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Down and Dirty Buy List! (Members Only)

I got a little distracted this morning laying out some hedging strategies and rounding out our top 10 picks list so this is going to be just a very quick cut and pasting of what we picked up last week

Scale, SCale, SCAle, SCALe, SCALE into entries!  As I said in this morning's first Alert, we are still not back to the bottom of our levels so we have no interest in making big commitments until we start seeing some green above the bottom of our trading range.  My comment on scaling into short-term positions (and please read the whole article and all commentary in the Strategy Section) in yesterday's member chat was:

If you are not scaling in or are done scaling into a position you NEVER want to lose more than 20% of a full position (which should never be more than 10% of your virtual portfolio, limiting your max possible loss to 2% of your portflio on any single position).  So I I buy the USO $32 calls for $1.05 naked and I was going to toss $5,000 at it then I would buy 1/4 for $1,250 (10 contracts) and if it drops about 20% to .85 I would consider either a DD or quittiing and taking a $200 loss on a bad trade.  If I do decide to DD, I will, of course, try to catch .75 or wherever it stops. 

Frankly, if I wanted to DD at .85 and it pops back to .95 then why would I chase it, it’s still down 10%?  Anyway, so let’s say I hit my DD at .75 so now I have 20 contracts at avg .90 with the current value at .75.   If they fall 20% further than that, I am less likely to DD there than roll to a lower strike (assuming I was going to stick it out).   So, with the  option at .60 I’m in for .90 ($1,800) and I’m down $600 so I could still kill the trade with a 10% loss on my allocation or I can roll to a lower strike or I can DD at .60, which would put me in 40 at an average of .75 ($3,000). 

Note that I am already down 20% but it’s not 20% of my allocation, just 20% of the current position but still, if we fail .50, I’m more likley to take the $1,000 loss and call it a day.  If at any point, however, we get a pop that gets us even, we immediately take 1/2 off the table to get back to a smaller number of shares at the lowered basis,  That lets us reset the equation (still assuming we want to stick it out) and start a new roll series.  So that’s what I mean when I say, stops at 20%.

The same goes for our entries on spreads (using the net), including our buy/writes.  Also, I should have mentioned, the same goes for scaling OUT of positions.  We only have 2 Rules at PSW and Rule #1 is:  ALWAYS sell into the initial excitement.  Rule #2 is: When in doubt, SELL HALF!  That means we take our profits off the table when our trailing stops get triggered and, even if you think the move is BS, it does NOT HURT to take 1/2 of a winning trade down.  If you are up 50% and take 1/2 off and set a stop on the other half at up 25%, you lock in a 37% gain.  If you are up 50% and the position goes up another 50% (and how often does this happen to you really?) and you sold half with a 50% gain, you still average a 75% gain.  Compare that to all the times you were up 50% but then blew it and you'll understand why, over time, slow and steady wins the race! 

Keeping that in mind I will reprint here what I just sent out in the Alert as it's CRITICAL that you have some form of Disaster Hedge BEFORE you start buying upside plays.   We are not out of the woods yet but we do see prices we don't mind BEGINNING to scale into on a lot of stocks.  We're HAPPY to buy SOME here, we'll be THRILLED to buy more for 20% less and EXCITED to buy more for 40% less.  If you don't feel that way about the stock – DON"T BUY IT HERE!  Having the additional small hedge lets us buy with confidence now as we can pretty much deal with a 50% drop in the markets before we are even beginning to regret our initial entry.  Our Hedge of the Day was:

Before we start buying, let's make sure we have a hedge or two!  Prices will hopefully be cheaper on the entry but a very basic hedge we can use is TZA.  Keep in mind that, like all insurance, we hope we lose the money!

Here's the quickest trick for buying TZA. Buy the Jan $4 call for $4.10 and sell the Jan $12 call for $2.10 and you are in a $8 spread for $2 that's $3.61 in the money already.

TZA was $5.30 at the low this year so, hopefully, unless the Russell makes new highs by Jan, you recover most of your insurance.

The nice thing about this is you can protect a $100,000 virtual portfolio against an 18% drop by purchasing $6,000 of these spreads so your insurance cost is no more than 6% through the end of the year and your upside, in a disaster, is $18,000 and, with luck, you recover at least 1/2 of the insurance cost. Of course, the only way you don't recover $3,000 (TZA at $5.50) is if the Russell goes back to it's highs and, hopefully, that would be good for more than a $6,000 gain on your $100K virtual portfolio.
 

Keep in mind that if you are in $100,000 worth of buy/writes with 20% downside protection built in, just adding $3K on this hedge adds 9% of downside protection ABOVE the 20% and all we need to do in a major crash is PRESERVE CAPITAL so there is no need to over-insure.  Obviously, since the buy/writes are designed to pay at least 20% if the market simply doesn't go down, we know we will make at least $20K if we lose our $3K, which is why it is acceptable to adjust your insurance up a bit if you get nervous because adding $2K gets you $6K more protection and you still net $15K to the upside at least.

