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Monday Market Mayhem

Earthquake in Chile!!! 

Did you know that Chile provides 1/3 of the World’s copper?  Did you also know the earthquake did not affect the region where copper is being produced other than a temporary power shortage?  Certainly copper traders don’t know that as the price of copper shot up to $3.48 (+5%) on yesterday’s open and I already sent out an early morning Alert to Members discussing ways to sell into what is effectively a mindless short squeeze.  FCX should be back in play for us to short as a boost in copper and gold should send them right back to our $77.50 sweet spot.

Oil is back over $80 and, as I said in the Weekend Wrap-Up, nothing would annoy me more this morning than a commodity rally and that’s exactly what we’re having in Asia and Europe but Asia was up on commodity fever and Europe is already pulling back of the morning’s excitement as real traders take advantage of the stampede into commodities to pile on the shorts as I’m a LOT more focused on China’s slowdown in manufacturing which is, so I hear, where they are supposed to actually use commodities. 

A Purchasing Managers’ Index released by the government today slid to a one-year low. Another PMI, from HSBC Holdings Plc and Markit Economics, showed the weakest expansion in three months (the holiday may have factored in).  Today’s reading in the official survey was the weakest since manufacturing stopped contracting last March.  Ten industries, including clothing and footwear, reported contractions in export orders versus 10 posting expansions, highlighting the risk that global demand may be weak this year. Jingwei Textile Machinery Co. is among Chinese companies forecasting a loss for 2009.  The number is “really ugly,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The weakness cannot be explained with the Lunar New Year holiday effect and indicates a slowdown in growth momentum as well as easing price pressures, which is likely to limit monetary tightening.”

In today’s data, a reading over 50 indicates an expansion. The official survey’s output index slid to 54.3 from 60.5. A measure of orders tumbled to 53.7 from 59.9. An index of export orders fell to 50.3 from 53.2 in January.  “The decline in new export orders warrants close attention and we need to be cautious on the outlook for export growth,” Zhang Liqun, a researcher at the State Council Development and Research Center, said in the statement.  In contrast, HSBC said businesses that took part in its survey detected “improved economic conditions among a number of China’s key trading partners.”  The world is counting on China to drive growth as Europe’s recovery falters and the U.S. grapples with high unemployment. In a Feb. 27 Webcast, Wen said 2010 would be a complicated mix of sustaining the economic expansion, adjusting the nation’s growth model and managing inflation expectations.

Contrast that information with this fascinating article from the NY Times this weekend, where they point out that China is currently experiencing a labor SHORTAGE.   As the article indicates and as my additional research seems to confirm so far, it’s more a misallocation of labor than an actual shortage.  Perhaps Vitaliy can write a whole post on this great subject – meanwhile, it points out how difficult it really is to get a handle on what is really happening in China.  As I often point out to members – the entire positive outlook on the global economy is based on everyone thinking everyone else will save them.  China is miserable but they think things are picking up in the US and India, India is in crisis but they see growth in the US and China, Europe isn’t fooling anyone anymore but they think they will be saved by a recovery in Asia and America and America thinks Asia will drive demand for the next decade – what could possibly go wrong?

Nevertheless, the Hang Seng jumped 448 points this morning (2.2%), the Shanghai gained 1.2%, the BSE added 1% and the Nikkei rose half a point but Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co both led China with limit-up 10% gains and Goldman put spin on the markets with a timely upgrade of the Insurance sector in China as well as upgrading China’s automobile, health-care, personal computer and Internet stocks, predicting gains from consumption growth.

Gee, a Gang of 12 member dropping the upgrade bomb on foreign markets and goosing our futures – IT  MUST BE MONDAY!  At 21,100, the Hang Seng will be testing the 5% rule up from last Tuesday’s open tomorrow so that will be interesting.  At 7 am, Europe has already given back 1/2 of the morning’s gains and I’m no longer regretting going short into the weekend so I’ll probably cancel my cover orders (I’ll be missing the morning session today) and just "go for it" – especially now that I’ve uncovered Goldman’s hand in this pre-market madness.  

Europe did have some positive manufacturing news but the big driver this morning was renewed speculation that Greece would receive assistance in financing its debt.  Still, the rally was nothing more than another episode of commodity pushers gone wild despite the fact that UK mortgage approvals dropped to an 8-month low as soon as incentives expired, indicating there is still no strength to our economies outside of near-endless government stimulus, which we will ALL have to pay a very steep price for one day.

And if you think oil, gold and copper look expensive to us, check out what they look like when priced in Euros (2nd set):

Notice that $72.50 to $80 is "just" 10% for the month of February in dollars but, for the poor Europeans, oil is up from .52 to .59 or 13.5% in the same period – Ouch!  Gold is up 6.5% in Euros vs. 6% to US buyers but copper is up a whopping 14% in the EU compared to "just" 12% in the US.  With commodities heading higher with the dollar today – that gap is widening and, keep in mind that, unlike our beloved Fed, the European Central Banks are REQUIRED to fight inflation – they will effectively have no choice but to raise rates to slow down demand at their next meeting.

Looking at our other major chart set we can see how Transports have been leading us so any weakness there is going to be a sign that momentum is lost.  The Russell and the Nasdaq have been leading us higher but the SOX need to break over that red line and retake 350 for the Nasdaq to put on a proper rally and, of course, if our other indices can’t break and hold those red lines – then we’re just bouncing around in our ranges. 

The FTSE held that 5,250 mark but it don’t mean a thing if the Dax can’t swing over 5,750 so we’ll be very concerned with their day’s performance as well.  Keep in mind that these are just our bounce levles off our 5% lines so NOTHING at all to get excited about down here other than the fact that we’re not completely breaking down.  We expected to be rangebound (see last two weekend posts) and that means we’ll be seeing these same charts A LOT, possibly until the next earnings period

Well that’s it for me, I have a thing today so I’ll be missing most of the action but I’m playing for us NOT to break over those red lines – or not for very long at least.  We have Personal Income and Spending at 8:30 and I’m doubting those will be very exciting along with Core PCE for Jan, which is expected at 0% and I bet we beat that number.  Construction Spending (or lack thereof) comes out at 10 along with the ISM Index (59 expected) for Feb.

Tomorrow is Auto Sales for Feb, Wednesday is Challenger Job Cuts, ADP Employment, ISM Services, Oil Inventories and the Fabulous Federal Beige Book.  Thursday is our usual Jobless Claims and Productivity, which has high (6.4%) expectations and may pull us out of a slump if we hit it. At 10 on Thursday we get Factory Orders (an ambitious 2.7% is expected) and Pending Home Sales (1.7% – pathetic) followed up on Friday with the Big Kahuna – Non-Farm Payrolls and Consumer Credit. 

So fun, Fun, FUN this week and plenty of nice, rangey trading for us to take advantage of!


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  1. Have fun this morning guys – I have to testify at a trial, hopefully it won’t take all day and I’ll be back by 2. 

    Be careful, we could get some crazy moves.  Just watch the levels and it must be 5 of 5 on bounces. 

    Same old range as last week:  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.

    I pulled my safeties on the DIA puts and USO puts so that’s how I feel about the day – Down we go now that the GS boost has worn out – unless there is some coordination here by some Gang of 12 members to push the US market up but I stand by my original gut instinct that all we had the last two weeks was a big push for end of month window dressing and now it’s time to retest the 5% lines properly! 

    FCX is still my favorite short – if the market is heading down you can sell $75 calls or buy $70 puts as they are a good $5 above the "right" price at $76.

  2. Hi EricL,
    Are you still having an eye on SPG and V . It looks like SPG is climbing to 78.50 I am just a fraction down as V is mantaining the 85 range and I am up there. How are you shaping? 

  3. Hi yodi,
    Yes, I’m happy with both spreads here. The SPG condors are flat as you say, and the V condors are up about 30% against our net cost/risk. Both stocks are holding the range we want, so I’m hoping to stick it out for at least one more week.

  4. Strange movements in the dollar this morning with the /DX up almost 1% at one point, now up about .7%. If there was any real resolution to the Greece issue this is not what I would have expected to see. Looks like currency traders aren’t buying it.

  5. I didn’t realize selling all those AZO condors last week that they report tomorrow, which would explain why they were so well-priced. I’m nonetheless going to stick it out through earnings. This is selling the March 65 straddle and buying the surrounding strikes for a 4.00 credit against 5.00 margin. I also have some downside cover in the form of put diagonals in case they sell off.

  6. Yodi/Eric:L
    Sorry to come late to the game but could you describe the SPG trade you have been placing.

  7.  has anyone heard anything about the ISM report that was going off at 10 ? how will it affect our FCX play?

  8.  has anyone heard anything about the ISM report that was going off at 10 ? how will it affect our FCX play?

