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Which Way Wednesday – Bernanke’s Turn at Bat

Bernanke USUALLY boosts the market.


Will he be able to restore confidence today?  He'll be speaking to the House Committee on Financial Services in a hearing titled: "Monetary Policy and the State of the Economy," which used to be called the Humphrey Hawkins Testimony - and that means it's time for another episode of my favorite TV show – something I call "When Ron Paul Attacks."  Ron Paul has been on a roll lately and today is the perfect day for him to use his 5 minutes to build a platform for his 2012 run at the White House

Yesterday was disappointing, to say the least as we blew all of our bounce levels EXCEPT the Russell, which finished right on our 625 line.  That makes the RUT our canary in the coal mine today as we'll use it to see which way the market winds are blowing.  We didn't mind yesterday's sell-off as it was led by a 2.2% drop in Basic Materials and Energy – two sectors we were betting against anyway and we just upped our bets against CRE after skipping most of February as the timing hadn't seemed right. 

Now we are getting a flood of bad new in the Commercial Real Estate space including a report from Real Capital Analytics that shows the Commercial Mortgage Default rate more than doubled in Q4 – from 1.8% to 3.4% and is projected to hit 5.4% this year.  “The level of distress continues to rise irrespective of improving economic trends,” Sam Chandan, Real Capital’s global chief economist.  Almost $1.1 trillion in commercial loans and $211 billion in apartment loans were held by U.S. banks on Dec. 31, according to Real Capital.  “With the concentration of commercial mortgages in small and community banks, there is a potential spillover that will impinge on their ability to make loans to small businesses and families,” Chandan said. 

The Congressional Oversight Panel on the financial system bailouts said in a Feb. 10 report that “the ultimate impact of the commercial real estate whole loan problem will fall disproportionately on smaller regional and community banks” that have higher concentrations of such loans.  “Some community banks seemed to have abandoned, or never really practiced, sound risk management” by lending too much on real estate in their local markets, David A. Hendler, New York-based analyst for CreditSights Inc., said in a Feb. 22 note.  

Meanwhile, the S&P downgraded another $6.8Bn of US CDO's in residential MBS's, which also ultimately impacts lending in a domino-like effect as 39 tranches from 13 CDOs of asset-backed securities are affected.  5.4% here, 6% there and, before you know it – there isn't much left, especially when leverage was 10:1….

What's the net effect?  Overall, Banks posted last year their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover.  Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones. According to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702. More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data have been collected. And the problems are expected to last through 2010.  FDIC Chairman Sheila Bair said banks are "bumping along the bottom of the credit cycle" and that the number of bank failures in 2010 will likely eclipse the 140 recorded last year

Yesterday, at 12:13, I said to Members: "Dollar hitting highs against Euro ($1.352) but also lows against Yen so Japan will be in a bad mood in the morning and will likely test 10,200 (now 10,352)."  That was 9 hours before the Nikkei opened but I can now officially report that the Nikkei fell 153 points to 10,198 so if you feel you wouldn't want to SUBSCRIBE to our service because there are other people who can come closer than 2 points half a day ahead of a 1.5% market move – I will understand…

Elsewhere in Asia, the Hang Seng fell 155 points to 20,467 and the BSE fell just 30 to 16,255 but the Shanghai had an up day, gaining 1.33% and getting back over the 3,000 mark at 3,022 so all is not lost – yet.  China’s economic growth will plunge to as low as 2 percent following the collapse of a “debt- fueled bubble” within 10 years, sparking a regional recession, according to Harvard University Professor Kenneth Rogoff, who used to be the chief economist at the IMF.   “We would learn just how important China is when that happens. It would cause a recession everywhere surrounding” the country, including Japan and South Korea, and be “horrible” for Latin American commodity exporters," he said.   

[SB10001424052748704240004575085164149700430]Horrible things are happening in Europe as well as Greece is back on strike today and the police are clashing with "tens of thousands" of protestors in Athens in a strike  that has affected transport and public services, with government offices, schools and universities all shut and travel around the capital disrupted. Athens International Airport was also closed as air traffic controllers joined the action, with no flights in and out of the country's airports. Train, bus and ferry services were canceled nationwide.  Banks are also expected to be affected while state hospitals will operate on skeleton staffing. No newspapers will be published because the journalists' union is taking part too.  

Perhaps not coincidentally, Fitch decided today would be a good day to downgrade Greece's four largest banks to Bbb – just 2 grades above junk and slapped a "negative" outlook on them for good measure.  Instead of rioting in the streets, perhaps the Greeks should be getting in line to withdraw their cash and hightailing it out of the country at this point!  Spain is still a bigger concern to me than Greece and BOS Governor Ordonez is urging his government to push ahead with budget-deficit reduction and labor-market reform efforts, and he told ailing Spanish banks to move forward with restructuring plans.  "It's essential that these measures be carried out because if they are not, the credibility of Spain could be very negatively affected," said Ordonez. 

The government, grappling with one of Europe's deepest recessions and a budget deficit that reached 11.4% of gross domestic product in 2009, last month announced cost-cutting and revenue-raising measures worth €50 billion ($68 billion). It aims to bring the deficit within the 3%-of-GDP limit for European Union countries by 2013.  Following the collapse of its labor-intensive construction industry, Spain's unemployment rate has shot up to nearly 20% and the government has earmarked €30 billion ($48Bn) for unemployment-benefit payments alone this year.  Spain's economy and crisis is about the same as California, another thing we should try not to forget about!

Still, all this global strife doesn't change my premise that US equities are still the best place to put your money this year.  Not that they won't go down – but they probably won't go down more than other countries and our valuations are relatively cheap compared to other global equities.  While there are many problems to work through – as long as we stick with companies that are in our "Top 10% Club," we should be fine regarless of how terrible things are for the bottom 90% (and did you see yesterday's confidence numbers? WE are the ones who should be rioting!).  

Yesterday was nothing but a commodity sell-off and we LOVE those so we're going to be forgiving as long as we can stay between our bounce levels (Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625) and our 5% lines (Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620) – The Russell is our leader and will show us the way but we would consider 1,088 on the S&P to be a very serious bearish confirmation so that's another line worth watching (see yesterday's chart-fest). 

It's going to be a wild ride today – let's have some fun!


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  1. STEC crushed…..

  2. If the velocity of money is shrinking – i.e. bank lending – are we really going to get inflation?
    my bond market gurus are arguing this – won’t have inflation because of massive reduction in velocity of money which seems to be continuing to shrink
    Contra our favorite tbt trade – thoughts?

  3. Thanks a bunch for your long post re TBT yesterday phil….much appreciated. I’m mostly in the stock itself, with some 2012 calls, and i sell premium against both. But, i agree that perhaps i should lighten up.

  4. Good morning! 

    Oil flying back over $79 ahead of inventories.  We should get a draw of some sort this week as we didn’t get one in distillates last week and SOMEONE must have turned the heat on in the past two weeks so I won’t be betting against oil today.  Once again estimates are setting us up for failure as they expect a 1.6M barrel build in crude and a 1.5Mb build in gasoline and just a 1.6Mb decline in distillates so any draw at all vs the 1.5Mb expected build will be rally fuel for the NYMEX crooks – who just had to roll all their barrels into April contracts and now there are 274,000 open Aprils (1,000 barrels per contract) and 162,000 in May and 162,000 in June for 598,000 in the front 3 months, which is about 100K more than normal so the traders need to lighten up around $80 and we can short into a spike today. 

    We’re expecting to range between our bounce levels (Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625) and our 5% lines (Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620) so it’s not worth playing much in the middle.

    Bernanke speaks at 10 and that should last until about 1pm and he’s bound to make nice, supportive noises that could get us over the bounce zone but I’m not really inclined to make any guesses at the moment.

  5. Pharm,
    ..any thoughts on DNDN.  FDA news, dates?  TIA…

  6. Right now, it’s going to take signs of institutional buying on weakness to make me think any pops we get are more than noise. So far there have not been any signs of fund participation in this bounce off of last months lows.

  7. PHil, i’m stalking USO and TBT for entry points.  How do you think it best to play both of them. at t his point?  TBT is down nicely lately, and USO near recent highs?

