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Monday Market Movement – Will We Survive?

I already stuck me neck out calling a bottom so now we’re just waiting patiently.

We are below the levels I hoped we would hold on Friday:  Dow 10,020, S&P 1,070, Nas 2,220, NYSE 6,666, RUT 641 so we’ll be looking to see if we can retake those as a start today.  Contrary to popular opinion in the MSM, the World did not end over the weekend and, as I said in this weekend’s special commentary: "The Worst-Case Scenario" anything short of that won’t keep us from buying down here, using our hedged entries.  I’ve already put up 13 of my top 20 long-term trades in our new Buy List (Members Only) and I should have the rest up tonight

We’re not expecting the markets to get away from us this morning but, as you can see from our Friday’s trade ideas in the Weekend Wrap-Up, we took 7 new bullish positions into the sell-off .  We expect at least a short-covering bounce this morning as the super-bears sober up a little and perhaps rethink those S&P 800 puts or whatever it is super-bears bet on when they get into a frenzy like Friday. 

It’s all about the Euro today as they are below that $1.20 mark and fell as low as $1.1876 in overnight trading and that’s boosting the dollar and killing commodities (other than gold, which people are still panicking into), which is driving down commodity stocks and pushing down the markets but, as I said to Members on Friday afternoon:

  Keep in mind that your stocks are going down because they are priced in dollars and the dollar is up 1.5% today – we are very close to where we were in the Nov ‘08 and March ‘09 crashes on the dollar (89ish) yet, as Tusca points out, our markets are 70% higher than they were at the time.  If the dollar devalues now – our markets will rocket and that’s all the G20 has to accomplish and it’s a win-win for everyone – save the Euro, boost US equities.

We were disappointed that there was no major announcement out of the G20 this weekend but the real meeting is at the end of the month (this was just the Finance Ministers), so plenty of time for something to happen.  Before we go getting all bullish his morning, let’s talk about what constitutes a recovery and what constitutes a weak bounce in our indexes:


We’re not even really bullish until we get all those orange lines back and we’ll be keeping a close eye on the SOX and the Transports as they need to hold those lines before the Dow and the Nasdaq are likely to get back to their levels (Dow 10,250, Nas 2,260.  Now, let’s look at the very bullish chart news – We were falling because the global markets were falling but, while US investors were freaking out and selling us their stocks at the lowest prices since February (thank you, by the way!) – the rest of the World was RECOVERING and are actually starting to take back their 20 dmas:

That’s right – these markets are right here on planet Earth!  Not the planet Earth the MSM is telling you about but the planet Earth that is waking up every day and dealing with their issues and working on rebuilding their economies, whether we think they are doomed or not.  Note that these charts are from Friday’s closes (curse you Stockcharts!) today Asia is just freaking out because we freaked out – not because of anything bad that actually happened this weekend. 

The Hang Seng fell 2% (401 points) to 19,378, the Shanghai fell 1.6% (5 points) to 306.89, the BSE fell 2% back to the 20 dma at 16,781 and the Nikkei fell 3.8% (380 points) to 9,520 but held that 9,500 line we were watching in weekend chat (and we went long on oil and the Dow at crazy low futures prices last night!).  Your key takeaway from all this is they (except for the Nikkei, who were freaking out as the Yen hit new highs) fell LESS than we did so the Asian markets felt our sell-off was an over-reaction too!

Workers of the World united as Chinese factory suicide prompted Hon Hai to double the minimum wage for the people who make IPhones and other fun toys all the way to 2,000 Yuan a month.  Sure it’s still only $293 but hey – DOUBLE!  Hon Hai employs 800,0000 people and are the World’s largest contract manufacturer and I want to thank all the writers who have taken up this cause recently as I am VERY HAPPY to pay .50 more per IPod to double the standard of living for the people who make them.  Those 800,000 people will make $117M more per month and that $1.4Bn will flow back into the economy and boost the standard of living for another 4 or 5 Million people and THIS is how you improve an economy – TAKE CARE OF THE WORKING CLASS! 

