    The stock spiked in the pre-market to 1.42.   I’m not too comfortable on day trades with this, at least in the near term since there is a lot of volatility.   However, as I indicated in prior post, selling puts and buying the stock can get you an attractive basis on a large share base from which to sell premium down the road, if you believe they won’t be allowed to go bankrupt.

  19. pstas – I plan to start scaling into SPX and RUT strangles on Tuesday so I haven’t started yet.  What spread are you looking at on SPX?  I am thinking +10%/-15% so around the 930/1240 on SPX and 530/700 on the RUT.  I will also add in a wild play on each.  Looking at Phil’s charts this morning shows resistance at the 61.8% retracements to be 1240 for the S&P and 688 on the RUT.

  20. Venture capitalists spent 36% less in 2009 on clean tech initiatives, according to Greentech Media. Solar power led segments with $1.4B changing hands in 84 deals, followed by biofuels ($976M). Water finally made it onto venture capital radar screens with more than $130M invested in 33 deals.  Remember I warned you that "THEY" were moving into water as the next vital commodity they are going to make you pay through the nose for

    EIA Natural Gas Inventory: -124 bcf vs. consensus of -147 bcf. Last week, stocks declined by 166 bcf. Nat-gas futures -2.8% to $5.55.

    Sector ETF strength: Livestock– COW +0.7% Gold– GLD +0.5%. Regional Banks– KRE +0.5%. Agriculture– DBA +0.5%.
    Weakness: Transports– IYT -1.2%. Clean Energy– PBW -0.8%. Biotech– BBH -0.6%. Basic Materials– IYM -0.5%. Energy– XLE -0.5%.

    Dow leaders after one hour: DIS +1%. HD +0.8%. BAC +0.6%. JPM +0.5%.
    Laggards: HPQ -1%. CAT -1%. AA -0.9%. PFE -0.9%. KO -0.8%. DD -0.8%. WMT -0.8%. IBM -0.7%.

  21. tbt march 42 /46 spread we put on a while ago. tbt now over 50.  are we still good there?

  22. Phil
    at which price did you buy DIA 102 puts?

  23. ssdirk- strangles- I am in RUT Feb 520/680; trying for SPX Feb 910/1225.

  24. Phil/Tiger
    I live in Pebble Beach and followed Tiger around the Links in 2000 when he won the open. He has not been back since and refused to play in the AT&T pro-am held each year in early Feb.Not too many people here care much for the dude. Even Clint Eastwood referred to him last year as a "wimp". I’m sure AT&T is saying good-bye and good riddance

  25. Here’s an interesting chart:

    Seems like a good premise for investing in banks long-term.  Borrowing should come back at some point.

    TBT/JCM – That spread is $3.60 out of $4 possible so we took the money as it’s not really worth waiting 3 months to collect another 10%.  We were waiting for TBT to pull back a bit, maybe if the market plunges and people panic into the dollar but I’m still confident they’ll be heading up to 60 at some point (roughly 6% mortgage interest).

    DIA/Tcha – .38.

  26. SPX strangles / pstas – RE bidding at mid point.  Yes, that’s my experience as well.  Sometimes I got frustrated that I lowered my bid.  It’s really hard to say whether you should or should not lower your bid.
    One thing you might try (but I haven’t tried yet) is to look at volume/open interest of nearby strikes, and bid on the one that has higher volume/open interest, in the hope that more people are bidding on that strike and you might get filled sooner.

  27. JRW – are you playing TNA/TZA today? Any levels to share? Thanks.

  28. Would you pay a $1 to roll the DIA March 106 to March 108?  Or just hold on to the 106′s?

  29. Going into the new year very bearish:
    JAN10 100/105 bear call spread on CF sold for .73
    85/87 on FAS for 0.29
    47.5/50 on QCOM for 0.29 (was scary lately and still negative), 
    Just this morning sold OSIS bear call spreads    FEB10 25/30 for 2.3   AND   APR10 25/30 for 2.25
    and used some throw away money to buy some of  those ‘cheap’ QQQQ JAN10 44 puts at .44    hahahah ;) )

  30. Phil, I hit my targets for the year in my 401 (thanks in no small part to your site), so I cashed out of all positions a couple of weeks ago.  Feels good, but i’m getting itchy.  IF you were me would you open any new positions now or wait till the new year…i’m conservative with this money --looking for 2% per month, which i’ve been able to do… thx.