  9. I fail to understand why Phil continues to bet against GS with their winning record of one losing trading day in the last eleven months. Bought TNA at the open, still have it; next resistance IWM 64.80

  10. 10:01 AM Feb. ISM Manufacturing Index: 56.5 vs. 57.5 expected, and a prior 58.4. Prices index 67 vs. previous 70; employment index 56.1 vs. prior 53.3; inventories 47.3 vs. 46.5; new orders 59.5 vs. 65.9.

  11. lionel,
    The SPG trade I’m in is selling condors. So long the March 70 put and 80 call, and short the March 75 put and call, for (currently) 3.75 credit. The net risk is 1.25 and the idea is to get up to 1.25 (100%) in profit by buying back the condor for 2.50 before opex. For the trade to work, we need SPG to either flatline around here or pull-back toward 75 in about 1-2 weeks.

  12. The market is trying to clear some short-term overhead resistance around /ES 1112 so if it can break over here and hold it, it would look pretty good, IMO.

  13. Some softness in BIDU. It might be good to watch other stocks near or at all-time-highs like ISRG and EL to show any sign of softening (so far not).

  14. Thanks EricL

  15. JRW: I have been watching your TNA/TZA plays for several months in amazement. One question-- are you always buying the ETF itself, or are you working it with the options? Also, a month ago you mentioned DeMark Lines. I ran into an entire book writttn on the topic in the library…but you probably knew this already.

  16. JRW: Also, I am from Colorado… how was Keystone?

  17. EDZ still shows at $5. something.  I thought they had announced a split effective today. Strange.

  18. I thought the EDZ thing was the 3rd???

  19. Jordan/EDZ.  Reverse split after close 3/3, effective 3/4. 

  20. jburgess,
    I buy the etf for day trading, I buy options to participate in trends. DeMark is definately one of the indicators I watch, it’s worth the time to study IMO. BTW it was ssdirk that went to Keystone, but I love the powder there !!

  21. jburgess, I’m from Fort Collins originally. :)

  22. Good morning all!  SQNM now has some coverage, and Blackrock bought a 6% stake in them.  I might have to dampen my tune a bit.  They have been running after the announcement of a sex test w/in the first trimester.  Short interest is 18M shares, so they have pumped them up due to this.  Ave vol has doubled.  52 wk Low is 2.55, high is 16.  They are having trouble breaking through here, so hold out until after the initial excitement.  Looking at a possible entry of 2.5/5 bull call spread at 1.4.  Selling a few OTM P fronts to move the costs down a bit.

  23. EDZ- thanks, my mistake.

  24. JRW- Thanks. Then you are moving some pretty big chunks of ETF around for your day trades!! And yes, I looked at last fridays posts and it was SS that was in Keystone. I need more coffee.

  25. EricL: Fort Collins, nice little college town. Drove thru there yesterday on my way to Riverton, Wyoming which is close to Laramie, where I’ll be for a couple days visiting a friend.

  26.  Hey Pharmboy, Eric and other chartists, take a look at the XRT against the DJIA for any period 2 years or longer and the gap is interesting, wouldn’t you think that the gap would close at some point?  XRT seems way too high up here, good LT short?

  27. NFLX – if you’re looking for a Mocha anti-trade, I shorted this at 65 and it immediately built a bullish engulfing candle and rocketed upwards, so as long as I’m short this should be a good long…

  28. mrmocha,
    Yeah, it is amazing. It looks like the divergence is currently at the widest since last Oct. The wild thing is that the gap widens even as consumer credit contracted throughout the period.
    I have a long-term RTH short position (OTM put calendars, which have been smashed), but I’m also long some of the component stocks, so it’s more of a hedge for me I guess. At some point it seems like it has to crack, but as long as there is (apparently) a lot of money chasing beta, even a little good news seems to drive these things up and up.

  29. Selling TNA, buying TZA, 1/2 possition, 50,000 shares, at IWM 64.08

  30. Hi, Eric, I’ve been watching your condor plays for a while, but I haven’t given them a try yet.  A few questions about your condor plays such as SPG and AZO.
    (1) Do you find it harder to get a condor order (with 4 legs) filled, compared to simpler 1-leg/2-leg orders?
    (2) Are these play basically either win or lose kind?  That is, if the underlying stock goes against your position, there is no easy way to adjust it?
    (3) What kinds of stocks are good candidates for such plays?  Range-bound ones?  If so, do you think we can play such condors on currencies?  Eg, FXY, as Yen has been range-bound between 88-ish and 93-ish.

  31. PHARM
    is there any near time possible action on PARD’s valuation? I have taken a bath on this, and I was looking at the Jun2.5 call at 13.15 cents

  32. JRW,  Thanks, man. I was a little late on TNA and got out at 64.  I’m taking a stab at TZA now. 

  33. Hi, folks, re EDZ 10-to-1 reverse splits,
    I have some options on EDZ, one position is 15 contracts short July puts, and the other position is 5 contracts short April puts.  I am loath to close them because they are in red right now.
    If I keep them around, what’s going to happen?  Am I going to get 1.5 contracts and 0.5 contracts on the 2 positions?

  34. cwan,
    1. Yes, a little harder maybe, but good option liquidity is important. Basically, if I’m consistently having to go a dime over the bid to get in or out, I start getting reluctant to trade it (with fast-moving stocks it’s a little different — I’m finding it’s best there to just put in a low-ball bid and wait). Since each dime on a trade like this is a pretty big part of the P/L potential, you have to be careful and patient on entries and exists. Of course you can leg in and out too — I do this often.
    2. They are not at all supposed to be all or nothing trades. Unless the stock really moves unexpectedly and in a big way, you can usually recover much of your investment if starts looking like it’s running against you. So with SPG for example, I’ll eventually look to get out if it keeps showing strength, probably at a small loss. But no way would I wait to the end (opex) if it looked like there was little hope. One way to recover if it really looks like it’s going wrong is to buy out the ITM legs and then hope the OTM legs just die at opex so that you get to keep everything on that side. But of course this increases risk.
    3. Yes, range-bound but also decent premium is what I look for. Right now, it looks like selling an FXY condor by selling the 111 straddle and buying five strikes away collects 2.15, which isn’t bad really for a slow mover. However, I’ve found option liquidity on these currency ETFs to be poor.
    What I’m doing by selling these ‘close’ condors is not the normal short condor method, as you probably know (normally you sell and buy further OTM). My experiment is to see if it can be made to consistently work by keeping close track of P/L in terms of net risk and cost, and not being tempted to game the trade by holding the position for too long. Time alone will tell if it works, and if so, whether it works better with the higher beta names or the boring ones.

  35. JRW-- the help is much appreciated.

  36. i was just able to roll up my june DIA puts. 2 strikes for $.95.

  37. Drum/Pard – Yeah, I can feel your pain (not with PARD – but I have one myself).  I am at a loss for that, but if you can sell premium to make up for the losses, why not.  the ones mentioned make the best bang for the buck.  Hoping and waiting….
    XRT is very diverged, but the trend is up still (up channel).  Could take a short position today, but I think I will wait it out.  12/28 and 1/7 there were shooting stars that pulled it back down, but the chart now looks up.
    AMAG is moving towards their 3 mo low again.  They can fall further, by their drug is approved and the missed by 1c.  I think they are still takeover bait.  Put them on the watch list for all, but I am selling a few 32.5 P here for 85c.  These can be rolled lower and out for a better entry, but worth the risk for now 1/2 position).
    OSI Pharma being bought.  Can’t remember who noted them here, but these are the types of plays I am looking for.  Pharma is cash rich, and 500M-5B is within their range to play companies.  ARNA, SPPI and others are good ones to hold on this premise.  FYI – ARNA has the date of Oct 22 for their FDA date.  Volitility should increase through the summer, so be careful on selling.

  38. And out of TZA, lost $0.06 of my $1.74 TNA gain

  39. Thanks, Eric.
    Is it easy to get historical prices on options?  Perhaps we can do some backtest on the strategy on high-flying stocks vs boring stocks.

  40. cwan:
    TOS keeps historical option prices and supports backtesting (thinkBack).

  41. JRW, I’ve been sticking with it for a bit longer with a mental stop at 64.20.

  42. PALM.  Anybody think PALM is good for selling puts here, or too much like trying to catch a falling knife?

  43. judah, i have been thinking about selling puts on palm myself.  I think on a down day they should move disproportionately lower – that may be a better entry (perhaps)

  44.  juda/PALM   I’ve just been looking at this and trying to figure a good way to play it.  I can’t.  Any and all plays I can come up with seem risky.  I’ve moved on.   

  45. Judah, Barron’s had a good article this past weekend in the Tech column, Market Section. The writer, I can’t remember his name, was of the opinion that PALM may be entering a "death spiral" from which it may not come back.