  8. Phil-BRK/B- question on the application / observation of the 5% rule. BRK/B ran from 66 to 80, up 20% or 14 pts. So, a 20% retrace would be a $3 pullback? Correct interpretation ? Application to indvidual security vs. index?

  9. Velocity/Samz – The velocity of money for the bottom 90% is shrinking but the people who are flipping stock and commodity trades on margin and the banksters are raking it in.  The top 10% can get much richer as the banks do want to lend to someone and they’ll keep lending to us while taking credit away from the weak (even those in the top 20%), making it easier for us to move in for the kill and pick the profitable flesh off their business corpses.   Since we control over 80% of the money, we can cause inflation all by ourselves – just go out and buy a few houses…

    TBT/Hanna – 20% of anything is too much.  If you want to hedge inflation I’d rather see you in some DBA (agriculture), which is just $25.23 and you can sell Jan $25 puts and calls for $4 for a $21/23 entry – a nice 20% upside for the year if they hold steady

    NOW the Dow gets to 10,350 – Mr. Stick is on time delay lately…

    SWPRA still getting slammed.  $18.90 now.  BCS downgraded the whole sector yesterday but the German subsidy cuts weren’t that bad and I still like this sector if it ever calms down. 

    Volume is nothing at 18M on the Dow at 9:55 – this whole week is marked by non-participation…

  10. Starting an initial short of GOOG with some put verticals. I’d like to see them run it up before I commit more. This stock has been under nasty pressure and has sold off even in the face of analyst upgrades. Afraid to Trade has a chart analysis:

  11. DNDN/onc – they are already teamed up, so any more in them will be a buyout.  I have always been against their premise (technology is ok), because the amount to pay for it will be a challenge with so many things in clinical trials.  In essence, DNDN takes your cells, incubates them with their technology, and puts them back into you making your body fight the cancer.  That’s great, but the price to pay when Cougar Biosciences (now JNJ), OGXI, and about 20 other companies all after the same thing (prostate cancer) is a bit much.  So, it is not a matter of approval, it is a matter of coverage in the long run. Short run, they may get a pop, but with most companies these days in Biotech, after approval, the stock has retreated, as the price was baked in.  If they were $1 or even $5, sure, but that was eons ago, and I did not participate with them then (Phil and many did back when) but they were frustrating.

  12. JRW – what do you like today for IWM lines? Thanks.

  13. Asking 9.40 to sell some more of those BIDU 490/500/510 condors. Option and stock prices there are bouncing all over the place so I’m hoping to get filled on some of the chaos.

  14. Jan New Home Sales down 11.2%, 309,000 annually – we used to do that many in California alone!

    Jan. New Home Sales: -11.2% to 309K vs. 355K expected, 342K prior. Months’ supply 9.1 vs. 8.1 prior. Median price was $203,500.

    Bernanke’s speech is out and there’s nothing new there, of course.  That means today belongs to the manipulators so we’ll just watch but keep in mind that 10,428 is where we have to be to close Feb neutral or better. 

    For day-trading purposes, it’s still all about 10,300 on the Dow and 1,100 on the S&P and 625 on the RUT so 2 of 3 rule is best for placing index bets but I think we’ll shimmy around this pole through lunch so no point in playing when we can just sit back and watch the fun until there’s resolution.   A big oil surprise at 10:30 could shake things up.

  15. Phil: master of options selection, what can be done with my MTW position:
    have stock base 14.15$, S&P just gave it positive rating,
    caller mar 12.5, base .56$, now 0.35$,
    how about rolling the caller to apr12
    and sell puts apr 11 ???

  16. STEC now bouncing up hard.  Will it fill the gap at least to 12.

  17. what will propel thi smarket higher?  don’t see any great news coming up, we know interest rates will eventually go up, unemployment sucks and will remain bad for years, with competitive labor from China/India/Asia, i don’t see any up catalysts, am I missing something?  earnings on S & P will come in low at around 75 or so, so with a 15 P/E, we have got no upside

  18. EricL,
    The BIDU condor is up to 9.05 – 8.80 – 9.15 all over what is the best you look for I know 9.40 but?

  19. USO/DMan – Wait for a spike on inventories and short into that as $80 is not sustainable.  Can Greece afford it?  Or Spain?  Or Japan?  Or US?  It’s just silly.  Oil is not like gold – ultimately, 86M barrels of oil come out of the ground every day and, once storage fills up – they have to find a real buyer somewhere or prices come down.   Oil prices ran over $100 a couple of years ago because some psychopath bought 200M barrels of it at any price and stuck it in the ground – that was 2Mb a week for 4 years but that’s over now and, since then, stockpiles have been building globally and China’s own SPR is full too (just about 200Mb) and the tankers are full so if summer driving is a bust – people looking to sell oil are in BIG TROUBLE. 

    TBT is easy, $46.50 has been a reliable buy point for us since October.  Bernanke says "extended period" for low rates in his speech and that’s bad for TBT.  We’re counting on outside forces to push rates up, not the Fed. 

    BRK.B/Pstas -Yes, 20% of the move is the expected pullback,.  So about $77 but there was a correction of the move from $68 to $78 back to $72, which was up 10% from $66 so it looks like an honest pullback, which means 10% over $72 or about $79.50 would be our goal and a pullback to $78 is going to be the bullish hold you look for.  If we blow that AND blow $77 – that’s going to be weak.  I think BRK is a little ahead of itself at the moment.

    DNDN/Pharm – Yes, nowhere near as interesting now are they?

    Ben sounds upset….

  20. Been trading energy names today; sold some on morning pump; buying now …
    SD  HK  SWN 
    XCO – good earnings; GS conviction buy upgrade,buying right here …

  21. recently I put on the 43/50 sept TBT as an entry point (at your suggestion) then yesterday TRT was down so I bot 1000shares.  Today the 43s had a profit of 1400 so I sold them, Now Im long the stock and short the Sept 50 calls.  Was i right to do what I did? Seemed right to leg out since I had the stock and called away at 50 in sept will be a total profit of more than 20% annualized 40%. Thanks. Phil 

  22. good morning Phil, I hope you recovered well from the virus… I want your opinion on FCX april short strangle I want to open today --  is this a reasonable trade --
    FCX — april sell 65 put and sell 85 call for a total 2.86 credit — Thanks ahead — FYI I only have option experience for two months and still doing paper trade to learn, not real trade yet until I am comfortable with option terminology and the logic behind it and will start with real money, so pardon my stupid questions sometime,   Again thanks ahead

  23. yodi,
    I lowered my bid to 9.20 but still no fills. You can always lower it in nickel and dime increments until you’re in. Do only a few at a time though, in case you get a better entry later.

  24. Hey phil  thoughts on stec and FSLR AND TM   THANKS

  25. thanks, phil, can you recommend a good way to play both uso and tbt ?

  26. Pharmboy
    As you said they got approval
    Salix Pharmaceuticals Ltd SLXP
    Nice pop today,
    Thank for the help on this one.

  27. Xerox (XRX) sues Google (GOOG) and Yahoo (YHOO), accusing them of violating Xerox’s patents related to internet search. Both Google and Yahoo deny the claims and intend to "defend against them vigorously."

    Google (GOOG) faces an antitrust probe in Europe, after the EC received complaints from three companies, including a Microsoft (MSFT) subsidiary. Regulators will check whether Google penalizes competitors in its search rankings, and if it uses its search dominance to keep ad prices artificially high.

    As expected, Intel and 24 VCs announced yesterday that they plan to invest $3.5B in U.S. start-ups over the next two years. In addition, Intel, Google (GOOG), Microsoft (MSFT) and 14 other firms promise to add jobs in 2010 by hiring 10,500 U.S. college grads.

