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Wintery Wednesday – Are We Now Corrected?

Was that it?

A 10% correction (David Fry chart on right) and we’re done?  If so, this is still a fairly bullish market, and it should be, as our sell-off last year was, beyond a doubt, way overdone.  Often people forget the fundamentals of investing and the biggest fundamental of them all is: "Where else are you going to put your money?"  There many fine companies out there with P/E ratios that are below 15.  That means if you give them a dollar, they will return 6.6% in earnings.  IBM has a PE of 12, which is an 8.3% return on my money and, according to projections, that will improve to 11 next year, generating 9 cents for each dollar I give them

Call me an optimist but I think IBM is a fairly safe place to keep my money.  Perhaps as safe as 4% TBills, or 7% Greek bonds or 3% Yen Notes or, Heaven forbid, a bank!  In fact, not many banks are paying 1.8% on your deposits but IBM does through dividends.  IBM was my example trade in the Weeekend Wrap-Up so I won’t get into strategies here but that is what our whole Buy List is about – picking up great long-term values and hedging them to even more effective entries.  

Not every stock is as rock solid as IBM but (going back to the Wrap-Up) who did we buy when the chips were down last week?  C, CCJ, TBT, GOOG, XLF, AAPL, AMED, CSCO, TM, LOW, AKAM, LLY, NLY, GE, TNA, USO, ABX, DELL, FXI, UYG, BRK/B.  Not exactly a radical collection of picks is it?  Yesterday, with the market up 2.5% from our shopping spree – we bought NOTHING.  Part of the "buy low – sell high" philosophy is waiting for the market to be either high or low.  Two weeks ago, on Jan 29th, I charted 10,058 on the Dow as a critical support line and, from our Buy List Update this weekend, I put up the following chart for Members:

And where did we finish yesterday on the Dow?  10,058.  See, this charting thing is easy – that’s why I don’t usually bother, it’s dullsville!  Let’s now turn our attention to our other major levels of 10,165 and 10,300 which, keep in mind, is nothing more than our predicted "weak bounce" off the drop from 10,700.  As I said in the above chart, we can expect to be "tight and bouncy," which is what we’re seeing this week as we struggle to retake levels we breezed through in early November, when we knew it was a sham as we flew higher on lower and lower volumes

The above trading range is in-line with our fundamental market outlook that is based on the overall VALUE of stocks as a global investment vs other alternatives.  The last time we ran a buy list was back in October and we’re happy enough to jump back in here, especially as we are entering our trades using the strategies laid out in "How to Buy Stocks for a 15-20% Discount," which allows us to pick up fine companies here, which HOPING we get to double down if another panic takes us below 9,650. 

It does look like our range is solid though and we’ll see how well is holds up over the next couple of weeks.  The second chart I posted for Members this weekend was the chart of the Dow during 2004, a year I feel we may be repeating as we struggle to get out of the recession backed by plenty of government stimulus.  Through October of 2004, the trend was choppy and down and that’s why we’re pursuing mainly market-neutral strategies for now. 

Asia was up this morning with the Shanghai leading with a 1.14% gain, followed by the Hang Seng at 0.67% and the Nikkei at 0.31%.  Not a very good reaction off of our fun day and, as with the US, it was a commodity led rally so nothing to get excited about.  Japan had a 20.1% increase in Machinery Orders in December and China had an 85.5% increase in IMPORTS in January.  “Earnings across the region reinforce the view that the recovery is gaining momentum,” said Stephen Halmarick, Sydney- based head of investment-markets research at Colonial First State Global Asset Management.

China suffered form the same trade disease as we did in December - rapidly rising commodity costs.  Oil peaked out at $82 a barrel in December and copper was up more than 10% from the prior month.  China’s Trade Surplus fell to $14.17Bn while the US trade deficit rose to $40.2Bn, up 10% from November.  What’s really incredible about these numbers is the fact that economists missed them by miles.  How do they fail to take rising commoidtiy prices into account when projecting trade data?  Why should we trust any of the work they do if this is how they perform?

Europe is performing well again this morning with 1%+ gains across the board as Greece seems on the way to being rescued but that isn’t stopping Civil Servants from striking over there, shutting down government services including shipping and airports (no customs).   This was expected and we talked about it last week so no big deal other than to the Euro, which has no reason to rally on more stimulus news and a new problem child going on the EU dole. 

Until Greece is fully resolved, we can still expect the market to jerk up and down in our ranges and it still looks like healthy consolidation to me – all within our expected ranges so far…. 


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  1. Good morning Phil
    I am looking at SMN yesterday close at 2.45. When are you thinking of taking some profit on this option I am up 50% sell 1/2 ??? thanks


  2. Morning All! Thought you might find this short clip of interest. Makes banana republics seem downright honest. Doesn’t it always seem like a Goldmanite is always involved behind the scenes?
    http://www.thinkbigworksmall.com/mypage/archive/1/29027


  3.  BIDU – Phil thanks to both you and CAP.  I was just wanting to ask if you’d help me evaluate my adjustment this morning to my short 420-270 call spread?  Thanks.


  4.  BIDU – Phil I don’t have the buying power to go naked on the call.  I’m going to have to roll the whole spread.


  5. LM  Any thoughts?  I’ve been a spread for a while and need to roll down my longs (currently May 28s), but wonder if it’s worth spending the money or if I should just abandon the trade.


  6. Anyone follow DB at all? Wondering if they are a short term rally play IF Europe, does, indeed relief rally soon.


  7. Good morning!

    It looks like it’s going to be another crazy day in the markets, driven by Greek Rumors and whatever other nonsense on what is likely to be a low-volume day.

    Since we usually head higher on low volume, anything down is going to be considered bad.  The chart in the morning post says it all, we are dead center in our trading range and could go 200 points either way. 

    We’re not seeing ANY of our upside (5%) levels at: Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620 so there’s nothing at all to get excited about until we cross those.  10,058 on the Dow is at least an indicator we are on track, as is any positive movement today. 

    Otherwise, we are just looking to hold our 8% bounce levels at: Dow 9,850, S&P 1,055, Nasdaq 2,125, NYSE 6,793 and Russell 596.  The Russell has done an excellent job of keeping us out of trouble as it stayed red when everyone else got bullish so we already know we need that 596 level to break in order to make any progress back to our 5% levels. 

    At the moment, I’m hoping we hold Dow 10,020, S&P 1,065, Nas 2,150, NYSE 6,800 and RUT 590 and I’m going with the DIA $101 calls at $1 with a tight stop if we blow just 2 of those levels.


  8.  BIDU – So here is my current thought.  I rolled my 470 call up to a 510 for 11 credit.  Then I will roll the 420 to mar 430 and roll my 510 to a mar something.


  9. Phil
    I own the Jun 35/39 Call spread on JPM. The stock is now pushing 39. What should be an ideal exit point? One would expect the spread to move to $4 but the 39′s appear to be priced high. Can you comment on this. Thanks.


  10. chakra108, that’s the annoying thing about bull spreads sometimes, it can take a while for the spread to widen even if your stock goes up past your caller price. The premium on that June 39 call has to erode, which is not going to happen anytime soon. The only way you will get $4 on that spread in that short term is unless JPM zooms way past 40, or you employ one of the adjustments that I am sure Phil will offer up. 


  11. JRW – IWM?  same ole, same ole?


  12. I guess bullishly if we can get a re-test of 1055 and see that accompanied by some buying of commodities and PMs (so that there’s a divergence) that would look good. If commodities and gold are going down along with equities, then no reason to buy (except as a gamble on an announcement out of Germany).


  13. The great unwind is beginning.  Bernanke has laid out his blueprint for doing so.. liquidity is going down.  So is the market.  It will be gradual.. barring any crisis.. but without a doubt it is going down.  We have topped.  Perhaps for years.
     
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aWEzrnywBfIE&pos=1


  14. "Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions," Not really a total shocker.


  15. SMN/Yodi – I’ve been out since last week!   You need to follow the Strategy Section and set stops on your gains.  I really don’t know how your expectations can be so high that up 70% you aren’t dying to cash out.  If 70% or 50% short term gains were so routine, we’d have Trillionaires in the F500…

    IndyMac/Jbur – That is sick isn’t it?   Someone needs to stop these people..

    BIDU/BG – OK, so your issue is you are already in for $50 in margin and have few options.  Do you see, for future reference, why this is a terrible trade to put yourself into?  Never ever short anything you are not ready, willing and ABLE to buy if it goes the wrong way on you.  If possible, I would like you to flip this trade and buy the June $440 calls for $65 and sell the June $460s for $54.  It’s a crappy spread but you are flipping what you owe the caller to mainly premium and eliminating the margin with a good chance of winning.  Othewise, you can pursue the current $40 debit spread and just roll it out in time but you already ate your premium and you will have to either widen the spread and take on more margin or kick in some cash to maintain a $50 spread.  Lastly, you can check out the net margin of selling the March $460 calls for $33 and the March $470 puts for $24 against the March $520 calls for $8.20 and the March $420 puts for $10 as that would pay you if they flatline from here. 

    LM/Eph – Not this morning, the markets did not like Bernanke’s statement at all!  We’ll have to see if yesterday’s lows hold but let me know what the whole spread is and we can take a look at it.

    DB/Bord – They are in with the in crowd (Gang of 12) so they should do fine long-term but I’m not sure who will be the winner and loser if Greece is bailed.  The EU doesn’t default to favoring bankers like we do.

    Wow, that was a very sharp dip!  If we hold these lows, I like getting back in those DIA $101 calls, now .74.

    On the bright side, it might give us some more buying opportunities but the low volume makes it hard to say….


  16. Do not see any bulls at DOW 9990


  17. what spread would suggest as an entry into IBM? TY Phil


  18. Phil, I have TBT Feb short 48 puts bought at 1.00 now 1.14. Too early to roll I presume but wanted to check with you. thanks


  19. ss
    Same channel, just got in TNA


  20. ss
    And OUT


  21. JRW – I was about to say "careful".  A little choppy here.


  22. Guys,
    do you know a reason why BBBB so sharply down last couple of weeks? and where is the bottom?


  23. Another 100 points down and Bernanke’s next statement….guys come on i was just kidding


  24. Phil  Thanks for the Hammer on SMN the only excuse I have I was holding it as a protection for the down market


  25. Seems spooky quite this morning….


  26. Phil
    I believe the Chinese sovereign government is reading PSW. They are building a huge stock portfolio and their recent 13F filing reflects many of your recommendations. I have the list and it includes AET, AAPL, C, BAC, CHK, KO, LLY, MCK, PFE, POT, UNH, V, WFC. Total 9 Bil, and most of the investments were made 2009. You never really know who is watching you!