  46. chaps,
    I don’t think we can download lots of historical data into our local harddisk, can we?  I am thinking about writing a piece of code to do some heavy data processing.

  47. Jo/Judah/PALM
    Be careful of this one… they are in trouble and could be buyout target, but who would want to buy a company and compete with AAPL?

  48. gel, looks like i got out of F a little too early. 

  49. Excuted a nice Buy/Write on SIRO (Sirona Dental Systems), buying the stock and selling a short strangle – September 35 p and 40 c. Fantastic fundamentals and VERY profitable enterprise.

  50. PARD – Drum & Pharm: would it not be better to stick to closer month calls? There is something going on Mar 8 & earnings on the 16th (ithink). We might want to cut & run or have something to roll to. Just a thought.
    Seems like Phil suggested that it might run up as it got closer to the next report, then we might choose to exit with less of a loss.
    Your reflections will be appreciated.

  51. PALM.  Thanks, all.  I don’t think PALM has the muscle to compete, though its operating system is better than most.  I don’t see any good news out there for them, other than the occasional rumored buy-out.  I still might take a flier selling Apr 6 puts.

  52. Jo/F
    I am out as well. There will be some more opportunities to get back in down the road, particularily if they restructure their debt, which is likely.

  53. Re: SIRO Buy/Write – discount on this play is 16%. The recent quarterly earnings rose 461% on a 19% increase in sales. Operating margins are 15%.

  54. cwan/download:
    No, I don’t think you can download data, unless you talk to TOS and they agree to do it for you (wouldn’t count on it.) What you can do is set up a backdated strategy in thinkBack and see how it would’ve performed (backtest).

  55. Pharm – What trade do you recommend for ARNA now? Most likely the stock will start moving up in anticipation for the decision. Sell ATM/ITM puts?

  56. PARD/Morx – yes, that is true on waiting for the run up, but the fronts added up are less than the ones noted.   They filed a mixed shelf offering last week, so we shall see where those get priced, but 20M is the total dollar offer (not including warrants).  R they gonna get to $5 again, unlikely in the near term, so selling 1/2 or 2/3 the Junes should be fine for a cover and the rest can run.  Seems best to me.  Here is an excerpt from someone who is long PARD.  I am not unfortunately…but others are buying here.
    1) PARD will present additional data from their Phase 2 trial using picoplatin in colorectal cancer (CRC) l on January 24. – finished, nothing there as they met their endpoints, but why are they down now?
    2) PARD will present data from their Phase 2 trial using picoplatin in prostate cancer on March 5th. upcoming, and if they miss, well, down again they go.
    3) A massive short covering rally (with a current 20% – 25% short interest) caused by upward momentum from investors.

  57. ARNA/Trad, i have sold the 3 Mar P for 30c a few days ago.

  58. Is Phil back yet?  I wonder what kind of trial it was.  I hope it’s about sex, murder, OJ type.  How about PSW members pool money together to produce a 3D movie!  That’ll be more fun than watching this stupid market.

  59. cwan,
    You can get a chart for an individual option by clicking on the option, and in that sense get historical data, but reconstructing it for a whole spread would be involved, I think. I haven’t played with the "thinkback" feature, but it would certainly be interesting to how often, for a given condor like I’m selling, it lost, say, x% of its value. It would be even more interesting to know if there is some percentage value that such condors tend to lose with great frequency, heh heh. I have no idea how to find this out though.

  60. Cwan… I can tell you are looking for excitement. Phil will deliver the jiucy details, I’m sure. I got my thrill this morning when I took a look at my FX account. The value doubled since Thursday. Had only two plays – I shorted the GBP against the CAD and AUD – UNBELIEVABLE ! I’m still in them looking for the Aussie RBA to raise rates this week. Still a 50-50 proposition – good odds for me when you have a 20:1 leverage.

  61. PALM:
    One trade to consider is doing a buy-write using the Jan 2.5 P/Cs, which you can sell for $3.84. You have no buy-out risk, but you have to take the stock on/off at the $2.5 line to maximize your gain. Your risk there is having the stock evaporate on you overnight without triggering a sale of the stock. But your break-even on the trade if PALM is disappearing is $1.12.

  62. Hey guys!  Did I miss anything?

    Woo hoo on oil, that made up for the whipping I took on the DIA puts – I should have gine with my first instinct to cover but I was GREEDY!!! 

    It will take me a while to catch up but if anything is urgent – reask.  

    It looks like you guys are on top of things though…

  63. Chaps/PALM
    Good strategy – I can live with that one !

  64. Phil, Welcome back.  Not urgent, just curious about what you make of RUT running ahead of the pack.

  65. Matt or jburgess,
    Do you remember when we were having the discussion on trading psychology? I think it was last weekend but could have been 2 weeks ago. My episodic memory is terrible for this kind of thing so maybe you can help me out. That way, Phil can give us his thoughts on it. Thanks.

  66. phil, why is ery down if oil is also down a lot now?  i thought ery would go up, since it is the bear  fund for oil stocks, with oil down, but I guess the oil stocks are still strong today along with everything else…

  67. Copper $3.34 and gold $1,120 but FCX not over $77.50 – that’s a good sign.

    Dollar still below $1.50 to the Pound, that’s strong but only 89 Yen so no major endorsment of us. 

    GS/JRW – I don’t bet against the stock but when the sold reason for a day move is that they said something, I find it’s a good time to be a contrarian. 

    Wow, RUT went crazy!  Interesting that NYSE is lagging.  SOX pressing 350 line..

    NFLX/Mr. M – You know they are kicking BBI’s ass, right?

    Nice comeback for AMZN.

    EDZ/Kwan – You’d better ask broker – they may force you to cash if you don’t rate a share (if you have 6 do you get a full though?  What about 9???).

    PALM/Judah – Very good prices.  See weekend post.  I don’t think they are dead, just in an off cycle that phone cos go through as they jokey for market share but those can last a while (see MOT). 

    Trial/Cwan – It was a real estate thing – very dull with lots of forensic accounting. 

    DAX 5,713 – how annoyingly vague!

    I’m liking the TZA Apr $7.50s at $1.40 but I’m not the TZA expert.

  68. ERY – I had exact same question.  How can oil be down 1.5% and a 3x bear ETF be down 2.5% all on same day.

  69. Hi Phil welcome back, nothing urgent, your thought on sell July X 50 put for 4.75 and possible put stock to me at 45.25 by expiration — thnaks

  70. FCX – 3 May $80 calls at $4.35 ($1,305), selling 5 March $75s at $3.60 ($1,800).  Must DD on longs if FCX breaks over $77.50 but a great play if they head down.

  71. USO  I’ve had a double diagonal for a long time now, but I’m wondering whether to keep the trade open because the VIX is down and I don’t have time to watch the front month very closely.  I’m currently long Apr 32 Calls/42 Puts and over-covered with Mar 37-39s.   I’m wondering where to roll my longs if I decide to keep the trade open.

  72. Extening Home Refinance Program by a yeas!!  More free money!!!

  73. Jordon,
    ERY is -3X the Russell 1000 Energy Index.   The overall market is driving this stock index even with the actual oil price down.  It’s a divergence that doesn’t make a lot of sense but sometimes the bulls just push the stocks up even though oil is down.

  74. Phil
    Sounds like the trial was a real "snoozer" – Were you providing expert testimony?

  75. RUT/Judah – My attitude with a runaway index is I’ll short the leader until the laggers (in this case NYSE and SOX) confirm the move.  Since we’re close on the other 2, this seemed like a good place to try the TZAs.  Plus I gave myself a whole month to be wrong…

    Psychology/AC – I remember chiming in with something from Dr Brett but not sure if that was the discussion in question.

    ERY/Dman – Good question!  That makes no sense and makes ERY $11 puts a nice sell at .50!  ERY is specifically against the Russell Energy Swap, which includes a lot of OIH guys who are doing well as well as XOM and CVX so you are not betting against Oil, you are betting against oil producers.

    X/Gucci – It’s a fine price to own X for but probably you’ll want to roll out and lower if something does go wrong.  Steel is tricky – China seems to have way too much of it but they have twice as much copper and that keeps going up with our Wonderland fundamentals…

    USO/Eph – I cashed the puts as they broke over $78.50, hopefully a reload on another silly run-up.  If you can’t watch it closely and you can get out ahead, you probably should as Apr/March does not leave a lot of room for error. 

    Testimony/Gel – Sadly I was an investment partner! 

