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Weekend Ramblings – Looking for Those Green Shoots

What a crazy week!

I've been very busy updating the Buy List for Members so now let's turn to what, if anything, justifies this bullish posture now that we are finally over our breakout levels.  I am DETERMINED to find good news to report so we'll see what I can dig up.  Of course, our buying premise is based on my 2010 outlook that determined we don't really care about the Economy, not the one that affects the little people, the only ECONOMY the stock market cares about is the one that affects those of us in the top 10% of society as we are the only ones still playing the market anyway.

We hit the targets I laid out for this run back when I ran the "Last Charts of the Decade" back on Dec 30th.  Those charts had the Fibonacci levels there so let's keep an eye on the next set of levels, assuming we get some follow-through next week (still uncertain) to confirm the breakout.  Until we get that confirmation, let's augment our Buy List with the same hedges we used to protect our old bullish positions as I updated in our last hedging article:

  • DXD Apr $26/33 bull call spread was net $2.40, now $2.20, down 8%.  I still like this one as it's $2.31 in the money and that last 200-point run only cost us .20 so I think that's an acceptable loss against our long gains with the 300% potential upside return if the Dow does fall (about 10% should do it).
  • FAZ July $20/35 bull call spread at $2.60, now $1.60, down 38% – these got murdered but XLF was one of our key long plays and they flew for us this month.  When you get a spread that drops like this you can roll both ends lower and here we can drop to the July $15 puts for + $1.60, which puts us $1.80 in the money and is excellent protection against aggressive upside bets on the financials. 
  • FAZ July $15 puts sold for $2.10, now $2.45, down 16%.  This is why we prefer selling premium for coverage - so much less damage on the same FAZ ETF in the same month.  The only difference is one side we bought premium and one side we sold it.  If FAZ breaks below $16, I think we can assume the financials aren't likely to run back down and this play becomes less desirable.
  • SDS March $34/44 bull call spread $2, now $1.40 - down 30% – This was our high risk trade with a 5:1 payoff that fared no better than the FAZ spread.  I still like covering the S&P with this until they break over 1,150 (now 1,144). 
  • SMN Apr $9 calls at .85  now .45, down 47% – it makes sense that if the economy begins to fall, materials will pull back but materials have instead been on a tear and this unhedged position suffered deeply.  Not a problem if you were playing the steel makers and miners to the upside and we'll find out during earnings if the amazing run-up in that sector has been justified.  

We experimented with a very bearish stance in the $100K Virtual Portfolio after we went to cash into the New Year and I decided it would be fun to be 100% bearish with 20%, using the $100KP to set up bearish positions.  Well it turns out it wasn't fun at all and we lost almost 50% of that 20% playing aggressively for a downturn that didn't come.  That's why we're now redeploying cash with our brains firmly switched off and just sticking to the charts, back to using the winning formula we followed last year of well-hedged bullish positions with disaster protection (that hasn't been needed yet!).

Remember, your hedges are supposed to lose money if the bulk of your virtual portfolio is flying.  Allocating 5-10% of your virtual portfolio to hedges like these always makes sense, especially when allocated against our usual collection of buy/writes and other spreads that generate 5-10% per month in profits.  Effectively, you are giving up about 1/4-1/3 of your returns in exchange for piece of mind – it's not a bad trade-off but it's hard to keep motivated to hedge when the market goes up and up and up and you begin to feel like it's throwing money down the drain.  

I would caution that this attitude is like giving up on life or health insurance because you haven't gotten sick or died yet – eventually, there's always a downside and, when it comes, you will either be protected or you won't.  The funny thing about stock insurance is that, unlike life insurance, you can actually use that money to take advantage of a dead market and BUYBUYBUY at the bottom.  The difference between the money made by people who had cash at the March lows and the people who simply "rode it out" is astronomical.  These major market corrections happen, on average, once every 10 years and hedging can turn market disasters into the opportunities of a lifetime – but only if you use them!