  27. OK Phil, Question for ya : For a while now, i’ve been long DIA June 100 puts, and short DIA June 90 puts. Both positions are in the money, but its one of my hedges. You have any advice? Should i roll forward to take out some profits? Just leave it alone? thanks


  28. BIDU/BG – You can do that but not rolling your caller to some decent amount of premium sets you up for another major loss if they head higher.  My target on BIDU is still $500, they just seem to have realized most of it all in one day!

    JPM/Chakra – With any vertical spread, you have a monthly anticipated gain to make full profit.  You are looking at the spread wrong as your caller will maintain MORE premium than you until expiration day and you will never get $4 until that day.  Generally I take the spread from entry (let’s say yours was $2) and I then say I expect to make $2 in 4 months so that’s .50 per month.  If I get ahead by more than a month, then it’s probably a good idea to consider taking the early profits.  Otherwise, as long as you are on track and have nothing better to do with your cash, then no reason to do anything.  The $35/39 spread is currently $2.40 – verticals are not for the impatient or action junkies but that’s why I like them as hedges as they hold their value well, even as they go against you. What you can do, is consider that you likely have $4 in the bag (+ $1.60 from here) and sell 1/2 the March $41s at .93.  That drops your basis on the spread and puts a little cash in your pocket (as long as the margin isn’t an issue). 

    Dollar made a huge move on the "off again" rumors on Greece – lot’s of nonsense this morning.  Pound is really getting clobbered at $1.558 with Euro at $1.369 and 89.89 Yen to the buck so Yay Dollar this morning!  Oil fell hard to $72.98, gold dove to $1,066, still matching the S&P and silver is $15.20 and Nat gas getting low at $5.27.  Bernanke’s testimony sounded reasonable and responsible and that’s the last thing the dollar bears wanted to hear.

    All in all I think it’s a short-tem dip and I’m happy with the rebuy on the DIAs – hopefully we hit it this time but a stop back at even now as any downturn here will be too scary to stick with. 

    IBM/Phlit – Other than the buy/write I listed on the weekend, I like the 2012 $100/140 bull call spread at $20, then selling about .50 a month in premiums like 1/4 March $125s at $2.30.  You can sell 1/4 more if they fail $120 (with a stop) and, otherwise, they will be easy to roll up.  Do that 20 times and your 2012 b/e is down to $110

    TBT/Jomp – Too early and they still have about 40% premium so any premature action you take is throwing 40% out the window.  Whenever you get close on a roll, just keep your eye on what you are rolling to (the March $47 puts are $1.25) so as long as you are getting a .10 credit for the roll, what do you care what the specific value of the Feb put is? 

    BBBB/Tcha – Local governements are broke.  Makes a tough sales enviroment for them but a good long-term company. 

    SMN/Yodi – They are good protection when the materials run up but copper fell from $3.54 to $2.81 and hit the 200 dma – that’s the sort of thing you need to keep your eye on when shorting a basket like SMN.   As with anything, you have to learn how to be satisfied with the "bird in the hand."

    Dow volume about average with 55M at 5 to 11. 

    China/Gel – I think it’s safe to assume that they watch everybody.  They can put 4 people on every man, woman and child in America!  I’m actually SURE they are watching me because I have been banned and unbanned several times in China but we’ve been getting along lately and I have a lot of Chinese readers. 


  29. Phil
    I think GRMN ( Garmin Ltd. ) is going the way of the Wang computer. Chinese imports are killing them, and their product is becoming a mere commodity. Much of this technology is now free with the purchase of other products. I was in a Staples store buying paper yesterday, and there was an endcap selling this stuff – how pathetic. Do you have a short position that you could suggest?


  30. Phil: Regarding the IBM 2012 bull call spreads + selling front month calls/puts: I got burned once in a similar trade with JNJ, LEAP bull calls spreads + selling front month calls/puts.  Thing went well until I got assigned on the front month calls the day before Ex Div day!  Why?  JNJ went up and up and up.  It didn’t matter how much premiums I got from the callers.  The callers wanted the stock at the high price along with the dividends.  At the time, I didn’t know if I had an alternative.  I bought the stock to cover the hole, which costed me a bit.
     
    So, for this IBM trade, let’s say we do get called away, how would you handle it?  Exercise the long leg in the call spread?


  31. URE at $5.76. Entry or look out below?


  32.  Phil:  Any thoughts on FSLR?  They are down big today.  I am currently selling the February 80 Puts.  Thanks.


  33.  Phil:  P.S. re FSLR.  Are you worried about their earnings release February 18?  I can’t imagine that even a bad release could push the stock to 80 (as I noted, I am selling the Feb 80 Puts).  Thoughts?


  34. Money coming out of bonds


  35. phil
    question about IBM, why you choose so wide spread?  I got Jan12 20/30 and think it is much easer to get 10% per month because less invested debit, please give your insites


  36. DIA/Hanna – The problem with that kind of hedge is you are the one paying the huge premium ($5.40) so you WILL lose $1.40 per month no matter what happens.  The $90 puts you sold are out of position but, at $2.26, will only lose .60 per month so you WILL lose .60 per month in that positon and the only thing that can even give you back your net $3 is for the Dow to drop to 9,700 by then.  Compare that to a DXD (ultra-short Dow) cover where you can buy the July $25 calls for $7.20 and sell the July $30 calls for $4.20 for net $3 on the $5 spread.  You don’t need the Dow to go down at all to make 66%, anything flat will accomplish that and your b/e is way down at $28, which is a 7% rise in the Dow back to 10,700.  That’s break EVEN at 10,700, not a loss at all.  Why, because that’s the difference between selling premium and buying it – the same difference between being the one guy who owns the casino or the millions of guys who go there to "get rich".

    GRMN/Gel – I think you may be right there.  I can’t see smart phones being sold without GPS within a few years and there’s only so much you can do to fancy up a specialty model – although people do still buy wrist watches…  I’d go for the 2012 $25 puts at $4.45 and sell the Apr $28 puts for $1.10.  4 sales like that and you have free long-term puts.  Big danger is a car company buys GRMN to incorporate them into their cars but not for $6Bn, maybe around 1/2 they get attractive to one of the big boys.

    I know someone wanted MT last week.  NOW they are getting interesting as a long-term play. 

    As we expected, S missed but held up pretty well, still $3.32. 

    MBA Mortgage Applications: -1.2% vs. +21% last week. Thirty-year fixed mortgage rate decreased to 4.94% from 5.01%.  If we can’t get people to buy 4.94% morgages, what will happen when they go back to 7%?

    One in five U.S. mortgages were underwater in Q4, reports real estate website Zillow, and home values continued to fall for the 12th consecutive quarter of year-over-year declines. "The prevalence of markets in or near a double-dip situation shows that we are not yet at the bottom, in terms of home values."

    Henry Paulson and Warren Buffett teamed up to speak in Omaha yesterday, praising the government for intervening in financial markets and the broader economy during the crisis. Paulson says U.S. unemployment could otherwise have reached 25%.  I think he meant to add "sooner."

    German officials say they’re considering a "firewall" to prevent Greece’s debt crisis from spiralling out of control.

    German government official says bilateral aid for Greece is not planned to our knowledge. (Reuters)

    A Greek bailout is, or isn’t, imminent, depending on which sources are talking. But if there is a bailout, options are narrowing for how it will be executed: The European Investment Bank says it can’t get involved, direct EU aid has been ruled out and the EC has vetoed suggestions of IMF involvement.

    Goldman Sachs (GS) played a key role in helping Greece hide its true debt levels, reports Der Spiegel. In 2002, Greece and Goldman "devised a special kind of swap with fictional exchange rates" that created additional credit of up to $1B for the debt-laden country.

    The pound tumbles after U.K. central bank chief Mervyn King says the strength of Britain’s recovery remains “highly uncertain” and could require further purchases of government bonds to pump cash into the economy. Pound -0.5% vs. dollar after rising earlier.

    EU lawmakers seek a clampdown on speculators and short-selling, as EU finance minister prepare to meet next week to discuss the issue. Also, a report from the British parliament says plans to regulate hedge fund managers could damage Europe’s economy and restrict investor choice.

    A new study finds that forcing investors to disclose their short positions could lead to less liquidity and wider price spreads, making trading more expensive. But take the findings with a grain of salt; the report was commissioned by the hedge fund industry’s chief lobbying group.

    Waiting for global coordination on banking regulation is a recipe for paralysis, Joseph Stiglitz writes. The near-impossibility of achieveing significant multinational consensus explains why bankers – who don’t want regulations – keep insisting on it, and makes strong localized changes look like a far-better "second best."

    Micron (MU -2.5%) agrees to buy privately-held Numonyx Holdings (INTC, STM) in an all-stock deal worth around $1.3B. Numonyx, the world’s No. 3 maker of flash-type memory chips, could help Micron catch up with larger rivals Samsung and Toshiba (TOSBF.PK). (PR)

    Yay DELL!  BofA/Merrill Lynch upgrades Dell (DELL +2.1%) to Buy from Neutral. "We believe low investor sentiment, high short interest, compressed valuation, possible enterprise refresh, and likely positive EPS revisions position the shares for better performance in 2010."

    Bing (MSFT) is grabbing marketshare slowly but surely. In January, the search engine had an 11.3% share of the U.S. market vs. 10.7% in Dec. and 8.5% a year ago. Google (GOOG) dipped to 65.4% from 65.7%; Yahoo (YHOO) dipped to 17% from 17.3%.

    Making use of that dark fiber I’ve been talking about:  Google (GOOG) plans to build and test ultra high-speed broadband networks in trial locations across the U.S. "Our goal is to experiment with new ways to help make Internet access better and faster for everyone."