  76. Phil, how about some new trades in TBT ?  it’s dropped quite a bit now, even with bonds flat on the day, down from 50 a few days ago, thoughts?  even if Fed keeps rates low for awhile, eventually these bonds will not continue going up, maybe they will flatline or go down, either Ok if we buy the 42/48 call spread for June/Sept. or Jan. 11, right? and sell some puts along with it

  77. Eric/Cwan FYI FWIW:
    You can do something like the following with TOS thinkBack: I took V and went back to Nov 4th, when V was selling for about $78.  I theoretically sold the Dec 75/80/85 iron condor on Nov 4th (as easily as you can sell an iron condor today for real) for the mark price of the condor on Nov 4th. Then I advance a calendar scroll to any date between Nov 4th and Dec expiration to see P/L on the short condor on any day.
    You can’t download anything, but you can set up any number of such theoretical backtested trades within the software.

  78. Phil, I assume you saw the bad news of the day for us early adopters--anticipated shortages and possible delays in the launch of the iPad. 

  79. aclend,  I’m not sure what you are asking me.. yes, I remember the convo but I don’t remember the day.  I think it was a Friday and it flowed into the weekend.  I think Phil has probably read the book you recommended.
    Phil, Paul Farrell said yesterday in a column that he felt with the analysts generally raising expectations for earnings over the next quarter or so AND, most importantly, the fed’s ez liquidity policy he felt that an average PE ratio for the S&P could hit 15 this year.  That would make for a target of 1250 I believe he said.  What say you?  I can believe it.. knowing all along that it has nothing to do with value but where the heck do the banks deploy some of the money the Fed is trying to shove down their throats.

  80. FCX play — I am little slow today wnat to make sure — your recommended play for today
    Buy 3 May $ 80 call and sell 5 March $75 call — is it right, second question I have sold last wednesday April 75 and 80 call, 5 contract each, still ok to puton your trade today — thanks

  81. So personal income was up 0.1% and spending was up 0.5% and that was considered a market positive today?   Sometimes I think I am too old-fashioned to trade…

    I have not changed my short stance on DIA, nor have I added to it.  I did cash out USO puts to give me more cash to short or roll DIA tomorrow if we go up higher.

    Jan. Personal Income: +0.1% vs. +0.4% expected, +0.3% prior (revised from +0.4%). Personal spending +0.5% vs. +0.4% expected, +0.3% prior (revised from +0.2%). PCE core price index 0% vs. 0% expected, +0.1% prior.

    Feb. ISM Manufacturing Index: 56.5 vs. 57.5 expected, and a prior 58.4. Prices index 67 vs. previous 70; employment index 56.1 vs. prior 53.3; inventories 47.3 vs. 46.5; new orders 59.5 vs. 65.9.

    The ISM’s manufacturing report showed a seventh straight month of expansion (values over 50) – but slowing expansion, which could be blamed on heavy snow. And there are trouble spots in contracting inventories, and a note of concern in the tech sector.

    Jan. Construction Spending (.pdf): -0.6% to $884.1B/year vs. consensus of -0.6%, and 9.3% below the year-ago estimate.

    Google (GOOG) faces an antitrust suit from a small internet firm represented by Microsoft’s (MSFT) longstanding chief outside counsel. This latest move has Google saying MSFT is engaging in a proxy war through unrelated cases to set the stage for a broader antitrust assault. (previously I, II)

    Toyota (TM) president Akio Toyoda apologizes to Chinese consumers over the company’s massive global recall. IHS Global Insight analyst John Zeng: "He’s making this trip because China has become the biggest auto market, in which Toyota underperformed last year. If Toyota loses China, its global position would be challenged." TM -0.3% premarket.

    Wow, a rational comment:  While AIG (AIG +13%) shares soar pre-market on news of the $35.5B sale of its Asian life insurance arm to Prudential (PUK), MC commmenter Tack is less than excited by the deal: "I guess I am left wondering how selling one of your brightest future profit stars is such a wonderful thing. I’m always happier when companies acquire desirable assets, not divest them."

    Abolishing the Fed’s authority to lend to non-bank firms would help re-establish market discipline, Fed’s Lacker says. Lacker said that solving the wide-held perception of too-big-to-fail is far more critical than "optimizing the number or organization of regulators," adding that "proposals to materially alter the Fed’s supervisory responsibilities strike me as misguided."

    It’s not easy to lose $16B a quarter; it takes skill and determination, but Fannie Mae (FNM) seems up to it. And the mortgage giant wants another lifeline, leading some to worry about the "most expensive bailout" of the crisis – which is saying something, after AIG and the automakers.

    Richmond Fed’s Lacker told reporters after his speech that the Fed has to stop subsidizing housing, and the bank’s MBS purchase program is likely to end as planned. He’d like the Fed to hold only Treasurys on the books. And he says reform isn’t real reform unless we deal with the GSEs this year, rather than next year.

    According to analysts at Standard Chartered, worries about China exiting its dollar holdings are largely unfounded. The firm reckons about 90% of all U.K. purchases of U.S. Treasurys were on behalf of China, which leaves China as a solid net buyer of U.S. securities.

    Goldman Sachs’ (GS) board rejects demands from shareholders that it investigate recent compensation awards, recoup excessive compensation and reform pay practices. The firm says its compensation policies were "appropriate." (SEC filingI, for one, am relieved that they found their policies for bonusing themselves were appropriate! 

    Another good reason to hold TBT: Pimco’s Bill Gross says government bonds are starting to look just like corporate bonds, and anyone can default in the new "unibond" market: "Sovereign yields will become more credit like… [and they will] move closer in yield to the corporate and Agency debt that supposedly rank lower in the hierarchy."

    Very green shoot for tech:  Worldwide semiconductor sales soared 47% in January year-over-year to $22.5B, according to the Semiconductor Industry Association. Sales rose 0.3% over December, not falling as is usually the case after the holidays. “If the current trends continue, there is upside potential for 2010 growth above our November forecast of $242.1B." (ETFs: SMH, IGW)

    Oh boy did I start something here:  What mass strategic default could look like




    What I love about these charts is that we are no longer in the shaded area that indicates a recession!

  82. EDZ- I asked my broker about what happens when EDZ slits 1:10, here is what they said:
    "In a reverse split, the options will not be split but the shares that the options entitle them to will. So, usually an option is worth 100 shares of the underline. If there’s a split in the underline 1:10 reverse, the option will now be entitle to 10 shares instead of the regular hundred. Under normal circumstances, if there is a 1:10 reverse split in EDZ, you will still have 109 option contract, only difference is each option will be entitled to 10 shares."

  83. I found the following article interesting:
    He believes that Euro will remain weak, which is good for exporters in those stronger EZ countries such as Germany, and therefore good for those stock markets.  So, he is bullish on UUP, and ETFs for Germany (EWG), France (EWQ), Netherlands (EWN), and Belgium (EWK).
    What do you think?

  84. Hi, Jordan,
    Thank you so much for the info on EDZ 1:10 split!  You saved my time on calling the broker and asking the same question.

  85. aclend
    I think this is the article/posts you’re looking for:

  86. TBT/DMan – Yes to the low spread and yes to selling PARTIAL covers (just enough to pay down about 1/2 over time – don’t be greedy).  IF TBT heads down sharply, THEN you can sell some puts to further offset but don’t do everything at once – you leave yourself with no room to adjust.  Let’s say you sell a $6 spread for $4 and it heads up too fast for you to sell puts.  SO WHAT?  You still make 50% – learn to enjoy that.

    IPad/Judah – Sadly I did not see that.  That’s good though as I usually try really hard to wait for the .b version of something that new and making it difficult to get keeps my from walking into the store and just getting it. 

    1,250/Matt – I could go with a 15% rise for the year if we hit our Q2 earnings.  My plan is to flatline into Apr earnings and then move up to test 11,000 anyway so that would be about 1,200 on the S&P by summer.  I’m just not sure we’ll be ablie to hold it if jobs don’t start coming.

    FCX/Gucci – Yes it’s a bearish backspread where you net $500 credit and keep it if FCX finishes below $75.  If FCX heads higher – you buy 3 more longs and you become fairly bullish (as you’ll just roll the $75 callers up over time).  If you already sold naked calls I wouldn’t change them other than to consider that as protection if we do pop $77.50.  The backspreads are good for people with less margin and also they are more fault-tolerant. 

    EDZ/Jordan – Thanks.  This is why I find those splits so annoying..

    Euro/Cwan – I don’t think they’ll beat the buck but Asia is going to have a great fall in the near future and then the Euro should gain by default. 

    Friggin’ JPM downgraded my TASR – Of course, they realize – this means WAR!

  87. one last question, Phil, what option spread would you put on TBT right now?  June/Sept/Jan. 11   call spreads at which strikes? thanks so much

  88. phil, i bought back LMT 70 2012 puts for 8…they were sold at 9 per your original play.  Will resell again if it drops or will take the 1k profit and redeploy. 

