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Whipsaw Wednedsday – Tuesday Never Happened, Now What?

I’m going to be quick today as I got caught up doing a new Buy List for Members.

This is my new favorite picture and I used it in this morning’s Alert to lead our Members in prayer and warn them:  Dear Lloyd, lead us not into temptation

I was VERY worried yesterday that I might have to send CNBC a box of chocolates and apologize for calling them a pack of dangerous fear-mongering morons who would trade their viewers souls for ad dollars but, it turns out I was right after all, as we quickly recovered from the 2nd CNBC-inspired market meltdown in one week and held my bottom targets on both the S&P and the Russell.

That was good enough for us to bring cash off the sideline and we went 100% against Jim Cramer’s (who began the panic with his Dow 9,500 call on Monday night) advice and sold not one but 3 naked puts to the panicking crowds in my 9:47 Alert to Members yesterday morning:

  • USO June $30 puts sold for $1, now .70 – up 30%
  • SSO June $30 puts sold for $1.60, now .80 – up 50%
  • FAS June $17 puts sold for $1.45, now .77 – up 50%

Pretty good one-day profits, aren’t they?  I explained why Cramer was totally wrong in the Weekly Wrap-Up, so no sense in going back over it here.  I’m sure he’ll say something else that I can correct any minute now…  By the way, I don’t have it "IN" for Cramer.  He can press all the buttons he wants and bark buy and sell orders at his viewers but DON’T, Mr. Cramer, start giving out bad advice on options, especially advice that is so bad that it can really hurt people – that’s when I get pissed.  Telling people that selling naked puts is dangerous is simply ignorant or misleading – you can decide which Jim is.  

If I REALLY want to own USO long-term at net $29, then why shouldn’t I sell the June $30 puts for $1?  USO barely touched $31 briefly yesterday yet we were able to score either a $29 net entry on the stock (if USO finishes below $30, the stock will be assigned to us for $30 a share) or, if USO remains above $30 through June expiration, we keep the $1 and that’s our profit for the month.  Do that 12 times a year and you are getting paid $12 for NOT owning the stock (37% of the current $32 price).  This is what Cramer’s hedge fund buddies do every day – WHY IS HE TRYING TO STOP YOU FROM HAVING THE SAME ADVANTAGE? 

Here’s a fairly well-balanced article on options from Bloomberg.  I particularly liked what Tom Sosnoff from ThinkorSwim said about people who try to scare retail investors out of options:  "I’m not a fan of people who say you shouldn’t be doing this.  Imagine you walked into the casino and people said to you, ‘You look stupid so you can only play the slots.’”  We talk about a casino model often at PSW and what Tom and I both like to teach people is that you can use options to BE THE HOUSE.  I point out to HNW clients that a million people a month may walk through the doors of a casino but it’s VERY unlikely that ANY of those people will be richer than the guy who owns it.   Why is that?  Because he’s SELLING risk, not buying it.  That’s what we do with options like the example above, we sell risk and get paid a premium for doing it.  

Rather than swing for the fences, we can take well-hedged positions that pay us small amounts over and over and over again.  While the pump monkeys tell the sheeple to BUYBUYBUY and SELLSELLSELL the same stocks over and over and over again.  If you ever feel like your investing life feels a bit like being a hamster on a wheel – it’s because you are paying to take risks with your own money.  Why do that when you can GET PAID for taking risks?  Cramer’s buddies don’t want you to know this the same way Steve Wynn doesn’t want all of his clients opening up their own casinos.  The difference is, to sell options you don’t need to be a Billionaire, you just need to take some time to learn a new skill

Options are contracts that grant their buyers the right, without the obligation, to buy or sell a security, a commodity or an index’s cash value at a set price by a specific date. Call options give the right to call a security away from another owner if the security reaches its strike price on or before the contract’s expiration date. Put options give the right to sell.  If you want to learn the basics of options trading, I highly recommend our partners at Market Tamer.  When you are ready to open your own casino, come over to our house and we’ll show you how it’s done!   

As I often explain to new members, I am NOT an "options trader" I am a fundamental analyst who uses options for leverage and hedging.  Once you learn how to use options to your advantage, it makes little sense to just trade stocks so almost all of our trades involve some use of options but this morning our Buy List has over 50 STOCK posiitons we like at this market bottom.  Well we hope it’s a bottom but that’s where options come in.  Purchasing the stock AND selling the options gives us (at this VIX level) AT LEAST a 20% discount so we are covered all the way to Dow 8,000.  If you think the Dow will fall below 8,000 then DON’T buy stock here at 10,000 but, if you think we might survive and move higher – why wouldn’t you take a little cash off the side to test the waters using our Discount Stock Buying Strategy

So it is in THAT context that we are bullish here.  We are scaling in from our mainly cash positions and looking for bargains but not so confident yet that the market will get back into our comfort zone, which is the range I predicted we’d fall to when we cashed out at the end of April:

  • 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

We want to be above 3 of 5 of those levels (and see my 5% Rules Review for more on our trading range) in order to get more bullish (currenly about 20% invested bullish here with hedges for a 40% drop) and we’d LOVE to take cash off the sidelines if the market shows us something but any move that doesn’t take us above our Dow, Nas and S&P levels TODAY is not going to be very impressive coming off such steep declines – we need to break back over the "death crossed" 50 dmas before we even consider thinking of this as anything more than a weak bounce.   

So screw the fundamentals today, it’s all about retaking those blue lines (20 dmas) by the end of the week or we are in a serious technical downturn that will start bending those red lines (50 dmas) lower, which will in turn begin to bend the 200 dmas lower etc., etc.  There, now you know everything you need to know about charting…

The OECD raised the Global Growth forecast so rah rah globe, I guess.  Durable Goods Orders were a BTE 2.9% (2.2% expected) but up only 1% outside of Transportation so yay for our BA play but boo to pretty much everything else as non-defense capital goods orders fell 2.4%.  The S&P said they are not going to downgrade Banks – YET so yay for prevarication.  Spain is bailing out their banks and Italy is tightening their belts so all is well in the world this morning – at least until the next "shocking" bit of news freaks everyone out again.  

We will have itchy trigger fingers to take profits on our unhedged bullish plays from yesterday (and our oil futures already stopped out after a nice run to $70.75) and we don’t need to flip bearish (but we are addding a TZA play here) as our short-term disaster hedges are still active so simply taking the bullish plays off the table flips us bearish – isn’t that clever?  Let’s have some fun out there, it’s likely to be a wild day!

 


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  1. Morning Pharm,
    VRTX is up 10% today on this news.
    http://www.marketwatch.com/story/75-of-treatment-naive-patients-with-chronic-hepatitis-c-achieve-svr-viral-cure-with-telaprevir-based-treatment-in-phase-3-trial-2010-05-25
    I know you didn’t like them too much above $40 on valuation concern. Is this Phase 3 result can be a lead to an acquisition by a big pharma? And would you play it with a LT call spread?


  2. phil, any new TBT trade, still in cash and want to buy it today, N OW, thanks


  3. Phil, what’s your take on the April durable goods report?  Though up 2.9%, Ex-Transport its down 1% (vs. +2.8% for March).


  4. Good Morning!


  5. Morning 1020!


  6. 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.


  7. The last two days were a game-changer in my view.
     
    Besides putting in new lows on major indexes, and breaching the uptrend lines, we went from near-record oversold levels last Friday to record oversold levels yesterday morning. I can’t see how that’s anything other than a very bearish sign.
     
    Assuming it holds, this bounce rally may be enough to carry us back over the 50 dmas on the major indexes, perhaps into the summer. But the odds of us putting in a new high are about zero at this point.
     
    If we get over the 50 dmas on this bounce, we have a scary-looking H&S pattern to contend with, with the January highs being the left shoulder, the April highs being the head, and the current bounce giving us the right shoulder (assuming we get up that high).
     
    Such an H&S pattern would project well below 20% off the highs, putting us in an official bear market by the end of the year. This is what I’m currently going to watch for.


  8. David,
    EXIDE is 5% up, good call!


  9. Gold’s powerful uptrend was undamaged by the sell-off, by the way. Unlike the rest of the markets, it successfully held important support at 1170, and consolidated nicely. Still a bullish chart there, I think.


  10. Phil – ? on your xom play – when you say sell 1/2 june 65s – does this mean you also only sell half of the upside calls in the spread or are you doing this in addition to a full cover on the spread – thanks
    "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"


  11. judah – Dow and S&P ran up to the line created by connecting the tops of 5/20, 5/21, 5/22 and stopped dry.  IWM ran up to the high of 5/24 and stopped dry.  Bought TNA at the open with this premise in mind and sold when they reached their targets.


  12. judah – wouldn’t it be nice to have a button that would automatically close your open position and buy the opposite at the market?


  13. SS,  Late getting started so just catching up. Nice work.  Maybe you can suggest a "Flip" button to TOS.    :)


  14. EricL/XAU
    All agreed. The resistance is $1250 and if broken who knows how far it could go up.


  15. I hereby declare F a "high beta stock" (maybe it’s already recognized as one). This thing makes 3-7% moves almost every day.


  16. so ss, is that your prediction of the high for today?


  17. judah – keep in mind that the DOW and S&P are tracing descending lines, so they have to work to break them higher or slowly grind lower.  If the Dow breaks up from here It will try to capture the high of 5/24 at around 10,200.  So if they break then TNA again.


  18. Judah – in TNA just after I posted.


  19. judah – sorry for so many post, but this is getting a little predictable.  The dow also has a line connecting the tops of 5/13 and  5/18  to contend with.   Oooops, just broke thru it, so probably onto 10,200.


  20. "Besides putting in new lows on major indexes, and breaching the uptrend lines, we went from near-record oversold levels last Friday to record oversold levels yesterday morning. I can’t see how that’s anything other than a very bearish sign."
     
    Eric,
    Why is that a bearish sign?  I understand the new low concept, but what does the oversold indicate to you?


  21. Good morning! 

    Very unimpressive start but I’ll repost our watch levels here to save time looking around:

    • 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

    As we expected, the RUT never turned red on us and bounced right off our low so that is going to be our critical breakdown signal if things turn ugly.  Next green should be the Nasdaq, then Dow, then S&P and, if the NYSE goes green we are back in rally mode but it’s BUYBUYBUY as long as we have 3 greens and certainly no reason for short-term bearish hedges if we are 3 of 5 positive. 

    Obviously, losing 1,070 is a bad sign too and we’re having trouble at 1,085 at the moment.  As far as our short-term bull trades go, whenever we make an upside goal, we need to mark it down as a place to consider getting out if we can’t hold it.  As I said, ANYTHING less than retaking 3 of 5 of the above bottom levels is a FAILURE!

    As to the TZA play (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) - keep in mind that it’s a spread and TOS is quoting me $2.15 right now so it’s not like it’s going to go to $1.50 in the near future.  So you put in an offer for round 1, maybe 1/2 of what you want to get, at $2 and be happy if it fills.  If we get a chance to buy round 2 for $1.40 then so be it and we have a $1.70 average on our $8 spread.  Ultra spreads are like a box of chocolates – you never know when they’re gonna fill…

    TBT/Dman – Nope, you blew it now.  Those Jan $40 puts were gold to sell at $7 yesterday, now $5.25 it would be ridiculous for me to tell you I think it’s a good entry.  You ask every single day, you pay no attention whatsover to the channel and, rather than scaling into great opportunities you jump in on the wrong side of momentum as it gets away from you – don’t expect me to be an enabler for that!