  31. Roll/Jcmn – Absolutely I would pay that (I’m in the $108 puts).

  32. Happy and Healthy New Year Everyone!  Phil, regarding water, any companies that come to mind? Would you include companies with "smart" water technologies as well? My wifes 95 year old grandmother reminded me over Christmas that she STILL holds BAC,OXY and San Jose Water Works – I’m not sure who owns them now- for the last 50 years! She is and has been a sharp gal….

  33.  FWiW,  today is the last day to open positions which would qualify for 15% long term capital gains tax, assuming you closed on the last day of 2010.  Effective Jan 1, 2011,  long term capital gains rate goes up to 20%.   

  34. PHIL…..A HAPPY AND HEALTHY NEW YEAR TO YOU & ALL !!!!!!!!  I’, looking at buying jan 11 LEAPS CALLS on DBA, PNC and F.  Your comments, pls.  GABBY

  35. Itchy/Lunar – For sure I’d wait until we’re into next week at least and see what happens with volume (or what passes for volume) trading.   I’m hoping we get a nice retrace of the Santa Rally and then we’ll see if there are fun things to buy off the Watch List when the dust settles and the VIX is back over 25.

    Water/1020 – I don’t know too much about water companies.  It’s likely to be a lot like ethanol investing for quite a while – you may make a lot of money on this or that company as they get hot but, on the whole, it’s a stupid thing to invest in.  Long-term, I like desalinization companies, probably there’s some good ones out of Israel that will come this way at some point but we’re simply not that desperate for water yet and the countries that are, for the most part, can’t afford it. 

    Cap gains/LV – It’s been a long time since I had a position that long!

    Hey Gabby!  Happy, healthy and wealthy to you too!  As I just said to Lunar, today is not the day to buy.  We could have a sharp correction next week and, if we don’t, then you can still buy the leaps as the VIX will be lower. 

    Some hedge funds are starting to place their bets against Japan, with one manager saying a collapse of their government bond market "is going to happen; it’s a question of when." Japan’s no Greece or Ireland – its bond market is ¥694.3T ($7.543T) – but many have lost money banking on a collapse in the past. (ETF: EWJ)

  36. Lvmoda, good point and the tax rate will go up.  Don’t be surprised if congress( Obama)  pushes for an increase earlier.

  37. Phil – can you take a look at my 9:38AM post?  You told JCM you’re waiting for a TBT pullback, so I will wait, but how does the logic/play sound in general?  Alternatively, is there other strikes you prefer?  Thank you!

  38. Phil,
    have too many bearish positions. any more favorite suggestions regarding big bull move? have WFR VLO GE & INTC

  39. ROFL – Chicago PMI revised down from 60 to 58.7 and employment revised from 51.2 (growth) to 47.6 (negative).  This is a revision of YESTERDAY’s positive number.   What a total joke this market is – fake data cooed at by media whores who are in the pockets of market manipulators – very disgusting!

    Remember that KC number made the Chicago number look ridiculous but CNBC announced the Chicago numbers every half hour and never once mentioned KC?  Turns out the KC numbers were right.

    9:38/SS – Sorry, I totally missed that one.   Those plays are fine but, as I said, expect TBT to fall if we have a market pullback as people fly to the dollar for safety so it’s not a play I’d take until we see where things settle next week.

    Bull/Drum – Those are all goood but I’m pretty confident in my bearish positions, even though the $100KP is down 15% from being close to 100% bearish the past two weeks.  WFR had a bit of a move up but VLO is fine to sell puts on here and GE should be fine too but keep in mind they can drop hard if CRE actually does crash (it never happens but that doesn’t mean it won’t).