 It's very important to read the comments under this post as we discussed virtual portfolio allocations and scaling in and there's an XLF trade and other fun stuff to consider.  Now, on with the reading:

Rupert's NY Post has a good indictment on Tim Geithner.  They quote a known troublemaker named Josh Rosner:

“We’ve seen an ongoing effort by Tim Geithner at the Federal Reserve and Treasury to do the public’s work out of the public’s view in ways that benefit the banking interest ahead of the public’s,” said Joshua Rosner, a managing director at Graham Fisher & Co. “It was under Tim’s direction that we were given stress tests that were less than transparent and less than credible,” he added.

Here's a good one from Bill Moyers, Barry posted the video HERE:

Ah, yes — Goldman Sachs, that paragon of profit and probity — which bet big on the housing bubble and when it popped — presto! — converted itself from an investment firm into a bank so it could get your bailout money. Now consider this: in 2008, Goldman Sachs paid an effective tax rate of just one percent. I'm not making that up — one percent! — while their CEO Lloyd Blankfein pulled down over $40 million. That's God's work, if you can get it. And, believe me, Wall Street bankers know how to get it.

What's their secret? How do the bankers pick our pockets so thoroughly with barely a pang of guilt or punishment? You will find some answers in this current edition of "Mother Jones" magazine, one of the best sources of investigative journalism around today. Most of this issue is devoted to what the editors call "Wall Street's accountability deficit."

Here's a nice green shoot – Temporary help has really shot up with almost 200,000 more monthly hires than we had in April which means companies "sort of/kind of" want 200,000 more workers.  That should really cheer up out 18M unemployed people, right?

Unfortunately, 40% of the people who are unemployed have been unemployed 27 weeks or more and the chart showing that we have gained no jobs this past decade is shocking when viewed in the light of the 5 previous decades, where we averaged over 25% jobs growth for the decade.  There has been noise this weekend about another jobs stimulus package coming out very soon and we do need something but I'm losing faith in this adminstration's ability to do anything other than lining Wall Street's pockets so I'm not putting a lot of faith in a new program actually helping anyone other than a few examples they'll need to prop up when it's time to get on TV and talk about what a great success the new program has been. 

The NY Times has now featured in the Magazine Section (a big deal to us readers) the National movement of people just telling baniks to shove the mortgage up their asses.  John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.”  The Bankers are generally screwed when people simply decide to walk away so they are now pushing the "morality" issue of walking away from a bad home loan. 

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property.  In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare.

25% of all homes are underwater and if you have a $600,000 mortgage ($5,000 a month) on a home that is worth $400,000 and you don't think it's coming back in the next 10 years and you can rent an equivalent propert for $3,000 a month then it's simply a poor business decision to remain in your home.  If this turns into a trend (look for infomercials on TV), then the banks are going to be very screwed.  As it is 10% of the homes in this country are unoccupied.

I don't know if you can trust the Sun (a UK tabliod) but this is wild:  The 23-year-old Londoner was attacked by a waiter in a hotel toilet after celebrating her engagement to her boyfriend with drinks.  But after she admitted boozing and sharing a hotel room with her fiancé, cops in the strict Islamic state arrested her for "illegal drinking" outside licensed premises and having sex outside marriage.  Her 44-year-old fiancé, also from London, was charged with the same offences. And both were thrown in police cells by officers who paid little heed to the rape.

I found this great greeting on the Tea Party Nation web site, maybe Cap can use it for his site too:


New growth business to keep an eye on:  Denver has more medical-marijuana shops than Starbucks locations.  Denver is legalizing the shops in order to tax them and California is voting on a similar measure on Tuesday.  Illinois is leaning that way too.  