Of course, the evil Western Capitalists didn’t like this move one bit and BofA/Merrill Lynch Mob says: "Wage Increases in China to Damp Capital Spending."  That’s right you greedy Chinese workers, if you won’t work for 91 cents an hour we’ll go find someone who will work for slave wages.  Maybe Africa.  Yeah, there’s an idea, let’s all go to Africa and capture employ some workers who are willing to work for less than the Chinese!  Ah capitalism – you make the most even depraved acts of human cruelty sound like a business plan

The WSJ has a great, scary presentation on the Chinese Housing market that I highly recommend but it’s only what we’ve been warning about on PSW all year so again, not NEWS – just the flavor of the moment for the MSM.  Uncle Rupert must be short China housing because, just this morning, in additon to the main article on China, he is also running "More Chinese Expect Housing Prices to Decline, Survey Shows" as well as "China’s Property Market Freezes."  I think, on the whole, I’d like to wait and see the ripple effect of doubling the wages of 800,000 people (and that may only be a start) before I go trying to short Chinese housing at the moment (Sorry Rupe).

Over in Europe, it’s all about the Euro and the markets there have recovered from a down 1% open to down half a point ahead of the US open.  Trichet and Geithner went head to head at the G20 this weekend, with Trichet pushing for fiscal tightening as a solution to debt problems while Geithner thinks things will be fine if we can just get people to spend more money.  It’s no wonder then, that the G20 also failed to agree on a global bank tax, because Geithner’s banking buddies are very much against that too.   


It must make poor Trichet physically ill to have to deal with this BS while he’s trying to fix the global economy.  It should make Americans sick as well.  I have long since given up on expecting people to get involved in fighting this sham of a system that has been set up by bankers and their pet corporations to rape and pillage this great country of ours but I do still like to point it out every once in a while… 

It’s going to be a very exciting week.  Let’s keep an eye on our levels and be careful out there!

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  1.  Hey Phil,
    New here, just wanna say helloo..
    a masters student out in nice,fr, just wanna say keep up the good work…already learning a lot..(your common sense strategy has crushed my dreams of  making easy millions with options).
    Got around 150k and gonna ease in slowly…
    hoped i can get a quick thought on X,MT…..from a pure short term speculative play only.

  2. Phil,
    nice call on oil at 9pm last night……couldn’t watch it all night as I had an early meeting but did do ok…..thanks.
    Also loved your pointing out that BP is collecting 10,000 barrels of oil, even though they have maintained that they were only losing 5000…..

  3. Phil,
    These charts are looking ugly.  Do you see any firm support above 8800 DOW?

  4. Given the force of the recent selling, I do think we need to consider what it will look like if support at SPX 1040 fails.
    To me, that would mean that what we had hoped was a basing consolidation over the last two weeks is in fact a bear flag in a larger ‘waterfall’-type decline, with another potentially major leg down awaiting us.
    We’re not there yet, of course. But I do think the odds favor a retest of the 1040 area, and the reaction of the market there will be very important.

  5. Hey all,

    Just wanted to let you know I have a new post that is looking at two new daytrades for today in Southwest Airlines and Bristol-Myers Squibb. Give it a look over and let me know what you think.

    Check it out here.

    Thanks and Good Investing!

  6.  Good morning Phil, 
    I bought the 105 DIA as per fridays post and sold it at a 25% loss trailing stop. I also sold the 102 puts which are down 38%. Do you recommend buying back on any strength? 

  7. Good Morning.
    My IWM levels

  8. Good morning,
    IWM 62.68,63.56, 64.22, 64.92, 65.53, and 66.09

  9.  FXP/Phil – WTF?

  10. A while back I sold an August 65-60 bullish put spread on RIG. It’s way in the money now (which means I’m losing money) and I was wondering if I should sell the $60 put today/tomorrow now that the oil leak is a bit under control and that the market should bounce? That way if RIG recovers a few bucks, I can either sell the $60 again and pocket some money or buy back the $65 at a lower price to reduce my loss and if it’s high enough maybe break even.

  11. Pharmboy – DCTH = OUCH!

  12. mrm – Friday was indicative of all the companies presenting at ASCO.  Holding here and hard support at 12.50.  ITMN did this up to their review…..I stand pat.

  13. For a short term hedge, do you still recommend the SDS 34/35 bull call spread + sell 34 puts?  I was too busy last Friday and didn’t see this reco until after market close.  The prices are different now.

  14. Good morning!

    No volume to this open at all, very strange…

    It’s all about our chart this week and we must take our bounce levels or we need to stay bearish.  Oil is very weak at $71.20 (stopped out from morning play at $71.50) and copper is down at $2.76 (also stopped out) and unless we can take back $72.50 and $3, there’s not much of a recovery going on here. 

    I like oil off the $71 line but safer to sell USO puts, like the July $31 puts at $1.20 and you can be aggressive with those and the $31/33 bull call spread at $1.80 for net .60 on the $3 spread – oil at $72.50 should give you a winner.

