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Monday Medical Miracle – Health Care Finally Passes

Paul Krugman summed it up nicely:

There is, as always, a tunnel at the end of the tunnel: We’ll spend years if not decades fixing this thing.

Love it or hate it, the US has just taken a big step towards nationalized health care so maybe now we can finally stop talking about it and move on with the investing!  I think medical devices (IHI) should do well with 32M new patients – that's a play we made quite a while ago though and, like pretty much everything else in this market – they look a little toppy. 

As I noted in the Weekend Wrap-Up, we came to the decision to get back to cash on Friday, removing all uncovered bullish bets and adding our disaster plays, no longer hedges (as there's not much to hedge) but as bets that the Global markets are due for a little correction at this point.  I'm already feeling good about the decision as the futures look awful this morning (8am) as the Hang Seng dropped 2% (437 points) and couldn't get back over 21,000 during the session and has now given up all of March's gains.  The Dow is still up about 400 points in March as well – hopefully our fall won't be as violent as what the Hang Seng saw this morning.  India held up well, only losing 1% after Friday's surprise rate increase. 

The Dollar was very strong after the Health Care vote and we're sitting below $1.50 to the Pound and we've bounced off $1.35 to the Euro twice this morning – a break below there could get very interesting!  The Yen is staying down at 90.5 to the Dollar, which is a relief for Japanese exporters but I'm not sure they'll hold 90 this week.  Copper broke below $3.40 on Friday – confirming our bearish turn and is at $3.32 this morning.  Gold once again is testing $1,100 and silver failed $17 at $16.82 with $16.50 being a bearish signal for metals.  Oil dropped all the way to $79.31 this morning and we'll see if they can get back over $80 but we are going to be thrilled with our short plays (see wrap-up) in that sector

Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg, a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance is bad for risk appetite and good for the dollar.”  Greek bonds tumbled for a third day, with the yield on the two-year note jumping as much as 18 basis points to 5.55 percent. National Bank of Greece SA, the nation’s biggest lender, led stock declines in Athens, sinking as much as 5.3 percent. The cost of insuring against a default on Greek government bonds rose, with credit-default swaps climbing 26 basis points to 356 – something we'll have to keep a close eye on this week. 

Chancellor Merkel told investors they shouldn’t expect this week’s European Union summit to agree on assistance for Greece, resisting calls for the specifics of a rescue plan, which helped send Greek bonds to their lowest in more than three weeks.  Europe is down 1% across the board ahead of the US open as the dollar pushes that $1.35 mark.  There is a lot of concern over in Europe that the ECB and BOE will follow India's Central Bank in raising rates but that concern will not be mirrored by US investors, most of whom are not aware that India has a Central Bank and many of whom, sadly, can't identify India on a map

Something we should all have plenty of practice identifying this year is failing banks.  On Friday, the FDIC shut down 7 banks, bringing our 2010 total to 37, on pace to shatter last year's record of 140!  As I pointed out in yesterday's "Hedging for Disaster – 5 Plays that Make 500% if the Market Falls," the FDIC seems to step in when banks are already critically short of assets.  The pattern we noted on Friday was that the FDIC had to make up 40% of the implied assets to shut down the banks.  In the case of Utah's $1.6Bn Advanta bank, the FDIC could not find anyone willing to take over the operations and the fund took a hit of $636M on that bank alone

The US may not have officially lost it's AAA rating yet but bond investors have voted with their feet as it costs the US government 3.5 basis points more to borrow money for two years than it does for Buffett's BRK/A as well as PG, JNJ and LOW – who have all recently gotten better terms than Uncle Sam on their loans.  The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating.

The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.  “It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”  

While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.  I may have mentioned liking TBT at some point…

What I'm not liking is cracks showing up in the armor of even those companies that serve our top 10% club.  TIF missed estimates despite positive sales growth as gross margins decline due to, you guessed it – rising commodity prices (diamonds and gold) as TIF is yet another corporation that is having trouble passing along costs.  Just as scary as TIF if news that the Four Seasons in Maui has gone delinquent on its $425 million of mortgages.  MSD Capital LP, the private investment firm of Dell Inc. founder Michael Dell and his family, skipped the February payment on the debt as it seeks to restructure the loan

The Four Seasons Maui has struggled in the past year along with most luxury hotels in Hawaii. Its occupancy fell to 60% in last year's third quarter from 79% a year earlier, according to Realpoint. Its net cash flow declined from $32.9 million in 2007 to $10.9 million in the first three quarters of 2009.  MSD Capital bought the Four Seasons Maui for $280 million in 2004. It then refinanced the property in 2006 with the two mortgages totaling $425 million.

What is the world coming to when the Four Seasons can't make their mortgage payments?  Like I said – I'm not regretting our decision to get to cash one bit – sounds like Michael Dell can use some…


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  1. Good morning!

    Just wanted to jot down list of new sector-specific China ETFs:  CHIQ (consumer), CHIX (financials), CHIB (tech), CHIM (materials), CHIE (energy), CHII (Industrials), CHCHIA (cute plant that looks like a pet). 

  2. Good morning, all.  Good day to be short and in cash.

  3. judah - good job holding TZA over the weekend

  4. SS, Thanks.  I think it’s a TZA day today.  Just a question of where support comes.

  5. what is tza

  6. dilbert – TZA = Russell 2000 Bear Index Fund X3

  7. Market going positive?

  8. Good morning!

    Let’s keep an eye on those prior breakout levels and see if they hold up (or get retaken):  Dow 10,767, S&P 1,153, Nasdaq 2,362, NYSE 7,471 and Russell 678.

    So far, we’re getting off lightly with this open but I don’t know if it’s a sign of strength or shock yet….

    For some reason CNBC is spinning the hell out of TIF earnings – saying it’s compensation, not the fact that they couldn’t pass on rising gold and diamond prices, that is hurting their business.  I guess GE is a lot more into getting investors "outraged" over paying workers than paying commodity pushers. 

    BIDU not doing well considering GOOG has China announcement tonight. 

    Oil at $79.32 – congrats to all who shorted last week!   Gold is below $1,100, copper bounced off $3.30 and 10,700 holding so far…

    Our lower breakout levels were:  Dow 10,700, S&P 1,050, Nas 2,350, NYSE 7,400 and Russell 677.  Consider any 2 of 3 of these to be a very bad sign if not re-taken.

    Volume in first 10 mins just 12M so no major conviction to the selling just yet – keep an open mind – they are already pressing the Nasdaq but 10,720 is the key line to watch.

  9. Damn, here comes the buy bots! 

    SOX and Nas were leading the charge but there’s no volume to the move and someone started selling into it – they’ll have to do better than that. 

    As An upside play, I like the DIA 3/31 $108 calls at .58 or the Apr $109 calls at .79 and then you can sell the 3/31 $108s to some other sucker, using 10,720 as a cover line

  10. Good morning,
    Fridays quad witching played hell with the charts, but today is a Monday so I’m in TNA, at least to start.
    Lines at IWM 67.37 and 67.51 and 67.83

  11. Phil I am long 70 April 105 Dia calls with profits, best way to protect w/o selling position?  thinking of selling 108 calls…………thoughts? thanks.

  12. And out of TNA at $53.45 for $1.25 or 2%

  13. sld April VLO 20 puts at .83…..which calls should I sell  20 or 21?

  14. Kicking ass: China’s commerce minister warns the U.S. that it will suffer the most if it launches a "trade war" against China by levying punitive tariffs on Chinese imports. "If the United States uses the exchange rate to start a new trade war," Chen Deming says, "China will be hurt. But the American people and U.S. companies will be hurt even more."

    Beijing "won’t turn a blind eye" to U.S. sanctions imposed because of the yuan, says China’s commerce minister. And if the U.S. labels China a currency manipulator, there’s every chance China will recourse to the international multilateral legal system.

    Kissing ass: BofA’s (BAC) Moynihan heads to China this week for the first time as the bank tries to catch up with rivals in the world’s fastest-growing economy. (previously)

    Dozens of tiny companies have managed to boost their stocks by adding the word "China" to their names, in the same way stocks once got a rise by adding ".com". Investors expecting a trendy name to equal a handsome profit should think again.