  40. Do we close early today, what time?

  41. 1020/Water
    The best of the New Year to you as well…..My portfolio water play is VE (Veolia Environment) This is a very large company with worldwide exposure. It is a great Buy/Write as it pays 5% dividend. My position is up 26% for the year, not a blow out, but this is a stock you will never have to worry about, and they are on the cutting edge of water technology. It is a stock you buy and then forget it – and can be used to sell calls against.

  42. Gel/ VE
    what happened with them when they dropped from 90 to 20? cut dividends?

  43. Anyone, is Peter D on holiday…

  44. Grant – bonds close early but I think stocks are on regular schedule

  45. Here is the calender for the CBOE for 2010.  Good for option expiration days and days market is closed.  Does not say when days market is closed early.

  46. Interest Rates – I am thinking corp bond rates will rise faster than treasuries.  Anyone know of an ETF to short corporate bonds in general? 

  47. Calend-a-r!  Can’t spell.

  48. gel1/water  Thanks for that, I had forgotten about that one. :)

  49. Tchay/VE
    I have owned the stock since January, at a time I was trying to pick up long term plays. I do not know why their stock took a hit last year, other than possibly it was subject to the overall bearish sentiment the market was experiencing. I do know they did an acquisition about the same time, and possibly the analysts may have thought they were over leveraged for the times.The company has some nice diversification, but still a leader in water treatment. The acquisition in 2008 was a wind power company. On a historical basis, VE stock is still not pricy, and a closer look at their fundamentals would be prudent. Good Luck in the New Year!

  50. eben22
    I believe in the concept corporate bonds will keep going north. I personally hold a large position of HYG and it has served me well.

  51. Phil,
    I’m in March and April bull call spreads in SRS, SDS , TBT, and EDZ, Jan and Feb in TWM, and TZA; that leaves me 80% cash (30% I day trade TNA / TZA). I’m expecting a push next week ( First 5 Days Premise, January Effect, and an easy Short Squeeze as Everone expects a pull back ). Any thoughts on the other 50% before late Jan ?

  52. Early/Grant – No such luck…

    VE/Gel – They are a nice, solid play.

    Bonds/Eben – HYV is a nice high-yeild fund but I’m not sure I know an ETF to short the bonds.

    WFC with a lot of options trading, mostly negative. 

    Dollar broke 93 Yen, $1.432 to the Euro and $1.615 to the Pound. 

    Copper refuses to lose at $3.367, silver $16.92, gold $1,097 after bouncing right of $1,095 and oil with a super bounce off our target, back to $79.91 (I’m reloading at $79.95 for another shot at the shorts with a DD at $80.05 out at $80.10).

    Cash/JRW – Well if you are worried about being too bearish over the weekend you can go with QQQQ or even DIA calls but I really don’t have many thoughts for upside plays until I see what happens next week.

  53. Do we close early today or is it a full trading day?

  54. sorry just saw the answer…full day

  55. 5000 contracts of EWJ $10 JAN straddle closed today at $0.33.   I wonder if the buy or sell side will win on that one. 

  56. TBT   Rather than a spread, what do think about a straight put sell?  There seem to be decent premiums and it’s easily rollable….Feb 48s for $1+ seem reasonable

  57. Phil,
    No, I’m not worried, just wondering if I’m missing any opportunities; I’m a committed long term Bear; but short term I’ll whore any possition that can make a $ !!

  58. I also have wanted to sell TBT puts but have decided to wait until after the first week in January to see if we get that market correction we’re waiting (hoping) for.   I am waiting for TBT to pull back to sub $47 before selling puts.  I did sell some naked $50 calls yesterday but closed them already.

  59. MOT looks like they are coming out with a large-screen smart-phone

    Latest bullish sentiment chart:


    You might think if we hit a bottom that’s it but in 2003-6 we drifted along 80% bullish and the market went up and up and up so it’s not nec. a contrarian indicator…

    Here’s a fun look at the year:

    Goes well with this chart:

    TBT/Eph – I like the put sale as worst thing that happens is you own it cheap and turn it into a buy/write.  Hard to imagine rates going below zero and really messing you up, right?