    Bounce levels are: Dow 10,250, S&P 1,100, Nas 2,260, NYSE 6,820 and Russell 666.  SOX 340 MUST HOLD  and TRANQ 2,000 has already failed and must be taken back! 

    Since the open we’ve had low volume but relentless selling.  Watch XLF at $14 for a bad breakdown.  $14.50 is a little encouraging but until we’re back over $15 the Financials are just sad.

    On the whole, I think this is a flush ahead of the real buying.  The futures were doing well and now they are trying to shake out the retailers before hitting the buy button.  At least I hoppe so.  

    I like oil as it crosses over $70 again in the futures with very tight stops and I like copper futures too if they cross the $2.775 line again (now $2..,758).  We’re well positioned and we should follow through with plan to buy back DIA $102 callers we sold and hold the $103 calls, now .53 naked for the move (hopefully) back up but now we need to give up at .50 on the naked calls.

  15. Phil?FXP
    Can’t figure this one… Asia dropped huge, and this one dropped huge instead of the inverse…. Where did I miss this one?

  16. Phil: Good morning.  I tagged along on your FXP play last Friday in anticipation of a Chinese market puke, and they fell beautifully as you predicted.  Hang Seng down 2% and Shanghai down 1.6%. 
    So wake up this morning looking forward to taking some nice profits and I look at FXP this morning and its DOWN?  Wat up widat? :\

  17. Looks like everyone got their faces ripped off this morning!  If I wasn’t I one of them would be LOLing…

  18. I’m thinking we may have a day of chop here so I’m legging into some short SPY condors selling the call side here.

  19. Phil: the Buy list: do you recommend still waiting to enter those stocks – I know you are 20-25% in as of last week.

  20. Welcome Bambi!  Cool, I love Nice!   I like MT a lot more than X because MT doesn’t have the same unfunded health and retirement liabilities that X does.  It’s a tough play right now with Chinese growth in question. 

    Nice Ocelli!  I think BP is now saying they can collect 16,000 barrels a day from the 5Kbd leak…

    Support/Exec – I don’t think they are ugly, I think they are forced – big differnce. 

    Support/Eric – It would look bad!  I’m just not seeing it.  I would be much more worried about a financial crisis if Americans had any money in the banks but they don’t.  If all the banks fold it would be a net positive for the average household, which is over $100,000 in debt plus has a mortgage of $200K.  No banks = no collections and we’re back to defending our homesteads with shotguns and trading at the general store (WMT) but, other than that, what’s going to change for the vast majority of Americans if the banks close tomorrow?  The banks have made themselves kind of usesless with all this automation and by encouraging people to borrow and spend, not save.  Banks are not friends of the people nor are they friends to the average small buisness (who employ 80% of the workers), who also have no money because banks haven’t written a business loan since 2008.  Pretty much a pox on both their hoses and viva la revolution.  As long as we can trade government script, commerce will continue…

    DIA/Amatta – Absolutely, they did their job.  Good job managing your stops.

    FXP/Craig – Oh that sucks.  They are playing the expectations game and not reacting to China’s sell-off.  If we turn weak, they will head up but not worth counting on. 

    RIG/Aug – I would take the $11.80 from the $60 puts off the table and either leave the naked $65 putter ($15.80) naked or roll them down to 2x the $55 puts ($8.50) and you can buy some or all Jan $22.50 puts to cover for $1.45 if you don’t have the margin (but even that is margin expensive).  I think the fact that the end is in site will stop RIGs free-fall and lead to a recovery but it will be a rocky road as lawsuits are still coming.

    SDS/Cwan – No, I don’t like any short-term hedges right now.  I said to cash out Friday as we should be at bottom here and, if not, THEN we can reposition but VIX is "only" 35 right now, which means we’ll still get good entries if we fail last week’s lows

  21. Foxconn says they’re upping wages by 66% (it was only 20% after the recent string of suicides). Conditions apply, of course.

  22. Phil,  Good morning  The APPY play stk down today 1.70 bought the same at 3.55 now 1.71 sold Jun c/p for 1.48 and .42 now trading .at .07 / .85 what adjustment would you recomment thanks

  23. Phil,
    I think the "breakdown" case would come from Europe right now. The idea is that, since no one knows how the $2tn (roughly) in PIIGS exposure is distributed among European banks, we could get a Lehman-style credit freeze.
    Not saying it’s going to happen, but we can’t discount it, IMO.