    Don’t hold your breath for a Greek aid plan, says Germany’s Merkel, and EU leaders should stop creating “illusions” for markets by building expectations for Greek aid. "Greece isn’t insolvent and therefore the question about assistance isn’t the one we need to be talking about now."

    Fed language calling for near-zero interest rates for an extended period of time should be changed because it is "putting us in a box," St. Louis Fed president James Bullard tells CNBC. "The truth is that it [raising the rate] will depend on the [inflation] data."

    "It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms," Bernanke tells a bankers’ convention. (more)

    If Republicans have their way, Fannie Mae (FNM) and Freddie Mac (FRE) will soon be relegated to the past. House Republicans are recommending the mortgage giants cut their mortgage portfolios by 25%/year for the next four years, until they are phased out entirely.

    Feb. Chicago Fed National Activity Index: -0.64 vs. +0.02 prior. Three-month moving avg. -0.39 vs. -0.16 prior. Three of the four index’s broad categories deteriorated, but it’s the second month in a row that the three-month avg. was higher than at any point since Dec. 2007.

    Solar power relies on subsidies, and those are being slashed in Germany, where First Solar (FSLR -2.9%) made 65% of its sales last year. The stock is already down more than 40% in two years, but WSJ says investors should stay in the shade because panel prices are falling due to oversupply, and the company may struggle to attract outside money to help fund solar farms that use its panels.

    The trial of four Rio Tinto (RTP) employees held in China began today, and so far is not going very well for the miner and its employees. Stern Hu, Rio Tinto’s executive iron ore salesman, admitted to taking bribes, embarrassing Rio which last year called the allegations "without foundation."

    Maybe the future doesn’t hold a double-dip or a V-shaped recovery, and is simply a slow slog out of recession. Calculated Risk backs up his middle-of-the-road forecast by outlining the biggest downside risks facing the economy.

  15. GOOD Morning Phil,
    Still holding the Mar 31 108p  short 1/2 cover shall I wait to expire or roll to April 107 or 108p April 107 .26 108 .72 possible to much to pay thks

  16. thinkorswim down?

  17. nvm my browser problem

  18. Morning Phil,
    This is my current position in SPWRA
    have stock put to me for 19 because i sold puts for 1.60
    sold some more April 19 puts for .70
    and sold April 19 calls on my stocka for .80
    Safe play or get out of soloar all together because of the cut that is going on in germany and rest or europe ?

  19. DIA/Phlit – You are long $22.5K worth of DIA $105s that expire in less than 30 days and you want to protect them?  Cashing them out is a nice way to protect them.  If you are so gung-ho bullish on the Dow then cash out those and you can go for an Apr $107/109 bull call spread at .98, which you can offest almost all the premium of by selling 1/3 May $104 puts for $1.65 and then you have $1.50+ to gain with less at risk. 

    VLO/Phlit – Well if you insist on leaving things on the talbe, I’d go for more coverage like the May $20s at $1.

    DIA/Yodi – They can be rolled to 2x the Apr $104 puts even so it’s hard to get motivated to pay them a .50 premium but I suppose, on the whole, you may as well take them off if we fail 10,720 again as that would be pretty weak.  You should never wait to do your rolls – you do them any time you can for .45 because you are buying $1 of intrinsic value for .45 (.50 is more of a judgment) – when is that not going to be a smart thing to do?

    SPWRA/Micro – I like them long-term.  You are in for net $17.40 and you have another $1.50 on your put/call combo so still $17.40 if you accumulate more and we’re at $18.35 so no change to me.  This was one of two bullish plays I made (selling puts) on Thurs/Fri last week.  Of course I expect everything to go down but then I expect it to come back so it’s a question of what kind of ride you want…

  20. JRW, SS, Well if you can’t beat em, join em, I guess.  Got on TNA when IWM broke 67.51.

  21.  X – Phil you have any short plays you like on X?

  22. From -8 on the /ES futures to this.  All I can say is WOW!

  23. judah / TNA
    Me too, but only 1/2 possition and I’m closing it now at 67.83

  24.  Phil…re your comment…"…medical devices should do well with these 32 m new patient."      It’s  poorly understood that we ALREADY CARE FOR THESE PATIENTS…….we just don’t get paid for it.  We do not turn away nonpaying patients or avoid placing devices in them.  We just don’t get reimbursed once it’s done.   I don’t think devices will be used more just because these patients are insured.  In fact one of the concepts discussed in saving health care dollars is that we  probably use too many devices, and need to find ways to reduce their use.

  25. Made $0.75

  26. Phil, re: my Q
    sld April VLO 20 puts at .83…..which calls should I sell  20 or 21?
    and your answer
    VLO/Phlit – Well if you insist on leaving things on the talbe, I’d go for more coverage like the May $20s at $1
    Q.  Does that mean the small profit in the puts is what I am leaving on the table? 
    Q. Whats more coverage?  Sell May 20 call? or what.
    Phil, sorry for myconfusion but I just want to be clear in my understanding.

  27. DIA Mattress  I’m currently naked with Jun 107/8 Puts.   I want to sell 1/2 covers and am wondering whether do use the Mar30s or the Aprs

  28. JRW,  Thanks. Following your lead, sort of.  Sold half.

  29. Phil, your thoughts on dividends and increasing taxes?  TIA

  30. Phil, is this the right time for a TBT play?

  31. Head fake!!!
    Be prepared – mkt heading for a crash (I hope)

  32. UNG – how low can it go?

  33. JRW,  68.10 still a good line to watch? 

  34. Phil, I see your commends on SPWRA,  today dow an other .45 I am holding the Jan 11  17.5 call long for 10.30 now 3.85 sold the Sep 22 call for 2.31 now 1.32. To make up some of the losses thinking of selling the Sep 18p for 2.55 or even Jan 11 17.5p for 3.25 to make up some of the losses. Your thoughts pls thks

  35. I still hate this market !!
    Short COF …

  36. Nice, quick 25% on DIA calls so kill or cover is a good plan here, setting stop way up at 10,780 in the very least.

    X/BG – They are way too dangerous to short- tempting though it may be. 

    Russell went totally nuts – up 11 (1.5%) in an hour. 

    Devices/Iflan – I think it’s more about the fact that you only see the real emergency cases now as those 32M use the emergency room as their doctor.  Once they start getting tested and referred around, I think there will be an uptick in usage.  Also, the fact that hospitals will get paid for it should help, right? 

    VLO/Phlit – I’m saying if you want to stay with the trade (not cash out) I’d stay conservative.  Yes to selling May $20 calls because $1.05 is better coverage than .60 and oil and gas are falling off a bit. 

    DIA/Eph – The 3/31s don’t give you much protection so it’s smarter to sell 1/2 the Apr $107 puts at $1.21, which at least pays for another roll up on the Junes. 

    Dividends/Oncmed – You mean increasing taxes on dividends?  It’s just 3.8%, I don’t think it’s going to change people’s investing habits. 

    TBT/Phlit – When they are this low ($46.85) then we tend to hgave a lot of success selling puts.  You can sell the Apr $47 puts for .96, which is net $46.04 so I like that play.  The low VIX also makes it good to go long with the Sept $40s at $7.55 (.75 premium) and you can sell those same puts and the May $49 calls at .75 for net $5.84 on the $9 spread with 4 months to roll

    UNG/Fab – I hope that’s it!  I was thinking they would hold $7.50 so hopefully this is blow-off bottom.

  37. JRW, SS, Out of TNA at IWM 68.  Now time for TZA?   Or, since it is a Monday, maybe just relentlessly upward…

  38. judah – No TZA for me until real selling is present.  I am shocked by this move up today.

  39. SS/TZA.  I hear you.  Gave back all my Friday and weekend gains on TZA before I relented.  Poor play on my part, but I just could not believe it, even for a Monday.

