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Federally Frightened Friday

The Fed raised the discount rate – Big Deal! 

As I said in my Weekly Wrap-Up, recessions are for wimps and kudos to the Fed for finally pulling out the stick after all the soft talking they've been doing.  Meanwhile, I do not see what all the fuss is about – I did the math for Members last night and banks borrow about $89Bn at the discount window on a good day and 0.25% of $87Bn is a grand total of $22M – this is NOT going cause the fall of Western Civilization people!  What it does do is stop making the Fed the lender of first resort, which was never supposed to be their function in the first place

The MSM should be more concerned with the end of the TALF, which is where the Fed buys up toxic assets from the banks at face value (we'll all be paying for that later) and they just announced that the Fed's holding of Mortgage-Backed Securities went over the $1Tn mark yesterday, bringing the Fed's Balance Sheet to $2.25Tn of very questionable assets that they've bought for us from the banksters. 

Speaking of banksters – Kudos to Matt Taibbi for his excellent Wall Street’s Bailout Hustle.  As I said to Members, if it wasn't for Matt and Dylan Ratigan, I would have to be writing about this stuff instead of following the markets.  Thank goodness there are a few top-notch people investigating this nonsense with the ability to communicate their findings in a way that makes it interesting:

The nation’s six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007.

The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street’s eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its “performance” was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

Not surprisingly, the latests Rasmussen poll finds that 71% of the people surveyed (and they only survey people who can pay for their phones, so we're skewed from the start) now view the Federal Government as nothing but a tool for Special Interest Groups.  75% of the voters are angry about government policies (and one crashed his plane into an IRS building yesterday to make his point) and 63% are in favor of "throwing the bums out" this November.  Cool, they say they want a revolution (we all want to change the world).  

As Zero Hedge points out:  "It is not surprising – given the following – that this is largely viewed as a class issue":

  • PhD economist Dean Baker said that the true purpose of the bank rescues is "a massive redistribution of wealth to the bank shareholders and their top executives"
  • PhD economist Michael Hudson says that the financial “parasites” are "sucking as much money out" as they can before "jumping ship"
  • Warren Buffet said a couple of years ago: "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

Warren is right of course, it's going to be us or all the lonely sheeple and me and the Members at PSW have been Island shopping this month (and it's not just us - the WSJ is giving it's readers ideas for moving to Asia), getting ahead of the inevitable day when it all hits the fan in America and you are forced to answer the question: "When they kick out your front door, how you gonna come?  With your hands on your head, or on the trigger of your gun?  The money feels good and your life you like it well but surely your time will come, as in heaven, as in hell…"  OK, I'm done with my Friday music references after you check out this great Tony Blair does the Clash video… 

Speaking of governments that lie to us…  Did you know that our CPI was up just 0.2% in January and our core CPI FELL 0.1% for the month!  Isn't that great?  This amazing feat was accomplished thanks to a collapse in oil prices from $84 at the beginning of the month back to $72.50 at the end of January (14%) metals had a similar pullback (remember we were betting SMN that month) and the entire CRB fell from 293 to 265 (9.5%).  A pessimist might call this deflation as we just got PPI reports showing input prices rose significantly and the declining CPI (the first since 1982) indicates the inability of producers to pass price increases through but the glass half full crowd is rallying the pre-markets back and, even more amazingly, is ralllying oil back over $79 as if this news somehow gives the green light for a 10% increase in crude prices, which I guess it does as the consumers seem to have a few extra pennies and someone has to get them, right?

Notice that during the 90s, we had no problem having fantastic economic growth while running a surplus and keeping commodity prices in check.  Why?  Higher taxes, higher interest rates and ACTUAL LAWS against excess speculation were the magic combination that kept us out of debt while we grew to full employment.  Each of those pillars of success was dismantled one by one during the '00s and you can see the magical effect it's had on commodities and, as more and more money is diverted to commodities – which are mainly produced outside our country (increasing out trade deficit), less and less money is available to pay for services and that is very unfortunate as this happens to be a service economy

So bad luck America, you backed the wrong horse and there are 1.4Bn Chinese and 1.2Bn Indians and 800M Africans who are willing to perform those services for a lot less than you can live on for a month so I suggest you all dig in your back-yards until you find a commodity and then open up a stand on the corner and wait for some speculators to come by and buy some.  Don't worry, no matter what idiotic commodity you find, there will be some speculators to buy them and, if not, you can always put together an ETF and pay off a few pundits to tout it as the next big thing and then you too will be living the Emerging Market dream.

Speaking of emerging markets – silly Asia is not a PSW Member and didn't joiin in our chat last night where we decided the Fed hike would have little or no effect on the market.  We were going to BUYBUYBUY at the bell but now (9am) it looks like we're right back near yesterday's highs so we're more likely to short a little unless the NYSE can break the 7,100 line, as it's the last of our indices to bounce so far.  The Hang Seng hit the 2.5% rule, losing 528 points on the day and don't forget that the Shanghai has been closed all week and never did get a chance to react to China's rate hike last Friday so we are concerned about a "China Syndrome" on Monday if the Shanghai drops 5% to catch up.

Europe has already fully recovered from their down open and is up about 0.3% just ahead of the US open.  Russia's Central Bank cut rates today and that will be interesting for brave carry traders.  Other than that, there's not much news on a Friday so we'll just have to see how our bounce levels hold up for the day (see yesterday's post for details).  I posted options expiration day trade adjustments in the Weekly Wrap-Up and I think I'm going to go short on the Dow and USO into the open but out if the Dow tops 10,400 or oil tops $80 – just playing for a quick dip.  Other than that, we had few adjustments to make as we are EXACTLY where we predicted we'd be two weeks ago, when we began our bottom-fishing expedition.  

Have a great weekend,

- Phil


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  1. JRW – not feeling quite as lucky as yesterday.

  2. Oh my God a wild coincidence I listed to Guns on Brixton for the first time in FOREVER about 4 hours ago on my IPod, thinking what a classic song it was that has withstood the test of time. You think people will be listening to Lady Gaga 25-30 years from now??? No freakin way.

  3. SS, Just curious. I noticed that you said you had rolled some Feb RUT 630 calls away.  Did you roll 2x to Feb 640 or 650?  Looks like you’ll be safe.

  4.  Phil, can we actually buy treasuries through the TOS platform?

  5. judah – no there was NO premium in either of those.  I would have had to do like a 50X to get an even roll.  I had to roll to Mar 660 for a .75 credit.  I still can’t believe I had to roll from where I was sitting last week.  Amazing.

  6. Peter D
    good morning — question on spx strangle — I open this position in feb 8 this morning I notice March 990 put sold in feb was 12.3 now or yesterday decrease to 2.9— about 76% profit--  do you recommend buy back at this point and sell march put again when premium go up — or should I leave it along till march expiration — thanks JC

  7. SS, I know what you mean.  But it is nice to know that you can roll away even at that late a date.  If we get a down draft today, I’m going to start my Aprils. 

  8. Anyone remember the appl bull call spread from a couple days ago and what the details were on it?

  9.  Happy Option Expiration Friday;  Shenanigans galore to be had !

  10. Good morning!  I have market short orders in on USO ($39) and DIA ($103) but they are both ultra high risk plays

  11. If we get a down-draft this morning, it’s probably a buying opportunity, unless it comes on heavy selling volume. Very bullish-looking response so far pre-market.

  12. PPT hard at work !!

  13. Good morning!

    Still looking for ALL of our bounce levels to break: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625

    NYSE is now our canary in the coal mine and they are a nice, slow mover so good to watch at 7,034. 

    Our must holds to the downside are: Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620 but I don’t think we’re going that far down and we’re likely to flatline right around our bounce levels today or a pullback to Wednesday’s flatline at worst (which is what I’m playing my day shorts for). 

    My market orders filled at .43 for the USO $39 puts and .07 for the DIA 103 puts and, of course – THRILLED to make a dime or even a nickel on expiration day and done by noon before massive decay sets in (unless it’s REALLY going our way).

    Mostly sidelined and watching the fun today but I always say that on days we end up making a dozen trades!  Will certainly take some kind of DIA put over the weekend in case China drops hard. 

    EDZ is always a fun cover and you can go for the March $5/6 bull call spread at .40 and sell the $5 puts for .30 so you are in the $1 spread at net $10 and that’s nice protection on the Emerging Market side and we can simply get out with a small loss if we rally next week.

    Be careful out there! 

  14. CHK  Any medium term thoughts?

  15. Phil,
    Agree with you that this discount rate hike has been telegraphed by the Fed and widely anticipated. Initially thought the timing was odd given OE today, but seeing the inflation numbers this morning, have to give Ben credit for thinking this one through.

  16. Bord – Lady who? (feeling old)

    Treasuries/Craig – I have no idea. 

    Transports up 1%, loving that $80 oil as usual (don’t question it, just accept it). 

    Dollar at $1.351 to Euro and $1.54 to the Pound and 91.77 Yen, at highest level since last April when oil was $50 (now $80), gold was $860 (now $1,116) and copper was $2 (now $3.30) so either commodites are ridiculously overpriced or the dollar is.  Oil is up 15% to the Euro this month and gold is not far behind…

    AAPL/Gil – See the Wrap Up I posted this morning, it’s summarized there – I think from last Friday. 