Say it with me good people:  Dear Lloyd, lead us not into temptation…

It is very hard not to BUYBUYBUY here but we are 10% down overall and if we simply hold 10,200 we KNOW we can make 20% on buy/writes so there is no reason to be GREEDY and overcommit below our watch levels.  From the time you were in kindergarten they told you to try to stay within the lines – for our purposes, the low end of our trading range (where we expect to consolidate for a while) is:

  • Dow 10,200 to 10,650
  • S&P 1,100 to 1,155
  • Nasdaq 2,225 to 2,350
  • NYSE 7,000 to 7,250
  • Russell 620 to 660

3 of 5 over is good, 3 of 5 under is bad - This is not complicated stuff folks.  We cover more when bad, cover less when good, get nervous at the tops of our range, have a party when ALL of our tops are broken but not until.  Now that we have that all put in context – we want to look for trades on thais list giving us BETTER entries than last week.  As long as the net is the same or better, the price of the individual strikes doesn't matter.  Last week's buy/write trade ideas were:

 

AA/Sean – See above!  People need tin.  $11.11 for the stock and you can sell the 2012 $10 puts and calls for $5.20 for net $5.91/7.96.  AA bottomed out at 4.91 wne the World was ending last March.

AAPL – Short calendar/Eric – I like backspreads if you can find ones that work, they get a quick benefit from volatility crushes and also a nice benefit from a move up as the leaps lose their IV a lot more slowly than the short calls.  So for AAPL, for instance, we can establish a bullish position of 3 Oct $280s at $14.40 ($4,320) and sell 5 June $260s for $7.20 ($3,600) so, to the downside, all we have to do is retain $720 of value ($2.15 per call) to break even and, to the upside, we can roll the callers even to the July $280s and those can roll all the way up to Oct $300s (now $8.90) for a vertical.  All we have to do is add 2 longs (now $2,880) to jam the trade delta positive.  So I really like the flexibility of those trades, even for stocks I’m bullish on

 

AET very attractive at $30.

AFL/Craig – Good call on selling Jan $40 puts for $6.50.  Nice net $33.50 entry 

 

AXP $40

BA getting very interesting near $63.  XOM becomming a retirement stock again at $60.  GE back at $16.40, CAT nice at $58.80.  BAC $15.50, AXP $39.65, NYX $27.85, AA $11.13, DIS $32, INTC $20.70, JPM $37.50, MRK $32, PFE $15.40, T $25, VZ $28, WMT $52….

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.

C is a crazy stock.  The only way we like playing them is to hope they don’t go bankrupt and take the 2012 $2.50/4 bull call spread at .75 and sell the $2.50 puts for .50 and that’s net .25 on the $1.50 spread so you make 500% if C manages to hold $4 through 2012 or you end up owning C for net $2.75.  You can also play this more aggressively by selling 1 $5 put for $1.85 for each 4 spreads and that would knock out 40% of your margin and raise your cost to .30.  That means if C is at $2 in Jan 2012, you own 100 shares of C at $5.30 with a $3.30 loss vs owning 400 shares of C at $2.75 with a .75 loss but, if they go BK, you lose 1/2 as much with the 100 $5s.

  • Buying 10 C 2012 $2.50 calls for $1.97
  • Selling 10 C 2012 $4 calls for $1.21 (net .76)
  • Selling 10 C 2012 $2.50 puts for .50 (net .26)

That puts you in the $1.50 C spread for net .26 with a 476% upside in 18 months and the net margin for selling the 10 puts is $500 ($1,000 total margin) against a net of $260 cash on the trade to get back up to $1,400 if C holds $4 through that expiration.  Unless C falls more than 37% over that time, the most this trade costs is $260 (risk) to make $1,340 (reward).  

C/Tusca – Yes, a very nice play on the workd not ending and #4 on my 10 most wanted list

  • Buy C 2012 $2.50/5 bull call spread for $1.78
  • Sell C 2012 $4 puts for $1.15

 

 

That puts you in the $1.50 C spread for net .26 with a 476% upside in 18 months and the net margin for selling the 10 puts is $500 ($1,000 total margin) against a net of $260 cash on the trade to get back up to $1,400 if C holds $4 through that expiration.  Unless C falls more than 37% over that time, the most this trade costs is $260 (risk) to make $1,340 (reward).

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.

DIG – Oil/Pstas – Other than the normal futures buy above the $70 line, I’m starting to look at how well DIG performs.  I am liking a Dec bull’call paried with a short put sale but they are very thinly traded.  We should have hurricanes coming off last year’s el nino and, of course, $65 oil isn’t likely to last so the $22/30 spread for $5 paired with the sale of the $22 puts at $3 (now $2) has a nice 700% upside if DIG doesn’t fall 10% and a b/e way down at $23, where DIG has only ever been below for 3 weeks outside of a few quick spikes.

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.

FAS is another fun one to sell and you can collect $1.45 for selling the June $17 puts.

FCX/Phlit – I had said I would like them at $65 and they sure rocketed off that mark so I think I’d go for the Jan $55/75 bull call spread at $10 and sell the $2012 $55s for $10.70 so a .70 credit (AND $1,500 IN MARGIN!) and your worst case is your margin is released and you own FCX for net $54.30 with the upside at $20.70 if they get back to $75

GE/Phlit – I like them both.  GE at $16.21 with their 2.4% dividend, selling the 2012 $15 puts and calls for $7 is net $9.21/12.11 – what’s not to like about that?  