  40.  UP?   Monday effect??   New health care bill effect??  Down, down tomorrow??

  41. judah
    Yes 68.10 then 68.26, nice work on that play; I’m thinking we may fade by EOD but we will see. I’m currently set up to short TNA as TZA has been giving me some lousy fills lately. And I have to go off to the airport at 2:00 so that may be it for today; but hey 3+% is not a bad way to start off the week !

  42. SPWRA/Yodi – As long as you REALLY want to buy in at the net then yes to selling the puts.  SPWRA didn’t go lower than $18.50 in Nov ’08 or March ’09 and with $80 oil, I think net $17.50 or less is a crazy cheap price for them. 

    Wow, Oil flew up to $80.66 from $78.86 earlier, gold still below $1,100 and copper $3.35.  I like shorting the oil futures at $81 if we get there.

    Up/Iflan – Who the hell knows – this is crazy.   I guess they are loving the health care bill…

    OK then, raising the bar on the Dow (for stops on the calls) to 10,790 – this is fun!

    With the health care fight moving on to regulators and courts, Congress will have more time to focus on financial reform, as the Senate Banking Committee takes up Dodd’s bill today. "Financial regulatory reform, once passed," Jamie Cox says, "would really wreak havoc on the financial system."

    Germany could act as soon as next week to tax banks for future bailouts, echoing the latest push in the U.S. for systemic-risk regulation, though chancellor Merkel wants some international agreement on such fees.

    Although a 3-5% pullback would not be surprising, Bill Miller’s outlook on U.S. stocks is "quite positive." He especially likes tech stocks because they’re "very cheap," specifically IBM (IBM), Cisco (CSCO) and H-P (HPQ). If corporate profits rise 25% as estimated, Miller says, U.S. economic growth for 2010 may be “considerably better than the consensus expectations.”

    AT&T (T) tries to downplay Verizon’s (VZ) lead in LTE, a new wireless technology. Verizon plans to roll out LTE by year’s end in markets covering 100M people, but AT&T says consumers won’t be able to make much use of it for another two years and by then AT&T will have adopted the technology as well.

  43.  Speaking of CSCO Phil…….There’s a big push to expand high speed broadband capabilities over the coming years (so I’ve heard).  CSCO would benefit greatly from such a push.    LEAPS perhaps?

  44. Thanks for the numbers on gold, copper and oil--is it post weekend buy order pumping up fcx? the chart shows overbought from 77.33 to78.36! why do you think the climbdo you feel it is a good canidate to short this weeK? thanks:) 

  45. You have to expect the tax treatment of dividends will change, in addition to the 3.8%.
    Possibly, dividends will become ordinary income again, at least for high earners.
    The war on success continues.

  46. On the disaster play TBT 2012 40 puts and 50/70 call spread – is it best to sell the puts and buy the 50 call and wait to sell the 70 call portion until the vix goes up or the 70 TBT begins to rise with rates?  The net cost on this is now about $1 vs the .50 in your writeup.

  47. As for medical devices – I started a med device co and it has seen a huge pickup in the down economy because IT IS reimbursed by insurance.  Cosmetic things are out, covered procedures are in.  These are all things that are required by docs, not elective surgeries nor diagnostic tests, where some of the so called ‘wastes’ are.  With stints being on the out (JNJ, ABT, Medtronic, BSX), non-invasive procedures and other diagnostic ‘tests’ will be used for cardiovascular diseases, which are cheaper and more cost effective (for now).  Long term, who knows.

  48.  War on success, indeed.  Welcome to the world of the democrat.  

  49. SIRI -  april 1 putter from 100K recommend — should I adjust or to early to adjust . thx

  50. Phil, I bought SONC JUNE $10/12.5 call spread @0.93 and cashed out the $12.5 calls for a profit a while back. So I’m now left with the $10 calls. Should I sell calls against the $10 calls again?  thanks

  51. Tests for cancer WILL be necessity though.  GPRO, MYGN, and others will benefit as well.

  52. Lots of browser problems – any recommendations for an alternative?

  53. Gel, Firefox.

  54.  Gel, Chrome

  55. Phil,
    I’m holding a MYL ‘ Jan 15c.  What should I write against it this time, trying to protect 3.70 profit? (Thx Pharm!)

  56.  Pharmboy……Cancer…….a word that puts fear into people.  Seems money always flows toward this entity.    
    Diagnostic tests.   Here’s a factoid.   Cardiologists are losing their lock on the lucrative market of diagnostic angiography and stent placement as evidence accumulates that the former is often unnecessary and the latter often ineffectual.  As they lose these they are moving into areas where they have no formal training but have the technical skills to do stuff that pays. Their hospitals let them do this because they also profit.    Examples are placing stents and other devices in the peripheral vessels and reading (interpreting) coronary CTAs (computerized angiograms, an xray study).  They also set up vascular labs in their offices and do ultrasound and other studies on peripheral vessels (none of them near the heart, or even related to the heart).  As always, the clever physician will find a way to game the system and  continue to make money.  These are concepts that lawmakers and policy makers understand poorly, probably because they can’t believe that a physician would do something for which he has little training, just to make money.  As an insider, I see it regularly and clearly.  I’m not sure the health care bill addresses such activity AT ALL.  I doubt it.  

  57. Phil, Whats the rule re adjusting option positions?  When the premium is less than 25%? thanks Phlit

  58. Europe finished near the day’s highs but still all red.

    CSCO/Iflan – Yes, we did CSCO before that "big" announcement.  I like GOOG (who own 1/2 the world’s dark fiber) and CSCO for that premise but not CSCO way up here.  When they retest $24.50 or even maybe $23 is the time to get back in.  On that basis, if you think you’ll miss out, you can buy the Jan $27.50s for $1.85 and sell May $26s for $1.15, which is a nice .70 spread with lots of time to roll.  You may need to DD on the longs and roll the caller to 2x if they fly up – but I doubt it. 

    Commodities/Iprsosp – We’re in this total environment where people have been conditioned to buy on dips so sub $80 oil and sub $1,100 gold and even sub $3.40 copper is being treated like a huge buying opportunity.  The gold bugs don’t argue about whether gold is going up or down, they argue about whether it will be $2,000 or $5,000 and there are web sites and TV commercials just whipping them into a frenzy every day.  The market can remain irrational far longer than the bears can remain solvent in this case because, as I’ve mentioned before, there is only $5.5Tn worth of gold on the planet earth (5Bn ounces) and 1/2 is in the ground and 3/4 of what’s out of the ground is in people’s homes.  That leaves just about $600Bn worth of gold in the whole world to be traded vs $2.5Tn worth of oil per year.  

    Unlike oil – gold doesn’t need to find a consumer for the 600M ounces that are being used for trading and reseves and, unlike oil, the equivalent of all the currently traded reserves won’t be pulled out of the ground again next year.  The US’s 8,000 tons of gold is about 260M ounces ($286Bn) or 1/3 of all the invested and reserved gold in the World. 

    So gold is, on the whole, a silly thing to invest in.  Oil is much, much sillier though as they are making it much faster than gold and on a storage space to value ratio, gold wins by a factor of about 1,000 to 1. 

    Speaking of oil, they hit our mark for a short at $81!  Futures shorts are on as is USO $38 puts, back at .66.

  59. Pharmboy, you were liking RNN under a dollar but I missed it, and it’s made a strong move lately.  What’s the news and do you think it’s going higher?

  60. iflan – VOLC makes a device for looking at the plaques in the arteries (which is why I recommended them).  These are critical for understanding PAD and help in treatment modalities, and SPNC makes a device for blasting these plaques out, so stints need not be put in (our private company is competing with SPNC).  VIAP has a small molecule for reducing the size of the plaques (in clinical trials, which is why I like them for 13c – I am in at 19c).   Europe is also buying devices (from our private company data, as is Asia).  I am after economies of scale with patient populations, and devices are one way to do it and cheaper than stints and drugs at this point.
    Look at psoriasis, which is stratisfied into severe, moderate and mild.  75% of the population is in the mild category, and would you give Enbril for it (20K/yr).  Devices are reimbursed at $165/pop, and it takes 7-10 treatments for 6-12 mo of remission.  That is a fraction of the costs.  This is just one example.
    As for cancer, that is in my latest writeup which should be out later today or tomorrow.  Cancer, Immunological disorders are the next wave for Pharma and devices/diagnostics.

