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Philly Fed Thursday – The Fix is In!

After what looked like a good recovery, there are signs that Northeast Manufacturing is in shap decline.

Jobless numbers are on the upswing as temporary holiday hiring is being trimmed faster than census jobs can pick up the slack.  We had a big build in inventories in Q4 as clearly manufacturers were overly optimistic and a sharp rise in commodity prices during the quarter didn't help much either.  We get the official report at 10am today and the most optimistic expectations have us down about 10% from last month's 20.4 reading so we can expect today's report to move the market one way or the other

Not to worry though because, as Jonathan Weil points out in Bloomberg today, "the fix is in" on Wall Street as the 10-member Financial Crisis Inquiry Commission has been given 11 months and $8M to examine the causes of the financial crisis, including Fannie Mae’s 2008 meltdown and the near-deaths of at least 10 other major financial institutions, including Lehman Brothers Holdings Inc., American International Group Inc. and Citigroup.  The statute that created the commission says its report specifically must tackle the role of regulators, monetary policy, accounting practices, tax policy, fraud, capital requirements, credit raters, executive pay, derivatives and short selling — plus a dozen other required areas of study.  

Wow, that's a lot of ground to cover!  To put in perspective what a joke this is, Weil points out that when Fannie Mae hired former U.S. Senator Warren Rudman in 2004 to investigate how its accounting practices had gone awry, his law firm’s final report took 17 months to complete and cost the company more than $60 Million.  $60M in 2004 to investigate ONE firm over 17 months and Congress has allocated $8M over 11 months to investigate a DOZEN firms as well as get an overview of the entire financial system.  What are the odds the commission can conduct all these investigations by mid-December and do a thorough job?  About zero, which clearly was Congress’s intent all along.  If this is a joke, it's a bad one and it's on US!


This is why we're bullish on the markets (or the market manipulators, at least) - fundamentals don't matter!  The banksters have taken control of government and are flat out laughing at us, the citizens of the US (and the world) as we cry "foul" and try to reign in the madness.  This is not just a US problem, it's a global problem but you can't fight "THEM" when GS is reporting $4.95Bn in QUARTERLY profits this morning (as much as XOM) on $9.62Bn in revenues (1/5 of XOMs).  $4.95Bn buys you a LOT of good government, especially when you consider the ENTIRE salary of ALL of Congress, including the House, the Senate, the Executive Branch and the Supreme Court is less than $100M or 1/50th of GS's QUARTERLY PROFIT or we could say that buying out the entire US Government would consume about 1/50th of their QUARTERLY expenses

There are, in fact, individual traders who draw a bonus that is larger than the combined salary of the entire US government.  Goldman alone spent over $5M lobbying Congress in 2009, part of the $5Bn that has been spent on lobbying by the financial institutions over the past decade to "help shape our policy decisions".  That's an average of 5 TIMES the ENTIRE salaries of the US government spent lobbying to them EACH year of the past decade.  Check out the haul taken in by the Financial Service Committee alone!  Do you think the bottom 90% are fighting a losing battle here or what?  Face it, they haven't got a chance in hell of changing anything so let's line up the sheeple and get out out shears because spring is in the air and it's fleecing time!

8:30 Update:  Woops, we got our jobs numbers and they were quite a bit worse than expected with 482,000 people filing claims last month and continuing claims at 4.6M – 100,000 more than estimated.  Hey, what's 100,000 more or less lost jobs between friends, right?  We'll be waiting for Leading Economic Indicators and the Fabulous Philly Fed report at 10, followed by crude inventories at 10:30 where the other fix is in as rumor has it that refineries cut production by ANOTHER 2.5%, down to just 77% of capacity. 

A 2.5% production cut on 19Mbd of US consumption is 3.3Mb a week that the refiniry cabal (who just so happen to be the oil producing cabal who make money on shortages) is shorting the US supply chain.  Combine that with record low imports and we have all the recipies for a drawdown in crude today.  We knew about all this last night so we went long on oil futures at $77.50 and got a ride all the way up to $78.20 and then we stopped out and this morning in Member Chat I called the play again at $77.50 and again we got a ride up to $78.20 so VIVA LA MANIPULATORS – may you always be so obvious!

Similarly we did quite well yesterday playing for Mr. Stick to pump up the markets into the close.  We are having a lot of fun now that we have decided to stop complaining (well a little complaining) and simply enjoy our status in the top 10% club and partake in the daily fleecings.  I even posted a day trade up in Seeking Alpha's Stock Talk (where you can follow me live) to buy the DIA $107 calls at .95 and they hit our goal at $1.20 just into the close for a nice 26% gain on the day.  This is the kind of thing we do at PSW every day and you can sign up HERE or just follow me on Seeking Alpha for the occasional freebie. 

China's GDP came in at a red hot 10.7% and that spooked the Hang Seng and sent them down 423 points (2%), back below 21,000 to 20,862.  The Shanghai held flat at 3,158 and India fell 2.5% but that didn't bother Japan as the Nikkei rose 1.22%, all happy that China was growing quickly (maybe they'll by more Toyotas) AND that the dollar ran all the way up to 92 Yen last night (but was rejected). 

Our friend Nouriel Roubini says the global stock rally may be coming to an end but he's an NYU professor and firmly in the bottom 90% so we have to take what he says with a grain of salt.  Bank bear Meredith Whitney's reputation is also taking a hit as GS knocks it out of the park however, it should be noted that most of GS's profit gains came from bonus restraint that was exercised this quarter to be politically expedient with "just" 38.5% of the firms TOTAL REVENUE going to bonuses in 2009, but that's still up 50% from last year so don't get all weepy for the poor GS employees

Europe is up about half a point acrosss the board ahead of the US open, which is a mild retrace of yesterday's 2% sell-off but none of this matters until we get our 10 am data and that won't matter either as fundamentals are right out the window in this Meatball Market so we're just going to go with the flow and have some fun during earnings season. 

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  1. Nice cover on marketwatch right now.. It has a pic of blankfein grinin’ from ear to ear under the big title “gs swings to a big net” and in the upper corner of the page it has in small print “jobless claims surge”

  2. SCHW, that sumnabitch has been pinned at 19 for the longest time, coincidence they are selling common at the same price today..i think not

  3. Good Morning,
    Phil any oil plays interesting this morning?

  4. JRW/judah – TNA was the obvious early train.

  5. JRW/SS, Looking for the TZA train after the morning pump.

  6. Hey all,

    i have a new pick up today. It is for FAS. I had an entry of 82.95 lined up and am looking for 2-4% on the trade. Definitely check out. 

    More importantly, I will be available all day to answer any of your stock, ETFs, crude oil, bonds, etc. questions. It will be easier if you post them on my page than here, so Phil and I don’t get mixed up.

    Thanks all. If you have my alerts signed up…check your inbox this afternoon for an Overnight Trade of the Day. If you are curious what that is let me know.

    Good Investing!

  7. Many regional banks are flying this morning while PNC, which is one of the strongest, sells off hard after earnings. I’m thinking of a pair trade here short something like BBT or ZION and long PNC.

  8. JRW/judah – what s/r lines do we see today?  15dma(63.96) upper channels(64.50, 64.82)

  9. If PNC doesn’t hold 56 I’m not touching it — long gap fill down.

  10. PNC quickly getting murdered now. Wow. They had a very nice beat. There goes GS too.

  11. JRW/judah – Do you know of a way to post a link to a daily chart on IWM with channels, support, resistance?  It would make it easier to compare our lines.

  12. Good morning! 

    Once again we held our levels but once again the volume wasn’t there so I remain very suspicious and we’ll keep an eye on (yawn) the same old channel:

    Channel tops are:  Dow 10,750, Nas 2,325, S&P 1,150, NYSE 7,500 and RUT 650

    Cannel bottoms are:  Dow 10,549, S&P 1,135, Nasdaq 2,314, NYSE 7,389 and Russell 638

    Don’t get me wrong – there’s huge money to be made playing these channels but we are mainly sticking to day trades until we get a break up or down as I really don’t think we’re going to do nothing and flatline through earnings and the Feb expiration (19th). 

    I am for shorting into this morning spike as it’s nonsense, epsecially this run in the Nas – most likely it will reverse but I’d like to see a clear move back to resistance first.  QQQQ $45 puts give you great leverage at .56 and you can use $46.20 on the Qs as a stop out, looking for .70+ on the day. 

    Our plan for long-term entries is to take advantage of companies we like that give poor reports and sell off or come down with the sector.  We have our data at 10 and 10:30 AND 11 (oil is pushed back 1/2 hour but nat gas is at 10:30) and then, at 11:40, Obama will announce some new bank regulations and, if they are the same old BS, then we could get a financial relief rally but we’ll have to see as Obama’s pretty pissed at banks (Brown got MASSIVE contributions and won Mass) this week so who knows – he may even go off script and actually do something…

    Qick news items:

    Yves Smith wonders if Obama’s late-to-the-game plan to limit banks’ size and trading can still make a mark: "This should have been implemented months ago, when the banks were on the ropes and beholden to Washington," she writes. And ponders: "Given how derivatives reform was gutted and health care reform was botched, what do you think the odds are that something with teeth will be voted in?"

    More details on AIG’s (AIG) non-disclosure of counterparty payments. Apparently, the insurer submitted four rounds of regulatory filings over the course of six months, as the NY Fed pushed AIG to withhold data. The final version included more than 400 redactions, with omitted data sealed until 2018.

    A pension fund that campaigns against corporate governance failures takes aim at 33 firms, including Citigroup (C) and Goldman Sachs (GS). Ahead of annual shareholder meetings, the fund has submitted proxy proposals on issues including bank bonuses, splitting the chairman and CEO positions and giving shareholders a "say on pay."

    Green shoot:  The global economy is recovering faster than anticipated, says the World Bank in a new report (.pdf), but a double-dip recession is still a risk. The 2010 growth forecast was raised to 2.7% from 2%, with the 2011 forecast left unchanged at 3.2%.

    China’s economy grew 10.7% in Q4 Y/Y, while consumer prices rose 1.9% in Dec. Y/Y vs. +0.6% in Nov. Overall, the economy grew 8.7% in 2009, beating Beijing’s 8% target. The new data makes it increasingly likely Chinese officials will crack down to keep the economy from overheating. (ETFs: PGJ, FXI)

    MGM received several first-round bids to sell itself, but is considering a prepackaged bankruptcy along with the sale to help clean up a balance sheet weighed down by $3.7B in debt. Initial bids, which are non-binding, have come in under $2B.