    Durable good/JC – See above, it was all aircraft – not too impressive really. 

    Low volume/Exec – Maybe he meant "for putting in a bottom" and that’s true.  You want to see MASSIVE volume on a blow-off bottom, not 50% better than a normal slow day.  Anyway, I’m giving him the benefit of the doubt as I didn’t hear it but that’s my take on why someone might make a comment like that. 

    New high/Eric – Yes, thank goodness.  I think the fundamentals are finally poking through the BS and people are realizing that there are still dangers ahead in the economy so p/es in the 20s should be the exception rather than the rule.  We’ll just have to see how things play out globally now – it sucks that so much is now depending on Asia and Europe because it’s that much harder to determine what is real and what is BS in their economic data.  Gold is good until the fear of currency plays itself out but then it will become very, very bad very quickly.

    XOM/Samz – Yep, just selling 1/2 cover against the full cover spread as we like XOM but we sure don’t think they are going to rip back through $70 and the 1/2x $65s can be rolled to 1x the $70s (if not June, then July) and if we have to roll the $70 callers that means we’re $20 in the money on our longs and we REALLY don’t think XOM is going to fly up to $80 (adding $100Bn in market cap) and blow out our safety net.  As a quick rule of thumb, figure for XOM to gain $100Bn then $10Bn has to come into it.  XOM trades 29M shares a day ($1.7Bn) so you have to figure that EVEN IF the flow was 100% positive on XOM and the volume doubled, it would take 6 full days of trading for XOM to get to $80.  That’s your worst plausible case and you can use this logic with large-cap stocks that are heavily traded. 

    By the way, did you know that 1 of every 10 shares of XOM that are bought in a day are bought by XOM?  Last year they bought "just" $19Bn worth of their own stock (7%) but usually it’s $30Bn+…

    Button/SS – I like that idea. 

    New home sales up 14.8% huge jump but to a pathetic 504,000 annual units but that doesn’t matter, psychologically now there is NO REASON not to pop our bottom levels.  As long as oil inventories aren’t hurtful, we should get nice follow-through into the EU close (11:30) at least.  


  22.  SS,
    The active trader screen in TOS has a button you can put on your screen using the customize function which says "REVERSE NOW". I’m pretty sure it does exactly what you want by closing a position and opening a new position opposite of the original with market orders. I’ve never tried it.


  23. ss, judah – how much do you pay attention to the VIX? does it help for prediction or just after the fact?


  24. Morx, I think the VIX is a trailing or current indicator, no better or worse than measuring the sweatiness of your palms or acid churning in your stomach if you trade unhedged.  I use the VIX mostly to tell me when it is a comparatively good time to sell or buy back puts.


  25. TBT.  I just noticed that TBT now has July options.  Maybe they’ve been available for a few days, but I hadn’t seen them before.


  26. morx – I have been watching so many things (vix, tick, 3min 8 period sma, TBT, etc.) to try and get an angle that I feel like I need an assistant.  But, drawing these lines (as I am sure JRW does) has proved to be the most reliable.  For instance, I predicted that the dow would run for the high of 5/24 or 10,200, but the S&P beat it to it and stopped dry on the high of 5/21, 5/24 or 1090 which casused the dow to stop (and everything else including IWM, RUT).  Now they all have to reconsolidate and retry, but try they will without any outside influence (breaking news, etc.).


  27. Euro is plunging again


  28. SS/post.  Your posts help me — they are brief, on point and timely — so no need to apologize to me about frequency.


  29. morx – This is where JRW has been "Money".  He sells when they hit the target and reloads on a pullback for another attempt. 


  30. jcedens -  cool, I will have to check that out.


  31. Does this seem crazy to anyone else?
    The headlines coming out of Europe do not sound any better – take a quick scan of bloomberg


  32. Phil…I just got that TZA Jan 4/12 filled for $2


  33. yes, the reverse button, does do that in TOS 

    jcedens
    May 26th, 2010 at 10:05 am | Permalink  
     SS,
    The active trader screen in TOS has a button you can put on your screen using the customize function which says "REVERSE NOW". I’m pretty sure it does exactly what you want by closing a position and opening a new position opposite of the original with market orders. I’ve never tried it.


  34. Hi Phil what is your rec on adjust  AAPL Jan12 310 short call, I have 5 contract from previous roll thx


  35. exec,
     
    When extremely oversold conditions fail to produce a bounce it tells me that risk appetite has fizzled. The fact that people kept wanting to sell, no matter how bad it got, even though they had very good reason to think we were ready to rally (thereby letting them sell at a better price if they wanted out) is bearish, for me.


  36. SPX 1088 is already putting up a fight, but I’m heartened by the fact that the market seems to be ignoring the Euro move for the time being.
     
    I’ll be more heartened if we can get over that damn 1093 level this week, which we consistently failed to do last week.


  37. Diasppointed with "rally" off the data.  Looking to take money and run if the S&P fails 1,090 or RUT fails 655 or Nas  2,250 or Dow 10,150 or NYSE 6,750… 

    Apr. New Home Sales: +14.8% to 504K vs. 425K expected, 439K (revised) in March. Months’ supply 5 vs. 6.7 prior. Median price $198,400.

    MBA Mortgage Applications: +11.3% vs. -1.5% last week. Thirty-year fixed mortgage rate decreased to 4.80% from 4.83%.

    Apr. Durable Goods: +2.9% vs. +2.2% expected, -0.6% prior. Ex-transport -1% vs. +2.8% prior.

    Rah, rah!  The OECD raises its growth forecast for members to 2.7% in 2010, vs. an earlier prediction of +1.9%. Including non-members like China, the forecast jumps to +4.6%, highlighting the divergence between developed economies and emerging nations in the post-crisis world. (more)

    Italy’s government approves €24B in budget cuts in the latest European effort to convince investors that euro nations can trim deficits and defend the single currency. The measures include a three-year wage freeze for civil servants and a crackdown on tax evasion.

    Germany is poised to extend its ban to naked short selling to all German stocks listed on the country’s exchanges. Geithner, in Europe to discuss the region’s debt crisis, is likely less than pleased.

    Speaking at a conference in Tokyo, Bernanke once again argues the importance of Fed independence. Political meddling "in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation."

    The euro’s fall could spell bad news for China’s central bank. There’s no public data on China’s euro purchases, but according to an RBS analyst, "diversification to lower the share of USD holdings may have pushed EUR purchases to close to half of all acquired reserves, and a majority of these purchases are well ‘out the money’."

    Not surprisingly, GfK’s newly published Consumer Climate Survey finds the eurozone government debt crisis and discussions about the stability of the euro have unsettled German consumers – and place the ongoing economic recovery at risk. (ETF: EWG)

    They admitted WHAT?  As the White House prepares to announce new safety measures for offshore drilling tomorrow, BP (BP) admits it may have been a "fundamental mistake" to continue drilling in the Gulf well after a test warned something may be wrong.  That will not go well for them in court

    You won’t catch these guys making dumb-assed comments on legal matters:  Apple (AAPL +1.4%) is at the center of an early stage antitrust inquiry, say sources, as investigators focus on the company’s use (or abuse) of its market dominance in digital music. In particular, Apple has supposedly pushed music labels to block Amazon (AMZN) from exclusive access to soon-to-be released music.

    Bank of America (BAC), Deutsche Bank (DB) and Citi (C) are among the banks most active at end-of-quarter window dressing just before reporting their finances to the public, a WSJ analysis shows. The practice suggests that the banks typically carry more risk than their investors or customers can easily see.

    Qatar’s sovereign wealth fund is reportedly interested in buying part of the Treasury’s 27% stake in Citigroup (C +2.9%). Unlike other SWFs, the Qatar Investment Authority is still interested in banks after doing well on its investments in Credit Suisse (CS) and Barclays (BCS).

    A new SEC rule requiring money funds to hold more-liquid and higher-quality assets comes at a difficult time for Europe’s banks, since the measure may reduce lending and add further stress to the European banking system.

    Credit Suisse upgrades RBS (RBS +3.25%) and Lloyds (LYG +2%) to Outperform from Neutral, noting valuations have fallen 25% in four weeks. "In the long-term, our structural concerns are as strong as ever. But we think the U.K. banks are investable and at current levels offer value."

    I like LYG down here at $3.13.  We can play them like C and take the Jan $2.50/5 bull call spread for .70 and sell the $2.50 puts for .45 for net .25 on the $2.50 spread.  I wouldn’t pay a penny more and it may be a tough one to fill.

    10:30 EIA Petroleum Inventories
    1:00 PM 5-Yr Note Auction
    2:00 PM Hearing: State of the Housing Government Sponsored Entities
    4:15 PM Fed’s Lacker: ‘The Regulatory Response to the Financial Crisis’


  38. judah – 2 round trips on TNA so far with a 3.2% gain.  Not bad for an hour, although we both know we have been plugging away at learning this for months.  Waiting for the market to tell us which line we attack next.


  39. SS/learning.  It is time well spent.  JRW once referred to himself as a one-trick pony.  I guess one could get bored following the same strategy day after day, but making money doesn’t ever get old for me — it’s better to know how to do one thing really, really well.


  40. Dman,
    It’s true. I remember Phil congratulating you on your patience in waiting for the right opportunity and telling you to sell the TBT puts yesterday for 7. You gotta PULL THE TRIGGER, maaaaaan!  :-)    Although, I would argue that even though you would not be getting such an ideal price today as yesterday, TBT is still good to own as an investment at $35, since it should be a good long-term hold. Phil is just VERY particular about pricing. Yet, he thinks TBT should be $60 by year end. Assuming he is about 3-6 months early as he is often is with these fundamental calls, do you think TBT is good to own at these levels if it could go to $55 or $60 within a year? Of course! I would still pull the trigger if it were me. Good investing to you.


  41. Phil
     
    TZA does not show a $4 call 2012  on TOS
    use 5 ?
    thanks


  42. Oops, Oil inventories UP 2.4Mb, gasoline down tiny bit at 200K, distillates down 200K – That’s a potential rally killer but hopefully we’re far enough into rotation that it will boost the Nas and RUT back into leadership as we leave commodities behind.  Watch to see if XOM can hold $60 to see how this news is being taken but oil already blew $70.75 and that’s not good if they can’t hold $70

    The Euro is way down at $1.223 again, Pound is $1.438 and we’re at 90.5 Yen to the dollar so not too encouraging for Japan either.  Copper is $3.09 and now I’m watching $3.05 to hold or that’s a bad sign (I get less forgiving each day of a rally).  Gold is holding $1,215 – the miracle metal…

    SNDK is flying!  Good for our WFRs and SPWRA’s. 

    Finally heading into a proper test but now my stops firm up too!


  43. judah – back on TNA at the break above the S&P line, dow wanting 10,200 (or just under it).