We have hearings coming up from the Financial Crisis Inquiry Commission, which is headed by Phil Angelides, the former California treasurer who is not too happy with the way California lost tens of Billions of dollars in AAA investments that were recommended to them by their highly paid advisors at GS, MS et al.  He says he wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.  Among the big-name witnesses that the Angelides commission has called for this week is Goldman’s Blankfein.  Geithner, Paulson and Bernanke (who now blames "weak regulation" for causing the financial crisis)  should be next.

Related news item: "Though it got off to a slow start, the Financial Crisis Inquiry Commission starts its public hearings with a bang, calling in Jamie Dimon (JPM), Brian Moynihan (BAC), John Mack (MS), Lloyd Blankfein (GS) and the FDIC's Bair to testify this week. Up at bat later in the year will be Bernanke and Geithner, with subpoenas as needed."

From the Daily show (good clip):  "As you've heard, after promising numerous times on the campaign trail to broadcast Senate health care negotiations on C-SPAN, President Obama is now blocking the network's cameras from the chambers. Of course, this is really in the best interest of C-SPAN, who would be heavily fined by the FCC if they aired all those Senators giving sloppy blowjobs to the insurance companies."   

Hey, there is some integrity in Washington after all, or at least in Alabama as Parker Griffith, the Democratic Congressman who flipped parties, lost his entire staff as they all quit in protest


Very good article in the Atlantic about "How America Can Rise Again" with great observations from Jim Fallows, who just got back from 3 years in China:  "The idea of “finally” going to hell is a modest joke too. Through the entirety of my conscious life, America has been on the brink of ruination, or so we have heard, from the launch of Sputnik through whatever is the latest indication of national falling apart or falling behind. Pick a year over the past half century, and I will supply an indicator of what at the time seemed a major turning point for the worse. The first oil shocks and gas-station lines in peacetime history; the first presidential resignation ever; assassinations and riots; failing schools; failing industries; polarized politics; vulgarized culture; polluted air and water; divisive and inconclusive wars. It all seemed so terrible, during a period defined in retrospect as a time of unquestioned American strength."

[ABREAST]WSJ says Q4 earnings should be great with the following outlook:

In large part that outsized gain reflects the fact that results in the fourth quarter of 2008 were crushed by an economy then in free-fall. Consumer discretionary, materials and financial companies are expected to show the biggest bounce.

But the profit recovery will also likely reflect the potent combination of aggressive cost cutting and an economy that, while far from healthy, is growing. Multinationals such as industrials, global consumer-goods producers and technology companies will likely see a boost from last year's decline in the dollar, which inflates the value of foreign profits.  And, as has been the case recently, especially strong results are expected from firms with big exposure to faster-growing emerging-markets economies, particularly among technology names and materials producers.

Very green shootThe government will be hiring 1.2M census takers in the first half of the year so about 200,000 a month should guarantee us positive employment numbers from here on out.  Predictions are that corporate America will add 1.1M jobs this year so 300,000 jobs a month should be expected although I wonder what number we'll see when those 1.2M census takers are done (or maybe they'll find a way to make those jobs permanent?).  The census has already hired 200,000 people in 2009 (didn't help much) but now the real work begins.  This is, by the way, 3 times more people than were hired in 2000.

Robert Barbera and Charles Weise argue for a job-rich recovery, saying "jobless recovery" adherents misunderstand why employment collapsed: "The drastic reduction in inventories and payrolls was not a result of restructuring: it was symptomatic of panic, the same panic that caused the massive sell-off in equities, corporate bonds and mortgage-backed securities."

