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Turnaround Tuesday – Crisis? What Crisis?

Wheeee!  Isn’t this fun?

We were so giddy with excitement on yesterday’s dip that we went with 12 new long positions while the markets were heading down and the people who didn’t read my morning post were panicking.  Things could not have gone better for us as we had a great spike down that let us lighten up on our many successful short plays and turn around and put that cash to work establishing what we hope will be some nice long-term positions, even though long-term in this market has been "more than a month" this year

Fundamentally, nothing has changed and we’re not letting go of our disaster hedges (in fact we added one yesterday too) but we are happy to do a little bargain hunting from our mainly cash positions as our Discount Stock Buying Strategy gives us a built-in 20% cushion in our first round.   That takes us all the way down to 8,500 on the Dow before we even have to worry about dollar-cost averaging, which also helps us sleep at nights – a nice bonus!

It looks like we also picked the right day to go long on oil and the Euro and short on gold but those are more directional plays and we will be taking money and running as those run out of momentum since we do not have 20% cushions on those entries.  We still have our technicals to get through and despite our amazing V-shaped recovery yesterday, Asia was not all that thrilled and only managed weak bounces with the Hang Seng failing to retake 20,000 (19,944) and the BSE still below 17,000 (16,875) while the Nikkei barely held their critical 10,200 line (10,242) in today’s trading and the Shanghai is still languishing at 2,594 but at least has averted a total disaster below 2,500 so far (300 on StockCharts). 

There’s no need to annotate these charts – our foreign friends are in deep trouble until they get back over those "death-crossed" 20 dmas (blue lines) and will not be impressive at all until they get over the red 50 dmas.  Europe is up about 1% this morning for no particular reason and that’s not reflected in the charts but we’ll be watching the DAX closely this morning to see if they can stay above that critical 6,100 line, which they’ll have to do if the FTSE and CAC are to have any hope of regaining their upside momentum

Unfortunately, a lot of German buoyancy is based on talk of pulling out of the EU and letting the rest of the union crash and burn.  Not a realistic plan but it’s a nice fantasy for the Germans.  Germany hasn’t actually approved their 30% share of the EU rescue package yet – that vote comes up in the Budestag (parliament) this week and will not be a cake-walk as Merkel’s party lost control in last week’s elections – pretty much over this issue!  Still the Bundestag can be overridden as this is a Federal Budget item so IF they vote to block – THEN we want to take advantage of the panic drop in the Euro (EUO would still be our play but short on a spike up).  

Our own Senate voted 94-0 yesterday to make it much harder to deploy US funds to rescue foreign governments.  The measure, adopted by a 94-0 vote as an amendment to the financial regulatory overhaul bill the Senate is considering, would require the Obama administration to certify that any future loans made by the International Monetary Fund would be fully repaid. Absent such as certification, U.S. representatives to the IMF would be required to oppose the lending. The U.S. is a major funder of the IMF, which provided loans to Greece as part of a larger support package. "American taxpayers should not be involved in bailing out foreign governments," said Sen. John Cornyn (R., Texas), chief sponsor of the amendment. "Greece is not by any stretch of the imagination too big to fail."  "The thrust of the amendment is the correct one," added Senate Banking Chairman Chris Dodd (D., Conn.). "This is a good amendment deserving of our support."

Our indexes have their own "death crosses" to bear but yesterday’s action gave us the excuse to show a clear reversal signal to the TA people and that can bring in some fresh buyers if we can make those marks (where the lines cross).  As you can see from the uniformity of the movement of 18 global indexes – the machines have total control of the markets and it’s almost a joke to talk about "leading" or "lagging" indicators but, like the DAX in Europe, the Russell has the best chance of getting back over 710 and showing us some backbone so we’ll be looking to them for upside leadership while the NYSE will be our danger signal if they can’t get back over 7,250.  Dow Transports will also activate the warning bells if they fall below 2,150 as they are already a huge disappointment compared to the very excited Baltic Dry Index – one of them is wrong… 

iPad guyLet’s watch AAPL today because you CANNOT buy an IPad at any price in the tri-state area this week – they are totally sold out.  Apple’s on-line store says 7-10 days and next week they are launching the IPad in nine more countries.  Not only that but the IPad is having a "halo" effect, with Mac sales up a whopping 39% in April and they are on track for unit sales this quarter of 3.2M units – well ahead of expectations.  IPod sales are down 17% as they are cannibalized by $199 IPhones (which play music AND make phone calls AND browse the web) and $599 IPads, which have 4x the margin so ignore any bad news they try to spin on the IPod sales – Apple is knocking it out of the park this quarter!  That means there is no excuse for AAPL to not beat that $275 mark in a healthy market and, since AAPL is 15% of the Nasdaq (I know, ridiculous), a 10% move in AAPL will add 1.5% to the Nas which takes them back over 2,400 at least – anything less than that will be a huge disappointment as we recover…

Falling oil prices has brought the PPI down 0.1%, well below the +0.1% expected but the core PPI was higher than expected at 0.2% vs 0.1% expected.  Housing Starts were good, up 5.8% to a still pathetic 672,000 but that was due more to the end of the tax credits (shovels had to get in the ground) than any resurgence in interest – as evidenced by forward looking Building Permits falling 11.5%, back to a 606,000 rate.  They are excusing ICSC Retail Store Sales‘ 2.5% drop to "cold weather" last week (???) and we may have to give them that one since Redbook Chain Store Sales were up 2.9% year/year but, of course, as I’ve said before – they should call it the Redbook SURVIVING Chain Store Sales Report as there are 10% less stores than last year so of course the ones that are left standing have more business…

WMT had a nice beat today (one of our buys from yesterday) so no excuses for the markets to be gloomy today.   We’re done shopping for a while after yesterday’s big sale and now we’ll be able to sit back and watch those technicals.  We get Fed Minutes around 2pm tomorrow and those should be the excuse to pop us higher and then we flatline into options expiration on Thursday and Friday – how’s that for planning the week? 


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  1. Good Morning Phil,
    Could you re-post the link for your disaster hedges?  Being a new member I was overwhelmed with all the information the first few weeks and must have missed the posting.
    Speaking of disasters…..Christ…..I made the mistake of watching Glen Beck last night.  I can’t decide if I should pile every dime I have into triple shorts or just slit my wrists and get it over with.

  2. Ditto, exec, Phil. 
    (not the wrist incision, the Disaster Hedges)

  3. Exec – here are a few:

    DXD July $27/33 bull call spread at $2.50.  If we go up, the $27 puts (now $1) can be sold for $2 to offset.
    SDS 2011 $36/40 bull call spread at $1.30, selling $27 puts for $1.50 and S&P has to gain 14% to cost you money.
    TBT (have I mentioned them lately?) Jan $42/51 bull call spread at $4, selling $42 puts (now $3) for $4+ if they head lower.

    Here is a link to an entire article.

  4.  What happened to our "zero-gravity environment until we hit our numbers"? Couldn’t all of this enthusiasm turn right back around into despair if we bounce off of SP 1155?
    I made the mistake of NOT selling out my very profitable bear plays yesterday violating a bunch of trading rules. I’m thinking of selling out at the open and possibly buying them back as we start to hit resistance. Or sitting on the cash and waiting. 
    I’m still a little freaked out about that volcano news, and the inflation video has me thinking about stocking up on franks ‘n beans. I need a vacation (good thing I’m headed to Jamaica next week!). 

  5. Power/ I’ve learned… break the rules….you get punished.

  6. Power/ I’ve learned… break the rules….you get punished.
    Just out of curiosity, why didn’t you sell?

  7. Pharmboy, good morning--I appreciate your plays and wisdom shared on the site; do you have any plays on TNA?
    thanks, iprosper

  8. Prosper / TNA – yesterday at the trough, i bought TZA $6 puts at .15 instead of TNA.  just an idea for you.

  9. Have  no luck finding the buylist: can someone help please ?

  10. I am looking for buy/writes and bull call spreads.

  11. TNA/iprosper – that is not my area of expertise.  From pivot point analysis and support/resistance (IWM which is what the experts use) areas are 69.50 for neutral, and if it breaks up 70.39 area is OH R1 (from TOS).  ss and JRW are the experts there.  I think we head higher today, so I am going to play DIA (May 107s) and SPY (May 114) short calls because the options are liquid and the spreads are small.  I usually move in5/10 options per play, then DD if it goes against me for a out even scenario – much like what Phil does when he plays these. 

  12. Phil: how is that TNA may48/51 spread developing ? OPEX this week.
    also: could not follow recently, am sure you talked about SPWRA, have stock and need to sell premium against those, what are those ?

  13. Hey all,

    Good morning. I have a new play for you today in Chico’s FAS Inc. (CHS). We are looking to get involved this morning at 14.65 – 14.75. You can read my analysis, entry, exit, etc. here. I also have updates on my positions in EUO (up 1%) and ARO (up over 4% already). 

    I am available all day for questions and comments as well.

    Thanks and Good Investing!

  14. Phihl, any new trade ideas on TBT this morning?

  15. Gold didn’t give much of an entry at the open. I picked up a few more verticals, but am still not near a full position. I’d love to see it briefly fall below 1200 to scare the late-comers out (emphasis on ‘briefly’ though). I’d add more then, provided it looked to close at or near 1200.
    May be a moot point though given the buying this morning. GDX too.

  16. JRW, judah – in TNA at the open.  Could be a good ole "power dive" up the middle kind of day.

  17. VVUS has a wonderful gap up for us.  I am still a bit leery of shorting them here, as they are at a new ATH.  Just keep them on our radar as we have plenty of time to get into a short position on them.  The higher they go, the harder they fall. 

  18. Pharm,  I have a NVS July 55 call that is way OTM, would you suggest rolling this down to the 50′s for $.75?  Does this sexual discrimination suit put a pall on the company?

  19. Going to be watching IYR and component stocks like SPG, VNO, SLG in the days ahead for short opportunities, probably using put verticals to take advantage of the still-high VIX. I think the repeated signs of weakness in this sector are telling; (e.g., bounces from sell-offs are getting progressively weaker).
    However, if the SPX can somehow get back over the 50 SMA at 1173 on a closing basis, I won’t want to be short.

  20. ssdirk; be careful, this moves fast, at what price did you get into at the open ?

  21. Phil; PBR may 42put is my only naked one, base 1.87, now 4.35, either I take the loss or is there something to salvage ?

  22. Oil- Phil, any idea what transpired last night to bump /CL over $3 last night after the close?
    That move killed my idea  of an oil play , at least for now. In any event, yesterday you were looking at DIG- which is another ultra with thin trading. Should crude drop back to the 70 range again, what would you consider for a play using something more sedate such as USO?

  23. RMM – 58.70, should have waited for the usual early morning selling before entering.

  24. Good Morning! 

    Some of yesterday’s picks are still playable, especailly our new DXD disaster hedge, which has a 1,500% upside if the Dow is below 10,500 at October expiration and doesn’t lose much until the Dow is over 11,500.  The reason we can be bullish here is BECAUSE we can hedge our downside – don’t make the mistake of getting too bullish without protection…

    Other Disaster Hedges can be found under the Portfolio Tab (always a good place to look for trade ideas) and keep in mind that these plays are BETTER to take when the market is going UP, as we get better pricing on short positions. 

    Our bullish plays in yesterday’s post were on: C, DBA, DIG (I know, can you believe it?!), GLL (actually bearish on gold), HL, HOV (2), MEE, MRK, SPWRA (2), TBT, WMT, WFR and XOM – that’s a lot of picks for a Monday!   That’s why we sit in cash though – the last thing you would have wanted to do is scramble to liquidate on that drop-off but having cash allowed us to pick up new trades all day long!   Keep in mind these are HEDGED and SCALED entries where we do not mind at all if the market drops 20% so we can Double Down to a half position!!!!  

    Levels are the same as yesterday and, of course, it’s all about the lines on our Multi-Chart:

    1,145 is going to be minor resistance (we hope) on the S&P and then we’ll be looking for 1,170 as our next major stop on the way back to 1,200 if all is well but any failure at 1,145 and you’d BETTER have those disaster hedges! 

    As I said this morning – there is no excuse for AAPL not to break $272 and test $275 on a recover (not today but on this run) and if they stall, I’d consider that an early indicator of market trouble. 

    Our beloved copper is at $3.05 and they need $3.20 to get healthy.  Gold is $1,215 and I’m targeting $1,150 for a pullback and that would be market healthy too!  Oil rolled to July delivery and that’s at $75, way up from the panic dump to $69 yesterday but meaningless as they can drift lower so we’re still looking to see if $72.50 can hold. 