  44. Oil could care less about that number; perhaps a worse number was expected?
     
    Either way, that’s an encouraging response.


  45. Have BAC Jan 20 calls at 2.1 and 25 callers at .6. Rolldown and take out callers? have no puts


  46. Phil
     
    I have BAC calls
    Jan 11 17.5 call sold for 2.68 now 1.52
    Jan 11 20 call sold for 1.53 now .77
    Take the money and run or roll?
     
    Thanks


  47. ss   Seems you are ignoring the green crosses from past trades? 


  48. Phil – A novice question > When buying a bull call spread and selling a put do you generally limit each leg of the trade individually,  or do as a single trade and set a lower bar for the second and third legs of the trade by % of bid (or ask)  to make sure you execute each leg at once. 


  49. FAS is sinking fast. What’s that about?


  50. guess FAS is not alone


  51. stockbern – I still have the 3m8p open, but not giving it a lot of weight at the moment.  Just trying to figure the right mix.


  52.  Phil,
        I’d like to add another disaster hedge.  I have an order in at $2 on the TZA, but I was wondering if you’d either enter a mattress play here or what you’d enter at this level, with the vix this high?


  53. TOS/JC – Cool, thanks!   One day I really have to take the time to play with that platform. 

    VIX below 30!  It’s dropping faster than calls can gain, nice trick by the MM’s…

    Europe/Samz – You are right, this is all just bottom-fishing off an oversold-LOOKING fall.  It means nothing until we retake technicals and it’s going to be a slow, painful process undoing those death crosses. 

    AAPL/Gucci – Not much to do but wait it out.  You can sell Oct $200 puts for $8 for balance but boy will you be pissed if Jobs kicks the bucket and you own all that AAPL at net $190.  If you want to radically increase margin you can roll to a short strangle but you may end up getting burned again on more contracts.  If you are worried about the upside, you can always pick up the Jan $200/250 bull call spread at $32 and sell the July $200 puts for $2.50 with the goal of selling at least $10 this year to drop your basis to $22 so you have a b/e at $222 (protected by your short 2012 calls) and pick up $28 to put towards a roll if AAPL runs out of control.   If it were me, I’d sit tight unless AAPL does something so amazing that I become worried they’ll be over $350 in 2012 – anything else is rollable. 

    Fizzle/Eric – I agree, same logic I used on that stop out for the bull side.  

    TZA/QC – No that was the Jan 2011s, not 2012.  Spread is easy to fill now.   Not sure if that’s a good thing or not…

    Speaking of TZA – June $6s not bad at $1.40 as momentum play.


  54. Hey all,

    Hope some of you were able to get into yesterday’s Overnight Trade in Exide Technologies (XIDE). From our entry, we got 9% at the open today from 3.85 to 4.12. 

    I am working on another of these right now for today’s story.

    I have posted the beginning of the story if you have any questions or comments. Looking for another BIG WINNER!!!

    Thanks Lionel.

    Good Investing!


  55.  phil, what is going on with MON?  Has your thesis on them changed?  They seemed to be priced for extreme contraction.
    I have not been posting much, since doesn’t seem to work on the ipad (the ipad won’t let me comment while the iphone will?)


  56. Good morning
    IWM lines 64.35 was main S/R then 65.12. 66.03, and 66.73


  57. Added a small amount on that dip, using call verticals. People are still nervous and you have to expect them to get shaken out easily, but as long as leader stocks are holding up, I think we’ll inch our way higher.


  58. rumor of a spain downgrade


  59. is the dow correct on TOS  ?


  60. Phil On DIA mattress  the Jul putters 101p and 102 p are showing 1$ down on yesterdays sale shall we buy them back or roll to?? thks


  61. Man VZ sooo tempting here approaching 7% div


  62. trice  – Spain downgrade?  What source?


  63. Has anyone seen news on VZ that it would be dropping today?


  64. Pharm / VRTX  Do you buy this hepatitus breakthrough story?


  65. Oil/Eric – Actually the API report was very bullish and had just a 600K rise in oil and a 3Mb draw in gasoline, which rallied oil futures but this report missed it by a mile (which is why most people pay no attention to API).  I think this is just a squeeze now and we’ll pull back from $71 but I don’t think so strongly enough to bet it – just strongly enough to take money and run on USO….

    BAC/QC – Well you have VIX profits now, which is nice.  I think as we’re looking sort of kind of stable you can buy back the calls as you know you can resell on the way down as the VIX spikes back up. 

    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!

    EUO July $23 puts at .40 are a fun gamble on the Euro recovering.

    MON/Jo – Nothing bad really.  As I said when they were at $80, contrary to popular belief, farmers don’t NEED custom seeds and ferilzer and weed killer etc ALL the time.  If they go naked for a season, they can get by and if cash is tight, that’s what they do.  This is why I hate POT et al, it’s a very silly thing to price at a high multiple but MON has legitimately impacted the way we farm food and we can’t live without them for too long as we now produce more food per acre than can be accomplised naturally.


  66.  tuscadog, a 5% bump isn’t much in the biotech world.   But it is having a effect on my beloved GILD which is getting absolutely no love.


  67. Hmm.  Let’s see if we can bounce at the open price, and if not then we may have to re-test some of the support below before getting back up.
     
    However, except for that spike down two minutes ago, I haven’t been seeing the dumping of the future that we saw the last few weeks.


  68. Phil – there is no "contact us" under membership, might be useful to add. If I need to contact someone about info on membership whom do I email to?


  69. I have finished the report for my new Overnight Trade of the Day. It is in Verifone Systems (PAY). We are looking for entry at 17.25 – 17.40 and an exit tomorrow morning. Yesterday’s OTD was worth 9%, so we are hoping for some more of the same success from PAY today. 

    You can read my analysis and more about PAY here.

    Thanks and Good Investing!


  70. Phil "I like LYG down here at $3.13.  We can play them like C and take the Jan $2.50/5 bull call spread for .70 and sell the $2.50 puts for .45 for net .25 on the $2.50 spread.  I wouldn’t pay a penny more and it may be a tough one to fill". Can you pls explain this strategy in a very simple way? does the jan 2.50/5 bull call spread mean sellin the 2.50 and buying the 5 calls, whose difference would be .70 and then sell the 2.50 puts for .45? I need to lnow as this keeps coming on and on and I cant grasp it. Thanks.


  71. dilb – i think ther is somewhere cause i did it recently, by email.


  72. Phil: I have 2000 fro at 34, what would the best strategy be to make money on those to recup some losses. thanks


  73. Phil/RMBS.  RMBS is back to hyper-volatility due to 2 of it more important legal cases expected out in the coming days.  I own some Jan 12.50 calls that I have sold calls against in the past and worked my basis down to zero.  I held off selling June calls because these 2 decisions were expected at the end of May.  So, I plan to sell calls into the current excitement, though the fact that there are 2 decisions that come out within a few days of each other and RMBS always moves dramatically on these types of decisions makes it a little more complicated.  Any advice?


  74. Phil, I sold the TNA Oct 35 puts, bought the Oct 40/47 bull call spread with TNA at ~45 and VIX at ~31 for a $2.50 credit. Although margin impact on the naked put is quite high it sounds almost too good to be true.
    If things go bad I plan to roll the put. What criteria do you recommend for decision to roll?     
     
     


  75. One certainly does not need all the TA today, just pivots, R1&2. It seems we are settling in for the day around IWM 65.58, if so, very annoying !


  76. Front-month SPY premium is still very high. A cautious bull trade is buying something like the June 98s and selling the 109s. At 8.45, that makes you a net seller of $235 extrinsic, roughly, and has another .20 in upside. I’m in quite a few of these, and similar verticals.
     
    If we re-test 1050 this week, then I’ll buy out the front month around there. If we fail 1040 I’m out of the trade! Otherwise sitting tight for a slow drift.


  77. Of course I meant "buy out the short leg at 1050". It’s all current month. I’m still used to thinking in terms of diagonals.


  78. I held TNA overnight which obviously worked out well. No play today on this weak-ass mid day action. Taking David’s PAY play instead. EricL has me all a-feared of a late summer collapse. Maybe pick up Sept puts but I hate paying the premiums and selling a call spread is too dangerous. What to do what to do ….


  79. chris,

    I’m bullish for the time being, fwiw. I do think and hope we see at least SPX 1115, possibly 1175 (65 dma). But I won’t be hanging around for more above that.


  80. Drumkeerin
    "Have BAC Jan 20 calls at 2.1 and 25 callers at .6. Rolldown and take out callers? have no puts". Can you pls explain to me this operation. did you buy jan 20 and sell 25. What do you want to to achieve when rollingdown? thanks


  81. And wheeeee!

    DIA/Yodi – Yes, at least 1/2 because it’s an undeserved VIX crush that could quickly reverse.  I’d take out the $102 puts and you can always leapfrog and sell the $103 puts if we break over 10,200.   Remember, winning $1 means they paid for a roll up on your longs – that’s not something we want to throw away!

    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?

    Noon volume on the Dow is 106M, a little warm but nothing worth noting.  If we get a low-volume sell-off I would like us for a stick up to our levels later but a high-volume sell-off (more than 30M per hour) would be a bad thing.

    Contact/Dilbert – You mean like the "Contact Us" link at the bottom of this page or the one at the top right of this page?

    LYG/Arbolito – Yes, bull call spread is a bullish call spread so you Buy the lower strike ($2.50 here) and Sell the higher strike ($5 here) for the net (.70).  That, in this trade, is offset with a sale of the $2.50 puts for .45 to net the whole trade out at .25 with up to $2.25 of upside at $5, where we would be called away, and a downside of having LYG put to us below $2.50 for net $2.75 so you are committing to buy LYG for $2.75 against the possiblility of making $2.25 but you are starting out .64 in the money, which is nice. 

    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. 

    RMBS/Judah – I would take the $13 for the Jan calls off the table.  Why risk it?  You can 1/2 the profits to a 2012 $25/45 bull call spread at $5 if you are very bullish (and patient) and you can lever that with a 1/2 sale of the July $28 calls at $2.10 which you can cover with Jan $50s at .60 since that caps callers gains just over your max profits even if something insane happens.  Otherwise, if you can collect $1 5 times, it’s another free spread and all your cash is off the table.

    TNA/Maxim – Hey great catch on that play!  The bottom line is you need to REALLY want to be long TNA at the end of the game, which is (most likely) a roll to the 2012 $25 puts.   If you have a real comfort with being long TNA at that level (15% down in the RUT from here) then you can wait until almost the last drop of premium is squeezed from your caller.  The only way people run into trouble selling puts is if they go over their heads and don’t want the assignment or can’t afford the roll.  Obviously, if you have time and margin for a 2x roll, you would end up in the 2013 $15 puts before you take an assignment and who wouldn’t want that?


  82. IB won’t fill me for the TZA hedge for 2.10. Anyone know what purple numbers mean?


  83. Gotta be fast on the Oxen trades. Maybe it willl drift back down.


  84.  BDI up.
     
    MS says BUYBUYBUYBUYBUYBUYBUY (it’s not just Cramer).
     
    Muni’s in trouble?


  85. aclend – purple numbers have something to do with lent,  i think.