Quick list of good reads from Seeking Alpha's Market Currents this weekend:

  • Roger Nusbaum considers whether infrastructure can be considered a cohesive enough asset class to be suitable for ETF investing.
  • It's only slightly cheaper to insure against a U.K. default in the derivatives market than it is to insure against Portugal's default, leading Jim Jubak to think the unthinkable: Anarchy in the U.K.? (And then, why not the U.S.?)
  • Venezuela's Chavez announced a major currency devaluation late Friday in an attempt to shore up government finances and rev up the economy ahead of key elections this year. The devaluation could add five percentage points to the country's 27% inflation rate, already one of the highest in the world.
  • Noting banks seem to be more willing to take on risk, FSB's Mario Draghi urges prudence: "Bankers should be aware of the fragilities in the system. They should have in mind that there are many fragile sides to this beginning of the recovery."
  • iSuppli's teardown of Google's (GOOG) Nexus One pegs its base cost (BOM) at $174.15. Firm says the Nexus One has "the most advanced features of any smartphone ever dissected… a remarkable feat given the product's BOM is similar to comparable products introduced during the past year."
  • Goldman Sachs (GS) has a new enemy, with Hank Greenberg urging Congress to investigate the degree to which Goldman contributed to AIG's (AIG) near-collapse. And Goldman fires back, ridiculing Greenberg's reliance on news reports to form his opinion.
  • Very green shoot: China's imports surged 56% to a record in December while exports rose for the first time in 14 months, climbing 17.7% Y/Y. If the numbers are correct, China's economy is doing much better than expected and consumer spending among China's trading partners, especially the U.S., looks like it's on the mend. (ETFs: PGJ, FXI)
  • Americans sent a record $64B into foreign mutual funds last year, and Barron's thinks the trend will continue in 2010. Despite strong growth in emerging market equities, those stocks still aren't overly expensive and foreign markets present a nice diversification away from a potentially vulnerable dollar.
  • Sure, this was a bad recession, but fundamentally it wasn't any different than the ones that came before, writes Accrued Interest. Which means if the Fed wants to maintain a stable monetary policy, it better start removing extraordinary market accommodations now.
  • Boston Fed's Rosengren says he expects mortgage rates will rise up to 0.75 points in coming months as the Fed winds down its MBS purchase program. The Fed could extend the program if the economy deteriorates dramatically, but, "that's not in our forecast – that's not what we're expecting."
  • An insider demystifies high-frequency trading.  
  • NY Fed's chief lawyer says no one told Tim Geithner about the Fed's efforts to muzzle AIG's (AIG) bailout disclosures because they "did not warrant" his personal attention. Rep. Darrell Issa calls the letter "staggering" and says it "raises more questions on the inner-workings" of the Fed.

So just the usual craziness this weekend.  Should be a fun week ahead.


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  1. Phil,
    Need some guidance on Jan DIA puts. I held these on Friday, getting a beating on the bottom of my feet by the "stick" at the close. So, I am in 103′s; 105′s and 106′s for an avg. of $.72; now $.46.
    I admit to feeling a bit ghoulish perusing the morning news looking for some tragedy to spook the market on Monday but don’t see it now. Suggestions on a plan to try get even on this fiasco?

  2. Phil the prognosticator!(hope I spelled that right) good call earlier in the week about some random pipeline attack before options expire, wonder how much oil will go up….

  3. Phil,
    I took 2 of the disaster plays you outlined (DXD and FAZ) both are doing OK – up a little on DXD and down a little on FAZ (will roll as suggested). On FAZ I sold the July 14 puts, not the 15. Should I roll up to the 15 strike or keep the 14?
    Also on EDZ I bought the April 2 calls and April 3 calls, down about 35% each on those. Also sold the April 5 calls and up about 60% on those. Overall down a small amount. I also own the stock, down about 45%. Any suggestions on these?