    The Euro needs to get over $1.25 (now $1.241) and the Pound needs to retake $1.45 (now $1.4475) and hold them to show some strength.  The Yen is back to normal, bottoming out at 92.97 at 3:20 am and already back up to 92.54 at our open – still the best daily example of total market rigging! 

    So let’s be careful out there, we got our bargains and if we break down again we may add a few more but there was no consolidation so we’re not too happy with a sudden move up and, on the whole, I’d still be happier to see us either go lower or at least stay below 10,650 and 1,155 for a week or two to build a better base

  25. NVS/trad – UR still all premium.  They have lots of support here on the weekly charts. Not sure if you can swing it, but how about buying the Jan11 $45s for $5 (naked for now).  If they continue to fade, then it is time to think about flipping to the other side, but I still think the MS drug gives them a pop here in the coming weeks.  Long term, I think they have one of the strongest pipelines in the business.  AS for the lawsuit, I am not an attorney, so I am not sure what it does to them from that perspective.  At least it is not drug related!!!!

  26. Phil how do you like goog calls at the $504 level

  27.  Hey all,

    If you have Facebook, Twitter, or Seeking Alpha add me as a friend/follower for my new Oxen Report accounts.

    Here is the Facebook link. For Facebook, I am going to be on there throughout the day and be able to be contacted in real time. So, if you add me you can chat me on there and we can have conversations about stocks and any questions you have.

    Here is the Twitter link. I will be doing some tweets about my entry positions as well as other news.

    Here is the Seeking Alpha link. Add me as a follower!

  28. Still a big seller out there; large volume on the last few ticks on the /ES. If they get done soon, we should go back up.

  29. Phil:
    I see you gave a DBA recommendation and in the light of that, please look at my existing DBA position and suggest adjustments:
    have 2 calls 2012 jan 20, base 6.41, now 5.3$
    have 2 caller jul25, base 0.99 now 0.4$
    have 2  putter jul24, base .59 now 1$
    have 2 putter jul25, base 1.04 now 1.65$.

  30. Phil,  For a nearer term disaster hedge do you like the following:  SDS Sept. 28/33 call spread for 1.85, selling the 28 puts for 1.60 for a net entry of .25?

  31. Pharm, Thanks!

  32.  Morning  Phil
    Re "too bulish w/o protection"
    I’ve scaled into shorting 150 C 2011  $4 puts @ avg  .60 ( so expect to own at $3.4.
    Should I sell any calls against this to lower basis further?  Im ok with $3.4 cost come Jan

  33. "Gold is $1,215 and I’m targeting $1,150 for a pullback and that would be market healthy too!"
    I will be surprised if it gets that low Phil (unpleasantly so). 1170 maybe.
    If we have a big rally this month and enter the blow-off stage of the rally off the ’09 lows, the ‘inflation’ fears and the falling dollar will hold gold  up, I think. If on the other hand, sovereign debt concerns keep a lid on the markets, that should support gold too, just as it has been doing. That’s how I see it at the moment.

  34. Credit cards still going down.

  35. Check out WHX.  WE must be stopped out on that one

  36. Out of TNA with 1% loss.  Ouch.

  37. ssdirk; entering upon open of market with TNA is very risky, wait for 30 minutes until a trend might be visible.

  38. Disasters/Exec – Linked above, good day to pick some up.  I think Glen Beck is one of the funniest guys on TV

    Thanks Pharm – Note that TBT is not a portfolio disaster hedge, it is a Dollar disaster hedge so consider how much cash you are looking to protect when allocating TBT, NOT the positions in your portfolio!

    Zero Gravity/Power – This is zero gravity BETWEEN our numbers.  Which means that an index in motion will remain in motion until it hits a wall (resistance points) or is acted on by a force sufficient to cancel it’s momentum.  That pretty much means that between 1,100 and 1,155, it takes very little force to send the market flying up or down but a lot of force is required to get through to the next levels on either side and HUGE amounts of force will be required to break over 1,213 if we get back there. 

    That’s why "THEY" pop 1,140 overnight – much cheaper and easier that way vs trying to do it during a normal trading day.  Opening over 1,140 triggers BuyBots at the mutual funds that HAVE to keep up with the indexes so they take the retirement money of the poor schlubs who stick it into a 401K or IRA and buy whatever Goldman is selling at whatever price Goldman jacked it up to in very thin overnight trading.  That’s what this is, it’s a daily robbery in progress where Billions of dollars of wealth are transferred from the poor to the rich on a regular basis.  Ah Capitalism

    Buy List/RMM – We just have the Watch List (under the Portfolio Tab).  No Buys yet other than the plays we ran yesterday and DO NOT use the old plays that are on the Watch List items – they are old and have not been updated. 

    TNA/RMM – I took sold the calls on the morning pop and have the naked caller caller with a tight stop but just leaving it alone is fine and necessary for those without margin.  On SPWRA, see yesterday’s post. 

    TBT/DMan – Same as yesterday.  They turned back down so prices should be about the same as our entries. 

    VIX is falling very fast – down to 28.44 already. 

    IYR/Eric – It’s about time for those things to get real!  You are right, if the S&P holds up – it still may not happen.

    PBR/RMM – Hmm, I’m fairly sure "I told you so" covers that one!  I’d roll them along.  We have summer driving season and oil is a bit low at the moment.  You are down $2.50 so just roll them to the June $39 puts at $2.90 and be happy with whatever gains you get.

    Oil/Pstas – It was contract rollover day.  Yes to USO but wait for a dip or a clear indication $75 will hold.  We need to see inventories tomorrow and the next week is already the holiday weekend. 

    Which reminds me, VLO now looks more stable and we love them so #8, I think, on my top 10 list:

    • Buy VLO at $19.68
    • Sell 2012 $17.50 puts and calls for $8.40

    That’s net $11.28/14.39 so a nice 55% if called away at $17.50 (11% below the current price) and a break-even at about 20% below the current price.  VLO pays a very dull 1% dividend and you can cut your cost by buying the 2012 $12.50 calls for $8.50 instead, which gives you an artificial buy/write with the $12.50/17.50 bull call spread at $3.25 almost completely offset by the sale of the $17.50 puts at $3.10 so .10 on the $5 spread for a lovely 4,900% potential gain with about $450 per contract in margin whichever way you play it.

  39. SS that TNA is one heck of a mover.  I jumped in TNA yesterday following JRR, He was on fuego yesterday so i couldn’t lose doing that but damn does that thing move!

  40. yip – especially this morning.  Like a bronco.

  41. I was watching it closely…like a bronco is right.

  42. /CL- Can you elaborate on the "contract rollover day". Trying to pay more attention to moves on this but don’t understand the whys and wherefores. Perhaps better suited for after the close? If  so, I will remind you later.

  43. AAPL falling fast. Not a good sign.

  44. No end to the laffs in this market. High beta names are still reversing hard intraday.

  45. Phil – GooG bounced $10 from $487 Fri, $10 from $498 Mon…holding $500 currently…comments?

  46. Typo – GooG $497 Friday…

  47. Eric – as amazed as I was yesterday for them turning yesterday green, I am equally amazed at this move from the /ES futures.  They are intent on running the stops up and down the line.

  48. ssdirk… dito…

  49. Pharm,
    I’ve been on a recent quest for 10-baggers. I found some promising microcaps in the biohealth area and I’m going to allocate a small amount of funds to these gambles. Please tell me if you know anything about these companies or their potential:
    Also, are GXDX and ARAY competing with each other for same market? Similar technology?

  50. when you did the WFR tade yesterday, did you stock with the calls/puts as well?? 

  51. ss, yeah. Now that we’ve closed the morning gap-up, we may be able to stabilize and finish up a few  /ES points. There is support here that we’ve been sitting on since Friday, and the bulls will probably want to defend it.
    This close to opex, you could probably buy May straddles and do pretty o.k. this week.

  52. the vix is pushing to its high ?

  53. Buying a few May 111/114 SPY verticals here, as a bet they defend it.

  54. Phil: see my 10:19 on DBA ?

  55. GOOG/Victry – I like them intellectually at this price but they aren’t a compelling buy.  They are on my list and at $400, hedged to $300, I will be foaming it the mouth over them but at $500, hedged to $400, it just ties up too much cash to make me want to ride out an uncerain market. 

    DBA/RMM – Looks fine to me, good time to add more long calls but doesn’t seem worth taking out the caller as weak as they look right now. 

    SDS/Trad – That works but you are in trouble if the S&P gets back over 1,200 (and the average analyst predicts 1,350) so keep in mind it’s insurance. 

    C/Ban – Well 150 is a lot so even if you REALLY WANT 15,000 shares of C at $3.40 – there’s no sense getting a bad deal on it.  I’d sell the 2012 $5 calls for .75 and, if C crosses $5, you buy it and you are in for net $3.65 with the call away at $5.  If you then get past Jan over $4, you can then sell 2012 $4 puts (currently $1.10) and use that money to roll the $5 callers up to the $7.50 callers (now .30) and if C fails $4 into Jan, you have the long cash to roll the putters down to the 2012 $2.50 puts, now .42.  This strategy works well for stocks that are not likely to make very big moves overnight. 

    Gold/Eric – I think if we don’t go up that the DEflation camp will begin gaining traction.  Those retail sales numbers are not very good considering the awful comps and the store closings since last year. 

    Rollovers/Pstas – Actually it looks like I was wrong and that wasn’t a settlement but that doen’t make sense.  If that is the case I don’t know why the hell oil jumped like that!  Here’s the CME chart for rollover dates and they say this one settles on Thurdsday, not today but the price chart shows the June contracts at $71.70 and July at $74.23, which does make sense based on what I see on CL.  Perhaps TOS and whatever you used ticked over on Tuesday, which is the normal rollover day, despite the contract still being open.

    SOX are dragging the Nas today, down 1.8% and AAPL is no help so far. 

    GOOG/Thegold – See above, they are a "stay away" in this crazy market.

    WFR/Turtle – Yes and that’s a good point.  As long as the NET COST of the buy/writes is the same or better than the entry we pegged – then it’s still a good entry regardless of the stock price.

    Watch out for 10,650 breaking, that will be a bad sign.  1,140 fell way too easily to be comfortable.

  56. Hello Phil;
    about the WFR play yesturday, is it ok to not sell the 2012 $15 calls yet ? safe enough giving the low price i was thinking of waiting for a bounce, but if its too risky i should sale. what do you think ?

  57. It makes sense for CL to roll to July the current Volume on July contract is higher then June contract

  58. Gold historically does well in deflations Phil, when measured in real terms at least.
    That said, I’m not liking my ability to rationalize any outcome as bullish for gold. It will probably blow up in my face, lol.

  59. NNVC – Good morning to you….support is in this area, but I think they fall back under 1.50 where we can start to accumulate.
    Ace – let me go through the list AH and give my thoughts….

  60.  Pham BAX seems to becoming back from the dead, should I add to position?

  61.  I didn’t sell yesterday due to this underlying belief that the financial world is collapsing, so when I see gains to the downside, it’s hard not to let them run. Ordinarily I set trailing stops, but this time I lacked discipline, and paid for it. I did sell off half of my QID calls on the recent dip. I may buy them back if we see highs again like this morning. 

  62. Phil – skipping #9, #10 should be DCTH – buying here, selling Jan12 $15 C/P for net $14.  These guys are gonna explode.

  63. Phil would this for your #9 top list :
    BP bull call spread 2012  45/55 for $3.70
    sell 2012  35 put for $3.70
    net 0 on $10 spread with a put to at $35 :) good ?

  64. BAX/chyer – yes, small position is warranted.  Thx for watching them.  Nice hammer on the chart.  Accumulating a few Jun $42.05 for a swing trade at $2.  Out if they fail $43.

  65. Hey readers,

    I am doing this new alert called The Daily Musing, which is just some of my thoughts on current topics in the financial world. It gives us a chance to start some communication about some interesting topics. I usually post these as alerts on my own page, but I thought I would provide you all with today’s topic, so you can know what to expect for the future. 

    If you have any comments or questions, please try to post them on my page to avoid crowding Phil’s page with our nonsense.

    Here it is:

    Oxen Alert – The Daily Musing: GM, Its Bailout, The Aftershock

    As some of you may have read a couple weeks ago, General Motors paid back their direct loans they received from the USA and Canada with payments of $4.7 billion and $1.1 billion going to each nation, respectively. It appeared to be the first step in the right direction for a company that has struggled significantly over the past decade. The GM crisis of 2009 was catastrophic and required not only these direct loans, but the government taking a 75% stake in the company to keep it afloat – even though the government is predicted to lose billions on the deal.