    Toyota (TM) turns down a Japanese government energy efficiency award for its Prius, saying accepting the award would be inappropriate given the current recalls.

    Green Shoot: The global default rate on junk bonds fell to 12.5% in January from 13% in December, and Moody’s sees the default rate at 3% within a year if the global recovery continues apace. If it doesn’t, and if credit spreads widen, default rates will be closer to 7.1% within a year.

    Very bad news for gold bugs:  John Paulson bet big and won big on the housing market’s tumble, but he’s proved less successful thus far in his efforts to get a gold hedge fund off the ground

    Forget about the Greek drama for a second, says Barron’s, and take a look at the escalating trade tensions between China and the U.S.

    Yet another investment choice that looks worse than equities:   With more cities thinking seriously about a Chapter 9 municipal bankruptcy, Fitch warns that even talking about it could invite an inquiry – and that means that muni bondholders have reason to fret, says Joe Mysak.

    Woo-Hoo – Big score this time on DIA calls.  up to .92 so that’s 1/2 out at .90 and the rest out at .80 to lock in 10% and each stop can be raised .05 each .05 we go up from here


  37. ss / 59.07
    If we fail again I’m buying TZA; if we bounce TNA


  38. cwan120
    Looking at the IBM play as I see it the play is always good and the short Mar caller will not kill you as the long 100 jan 12 call will always out run the short callers mar and jan 140 12 but when setting up the plat at TOS only 1short caller will hit you with a 2250.00 margin for a credit of 249.00


  39. JRW – my problem is knowing with conviction which way.  It just seems to hang within a few cents on each side.


  40. Hi phil
    what do you think about AMZN — what would be a good strike to start scale in selling put for March expired


  41. Matt
    You are growling like grizzley today. I am very bearish for the near term, and looking for shorts.


  42. Phil/GRMN
    Nice play – Thanks!  By 2012 they might on their way to the Smithsonian


  43. Bbigelow … I would sell the 470 call; and roll the 420 call up to either the Jan 2011 $520 call for 55 or 56;   or to the Jan 2012 600 call for $64, $65
     
    Eventually you will get a pull back and then you can buy some protection.  If BIDU keeps going up, then you can keep rolling up as long as their are future strikes (right now the Jan 2012 is the latest date).


  44. You can get $13 + for the Feb 470 now; take it before premiums get crushed.


  45. Just saw your buying power problem; how many calls do you have ?


  46. If you are long the Feb call and Short the march call, you should not be getting any margin protection for that… you should already be considered naked.


  47. Phil
    Dean Food down 2.72 any play in the down play? 15%


  48. BIDU; I don’t know if I mentioned this here, but apparently in Oct when they missed, they lowered guidance from 210 M in revs to 175 or something like that.  So now, they modestly beat the vastly lowered guidance; and their future guidance is even lower than this Q.
     
    Yet the stock is being pumped by all the usual whores (as in all of them) as if BIDU accomplished some wonderful feat.   As I write this, the stock is at 474, all time high today.
     
    Clearly, their beat was not magical, and the numbers don’t justify this pump fest.  But since THEY can, THEY do.
     
    Perhaps they get some insane rally to 500 for this opex.  I doubt it.   All the upgrades are in.  More likely, BIDU will start tomorrow and next week to give back all of this move.
     
    Just my 2 cents.


  49. BHP – anyone have an opinion – I  rode it from 40s up to 60s but bailed a while ago – need to listen to the call tonight


  50. So, if you have no position on BIDU at the moment, selling the 500 Feb calls for 3.2 looks good; or a spread, like the 500/530 bear call spread for 2.30.   6 trading days left to expiration after today.


  51. Phil: cover 1/2 or so the DIA puts with what  ??


  52. Phil – BHP -
    Buy write – sell march 70 calls for 3 bucks and the march 65 puts for 2 bucks -
    7 % profit if called away or net entry of 65 -
    I actually might prefer just selling the 65 puts for 2 bucks – I like the stock below 65 – your net entry is then 63 per share and you keep 2 bucks if it stays above 65


  53. IBM/Cwan – That’s why we are very conservative with our sales.  Selling 1/4 of the March $125s for $2.35 to make .60 per long means we have tons of room to roll.  Let’s say we had sold 1/4 Feb $100s for $2.50 and they are now $24 on some 20% jump in IBM (not liklely) and it happened so fast we sat there like idiots with our jaws hanging open and didn’t roll yet.  Well, first of all, that would have virtually have locked in a $20 gain on our vertial Leap and since we have 4x of those, we made $80 for each $20 we lost on the front month.  But, since we only sold 1/4, we can roll them to 2x the July $120s at $9 and, if IBM jumps another $20 we can go to 4x the Jan $140s but, at some point in between, it would be wise to either A) Add more long calls, B) buy back some of the 2012 callers or C) establish another vertical to protect us if there is a further gain (which is what we did with AMZN as they crossed $125.  As long as you trade within your means and scale in properly, most of these "problems" can be dealt with over time.

    FSLR/Jonh – They are my favorite solar to short whenever they get too high but we haven’t had a good entry on them since January.  $80 is a fair enough price for them but only if copper and gold production remains high - otherwise they run out of tellurium and then they are screwed.   Am I worried about earnings?  I would be if I owned the stock!  Govermment money is tight and solar programs are being cut.  States sure don’t have money for energy credits and carbon trading is on hold and oil is coming back down in price along with coal and nat gas which makes the eqation for going solar very tough for potential customers.  Also, solar panels are more or less subject to Moore’s Law and that makes for a very, very tough sales environment and makes investing in infrastructure extremely tricky.

    Spread/Tcha – It depends how comfortable you are with your targets.  Also note above comment with Cwan where I could care less if calls I make jump $20 because my net on the Leaps is $80 as I go in the money.  With your spread, you only have $20 of upside in the same situation and your gains can be wiped out by your short sales.  Of course, with that spread at just $5, you can (and should) be far less agressive with the short sales. 

    David’s call on HNSN yesterday was kick-ass this morning, nice 10% gain that’s pulled back now.

    Short/Yodi – Keep in mind though that you are looking at a single month while the plan is to collect $3,000 over the course of the year while running the constant $2,250 margin on the various naked calls.  Since this is an alternative to buying IBM for $122 a share, I find the $2,000 cash on the spread and the $2,250 on the margin to make a target $3,000 over two years to be preferable to tying up $12,000 in cash hoping IBM hits $150 by then.   These plays are not for people who only have $5,000, they are plays for people with $100K portfolios who don’t want to tie up 12% to make 3%.  To the downside, your risk is lower than with the straight stock too. 

    AMZN/Gucci – I had originally targeted $115 as fair but the issue they are having with publishers knocks them down to $105 for me.  That means I wouldn’t mind selling the March $110 puts for $3 but I have no compelling reason to play AMZN at all.  I suppose if those puts went to $5+, then they’d be more attractive.  

    Nasdaq very lame today.   SOX are no help at all. 

    Apple (AAPL) may pay as little as $219.35 for the tablet’s parts, says iSuppli. That leaves room to cut the price of a device that analysts say may be too expensive.  That means AAPL makes as much on an IPAD as AMZN sells a Kindle for!

    So just what is the exposure of U.S. banks to debt in Greece and other weak European countries? "Modest," says Barclays: 73 large U.S. banks have exposure of $82B to Ireland, $68B to Spain, $18B to Greece, $8B to Portugal – roughly 5% of their total foreign exposure. Citing annual reports, JPMorgan Chase (JPM) has $18.4B in exposure to Spain, while BNY Mellon (BK) has $2.3B to Ireland.

    Housing recovery or new bubble? The spec house returns.

    We really need to get going after lunch if we’re going to rally.  Will be very disappointing if we don’t hit 10,120.


  54. matt / Great Unwinding
    I agree the plan is in place, and it WILL be orderly, as the SEC is putting new restrictions on SHORTING in place this month. GRADUAL wealth destruction, but no panic !!


  55. ss
    59.62 then 60.14 and 60.42


  56. DF/Yodi – They serve the bottom 90% so they can’t make any money.  Commodity prices go up and they can’t pass the costs through – not a good sector until people go back to work.

    BHP/Samz – I’m not bullish on commodities this year.  If China didn’t stockpile last year they would have been sucking wind and I doubt China’s going to double up on stockpiles when they now realize they caused a lot of inflation internally.   Given those 2 plays, I’d sell the puts but really I’d stay away. 

    DIA/RMM – With 7 sessions to expiration, there’s no reason not to be full covered with the $101 puts at $1.55 and a stop on 1/2 at $2.   June $103 puts are optimum at the moment.

    Done with DIA $101s at $1 – good enough for now.  Will get back in if we hold 10,000 on pullback.


  57. Phil…I sold naked March 70 TM puts 2 weeks ago.  They are up 55% and I would normally take profits, but all the bad news seems to be in.  Reasonable to let them ride in this case?   ….or am I being greedy.   No, I think I answered my question while typing.   I should probably buy them back and keep the 55%. 


  58. JRW,
     
    The restrictions on shorting could make a sudden collapse more likely, IMO, if they have the effect of reducting net short positions. Shorts are the buyers in panics, sometimes the only ones.
     
    I realize that the current proposal only technically would affect when you can short (on an uptick), and in that sense would probably be completely useless in stopping bear raids (I’m pretty sure computerized trading desks will find a way to force an uptick — e.g., with a small bid in order to allow a much bigger sell order to be entered on the next tick).
     
    But anything that might reduce the net short interest is effectively taking away from the pool of buyers in the event of a sudden decline.


  59. Hi, Pharmboy & Phil, BMY went down below $24.  What do you think?


  60. Eric / SEC
    They are also talking about restrictions on who can buy a leveraged ETF and whether to allow margin use in shorting; I think they want all retail investors but for the Buy and Hold types OUT !


  61. Oh PLEASE!  This is such BS.  "A Communist Party directive leaked to the Chinese-language edition of the Asia Times"A secret directive reveals that China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the U.S. government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets. BNP Paribas says the move "could become the new theme for the markets in the medium-term."

    Those who abide by the Dow Theory tell us that this indicator is either already bearish or in danger of turning that way soon.

    How the jobless recovery will transform America   The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.