GENZ/M2 – I think they test $45, maybe $40 but I like them there and here.  I’d go with the 2012 $40/52.50 spread at $7 and sell the $40 puts for $4 and that’s net $3 on the $12.50 spread and your worst case is you own them at net $43 with an upside profit of $9.50 on about $11 in cash and margin over 18 months.   No way you get that out of the stock without tying up a LOT more cash.

GLL – I’d rather go for a buy/write on GLL as it’s simpler and you can set up an Oct $36/41 bull call spread for $2 and sell June $36 puts for .80 and you’re already down to net $1.20 on the $5 spread and, if all goes well, you can sell a few more puts along the way for a free ride on the upside and no headaches!

GLW - Actionable trade on DELL’s new mini-IPad is GLW at $16.34 as I suspect a global glass shortage soon.  2012 $17.50 puts and calls can be sold for $7.70 for net $8.64/13.07.  That’s going to be #9 on my top 10 list! 

 

HL/Mr M – I don’t like miners because I don’t think gold holds these levels but that doesn’t mean that buying them for $5.97 and selling the 2012 $5 puts and calls for $3.70 for net $2.27/3.63 is a bad play if you like them.

 

HOV – Another top 10 pick (and there may end up being 20)

  • Buying HOV at $6.76
  • Selling 2012 $5 puts and calls for $5.20 (yes, $5.20!) for net $1.56/3.28

With HOV, for example, you may want to consider limiting your risk by just going for the 2012 $2.50/5 spread for $1.40 rather than the $6.33 stock and the sale of the $5s for $3.10 as that’s net $3.23 vs b/e at $3.90 and you have a $1.10 upside at $5 vs $1.77 but you also have use of $2.50 for 18 months so if you conservatively invest that and make 25% (.62), you would be ahead on the game.

INTC/Hoss – Good deal.  I usually go to 2012 where the $22.50s are $3.15 and the $20 puts are $3.80 for a net $14.03/17.01 because it’s the same current margin requirement but less cash in the play and more upside.  You could do that play more conservative and sell the $20s for another $1.10 to drop to net $12.93/16.51 and getting to $20 off of a $12.93 entry is still pretty sweet for 18 months.  On the whole, always look at the two Jans and then play with your net entries around your stike until you find something that’s really attractive to you.  You totally have the right idea already…. 

INTC, where you can buy the 2012 $15/22.50 spread for $4 and sell the $15 puts for $2 and that’s net $2 on the $7.50 spread with about $3 in non-PM margin – not a bad upside for 18 months!

 

LLY/Jomp – Unless your caller or putter is 50% out of the money then please hold all 2012 questions for 2011.  8-)  The T play is close but as long as you REALLY want to own more T at net $21.47, in 2012, what the hell do you care what the price of the put is on May 24th of 2010?  Did your long-term outlook for your stock change?  THAT is the most important question.  In fact, I would have to say that selling T 2012 $25 puts for $5.10 is a very, very exciting idea since T is currently at $24.53 so it’s a great way to go long on T, even if you get charged $12.50 in margin for it (TOS shows net cost of $5K in margin to make $5K (10 contracts) in 18 months 

 

MEE I like down here but you have to have a very long time-frame and plan on scaling in.  You can pick up the stock for $33.20 and sell the 2012 $35 calls for $8.75 and the $30 puts for $7.50 for net $16.95/23.48.

MEE at $30.72.

MON/Shadow – I’ve like them since $65 so I love them here.  The Jan $42.50/50 bull call spread at $5.20 pays $7.50 (44%) if MON does not fall 10% more in 7 months and, if you REALLY don’t mind owning MON for net $40.20, you can sell the 2012 $40 puts for $5 to cover the cost, which turns this trade into a MONster winner if if holds $50 this year.

 

MRK can be #6 as they pay a nice 4.6% dividend and we can pop it over 5% like this:

  • Buy MRK at $32.57
  • Sell 2012 $30 puts and calls for $11.25, net $21.32/25.66

 

MT at $29.50 

MO – Speaking of evil companies worth buying:  MO at $20.95, selling 2012 $20 puts and calls for $6 is net $14.95/17.48 on this 6.6% dividend payer.

OIH June $95 puts are a good sale for $3.60

QLD – 1,000% upside play #1 is QLD June $61/66 bull call spread at $2, selling $53 puts for $1.90, which is net .10 with a $4.90 upside (4,900%) if QLD gets back to where it was last week.  The downside would have to be rolled along if the Nas falls another 5%.

 

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…

S/Judah – They were on our last Buy List, mainly because their assets were being relatively undervalued and too much concern was placed on their price wars with regional carriers.  They are no longer the super bargain they were but I do still like the stock at $4.82, selling 2012 $4 puts and calls for $2.90 for a net $1.92/2.96 – not a bad discount that takes us back near our entry point.

