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Monday Market Movement

We love patterns!

Pattern recognition is the basis for human thought so it’s always fun to look at charts like this one from InTheMoneyStocks and think we may see something we recognize.  It’s interesting that looking at some of our other PSW Chart School posts from the weekend that look at virtually the same charts but spot different patterns.  Fallond, makes a convincing case that we have confirmed sell signals and Corey at Afraid to Trade also feels we’re in the middle of our correction

MarketTamer is looking for Dow 9,750, which is the middle of our worst-case targets at around the 10% rule, something I touched on in my own Weekend Wrap-Up, where I did my own humble best to paint a picture that’s worth 1,000 words.  Fortunately (although maybe not for you), coming up with 1,000 words has never been a problem for me so I will stick mainly to the Fundamentals, thank you very much! 

I did some soul-searching on the situation in Greece, as outlined in our Weekend Reading post and I am comfortable with last week’s gut reaction that we have now adequately priced in both Greece and Portugal’s problems.  Our outlying concern is a spread to Spain, Italy and France, which I don’t believe is likely as the cost of bailing out Greece, Portugal, Spain, Italy, France, Turkey and the UK would not even be what the US spent to bail out AIG.  The same way we gave the hyenas a bone back in November of 2008 and they attacked any financial institution that showed even a hint of weakness, the pack is now all over any country that is vulnerable to panic.  It’s a simple game, short the bonds (sell bonds at low rates), drive rates high, buy back the bonds, collect high yields. 

Sure the fact that this sort of activity can disrupt the lives of millions of people might give some people pause but I’m sure someone like PimpCo’s Mahamed El-Erian feels like he’s doing God’s work when he is done loading up on bloated rate bonds and then suddenly announces, as he did this morning (and we predicted he would last week): "The risk of Greece defaulting is low."  El-Erian said that, although the Greek government is in need of external financial aid, it likely will not default

Oddly enough, it was just this past Thursday that PimpCo’s Michael Gomez said: "Stay away from the Euro" which (funny coincidence) drove Greek bonds and CDS swaps to record levels at the same time his boss decided to buy them.  And let’s not forget Big Daddy Bill Gross’ "Ring of Fire" commentary that started this whole ball rolling downhill two weeks ago.  And, of course, PimpCo consultant at large Alan Greenspan was on "Meet the Press" this weekend talking the bond book as well and predicting a slow (re. low inflation, poor market growth) recovery.  This time the part of Greenspan’s sidekick, Jim Cramer, was played by former GS CEO Hank Paulson, who is on week 3 of his image rehab tour.  While both men may have made a few good points, they both picked the Colts to win yesterday so really, how can you take any of their predictions seriously?

Speaking of Treasury Secretaries making half-assed predictions – Tim Geithner told ABC news this weekend that the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.  “Absolutely not,” Geithner said, when asked whether a downgrade is a concern. “That will never happen to this country.”

Well I certainly feel better – don’t you?  For a minute there, I was starting to think that borrowing $1.6Tn on top of a $14Tn deficit in a $14Tn economy might result in people wondering how we might be able to pay it back and possibly rate us lower than say – a country with a surplus but I guess Timmy has a much nicer banker than I do as mine tells me it’s not good to borrow more than 6 years worth of projected revenues, especially when there’s no actual income at all.

Timmy and other G7 finance ministers got together this weekend in the Arctic to avoid the usual masses of protesters and all but Canada’s Jim Flaherty skipped the Saturday night feast where the Inuit served seal to their guests.  Other than finding a use for what the Inuit call "the other white meat," the G7 forgave Haiti’s debts and pledged to (surprise) keep up the stimulation for the foreseeable future, which pumped up commodity prices in last night’s futures. 

None of this cheered Asia up as the Hang Seng fell another 114 points this morning and the Nikkei couldn’t hold 10,000, dropping 105 points to 9,951 as they were disappointed that more was not accomplished by the Finance Ministers.  This misses the obvious point (well, to us) that they are FINANCE MINISTERS, not leaders and are not actually able to accomplish anything in two days.  Those who want a quick fix will be sorely disappointed as the EU wants their member states to get their own houses in order first and foremost.  “The market is still pretty nervous,” said Chris Hall, who helps manage $3.3 billion at Argo Investments Ltd. in Adelaide, Australia. “Greece is still just one part of a bigger concern about the growing size of budget deficits.”  

Europe is half-point bouncy looking this morning, just ahead of the US open and we went into the weekend slightly bullish but mainly in cash.  Today is most likely a watch day for us but I often say that right before we put up a dozen trades so who knows…. 

We don’t have much data this week – just Wholesale Inventories tomorrow, Balance of Trade Wednesday, Retail Sles and Business Inventories on Thursday and Michigan Sentiment on Friday – very dull, on the whole so we can concentrate on earnings, which have been excellent so far.  With hundreds of companies set to report this week, the’re plenty of time for bottom fishing so grab your clubs and let the seal hunt begin!


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  1. Good morning!

    I hope everyone had a nice weekend. 

    8% bounce levels we are looking for are:  Dow 9,850, S&P 1,055, Nasdaq 2,125, NYSE 6,793 and Russell 596.   We had lost the NYSE and RUT Thursday and we never got them back so those are key – there is no getting bullish without those 2 making it back to black.

    10% levles are: Dow 9,630, S&P 1,035, Nasdaq 2,088, NYSE 6,660 and Russell 585 and we are still close to failure on the RUT (8 points).  As I said on Friday – If 585 fails on the RUT then it becomes very likely the others follow them down to 10% so we get more bearish on that signal. 

    I do bgelieve we can stage a recovery here but no emotions – it’s all about levels today and we really would like to see strong volume confirming a proper uptrend. 

    Oil $72.50 is strong, gold $1,088 (has been trading right in tandem with S&P), silver needs to hold $15, Nat gas $5.50, and, of course, copper $5.85 was a great signal to go short last week and getting back over it was a great signal to go long on Friday so let’s take that one VERY seriously

    Hopefully the EU funds are in a buying mood out of the gate to give us an early boost.

  2. JRW – what do you see this morning for IWM s/r? Thanks.

  3. Woops, weakness already!   Doesn’t look particularly threatening but be careful. 

    I see strength in Key Nas components, they are goiing to need to lead us higher (not commodities). 

    XLF very lame at $13.86 and financials are selling off, being a drag on the markets.  OIH and XLE down about a point with copper testing support at $2.85 already.

    If I wasn’t already in them, I’d take a poke at the DIA $102s, now .50.  Just a dime is great on those.

  4. Hi Phil,
    How much of your portfolio value do you put at risk when playing DIA calls/puts on little momentum plays like the one with DIA $102s at .50?

  5. DIA/Lionel – Well, at risk is a funny question.  I may buy $20,000 worrth in a $100K portfolio but I’m trying very hard not to lose more than $2K on any given trade.  So I guess I’d call it 2% risk once scaled in.  Yes, you can get knocked for a loop in a day trade so I don’t recommend doing more than what you don’t mind losing in total.  The key to being successful is taking those nickel losses off the table so you have the money to get back in when it does go your way. 

    At the moment, if AAPL and GOOG go red I give up on bullsih postions for the moment as we’re likely heading back for a bottom test.  My gut still tells me this is a flush and should be ignored but that’s a very painful way to go with your gut!

  6. Its a long story, but I wound up short DIA 100 puts and long 2x DIA 101 puts. This was not planned, and Im not sure what to do next. If a DIA option finishes in the money, does it settle for cash like the SPX?