  61. Hi Phil : On my Bull call positions where I also sold puts, are u recommending I close out the "put" side of the spread.

  62. Iflan/CSCO
    If you like CSCO, then you will also like JNPR ( Juniper Networks ) . I have both.

  63. RNN/mrm – yes….that is a run up, and out for a while now.  I hate chasing, but an initial 1/5 entry would be ok.  ARIA, CRIS and others have also moved substantially the past few weeks.  Could this be the spring/summer run for biotechs.

  64. Pharm- what do you think of hnsn?

  65. War on success/Barf – You mean like the $10Tn of household net worth (1/3) that was wiped out by the financial crisis that those poor suckers had nothing to do with or the way that the US’s 400 Billionaires gained an average of $500M each last year ($200Bn) at the same time? 

    TBT/Sarah – "Best" is a funny word.  I’m not really in favor of taking a well-designed spread with a lot of built-in tolerance and turning it into a gamble because 700% isn’t enough return.  As far as timing though, there is nothing wrong with FIRST selling the naked put on the way down becasue, if we keep going down, you can roll the put to 2x a lower put and set up the vertical at much lower strikes and, if we head back up, you can still do the bull vertical or you can just leave the naked put sale as a nice win.  For scaling in as well, you can pick up say 5 of 20 intended contracts and add 2 at a time when the stock moves in favor of one of the plays but don’t let yourself get unbalanced by more than 2 at any time. 

    GPRO, MYGN/Pharm – That’s a nice place to start. 

    SIRI/Gucci – We REALLY want to own SIRI for net .85 so not likely we’re going to do anything at all. 

    SONC/Jossi – The premiums really suck I think if you can get $1.50 you should take it. 

    Browser/Gel – Have you made sure you have latest version of IE?  Sometimes easier than switching platforms. 

    MYL/Ac – Think about it mechanically, you will sell (for example) $22.50 calls for .80 against your $8.10 position and that has .50 in premium with 10% downside protection (just a 5% drop in MYL).  If you have a 50% profit and you want to protect it – what do you think your upside is here.  Selling the caller caps you out so $2 would be a lot to make over the next 6 months.  Meanwhile, you can cash out $8.10, buy 2x the Jan $22/22.50 bull call spread for $1.50 ($3) with $2 more upside if MYL simply hold $22.50 and you can lower that with the sale of 1x the 2012 $17.50s at $1.20.  Since you are committed at net $23 now, those would be a huge bargain if put to you, right?  Now you have 2x the $2.50 spread at net .90 each with $3.20 in total upside if MYL holds $22.50 so you can still sell 1x May $23s for .90 to knock yet another .45 off the longs, keeping in mind you make $3.20 at $23 so you can roll and roll the caller and unless MYL hits $26.20 at least, you don’t lose a thing.

    Adjusting/Phlit – Generally, when the premium is less than 25% of the sold option – it’s time to re-evaluate.  You always have to weigh the protection aspect of the option you sold, not just whether or not you can squeeze more profit. 

    Puts/Dflam – Not if you REALLY don’t mind having it put to you at that price.  I may be unwilling to stay long on AAPL at $225 but that wouldn’t mean I would buy back my short Jan $190 puts, now $8 because I REALLY want to buy more at net $182 and I know that, even if they do drop $40 – I will not freak out and I will still want them.  As long as you have conviction – then the premium from the putters is just free money to collect.

    Picks for a new healthcare era: Analysts say Aetna (AET +0.6%) and Medicaid-focused providers like UnitedHealth (UNH -1.6%) and Centene (CNC +6.4%) should see incremental pickups in results.

  66. DCTH – data to be released this month.  Taking less risk, June 5/7.5 bull call spread is $1.  I am buying the May 5s for 2.20.  DCTH makes a device for giving chemotherapeutics directly to the tumors, reducing the side effects.

  67. HNSN/jro – David played them a while ago.  At 2.16, a small position is fine.  I don’t know much about the technology, but it is in the cardiospace for devices.  They were at $30 a while ago, and $8.  Problem is catheters is in their technology. Something that is out of favor.  When things are out of favor, may be a buy opportunity, but be prepared to DD several times.

  68. Doug Kass capitulates…?
    "All this said, I have been wrong — at least, Mr. Market has been saying so!

    The discipline of recognizing the errors in the timing of one’s analysis and, even more important, respecting Mr. Market’s price action are integral parts of the investment equation — whether or not the price action is later confirmed or unconfirmed by the fundamentals."

  69. Speaking of dividends – let’s say you made $1M in dividends last year and you have to pay $38,000 as your share of the new tax.  Do you really think the law is out to get you?  BCS, by contrast, collects $8Bn in dividends and $304M is their share of the tax – they are the ones paying for the program, not you!  It’s the same thing with Bush tax cuts – the top 1% paid $500Bn less over 10 years but the top 0.1% paid $3.5Tn less.  If you are in the top 0.1% (earning at least $3M per year) - God bless you that’s fantastic but surely there must be some recognition that $3M is more money than over 100 families in the bottom 40% make in a year and that 10% of that money ($300K) makes a tremendous difference in the lifestyle of people who earn an average of $25,000 for a family of 4 while $300,000 out of $3M has virtually zero impact on your lifestyle. 

    There are tax-free places to live in the world and if you can do your business there and paying no taxes is your priority in life then you can sure vote with your feet but if you choose to live in America and enjoy what this society has to offer, then accept the need to support some of the less fortunate members of this society and you can possibly enjoy what you have and what you give up a little more.  Just a thought…

    There’s a good article in the Times by Roger Lowenstien of Sequoia called "Who Needs Wall Street?"  Like me, he’s one of those misguided capitalists with a social conscience but I thought it was a good read. 

  70. Hello all. I have a new Buy of the Week up in China Automotive Systems Inc. (CAAS). Read about why I think CAAS is a great play for this week and could be worth 3-5% before it even releases earnings. Check it out here.

    Good Investing

  71.  Phil, what do you think of SWN here?  I know they have a heavy bias on natural gas, but they seem to be a well managed company with E&P as well.
    Congrats on the vote last night.  I have officially started my 10 year plan towards my exit from medicine.  Next plan is to be slum lord and take obama money for apartments.

  72. Just bought 1000 shares of Boston Beer (SAM). – Samuel Adams They are the largest specialty beer brand. 4th quarter profts have doubled. Big margins and no debt.. This is my health care play, as with free health care, then that will leave lots of money for the beer.

  73. Shorting TNA at $55.30

  74. Out at $55.36 for a $0.06 loss

  75. Kass/Pyern – Well it’s game over for the bears I guess…

    Good plan Jo!  I’d avoid SWN this time of year.  Last year was unusual but look at the June – Sept periods of ’07 and ’08.

    SAM/Gel – That’s mighty good thinking! 

    Three lunchtime reads:
    1) The evolution of brand name investing
    2) Forbes: Health reform’s winners and losers
    3) Finding in foreclosure a beginning, not an end

  76. adjusting question from phlit — your answer was when the premium is less than sold option, could you show me in my example of AAPl, I sold april 210 call for 5.04 now the premium is 17.20, are you lookinh at the current premium and 25% of 17.2 is about 4.25 which is less than 5.04 I sold so I should go ahead and roll to Jan 12 250 caller for 15.55 credit.  Is this how you calculate the 25% — Please correct me if I am wrong thanks ahead

  77. JRW
    how do you short TNA? it give me message that it is not available for borrowing

  78. JRW,  Joined you for that short, uneventful ride via TZA.  Lost a penny.   Last week, 68.50 was significant.  I’m waiting until there.

  79. Jo/Apartments – LOL

  80. Finally I found a nice layout for the week’s events!

    Tuesday, Mar. 23

    6:00 Fed’s Plosser: ‘Benefits of Policy Rules in an Uncertain Economic Environment’

    7:45 ICSC Retail Store Sales

    8:55 Redbook Chain Store Sales

    10:00 Existing Home Sales

    10:00 FHFA Housing Price Index

    10:00 Richmond Fed Mfg.