 

 

 

 

 

 

 

 

TNA/Drum – about 60% off on TNA is 20% off the market.  Of course you can roll it so if you have the margin and the patience, selling the 2012 $20 puts for $8 is a great play.

TNA/JBur – They could come back next week but, if they don’t, you can cash out your $11 loss and buy whatever you need in the Jan $25/40 calls for $8.50 and sell the $25 puts for $6.25 for net $2.25 on the $15 spread and your worst case is you own them again at $27.50, skipping the next $17 of downside.

TNA/Robert – I cannot believe those spreads died!  Unfortunately, it would have been much better to cash the bull call part for $1.50 per my 10:25 comment.   As to the $47 puts, now $2.70, they just roll along to the June $35 puts even and, if you have the $1.50, you can still pick up the June $32/35 bull call spread to go with it

TNA $40/43 bull call spread at $2, selling $27 puts for $1.70 is net .30 on the $3 spread

UNG at $6.93 I’d play a little more aggressively with the sale of the 2012 $6 puts at $1.15 (net $700 margin) funding the Jan $4/6 bull call spread at $1.42 so net .27 on the $2 spread and worst case is you own UNG at net $6.27, 10% below where it is now in 18 months.

 

UCO is interesting NOW as oil is low.  Sucks if you had them a week ago.  I’d convert 500 shares of theoretical stock at $4,750 to 10 Jan $7.50/12 bull call spread at $2 and sell 10 Jan $7.50 puts for $1.25 so that’s net .75 for 10 contracts with $4.50 of upside at $12 and the worst thing that can happen to you is you own 1,000 shares at net $8.25 (now $9.49).  Of course oil COULD drop to $55 so you may want to JUST take the 10 bull call spreads and sell puts IF we get a huge drop only as making $4.50 from $2 on 10 contracts is a nice $2,500 anyway and your break-even is $9.50, which is where we are now.

  

UNH $30.

USO – Oil/Amatta – At the moment I’d stay kind of conservative, favoring a hedged upside on USO with the July $29/32 bull call srpead at $1.95, selling the $29 puts for .85 and that’s net $1.10 on the $3 spread (166% upside) with about $4 of net margin and no real trouble unless oil falls 10% (below $65 on this 1:1 ETF).

USO – Oil/Hulk – I think 70 is a bit low and I like the futures here if they can get over that line.  I think we can assume that USO $28 is about $65 on oil so you can play the July $28/31 bull call spread for $2.10 and sell the $29 puts for $1 for $1.10 on the $3 spread and that putter is very rollable down to $55 barrels eventually.  

USO July $30/33 bull call spread is $1.40 and that’s a double right there if oil comes back and you can also sell the JUNE $30 puts for $1 to lower the basis.

 

VLO – 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

VLO/Phlit – I love them down here and you can buy the stock for $18.20 and sell the 2012 $17.50 calls for $4.10 and the $15 puts for $2.60 (but BEWARE THE NET $150 MARGIN!) and that nets out to $11.50/13.25

VLO/Phlit – $17.50 has always been our buy point (with hedges to $16.50 or lower) and the high VIX gives us a $17.97 entry on the stock, selling 2012 $17.50 calls for $4.20 and $15 puts for $2.60 for a net $11.17/13.09 entry which is up 57% if called away at $17.50 and a discount of 22% if put to you at net $13.09 so a nice, mellow way to make some sensible money.

 

WFR is back to $11.40 and that makes them #5 on my list:

  • Buy 2x WFR 2012 $10/15 bull call spread for $1.77
  • Sell 1x WFR 2012 $10 puts for $2.20

WMT/Yodi – It’s a fine buy for the same reason XOM is – they are not going to get bought by someone else so you don’t have to worry about selling calls and you can construct a similar play to XOM with a 2012 $40/55 bull call spread at $9, selling $45 puts for $3.75 for net $5.25 on the $15 spread and you can sell 1/2 the June $55s for $1 (now .35) when they bounce back up or sell 1/2 the $52.50s for $1 (now $1.20) if they fail that line.  As you can see from the math – simply not as attractive as XOM but a nice play anyway.

 

 

XOM/Dos – I woud NOT pay premium by buying a call on XOM like that.  A bull call spread is fine but I’m not paying $69 bucks in 2012 when the stock is $63 now, why spot 10% before you are even?   One of the great things about XOM is the chance of them getting bought is pretty much zero so if you take the 2012 $50/70 spread at $10.75, you can sell 1/2 June $65 calls for $1.10 and if you make 9 sales like that in the next 18 months you will have knocked another $5 off your long basis and your b/e on the $20 bull call spread will be $55.75 or less with a $15 upside at $70, which is how high XOM would have to get before you made $1 on the $60 calls.