  7. Good morning Phil C besides various positions in Jan 11 and Jan 12 I am still left with a long Mar 3c at .49 has dropped to .32 . Shall I sell a mar or jun 3 p to cover. Your thoughts pls thks

  8. ss,
    Congrats on the Super Bowl; we all wore our fleur de lis and it worked. Still 59.07 and 58.37 with an upside target of 60.38

  9. PharmBoyCTIC getting a big smackdown today from the FDA, are you staying in, doubling down, or bailing out?

  10. JRW – Thanks.

  11.  Phil…You must have read "Blink" by Malcomb Gladwell.   Talks about how our initial ‘gut feeling’ about something is often more correct than our ‘thought out’ conclusion.  I think your vast experience with the markets makes your gut feeling something to pay attention to.  

  12. Some very persistent sellers of bank stocks this morning.

  13. GS, BAC, JPM just got a little traction finally on decent volume.

  14. Bought some LVS this morning for a daytrade, seems to have momentum.

  15. DIA- Phil, I am short some Feb 102 puts (basis $.82) which were left from an earlier position which I left open anticipating premium erosion. This looked reasonably  safe a few weeks ago but the ensuing correction has put me in a tight spot. My question is when to roll these to March. I can roll now about even to the 100′s or go 2X for a $.10 debit to the 95′s but I am not inclined to do so because of the additional margin requirement. So the question is when to roll? Now or wait a bit to see what happens. We could get a couple of hundred points this afternoon or over the next two weeks. Advice?

  16. DIA/Barf – Check with your broker as to what they do but DIA is an ETF, not a future.  I’m bullish here so I’d be getting out of that spread. 

    C/Yodi – Selling a put does not cover a naked call, it doubles your risk.  Of course, it can be used to reduce your basis on a broader play (as long as you REALLY WANT to own C at $3).  With the March $3s you have 6 weeks and will lose about .02 per week of premium so you need to get out if you feel C can’t gain more than .02 this week and keep you ahead.  Notice you can roll back to Sept $3s at .60 (+.27) and sell the Sept $4s for .22 so it costs you about .05 to move into a much longer $1 bull call spread.  No huge payoff but better than taking a loss so, as long as that roll doesn’t get away from you, there’s no need to move. 

    Blink/Iflan – Yes, I’m a believer in going with your gut (Tipping Point was good too by him).  In fact, I think what people think is "being psychic" is often just a person’s brain putting together tons of background information they’ve been exposed to and making the connections to get to the right conclusion.  My time in the CEO chair helped make me a better gut decision maker too but, with the markets, you generally like to at least THINK you’re not just guessing. 

    CVS responding well to earnings. 

    Good newsJan. Employment Trends Index: +1% to 93.2 vs. 91.8 prior. The widespread improvement and "the continued rise in the ETI makes us more optimistic that job growth will resume in the first quarter of 2010," Conference Board says.

    Starting this week, Bernanke will begin to lay out the Fed’s plan to tighten credit once the economy is sufficiently strong. Though any moves are still at least several months away, one of the Fed’s primary tools will be the interest on excess reserves.

    So much for Geithner’s arguments. Pimco’s El-Erian says he’d rather invest in German government bonds than Treasurys in the current environment. 

    Economists warn a bailout of Greece could cost £26B. The ECB and IMF had previously said £16B would be needed to stabilize the markets.   I don’t know why they didn’t just ask me in the first place…  8-) 

    The NYT reports the SEC is investigating whether the mortgage insurance market was improperly distressed in 2008 because of demands that Goldman Sachs (GS) and other banks made on AIG (AIG).  Following a NYT report that the SEC is investigating Goldman Sachs (GS), among other banks, a Goldman spokesman says "this is the New York Times’ third attempt to develop a conspiracy theory about Goldman Sachs and AIG. The theories are disgracefully contradictory and the ‘facts’ don’t stand up to serious scrutiny."

    JPMorgan upgrades Disney (DIS +1%) to Neutral from Underweight and raises its price target to $30 from $28. "Earnings recovery at Disney will lag the peer group due to challenging trends at the film studio and parks," but "we believe that the improving macroeconomic outlook will provide downside support for the stock price at this level."

    Morgan Stanley upgrades Home Depot (HD) to Overweight from Equal Weight. "We believe that the turn in housing is real," and "there is more margin upside than the market appreciates." Shares +1.8% premarket.

    Sector ETF weakness: Solar– TAN -3.15%. Solar– KWT -2%. Regional Banks– KRE -1.8%. Gold Miners– GDX -1.6%. Regional Banks– RKH -1.6%.
    Sector ETF strength: Internet– HHH +1.3%.

    Dow laggards: JPM -1.8%. BAC -1.4%. GE -1.4%. AXP -1.3%. CAT -1.2%.
    Dow leaders: HD +3%. HPQ +1%.

    Not good that we’re having a hard time with 10,000.  Cutting and Running on DIA calls at .55.

  17. Hi,
    just joint, i am still slow on catch on your option rec, could you give me an idea on the disater hedge position, I open postion as rec, but not sure exit stragety, and any adjustment to watch for if nescessary.  Second question on your new buy list, do I go to prfolio tab to get it, or do I get it through my email…Also before joining, major of my profolio are naked put, just learn now from your etrade book, that I could roll over the trade to the next mos if it does not work out the front mos, do you recommend to wait till expiration day and roll it or should roll position 2 weeks before expiration.  For example I have a position in aapl, feb 190 put that i sold, stock now 196 today, not sure how volitile next week is….should i wait till next week or roll to March sometime this week.  Thanks JC

  18. Phil thks for the advice on C  I do not want to run up more margin on this deal with selling the sept 4c would it not be better to roll the c3 mar caller to the c 4 sept caller givin g a profit of .12 ???  thanks

  19. phil:
    when is it  time to roll my feb 106 putters to 2x feb ?? or mar ??? (base is 2.23$). ???

  20. Good Morning!  Has anyone seen the news on the M.B.A. headquarters?

  21. V up at 1.65 now 84.20

  22. Peter D/Rolling, On Friday, I had some March SPX puts that were getting close to 5% from the index price, so partly for practice I rolled 2x the puts 5% down and added some callers to match up with the additional puts, giving me a total credit of $650 per additional contract.  All in all, not bad, more safety, back over 10% cushion, and I got a sense of rolling while the market was dropping. 
    So two questions: First, have you found that when you get close to 5%, with still more than a month away from the expiration date, it is a good time to roll?  Second, what you have found the best time to roll down--when the VIX is surging or when things calm down a bit?  I realize we don’t always have the opportunity to pick our ideal time and on Friday I tried different price points through the day until I found one that worked and still paid me a decent premium.  I’m still at the stage of playing with small numbers of contracts with lots of cash on hand until I get a good feel for the various scenarios, and your counsel as always is invaluable.

  23.  phil, what do you think of spwra or nyx here?

  24. Selling March 50 calls against some of my TBT positions.

  25. Small businesses helped lead the economy out of the last four recessions, but could now be a drag on economic recovery as they continue to cut capital spending and fire employees. If recent trends continue, improvement in the unemployment rate could stall.

    Trade partners are getting nervous as China works to secure its position as the world’s top exporter. They can take some comfort from research suggesting China would have to boost its share of world exports to an unprecedented 20% (vs. its current 9%) to maintain its recent pace of export gains. (ETFs: PGJ, FXI)

    Public figures who call for an appreciation of China’s currency fail to understand that "the level of the renminbi has become rather inconsequential to Chinese trade flows," says Rebecca Wilder. And despite popular belief, China’s large current account surplus has actually dropped markedly since late 2008.