    Not dead yet!  Garmin (GRMN): Q4 EPS of $1.43 beats by $0.48. Revenue of $1.05B (+1%) vs. $0.95B. (PR)

    Bad for OIH: Transocean (RIG): Q4 EPS of $2.24 misses by $0.32. Revenue of $2.5B (-10%) vs. $2.8B. Shares -3.3% premarket. (PR)

    Yay top 10%!  Saks (SKS): Q4 EPS of $0.06 beats by $0.08. Revenue of $811M (-3.4%) vs. $799M. (PR)

    Zale (ZLC): FQ2 EPS of $0.21 beats by $0.19. Revenue of $582M (-14.3%) vs. $587M. Shares +9.4% premarket. (PR)

    Must be fundraising time:  Two senators, one a Democrat and one a Republican, jointly introduce a bill to cut the corporate income tax rate to a flat 24% from 35%. "The United States has the second highest corporate tax rate in the industrialized world. After this law goes into effect… we will be pretty much competitive with everybody who’s a major player in the corporate world…"

    EIA Petroleum Inventories: Crude +3.03M vs. consensus of +1.9M. Gasoline -895K vs. consensus of +500K. Distillate -591K vs. consensus of -1.2M.

    Oops – Damn, those infventories were not very good for oil.  So much for getting a bounce, now we’ll see if they can hold $78.50 but I doubt it.  Look for $77.50.  Short sale of USO $38s, now $1.35 is a good way to play or the $37 puts at .67.

  28. xco; that was good for a quick 30+ cent pop !
    out …

  29. Hi EricL I am just putting my toe in can not go lower than 1op

  30. Anyone want to advise me on how to play this, please: i have CROX Mar $4 long calls and Mar $8 short calls, 5/3 ratio. Assuming no great change in CROX, should i let them both expire? Let the $8s expire and buy the stock for $4? Or what? Thanks.

  31. KRE now approaching its recent highs. I’m going to watch it to re-enter on the short side; I’d like to see a failure to close above 25.

  32. ss,
    62.34, 62.80, 63.43

  33. MTW/RMM – Sounds like a reasonable plan but I don’t see the hurry on the callers, who are still all premium at .35 that will expire in one month vs rolling to .75 that expires in 2 months and gives you less upside flexibility. 

    Higher/DMan – Where else will you put your money?  That’s a reason right there.  As money gets squeezed out of international stocks and bonds and commodities look iffy then US equities become the gold standard once again.  Not much upside but what do we care as long as we can sell options?

    Well we got nice entries on that oil spike – totally idiotic I think.  ERY $12 puts can be sold for $1.  USO $37 puts fell to .55 and USO $38 calls can be sold for $1.61!

  34. Phil, I hold a Jan 11 35/45 bull call spread on TBT as per a recommendation a week or so ago with the cost basis of about $6.50.  
    I wanted to see what your thoughts were on the risk of holding a call spread with such as distance exp date on a leveraged ETF (and TBT is 2x, I believe) given the potential of volatility decay impacting the price of the underlying even if the fundamentals support the bullish outlook.   Perhaps, it doesn’t apply to TBT for some reason, but I started to get a little concerned after reading this article:

  35. phil, on TBT, do you still like the June 43=50 call spread for 4.20 and then selling the March 47 puts for 50 cents, netting in at 3.70 for the 7.00 spread with some more premiums to sell in April, May and June ?

  36. Pharm / ARNA – There was a nice pop in the morning on them, but now it has flattened out. Thoughts on what’s going on?

  37. Pharm- do you have an opinion on VRX?

  38. RICK is doing well today – I always consider that a good sign of middle-class spending.

    TBT/Phlit – That was so right!  You took a $1.40 profit off the table and bought the stock on the low and left the caller to cover?  What’s wrong with that?  That’s how you work those spreads, play the ranges and take the little victories when you can.  If it heads lower you can sell puts and put yourself in a nice buy/write.

    FCX/Gucci – Much better thanks!  I don’t like FCX as I think both copper and gold prices are unrealistic but they are both up today so what do I know?  It’s a good spread and you can obviously roll it along.  I think FCX becomse very attractive at $45 but it’s the upside you should be worried about as a spike in gold and copper could send them back over $90 but a roll to 1.5x May $95s (now .65) would fix that.  So a perfectly good play but, on the whole – it’s a lot of margin to ties up to make $2.86.

    DIA $102 puts are attractive at $1.05 but risky.  Just thinking the Dow should pull back off 10,400 and happy to make .10.

    Ben skated right past Ron Paul though so it seems like another sunshine and lollipop day for Bernanke on the Hill…

  39. Phil,  I hold a June 17.50/22.50 call spread on SPWRA bought for $3.30.  Would you be selling a put or buying back the caller given today’s big move down?

  40. Hoping to see AAPL at 202 for a short. That’s both the 50 DMA, where it has struggled, and a point of recent resistance.

  41. 50 SMA I mean.

  42. CROX just won its appeal of an adverse ITC decision.  Good news for CROX.

  43. ss,
    Also, 63.15 is the trend line from last summer. BTW, it looks like the PPT has convinced the SEC that it should prepare for future bad news by limiting short sales.

  44. STEC/Kelly - Nothing worse than a grower who isn’t growing.  Most of the drop is due to slowness at EMC causing them (STEC’s largest client) to not need inventory next Q but, long-term, this is not a killer for them.  I like selling puts into the excitement – you can sell the May $10s for $1.30 and if anyone has the March $14 puts, that were $1.45, a roll to 2x of the May $10 puts doesn’t add much margin and makes for a break-even trade if STEC holds $10, which is a good long-term price to own them at anyway

    TM/Kelly – I’m waiting for $65 (more testimony today) and, of course, we can make net $65 by selling July $70 puts, now $4.70 so back around $5.50 would be fine for an initial entry.   As to FSLR, I don’t like them – they were just a fun play yesterday.  They’d have to be $85 for me to want to buy them for more than an hour and I don’t like shorting them below $130 as it’s a crazy mo-mo stock.

    TBT/DMan – The same as the last 5 times you asked.  As to USO – I like the above plays.

    CROX/Morx – Nice job on that play!  You have $3.50 on the March $4s so why not roll them along to the Jan $5s at $3 and sell Apr $8s for .50.  If you collect ..50 every other month, you’ll get your whole $3 off the table and anything over $5 is profit for you

    KRE/Eric – Could be nice as they are way over the 200 dma at $21.  $26/24 bear put spread is $1.

  45. JRW – my feeling exactly about the new short sale rules.  Combine that with Citibank now requiring 7 days notice to pull money from checking accounts in Texas.  Something seems to be brewing.

  46. Finished a 3 week swing of the South. Crackerbarrel CBRL is always filled down there. Can someone tell me the effective date  when the eft EDZ changes the stock ratio? thanks 

  47. Buying HK now at 20.81

  48. CROX shot up on the news from the Appellate Court.  I’m in and out already, since I don’t have a feel for their earnings. 

  49. Yeah Phil, the KRE June 22.5 puts at .85 are also tempting. They were 1.90 last week.

  50. GOOG with two failed attempts to hold green so far this morning.

  51. Hi Phil EDZ holding the stk orig bought 7.62 now 5.62 Like to come even which calls do you recommend to sell or what play.  I know possible should have done this yesterday or wait for another down? thanks

  52. TBT/Leon – In theory, the underlying Treasuries should NOT be so volatile as to cause the damage that occurs to most ultra-ETFs but anything can happen.  The bottom line is it’s a bet on higher rates and you won’t make your $3.50 unless you stick it out to Jan or TBT goes up considerably from here.  That spread is up 10% in one month so you can kill it here with a nice profit or you can watch it and sell it in any 2-week period where you don’t gain another 5% – treating it like a momentum play.  You can also offset your $6.50 basis by selling 1/2 the Apr $51s for .50 as that puts you on a path to collect $1.50 per long for the year. 

    TBT/DMan – Yes, I still like that June $43-50s but I think the Sept $42/48 is a little more forgiving at the moment. 

    SPWRA/Leon – The first move you make to improve a vertical is to roll your caller down in strike, out in time or both.  You can roll to the Sept $15s for $2 and that buys you 3 more months to sell and $2.50 in position for $2 – not a bad deal.  You can do that and roll the June $22.50 callers at $1.10 to 2/3 the Apr $19 calls at $1.60 and keep a stop on about 1/2 the callers at $2 (can be rolled to 2x the June $22.50s, which would leave you in a $7.50 spread). 

    EDZ/Drum – I think on Monday. 

    I’ll be out Monday Morning by the way!

    Three Google (GOOG) execs are convicted in Italy of privacy violations, in a first-of-its-kind case that could have broader implications for hosting platforms. Here’s Google’s take on the story.