XOM - Oil/SrFrog – I think XOM as they pay a 2.8% dividend and buy back their own stock all the time and they are very liquid and fairly volatile, which makes for good call selling long-term.  You can buy the stock for $60.27 and sell the 2012 $57.50s for $10 and that’s net $50.27 with a 20% profit in 18 months if called away right there (of course, some would say that since you only need 50% margin to buy it that the profit is 40%…).  So you can stop right there and the dividend is just a bonus.  If you are willing to buy a 2nd round, then you can also sell the 2012 $55 puts for $7.60 and that drops your net to $42.67/48.84, with the $48.84 being the net you buy one round for averaged with the second round that is put to you at $55.   XOM bottomed out at $54 in the last crisis and oil was $35 a barrel then so buying it now for net $48.84 is the kind of thing you want to back up the truck on!

 

It is very important you understand this about these trades – as long as I REALLY WANT to own 1,000 shares of AAPL at $154.50, which will cost me $77,250 in margin if assigned, then I have NO PROBLEM committing $30K in margin and $9,500 in cash to this trade.  That still leaves me about $40,000 of spare margin to play with in shorter-term positions.  As tempting as it is, you need to always make sure you allocate enough cash and margin for the eventual allocation.  I see a lot of people over-committing and then a move down like this one becomes painful, when it should be joyful (as you are going to get your super discounts).

Welcome/Chasw!  We posted a bunch of good entries in yesterday’s chat so I would say go there.  Our stance at the moment is A) 75% cash B) 5% disaster hedges C) 10-20% long buy/writes that are internally hedged for at least a 20% drop.  The logic is the hedges plus the long plays are good down to S&P 800 where we would actually be ahead of the game and we can double up for another 10%, leaving us with 65% cash plus the profits from our disaster hedges and our 4x positions near the hopeful bottom.   As I said on the weekend, we almost hope the market does collapse to give us the opportunity to buy on the cheap.   Our short-term (anything with a June or July strike) upside plays are for our "gambling" money as we just try to catch directional moves and profits are to be taken quickly off the table as the market flip-flops around

 

IN PROGRESS

 

 

  • Buying 10 SSO $32 calls for $5.05
  • Selling 10 SSO $35 calls for $2.85 (net $2.20)
  • Selling 5 Sept $25 puts for $1.50

SSO -  Upside speculative play: Buy SSO $36/38 bull call spread for $1.25, sell $38 puts for $1.10 is net .15 on the $2 spread.  SSO is now $37.67 so you are $1.67 in the money less the .33 you owe the putter if we expire here.  If we head down, you can roll down about 10%, which is another 5% down on the S&P in June.

C/Phlit – Down $7K isn’t very helpful since I don’t know if that’s out of $10,000 or $10M.  As I mentioned above, unless you are scaling in then anything less than a 30% move in your positions is no reason to touch it at all.  Also, with C, we are pretty uncertain about the banking sector, more so than most so it is a risky bet but I do still like:

  • Buying 10 C 2012 $2.50 calls for $1.97
  • Selling 10 C 2012 $4 calls for $1.21 (net .76)
  • Selling 10 C 2012 $2.50 puts for .50 (net .26)

 

 

SSO, for example is down $2 on this dip and the June $30 puts can be sold for $1.60.

 

SPWRA/Jimmy – I hate to say "buy here" but every day they get more and more attractive as they drop.  The combination of their rapid fall and high general VIX means you can enter at $12.66 and sell the 2012 $10 calls for $4.80 and the $10 puts for $2.50 for a net $5.36/7.68 entry and that’s 86% if called away at $10 and a 40% discount if put to you so that’s the kind of play you can afford to be a little aggressive entering, providing you don’t mind being on the 10-year plan for owning the stock.  I’d have to say this is one of my top 10 favorite plays right now

TASR/Fein - Me love TASR long time!  At $4.50, selling Jan $5 puts and calls for $1.90 it’s a not too beaucoup net $2.60/3.80 entry.  Using the Jan $2.50/5 spread at $1.50 and selling the $5 puts for net .40 is good too as long as you REALLY want to buy TASR for $5.40 but I’d rather go 2x on the longer play, which makes $2.40 per contract at the same $5 a year later. 

I would have to say that selling T 2012 $25 puts for $5.10 is a very, very exciting idea since T is currently at $24.53 so it’s a great way to go long on T, even if you get charged $12.50 in margin for it (TOS shows net cost of $5K in margin to make $5K (10 contracts) in 18 months

 

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.

TBT/DMan – Ah NOW we are at a crazy low price!  Good job patiently waiting…  Jan $35/41 bull call spread is $2.90 and the $34 puts can be sold for $2.60 which puts you in the $6 spread for .30 with a 1,900% upside at $41, which is usually our low-end buy point on TBT! 

TBT/Dman, Stock - Your patience is starting to pay off though, they are at lows and the VIX is at 43.50.  I think the best play right now is the Jan $34/40 spread for $3, selling the $34 puts for $2.90 and that’s net .10 on the $6 spread (a bazillion percent upside!) and worst case is you own TBT net $34.10.

TBT/DMan – I’d wait to see the Euro hold steady above $1.25 becasue this level ($1.239) is technically bad for them and they could break down and knock us back to the lows.  I think, at this point, it’s best to push TBT back to a longer-term position like 2012 $35/50 bull call spread at $5.50, selling $30 puts for $3.50, which is net $2 on the $15 spread (650% upside) and maybe $6 of margin so it cost you $8 of cash and margin and you can sell 1/2 June $42s for .50 and those can be rolled up to 2x the Sept $55s or just stopped out at .75 as you can afford to lose a few quarters if TBT keeps going up.  Meanwhile, if it doesn’t, then 18 months of collecting .25 per long is $4.50 back already on the spread, which would lower the b/e to $36.50.