    Good demographic discussion: America is still on the rise
     

    TM/Iflan – I agree, not looking too dangerous.  We’re within 2 weeks so we look for 65% anyway. 

    A few Toyota (TM) supporters are starting to speak up: here and here.

    Shorts/Eric – Shorts were the weapon used to cause the last crash.  It doesn’t matter that there’s no one to squeeze if no one is buying anyway.  It’s not a perfect solution but they haven’t removed the abuses in the short system so this is all they feel they can do.

    BMY/Cwan – I still like them.  You can sell JUne $22 puts for .92.  TOS says that’s $282 in net margin to make $92, not bad for 4 months…


  62. Phil, what index credit spreads would you suggest at this time? Thanks phil


  63.  Phil, I have a march buy/write on AMAT going where If called away I collect 500$ in premium.  I would be called away if AMAT finishes above 12.  However like to take 100-200 of the premium I collected and hedge to the downside.  My breakeven is 11.25 on AMAT to the downside.  The best I can come up with is buy 5x of the march SMH 24/23 PUT vertical.  Any ideas?


  64. $25Bn 10-year not auction was awful!  3.692% with 2.67 bid to cover and TBT goes flying once again!


  65. JRW,
     
    I didn’t hear that. Lovely. Do they think markets would only go up then?
     
    Maybe they can combine this with the proposal I’ve seen floated that IRAs and 401(k) accounts be converted into government-run annuities.


  66. Cwan – I like BMY.  T’will be a while, but I still believe they are a takeover candidate.  Using Phil’s 10-20% discount, and looking at the charts for them, why not sell the 23 Jun P for 1.27.  If they fall, you have a nice little 5.5% dividend player, if not, then you collect the $$.  Scale in a bit, as I think they will fall to the 23.2 to fill the gap down.  how much further remains to be seen.


  67. hi phil
    IBM — phil I may have open the position wrong this morning, I bought stock with feb 120 short put and 125 short call.  How do I correct this, should roll the short call and put to which month, and what do you rec to sell during waiting period --please advice just started so I am not quute catch up with the stragety --but i will pick up quick  jc


  68. Phil,
     
    I absolutely don’t think that shorts were the weapon used to cause the last crash (unless by shorting you include all derivatives, such as CDS purchases made without holding the underlying securities — then I would be a little more sympathetic).
     
    Massive and unrestrained lending was the cause. Given what I’ve read of you, I’m stunned you would try to blame shorts for the crash — this view is below even CNBS.
     
    Short interest declined as the market really fell apart, showing that most shorts covered way too early. But the selling went on and on. Moreover, there were huge fund withdrawals throughout; the net equity withdrawal from the markets were huge. There were bear raids for sure, but most were brief and often quickly reversed.


  69. Eric,
    They are considering even more restrictions on " Qualified Accounts " ( IRA etc )


  70. Phil, would you recommend DD on LLY today if I already have a buy/write position in it on or should I give it some time?


  71. Eric,
    That’s why the new rules, they can’t control redemptions, but they CAN control everything else so as to give no cause for redemptions, result, a "stable"  market.


  72. Phil -
    Just to clarify – the 20% and 50% rules for taking profits – does not apply to selling premium – correct?
    Short Rimm 65 feb puts sold for $2.36  – currently .65 -  no reason to touch these


  73. PHARM
    your outlook on MYGN? at what point a trade?


  74. Phil re.: 
    DIA/RMM – With 7 sessions to expiration, there’s no reason not to be full covered with the $101 puts at $1.55 and a stop on 1/2 at $2.   June $103 puts are optimum at the moment.
    Still holding 1/2 cover of Feb 103 at 2.13 now 2.90  and other 1/2 Feb 101 1.67 now 1.48 do have to make any change holding mattress at Jun 104 at 5.83 now 7.12 and other 50% Jun 101 at 5.55 now 5.52


  75. Also Phil,
     
    They (the SEC, and especially the FED) could do a lot more to prevent the sort of abuses committed in the last decade without going after the red-herring of short selling. For example, they could remove the exemption for (non-credit) derivative trades between banks and non-bank affiliates that allow them to be conducted on non-market terms. They could also kill the ready market exemption for banks that allows them to avoid pricing many ABS and ABCP securities in real terms (when the real time data is available, which it usually is).
     
    These alone, which involve changing Reg-W, would go some way toward removing the derivative abuses that caused the crash.


  76. ss
    Out of TNA at the trend line ( 59.62 ) for $0.78; now we’ll see what’s next


  77. JRW – just getting back from an errand.  Missed TNA.  Let me know if you get back in. Thanks for the help.


  78. Phi,
    What’s your thought on V they have been range-bound since earnings?
    Thanks


  79. Hey all,

    I have a new Overnight Trade posted. Check it out.

    The pick is for Macerich Co. I am looking to get in around 31 – 31.10 with an exit scheduled for tomorrow morning.

    Thanks!


  80. JRW,
     
    That may be their thinking, but those attempts to stabilize stock markets have been tried and have pretty consistently failed (most recently with financial institutions in 2008, which reversed their slide for one day before it then accelerated). Doesn’t mean they won’t try again, of course.


  81. Eric
    I agree with you, I never said it was the right thing to do, but it makes them feel they’re in CONTROL !! ( GS )


  82. Pharm,
    John Mauldin published a column in January on his blog titled "The Coming Biotech Bubble." See http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/01/11/the-coming-biotech-bubble.aspx 
    It featured a guest column by Patrick Cox who publishes a newsletter on the subject (his website represents the worst in newsletter marketing and is a complete turnoff). However, despite his newsletter marketing strategy, I am wondering if you agree with the perspective that he represents in Mauldin’s column (whom I respect) regarding the potential of regenerative medicine, RNA interference, and nanotech. If you agree, any suggestions on how to find promising small companies that are involved in these areas.
    Late last Monday (Feb. 8 at 5:57pm), Gel posted an entry asking for your opinion on a few biotechs including NSPH (nanotech diagnostics) and ALNY (RNA interference). Wondering if you have an opinion on these or any other similar companies.
    Thanks. 


  83. The John Mauldin link I just posted does not work. Try cutting and pasting this instead: http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/01/11/the-coming-biotech-bubble.aspx
    Hope this works.


  84. Phil On SSH, with the large spreads,how can I protect a profit using a stop.Thnak you
    dflam


  85. ss
    If we fail here, I’ll be in and bubbling on TZA (80 blocs )


  86. More good news bulls can sink their teeth into
    Global debt defaults hit record $329 bln – Moody’s
    http://www.reuters.com/article/idUSN1017318320100210


  87. Be careful when you enter orders.  Maybe because of low volume (people couldn’t get to work due to snow?), I got several orders filled instantly.  I was using TOS’s Mid price point.  I then bid on a price quite a bit away from Mid, still got filled instantly.  Damn!


  88. JRW – Just say in and I am with you.  Looks like we are nearing the upper band of the channel.


  89. Is Blackberry service down ?


  90. Allen
    I get the Cox newsletter, and I asked Pharm about a few of his picks. Check out his review addressed to me – I believe it was posted late Monday. He suggested buying NSPH in the $3.00 range. A new recommendation by Cox is ISCO (International Stem Cell ) I like them, but waiting for a pull-back and then I’ll jump in. Generally, I really like this space.


  91. MYGN/drum – these guys are dogging me, and I am not sure why they have fallen out of favor.  Oppenheimer downgraded them in January, b’c their cancer diagnostics were not leading them, but with cancer incidences going up, I am at a loss.  Could be that they want to get in at a lower price.  They posted a profit last Q, P/E is 15 while many of their brethren are higher (GPRO).  I am sticking with them, as I believe their support is in this area and the business model.  If they move below 21, I will DD.


  92. cwan120
    You got a point re fills I experienced the same


  93. Index Credit/Phlit – Like what? 

    Of course money is flying out of bonds off that last auction action.  Somehow commodities think high rates are good for them but they are going to be sadly mistaken…

    AMAT/Craig – I am not a big fan of betting against myself on those.  A buy/write is a long-term play so if they drop to $11, you’ll just roll to the Apr $11 puts and calls or whatever.  That means spending $200 for insurance is really doing nothing more than costing you $2,400 a year to "protect" your position.  If you want to hedge with SMH and you plan on being in AMAT (and hopefully other SOX) long-term, then the Aug $27/26 bear put stpread is .60 with a 66% upside if SMH DOES NOT GO UP .50 from here.  That way it costs you $1.80 to buy $1.20 (10%) of downside protection and if you can sell .60 a month of premiums that’s going to be $3.60 gained against $1.80 lost.

    IBM/Gucci – Nothing wrong with what you have, seems like a good target for next week.  My idea from the weekend was selling July $125 call for $6.60 and July $120 puts for $6.65 but that’s a lazy way to play them, you can do better with active montly management and you seem to be around every day…

    Shorts/Eric – Naked shorting was absolutely used to bring down the financials in the November crisis.  I didn’t even know it was subject to interpretation at this point.  Now, on the whole, I think it’s silly to ban shorting when I can still sell naked calls or buy puts and it doesn’t work in the long-run anyway but, to me, clearly it’s a system that has been abused to the detriment of many companies.  As I have pointed out in the past – if you have fire insurance on your own home, then you can sleep there at night comfortably but if your neighbor buys fire insurance on your house, you might wonder why.  If 10 of your neighbors buy fire insurance on your house, you will probably start sleeping with an extinguisher under your pillow and if people from all over the country start buying fire insurance on your home – it’s very likely time to get a new home, whether it’s "safe" or not.

    LLY/Leon – We don’t generally just DD off a buy/write.  We may allow it to be put to us but not before a roll or two.  Where did you start (what strikes) and do you have a full position are my main questions.

    Rules/Samz – Yes, that does apply to short premiums but use your head on them.  You can set stops (and 20% of the profits is always a good rule of thumb) so about $1 on those puts (.35 more than they are now).  That means you are risking .35 to make .65 in the next 8 days – not too bad but then you have to consider the likelihood that RIMM, now $67.19 will fall to $64.35 in 8 days to put your putter in the money.  Your comfort level with that determines what to do with them.  Since the 50 dma is at $65 and we can assume they will provide some support, it does seem worth the risk but not if, let’s say, the Nas breaks below 2,125, where it’s been supported for the last 2 weeks.