    It’s impossible to like Brazil while disliking China, writes The Reformed Broker, since the two "are quite possibly the most symbiotic investment story going right now."

    Japanese Finance Minister Kan tells his G-7 counterparts that China’s economy is showing signs of a bubble. No word on whether the yuan was discussed, but it may not matter much; as the G-20 overtakes its smaller brother, G-7 influence on China is eroding.

    The crisis has made mincemeat of some of our cherished financial "rules," says Brett Arends. Let’s start with "bonds are safer than stocks," "government bonds are safer than corporates," and "developed government bonds are safest of all."

    We’re told the problems of overleveraged Greece, Portugal and Spain will stay safely contained inside those borders. If that sounds eerily familiar, notes NYT’s Gretchen Morgenson, it’s because U.S. financial leaders said the same thing in 2007 about the country’s subprime mortgage mess.

    Gang of 12 update:  Now that BlackRock (BLK) is the world’s biggest asset manager, it sends the SEC more than 1,500 13G forms (like a 13D, used to report an investor owns 5% of a company), meaning it owns significant segments of some of the biggest Fortune 500 companies – including Apple (AAPL), Microsoft (MSFT), Google (GOOG) and even Exxon Mobil (XOM).

    Sovereign wealth fund China Investment Corp. went on a buying spree last year, spending more than $9.5B to pick up shares in some of America’s best-known brands, including Apple (AAPL), Coca (K), J&J (JNJ) and Visa (V). Although most of the stakes are small, it highlights China’s efforts to diversify away from Treasurys.

    With 16 failed banks this year, and another 200-plus expected, the FDIC is probably feeling pretty good about its decision to have member banks prepay their fees for 2010, 2011 and 2012. Then again, the fees brought in $45B and 2010 failures alone are expected to cost the FDIC up to $50B. Calculated Risk has the unofficial problem bank list.

    For all those blaming the housing bubble on monetary policy, take a look at Canada, where interest rates and mortgage rates tracked those of the U.S. pretty closely but no bubble emerged. The difference might have more to do with regulation of housing finance.

    DIA/Pstas – Thase are still a crazy .80 in premium.  Meanwhile, you collected .80 to start the trade and you feel like you are "screwed" already so why not put that .80 into rolling them down $2 (costs $1.20) to the $100 puts, which are 100% premium?  Once that premium expires, THEN you can roll to the March whatevers to get your .40 back but, for now, those $100 putters are willing to pay you.80 a week to see if the Dow finishes lower than 9,835 so they can get their money back. 

    Welcome Gucci!  Well that’s a lot of quesitons and I would urge you to read the New Member’s guide and go through the posts first, where many of those questions are answered.  Quick answers are:  Disaster hedges were summarized in Weekend Update, we are not that bearish so we went with well covered bull call spreads that will pay off on even the smallest downturn.  They are generally INSURANCE, which means we expect them to expire worth less (or worth LESS in the very least) as the rest of our portfolio makes money on the bull (or flat) side.  As to rolling, as above to Pstas – keep in mind our job is to SELL premium, not to buy it. 

    Keeping that in mind, the answer is you do a roll when you feel you have milked all the premium you are likely to get and you do not feel it’s likely that your position will recover within the remaining timeframe (ie. it depends).   As a very general rule of thumb, we don’t like to be in front-month calls as of the Weds before expiration week (so this Wednesday) for the plays we own but the ones we sell follow a general guidline that we take them off the table if we make a 50% profit with more than 2 weeks to go, 65% inside week 2 and 85% during expiration week. 

    The AAPL $190 puts are all premium so there’s no reason at all to do anything but wait for them to expire unless we get more nervous about the market failing and, even then, at $2.20 they can be rolled all the way down to March $175 puts so that one is a long way from nervous.  Of course, Rule #2 is "When in doubt, sell half" and that applies to buybacks too so I’d sure put a stop on 1/2 at $2.50.

  26. For those that follow GFA [brazilian home-builder] it has shown support near 25, and seems to bounce nicely off that level…i added some more on friday, and will wait for now…

  27. CTIC – time to move on. I am on my iPod touch but will be on later. I am looking for some long term plays on MRK and GSK.

  28. It will be some time before the Fed raises the yield on the Treasuries. For those holding TBT, according to Barclays Capital, a 1% increase in the Fed Funds Rate will result in an 8.5% decline in the value of 10 year Treasuries. 2% rise would result in 17% decline. 20 year bonds would see a greater % decline.

  29. phil, any suggests on how to best play JPM on long side?
    and I like the FAS sale of 60 puts at 2.00 or so, protects down to 58 and if goes there, can always roll  6 points down , even to 52 or so in March

  30. gel – are you saying the payoff on TBT may be longer than we hoped?

  31. DIA/RMM – Same as Pstas, it’s going to cost you money so you may as well roll them to premium now.  I’d go 2x the $100 puts at $1.60 which will still cost a lot to lay out but, even if they head lower, you sold that premium and they WILL lose it in 2 weeks.  On the whole, it doesn’t affect your roll at all. 

    ZION up 2.5%, usually a bullish sign.  I’m starting to regret taking .55 for the DIA $102s..

    Walkaway/1020 -  It’s a valid strategy but, as Barry says, it does look like a short sale – also a good strategy. 

    Discrepancy between V and MA getting pronounce.  I like AXP down here ($37.60) and you can sell March $35 puts naked for .95 as a nice net $34.05 entry.

    SPWRA/Jo – $20 is our buy-in and it’s been very reliable.  March $19 puts can be sold naked for $1.60 for a net $17.40 entry and I REALLY do like them at that price!  

    NYX/Jo – Because of the EU issues, I liked NDAQ better when I was checking them out for Sage’s weekend post.  I do like NYSE long-term and there would be no shame in  owning the 2012 $25s at $3.20 and you can sell June $26s for .85 for a nice, mellow spread.

    TBT/Gel – Absolutely, it’s not a position you want to have without drawing some income. 

    Damn, there goes the Dow and now I can’t bring myself to buy back in at .60+….

    MRK/Pharm – Well you can make that $1.52 dividend 7.5% by just buying the stock and selling the 2012 $30s for $8.20 for a net $28.50 entry on which you collect $1.50 x 2 + $1.50 at $30, which is $4.50 on $28.50 or 15% over 2 years.  Or, more aggressively, the 2012 $35/45 bull call spread is $3.30 and you can sell the $25 puts for $2.10 which nets $2.10 in margin so you have about $5.50 in cash and margin out to make $10 at 40 but you only risk $1.20 or having MRK put to you at net $26.20.

    GSK/Pharm – You can do the same kind of long play but they are looking oversold so I like the May $32.50/37.50 bull call spread for $3.70 and sell the March $37.50 puts naked for $1.10, which is risky but good chance of working your way into free $5 spread that’s already in the money and put-to price is probably $32.50 so net $35 in May is not a bad worst case

    See, this always happens on days I intend to just watch…

    JPM/DMan -  They are not that cheap and they’ve broken support.  You can assume $37 will hold and sell naked March $37 puts for $1.50 and the June $35/39 bull call spread is just $2.20 and only 10 cents out of the money – not a bad aggressive pair trade but I’d rather buy them on a bigger drop.   FAS you KNOW I don’t like with all this uncerainty about Europe etc. 