    Yet, even more recently, as of yesterday, GM announced that the company made a profit for the first quarter with some exciting numbers for future growth. The company made over $4 billion in revenue and actually maintained some free cash flow just above $1 billion. This is terrific news for any company because free cash flow is extremely important to new investments, of which GM needs a lot. Yet, the profit is the first right step. Isn’t it? Is GM actually coming back? What? GM MADE $1.2 BILLION???!??!?!

    When I saw that GM had made a profit I was confused…shocked…just sort of like what this…I’m confused. Yet, the company has seen growth in its Asian and South American markets. They have cut off some of the non-profitable parts of the company (Saturn, Pontiac, and Hummer), and they have reinvested into the primo-American lines (Chevy, GM, and Buick). They actually have identified the areas of their business that make money and are investing into them…its amazing. 

    The company, though, still has a number of issues. For one, they still have the infamous Opel line, which lost $500 million in the first quarter. The company says they are cutting its capacity by 20%, but as Joe Phillippi, president of AutoTrends Consulting comments, "Fixing Opel is like catching a falling knife. You’re trying to restructure a company faced with a market that is soft and headed for turmoil." Further, while the company has redefined its image, especially with Buick. We have to wonder are they selling cars that people are going to want?

    As Ed Whitacre comments, "we…buil(t) the fuel-efficient Chevy Cruze, which has been a hit in every region where it has been introduced. An eco version of the Cruze, with a 40 miles-per-gallon highway rating, will customers the fuel economy of a hybrid without the price tag."

    The Cruze has been a hit. It will be offered across all markets. It is supposed to be sheik enough for Europe and Asia, which means it will be high quality in the states. Edmunds and US News have wrote pretty rave reviews about it. The company is introducing the Volt. They have reinvented the LaCrosse and Lucerne on the Buick line. The Lacrosse received rave reviews, has been a top seller, and is actually, according to, a better deal than a Lexus ES350. 

    The company has abandoned the SUV. They got the message. They have started to redefine themselves, and it looks up for GM. While I personally am an Audi S5 and Aston Martin V12 Vanquish kind of guy, I do see the company working hard to improve their lineup. They have gotten a lot of criticism, but I think that GM is taking the right steps.

    The government agrees. At one point after the $40 billion takeover of 75% of GM’s assets, the CBO predicted that Americans would lose $31 billion on that investment into GM. Their latest numbers have that number down to $8 billion. This is all dependent on an IPO that is predicted to come late this year or next year and old GM bonds. If the company continues to improve at the same rate (and they have to in order to compete), then they I think they have a shot of becoming a name not to be laughed at but taken seriously.

    The key for me is content. The company is improving now, but they have to. In two to three years, are they still improving at this rate. Are they always redefining themselves for the better? The old GM just got content with producing the same cars for years. That cannot happen again.

    What do you think? Do you think GM is back? Do you think GM has what it takes?


  66. Europe selling off into the close but still up 1%.  We may be able to spring back up at 11:30 if they are the selling pressure.  Volume is 64M on the Dow at 11:10, which is 14M ahead of schedule and we’ve effectively gone nowhere so far.

    Huge Scandal no one is talking about:  FINRA charges Thomas Weisel Partners (TWPG) and one of its former execs with securities fraud, accusing the firm of "stuffing" three corporate accounts with auction rate securities in order to raise $15.7M in cash for executive bonuses.

    The FTC will likely launch a preliminary inquiry into Google (GOOG) following the firm’s ‘accidental’ collection of data from unsecured wireless networks over the course of several years.

    Berkshire Hathaway (BRK.A) sold more than 31M shares of Kraft (KFT) in Q1, a stake worth almost a billion dollars at yesterday’s closing price. The 22.8% reduction came as Buffett heavily criticized Kraft for using its stock to acquire Cadbury’s, but Berkshire is still Kraft’s largest shareholder with a 6.3% stake.

    Buffett better sell fast, soon it will be illegal to sell:  The SEC and major exchanges are reportedly considering tighter market-wide circuit breakers, with trading halts of varied lengths when the market falls 5%, 10% and 20%.

    Fund managers exited equities and pared back global growth outlooks in May, a direct impact of a "straightforward growth shock," according to BofA Merrill Lynch’s monthly survey. Investors are concerned efforts to reduce global deficits will result in a long period of sluggish growth. Cash holding hit 4.3%, up from 3.5% last month, as risk appetite fell.

    The FDIC owns more than 250 CDOs that it inherited from failed banks and many of the assets "will have little or no market value." The agency plans to auction off at least some of the CDOs this summer, but will have to write down what it can’t sell, leaving taxpayers with the loss.  Move along folks, nothing to see here

    Or here: Homebuilders are benefitting from the recent spike in home sales, but – according to new permits – remain cautious about future strength now that special tax credits for homebuyers expired in April. April housing starts advanced 5.8%, following a 5% gain in March, exceeding expectations. But permits declined 11.5%, reversing a 5.4% rise in March.

    Deflation:  Vodafone (VOD) booked a £2.3B ($3.4B) impairment charge on its Indian operations due to stiff competition and a fierce price war, overshadowing market-beating full-year results and dividend guidance. For the year ended March 31, net profit more than doubled and revenue rose 8.4%. Shares -1.9% premarket.

    In his daily note, Dennis Gartman urges a "rush to the exits" in a gold market that’s "gone parabolic" – though he’s staying in a number of holdings in his currency portfolio; futures -0.8% to $1,217.80 (ETF: GLD)

    InflationU.K. inflation accelerated a surprising 3.7% in April, fastest annual pace since 2008, prompting BofE’s Mervyn King to explain that the surge is "temporary" and there is “substantial” spare capacity in the economy. But unless inflation falls sharply this summer, BofE will be forced to raise rates or risk being accused on deliberately ignoring the risks.

    Still losing money: Abercrombie & Fitch (ANF): Q1 EPS of -$0.13 beats by $0.01. Revenue of $688M (+14.3%) vs. $679M. (PR)

    Better than I thought but poor reaction I expected anyway:  Dick’s Sporting Goods (DKS): Q1 EPS of $0.22 beats by $0.08. Revenue of $1048M (+9.2%) vs. $1031M. (PR)

    Thank goodness the rich can still shop!  Saks (SKS): Q1 EPS of $0.12 beats by $0.07. Revenue of $667M (+6.9%) vs. $663M. (PR)

    Also not good enough:  TJX Companies (TJX): Q1 EPS of $0.80 beats by $0.02. Revenue of $5.0B (+15.2%) vs. $4.9B. Shares -2.6% premarket. (PR)

    Wal-Mart (WMT): Q1 EPS of $0.88 beats by $0.03. Revenue of $99.1B (+6%) vs. $98.5B. Shares +0.5% premarket. (PR)  Wal-Mart’s (WMT) Q2 EPS outlook of $0.93-0.98 falls just short of expectations of $0.98. In its press release, WMT didn’t explain the mysterious delay of its quarterly report, but CEO Mike Duke did say customers, particularly in the U.S., "are still concerned about their personal finances and unemployment, as well as higher fuel prices."

    Yay, more job cuts!  Pfizer (PFE) announces plans to cut 6,000 jobs worldwide over several years as part of a restructuring plan. Shares +0.4% premarket. (PR)

    BP (BP -0.5%) CEO Tony Hayward believes the company has "turned the corner" in making progress toward containing the Gulf leak, saying it now is siphoning off about 40% of the oil gushing from the ruptured well. But a powerful current may be pushing the crude closer to Florida and the Eastern seaboard.

    Very funny example of how immoral GS traders are and how they get away with murder:  A retired Croatian seamstress has won a court victory against the U.S. Securities and Exchange Commission in an improbable case implicating her in an insider-trading ring.  U.S. District Judge Kimba Wood threw out a $5.72 million default judgment won by the SEC last November against Sonja Anticevic, who is believed to be in her late 60s and living on a low income in Croatia.  Prosecutors in 2005 accused Anticevic of holding two brokerage accounts in her name that her nephew David Pajcin, a former Goldman Sachs Group Inc (GS.N) broker, used for trades that generated $6.7 million of illegal profits.

  67. My TOS should be set up today…I am itching to get in that DXD disaster play I think it’s genius….

  68. Phil: have SPWRA stock, bought a few more recently,
    have only 0.5x callers and putters,
    caller is jan15, 2.16/1.27$ (base/now)
    putter is jan 12.5, 2.08/2.86$,
    are those the right shorts, am sure you will say, go 1x.

  69. /CL- I called TOS and they say the symbol /CL automatically defaults to the most active contract which means it must have switched from May to June.

  70. Morning Phil 
    I know you looking for GS to go to 100 .Before de blow up I sold a strangle of GS cashed the caller with good profit but stuck with the putter  Jan11 155 sold for 8.91 now a small 28.20 Looked to roll to Jan12 140p with still a credit on the other hand shall I hang arround and wait and see. your thoughts pls

  71. I bet that nephew never gave his auntie a DIME of those 6.7M in profits. Is anyone else looking forward to the new Wallstreet movie as much as me? The reviews are lukewarm, but I cant wait until it comes out in Sept…

  72. Normal





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    Phil, you said:
    “Buy VLO at $19.68
     Sell 2012 $17.50 puts and calls for $8.40
    That’s net $11.28/14.39 so a nice 55% if called away at $17.50 (11% below the current price) and a break-even at about 20% below the current price”

    I like this play on VLO.
    I understand that my chances are to win 55% or having two shares at an average of 14.39 each.
    I have two concerns:
    First the put may be exercised before the end (and I had this situation),
    Second, because it is a long-term game, what would be the plan if VLO begins to decline sharply in the mean time?

  73. Sorry, I tried to format the text

  74. Phil,
    I am long EPP (450) shares with a basis of $42.07
    Please suggest an option play to salvage/profit from this mess. This was done prior to my joining your up with your group.

  75.  pstas,
    CL should be rolling from June to July contract. Crude "futures" always trading a month ahead of current month.

  76. Normal





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    Also on VLO.
    You add “buying the 2012 $12.50 calls for $8.50 instead, which gives you an artificial buy/write with the $12.50/17.50 bull call spread at $3.25 almost completely offset by the sale of the $17.50 puts at $3.10”
    Is this buying the $12.50 call and selling the $17.5 call and the $17.5 put?

  77. Is the Euro/US dollar to US market correlation the hot new TA???

  78. In DDM at 45.80
    Ok Bama…..march out Bernanke or one of your other stooges to talk this thing up.

  79.  Phil
    thanks for C protection strategy

  80. Wow! What’s with the quick drop?

  81. this market should be 100 points lower . it is way too slow . calm before the storm?

  82. BP/RIG down today due to  "The Senate Committee on Energy and Natural Resources Meeting???"


  83. Good morning,
    IWM support at 69.21, 68.83, and 68.01; not much after that.

  84.  A few ideas that i like and have been working for me – been busy at work, weddings etc.  Selling SBUX June 27 Calls for 1.2 this morning  (earnings are after expiration)  These kind of plays are awesome.  They have juicey premiums, but the real action is after expiration – SBUX has maintained their guidance and they have behaved quite nicely during all of this volatility.
    WMT – I keep selling 55$ calls against 55 Jan 2011 leaps which i plan to roll next month.  
    What hasn’t been working for me – GILD, BP, MON, C  (i’ve sold puts on all of the above – so margin has been increasing etc)

  85. Pharm, DCTH net buy/write is for $14???…you meant $1.40

  86.  I am a new member, can somebody point me out to the buy recommendations from yesterday? Thanks 

  87. JRW – how are you playing this craziness?  Just made a dime on TZA, but haven’t recovered from the shellacking I took this morning on TNA.  I thought for sure today would be decidedly green.  Wrong.

  88. JRW – although it isn’t over yet.

  89. Pharm,
    DCTH, It looks like you can buy the stock and get in for almost nothing selling the 2012 puts and calls.  Does this make sense or what am I missing?

  90. Margaret….buy here at 15.35.  Selling the Jan12 $15 calls and puts for $7 each (approx) for a net $14.

  91. Amatta, The buy recommendations are Phil’s comments in bold.  Yesterday, he numbered his top 10, which ended up being more than 10.  Look, for example, at Phil’s comment at 1:39, in which he laid out three recommendations.

  92. Trad, as per IB the ask is $2.69 for the DCTH buy write.

  93. Pharmboy, you said to wait on RGN until the offering is priced, that’s now happened, get in now or wait and see if it dips even lower?

  94. ss
    I’m in cash, got up late after celebrating last night. I think "they" will try to consolidate in here then pump into the close. That would give them a 3 day floor around IWM 69.00 for a leg up, barring some news.

  95. JRW – seems to be hugging that descending trendline from 5/13.

  96. ss
    And what Pharm said at 9:30.