    I’m of the mindset that at least a few funds will be looking to cash out ahead of next week as the China thing is a real wild-card, had we not opened this high, I would have been bullish into the open but opening that high on no-volume pre-market trading just gave me a bad feeling but we’ll see what sticks.  The S&P blew 1,105 but the rest are holding up so far.  Keep a super close eye on the NYSE, now 7,042 for which way they make progress. 

    Transports rejected at 1%, back to 0.67%.

  17. Phil….Still like the bullish FXI trade (March calls)?

  18. Bought back yesterday’s BIDU short condors for 4.70 for a quick 30% gain. Don’t feel like baby-sitting today.

  19. JRW – you stepping on any trains?

  20. I have in my notes that EDZ is doing a reverse split on Mar 1, 10-1. So better to wait on that spread?

  21. Stranglers – Has anyone noticed that your FEB RUT short puts are not settling correctly.  My bid/ask on my FEB 550 put is .05/5.00 which has greatly reduced my buying power.  I called TOS and they said it was a problem with the exchange sending the wrong data.  They fixed my buying power for me manually.  Call them if you have a similar situation.

  22. OK…Let’s see if the big boys can pin AAPL at 200 for expiration profits on short calls and puts.

  23. Phil -
    I am in the june 105 dia puts – what’s the recommended cover right now if I don’t want to take chances over the weekend or worry about day trading it too much.
    Thanks – also I think we should strart working on some shorts for china going bust -
    Don’t know if you already posted this from Yves Smith at Naked Capitalism on China’s currency problems and inflation
    You mentioned cat and deer I think – want to do some research over  the weekend -
    Chanos was talking about Cement and other derivative trades off of real estate – the economy might not go bust but they certainly have more square footage than they need.

  24. ss
    Just got on TZA

  25. CHK/Eph – Nat gas is down to $5.08, if they can’t hold $5, CHK in trouble but I wouldn’t mind buying them at $25, $20, $15 and $10 for a $17.50 avg entry to retire on.  You can go conservative on an intial entry at $27.50, selling the 2011 $25 puts and calls for $8.15 for net $19.35/22.18 with a nice 25% profit if called away.

    Fed/Chuaeu – He’s doing his job and don’t forget, we may have had a timing agreement with China to even things out by the time they get back from vaca.  Our currencies are linked and they are our bank so all it takes is a phone call from Wu and I’m sure deals are quickly made. 

    FXI/Iflan – Not over this weekend.  We had a good run from our entry and I’m done with them but I’d love to get in if there’s a nice crash next week – maybe take the EDZ profits and flip them into this. 

    BIDU/Eric – They are a good short here as they test $500.  I think it’s worth a chance ahead of Monday as they should hit resistance at $500 if China = good and certainly they will fall if China = bad so selling the naked March $500 calls for $16.50 is a good gamble if you have margin for it or a $520/500 bear put spread for $12 is not a bad gamble that they don’t make $500 by March expiration.

    Wheee – down we go!  I hope we get a good one…

  26. Gel -
    FYI – Morningstar really likes NBG long term – thinks they have good prospects in Turkey and in Southern Europe
    fair value is 7 bucks a share – it could be a bumpy road but they had good earnings pre-crisis

  27. Hi phil
    do you use tick readings for any of your analysis

  28. That’s a good point Phil re: BIDU. We still don’t know how Shanghai will take all this.

  29. And OUT !

  30. EDZ/Doro – Hmm, that could make it annoying.  Most likely I’d want to cash out by Friday then.

    RUT/SS – I wonder if there’s some way to take advantage of that? 

    DIA/Samz – 1/2 cover with the March $103 puts is nice and wishy-washy for the weekend.   China bust is that EDZ play, you can also do FXP on China specifically but it’s kind of dangerous up near $10.  China is, very possibly, a catastrophe in the making but it’s so hard to separate fact from fiction over there.  Meanwhile, FXP hit $200 in ’08 so I’m not worried about missing much if China does start to implode – their market has limit down at 10% per stock and they’ll shut the whole exchange at 5% so you don’t really get blown out in a day or even a couple. 

    Tick/Victry – Nope. 

    Cool JRW! 

  31. EDZ – How would the reverse split affect the short put that hasn’t filled yet anyway? Cancel it or play thru next week if it fills?

  32.  uso moving back upward, what is our outlook for those puts up untill around noon?

  33. Phil  bought some USO puts yesterday at  .07 with a stop at .05. Got closed out first thing this morning at .02  talked to Schwab & they told me options stops are filled  on the bid price & I would have been better off entering a " stop limit "order.Could be a good subject to educate your subscribers . Was expensive lesson for me.

  34. After an unprecedented 92% plunge, U.S. earnings have surged over 600% and now stand at a level that has only been exceeded during the latter years of the dot-com and credit bubbles. (Chart of the DayI love these kind of articles down 92% (from 100 to 8) and then up 600% (from 8 to 56) is the bull premise!

    St. Louis Fed chief James Bullard says speculation that the Fed will raise its key interest rate is overblown, at least for now. An increase in the short-term federal-funds rate is "just as far away as it ever was," with a possible rise in 2011 the most likely scenario.

    The economy has begun to recover, but "it’s far too early to pop the champagne corks," NY Fed chief William Dudley tells an audience in San Juan this morning. "There still is a lot of work to do. Smaller banks – especially those with large commercial real estate exposures – are under pressure, while households and smaller businesses find that their access to credit is still constrained."

    "This is the Fed’s version of Groundhog Day," Pimco’s Bill Gross tells CNBC. "Last night, we saw the shadow: We have at least six more months of zero-degree interest rates." He believes the Fed will not move on its funds rate until the employment picture improves – unlikely until next year.

    Obama will announce today a new initiative to help support homeowners hit hardest by the housing crisis. A senior administration official says Obama will designate $1.5B in TARP money to fund programs at local Housing Finance Agencies in California, Florida, Nevada, Arizona, and Michigan.  That can give us a boost.

    Sources say Fortress Investment Group LLC (FIG -1.2% premarket) may have to cough up at least $150M to backstop the owner of the Olympics’ Alpine skiing venue it bought in 2006, after it missed a final payment on a $1.4B loan. Creditors yesterday postponed an auction of the company’s assets by one week to avoid a sale of the skiing center in the middle of the Winter Games.

    Congressional Oversight Panel chair Elizabeth Warren comments on increasing evidence that commercial real estate is headed for a foreclosure crisis: "There’s been an enormous bubble in commercial real estate, and it has to come down. There will be significant bankruptcies among developers and significant failures among community banks."

    Chris Dodd will introduce a new financial reform bill next week, which may break the Senate’s bipartisan impasse on the matter. Among other things, the bill creates a regulator to monitor emerging risks, requires increased transparency and creates a wind-down mechanism for troubled financial firms.

    Russia’s (ETF: RSX) central bank lowers its key rate by 25 basis points to an all-time low of 8.5%, a move aimed at stimulating bank lending and limiting the inflows of short-term foreign capital. Yesterday, the ruble (ETF: XRU) surged to a 13-month high against a basket of currencies.

    Schlumberger (SLB) is said to be in advanced talks to acquire Smith International (SII) in a deal that could be worth around $9B and would create an oil-services behemoth. An announcement is possible in the coming days.

    Cameco (CCJ) could rebound as uranium prices rise and supplies tighten, Barron’s says, as the U.S. government begins to embrace nuclear energy as a cheaper and cleaner alternative to fossil fuels. The stock has stumbled 12% in 2010, but some analysts say shares could gain as much as 40% in the next year.  Duh!

    Electronic Arts (ERTS) shares have been slammed but inched up recently as some analysts continue negative on the stock. Others, however, have turned bullish. One big reason: The company is now so cheap that it should attract a buyer.

    Man, that’s why you have to take those nickels and dimes!  What an insane market. 

    Copper just took off and busted over $3.30, this is the least sensible of all commodity moves.  That’s rocketing FCX up towards where we like to short them at $77.50.

    EDZ/Morx – I would just make sure you are out of any EDZ next Friday. 

    USO/CC – Volume has been pretty good, 99M on the Dow at 10:30 is way ahead of schedule so I suspect we just had an early stick.  It’s not very ompressive if they can’t get over our mega-pumped open so, for FUN trades, I’m willing to ride it out and see.  Any serious trades should have been cashed with 20%+ wins already

  35. Any opinion on CHK competitor SD.  I did several buy/writes on this last year and did quite well.  Stock is at $8.45 selling the Jan11  $10 calls and $7.50 puts for $2.50 returns 67% if called away or 7.24/6.25 if it goes bad.  Last year at this time they dropped below $5 but recovered nicely.

  36. Phil,  I enjoyed the write up today.  Got the blood boiling nice and quick!  I hadn’t caught Tiabi latest and greatest but definately will.  I think you need to send him your research and thoughts on the shell game that is our oil market.  He might be in the best position, with your help, for exposing the sham by those who don’t even use oil to inflate its price.  If I were you, I’d want him to write it anyway.  I would truly be afraid to piss that many powerful people and entities off!
    FWIW, I’ll be increasing my short position today just before close and then again on Monday if given the chance.  The Fed is beginning to turn off the banks’ spigot for trading.  And it’s about friggin time.  Of course, with the profits they’ve been making from trading, it’s going to take a hell of alot more then 0.25% before it starts to hurt.