    Taking a stand at odds with Iceland’s president (previously), Iceland’s prime minister promises to make sure the country meets its obligations to the U.K. and the Netherlands, so that the "Icesave dispute" doesn’t harm its relationship with the IMF or EU.

    Private-sector output growth in the eurozone slipped in January, primarily because of a slowdown in the services sector that "needs to be put in the context of the adverse weather that affected many businesses during the month." Manufacturing rose to a 22-month high.

  13. Good morning Phil,
    What are your outlooks on DIA Feb 106 105 puts for today

  14.  Phil, 
    Your comments on ISRG for today’s after market earning play? Sell 340/270 strangle, or -310C Feb / + 310C march? 

  15. BRK/B out today +4.5% @ 72.75.  Options available on $2 strikes.

  16. phil, thoughts on UNP? I took yesterdays buy march 67.50  sell 65 spread at .20 now up to .50

  17. Jumped into PCX at $18.74 – down 7% and I can’t find news anywhere that justifies that drop. Looks good on the 3-mo chart at that price.

  18. And wheeee!  Very low volume though so don’t get excited about the dip. 

    GS/Jrom – Interesting that they aren’t fooling anyone with their earnings.  People are savvy to the fact that all they did is take stock instead of bonuses and then dump the bonus money into earnings but I’m sure the entire Gang of 12 will be upgrading them tomorrow.

    SCHW/Kustomz – Probably a good short post sale.

    Interesting/Joe – Just that Q play as they ran up so fast on nothing (and clearly the Dow, Transports and S&P disagree with them). 

    FAS/David – That’s interesting.  Be careful with the Obama talk – could go either way but if he bends over for the banks (sadly likely) then I will be giving up on him and you’ll find me over at Cap’s hopey-changey site ranting to thow this latest bunch of bums out….

    Banks/Eric – I like just shorting the ones that run up into earnings – it’s so hard to justify these levels with what they are maiking since all of it is based on artificial supports.

    DIA/Yodi – I’m waiting on data – too crazy today. 

    Oops, got distracted by phone call.  Haven’t seen Philly but:

    Dec. Leading Indicators: Leading Index +1.1% vs. +0.7% expected, +0.9% prior. Coincident Index +0.1% vs. +0.2% prior. Lagging Index +0.2% vs. -0.4% prior.

    Ah here’s Philly – AWFUL as expected:

     January Philly Fed Business Outlook: 15.2 vs. 18 expected and a revised 22.5 in December. New orders slipped five points. Current shipments fell four points. Current inventory – still negative – up 4 to a 26-month high. "Overall, expectations improved in January, and firms remain generally optimistic about growth over the next six months."

  19. Good job where, im keeping a close eye on it

  20. Phil. I know GS inflated their earnings. But, with decreased comp, great management, and low PE, would you consider long calls? July 170s for 11? Spread? I think they should be worth $200 if gov doesnt try and squash their earnings power….thanks

  21. SS/JRW.  Good question, SS, about a way to share lines.  At the risk of insulting chartists and TA purists, I was looking this morning at the RUT charts from the start of the year, ignoring the end of the year noise.  We’ve been horizontal for the past 12 trading days, which has been great for the strangles and the momentum plays, trading between 63.20 and 64.80, and crossing through the midpoint area every single day.  So, for now, I’m just going to play the range as something like 4 quadrants, between 63.20, 63.60, 64.00, 64.40 and 64.80 (all these are give or take 5 points).   That’s certainly too simplistic, but sometimes simple works.  Got on the TZA ride earlier at 64.40,  I’ll DD if it goes to 64.80, sell 1/2 at 63.60 and buy TNA at 63.20. 

  22. judah – I have that channel also marked.  Also, put up 5,10,15,20dma lines.  They tend to make pit stops at these lines as well. 

  23. ISRG/Balance – I would love for them to miss and give us another buying opportunity but I have no idea what they will do and would not play them.  I imagine the strangle is safe enough but it’s not a big pay-off against a 10% move.  You can sell $340s against March $350s for the volatility crush…

    BRK/B (that’s how it is in TOS) – No volume at all on now contracts yet. 

    UNP/Foss -  The $65s still have stupid premium so it’s a waiting game at the moment. You can DD…

    ZH/Cap – Interesting.

    PCX/Llorens – they had a huge run and with oil falling they are likley to pull back.

    GS/Hannah – Yes after they sell off.  Definitely a case of joining those you can’t beat.  Hopefully Obama says something that crashes the financials and we can do some bottom fishing.

  24. phil: selling 1/2x DIA puts ?

  25. Why do you think RTH is holding up so well in this?

  26. Peter – alright, I am getting close to a delta of 0 on my SPX strangles.  You talked about DD or taking other measures when we get a big move down and delta goes to positive.  Can you elaborate on ways to take some profit and adjusting to keep you in a better position?

  27. OK, let’s see – it’s getting ugly out there, which is surprising as I told the markets early this morning that the Philly Fed would suck….

    Dollar is back down to 91.3 Yen but a strong $1.405 to the Euro and $1.62 to the Pound.

    Copper is $3.35, silver is $17.71, gold is $1,102 (soon to break $1,100).  Oil is $77.63 and nat gas is $5.59. 

    We’ll see what the nat gas inventory brings but wow the Dow is sinking fast now!

  28.  those QQQQs are up to .75 already. don’t be greedy.

  29. GOOG:  Sold 1 Feb 650 call and 1 Feb 520 Put for a combined credit of $ 7.90   more concerned that the 520′s will be in play if we get a correction; less worried about the 650′s.

  30. COF … Phil, were you teasing me yesterday ?   Ringing the register again today !

  31. JPM falling like a rock -5%, Phil…anyone knows why?

  32. IMHO this is all about the Mass. election.  Obama is taking big heat from the people that elected him and now he MUST do something that makes him look like he’s pro-reform or the Dems will be killed in the mid-terms.  This could be a top.

  33. Qs past goal already!

    Nat gas was down 245M and that should not support $5.50, oil should break below $77.50 now and it’s tempting to pick them up again into inventory but not with the whole market crashing.

    DIA $106 puts at $2.71, if $104 puts hit $2 we want to sell 1/2 of those (assuming 1/2 cover with $106 puts) and then, if the $106 puts hit $4, we want to roll them down to whatever 1/2 gives us another $2, which makes it an even roll of $4 to 2x at $2.

    Dow volume now 65M at 10:30 so that was quite a flood of selling off that Philly Fed but it may be petering out here. 

    COF/Cap – Very nice!

    JPM/Magret – The financials are very worried about what Obama might say at 11:40.

    XLF $14.91 – until they get back to $15 it’s going to stay ugly

  34. JRW/SS.  Wow, almost pulled a muscle switching from TZA to TNA at 63.  Not a train this morning but a bronco. 

  35. DIA $107 calls at .73, stop at .65 (10,450)

  36. lol Judah – I won’t jinx it by getting in as well but I’ll ride your optimistic coattails back up.

  37. Oops, keep in mind I was an hour too early yesterday on the DIA calls!

  38. The rumor that the Pres. is listening more now to Volker could also mark a top.  Volker would seriously hurt financials, he’s on record that they are out of control.

  39. Phil-
    Are you making any downside plays before 11:40 on any financials?

  40. ss/strangles,
    Now that we have survived a couple of drops and used up the negative delta hedging, we can consider rolling the short calls down.  The RUT Feb 700 is now $0.4, meaning we’d have to wait a few weeks to get the $0.4 while the short PUT keeps gaining on us if the market continue to drop.  It can be rolled to 680 or even 670 for $0.8 to $1.9 credit.  Since we are taking on more risk of getting blown out to the upside, let’s roll half and see how we are doing.  Similarly, the RUT Mar 720 is $0.8, so we should consider rolling it to Mar 700 for $1.4 credit (or Mar 710 if you are more comfortable).  The premise of these rolls is that earnings are not a blow out, not supporting a big market surge.  We still have huge cushion on the short PUT side, 12.5% or more, so no worry there.

  41. One hour volume on the big financials is already at daily average!

  42. Dia – 106 puts – are those your dia covers on june puts or is that just another trade you have on.
    I have spy covers
    Long spy june puts 116 basis 6.97 currnetly 7.9
    1/2 covered with  spy feb 114 basis 2.26 – currently 2.90
    Should I roll those 116′s down? thanks

  43. Downside/Jtiff – No, just the Qs (now .77) I’m flipping bullish here as we still have an hour into Obama’s speech and I expect an inventory draw to push commodities back up a bit.  THEN I’ll have to think about where we are at 11:30 but I’m pretty satisfied with this additional 1.25% sell-off that brings us neatly to the 2.5% line over 2 days, where we expect a half-point (20%) bounce.

    Oil crossing that magic $77.50 line again but a little too close to inventories for comfort.  If they fail $77.50 after inventories then the DIA longs are dead and we could get a big leg down. 

    More bad news in real estate:  The 132-room, 55,000-square foot White House, which includes an underground bunker, was recently valued at $292.5 million, down from $308.1 million a year ago and $331.8 million in 2008, Zillow reports. (View the Zillow listing.)

  44. Good morning,
    I can’t believe I missed half the slide; in TNA now at IWM 63.15, will double if we see conviction in the recovery attempt. This was scheduled to be a flat to up day; clearly someone failed to get the memo !

  45. Phil — I’m short the TBT Feb and March 48 puts.  I’m prepared to own the stock at a net of $46.75 if it’s put to me, but I’m wondering if there are any adjustments you’d put into place with the market ugly like this?

  46. From the financial blog comments by CEO Stumpf on rapidly rising interest rates.  They are so sure its going to happen imminently that they are foregoing investing in the easy-money "carry-trade".
    John Stumpf, CEO: I see this as the classic short-term view of the business and long-term view of the business. 400 basis points or something like that, which you make in the carry trade today is very attractive. But we think it is the wrong decision long term because we think the bias is for higher rates, not for lower rates and we are willing to wait for that to happen. We think that is the better trade.
    Stumpf: Because I think when rates move, they are probably going to move at some speed and I don’t think it’s going to be maybe a quarter. It could be more than that and it could happen relatively quickly.

  47. JRW, Welcome aboard. You’re on the west coast, right?  I spend a couple of weeks every summer in southern CA, and I love ending the day at 1:00, but the early mornings can be tough at times.  (BTW, now 6 days running my end of day position would have been the right opening position, but no way no how am I holding overnight; the gods would punish such hubris.)