  97. ss
    Draw a line from the low on 11/30 to the low on 3/1

  98. Hello boys and girls, it’s time again for Mr. Mocha’s crazy opex week plays.  My first one – I’ve been buying GXDX 30 calls this morning, it’s bouncing back.

  99. Phil,
    What’s your assessment of the "stickability" of this market today?  Is it the volume that drives this phenomenon?

  100. JRW – my charts are beginning to look like someone played pick-up sticks on them.

  101. RGN/MrM – worth a flier for a few pennies.  Free ride if they can get back up to 60c or so.

  102. ss – i joined you in the shellacking only mine was in TZA thinking failure of 10600 might be significant.

  103. Phil/Pharmboy,
    I am long VVUS having also sold Sept $15 covered calls. How can I play this now in order to take profit on the shares, go long calls and retain a short position? Is that even worth thinking about?

  104. ss
    Just look at that last line now at 69.21, and the 5/13 line now at 69.48; I think we have a floor.

  105. GXDX/MrM – I would exercise if they dont hit it….I think they bounce through after OPEX.  Could move to June of the same strike for a better play….

  106. HI, Phil, can you kindly reiterate what the buy on TBT was from yesterday, and is this still the best way to play it?
    TBT/DMan – Same as yesterday.  They turned back down so prices should be about the same as our entries.

  107.  Seems like news reuters on German Finance Minster rumored to be banning short selling tonight. Not sure this has any impact

  108. WFR/Micro – Sure you can take a chance, especially with an early entry as you’ll wash out a lot of problems when you DCA down the line but just make sure you have a price for the call you do not want getting away from you and stick with it.  I call that a "sell stop," the least I want a call to get to before I capitulate and take the money.  Sometimes I say "if the $12 call falls below $1, then I’ll take $1.60 for the $11 call" or something more complex like that – the idea is just to KNOW what you PLAN to do if the stock goes up 10%, down 10% or stays flat.  Also, keep in mind I was enthusiastic about selling 2012 calls because the VIX was so high – that is another thing that may wash out as we flatline into expirations. 

    Cool, Eric – as long as you can step back and see that in yourself you’ll probably make much better decisions.

    BAX/Chyer – Well if they don’t bounce here then they really are dead.  BAX is very big on buying back shares, which is a good thing over time so I like them here at $43.55, selling the 2012 $40 puts and calls for $12.70 for a net $30.85/35.43 entry but I wouldn’t be surprised to see then drop 20% so you have to REALLY want to own them long-term.

    Collapse/Power – Don’t worry, we still may be collapsing but it’s a bouncy kind of collapse if you don’t mind jumping in and out of things all the time.  That’s why I like the long-term disaster hedges, they are just set and forget until October and we can be quicker on the trigger taking profits on our shorter-term short plays. 

    DCTH/Parm – They already exploded it looks like…  You know I get very worried on these biotechs so I’d prefer playing them with a 2012 $15/25 bull call spread at $2.50 and you can leave it at that with a 300% upside and just the $2.50 at risk or pay it off by selling the $7.50 puts for about $2.50 which would add $300 in margin but a nice $1,000 upsdire per contract makes it a fun way to get long.  The nice thing about the bull call by itself is even a big dip in the stock will probably let you get $1.25 back so that’s a really good risk to the $7.50 reward on the no margin play.

    BP/Micro – 9,000 stocks to buy and you think BP would make my top 10???   I do like them and your play makes sense but BP could be sued out of existence.  That is very unlikely with MEE, who will be sued, but the damages are finite – at this point, BP’s are not so you have a lot more risk on that trade.

    BP (BP -0.5%) CEO Tony Hayward believes the company has "turned the corner" in making progress toward containing the Gulf leak, saying it now is siphoning off about 40% of the oil gushing from the ruptured well. But a powerful current may be pushing the crude closer to Florida and the Eastern seaboard.

    Despite a proxy challenge amid protests related to the company’s safety record, three Massey Energy (MEE +1.4%) boardmembers are re-elected. The heads of pension funds in eight states were among those opposing the reelections in the wake of the Upper Big Branch mine disaster.

    DXD/Yip – It is so much more relaxing to have a couple of those in your portfolio. 

    SPWRA/RMM – I wouldn’t add more callers here but I do like adding puts as long as you really don’t mind owning more at net 10ish – otherwise, you might want to do a 2x rolldown on the existing putters and leave it at that. 

    CL/Pstas – WHAT???  That is insane.  Does that mean if I leave a futures contract on overnight (wish I did!) I would have gained $4K per contract on a volume switch?  That seems kind of nuts although also a very good thing to play as you can pretty much predict this every month…

    GS/Yodi – I think they are good for $135 in 2012, which is your even roll at the moment but why react now when the $155 putter is almost 50% premium?  You can sell some naked June $150s for $3.30 for balance, do that 5 times by Jan and you offset $15 right there…  You can also flip the whole thing to a spread of the July $135 calls ($12.50) and the July $145 puts ($13.10) and that won’t cost you $25 unless they are below $120 or above $160 – that’s always a good way to work your way out of a jam on a short play that goes bad on you when you don’t want to wait 2 years…

    Nephew/Jrom – Those guys do that all the time, they get info off relatives and set up offshore accounts and shift money around like mad.  Since "everybody does it" the new guys fall right into it.  That Weisel item (top of last comment) shows you how the ENTIRE FIRM is willing to do ANYTHING to make money – even hijack client accounts to make illegal trades.  If they ever actually looked into what these trading firms do and actually enforced even the existing regulations – they would have to decriminalize drugs and prostitution just to make enough room to hold all the brokers that would be going to jail.

    VLO/Zen - It is HIGHLY unlikely a stock will be put to you while still out of the money.  Also, as long as you REALLY want to own VLO for the net put price ($14.40) then anytime they want to give it to you should be fine with you.  If VLO begins to decline and you decide you DON’T REALLY want to own them at net $14.39, then you can always buy some shorter-term puts or, of course, roll the putters out to longer, lower strikes. 

    EPP/MiniJoe – Ouch on them!  I’m still worried Japan will collapse but let’s say they don’t and you want to get your $1,611 back…  Surely there is a better way than tying up $17,325!  How about take 10 of the Oct $35/38 bull call spreads for $2 and selling 5 Oct $35 puts for $1.80.  That puts you in the spread at net $1.10 ($1,100) with a $3,000 payoff if EPP doesn’t go lower.  If EPP does go lower, your worst case is you get 500 shares assigned back to you at net $36.10 so you save yourself $2.32 of additional drop and you free up about $10K of cash (margin is $7K on the put side) to make money on other things while you wait. 

    VLO/Zen – Yes, that’s what we call and "artificial buy/write" where you don’t actually buy the stock but take a deep in the money call instead.  The advantage is just not tying up the cash on the stock ownership and it’s a more aggressive way to play.

    Euro/Thegold – I’ve seen this pushed all over the MSM the last few days which means it’s probably going to give off a huge false signal soon so they can whipsaw a fresh round of suckers who think they see a pattern

    RIG is very close to being #9 on my list but too risky for the top 10 (it’s going to be hard to crack those last 2 spots)

    • Buying 2012 $50/65 bull call spread at $7.50
    • Selling 2012 $35 puts for $4

    That’s $3.50 net on the $15 spread that’s almost 100% in the money now and RIG has to drop almost 50% to get put to you.  Margin should be about $700 to make $1,150 in 18 months.  Remember, your risk here is owning RIG at net $38.50 – that’s all…

    Nice mix, Jo.  Those 4 losers will take time and the high VIX is pumping up the put prices as well. 

    Buys/Amatta – You can go to the main page and find my Monday post or click on my name tab above and you’ll see only the posts I wrote.  Any generally recommended plays are always in bold and my comments are blue so easy to find.  Please make sure you read the New Members Guide and our Strategy Section as well as it all sort of goes together.  And Welcome! 

  109. Phil – still learning how to set up trades and want to take a position on AAPL.  Looking at buying the Jul 240 calls @ ~25.30 selling the Jul 270 calls ~9.70 and selling the Jul 240 Puts ~ 11.10 for a net of about 4.50. Looking for your critical thoughts. Thanks

  110.  Phil,
    CL/ I believe TOS just roll the chart to July contract since it’s a continuation chart. if you held June contract overnight it’ll still June contract until it expired and I believe TOS will automaticly liquidate June contract before it expired. :)

  111.  IWM – Phil have 13 June 73 Puts, 2 June 72 puts and I’ve sold 8 May 72′s against.  I’m considering adjusting somehow, to maybe scalp premium and lock in some profits.  THoughts?

  112. Phil- Note out that Reuters saying Germany to ban short selling at midnight on German stocks/ADRs as well as Euro bonds…recall what happened in 2008…short covering and then steep descent as hedge funds reduced exposure to longs since they couldnt short

  113. Phil On the GS recomendation The spread do you mean buy the 135 jul caller as well as 145 putter?
    GS/Yodi – I think they are good for $135 in 2012, which is your even roll at the moment but why react now when the $155 putter is almost 50% premium?  You can sell some naked June $150s for $3.30 for balance, do that 5 times by Jan and you offset $15 right there…  You can also flip the whole thing to a spread of the July $135 calls ($12.50) and the July $145 puts ($13.10) and that won’t cost you $25 unless they are below $120 or above $160 – that’s always a good way to work your way out of a jam on a short play that goes bad on you when you don’t want to wait 2 years…

  114. Phil: with 2x rolldown on SPWRA putters you mean DD or roll down to what ?

  115. In TNA ( 1/2 position ) at $55.60

  116. JRW is back!!!

  117.  Phil what do you suggest hedging XOM stock? 

  118. Man, what a crazy last 3 days.  It’s clear there is either a battle going on between bears and bulls or ‘they’ are having to shake the cage a little harder then normal to disguise their path and create a market to sell/buy to.  I vote for the latter.  Nothing in this market happens by accident.  At least not for very long.  Any attempted sabatoge is dealt with swiftly. 
    Any TA gurus out there have a name for the last 3 day pattern?  I do.  It’s called, WTF!

  119. Thx Phil on DCTH…..from all of us!

  120. Phil,
    Isn’t this the kind of action we should expect with consolidation…reversal yesterday, reversal today as buyers and sellers fight it out?

  121. IWM resistance at 69.57, 69.89, and 70.11

  122. Out of TNA at $55.72

  123. JRW – this is a wicked day.

  124. ss
    Couldn’t get over that 5/13 line !! At least not that time. Finger on the TZA trigger.

  125. Hi Phil Bot UNG stk in IRA back in Feb for 8.75 now 7.6, what should  cover with this stock . THX

  126. JRW in TZA at 6.27

  127. yipcarl
    Good luck and BE CAREFUL !! I’m still expecting a pump today.

  128. i’ve been waiting for it too…Now that I bought it’s just about to begin… HAHA…

  129.  This market is tiring, need to constantly check what the currencies are doing!!

  130. JRW a pump today? In the face of a disintegrating Euro…looks like a controlled meltdown to me.

  131. Well someone keeps selling /ES futures in quantity, so there’s not going to be any stick unless/until they finish.

  132. Phil, Ive asked this a few times but I always seem to ask at the end of the day and my question gets overlooked. What do you think of ES? They were somebody’s ‘high conviction pick’ on SA awhile back and seem like an interesting company. Just curious for your thoughts on the company. Thx!

  133. Phil/pstas/minijoe,
    I was curious about the /CL change myself since I sometimes play oil. I asked TOS futures guys for clarification, particularly what happens around the contract change and how to avoid delivery of 10,000 of oil by forgetting to deal with an active contract. As Phil noted above, there is no way they would give us the new price if we purchased before they changed to a new contract…..basically you still own the old one until expiration in three days.
    Hope it helps others on the site.
    Yes, this is indeed correct. The active month designation was changed on our platform from June to July. This is reflected on the Trade tab as well as TOS Charts. You see the jump in price between the previous day’s close and the open at 6 PM EST because the July contract is trading approximately $3.00 higher. So you will want to take note that the jump is not actually a jump in the price of oil, rather, it is the difference in price between the two contracts.
    The reason for the change in the active month designation is because the more actively traded contract is now July. This is typically experienced when the previous month’s options expire and traders begin closing their positions in that month to begin speculating or hedging in the next month. If you purchased /CLM0 before the change, you would still own /CLM0 afterward. The change in the active month designation has no bearing on your position. You would still need to manage the June position as you would have had there been no change. If you then wanted to begin trading the July contract, you would need to perform what is called a rolling trade. To roll the position simply means that you are closing your position in one month and opening the same position in the next contract month (in this case, you would close your hypothetical position by selling your June contract and open the same position in July by buying one contract).
    If you own June /CL on the last trade date and do not close it before the contract stops trading, then you would technically be required to take delivery of 10,000 barrels of oil. The delivery is effected at whatever time the writer of the contract so chooses and you would be required to honor the obligation. However, most firms do not facilitate delivery of crude oil and thinkorswim is no exception. However, if delivery were effected, you would need to have the commodity delivered to an exchange certified warehouse or location that is approved for housing the commodity upon delivery.
    We actually do not facilitate delivery for any physically settled contracts so this means that you need to ensure your position is closed prior to the Last Trade Date or First Notice Day, whichever comes first for a given contract. In the case of Crude Oil, Last Trade Date is the day on which you would need to close your position. You can read about these types of specifications at the exchange website and view their product calendar for pertinent dates.
    We send out e-mail reminders about products that are approaching their delivery period. Since we do not facilitate delivery, your only choices are to close the position before the date on which you are required to do so or you must roll to the next active month if you wish to maintain your exposure in said product.