TNA/Wayne – Gee I hope that’s a bullish $48/51 spread!  My attitude on TNA is they dropped $2.75 today to $51.20 and the $48 puts are $1.20 so if we sell those, then the Russell has to drop ANOTHER 10 points by Friday before we’re giving the $1.20 back.  Those are then rollable to June $30 puts (now $1.30) and that’s going to take a MASSIVE drop in the RUT, where I’ll probably be very happy to own TNA at net $28.80 so why wouldn’t I sell the $48 puts now for $1.20?

 


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  1. Phil, After reading you latest blog posted 5/26/10 at 7:31am , I noticed the price mentioned to buy VLO was $19.68 , however the latest price as of last night was $17.38. Also, the HOV price is different. As I new member , I could have misinterpreted something.


  2. These are the prices at the time I made the trade, not current prices.  On all of these positions, if you are entering from scratch and can get them cheaper – then I like them BETTER now! 

    Hopefully this weekend I’ll have time to run the current numbers on these trades and make the list look pretty. 


  3. Phil,
    Last night I heard one of the talking heads on the radio explaining how he wasn’t impressed with yesterdays market upside move because of the "extremely low volume".  Am I missing something here?  My chart is showing 316,964,495 shares on the DOW traded yesterday.  What number do you use to establish low volume?
    Being the cynical type, when I hear this crap I assume this guy is downplaying the move so he can pile in.


  4. Phil and all:
    I’ve been trying to organize the Top 10 list so that I can do some spring cleaning inside my portfolios.  Here is what I see so far.   Can someone help confirm/correct the list (obviously I understand that the entry points may be different now, but I am interested in confirming the positions themselves as well):

    1. SPWRA

    Buy $12.66
    sell the 2012 $10 calls for $4.80 and the $10 puts for $2.50  o

    2.  ?

    3.  HOV

    Buy HOV at $6.76
        Sell 2012 $5 puts and calls for $5.20 (yes, $5.20!) for net $1.56/3.28

    4.  C
    Buy C 2012 $2.50/5 bull call spread for $1.78
    Sell C 2012 $4 puts for $1.15

    5.  WFR
    Buy 2x WFR 2012 $10/15 bull call spread for $1.77
    Sell 1x WFR 2012 $10 puts for $2.20

    6. DXD – Hedge
    Long Oct $23 calls at $5
    Short Oct $27 call at $3.40 (net $1.60)
    Short Oct $23 puts at $1.35 (net .25)

    7. DBA

    Buying 6 DBA 2012 $25/30 bull call spread for $1.25 ($750)
    Selling 2 DBA 2012 $25 puts for $3.90 ($780, net credit $30, margin $800)
    Selling 3 DBA July $24 calls for .55 ($150 credit, net margin $1,250)

    8. VLO
        * Buy VLO at $19.68
        * Sell 2012 $17.50 puts and calls for $8.40

    9. GLW at $16.34. 2012 $17.50 puts and calls can be sold for $7.70 for net $8.64/13.07.

    10. PFE
    Buy at $15.05
    Sell 2012 $15 puts and calls for $5.40, which nets us $9.60/12.30


  5. Thanks for the list Leon,
    Well I for one see that # 6 wouldn;t belong here as it is not a buy… that goes with the disaster hedges… I thought also BA was a buy in the list?? 


  6. amatta, i agree.  it should be probably replaced with something.  Either BA, XOM, JPM, or GE.   I think it’s pretty easy to derive the specific entry points.  It’s basically:  Buy stock and sell atm 2012 p’s and c’s. 


  7. I’ll be going over this on the weekend, hopefully clean it up and get the trade ideas current. 

    I’m adding trades in comments for now rather than keep editing the post:

    S/Judah – They were on our last Buy List, mainly because their assets were being relatively undervalued and too much concern was placed on their price wars with regional carriers.  They are no longer the super bargain they were but I do still like the stock at $4.82, selling 2012 $4 puts and calls for $2.90 for a net $1.92/2.96 – not a bad discount that takes us back near our entry point.

    MON/Shadow – I’ve like them since $65 so I love them here.  The Jan $42.50/50 bull call spread at $5.20 pays $7.50 (44%) if MON does not fall 10% more in 7 months and, if you REALLY don’t mind owning MON for net $40.20, you can sell the 2012 $40 puts for $5 to cover the cost, which turns this trade into a MONster winner if if holds $50 this year.

    VLO/Phlit – $17.50 has always been our buy point (with hedges to $16.50 or lower) and the high VIX gives us a $17.97 entry on the stock, selling 2012 $17.50 calls for $4.20 and $15 puts for $2.60 for a net $11.17/13.09 entry which is up 57% if called away at $17.50 and a discount of 22% if put to you at net $13.09 so a nice, mellow way to make some sensible money.