  48. SPY/Samz – That was about the cover on the Mattress.  There’s no reason to roll the June $116′s down until you are ready to cash some out, which we did with the DIAs when we had a nice win on Friday.  Those SPYs are very expensive compared to the DIAs but it’s the same general logic.. 

    Oil down 400,000, but gasoline UP 3.9M barrels (total demand devastation), distillates down 3.3Mb (expected due to total lack of refining and cold weather and holiday weekend).  This is pretty disappointing for oil bulls (although I’m sure the phones at Rent-A-Rebel are ringing off the hook for a weekend attack special) and we may fail $77 here, which would be bad for the Dow.

    DIA $102 puts at $1.11 to cover day trade, still holding long $107 calls

  49. Phil,
    have ABX Feb 39 puts at 1. Roll?

  50. Phil – thaks for pointing out the difference in price – I might toss in the towel on the spy and just do dia – it’s a hell of a lot easier to follow you than constantly checking strike prices. Just me making my life more complicated.

  51. Judah / West coast
    Yes, the Pacific is currently in my back yard, litterally;

  52. Gel -
    What do you think about all the bad press on nat. gas and possible environmental consequences of extraction from shale?
    Seems like it might actually drive up price a little as some states restrict drilling – not sure what it does if anything for Kinder – thoughts?

  53. Phil: what is protective put position to have ?

  54. phil
    do you still holding TBT call which you bot yesterday?

  55. Phil
    The 10-year yield topped at 3.9% or so in June, August and December, yet the TBT’s price topped on those peaks at $58.77, $54.42, and $51.12.  I know the TBT is the 20 year tracking stock but aren’t they pretty highly correlated?  Why didn’t the TBT go back to $58 in Aug and Dec when the bond yield did?

  56. Market Internals update at 10:30amET – NYSE volume 255M shares, about even to its three-month average; decliners lead advancers by 2.4:1. – NASDAQ volume 660M shares, about 34% above its three-month average; decliners lead advancers by 1.4:1. – VIX index -2% to just under 18.50

  57. short stranglers, you can all see that we are breaking the short term support of SPX 1130 and RUT 638, so the short calls that are 7-10% OTM (especially the Feb’s) are getting to zero as the market makers have given up on them, statistically speaking that the market would unlikely to make those 7-10% upper levels in 4 weeks.  In the rare cases where the market can make it to the upper resistance, then those OTM callers can gain value, but very slowly at first, giving us plenty of time to react.  In those cases where the market rallies, the callers not only battle time decay, but also decreasing VIX.

  58. Phil,
    POT has come down a bit…..was lookin to sell some Jan 100P, any recs?   Also, your thoughts on the Coals and miners….they seem to be weaker than the general market… need your expert insight!  Thanks. 

  59. Peter, I was very interested in your dialog with SS.  I had thought of just letting the clock run on the strangles, maybe selling long puts on the Feb crazy plays in a couple of weeks.  Do you tighten your strangles in the weeks leading up to expiration?  I wouldn’t have thought it would be worth much money.

  60. Media gearing us up for very bad news from Obama:

    Obama’s sudden about-face on bank regulation, being touted as Glass-Steagall II, is sure to have ever-confident Wall Street executives feeling just a little shaky this morning, Ryan Chittum says. "The lobbying battles to come over this will make the skirmishes we’ve seen so far look petty."

    Well, this oughta help AIG’s (AIG) public image: Of the employees set to receive $195M in retention payments, a "substantial" number no longer work for the insurer.

    EIA Petroleum Inventories: Crude -0.5M vs. consensus of +1.9M. Gasoline stocks +3.95M vs. expected +1.3M. Distillates -3.3M vs. consensus -200K

    Oil is holding $76.50 and nat gas is holding $5.50 so I’m still going to be liking the $107 calls.  Keep in mind the point of the $102 puts is to shave basis off the $107 calls so if we make .10 on those, that drops the $107s to .63 and lowers the stop to .55, if we get down to .45 we can even DD but I very much doubt that...

    TBT/JCM – No worries.  Fed meeting is next week and they probably won’t drop to zero and there are QE programs that are scheduled to end and if they are not extended then very likely rates rally.

    Rates/Alsos – I agree, all it will take is a catalyst that reminds people there is risk and we can jump 10-20% on rates very quickly.

    ABX/Drum – I like the 2x roll to the Apr 34s, which is about even and you can cap margin with a 1x or 2x purchase of the Apr $22.50 puts at .07 if you need to.

    DIA/Samz – What I like about the DIA is you only have to worry about 30 components which are ALWAYS big news if anything happens.  SPY you need a whole heat chart just to figure out what the hell is moving it…

    Puts/RMM – You can see why it’s good to roll up the long DIAs when they are cheap but we should be in the June $106-108 puts, 1/2 covered with $106 puts, now $1.90 and 1/2 covered with $104 puts at $2.  IF the $104 puts hit $4, THEN we want to roll them to whatever put is closest to $2, probably the $103 puts

    Obama time – make sure you take profits if things change!

  61. JRW – are you still loaded on TNA?

  62. TBT/Tcha – I’m not changing my mind at all on TBT.  Which ones do you have?

    TBT/AC – It is an ultra and ultras do decay over time.  I don’t think the 20-year moved as sharply as the 10-year either but that’s why we play TBT with hedges, not as a straight play.

    Uh oh – "The Volker Rule"!  Not at all good for the IBanks as Obama is saying if you gamble you are on your own.   EXCELLENT!

  63. Are we still bullish short term?

  64. Regional banks are still loving this; most are green. I’m guessing the trade idea is that what hurts the major banks will benefit the little guy.
    Long a little PNC and long BBT.

  65. judah/tightening short strangles,
    We don’t do the tightening all the time.  I think this is our first chance in weeks to do some tightening on the callers side as we think we might be topping with so so earnings.  I only do this in my active trading accounts, for others I still have the RUT Feb 480/680 short strangles that are doing well, without spending the extra commission.
    Hey, those PUT verticals are saving us today.

  66. Done with DIA $102 puts at $1.37, that’s .26 off my $107 calls, now .61 so I’m happy enough to wait for Mr. Stick.

    GS March $150 puts can be sold naked for $4.50.

  67. Hi Phil, I just sold ABX FEB  $38 puts @$2.00. Should I roll to Apr  to play it safe?

  68. Here’s my wish for the day.  Huge drop in the markets, taking good stocks with it that we can buy cheap.  I’ll start the list   …….    AAPL and GOOG.

  69. Phil – anything you like selling puts on at these levels -
    Intc? anything from the watch list catch your eye

  70. Don’t forget this regulation has to pass.   I think it’s a win for GS as they will adapt and survive while JPM, C and BAC have to get out of their pool (if it passes). 

    Dollar was MURDERED on Obama’s speech.  Now $1.414 to the Euro, $1.624 to the Pound and 90.22 Yen, which is really going to bum Japan out! 

    POT/Oncmed – $85 is my buy target for POT so no interest here.  You need that bottom 90% to spend money for POT to see demand and they don’t have any…   Same for miners, I think materials are way overpriced to the actual economy and if China does begin to reign in speculation – we could have a heck of a pullback.

    Bullish/Jcm – I’m thinking we hold these levels (down about 2%) and bounce back to down 1% and then we’ll have to see how strong of a stick we get.

    QQQQ $45 puts are now $1.25 and that is PLENTY! 

    ABX/Jlui – As long as gold holds $1,085 you should be good.

    Selling puts/Samz – Well GS so far…

  71. JRW, If it can’t hold this level, I’m thinking of changing horses again.  You?

  72. I almost didn’t notice, but EDZ is up 8.5% today(!!)

  73. GS Jan 145 puts are going for $14 that’s a $130 entry on the stock and you would probably be able to roll it out without buying if you wanted

  74. After hitting a 19-month low in December, bearishness among individual investors has been back on the rise in the new year. Bearish sentiment in the AAII survey jumped eight points to nearly 35%, above a historical average of 30%. Bullish sentiment slipped 7.4 points to 40%, with 25% neutral.

    Paul Volcker stood to President Obama’s right for a short statement on finance-industry restrictions considered Volcker-friendly (and some say not a moment too soon). His "limit the scope" proposals would separate banks from hedge funds, P-E funds or prop trading operations (for the first time). "Limit the size" plans would restrict market share of liabilities at the biggest firms.

    IWM $61/63 bull call spread at $1.18 is a nice upside play as it’s $1.93 in the money.  Can be offset with sale of March $59 puts at $1.20.

  75. Hi Phil, any thoughts on GFIG?  thanks

  76. Bernanke put… :-(

  77.  Phil I think your sub headings above the bankers head is tasteless and  inappropriate.  We or shall I say
    myself did not shell out the monthly payment to put up with such childish  behavior.  Believe it or not,
    not all people think that is the right way to conduct a web site that draws all kinds of people.  Just
    because somebody is interested in making money does not mean he wants to be invovled
    in this kind of language .  You a much better thinker than that

  78. judah
    Have FAITH !

  79. Making a good profit on FXI put spread, May 39/42  take some profit or hold on , but TBT call spread is killing me

  80. Market Internals update at 12:00pmET – NYSE volume 585M shares, about 31% above its three-month average; decliners lead advancers by 6.8:1. – NASDAQ volume 1.41BM shares, about 55% above its three-month average; decliners lead advancers by 3.1:1. – VIX index +11% to just under 21

  81. All pray to the mighty stick! 

    Aside from the fact that this is really nothing near as serious as Glass-Steagall, it’s not approved and it is GOOD to have more regulation so we don’t blow up the economy again.  As I said earlier, the media was whipping up a fear frenzy and, as that subsides, there are bargainst to be had in the financials.

    XLF $14 puts can be sold for .25, not too bad for a naked sale if you have PM.   XLF 2011 $15s are also a nice buy at $1.39.

    VIX is all the way to 21.17, that can be shorted I think… 

  82. Phil — I’m thinking of upping my bet on RTH. I’m having a very hard time believing that consumers will continue to spend int he new year absent a sharp rise in incomes.  Maybe they splurged a bit for the Xmas season but that means they should be hunkering down (like my family) in the new year and only buying essential items.  
    I currently own the FEb 90 puts at $0.85.  I missed a chance to buy more yesterday when they were at $0.65 but that’s life.  Is there anything further out that you like?  The Feb 90′s don’t make me feel real comfortable because all we need is a short 100 points to the upside to put me far OTM on these things with not a lot of time left.  What do you think?