  134. What would a stick save at this point in the day prove?  Clearly, liquidation has been and is continuing.  Sure, there are lots of headfakes, all to the upside, but the trend is pretty clear with or without a stick save.  We need to learn to resist reading into stick saves and opening marks.

  135. JRR out at 6.30 order back in at .27

  136. kustomz / Pump
    While I have a deep respect for your research and insights, Adam Smith is out the window; we are now living in the age of Bernanke and the " Economics of Happiness " !! Anything is possible, except a major sell-off.

  137. matt,
    A little save to get us up over 1134 would ‘prove’ that support is holding (not really ‘prove’ of course, since nothing’s ever proven in a literal sense). But it would look ‘less bad’ than a failure here.

  138. Matt – I think it is a squeeze into OPEX. 

  139. Sticks/Exec – As a rule of thumb it seems easy to have a stick save if the Dow volume is under 140M at 3pm.  The normal progression is about 30M at 10, then 50M at 11 and about 20-30M per hour after that.  So we look for low volumes to ignore a day’s move or confirm it and, if the volume is high and increasing into the close, it becomes harder to pull a major reversal.

    VVUS/Robo – What is your basis on positions? 

    TBT/DMan – Seriously, I have to go to Monday’s post and find the TBT trade for you???  Yes, much better I stop what I’m doing and go to yesterday’s post, hit CTRL-F for TBT and find the trade and then paste it here for you than if you would do it yourself:


    ok, p hil, what is the best  TBT trade then to put on today if we do get a little downtick?
    would you recommend waiting till after the auction to do it?


    TBT/DMan – The best trade is waiting until 1pm so we can see what the reaction is to the short-term auctions.  I’ll be looking at something like our failed hedge that I mentioned in the weekend post but at a lower strike of course.


    May 17th, 2010 at 1:39 pm |   



    Auctions/DMan – I haven’t heard yet.   TBT looks like they bottomed though


    TBT – Now I’m liking the Jan $38/45 bull call spread for $3.10, selling the $36 puts for $2.50 for net .60 on the $50 spread and a nce 400% upside at $45

    Gee, now how can I possibly be frustrated a day later when asked by the same guy what the play was???

    AAPL/DKGuy – I think it’s way too easy for AAPL to go below $240 so you are pretty much setting yourself up to buy AAPL for net $253 and they’re at $252 now so what is the point of this trade?  The problem is you are buying more premium than you’re selling when you could just buy the stock at $252 and sell the $240 calls for $25.30 and at least that lowers your B/e to $227.30 and your upide at $240 is $12.70 but the other way you need $265 to make the same money so the spread you set up has less downside protection and only $5 more upside.  On the whole, AAPL is a "stay away" at this price, they could go 20% either way overnight and that’s generally not the kind of stock you want to be selling options against.   I WANT to own AAPL at $165 NO MATTER WHAT so I’d be more comfortable buying the Jan $210s for $60.40 and selling the July $240s for $25.30 and selling the Jan $170 puts for $7.60 and that’s net $27.50 on a $30 spread with 6 months to roll but I still don’t like that play as the risk/reward isn’t that attractive since I can easily think of a way that AAPL can drop to $165 overnight – this is not the case with most companies…

    CL/Mini – I hate holding them overnight within a week of expiration so it doesn’t usually come up but that can cause a lot of confusion if they randomly switch the view.

    IWM/BG – I’d take the money and then run.  If you want to stay short, flip to 8 or more Jan $67 puts at $7 and roll the putters down to 8 Aug $65 puts ($3.50) or 12 June $67 puts ($2.25), kind of like a Mattress play.  If IWM keeps going down, use your cash to buy lower strikes in Jan.

    Shorts/SNS – Very strange step to take after that bailout.  Things are still very much up in the air…

    GS/Yodi – No, I mean you take your $28 short put and break it up into a short call and a short put.  That should lower your margin requirement and your best case is that GS expires at $140 and you owe each $5, then you can roll that $10 obligation to some short puts…

    SPWRA/RMM – Roll to whatever strike works out even, of course. 

    XOM/Chyer – We had a spread on them yesterday.

    UNG/Gucci – They were looking good for a while there..  Why not just sell the Oct $8s for .77 to drop your basis to $8 and, if they sell lower and you are willing to DD, you can then sell the $7 puts for $1 (now .70) to lower your basis to net $7/7.50.

  140. JRR are in the age of Atlas holding up the markets even if they are terribly diseased…
    Pulled the 6.27 TNA order as the market looks to be basing.. for now

  141. When looking at the Friday of OPEX this year (1/15, 2/19, 3/19 and 4/16), all were down days.

  142. Interesting study Pharrm… Do we short VVUS thursday? haha.  Still looking at that breakout even in this market….

  143. Sorry, robo, missed the VVUS post….

  144. Hi Phil,
    Bounce talk, I see that copper has retraced about 50% of its plunge from yesterday. Amazing to me that it bounced so high and I just couldn’t help shorting some at 3.01.  With the markets so unsettled it seems like another leg down is in the offing. FCX  call options not interesting enough to short today.  What are your thoughts?

  145. Thanks Phil – great insight.

  146. Same JRW, so your counting on currency intervention, or better yet total Gov sponsorship of markets beyond what we’ve seen to date?

  147. Ok, FAS is now bumping into the low from the Friday after the Thursday fat finger lie (5/7).  It is clearly the banks leading the charge off the cliff.
    Pharm, I hadn’t considered OE.  Of course that complicates things.. but I think this is bigger then that.  IMO.

  148. Kustomz / Currency Intervention
    Don’t we already do that ? BTW, it’s 2:30 and if we don’t see something positive by 2:45, I’ll have to concede to you the day !!

  149. Banks to take a 25% hit to earnings ongoing from new legislation

  150. GLD flying.

  151. JRW, i have a large position in VXX…i highly respect your opinion and just wanted your .02

  152. JRW & Company
    Iwm support at 68.09??

  153. Phil, i have a C spread 2012 $5 call (1.22 now .725)/ $7.5 call (.55 now .295) and $2.5 put (.24 now .47).  I am looking to DD on one of these low spots.  I know you suggested a C trade yesterday, but i couldn’t execute that one because of conflicting strikes.  What is best DD.  Thanks for the Guidance.

  154. Wow, so while I was looking up trades I posted yesterday the Euro dropped like a freakin’ rock, all the way back to $1.226 and the Pound was pounded down to $1.435, both about 1% drops really fast on that news out of Germany.  Gold spiked up $15 to $1,225 but stopped there and oil has been falling all morning and is now down to $72.45 so the only thing holding up the July contracts seems to be the fact that they weren’t actively traded until today! 

    I’m buying back those naked short TNAs, that was more money than you are supposed to make on a spread! 

    ES/Jrom – They are a good long-term story on nuke building and they actually pay a 1.4% dividend so nice to own long-term.  Stocks like that just bounce around depending on the wind regarding nukes but nothing wrong with building into them.  I’d start by just shorting the Oct $7.50 puts at $1.30 as that’s a net margin of $1,400 to make $1,300 on 10 contracts or, worst case, you own them at net $6.20.

    Thanks Ocelli!

    Volume on Dow is now 143M at 2:35, we are now officially "heavy" for a stick save

    FCX/Humvee – As I said this morning, I don’t think much of a run-up that comes without any consolidation along the bottom, especially what we had yesterday, which was a stick save and then a pre-market pump today to give us a now obviously fake 150-point gain.  So now it’s all going way and we are back near yesterday’s lows and I still like yesterday’s plays and I still don’t like FCX because the markets wouldn’t be this lackluster if there were real demand for copper.  Also, look at the Building Permits number – no one is planning on builing anything this year…

    Banks/Matt – Don’t forget Whitney pretty much called them toxic yesterday.  She got surprisingly little attention even considering the MSM cheerleading mentality…

    DIA $106 calls at .83 are a fun upside play, out if the Dow can’t hold 10,490 or S&P 1,119.

  155. Good afternoon from Iraq, Phil. Just came in. Think we may get a stick save?

  156. Gold is nonstop, I’m continually baffled by that story.  Traders of gold fine…..BUT gold bugs I don’t get.  They believe the paper monetary system is a manipulated sham (I don’t disagree) however Gold is the answer?   Gold cannot be manipulated and gold will be a medium of currency in a monetary collapse?  Gold was made illegal to own once already?  Furthermore it seems only people with a little money can believe in this.  Buying a million or more in gold and holding it doesn’t it make very easy to transport.  Additionally how can the purity be tested if you are going to use it as currency?  How is your gold bar going to be divided up?  IMHO Gold is another manipulated medium and when the bottom falls out in the next 6 months gold will be soon to follow .
    Phil what levels are we watching?  I assumed that was addressed but I don’t see that it has..

  157. In TNA at $53.73

  158. Phil, who do you like better ES (the play above) or CCJ

  159. samz
    I’ve got it at 68.01 but that’s the last S

  160. JRR, I wish I could learn how you do that.  I’ve read a few weeks back and can’t seem to identify your method….

  161. The series of commercials that Cisco has been running at nauseum featuring "Ellen" has now become irritating……..  :)

  162. JRWIII:
    yipcarl is saying: when you comment how much $$ you make/made, summarize your method, entry signal , exit signal.
    if you would do this that does not interfere with your trading. Be nice.

  163.  yipcarl - It’s JRW not JRR. ;-)

  164. Amazon posts new job openings for its kindle team to take on the iPad.

  165. Yip -
    Can your trading system plot pivot points? It helps a lot.

  166. Out of TNA at $53.93

  167. what is the dow volume right  now?

  168. JRW -
    That’s it is right – looks like a big drop from 68 + change

  169. yipcarl
    It’s like war, you do all the preparation,the research, study trends and levels and even fundamentals, make a plan, and then when the battle begins, you take your best shot and then through out the plan !!

  170. Paul Volcker speaks at Stanford University at 9:45pm tonight…perhaps a variable in the drop today?  Volcker isn’t the puppet as desired…

  171. Deep pockets defending 1115 on the e mini

  172. Mr Stick appeared at 3:20 the last 2 days, FWIW

  173. Wow, no save at all here.  I hope we can hold yesterday’s lows or this gets very ugly!  1,115 is a resistance on the S&P but the Dow didn’t hold 10,500 at all so far.  Volume not that intense though so still turnable

    Stocks turn lower on reports that Germany will institute an immediate ban on naked short selling and that Chancellor Merkel will announce the plan in a speech to the lower house of parliament tomorrow morning. A stock transaction tax also is said to be under consideration.

    The eurozone region is finding it hard to see the bright side of the euro’s weakness: a boost to exports and growth in the coming months. "Eurozone politicians should welcome the depreciation as a well-timed cushion against the acceleration in fiscal tightening that is getting under way," a UniCredit economist says. "Americans would have been much quicker at seeing the benefits."

    Forget Europe and focus on the "red flags" emerging in China, Damien and Derek Hoffman say. Because global markets are "so fragile," the Hoffmans worry what will happen if more investors realize the world’s "engine of growth" is starting to sputter. "Smart money hedge funds are going to sell first and ask questions later."

    A proposal to prohibit taxpayer money from being used to bail out state and local governments is rejected by the Senate.

    Cleveland Fed President Sandra Pianalto (an FOMC voting member) expects well below full employment for the next couple of years, calling for an extended period of exceptionally low rates – though she acknowledges "more uncertainty than usual" around that outlook.