    Short-term/JRW – I’ve been watching for the last 20 mins thinking of going long on a 12/31 for the stick but I just wasn’t feeling it, that’s about the only term (until the EOD) that I would consider at the moment.  I really, really think we take a dive next week and, if we don’t – THEN I have some buying to do.

  60. VZ, WM   Those are two nice dividend payers that I’ve owned in the past and want to own again for the long-term.  I want to open my position via a put sell or a buy/write.  Any suggestions as to a good opening level?

  61. eben22/HYG
    I definitely would not short this one. It is a very good long play. Since they do offer options, you could buy puts or sell calls if you have to be short. Phil’s pick is very good (10% div.) but unfortunately no options.

  62. eph…. I am with you on VZ. I have been waiting until the VIX changes direction and then enter by selling puts… Just have to wait for fear to return, I guess.

  63. eph/TBT
    Good idea to sell the puts… lots of reward compared to risk, I think. Timing is everything on this one, as I believe it will take a few months for the Fed to even start talking about a change in their current policy. IMHO

  64. Very Happy New Year to all!  C U on the other side!!!!!

  65. VZ/Eph – I’d go for the July $30/33 bull call spread at $1.90, selling the $30 puts for $1.35 for net .55 on the $3 spread with a put-to price at $30.55.  Lets say you were going to buy 200 shares for $6,600 hoping to make 20% ($1,300).  This play makes $1,225 on 5 contracts at $33 and downside is 500 put to you at $30.55 for $15,275 and they’d have to be below $28 for you to lose $1,300

    WM/Eph – You can do a similar play with them with the July $30/32.50 spread at $1.30, selling the $30 puts for $1.20, which is net .10 on the $2.50 spread that’s already $1.39 in the money.

    Good list Cris!

    Happy New Year Pharm!

  66. Phil,
    …feel free to send the prospectus on that Canadian co. if you are still interested.  I can take a look this weekend.  Thanks, and Happy New Year!!!!!

  67. Nice move down in copper ($3.34) and oil ($79.50), which hit .80 and dropped like a rock for another nice futures win.   Gold at $1,096, silver $16.86 and nat gas $5.557.  Gasoline holding up at $2.07 but you wouldn’t know it from VLO.

  68.  Happy new year to all. hope every one has a healthy year filled with joy.

  69. Guys thanks for the comments regarding shorting corp bonds.  Gel I don’t think I’d want to short your HYG either.  What about shorting something like LQD?  Investment grade corporate bonds. 

  70.  Happy new year Pharm! I just reloaded VIAP, any comments? Thanks.

  71. Thanks Onc, I have to get caught up this weekend! 


  72. That Ritholtz chart is a great reminder of what an interesting decade it was.  There are many days where I felt like this lady and lining up to slap me were GS, Greenspan, et al…

  73. VIAP/Cris – I am in with you here.  I think they could pop, just depends upon when.   I will try to put something together on them for all.  I  also have GNBT and ARIA.  VIAP may have to move to OTC.

  74. Happy New Year to all! Let’s hope next year is less manipulated and confusing……yeah right.
    Phil, great video of Jon Stewart….it tells it all. And great call on oil today….I like the way you strike at the edge of the channel….looking forward to more of that this coming year. I was not brave enough, but had we tried it at the bottom of the range around 72-73 last week, it would have been a very nice run up to 80ish.

  75. Hi, Phil, I have the following TZA spread: TZA $7.5/12.5 Apr calls, cost basis $2.30.  I bought it quite some time ago.  I know it’s insurance.  But any suggestion on adjustments so as to extend its usefulness?

  76. What gives with the pound, dollar is up against euro and yen;  I can’t find anything to support the pound move up.  I think it’s time to DD.

  77. Happy New Year everyone,
    I wish good health to you and your family ( anything else you can buy)
    start celebrating ( in Moscow 23:00)

  78. Pharm,
     What do you think of VIAP’s delisting? They’ve got some interesting things upcoming.

  79. ssdirk… Interesting article from Bloomberg re potential bond yield movement  Are you considering playing the closer in bond expiration dates, such as the 10 year? If so what is the preferred ETF? Thanks, and by the way, have a prosperous New Year !