  83. Phil  Looking at the GS jan 11 strangle short 230/140 c/p for 16.05 margin equal to credit margin on GS 150p is 10/1 with TOS !!! your thoughts pls

  84. on the dia full covers – are we looking to pull half into the stick – I have to go to database training – fun – so i have to use trailing stops -
    thanks phil – like the gs – already rebounding – hope for a stick

  85. PharmBoy, are you or your uncle still short RF?  Look at that baby fly, I didn’t do well on your short suggestion on that one…

  86. Sorry march put 5/1

  87. Hey Cap, I’ve been out of HK since expiration (three days), that’s a long time for me!  What is your current position.  I like it here but would love it at 24 again…

  88. Billman/tasteless  That picture has been making the rounds on financial blogs. It may not be to your liking, but it shows what I’m sure would be going thru their minds. Besides a little adult humor on an adult website is okay once in a while…

  89. Phil, the 2011 XLF 15 call, it that naked or is there a covering call there? Also, any opinion as to why many of the speculative retail names are holding steady of just slightly down today? Usually during a day like this they are down big.

  90. Lighten up Bill.  We’re all adults here.

  91. PHIL…..your opinion on  APH, pls.  If positive, how would you play it???  Tks., in  advance…GABBY

  92. A must read on zerohedge that tails on Phil’s working theory that the top 10% benefit to the detriment of the lower classes:
    "In Japan, low levels of inequality and inherent social cohesion prevented a social breakdown in this post-bubble debacle. With social inequality currently so very high in the US and the UK, it doesn’t take much to conclude that extreme inequality could strain the fabric of society far closer to breaking point."
    I believe very few people realize yet that what’s fundamentally happening in our country is a class war, and it will increasingly resemble a war as the have-nots becoming increasingly desperate.

  93. JRW/faith. Thanks for the words of encouragement. Sticking with the Faith play.

  94. If IWM breaks 62.80, I’ out.

  95. MrM – I didn’t either, but the MS one is starting to come in nicely.  He did note that RF was so low, that it is very manipulated by the big boys.  Have not talked to him in a few weeks, but will follow up.  Regionals are rockin’ (as Eric has pointed out)…I am also watching STD on this pullback.

  96. Samz
    Re KMP and Natural Gas… I am not at all concerned about KMP, as I believe we will see an increase in the demand for NG. XOM recently made a play for this commodity in a big way. At the moment there is an oversupply of NG and the price reflects this. I am making a play today on CHK, as I believe they are the strongest player in this space, and I personally believe they are a buy-out candidate, again because of their superior fiundamentals. I am very bullish in this beaten down sector. Phil… what do you think about my position?

  97. GFIG/1020 – I don’t know how the new rules will affect them (if at all) so it’s kind of dicey but since you can buy them for $5 and sell the June $5 puts and calls for $1.30 for net $3.70/4.35, it’s not a bad way to enter slowly.

    Bankers/Billman – I didn’t draw it, it was a picture from Barry Rhitholtz’s site which, I’m sure, came from elsewhere as it’s been making the rounds but I am sorry if it offended you and I will try to to remember to censor the offensive language next time something like this comes up.

    Dow volume at 12:20 is 138M, about where we usually are at 3pm but the sellers seem to be on a lunch break at least.

    RTH/Jcm – Like SRS, I think it’s a good bet but WHEN is the question.  I do still like the $90s as a gamble as it will only take one or two earnings misses to send them flying down but, longer term, you are better off with the Apr $85 puts at $1.10, which have a .20 delta that will increase on a move down and decrease on a move up and you can offset them with a partial sell of the Feb $90 puts if things go against you.

    Woops, down again!  Hopefully just a blow-off bottom but we blew 10,400 and 1,118 on S&P, which is a key technical and 630 on the RUT (628 is key) so very shakey here.

    GS/Yodi – It’s a good range but the top bothers me more than the bottom.  I like the simple sale of the shorter-term puts, which can be rolled as an added layer of safety long-term. 

    DIA/Samz – Yes, if we get a good break, we’ll be thrilled to pull the $106 puts at $2 or less.

    ZION still going up!  Very tempting to sell the $19 calls for $1.40 ahead of earnings.

  98. XAU short strangles, for the gold bugs, the XAU puts jumped substantially, good for short strangles.  You can pick the strikes that you like.

  99. I like to refer to these 12-12:30 blow offs as the"oh fu**" lunch break, meaning people taking lunch breaks and checking their stocks freak out at the drop and sell on the panic before they gotta get back to work.

  100. Billman….
    This isn’t Sesame Street that we’re playing on….

  101. Phil: MTW, yesterday’s comment was not on correct basis.
    I have MTW stock, base 14.27,
    want to sell premium ???

  102. if the markets do not close down 250+ would be very surprised as this adds enough uncertainty that people will just want to shoot and ask questions later

  103. Phil / 1% + STICK
    So, you’re seeing the Russell EOD at 633 + whatever Mr Stick can do ?

  104. Adding to my TBT positions – sold 2012 50 puts for 9.00 for a net "put to" price of 41

  105. This is getting ugly…..

  106. Phil, would you add to BAC position at near 15?

  107. The Chicago Bears have moved into the White House and have taken over.

  108. phil, how about selling the FAS  75 puts for $4.90 or so?

  109. Man that’s a nice sale price on BAC at 15.30.

  110. Looking for stocks with the daily and weekly stochastics approaching the bottom end of their range (20 or lower) for opportunities……

  111. John Lounsbury says Obama’s call for more bank restrictions doesn’t go far enough and, given Congress’ history of dragging things out, it may be years before anything happens, if at all.

    As they did when Google (GOOG) pushed free turn-by-turn navigation built into mobile phones, GPS specialists TomTom and Garmin (GRMN) take the hit from Nokia’s (NOK) Internet-less GPS navigation: TomTom closed down 10.6% in Amsterdam, while Garmin is down 4.8%.

    Pelosi says she lacks the votes to push the Senate’s health bill through the House, a potentially devastating blow to Obama’s signature issue. (WSJThis is a bigger deal than Brown being elected yet not affecting the stocks – that’s why it’s all nonsense!

    Good article: It looks like President Obama is going to create the bipartisan commission to cut the deficit that Kent Conrad and Judd Gregg have been pitching–except that now Judd Gregg is against it.

    Full transcript of President Obama’s remarks on financial system reforms. "We simply cannot accept a system in which hedge funds or private-equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest."

    XLF/Bord – That’s naked and waiting for a bounce to do some selling with a willingness to roll down otherwise.  I think a lot of people are holding steady today because this whole panic on Obama is a load of BS that has nothing funamentally to do with the forward looking prospects of all but a very few Financials.

    APH/Gabby – Very nice space to be in long-term.  One thing we need more of than oil is bandwidth and that has to be built up constantly and is driven by companies like T, VZ, GOOG etc that have tons of money to spend.  APH doesn’t pay a dividend and they are high in their range so I’d go cautious with July $45 calls at $2.70 and sell March $45s for $1.20.  My assumption is they sell off for a bit (earnings are Jan 21 and expectations are possibly a bit high) and you beat the caller and roll down to the $40s for about $1.50 or less (now $2.25) and then hopefully they bounce back over the next few months.  If they head down sharply, you can always sell the July $35 puts for $2+ (now .90) which wipes out the net cost of your calls and puts you in the stock long-term at $35 – not a bad "worst case."

    War/Alsos – What is it good for?  Absolutely nothing, I think…  While I agree, of course with the underlying premise, I also think that our masses are too stupified by the constant flow of alpha-wave inducing television drivel to get off their couches and do anything about it.  Unless you take away the happy meals and the TV, I don’t think you will be able to get any serious social unrest in America.  Maybe in Europe (the French are already rioting) but they just hold an election randomly to channel the anger.  Still, I do like investing in TASR as it’s the crowd-control gun of choice these days!

    Coal getting hammered today. 

    Volume (154M at 12:53) too big for 1:30 stick I think.  Maybe 2:30 or even the dreaded 3:30 joke of a move higher.

    MTW/RMM – That’s a strange company.  I don’t like them too much short-term (but not bad long-term) and I think I did say out is the best move.  I would sell the June $12s for $2 to drop your basis to $12.27 and be happy to be called away or roll and, if they head lower, you can DD by selling the June $10s for $1.27 (now .80) to drop you to $11/10.50, which is a very good price for them.

    RUT/JRW – I think if we’re heading higher they are least burdened by financials and can lead the bargain hunters.

  112. Morning Phil:  Thinking of opening a covered combination: buying T@25.59, selling March 26c at .68 and selling Mar 25 p at .59.  Comments/suggestions?

  113. Ideas on China (specifically FXI); taking a nice move, take profit?

  114. Volume (154M at 12:53) too big for 1:30 stick I think.  Maybe 2:30 or even the dreaded 3:30 joke of a move higher.
    Given this comment, how do you think you want to play the DIA 107 calls, now at $.62?  Is there a stop level?

  115. DIA Mattress   I have Mar 107s as my long puts and I’m currently 2/3 covered with Feb 104/105s.   I’ve had an order to roll to Apr 109s for a while, but it won’t fill and I’m wondering where I should be, but someplace other than only 1 month out.  Any suggestions as to price and destination?

  116. BAC/Hanna – I wouldn’t add to any bank right now until we see what happens as they analyze the new potential regs.  This will be a very rumor-driven market for a while and we’ve already seen how quickly banks can tank on investor panics.  BAC is very vulnerable as it sounds like they are going to have problems keeping MER – which is all their profits at the moment.  I do very much like BAC at this price but we don’t know that BAC will survive in one piece at the moment.

    FAS/Dman – You are way too into the Ultras.  Things are very uncertain right now and it’s not impossible for FAS to lose 20% in a day, or overnight for that matter.  I wouldn’t touch them. 

    T/Jbur – It’s a pretty poor ROI considering T is down $3 in 2 weeks this month (so you should be paid a lot more for the risk).  I do like them here but why not begin your entry by selling just the March $26 puts for $1.05 for a net $24.95 entry as you make about the same gain at $106 and it’s rollable so less hassle and less initial commitment. 

    FXI/Humvee – I think it’s a good time to lighten up on our China shorts (and that goes for FXP and EDZ plays too) as we don’t know how they will take this banking news tomorrow.  Very possibly they will simply react to the headlines and head lower if our indexes finish this red.  I still think the HSI finishes the move down to 20,000 (another 4%) but FXI is pricing half of that in already

    DIA/Jcm – Those are a faith in the stick play.  We just have to wait it out.  I did a DD at .61 so net .67 and I made .20 on the $102 puts so net .57 overall on 2x and I’d have to make a decision at .55 but right now, at .63, I’m pretty comfortable just watching it.