    3:00 PM Fed’s Yellen: ‘Economic Outlook’

    5:00 PM ABC Consumer Confidence Index

    • Notable premarket earnings: CCL, KBH, WAG

    • Notable postmarket earnings: ADBE, DRI, JBL, SONC

    Wednesday, Mar. 24

    7:00 MBA Mortgage Applications

    8:30 Durable Goods

    10:00 New Home Sales

    10:30 EIA Petroleum Inventories

    10:45 Fed’s Hoenig: ‘Financial Foundation for Main Street’

    1:00 PM 5-Yr Note Auction

    • Notable premarket earnings: CMC, GIS, LEN

    • Notable postmarket earnings: CKR, PAYX, RHT

    Thursday, Mar. 25

    8:30 Initial Jobless Claims

    9:10 Fed’s Pianalto: Market Pulse event

    10:30 EIA Natural Gas Inventory

    11:00 Fed’s Bernanke testifies

    1:00 PM 7-Yr Note Auction

    4:30 PM Fed Balance Sheet

    4:30 PM Money Supply

    • Notable premarket earnings: CAAS, CAG, BBY

    • Notable postmarket earnings: ACN, ORCL, TIBX, WTSLA

    Friday, Mar. 26

    8:30 GDP Q4

    9:55 Reuters/UofM Consumer Sentiment

    11:30 Fed’s Warsh: ‘Maintaining Central Bank Independence’

  81. that is an impressive layout. maybe i ll stop working on my taxes & read all afternoon :)

  82.  gel – I’m gonna be a slum dog millionaire :) .   Seriously, plenty of people who have apartment complexes in phoenix who are overleveraged.  Some of these places can be turned into the type of places that get on the govt dole.  If their dishing out the money, might as well join the movement. 

  83. WSM having a nice day.  Maybe in those apts Jomama, you can include a mixer, knives, and other goodies…..

  84. tch / short
    I used my own stock from the non-daytrading part of my portfolio

  85. I like selling the TNA $55 calls here for $3.30 on the thought they top out here again. 

    TZA $6 calls are $1.20 and that’s just .09 premium, also a fun way to play but maybe cheaper into the close so scaling is essential!

    AAPL/Gucci – The premium is not $17.20.  The $210 caller has $15.27 of intrinsic value and $1.93 of premium.  That’s what I mean by 25% (yours is closer to 10% now).  So action should have been taken sooner as you are past the point of diminishing returns.  I don’t know why you’d want to roll way out to 2012.  For one thing, I think AAPL can be much higher than $250 given 2 years and, for another thing, you will barely make a penny, even on a downturn, from that far out.  Sell premium, sell premium, and, when in doubt, sell premium but there are 2 components to premium selling:  How far out of the money and time value.  If you roll the Apr $210 caller with $1.93 in premium to the May $220 calls at $14.20 it will cost you $2.50 to make the roll but you are pushing your caller out of $10 of intrinsic value and into $9 of premium while sacrificing a month of time.   Those are your considerations for a roll. 

    For this particular problem, you should perhaps consider rolling the current caller up to 1.5x the May $220s and, if AAPL breaks through $226, you can sell 1x the $220 puts (now $8.80) to cover as you can’t lose on both sides and maybe you make a few bucks and then remove the puts again when they look toppy.

  86. Pharmboy, thanks for telling me to cut and run on CTIC!  They’re a "house of pain" today!

  87. Well, I have to catch a plane; good hunting to all. IWM is above resistance so be careful !!

  88.  nice pharm!  

  89. Jomama … SWN very cheap here as long as Nat Gas doesn’t collapse .. IMO.

  90. Shorting COF again ….  been good for scalping …. very pricey here but in the grips of the algos

  91. Phil: what do you think about this:
    The disparity between six-year oil at $86 a barrel in the commodity market and large cap oil producers at a median $58 a barrel in the stock market points to opportunity, we believe, in recommended high quality producers like ExxonMobil (XOM), Canadian Oil Sands Trust (COSWF.PK), Total (TOT), Chevron (CVX), PetroChina (PTR) and ConocoPhillips (COP).
    Trading above the 40-week average of $83, oil for the next six years acts like it has to be part of global economic growth and that new supplies do not come cheaply. Oil does look cheap in oil stocks, which live in the shadow of governments who would like to load them down with more taxes. Ironically, higher taxes only drive up oil prices more, as we see it. Nonetheless, there can always be negative surprises in commodity prices or government actions.
    We think the gap between 86 and 58 is more than wide enough to cushion moderate risk in committing to high quality producers. We measure the price of oil in the stock market by multiplying the median McDep Ratio of 0.77 by $75 a barrel, which is our long-term price assumption used in calculating the denominator of the McDep Ratio. There is a rich suite of attractive stocks at low McDep Ratios in our continuous analysis.

  92. Jo…. good long term payout, but the grief factor would make it too painful for me. Fundamentals and timing is right tho.

  93.  PHARM, what do you think of Celgene here?  close to 52 week high, but their fundamentals look pretty good.  The new reform really favors patent holders imho?  your thoughts are always welcome.

  94.  gel, grief is relative.  

  95. Oil/RMM – Well you have to consider that those barrels of oil get more and more expensive to extract as they scrape closer to the bottom of their reserves so you can’t assume they are more profitable at $86 over 6 years, especially as that’s about 1% annual inflation.  Oil is priced at $86 on the strip because it’s a commodity that’s being used to hedge against a projected weak dollar – if the dollar turns out not to be weak, then oil prices could collapse.  If demand turns out not to rise over 6 years – then oil prices could collapse too.  If you think about it, anyone buying a barrel of oil now for $81 when the 6-year projected price in the same futures market is $86 is kind of nuts since a TBill pays much more than that.  So if you are buying it, you must think $86 is wrong while somehow believing $81 is right???  See where it falls apart? 

    XOM (which I do like long-term) is valued at $300Bn has 23Bn barrels in reserves (1/2 is nat gas equivalent).  At $80 per barrel that’s $1.8Tn and at $58 a barrel that’s still $1.3Tn so is XOM the most amazingly undervalued company in the history of the Universe or are there many, many other factors that will affect them over time and also – is it possible that oil at $80 is ridiculously priced and the people who buy oil company stocks for a living know it?

  96.  morx…taxes?  fuggidaboudit.  I never file personal  taxes until after April 15th.  I’m 1 in 126  who does so regularly, according to my tax guy.   He and I both like this, as he has more time for MY taxes.  Everyone else is done.  So every April he automatically files an extension.  I call him in March.  

  97. Jo… Before to take that step, get a bulletproof vest and a couple of bodyguards, and take a walk through Cabrini – Green project in Chicago. When I was in the medical equipment manufacturing business, I took a tour of some OEO facilities with the Director, as part of a requirement to get a multi-million dollar contract. It was profitable and was a profound education for me. Reminded me of a visit I made to the slums in Beiruit – same stuff !

  98. SS, You around today? 

  99. Phil, Do you see a possible put spread play on SHLD or are they not to be messed with? 

  100. judah – yep.

  101. David… I’m in your CAAS play – I like that one. I wish they had options as it would be great for leverage.

  102. SS, I’m not playing the Stick at these levels, not after the run this morning.  But waiting for a sell-off is getting old.  I may pack it in early and go play with my kids.  You waiting for anything?

  103. Jo – anything at highs scares me, but….that being said, I would enter cautiously and build on the position.  The candle from Friday is large and bearish, so maybe a 1/4 entry and selling the $62.5 Apr10 P for $1, being prepared to roll down as $60 May10s are $1.40.  I would not buy any longs at this point unless there is a pullback.

  104. judah – I agree.