    I’m still not impressed with the move up so far

  32. Phil/walkaway - Ya but, it’s the MBA but more so,  It’s the Irony……

  33. ok, so given what you and gel have just written about TBT, how would you adjust the following positions?  would you short calls against these positions?
    Short TBT Feb 48 puts — sold at $1.11
    Short March 46 puts — sold at $1.24.
    Short June 46 puts — sold at $2.10.

  34. Hi, Judah, re questions to Peter,
    Those are great questions!  I am eagerly awaiting Peter’s reply, too.
    BTW, I also rolled some Feb puts down and out to March last Friday for comfort.  I then cashed out the same number of Feb put verticals, and bought cheaper Mar put verticals.

  35. How is volume so far?

  36. Phil, good advice on the DIA putters-thanks, that’s what I gladly pay for.
    On BRK/B- you listed a Sept 65/74 bull call veritcal the other day. Did that also include selling Mar 76 calls?

  37. Stranglers- FYI- I am in a BRK/B strangle- Feb 68/80 @$.85 last week. Could return 17% on the margin commitment for just two weeks. I know Peter advises against short strangles on individual stocks for obvious reasons but I see BRK as more of an "index" play than a stock play. Will see how it works.

  38. judah/cwan/rolling,
    Rolling when putter is within 5% with a month to expiration: we haven’t had this rule yet as we have the margin to go to At The Money, but we should add it as it really helps the margin.  Good observation and this rule of thumb is excellent in greatly reducing the risk to the downside, plus significantly increase our sleep quality.
    When is the best time to roll with respect to VIX: usually the best time to roll is the VIX is higher as the higher VIX inflates the further out of the money options more than the closer to the money options, so we get more for the roll.  Note that this relation ship of 1X to 2x putters is not linear and depending upon the time to expiration and where the strikes are. 

  39.  Peter….Excuse my naivette.   I’m not use to tracking VIX  for  particular indices or stocks.  Where do I easily find the info?   It doesn’t seem to be generally listed for the indices on, for instance, TDAmeritrade.

  40. lflan/VIX
    This is the VIX based on S&P500 that we talk about, not the volatility of each stock.  The VIX or ^VIX symbol should give you the quote.

  41. Hi, Peter,
    Thanks for the reply.
    Another question: What’s your experience on NDX (NASDAQ 100 index) compared to RUT?  I like SPX a lot.  It’s more mellow.  A lot of strikes to choose from.  In comparison, Feb is the first month I played RUT strangles, and I found it harder to play.  My main complaint is that it doesn’t have that many strikes.  For example, early in Jan I bought put verticals 580/570.  As the market went up and up and up, I sold RUT puts at … guess what … 560!  That’s only one notch below the put verticals!  This situation never happened in SPX.  So, I wonder about NDX..

  42. Irony/1020 – I’m sure it’s lost on them despite having issued numerous statements on how "wrong" it is to fail to fullfill your obligations…

    TBT/Jcm – I’d hang tight on the $48 puts as they still have .40 in premium and the other puts are on target so nothing to do but wait for rates to go up.   It doesn’t matter what you sold them for, only if you feel they’ve run their course or if you feel there is significant danger that you’ll be stuck in a position you can’t get out of.   Nobody is talking about lowering rates – simply that they intend to keep them low long-term.  So today is TERRIBLE news for TBT and they are barely budging – that seems strong to me. 

    BRK/B – Pstas – Yes the March $76 calls were sold for $2.30 a half sale is plenty to cover as the goal is to just wipe out the $5 of the spread by Sept.   I agree on the idea that they are an index play.  Obviously, inclusion to the S&P was a unique event for them but generally, they are going to follow the Dow/S&P UNLESS something funny happens in insurance like a hurricane at which point their weighting there could throw you.

    Beat case scenario for today is we retest 9,920 on the Dow and 1,055 on the S&P without failing them.   Those were our kind of support levels on Friday, before the snap down so a test there that holds would be a good entry point for some bullish pokes. 

    With underwater homeowners increasingly planning strategic defaults ("jingle mail"), one way to respond: paying them to pay their mortgage. One firm is rolling out a turnkey rewards program lenders can use, as a way to stanch losses and reduce moral hazard; will it help mortgages compete with credit card balances for borrowers’ dollars?

    S&P downgrades British Airways (BAIRY.PK -2.2%) to BB- with a negative outlook, on a "significant deterioration in the group’s financial profile" amid difficult industry conditions.

    A consortium led by Disney (DIS +1.1%) is in advanced talks to buy a 30%-40% stake in China’s largest in-bus advertising company, sources say. "Disney is going to do many things in China… [the deal is] more about the promotion of Disney, the brand" than sharing in the growth of China’s ad business. A rather odd member of the consortium: Google (GOOG).

    John Dorfman sees the recent stock slump as "normal" and expects the rally to resume in a "saw-tooth fashion" – up and down, with more ups than downs. He’s sticking with his favorite "offensive" stocks in energy, materials and industrial companies.  I agreee with that but I think we trend down for a while first.

  43. Phil, I need some naked calls for balamce. Any suggestions. SNDK maybe?

  44.     Peter..thanks.

  45. ssdirk/TBT
    Playing this ETF is like a horse race. TBT is the dark horse that is loaping along at the back of the pack, waiting for the right moment to move to the front. We know we have the right horse, but we have to be patient. The Fed adjusts rates based upon inflation expectations, and right now there is too much slack in the economy for inflation to be an issue. Our actual GDP production is out of whack with our potential production by an historically large margin. Unemployment is still very high and factory utilization is historically very low, and wages are not rising. We have to watch what the Fed is doing in order to get the signal the rates might soon rise. When the Fed stops buying mortgages and begins to remove liquidity, and the banks start to lend (offering liquidity) then we have the canary in the coal mine that signals the rate hike is under consideration. The last signal to observe is the change in the Fed rhetoric, such as a slight change in key phrases such as "exceptionally low, or extended period". That is our signal to DD and watch our covers very closely. In the interim, sell lots of calls against existing positions and keep your ear to the ground. My guess this inflection point will take place toward the end of the year.(How is that for the ultimate test of patience?)

  46. Thanks gel.  Your strategies and thoughts are always respected.

  47. cwan/NDX
    I found that NDX is worse than RUT as its strikes are $25 apart and the option values falls sharply away from the money, meaning adjustments can be very costly.  TOS also wants more money for NDX margin too. The good side is NDX may be used as a bullish hedge where we sell more puts than calls.
    OEX is good, but it’s the same as SPX.

  48. Hi, Peter,
    Thanks for your explanation on NDX.
    For the purpose avoiding the 35% concentration rule in PM accounts, can I play OEX & SPX?

  49. Hey to Phil – Looking at AET on Watchlist (since i already have the Feb $30 short puts) you say in the article,  "…if AET continues down to 200dma…" . My question is, what if it doesn’t continue down that far? Sell a different put?

  50. Phil/IRA trading. I’m sure you’ve addressed this in the past, so I apologize in advance for asking.  I tend not to do much with my IRA, since I can’t trade a full range of options, can’t day trade, etc.  I have been thinking that I would start using the IRA account as a sort of subsidiary of my regular margin account.  For example, let’s say I sell puts in my margin account for a stock I want to own, which is then put to me.  I would then sell the stock from my margin account and buy the stock in my IRA account, selling calls against the stock in the IRA account and puts against it in my margin account.  I would then handle the buy/write in the usual manner, but do so trading out of the two accounts.  Do you have a preferred strategy for IRA accounts, or is it about as good as one can do bouncing between an IRA and a margin account?