  86.  Phil, can you please point me to where the Top 10 picks are? I went through your email this morning, and it has a ton, but they are not in a discernable fashion as to which you like most. 


  87. Phil – TBT – Missed yesterday alert to sell Jan 40 puts: Currently hold several underwater TBT positions w/June and Jan exp. – appreciate any help:
    30 June 48/49 C – net down (0.50) – I realize this is worthless – both calls are now 6 cents.
    15 June 42/44 C – net down (0.36) – 42C is 45 cents/ 44C is 23 cents
    10 JAN 45/55 C – net down (3.10) – 45C is 2.70/ 55C is 1.25
    15 naked long JAN 35 C – down (4.10) – 35 C is 6.90
     
     
    Thanks


  88. Morx -

    This one is just an Overnight Trade. I am expecting it to make some big gains tomorrow morning. The range is suggested, but getting a position is more important. On the morning trades, the range is much more crucial.


  89. ss,
     Are you still in TNA from 11.35 ?


  90. Phil,
    I have a general startegy question about when to cover a short stock position with a deep OTM put.
    I had shorted 2500 shares of Trina Solar (TSL) at $9. Over the course of the past year I have sold puts and calls against this position to recover about $8 on this position so at todays price of $17  I am breaking even on the trade .
     
    I have 25 Jun 24 Puts sold at $1.60. 
    Should I let these puts cover the short stock position at expiration? Or would you recommend I just buy the stock back at $17 and roll the puts down to the Jan 21′s for even. I feel that if the economy recovers TSL will bounce back.
    TIA 


  91. VZ uncertainty has been the VOD ownership and the potential upcoming expense of buying them out / and covering the dividend


  92. biodieselchris,
    Nice job on TNA; I rarely hold the stock over night as usually more can go wrong than right. I respect your fortitude !!


  93. hi Phil — where on TOS to get Dow vol trade, what consider hi or low number, I see your comment could you give me a ruff number to follow thx, again thx again for TNA roll trick I got fill half of my position roll from OCT 57 put to Jan 35 put, will try for the other half poistion — by the way would it be a good strike to roll or should I go for Jan 40 short put instead — no greedy just want to break even if possible


  94. Phil  I am holding stk in FBO  bought at 11.23 now 14.24  paying 5.6% div I like to improof divs by selling short calls against my stk holdings but looking at any longer month 15 callers  Oct and Dec they do not even make an offer on the caller does that mean the stock will go down hill ?  thks for your opinion


  95. JRW – I got out with a small gain.  I have been getting interrupted by phone calls lately.  This low volume makes me think up at the moment.  What’s your feel?


  96. JRW – taking 1/2 position in TNA here.


  97. ss,
    I’m still in from 11:35; the opening shot was certainly profitable though !!


  98. Dear Phil
    Have BAC Jan 20 calls at 2.1 and 25 callers at .6. Rolldown and take out callers? have no puts


  99. ss,
    BTW, the descending trend that started the day at 66.03 is now at 65.92, which is coincidentally R2


  100. pHIL: questions on: 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.
    1. would i sell 20 contracts of 2012 30 puts for 9.20? does this mean if i get put i buy the next 2000 shares for 20.80? This strategy is if i want to own fro long term right? i mean the new 2000 shares right?
    2. can you pls explain how you get to 19.20/24.60?  
    3.0 what does DD mean?
    Sorry to bother you but i really need to understand. Thanks


  101. JRW – sorry, not following you on the 66.03 trend line.  What is the origin (I sound like a spelling bee contestant)?


  102. Not a good chart forming here if we blow the day’s lows.

    Click to View

    Three lunchtime reads:
    1) It’s Lehman the sequel, with Merkel as Bush
    2) In a word, the problem is debt
    3) 25 questions for those who think recovery is real

    The SEC unanimously proposes new rules requiring exchanges and broker-dealers to provide detailed info on quotes, orders and trades to a new central repository so the agency can get better oversight of high-frequency trading – a response to the May 6 "Flash Crash," where different exchanges had varying methods and standards for data.

    Durable goods orders surged 2.9% in April, but scratch below the headline number and the report was negative. Orders excluding transportation actually fell 1%, as strong growth in Boeing (BA) orders contributed 3.9 points to the featured growth rate. March orders of non-defense capital goods were revised from 4.5% to 6.5%, but April orders dipped 2.4%.

    South Korea says that despite political and financial turmoil, foreign investors are still buying the country’s bonds, keeping a lid on rates. The won/dollar exchange rate stabilized today and the Korea Stock Price Index rose 21.29 to 1,582.12.

    At least one (admittedly modest) sign of an embrace of electric cars: Nissan (NSANY.PK) has sold out its year’s production (13,000) of the all-electric Leaf model; the automaker is taking reservations for 2011 production now and hopes to have 500,000 of them on the road by 2013.

    EIA Petroleum Inventories: Crude +2.4M barrels vs. consensus of +0.1M. Gasoline -0.2M vs. consensus of 0. Distillate -0.3M vs. consensus of +0.3M. Crude futures up 2.9% to $70.71.

    Interesting how well oil is holding up.  XOM holding $60 too.  Keep in mind a move back to $70 on XOM and CVX back over $75 is going to be more than 100 Dow points right there

    Munis/BDC – Major trouble.  I don’t know who in their right mind is buying those things.   Then again, I can’t see what motivates someone to take a 10-year note for less than 5% either…

    Uh oh – All the Fast Money people said buy into the close – make sure you have your disaster hedges in place!  8-)

    LOL Morx!

    Top 10/Amatta – They are on the Buy List post (the one before this one).  There was no organized top 10 format but I think I did actually name 10 buy/writes that got numbers.

    TBT/Concreata – I am not a fan of having such a messy position.   When you want to add to a trade, just roll your existing trade to optimize it and resize it if you wish but don’t keep thowing layers upon layers of spreads – it’s pointless.  You are right about the June sets, they are worthless and you are kidding yourself to think otherwise.  Whatever you can liquidate June for it’s pretty clear that TBT isn’t going to be going voom anytime soon.  I’d roll out to the Jan $44/49 bull call spread at $1.10 and bring your other spread into that as well.  It doesn’t pay to be greedy – when you are behind, be very happy if you can get even.  If TBT holds up here through July, we will probably make our target so no immediate need to do anything else and if TBT heads down, then you can sell 1 $40 put at $7 or better for each 4 of your bull call spreads to recoup most of that money.   If you don’t like that risk, you can probably sell the $30 puts for $2 on a good dip but, as you can see with the $40 puts, we made $2 in 2 days and you may be able to do that several times as TBT goes up and down.

    TSL/Oncmed – LOL, so you were short them at $9 and now you are bullish at $17?  Don’t you think it’s best to say "I don’t understand this stock" and use the cash to play something that doesn’t rip you up one side and down the other?   They do seem to be getting back intoo their old trading range between $15 and $30 but there’s a lot of competitors in Changzhou and you know that there’s a rumor that Jifan Gao may be replaced by Dimng Qiu and we don’t know how that’s going to affect the Malaysian contracts.     Actually I’m just kidding, who know what the hell is going on in these ADR’s, which is why I have very little interest in playing them.  What does bother me about TSL is their gross margins are 50% more than industry standard, which indicates they are the smartest guys in the world, they are lucky or they are cheating.  Since Cramer is pumping them up, down and sideways – I’ll assume they are cheating and next time they hit $30 I’ll be looking for a short play too….


  103.  I might be WAYYYY too much of a contrarian investor but just eye-balling that chart above Phil makes me feel somewhat bullish. A good pullback was overdue and necessary.
     
    Hopefully I am not completely wrong because I have a few downside plays in motion right now.


  104. JRW – I think we can push this train faster than it is moving today.


  105. Phil – TBT – thanks, what about the Jan naked long 35 call? Hold or roll?


  106. ss,
    Connect the high on 4/27 and the open on 5/19


  107. ss,
    It’s a standard deviation trend line, but to get it you have to eliminate 5/6 and 7.


  108. JRW – got it, thanks.  Finally a little push.


  109. Phil, Got the TZA spread @ $2.00 The DXD is net way higher than your old $. Do you have a new spread?


  110. Nice move out of DIS. That’s one I uncovered at 1040 yesterday. :)


  111. Phil:
    What do you think of EDZ?
    Buying 1000 of it and selling short the Oct 70c @ 11.90 and selling short the Oct 50p @ 11.30, if put to us the avg. will be close to 41 on 2X.
    Thanks


  112. Posted this on the Buy List page, but wanted to re-post here since I am not sure how actively the Buy page will be monitored.
    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  (Phil, could you please elaborate on why SPWRA is your favorite.  On a pure financials and short-term fundamentals basis, I could not justify it for myself).
    Buy $12.66
    sell the 2012 $10 calls for $4.80 and the $10 puts for $2.50  o
    2.  ? (thought it was VLO, but then I noticed it was also #8), please let me know what #2 was.
    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


  113. JRW – RUT fighting trendline from 5/4, S&P trendline from 5/18, 5/19 and Dow R1.  Almost sold half when all 3 met those lines at once.  I know my method may be a little more complicated than yours, but it’s been working for me.


  114. phil – In reference to your chart up above on global indexes, why is today so significant or a concern about a rollover? or were you just making a point? thank you ,great chart.


  115. JRW – Question.  When do you DD?  For instance, I am 1/2 in now and was thinking of taking 1/2 of that off at the trend line.  If we breakout above it would you DD?


  116.  for those who can’t sell puts/calls naked (investing in clothing-mandatory IRA’s, for example), I sell spreads which seems to work out OK — you don’t capture all of the premium destruction, but you do get some. Consider the following example:
     
    May 25: Sell 10 TBT Jun-39 puts for 2.02 ($2,020), buy 10 Jun-28 puts for 0.17 ($170). Net cash in $1,850
     
    Now: Cover the 39′s at 1.10 ($1,010), up 50%, KEEP the Jun-28′s (now at 0.01 or 0.02, for $10-$20 because it’s not worth selling them!).
     
    Net: cash in $1,850, cash out at $1,010 for $840 (45% gain, AND you’ve got uber-disaster hedge of TBT 28 puts riding for free).
     
    Phil will hate this strategy because you gave away $170 for pretty much no good reason, but it’s an alternative to selling naked outs and does capture some of the premium destruction…


  117.  sorry I meant cash out at $740 (+40%) above, not $840. And while I was writing stupid TBT went down and I got out at 1.20 and missed 1.10 ….  


  118. Don’t forget, we are nearing an end of the month in which most hedge funds have gotten smacked.  They will try to recoup something in order to avoid redemptions.


  119. ss,
    Whatever works !!  Now we have that 65.11 to the downside and 65.91 to the upside, 65.58 median; I’m in at $45.85 so I’ll just wait for the stick, unless we retest 65.11. Made $3.10 on the open move so 7% there.


  120.  EricL, just saw your comment about F and ran an analysis – their volatility over the last 5 sessions is 3%. Over 100 days, 1.86%. It’s volatile all right! But then again, SPY over the last 5 days is 1.31%. Crazy days all around!


  121.  go PAY go! 
     
    I don’t wake up at 6:30 AM (market open on the west coast), so I hope whatever it opens at tomorrow sticks for an hour or so.  Need my beauty sleep! OK back to work …..