  80. happy and prosperous new year from australia everybody,

  81.  Yes, in GNBT as well, although I missed taking some profit at .68 by .003! :/ Serves me right for trading at round pennies! :)
    Aria looks interesting. I’m still holding some CRIS, its doing better than I am! :)

  82. Classic slapping scene Mr. M! 

    After yesterday’s recap of the best trading sessions of 2009, and with the market poised to finish a banner year: the five worst sessions.

    Slate names it the "year of the vampire" and recounts the undead companies and things that are (in some cases inexplicably) still among us.

    Video/Ocelli – That is one of my all-time favorites.  Don’t forget most of those oil gains came in pre-market trading so it’s hard to say you would have gone with that trade as it’s very hard to go to sleep at night when you may lose many thousands on a bit of news.  I prefer to look for good resistance set-ups just ahead of the open or during hours when I have a pretty good feeling the news-flow and market sentiment will be in our favor.  Also, it’s a lot easier to go with a direction you believe in…

    NKE making new highs.

    TZA/Cwan – Well they are down to $1.60 but they are $2 in the money, that’s what happens to verticals during the in-between stages – you have to decide if you are willing to wait out the caller.  You can roll down to the July $6 calls for $1.20, which gives you the flexibility to roll the caller to the July $10 calls for + $1.10 if you get worried and you’d be sacrificing $1 of upside for a much lower break-even. 

    Pound/Humvee – It’s been doing that for days.  Just easier to pump than the Euro in order to keep the dollar down I think.

    Good priorities Tcha!  Happy New Year (and that goes for everyone as there’s only so many times I can write it!).

  83. Jash – isn’t it 2011 in australia already? :P
    Happy New Year everyone

  84. your quick

  85. Happy New Year to Phil and Everybody!
    Hi, Tchay, Are you physically located in Moscow?  How’s the weather over there?

  86. I think Blankfein bet someone in March that he can close the Dow at 10,500 on the nose on Dec 31st.  Probably like one of those Trading Places bets where two rich guys totally ruin people’s lives to win a $1 bet…

  87. Thanks for everything this year, Phil, and to everyone else as well. It’s been a pleasure interacting with and learning from all of you. God save the economy!  Peace.

  88. Hey!  Mr. Stick over at GS?  Don’t disappoint us!!  It’s your last chance in 2009!!!
    Regardless whether we like him or not, I am going to say Happy New Year to Mr. Stick, as well!

  89. Phil, just saw your suggestion on TZA.  Thanks a lot for that and for the whole year.
    Look forward to seeing you next week!

  90. A record 20 million-plus people collected unemployment benefits at some point in 2009.

    Washington Times slashes staff; sports section out

    If you bought a ten-year U.S. bond at the beginning of the year, it was a horrible bet. At the time, long-term interest rates had collapsed as much of the world looked for a ‘safe haven’ in U.S. government debt.  Yet 10-year bond buyers forgot that bonds do well in a crisis only if you own them before everyone has panicked, not after.  As shown below, the 10-year bond yield has increased substantially year to date, rising to about 3.8% from 2.5% in early January. That’s a huge move in 10-year bond terms.

    Bond prices move in the opposite direction of market yields, thus the old 10-year bond that went for $100 in January would now go for about $90 (Using a simple bond calculator) given that it has to pay 3.8% yield with its old low coupon. Look at any U.S. long-term bond ETF, it’ll be down for the year. Meanwhile, stocks and even junk bonds have rallied. Worse yet, if U.S. interest rates are hiked, or U.S. inflation picks up, the ten year bond in our example will likely fall even further in value. Simply put, it’s not a ‘safe haven’ investment when everyone is herding into it.

    chart of the day, 10-Year Treasury Note (2009) - updated

  91. Phil, can’t you just picture Blankfein reading the paper in the morning and mumbling to himself…"hmmmm, pork bellies…"

  92. You’ve created a great community here, Phil.  I am awfully  glad to have found it.  Best wishes to all in the coming year.