  51. cwan, OEX is the same class as SPX, so the 35% rule applies to both, unfortunately.

  52. Phil/S.  S surging today, I suppose in anticipation of earnings report before Wednesday’s open.  In my experience, S disappoints in earnings more often than most companies.  Do you have a sense of it?  I have some S calls in the money that I bought on the drop last week and I’m thinking of following Rule 2.

  53. 20 of the last 22 Monday mornings have been up.  I sort of feel empty without it.  What are the manipulators waiting for? 

    Hi Phil Please could you look in to my follow up question on C below thanks
    February 8th, 2010 at 9:58 am | Permalink  
    Good morning Phil C besides various positions in Jan 11 and Jan 12 I am still left with a long Mar 3c at .49 has dropped to .32 . Shall I sell a mar or jun 3 p to cover. Your thoughts pls thks

    C/Yodi – Selling a put does not cover a naked call, it doubles your risk.  Of course, it can be used to reduce your basis on a broader play (as long as you REALLY WANT to own C at $3).  With the March $3s you have 6 weeks and will lose about .02 per week of premium so you need to get out if you feel C can’t gain more than .02 this week and keep you ahead.  Notice you can roll back to Sept $3s at .60 (+.27) and sell the Sept $4s for .22 so it costs you about .05 to move into a much longer $1 bull call spread.  No huge payoff but better than taking a loss so, as long as that roll doesn’t get away from you, there’s no need to move. 
    February 8th, 2010 at 10:37 am | Permalink  
    Phil thks for the advice on C  I do not want to run up more margin on this deal with selling the sept 4c would it not be better to roll the c3 mar caller to the c 4 sept caller givin g a profit of .12 ???  thanks

  55. HERO- Phil, what is your opinion on a July 2.50/5.00 call spread? Possible sell July $2.50 put also?

  56.  judahbenhur/IRA…..I’ve recently done exactly what you’ve described.  I upgraded my ability to trade the IRA acct. b y  transferring acct. from TDA to TOS.  TDA would not allow spreads; TOS does.  Neither will allow naked options.  With spreads I am able to buy calls or puts several months out then sell front month calls or puts over and over.  This allows me to collect premium, which is, of course, the goal.  This wasn’t an original idea.  Phil put me onto it.  Since the transfer I’ve substantially increased my performance in the IRA.  

  57. Thanks, Peter.  Your answer corresponded perfectly with my experience.  With a little VIX surge, a little roll, then a little market steadiness, I went from 5% away to 12% away plus a profit.  I had another thought that might be good to kick around for the collective wisdom of the stranglers.  There are folks on this board who are terrific at charting the support/resistance points for the indexes, and it seems to me that the best price points for the strangles and the crazy plays are to sell the strangles 15% away AND below a major support point, and for the crazy plays to buy just above one of the support points.  I suppose that is just common sense, but it makes me feel a little more protected thinking that an index might take a pause on its way down and give us extra time to adjust.  So, when we are looking at April entry points, I think it would be helpful if we also discussed where we think the support levels might be.

  58. JRW – are you waiting or riding?

  59. APD - selling naked puts or a  good buy /write here IF one thinks the economy is turning?

  60. JRW, judah – on TZA at 11.14

  61. ss
    I was on TNA for a quarter, but got out a couple of hours ago. It’s still all about 59.07

  62. Entered a small position in BKS, selling April puts. Big insider buying (Ron Burkle) and a short squeeze is underway. In situations like this the shorts almost always lose the battle. Sold the April 17.5 puts as a small income play.

  63. hi Phil : I’m in LYG at $5.61,now $$3.00, Sold April $5 Calls for .75 ,now .15. Sold $5 puts for .75 profit.any suggestions?

  64. For TOS users,
    Phil mentions TOS margin requirement quotes on a regular basis.  Can anyone explain how to pull this up on TOS. I’m in through TD Ameritrade.

  65. Hi, Peter,
    I just re-read your comment on NDX.  You said: "The good side is NDX may be used as a bullish hedge where we sell more puts than calls."  Can you elaborate a little on that?  Why is NDX better than others in that regard?

  66. Gel/TBT.  I agree completely with your analysis, thanks for sharing it.  What are selling your calls against--Jan 2011 $40 or $45 calls?

  67. Thinking that the market would respond favorably to the IPAD
    AAPL  March puts   sold 200′s  bought 190′s;  getting nervous, thoughts?

  68.  Hey Phil: 
    WFR at 12.20 ? sell puts ?
    also when you have time you had metiuons paying a mortgage is a scam, so what do you do instead. for someone like me that paying a lot of 3 houses with 4% 15 year load ?

  69. lflan / IRA – That’s an interesting strategy: buying calls & puts months away and selling front month calls & puts.
    Does TOS take away the difference between spreads from your buying power?  For example, if you have a put spread 20/15 for 1 contract, does TOS take away $500 (=($20-$15) x 100) out of your buying power?
    I’m not complaining even if they do.  It’s better than no trades.  I just want to know the rules.

  70. Extremely light volume day today.  Dow volume is not gonna be even 115M at 2 pm.

  71. JRW – alright, we are below 59.07.  Do you get in TZA and risk the STICK?

  72. Just sold a few BAC Feb. 14 puts at .24…a 13.76 entry on BAC not too bad….

  73. ss
    I think this is a flush; no volume, total HAL territory; I’m sure I’ll be taking another position today, just don’t know which yet.

  74. SNDK/Magret – I still like WFR better as they are way down at lows.  SNDK could still get hit in a big sell-off.  WFR at $12.30 and you can sell the Jan $12.50 puts and calls for $4.80 for net $7.50/10 – that’s 66% upside and 19% off on the downside.

    TBT/Gel – Very good and even if you are in the straight stock, keep in mind that you can sell March $50s for .55 as a whole (with stops) or 1/2 cover which is a nice 10% annual return even if you own the full stock. 

    ACOR CEO came across like a sleeze on CNBC (asking $15,000 for drug kind of is, actually) and stock is going down. 

    AET/Morx – Yep, it’s always annoying when you can’t get your entry.  I was counting on a test of the 200 dma at $28 but they didn’t get there on Friday’s dip and that may be the best we get.  Nothing wrong with selling Apr $28 puts at $1.40 if you really want to buy AET at that price as it only increases net put-to price by about .70, a little less if you are coming in from scratch as the 2011s dropped .40.   Of course, it was a patience play as the idea was not to sell puts since you don’t need to with the Jan $22.50/Apr $30 spread at $7 where you have no upside danger.  

    IRA/Judah – That’s a good idea to leverage them.  I would check with the broker to see if they provide some sort of link that would combine the margin but, if not, then your system is a very valid way to build long-term IRA positions at a discount.  

    Ah, and what Iflan said!   

    S/Judah – Oh absolutely as they are in a big price war with our pals at PCS and who know how many other regionals.  VZ and T got hammered despite good earnings so a miss would not be pretty.

    UP/TM – We were green for a minute there.  Commodities are still having a rough time so this is good, rotational consolidation if we can hold these levels. 

    Margin/Yodi – There’s no margin to selling the $4s to cover your $3s.  I understood you have naked long March $3 calls that are down.  If you are in for .49 and you roll to the Sept $3s, it keeps you in the money, adds a nickel to your basis and all the sale of the Sept $4 calls does is cap your max gain at .46 (as you’ll be in for net .54) but you should be thrilled with any gain coming out of this.  Let me know if I misunderstood the position. 