    Gang of 12 on the warpath!  Barclays Capital downgrades Banco Santander (STD -1.8%) to Underweight. Fears over Spain’s fiscal situation and Increasing stress in domestic property exposures will "significantly" erode Santander’s current premium ratings and lead to higher impairment charges.

    Barclays (BCS) may have turned a nice profit on its Lehman Brothers (LEHMQ.PK) acquisition, but U.S. cities and counties with Lehman exposure are still down in the mud after losing $1.7B in Lehman’s collapse. Florida and California were the hardest hit.

    Sources say Greece is edging towards new austerity measures that include a VAT increase to 19%, additional cuts to civil-service entitlements and a higher tax on luxury items.  Tens of thousands of Greek citizens protest in the streets against the government’s austerity measures.

    After nearly a year of debate, the SEC votes 3-2 to curb short selling for securities that drop 10% in a single day. Short sales would then face a test and only be allowed if the price is above the then-current national best bid, for that day and the next.

    In his testimony, Bernanke says the job market is still quite weak, though "recent indicators suggest the deterioration in the labor market is abating." Inflation will "likely will be subdued for some time."  As long as you have no need for gas, oil, gold or copper – all up 20% in 60 days.

    Not so bad considering: Freddie Mac (FRE): Q4 net loss of $2.39/share, or $6.5B, including a $1.3B dividend payment to the Treasury. Total revenue -19.5% Y/Y to $2.7B. Full year net loss of $21.6B. Shares +0.8% premarket. (PR)

    A major real-estate trade group is pushing for Fannie Mae (FNM) and Freddie Mac (FRE) to be turned into federally-owned non-profits with explicit government guarantees. Lawmakers are likely to resist the push, though not because they have any better ideas for the mortgage giants.  Non profits?  What profits?  How about turning them into a non-loss corporation.

    Even after record 58% returns last year, junk bonds are still attractive, Pimco says in a report that figures yields of high single digits to low double digits could be on tap at low risk.

    A $15B bill that arranges tax breaks for companies hiring workers passes the Senate 70-28.

    H&R Block (HRB -17.3%) warns it will miss its internal 2010 earnings estimate, noting it has prepared 5.6% fewer same-office tax returns than it did a year ago at this time.  Bad for JTX too!

  53. Phil & Samz/TBT
    Terrific discussion late yesterday PM and again this morning. I have approached my TBT investments in a very aggressive manner, primarily selling naked puts. Phil is far more pragmatic than I, and approaches this stock investment choosing bull call spreads, however I have weighed the upside potential vs the downside risk and made the decision to not hedge my long positions. I still retain the option to roll and DD, should my timing estimates not play out exactly as anticipated. TBT is a hedge against inflation, a falling dollar and other forces that have a negative effect on bond values. I firmly believe the US is on a track for a weakening dollar sometime in the second half of the year, and an inflationary. environment that will eventually prevail, sooner than most predict.. Lastly, my investment approach for 2010 is unique to me, inasmuch I have a horrific tax problem. I am already destined for 50% combined fed and state tax liability in 2010, so I look at gains less than beneficial as most, because I do not get to keep much, and inversly losses are a mitigating effect of the tax liability. I know it is sick as incentives are blurred, and for this reason I tend to "swing for the fences"

  54. Isn’t RICK more of an indicator of Top 10% Club spending rather than Middle-class?

  55. You guys may be right about TBT, but I do think it’s riskier than it looks (I know I’ve said this before, so sorry to repeat).
    Where is money going to go if things start looking grim? JGBs? Gilts? Those both looks worse than Treasuries. Bunds look better in theory but that’s a moot point if the Euro keeps going down. Most other sovereign bond markets are too small to support the potential buying interest. PMs and commodities did not do well in the last melt-down as we know. That leaves Treasuries.
    Not saying there aren’t a lot of good reasons to be bearish on this country’s long-term debt issuance prospects, but do consider that the alternatives might look even worse.

  56. EDZ/Yodi – Well you need EDZ to gain $2 to make $2 back.  If you switch to $2 worth of the July $4/5 spread at .55 and sell the July $4 puts for .35, the worst thing that happens to you is you are back in EDZ at net $4.20.  If EDZ holds $5, you have your double.  So let’s say you have $5,630 EDZ (1,000 shares) and you are down $2,000.  You buy $2,000 worth of the spread (40 contracts for $2,200) and sell the puts (you don’t have to sell all 40) for $1,400 and you have just $800 worth of cash in play with roughly $2,000 of margin used.  If EDZ hold $5, you collect $4,000 plus the $3,630 plus the $1,400 from the putter is $9,030 at $5 for a nice gain and, if EDZ heads lower, you can slap on front-month puts to stop your losses or, down the road, I’m sure you’ll be able to roll to Jan $3 puts.

    Fences/Gel – Nothing wrong with that as you are an agressive trader.  Keep in mind I’m generally having discussions with people who would not be very happy with taking 10% hits to their portfolio so, until they get to your level – singles hitting comes before home run hitting….

    RICK/Joker – I didn’t take it that they were that upscale but maybe I’m out of touch.  8-)

  57. Joker
    re RICK, I think it depends on the looks and quality of the talent working inside…. anyone want to volunteer for some field research and find out??? ;)

  58. Phil, any adjustments to two separate TBT spreads: (1) June 52s with 1/2 cover of April 48s, and (2) Jan 46/53 spread (when/how would your roll this down, and would you just keep selling 1/2 the front month OTM calls against it? Thanks.

  59. bord, do they offer wi-fi?

  60. jomama
    That I would not know….all the reason more why someone on this site needs to take one for the team and go in and check into its "investment potential."

  61. Hate to say it, but TM may be a short here too. I don’t see any reason for this little run-up, so it may just be traders trying to force a short-squeeze.

  62. phil:
    I have XOM stock at 66.54$
    and 2x putters march65
    and 1x callers april 70,
    Not a bad position,
    is there a bullish case to get more stock ?
    ASlso: PCX was upgraded today: do you see a case for taking a position ?

  63. CROX.  For those of you holding CROX, I think the decision out of the Federal Circuit today is very good news for the company over the long term.  CROX had previously asked the ITC to block the importation of many of its competitors’ products for violating CROX patents.  The ITC had found no infringement of CROX patents for a variety of reasons.  CROX appealed and today the Federal Circuit agreed with CROX on all of its points, reversing the ITC’s determinations and sending the matter back to the ITC for a determination of infringement and remedies.  I expect CROX will now have good leverage with its competitors over licensing deals.  All in all, this just adds to the great comeback story for CROX that began last year.

  64. Phil,
    Did you buy DIA 102 puts ?

  65. I really got a good laugh this morning watching the dialogue between Barney Frank and Bernanke – Barney was recommending that Ben "should personally buy Treasuries as they are a terrific investment". Maybe Barney thinks all of this reckless spending has no negative consequences, and inflation has no correlation with bond yields.

  66. EricL did you in to the BIDU play ?

  67. yodi,
    No, I still have an offer to sell a bunch of them at 9.20.

  68. Hard to get. I am still asking 9.30 was up to 9.40

  69. I’ve been absent all day and haven’t been able to read posts, so you may already know about the new short-selling rules.  If not, here’s an article…..

  70. hi, Phil – when you say buy TBT  42/48 Sept. call spread for about 3.80 right now for the  $ 6.00 spread, would you just do th at, or add anything on top of that, as in buy this spread, and then sell a 47 or 48 put for March to bring some more money in and reduce the overall cost?

  71. Pharmboy: what do you think/know about BMY ???

  72. TBT/Fein – It helps if I know what the basis was but, in general, you want to take advantage of the sell-off to roll lower so spending .90 to roll down to the June $50s is the way to go and you can cover costs by selling more Apr $48s if we head lower but you’d have to keep a tight stop on 1/2.   Jan spread not much different – if you can spend $1 to roll down $2 in the money – why wouldn’t you?  Yes, I would sell 1/2 Apr $51s against that position as you make $3

    XOM/RMM – I think you are being aggressive enough with the put sales.  Rest assured, if XOM crashes – you will get more stock!  Meanwhile, for $1 per month (1.5%) – enjoy NOT getting it!   PCX I never liked much.   ACI is good and cheap here – I’d start with them as you can sell Apr $21 puts for $1.25 to get started

    CROX/Judah – Also makes them much more attractive to NKE. 