    Falling permits may be signaling a new housing slump, says Harvard’s Martin Feldstein. The biggest decline in permits since December 2008 follows the expiration of the homebuyer tax credit, and Feldstein thinks "we are not going to see the strength" of the past few months. (earlier)

    Why stop now? Robert Menendez says that Senate Democrats who were considering raising oil companies’ liability for spills to $10B per company per incident, from $75M, are now discussing unlimited liability. (ETF: USO)

    As Discover (DFS -3.3%) CFO Roy Guthrie warns of a threatened explosion of new credit-card industry rules that “rivals only the Icelandic volcanic reports,” card-issuer stocks continue to take it on the chin: V -5.6%, MA -4.8%, AXP -1.8%, COF -1.7%.

    Remember I said these guys are too dangerous:  Ambac (ABK) shares – which were down as the guarantor reported its first-quarter loss widened to $690.1M – are falling off the table, now -21.2%.

    The existence of a controversy isn’t proof of actual wrongdoing, but a look at Goldman’s (GS) track record finds it all too frequently in the hot seat.

    As Gartman urges an exit of gold positions, Bespoke notes that unlike agriculture and oil, gold is looking a bit overbought. (ETF: GLD)

    On the hour: Dow -1.15%. 10-yr +0.54%. Euro -1.64% vs. dollar. Crude -1.05% to $72.45. Gold -0.01% to $1228.00.


    Three lunchtime reads:
    1) Parallel plunges: "Flash Crash" and Black Monday
    2) Is the European crisis a net positive for the U.S.?
    3) Two choices: Restructure debts or debase currencies

  174. JRW, not JRR…my bad.  So you don’t use anything specific?  What you’ve mentioned is very vague I understand that making a trading plan is necessary but that doesn’t help. Can you be more specific, do you use pivots?  
    I just got on TOS.  Tradestation had allowed me to plot pivots but the file got corrupted.  I used pivots back in the day but I haven’t in awhile, what system are you using that allows you to plot pivots?  Also doesn’t it depend on the algorithm?  I remember I had two friends using pivots and we all had slightly different numbers for the S1 and R1 levels etc…

  175. In TNA at $53.80

  176. Taking profits on my GLD verticals from the morning — too good to pass up. Still keeping a long-term position.

  177. That was our shot to short the EUO by the way, just topped out at $25.30 and the $26 puts have little premium at .90.

  178. yipcarl: most charting system allow the adding of pivot and resistance levels, just look and they can appear automaically: the key however is how to use these for enrty and exit, I have trouble with that part, I see all the resistance levels and the pivot point, that alone is not so useful, one needs to know when to move.

  179. BRK-B getting interesting?

  180. Hi Phil I have naked short put on GOOG June 500 sold for 4.10 now  21.6ish, could I hedge this position with sept short call for the same amount 21.3, is this recommended thx

  181.  Pharmboy,  I am trying to get in to the DXD: 
    buying/selling 27/33 Calls, selling 27 put. Currently -1.25 for the calls and +2.20 for the put. I am not sure if this is a good spread, as the put is almost in the money?

  182. C/Robert – I’d just spend the $1.10 to roll down to the $2.50 calls if you have the cash.  That’s buying $1.25 of intrinsic value for $1.10 and widens your upside potential from $2.50 to $5.  If you want to pay for the roll, you can push the putter up to the $4 puts for +.75.  I think I would do that AND buy back the $7.50 calls and then sell the $4 calls IF I think things are getting worse but, otherwise, wait and hopefully get .55 for the $7.50s again, maybe better…

    Welcome back X50!  I am playing (gambling) for a stick into the close but very little for overnight.  Europe is so uncertain:

    Watch what happens when you ban naked shorting, CDS trading and institute a transaction tax with a 6-hour notice, ZeroHedge warns. "With tens of billions in sovereign CDS scrambling to unwind overnight with no prior warning, you will see some seismic moves via arb desks… This is the most ill-thought-out regulatory plan in the history of capital markets."

    Levels/Yip – I agree on gold, it’s just another scam.  Gold made sense in primative times when it was scarce and easy to authenticate compared to other things but I can create a better currency than gold in 1 day by taking 50M acres of working farmland at $10,000 an acre ($500Bn) and selling uniquely identified and certified "acrebucks" that give you a preferred rate of return based on the land’s earnings (with a 50-year history backing them up) and the free ability to transfer that ownership to anyone holding the acrebuck.  There’s a nice, quick way to replace 416M ounces of gold with relatively little fuss.  As to the levels, we broke already but the Key S&P levels are 1,100, 1,128 and 1,155.  On the Dow, of course 10,500 is important and 10,650 if we get higher therefore 10,350 to the downside. 

    Back in the DIA calls at .69 (glutton for punishment) and also IWM $69s for .71 but Mr. Stick seems to have foresaken us

    Better/Stock – I think I like CCJ better as they have the stuff.  More plants = more demand and if they stop building plants, there’s still demand…

    Dow volume/Trice – 184M at 3:36

    Pivots/Yip – On TOS the "Active Trader" chart has a pivot point study.

  183. Phil NOK, do you like it on cheaper Euro? yay nay?

  184. DXD/amatta – I think that is too much for the ITM P.  I think the current one is 23/27 October selling 23 October P.

  185. RMM, I see. I’m all turned around.  I WAS so good at figuring out new trading systems most of my life now I just get confused.  IB is like another language to me and TOS, although I just got it today at first glance doesn’t not seem overly user friendly.

  186. Thanks Phil!

  187.  CCJ also sells gold (me thinks)

  188. BRK.B/Silent – Good call!  I want to see them test $70 but if they hold $75 then a buy before they get away.

    GOOG/Gucci – They don’t have July yet but if you can afford to hold I would because GOOG is at $498 and if the options expired today you would owe $2 to the putter so isn’t it ridiculous for you to spend $21.60 just because you are nervous? 

    DXD/Amatta – If those are July, it’s a very bearish way to play and you will be most assuredly screwed if the market goes up from here so the only reason to go for that spread is if you are REALLY bearish from 10,500 and if you REALLY want to own DXD as a long-term hedge at net $26is, which is valid but make sure you have a portfolio plan where that makes sense for you.

    NOK/Kustomz – No, they went to war with AAPL and that is a very bad move.  Jobs can strip down an IPhone and sell them for $49 and wipe the floor with them and don’t think he won’t because that’s pretty much what he did to all but about 11% of the market on IPods.  There were guys who tried to compete with more features, less features, lower cost, included subscription programs, cool materials, custom cases, better batteries, better headphones….  all gone now… 

    X is getting X’d

  189. yipcarl:
    have been here along time and still not confident about a lot of things, the jargon and phrases used  is often not really clear, toughest thing for the experienced trades seems to share the entry and exit signals they use. Hang in and learn.

  190. TNA is staying at S1 support level, hope for a rise at opening manana.
    I have seen the market falling towards OPEX too often, I believe we will see this manana.

  191. Thanks RMM I intend too, nothing good comes easy, well mostly….I’m only going on my 14th year!!! HAHA

  192. Just had a thought… If this fall is due to Germany’s ban of naked short selling, maybe they should also ban naked long buying to help the market rise?  Wouldn’t that be great!


  194. XLF bouncing off 200d MA.  XHB way above it.  I still think it is a good play shorting the homebuilders.  Wood has fallen off a cliff, which means they ain’t building and the stimulus is over. 

  195. Every little run-up aggressively sold into. Doesn’t look like it’s over either.

  196. yipcarl:
    something is screwy: over a week ago, 90 % of my TNA trades made $$, last few days, 90 % lost $, although my method is the same.
    I go in with a buy, the moment its executed, TNA falls as if someone is waiting for me, one can get superstitious.

  197. NOK…man you know how to scare someone out of a possible position,

    "they went to war with AAPL and that is a very bad move.  Jobs can strip down an IPhone and sell them for $49 and wipe the floor with them"

  198. Out of TNA at $54.02
    A $5K day, sorry all, if I had gotten up at the usual time, I would have just bought TZA and all would be well.
    kustomz, you have the daY !!

  199. RMM… I am 100% with you.  Here’s how I see it and yes I’m crazy…
    They’re are rooms full of people who work together who know what we know and a lot more. There whole job is to exploit the system and take our money especially when you’re using a system.  They test and retest and see how people(you) are taking advantage of their systems or inhibiting them from making money.  Then then jam it up.  It sounds crazy, it sounds conspiracy minded, however I believe it.  It seems to me if you had say 5-10 successful methods…as one goes out of favor you pick up the one that’s working and be ready to change on a dime and rotate while always looking for new methods trying to stay way ahead.  Maybe that analysis is wrong but I’m telling you it certainly isn’t all haphazard.

  200. JRW, dont be silly lol, i follow some of your trades…my bets aren’t nearly as large as yours but I can thank you and the other players here on PSW for a great deal of my profits!! ;-)   

  201. Wow, on the whole, that was a rotten day.  Volume ended up at 246M on the Dow and it was pretty much down all day.  

    VIX back to 33.50.

    Asia will not be liking this close one bit!

    Bans/Grant – I think they should ban all stock selecting and simply demand that all money go into an ETF for the DAX on the long side only.  It could be like a giant Ponzi scheme where people just buy and buy and buy and the market goes up and up and up and everyone looks very rich on paper.  Then they government can print money and the banks can loan it against the stock assets (because no one can sell them) and, if the people can’t pay back their loans – the bank is happy to get an asset that only goes up.  What could go wrong?

    Zerohedge/Trice – I think it’s a bit alamist.  We banned short-selling and the market did fly up at first and then crashed but let’s not forget the part where it flied up first! 

    TNA/RMM – Over a week ago, most days were up.   Now most days are down.  A "system" that works in one market move can go the other way if the market changes, you need to get out of things that aren’t working and reassess.  Remember we pretty much dropped the buy/writes when the VIX fell and we got toppy and went for mixed hedges, and they worked great, now we are doing very few mixed hedges and almost all buy/writes – you must find tactics that suit the conditions! 

    LOL Kustomz – I just see so many solid companies that are cheap at these levels, there’s no need to play anyone with a possible hole in their market. 

  202. yipcarl / charting
    I use 5, 10, 30, and 180 day charts to set trend lines, same for support and resistance levels, then I set 1 day and 5 day pivot levels and also use DeMark analysis. Then, at the open, I chose a direction, or wait 15 min to let Mr Market tell me which lines will be in play that day. I will take a position and hold it to the next line or level, if it bounces, I’ll sell, if not I will hold till the next level. I will make that determination by watching the stoch, RSI volume, and momentum. The real trick is to minimize losses.
    I have posted more in depth info in the past, you can search the archives.
    Glad to help and good hunting !!

  203. RMM
    I’ll add one more thing.  TO think no one is trying to extract money from our accounts by any means necessary is more ludicrous than the conspiracy concept itself.  Look what Goldman Sachs is being accused of doing out in the open, you can only imagine what is being down in the shadows… 
    P.S.2 Now I’m really nuts I know but what about the plane debris in Shanksville and at the Pentagon or why a skyscraper fell to the ground like a house of cards that wasn’t hit by anything and had 3 isolated fires?  Why were their 4,5,6x the amount of put options on the airlines during this period?  Sometimes questions, like these, are to big to answer and scary for many so they just look at the person asking a fair and logical question like they have lost their mind.

  204. Phil: agree with what you said, the best strategy is to stay away from these fast runners sometime.
    yet, using pivot and resistance levels as a guide, it s now annoying to have entered at lower end of an move upwards and precisely when the trade is done  it reverses, I do not enter when the move is downward, I look at the candles and support/resistance and look for a signal when the  move can be confirmed by looking what a bunch of indicators are doing.
    the volume must be very small, wonder whether JRW III observes the same thing, he trades at least 1o times the volume and can influence TNA market much more than I can,

  205.  Phil, 
    I don’t know if this is the best place to communicate with you to get started…. If it is not too much to ask I wanted to go over in more detail how to re-shuffle (aside from what you mentioned, about selling the metal stocks)my portfolio--specifically how to put a good allocation for diversification (I am not sure if you have a porfolio on the site with all the recommendations and it is diversified?) and more importantly to completely hedge it.. Today I was down another $3,000 (1.35%) as I wasn’t able to implement any of the hedges (I am still too green and when I was trying to put some the order together the market would move on me especially since it did that sharp U turn today. 
    Also I am not sure I if you alert about all positions recommended (I saw today a bunch of alerts from optrader, not sure if these encompass the ones you post on your blog? 
    Thanks and I apologize for the urgency and beginners’ requests…

  206. Phil…Thoughts on HPQ?  Good earnings and good guidance.  Every time in the past that they announce these type of earnings the stock moves 2 bucks or 5% inside of a few days… I can say this if the market bounces tomorrow HPQ will most likely be a front runner.