    DIA/Eph – I’d spend $1 and roll to June $105s at $5.90.  Loads of time to make quarters and the delta is .54 so about even with the short puts (less the 1/4 of course).

  117. I can’t believe the PPT will let this get too out of hand.  Obama has to have something good to say at the state-of-the-union address.

  118. VZ / Phil – Looks like they are holding 30 so far. Sell the March 30 puts now or wait for the earnings?

  119. Speaking of lightening up positions; i still hold sonic and the short 10 puts   whatdayathink?

  120. Phil
    Good banker humor this AM – needed on a day like today! Add to the comments from them -" Any more shit from you, and we are moving our operations to tax – free Bermuda"

  121. Phil, thanks for the X trade!
    Re TASR, I agree with you and like this company LT.
    What is your say on buying the stock for $6 and selling both PUT and CALL $7.5  2011 for $2.90 for a net entry at $3.10 on the stock if called away or at $5.30 if put to me?
    Or should I wait for a pullback and a retest of the gap below $5,50?

  122. Ah 1:30 on the dot!

  123. Hi Phil: I’m short TXN April $24 puts at $1.04 ; now $1.93 and April $25 calls at $2.91; now $.94.Yesterday  closed out the short on April $27 calls for $1.20 profit so my net postion is a loss of $1.66 Probably should have closed the short on the $25  calls also,but that’s hindsight.Considering rolling down to $23 puts & calls priced at $.95 and $2.00 respectively.What’s your opinion? Thank you

  124. JRW/judah – still on TNA?

  125. The nice thing about these big drops since it’s been so long since we had them is that it gives you the chance to see if you are properly hedged with your mattresses, etc.

  126. ss’

  127. SS, Yes, putting faith in the Stick.  It was a much more enjoyable ride on the way down.

  128. how would you play srs  or tza right now?  yes, I like the 3 x ultras, especially when they are so ccheap, because you can do a lot with th eoption premium to protect your positiom.   Even a simple covered call on TZA,  buying stock and selling $ 9.00 calls for 90 cents, so net 8.46 in, and out at 9.00 if called away…

  129. judah – how are your strangles holding up today?  My RUT’s are doing much better than my SPX for some reason.

  130. YRCW making a move….

  131. Phil,
    Whats your feeling on XOM?

  132. Hey all,

    If you are looking for an Overnight Trade. I have posted one as an alert on my report

    The trade is for Harley Davidson. Entry is any time this afternoon with sale in the morning tomorrow. Check out the analysis here.

    Let me know if you have any questions or need any advice.

    Good Investing!

  133. I messed up a trade this morning and thought I would share my experience in case this happens to anyone else.  I use TOS if that matters.
    I was long 1 /qm contract this morning (oil futures) and got stopped out.  The market was tanking so I switched to short 1 contract right before the report at 11:00.  Made back my losses and had a nice profit, so I put in a limit order to buy back the contract.  After sitting on my profit for a little while I decided to just close it out (buy it back).  Unfortunately I forgot to also close out the limit order.  I come back an hour later to find that I now own 1 contract and that oil has continued to drop.  
    So, because I wasn’t paying attention I flushed $1000 dollars down the toilet in an hour.  
    I guess the lesson here is don’t forget about any limit orders you may have left in the system.  
    P.S.  I was so used to having one working order on the TOS platform (my DIA rolls) that seeing it didn’t even register.

  134. TOS question – How does TOS classify a play that buys ATM calls and at the same time sells puts OTM – same month?

  135. Wow – now that’s a stick.

  136. In typical Apple (AAPL) fashion, the company isn’t just looking to enter the tablet/e-reader market but rather wants to completely reshape newspapers, magazines and textbooks, much as the iPod did to the music industry.

    Withdrawals at Legg Mason (LM -7.3%) sped up into year-end, rising to $33B in outflows from $8B in the third quarter; $24B in outflows were fixed-income withdrawals. (earnings)

    Treasurys are trading still higher, with 30-year futures +0.53% to 118-19; 10-year +0.35%; 5-year +0.25%. Dollar -1% against yen, -0.2% against Swiss franc, +0.5% against pound.  People are running to cash!

    State of Union/SS – Yeah but don’t forget this is a way the banks can spank Obama for daring to attempt to regulate them. 

    SONC/Humvee – I’m still liking them long-term, they were coming along nicely until today but that’s just noise I think.

    Bermuda/Gel – I think we’ll all be looking for tax havens soon!

    TASR/Lionel – It’s a nice way to enter but not much of a put-to discount, of course.  I’d be more inclined to go in at $6 and sell the 2011 $7.50 calls for .85 and the $5 puts for .75 for a $3.40/4.20 net entry as I’d sleep better on that one

    TXN/Dflam -  I’m not clear how you are losing money if you are short puts that lost .89 and calls that gained $1.97 after taking a $1.20 profit on some other calls but I’ll take your word for it…  As to the generic how to play TXN – I think they bounce off $22.50 regarless and I don’t see why not just buy back to Apr $25 caller (with a .25 trailing stop) for a nice profit and then see how it goes as TXN is down from $27 and can easily wipe out the putters on some good news.

    TZA/Dman – Well we gave up on SRS – way too annoying and we found shorting IYR to be much more satisfying.  TZA is NOT where I would concentrate my shorting as the Dow is way more vulnerable than the RUT but you can play TZA by selling the March $9 puts for .85 and that’s a nice buffer. 

    I love how CNBC pulls Cramer out for bonus time whenever they need to pump up the markets.  He was slamming the buy button last night – not the best timing.   He did make an interesting point about how young kids are on-line pretty much every moment they are awake.

    XOM/Josec – I like them long-term and this is a very nice sale but, as with everything else at the moment, best to let this sel-off run it’s course and then see what bargains can be had but there is nothing wrong with daring them to sell you XOM for $63.10 by selling the Apr $65 puts for $1.90.

    Not especially surprising, but credit-default swaps tied to Goldman Sachs (GS) and Morgan Stanley (MS) are on the rise – reversing earlier declines – in the wake of new proposals to restrict the financial industry: “The uncertainty in the financial sector is the reason risk assets are feeling softer today.”

     With widespread bleeding and near-2% losses for stocks, is anybody doing well in the wake of the "Volcker rules"? Smaller banks: SPDR KBW Regional Banking (KRE +2.7%) is leading sector ETFs by a sizeable margin. Fifth Third (FITB) up 8.8%; Comerica (CMA) up 9.8%; First Commonwealth (FCF) up 10.9%.

  137. Mr. Stick came 5 minutes early, hope he hangs around!

  138. I like David’s HOG play taking advantage of VIX 21.50 by selling the $25 puts for .90.

    Yay, stick #2 at 2:30 going much better than stick #1 so far….

    Barney Frank just saved the markets with the soft-peddle.

    Futures/Craig – Ow, that is messeed up.  I’ve done that when I first started with TOS because you can forget those little open orders are hanging out. 

    TOS/Gel – Not sure what you mean but there’s a short straddle/strangle button on TOS and they give you a blended margin.

    Note that IWM play was on the money with the RUT leading us higher

  139. Peter – are the spreads on SPX options usually this wide.  Seems no one is trading them.

  140. Is COF a ridiculous stock or what …. check out intraday chart.
    I just had to short a little.   This should end up going lower after earnings, just like everything else.
    Has any stock held earnings gains ?

  141. Peter – I was looking at Mar.  Feb looks more liquid.

  142. Phil,
    SMN I know we spoke about this one a while back has come out of the woods and I think is in you 100k do we still hold on after today or shall we take the profit??

  143. Phil – Any overnight cover on the Mattress?

  144. T – If you sell the March $26 Puts, do you have to PAY the dividend?
    I know AT&T will next go ex-dividend in April and if selling the March puts that should not be an issue, but in general is that true?

  145. the shorts have to pay the dividend

  146. T/MSQUARE- my understanding is that you pay dividend only if you are short the stock…. not the put

  147. Phil,
    If we close down here a lot of important technicals will have been broken and we should expect a follow through drop tomorrow; but it feels like a Bear trap. Is there something out there that we’re missing, surprise beats, ect tonite or tomorrow?

  148. Phil : it’s tough typing & watching market at same time. I meant to say i’m long the TXN $25 calls.

  149.  Phil…where are you on GLD??? Also, Are you for holding any TNA UUP IWM overnight?

  150. GE 2012 $12.50/17.50 bull call spread at $2.60.  Would sell 1/2 March $17.50s for .40+ (now .22) but, otherwise, patiently waiting

    Still plenty of sellers meeting all the bottom fishers.  Call the Dow drop from 10,700 and 2.5% is 10,432 so that’s going to be our point of resistance.  On the S&P I’d say we topped out at 1,148 so 2.5% is 1,119, Nas 2,314 to 2,256 (holding so far), NYSE 7,450 to 7,263 and RUT 648 to 632 so we are good on RUT, Nas and S&P (barely) but NYSE and Dow need to get back over 2.5%. 

    The expectation is we get a 20% retrace (of the drop) off the 2.5% line and a failure to retake that level on the day is a still very bearish sign but I’m betting that we get over that line in the overnights as soon as volume gets low enough to mess around with either way.  Keep in mind that a 300-point drop is a satisfactory pullback off a 1,500 point run (from early September) and if we consolidate at this level, it’s probably a good thing. 

    Failing the 2.5% rule gives a strong probablility of an additional 1.25% sell off and then we have to watch how long it takes to fall how far to see what kind of momentum we have but that’s a concern for tomorrow.  Today we just want to see which side of the line we finish on but I’m bullish for the retrace into tomorrow morning as I doubt GOOG has bad news (will suck if they do). 

    Along with GOOG tonight we have AMD, AXP, BXS, BNI, COF, EZPW, IBKR, IGT, ISRG, PBCT, SIVB, SYNA and WDC.  Tomorrow morning is APD, BBT, EXC, GE, HOG, HBAN, JCI, KMB, MBFI, MCD, PRSP, SLB, STI and WBS so still a crazy bunch of earnings with plenty of things that can go wrong. 