  89. Phil,
    My Dad has the majority of his retirement assets in Muni bonds. Seeing many of your comments lately, makes me a little nervous for him. I don’t know much about bonds so what are the dangers? If a municipality defaults, are the bondholders left to fight for pennies on the dollar through legal battles or something? How does it work? Perhaps if you have a bit of time you could give me a couple paragraphs. I’d like to copy and send them to him, if that’s OK.

  90. good for my taser $7.50 calls :)   I am in at $4.50ish so it hurts to buy more at $7. What would be a good play if i want to add some? June $7.50 for $1.20?

  91. I just saw Phil’s post on TM’s president apologizing again, which reminds me of an article I read in a local newspaper recently:
    3 years ago, a guy was sentenced to some years (I think it’s 8 years) in jail, because his Camry ran at 70mph into another car waiting at a red light, and killed the people in that car.  The guy kept saying that he tried to stop his Camry by stepping on the brake as hard as he could.  Nobody believed him 3 years ago.  Now, not only the prosecutor, but also the victims’ family, agreed to go to the court to ask the case be re-opened.  They now say that they might have sent an innocent guy into jail.  The victims’ family is also considering suing TM.
    This article made me sick.  Even if there is a sure opportunity to make money on long TM, I wouldn’t take it.

  92. anyone know what is up with apple – iphone sales better than expected – but ipad delayed – did i miss something else

  93. Phil -
    Uso puts – I still have the march 37s for a small gain – basically even – bail or hold?

  94. alsos,
    Thanks! That’s it.
    Phil, It starts with Matt’s comment at 4:15 on the link alsos just provided.

  95. phil,what your thoughts on spwra,looks a good level for selling puts?

  96. chaps,
    Thanks, that’s cool. I never tried  that before. Assuming I’m using it correctly, both the Dec. and Jan V short condors you picked were near-doubles (Dec.) or more than doubles (Jan) if you got out before too long with the Dec. short condor (if you waited too long it became a loss). I’ll have to play around with this when I have more time.

  97. samz   AAPL……. Rough estimates only 1 of 6 iphone users will buy an ipad, so iphone remains their most important product.  I doubt any of it is new news.   

  98. TBT/Dman – I like Sept as it seems to be past the Fed’s window of QE and you can always roll so it’s worth taking a chance on a quicker win.  Strike-wise, $46 calls fetch $3.85 and the $40s are $8 so $4.15 on the $6 spread is a fairly safe way to play.  You want to work off about $2.15 of it which is just .30 a month so starting with a 1/2 sale of Apr $49s is what to look at but I’d wait and see if they can be sold for .90+ (now .65) and, if not and we head lower, you can sell 1/2 the $48s (now .92) for .75

    LMT/Jo – Military cuts will become a topic so you may want to wait for $74 again before selling.

    Munis/AC – I’m no expect but generally the idea of buying a muni is A) the tax advantage and B) the implied federal backstop.   If the backstop isn’t there (it isn’t) then investing in a muni is no better than investing in Ford or X – you hope they don’t go BK or get buried by pension obligations.   In the very least, he needs to do homework to see how his municipalities rank in terms of fiscal soundness – there are a lot of specialty sites that do that sort of thing.  I just don’t like anytyhing you can’t hedge in this market!

    TASR/Morx – When it heads down on a downgrade you don’t agree with, best thing is to sell puts like the Jan $5 puts at .55 as you’d be DD at $4.45, which is acceptable or you (boo hoo) get 10% for free

    TM/Cwan – I know what you mean.  It is looking like they covered it up for years too… 

    IPAD/Samz – Notice the chip news above (huge increase in demand).  That was my SOX buying premise from when AAPL announced the IPad – it has to be so packed with state-of-the-art semis that they must be causing shortages all over the place.  Between that and my daughter’s friend getting a $49 smart phone for her 10th birthday that’s more powerful than my Y2K laptop was – you can see where we’ll have shortages for quite a while.

    USO/Samz – I bailed when they popped $76.50.  You never know with oil what the overnights will be. 

    Comments/AC – Remind me after close. 

    SPWRA/Jash – Sure, we did that last week and they are still good sells.  You can sell the Apr $19 puts for $1.60, very nice net $17.40 entry.

  99. jash, i  have been sellin spwra puts Jan 15′s 2011.  They are acting like spwra isn’t a viable buisiness. 

  100. jomamo,yes ive been writing puts for a while now,always good premium spwra

  101. Thx. Will do. Does a rise in interest rates have a negative impact on munis as well?

  102. Phil / GS
    Welcome back. I was saying " don’t fight their telegraphed direction ", that made me 4% today, nothing about GS stock.
    I think your overnight TZA play has a good shot by Friday

  103. DWSN having a nice few weeks.  Gotta watch them if they cannot bust through 30, bu tso far they are moving up and up and up…
    And on another channel…BEAT is getting coverage and big stakes are getting bought.  Cumberland and William Blair have bought 6 and7% stakes. 

  104. thanks phil, glad i pocketed the quick little profit on LMT. 

  105. Selling a few condors in EL of 60/65/70. Lightly bullish — the stock is insanely overextended but doesn’t seem to quit. Got in with a 2.95 credit.

  106. Very boring drift into the close. 

    Rates/AC – Absolutely.  If you have a 10-year bond at 4% that is worth $100 (coupon redemption) and the new bonds start coming out at 8% – what do you think happens to the value of your bond?   That’s the trap for any long-term notes, inflation or rate changes can wipe you out.

    147M on Dow at 3:59 – we’ll see where we finish.  NYSE and SOX just a point under levels each!  S&P just a hair under 1,115 and opps, they did it!    What a sham!!!

  107. Are we now officially bullish?  We have 5/5 at close!

  108.  would anyone here mind to answer a couple of questions from a new subscriber?  If you would, my email is salvum1 at gmail dot com.  I would really appreciate it.

  109. Phil : Need your guidance on TB T. here’s what I have:
     Long Sept. $43 call at $8.14,now $$5.65,short Sept. $49 call at $3.45,now $2.55
    Long April $48 call at $1.24,now $.94.short April $50 call at  $$.48 now $.44
    any suggestions? Thank you

  110. Does anyone follow WFMI? With their upgrade today by UBS following a huge run up should that be a considered a contrarian indicator that they will fill that large gap at 30.5?

  111. Bullish/Cwan – If we hold it tomorrow we’ll have to be until we have a 3/5 breakdown. 

    Welcome Salvum – You can ask right here but if it’s just stuff from the New Member’s Guide – that will probably be the answer you get (to read the guide).

    TBT/Dflam – No suggestions other than waiting and perhaps selling 1/2 x the March $49 calls for .25 – why leave that on the table? 

    WFMI/JCed – That is some crazy value for a grocery store but they are busy all day and night when I go so I wouldn’t bet against them. 

    Dow volume finished at 173M – that’s 28M in 1 min but still an overall weak day. 

  112.  Thansk Phil,
    I read the guide, multiple times.  I must be blind.
    My question is this: It says in the guide that your trades are typically at the end of your posts.  But today, the specific FCX trade was in the comments section.  My dilemma is that I cannot check the comments through out the day so how would I get the new trades or the closing trades.

  113. Salvum      I can help answer that……many of the important trades not only from Phil’s site but also from the Oxen group and from Optrader are sent by email..      I , too, cannot hang around the computer all day.  I have my iphone set to buzz me when I get an email.  I have an email set up to get only from this site, so when I get an email it’s usually an alert.  I can then check it (or not).  However, the purpose of this site is really not to alert you to trades.  That’s a small part of what is done here.  The larger purpose is to teach you how to trade.  That will take your reading days and days of posts, trading on your own, either real money or virtually, reading other materials relative to trading, etc.  All of this will take time if you are a new trader.  Even if you are an experienced trader it will take you some time to learn navigation of the site (s).  There are many experienced traders here.  Phil is the guru, but there are other very knowledgeable and helpful people here.  Sit back, relax, and take it all in for awhile.  It will gel for you in time…both the site and the trading methodology.   Good luck.  

  114. salvum1, usually in the morning Phil sends out an alert with levels (his first blue post of the day is usually sent to us by email.  But all other posts with trades are all in chat, and context really helps.  Also some of the trades may be day trades, some may be more long term, I advise you to really follow things for a while or paper trade for at least a month before trying to go in right away and execute the trades.

  115. Hi Salvum – What Iflan said!   Also, subtle point but the comment section is at the end of the posts.  That is where trades are.  Since we make them live, all day long, it is hard to cater to the time constrained.  I would suggest following the $100K Portfolio (under the Portflio tab), which is a very low-touch portfolio for busy guys like you.  Also, at the end of the day or the end of the week – just find the trade ideas I put up that DIDN’T work and, if we haven’t given up on them – then you’ll get a better entry than we did as your first round in. 