  122. 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.
    Hi pHil me again. cannot find 40 calls for 5.60. looked all the ay to 2012. any advice?


  123. hi Phil:
    Been with you about 6 months and learned a lot,but still have a way to go,but dancing as fast asI can.Even though I sold a bunch, I still have about $400k in buy/write positions, and naked puts 20% below current price, on stocks I like long term. I have 30 of the SDS Sept. $29/$36 bull call $30 put spread.Even though I grew up in NJ, I’m not as good as u in determing protection coverage. Am I OK for $400k ? Also, is the TZA  spread better than SDS spread to use since it only requires 2 legs in the trade ?
    On BMY, I bought the stock at $22.40 and sold Sept. $26 C for $1.46,now $$.37, and Sept. $23 P for $1.43 ,now $1.74. The Dec. $26 C premium is $.73 and the $23 P is $2.45. Although call premiums are low , my thinking is that the high put premium make  sense to roll both.Make sense to you? thank you.


  124. JRW III: how does one get in on the open move ? waht price do you set to buy when the futures indicate a big open move ?


  125. JRW – I am out.  Not liking this action.


  126. ss
    I’m all in now, at 1/2 in I would watch for a break, to the upside buy another 1/2, to the downside of the median sell your 1/2. I don’t think we retest 65.11; if we break up it could go to 66.73. So a retest could mean a FAIL.


  127. Hi Phil PFE artificial buy write do you buy at the money call and sell OTM call, or buy ITM call and ATM sell short call.  Just want to lear the rule for future ref.  For example PFE … try to start scale in  should I do Jan 12.5 /15 bull call spread and sell Jan 12.5 put for net 1.04 — about 150% upside, put to me at 13.7, or Jan 15/17.5 and sell 12.5 put for net 0.34.  thx


  128. VRTX/lion – the drug is stellar and should get approved.  The problem with them is a 7B market cap for nothing…no real earnings.  Takeover, sure….GILD and MRK also have things in the pipeline that are just as good…..
     
    Speaking of GILD, what a dog.  I had to depart from them for now, as they are too much of a drag on the portfolio.  Trend is still down, and will have to keep them on the watch list for now.  Damn shame, but someone must know something, or they are setting them up for an acquisition somehow.


  129. BP starting the "Top Kill" attempt.  Living on the Gulf Coast I am on pins and needles over this.  I already have a brother whose seafood market in south Louisiana has been devastated over this.  Every place I grew up fishing is now closed to commercial or recrational fishing in the marshes of south Louisiana.  A sad, sad situation.


  130. Pharmboy, I can short GILD if you would like the downtrend to end 8) .


  131. Hey all,

    I have a new Daily Musing written. It is available for your reading now here as a separate story from my morning post. The Musing is about the oil market and its market failures. It is part of a 3 part series that I am going to be doing on the failures of oil and then solutions I offer up about how to fix it and alt. energy. 

    Pretty interesting if you are at all interested in oil!

    Thanks and Good Investing!


  132. JRW III: looks like it either ends today at R1 or R2.


  133. i feel for you and your neighbors, ss. I grew up in FL and it hurts to see this happening to the places that were so pristine.


  134. Hi, guys! I am with you now and happy to see all of you.


  135. RMM / Getting in
    Just before the market opens, you enter the trade info, then when it opens you push the button !!


  136. PhilL I cannot sell naked puts on fro, should i sell the jan 2012 for 9.20 and by the jan 2010 for .15, that way i can place the trade. is this smart?


  137. RMM
    I think the plan is to blow through R2; but I have been wrong before !!


  138. JRW III: funny, when you see fitures on TNA up 1$, do you use closing + 1$ limit or what ?


  139. Pharmboy,
    Please advise on PFE, AZN, GSK, LLY, ABT  for Buy/ Jan 2012 sell Puts and Calls.
    Thanks
    js


  140. JRW III; that is my thoiught too: they will run it down to R1 and then, maybe stick to R2.


  141. RMM – if your system does not give you quotes on tna before the open – you need a different system -
    No need to look at the futures – pre-market trading starts at 4am


  142. RMM
    Market orders, no stops; this morning I got up late so bought at the open based on tick and then took 45 minutes to redraw lines to get my sell level, sold at 10:45; bought back in at 11.35. I posted the lines for you.


  143. RMM
    Good call, I hope you are right !! FLUSH


  144. JRW III: TXS, hope it holds at R1.
     
     
     
     
     
     
     
    JRW III: TXS for answer, now its at R1.
    Tempted to go in .


  145. or we are in for another monday ending.


  146. jsut – I like MRK, PFE and GSK.  AZN just got PFE head of R&D and look at what he did to PFE (PFE now has Wyaths).  I don’t like LLY out that far and ABT is ok, but dividend is better for first 3.  If TEVA can get into bioequivalents, then they will be attractive as well (again).


  147. THX mrm, I think….That Chart is just plain ugly on GILD.  Critical support here, otherwise $30 – which was 2006…..


  148. JRW III, RMM, ssdirk,
    I have been hearing and following your cross talk on TNA, IWM for about 2 weeks. New to Phil’s service, and am on the ThinkorSwim platform on AMTD. What are these lines you all are referring to, and what is R1, R2 etc. Would love to learn, and "share in the spoils"/ ‘make withdrawals" daily.
    Thanks….
    jsurti
     


  149. Intraday H&S pattern on the SPX that projects a few points lower. I’m sitting tight, but it’s something to note.


  150. ss / jsurti
    He’s all yours !!


  151. Phil-  What would be the best leveraged ETF (2X or 3X) to buy if one were convinced Europe’s financial troubles will get worse and not better in the next few months?  Based on an article I read, I believe different ETF’s (i.e. EDC, EEM, etc) cover varying countries and have varying levels of exposure to Europe.  In your opinion, which of them has the most exposure to the countries that you think (Spain, Greece, etc?) are in trouble.  Thanks in advance. 

    I lost a ton of cash riding SRS down from $60 to $10 (in front month options no less) and am hoping to make some of it back on an overdue correction.  Speaking of SRS, you might find this news interesting. 
     
    http://www.bizjournals.com/sanfrancisco/stories/2010/05/24/daily37.html


  152. JRW III: da…..  it broke R1. am out


  153. JRW    SS      Surely you must be  out, (and don’t call me Shirley)     Switch button to TZA


  154. Out of TNA at $45.90, even (5 cents); loading for TZA


  155. VZ/Brooklyn – I don’t care if they skip a dividend but people might freak out and dump them. 

    Dow volume/Gucci – It’s in the part of TOS that says "Power ETrade Pro".  8-)  I like the Dow volume because it has less zeros than the NYSE so it fits on my screen and also, when something’s up on the Dow, I can take a quick glance at all 30 components at once to see what’s up.  On TNA, I’d go deeper because it’s a 3x at $46 so to get to $35 (-23%) is just down about 8% on the RUT to 600 and that certainly isn’t out of the question. 

    FBO/Yodi – I give up, what is that?

    BAC/Drum – If we recover, I like them for $25 but dangerous game to play.  I’d DD on the $20s at .78 for a $1.44 avg entry, buy back the $25 callers at .19 so net $1.24 ish on the longs and I’d sell 2/3 the July $17 calls for .48.  That knocks your basis on the longs down to .86 and the money you collect from the July sale is plenty to pay for 1/3 more of the Jans, which will shift you to 2:1 if you have to roll the callers up to 2x whatever (currently the Aug $19s are .25) so that’s your upside out and your downside out is you cut your basis down and you can sell more calls and roll lower if BAC isn’t closer to $17 by July (and the rolls will be cheaper then).

    Q&A/Aroblito – You have 2,000 FRO naked now at $34 ($68,000) and I’m saying you take $9.20 of 20 2012 $30 puts ($18,400) with which you are promising to buy 2,000 more shares at $30.  Net of what you collect, it will cost you an additonal $41,600 out of your pocket to complete the purchase at $30, which puts you in 4,000 shares at a total cost of $109,600 or $27.40 per share, just from the put sale.   My calculations for the whole trade were based on the following:

    • You buy 2,000 shares at $34
    • You sell 20 2012 $30 puts for $9.20 (net $24.80)
    • You sell 20 2012 $30 calls for $5.60 (net $19.20)

    At this point, two thing can happen.  You either get called away with the stock over $30 a share and the putter will expire worthless and the caller will pay you 20 x 30 ($60,000) plus you keep the cash for the options you sold ($29,600) or, if the stock is under $30, your caller expires worthless and 2,000 more shares of the stock is put to you at $30 ($60,000) and your average entry becomes $19.20 + $30/2 = $24.60 and we shorthand ALL that by saying it’s a net entry of $19.20/24.60 so I am able to do more than 3 a day!  8-)

    Contrarian/BDC – We’ll have to keep an eye on Japan.  If they continue to melt down, they will drag everyone with them. 

    TBT/Concreata – I’d hold them for a bounce but get the hell out even when you get it.  You have enough on this trade as is. 

    DXD/Shadow – Sure but keep in mind these are pure INSURANCE plays and are VERY likely to be losers.  We are taking these out of position for the big payoff to the upside and will likely take 30% losses and get out if the market looks stable over 10,200.  For DXD, I like the Jan $28/40 spread for $3 and they are $1.50 in the money but need just 20% to return $7 and that’s just a 7% drop in the Dow with an upside kicker $3 higher than that.  On this play I would want to sell puts to offset.   The Oct $26 puts are $2 and on a 3% move up in the Dow (10,500) they should hit $4 so around there I’d be pretty interested in a 1/2 sale with the assumption we can roll down to 2x Jan $20s and hope the Dow doesn’t make a run over the year’s highs by Jan.

    DIS/Eric – Didn’t quite get cheap enough for me but I regret it already.

    EDZ/Fprat – We loved them at $40 but I wouldn’t touch them at $65 as they could pop $20 in either direction almost overnight.  I am not a big fan of ultras unless they are way too high or way too low, we decided EDZ was way too low in May but now they are in a very dangerous middle but your trade is fine as long as you REALLY do want to be a long-term holder at $40ish. 

    Buy List/Leon – I will get to it later (on the Buy List page) if you remind me here later.   Again, there was no formality to it, I may have simply missed #2 at the time.  As to SPWRA – I’m sure there is much commentary on the subject over the past two weeks, just try searching for SPWRA in the search box on the top left of this page.  #2 could be JPM, I thought they were on the list or XOM or GE and I’m not sure why DXD is #6 as it’s a hedge, not a stock. 

    And Wheeeee!   So glad I stuck with TZA but now we may be doing a blow-off bottom into Mr. Stick.  Volume at 2:30 is 155M on Dow, a bit thick for the stick but volume has been up lately and stick boyz probably have a lot of cash after all that selling.  Not going to take anything for granted.