  37. you told us so on TASER & i only got 200 shrs.

  38. Samz/NBG
    Thanks!…. I just added to my position by selling the Mar 5 puts for !.30. This bank is 170 years old so IMO not going to disappoint us. The financial condition of Greece really has no effect on its balance sheet. The Eurozone will bail out the soverign debt because it is the European banks that are the debtholders. Ha!

  39. This Fed move is really a message to the banks …. start lending or your candy bag will be withdrawn.

  40. matt – what’s your favorite short?

  41. Stops/Dflam – Yes, I wrote an article once telling people to avoid hard stops at all costs.  What it is is that your .05 stop wasn’t a limit so what happens is, at the cross over .05, Schwab puts in a market order to dump your options.  This is why I always talk about "flushes" – that’s when the spike the index one way or the other with the aim of triggering stops, usually before they take the stock the other way – screwing the maximum amount of people. 

    Looking at the action right now, this up move may be nothing but a flush, to shake off the shorts before a real move down.  We dropped 70 off yesterday’s high and bounced about halfway back but stopped there.  Now we have to see if we hold that line (at 10,340) on the second move down (if there is one) or if we break over 10,375.

    SD/Sarah – I think they are fine for bargain hunting but I think that space is due for nothing but pain for quite a while so only if you have a real long-term perspective. 

    Oil/Matt – Oh you missed it.  I got angry letters from ICE the last time I blasted the oil markets.  There’s a whole PR war going on in that industry now to make sure you think it’s patriotic to pay $80 a barrel for oil.  

    TASR/Morx – It is my stock of the decade…

    BRK/B making new highs! 

  42. Phil, I am scaling into into one of the AAPL spreads you recommended (July expiration).  Would you consider second scale in with AAPL around 201 now? I am about 7% down on the initial spread, so nowhere near DD point for second scale yet. I am just wondering how many more cracks at AAPL will we get lingering around 200?

  43. "FWIW, I’ll be increasing my short position today just before close and then again on Monday if given the chance.  The Fed is beginning to turn off the banks’ spigot for trading."
    Matt, the discount rate hike is pretty much purely symbolic — discount window borrowing by banks is currently under $100bn. Like Phil said above, bigger cuts in lending facilities like TALF and TAF would be much more significant.
    It may not happen today, but the market could easily shrug the discount hike off next week.

  44. MBA Q4 Delinquency Survey: Delinquency rate on one- to four-unit residential properties slipped to 9.47%, down 17 basis points from Q3′s record high, and +159 bp Y/Y. Loans in foreclosure a record 4.58%, +11 bp Q/Q and +128 bp Y/Y. Sizable drop in 30-day rate means "we are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures."

    Procter & Gamble’s (PG) CEO expects stronger sales in coming months as the company unveils new products, even as P&G executives lower their long-term forecast for EPS growth. "This lack of detail adds some ambiguity and is somewhat frustrating," says one analyst.

    Shares of UnitedHealth (UNH -1.9%), Humana (HUM -2.0%) and HealthSpring (HS -1.2%) are lower, as the government is expected to announce cuts of as much as 4% in Medicare Advantage payments to health insurers. "We cannot see an outcome, even with flat rates, that leads to earnings growth," says one analyst.

    DIA $104 puts fun at .35 now – notice how well the $103s hold up ahead of lunch but that will end quickly.  I just like these because of the risk/reward potential as it’s not likely we fly up 100 vs dropping 100 BUT – 3 out of 4 times, these are losers on expiration day due to pinning. 

  45.  I use optionsxpress and they show a bid/ask on the appl 185/190 bull call spread of 6/6.3. How do I square that with Phil’s quoted prices and the prices of the options themselves?

  46. Hi Phil
    disaster hedge adjustment — DXD roll jul 27 call to July call cost about $1.5, what do you do with the pair trade that was rec sold July 33 call — leave alone or adjust up the call like roll up to July 35 — thanks JC

  47. gel1, from yesterday, I don’t have the papers in front of me so I can’t say for certain but it was anywhere from a low of 2 to a high of 10 per day.  So, lot’s of smaller stuff.  But it’s shocking to me at how it adds up.  Especially for my broker!
    jcmcn, I trade FAS/FAZ.  But be careful!  If you need further admonishment, look at my track record for last year in last night’s post.
    Phil, so when the TALF program has wound down, do you think we will get a return to the mark to market accounting ‘standard’?  The banks won’t have any toxic assets left!  But seriously, I would love to know just how much has been transferred.  Where is the accounting for this?  Just saying the Fed’s balance sheet expanded from $1T tyo $2T is really quite meaningless to most.  But if you say the Fed gave BofA $300B for their toxic assets then you’re going to have some pissed off people!

  48. Hi Phil, folks.
    "St. Louis Fed chief James Bullard says speculation that the Fed will raise its key interest rate is overblown, at least for now. An increase in the short-term federal-funds rate is "just as far away as it ever was," with a possible rise in 2011 the most likely scenario."
    This is interesting and am considering the TBT plays. TBT has had a short but exciting life, and I am having difficulty understanding if it is a fund that naturally decays? I know the recommended spreads have built in downside protection (eg +36/-46 Jan11 calls), but how did we work out how much to include? Do we need gently rising rates for TBT to hold flat? Clearly rates cannot go down from here, but what other events could substantially increase appetite for treasuries? Perhaps a default in Europe or Middle East? ie what are the key threats to this position?
    Sorry if this is a lot of questions, maybe it is an after hours discussion, especially sorry if you already covered it (I tried to look). I am considering putting a chunk away in a TBT spread for the year so any further commentary would be appreciated. Thanks!

  49. Will Tiger save the markets? 

    AAPL/Bord – Generally, my first move on a spread that’s down is to roll down to a better position on the long calls.  What are your strikes and basis?

    Next week/Matt – I think it’s all about China’s open on Monday and I think it’s 65:35 that they sell off at least a bit.  That plus the fact that we are still having problems making our BOUNCE levels makes a downside gamble attractive but GAMBLE is the operative word. 

    AAPL/Gil – This is why I quit OXPS!  Last sale on AAPL 185s (and they are selling regularly) was $18.60 and last sale on $190s was $14.22, which is net $4.38.  Paying the OXPS price is getting ripped off for 50% on the entry – makes it really hard to make money doesn’t it?  I don’t see any possible way they can reconcile those prices, the spreads are $18.45/18.60 and $14.20/14.35 so by no stretch whatsoever could you get to $6. 

    Tiger says he has a "long way to go to get better."   Does that mean he’s cut it down to 3 girls a week? 

  50. Never mind on the appl spread…figured it out and picked a few up. 

  51. nbg – think we might be moving the stock

  52.  got the appl spreads for 3.25…phil I will still think carefully about chucking optionsxpress and going to tos

  53. Stops/Phil & dflam – Phil, taking dflam’s question one step further, how do you protect gains on short front month positions that look like they will expire but still carry some premium? For instance, I put a GTC $0.30 trailing stop on my short Feb TBT 48 puts the other day when they were trading at $0.16 to protect 65% of the profits, thinking there was no way it would trigger. At the open the next day, the bid-ask was $0.05 – $0.52 (above my $0.46 trigger), and my stop triggered a buy at the market open of $0.12 or something. After I emailed TOS to question what happened, the trade specialist talked to someone he "knew" at the Trade Desk and had the trade busted — i.e. vaporized, like it never happened. Thoughts on best way to protect gains… setting daily stops avoids the issue I ran into, but even this can be onerous with enough positions? Thanks.

  54. Phil/Tiger  Looks like he did it!  Tiger Saves The Market!  Damn he’s good…..  ;)

  55. VIX may make it back into the teens today. If there are big sellers out there waiting to dump their stock, they are so far giving no indication of it.

  56. Or buying puts, I should have added (VIX connection).

  57. gucci/SPX,
    It’s depending on your trading plan.  Do you have the short call with the Mar 990 putter?  If your trading plan calls for a buy back with a 75% profit, then you can follow it and wait for the next opportunity.  Note that selling Mar 990 putters on Feb 8 was an aggressive move with SPX at 1060 or so.   Now with SPX at 1109, strike 990 doesn’t look at aggressive and the more conservative people would hold on to it for another few weeks.  I’m asking for the short call as you might have entered it aggressively as well and need to roll it up.

  58. DXD/Gucci – Sorry, I’m not sure what you mean.  You say roll July 27 to July call for $1.50 (?) and "the pair trade that was rec sold July 33 call" – I’d like to buy a vowel in the very least on that one…

    NYSE coming on strong at 7,072!

    TALF/Matt – There is no way they change the accounting back, we’d be right back to a melt-down if they have to show those losses (and I’m not saying they should have to as it’s ridiculous to write down perfoming loans as if you have to liquidate the asset).   You can see on the Fed’s balance sheet they gave banks $1Tn for MBS’s and it seems to me that they simply accept the paper at face value or, in the very least, keep the value they buy it for on their own books.   That’s been going on all year and is the only reason the banks are doing so well and haven’t been dumping empty homes on the market.  The blow-back on this is there is an overhang of about 4M homes that are sitting around empty and held by the banks, FRE, FNM and the Fed and, in the very least, it will keep a lid on prices for years. 