  105. From the trenches: 
    While much of the analysis around the passage of the bill centered on insurers, which gain an estimated 20 million customers at a cost of being required to take all comers, analysts were also quick to gauge some big advantages for the biopharma industry. Biotech’s big gain here is approval of a provision that provides 12 years of data exclusivity for new biologics. Biotech lobbyists had pressed hard for this, marshalling enough support from lawmakers to overcome the objections of leading Democrats, including Henry Waxman as well as President Obama, who both wanted a much smaller window of market protection.
    BIO CEO Jim Greenwood, who got exactly what he was looking for in the legislation, called it a clear win for the biotech industry. "This provision includes the incentives necessary to attract the massive investment required to speed the discovery and development of the next generation of breakthrough therapies and potential cures for the world’s most debilitating diseases," he said in a prepared statement.
    Ira Loss, an analyst for Washington Analysis, tells the
    Wall Street Journal
    that drug makers probably came out of the legislative wrangle better than any other industry involved in healthcare. There is a new tax on drug sales beginning next year and the pharma industry will have to shell out a few billion more for reform than originally intended. But a whole slate of issues, from reimportation to delaying generic sales, came down in the industry’s favor, much to the disdain of consumer advocates.

  106. In case anyone cares – BIDU appears to be in motion …

  107. check out BIDU

  108. Pharm- re your last post, i dont know much about the space but have been reading in past week.
    Who stands to benefit in bio-pharma? Who do you like best?
    Also, any thoughts on heathcare IT like EM and MDAS?
    Last, your thoughts on ESRX? I really like them…they are generating huge increases in cash flow as a result of their acquisition of WLP’s PBM business…they are forcing patients to opt-in to retail pick-up (rather than opt-out of mail delivery). Mail-order has much higher margins and this will drive increased profits.

  109. Phil
    I have a very large position in GOOG with a small amount of covered calls. A lot of pundits are strong on the Tech sector, and I would appreciate your sentiment reflecting the next few months for this stock

  110. SHLD/Bord – As they are very much a CRE play I’ve stayed away but that sector has done way better than I thought possible.  To me though, the risks of playig them just outweigh the rewards above $100.

    BIDU – Crazy moves! 

    Canadian firms are bracing for parity between the loonie and the dollar, a situation that’s likely to last given Canada’s relatively strong fiscal position. When the loonie last hit parity with the dollar, in 2007, Canadian manufacturers’ profits collapsed.

    Valuations look stretched, based on trailing fundamentals and expected operating profits. Although strong stock performance has often followed periods where the yield curve was steep, as is the case today, these periods typically coincided with valuations far below current levels.

    Internet retailer Systemax (SYX +5.5%) moves into brick and mortar, gambling on a couple of damaged but recognizable brands: CompUSA and Circuit City. It purchased the names at fire-sale prices and will stick them on its stores. "Recession hurts, but it also creates opportunities that would not have existed otherwise," says Systemax’s CEO.

    Looking down the road: In today’s economy, too many job seekers are chasing too few job openings. But two economists say the situation could reverse itself as soon as 2018, with retiring baby boomers leading to too many open jobs

    Even though bullishness is currently lower than its peak of a few months ago, it nevertheless remains high. Plus, a survey of past bull-market peaks shows that sentiment tends to reach its peak well before the market itself tops out. Mark Hulbert’s conclusion: It’s good news, but perhaps no more than a "silver lining in a very dark cloud."

  111. They like it!  They really like it!! 
    If Wall St is all knowing then one would have to deduce that ramming through health care is just fine and dandy for investors.  On the other hand, it could just be that stocks have very little if anything to do with fundamentals/ news  and everything to do with liquidity in the market.  And we’ve all heard that ain’t goin anywhere.. so to the moon, Alice!

  112. From Yahoo news: "Up until today the S&P 500 hasn’t had a correction of more than 0.25% for 17 consecutive days. Last Friday, the Nasdaq closed up for the 13th straight session, something that hasn’t happened in nearly 20 years." I guess I chose the worst time during the last 20 years to be bearish on the market …

  113.  Re BIDU- What does it mean that is redirecting traffic to the Hong Kong server. Couldnt the Chinese already do that anyways 

  114. Biotechs/SNS – BIIB  and BioMarin are two I am liking for many reasons.  My writeup has a few others.  Don’t know as much about IT, but GE, GOOG and CERN are the leaders.  EM is cheap and should benefit (I wrote about them last year).  ESRX is doing quite well, and this area will grow. I will have to look at the underlying, as I think they are all takeover candidates from generics…..JMHO.  Medco is my favorite followed by CHSI (I mentioned them here at $23).

  115. GOOG/Gel – I like them long-term but I’d sure cover up here just in case this China thing is taken poorly.  You can get $24.50 for the May $560s and a 2/3 cover with those is reasonable protection.  If they have a big sell-off, I’ll be very happy to sell puts and make aggressive upside plays because GOOG will get along just fine with China but they may test $500 before anyone has a chance to find that out. 

    Liking it/Matt – Didn’t you get the memo?  If the market goes down, that’s proof that Obama and the Democratic Congress are failing the American people but, if the market goes up, it’s DESPITE their idiotic policies.  Make sure you have that right…  8-)

    Timing/Agourgy – Yep it’s been a hell of a month, that’s for sure!  You just have to learn to be very happy with quick profits on the bear side because that’s the only kind they let you have.

  116. GOOG -  hi Phil How should I adjust this put spread Sept 570 long put and short 550call, should I roll up the put and call together and what strike should I pick , thx

  117.  This market up today…..IF it has anything to do with the health care bill, the effects of this won’t really be felt for YEARS.   Isn’t this a good time to get real short Phil?

  118. Phil/Goog
    Good strategy… thanks !

  119.  I also like your GOOG assessment Phil.   I’ve pulled my longs today and will wait for the sucking sound tomorrow, thinking we might get back in nearer $500

  120. GOOG/Oncmed – It means GOOG dropped their .cn name so no longer operating under China law.  China can block the non .cn traffic but now the move is up to them to cut off GOOG to their users. 

    How about this GOOG news?

    BRUSSELS—A landmark ruling at Europe’s highest court on Tuesday will determine whether advertisements that pop up alongside Internet search results when consumers search for brand names such as Louis Vuitton violate European trademark laws.

    The court will also rule whether Internet giant Google Inc. can be held liable for any breaches of trademarks in advertisements that appear on its Web site.

    A finding against Google will have wide implications for the multibillion dollar Internet search industry where Google, Yahoo Inc., Microsoft Inc.’s Bing and other search engines generate valuable revenue by enabling advertisers to tag their ads to particular search words, often famous brands.

    GOOG/Gucci – If that’s a $550 CALL, then I think it’s fine but it’s not what I call a spread as it’s a very bearish bet on GOOG so just make sure you take the money and run on one side or another.  If it’s a $550 puts, I’d lighten up a little to take advantage of a possible sell-off.  It’s a good bet the won’t be upgrading GOOG on the loss of China.

    Bearish/Iflan – Today is a fantastic example of why I wanted to go to cash.   Killed the bulls in the morning, killed the bears the rest of the day.  As I said last week I want to give it until Easter to settle out and show us a real direction. 

    This is another low-volume waste of time with Dow at 103M at 3:20 by the way,  Keep in mind the stock market is like an auction and trying to determine value and going so far as to draw charts based on the action in an auction house where 80% of the seats are empty and then applying that logic to $40Tn worth of merchandise is just a little crazy…

  121. Phil,
    I ran to the store and not sure if I missed the chance to get out of TNA 55c w/ a profit. Is that a "conviction" short that I should look to ride and roll? The chart seems to look so. Thanks.

  122. Pharm- Txs…where can I find the write-up you mentioned?

  123. SOX up 2.5% – this is like a replay of last week. 

    If XOM and CVX were up 1% with oil, the Dow would be up 20 more points. 

    TNA/AC – Because of the low volume, I’d say it can be held.  TNA peaked out at $57 last week and we can sell $57 puts to cover (now $4.30) if they start to get away.  

  124. Google (GOOG -0.1%) confirms via its blog that it has stopped censoring search services on and is redirecting visitors to uncensored search at The company says the action is entirely legal, and it will continue R&D work in China and maintain a sales presence there.

    This is not a full retreat for GOOG – not what BIDU was looking for. 