    DIA/JRW – I’m in and out of them a lot.  Currently in at $1.15, just grabbing nickels and dimes but hoping we get a nice drop back to about 10,320 at some point.

    More Gang of 12 Attacks on the EU:  UBS (UBS) issues an unusually grim warning that premature fiscal tightening in the U.K. in a worst-case scenario could knock as much as 30% off the pound vs. the dollar. The bank says that moves to cut public spending too much or too quickly before an economic recovery would be "the gravest mistake for sterling."

    Bank of England Policy Committee member Adam Posen says it’s far from a given there won’t be further loosening of monetary policy: "There is a very real scenario … in which if things don’t work out and we have a damaged banking system and a deflationary shock, more QE is the right thing to do. But there are other scenarios we have to worry about."

    The public is rightfully suspicious of a Fed that embraces using its balance sheet to protect private firms from market outcomes and routinely resists articulating its inflation goal. Meanwhile, the fiscal accounts of our nation are a mess, and politicians seem unwilling or incapable of cleaning them up. Both failures cloud our economy’s prospects and make it difficult to predict fundamental asset values beyond the near term. These are not features conducive to investor confidence, ongoing commitment to markets, or longer-run stability in the value of the currency.

    The Federal Deposit Insurance Corporation is bracing for a new wave of bank failures that could cost the agency many billions of dollars and further strain its finances.  With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993.   Not all of those banks are destined to founder, and F.D.I.C. officials said Tuesday that they expected failures to peak this year. But they also warned that the fund might have to cover $20 billion in additional losses by 2013 — a bill that could be even greater if the economy worsens.

    WSJ Editorial positing that George Soros doesn’t understand speculation and is wrong to speak out against it:  "Speculators also provide us with information about the fundamental values of investments. When the fundamentals appear favorable, they buy. Otherwise, they sell. If their forecasts are correct, they profit. This causes prices to more accurately forecast an investment’s value, spreading useful information."  The fallacy of the efficient market theory

  73. Gold sold off this morning on dollar weakness and now it’s selling off even more on dollar strength. Crude and copper hanging tough. Very strange action here; not sure which one is the ‘tell’, but my guess is it’s gold. If there are gold bulls waiting, why didn’t they buy it on the morning dollar weakness?
    The long bond could care less about what Bernanke said.

  74. Targets & Temporary ?  Nothing the gov’t does is "temporary".
    And as for gov’t getting repaid, O studiously avoids any mention of those sinkholes AIG GM FNM FRE Chrysler.
    That’s flush money folks … out of your pocket.

  75. Phil, what’s your outlook on XOM and SU short & medium term (1 to 3 months) ?

  76. Phil Holding the XOM Jan 12 long 60 call bought for 13.95 now 10.37 looking to sell Jul 65c for 3.60 or Jul 70c for 1.50 just to reap in some cash and come more even.  your thoughts please

  77. You’re right Cap, Obama should be pounding the table that the money is gone forever. We’ll be paying for the Bush socialization/bailout of the financial sector for the rest of our lives, or until we default.

  78. ACI has formed a H&S pattern, so I would be careful with them. 
    BMY – as I have said before, nice dividend pipeline is OK (not stellar, but good enough for now) and they are a takeover candidate (don’t care what any CEO says about big acquisitions – they will make it happen).  

  79. Pharmboy: I am underinvested in Bio/Pharma, only have july22 naked puts on BMY, do you have 1 or 2 stocks/options in this sector to ttake a position ?

  80. Pharm – Do you know what’s going on with ARNA? There was some news this morning which caused the stock to pop, but then it fell back down?

  81. please help me out here since i’ve never done these before.
    if i buy TBT  42/49 call spread in June for $4.70 or so, what would be a good call and put to sell against that position in March?

  82. Taking another bite of HK; been great to trade for modest swings.

  83. TBT/Dman – I prefer to try to enter a bull call spread at a good price so not too thrilled with $3.80.  VIX dropped 5% today as the time to sell premiums is on a down day like yesterday, not an up day like today.  Since we see the VIX is down and the market is up, we know it’s not a good day to sell the $48 calls or the puts but not a bad day to buy calls and the Jan $43s are $7.70 so those look attractive now (4 more months to sell premium) and you can enter there with an eye on the June $48 calls, now $2.38 and we want to make sure we get at least $2 for those but hopefully TBT will head higher and we can sell the Sept $50s for $3.50+ (the price of the current $48s) and that would be a nice net $4.20 on the $7 spread with 4 extra months to roll.  As to selling puts – I’ll try this again….  ALWAYS sell into the intitial excitement.  That means, when the stock is DROPPING, you sell puts – not when it’s rising.   If you get your spread and the stock never drops and you don’t end up selling puts, then be happy with your 66% upside you greedy bastard!  I hope that clears things up….  8-)

    Dollar making highs against the Pound ($1.54) and getting there on the Euro ($1.355) and even doing better against the Yen (90.18), which should cheer up the Nikkei.  Copper still insane at $3.25, silver $15.94, gold $1,098, oil $79.99 and nat gas $4.85.  Gasoline is closing in on $2.20 so go VLO!

    XOM/B1 – I like XOM LONG-term, as in retire on it.  They have all the money in the world and all the connections in the world and if we start running cars on slurpees tomorrow, they’ll own 7-11.  They constantly buy their own stock to keep EPS growing and they are an inflation-proof cash machine.  SU is different because they don’t have the refining and chemical diversity of XOM so they have no benefit at all from a drop in oil below $65, which makes them speculative at the best of times.   There’s nothing wrong with owning them down here ($30) with the inention of collecting .30 per month in premiums but I’d be more comfortable with a lower entry with a buy/write at $29.27, selling 2012 $30s for $5.60 and Jan $22.50 puts for $1.50 for a net $22.17/22.34 entry.  That way, even if they fall all the way back to $15 on $40 oil again, you can DD there and be in for an average of $18.50, which is a nice way to own them for the next decade.  Short-term, I don’t like either as oil is too high at $80.

    XOM/Yodi – The correct answer is roll down $5 to the 2012 $55s at $13.60 (+$3.30) and sell 1/2 July $65s for $3.60 with a stop to sell the other half at $3 if they fall below $65.

    Default/Eric – It’s that or hyperinflation – those are the only ways out.

  84. "I’m no socialist," Obama tells business leaders as he continues to advocate health-care reform, rewriting rules for banks and moving toward a greener economy. "These steps would provide more certainty for business, not less."

    The Treasury sells $42B in five-year notes at 2.395% (.pdf). Bid-to-cover ratio of 2.75 vs. a recent 2.71; indirect bidders take 40.3% compared with a recent 49.8%. Direct bidders are higher again, taking down 12.8% vs. a recent 6.6%. Treasurys gave up gains; the 10-year yield +0.01 to 3.7%; 5-year +0.01 to 2.36%.

  85. thanks, now i’m clear on this TBT,  i had the 47 – 49 and 47-50 last week and close dit out for nice profit on Friday ‘s expiratioon, not looking to re enter with longer term trade, so will be doing the 43-49 spread now, buying Jan. 11 and selling March then rolling if we move higher

  86. Phil – XOM / Yodi.  What is the reasoning behind rolling the Jan 12 60 to Jan 12 55 for $3.30.  You are moving from .63 to .73 delta and no difference in theta, so is it because you are getting $5 more spread for $3.30 investment and more downside cusion?    Thanks for the guidance.

  87. Phil — DIA mattress  --  Bought June 105 put yesterday, and 1/2 cover at 103, when dow drop further, I bought back the 1/2 cover 103 DIA, and sell 1/2 cover 102 put.  Market is up today not quite 10400 level yet, my question is at which point do you get out of the mattress play , or just keep it as insurance — thanks.  Second question on BIDU — I open on paper trade March 500 short call 4 days ago thinking that it would top at 500 as you mention, price was 16.4 now up 19.65, is this the time to adjust or too early

  88. RMM – I like Phil’s PLDI play from a few days ago.  Buying here, selling Jan 7.5s.  I like MRKs dividend & pipeline and GSK’s dividend.