    Speaking of which:  The New York Fed buys $946M of agency debt maturing 2014-2016, of $3.154B submitted by dealers – bringing cumulative buys to $168.153B of a planned $175B in purchases from Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Bank system.

    TBT/Steve – I would assume that we do need some rise in rates for it to hold flat as it is an ultra ETF so why should it be different than all the others?  Those are the key threats, anything that panicks people back to the dollar but we’ve seen it happen twice and twice it has been short-lived.  Like any market position, you can lose this one for reasons we can’t begin to imagine right now but it’s a nice hedge against a declining dollar or rising rates, which are both strong, long-term possibilities.  You’ll notice I favor the non-greedy, deep in the money bull call spreads and you can run those with sensible stops in case rates go back below zero again…

    Protect/Fein – It’s all situational.  The general rule of thumb is to protect your gains by going to cash unless you are rock-solid sure they won’t reverse on you.  If we’re up 50% on anything or up 70% with 2 weeks to expiration or up 85% on expiration week, we should be cashing out unless there is a COMPELLING reason not to dow so.  Selling the TBT $48 puts with TBT at $49 and seeing that TBT very rarely moves $1 in a day and that the 50 and 200 dmas are both between you and $48 – this is one of the ones I would leave naked.  If you set hard stops in the system, 75% of the time you WILL get triggered.  The MMs can often see the stops down the chain and they will do what they can to get you as it’s free money for them.  It’s like playing poker with your cards facing out to the other players and then wondering how they always know when you are bluffing…

    Copper now $3.35!   Must be all that construction or the demand for pennies in a recession… 

    S&P trying for 1,110, RUT going for 630 – shorts are probably hopeless if they make that.  NYSE at 7,079.  Oil testing $80 and gold poking at $1,120 but being rejected yet again. 

  59. Phil, Just getting around to reading your morning post. As usual, your arguments are cogent and entertaining, even to this libertarian. Obama could use you for messaging, since he and his people seem to have a real tin ear when it comes to the economy.  Some day, you should add policy proscriptions to your analysis (something more specific than "higher taxes, higher interest rates and actual laws against excess speculation".)   You never know who might end up reading your words.

  60. Peter,
    my RUT march position’s 560/550 spread 1.6/1.3 now, do you recommend to sell back 560 and hold naked 550?

  61. The reaction to the CPI number really is funny. Now the NYT has a headline up touting it as easing inflation fears.

    Almost no one is talking about the fact that, if this is a prelude to a deflationary trend, it’s actually worse than a hot CPI number.

  62. If Tiger was really serious, he would auction off his "contact list". No word of that.

  63. tcha/RUT
    It’s a bit early with 4 weeks out, but is a sensible thing to do as that’s a nice cushion for the 550 putters.

  64. Phil, how should I think about selling front month calls when the stock is in between strikes such that the OTM call carries little premium? For instance, what would you do to keep working off premium for the XOM leaps we have? March $70s only get $0.20 (delta .11) whereas March $65s bring in $1 in premium (delta .61). Would you sell 1/2 the 65s, then roll to full covers with April’s $70s (may be a debit?) if it shoots up? If you’re not too swamped, curious what you’d sell for NDAQ and TBT too… thanks.

  65. Taking some of the money out of my matress to get a better return. Bought a large position in RRPIX (no options). This is a fund that seeks daily investment returns that correspond to 125% on the iINVERSE of the daily movement of the most recently issued 30 YEAR TREASURIES. This is a bet on when, not if (that is already known) the yield rates start to rise. The 30 year, as opposed to shorter term bonds are are proportionally far more impacted on a percentage basis.

  66. Glad I cleared out of the BIDU condors; now back up to 6.50. Tempted to sell them again……

  67. Peter thanx, I think same think, gonna buy back 1/4 of position

  68. Peter, What have your April strangles and crazy play levels been?  This run-up looks to me like the same one that ran a couple of months ago, and I’m looking at approximately the same levels we had been using for the Feb strangles/crazy plays  when we entered in late December and early January.

  69. Peter D, RUT price is getting dangerously close to the 65 call in the March strangle . Do you suggest rolling or wait for a pullback?

  70. matt .."Especially for my broker!"

    I get a sweet deal from AMTD, i have been trading for free for a long time (stock trades) go to your local branch and see what they can do for you if you make many trades

  71. Gel/Tiger.  Lol. I wish someone would tell him to STFU and get back on the golf course.  My kids adore Tiger and play with TIger-branded clubs.  I don’t want to have to explain to them that the reason his picture is on the front cover of all the magazines is because he is talking about his sex therapy.  What a world, what a world…

  72. judah,
    I had 850/1180, then changed to 920/1180 with the 1010/1000 put vertical.  Still 1/8 position and plan to add some more next week.

  73. Taibbi/GS Article: Haven’ t read the article. But in general, I’m not sure i follow the logic on GS being saved from bankruptcy by the Fed government. I’m assuming GS, like all inv banks, depended on short-term financing. So it the credit system had totally broken, I guess GS would’ve been bankrupt. But then, where would the systemic risk have ended? Perhaps at all of our doorsteps.
    AIG entered those CDS agreements with GS without a gun at their head. And Geithner/Bernanke weren’t willing to risk forcing AIG into bankruptcy to avoid paying GS. Perhaps they should’ve forced AIG into bankruptcy, with the benefit of hindsight. But we have the luxury of hindsight. They had to make decisions very quickly.
    The banking system in this country stinks.

  74. phil my original position was
    sold july 27 put, Bot july 27 call , and sold  33 call  how should i adjust today

  75. Peter
    I know i open position before joint PSW – my original position as follow
    SPX march 990 short put, march 1160 short call — please advice how to roll this call up  JC

  76. Gel/RRPIX.  Looks like a good buy to stick in an IRA.  Thanks.

  77. Gucci. I know you are asking Peter, so pardon the kibbitzing.  If I had those strangles, I would add the highest level put vertical I could get for under $2, say 1080/1070 or 1070/1060 to offer some protection to the 990 put, and I’d wait until next week to evaluate whether to roll the caller up 2x to a higher March call.  I think you have a little time since 1150 should offer some resistance if we get there, and you can always roll to April if it gets to close to comfort.

  78. Pharm -
    Mygn finally coming to life – see if we get follow through next week

  79.  VIX – The vix collapse has been stunning.  Totally devastated my portfolio.

  80. The RUT is up 47 points or 8% in 10 days.  Incredible.

  81. Policy/Judah – I actually did the Washington thing at on point.  Probably the most sickening experience of my life!  To say nothing gets done is an understatement.  They pay for studies, they pay for consultants and then they bury any study that doesn’t reach the sponsor’s premise and any "good" consultant knows they don’t get steady work unless they come up with the right answers.  The consultants with "ethics" are no better as they simply find work with whoever wants to fund a study that they agree with in the first place so you have a bunch of people on both sides all pre-disposed to find things before they even look and, no matter what they find, there’s an entire group on the opposite side hell-bent on tearing it apart and making sure no one takes it seriously.  So suggesting a policy is the one way to make sure it doesn’t happen – what you need to do is create a groundswell of public opionion so polls on both sides of the aisle tell the staff to tell the Congressmen what to think.  THAT’s Democracy in action!

    Deflation/Eric – Shhhhhhh, you’ll poop the party!  I am just blown away by how no one on TV today or in anything I read conneced the dots that a high PPI and a low CPI squeezes profits in the very least. 

    Contacts/Gel – I think he should have gone the Charlie Sheen route (unapolagetic bad boy) – he may have had less sponsors but he sure could have had more fun…

    XOM/Fein – Your job is to SELL PREMIUM, not speculate.  If you are not comfortable collecting $2 for the March $65s (.90 premium), then sell half (when in doubt, sell half).  NDAQ is at $18.70,which is a bad spot so we go to the June $18s at $1.70 or 1/2 the $18s and 1/2 the $19s.  TBT is one we really like to the upside so 1/2 the March $51s at .76 is fine but, of course, we sell more if they break down.  Don’t think of it as you are "limiting" yourself to a $1 gain (5%), think of it as on path to collect 20% in premiums a year and if you get called away, you start another path to 20%.  If you had gotten an extra 20% for all the stocks you ever owned but limited your gains to 20% a year – would you be better or worse off than you are now? 

    That’s the point of this system.  We assume we are not geniuses but we also assume that if we sell 20% of premiums a year then every 5 years we pay off our entire portfolio and whatever value our stocks manage to maintain over that time is a bonus.  It doesn’t have to be the same stocks.  Just every month make sure you have stocks that are on track to collect 20% premiums per year (2% per month).  

    RRPIX/Gel – That’s interesting, let me know how that goes. 

    NYSE creeping up to 7,090!  Transports back in happy land, up 1.4%, SOX up 0.6%…

    Systemic/Chaps – The problem is that the entire monetary system is a farce and the government couldn’t risk people finding out that the banks don’t actually have their money.  That’s what killed us in the Depression and it’s way worse now with many banks last year way under the 10% reserve threshold.  Still all it takes is for 10% of the people in this country to decide they don’t trust their banks and try to cash out and quickly news would spread that this bank or that bank can’t honor withdrawals and then it would quickly be 20% and 30% and 40% and then you would have riots and the whole thing would go up in smoke so fast your head would spin. 