    Rollover/Trice – Oh, they were not directly connected but looking at the multi-chart from today’s post, you have to consider that each day you are under a DMA, you bend that DMA lower.  The sharper the downtrend on the DMA, the harder it is to break right through it and the more times you test a DMA and fail, the harder it becomes to get through it (as you set a mark that more and more swing/channel traders begin to follow).   So the more of a bend down we put on those 50 dmas, the harder it will be for us to get over them and the 200 dmas are barely holding an uptrend as it is so we’re talking about a major, long-term change in the trend that will set off all sorts of alarms for technical traders and we simply can’t possibly afford to lose yet another group of potential buyers from this market. 

    Put spreads/BDC – I don’t hate it.  It beats the hell out of NOT selling puts at all because of some silly account restrictions…

    Month/SS – Not end of Q yet.  EOMs don’t get the same kind of action.

    FRO/Arbo – Sorry, typo .   It was the $30 calls.  No free lunch there. 

    Protection racket/Dflam – If your buy/writes are hedges 20% and you added $6K of protection with an $18K coverage, then you are good down to 25%.  I think you can just set benchmarks and IF the Dow falls 10% and looks to fall below 9,000, THEN you may want to spend another $6-10 on more protection but unless we go well below $8K, you should be in decent shape as you stand (providing you REALLY have the cash to take your assignments if it comes to that). 


  156. Want to let you all know of a trade I’m having very good luck with past few days.  I’m long GOOG Sept 500s.  I’ve been covering these 1/2 with June 500s and picking off 20 to 30 percent profit daily by buying and selling the Junes.  These options are traded very heavily so the spread is fairly narrow and they are easy to fill.  There’s of course no margin as I hold the anchor (learned that word yesterday).  Today I sold them for 10 and preparing to buy back for about 8 or less.  Just another way to make $ while you wait for your long term plays to come in.  :)


  157. In TZA at $7.33


  158. JRW III:  heading towards the pivotline. do you expect a reversal and stick ?
    Wonder how the news about BP’s attempt to close the hole affects the market cloase ?


  159. IWM 64.27 is major support


  160. Hi Phil FPO is First Pontomac Realty Trust  trading now 14.10 and have a div of 5.6%
    SORRY MY MISTAKE TYPING ERROR !!!!!!!!!!!
    yodi
    May 26th, 2010 at 1:04 pm | Permalink  
    Phil  I am holding stk in FBO   FPO !!! bought at 11.23 now 14.24  paying 5.6% div I like to improof divs by selling short calls against my stk holdings but looking at any longer month 15 callers  Oct and Dec they do not even make an offer on the caller does that mean the stock will go down hill ?  thks for your opinion


  161. Out of TZA at $ 7.43


  162. SRR..JRW….RMM ETC
    I’ve searched and searched for a pivot point program on Tradestation with the Standard Pivot, S1, R1….etc and they do not offer on as I can tell unless I pay someone to build it which seems ludicrous since I know they are not hard to get elsewhere.
     
    Can someone please share what software they use that has a pivot application included?   Thanks…


  163. JRW, SS, Back now, playing for a stick.


  164. Looking good for the stick, stopped out of TZA calls with a dime profit ($1.50).  Volume picked way up on that dip and held us together.  XLF held $14.50 too

    BMY/Dflam – It’s only May and the stock is at $22.83, you are right on target considering the big sell-off, why mess around?  I would take out the caller as they are done but no need to touch the put and you can afford to wait a bit for a bounce and, worst case, you sell the $23 calls (now $1.35). 


  165. SS     On a different matter, I remember walking around Galveston beach and getting ‘tar balls" on the bottom of my feet.  Had to get the stuff off with finger nail polish remover or tar remover sold at local stores.  I can’t imagine how terrible that would be to ruin the beautiful Destin beach area. 


  166. Back in TNA 1/2 at $45.40


  167. judah – I am with you.  In TNA at 45.28.  Has been a bit of a tricky day.
     
    stockbern – can’t bring myself to think about it.
     
    yipcarl – I use http://www.quotetracker.com .  Pivots are standard study. 


  168. yipcarl - 
     
    Pivot Point Calculator:
    http://pivotpointcalculator.com/ 


  169. yipcarl; dial in "pivotpoints" in Google and you will find many calculators.


  170. Doubling TNA at $45.45, AND I called Lloyd !!


  171. yipcarl - 
     
    Pivot Point Calculator:
    http://pivotpointcalculator.com


  172. This play is VERY DANGEROUS given our levels, so BE CAREFUL !!


  173. ok, can anyone tell me where is the buy list?  in an easy way to see it?
     
    and Phil, i stillam waiting on TBT, will pick it up on the next downswing….


  174. yuk! just stepped in dog vomit with my bare feet.


  175. As for the PFE trade, we MUST BE AWARE that Lipitor goes off patent this year and next year in the US.  That is $12B in sales of $65B total.  I would be very careful with them FWIW.  MRK and GSK are my top two.


  176.  Oh it’s always fun to cut through the spin:
     
     It turns out that if you follow the money, the narrative of this story is really very simple and indisputable: the Greek people are being impoverished in order to bail out multi-national banks. 
      Funny how something so simple and logical could be missed by the corporate news media.
     
     What I love about the truth. It’s always soooo much more simple than the spin.


  177. JRW: It’s 3:20 !! Hope the bots are on..


  178. Anti-bot close—-look out below


  179. 1/2 out at $45.16


  180. Wow,  Looks like it wants to sell off.


  181. Phil, thanks for doping out my BAC problem


  182. 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!  

    PFW/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

    B/SS – Yeah, good luck on that.  A month to plug a leak makes you realize how totally screwed we are if a major virus breaks out or an asteroid is heading towrards earth – this is some very pathetic disaster response, especially right in the same exact place where we "learned our lessons" from Katrina/Rita….  Instead of having 100,000 troops and 250,000 "consultants" overseas at $1Tn a year – why don’t we have a 100,000 person Army Corp of Engineers with a $1Tn budget running around this country putting out fires and plugging wells and building dams and fixing bridges?

    Hi Roma!

    Puts/Arbolito – Sure, it’s no worse than naked puts and it’s cheap enough that it doesn’t affect the trade much. 

    Chart/Jsurti – I think if you look at the "Active Trader" chart it defaults to a chart with pivot points.  If not, ask your TOS guy how to bring them up (or maybe the guys know but I don’t, mine works and I don’t touch it!).

    Euro $1.219!!!  Disaster over there.   Pound $1.44 but only 90.07 to the dollar so big flight out of Europe again.   Nikkey will freak if they break below 90 Yen to the dollar

    EU/GS – I would have to go with a bullish play on EUO (although I am currently short on it) as a major crisis in the EU can send the Eurpo down 25% to .90 to the dollar and that would rocket EUO to about $37 and you can pick up the Nov $28/33 bull call spread for .50 and sell the July $22 puts for .20 and every month you "win" you can spend the money to roll down another dollar.  Again, this is the opposite of the bet I just made as I think the Euro holds $1.20 and bounces back but if you want to make a general bet on the EU, this has huge bang for the buck and it’s very unlikely the EURO flies over $1.30 suddenly (up 8%) and that’s 15% on down on EUO which is only about $4 to $21.50 so the chance of really regretting selling the $22 puts isn’t very high. 

    Damn, I want my TZA calls back now! 


  183. Other 1/2 at $45.08; $0.30 loss. may reload at IWM 64.35


  184. phil , i m hearing some bad things about china? dp you guys hear that? talking about dumpimg euros


  185. color coming in


  186. A "Whipsaw Wednedsday" indeed!  :)


  187. Alice, the wheels have come off.  What an ugly day.  This does not look good.


  188. volume picking up


  189. Back in TNA at $44.02 (1/2)


  190. JRW-I’m out all day, and you post the most I’ve seen today…argg…=)  Got it at 43.68 but out at 44.28…not happy with this mini-bounce


  191. Thoughts on trade I put up yesterday, just checking because I’m still new to the buy/write/put strategy. 
    Bought DO $69.04
    Sold Sept 68.63 Call/Put for $13.90
    so Net $56.14(if called)/$62.38 if Put to.
    24.75% by Sept if called away….seems like a good intermediate term play in drilling space.


  192. Doubling TNA at $44.21


  193. Ballmer said PC demand is soft. MSFT down 5%


  194. JRW, Back in as well, figuring they want to close above Dow 10K.


  195. anyone want in PAY nows the time


  196. JRW- IWM can’t seem to break 50sma…


  197. Thanks guys, Google it.. How lame, I feel like a fool, I’m 37 I should know this!!!!    DUH!  thank you!


  198. Remember Phil – Iraq was an imminent threat! Aren’t you a Freddom Loving Patriot (R)(TM)(C)?????  Because, if you were, you would realize of course that we had to BLOW A TRILLION DOLLARS OVER THERE SO WE DIDN’T HAVE TO BLOW IT OVER HERE. Fixing bridges, damns, and leaking wells. What kind of terrorist loving talk is that?


  199. 1/2 out at $44.85


  200. Not holding levels—Asia will not like this close


  201. Nice Move JRW!


  202. Other 1/2 gone at $44.32


  203. Still a 9% day !!


  204. Parkmerced/SS – Thanks for that.  I don’t know if you know but we are SRS-aholics and have pretty much sworn off it.  It seems like the most obvious trade even put in front of a thinking person but it does nothing but kill you over and over and over again so we just gave up.  I can cite 1,000 reasons that CRE will be the focus of the next great market collapse but it just doesn’t happen, no matter how awful the data or news…  I once mentioned it gets to be like being in Wonderland and betting the next animal you meet won’t be able to talk – NONE of them should be talking but they all do!

    GOOG/Iflan – Excellent way to trade!

    FPO/Yodi – Ah, that’s a horse of a different color.  The problem is they are one of those dividend payers with crap payouts on selling calls AND no activity.  You can ask for $4.50 so short strangle the Jan $15s but I doubt you will get it.  There is just no option interest ast all in this thing, which is why I would not be in it, even with the nice dividend.

    Galveston/Stock – I was down there and I wouldn’t let my kids go in the water.  What a shame it is to ruin that beautiful place…

    Buy List/Dman – It’s the post I wrote before this one.   Maybe you get another crack at TBT the way Euro is trading.

    Thanks for sharing Morx!

    Greeks/BDC – You think it’s just the Greeks?

    BAC/Drum – Hey, when you need a dope – I’m your man!  8-)

    China/Trice – That’s the rumor but they are the ones who were jacking up the price when they were diversifying out of dollars.  China is like the international poker table’s rookie sucker…

    DO/Hoss – Perfectly good play but a little high on the put/to.  It’s so valuable to have 20% downside built into a trade (as you can see today).  Also, I strongly advocate selling as much 40 VIX premium as possible.

    Ballmer/Sns – He may be right but that’s totally contrary to what the manurfacturers have been saying.  Maybe MSFT just getting their asses kicked?

    PAY/Morx – Good eye!

    Sorry BDC – Please don’t mention my lapse to HomeSec.  Ignorance is strength my friend!

    I still think they are setting us up for a gap over our levels but have to go neutral into this ugly close.


  205. I think we rally steeply in the last min….just a hunch. there are some buyers…


  206. Phil: gap over means GAP UP tomorrow ??


  207. GOOG….got the June 500s back for 7.50……25%.   Put in a standing order to cover 1/2 again at 12 dollars.


  208. Phil-  Yeah, I do remember.  I’ve lost over $200K (~92% of my initial portfolio) in SRS over the last two years.  I’ve followed it closely, reading Durden’s articles, knowing most of the big players the index shorts and have always thought "now reality will set in" but it never did.  SRS pretty much wiped me out.  Hence why I’m staying out of it right now….despite that article.  DRV might be a different story though :) .