  125. fcx was up 3.00 today; what are your charts confirming? thanks:)

  126. dear phil.
    I have TBT Jun 47-54 vertical call spread at $2.5. What do you recommend?

  127.  I’ve purchased some more DIA puts.  More short than long now.

  128. FCX/Iprosper – They need gold over $1,110 and copper over $3.40 to sustain $80.

    Good Zacks summary of SPWRA.

    TBT/Drum – I recommend keeping in mind that there are 3 months to go.   I’d offer $1 to roll down $2 to the $45 puts and, if you get that, you might want to consider selling the $45 puts for $1 to offset that cost.  That would keep you at net $2.50 but about $1.50 in the money. 

  129. Phil, It seems the Dow is having difficulty holding 10,800…..

  130. Write-up is out here….

  131. 10.800/1020 – It’s amazing.  We’re being led by health care today of all days and Autos, Construction (even though we just posted record low numbers), Retail and, of course, Transportation as oil is back to $82.  Oh well, what can you do?

  132. Phil – buy Buy BUY!  ;)

  133. Actually, I’d like to short what Doug Kass is buying – Dougie has been wrong since Mar.09……

  134. All right – what a way to start the week!

     Investors seeking signals that equities will keep rising are finding them in industries most tied to the economy. While bears say the gains aren’t justified by earnings and that shares are climbing too fast, Stephen Leiber sees more profit growth ahead: “This is not a junk stock rally… This is a restoration-of-confidence rally."

    As EU divisions deepen and a settlement of the Greece crisis looks increasingly unlikely, a partial dissolution of the monetary union could be around the corner. "This development would have far-reaching ramifications which are far from well understood, to put it mildly," Yves Smith says.

  135. 1020,
    I agree. Isn’t the capitulation of the last holdout bears, one of the indicators?! I’m surprised Phil didn’t mention it.

  136. Check out Obama,  57 states?

  137. Hi Phil I thought I wait till after the market to asked you on the AAPL question, so the intrinsic number that  you get is fromthe TOS platform aprill 210 caller right now I am looking at AAPL 210 caller, it said intrinsic 14.75 and extrinsic is 1.675, so the premium left is the extrinsic value right at 1.675 right now, and this is about 11% of the extrinsic value of 14.75.  If i get your calculation right this time, then I know what to look for from now on, I have been using wrong calculation, no wonder my option has not been working at all, and my roller is all wrong, I will need your guidance to correct my roll up and out on some of my caller, please understand that I am just learning for the last two mos — I know if this is annoying you I will understand …. thx

  138. Howdy short stranglers,
    What a day!  Our short strangles with negative Delta was sitting pretty this morning.  Until the tide rose again!  In between meetings and portfolio adjustments, I didn’t have a chance to get on PSW until now. 
    What I did was just running away from the rising market like crazy.  With the March puts expired, it freed up a lot of margin.  So I roll 2x some callers up, then flip some short calls to short puts.  Since the puts can be further out of the money (with the same dollar amount as the calls), they can go down in value quickly, even with 2-3 months to expiration.  As the market goes up, we can get more aggressive with higher puts, knowing that SPX 1,000 level probably holds up for a while (don’t quote me on it though, hihihi).

    When the market goes down, we need to sell more calls to cover, or flipping putters back to callers.  As long as we get close to even on the flip, we don’t loose if they expired out of the money.  While these adjustments happen, the clock is still running, and the OTM options keep decaying, and we should buy them back later to reduce risks.  For example, the RUT April 600 puts were $1.8 on Friday, they are now $0.95!  In 3-4 days, they could be down to $0.5 if the market is flat.  As we’ll have a boatload of these short puts, we need to buy them back, just in case the market drops 5% on us.  We can always sell a higher put if the bullish trend continues, or sell the same strikes for more if the market turns south.  With all these adjustments, my portfolio managed to be up 1% for the day.  This was because the short puts gave back all their gain when VIX surged last Friday.

    All these actions are a stop gap measure only, not our normal strategy.  We went from 1X to 2X to 4X, so now we need to manage the 4X for another 2 weeks, to give a chance for our account balances to regain their highs, then we’ll cut down on the number of contracts.

  139.  It’s after hours, and the GOOG thing in China is all about censorship.   I find it an interesting subject.  Most people don’t realize how common it is in the U.S., much less China.    The internet here is highly censored; so are other forms of communication.  And so is the government.    It serves many purposes, some seemingly benign, others not.  In most cases it’s a form of control over others, I believe.  I find it generally objectionable, but ubiquitous.  Others don’t even realize it’s occurring.  Good subject for an evening’s discussion over a few beers, uncensored.  

  140. iflan… Yes, good idea, but make that beer a Samuel Adams if you don’t mind !

  141. Hi, Peter,
    Can you give us some examples of your flips?  Which strike & month to flip to which strike months?
    What kind of delta do you try to maintain for your SPX/RUT strangles?  I guess this delta should be relative to the total size of the strangles?  A -500 delta on a total $500K of strangles is not the same as -500 delta on $5M?  So perhaps the target delta should be a % of the portfolio size?
    Perhaps you can suggest some actions for those positions in my portfolio that are being threatened: RUT April 690 calls and SPX April 1180 calls and SPX MAY 1160 calls (a BIG Ouch!), all of which are results of several rolls.

  142. Hi Phil sorry I was so busy at work today- I run a medical clinic and what a day today — About GOOG it is a bearish position that you recommended back in february when GOOG was around 520 ish but you have mention that Sept is too early to adjust so I didnot do any thing, the position does not look good right now unless GOOG having a sell off tomorrow.this is the original position opened in feb 25
    sold sept GOOG 510put at $34.75
    bot sept 570 put at $68.65
    sold sept 550 call at $27.65 , net debit $6.25 for the trade, I did not know what I was doing when GOOG run up to $583 I bought back the sept 510 putter on march 11 for $18.90, I should have keep the spread alone and asked you how to adjust the whole thing instead of buy back the puttter and possible sell the sept 510put again for a higher premium when goog go down,  I know now it may not work out the way I was thinking, so now you know the original position, I think you were bearish at GOOG b/c of what happen in Europe that you have menttion before that is why I open the position back then , but market is so crazy —  if GOOG longterm still bullish, could you help me with what I have now or abandon the position and take the loss which I prefer not,  should I sell the sept 530 put  and rolled the both 570 long put and 550 short call up at the same time to sept 600 long put and sell sept 570 call, all for a net cost $2.25 to trade, hopefully I can sell some from month put to get back $ 2.25 next 5 mos.  what do yo think master Phil

  143. Peter
    when you flip and sell more puts do you buy same amount of put spreads?

  144. Hi Cwan,
    It’s a good idea to work through an example.  Say we have 10 RUT Apr 690 callers, and 10 Apr 480 putters (right?), we can roll the callers 2X to 700 or 3X to 710 (preferred).  The 710 calls gained $0.975, while the 700 calls gained $1.7 (about 2X), and the 690 calls gained $2.7 (about 3X).  So we don’t lose anything rolling 2X or 3X at the end of today. What a nice tactic! if we have the margin for it.  We’d roll 2 contracts of the 690 callers to 6 710 callers first and see how that goes.  Now on the put side, we think 620 is a nice support.  One 690 caller at $9.2 can be flipped to 6 RUT Apr 620 putters at $1.72 each, for even.  We have now spent the margin for rolling, but don’t actually put any cash in.  Our positions are now further out of the money on the call side, i.e. more chance of the shorts getting expired worthless, and the Delta is less negative now, reducing loss on the upside.
    If the market keeps going up tomorrow, you can still do 3X to the 710 callers, and perhaps sell the 630 putters as we are more bullish.  If the margin on the downside becomes problematic because we have more putters, you can buy back those 10 RUT Apr 480 putters at $0.025.  If the market drops, those remaining 7 RUT Apr 690 callers would give you huge returns.
    For SPX, the April 1180 can go to 1200 or 1205.  SPX Apr 1060 or 1070 puts can be sold.   See how SPX is more mellow and there are plenty of strikes to choose from.  The SPX May 1160 callers (yes, ouch) can go to 3X at 1210, and the putters can be 950, 975 or 1000.  The callers may need to be rolled up further, but you have time to wait for a pullback and hopefully margin to roll.