  89. Looks like the Russell may fail here.

  90. TBT / Phil – Update and correction to prior post… My basis is as follows: (1) net $0.79 for the June 52s w/ 1/2 the MARCH 48s covering (already rolled down once to get here), now about net $0.45. (2) On the January 46/53 spread, my basis is $2.92 and I’m essentially flat as both calls have fallen $3 since I purchased. Do you think #1 is worth trying to salvage vs. allocating the money to roll toward rolling the January spread down? This is about 5% of my portfolio combined, and I was thinking 10% max for TBT. Thanks!

  91. pharm

  92. ARNA – no problems filing NDA with FDA (aka Neurocrine).  Thus, now 1 yr to play with them unless they announce partnership.

  93. Sorry, PDLI….

  94. Phil -
    sorry for another xom questoin – like the idea of something really boring to write calls against -
    buy write ok on xom – selling april 65 for 2.20

  95. xom also selling april 65 put

  96. Thanks Phil, best way to start with INTC?? is this a good time or wait??. Phil

  97. Phil / 102′s
    So you don’t expect a Stick today ?

  98. Stick – we got one in the morning, so probably not likely this afternoon.

  99. Pharm- perhaps you missed it earlier- do you have any opinion on VRX?

  100. XOM/Robert – You are buying $5 for $3.30, that’s a 34% discount on intrinsic value.  If you didn’t think XOM was bottomed at $60 or better, it’s not a good move but it allows you to take a better long-term position AND sell higher delta callers if you have to. 

    DIA/Gucci – If your mattress spread is there for protection, you never get out of it really – until there’s a real collapse (500+ points).  Your goal on selling the front-month puts is to always try to make .25-.50 and NEVER to take money out of your pocket to buy them back.  There is no reason EVER to buy back a 1/2 cover and leave yourself naked because you turn a hedge play into a poorly placed gamble on the DIA.  Google "Stock Market Parachute" for the original article on the strategy and also the Strategy Section has a lot of discussion in the comment section.  On BIDU, way too early to change.  Topping at $500 does not preclude a move up to $525 (+5%) but the idea of selling the $500s for $16.40 is that they can be rolled to the June $570s, now $19 and THAT is plenty of leeway.  Only if it gets to the point where you can’t get an even roll to the June $550s should you be even mildly concerned. 

    Sign of the times: Even casket makers are hurting from the recession, as buyers opt for plainer, cheaper options. Some firms are accommodating the shift but Hillenbrand (HI), the country’s largest casket maker, is diversifying outside the funeral business altogether.

    Bullish a year ago, Robert Prechter now sees mounting debt creating "the biggest bubble in history… Nobody should be taking risk right now. This is a time to be safe."

    Rarely does consumer confidence fall 10 points in one month, and it may not bode well for the stock market. But Mark Hulbert views it differently: “Consumers are a great contrarian indicator. They feel the best at the end of economic expansions, just when they should be becoming more cautious. And they feel their worst at the depth of recessions.”

    Hey – More confident consumers with time to shop!  Ford Motor Credit (F +1.3%) says it will cut 20% of its 5,000 workers, and its parent plans to cut 900 jobs at a Mustang factory – indicating cuts of 47% of North American workers over the past four years aren’t abating and Ford will be "in restructuring mode for a long time."

    TBT/Fein – Why do anything?  You are on track and you’ll be able to roll the March $48s up to the Apr $49s and the May $50s.  Save your money for if you get blown out and have to DD your longs – don’t wast it salvaging a play just because the calls you sold have $1 in premium and your spread LOOKS bad.

    Yay, I finally get my nice pullback!

    Dollar just broke through to below $1.54 to the Pound.  Euro heading down to $1.35 and we’re holding up against the Yen.  Copper $3.23 and gold at $1,095, silver $15.90 but oil is stubborn and closed the day at $79.86 but I still like going short on it for tomorrow. 

    XOM/Samz – I kind of like the Jan $55s at $12, selling the Apr $65 puts and calls for $3.75.  That puts  you in the $10 spread of $8.25 and if XOM goes lower you own your shares but if it flatlines or goes higher, you do better on this spread than the dividend. 

    INTC/Phlit – Same as XOM, I likt e the 2012 $15s for $6.30 ($1 premium), selling June $21 calls and $20 puts for $2.25 for net $4.05 on the $5 spread.  These are good ways to play stocks that don’t pay much dividend AND that you don’t mind owning if you have to but, for the while, it gives you great leverage to work into a position. 

    Stick/JRW – I expect to finish the week at at least 10,428 so whatever it takes to get us there is what I expect.  I just stopped out of my DIA $102 puts with a nickel profit as I do fear the 2:30 stick and the volume (116M at 2:50 on the Dow) is certainly low enough to let them push the market around. Europe finished up mildly today and Asia should bounce in the morning with oil at $80 and copper holding up so if we hold green today I don’t think I’d be bearish overnight. 

  101. Cap
    Re: MDVN and your comments last night. I would like to structure a short position around 65, as I believe as you, this could be a terrific short in this range. If the upcoming report is positive, it is anticipated the stock will jump 16%, which would put the stock around 45 at most. The 65′s should be safe, as the excitement subsides.  Were you able to execute a short?

  102. phil : glad to see u back in form. I am long LOW April $0 calls at $3.40,now $3.60 and short March $20 calls at $1.00,now $1.62.If I roll $22 March calls to April $22,they are $1.85which is nit much time premium. Sell 2x times April $22 ? thank you

  103. Credit-default swaps are pointing to a lower risk of contagion from European government-funding problems, as the cost to protect company debt in America has dropped 7.6% – breaking from lockstep movements with costs in Europe, which have declined just 2.4%.

    Money market fund assets rose by $4.4B to $3.128T, the Money Fund Report says. Yields on taxable funds remained at a record low of 0.02%, while tax-free and muni yields inched just above that.

    Demand destruction in action:  Guzzler’s blues: As it had planned with Saab, GM reportedly plans to wind down the Hummer brand now that a sale to China’s Sichuan Tengzhong has fallen through.


  104. Hugh Hendry’s Jan Fund letter.  He’s into tobacco stocks this year – BTI, MO, LO, PM.  Long on the Euro and Dollar, short on the Pound and holding German and Aussie bonds.  Also, has 3% of his fund in our PCS trade!

    Speaking of funds – My friend says funds are bailing on solar because Obama is boosting nukes and they don’t think there’s room for both.  Just seems like a nice opportunity to buy solar to me….

    Bubbles do a lot of damage to those who get in just before the pop, but threaten little harm to long-term prosperity, argue Matthew Bishop and Michael Green – maybe it’s time to learn to love them.

  105. stick!

  106. LOW/Dflam – Those are awful spreads, hopefully you’ll remember that!  You were in for net $2.40 so why not roll out to the July $20/24 bull call spread at $2.75 so you have a clean $1.25 of upside without messing around too much.  If LOW heads down, you can momentum trade $23 puts, which are just .30 for cheap protection.

  107. phil
    are you familar with the Bradley Letter forecasting? can u share..

  108. "Default/Eric – It’s that or hyperinflation – those are the only ways out."
    I agree Phil. But we have no idea of timing: it could start next month or twenty years from now. Japan has had low bond prices and low/no inflation for two decades. Prepared to hold TBT for 20+ years? Short term, the signs suggest mild inflation plus relatively low yields, IMO.

  109. Japan’s debt to GDP is bigger than our too.

  110. hi Phil-- DIA mattress — for protection — looking back yesterday, if I understand you correctly, I should have keep the DIA 103 put that I sold for 1/2 cover, and continued sell another 1/2 cover with DIA 102 put when dow dropp further more  intraday — hope I explained it correctly, sorry English is not my mother language.  So now Dow is up 88 point or so,  I should kept what I have right now June 105 long put and 1/2 cover March short 102 put, and if Dow drop 100 -200 point tomorrow for example then I would sell more DIA put for cushion and only sell 1/2 cover at a time .  Thanks I just want to get this hedge down cold for future protection when I am ready for the real thing

  111. EVEP — Phil I have this stocks long term in my IRA for the 10% dividend yield, I look at the option offer in this stock is not that great to sell put and call, very illiquid, what would be the stragety for this stock long term or short term for generate additional income — Thanks

  112. EricL/ Goog:
    I was gone from my desk pretty much the whole day.. You mentioned starting put verticals on Goog this morning at 9:59. Would you share some strikes/expirations? I’m up for learning. Thanks. And by the way, I enjoy and learn from your numerous posts.