    In fact, that’s something I used to tell people a lot and very worth mentioning  – the BEST way to follow our trades is to be paitent and wait for trades we are either doubling down or rolling.  That means they got cheaper since we entered and you are saving yourself 20% or more on the entry!  Even last week, with 49 winners, there were still 6 trades in that category, including SPWRA and a few TBTs that are all working better now….

  116. I think you have to decide if you are looking for day trades, or something a bit longer. If you want a lot longer, this may not be the site for you. Find the trade that fits your time frame, then just nibble at it. Can’t learn without the action.

  117. Peter D.  is now the time to consider selling the short puts on the SPX?  March appears to be breaking down due to time running out.  Any guidance would be great!

  118. Hi, barfinger,
    Months ago, I had a question for you.  I might have missed your answer.  So, please allow me to ask again.
    Here is your original comment:
    === start of quote ===
    December 16th, 2009 at 7:26 am | Permalink 

    balance: Interesting result. I have actually traded this strategy since 2001, and if you *cough* forget about Sept 2001 and Oct 2001 (both huge losers) it can be said that my results conform closely to your model.

    I have tried variants of the simple strangle, of course, and all added something and subtracted something. I believe that if you are a skillful trader there are considerable improvements to be made. I am always pulling the trigger at exactly the wrong time (and yes, I believe trading skill is a personal trait) so I devised a strategy that had no exit – in which I set up new strangles around the original edge strike whenever the original was breached. There is a more complicated, daily-trading version of this that I found quite exciting. All I can say is that you write, say, the 1110 calls and the 1105 calls for Jan, letting the winner ride and cutting the loser when the contract price goes $7 against you. Or you can close the winner when it goes $10 positive. You can set up a trade a day. You operate at least more than 2 weeks away from expiry. It takes advantage of the fact that you are selling HUGE pure premium on both sides and on average, you win 63% of the time. I modeled it and then traded it for a couple of months. It proved too consuming for me, but it works.

    === end of quote ===
    My question is: Can you elaborate on the part "selling 1110 calls and 1105 calls for Jan"?  How does it work exactly?  BTW, SPX closed at 1109 on Dec 16.

  119. Phil
    I’m a new member, and am loving your site.  I’ve learned more in the last couple weeks, than in the last 5 years.  So thank you.
    I was hoping I could get your thoughts on a small bearish put spread on FCX I did today.  I took the March $80 put at $4.95, and sold the $75 Put for 2.14, for net 2.81 on the $5.00 spread.  I’d also like to get your suggestions on a fall back plan if FCX shoots up.  This trade was more for educational purposes, and I allocated a VERY small percentage of my account to it.
    Thanks a lot.

  120.  thank you for the answers and the guidance!

  121. Hi Phil I thought I ask you to teach me the art of rolling option --  I have several stock that I sold the call premium in Feb that is now 50% down since then, but expiration is not till April — for example PCLN sold April 240call for 4.7 today is 9.9, and BIDU sold march 500 call for 16.40 now 29.6, I know that I can roll up the call to several motnh out to either break even or more credit — question is when to roll it, I do not see any catalyst to pump up the market, or I could be wrong… what is the good timing to roll them, or I can roll it anytime that I can find the strike that will not incurred cost for me. — thanks for your help ahead

  122.  Phil, I have been looking at MON recently as they pay a monthly dividend and have decent options premium.
    Currently you can do a buy/write with the JAN 2011′s giving you a $15 discount on the $71 stock.
    I checked the news in TOS for anything that looked scary and I cant find anything.  Whats your opinion?

  123. phil, thoughts on NTRI earnings?  They are getting taken to the woodshed after hours. 

  124. Robert,
    It’s not quite a good time to sell the April short strangles as VIX keeps getting lower, so the opinion is the same as last Monday:

  125. Hi, Peter D,
    If you recall, on Feb 11, you made some comments about selling TNA put in IRA accounts.
    If "short TNA puts" is sort of equivalent to "short SPX puts" in the strangle strategy, I was looking around for a candidate for the other leg.  The candidate has to have decent liquidity (ie, high open interest) and decent premiums.  Out of SH, TZA, DXD, and a few other short ETFs, I found SDS seems to fit the bill.  (All the others have low volumes or low premiums or both.)
    So, for IRA accounts, what do you think of selling TNA puts (= 3x RUT puts) and SDS puts (= 2x SPX calls).  This is not the exact equivalent of the usual SPX/RUT strangles, but the best I can found for IRA accounts.
    However, these 2x/3x ETFs move REALLY fast.  We may have to roll too often, which may cut down the profit potential.

  126.  Sorry Phil, I must have been smoking something when i looked at the MON chart in TOS.  Its dividend is not payed monthly but quarterly which changes the ghetto math I did to figure out its yield.  I wish the TOS platform had a nice way to see the %yield for a stock that pays a dividend :(

  127.  Boooo, go back down AFL.  $5 wide strikes are teh poops!

  128. NTRI – so much for consumer spending and diets…..invest in drugs for the disease as they are covered by insurance…

  129. craig – TOS %yield is in the trade tab.  It gives the last dividend date as well or upcoming if it is announced.

  130. JRW …. 50,000 shares of TNA at a clip ?
    You gotta be kidding !   You must dominate the trading of that thing.
    They are going to write a special algo just to go after you …

  131.  Holy crap, thanks pharmboy, I never noticed that while in the trade tab there was one of the blue triangles that could be expanded in the "underlying" section

  132. Hi Phil, I look over the option rolling workshop — sorry to send this to you so late — I believed I understand the rolling now — the bottom line is — please tell me if I got it right — If I can roll Bidu and PCLN short call to a higher strike with a credit and would not incurred my cost basis at this time then do so, and  if I wait I may not get to roll out in time for a credit and I may have to pay  to roll up the short call and thus would increase my cost basis.  Like you said I can roll the short call out in May or June or July for a credit and let time decay be on my side. Second part of the option rolling article mentioned  a back ratio spread-- I am not sure what this stragety is and how it works, could you teach me in what situation would I use this stragety — is this stragety for margin problem.   thanks

  133. Phil
    I replied to your question from "The Coffee Party" post over the weekend. It has political overtones, and for that reason was placed under your query on the weekend post. It is my take on the situation, and might piss off some members, but diversity of thought is healthy, I believe.

  134. Welcome Palotay!  There’s nothing at all wrong with a bear put spread like that on FCX but they are not very flexible positions and you can’t expect to collect until we get closer to expiration.  Vertical spreads are excellent if you are SURE about the direction and willing to stick it out through thick and thin but they do not deliver quick profits.  We like to use them for long-term protection for the same reason – if the market heads lower, over time the math of the position takes care of itself and, if the market heads higher, they are equally slow to lose value and we have a chance to re-position.  They are pretty useless for short-term gains. 

    This morning notice I picked 2 ways to play FCX.  Both following Rule #1 (and there are only 2), which is:  "ALWAYS sell into the initial excitement" which means ALWAYS find some way to sell premium to some sucker when there’s a big move.   So selling the $75 puts, which opened at $4 when FCX spiked and dropped back to $3 soon after (now $3.40) was a great way to day-trade the stock – taking advantage of the crowd that was piling into FCX, expecting them to break over $77.50 and willing to pay $4 for the $75 call (break-even at $79).  If we were less confident, we could have sold the $80 calls but we’ve played FCX enough to go for it at $77.50.

    The put play followed a similar logic.  There were 25,000 open $70 puts at $1.10 on Friday’s close and the delta was .25 so I assumed a pop in the morning would panic some of the put holders to dump into the open.  The $70 puts came in at .70 and quickly went back to $1  for a very nice 42% gain and they are now back to .76 for people who are too greedy to take the money and run when they get a 40% gain in 90 minutes!  Again, ALWAYS sell into the initial excitement – the difference between selling premium when things are moving your way and when they turn against you can be massive but you have to re-train yourself to learn to sell BEFORE the run is over.  With a stock, you can wait for the flip because the bid/ask on a stock is not even 1% most of the time.  With options, the bid/ask is often 10% and sometimes 20% or more – imagine the difference in your trading if you do or do not take advantage of momentum and take the wrong end of the spread each time.

    PCLN/Gucci - When you sell a call, it is the same rule as selling a put, which means – Do NOT sell calls against a stock unless you REALLY want to be short the stock at that strike.  That being said, what do you care if the $240 calls are listed at $4.70 or $9.90 or $29.90 as long as PCLN is below $240?  The question is – do you believe in your target or not?  That being said – I don’t believe in your target…  PCLN is a momentum monster with some real growth backing up their stock movement and they are not too overpriced yet but I think $250 should give them trouble so no reason to panic and you can roll the Apr $240 calls to the July $270 calls about even so, as long as that relationship doesn’t go bad on you (assuming you are willing to stick it out that long) then there’s nothing to worry about.   BIDU is another one I don’t like shorting but $525 is on top of my expected range so I wouldn’t go paying them $29.60 for the $500s.  Keep your eye on the roll to the June $560s (now $27) as that gives you a 10% cushion but be worried if we hold our bounce levels and start moving higher as China has a lot of catching up to do.  As to timing – find your roll target, try not to roll but don’t let a tolerable price for your roll get away from you.  If you are at the point where you are considering rolling – you are already wrong and you need to get conservative with the aim of getting even, not winning.