    TASR/Fein - Me love TASR long time!  At $4.50, selling Jan $5 puts and calls for $1.90 it’s a not too beaucoup net $2.60/3.80 entry.  Using the Jan $2.50/5 spread at $1.50 and selling the $5 puts for net .40 is good too as long as you REALLY want to buy TASR for $5.40 but I’d rather go 2x on the longer play, which makes $2.40 per contract at the same $5 a year later. 

    GE & UNG/Phlit – I like them both.  GE at $16.21 with their 2.4% dividend, selling the 2012 $15 puts and calls for $7 is net $9.21/12.11 – what’s not to like about that?   UNG at $6.93 I’d play a little more aggressively with the sale of the 2012 $6 puts at $1.15 (net $700 margin) funding the Jan $4/6 bull call spread at $1.42 so net .27 on the $2 spread and worst case is you own UNG at net $6.27, 10% below where it is now in 18 months.

    GENZ/M2 – I think they test $45, maybe $40 but I like them there and here.  I’d go with the 2012 $40/52.50 spread at $7 and sell the $40 puts for $4 and that’s net $3 on the $12.50 spread and your worst case is you own them at net $43 with an upside profit of $9.50 on about $11 in cash and margin over 18 months.   No way you get that out of the stock without tying up a LOT more cash

    TBT/DMan – I’d wait to see the Euro hold steady above $1.25 becasue this level ($1.239) is technically bad for them and they could break down and knock us back to the lows.  I think, at this point, it’s best to push TBT back to a longer-term position like 2012 $35/50 bull call spread at $5.50, selling $30 puts for $3.50, which is net $2 on the $15 spread (650% upside) and maybe $6 of margin so it cost you $8 of cash and margin and you can sell 1/2 June $42s for .50 and those can be rolled up to 2x the Sept $55s or just stopped out at .75 as you can afford to lose a few quarters if TBT keeps going up.  Meanwhile, if it doesn’t, then 18 months of collecting .25 per long is $4.50 back already on the spread, which would lower the b/e to $36.50.

    AA/Sean – See above!  People need tin.  $11.11 for the stock and you can sell the 2012 $10 puts and calls for $5.20 for net $5.91/7.96.  AA bottomed out at 4.91 wne the World was ending last March.


  8. Actionable trade on DELL’s new mini-IPad is GLW at $16.34 as I suspect a global glass shortage soon.  2012 $17.50 puts and calls can be sold for $7.70 for net $8.64/13.07.  That’s going to be #9 on my top 10 list!

    It’s also VERY important to have a long-term view.  If you are INVESTING in your stocks, and it sounds like you are, then you intent to keep GE after 2012 so selling the $17.50 puts and calls for $7.35 (I know amazing), would drop even an $18 basis down to net $10.65/$14.08 – that’s a powerful thing when you think about it.  You had a stock at $18, it dropped 11% to $16 and you were uncovered but you can STILL cover back up and drop your basis to $10.65 as long as you are willing to DD at $17.50 for an average cost on 2x of $14.08, which is another 12% down from here

    Of course, for someone taking a new entry on GE, they can afford to play with the numbers.  We can buy GE new at $16 and sell the 2012 $15 calls for $3.75 and the $12.50 puts for $2.25 and that’s net $11/11.75 for an entry, a 26% discount off today’s price at worst but "only" a 36% upside if called away.  We may be able to roll the calls, we may not but that shouldn’t be a concern vs. the idea of being able to get into such a relatively safe position for the next 18 months.  As I said in the above comment, combine that with a small hedge and you have 35% downside protection and net 20% a year to the upside – THIS IS HOW PEOPLE SHOULD BE INVESTING

    PFE/DK – My attitude with something I want to hold long-term is I’d rather take advantage to lower my basis as much as possible.  If I get called away and cashed out, then my basis is zero and I have cash.  So, with PFE put to me at $16.82 and the VIX possibly as high as it’s going to be for the next 2 years, I want to sell as much premium as possible and that would be the 2012 $15 puts and calls for $5.40.  That drops 29% in your pocket TODAY, which covers all the margin required for the put sale and, with your basis dropped 29% to $11.42, your upside is another 31% in 18 months plus your expected dividend of .72, which is another 6.3% of your basis.  Or you can be greedy…

    As a new entry, PFE is #10 on my top 10 list since we can buy it for $15.05 and sell those 2012 $15 puts and calls for $5.40, which nets us $9.60/12.30 and that .72 dividend adds a whopping 7.5% annual to our 56% over 18 month call away but, as long as PFE keeps paying a dividend like that, we’d probably rather have it put to us