    DIA/Yodi – You are at our target so no need to change.  Also, those $103 puts can be rolled to March $100 puts for .50 so not too much worry as long as that roll stays around .50 or less.   We still haven’t gotten actual postiive news on Greece and that should give us a pop back to 10,300. 

    Regs/Eric – I agree 100%.  If you read my comment, I’m not a huge fan of the ban, just pointing out that SINCE there was a total regulatory failure, it’s all the SEC feels they can do to control things. 

    V/Josec – I’m concerned that levels of charges will go down and/or banks will begin pushing on the CC companies for fees.  I might like them on a pullback, would not generally bet against them, but have no interest near their ATH. 

    SSH/Dfalm – I don’t know what that is?

    That is good news Kustomz (as long as we are in a Bizzaro Market)

    The Treasury sells $25B in 10-year notes at 3.692% (.pdf). Bid-to-cover ratio of 2.67 vs. a recent 2.5; indirect bidders take 33.2% vs. a recent 41.2%; direct bidders take a record 13% vs. recent 3.2%. Mostly flat Treasurys moved a leg down following the auction: the 30-year yield +0.04 to 4.62%; 10-year +0.04 to 3.69%; 5-year +0.05 to 2.37%; 2-year +0.06 to 0.89%.

    This is how messed up our bailout economy is:   Freddie Mac (FRE) says it will buy loans that are delinquent 120 days or more from its fixed and adjustable-rate mortgage-backed participation certificate securities. Freddie says it is cheaper to buy and hold these nonperforming loans on its books than paying guarantee fees to security holders.

    Failure at 10,058 is not good.  Watch RUT 595, which must hold along with S&P 1,070, Nas 2,150 and NYSE 6,800.  Below that, I’ll be liking those DIA $99 puts again, now .69


  94. Allen – I read the article on the biotech bubble, and I have had several conversations with a friend here in SD that is also in the biotech space.  For all the companies, if you shorted every single one, a trader could probably make a bundle.  The problem is that for that one that does make it through, it moves like lightening.  As for companies in iRNA, stem cells, and nanotech, well, there are so many.  Just like 10 or so years ago when gene chips and the human genome was going to solve human diseases, where are all the companies now?  Where are the cures, or at least understanding of disease?  I am not interested in stem cells for now.  I think there is promise, but when?  We can clone, but making a new brain?  Liver?  Kidney?…and one that functions??  Maybe in my lifetime (I am 39). iRNA has promise for diseases of the exterior body (eye).  But we need to figure out how to make these little iRNAs stick around long enough to help slow down/kill the cancer cells.  As for nanotech, this is a new area for me, and delivery will be the way to go.  I just do not know enough about the area yet.
    Gel, if you have the Cox article in pdf, I would be interested in looking at it.  pharmboy123 at gmail dot com.


  95. Phil,
    Thanks for your answer on V, at the moment I am short V, at what price do you like them?
    Thanks


  96.  Phil
    re "June $103 puts are optimum at the moment."
    what are you watching to tell you that?
    thanks


  97. Allen – that being said, I am trying to give my insights into the companies that people put forth here.  There are some interesting plays in the biotech space, and at this time I really like ITMN (high risk, not sure where the price settles, but I think they will get approval), GNBT (insulin given buccal), VIAP (penny stock – all or nothing).  Others are in Monaday’s post that gel referred to.


  98. LLY is ex-div today.  SO, along with my and Phil’s picks, they should be fine.  If they pull back a bit more, I will sell some puts.


  99. Pharmboy/RNAi,
     
    I am intrigued by the use of RNAi in some situations. There are some hints it could be used systemically, but there are lots of issues to be dealt with, as it is a relatively new field. Here are a couple of papers in which there was some success (Elmén et al., 2008; Lanford et al., 2010). What is the view of the pharma world on whether or not this may be a viable approach for treating diseases? Is there any excitement or is it just another approach floating out there?


  100. question on option trade 12 time a year — i am not sure what stragety you mean to trade during expiration week..per on the web info-- could you explain more jc
    BIDU — what i your thought on short feb 490 call since it hit 52 weeks high already — or this is high risk trade  jc


  101. Oce – iRNA has vast potential, just as ISIS’s technology for iDNA.  I think iRNA has more potential due to the stage the cell is in at making whatever you want to block (I will leave out the science for now).  For viruses, again, it is a good technology.  The Lanford article is a good start for HepC, but we also have a company (VERTEX), that has a FANTASTIC drug for it and monkeys are not humans.  We in Pharma/biotech make many many good drugs for mice, rats, pigs, dogs, etc, but human translations…..not so good.   I do believe iRNA will be a good frontier to develop into for some diseases and cancer (yes there is some hype).  There are just a few quercks to be worked out.  MRK bought a company 2 yrs ago in CA for it. 


  102. Anyone know why piece of shit AIG is up 15% today? 


  103. Gucci / BIDU : That is such a crazy crazy stock (like X) that its movements <in my opinion> only make sense in hindsight. That being said, Opt managed to short X rather successfully. I’d be careful shorting the 490 calls tho…


  104. V/Josec – I’d say that at $70 the rewards begin to outweigh the risks. 

    DIA/Ban – That’s easy.  They are the first puts that can’t be rolled up $1 for .50. 

    BIDU still going up. 

    Despite an expected delay, jobless claims data will be released tomorrow at 8:30 a.m. EST as scheduled. January retail sales and December inventories will still be delayed to Friday. (previously)

    Sector ETF strength: Broker/Dealers– IAI +1.6%. Regional Banks– RKH +1.6%. Commercial Banks– KBE +1.2%. Financials– XLF +1%. Insurance– KIE +0.9%. Agribusiness– MOO +0.8%.

    Sector ETF weakness: Solar– KWT -2.7%. Steel– SLX -1.2%. Silver– SLV -0.9%. Internet– HHH -0.6%. Retailers– XRT -0.5%. Homebuilders– XHB -0.5%. Gold Miners– GDX -0.5%.


  105. Can the stick be snowed in?


  106. phil: Woops .I  meant SDS
    dflam


  107. Phil – You think the fact that financials are stabalizing today has any rotational importance in terms of which direction we’re heading?


  108. VRTX/ Pharm,
    Sorry to jump in but you mention one of my favourite stock.
    Do you think Vertex could make a likely candidate for a takeover from a big Pharma before the end of the year?
    I am in a LT $35/$45 bull call spread on them, selling short term puts in this recent pullback.
    Thanks


  109. Pharmboy,
     
    thanks for you comments……that’s helpful.


  110. "Naked shorting was absolutely used to bring down the financials in the November crisis.  I didn’t even know it was subject to interpretation at this point."
     
    Huh?
    Phil, I think you’re confused. For starters, short selling and naked short selling are different. The former requires you to borrow the stock, the latter does not. Naked short selling is illegal and, as of Sept. 17, 2008, the ban on it was expanded to make sure no one except market makers could do it (and we want MMs to be able to do it in the options market). I’m pretty sure neither of us have ever been able to naked short a stock.
     
    As to it not being "open to interpretation" that it was responsible, I quite beg to differ, and so do the experts who have done more than watch MSM financial news. For instance, here’s one very detailed report that shows that the attempt to ban it on ’08 was doomed to failure and not responsble for the later meltdown:
     
    http://www.imd.ch/news/upload/Report.pdf
     
    Even among financial journalists, the ban was regarded as a failure and shorting not responsible for the later meltdown. Here’s one example:
     
    http://online.barrons.com/article/SB121702597332186163.html?mod=googlenews_barrons
     
    Here’s another:
     
    http://www.economist.com/finance/displaystory.cfm?story_id=11921720
     
    Here’s another:
     
    http://www.nytimes.com/2008/08/13/business/economy/13place.html?_r=1
     
    And you think this was beyond interpretation? Do you have any evidence for your claim?


  111. short strangle — where can I see old posting to learn more how and when to initiate eacg leg and who can I ask when I have questions — thanks--
    back to IBM question-- so what you are saying is that I can do the same trade for IBM each mos, I do not have to sell put and call three mos out-- did I understand correctly  JC


  112. BCRX up 15% on no news?


  113. Sticking my head up out of the snow. Power back on, for now. Thank you, Phil, for recommending TBT about fifty times over the past weeks.  One of those times finally prompted me to take a position, which I closed into the excitement today.
     
    GOOG really planning on getting into the infrastructure business?  I like GOOG’s search engine and use gmail, but it seems to me they keep venturing into lines of business that are harder than they seem to think. Android may be a fine mobile operating system, but the NexusOne is a mistake, IMO.  As for selling broadband to end users,  I’ve had fiber to my home for several years and I remember how it took 3 VZ workers most of a day to get it strung, buried, and installed.  Compared to inventing and perfecting algorithms, making and selling phones is hard, laying and maintaining fiber optics in cities and suburbs is hard.  This seems like that dopey muni Wifi plan some company promoted years ago.  I am becoming less and less impressed by their management.  Sure they have cash to burn, but that doesn’t mean they should just burn it.


  114. VRTX – I would have thought that a few years ago when they were much cheaper.  As SNY’s CEO said here, vaccines and biotechnology (iRNA, mAbs and small drug cos) are the wave of buying future, not that a mega-merger is out of the question.  Why hasn’t ARNA, VVUS, or OREX been gobbled up? What about MNKD, GNBT or PODD?  I think Pharma is waiting on many of these companies to close up shop (to pick things up cheap), or make it all the way (where they get a smaller piece of the puzzle, but defer the risk).   If I were in charge, I would be on the warpath finding good opportunities now.  The marketing in pharma will change, and the megablock busters will be few.  Add-on therapy and small, niche markets are the next wave.


  115. juda – Winstar ring a bell from yesteryear??????


  116. Phil, Do you suggest trading TBT here or hold it?  And if you hold it, where do you think the short and intermediate target should be?


  117. VRTX/
    Thanks Pharm for sharing your point of view.
    I will just hang on in there waiting for positive clinical results. I was secretly hoping for some action coming from the merger market.


  118. Phil, I am long a few AIG Feb 36 puts which were doing quite nicely the last few months. They are getting stung today on this AIG run up (up over 17% now). Do you think this is just a short squeeze and I should hold on a few days and see what settles out, or would you just get out ASAP? 