  24. Hi Phil — addition to cwan reply-- are you rec BGZ july hedge 14/16 bull call and sell 14 put — keep this or cash out . thx

  25. Phil / Optimism, your worst case/global GDP arguement.    You may be overlooking the tremendous impact of negative leverage on eps from even small declines in sales volume and sqeezed margins ie you can’t just straightline an assumed large % decline in GDP.  If we get global deflation, sovereign defaults, neg GDP 3rd or 4th qtr, then the March 09 S&P pricing may not look so crazy relative to eps expectations.  You’re right about Kraft etc, but the financial (7mm foreclosures), retail discretionery and commodity components could collapse again.

  26. I’m cutting back more of my GDX long positions while I still have nice profits to show.

  27. I usually do this right before a major rally, by the way.

  28. Kwan: RE Foxconn increasing wages: I saw some reports that Taiwanese manufacturers are thinking about moving some of their plants to South (Vietnam, India, etc) in the next 3-5 years, as the cheap labor of China is over.

  29.  FXP/Phil – I was a bit worried on Friday this might happen, but the selling looked SO convincing. A while back when I did the FXP 40/46 bull call spread I recall it took several days of down markets to get FXP to move significantly. Eventually I got out near the recent top at $48, and had the good fortune to buy back the short calls early enough to make a nice profit. It will take a big move to get FXP back up to $2, I’m thinking of just closing for the loss. 

  30. craig/FXP
    I blew out of it…. it is not reacting as it should.

  31. Selling most of the put side of my SPY condors here, waiting on a few in case we move back to 1061. Chop till they drop, baby.

  32. I’m taking a conservative stance for the near term as far as trades are concerned. Bought PFF ( S&P  Preferred Stock Index ) selling at 7% discount to NAV, and also pays 8% dividend. A market recovery will give this one a nice shine.

  33. Phil,  What is the best solution to my holding of CGA holding the stk for 14.11 down to 10.15 sold jun 20 p for 4.94 now 9.95 sold Jun 15 c for 1.35 now 0.05. The opt is very thinly traded in Dec Some member believes it is a great stk but I have change my mind shall I just take the loss and stay with the remaining stk as I do not fancy looking for doubling my putters. Your thoughts pls. thks

  34. Phil: I just read "The Worst Case Scenario…" – exellent article!  It sort or answered my previous question: it seems that you are not going to buy until Down gets to 8,000: "That means, at approximately Dow 8,000, we will trigger our second round, deploying another 20% of our cash to buy twice as much stock in T, PFE, JNJ, MCD, UTX, KO… At that point we will very likely DO IT AGAIN as we will have not only 60% of our cash left…".  That would mean that if the Dow doesn’t go down to 8,000, we will only have 20% of our portfolio invested; and even though those 20% generate 20% returns, the whole portfolio would only generate 4% per year.  So I am not sure how you can consistently make 15-20% per year?

  35. And that’s the rest of them sold. Now flat delta on those.

  36. FXP/Gel, Kinki - See above.  They are playing the expectations game and, as I noted above, those reactions in China were muted compared to the US drop.  They were looking for at least a 500-point move down on the Hang Seng. 

    Woo-hoo on oil.  $72 is good enough for me to get 1/2 out with a .50 trail on the rest (now $71.70)

    BRKB was way down and I missed it!  $70.45 for the stock, selling 2012 $70 puts and calls for $22 is net $48.45/59.23 and won’t you feel clever telling people you got into Berkshire at $59.23.  Danger on a long-term hold is Buffett dies or retires and people panic out but it’s a collection of solid companies – Warren doesn’t run them

    Buy List/Sean – If you have too much cash (+75%), then BUYBUYBUY.  THIS IS WHERE WE THINK THE BOTTOM IS!!!  We may go lower or this may be the last time you get these entries – EVER.

    Foxconn/Kwan – I was trusting the Journal but I do think it was 20%, then 66% more. 

    APPY/Yodi – I assume you sold June $2.50 puts and calls?  So you had a net $2.07/2.29 entry and you want to stick with it?  Well I don’t follow the stock but you can just roll the $2.50 puts and calls out to the Dec $2.50 puts and calls for + $1, which drops your net basis to $1.07/1.79 with the same call away so that’s a no-brainer if you think they can come back.