  113. Nice – Oil up close to 50% against the Euro since late Sept – Now THAT’s inflation!  

    Bradley/Victry – You mean the astrological thing?  I’m an Aries, we don’t believe in astrology other than to know we have the best sign…  8-)

    Inflation/Eric – I look at TBT as the just in case play.  Nice to hold ONLY in positions where my expectation is to pay off my long with front-month sales.  If I end up with a few thousand free shares of TBT 5 years from now, so be it.  It will go under my pillow along with my CROX and WFR shares and the INTC and MSFT that’s been paid for 10x over from selling calls as they did nothing at all….

    EVEP/Gucci – High dividend stocks often have poor options chains.  There’s not much to do with this one (therefore I wouldn’t want them) other than selling Sept $30 calls for $2.20 and Sept $25 puts for $1 to collect an extra 10% over 6 months.   Keep in mind if you get away with 10 sales like that – you have a free stock that pays dividends! 

    DIA/Gucci – It’s important to know WHY you are in the trade.  The idea of the mattress play is to give yourself something that you reasonably believe will double if the market falls 500 points in some big event.  That means you should always have a clear path to a double if something bad should happen overnight.  Let’s say I have the June $105 puts at $5.10 and I sell 1/2 the March $103s at $1.40.  That means I’m in the June $105s at net $4.40 and they have a delta of .56.  If the Dow drops 500 points to 9,850 I should gain about $3 on the longs ($8.10) and my $103 putters will jump to $4.50.  I’m not worried about this because the May $100 puts are $2.40 now so I can be fairly certain I can roll my 1/2 March $103 putters to 2x the May $98 puts for about even and that puts me in a $7 spread clean, which would be a 59% gain ($2.60) so close enough as it’s not likely to happen all at once. 

    Once you are comfortable with your downside goal (because the whole point is to make this 10% of your portfolio which will double on a move down) then the whole trick is to realize this is an INSURANCE play and your main goal – outside of adjusting in the event of an actual disaster – is to tread water and try to stay in the trade without losing much money.  Since you are in a June spread for $4.40 net, your goal is to sell $1.10 per month in premium.  That means, if you can scalp a quarter 5 times during the month – you have accomplished your mission towards paying off your long put.

    We always want to roll up our long put to the next $1 strike whenever we have the opportunity to do so for .50 or less.  That guarantees we always have at least a .50 downside delta and, each time we make 2 rolls up, it is generally time to sell another set of puts.  Since the delta of the March $103 puts is .44, 2 rolls up on the longs should mean that the March $103s have lost .88 and that’s .44 per long in the bank – paying for 1/2 of your roll up.  Then you sell whatever put has the most premium – in this case the $104 puts and you either take out the lower putter immediately or you set tight stops on them – depending on your short-term outlook. 

    MAINLY, you are letting time decay do your work.  If you have a sensible portfolio like our buy/writes, your expectation is to make 20% at least if the market goes up or is flat.  Let’s say 80% of your portfolio is like that and you make 16% between now and June and you have 20% in the DIA – it’s fine if you are down 1/3 on them as that’s 7% and you are up net 9% in 4 months in a well-hedged portfolio.   If the market drops past your 15% safety net on the buy/writes – perhaphs your 80% loses 10% (8%) but your 20% doubles and you have tons of cash to roll and adjust your long positions.  That’s what this strategy is all about – it’s insurance that pays you off in a disaster…

  114. Hi jb,
    I bought March 560 puts and sold 540s; the spread was 12-something this morning. My idea is that this trade would be profitable under 545 by opex, and the analysis I linked to indicated that 545 was heavy overhead resistance. So the idea is to hang on unless there is a close over 545, in which case absolutely out.
    The 550/530 would be more aggressive now. Phil may be right that they rally us up this week, however, so GOOG may recover and you’ll get a better entry.

  115. "I look at TBT as the just in case play."
    Ah, then I agree. If there is a bad or (heaven forbid) failed auction it will explode higher, and when it does it will be too late to get in long. Just so long as everyone is clear that they are basically betting on something like this happening.

  116. A little over 50 days into 2010, consumer sectors are the ones trading the highest above their 50-day moving averages, while yields have sunk for financial issues.

  117. Gel … I have been selling 65, 70 and 75 calls (not many), some march, a few april and june.
    I sold 1 Mar 70 today for $1.35; not much $$, but my account is not as big as yours !
    So I either collect the premium, or if MDVN blows past 65, I can then get short at 67 or higher.
    You could do this with lower strikes and collect more premium, but you also take on more risk.  Your call.

  118. Check out ZHedge piece today on algo that juices the market at key levels (aka the Stick).

  119. EricL: Thanks for reply. Also, do you find that linked to website, afraidtotrade helpful for TA?

  120. Yet another gold bug who predicts the streets will run red with blood and armies of poor people will strip your car at any intersection unless your private security force lays down supression fire BUT you’ll be proud to take your strips of gold over to the 7-11 to pick up your groceries…

    While NYSE short interest rose 3.8%, Nasdaq short interest increased 4.8% in the first half of the month, with short positions increasing most for Cisco (CSCO), Oracle (ORCL), Huntington Bancshares (HBAN) and Sirius XM (SIRI).

    Don Luskin: “All I’m saying is that you’re making a huge mistake if you mindlessly send all your money overseas — just because all those other economies are the devil you don’t know. The devil you do know may be your best bet.”

    • Bernanke Expects Extended Low Rates (NYT)
    • Wall Street shifting political contributions to Republicans (WaPo)
    • Martin Wolf: The world economy has no easy way out of the mire (FT)
    • The doomsday cycle (Vox EU)

    Blockbuster (BBI): Q4 EPS of -$0.24 misses by $0.12. Revenue of $1.08B (-18%) in-line. U.S. same-store sales down 15.9%. (PR)

  121. Bought PM June 46/48 call vertical and sold June 46 puts for net $.18. Yields $1.82 on $4.52 of portfolio margin plus the $.18 cash on a finish of 48 or above.
    If put to you, PM pays a .58 dividend the next week. That makes your break-even 45.65, an 8.4% discount off of the current $49.83 price. PM looks pretty strong, IMO.

  122. Strong dollar, oil ….weak gold tells me someone expects a geopolitical event taking place somewhere in the middle east. ;-)

  123. Phil, regarding "Another gold bug"…. I don’t know if I’d trust anyone named after a ghostbuster.

  124. kustomz: You have to wonder. The whole middle east thing is always at the back of my mind. Iran/Israel, the development of war grade nuclear materials, the threats from Ahmadinijad (sp?) to wipe Israel off the planet. Israel will do what they need to do to take care of themselves, even if they can’t really rely on their usual big brother ally. They will be proactive. It could get really ugly, really quick. Maybe it just all a bad dream.

  125. Cap/MDVN
    Thanks ! …. It appears to be safe strategy, and should make some premium income. I went out to the ’11 70 calls short. Even if the report is positive, I can’t see the stock jumping that much, as they are only a 40% player with PFE. Great marketing story tho… cure your memory deficiency and at the same time get over your cough !

  126. Phil,
    I got out of PGJ (called away on a small buy/write) on the premise of not being able to trust the Chinese data or get reliable valuations on individual companies. I’m still holding a significant position in EWZ though. What is your take on that?

  127. jb, agreed. Take for example the situation with Beirut when two Israeli soldiers were killed and another kidnapped.
    They devastated the city, now imagine every citizen of Israel under threat, and your right it could get very very ugly.

    If the markets head higher GOOG needs to head back to 570 or sell off to 480 with market weakness.

  128. aclend:
    I got the book you talked about a couple of weeks ago, THE DISCIPLINED TRADER. Happy you posted about it.

  129. kustomz: Notice how the government and MSM don’t talk much at all about what’s going on over there? Have you ever noticed how they direct our attention, the publics attention to where they want it to be? You don’t hear anything about illegal immigration anymore, about border fences and guards anymore, don’t hear much these days about global warming… they just keep publics attention where they want it… in the meantime they keep everyone off balance, and confused. I guess obfuscation is the way… and for that matter GS and Phil’s gang of 12 do it every day in the  markets. Sorry for the rant.