    THAT’s why you saw terrified Congresspeople giving Paulson anything he wanted in ’08 – he painted that picture and showed them some of the real numbers and probably had Ben there to give them a history lesson of how the Great Depression started.   Think about it – Regional banks lend 10:1 mainly on business loans and CRE (the residential mortgages they flip out) so a 5% drop in CRE values could wipe out half their cash (YOUR CASH) and then business defaults can take the rest. 

    DXD/Gucci – It’s such a wide spread ($6) that you can consider rolling the $33 caller down to the $30s for $1 and then spending $1.80 to roll yourself to the $24s.  The puts you sold are fine for now and there’s not much you can do with them until Septembers come out anyway.  Spending $1 to drop your b/e by $2 is a wise move. 

    VIX/BG – That’s why cash, you can get really nailed when the VIX drops.  Best to remember, when the VIX is high, that your positions are not worth as much as you think they are.  As I was saying this week – the funds pump up the markets real fast, sell March calls with a high VIX and then let it drift down again and wipe out all the callers.  Those guys have the discipline to take 2% a month and be very happy. 

  82. It seems unbelievable that all bad news is off the table and the indices have recovered 65% of their fall in 8 days.   I guess we are all just too negative and everything is rosy.   Also I can’t believe that everyone will want to hold through the weekend with China reopening on Monday and the unpredictability of that.   Maybe we get a small sell off after lunch.

  83. phil – what’s the current edz play – I have the april 4 on right now and am trying to roll them out

  84. Tiger will be back… I already have my tickets for the US Open this year in Pebble Beach (early June). Tiger won it in 2000 (the last time the open was in PB). I believe it will be a shoot-out between Tiger and Phil Mickleson, who has won at PB three times and could almost play the three courses at night, he knows it so well.

  85. Phil – Isn’t there usually more volume on opex?  Seems slow.

  86. Phil, many last minute expiry gambles? I always love playing craps on expiration Friday!

  87. Phil/groundswells of public opinion.  Hmmm, historically those tend to end badly for my people.  The only groundswell I see these days are the tea parties.  But I understand your point and it is true.  I’ve been out of politics for over 15 years, but I still live in the swamp.

  88. Phil, I put on the FCX trade you discussed a few days ago – Bought 4 May 70 Puts (down 27%) sold 5 March 70 Puts (up 46%)
    Is it now time to take the profits on the sold puts although they still have ~1.15 left in them or wait until Aprils become available and roll to the April 70′s?

  89. Hi Phil while you are on the DXD I hold Apr long 27 c at 4.00 now 2.47 short Apr 29c sold 1.75 now 1.55 what changes do you suggest? thks

  90. Sell-off/TM – I’m amazed how "brave" people are being into this weekend, especially with all these gains to be taken off the table.  Our long plays from last week made ridiculous amounts of money for 2 weeks but I suppose some people are never satisfied.

    EDZ/Samz – See morning Alert in your Email (9:40 comment).

    7,095 on NYSE, crawling up the line….

    Slow/SS – Slow has been normal for a long time, computers don’t care about expiration day and they are making 95% of the trades.

    Last minute/BDC – I’m still liking the USO $39 puts but .18 is a lot of premium.  I guess the March $37 puts are now attractive at .60 on the bet they can’t hold $80.   DIA $105 puts at .72 have only .05 premium so that’s the way to scalp nickels right now, using 10,425 as the on/off switch.

  91. thanks juda need all the help I can get  JC

  92. bgbigelow,

    There are a lot of trades that can protect you from getting hit hard on VIX drops. A simple one that I like is a vertical where you buy ITM and sell ATM. Since you are long and short the same month, Vega (volatility) changes apply to long and short options uniformly (unlike calendars and diagonals, which can really get hurt when the IV falls). Since you’re selling more extrinsic than you are buying (selling the ATM option), vega drops actually work to your advantage, and rises in volatility are meaningless since you are certain to recover any temporary volatility boost that the short leg gets. 
    Naturally, theta is also working to your advantage in this kind of spread. And finally, while it wouldn’t be right to say that gamma is not working to your advantage in a vertical, it’s not going to hurt you either.
    An effectively equivalent trade is a bear call vertical or bull put vertical where you are selling ATM and buying OTM.
    I’ve come to think that verticals are one of the most ‘well behaved’ option spreads out there, and I now trade a lot of them.

  93. "When they kick out your front door, how you gonna come?  With your hands on your head, or on the trigger of your gun?

    For a New Hampshire resident like me (state motto: "live free or die"), the answer to this one is easy….lol

  94. I meant to say "while it wouldn’t be right to say that gamma is working to your advantage".  Basically verticals are very well-behaved from a gamma perspective too; they can’t flip over on you.

  95. juda do you buy the number of position of put vertical as your strangle, for example if i open 5 contract strangle 990/1160, then buy 5 put vertical 1180/1170 or 1170/1160 for $2  thanks JC

  96. Eric – what do you think of a call vert on the vix?  I know it is a bearish call, but it seems we have retraced an awful lot in a short time.

  97. Soros has been moving into GLD. Just bought a very large position – might be the reason for the recent pump. Thanks George!

  98. juda sorry about put vertical number I meant 1080/1070 or 1070/1060 as you said 

  99. ss,
    I hate trading the VIX since the option price can deviate wildly from the intrinsic value up until expiration (for two reasons:(i)  no underlying to buy, thus no arb to insure put-call parity, and (ii) european-style assignment).
    But if I were to trade it it would be with a vertical. A put vertical on any major index ETF will get basically the same effect; profiting from an increase in IV and a decline in the markets.

  100. Matt… thanks for your trade numbers – I am looking at brokerage cost analysis in order to save some $. I averaged 10 plays/day  last year, and am trying to figure out if larger but fewer positions would be more cost effective.

  101. Gucci, That is Peter’s recommendation.  If you haven’t read his descriptions of his SPX crazy plays, you should as it will give you far more information than I can provide here.   Of course, it doesn’t really offer protection, but it helps with the PM margin calculation, but if the market moves south in the next 4 weeks, you could collect $5-10 per vertical, which you can pocket or use to partly offset rolling the 990 away if you get nervous about that putter.  Peter recommends spending no more than $1.50-2 per vertical.  I try to find a vertical that is higher than the most recent support for about $1.50.  Sometimes the verticals expire worthless, sometimes you end up selling back the putter, leaving it exposed.  It all becomes situational.  Good luck.

  102. LOL Judah – I feel your pain!

    FCX/DK – You made $1 already and it will take you an entire month to make another $1, best case so the logic is to cash out the putter.  I think I mentioned $77.50 was our target for shorting so you can take them out, and spend the $1 you gained plus another .80 to roll your long puts up to the May $75 puts, which puts you in a position to sell March $75 puts, now $2.45, for no less than $2 if they head the wrong way and with a goal of selling the $70 puts for $2 again if FCX pulls back.

    DXD/Yodi – Same adjustment as Gucci on the whole, getting to a $24/29 spread in your case and maybe sell some puts to fund it.

    VIX/Eric – Nice way to play it.

  103. Here’s a nice vertical example from today. I bought ANR March 40/47 call verticals this morning with the stock around 46.80. These have a 32 delta each.

    The stock has since moved up a measly .45, but the position has gained .35 (i.e., more than a dollar’s worth of movement), because my ITM 40 call is tracking the stock price while the ATM 47 call is losing value due to the VIX drop.

  104. Eric – are your verts 1 to 1 or ratioed?

  105. New Hampshire/Chaps – We’ll be counting on you to protect the Union!   8-)

    And now the NYSE rejection is weighing on everyone.  Let’s see if they hold their levels but we have a pretty good margin here with RUT as the first test at 630 and 625, then S&P at 1,105, then Nas at 2,225 but, by then we’ll already be in big trouble so watch AAPL and horsemen for early indications that we’re going to have a real sell-off.   Otherwise, S&P 1,110 is a good sign as is progress  over 7,090 on NYSE. 

    Made .10 on DIA puts and done!  Now maybe reload on bounce but this is not a game for the greedy

  106. FCX – done. Thanks Phil

  107. Thanks, judah, that’s a great explanation on the short strangles and crazy play.  Back to more meetings on expiration day.  Luckily, all my Feb options were taken care of a while ago. 

  108. Thanks Phil,
    I wasted money on BIDU 490 at 0.15 instead.

  109. This seems like a good idea:   The U.S. is enlisting UPS (UPS +1.5%) in its plan to double exports in five years. The packaging firm will use data to identify smaller companies that export to just one country and guide them to new markets. Less than 1% of 30M U.S. companies export, and 58% of those export to just one country.

    Just as stimulus efforts were too small to counteract wealth evaporation from the crisis, Robert Pollin writes, Obama’s jobs plans are nowhere big enough: We need to shoot for 18M jobs by 2012 – and it can be done, with a huge public-private partnership and more spending.