    $2Tn/Eric – In a rational World, I would say, "Yes, you are right, that’s a huge concern" but we swept 10 times that much under the rug over here already so why would Europe fall on a sword over $2Tn?  Europe is not a 3rd-world country – heck the same people who are now on TV telling you that Europe is doomed and to put your money in TBills were telling us just 6 months ago that it was over for the US and we should buy Euros.  It’s all nonsense.  You need to think about Europe as being every bit as strong and powerful as the US with 500M citizens and a GDP that’s actually higher than ours and a total debt load that is lower than ours with military spending that is 25% of ours and, MOST IMPORTANTLY, the ability to achieve fiscal discipline by taxing their citizens.  The heyenas are attacking the EU because they are slow and don’t make changes overnight but it’s like attacking an elephant – eventually all the attackers will be cushed one by one.  I’m not saying they can’t freeze up – anyone can – but nothing that will last so I’ll still be looking to buy on any panic selling until things clearly start to unwind (doubt it will happen). 

    BGZ/Gucci – I’d say cash out as long as we’re even a tiny bit green today (EOD). Look what happened to the FXP play…

    GDP/Tusca – I wasn’t getting that deeply into it but, if you are a LONG-TERM investor then your companies will adjust over time.  They functioned in the 60s when the GDP was about 1/5th of what it is now and they functioned in the 40s when it was 1/10th and all we really need to do in this global melt-down deflationary doomsday picture that squeezes margins and dries up credit and lowers the global standard of living  – is to maintain a relative value to our investments over time.  If my shares of IBM decline to $50 but I can buy a house that was $500,000 for $200,000 then I’m fine (assuming other deflation is in-line).  I would love a good and total system failure – it would be like pulling a band-aid off quickly.  Will that make KFT go bankrupt or is it more likely to bankrupt 1/3 of their competitors while they manage credit to their retailers and gain market share?  How would you like to be Steve Jobs in a market collapse with your $50Bn worth of cash in the bank and the ability to spend a billion here and a billion there to lock up the next 10 year’s worth of tech and also lock up contracts for all the media content you could possibly desire?  Keep in mind that, to some extent, betting on Blue Chip companies to survive a collapse is like betting on Warren Buffet to take advantage of a downturn – these guys have Billions of dollars and they know what they are doing so I’ll give them my money to play with in exchange for some stock.

    Meanwhile – WEAKNESS!!!   We didn’t get very far and now it’s 10:45 and Dow volume picked up to 42M and it’s all been down for the last 30 minutes.   That sucks but oil is back around $70 again so very interesting and gold is through the roof at $1,233 with copper at $2.7475.  The Pound is barely holding $1.45 (very critical) and the Euro can’t get over $1.20 ($1.1941) but it still feels like a flush.

  37. $100 oil by end of 2010 or 1H11 says Shell Oil’s former prez.  Do you agree Phil?  Do you have longer-term USO bull call spread idea for this?  I have small profit on the july 29/32 bull call spread for USO.,bp,xom,cop,rds-a,rds-b,spy&sec=topStories&pos=9&asset=&ccode=

  38. EricL, when you have a chance, could you elaborate on your condor strategy?  It looks like a good strategy to "sell some premium."

  39. It must make poor Trichet physically ill to have to deal with this BS while he’s trying to fix the global economy.

    Phil didnt Trichet turn a blind eye to all the BS going on in Euro Disney..PIIGS? I think he played a great role in helping destroy it

  40. dbl bottom on the 5 min chart

  41.  Phil, 
    Should I hold on to the naked 102 Puts? 

  42. cwan – i wonder how long companies can play the shell game of moving their manufacturing plants to another country to protect their quarterly "profits"…
    Maybe places likes Vietnam will say "Sure, come on over but only if you pay us what you’re currently paying those other guys."

  43. "we swept 10 times that much under the rug over here already so why would Europe fall on a sword over $2Tn"
    Phil, just two comments:
    First, it was ten times that (not quite, of course) that was nationalized by the U.S., with the largest chunk coming through the official backing of the GSEs. But until that happened, the fear of (non-fed) bank exposure drove the slide. The fear of (non-ECB) bank exposure in Europe could drive a similar slide.
    Second, the U.S. could still, in 2008, persuade investors that it could raise the money it was borrowing. I don’t think the EMU is in a similar position right now. I think the poor reaction to the $1tn Greece bailout tells us that fear is growing that they can’t raise that kind of money again.

  44. Note that now FXP is getting going.  ABX going well too…

    HMY is still a cheap miner at $9.75 and you can sell 2012 $7.50 puts for $1.20 and take the $7.50/12.50 bull call spread (no stock) for $2.30 for net $1.10 on the $5 spread and worst case is you’re in for net $8.60.