    Legs/Brook – Well actually the best way to do it is offer low amounts for each leg and, whichever one fills first, then see what you can do with the other to get it cheap.  In other words, if you look at the TZA spread, we have a $2 target on the calls and let’s say we also wanted to sell the $5 puts for $1.  Well the bid/ask on the spread is $1.86/2.17 so we’re not worried about filling that but the spread on the puts is .75/$1  so I want to see if I can fill those first for $1, which I know I’ll only get if the market moves up.  So I set a very tight watch level on the RUT, say 650, and call that the point at which I at least take the bull call spread on the way down.  If I fill the bull call spread and the RUT never gets back over 650 again, then I DON’T NEED to sell the puts, do I?  If I am in the bull call spread and the RUT goes on a tear up, I will EASILY get my $1 fill, maybe much better.  So it’s all about understanding WHY you are entering a spread and how it works and timing your entries inside the channel but that takes LOTS of time and PRACTICE.   There’s no shortcut here, riding the market is a skill that has to be learned over time.  You have an advantage as we’re in a wild market so you see more things here than most people saw during the entie 1980s worth of trading and that’s how you lean – from experience

    Disaster/BG – Keep in mind that the TZA is a long-term hedge.  We have our other hedges from Monday morning for the shorter term and, as above, I just jumped on the June TZAs for this particular little dip.  It all depends what you are trying to accomplish with your hedges.  If you are looking for a double on a DIA Sept/June mattress play it seems silly to bother right now when we can enter the TZA Jan $4/12 spread for $2 and that’s already $3.33 in the money and you don’t have to mess about selling puts against it.  That’s the kind of play we want to take advantage of in a volatile market.  The VIX doesn’t matter, the end result of that play is math – where does TZA finish in Jan and, whatever it is above $4 and below $12, you get to take home – VERY SIMPLE!


  9. VZ/Kustomz – You can run that dividend up to 10% selling the 2012 $25 puts and calls for $7.70 against the $27 stock for net $19.30/22.15 with the $1.90 dividend – what’s not to like?

    FRO/Arbo – If you want them long term, I sure like selling the 2012 $30 puts for $9.20, which I like as a brand new entry on them.  You can do that and sell the $40 calls for $5.60 and that drops your $34 net to $19.20/24.60 so, at worst, a 1/3 discount to your current net on the DD and, if all goes well, you are called away with a nice gain.

    RIG 2012 $40/60 bull call spread at $10.60, selling Jan 2011 $60 puts for $10.20, which can be rolled to 2x the $45 puts!  

    PFE/Gucci – There is no rule, it depends on your outlook over the timeframe and where the most attractive combos are.  I’m disinclined to go artificial on a 5% dividend payer, especially as I have no reason to think that PFE has any chance of going BK or having a major failure (although it has happened) that will make me regret owning the stock.  If I were going to go artificail on PFE I’d go high with the 2012 $17.50/22.50 bull call spread at $1 and sell the $10 puts at $1 (margin $2) so I have a free play with a $5 upside and the worst case possible is I own PFE at net $10 in 2012


  10. LOW/Gabby – "Playing with the kid’s money" – I love it!  LOW is a good one coming off the 200 dma and I like an aggressive play of the Oct $25/28 bull call spread at $1.20, selling the Oct $21 puts for .85 so you are in the $3 spread for .35 with a nice upside and worst case is you are assigned LOW at $21.35.  If you are willing to commit to owning 1,000 shares of Low, you can do that with 10 contracts for about $3K in net margin and $350 in cash and you get $3,000 back if Low is up 10% by Oct, which is more than you would make if you bought $25,000 worth of the stock now
    SU/Gel – Good idea!   Jan $25/32 bull call spread at $4, selling 2012 $25 puts for $3.60 is net .40 on the $7 spread that’s already $5.60 in the money and your worst case is you own SU in 2012 for net $25.40 (15% off).
    TBT/DMan – 10% too late!  I would just play $40 to hold with the Jan $35/40 bull call spread at $3, selling the $35 puts for $2.20 is net .80 on the $5 spread and net margin of about $5K but you really don’t need to sell the puts UNLESS TBT goes below $38 (your b/e on the spread) and then you would get a much better price so if you are patient and can accept the possibility of "only" making 66% by Jan if TBT never goes below $40, then it’s a nice trade to leg into.
    SU/Gel – Good idea!   Jan $25/32 bull call spread at $4, selling 2012 $25 puts for $3.60 is net .40 on the $7 spread that’s already $5.60 in the money and your worst case is you own SU in 2012 for net $25.40 (15% off).
    Bull/Bear DIA plays/Phlit:

    DDM Jan $38/42 bull call spread at $2.20, pays $4 if Dow is flat to up
    DXD Jan $26/33 bull call spread at $1.80, pays $4.50 if the Dow stays flat

    Those two spreads may both decau slightly but a big move up in the Dow gives you net even and a big move down gives you a nice profit and a flatline can pay you a double too so I like this combo!
    Oh damn, now you are putting conditions on it?  Using the DIA is too dull and I wouldn’t make a bear play on the DIA as I much prefer to use ultras but a bullish play could be the Jan $95/100 bull call spread for $3, selling the $65 puts for $1 is net $2 with a 150% upside in 7 months.  All the Dow has to do is hold 10,000 and you are up $3.


  11.  LOTS of reading going on for this newbie but well worth it!  MO-still the same call given upcoming SC ruling on tobacco lawsuit? 
     
    http://www.google.com/hostednews/ap/article/ALeqM5iKinN7f7yEsb5wi3rN2PcYMWmAugD9GAHOH86