  119. Phil, as a follow-up to tradinv question, i hold substantial TBT positions, and long call spread positions (2012). I am willing to hold for 2 yrs+, and selling covered calls for monthly income when necessary. Waiting on rates to rise significantly before unloading. Reasonable?


  120. please advise on the following position what should I do next
    GOOG I sold feb 550 put — should i roll to March 550 put or loer strike
    JPM I sold Feb 42 put  — I do think it will hit above 42 before next friday
    ABV I sold Feb 95 put — what strike and mos should I roll this to
    SLB – I open Feb Irion condor short 65 put and short 70 call — should I roll the short put and close the long put — or just closed both and take the loss which I am not fun off --
    thanks
    JC


  121. ITMN
     
    Phil and Pharm –
    Those are some JUICY premiums for the March options.
    Any suggestions on how to capture some?


  122. SPWRA, Phil, I shorted March 20 Put @ 1.05, now at 2.15. The stock has been beaten down badbly with the market. Don’t know if 19 will be holding. What is your suggestion for me, sit tight or roll to something? Thanks


  123. Eric L – naked shorting -  I recall complaining to enforcement@sec.gov in writing about naked shorting.
     
    The response I got included this sentence … "naked shorting is not per se illegal…."
     
    Its illegal for you.  Its illegal for me.  Apparently not for GS, etc.  And for the algo’s — they took advantage of naked shorting with rapid fire shorting and covering … never borrowed the shares, just made it up; but ended flat covering non existent shares; while running stops and triggering technical avalanches.
     
    Has the SEC fixed this ?  Who the hell knows !


  124. Judah:
    TBT is now starting to get some attention from the analysts… received two today, so we should see more money going this way, T-Bills (1 year or less ) now account for 1.68 Trillion in govt. debt. This mountain of debt is growing like the snow drifts outside your window. Be careful of the volatility in this ETF. Buy on dips, and sell on big moves up. I do this with my TBT covered calls.


  125. Pharm, I remember Winstar and all the others.  In the early 1990s, before I got into the mobile phone business, I was with one of the so-called CAPs (competitive access providers) offering alternative phone and internet access service to businesses.  It was hard enough then to compete with the RBOCs.  Nowadays, you have to be in the television business as well in order to be competitive.


  126. ITMN – FDA advisory decision is due Mar 9.  Until then, i think they stay juicy.  Selling lower P may be nice, but if they fail, they fall way hard. I am just unsure of the top if they do get the nod.  I am in the 12.5 Apr P (sold some) and a bull call spread at 12.5/17.5 Jul for 1.7 (of which I bought before the IV increased).


  127.  Phil
    Did a Feb 22 p&c buy-write on SPWRA against Jan 11 leaps, calls gone, where to go with the puts now? Any suggestions?
    Thx


  128. Gel, Thanks. I had some March calls that made a big move today, so I took my money and ran.  I still have June calls and am thinking of adding Jan calls and selling front month premiums.  Thanks for pointing the way on this..


  129. Big patent expirations this year….PFE Lipitor is this year, although 2011 is official due to some nice maneuvering….so revenues may start their decent.  Get ready.


  130. Peter D, If you are checking in, are you thinking of starting April strangles next week?  I thought I’d let my Febs expire and then jump into April, so I’m very interested in the levels you will be setting.  It is starting to seem like I could sell the same strangles I had sold in December.


  131. Judah: Read yesterday’s post.  Peter already answered your question!


  132. Juda – my wife worked for Sprint, Lucent and an internet telephony (ITXC).  She had an offer from Winstar to work in NYC (we were in NJ at the time), and my oh my was it a good offer.  Then, they went POOF.  The job she took at Lucent, well, her group projected the demise of telecon for the future saying there was too much bandwidth (1999/2000). 


  133. Winstar – fun memories of that one. When they went bankrupt I tried to buy one of their divisions, got pretty far with VCs but couldn’t quite pull it off.


  134. Cwan, Thanks! I haven’t been keeping up.
     
    Peter, Never mind.


  135. Cap,
     
    they (GS et. al) can do it in their role as market makers. Don’t think they can otherwise. Option MMs have to be able to naked short to manage their gamma exposure. If they are writing a lot of puts or buying a lot of calls to maintain order flow, they need to instantly hedge their exposure and can’t wait around to find stock to borrow.
     
    There was a brief period in ’08, less than one day, where the MMs were included in the financial naked short selling ban. I remember that B-A spreads on XLF instantly blew out to like .25, and individual names became basically untradeable. That quickly corrected when the SEC realized that they were making things even worse by including them.


  136. ITMN
    How about a double diagonal
    Long July 22.5Cs and 7.5Ps, Short April 20Cs and 10Ps – Net credit 0.37
    Break even in April 7.13/39.25
    Margin required per contract $250, max payoff at $20 is $507


  137. Speaking of GS, it was one of the strongest stocks today and now looks to be going red.


  138. Dallas Fed President Richard Fisher: There are "many roadblocks" to economic recovery, but chiefly: fiscal concerns and politicizing the Fed. He echoes Bernanke in response to questions by saying that interest on reserves will become a policy tool.  Why does it always come down to threats?  "If you try to regulate us – you will be doomed!"

    AIG/Bord – 2 reasons.  #1 – they got cash for selling a unit.  #2 – Cramer’s TheStreet said to sell them today (although the guy isn’t wrong but you don’t "go against the grain" on announcements like this). 

    Snow Stick/SS – The guy who pushes the button can be.   We haven’t had a stick since Friday (and that was a day that needed rescuing), no reason to expect it today.

    SDS/Dflam – Now them I have heard of.   Now my problem is what did you mean by large spreads and profits.  It’s always better to be specific as to what you have or what you plan to have.  Just keep in mind that these hedges are insurance.  If you have a car accident and you are offered $5,000 insurance – you take it as the accident is over.  If you have a market accident and you are offered $5,000 insurance, you need to decide whether to take it because the event is over or whether to leave the protection on because you are still worried.  In general, if you are buying on the dips then you should be lightening up on the insurance.  You can do that because your dip buying is lowering the net basis you need to protect.  If I had a Sept $26/32 bull call spread (which we did at one time) at $3, now $4.20 and I feel we’re done going down, then I should take that $1.20 profit and put it towards my bull side and buy another spread that can double if the market turns down from here like the Sept $32/36 spread at $2, which I can roll back to a $26/32 spread for another $1 if it goes the wrong way.  If this spread was 10% of your portflio at 10,600 then it’s now 14% of your portfolio so you’ve offset 4% of the loss on the bullish side with this one trade – that’s you minor accident insurance.  In a major accident, you get a 10% check…  Of course, SDS is at $37 and you have a Sept $32 spread so leaving it is tempting as it’s a long way back but realistically, you need to set a .25 stop anyway (20% of your gains) and we’re pretty damn sure we’re going to 10,300 so it’s kind of silly to wait for a stop to trigger when we know it’s coming, right?

    Financials/Hanna – I think it’s more about Greece seeming less threatening today.  That is an improvement though…

    Shorting/Eric – Geez man, they’ve had Congressional hearings on this.  Dick Fuld has written extensively on this subject so go debate him, not me.  Then there’s our pal Cramer, Andrew Cuomo, Chris Cox….  Here’s some light reading for you on the subject.  Legal briefings from CCH, Time Magazine, A 40 page study from the University of Zurich with 10 pages of citationsFinacial Times, Matt Taibbi…  

    Short strangle/Gucci – Still in the New Members Guide.  Yes, you can sell a target each month but, if we think the VIX is going down then it pays to sell multiple months now.  As it is, Feb is a good payout and we feel like we’re flatlining anyway, around earnings, you may want to go longer (more buffer).

    TBT/Judah – Very nice.  Just buy it again on the pullback.  Notice on charts they are in very strong uptrending channel, now between about $46.50 and $52.

    TBT/Trad – You hold something until you have a nice gain and sell it before you take a 20% loss.  Combine that with trying to be right more often than not and you have a trading strategy.  If TBT finds support at $48.50 it will likely consolidate between there and about $49 until it breaks higher.  If it goes back to $46.50, it’s a buy and by the end of the year it should see $60 at least. 

    AIG/Bord – I think today’s a squeeze but it may not stop today and I do know for sure you should have stopped those out yesterday, or at 10:45, or 1 or 1:30, or 2 or now but ask me again tomorrow and I’ll update it to the exact time you went from up 20% to down 20%…

    TBT/Hanna – If I knew what the spread was, I could answer but, generally, that’s a great long-term position.


  139. Phil, what do you think about selling the march 17 GLW puts as an entrance to a long? Or would you wait because they’ve been trending lower….


  140. We not only did not hit 10,120, but lost some ground today…


  141. Phil,
     
    We (JRW and I) were taking about proposals to ban short selling, which you said in your post of 1:02 were the weapon used to cause the crash. I replied that this is absurd, and you seemed to argue with me, but confused matters by introducing the different issue of NAKED short selling which is already banned for almost all participants.
    As far as your links:
    I can’t read the SSRN article without a subscription, but given that the abstract includes the line that "The U.S. SEC’s recently adopted rules do not seem to bring much added value and will presumably affect market efficiency in the negative.", I doubt it undermines my claim about (non-naked) short selling not being a problem.

     
    The CCH link just takes us to a proposed forthcoming roundtable discussion.
     
    The Time link is mostly about NAKED short selling, but does say, in a quote, of non-naked short selling that  "The question is, Can the short seller take a firm down? The answer is no. Not by themselves. If there is nothing fundamentally wrong, all you need is a couple of smart people on the other side to show that they’re wrong."

    The Matt Taibbi paper, which I’ve read before, is talking about NAKED short selling. When he talks about regular short selling he says: "It’s important to point out that not only is normal short-selling completely legal, it can also be socially beneficial. By incentivizing Wall Street players to sniff out inefficient or corrupt companies and bet against them, short-selling acts as a sort of policing system; legal short- sellers have been instrumental in helping expose firms like Enron and WorldCom."
     
     
    I didn’t get the FT link but they too have opposed bans on short selling, at least some of their commentators.
     