    9,889 was Friday’s low on the Dow so watch that line. S&P 1,060, Nas already failed, NYSE 6,575 and RUT 629 so right on the edge of a cliff here with a huge amount of Nas selling leading us lower (possibly on concerns they may have to actually pay people to assemble things). 

    SOX are still holding 340 and that’s key but we lost the Transports.  Maybe this is just the EU selling into their close (11:30) or maybe Tusca and Eric are right and we are doomed.  The Nas was WAY lower on the 25th so this still does not constitute a breakdown for them (but SOX 339 would clinch it).

    FXP/Craig – If we hold these bottoms I agree with you.

    Back in oil (bullish futures) at $71 line!

  45. robert,
    I’m selling call verticals (a bearish play) when the market is bouncing up and then waiting to sell put  verticals (an offsetting bullish play) when it is going down. Of course, I was betting that it would go back down earlier. The combination of the two positions is a short condor.
    You’re right that I’m trying to sell premium, so I’m selling the near-money strikes and buying about 6-8 strikes away. I prefer this to naked short strangles right now because there is still quite a bit of gap risk, and the short condors have a ‘stop loss’ built in (the strikes I am long) that would prevent me from getting blown out on a huge move.

  46. If we fall below 1051 on the /ES (where we were overnight), then I don’t see any real support until around 1040, where I’m pretty confident we would bounce — erm, for at least a few minutes, lol.

  47. I think this is a good time to take a long term position in XOM. Exececuted a bull call spread with the Jan 55/70 and selling Jan 60 puts.

  48. PDLI has not looked good for a couple weeks……

  49. Phil,
    Is this a good moment to DD on STP calls now down over 40%…?

  50. SFL   What do you think of them as a buy-write candidate.   They just raised their dividend and have decent option premiums.

  51.  Have orders in for both the DIG and INTC spreads, looks waaaaay unlikely they’ll hit at $5 each. 

  52. CGA/Yodi – So you were in at net $7.82/13.91 (an extremely aggressive entry) and now they are at $10.06.   What else can you do but take the assignment and sell the Dec $10 puts and calls at $3.90 to drop your net on 2x to $10/10.01?  Getting even after staring at a 28% loss is a win at this point!  Since you are going to be down about $4 on the assignment of 1x, you could also consider cashing it and just selling 2x the Dec $10 puts for $2, which also gets you even without worrying about another DD. 

    Worst case/Sean – It means we don’t buy a 2nd round until Dow 8,000 but we are doing some fishing here (see Buy List).  Obviously (I would hope) if the market firms up and heads higher, we will do some buying there too but, right now, it’s MUCH smarter to sit back with our cash and see which way things shake out.  Remember, Buffett’s Rule #1 is: "Don’t lose money!"  After you master Rule #1, then you are ready to work on your returns but not every minuter of every year is going to be investable and if you don’t learn how to be patient, then you are a compulsive gambler and you will end up playing under poor conditions and taking risks that endanger your principal and losing 10% one year means you need to make 30% the next year just to get back on track while making 4% in a bad year and 20% the next year still winds you up to 124.8% over 2 years so can you learn to be patient or do you want me to tell you to throw money at things to chase returns that would outperform the current market by 30%?

    $100 Oil/Terra – No way.  The Global economy can’t afford it.  That’s pretty simple.  At 85Mbd, a rise from $70 to $80 is a Trillion dollars a year, not even including refining mark-ups (100%) or cascading inflation (another 200%) so we’d be needing to dig up $3-4Tn to pay for $100 oil.  Only in some form of hyper-inflation are we going to get there… 

    Speaking of oil, they couldn’t even hold $71 and I’m now wondering if that guy’s 7:30 statement was just some BS manipulation that was the only reason we caught a good run this morning in the first place. 

    Gold flying to $1,235 now, so don’t blame the dollar for crushing oil – this is all about demand destruction but I still think we get back to $75 by July 4th.  After that I wouldn’t touch it….

    Trichet/Customz – I think he’s actually done a great job of managing the EU during the crisis.  Don’t forget how difficult it is because he has to spend 90% of his time getting consensus to make a move but he is a non-nonsense, tough realist and he was dead right that lowering rates was a terrible idea but then he was forced politically to go along with it and BOOM – down goes the Euro. 