  207. Market recap: Markets expressed their dim views of Germany’s anticipated plan to ban short selling, as the euro fell to new 4-year lows and stocks and commodities tumbled throughout the afternoon. Each of the major stock indexes fell more than 1%, and NYSE decliners outnumbered advancers 3 to 1. Financial stocks, particularly credit card issuers, led the way lower on regulatory reform worries.

    At the close: Dow -1.08% to 10511. S&P -1.42% to 1121. Nasdaq -1.57% to 2317.
    Treasurys: 30-year +1%. 10-yr +0.51%. 5-yr +0.33%.
    Commodities: Crude -0.55% to $72.82. Gold -0.64% to $1220.30.
    Currencies: Euro -1.51% vs. dollar. Yen +0.17%. Pound -1.02%.

    Germany’s apparent plan to ban certain short sales provides another excuse to sell the euro – down to $1.2285 today. David Gilmore of FX Analytics sees "unlimited euro downside ahead" and that the move could be "the Lehman policy mistake that takes the global financial system to the brink, again."

    Former BofE official David Blanchflower says another eurozone financial rescue package may be “inevitable” and the euro’s “unstoppable” fall may lead to parity with the dollar.

    Raoul Pal of the Global Macro Investor newsletter sees a crash coming in two days to two weeks. His charts show an archetypal crash pattern: a sharp decline followed by a failed rally followed by a collapse.

    In a compromise amendment passed today in the Senate, state attorneys general would not be able to enforce rules from a proposed consumer financial protection agency in states other than their own and would not be able to bring "federal class action-like suits against national banks."

    Analog Devices  (ADI): Q2 EPS of $0.55 beats by $0.05. Revenue of $668M (+40.8%) vs. $644M. Shares +2.7% AH. (PR)

    Hewlett-Packard (HPQ): Q2 EPS of $1.09 beats by $0.04. Revenue of $30.8B (+12.4%) vs. $29.8B. Shares +1.6% AH. (PR)

  208. Postions/Amatta – I have to go somewhere now but I’ll try to get back to that list on the other post later.  Losing 1.35% on a day like today means you are pretty well diversified, just not hedged.  Study those Disaster Hedges (linked above) and next time we talk about using them in a morning pop – try using at least one!   As to positions, etc.  You really should spend a month paper trading or trading lightly until you learn what kind of options you do like to trade and what kind of trades you have the patience to be in. 

    There are tons of posts about portfolio set-ups and allocations as well as a ton of stuff in the Education and strategy section so don’t think you come in here on day one and skip to the end of the class.   Read the New Member’s Guide, do your homework, read the Portfolios, the Education and Strategy Sections (and the comments on those posts are very important) and especially read the last 30 days of posts and comments at least where everything you are asking me has been answered at least 3 or 4 times including how to allocate and set up a well-hedged portfolio. 

    It is certainly not my job to "save" a portfolio full of positions I didn’t pick in the first place.  As I said this morning, you would be better off scrapping the whole thing and taking the very small loss (or it was this morning) and getting into some of the 12 plays we discussed yesterday and, had you gone to cash in the morning, you would have had plenty of fantastic entry opportunities this afternoon. 

    Very few of my trades are Alerts.  Most of my guys are here every day and I’m not a big fan of having trades taken out of context so I mostly use the Alerts for things I think are very important.  If you got 12 Alerts from me yesterday and 7 the day before and 8 the day before that – how would it help you?  You need to learn HOW TO TRADE and WHY YOU ARE TRADING and HOW TO HAVE A TRADING PLAN, HOW NOT TO BE GREEDY and HOW TO MAKE ADJUSTMENTS – our trades are successful BECAUSE THEY ARE HEDGED but, if you don’t understand the hedging then they’re not going to do you any good at all.

    HPQ/Yip – Earnings were good so it bodes well for tech but will it be enough to save the Nasdaq from failing 2,300?  Probably but I’m glad I don’t have to bet on it.

  209. Phil, I hate to bludgeon you with another TBT questions, since you get so many, but maybe others need the clarification guidance as well. My current understanding is that you still have a price target of $60 on TBT by year end. Yet the latest recommended spread is the Jan 38/45 plus selling puts. With a 45 caller that’s leaving a lot on the table if TBT gets close to 60. Could you elaborate on the rationale there? Also, with the 38/45 spread are you suggesting to cover with the 45s right away, or can we scale in naked at 38 and cover with the 45s once TBT begins to recover?
    And just a follow up on the MT repair play you gave me a few days ago. It’s gonna take time and more investment to get back to even on that one as its been beaten down a lot. Do you think it’s worth to stick with a company like MT, or could I recoup the losses quicker by cutting my losses and moving into another stock with more potential?

  210. Charts: SPY

  211. Phil,  when will the bloodletting with SPWRA stop?

  212. Phil/Pharm/Eric- Question on technical levels…Although the major indexes are holding their lower levels, there are a lot stocks that have broken their 150-day, 200-day supports…isnt it just a matter of a few days for everything else to break down? If they do break down, where are the next support levels or do we have another crash?

  213. Phil,
    Had to cut out this afternoon, fortunately had some hedges in place though!
    Re: my question about VVUS, my position is:
      •   Long shares at $10.95
      •   Sold Sept. $15 covered calls at $1.90 (now $3.20)
      •   June $10 calls bought for $1.65 and sold to close this morning for $3.90.
    And the question again is how could I adjust the long shares and covered calls to maximize profit. I do see continued momentum going into the July FDA panel, and of course if that goes well the October PDUFA has a far better chance of approval sending the share skyward (barring a POZN-like situation. . . ). Then again, shares could tank after the July panel, etc etc. . .

  214. SPWRA/jro – read this.  Makes me want to jump ship until the fixed costs can be driven down considerably.

  215. sns – Health care is over  sold on this graph, but then it comes down to fundamentals.  TA gets us so far, but investing is driven by fundamentals.  Doing swing trades as I do sometimes, Opt does or even JRW is all fine.  Day traders in this environment usually get killed (just read this article on HFT).  So I still see us going back up to highs or higher b’f the real storm begins, as in 2007 after Lehman, we still went higher.  Wall Street needs retail investors, and if they tank it now, retail will be dead.

  216. Pharm,
    Could you take a look at those picks form earlier if you have a chance? Thanks

  217. gel – haven’t seen you around in a few.  I am curious about your current Forex trades and overall thoughts on the currency markets.  Back in late March I started to follow you on some of the currency trades, but only paper trading.  Sadly, that account is up huge.  I remember you mentioning a Forex trader that you follow who is very good.  So, what are the tea leaves saying?  Thanks and good luck to you.

  218. gel – some of the trades I followed you on were
    short EUR/THB
    Short EUR/NOK
    Long USD/HUF
    Long /DX
    I also added short EUR/AUD

  219. OCLS – animal health is the new rage for now.  Their product is interesting for wound healing, but not sure if it is worth the flier. 
    CUR – set to sell 3.5M shares.  C where they are priced.  Stem cells is a hot area, and they are one of many players.  I am not an expert in this area, although I am trying my best to understand what companies do with their cells.  I think GERN, OSIR and STEM are leading the way, but these guys are in the mix.  I am hoping in the coming months to look more into this for a long term bet on the area.
    KV’A – was tagged last year by the FDA for making and selling unadulterated and unapproved drugs – umm, no thanks.
    NPD – holy moly, that is a chart.  No thanks.  Maybe if they bounce off $4, but they appear to be Rite Aid of China.
    FHCO – no options, but interesting company.  YOY revenue growth is not impressive, so where are they going to grow?  OK margins, but P/B is 15….yikes. 
    AOB – not really that interesting to me from a pharma point.  Nutraceuticals and some pharma.
    GXDX – is more of a specialized MYGN or LH.  Different market.  I like them, and did a swing trade, but MYGN and others are getting battered around. 
    ARAY- cross between DCTH and ISRG.  Their instrument gives high dose radiation to solid tumors.  Interesting and worth a closer look, although that fall from 2007 is a bit concerning.  Very little growth, but could be better in the coming years.

  220. Speaking of deflation, has anyone else seen this article over at Business Insider?
    Global Macro’s Raoul Pal: Here’s Why A Crash Is Coming In Two Days-To-Two Weeks
    Especially look at the last two charts where the current market is superimposed over the charts of the Great Depression and the Crash of 1987.
    My heart skipped a beat.  Its enough to make the blood of even the most bearish of perma-bears run cold.  Could history be repeating itself?
    Kind of makes you want to add on to Phil’s excellent Disaster Hedges, just in case…

  221. WASHINGTON — Political novice Rand Paul rode support from tea party activists to victory in Kentucky’s Republican Senate primary Tuesday night, delivering a jolt to the GOP establishment and providing fresh evidence of widespread voter discontent in a turbulent midterm election season.

    Happy happy joy joy..finally some new blood, hopefully he wont be corrupted by Washington’s vampires

  222. Wow, pretty cool news on the whole son of Ron Paul thing Kustomz..
    Day traders in this environment usually get killed (just read this article on HFT). 
    Pharm, ain’t it the truth.  I have even figured out a way to lose money on the market going down.  Got to step back and take a look at the forest and not the trees.

  223. O yea i donated to his campaign and i couldn’t be happier!!!

    Smoking my most prized Cuban at this very moment… :-)

    Pharm appreciate your input

    Kinki thanks for the post!

  224.  disasters/kinkistyle – Okay, time to have some fun. Assuming we are rolling back the calendar to 1929 in the next two days to two weeks – Which puts would you buy for the biggest, baddest gain? 

  225. SS:
     I was following along back in March when you were getting into the forex stuff with Gel. I reviewed my notes and am pretty sure it was GTF Forex. Hope this helps.

  226. By the way theres a battle going on in ES at the moment someone needs/wants to hold 1100 and the Euro dropped to 1.2145 and bounced,

  227. SS:
    By the way, I had my head handed to me again today in TNA. I haven’t traded it in several months since the last time I lost. I have to swear it off!!!

  228. powermd: without a doubt financials.  There will be a big run on the banks as confidence in the FDIC shatters.  Of course, in that event I won’t know where to put all that cash….

  229. ok, putting on my biostatistician hat – 1. Rand Paul is running for office, right? (ok, that was my cynic hat)  2. If you look through graphs of index patterns over the last, say, decade – how many do you suppose you can overlay on the 87 and 29 charts for a match similar to what Paul did? He’s committing a cardinal biostatistics sin, i.e. lack of awareness of the denominator.

  230. snow stop it before your head explodes, I’ve seen it happen!! He’s a shoe in, barring some type of unforeseen accident or October surprise.

  231. snow:  You are right of course.  Its all just pattern matching and cherry picking. That criticism could be applied to all of Tech. Analysis.  
    But considering the state of the global economy, the empty markets being manipulated primarily by banks and robots, and the general level of fear and uncertainty throughout the market, convenient "coincidences" like moving averages or fibonacci series, sometimes turn out to be self-fulfilling prophecies.

  232. SS:  Long day…GTF was his forex broker… specific trader…. don’t know.

  233. Just a shout out for Angela Merkel – I wish our Prez had her "stones"……

  234. Great articles today Ilene!  :)

  235. ssdirk – is the forex broker that gel1 was/is using. Dealbook 360 was/is the trading platform. Jamie  Spoors was/is his account rep there. Kathy Lien is the researcher that he has spoken highly of. — Hope this helps.

  236. jburgess, diamond – thanks.  Wish I would have turned those trades into real ones.  Euro is in some serious trouble here……1.2172 as I type.  Wow.  I was just in Italy last month at 1.34.

  237. Funny to watch banksters lash out of Germany.  Level playing field.  US Congress is worthless.

  238. TBT/Kururi – Have you seen TBT lately?  The $38/45 spread with the sale of the $38 puts is net .60 to make $5 with a 400% upside and breaks even at TBT $38.60.  While my target may be $60, I’d rather have 3 of these contracts than a single contract that needs TBT to rise to $60 to make $15.  This is what I mean about greed killing traders.  Even if you are 100% positve you are right about a stock, even the best traders are wrong 40% of the time.  If you learn to take trades that have 20% margins of error, where you can win even when you are wrong – you can substantially increase your winning percentage and NOT LOSING is much more important than winning in investing. 