     
    So of the links I could read, one is irrelevant and the other three seem to be making my point!


  142. Gucci/short strangles.  Here’s the link for the short strangle strategy.  The group on this board that follows this particular approach focuses and SPX and RUT strangles.  As to legging in, most of us have tried and concluded that it is best to sell both legs at once, and then adjust (roll up or down or away) as the month unfolds.  Peter D is the guru.  His comments appear in green highlight.  http://www.philstockworld.com/2010/02/03/peter-d-confessions-of-the-psw-strangler/


  143. Phil: would an OTM Bull Put Credit spread MARCH for BIDU be attractive ?


  144. List/Gucci – I take it you did not actually intend to own these:

    • GOOG – Generally, you want to try to improve the position on a losing spread when you roll.  Maybe the $530 puts.
    • JPM – How do you leave these things so long?  Same thing, try to improve position buy a buck a month and hope they hold $28 by December. 
    • ABV – Same, Feb $95 put is $4.80, March $90 put is $4.
    • SLB – I have no idea what you bought them for so I couldn’t say but, pretty much you can just roll the Feb $65 put to the March $60 put and if you roll 1.3x then you don’t need to take money out of pocket to gain $5 in position. 

    ITMN/Edro – Keep in mind that they are paying you because extreme volatility is expected. I’d go for the buy write with the Jan $10 puts and calls at $12 for a net $3.40/6.70 entry and cover with the July $5 puts at .60 in case they BK so your net is $4/7 but hedged to $5 so $2 is probably worst-case loss.

    SPWRA/Wii – March is a long way and those are more than 1/2 premium so what do you want to do – go from a wise seller of premium to a dumb buyer of it?  That makes no sense….  If you REALLY wanted to own SPWRA, then the June $17.50 puts are an even roll so unless that roll costs you more than .50 (1/2 of what you collected), which would put you in SPWRA for net $17 – why worry?

    SPWRA/Deano – Same as above, just be patient I think.  You are supposed to roll the Jans lower and the $22 puts are $3.10 and can be rolled to the March $20 puts and calls at $3.40.  If you pick up  just .30 per month that’s $3 for the year. 

    GLW/Hanna – They look hell bent on testing $16, which was their old breakout.  I’d like to sell March $17 puts for $1, now .60 if they head lower.  If not, selling the $18 puts for $1, now $1.10, is fine with a stop if they fail $17.50

    Shorts/Eric – The problem is that naked short selling is banned but there is no proper mechanism in place to make sure "regular" short sellers are not naked shorting.  That’s the problem with the system.  It’s nice to have a rule against naked shorting but the fact is that they need better enforcement as to what that is.  I’m terribly sorry I failed to qualify myself when I implied that short selling, following the guidlines, is a bad thing.  I should have clearly said that naked short selling is bad but, of course, that doesnt’ happen anymore because we all know that Wall Street ALWAYS plays by the rules. 

    BIDU/RMM – Nothing about BIDU is attractive.  Generally, you do those trades with a stock that is LESS volatile than the risk you are taking.  The only thing more volatile than BIDU is H (Hydrogen). 

    Well that was a lot of fuss about nothing today, down 20 after all that work!


  145. Eric – I am aware of the so called market maker exception.
     
    It is, IMO, complete BS and with loopholes wide enough to drive a truck through it.
     
    Same goes for the new prop trading controversy.
     
    Basically, the MMs want the ability to manage a rigged game for obscene profits; and will crash the markets (or widen spreads) or whatever they need to do to keep the game rigged.  The SEC needs to call their bluff. 


  146. Phil: BIDU channels have been good to me for the last 3 months,
    was not trading BIDU today, had no [positions, wish I had kept one of my recent puts.
    Volatile: with great earnings, it ran up, but all those traders who ran it it up 40 $, they are volatile and crazy.


  147. Phil and Cap,
     
    It’s likely that naked short selling continues to be abused, no argument there. Solving it by banning all short selling would be like removing leeches from someone by throwing them in a fire. I’m guessing you both agree.
     
    Cap, I do think options MMs have a legitimate need for naked short selling, as I said above, but yeah — possibly abused there too.


  148. Phil. I  appreciate it if you would help me understand something you said yesterday in your 3:19 post:
    AMAT/Jossie – There are no good rolls so you may as well wait as these puts will lose more on a move up (or gain more on a move down).  I’d look ahead to rolling to the Apr $13 puts and calls at $1.75 and you must be prepared to buy the stock if they go over $12.50, using that as a stop line on the stock.  If they never go up, you gain $1 in position and you can do it again in July and, if they do go up, you get called away with a net $1.75 gain.
    The puts had gone from .65 to approx. 1.80.  I understand the roll, I and understand the possible $1 gain in position or the possible $175 gain..At 13 it would be called away. So why should one be "ready to buy the stock if it goes over 12.50"?  This has perplexed me since yesterday. Thanks in advance for the help.


  149. Short Selling/Eric – Again when you create ANY kind of instrument that creates gains based on the losses of others, you are setting up the systemic incentive for abuse.  At one point in history, you bough a stock because you believed the company was worth what you were paying for it and, if you changed your mind, you sold your stock and found another company you liked better.  Meanwhile, it was in no one’s interest to see another company fail, other than the competitors of the companies they invested in, of course.  In theory, the "winning" company is the more efficient company and is creating new value as the competition’s value diminishes and we have a zero sum game. 

    Allowing millions of people to place Trillions of dollars of bets on the failure of specific companies opened up a whole new class of very profitable crimes as there are now millions of people who derive huge financial incentives from destroying something without replacing it with anything of value.  We could, for example, all short BA today and then we could all go out tomorrow and drop links to articles that are negative on BA and hint that there may be problems with a launch or a union or a cancellation or their financing or whatever and we could make sure the rumor gets picked up in the press and we could drive BA down 2.5% no problem.

    I know you are savvy enough to understand how easy this is to do.  Jim Cramer said in an interview that, not only did he do it on a regular basis in order to make his numbers, but that he felt that a hedge fund manager that didn’t do it was the irresponsible one as the money is just there for the taking and the SEC is clueless.  That’s the general problem with short selling and naked short selling is ridiculous to the extreme.  How many shares that are sold short do you really think comply with regs?  Has your broker ever asked you if you wanted to lend out your shares? 

    When you tell me that millions of people have thousands of opportunities a day to commit a crime but none do – what do you expect me to do but nod my head and agree with you – clearly your faith is a rock that will not crack.  I’m not looking to ban short selling – I do it all the time but the current system is rife with, as Cap says, loopholes you can drive a truck through and that IS bad for the markets because those few people who do abuse it have the ability to cost millions of honest traders billions of dollars just so they can make millions (2.5% of BA is $1Bn but a guy with $100M could make $2.5M in a day knocking them down, not to mention the collateral damge to their index and the overall market).

    BIDU/RMM – I’d give them time to cool off.  They could be in a big squeeze at the moment and, as I have said, I don’t question their value at this level.

    AMAT/Jbur – I believe that was a naked short straddle so we’re moving to another naked short straddle of equal value and you don’t want to get blown out on a move up with the naked call (which can be more harmful than the naked put was) so you buy in at $12.50, which turns it into a buy/write where you have no upside concerns.  If you stop back out at $12.50, you can’t lose other than having to roll the puts down lower next month.   This is a valid way to work any buy/write where you are worried the stick will keep dropping as it saves you from over-committing but it’s tricky and, of course, bad things can happen.


  150. Thanks!


  151. Pharm, Thanks for all your responses today.


  152. Eric – of course I agree w/ respect to naked shorting vs. standard shorting; although I could be in favor of some type of uptick rule for regular shorting as well.  You can track virtually to the day the elimination of the uptick rule w/ the top in the market.  Coincidence ?
     
    One of the reasons they did it was b/c ETFs were not subject to the uptick rule.  But the problem, especially now with HAL 9000, can be cascading selling etc similar to naked shorting.  I think some some sensible brake is needed … in case you haven’t noticed, downside moves tend to be much more violent than moves to the upside.


  153. And on this, Phil and I see pretty much eye to eye; although I will note that those same abuses take place to pump stocks up, which is just as bad IMO.


  154. Phil – RE: 5% rule.
     
    I am trying to understand why you chose the 8% market levels rather than 7.5% to watch. Please correct me if I am wrong, but 7.5% down put us at 9900 on the DOW. Last Friday we overshot but promply recovered EOD. Then, Monday we closed only a couple of points above. Listening to you time and again would tell me that we now expect a 20% retrace to the upside which puts us at 10,060. And that is exactly what we got yesterday.
     
    Again, yesterday we overshot to the upside, however, with the end of day sell-off we ended up just below this level. And again today we could not hold 10,060. That would seem to indicate that there is no strength to this market and we should be hedging for a probable drop to 9630.  
     
    Thanks for the input, I am just trying to learn how you set your targets.


  155. Phil,
     
    I was about to say the same thing as Cap just did.

    I’ve never seen any good reason to think that buying and regular, non-naked short-selling aren’t symmetric. They both have equivalent risk/reward profiles, they have equal effects on price, they both require other participants to disagree on price in order to make a profit (now matter how much buying or short-selling power you have), etc.
     
    They are also symmetric with respect to the possibilities of fraud and abuse. Pump and dump schemes are the obvious long-equivalent to what you describe. Investors also can and regularly do get caught-up in panic buying, can be seduced into chasing momentum, or any number of other things that lead them to over-pay for a stock. The financial consequences are also equally serious.
     
    Stock buying and short selling can be regulated well or poorly. The fact that one or both are poorly regulated is no argument against them. It’s an argument against the regulators.
     
    People want to have it both ways (understandably, but irrationally). They want a ‘free market’ pricing structure in the stock exchanges, in which they and other participants alone decide the value of the stock. But then they also want government ‘support’ for the markets, as gel put it the other day. They want restrictions on selling and mechanisms for ‘price stability’ that protect investors from the consequences of their decisions (in ways that go beyond the legitimate desire for protection from fraud and abuse).
     
    Sadly, the history of attempted short-selling restrictions shows again and again that they can’t have it both ways.


  156. CaFords – I had the exact same question to Phil – you just articulated it much better!  Phil, I’d be interested in that too.  You seem very keen on interpreting these several days as an attempt to get back to 10,300 which is still a weak bounce, but overall, these past few days’ action seems bearish to me.