    DIA/Amatta – If you own them, I’d take the money here, if you sold them, I’d wait for the EU to close in 10 mins and see if we get back up or not. 

    RIMM dragging the Nas down single-handed this morning!  AMZN is actualy up 1%, V up 1%, OIH up 1%…  VIX is only up 2.28% to $36.29 so people are less worried here than they were 2 weeks ago but that can change quickly

    One failure on oil futures costs .05 so if you are scaling in you can go 2x on this round (crossing over the $70 line) and then cash 1/2 at .05 and you are back to scratch with a 1x play.  That’s how you can really stretch those line bets

    Shell game/Kwan – I think it’s been going on for about 500 years..

    Fear/Eric – I agree we could have a similar slide but I think it would be followed by similar action which would lead to a similar recovery.  I do have an overall fear that this merry go round will run out of free money but you don’t hear a peep from China anymore complaining about Western devaluations as they now got a taste of how fast demand can drop if we don’t have our phony dollars to spend.  I said a few weeks ago that if I’m the bank in Monopoly and I keep handing the little girl who plays with my daughters $500 once in a while, that the game can keep going virtually forever and will not stop until one of the players calls shenanigans but, if everyone wants to keep playing – the game never has to end.   On a World stage, it’s not enough if one kid yells shenanigans because the other kids will say "if you don’t like it, just take your toys and go home" and then they can keep playing because they are all "rich." 

    As Kwan points out, if China doesn’t want to build our stuff anymore we can go to Vietnam or wherever – they don’t have anything we need BUT cheap labor so they’ll either take our phoney dollars or they can rebuild their wall and refuse to play with us.  It’s more of a concern if OPEC decides we have to pay them in gold but that’s where the demand destruction game comes in to play.   So, like it or not we all have to keep playing the game and the first one who throws a temper tantrum will be the loser – even if they are right.

  53. JRW, Nice call on the lower support line.

  54. In TNA at $40.12 (1/2)

  55. Market has look horrible however now that Europe is closed perhaps we can get a sustained rally that holds.  After all Europe has not dipped nearly to our levels so it would be logical if we had a rally at least back to 10,200 area.. If not I believe we are in trouble.

  56. JRW..40.12?  is that a typo? So you go in like 12 minutes ago?

  57. Gold coming into resistance. Great move so far. My selling some GDX was a perfect contra-indicator!

  58. Phil, why is RIMM so weak today? downgrade? finally can make comments on ipad. nice wknd posts btw.

  59. yip,
    I’m showing 11:27 off my 62.68 line.

  60. JRW… you never cease to amaze me.  Amazing entry my friend.

  61. yip,
    Now it’s all about 63.10, if that holds, I double, if not, I’m out

  62. DCTH – I’m banking on Pharmboy’s bullishness and selling JUL puts here.

  63. I’d like to see some heavy buying later this afternoon and into the close.

  64. Phil, I bought UNG Oct $7 calls @0.96 and now is 1.7. Should I cash out or should I write calls against it.

  65. I’m rolling up my GLD verticals to stay long and take a small amount of profit. This is a nice thrust and I think it’s ready for a breakout.

  66. STP/Amatta – Which ones?

    Europe had a rotten close, dropping back near lows of day with FTSE down 1.2%, DAX down 0.6% and CAC down 1.5%.  The Pound punced through $1.45 for a little while and is just under the line now and the Euro is making another attempt to get back to $1.20 ($1.1957) now that those babies have gone to bed. 

    OIH now up 2% so better than gold for the day and VLO up 0.5% ($17.36) and you know I LOVE them for net $16.50 so we can sell July $17 puts for .97 or we can buy the stock and sell the 2012 $17.50 puts and calls for $7.40 for a lovely net $9.96/13.73 on our nation’s biggest refiner of fine petroleum products.

    RIMM/Jo – Thanks.  I don’t see anything in particular on them.   Maybe it’s that general fear of manufacturing costs going up but with thier subscription model – who cares?  I think they are just being used to bang the Nasdaq lower as part of this general flush that I see no logical reason for…

  67. Hi, Eric,
    On the SPY condor play, are you selling JUNE calls & puts?  What’s the premise?  Are you thinking that SP500 stays about flat?  Or, are you thinking that SP500 going up & down like a yo-yo, and you buy back the side that makes money?

  68. judah,
    Thanks, you can see that "they" got my memo !!