    If earnings go well, we could get back to 10,500 really fast so I’m inclined to stick out the DIA $107 calls overnight but back to 1x

  151. Phil
    Is this a good time to go long on GS? I would not be suprised to see them drop the bank classification, and go private buying their own stock back. I would think this could be positive for the stockholders.

  152. Is this where Cramer’s huge post-election rally starts? I’ve been getting killed holding position for it the last two days, lol.
    REITs are starting to put in new lows here — not a very bullish sign.

  153. APWR – alt-energy stock as well as power generators for business – they are getting clobbered today, but they just at a private placement at 14.37.  They are holding the 13.8 line, so need to watch them when this thing turns around.  I know with lower oil they could be hit a bit more, but lower support is another 10% down or so.

  154.  Stick?

  155. Phil, I have EDZ Apr 3s at 2.20 and we’ve had these almost 8 weeks now…do we need to roll them out or adjust/cover?

  156. Phil, thanks for the China comments yesterday about being short and then unloading today. I knew the train wreck was near, but wasn’t sure it would be today……those comments saved me lots since I was distracted with other things……like my work!

  157. Sticks failing all over the place – one last chance at 3:30 and then it’s time to be concerned….

    COF/Cap – Your pal Barney did that to you!

    SMN/Yodi – I think that trade has legs, materials are very unrealistically high.  Oil is finishing below $76, the dollar is strong and gold got rejected off $1,100 after bouncing right on the $1,088 spot I targeted yesterday so all is going according to plan.  Oh and silver failed $17.50 and copper is $3.30 – materials not looking good at all today.

    Mattress/Diamond – I think, on the whole, we can play for the BS pre-market pump and keep the full cover.  If things go bad then the Feb $106 puts (now $3.20) can be rolled down to March $101 puts, now $2.05 so that’s not a bad spread with another 500 points to run. 

    T/M2 – You don’t pay it but the stock drops whatever and you eat that risk. If you get assigned that day (happens) then you pay the dividend as a short.

    Trap/JRW – If this were a real market, I’d be betting on follow-through to the downside and licking my chops for a return to 10,000 but I’m not willing to bet that TODAY is the day that all manipulation ceases.  IF we do break lower tomorrow, there will be plenty of opportunities to go very short (and, hopefully, you have some disaster hedges, which this would begin to qualify as) but for now, the real danger is a 50% snap reversal and great Googly moogly earnings might do it.  

    TXN/Dflam – Well that makes much more sense! 

    GLD/Big – We got out at $1,100 and now I’m kind of hoping for $950 for a new entry.  Yes to IWM (see above), not to TNA or UUP (which was so disappointing last month). 

    GS/Gel – I liked selling the put play earlier but I’d give it the weekend and see if maybe they get a panic sell-off to load the truck up into.  I think no matter what happens, GS survives and thrives, it’s just a question of adjusting to new rules which, ultimately, they will write!  8-)

    Uh oh, 3:30 and no action?

    EDZ/Ajay – A couple of days like today and those are in good shape.  If we don’t get progress by next week, they may not be worth keeping. 

    Oh here we go.  Mr Stick, how can I have doubted you?

  158. phil,
    i have SMN Jul 6 call at  2.5 and Jul 8 callers at 1.45. July is less attractive now as a hedge play. Can you give a revised strategy on this spread

  159. Speaking of foreign indexes, TOS does not have them on their platform, but expects to add them later this year. It would be nice to check on the DAX, Hang Seng, etc without having to browse around…….

  160. Hi, Phil,
    I was busy the whole day and just got in.  I sold 1/2 DIA covers Feb $106 puts yesterday at $2.20.  Hold them overnight?
    I’m sorry if this is a repeated question, as I can’t read the whole post right now.

  161. Obama plans to regulate banks and the stick fails today?  I doubt it is coincidence.

  162. 237M on the Dow at 3:33, let’s see where we finish. 

    The volume may just be too much for the stick man but the will is there and I’m fairly confident they will run those programs overnight if they have to. 

    Another guy talking his book:  With gold ETF holdings now exceeding total 2009 world production, brace yourself for the coming gold shortage, says Mad Hedge Fund Trader – How about "With an entire year’s worth of production now held by ETFs – production cutbacks are meaningless, get ready for horrific panic selling flooding the global markets with bullion if gold can’t hold $1,000"?

    Barney Frank: We need to execute the Obama bank plan, but slowwwly: "I will be supportive of this with a time frame of no less than three or five years before it gets done … To have all these sales at the same time would be a fire sale and I can’t support that."

    Barney Frank puts the brakes on, and some credit that with arresting the stock slide. Equities are off session lows, but it’s still not pretty with an hour to go: the Dow -1.8% to 10,409; S&P 500 -1.7% to 1,118; Nasdaq -0.9% to 2,271. Crude -2.1%. Natural gas +2%. Gold -0.9%.

    Sector ETF strength: Regional Banks– KRE +2.7%. Internet– HHH +1.1%. Commercial Banks– KBE +0.5%.
    Sector ETF weakness: Coal– KOL -6.5%. Steel– SLX -5.6%. Basic Materials– IYM -4.1%. Gold Miners– GDX -3.6%. Agribusiness– MOO -3.2%. Gasoline– UGA -2.8%. Healthcare Providers– IHF -2.8%.

    Healthcare Providers???  But Brown got elected – help us Cramer!!  Such hype and idiocy…. 

    Dow leader: MCD +0.5%.
    Dow laggards: JPM -6.1%. AA -6.1%. BAC -5.9%. CAT -4.4%. DD -3.7%.

  163. A pretty weak stick, no?

  164. The Prez has given Volker his ear, which means we will see some pressure on the Fed to look at a interest rate rise much sonner than later, and not wait for the inevitable inflationary pressure from the stimulus. IMO

  165. Phil
    I bot yesterday TBT Feb48 calls, what your recomendation about it now
    and do you plan to keep DIA call overnight?

  166. This ain’t no stick….it’s a twig

  167. Hi, Peter, Judah, ss, and All,
    Does anybody know if profits/losses from trading options on broad indexes such as SPX and RUT qualify as Section 1256 treatments?  That’s what TradeLog shows me.  Thanks!

  168.  Phil
    Selling BAC May 15 puts @ 1.1 gets you to $13.9 to own.  Isn’t that tempting??
    Cramer owns 5500 @ 13.10 from last June in charitable trust

  169. Phil, on the DIA 1/2 Feb 104 and 1/2 Feb 106 covers… I’m confused by the adjustment when the 106s hit $4. If we roll down to 2x, then we’ll be covered 1/2x with the Feb104s and 1x with the new position…so 1.5x total cover?
    What do you think of TBT Mar 45/49 spread for $2.

  170.  Phil… pulled trigger on DIA 107 calls @ .64

  171. Let’s see what HAL can do in 15 minutes. I was just thinking – if they shut down the tradebots, can you imagine how much volume would drop?

  172. GOOG March $530/560 bull call spread at $21, selling March $540 puts for $11.50 is net $10 on the $30 spread and you own GOOG at net $550 if they miss the mark (but of course you can roll those puts WAY down the line).  Longer-term, I like the 2012 $550/660 bull call spread for net $50 and that can be offset with the sale of the 2012  $480 puts at $41 which is net $9 on the $110 spread. 

    Go for it trade on GOOG is the 2011 $880s at $3, which will double on a $50 gain (about) but only lose $1.50 on a $50 drop (about).

  173. JRW, Had to go to my kid’s school for an assembly and so put in a trailing stop.  Stopped out of TNA earlier at 44.50.  Back online now for the close.

  174. Hm, seems to me all our downward levels are broken, no?

  175. Phil, can you remind me your premise on TBT?  I remember you like them and for selling the options especially, but in terms of the underlying, would you hold TBT?  Or TLT?

  176. Ouch, GOOG, down $20 AH and falling.

  177. GOOG looking unhappy AH….

  178. Goog going down….currently at 560

  179. GOOG…ouch!!!

  180.  GOOG not doing so goog. F@#$

  181. judah,
    Carrying a smaller possition overnite on Phil’s recomendation, sold at IWM 63.25 earlier, but bought back 5000 at 12.:57 ( $43.58 ); we’ll see. How old is your kid ?

  182. Phil or anyone,
    Does anyone have a link to the story with the details of how much volume on the NYSE is traded by the large banks. There are a lot of numbers being thrown around and I recall some blog published a story a few months ago that had all the details but I don’t remember where it was. Thanks.

  183. China/Ocelli – Cool, glad that helped.  That work thing sounds like such a drag..  8-)

    SMN/Drum – Why is it less attractive?  You are in for net $1.05 on the $2 spread and on target for a 90% gain.  Just need patience. You can roll to Apr $6/8 at about $1.30 if you are impatient I guess and the March $7/9 is $1.10 but you need another .50 to make it.

    Foreign indexes/Ocelli – That would be nice!

    DIA/Cwan – At this point, you may as well.  I do think we open higher tomorrow and, if not, you have a 2x roll in your future.

    TBT/Tcha – I did a DD on the ones I bought in $100KP (which I now see is what you meant earlier).  No harm in waiting to see what tomorrow brings though.  Yes on the DIA calls although I am starting to get worried. 

    BAC/Ban – Very tempting but don’t forget that’s BAC/MER – how will they be affected by new rules? Could be a mess.

    DIA/Ajay – The idea is to get $2 each for 2x that number (1/2x) of puts sold, selling your 1x (1/2) $106 puts by the time they hit $4 so you have an even spread.  The total cover is never more than 1x.   On TBT, I like any and all spreads that bet them back up.

    Not a good finish at all and GOOG disappoints!  Now we’ll see who’s wearing the pants – bulls or bears…

  184. Goog going down….currently at 560

  185.  I guess google saying they want out of China should have been a very obvious tell that earnings would disappoint.

  186. ssdirk, I got plenty of fills today and yes, the spreads are very wide, maybe skewed by the sudden jump in VIX.
    cwan/section 1256, I’m not sure.  Gabby pointed it out to me a year ago and I did read that section, but like any tax document, I don’t remember much about it.  Let’s do more research to see if it saves us from paying more tax on gain.

  187. SS/strangles/crazy plays.  I never really look at the strangle values day to day.  Looking now, my SPX put verticals really gained, while my RUT put verticals barely moved.  Strange, though maybe my RUT verticals are still too far out of the money--560/550.

  188. ISRG with a nice beat: there’s one going up.

  189.  DIA looking pretty good right now…maybe make back  the GOOG losses tomorrow.

  190. Hi Fellows any one can explain the meaning of the stick I see it been mentioned all the time but still lagging behind on that thanks

  191. yodi,
    When the trade-bots kick in on low volume to save the market for the day and the daily chart ends up looking like a hockey STICK.