    MON/Craig – I like MON and was hoping to see $60 for a re-entry but if they hold $70, then why not.  Here’s what I would do at the moment, which is a little complicated:  I would sell 2x the Jan $65 puts for $5.30.  If MON heads down $5, I can assume the $65 puts go to $7.50 and down to $60 would be $10.50.  Since I didn’t buy the stock, I’m actually better off with 2x the putters down 100% than I would be if I bought 1x the stock and it dropped $10.  THEN I would buy the stock and wait for the bounce, where I would trade in 1x of the putters for a $7.50 caller.  IF MON does not cooperate and only heads up, I can sell 1x of the puts for a profit and sell the Jan $75s for $7.50 (now $5.85) and buy into the stock when they cross $72.50.  If MON beaks over resistance at $80, then you can roll up the putter. 

    NTRI/Jo – CEO says: "Diet intenders continue to delay their entry into the category for reasons of cost and are opting to once again attempt to diet on their own..  While we believe this was a temporary issue and that rates have and will continue to moderate, it did represent a significant obstacle to us in the first half of Q1."  I’d take his word for it – they cut costs and spent a ton on advertising so they are in good position for a rebound but wait for the downgrade police to have at them first. 

    Wow, futures up 50 points in an hour! 

    Rolling/Gucci – Rule of thumb is SELL premium DON’T buy it so you don’t do a roll when your caller is more than 1/4 premium if you can in any possible way avoid it.   Target your roll, keep an eye on the net and have a "stop" in mind for when you start losing that net.  A backspread is what we did on FCX with the calls earlier today. 

    Relply/Gel – And I replied to your reply so, between the two of us, we should pretty much piss off everybody!  8-)

    Now, I don’t want to start a fight so keep in mind I did not write this but the FT wrote an article today called "How Reagan Ruined Conservatism," which is a good read and also has this great cartoon:

    Ingram Pinn illustration

  135. Was it gel that recommended NBG? Nice call! If it was not Gel – thanks to that person – sorry for not giving you credit

  136. Reagan a dunce; Bush a boob and Palin an idiot. OK , now I get it . It’s in the FT; From Europe; London no less. It must be true. Why , they endorsed Barack Obama. "Nuff said.

  137. I agree with numbers 2 and 3…..

  138. Beige Book with my notes (and I like to highlight the Fed’s BS modifiers) and highlights:

    Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.

    Consumer spending improved slightly in many Districts since the last survey, but severe snowstorms in early February limited activity in some Districts. Tourist activity was reported as increased or mixed, with some improvement in hotel occupancies. The demand for services was generally positive across Districts, most notably for health-care and information technology firms. Of the five Districts reporting on transportation, three characterized activity as improved over the previous survey. Manufacturing activity strengthened in most regions, particularly in the high-tech equipment, automobile, and metal industries. Residential real estate markets improved in a number of Districts, although several Districts noted that activity softened or remained weak partly due to extreme winter weather. Most Districts characterized commercial real estate and construction activity as weak or having declined further, but some Districts noted slight stabilization and a few signs of modest improvement. Loan demand remained weak, and lending standards remained tight across the country. Harsh weather continued to negatively affect agricultural activity, although some Districts reported favorable crop conditions. Districts reporting on energy activity said it continued to strengthen, particularly drilling for natural gas.

    Price pressures were mostly limited, with the exception of some increases in raw materials prices. Even with input costs rising, selling prices remained stable due to competitive pressures and limited pricing power. Although some Districts reported an uptick in hiring or a slowdown in layoffs, labor markets generally remained soft throughout the nation, which resulted in minimal wage pressures.

    This is 3 books in a row where input costs rise and cannot be passed on.  This is a serious problem for manufacturers and does not bode well for their Q1 earnings although, fortunately, we don’t really have any manufacturers left in this country…

    Consumer Spending and Tourism
    Consumer spending showed signs of improvement in many Districts since the last report but was hampered in several regions by severe weather conditions in early February. Retail sales improved in the Chicago, Minneapolis, Dallas, and San Francisco Districts, and New York said sales were well above year-ago levels in January and met expectations in February despite inclement weather. Philadelphia also reported that sales were moving up slowly until snowstorms hit in February. Boston and Cleveland characterized sales as mixed but slightly higher overall than year ago levels. Sales were lower than expected in the Atlanta and Kansas City Districts and were down from year-ago levels in the St. Louis District. Several Districts reported that sales were strongest for lower-priced items, while sales of luxury and big ticket items remained sluggish. However, San Francisco noted scattered reports of increased discretionary spending, and Cleveland said some retailers noted a broader, if still slight, increase in demand across a variety of products. Inventories were being managed carefully and held at fairly low levels in most Districts, but Chicago said rising sales were leading retailers to begin rebuilding inventories from low levels.

    January 2009 was the worst retail season since 1930 – what the hell kind of comparison is this?  Is that our benchmark?  When you hear things like this jammed into a report, you know they are reaching really hard to come up with something nice to say.  St. Louis is DOWN from a year ago?  How is down even possible?  Also, sales were strongest for lower-price items but COST and BJ both had poor profit reports this morning because – as I just said in the last note – they can’t pass through prices to the few people who are buying things! 

    Auto sales were generally reported as flat or down, with a few Districts again noting that some of the sluggishness was likely due to poor weather conditions. New York, Cleveland, and San Francisco all noted some softening in new auto sales, though New York cited brisk sales of used vehicles. Chicago and Kansas City also reported declining auto sales, while Dallas noted some seasonal softness and Atlanta said sales remained weak. Some Districts reported modest improvement in auto credit conditions. Cleveland noted that many consumers remain reliant on manufacturers’ incentives, and auto dealers in the Chicago District blamed part of their recent sales decline on reduced factory incentives.

    Districts reporting on tourism said that activity was either rising or mixed since the last survey period. Ski resorts in the Richmond and Kansas City Districts reported at least modest rebounds in activity from year-ago levels, while Minneapolis characterized skier visits to a Montana resort as flat. New York said hotel occupancies in Manhattan were up considerably from a year ago in January and Broadway theatre activity was robust before falling off due to weather in February. Atlanta also reported rising tourism activity related to several successful major sporting events and a well-attended Mardi Gras in New Orleans. San Francisco noted increases in visitors to Hawaii and Las Vegas and said hotel occupancies stabilized in some other areas.

    Nonfinancial Services
    Nonfinancial services activity was reported as steady or improved by the majority of Districts. Boston, St. Louis, Minneapolis, and San Francisco reported generally solid demand in health-care services, although Minneapolis noted continued weakness in elective procedures. New York indicated that a growing number of service firms planned to increase capital spending in the months ahead, but investment expectations diminished among high-tech companies in the Kansas City District. Richmond reported that service revenues fell due to the record snowstorms, but a few contacts saw a slight pickup in demand, particularly architectural firms, hospitals, and financial service professionals.

    In transportation services, Cleveland, Atlanta, and Kansas City reported an improvement in activity since the last survey, while Dallas said activity was mixed and St. Louis noted large job cuts in the industry. Regional rail loadings were above year-ago levels in the Atlanta District, especially for autos, chemicals, metals, and some construction-related equipment. Intermodal firms in the Dallas District reported no change in cargo volumes, with a rise in exports being offset by a decline in imports. Although shipping volumes increased, Cleveland noted that margins remained depressed due to over-capacity issues, limiting investment in new trucks.

    Nothing exciting here but, believe it or not, this is greener than our last BBook!  Unfortunately though, it’s just what we expected – essentially the same blah report that allowed the market to fall from 10,750 to 9,900  – we have made virtually no progress since!