  145. Pharm,
    Any knowledge/opinion of SMTS?

  146. Brutal, nutty market …. managed to take a few shekels out of it today; playing very small.
    Checkout my post mortem compilation on that terrible piece of legislation and abuse of power that occurred last night:

  147. Peter
    now I confused:  in your example, when you said to roll 2x is it mean that you roll all your calls and double amount off calls in higher strike? or you mean that you roll only TWO calls and keep other EIGHT at the previous strike?

  148. Tchayipov,
    I see.  Let’s clarify that rolling 2X means we can roll the entire set of calls or puts, or roll a partial set.  Even if we want to roll 2X the entire set, let’s do it in smaller chunks, in case we don’t need to roll the remaining shorts.  In the example above, I managed to mix the two tactics, a) rolling 2X and b) flipping from callers to putters, in the same message.  We can do each action, the roll and the flip, independently.

  149. tcha, I’m only adding the put spread in May and June, not April’s as we are kinda bullish short term.

  150. SMTS/Acl – sorry, didn’t even know of them until you posted.  There is sooo much out there to learn!  I will look into them and if anything strikes my fancy, I will let you know.

  151. Thanx Peter,
    just to make it clear: if you have 10 short calls, you just roll and double only two of them for now ( mean buy back two and sell 4 higher strike, plus you flip one more call with 5 or 6 puts, and as a result: you have 7 short calls at old strike + 4 short calls at higher strike + 6 additional short puts
    hope I understood it correctly

  152. Hi, Peter,
    Thank you so much for such a detailed explanation.
    On the mechanical part of rolling:
    (1) I think TOS allows you to buy back calls and selling puts in the same order.  Is that correct?
    (2) How do you do the 2x or 3x?  Do you do 1x in one ticket, wait for it to fill, and then do the extra sells in a second ticket?
    Thanks again for your guidance.

  153. Pharm,
    Here is a link to a recent Motley Fool free report I recently received. This is how I heard of them. Let us know what you think. Let me know if the link doesn’t work and we can figure out something else. Thanks.

  154. tcha & cwan,
    Yup, you understood it correctly.  Two calls are just used as example, you can do as many as you want.  There is no rules, just watch the Delta, margin and where the strikes are.
    For the mechanical part of rolling, I use Custom order for flipping (in ToS).  Click on the position to Create a Rolling order, then change it to Custom, where we can roll from callers to putters.  Very cool feature.  I usually do 2X, 3X or NX in the same ticket.  The custom ticket would have Buy one 690 caller and Sell six 620 putters.  I like it as it’s a clean execution.  Since this is a bullish flip, the order would execute on a market dip.

  155. thanx Peter, got it

  156. peter
    just a question: how far from exp date and how far from the strike you start this procedure? I guess if it is too much time left it is too dangerous to flip from calls to puts, what is your general rules?

  157. AAPL/Gucci – No problem, that’s a pretty big difference!  You don’t need a calculator to see extrinsic – Just add the current price of the call to the strike and subtract the actual price of the stock.  Whatever is left is extrinsic. 

    Censorship/Iflan – LOL, I have run into many, many articles that were less than flattering of the previous administration where web pages were taken down and no longer available (thank goodness for GOOG cache!).  I’m sure they all do it but it was a major frustration at the time.   Of course, there is another form of censorship and that’s when big corporations sue private individuals to stifle them.  It’s a funny concept to say people will "have their day in court" but if a multi-Billion Dollar corporation with a dozens lawyers on staff wants to mess with you – that day in court will cost the average person 6-figures at least.  That’s a big problem these days as the press has declined in profitablility – major outlets are unwilling to take on controversey and I know many, many independent writers who have been shut down by lawyers.

    GOOG/Gucci – I’d appreciate it if you could tell me when that was exactly as I can’t, for the life of me, imagine any reason I would have picked a long-term bearish play on GOOG.  Meanwhile, the play is logical for a bearish play, you have your $60 bear spread which you paid net $33.90 for (now $25.80) and you paid for it with the sale of the Sept $550 calls at $27.65, now $43.  I’m still having trouble with this as I am not in the least bit bearish on GOOG long-term – I want to be clear about that because all I can say is IF YOU ARE BEARISH, then it’s nothing to be too worried about because the $550 calls can be rolled out to the Jan $580s (but not while they have $35 in premium of course!) and, since you paid net $6.25 for your spread – anything you make on it is a profit that goes against the current price of the sold calls so if you were to cash out now at $25.80, then you have $19.55 more cash than you started with plus the obligation to pay off the caller.  Essentially, you just treat him like any naked caller if you have the patience and roll him up and up (the 2012 $600s at $69) until you finallly get a break and they expire worthless.  You can also offset your obligation by selling the 2011 $520 puts for $35 since you "make" $43.75 on your bear put spread if you are that low in September and you’d be quite please to wipe out the caller I imagine the hassle of rolling those puts down and out if GOOG finishes lower would seem minor and, otherwise, it’s a free $35 to put towards rolling or killing the caller. 

    Romney/Cap – So you guys are determined to go down in flames on this one?  I am psyched for the elections now as it will be very interesting to see if this strategy works or backfires so badly that the Dems won’t even need to ask next time they want to pass a bill.  At least we’ll get a real referendum on the issue….

    Doug Kass looks back over his call for the S&P 500 to end last year around 920: "I have been wrong." A Reuters poll finds investors and strategists forecast a 10% rise from the index’s year-ending 1,115.

    Drop the double-dip, Barron’s says, warning that worries about a second recession should take a back seat to job-creation concerns. But it’s worse than that, writes John Shipman, who says it doesn’t matter so much when recessions are technically over as when people feel like they’re over.

    Investors seeking signals that equities will keep rising are finding them in industries most tied to the economy. While bears say the gains aren’t justified by earnings and that shares are climbing too fast, Stephen Leiber sees more profit growth ahead: “This is not a junk stock rally… This is a restoration-of-confidence rally."

    High- and low-end producers continue to gain market share, while the middle market slowly erodes. James Surowiecki: "Making money by selling moderately good products that are moderately expensive isn’t going to get any easier."

    Developed economies – key to U.S. exports – are seeing "much less dynamic" recoveries, Atlanta Fed’s Dennis Lockhart told a Florida group today. He still sees significant (but somewhat quantifiable) "headwinds." He backs language keeping rates low for an extended period.

    As EU divisions deepen and a settlement of the Greece crisis looks increasingly unlikely, a partial dissolution of the monetary union could be around the corner. "This development would have far-reaching ramifications which are far from well understood, to put it mildly," Yves Smith says.

    Moody’s says it may need to cut the ratings of various banks if the Dodd bill becomes law, due to the elimination of assumptions about systemic support as a resolution authority is introduced. The banks that would suffer the most, according to the Moody’s report: Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC).

    Sergei Brin says Beijing seems to approve of Google (GOOG) shifting its uncensored China search off the mainland ("There was a sense that Hong Kong was the right step"). But he adds: "There’s a lot of lack of clarity. Our hope is that the newly begun Hong Kong service will continue to be available in mainland China."

    Either a trader had a fat finger or the yuan has come unpegged.

    Time was when Saudi families could get a bank loan just by giving their name, but with credit still tight (and after a couple of key defaults), they’re being asked to get out the paperwork.

  158. tcha, there are many factors to be considered (VIX, strike position, market sentiment, movement in the past 2 weeks, etc.), thus no hard and fast rules.  I like to do it mostly in the front month (April for now).  However, for May, if we are far enough OTM, such as RUT 550 and 560 putters (20% down), they look quite good to flip to if the callers are too close.  The Apr 560 put is only $0.375, so the May 560 put, currently at $2.325, would lose most of its value in the next 2-4 weeks if the market is flat or up, i.e. we get out money back soon with the move.  We need to watch the VIX as our premise for the bullish flip would be broken if VIX goes up a lot.  That’s it for tonight.  Have a good night, or good morning!