  4. Phil – do you have a chart of volume based on dollar value traded rather than shares -
    I have talked with a couple people that are saying that volume was distorted by low share price -
    any thoughts

  5. Phil -
    TBT – bought Jan 2011 calls / 45s for 9.45 -  4.45 in premium – looking to sell near months to work down the premium -
    Would you sell the atm calls or otm? Feb. 52s are 1+ If I can do that 8 times – I have a free play –
    If sell atm feb 50s for 2bucks – I should also just be able to roll out -
    What would your strategy be? Thanks

  6. Phil,
    I also got killed on the DIA $103 puts, losing 3/4 of my original $4,400 investment.  It would be nice if there was a way to make this back right away, because that left a really bad taste in my mouth.  But it sounds like everyone here had a bad week, not just me.
    If you could give me some more detailed advice about what you think should be done this week, I would appreciate that.  You have updated your buy list with some hedges, but I’m not sure at what levels I should buy, how much of my portfolio I should devote to each trade on your list, how much I should keep in cash, and so on.  Could you take one of the examples in the buy list and spell out exactly what you would do with a little more detail?  For example, you could say if this stock is trading in this range tomorrow, then buy so many calls at this strike price and sell so many at this strike price, with a net credit of this amount.  And then if the stock goes up or down this much, you would want to exit out of this position or close one half of the spread, etc.  I just need a real detailed example of what you would actually do on your broker’s trading screen (although I can probably figure out most of the details).  And with 97K left in my own 100K potfolio, some advice on position sizing and how many of these trades I should try to take advantage of would help.  Lastly, I guess I need to keep margin requirements in mind, since I obviously can’t tie up 100% of my cash in these trades.

  7. Phil or anyone: I need a recommendation on software to use for daily record keeping & reports for tax time. Thank you

  8. dflam – find out what software is compatable with your broker -
    gainskeeper is one – think tos gives it for free – a reason to switch -
    There is another major one that people have talked about – just google wash sale – or schedule d on the site and see what you get

  9. dflam – here it is
    December 21st, 2009 at 12:35 pm | Permalink  
    Last Friday someone asked whether certain trades were wash sales.  I just got an idea:
    Go google search on something like "wash sale software".  You’ll find a few products, including Gainskeeper, TradeLog, and TradeAccountant.  They all have 30-day free trial.  You can try them out by manually entering various trade scenarios and see what they say.
    BTW, I’ve mentioned this trick several months ago on this board: If you do have wash sale positions still open, and if you want to take the losses to offset other gains, year-end is a good time to close them.  If you close those positions on or before 12/31, and wait 30 days (ie, don’t trade those positions for 30 days to trigger another wash sale), you can claim the losses for 2009.

  10.  Phil et al……any comments on this interesting article?

  11. Phil,
    I took 2 of the disaster plays you outlined (DXD and FAZ) both are doing OK – up a little on DXD and down a little on FAZ (will roll as suggested). On FAZ I sold the July 14 puts, not the 15. Should I roll up to the 15 strike or keep the 14?
    Also on EDZ I bought the April 2 calls and April 3 calls, down about 35% each on those. Also sold the April 5 calls and up about 60% on those. Overall down a small amount. I also own the stock, down about 45%. Any suggestions on these?

  12. Sorry for the double post, I don’t know what happened – internet a little slow here in Thailand, timed out and reloaded?

  13. Iflanteman
    The article states this hedge fund manager is known as one of the largest short sellers. He obviously has a mind set that guides his opinions and hopes. I think, in order for one to take his opinions seriously, one must look at prevailing debt, growth rates and P/E ratios in order to equate risk. I presonally believe the ratio of profit growth expectations to price of a stock is key, and at present P/E ratios are modest. Also, one has to evaluate free cash flow relative to debt in order to see if the entity can sustain debt payments, while still growing at projected rates. In order to be a pesimist, as most short sellers are, one must have the facts to sustain their negative projections. I, personally like the Chinese investments I have made and have been careful to analyze the balance sheets, as well as sector demand, before investing. I am confident there will be many negative investments that will surface for the usual reasons (bad management etc) but to generalize the situation without solid facts is wishful thinking at best, and mere speculation at the least.

  14. dflam –
    How many trades do you make each year, how many brokers?? Which ones?