  93. The perfect end to a year of market manipulation: THE STICK !!!

  94. Happy new year indeed, SRS rising from the dead with VNO and BXP falling hard

    LOL Eben!

    Thanks Judah and thanks to all of you guys for being part of this community.  It’s so great to be able to have intelligent conversations about the markets on a daily basis!

    Uh, oh – someone is selling a lot!

  95. Can Joe Terranova sound dumber talking about how great everything is while the market is plunging?

  96. Gel – My thoughts about using TBT were that in theory if the 10-year moved +40%/-14% (as called for by MS/GS), the 20+ year would move even more…If you wanted to stick to the 10-year horizon, you could use PST, but it doesn’t look like it offers as good of options.  For the two plays proposed above, I was leaning towards the Jan’11 one, but will wait to see what the next couple of weeks hold…
    Thank you for the well wishes, same to you.  Happy New Year to all! 

  97. Oh how funny!!  Can there be one more trap before the new year?

  98. Nice 40% gain on those DIA puts from this morning – not bad for my last official Alert trade of the year.  8-)

  99. SRS  … Add SPG also finally correcting.   They must have left early for the party and forgot to program the stick into their super computer.

  100. Happy New Year EVERYONE!  Thanks for all the help!!! 

  101.  What just drove TLT?

  102.  No stick today!

  103. TmDecay/ stick
    LOL, I start thinking that they are russian programmers and now are drunk

  104. Maybe Blanfein’s bet was 10,400.

  105. Woops, make that 60%! 

    TLT/Big – I think it was the chart I just put up…

    This is not moving the commodities at all so a very interesting sell-off.

  106. Tchay…. I did not think these guys had any interest in Vodka…. just numbers  LOL

  107. This finish is the shitz… that OK – I’ll get even next year.

  108. This finish is the shitz… that OK – I’ll get even next year.

  109. WOW, I think emerging market on Monday will collapse 5%

  110. Phil, yes you nailed the DIA puts…..that was a nice finish--not too rash or risky but was based on what was happening in front of us, so the likelihood of success was better.
    BTW do you ever play options on the futures? It seems to me that the bid/ask spreads and the investing time frame you are suggesting make that foolish, but wondered what you thought. And yes, sleeping might be hard with oil futures over many days, so I wisely declined. I think sticking to resistance/support lines for future plays is wiser.

  111. Ahhh…..the good ol’ days!!

  112. At first I was surprised that they would let it end like this but then I remembered they will have a 20% gain headline for the year and they can molest that one to death!

  113. Hi Phil ERX hold long Feb 39c @ 4.98 now 4.35 now  and short feb 43c @ 2.98 now 2.70
    in one of you previous recommendations you mention to make some changes if the stk goes below 40.00 can not remember any more your recommendation please refresh thanks

  114.  Picked up EWJ jan 10 puts for only 7 cent premium,

  115. Futures options/Ocelli – You mean like the SPX?  Sure, mostly the RUT.  We had a huge winner with them on expiration week a couple of weeks ago. 

    Wow, 80% profit on that morning Alert!  I think I did my job for the day….

    ERX/Yodi – I recommended ERX long?  You have me stumped.  Let’s take a look at it next week as we can’t count on these prices holding up.

    Well, I have to go do a beer run but I hope everyone has a happy and healthy New Year.

    Stay safe tonight – don’t forget what taxis are for!

  116.  Hey there a button to access the alerts off the website or do I eed to check email?

  117. Darn! Waiting 4 the famous stick save as not able to climb on board Dia p-OH well! Have a good one &a  good new Year to everyone!!! Will catch another IN THE NEW YEAR! Moscow was sure beautiful!!

  118. Happy New Year everyone !
    Phil … cool charts, where did you get the Fibonacci’s ?  I need that … what are you using ?