  209. JRW – Nice day!  I only traded the last 30 minutes, made 1.4%…would have doubled if I had seen your post as I had already sold (43.68-44.28).  I have a strong fibonacci cluster at 64.08ish…didn’t like the strong bounce at the 10sma, didn’t think it would hit or break the 50sma…what did you see to believe it would go up further from 44.20-44.40 range?  Thanks again for posting your TA and entry/exits!


  210. Good thing CNBC told people to buy the close Phil, or you’d be sending the chocolates after all.


  211. That was a sad little show at the end wasn’t it? 

    Nas was beaten with a stick into the close.  AAPL $243, BIDU $67.46, AMZN $123… Ugly stuff.   Not at all sure what they were trying to accomplish if not a flush…

    Gap/RMM – Yes up.  I just didn’t see why we would sell off like that.  It seems that someone wanted to paint un ugly picture, maybe they didn’t get a good fill on Tuesday morning?  Maybe not gap up tomorrow, maybe another drop and THEN we take off but I’m thinking a fund that wants to make numbers on Friday would want to flush us today and buy the SPX overnight and pump us up for a big finish so they can get back to cash on Friday and book it. 

    DRV/GS – Nooooooooooooooooo!   I just get chills thinking about it.  We have had great success shorting VNO at the top of their channel ($85 now) and IYR was good for a big ride down for us but we’re out now that they are near the 200 dma.  I would go short again if they got a good pop but no more ultras! 


  212. GS….SRS……..I can’t resist commenting on your comment about losing so much on SRS.  This sounds like a really bad relationship I had once.  Got sucked in and barely got out psychosocially intact.   Now I come here to learn.  I’m not the teacher.  Phil is.  But I’m going to give what I think is solid advice in this case.  You need to stay away from SRS…..NEVER TRADE IT AGAIN!   Move on.  It has beaten you down, so find another girlfriend.  No, seriously.  I went down this road with AMZN a few years back.  Made and lost 400k on the friggin stock .  Lost it because I couldn’t give up the good times I was having.  I remembered the good days (up up up) and I thought they would come back.  They never did, and neither did my money.  So stay away from SRS.   It is a common thing for this to happen to investors, though.   Inabiltiy to accept a loss, admit that you can’t make money on a particular equity or with a particular type of investment, and move on.  So love em.  But if they don’t love you back…….leave em.     


  213. Phil –  for :"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! " does this mean if RIG is below $60 in Jan 2011 you roll to 2X the $45 because the ratio will likely stay the same even as price moves and therefore worst case, means you are going to DD below $45?


  214. Pharm/ VRTX
    Just saw your post while reviewing today’s chat. Thanks for your answer.
    Re GILD, would you play them for a break below $35 or just stay put and wait for them to regain some composure?


  215. Phil – How often do you post your "lotto option" picks…like those DIA $101 calls last week that went from $0.07 to $0.90!  I love playing the options lotto…I know the odds are terrible, but if played smartly, one payout can make up for 10-100 losses.  I bought BAC and C call last March the second the mark to market vote was cast…DD two weeks later…cashed out at 500% and 1,000%…(should have held the Cs…they ultimately went up over 10,000%!).  If you don’t like posting low odds options in the forum, any chance you could email them out?  I only play them for 1-2% of my liquid net worth…nothing too dangerous, IMO… 


  216.  Great earnings from PAY:

     

    VeriFone Systems, Inc. (PAY 17.39+0.08+0.47%), the global leader in secure electronic payment solutions today announced financial results for the three months ended April 30, 2010.

    Net revenues for the three months ended April 30, 2010, were $240.7 million, compared to $223.4 million of net revenues in the previous quarter, and $201.6 million for the comparable period of 2009.

    Non-GAAP gross margins were 39.2%, for the three months ended April 30, 2010, compared to 39.2% in the prior quarter and 33.8% for the comparable period of 2009. GAAP gross margins for the three months ended April 30, 2010, were 37.1% compared to 36.7% in the prior quarter and 32.2% for the three months ended April 30, 2009.

    Non-GAAP net income per diluted share, for the three months ended April 30, 2010, was $0.29 per diluted share, compared to $0.26 in the prior quarter and $0.17 per diluted share, for the comparable period in 2009.

    GAAP net income per diluted share for the three months ended April 30, 2010, was $0.23 per diluted share, compared to $0.12 per diluted share in the prior quarter and $0.13 per diluted share, for the comparable period of fiscal 2009.

    "VeriFone had an outstanding quarter and we generated more revenue than in any other second quarter in the company’s history," said Douglas G. Bergeron, Chief Executive Officer. "We believe our unique portfolio of software, services and integrated business solutions should allow us to enhance our important technology leadership position in the evolving payment ecosystem."

     

    Revenue – $240 million vs. the expected $227 million
     
    EPS – 0.29 vs. the expected 0.26
     
    Moving up in after hours…


  217. goldman,
    Looked like a flush with 1/2 hour left for the stick, but NOOOOOOOOOO !!


  218. GILD/lion – wait, that’s all I can say.  Jomma and I are …….


  219. Pharm / VRTX   Do you buy this hepatitus breakthrough story? (missed your reply).


  220. lflantheman, care to elaborate a bit more on this strategy? Perhaps provide some sample with numbers? I’d appreciate it.. your strategy seems interesting.. Thx!
    lflantheman
    May 26th, 2010 at 2:53 pm
    Want to let you all know of a trade I’m having very good luck with past few days.  I’m long GOOG Sept 500s.  I’ve been covering these 1/2 with June 500s and picking off 20 to 30 percent profit daily by buying and selling the Junes.  These options are traded very heavily so the spread is fairly narrow and they are easy to fill.  There’s of course no margin as I hold the anchor (learned that word yesterday).  Today I sold them for 10 and preparing to buy back for about 8 or less.  Just another way to make $ while you wait for your long term plays to come in. 


  221. ARIA/mrm – if you are still in them, get ready to cover hard or get out with a profit.


  222. MAY BALMER REMAIN THE CEO OF MICROSOFT AS LONG AS IT TAKES TO RUN THEM INTO THE GROUND :)
    GO APPLE ;)


  223. What is soft is Balmer’s skull, he should really wear a protective helmet. wouldn’t want anything to happen to him while he has a job todo ;)


  224. JRW – Watching the latest two MSM induced "fad indicators" had me concerned also…the Euro collapse in the afternoon data.cnbc.com/quotes/EUR%3dX and GS was looking to go under $140. 


  225. VRTX/tusc – yeah, the compound is very good and the results from PII and now a look at PIII is great.  Problem is, there is competition on the horizon (MRK and others) that are just as good if not better.  Again, all has to be played out in the clinic, but I am very concerned about their market cap.  Any hiccup will crush the stock. 
     
    DNDN is getting good to short.
    VVUS – I am looking at the Sept 10/7.5 bear put spread for 1.10 or so.  Right now its says 1.55, but I think we can get it for better. 


  226. Pharm
    ARIA – what’s the reason?


  227. ravalos….yes,  I’m in the mood.    Being a not-so-patient trader, I look for ways to ‘tweak’ earnings on certain plays.  I think it justifies (for me) the need to trade more.  Anyway, I will buy long-term ITM or ATM calls (or puts, if you are going the other way….shorting) on a stock, then sell front month calls.  But I don’t just let them sit and decay.  If the stock is volatile I "tweak" the cover for increased income.  Example:
    Buy 10 GOOG 500   Sept calls……….Now leave them alone.
    Wait for a ‘pop’ from GOOG, then sell 1/2 covers, like  June 500s.     Then wait for GOOG to pullback a bit.  When it does, buy the June calls back.  Then, as they say, wash…rinse….repeat. 
    So today I sold June 500s for 10 bu cks, then bought them back for 7.50      Now I will wait until they pop up to 12 bucks and sell them again.    Then I’ll wait for the pullback and repeat. 
    I only use 1/2 covers for this because:       I want to leave room for rolling to 2/2 (up in strike or month or both) if the stock rockets.    
    So, anyway, I enjoy the activity  and I make some extra cash…more than if I just sit and watch .


  228. ravalos….to digress.   If GOOG doesn’t pull back, then I just leave the cover alone.  But if it pulls back 20% or more in one day, then I’ll take it.  You’ve got your profits on these covers locked in anyway, no matter which way the stock goes.   Down, they expire worthless.  Up, your long calls earn it for you (you have twice as many of these).


  229. Pharm, what do you think of AMGN, at $50 very close to 52 week low of $48 PE10? Thanks.


  230. IFLANTHEMAN:
    On your GOOG spread., they have gone from $597 in early April to $430 close today. Is the loss on your long leg offset by your quick daily trades? Thanks


  231. Beautiful lflantheman!! Just one question though.. when/how do you decide whether to roll the cover to 2/2 (in strike and month) or just leave it? Also, let’s say you were doing this before this dramatic correction and you got stuck with (let’s say 2 weeks ago) with short May covered calls.. they expired worthless, but then would you wait for a pop again on the long calls to sell front-month calls again or would you just wait and do nothing? Thx again for sharing!


  232. dflam, I guess we both had the same question :)


  233. Pay up 4% in after hours to 18.


  234. dflam……I would not and did not buy calls on GOOG at 597.  I’ve purposely waited for the stock to be ‘beaten down’ a bit before deciding to go long on it.  Obviously you have to choose the equity carefully.  In the case of GOOG I have 90% confidence it will be trending up over the next 6 months, so I’m willing to buy calls a few months out, then trade as above.  And yes, you can make up for failure of the long leg to perfom.  For example, a September GOOG call would have cost you 26.50 today.  I made 2.50 today on the sale and purchase of the cover, and I’ve already done this twice this week.  It doesn[t take long to go a long way towards paying for your anchor.   But your point is well taken.  If you choose the wrong stock to do this with , then you will lose money.   But note that if you buy a run of the mill spread on the same stock and it goes the wrong way, and you;ve just watched it , then you lose MORE money. 


  235. David….Great call on PAY.  If we have any kind of an up day tomorrow it should ramp up even further. Tx.


  236. Phil :Adam of Market Club says greece will pull out of EU and go back to the Drachma so they can inflate thenmselves out of their problem. If he  is correct,what’s your opinion of the effect on the US  stock market. thank you.


  237. ravalos…If the cover is increasing in value I’ll roll it when it has lost most of its time value and is getting close to expiration .    I won’ roll it until very close to expiration, usually the last week, then I’ll look for the higher strike or month with greater time value for decay.     And the second question, yes, I always want to wait for a pop before reselling covers.   I’ve got those September GOOG 500s so I’;ll post when I trade the covers over the next few days. 


  238.  dflam – IMHO, going to the drachma again would mean default of their debt as it is denominated in euros and would climb as fast as they devaluate their money. I am not sure that France and Germany would let that stand. That would be very, very bad for the banks there! But default my actually be the only situation no matter what – euros or drachma. Austerity only create a long term death spiral from which they cannot escape. No good will come out of that in the long run!