  192. JRW, Hope the overnight play works.  If my streak holds (that is, I sold and will not benefit from an overnight move), you should be in good shape.  I have 2 boys, one about to turn 8, the other about to turn 4.  Best part of my life.

  193. Peter – Could you help me to understand what happened today on my SPX and RUT strangles.  I have both Feb and Mar strangles with wild plays.  Margin Req are pretty equal between SPX and RUT, and they are about the same between my 10%/-15% strikes on the curve.  They are both pretty close to being 0 delta.  However, the SPX strangles lost money today while the RUT strangles held ground.  I know vix spiked in the last 2 days.  Is it because the spread is bigger on the SPX than the RUT? 

  194. Yodi, it’s a generalization that recently we have been seeing a lot of days that seem to be dull days overall but about half an hour or an hour before close some buying activity kicks in and the market recovers.  Looks like  ____/

  195. Thank you Jordan I thought it was something like that. I sincerely hope they use the stick tomorrow morning. Friday is normally not a hot day for bulls

  196. There are very interesting markets. Companies are posted better than expected results, but they are still getting beaten down. Looks like a lot of the expectations have been built in already.

  197. SS/spreads, I think you’ve answered the question--the bid/ask spreads can be so large on the SPX that you can’t really gauge the true value by using the ones that gets reported at the end of the day.  For my RUT strangles, the spread is .30 or .40, while for the SPX, the spreads are $1.50 or $1.80.   Let’s check the values that show tomorrow morning.

  198.  Anyone know why the negative negative reaction in GOOG price? Earnings dont look so bad to me….Just based on the earnings, i wouldnt have expected significant movement either way! Specially given the recent move down…Comments?

  199. GOOG- I don’t get it either, but my only comment is that it could reverse by open tomorrow.

  200. ss/strangles, the only explanation is that RUT putters didn’t gain as much as SPX putters and that the paper loss on RUT putters should be as much as SPX’s.  The SPX Feb 980 PUT jumped $1.95 (125%) to $3.45, while the RUT Feb 560 PUT only gain $1.05 (70%) to $2.65.  They are about the same distance OTM.  This may be caused by the discrepancies in the exchange’s algorithms to calculate options value, or caused by the fact that RUT did rally more in percentage terms during the day, limiting the gain in the putters.
    The discrepancies between RUT and SPX could all be reversed tomorrow where RUT strangles would lose more than SPX.  The way to take advantage is to sell more of putters into whichever that gain the most for the day.  Another 2% down and we are ready to deploy the additional cash as VIX could reach 24. 
    This is an excellent example for doubling down that is slowly unfolding where we see paper loss, even while having negative Delta.  It’s the work of a higher VIX that counters the effects of negative Delta and positive Theta.  Having lots of margin would also help.  I’m seeing that my available margin is getting down to the 75% -80% level, which is excellent as I can even tripple down.   Keep an eye on the SPX Feb 950 and 980 putters.  When they get to $5 or more, they are a very attractive sell with 4 weeks to expiration, along with whatever the short CALL that makes sense.

  201. Peter-Stranglers- Given the dip today, my short call legs have approx. 25 to 30 % of value remaining. Is it wise to roll these down at this time? My "internal target" was to close the plays out by the end of  the month if I could get approx 80% of the initial value. How have you handled this in the past?

  202.  Its selling the news, good or bad….maybe this is the market changing its direction.

  203. Google (GOOG): Revenue from sites up 16%; network revenues up 21%. Paid clicks increased 13%; average cost-per-click increased 5%. Traffic acquisition costs (portion of revenues shared witih partners) increased to $1.72B from year-prior $1.48B. "As we enter 2010, we remain hugely optimistic about the internet and are continuing to invest heavily in technological innovation." Sounds fine to me!  GOOG is all about the CC though.

    American Express (AXP): Q4 EPS of $0.59 beats by $0.02. Revenue of $6.5B (+0%) vs. $6.14B. Shares -1.5% AH. (PR)

    Advanced Micro Devices (AMD): Q4 EPS of -$0.05 beats by $0.13. Revenue of $1.64B (+42%) vs. $1.5B. Shares +0.6% AH. (PRThis is wrong as they had a lawsuit with INTC that made their Q

    Synaptics (SYNA): FQ2 EPS of $0.62 beats by $0.06. Revenue of $133M (-6%) vs. $131M. Shares -11.9% AH. (PRWow, people are just in no mood today..

    Point, counterpoint: Markets are set up for a "nice pullback." Or correction fears are overblown.

    Tracking America’s booms and busts through stadium naming deals gone awry.

    TBT/Jordan – I prefer just selling puts to owning an ultra-ETF.  My premise is the Fed can’t keep rates at zero forever and that risk is totally underpriced in the market and it won’t take all of 2010 for that to become obvious.  TLT is no fun, TBT is where the action is!

    NYSE/Allen – It was Zero Hedge I think.  You can go to chat in Phil’s favorites and ask Ilene as she has been working on gathering data on that subject. 

    More earnings:

    04:42 PM BancorpSouth (BXS): Q4 EPS of $0.23 misses by $0.06. Net interest revenue of $113M (+2%). Shares -0.1% AH. (PR) !

    • 04:39 PM People’s United Financial (PBCT): Q4 EPS of $0.08 in-line. Net interest income of $147.5M (-3%). Shares +0.1% AH. (PR) !
    • 04:35 PM Capital One (COF): Q4 EPS of $0.83 beats by $0.38. Total managed revenue of $4.4B vs. $4.3B. Tier 1 ratio increased to 13.8%. TCE ratio increased to 6.3%. Shares +1.1% AH. (PR) !
    • 04:32 PM Western Digital (WDC): FQ2 EPS of $1.85 beats by $0.49. Revenue of $2.6B (+44%) vs. $2.4B. Shares flat AH. (PR) !
    • 04:30 PM Intuitive Surgical (ISRG): Q4 EPS of $1.95 beats by $0.24. Revenue of $323M (+40%) vs. $293M. Shares +5.1% AH. (PR) !
    • 04:29 PM International Game Technology (IGT): FQ1 EPS of $0.25 beats by $0.05. Revenue of $516M (-14%) vs. $530M. Shares +5.1% AH. (PR) !
    • 04:24 PM Emulex (ELX): FQ2 EPS of $0.18 beats by $0.02. Revenue of $108M (flat) vs. $104M. Sees Q3 EPS of $0.16-0.18 vs. $0.14, on revenue of $100M-103M vs. $100M. Shares -2.8% AH. (PR) !
    • 04:19 PM Affiliated Computer Services (ACS): FQ2 EPS of $1.07 beats by $0.08. Revenue of $1.7B (+3%) in-line. Shares +0.2% AH. (PR) !

    This one cracks me up as I called it ages ago but very surprisingly it didn’t affect TM at all:  Toyota (TM) says it will recall an additional 2.3M vehicles – separate from the existing 4.2M recalls – to address "isolated reports" of sticking accelerator pedals. The automaker says 1.7M vehicles are subject to both recalls. Shares -0.3% AH

  204. AXP another sell the news — on the surface that looks like a nice beat too.
    Once the dollar pulls back I’d bet we go back up — quite possibly on a big rally to new highs. AXP, GOOG, PNC, and others that are selling off on strong reports will likely make great longs if that happens.

  205. Peter, Thanks for the info.  I had been wondering when you decide to DD.  It has been such a relentlessly up market with a low VIX that the there didn’t seem to be much more to wring out of the Feb strangles.  I think I’ll take advantage of the the current downturn and sell some more Feb strangles tomorrow. 

  206. TBT: Thanks Phil, I am trying to run through the logic. By selling TBT puts you are betting TBT will go up.
    When eventually fed ups the interest rates then the 20-year rates will also go up, so TBT will fall down.  That’s why selling the puts does not make sense to me (yet).  Why do you expect that TBT will go up?

  207. Peter, judah – what Feb RUT and SPX strikes you like to sell additional strangles?

  208. I guess it’s all up to GE tomorrow….

    TBT/Jordan – If rates go up, TBT goes up, not down.  TBT is an inverse ultra to the VALUE of the 20-year notes, not to the interest level of the notes.  If you have a 4% note and rates go up to 5% on new notes, then your 4% note loses value as it redeems for less than the new notes, that’s what TBT is made to protect against. 

    BlackRock (BLK) Vice Chairman Barbara Novick says it’s time to write a new chapter for troubled homeowners, calling for a newly created bankruptcy option that would better help owners and be fairer for mortgage-bond investors. “There’s Chapter 7, Chapter 11, Chapter 13 – we need a special chapter for the Great Recession."

    Consolidated Edison (ED): Q4 EPS of $0.67 misses by $0.09. Revenue of $3.3B (+9%) vs. $3B. Sees 2010 EPS of $3.10-3.30 vs. $3.36. (PR)  

  209. SS, I don’t like the RUT here as much as SPX, and there I’m looking at 980, possibly 990 for the putter.  Don’t know about the call, maybe 1180.  I currently have 1210/970 and the caller is about worthless already.

  210. Phil I think I have misunderstood your original DIA post. I took the following to mean that if we are already 1/2 covered with DIA 106s from yesterday and we should now sell another 1/2x of DIA 104s at $2. And then, if the 106s hit $4, we should roll them down. Basically moving from a half 106 cover to a half 104, half 106 cover. But then I’m not sure what to do when the 106s hit 4 since I’m already fully covered. You wrote:





    /* Style Definitions */
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    mso-padding-alt:0in 5.4pt 0in 5.4pt;

    "DIA $106 puts at $2.71, if $104 puts hit $2 we want to sell 1/2 of those (assuming 1/2 cover with $106 puts) and then, if the $106 puts hit $4, we want to roll them down to whatever 1/2 gives us another $2, which makes it an even roll of $4 to 2x at $2."

  211. Phil I think I have misunderstood your original DIA post. I took the following to mean that if we are already 1/2 covered with DIA 106s from yesterday and we should now sell another 1/2x of DIA 104s at $2. And then, if the 106s hit $4, we should roll them down. Basically moving from a half 106 cover to a half 104, half 106 cover. But then I’m not sure what to do when the 106s hit 4 since I’m already fully covered. You wrote:

    "DIA $106 puts at $2.71, if $104 puts hit $2 we want to sell 1/2 of those (assuming 1/2 cover with $106 puts) and then, if the $106 puts hit $4, we want to roll them down to whatever 1/2 gives us another $2, which makes it an even roll of $4 to 2x at $2."