    HERO/Pstas – They are a hurricane play so July is too early to expect a big move.  Why put such a tight timer on the trade when you can spend the same $1.30 or less on the 2011 or 2012 spread.  Also, I would not sell $2.50 puts for .20, the reward doesn’t justify the risk if HERO falls $1.20 to $2.50 and your call loses .60 or more AND the put would jump to .50 and you REALLY wouldn’t want it.  Better off staying naked and either setting a .40 trailing stop or holding cash to roll out and DD to maybe 2012 $2.50s at $1 or less.

    BKS/Gel – Be careful with them, I think, long-term, they are a buggy-whip company. 

    LYG/Dflam – Not clear on "sold $5 puts for .75 profit" but I assume you got your dividend, right?  Forget all except your net entry, which is hopefully not too much over $3 and then just let the Aprils expire or, if you want, you can roll them to 1/2x July $2.50s at .80.  As long as you collect .10 per month per long, your ROI is $1.20 a year so what do you care what price the stock is at?

    TOS/Bassdad – When you go to sell, before you confirm, it tells you.

    AAPL/Humvee – Ah, violating primary rule of selling naked puts:  You don’t seem to REALLY want to own AAPL at net $200 (or whatever).  Well, they are always rollable to a strike you ARE willing to own AAPL at.  The $200 puts are $6.85 and can be rolled to Apr $180 puts at $6.05 – that’s another 10% off or to 1/2 the Jan $160 puts at $13.50 – surely you must like AAPL enough to commit to that?  If you can find a roll you are comfortable with, then your only worry is if the net of the roll begins to get away from you.  Otherwise, you can afford to wait.

    Mortgages/Micro – Hmm. I explained that last week in detail.  There’s nothing wrong with 4%, 15-year loans, it’s regular 30-year, 6% loans that are a debt trap.  Remind me at night and I’ll turn that mortgage thing into a post – it’s good for people to know what the math is.   As to WFR, see above. 

    2pm volume is 114M on the Dow, very stickable but a flatline  would be healthier

  75. Taking another stab at DIA $102s at .49, just looking for another .05+ with very tight stops.  A test of my faith in the mighty stick…

  76. JRW – I must be crazy to question the stick.  Out with a dime.

  77. Lfan/IRA.  Thanks (and thanks, Phil). I recall reading Phil’s advice to you a little while back, but couldn’t remember the specifics and my search of PSW didn’t turn up anything.

  78. Margin/Tos bassad – usually shows up when you place the order, b’f you hit send.  You can also do in analyze tab of TOS.

  79. SS/stick.  Better to love the stick than fear the stick.  You can always jump back into TZA, but you’d have been kicking yourself by challenging the stick on a low volume Monday.  Of course, you won the Super Bowl so maybe you’ve got the momentum.

  80. judahbenhur, I am in the same boat as you on that IRA. I do what you suggest, but it’s a real pain switching back and forth and keeping track of everything properly. If it is just a few positions, it’s manageable. But if it is lot, it a real headache and REAL easy to miss something in terms of setting stops, buying, selling, rolling, etc.

  81. BKS/Phil
    Burkle has 19% of the outstanding and has plans to buy a lot more. He has a business plan that is known to only him –  with 800 stores, maybe converting them to book-reading coffee shops?

  82. Hi Phil I did exactly as you said below roll my long mar 3c of C to Sept 3c for a credit of .27 but as I sell the same amount of sept 4c’s I get a credit of .21 and get slammed with a wopping 2041. margin I am holding here 52 options to roll and 52 sep 4c’s to sell.
    We both understood it correct but there it is I can not understand it eather. thks
    C/Yodi – Selling a put does not cover a naked call, it doubles your risk.  Of course, it can be used to reduce your basis on a broader play (as long as you REALLY WANT to own C at $3).  With the March $3s you have 6 weeks and will lose about .02 per week of premium so you need to get out if you feel C can’t gain more than .02 this week and keep you ahead.  Notice you can roll back to Sept $3s at .60 (+.27) and sell the Sept $4s for .22 so it costs you about .05 to move into a much longer $1 bull call spread.  No huge payoff but better than taking a loss so, as long as that roll doesn’t get away from you, there’s no need to move. 

  83. Gel -
    Thanks – Given the ring of fire graphic that Phil put up today – I don’t know why anyone would prefer the Euro to the Aussie dollar – long term they just seem like they are in a much better place -
    These are the three rationals against the Aussie that I come up with -
    1) Once Europe starts raising rates, they have further to go than Australia??
    2) Australia is going to suffer from a slow down in China - contradict – #1 but still a factor
    3)Euro is at historically low levels vs Aussie  - this plus #1 seems to be the strongest argument against going long Aussie vs Euro – plus the recent price action / chart has been lousy – not sure if the downtrend is broken or not.

  84. 15K for Acordia drug OMG.  I am in such a good business model …..

  85. Phil Funy I set it up again receive a debit to roll  C mar 3c to Sep 3c cost .27 and sell the C sept 4c for .21 margin now 1404.00 again all on 52 calls there you got it

  86. Bord, Thanks, I hear you.  I slimmed down my number of positions last week because I felt I had too much to track.  I figure that if I stick to major long-term positions, like AAPL, at least I’ll free up cash/margin in my regular account for things I want to do, like strangles. 

  87. Coffee shops/Gel – The ones by me already all have coffee.  Maybe it’s just the Northeast but we have gigantic B & Noble stores everywhere.  I love them, they are like book warehoused with multiple levels and my kids love to go with me on the weekends when I sit and read a dozen magazines (also newspapers from around the world) and they run around reading everything in the store.  We do buy stuff but, on the whole, I dont’ think we’re making their quarter.  If it wasn’t so nice though, I doubt I would go at all but they do a great job creating an environment for book people but, if AAPL can recreate the experience on the IPad, I’d rather sit on the couch at home…

    C/Yodi – You have Sept $3 calls that you own and you sold Sept $4 calls and you have no other open calls or puts?  That just makes no sense at all – it’s a fully covered position.  I would say check with your broker and ask them what their logic is, maybe it’s a mistake or a temporary hold based on the sequence you rolled.  Think about it, outside of the money you spent to own the spread (net .36 current plus what you lost) it’s not possible for you to lose anything on this spread…  Possibly there is a delay to clear your sales back in – let me know. 

    Well that is the wrong way at 2:30!

    Aussie/Samz – Very much a commodity based economy.  You have to look ahead to shifts in the balance of trade as commodity prices drop (better for importers in Europe, worse for exporters).  I’m not saying I don’t like Australia, they were my economy of the year last year, but those trends just go with the most recent data for a while. 

    C/Yodi – Ah, that’s better.  Just a delay moving the credit in I bet.

  88. phil,
    thanks for your advice, could you give me your thought on FCX, what is a good entry point, what is the ticker for copper to follow their price. thanks JC

  89. Phil,
    My TD account version of TOS gives the following info in that window;
    Order Description
    Break Even Stock Price
    Max. Profit
    Max Loss
    Cost of Trade
    Guessing this is a variation between versions of TOS

  90.  thanks tphil will do;
    should we wait to sell the calls for the WFR when things get higher or no ? and ofcoarse buy the stock and sell the puts now

  91. Sorry Phil I own the Mar c 3c long not Sept the idea is to roll to Sept

  92. Oil closing at $71.80, nat gas at $5.41, Gold at $1,066, Silver at $15.10 and copper at $2.90 with the dollar at $1.367 to the Euro and $1.562 to the Pound and 89.32 Yen.  So all little changed after an up and down day, which should cheer up the commodity pushers a little.