    Consumer price data may still point towards deflation, not inflation. Prices excluding food and energy actually fell in January, which hasn’t happened in more than a quarter-century. But others are convinced it’s only a matter of time before we see another long-ago phenomenon: stagflation.

    The Fed’s move to raise the discount rate signals that "the financial crisis is largely over," says Bank of America (BAC) chief economist. Some even say that, despite assurances to the contrary, the FOMC may soften its "extended period" language at the next meeting.

    China may be finding new ways to buy U.S. debt, as anonymous purchases made through unconventional channels would allow China to remain the largest holder of American bonds. The Chinese are "diversifying the channels through which they make these purchases so that it is much more difficult for the market to ascertain what they are doing."

    About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.  WellPoint claims is that it has been forced to raise premiums because of “challenging economic times”: cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral.

    Somewhere we’re NOT moving to!  Dismal weather, hefty taxes and mediocre sports teams give Cleveland the dubious distinction of being America’s Most Miserable City, declares Forbes.

  110. Hi Phil, I bought the CROX Mar $4 calls @3.45, sold the Feb $6 calls @0.7. Should I excercise the Mar $4 call to get assigned or should I roll the $6 calls to march since today is the expiration day. Crox’s earnings report is due next week.

  111. DIA $104 puts back to .11.

  112. Well I guess they got the short calls to capitulate now they are gonna swoop down to get the short puts.

  113. CROX/Jossie – You can move your March $4s ($3.90) to 2x the Sept $6s ($2.40) for .50 and then you can roll the Feb $6 ($1.95) callers to 2x the $7 ($1.20) callers for about .40 back.  You’ll be hoping for a bit of a miss though but tons of time to roll the callers or for CROX to recover.   

    DIA – Don’t forget the goal is to get .05, once we are past that, you need to pretty much be itching to get back out (and out even of course if it reverses).  The idea is to take the nickels and hope you get lucky one time and catch a big move down

    Britain’s latest economic statistics show the country’s finances are every bit as bad as those for Greece. The deficit in January, normally a month for strong surpluses, was worse than expected and puts the U.K. on track for a deficit of 12.8% of GDP this year, exceeding Greece’s 12.7%.

    We’re trained to believe that bad things happen to the stock market when the Fed begins tightening. Well, a look at history shows that it’s not necessarily true, at least not when rates are low.

    Check out the propogandists on CNBC trying to justify Lloyd Blankfien’s salary by making some insane comparison to Leonardo DiCaprio’s.

  114. Phil/Leo – I thought the same thing.  Insane.

  115. Phil on XOM  holding jan 12 long 13.95 do not like the drop to 10.67 against this I sold march 70 call for .55 now .18 sure kill the march but what to set up to get back the 3.30 loss ? thks

  116. Peter D, when you are available,…… RUT price is getting dangerously close to the 65 call in the March strangle . Do you suggest rolling or wait for a pullback?

  117. Phil, the real crime in these IBs making this kind of jack is in how they do it.  How can GS have profitable trades everyday the market is open?  By fixing the game.  Where are the cops?!  Talk about not connecting the dots..
    Anecdotal tidbit:  my new firm has a much dressier work environment and I had to seriously upgrade my duds when I started in Jan.  Luckily for me, January is THE time to buy clothes.  I absolutely killed at Macy’s.  I got a total of 55% off my entire purchase.  I’m sure it still wasn’t at their cost probably took their mark up from around 200% down to around 50%.  So, I vote for stagflation.  The Fed will wear out the presses before they allow a depression.  I really feel that Japan is our future.  Not in that they are going to save us.. but in that we will be hobbled for decades by our debt.  Our debt isn’t as great as theirs but we will pay MUCH more to finance ours then they do theirs so we’re going to be in the same boat as them.  But what if the Japanese savers grow weary of buying Japanese bonds so their govt can buy our bonds?

  118. XOM/yodi – if you are long, don’t worry about the movement.  Keep selling the calls and as XOM moves up or the VIX increases, you will be fine.  Just take the 30c.  you can also sell 1/2 of the 65s as noted above by Phil.

  119. ss,
    I usually just go 1-1 with them. Sometimes I’ll go long on a ratio, but only looking at the position as a longer-term one.
    I often leg-in and out though.

  120. Thanks Pharmboy that makes me feel better

  121. We’re locking in now I think.  Lots of splits between two strikes to hurt the most people and other dead even numbers that would seem strange to someone who actually believed these amounts were the result of millions of people making independent value decisions:

    • AAPL $202.50
    • AMZN $117.50
    • BA $63.75
    • BAC $16
    • BIDU $497.50
    • CAL $20
    • CAT $58.25 (that’s because they have $57.50 and $60 strikes)
    • CME $292.50
    • DIA $104
    • FSLR $116.50
    • GE $16.25
    • GOOG $540
    • GS $156.50 (they need $1 more)
    • IBM $127.50
    • ICE $103.50
    • ISRG $347.50
    • JPM $40.00
    • MA $222.50
    • MCD $64.50
    • MU $9
    • PFE $18
    • RIMM $71.25
    • SHLD $95
    • TM $73.50
    • UPS $57.50
    • VLO $18
    • VZ $29
    • X $53.25
    • XLF $14.50 (that one is impressive as it’s a huge basket but hits .50 on the nose!)
    • XOM $66
    • ZION $18.50

    XOM/Yodi – If you had the stock and it was down $3, what would you be doing?  We buy leaps for leverage rather than owning the stock but they have the same downside as the stock.  The difference is, if you had $20,000, you can buy 300 shares of XOM for $19,500 and sell 3 March $70 calls for .55 and make $165 back on your $19,500 or you can buy 6 2012 $60 calls for $13.95 ($8,370) and sell 6 March $70 calls for $330.  If XOM sells off you now have $10.67 or $6,402 plus the $330 is $6,732 for a loss of $1,638 vs if you held the stock maybe a net loss of $500.  The difference is you still have $12,000 on the side and you can roll the $60 calls down to 6 $55 calls at $13.85 by adding $3.20 or $1,920 and you STILL have $10,000 on the side but now you are $11 in the money and you can still sell $330 a month in calls for 20 months and that’s $6,660 back on your $10K investment with very little upside risk.  Don’t buy leaps if you are not really willing to play the long game.  More than anything else, the leaps are down because the VIX dropped, not XOM.  So rolling down and selling 1/2 the March $65 calls for $1.95 is the way to go at the moment.

    Debt/Matt – We can’t sustain decades of debt with health care costs rising 12% a year (if we’re lucky) and 50M baby boomers retiring this decade and a $14Tn national debt and a $500Bn trade deficit and a $1.5Tn budget deficit and a $1Tn annual military budget – you can’t "coast along" for a decade like that.  Hyperinflation is our only logical exit strategy.  Grow our economy about 18% a year for 10 years and we’ll have a $75Tn GDP in 2020 probably racking up about $5Tn a year in debt but servicing our old $20Tn (giving it a couple of years) debt with ease.  since we inflate each year, Debt would "only" rise from $1.5Tn to 1.8 to $2.2 to 2.7…. and although our deficit in 2020 would be $5Tn, we would have only added $30Tn over 10 years to the first $20Tn and that brings our debt ($50Tn) to GDP ($75Tn) down to 66% – a huge success!  

    While all this is going on, if the government caps COLA on SS and Medicare at 10%, they gain 8-10% a year on those entitlements too!  As an added bonus, we’ll all live in multi-million dollar homes and our mortages will be back down to a year’s salary (for the boomers who held their homes for 10 years) or a negligable portion of the homes value.  Then we can spur spending with refinances once again and go for the next big boom until our debt to GDP gets back to 125% again.

    See, who said I didn’t have concrete solutions?

  122. Add SPG 77.5 to that list; looking at the OI that’s likely max pain for them too.
    I almost took a job in Cleveland in 2001. Thank gawd I didn’t.

  123. Phil – Even though the indices are creeping up to suggest a bullish tone, we’re overbought short term.  and this news on possible deflation isn’t exactly a bullish indicator.  Shouldn’t we be looking at some March bearish trades?  If you’ve posted them, sorry, but I’d like to hear you 2-3 best bear trades for the month of March.

  124. Their gonna pin VZ at 29, how nice.

  125. Obama is reciting his manifesto.. fine, but pumping Harry is scarry, and not a popular subject in NV.

  126. Oh, I should be here more often….Phil already  noted the VZ pin.

  127. Phil,
    Being too Bearish again has cost me what would have been a nice TNA play; did make $ 8K in TZA this morning, but misread this move up. What about the weekend, cash or 5-10 % TZA ?

  128. Bear/JCM – Well you should be out of any unhedged long positions and we are 1/2 covered on the DIA spread and we rolled our disaster hedges in this morning’s Weekend Wrap-Up so we are a bit bearish and about as bearish as we dare be if the levels are holding up.  We’re not out of our speculative short plays and you have to use your discretion for those but in the last few days we picked EDZ, FCX, USO and GLL as bearish plays against this move.   Oh and we stuck with SRS – now THAT’S being bearish as that damn thing never works!   I don’t think we’re going to come crashing down, I think we’ll drift around 10,165 but 2.5% is 250 up and down from there.  I’m banking on this being the top of a channel we’ll be stuck in for a while. 