  15. On shorting china, what a great timing that the government just approved future index and get this, short selling!

  16.  Peter and all stranglers,
    After communicating with TOS and spent some time digging deeper on PM margin calculation and found it is non-trivial to put into my simulation so the project is suspended for now.
    Let’s explore some of the issues of SPX and RUT monthly (or 6 weeks) short strangles: 
    1. VIX down, if to 15 range, one would need to sell more contract to get to the 6% monthly goal? or taking tighter ranges, like +8% -10%? 
    2. After Dec and the last week’s run, my belief is this will just grind higher, with occasional small drops since there’s PPT, and the truth is, so much liquidity with no alternative investment choices. If this is the case, any suggestion as to how to augment the short strangler to at least to ride with the bulls? 
    If we’re to take +10% and -12% strangler as target, maybe adding a +5% bull call spread, similar to Peter’s SPX crazy play (for downside protection)? 

  17. Phil- on a macro level, how does holding above our levels and being technically bullish impact overall portfolio allocations (percentages) to bullish plays, bearish plays, and cash? Is the only thing that would change these percentages a retest of the levels you most recently mentioned, and when/how are levels reassessed as the technical rally continues while we all wonder if/when fundamentals will be reflected in the markets? Thanks!

  18. Good morning! 

    I got caught up yesterday and didn’t get back ’till late so never finished the post, will catch up a bit now.

    DIA/Pstas – There’s going to be a lot of premium erosion this morning and the futures are pointing up.  Hopefully these are covers and not a bet but, either way, your Jan puts have a delta of .40ish and you can roll to the Feb $99 puts at .54, which have a .14 delta and, depending on the market, you can then decide if you want to sell puts and roll up (you can sell the $105 puts for $1.75 and roll to the $106 puts for  $2.25 or you can sell the $102 puts for .95 as a bullish cover, looking to get your .72 back (and only rolling if you have to).  The bottom line is you only give up 1/2 your delta to quadruple the amount of time you have to get a break – hoping for it to come in the next 5 days makes no sense.

    Pipline/Jrom – I wish I could claim I was a good predictor but it’s about as obvious as predicting a stick save – there was no way they were buying off that horrible inventory report without having a confirmed attack in the ready from Rent-A-Rebel yet we will be expected to continue to believe that multi-Billion dollar corporations like CVX and Shell who employ over 100,000 people and make, between them,  $150M a day while spending more than $1Bn a day on operations, can’t afford a few security guards for their oil platforms and pipelines.  It’s not a conspiracy though, it’s simple economics.  A $5 a day guard (good wages in Nigeria) who stops the Rebels from attacking a pipeline also stops the price of oil from rising $2 a barrel on the attack and THAT would cost the companies (as it’s 2.5% of an $80 barrel) $25M a day in sales revenue and that probably all comes off profits so about 17% of daily profits lost by hiring a $5 a day security guard – that simple makes no economic sense so they don’t do it.  You don’t need a conspiracy to enforce the kind of behavior that allows this to happen, you simply need to construct a system that rewards criminal behavior more than it rewards say, providing cheap and reliable fuel to the public…

    FAZ/Jomp – No need to roll it.  It’s working and you get your cash so be happy.  They are still a respectable $2 and the above plays are for people coming in fresh.  On EDZ you went a little heavy owning the stock and buying the calls.  April is starting to feel very close but, sadly, they only go out to July.  I’d cash the stock at $4.39 and the $2s at $2.60 and sell the July $4 puts for .80, which is 20% of the stock and 30% of the $2s and your worst case is it’s put back to you cheaper than you own it now (and, of course, you can roll).  If we start going up you can stop out the $5s you sold or just add more $3s although you may want to take advantage of the VIX and roll out to the July $3s for .15.

    Volume/Samz – I think you are right but I don’t see that chart.  TOTAL volume on the NYSE was about a billion shares on Friday and C changed hands 600M times.  This makes a total farce out of the markets where you can’t rely on any statistics you see.  It’s like basing a real estate valuation model on a single sale in a month when there are hundreds of homes offered for sale that no one is buying.  Oh wait – we do that too…..