  239. ARIA/deano – charts say down.  One can sell P as well, but right now they are not holding the 3.5 area where they had a ton of buyers.
     
    ASCO is next week, and the abstracts are out.  I think fast money is moving out of the biotechs for now (rotation) and into other things (cash?).
     
    AMGN/mar – they were at 40 b’f that.  I am very careful in here and in mostly cash, with DCTH, QCOR (nice fat C/P plays on them), CRIS, ARNA and ARIA as a bulk of what I have. MRK, BMY and VZ are covered.  GSK is getting compelling to buy, but I want a better price for my P entry.
     
    I dumped GILD and SPWRA today, as I see nothing in the near term to make me want to buy them. 


  240. Pharm
    I’m with you in ARNA, & looking at a 1/3 entry into ARIA, perhaps hedging w puts & calls for some discount. Thoughts on timeframe? Thanks – I appreciate your advice. Phil, please chime in if you have time.


  241. SS/SPX lines.  I think I got this one from you — close on 5/19 through the highs on 5/24 that hit yesterday’s close.  Guess what, it hit today’s low into the close as well.  Just wish I had noticed that earlier this afternoon.  Tomorrow.


  242. Phil – what about VOD: sell J12 $20 puts and calls for $$7.35 for an entry at $11.85/$15.93 with a dividend yield of 8.25% (on $19.20)?


  243. How on earth are they going to pull out of the euro and go back to the Drachma?  how are they going to convince the people to trade in their valuable Euros for a currency they know will be instantly devalued?  The only way will be at gunpoint.  People would then hoard Euros and do everything possible to not take Drachmas.  The only way to introduce a new currency without forcing people to take it, is to show it as having greater strength than what they currently have(ie what they did to get on the Euro in the first place).
    IMO, that’s the nightmare scenario the ECB/EU faces right now.  There’s no pretty endgame.
    Because of the poor structure(or lack of political structure to go with the currency/ECB), the Euro effectively acts like the gold standard did in 1933/34.  Individual countries couldn’t devalue their currencies to pay off their debts because they were tied to gold.  When bankers figured this out, they began bailing on the gold standard and defaulting enmasse, beginning in Europe.  The domino effect this created was instant hyperinflation and depression which Germany so fears now.  Capital markets had a heart attack and couldn’t be recussitated, banks and bonds were destroyed and massive wealth simply vanished.  People began hoarding gold and refusing to keep devalued local currency, which exploded the velocity of money triggering the hyperinfllation.
    Europe is a gordian knot….and Alexander has yet to come forth with the solution.
    so, I think Phil’s dead on to stay cautious and mostly in cash.
    Thoughts?


  244. Phil,
    I have BA 2011 50s (basis $10, now $16.45), covered with Aug 75 calls (basis $3.70, now $1.00) and Aug 75 puts (basis $7.15, now $13.10). The callers aren’t providing any protection anymore. I’m thinking of rolling everything down as follows
    (1) Roll Aug 75 callers to Jan 2011 $65s for net $6.20
    (2) Roll the 2011 50s to 2012 45s for net $6.15, and
    (3) Roll the Aug $75 putters to Jan 2011 $70 putters for $2.75 net credit
    Is this a reasonable roll? Any other better options?


  245. Iflantheman -
    I’ve done some of that myself. When something sold gets much cheaper, why not buy-back to re-sell again. I’m not too proud to pick up dimes & quarters, they add up.


  246. Deano – give it a day to settle down,  Data are due late this year.  If they can settle down, I like the Jan11 $2/5 for $1.10 or better and selling the front month P for Jun and Jul $3 for the other 1/3 entry. 


  247.  ekor….actually it fits well with Phil’s philosophy.  If you’ve made 20% on a trade fairly quickly, shouldn’t you take it?   


  248. Nobody thought Lehman would go down quietly did they?
    Lehman Sues JPMorgan, Claims Dimon Forced Firm Into Bankruptcy; Opens Avenue For AIG Lawsuit Against Goldman
    Just more fuel for the smoldering embers.
    Got FAZ? ;)


  249. Iflan -
    Exactly, & with this volatility we’re in a sweet spot, I sold MO jun20Cs this morning @ .75, was gone all day, now see they’re @ .48.  Buy back tomorrow ? Why not ?


  250.  Phil:  I understand TZA, SDS et. al. for hedges but I saw your discussion re: SRS, DRV, ( no more ultras! ) which I also tried to use to hedge my illiquid real estate without success.  So my last question on this topic is, and I’m not doubting you, but what is it that makes the ultra’s on the RUT or S&P perform as good general medium/long term hedges? More Liquidity?  … Thanks


  251.  ekor……In my past life I’ve had many occasions when I would have made 20 or 30 percent, but thought that I’d wait a day or two and double, only to see my profit turn to losses by not taking profits.  If I hand someone a dollar and he offers me back a dollar and a quarter the next day or week, I’m outa here with the cash.  


  252. Have been bearish.  Think we will rally 250-350 points from here.  Then look out below.


  253. PHIL.
     
    Why do you use the DMAs and not the SMAs.  What’s youre preference on moving averages for looking at charts? Optrader’s system looks at the 5-SMA…. just wanted to here your logic.
     
    those blue lines (20 dmas) by the end of the week or we are in a serious technical downturn that will start bending those red lines (50 dmas) lower


  254. redlog -
    everyone else must be counting their money, so : the 2x & 3x ultras move fast in a downturn, & when used like Phil does 300-1000%,  it takes fewer dollars to cover or hedge your long positions, than simple Puts would.


  255. EconomicVictim – Those DMAs (Days Moving Average) ARE SMA’s (Simple Moving Average) as opposed to Exponential Moving Average (EMA).
     
    The "20 dams" and "50 dams" and "200 dams" (on the above charts) are ALL "Simple Moving Averages." 
     
    Optrader is a "Swing Trader" so he uses a 5 day SMA.  Hope this helps.


  256. Oops … long day …
     
    "20 dams" and "50 dams" and "200 dams" = "20 dmas" and "50 dmas" and "200 dmas"


  257. For those holding C:

    Activist investor William Ackman said on Wednesday that his firm recently bought 150 million shares of Citigroup Inc but didn’t provide his reason or an investment thesis for the purchase.

    At the end of his speech at the 15th annual Ira Sohn investment research conference, Ackman said, "And by the way, we bought about 150 million shares of Citigroup, but I don’t have time to talk about it."


  258. Phil, would you please shed some light on something for me.  What’s the criteria for choosing a buy/write over a vertical bull call play?  Capital intensity?  Desire to capture the dividend?  I feel much more comfortable with the two strategies, and have been doing some buy/writes on companies I want to hold long term, I’m just a little confused as to when you go with a vertical instead of a buy/write.
    BTW, thank you very much for your candor and insight.  I have learned more in a month here than I have in years of trading elsewhere.
    T


  259. SRS/Iflan – Good advice!

    RIG/Brooklyn – Yes, that’s what we’re looking for.  We hope we don’t have to but that’s the commitment we’re comfortable with. 

    Lotto/Goldman – I’m not shy about what we call "craps rolls," which is to say long-shots that you shouldn’t play with more money than you are willing to lose on a roll of the dice in Las Vegas but they do tend to come up much more often near option expirations, when the premiums get lower.  One difference is I may not bold those trades as they may be too risky to be generally recommended so you just have to pay a little more attention to what I write. 

    Pay/David – Great call, they nailed it!

    Futures so far are holding up my flush theory up about half a point at midnight.

    10 Stupid Steve Ballmer Quotes:

    1. "I’m going to f—ing bury that guy, I have done it before, and I will do it again. I’m going to f—ing kill Google." [Sydney Morning Herald]
    2. "Developers, developers, developers, developers, developers, developers, developers, developers, developers, developers, developers, developers, developers, developers…" [Watch at YouTube]
    3. "Linux is a cancer that attaches itself in an intellectual property sense to everything it touches." [Chicago Sun-Times]
    4. "My children – in many dimensions they’re as poorly behaved as many other children, but at least on this dimension I’ve got my kids brainwashed: You don’t use Google, and you don’t use an iPod." [money.cnn.com]
    5. "We’ve had DRM in Windows for years. The most common format of music on an iPod is "stolen"." [The Register
    6. DRM is the future. [unsourced]
       
    7. "I have never, honestly, thrown a chair in my life." [CNET News]
    8. "Google’s not a real company. It’s a house of cards." [Court transcript]
    9. "There’s no chance that the iPhone is going to get any significant market share. No chance." [unsourced]
    10. We don’t have a monopoly. We have market share. There’s a difference. [unsourced]

    Greece/Dflam – I doubt that will happen but, if it does, it would be a positive as it would take a monkey off the EU’s back.  It’s about the same logic as us letting California default and issue Calibucks and letting them be their own country – it would make us look stupid and would do little to help California, nor would it give investors any confidence in the other 49 states as they could be cut loose any moment.

    VOD/Brooklyn – They are a good side play on Asia as they are actively expanding there.  I’ve always like them and hoped they would get back to $16, which was our last entry but it’s not looking like they’ll fail $18 so yes to that play with the stock at $19.20, selling the 2012 $20 puts and calls for $7.35 for net $11.85/15.93.

    Good Euro summary Hoss.

    BA/Pyern – It’s a nice, conservative set of rolls so I like it.  I certainly expect BA to go back to $70 at least if we recover but since that’s an if, caution makes sense.

    Lawsuits/Kiinki – LEH is a wildcard.  some of those guys may spill some secrets the others may find "uncomfortable."

    Ultras/Red – It’s liquidity plus the fact that the big indexes don’t generally grind up and down like, say IYR can.  2-3% up and down is no big deal but what kills an ultra is this:  IYR goes up 5% so SRS goes down 15% to 85%.  IYR goes down 5% so SRS goes up 15% to 97.75%.  IYR goes up 5% and SRS goes down 15% to 83%.  IYR goes down 5% so SRS goes up 15% to 95.5%.  So that’s what’s generally wrong with the ultra model, the more violent and alternating the swings are, the more the ultra deteriorates.  Ultimately, they are run down and down over time – some faster than others.

    DMAs/Ecovic – I wish I had a better reason than they are generally the default on the charts.  Of course the DMAs (assuming they are, in fact displaced) smoothe out the noise you can get in the SMA so I like that as I’m all about throwing out outlying data but mainly it’s a default thing as I’m not much of a chartist and mainly use them to illustrate trends (which I guess is the whole point of them, come to think of it).

    Criteria/Hoss – Generally with a buy/write, I expect to own the stock past the expire date.  With an artificial buy/write I’m generally going to be done on that move.  The reasons may vary – I may not want to spend $500 a share on GOOG when I can just take the 2012 $370/470 spread for $60 or it may otherwise be a stock that gives me far more leverage or I just want more downside protection.  I’ll lean towards a buy/write when there is interest to collect or if I do fully intend to DD at a lower strike.  With an artificial buy/write, I’m more likely to just roll the call lower than DD.


  260.  EKOR:  Just realized you responded to a question I had earlier in the week re: ultra’s, thanks