    VZ/Pharm – I think we have the same watch list at this point!   Hey, that would be a cool IPhone app – a way to "bump" watch lists, or any kind of top 10 lists for that matter, to other people and then rank ‘em up and you can click on any item to see the list of who liked it (maybe more or less than you based on rank out of 10).  Could be used for polls and rating stuff – all sorts of things…

    Sector ETF strength: Broker/Dealers– IAI +1.6%. Utilities– XLU +1.5%. Commercial Banks– KBE +1.4%. Transports– IYT +1.2%. Oil Services– OIH +1.1%.
    Sector ETF weakness: Solar– KWT -3.1%. Clean Energy– PBW -1%. Agribusiness– MOO -0.5%. Healthcare Providers– IHF -0.4%.

    $80 oil and the Transports are one of our top sectors.  That’s incredible! 

    Dow leaders: PFE +1.7%. DD +1.3%. BA +1.1%. DIS +0.8%.
    Dow laggards: JPM -0.9%. MSFT -0.7%. T -0.6%. IBM -0.5%.

    After hearing Goldman Sachs (GS) and other firms say they weren’t in trouble and didn’t need help, it’s enjoyable reading to see their 2008 fire-sale freakout, William Cohan writes. Documents filed with the SEC show dealmakers couldn’t dump their own stock fast enough.

    Deals overall may be sluggish, but investment bankers are still managing to keep busy with secondary offerings that are up 81% YTD. Companies have raised $48.7B through stock issuance, particularly in the U.S. and Japan.

    Where are stocks going next? Investors aren’t sure, with bull/bear ratios going neutral in historical terms.

    Bernanke’s baby step with the discount rate means he’ll get blamed once the economy falls back – but you can’t fault him with killing a recovery that isn’t there, says Mike Shedlock.

  129. Selling Premium / Phil – Thanks for the examples and thought process. Why is NDAQ in a "bad spot" at $18.70? Why not sell the March $19s for $0.38 of premium, which is more than 1/4 of the $1.10 in premium I’d get for the June 18s or 19s? Is this the extra bonus I get for having to watch and adjust it every month rather than 4 months from now, and do I need to worry about the flexibility of rolling the March vs. June calls? Thanks for your patience with my questions!

  130. Spending the weekend shorting the GBP against the AUD… Did not realize the Brits have won the battle of reckless debt, with Greece getting the bronze – Thanks, Phil

  131. TZA/JCM – I think down is the path of least resistance and, as I said earlier, China can take a big bite out of the global market on Monday.  For TZA I like the Apr $6/7.50 bull call spread at $1.20, selling the $7.50 puts for .25 for net .95 on the $1.50 spread and a b/e way down at $6.95.

  132. phil,own edz stock sold calls at the spike of &7 for $1 march ,bought them back today for 20c,any ideas  should I wait for a spike up again

  133. Phil/list. If they peg S at $3.50 (it has $3.50 Feb options), that will be an impressive addition to your list, given that it had to move 6% to get there today.

  134. Phil/TIVO.  And TIVO right smack on $10. It is like magic.

  135. NDAQ/Fein – Because when a stock is on a strike you get max premium from a nice conservative sell at the strike.  Part of the idea of selling calls is to protect yourself, the March $19s offer very little protection and very little premium.   It’s fine if you are always right and all your picks go up and never pull back but not so great if they head lower.  Also, you need to take into account transaction costs and overall risk so I’d rather (in this case) sell the June $18 call for $1.70, which LOWERS MY BASIS from $18.60 to $17 (10% protection) and sells $1 in premium over 4 months (.25 per month) vs selling the March $19s at .38, which offer me 2% protection with .38 premium but I don’t know that I’ll get that much next month or the month after that.  Don’t forget there is a value to the time you spend staring at a trade and worrying if it’s going to work or not and making adjustments…. 

    EDZ/Jash – I’d wait for Monday anyway.  Doesn’t seem likely China comes out guns blazing but anything is possible. 

    Wow nice stick there all of a sudden!  If the NYSE is over at least we’ll have nice levels to base bullish bets off next week. 

  136. Phil / hyperinflation:  In your scenario, have you factored in China dumping our bonds?  They surely would.  They also would probably have to let their currency break loose of ours.. which actually would be a good thing.
    I just read Matt Tiabi’s article.  Wow.  Where do I start?  It was phenominal.  He should win a Pulitzer.  I really think this thing will have legs.  ALOT more then his article on bubbles and that one had legs.  That article could be used as a manifesto for a grounds well across this country rising up against the banks and politicians that run it.
    "  That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they’re Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money.  "

  137. Adding some BIDU march put verticals (510/500). Glad I didn’t double-dip on the short condors.

  138. Phil.  I’m in the EDZ spread you wrote about at $.40, though I’m still waiting on the Mar 5 puts (effing specialist!).  Tell me again what I’m looking for ideally?

  139. Wow BIDU runs to nail $500!  S&P right on 1,110 – very coincidental!  WFR $12.50 on the nose!  UNH $32.00. 

    TIVO/Judah – What a move this afternoon! 

    Looks like they are guiding the Dow in for a landing at 10,400!

  140. MM is very reluctant to fill my BIDU put verticals. I wonder why…

  141. Gold fading into the close, that’s interesting. Miners too.

  142. EDZ/JCM – If it’s the $5/6 spread with the sold puts you’re looking to be in for net .10 with a $1 max upside but we’ll have to see if we want to stay in past Friday (split) and, otherwise, if you get .20-.30, that’s a good thing.  If China does well next week, we’re happy to get our dime back and get out.

    BIDU is funny zoning in on $500.  What an amusing coincidence that millions of people trading BIDU today should just so happen to end up bidding and asking $500 on the button minutes before the close…. 

    Wow – Dow 10,4000 – I bet Blankfein and Dimon bet each other that they can hit certain targets at the close and whoever is closer gets $1.

    Gold/Eric – What a total sham that is with the Dollar at year highs.

    Oh well, Still waiting for the NYSE to cross but, all in all, a fun week!   Have a great weekend everyone, hopefully we can go over the buy list so feel free to comment there (under Portfolio tab) on anything you think should be included.

  143. Phil : the sept $10 bid /ask for calls are: $1.45/$1.80
    the  sept.puts $10 bid/ask are :               $.80/$1.05
    How do I determine a price to offer to sell both calls and puts ? Do I just pick a number between $2.25 and $2.85 and  see what happens or do u have some guidelines? Thank you 

  144.  phil, nice trading places reference (regarding 1$ bet)….great movie

  145. Phil
    The "gold bugs" are a breed of their own…. very, very patient. They know that sometime in the future – could be days, months or even years, there will be a catestrophic event, either financial or geo-political that will make their day. They are, for the most part, not day traders. They are ones that have basement bunkers, and preserved food in storage.

  146. magret,
    Like judah said at 12:30PM post, you can wait until next week and see what happens.  Jcmcn5 also said at 2:59 that the indices are in overbought territory, so we have time to roll them next week. 

  147. Healthcare,
    With the risk of being chewed off, I just want to say that a doctor visit for my kids costs $120 in the US, while the Australian government pays $35 or so for a doctor visit.  With a 12% increase every year, in 6 years a doctor visit could be $240, versus about $45 or so in the Aussie land.  Can we reduce the healthcare cost in the US by 3 to 5 times?  There is no doubt in my mind that it’s possible.

  148. Back last fall, I made a dumb bet and wrote the GS 180 naked puts. Since then, the stock has steadily worked itself lower. I rolled and rolled and rolled. Finally, this month, I was short the 155 puts, which just barely finished out of the money. Figuring my return vs. the margin I tied up, my annualized rate of return on this whopper of a mistake? 17.4%.
    Yes, yes, I know. I didn’t make my 2% per month. But not bad for being dead wrong all along.

  149. barfinger/GS example – I’d say that’s inspirational.

  150. Barfinger, I love that story. Patience and discipline do pay off…. although I am sure the time and stress dealing with that was not fun at all. 

  151. Peter D…….I’m not going to chew on you , but I can tell you straight-up that you cannot reduce the healthcare costs in this country easily.  The primary reason is that there are too many interested parties, too many people making money off the system.  When I was a child I was taken to the country doctor by my parents.  He examined me, treated me (often with medicine out of his own office), and briefly recorded my history, his findings, and the treatment in handwritten form on a 5 by 8 file card.   No nurse was involved;  no billing personnel were necessary to fill out reams of paperwork;  no pharmacist was involved;  no lawyers were watching his every move to spot a misadventure;  no insurance companies were intervening, reducing the amount he could charge, and taking their own slice of the pie, (or worse, denying payment altogether);  no health maintenance organization was involved, also cutting off their slice;  and on and on and on.   It was a simple and effecient system.  I went to my doctor, he tried to keep me healthy, and my parents paid him for that service.  Now you don’t just take your child to the doctor, and pay him.  You are paying lots of other people besides.  And that pediatrician you took your child to see?  Do you know how much he himself makes?  An average of about 100K per year.  To put it into perspective, that’s 1/6 th what the CEO at my hospital made last year in bonuses, and less than 1% of what the CEO at Anthem insurance was paid one recent year in bonuses (45 million).  The healthcare industry in America is not broken, as is often stated.  It is thriving, and it is a BIG business.  And the doctors aren’t getting rich, but plenty of others are.  And it will take more than a few congressmen to bring it down.     