    Warren Buffett has 2 rules of investing.  Rule #1 is:  Don’t lose money.  Rule #2 is:  See Rule #1.  He seems to know what he’s doing so I try to follow that one too!  You can be aggressive and scale into the calls.  Let’s say you want to go with 20 contracts on this spread.  A good way to go is to look for the bottom of the channel (hopefully here!) and go with 10 Jan $38s at $6.30 and sell 5 Jan $38 puts.for $3.30.  That means our goal is to sell the $43 calls for no less than $2.40 and they are now $3.50 so that’s pretty easy at the moment.  If TBT goes down, we sell more $38 puts or maybe lower puts and buy some more calls, if TBT goes up, we sell the $38 puts for no less than $3 or maybe sell the $39 puts for no less than $3 and we sell whatever higher calls fill in our gap at net .60.  Sometimes we are going to get burned and may have to take a $4 spread if TBT turns sharply against us but, as long as we get our net .60, it’s still a good upside. 

    It’s important to understand WHY the Jan $43s are $3.50 though.  They are $3.50 because the VIX is high and if TBT begins going up and the VIX goes down, and maybe you won’t get a better price than this.  Also, if you are getting a better price than we planned, it is wise to look at a lower set of strikes to further improve your odds of winning.  The $37s are $7 and the $37 puts are $2.90 and the $43 puts are $3.50 and there’s our same net .60 spread with a $6 upside and an even lower break-even. 

    As I said, you can buy the calls, sell the puts and wait but you need a discipline like your fallback will be selling $42s for not one penny less than $3.50 (now $4.30) and that’s your "sell-stop" and your hope is TBT takes off without the VIX dropping too much and you can sell maybe the $47 calls for $3.50 or, you can be like me and Buffett and sell the $45s for $4.50 and spend $1 to roll the putters down to the $35s to increase our margin of safety rather than go for the gold.  Then I might scale in by selling an exta couple of calls and begin hoping for a pullback.  If I don’t get it, I add to the bottom but my average price should still be pretty good.

    MT/Kuru – They have fallen harder than X, mainly because they get paid in Euros.  I think long-term, it’s a good stock to own but if we crash and burn, they will be painful to hold as well so it’s really a matter of whether you are trading for a retirement account or if you are looking to get in and out of things. 

    Taco Bell/Pharm – Good point!  I also like that SPY chart – the middle of that wedge is right where I expected us to be on Friday, which is pretty much in-line with the March expiration day (19th) back between 1,155 and 1,170.  Your gold chart has pretty much the same pullback target as I do too.

    Technicals/SNS – Well, you say "a lot of stocks" but, to me, we’re just moving into some more realistic valuations.  Things were ridiculous so the fact that "a lot of stocks" are no longer at unsustainable levels doesn’t mean I’m going to extrapolate that a drop to sustainable levels means we’re going to crash.  I know that makes me a poor TA player but I do tend to find that ignoring that particular form of voodoo works out quite well in the long run – another thing Warren agrees with me on…

    If X is on a path to make $2.50 this year and HOPES to make $6 next year, the MOST I would look at paying is some multiple of the average of $8.50 or $4.25 and let’s say I LOVE X and I’m not worried about their union contracts or demand or their burdened costs or dumping by their competition or slow payments by their customers or a global slowdown or deflation and I was willing to pay the pretty high S&P p/e of 15 for them.  Then my target would be about $63.  But, nervous guy that I am, I do worry about some of those things and each one of those things takes a little off the top and I’m only willing to pay a 10 multiple for X and that’s $42.50.  So when X is at $70 and someone asks me, I say it’s ridiculously overpriced and when X gets to $50 and I can see a 20% buy/write, I may say it’s an OK entry to scale in at but when X hits $42.50 – EVEN THOUGH IT HAS FALLEN 40% – I do not extrapolate it going to $19 – I then become VERY INTERESTED in owning it for the long term.  My opinion of X never changes (unless the facts do) – to me, there is a "right" price for stocks and a "right" price for the indexes and they can move the squiggly lines around all they like and it’s not going to change my view. 

    SPWRA/Jrom – They are actually down LESS this month than FSLR, TSL or WFR so (see above comment) I don’t mind when something I like goes on sale.  Revenues for last Q (which they missed by a penny) were $347M, up from $212 last year and gross margin was 20.7% vs. 15.2% last year and they would have been higher but they systems segment (19% of sales) came in at just 8.3% as weather delayed several major projects.  The company has $500M in cash and $1.1Bn in debt and expects to make $1 this year and $1.50 next year per $11.60 share despite their deep concerns about Europe etc.  The company is valued at $1Bn at the moment and has $500M in the bank and is servicing their debt with $143M of free cash flow last Q.  When will the bloodletting stop?  Hopefully around $6 where I can DD and have an average entry of $10 per share so I can leave 1/2 uncovered.

    VVUS/Robo – I am very much a take the money and run person on Biotech.  I have walked away from many 10-baggers with doubles or triples but, on the other hand, I have taken many doubles or triples off the table right before the stupid stock went to zero.  I play Biotech like it’s a total craps roll.  I have tried to play the fundamentals but have concluded there aren’t any but that’s from my point of view.  Pharmboy understands the companies, the approval processes, the drugs themselves and the competition much better than I do so I defer to his thumbs up or down but I’m still generally a cautious Biotech investor.   So, that being said, I would take $13.20 off the table for the stock and buy the 2012 $15s for $4.90 – those are covered by your callers and if the stock tanks, the callers die and you keep whatever and if the stock does well, you use your sideline cash to buy more longs and you can roll the callers to 1.5x or 2x whatever works.  Also, if the stock tanks for no good reason, you can always sell puts and the worst thing that happens there is you are back in the stock at a cheaper price.  Sept $7.50 puts, for example are currently $1.30.  You have $9.05 in this trade and you cash out $13.20 and then you buy the 2012 $15s for $4.90 so you are in the current set up for net .75.  If we get a $5 drop, you should be able to sell the Sept $7.50 puts for $3.75 and then it’s net $4.50 if put to you plus you still have the possible upside of the 2012s.  So you’ll almost be hoping they have a setback in July, right?

    SPWRA/Pharm – You are not looking at that correctly.  There is a high capital cost but NO variable cost over an average 20-year installation.  You need to take those green and grey bars at the end and multiply them by 20 and THEN compare the cost of each system.  Even that is inadequate because this typically short-sighted, penny-wise and pound foolish analysis fails to take into account that nuclear, coal, geothermal, hydro and conventional generation is done at production facilities that mark up the power extensively before it reaches the consumer while solar cuts out the middle men (or at least some of them in a big installation) and saves the consumer boatloads.  Inflation is another thing not accounted for over 20 years.  Don’t forget that all the lobbying/PR money is spent by they guys who want to build things (with subsidies please) that they can sell you for life.  Conventional power is like the record companies and Solar is like ITunes – it totally wrecks their model and they will do anything they can to slow or stop it but, ultimately, it will catch on and wipe out the old way of doing business…

    Retail investors/Pharm – I think they already left for the most part.  Volume is still dreadful with trade-bots still doing 2/3 of the trading and funds doing the rest.  Retail is probably less than 5% these days.

    Crash/Kinki – Yeah, I posted that earlier.  I think it’s insane not to be mainly in cash right now and hedged for at least a 40% drop.  If the guy’s wrong – our buy/writes pay "just" 20% and if he’s right, then we get to DD at good prices with the profits from our Disaster Hedges!

    LOL Kustomz – You send a virgin into a house of 99 vampires and say "hopefully he wont be corrupted by Washington’s vampires" – no more Jimmy Stewart movies for you!!!  This is a little more realistic preview of what’s going to happen.

    Bang for buck/Power – I like the simple play of the DIA June $96 puts for $1 if you really want to play for a short, sharp shock.  If we crash 20%, they are $10 in the money.  Also, I like TZA July $7 calls for $1, selling July $5 puts for .40 and JUNE $10 calls for .30, which is net .30 on the $3 spread and the nice thing about this is you can be wrong in June and still be right in July.  TZA is a 3x bear so a 20% move down in small caps = a 60% move up to about $10 and if the RUT goes up 10% to 750, that’s a 30% drop in TZA to $4.60 so not terribly damaging on the rollable put.  Because it’s an ultra, you do get hit for $1.50 per contract in margin so you need to have about $3K available to take a 10 contract spread just to be safe but the upside is at least $3K on $300 in cash! 

    Another nice disaster hedge is FAZ.  You can go for the July $17/25 bull call spread for $1.10 and sell the Oct $9 puts for $1.10 so about $3K in margin and NO CASH for 10 contracts and you have a $8,000 upside if the financials collapse and the financials have to gain 15% by October for you to owe a penny of that dollar (and by then we could offset with a UYG bull spread).

    Meanwhile, the futures are not looking so good this morning, possibly because protesters SET FIRE TO THE THAI STOCK EXCHANGE

    Asia was pretty bad, with the Hang Seng dropping 2% and the BSE 2.5% but the Nikkei held 10,200 until almost the close but then blew it.  Europe is in full panic mode and is hitting the 2.5% rule at 5am, about 11 am for them – very, very bearish if they can’t hold 2.5% in a day and not very good if they finish near that line anyway.  CAC must hold 3,500, DAX 6,000 and FTSE 5,175.

    The Euro is $1.212, the Pound is $1.43 and it’s 91.58 Yen to the dollar, which Japanese exporters do not like at all. 

    Oil is down at $72, copper is $2.95 again and gold is at $1,213, which is pretty low with a stock exchange burning…

    [thairiot0519]BANGKOK—Thai Red Shirt protest leaders called off their marathon rally and surrendered to police Wednesday after an early morning army assault on their heavily fortified camp in the center of Bangkok, but hardliners turned large parts of the Thai capital into a war zone, setting fire to the country’s stock exchange, shopping malls and a television station.

    In the midafternoon, smoke could be seen billowing from the Stock Exchange of Thailand’s headquarters as helicopters buzzed around in the sky above. Trading has been taking place at an undisclosed location away from its usual building in recent says. Earlier in the day, Thailand’s benchmark index finished up 0.7% on hopes for a quick resolution.

    Thick plumes of smoke rose across other locations in the city as militant protesters targeted some of Bangkok’s main commercial centers. In other parts of Thailand, local television broadcast pictures of antigovernment demonstrators setting alight a provincial government building in northeastern Khon Kaen.

    We all came out to Montreux
    On the Lake Geneva shoreline
    To make records with a mobile
    We didn’t have much time
    Frank Zappa and the Mothers
    Were at the best place around
    But some stupid with a flare gun
    Burned the place to the ground
    Smoke on the water, fire in the sky

    They burned down the gambling house
    It died with an awful sound
    Funky Claude was running in and out
    Pulling kids out the ground
    When it all was over
    We had to find another place
    But Swiss time was running out
    It seemed that we would lose the race
    Smoke on the water, fire in the sky

    We ended up at the Grand Hotel
    It was empty cold and bare
    But with the Rolling truck Stones thing just outside
    Making our music there
    With a few red lights and a few old beds
    We make a place to sweat
    No matter what we get out of this
    I know we’ll never forget
    Smoke on the water, fire in the sky


  239. Even better version of Smoke on the Water.

    Here’s the same guys 40 years ago!   This one is good too – kind of cool with pictures of women who could be my mom in the audience (my mom is in the audience of "A Hard Day’s Night")… I forgot how much I used to like these guys! 

  240. This is going to be one hell of an interesting day (Wednesday) in the markets.  More then likely, we break the big one on the S&P.  Banks have been leading the charge down and there is NOTHING for them to rally on from here.  Monday’s move was a total setup for yesterday’s move.  Took the technical traders to the woodshed-

  241.  Thanks for the putting up those disaster hedges again. I have a stupid question. I use OptionsXpress and I’m trying to figure out how to enter a 3 legged trade such as the TZA spread listed above. The system won’t let me enter it all as one debit spread. It keeps telling me that "legs 1 + 3" or "legs 1+2" must be of the same type (call/put). Do I have to enter this as a bull call spread, then if I get the spread, sell the puts naked? Under their Xspreads feature, it won’t let me do this as a butterfly, because it’s not a butterfly. 
    Maybe the problem is that I haven’t enabled my account for naked options sales (I’m level 4).

  242. WOW what an after hours post !
    virgins, vampires, squiggly lines, & craps rolls
    You’re the Magi

  243. OX/Powermd -  There is a link on the ‘trade options’ order page for ‘mult-leg’ on the upper right side of the page, which allows the order to be entered.  I’m level 5 so if you don’t have that link available, maybe you’re right about needing to upgrade your trading authority.

  244. OX/ivmoda – Under multi-leg trades I can enter, for example, TZA Jul10 7 call buy (no "buy to open/close choice), but when I click "add" I get a message that says "Please enter a valid symbol for leg 1". Oddly, the text (in red below) reads "Current Strategy: Stock". Not sure what that means, or why it’s letting me enter options trades in this window, but it partially explains why my options entry is somehow "not a valid symbol". Rrrrr.
    Not sure if lack of level 5 explains this, but I did request an upgrade anyway.