  119.  Cap, Phil’s charts were made with the paid version of

  120. May you be blessed with good fortune in the coming year…CHEERS everyone!!

  121. CHEERS to ALL !!  May 2010 be even MORE profitable for you.

  122. Phil,
    This dialog can wait, so go do your beer run.
    Not sure if we are talking about the same thing regarding options on futures, rather than just playing the options. What I was asking about were options on futures contracts, like on the /CL. So rather than buying a contract in /CL, buy an option on the contract. TOS added these options not too ago apparently.

  123. VERY interesting discussion about China over at Zero Hedge here …. read the comments, such as this:
    by chinaguy
    on Thu, 12/31/2009 – 15:11

    Ok guys, I’m not a China basher, China has been very good to me. I’ve made a fortune working there for 25 years but I’m going to lay down some very fundamental realties about China.  and you can take this diatribe with as many grains of salt as you like.
    You can not rely on any statistics coming out of Beijing. None of them. Not growth, employment, power consumption, air quality, number of Chinese traveling abroad. None of it. No Chinese business man would make a critical decision based on stats out of Beijing. They base their decisions on reading between the lines and what they hear from their connections in the Party.
    I just laugh when I hear people saying: “well power consumption in China is this amount, therefore GDP must be at this level. Basing analysis on flawed data can only give flawed results.
    Any conclusion, about the Chinese economy has to come from first hand accounts (sorry), external audits and counting container loads at Long Beach.
    China, in spite of it’s much touted reserves, is really not two trillion dollars liquid.   In 2006 Ernst and Young released a report concluding that the "nonperforming" loans of China’s banks totaled $911 billion (40 percent of China’s GDP):
    This amount was over 500% larger than Beijing’s official position of $164 billion in NPL. Beijing screamed bloody murder. Who knows exactly how much pressure and by whom was placed on E & Y, but they quickly withdrew the report and replaced it with one which exactly agreed with Beijing’s figures.
         Ernst & Young likes very much to work in China. They would not have released this shit storm lightly. Occam’s Razor would say that China’s NPL are at least 900 billion and in 2009 probably over one trillion in NLP. So with China’s foreign reserves at $2 trillion…. you can scratch half of that.
    Regarding real estate. I have personally tracked individual sales of several apartment complexes in Hangzhou and Shanghai for years. Residential RE has increased about 300% to 400% in the past four years. We are talking about decent, centrally located apartments in the $500k – $1,000K range in cities where upper management (who would earn low six figure in the USA) make about $20K – $40K. The vast majority of workers are making less. Senior software developers, for example, make about $15k/year How are people affording $500K apartments with these wages? My conclusion is that Chinese residential real estate in an enormous bubble.  Chinese CRE is in the same boat it is here, but probably worse because bank loans do not need to go through any feasibility study if you have the right connections, and, the big players in Chinese CRE have the right connections.
    Growth.  I made a survey of industrial areas in Zhejiang, Hubei and Shannxi provinces several months ago. Hubei and Shannxi are provinces where heavy equipment, cars & aircraft are made. Those areas were busy but static, not adding jobs. The new “high tech” corridor in Hangzhou, Zhejiang was sucking wind. My conclusion based on these observations was: “8% growth” no f-ing way.
    Extend and pretend. There is no audit of the Chinese central government. None. Decisions are made behind closed doors and the news that is released is whatever they decide to release. That’s just it.
    My conclusion is that China is a lot less solvent that we are lead to believe, both commercial and residential RE are in a tremendous bubble and growth is no where near 8%. The largest problem IMO when it comes to making decisions about china is that the salient facts are all hidden. Opaque. There is no way to learn how bad things are and when it will collapse. It might not collapse at all, but China is much worse off than Beijing would like us to believe.

  124. Cap
    I agree with you 150% ( think that situation even worth that you think)
    oficials always lie, but if it is no opposition and media fully controled they lie even more
    I think as soon as correction will started in US, China and anything else will drop like rock, everybody still wathching US market.
    it is like in anecdote:
    when cheff of Escemous come to metio guy and asked what kind of winter he expecting, he just looked to the window and said that it should be very cold, because escimoses picked up twice as much woods for winter :)