  152. Barfinger: It would be very helpful & educational to many of us if you would summarize your start and ending position with the roll downs you executed.I ,for one ,would appreciate seeing how you turned a loser into a winner.thnak you

  153. There will never be a reduction in healthcare costs unless there is an equivalent effort at tort reform.  The two are inextricably linked but those who purport to impose a new system on us rarely, if ever, use the two phrases in the same sentence.   The bankers may own half of congress, but the trial lawyers own the other half.

  154. Spreads/Dflam – In general, I’ll split them both down the middle and round in my favor for an offer so $1.65 for the calls and .95 for the puts so I’d look for .70 net but then I see if it’s realistc as in what’s the bid/bid (.65), ask/ask (.75) best case (.35) and worst case ($1) so I take $1.35 and divide by 2 for .68 and split the other two at .70 and I decide .70 is a very fair bid to offer for that spread.  If you are patient enough, you can get all kinds of fills but patience is the key.  Since I probably put up 20 or more spreads a week, if you put 5 you like GTC in and only one triggers, you’ll still have 52 over the course of the year so why pay an extra nickely when 52 nickels is $2.60 down the drain?

    Trading Places/Jo – I’m glad my little references don’t go unnoticed!

    Gold/Gel – I hope they are VERY patient gold might have been $100 in 1970 and went up 10 times but so did the cost of a VW Beatle and records and M&Ms etc.  I tried some of that freeze-dried food in Houston and I decided I’d rather be a marauder if things go to hell.  Those bunkers are nothing a gas-powered jackhammer can’t break into – especially if we use our irradiated mutant strength!   I love how "right" gold bugs are during a spike.  They were the smartest guys in the room in 1981 when gold got to $700 but not so much from 1984-2004 when gold drifted between $250 and $400.   Now we’ve been up at $800-1200 for all of 2 years (the old spike was 2 years) and you tell me how "patient" the gold hoarders are? 

    My mother was selling jewelry at flea markets in the late 70s and she had about $10,000 worth of inventory.  In 1980 she realized she was holding $35,000 worth of gold and you know what she did?  She sold it all and got the hell out of the business because she thought it was a ridiculous price to pay for gold.  So maybe that clouds my opinion of it as I used to go with my Mom and I saw all these "smart" gold dealers who all counted their paper profits and then, 2 years later, were all calling my Mom to see if she wanted to go back into the business with gold back at $300.  None of them got rich and none of them retired because they were in it for the long-term. 

    I have heard every possible scenario imaginable for why gold will be this or that and "just you wait, you’ll see" etc.  When push comes to shove – it’s a bunch of shiny, pretty metal that’s only really worth what a manufacturer is willing to pay for a conductor or a girl is willing to pay to put on here finger.  We had a catastrophic financial event last November and gold dropped 1/3 in about 2 weeks so you’d better hope for geo-political I think….

    If the world goes to hell, you can keep your gold and I’ll have my fresh water extractor and we’ll see who’s "rich" after 6 months…

    Healthcare/Peter – It’s a totally broken system from the ground up because it’s all run for mad profits from the Medical schools all the way to the mortician.  You want to cut health care costs by 75%?  Start by having the government educate doctors based on merit exams and pool their insurance costs and then simply put them on high-level government salary tracks.  Do something similar for nurses and there’s your staff.  Then the government can fund universities (where they are training doctors) to do research and when they invent a pill that controls diabetes that cost $200M to research and 10 cents to make – they charge 20 cents for it until they sell 2Bn pills instead of $10.10 until they sell 20M and then still $10.10 for the next 2Bn for $2Bn in profits.  Look, we already saved $1.7Bn!  

    We’re working on large scales here.  The government KNOWS it has 300M customers so if they need a robot to do surgery they know they can spend $100M to develop it and then offset the cost over delivering one to 1,000 hospitals.  The same goes for pretty much anything they want to develop.  We did once do science in this country – we build the world’s most powerful military and we cured diseases and sent people to the moon and split atoms – all on the government payroll and all for a LOT less money than it costs us to do now.   There are some things that Capitalism is NOT the answer for.  Russia and China and Japan all had tiny little economies compared to us and they all equalled or surpassed us in sciences because they treat theirs as a national endeavor while we treat ours like an episode of corporate survivor, where the best and the brightest are "voted out" by the greediest and the sneakiest. 

    GS/Barf – That’s a great story!  It’s amazing how much cushion you have when you simply SELL premium every month.  You only have to be right once, they have to be right every single time…

    Stress/Bord – Once you get used to it, it’s not that stressful.  The key is balance.  If you have nothing but short put sales and the entire market tanks, you can take a huge hit but if you sell puts and sell calls and the whole market gets pulled one way or the other, it’s a lot harder to get into a bad situation.  Remember how "hopeless" our AMZN naked calls were but that was November and we were done in Jan – all that freaking out over not too much in the end.  It’s kind of like what I was just saying to Gel re. gold – If you are going to believe AMZN goes to $140 therefore it will go to $180 and $220 and $260 and you will never win, then you won’t be able to stick in the trade.   If, however, you are in a trade you understand AND BELIVE IN – then that helps you stick out tough times and work the trade until the black swan flies away. 

    System/Iflan – Yep, I agree – it’s a totally broken system and what really needs to be done is either to declare marshall law and take over the hospitals and imprison all lawyers and insurance people OR start a shadow system for the uninsured that does the training, research etc I outlined above and eventually proves itself to be so good and so efficient that people begin leaving the private system voluntarily.  We could build it around the VA network perhaps….

  155. Here’s an intersting article from Seeking Alpha.  That right there would really get me to move my money right now from Citibank if it was there.

  156. GS trade: This is hard to describe, but I started with 1 Nov 180 put +600
                       Rolled to 1 Dec 175 (out for 3.38, in for 5.33) +176
                        Rolled to 2 Jan 165 (out for 11.88, in for 6.94×2) +181
                         Rolled to 2 Feb 155 (out for 2x.48, in for 2×2.55)+394
    All commissions factored in. Total for four months +1351. Average margin 24875.  return 5.43% for 1/3 year. 16.5% annualized. I forgot about commissions when I posted originally. As you see, I wasn’t too sure about this, only did 1 contract to start :)

  157. Oh, and its no stress at all, once you realize that if it goes bad, there is always have something you can do.
    In fact, that’s the single most important thing to be learned on this site, in my opinion. It’s not so much the trade itself, or the specific entry that matters, just as long as you can see the exit in case of fire.

  158. barfinger  is the example of what one can accomplish if you follow the tips found on PSW. I love his phrase"…as long as you can see the exit in case of fire".

  159. Phil / Healthcare:   There’s only one problem with your plan to me.  And it’s not the marauding part.  It’s the part where  you say to put doctors on a high level govt salary.  My feeling is that because of human nature there would soon be lines out the door to see your doc.  He’d have no incentive to produce.  Instead of a salary,  I think you’d have to have some kind of per patient payment plan to keep them in the game.  Then, people would naturally work to their most efficient sustainable pace as opposed to their least efficient one.  It’s what capitalism used to be about.
    ssdirk, thanks for the info.  I’ll be skeedaddlin over there shortly to get mine out!
    barfinger, looks like you were very fortunate in your rolls.  Good job.

  160.  Hey; fun options expiration day.  Almost all of my plays for the month worked out great.  My big miss was on WFMI where I got caught wrong way on shorts in low 30′s, now rolled to highter strikes.
    BIDU is ridiculous.  I had sold $500 calls (covered for a dime today b4 late day run up), 530 calls, 330 puts, 390 puts, so I cleaned them out.  I moved into a $560 June call for $20+ today.  There are no millions of people trading BIDU.  The volume today was a joke.  About 500,000 shares going into last hour.  I knew they were gonna make a run at $500.  I suspect maybe it trades to 503-505 then its time to go down, I would say 450 at least (depends a bit on the market of course).
    But of course this market is a joke isn’t it.  
    Healthcare; what a mess.  Kabuki Theater coming next week.  Phil, does ObamaCare cover political suicide ?
    (read the blog).
    And how about a shout out to Tiger Woods !  And the undertaker, Harry Reid, getting some love from big O today.  Not that it will matter, Reid will probably never get out of the sub 30% approval.
    Had a conversation w/ a loan special servicer today.  Their CRE foreclosure process is backed up big time.  The lawyers can’t even get papers filed many months after loans default.  Or maybe they don’t want to.
    The servicer sez they get tons of calls inquiring to buy defaulted loans.  But they can’t or won’t sell them.  They wish the calls would just stop.
    Its amazing.  And the stupid REITs keep going up like everything is just fine..  Like SPG 10% + this week.  Ridiculous.  Short the pig !
    SPG wants to buy GGWPQ.  S&P sez if you do, we will downgrade your debt.  GGWPQ doesn’t want to sell for $10 billion ($7 billion is debt).  But how many $10 Billion + buyers do you think there are that have the funds to buy this, and even want to own retail shopping malls in a sick sector depending on a sick consumer ?   Its crazy, I tell ya.