    Manufacturing activity increased further in most Districts, although Minneapolis, Dallas, and San Francisco characterized overall activity as flat or mixed. Philadelphia reported widespread production increases across most industries, and manufacturers in the Cleveland District reported a general rise in capacity utilization. Many Districts reported strong production in metals, and the Boston, Dallas, and San Francisco Districts noted strength in high-tech equipment, particularly semiconductors. Cleveland, Chicago, St. Louis, and Dallas noted solid improvements in auto-related manufacturing. A consumer goods company in the Boston District said European sales were at healthier levels. Contacts in the Chicago District reported strong growth in Asian exports but remained concerned about China’s underlying economic strength. Dallas reported that exports for natural-gas based products remained strong, but weak demand for refined products has trimmed margins and cut capacity utilization further. Construction-related activity remained weak in the Chicago and Dallas Districts, and new orders for commercial aircraft and parts were sluggish in the San Francisco District. Philadelphia and Richmond noted productions delays due to the winter snowstorms in February, but some factories were able to make up the losses with longer work hours and extended shifts. Several manufacturers in the Philadelphia District said production gains could be limited due to continued tightening in credit markets and adverse developments in taxes and regulations. Plant managers in a few Districts reported that a large number of customers were simply restocking inventories, leading to concerns about the sustainability of the increase. However, contacts in most Districts remained optimistic for future months, with several reports of planned increases in capital spending.

    Man, this one was going so well and they ruined it with "a large number of customers were simply restocking inventories."  Inventories had gone tragically low and we knew they would bounce eventually.  Contacts remain optimistic but that can fade very fast if the orders stop coming in

    Real Estate and Construction
    Residential real estate markets improved in a number of Districts, remained weak or softened further in the New York, Atlanta, and Chicago Districts, was little changed in the San Francisco District, and characterized as mixed in the St. Louis District. Richmond also reported overall housing activity as mixed, but one contact noted that absent the harsh weather, market conditions might have improved. Adverse weather conditions also hampered home sales and construction in the New York, Philadelphia, and Atlanta Districts. Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30. Philadelphia, Cleveland, Kansas City, and Dallas reported that sales were strongest for low-priced and starter homes, while Dallas cited financing difficulties for high-end homes. Home construction was down or stagnant in most Districts, with the exception of the Minneapolis, Kansas City, and Dallas Districts. Atlanta said the most pronounced weakness was among Georgia homebuilders, and San Francisco attributed weak construction activity to elevated home inventory levels. Home prices mostly remained flat or declined slightly, but signs of improvement were noted in the Boston and San Francisco Districts. A real estate agent in a relatively upscale area of the New York District said prices have continued to drift downward but that short sales were relatively rare and most transactions were still above the mortgage balance.

    Commercial real estate conditions remained weak or declined further in most Districts, although some Districts noted slight stabilization or modest signs of improvement. Commercial real estate activity weakened in the Richmond, Minneapolis, Kansas City, Dallas, and San Francisco Districts, though Dallas noted that leasing fell at a slower rate and San Francisco cited increased leasing in some segments. Boston and Philadelphia said conditions remain weak, but both noted some improvement in sales of commercial space. New York reported softer activity in the New York City area but some steadying in vacancies and rents elsewhere, while St. Louis said activity remained weak throughout the District. Several Districts also noted that many tenants were pushing for, and in some cases receiving, concessions on rents. All Districts reporting on commercial construction said that activity remained weak or slow, except for some moderate boost from federal stimulus projects and other public construction. Credit for commercial development and transactions was still very difficult to obtain in several Districts, though San Francisco noted a slight improvement in financing availability.

    Once again CRE is a total, unmitigated disaster!  How is it possible that this sector is not near it’s lows but is instead up 200% since last March despite absolutely no improvement in conditions (and, arguably getting worse)?  I challenge you to read these two paragraphs and write up a buy premise that doesn’t include "Well you would think things couldn’t get any worse."  Don’t forget, these (CRE) are cash-flow operations and these rent concessions will haunt them for years and, should anything happen to the low-interest free money train that is keeping them solvent – things can fall apart very quickly! 

    Banking and Finance
    Loan demand remained weak across the country. New York, Cleveland, and Kansas City reported decreased demand for most types of loans. Other Districts said loan demand was unchanged but soft. Richmond and Chicago noted that the weak economic outlook was holding back loan demand, and San Francisco said caution about hiring and spending plans was keeping businesses from seeking credit. However, Philadelphia and Richmond reported banks were receiving more inquiries from businesses about loans, and Dallas said contacts were hopeful that loan demand would pick up by the end of the year.

    Most Districts indicated that banks remained cautious about lending. New York, St. Louis, and Kansas City reported somewhat tighter credit standards on commercial real estate loans, and New York noted tighter standards for commercial and industrial loans. In other Districts, credit standards were little changed but remained tight. Atlanta reported that banks had ample liquidity but were reluctant to reduce cash reserves. Chicago said a leveling in asset quality was causing large banks to become more interested in lending to prime borrowers, but strained balance sheets were holding back lending by mid-size banks. In the Dallas District, smaller banks reported that regulatory requirements were limiting their ability to expand real estate lending. Loan quality remained a concern but showed signs of stabilizing in some Districts. New York, Dallas, and San Francisco cited further declines in loan quality. In addition, banks in the Philadelphia and Kansas City Districts were reported to be slightly less pessimistic about future loan quality than in the previous survey.

    I gave "slightly less pessimistic" some green just because I was starting to feel bad for these two paragraphs!  The banking sector is giving CRE a run for it’s money at the most horrifying-sounding section of this report… 

    Agriculture and Natural Resources
    Harsh winter weather continued to dampen overall agricultural activity, although crop conditions were still generally favorable in most Districts. Minneapolis, Kansas City, and Dallas reported that livestock were stressed by severe weather and that producers provided supplemental feed due to poor grazing conditions. Atlanta commented that cold temperatures caused minor freeze damage to vegetable and citrus crops. Despite below-average temperatures, Kansas City reported the winter wheat crop was in generally good condition. Dallas and San Francisco said that heavy rains and snowfall improved soil moisture for this year’s crop production, though some contacts were concerned that spring planting could be delayed if fields remain too wet. Crop prices edged down following the bumper fall harvest, but Chicago noted that high-quality grain was selling at a premium, due in part to strong export demand. Hog and cattle prices strengthened and dairy prices were flat. Kansas City noted stronger farm incomes from crop production, while agricultural lenders in the Minneapolis District expected farm income and spending to decrease.

    Energy activity generally strengthened since the last survey period. Kansas City and Dallas reported increased drilling activity, especially for natural gas, and Cleveland noted increased natural gas-related investment. However, producers in the Kansas City District were concerned that a boost in supply from shale gas production could lower natural gas prices later in the year. Minneapolis reported that oil exploration expanded in February, while oil production was stable in the Atlanta and San Francisco Districts. Coal production in the Cleveland and Kansas City Districts remained below year-ago levels. Minneapolis reported brisk activity in metal mining and continued energy construction.

    Commodities mixed at best and no mention of actual demand for any of this stuff other than Ags.  That is very suspicious. 

    Employment, Wages, and Prices
    The pace of layoffs slowed in most Districts, but hiring plans still remained generally soft. New York cited a slowdown in layoffs at a securities firm and noted a pickup in hiring in what was still characterized as an exceptionally weak legal industry. Staffing firms in the Boston District also saw a strengthening in demand, particularly from the financial and manufacturing sectors. Several manufacturing and construction firms in the Cleveland District began recalling workers, and temporary staffing accelerated in the Richmond, Atlanta, and Chicago Districts. However, Chicago said demand for permanent workers was low, and a manufacturing contact in the Richmond District held back employment due to productivity improvements. Layoffs were also reported at several retail and manufacturing firms in the Dallas District, and Minneapolis said companies in the medical insurance and financial services industries reduced employment. Wage pressures were minimal, but Boston and Cleveland noted a lift in salary freezes and Richmond said wages rose at service and retail businesses.

    The majority of Districts reported limited price pressures, although several noted rising input costs due to higher commodities prices. Boston, Cleveland, Chicago, and Dallas noted an increase in metals prices, particularly steel, and Chicago and Kansas City said the upward pressure on some raw materials prices was likely to continue. Lumber prices rose in the Cleveland and Richmond Districts due in large part to weather-related supply issues. On the other hand, San Francisco reported commodity prices were stable or down, with declines in natural gas, copper, and aluminum prices. Some contacts in the Boston District said customers sought fewer price concessions from vendors in order to better ensure reliable deliveries. But nearly all Districts reported limited pricing power, with many firms unable to increase selling prices due to competitive pressure. Retail prices were stable in most Districts, although San Francisco noted heavy discounting. Districts generally expected stable prices overall heading forward.

    I made the San Francisco comment blue because I have to figure out what they are smoking over there during a month Copper prices went up 20%.  Employment does sound like it’s at least bottoming but the deflation issue is very serious and if we start missing earnings expectation in Q2 – LOOK OUT BELOW!

    We still face either deflation or, at best, stagflation and neither of those are good things.  Keep in mind this stuff is anecdotal and clearly the Fed was cherry-picking some "good" news to offset some generally bad reports.  I am not excited by this Beige Book but it’s nothing I didn’t expect but, of course, I expected our range to be between 9,900 and 10,400 so I don’t have anything to be disappointed about here