  130. jb, great observation I’m sure Governments involved want the least amount of coverage. I believe the economy,debt, health care and jobs are more worrisome than illegals at the moment. As far as the markets are concerned, they are no longer free. Obama and his merry henchmen have a lock on the markets. They are simply too big to fail. How’s the timing on the new/old uptick rule? Makes a person say hmmm.
    P.S. rant away, its inspiring. :-)

  131. What about soldiers dying in Iraq ?  Where is all the "grim milestone" talk ?  Or soldiers dying under Obama are anonymous as opposed to under Bush ?  How many in Afghanistan ?   What about the war crimes of extra judicial killings in Af Pak and "air raiding civilians" ?  How many have died in the last 13 months ?  How come the left isn’t outraged ?
    Isn’t it just convenient for Obama how the media suddenly doesn;t give a rat’s behind ….hey Guantanamo is still open for business too in case you were wondering.
    Just goes to show how manufactured media stories can be to suit political agendas ….   not that soldier’s dying isn’t important and newsworthy — it is — its the sheer hypocrisy how it suddenly is not a story worth mussing up Brian Williams hair over.

  132. jburgess,
    I hope it is as informative for you. I read through it twice a while back but plan on going through it again pretty soon, after our conversation. I get new insights every time. I’m sure it will be especially illuminating after having learned from Phil for a year now.

  133. Cap Brian Williams…now thats funny.

    Obama is on TV everyday, not a peep about anything you’ve mentioned. Its all about jobs, housing and the banks. Not to mention all the other nonsense he pretends to be focused on, why exactly was he elected. O yea change we could believe in. Tell ya what kind of change i can believe in…..getting them all out of Washington.  

    How many time has Obama been on TV the past year, answer…too many. Over exposure during hard times and not much "change" will lead to his downfall

  134. Hey guys, I share in your disgust.
    Phil, yesterday you said you would be suprised if they thew away all their hard work from the previous week and Monday performing levitation on the market before the month ends.  So far, your premise is holding.  Do you have any updates on it or are you still looking to get short(er) by close on Friday?
    …to think across this great nation of ours only some 300,000 houses were started.  My question is, where will they find buyers for even them?  1 in 4 mortgages are underwater.  Millions have been foreclosed on and/or their credit has been ruined and therefore can’t repurchase.  While prices are down significantly, we are still above the average price when all this phoney baloney started. 2002.  With a smaller available buying pool and millions trapped, why on earth would anyone even entertain the thought that the housing market, and therefore the economy, had stabalized?  The banks are trickly out the foreclosures to keep pace with demand so as not to clobber the market.  How can they afford to do this?  Oh yeah, they’ve handed most off to us.
    Anecdotal:  I refinanced our home loan in January.  With a point buydown I got a rate of 4.375%.  I’m saving $200 a month.  I have a 600% equity to loan value ratio.  A credit score over 800.  My debt ratio is less then 1/4 of my income.  Yesterday I got a notice from Fannie Mae alerting me that they’d purchased my mortgage from Chase.   So Chase isn’t even holding its Prime plus loans anymore.  What a show. 

  135. Phil- I received some alerts on UNG purchase/buy write. Did we miss something here? Also a bunch of other plays all came this evening.

  136. Samz
    I have been trading the GBP short against the AUD and the CAD, so watching closely what is developing in Australia re The RBA possibly raising rates. It appears they might next week, so the Aussie is recoveringTuesday’s slip and might jump next week.

  137. Cap & Kustomz
    I could not have said it better, myself. They are leaving…. but not soon enough, as the damage is escalating – probably more tomorrow.

  138. LOL Jbur! 

    Middle East/Jbur – Hey, weren’t we having this conversation in 1977? 

    EDZ/Ac – I think emerging markets are the 2nd most likely thing to lead the collapse (behind CRE) so it’s a nice hedge. 

    War/Cap – Are you saying you demand an immeditate withdrawal and cessation of hostilities?  My how liberal you’ve become now that Obama’s in office!  8-)

    Guantanamo/Cap – What?  Is there something wrong with Guantanamo now?  Sorry, I’m trying to keep up with your outrages because I could have sworn all that stuff was fine with you less than 18 months ago.  You see there’s a difference between talking about fire damage when you are talking to the arsonist or when you are talking to the fireman trying to put it out.

    Change/Kustomz – I am disappointed with Obama for NOT shoving more change down people’s throats but do you wish McCain/Palin had won?  Do you really think we’d be able to discuss jobs and housing just one year after the crisis or would we still be looking for a part of America that wasn’t on fire first? 

    Friday/Matt – I think there’s a lot of work going into keeping us up and it doesn’t make sense unless they are trying to get a green close for Feb on Friday.  Funds are strongly motivated to get new money in, especially as so much of the old money is below the high-water mark (so they don’t get paid).   As to home buyers.  100M people own homes and you do have a 1/100 chance of HAVING to move every year in the very least.  That’s 1M home sales right there.  Since it’s probably closer to 1/50 or 1/30 you can see where we are scraping the very bottom of the housing barrel here.   I do think prices will go down but that won’t mean no starts – whatever the price, there will be people who want new homes and there will be people who will build one they can afford. 

    Alerts/Pstas – Those must be from Wall Street Survivor.  I just set up a new $100K Portfolio (see new post). 

  139. Cap
    Thanks for the zerohedge SPY Algo post – so it’s really easy – we watch the time and sales for a SPY purchase of 9999 shares on the NASDAQ – that’s the start of the stick!!
    The rest of you should read this ….

  140.  gel, i think i’m going to buy back my F puts tomorrow.  They are up about 500$ – so not bad for a two day trade.  I do think they are going to issue some more shares and really solidify their balance sheet.  At that time, the F will drop to 10 and i plan to sell a boat load of puts at that time.
    Phil, what are your thoughts on CCJ earnings.  I currently have a 2012 Vertical 20/30 for a net debit of 5$.  Wanted to avoid a severe earnings reaction while giving me a potential long term play if needed.
    Like the 100k portfolio – classic phil.  I’ve been around long enough, that i already have many of those plays.  I actually have a original version of the FAZ.   I current have the 20 2011 puts that i have sold for 10$.  This has been successfully augmented by similiar FAZ verticals that have been DITM.  
    I love selling UYG puts.  UYG has become a core holding in my retirement portfolio.  I back up the freaking truck when it hits 5$ and i have sold 6$ Jan 2011 calls for a 1$ so i am pretty happy from 4 to 6.  

  141. Phil i have to disagree he did lots of shoving of failures down our throats, GM Chrysler Fannie Freddie Banks and on and on, its lobbyists gone wild in DC. I cant be more disappointed in Obama….i cant stand McCain or Palin…or any other entrenched politician.

  142. Jo
    I agree with your strategy re F. I have three positions that have some age on them (sold puts) all up about 85% as they are June and Jan ’11 5 & 6 strikes. I think I’ll close them out tomorrow and wait for F to convert some of their debt to equity, and then jump back in, and like you sell puts. I think F has a solid future, as do so many analysts I believe in.
    I am planning to enter a new Buy/Write tomorrow on AINV (Apollo Investment ). They were beat down during the recent mess so many companies experienced, but these guys should recover as we move forward. I like this long term and they pay 10% dividend that is serviced safely with their current profitability. Looking forward – a nice one to sell calls against. Phil… Do you like this one?

  143. Obama and his administration has been a disaster of monumental proportions. They have blown over a trillion dollars that has brought no benefit whatsoever to our economic health. We now are saddled with this excessive debt, and the only way to pay it back is through taxation, that will depress the economy for decades. Volcker is a smart guy and I am sure there are others, however I do belive their opinions are ignored for the most part, in order for the Obama experimental progressive policies to take center stage. Bernanke stated today it is quite possible for the upper marginal tax rates could reach over 80% in order to liquidate this massive debt that  has been created. This is what happens when you give a very challenging job to someone who has no experience whatsoever.  McCain would have been no better, as he to has never had a job in the private sector, which creates all of the revenue necessary to run our government.