  157. Cap,
     
    I think the elimination of the uptick rule and the top was a coincidence, yes.
     
    Why be paternalistic about market decisions? That’s what the uptick rule is, at least given the justifications I’ve seen for it. Those justifications are that the uptick rule would supposedly help protect investors from panic sell-offs by slowing down the pace of price declines.

    Maybe you think this is a good thing, and that the government should protect investors from themselves in this way. But then I would say we should also have a ‘down-tick rule’ that slows down panic buying and protects investors from making hasty purchase decisions and thereby hurting themselves. As I said above, I see no reason why the two cases aren’t symmetric: if the SEC wants to be paternalistic in one case, it ought to be in the other too.
     
    Again, this is independent of the issue of fraud in short-selling. If somehow the uptick rule prevented certain kinds of fraud — as opposed to free decisions by open-exchange market participants to make large bets on price direction — I might feel differently. I suspect any such argument for this would also be an argument for a ‘downtick rule’, however.


  158. Well said Cap,
     
    Basically, the MMs want the ability to manage a rigged game for obscene profits; and will crash the markets (or widen spreads) or whatever they need to do to keep the game rigged.  The SEC needs to call their bluff.
     
    I hope you aren’t right about the proposed prop trading restriction having truck sized loopholes.  OF COURSE, it will be tilted in the mightiests’ favor.. but hopefully a lot of the risk will be taken out peoples’ deposits.  This, OF COURSE, will be a drain on liquidity from the market.  And if there is one thing the market AND Washington fear is a drop in liquidiity.  Which is why, naked short selling is still available to those with the means.  MMs as you point out.  It prolly ain’t goin anywhere.  Because without money going into the system to jerk it around so they can take others $..  then game over.


  159. Up/Cap – Oh sure, that way too but, sadly, it is easier to destroy value than create it so it does happen more from the short side.  The pro-pumpers tend to stick to the penny stocks.

    And now – TMail!  Tehran to shut down Gmail (GOOG), launch its own email service. (WSJ)

    Speaking of opressed societies:  Just five major strikes/lockouts last year marks the lowest number since the Labor Department began tracking them in 1947. But the BLS data tracks events that involve 1,000 or more workers, and many unions have fewer.   Yep, nothing keeps those noses firmly on the grindstone like seeing millions of fellow workers losing their homes.

    Speaking of pathetic attempts to take on Google:  Yahoo’s (YHOO -1.7%) search event today drew a repeated question from skeptical reporters: Which part is going to fix declining market share? (earlier)

    Where’s the inflation we were told to expect? wonders Richard Rahn. Considering the monetary expansion in 2008, look for it in the second half of this year.

    Hannity: Snowstorms ‘Seem To Contradict Al Gore’s Hysterical Global Warming Theories"

    Fox’s finds wind turbines that freeze – Oh the irony as they were meant to combat global warming -take that you liberal fools! 

    Tool from Cato Institute tells girl who’s country is suffering from climate change to suck it up and that we need to choose between global warming or poverty. 

    Bullish sentiment in newsletters makes another leg down to 34.1%, lowest since March, according to Investors Intelligence. Bearish sentiment hits 26.1%, highest since November, and 39.8% are awaiting a correction.  Boy I just can’t seem to get in sync with these guys!

    Activision (ATVI): Q4 EPS of $0.49 beats by $0.05. Revenue of $2.5B vs. $2.2B. Sees Q1 EPS of $0.02 vs. $0.08, on sales of $525M vs. $741M (Company plans one release in last week of March). Sees 2010 EPS of $0.70 vs. $0.73, on sales of $4.4B vs. $4.8B. Shares +3.3% AH. (PR)

    "There is no price war going on" with Visa (V), says MasterCard’s (MA +1.5%) Chris McWilton, U.S. markets president. MasterCard has scored recent converts to its system though Visa has been growing market share – all as consumers increasingly shift to card-based and electronic transactions, which should grow to 63% of consumer transactions by 2013.  Isn’t that collusion?

    A German bailout of Greece would just be the beginning of the euro crisis, Felix Salmon notes – with that precedent, what country will take tough fiscal steps until the path is sweetened by Germany or France? (ETF: FXE)   Notice that once it looks like there will be a bailout – the "moral hazard" cry starts up

    Relative strength of sectors to the S&P 500:


  160. On the S&P price target table, are 12 of those the "Gang of 12" that you refer to and one is not? Which one?


  161. The federal govt in DC area will be closed for a fourth day tomorrow.  I think this maybe unprecedented.. and certainly will be if they remain closed on Friday.  Which is all likelihood will be the case. 
     
    I know it’s a ways off.. but putting this out there for you all to consider.  Retail sales will be seriously impacted in February and for the quarter due to the storms we’ve had.  Groceries are on fire.  Snow shovels, too.  But everything else is just sitting there.  No one is driving anywhere so the gasoline draw should be way down, too.  Only the snowplows are using it.  And the numbnuts in my neighborhood tryin to burn rubber to get out of being stuck.


  162. 5%/Cafords – 8% is the 20% retrace of the 10% drop from 10,700.  It’s lower than 7.5% (9,900) at 9,850 (we go for the psychological line when it’s close).   Since I had no expectation of 7.5% holding up, I ignored it and paid more attention to the next significant spot, which was the 20% bounce off 10%.  If THAT fails, THEN the 10% line is inevitable.  If you look at the week’s action in this chart, what you see is exactly what you’d expect to see if 7.5% is the bottom – we break through briefly on Friday and recover back over 7.5%, then test it Friday and bounce up again.  So now I’m just concerned about 2 zones as break points – The 8% line is now a breakdown and the 5% line (10,165) is now a break up.  Anything in between is just drift.  All the 2.5% and 1.25% lines are significant (you saw today how critical 10,058 is) but 4 was plenty for one chart and those are the "action" lines that would cause us to change our stance if crossed. 

    Bearish/Jordan – Keep in mind that I’m more of a big picture guy who thinks little of TA.  What I see is the techical levels holding up very well in the face of some very bearish data and news.  So, in my mind, I assign a sort of difficulty rating to the day’s action, kind of like when they judge diving.  Last week we had the coordinated PIMCO attack and this week we still have Greece and other Euro trash along with a retail disaster snowfall.  If your team gets beaten by the Saints, it doesn’t mean they’re a bad team, it just means they played the Saints.  If your market has a bad week or two, you need to evaluate it in the context of what the conditions were that week, not suddenly go by the chart as if funamentals no longer matter because you want to draw a head and a shoulder or whatever voodoo nonsense they teach at TA school. 

    Tick Rules/Eric – I like that, let’s make all tick rules - we’ll make a total fortune on buy/writes and short strangles! 

    Gang of 12/Ac – Hmm, it’s not a real list but let’s say:  GS, MS, CS, BCS, C, BAC, JPM, DB, BCS, BLK, Murdoch and TBoon (sort of representing all energy interests).  Buffett is kind of in but not evil enough to go to the big meetings.  GE is an also ran.  On the outside (not aligned with) of the 12 but also very powerful would be Pimpco, Gates, Soros, Slim, Hu Jintao & Putin (leaders who would exercise their country’s wealth ruthlessly), Bloomberg and Trichet.  As to the banks I’m not including – they simply don’t fit the pattern of being in the group but I imagine they are mainly wannabes who just aren’t invited into the clubhouse when the big boys need to make plans. 

    Good points on Retail Matt – surprisingly, LOW is just sitting there.


  163. Phil - Per your reply yesterday, I’m reminding you to post a SPY put idea.   Also TBT call if possible.  straight up, no spread as I already have TBT and SDS Jan 2011 bull call spreads.  Thanks!


  164. By the way, BCS has the low bid on the S&P.  Go to Yahoo finance and check "Major Holders" in any 10 random companies you can think of – see if more than half don’t have Barclays in them.  I tend to give their "estimates" a little more weight than the other guys…


  165. Eric, Matt, Phil … good discussion.  Sadly, our intelligent opinions and possible solutions carry no sway with the bureaucrats and lobbyists that actually will make the rules and probably screw them up even more.


  166. Guys,  Thanks for the discussion.  For a neophyte this is all very interesting and informative.  Sad isn’t it, but this is where some of the 30 hours of reading is best spent!  BTW, Phil good call on Activision.


  167. Matt
    Look at the positive side of the scenario – with DC closed for a week, just think this could be a positive – money can’t be spent if there is nobody there to spend it.!


  168. Hannity is a moron……


  169. Matt, Government closure not unprecedented. In 1996 they were closed a full week-- I was there….. people shoving each other at the Safeway over 1/2 gallons of milk, screaming matches over dug out parking spots…. so I shudder to think what it’s like their right now.


  170. Good morning!

    SPY/Terra – Was the idea to have a protective hedge using SPY?  Well, the problem with using non-ultra indexes to hedge is the low volatility of the contracts meaning you have less premium to sell.  The only way I play a straight index hedge like this is the normal mattress strategy and I don’t do that with the SPY as it simply isn’t as easy as the DIA to work with. 

    That being said, your goal is, as always, to sell as much premium as possible while buying as little as possible.  So, going by last night’s finish we certainly want to sell the Sept $108 puts for $8.80 and perhaps buy the $118 puts for $14.80 so that’s $6 on the $10 spread with a break-even at $112, which is 5% up from here on the S&P.  Compare that to the SDS Sept $26 calls at $12, selling the $36 calls at $6 is the same $6 for a $10 spread with a break-even at $32, which is 17% lower or 8.5% up on the S&P.  Chosing hedges that have 3.5% more leeway to be in the money 10 times leads to 35% better performance.

    TBT/Terra – Are you gambling or hedging?  I’m pretty sure TBT hits $60 this year so I like the Jan $50s for $5, selling 1/2 March $50s for $1.  10 sales and it’s a free ride

    ATVI/Terra – Can’t beat that monthly subscription model.  No kid will give up their WarCraft account just because Dad lost his job!

    As long as you don’t use the "R" word, 1020.  8-)


  171. Good morning Phil,
    AYE is up 28%!
    Nice call but unfortunately I wasnt in this trade.