    Oh and look – CNBC found a guy who has a theory that we’re hitting peak oil.  How surprising! 

    Oil traders have to be freaking out that Iran announces they are stepping up nuke production and they are lucky just to flatline oil for the day…

    FCX/Gucci – I only like them for shorting when they go up, not to go long on.   I think copper is way overpriced, as is gold and that’s pretty much what FCX does.   As to following copper – I use the futures ticker on TOS and the symbol is /HG

    TOS/Bassdad – They add "Buying Power Effect," which is very useful.  Maybe ask TD if they have a view like that.

    WFR/Micro – Well it’s a nice entry so you can stop the call sale at .50 lower and that’s not taking too much of a chance.  SOX are the only thing green today or maybe the Nas, barely…

    Mr. Stick has 7 more minutes before I give up on him

  93.  cwan/IRA/ 1/51   no, no penalty as long as you own the same or more options than you sold on the spread.

  94. "After buying that little multitouch company Touchco last week and merging it with Lab126—their Kindle division—Amazon’s now got job listings looking for a Hardware Display manager that knows LCDs, and a Wi-Fi specialist."

  95. Gotta love Krugman:  We’ve always known that America’s reign as the world’s greatest nation would eventually end. But most of us imagined that our downfall, when it came, would be something grand and tragic.  What we’re getting instead is less a tragedy than a deadly farce. Instead of fraying under the strain of imperial overstretch, we’re paralyzed by procedure. Instead of re-enacting the decline and fall of Rome, we’re re-enacting the dissolution of 18th-century Poland.

    The panic over European debt is exaggerated, says Jeffrey Sachs: "I am not too impressed by this panic. I think Spain, Greece and Portugal are solvent. I think they are creditworthy… this [panic] will go away in a few weeks."

    Pressure’s continuing to increase on wealthy borrowers, with serious delinquencies for prime jumbo mortgages rising to 9.6% from 9.2%, a 32nd straight monthly increase. (previously)

    Oh yeah, things must be heating up….  UPS (UPS -0.5%) starts plans to furlough 300 pilots and says it’s continuing to work with the Independent Pilots Association union to avoid losses.

    With inflation fears in the air in Brazil, banks there are raising expectations of an interest-rate hike to as soon as next month. After leading Latin America’s exit from recession, Brazil is set to be first major country in the region to raise rates. (ETF: EWZ)

    MS broke the stick with some kind of research note to lighten up on Financials! 

  96. hi Phil
    I need to learn your languge, what is stickable mean, and dia 102s you mean you bought some dia feb call into the closing for 0.49cent right and have a tight stop loss, just want to know what you are thinking  JC

  97. sorry forgot to ask your thought on toyota, has drop drop 20% from hi level, is this a good entry point to sell some put

  98. This market could only look more listless if it were closed. I left around 10:30, came back now and it’s at the same spot.

  99. AMZN/Kwan – That means they are a year off at least from retooling the Kindle and, even then, they are not a hardware manufacturer and going head to head with AAPL is a suicide mission (DELL and HPQ can’t fight them but AMZN will?).  This is a great example of a company that should "stick to the knitting."

    Stickable/Gucci – Ah, that goes back to doing your assigned reading.  End of day sudeen run-ups are called "stick saves" due to hockey stick pattern.  We call trade bots that run them Mr. Sticks and watch our volume levels to see if the pattern is "stickable," usually on 3pm volumes lower than 140M on the Dow.  There has been a serious lack of stick activity since the big drop – possibly signaling a major change in strategy for the big funds, who no longer care if the market looks good EOD.   As to the DIAs, I was playing for the move up but killed the trade at 3pm by selling the $100 calls to cover as a momentum trade, which is so dangerous I didn’t even mention it. 

    TM/Gucci – $65 is my target price.  Not too interested in paying more as they have years of lawsuits plus congressional hearings in their near future. 

    Listless/Eric – Yep, very lame performance today but I said earlier I wanted to test 9,920 and hold it to make me happy (S&P 1,055) so I’m about to be happy and buy back the DIA $100s hopefully!

  100. You may be right that we need to test 1055 again Phil. Maybe tomorrow morning if not today. I do think that we have to go up more (or perhaps drift) to work off the oversold before we can go down significantly more.

  101. Phil, You said you liked MT at 36 and they are getting closer (37.70) with earnings Wed….  With volatility pretty decent right now, could we perhaps do some kind of backspread to get set up for getting into a long spread (like we’re doing with AMED)?  I know selling short puts is preferred method, but my margin’s a bit tight right now.

  102. Thanks Phil finally solved the C roll

  103. cwan/NDX,
    NDX is not better than others, just that we can use it to avoid the 35% concentration rule.   Since the Nasdaq was out performing last year, we could get blown out to the upside and hence the suggestion to sell more puts than calls.

  104. That wasn’t much of a test but S&P held 1,060 and check out MA, coming on strong with V up 1% for the day too.

    Made a whole nickel on the short DIA sale and now happy to get out of $102 puts even (including the nickel gained on the short sale).  When day trading like this, you just want to live to fight another day when it doesn’t go your way.  Maybe tomorrow on that retest but CASH is still KING!

    MT/Bord – $36.50 was friday’s low.  You don’t want to do a backspread of downside resistance because the calls you need to sell are deflated from the downward movement AND the stock is (hopefully) bouncy.  When the stock is crashing down to  a lower trendline and the VIX is high – that’s a good opportunity to naked sell puts.  It’s kind of hard for me to say, sure, do a dumber play because your margin is tight – better to wait until it isn’t.  However, a ratio put spread can be done, selling 5 March $36 puts for $1.85 ($925) against 3 Sept $30 puts at $2.30 ($690) or 4 if you don’t have the margin for that…  You have loads of time to roll them and the June $31 puts are $1.80 so you just need to add long puts if it goes the wrong way on you.

    The Fed’s easy money is spurring worries over asset bubbles in Hong Kong and China, but as long as China pegs currency to the dollar, they’re stuck with the consequences, SF Fed’s Janet Yellen writes. They could think about being more flexible …

    While commodities are largely higher, Treasurys are on the downslope: 30-year Tsy futures -0.47% to 118-30; 10-year -0.32%. Euro -0.4% against dollar; pound -1%; Swiss franc -0.5%; yen -0.3%.

    Sector ETF strength: Livestock– COW +1.7%. Homebuilders– XHB +1.5%. Agriculture– DBA +1.3%. Commodities– GSG +0.8%. Retailers– RTH +0.5%.
    Sector ETF weakness: Solar– KWT -4%. Gold Miners– GDX -3.4%. Financials– XLF -1.7%. Regional Banks– RKH -1.7%. Real Estate– IYR -1.6%. Coal– KOL -1.6%.

    Dow leaders: HD +2.9%. HPQ +1.2%. DIS +0.4%. XOM +0.4%.
    Dow laggards: BAC -3.1%. AXP -2.4%. TRV -2.1%. JPM -1.5%.

  105. Phil, you said "the stick works till it doesn’t"  What other tricks do you think the funds have up their sleeve  that they might pull to trick us?

  106. The orderly sell off continues.  Thanks to the fake bounce off the technical level on Friday the old baggies were able to get much better prices from the new baggies!
    Memo from MS regarding banks being bad…   As If!