    TBT/Samz – I need to add our TBT, XLF and UYG plays to the Buy List as they are essential to have in this market!  They are up 15% this month and my worry is that we have a sharp rising event that blows you out of calls you sell.  I assume you have profits to protect so why not just cash the $9.45 and move to the 2011 $50/62 spread for $3.80 and look to either pull the plug at $2 or sell the $44 puts, now $2.50 for $4 or better to cover the vertical (so only triggers if we have a sell-off).  As a spread, I’d go with the June $55s at $2.20 and sell the March $54s for $1.10 since the June $61s are $1.10 which means you are protected from a $6 move down (back to $44) and also that you can roll the caller to a $6 vertical on the $1.10 spread to the upside. 

    Buy List/Ernest – Nothing wrong with taking a gamble on the DIA puts as you did the right thing and went with a small percent of your portfolio.  The hard part is admitting we blew it and moving on.  We didn’t get the big, nasty dip and the markets do look strong so it’s time to play the upside.  Don’t worry about the buy list, I’ll be keeping an eye open for good entries but, with a $100KP, it’s best to allocate about $5K per position and scale in at about $1,250 on the initial entries.  That means you should flat out stay away from things you can’t afford and jump on things you can like XLF 2011 $13s for $3, selling March $16 calls for .37 and March $14 puts for .30, which is net $2.33 on the $3 spread.  In this case, selling 10 naked March $14 puts requires $1,834 in margin and the purchase of the call spread would be another $2,430 so we have to decide how willing we are to stick with it and roll it.  Since we don’t REALLY want 1,000 shares of XLF at $14 in a $100KP, we’re better off going with 5 of these spreads as an entry.  Since we have an upside of 500 x .67 = $335 in 3 months on a commitment of just $2,132, it’s a very acceptable use of cash for a position.  That’s how you want to analyze each position you consider – what is your best and worst case scenarios and can you live with each?

    China Crash/Iflan – I think it’s very valid and I’ve been hearing horrible scenarios about what’s really happening in China but it doesn’t seem to be bothering US or EU or Asian investors one bit so we have to go with the flow in China, which will (like our own markets) keep going up until they crash.  I know it’s crazy but, at a certain point in 1998 or 1999 you have to finally throw up your hands and buy the start up with a sock-puppet for a spokesman or buy Yahoo at $150 at 1,000 times earnings, make the fast money and hope you have the good sense to get out before it all hits the fan. 

    China/Balance – Yes, I noted that last week as it’s also timed with GS and their Chinese partners opening up hundreds of retail brokerages so they can take all the Chinese bullish bets and then make Billions betting against their clients, just like they did in our crash.  The good news is, this should take a while to play out so maybe we get a massive run in China again before it pops. 

    Allocations/Fein – I think that, as long as we hold these levels, then we should be 60% bullish but with a nice amount of cash – just in case.  Consider this early scaling and keep in mind that we’re favoring the buy/write plays, which have a built-in hedge of 15-20% so you don’t want to over-cover those.  Ahead of earnings, we shouldn’t be allocating more than about 1/4 of the cash as we may want to bargain hunt on companies that miss (unless they all miss and the whole market crashes).  For now, we should only be buying stocks we REALLY want to DD on if they drop 20% or more.  Fundamentals are out the window and we’ll see what kind of reactions we get to earnings but keep in mind that public US corporations ARE the top 10% and they are doing pretty well right now as they have low borrowing costs, cheap labor and government support.  As long as the Fed keeps rates low and the government keeps pumping money into the economy and the bottom 90% still can’t find jobs – the 9,000 public companies we trade can keep fiddling while Rome burns

  19. Gainskeeper on TOS go to login to manage my acc go to my acc taxes and you have the gainskeeper on your trades

  20. Good morning Phil,
    Any thoughts of buying any puts on /CL