  212. Thanks Phil, all clear now.  Thought wrongly it was yield.

  213. Man O Man… Obama must have kicked the sleeping bear as he left the speach. This bear is really pissed off!

  214. Oh, I am liking both GOOG and COF after hours !!
    Even shorted some COF at 44+ before the results came out !

  215. Hi, Peter, Judah, SS, and fellow stranglers,
    If you sell more strangles now, do you think it wise to buy some put verticals?  They are getting expensive.  Which strikes do you recommend?
    Last month, I bought quite a few put verticals before I sold matching strangles, because put verticals were easier to get filled.  I have to admit that I got complacent this month, not buying when they were cheap.  Oh, well, learned another lesson.  Now I am thinking that those put verticals, if there are no matching strangles, are good insurances even for the non-SPX/RUT parts of the portfolio.

  216. Mocha – HK  … no position.  I did day trade it once today.  I would also like it cheaper.  One can also sell puts.

  217. Bipartisan commission … that’s a typical political kick the can down the road ploy.  Pretend to be doing something by having a commission study it.  Meanwhile, do nothing; and keep on piling up the deficit.

  218. pstas/strangles, there are many possibilities here depending on your game plan.  If your plan is to close out for 70%-80%, then you can follow it and open the Mar’s.   I’ll do this for my RUT 480/680 short strangle in the low touch accounts.  If your plan is to wring out more profit for Feb, then you can roll down the callers (double dipping), and/or adding short strangles.  We’re also doing this to take advantage of the surging VIX.
    ss/judah, thanks for judah, who already gave the answer that I like.  SPX 980 or 950 PUTs.  Those are over 10% OTM that doesn’t require much margin and gives plenty of cushion to the downside.  I didn’t think much about the 200 days moving average, but now I do watch it approaching 1010.  There would be many tug of war to get down to that level, and it’s likely that the market would close above the 200 days moving average in Feb expiration.
    cwan, yes, do buy the PUT verticals.  This is the practice that I stuck to and not thinking twice.  They might get cheaper tomorrow if we stabilized.  I think spending $1-1.2 for Feb vertical and $1.4-1.8 for March is wise.  We can always sell off the longs if the market turns up.  In fact, this mentality that I can sell off the long PUTs allowed me to keep buying verticals as the market kept going up.  That helps a lot.

  219.  GOOG already back to closing price after hours following a significant drop immediately after earnings reported.  AAPL snaps back as well, to $4 up from close, as if investors sense that if GOOG does this well, AAPL may blow the roof off.  I look for a significant move upward tomorrow on all fronts, but particularly in tech.  

  220. Phil, I am sure that you are aware of the supreme courts decision today to give "equal rights’ to corporations. If you have a take on the matter, I’d sure like to hear it. Thanks

  221. Goog … no its not.  It closed after hours at about $555, down almost $30 from 4 pm.

  222. Phil, How do you think the markets would react if the Senate doesn’t get cloture next week on Bernanke’s nomination?

  223. Good morning!

    DIA Mattress/Ajay, All - This goes for any time you have a 1/2 cover and get "blown out" with a downside move. 

    We begin with 10 (this is an EXAMPLE AMOUNT) DIA June $108 puts at $6.80, 1/2 covered with 5 Feb $106 puts at $2.12 on Wednesday.

    On Thursday, the Dow drops 200 points and the Feb $106 puts shoot up to $3.  The June $108 puts jumped up to $7.75 so they are up $950 and the 5 Feb $106 puts are up $500 so this is nothing to panic over anyway. 

    Since we are completing a 2.5% move down and since we expect a bounce off 2.5% we want to SELL INTO THE INITIAL EXCITEMENT (which we ALWAYS try to do) and, CONTRARY TO YOUR INSTINCTS TO FREAK OUT OVER A 50% "LOSS" ON THE SOLD PUTS – we SELL another 1/2 (5) Feb $104 puts at $2, not moving to a full cover of 5 Feb $106 puts AND 5 Feb $104 puts.

    What have we done?  We have collected $1,000 selling 5 Feb puts that are $2 lower than the $106 puts, giving us a $2 better spread between our June puts and the Feb puts we’ve sold than the $106 puts.

    What is our plan?  We are HOPING we do get our bounce.  Keep in mind we have a $1,000 loss on the Feb $106 puts but we did just collect another $1,000 for selling the $104 puts.  If the market goes up, we’ve increased the Feb delta relative to our June longs from .35 (1/2 of .70) to .65 (the average of .53 and .77). 

    By adding 5 more shares we have now flipped our spread to BULLISH as our June delta is .65  so a bounce back will hurt the fully covered callers more than it will us.  Our hope is that we have a retrace that allows us to take out the Feb $106 puts at $2 (even) which would mean we effectively traded the Feb $106 puts for the Feb $104 puts at the same price and widened our spread for free.

    If, on the other hand, we are wrong and we break down from 2.5% then what is our plan?  We collected $2 ($1,000) on our original sale of the 5 Feb $106 puts and they are now at $3 ($1,500).  We collected another $2 ($1,000) from the sale of 5 Feb $104 puts ($1,000). 

    Our next move comes IF the $106 puts rise to $4.  At that point, we have obviously moved lower than we thought (and, since the Delta on the Feb $106 puts is .70, we can be pretty sure that it would be roughly 150 Dow points lower than we are now, so at about Dow 10,250.  By the way, if we are at 10,400 and you believe that 10,250 will not hold – THEN DON’T SELL THE ADDITIONAL 5 $104 PUTS IN THE FIRST PLACE!

    So, at 10,250 (roughly) the DIA 5 Feb $106 puts hit $4 ($2,000) and, at this point (assuming we don’t think 10,250 will hold), we then roll the Feb $106 puts lower, which is to say we buy them back for $2,000 and then sell 5 of whatever puts give us $2, which should be the Feb $102 puts, now $1.45 with a .38 delta so a 150-point move would add 1.5x delta or .57 to the $1.45 so about $2.03 at 10,250.

    What have we done?  On drop in the Dow from 10,700 to 10,250 (just about 5%), we have "rolled" our 1/2 cover of 5 DIA Feb $106 puts at $2 (collecting $1,000) to A) 5 Feb $104 puts at $2 (collecting $1,000) and B) buying back the 5 Feb $106 puts for $4 (paying $2,000) and selling 5 Feb $102 puts at $2 (collecting $1,000).

    We still have the $1,000, which is just about enough money to roll our 10 Feb $108 puts up to the Feb $110 puts and now we have covers of 5 Feb $104 puts and 5 Feb $102 puts, which averages to a $7 spread on what was, orginanally a net $5.75 position. 

    We can anticipate that the 10 June $108 puts, which have a .65 delta, would rise, on an additional 150-point drop, from $7.75 to roughly $8.75 ($8,750) and they would now (at Dow 10,250) be fully covered by 5 Feb $104 puts at about $3 ($1,500) and 5 Feb $102 puts at $2 ($1,000) for a net of $6,250, up from our original net of $5,700 so not much of a gain on paper until the premiums you sold start expiring.

    The key is you now have, at Dow 10,250, $5.50 of intrinsic value and, if the Dow heads lower, you can add 5 more June puts (at a lower strike, probably the $103 puts at $5.80) to increase your downside delta by 50%.  This also sets you up to cash out 5 of the June $108 puts when there finally is a bounce, taking the profitable top of your spread off the table and reducing your long delta by 1/3 or more instantly when the market turns. 

    Roughly every 200 points further the Dow drops, you can add 5 more June puts at a $2 lower strike than you added last time and each time you add 5, you set a stop on the next highest 5 puts you have to lock in the gains.  This is a strategy that can cover you well to a 1,000-point drop (10%) at which point you would have 10 June $108 puts, 5 June $103 puts, 5 June $101 puts and 5 June $99 puts with the Dow at 9,700.  The 10 June $108 puts would be worth at least $11 and you would have a stop on them at $10.50 (a .50 trailing stop), taking $10,500 off the table on a turn, which is close to 2x what you began with. 

    That would still leave you with 15 June puts between $103 and $99 covered with 10 Feb puts at $104 and $102, probably about Delta neutral and you would have a stop on your 5 $103 puts, probably at $7.50 at $7, taking another $3,500 off the table and flipping the spread bullish withe the Dow recovering from a 1,000-point drop.

    Of course, many, many things can happen in between but it’s good to have a plan for the extremes because, hopefully, it keeps these little day-to-day moves in perspective.

  224. Now, let’s see, are there any other quick questions?  8-)

    GOOG/Iflan – I’m just glad my target is holding.  $560 will thrill me on the spread, good thing I wasn’t too bullish!

    Corporate Personhood/1020 – It’s just another way for the top 10% (and corporate "people" are the richest people in the world) to try to gain more influence over government and they are trying to ram it through before Obama gets a chance to appoint a new justice.  This is totally insane and violates the 1 man, 1 vote concept unless we are going to start counting corprate people in the census and letting them go to the polls.  If you tell me that I am limited to X campaign contributions but Philstockworld now has the right to X as well and did I mention my PSW2 corporation and P3, P4 – P100, who all just happen to like the same candidates I do.  Next we will fight to get the vote for our armies of corporate people and then change the laws so it will cost $10,000 to incorporate so the hoi polloi can’t get in on our scam. 

    This is a reversal of McConnell v Federal Election Commission in 2003, which upheld the 2002 Campaign Reform Act (McCain-Fiengold) so we’re effectively throwing that out the window.  The M-F bill was meant to restrict soft money donations by corporations and limit political ads by corporations since, as I pointed out in the above post, they have effectively infinite amounts of money to spend compared to any candidate.  This is all just positioning for the putsch to retake Congress by the Republicans so – well played my friends….

    Bernanke/Judah – I’d be thrilled but I think the markets would freak out.  The only reason to remove Bernanke would be to try to stop the low rate, easy money madness and markets don’t like that one bit.  Even Obama’s plan yesterday is meant to force the banks to make money LENDING it out rather than gambling it in the markets – kind of like they are supposed to be doing but haven’t been…

    The futures were doing well, up about 60 on the Dow at 4am when I woke up but now just about even as Europe drifts down past half a percent (they’ve been choppy all morning). 

    It’s all up to GE I think, we’ll find out soon.

  225. Gel – Forex -
    Buy Pound over Aussie Dollar – from Bloomberg