  107. Phil, would you buy the feb 100 Dia here?

  108. matt,
    Waiting for the bounce now feels very much like waiting for the correction from July to January; remember, it’s better to be Rich than Right !!

  109.  Is there an anti-Stick?

  110. Tricks/Stock – Hard to say as it takes a while to look for patterns that repeat often enough.  MS downgrading financials well after the EU close (they were up 1%+) was a nasty trick and killed any possible chance of us pulling a rally.  Maybe the big boys are bottom fishing and looking to flush retailers out while the panic is still in the air.  Hard to say – it could also be funds getting the hell out as fast as they can before Europe goes BK…

    DIA/Trad – Well I held the $102s but they don’t move that much.  The $100s are too wild (42 delta vs 20) and if they go the wrong way on you it’s very hard to recover.  I stuck mine out because I said at 12:30 that we should test 9,920 and 1,055 and then bounce and that’s what we did – just slower than expected but today was so lame there are going to be plenty of bear trades to buy if we break down here. 

    Anti-Stick/Jced – Sure because it’s just another program running the other way.   Pretty much the reason we watch volume is because the Stick-bots are only effective when there are no sell-bots opposing them and 140M at 3pm is about where they seem to get swamped and become ineffective. 

    ERTS news not taken well…

  111. jcedens,
    No, only THE GREAT VOID

  112. Hi, Peter,
    Thanks re NDX.
    How do we know we are close to 35% concentration on an asset class?  On TOS platform, what numbers do we look for? Total BP effect on SPX vs RUT vs other positions?

  113. cwan,
    Could you ask TOS and let us know?  I just know that once my portfolio reached that level, selling 1 more call or put requires a lot more margin than usual.

  114. Phil / Eric:  Does our close constitute the test of 1055 that you were looking for?  At least the first part of the test!

  115.  Asked me to remind you to make the mortgage comments an official post. thanks

  116. Judah/TBT
    Oops….I missed your earlier question re the calls I sold today – they were against the June 45′s. Tomorrow, I’ll take a shot at the leap puts I sold and will post my pick. Like Phil says – gotta make money selling premium for the inconvenience of waiting for the payoff.

  117. Phil/BKS
    I will always trust your "gut feelings" before I trust mine, as my knowlege and experience is limited in comparison. Ron Burkle is a billionare as a result of his investments in stuff I would not touch with a rubber glove. Supermarkets have to be the last investment I would make, but somehow he was able to see opportunity – so I guess time will tell if he still has the midas touch. The stock is loaded with shorts, and if he forces then to jump out of the boat, then it will at least be fun to watch.

  118. Pharm
    I am maneuvering the market landmines in this correction phase, and laying out my plans for a re-entry, hopefully soon. I am looking at some very interesting, promissing but risky plays, and was wondering if you are in them. They are as follows: NSPH ( nanotech diagnostic medicine), AVXL ( unique approach to altzeimers cure), ALNY ( RNA interference drug), RXII ( product that inhibits gene that produces excessive cholesterol ), STXS ( magnetic robotics in medicine). All of these companies are in the "hype zone" and have very strong stories to tell and have the respect of some very respected industry members.

  119. Comparison of 8% bounce levels and present levels:

    Dow 9,850 (we closed 58 pts above), S&P 1,055 (closed 1 pt above), Nasdaq 2,125 (closed 1 pt above), NYSE 6,793  (already 80 pts below) and Russell 596 (already 10 pts below).

  120.  Phil….. A cautionary note: I bought the DXD bull call spread July 27/33 a few days back as long-term downside protection.  I am finding that this is very thinly traded.  Today only three of the July 27 calls changed hands, with a bid/ask spread at close of a dollar!  It’s going to be difficult to unload these at the appropriate time because of this thin trading.  Even with today’s 100 point DOW move, the option didn’t budge!   I’ll be getting out of this ASAP and going back to DIA most likely for DSP.  

  121. EDZ bull call spread also very thinly traded. 

  122.  Iflan,  If you have TOS, and the spread finishes in the money, they will automatically credit your account the appropriate amount.  If that helps.

  123. Good read on NY real estate and those who control most of the space

    "there is a distinct and qualitative difference between a long-term perspective, which yields better decisions, and a short-term perspective, which leads to mistakes.”

  124. Phil,  what do you think of selling calls on “shortable ” companies as disaster hedges rather than buy/wries in EDZ, DXD etc The latter rapidly deteriorate if the market continues to rise for months at a time and we "like to sell premium not  buy".  If thinkg don’t go your way you can always roll naked calls. Favourite short term candidate often mentioned here are Bidu, POT, FSLR, FCX and X. Also last week CAP mentioned SPG, SLG and KRE. . At what prices would you reccommend shorting these? Any other "shaky" companies which you think will be worst hit in the eventuality of a market meltdown making thm ideal for naked calls? Thanks

  125. Magret, Just my 2 cents on FCX because I watched it very closely over the past year (and made good money on the long side and thus am prejudiced in that regard). Phil is usually short on FCX as I have queried him about FCX over the past few weeks. I think his latest stance was they would likely hold 65, but they are not a short again until around 85. And it’s true, it seems to run into trouble when it hits 85. It’s a wild stock that will whip 6-7% on you in a day (it traveled from as high as 90 to near 65 within 1 month). I think it’s very dangerous to short it here at 71-something. Trading wise it always seems to get pumped up right at the opening and again at the close 3:45 onward. Late morning is usually when it goes down. If this correction ends and we get ANY kind of bounce up, FCX will likely burn you bad if you are on the short side now. Also, MSM loves the stock, they see it as a 4-fer (China,copper, gold, industrial recovery)… plan accordingly. 

  126. Bord, thanks.

  127. Good morning!

    I’m a little behind today – suddenly got the flu right before dinner and just getting going again.  Seems like it’s mostly gone now – feel free to repost comments and I do intend to pull up that mortgage thing…

  128. Gel – here are my quick thoughts on the list.  I am not in any of the companies you mention.
    ALNY – one of several in this space.  These guys are the furthest in the clinic.  My only concern with iRNA is that it is on the cutting edge, and ISIS has been on the cutting edge for many years (ISIS started an iRNA company many years ago).  I think this is a promising field for things that are easy to deliver (eye, lung, skin, etc.), and big Pharma has embraced the technology.  As for their other targets in development, well, I would not pay for the premium….the company has some big hurdles.  ALNY has been in clinic since 2005 with their lead product licensed to Cubist.  Being that expensive though, I would be very careful.
    STXS – now this is something I can get behind.  They have a nice little corner for treating one of the biggest problems in America – the heart.  I am not going to get into the details here, but I would buy an entry here….selling some puts.
    NSPH – diagnostic company.  There are many out there, and consolidation is going to happen.  I think their offersheet in technology is ok, and they have an array of diagnostics and other products, but they look scattered to me (unfocused).  I will have to dive in deeper to see what they are worth, as last year these guys were 14c, then 85c, and now $4.  But, where have the buyers gone?  They offered stock at $7 last year, and those are under water, so I would wait on for an entry in the $3s, as their charts are horrible. 
    AVXL – wow, not sure how these guys are even public.  They have nothing in the clinic……so, for $2, I would rather buy VIAP… 18c.  or GNBT at 56c….not worth the pennies now.
    RXII – Like ALNY, these guys are in the same technology, iRNA.  I like their price better, and their targets for research even more (eye diseases).  SO yes, this is more attractive to me for a small play.