  69. Tantrum – Loser
    You are ON the macro picture ! Great articles this wknd. Thanks

  70. @ Phil, longer term concern – Phil said "if China doesn’t want to build our stuff anymore we can go to Vietnam or wherever – they don’t have anything we need BUT cheap labor so they’ll either take our phoney dollars or they can rebuild their wall and refuse to play with us"
    True, but we are doing this shopping around over a long-term for cheap labor – first Japan, then Korea, now and rapidly fading, China – as you say we can go to points south, but at some point we’ll surely run out of cheap labor. At that point, what happens? My worry is that we’ll create more cheap labor by creating some impoverished areas – although come to think of it, we may be pulling that stunt already. Both abroad and here. I think I answered my own question, although I guess I was thinking in terms of "regime change" with an eye to labor pools.

  71. Doubling TNA at $41.20

  72. JRW I assume you have that trendline starting friday that was the 63.10 number… I believe
    It seems since you don’t have a line there it must be the trendline.

  73. cwan,
    I was really just thinking of today being a yo-yo day, and I wanted to skim the high premiums and also play the yo-yo a little. What I’ll likely do is adjust at the close to get a delta position I’m comfortable with overnight. If we’re looking strong I’ll sell some call verticals to get slightly bullish, if weak the opposite. But if we continue to yo-yo today and IV starts to drop, they should do pretty well.

  74. And yes, those are June condors.

  75.  STP july 9C, bought 20 x $1.06, now .7

  76. Phil: thanks for your sage advice!

  77.  I woke up kinda crabby this morning and looking at long term holds AONE and LDK didn’t help
    Dogs. With. Fleas. Why do I love to hold stocks I hate?
    And down -$2,500 on aggregate TBT plays, would love to see some rekindling of the yield spirit here.

  78. why do you guys play dia and not spy?

  79. JRW – IWM bouncing off 200sma…did you cash out your 19k?

  80. HP ePrint: Print anything from anywhere. Ambitious, but it certainly makes it a lot easier to carry around an iPad and print off those TPS reports when you need them. It’s supposed to work in the reverse too (scan a document and access the digital content from the cloud on your device when you’re ready for it later).
    The google-cloud aware computers start at $99. They’re using it to push coupons too some kind of way…

  81. FYI – interesting short idea on msft
    I was really suprised to learn that major corportions are ditching Microsoft Office and their Mircrosoft Exchange servers – and going with google for both office and email. With google it is cheaper because you don’t have to operate the server – google does it for you and you don’t have to pay a per machine licensing fee.

  82. DCTH/mrm – I have the Jun 12.5 and  14 P (sold).  Total sell off on a biotech stock after a meeting and tons of profit taking.  No data/FDA for a while.  I think their technology is second to none.  Just have to manage appropriately.    Now the buying is coming in….

  83. goldman,
    Still holding, I’ll drop 5K if we blow 63.25 and another if we losw 63.10

  84. Goldman…
    I don’t think he uses MA’s much.  S/R and Demark TL’s mostly

  85. samz3700/MSFT – Cheaper is good, but moving to Google does require you to suspend disbelief a bit and assume that Google won’t collect every piece of information it can from every one of your docs and emails — or, at least, it requires you not to care.  If I’m a CIO, I’m thinking long and hard about that tradeoff before I take it.

  86. Phil -
    Nice call on the oil futures – I got caught trying to protect a dime and missed the ride – but nice move off 11:30 low.

  87. Monday’s economic calendar:
    3:00 PM Consumer Credit
    6:15 PM Bernanke: Keynote Address at Woodrow Wilson Center Dinner

    May Employment Trends Index: 95.7 vs. revised 95.2 in April, the ninth straight month of increase. "The ongoing growth in the Employment Trends Index suggests that the disappointing uptick in payroll employment in May could just be a one-month blip, and that jobs will likely expand further in the next several months," The Conference Board says.

    Early data suggest home sales dropped far more than expected in May, even accounting for the expiration of the homebuyer tax credit – with some markets showing declines of 25-30%. Ominous? Or just part of a leveling-off that has been going on over the past year?

    Germany’s willing to go it alone on its ban of some naked shorting, for now, but its top regulator says countries will have to fall in line in order to make a difference: "What you see at the moment is a solo run by Germany… We think that we had to stand up against speculative excesses now."

    Hungary continues to downplay earlier comments about a possible default. "It is blatant that Hungary is not Greece," says Economy Minister Gyorgy Matolcsy, and "there is no need for new austerity plans."

    The euro bashing has brought the currency down to $1.195, but German manufacturers aren’t complaining; the weaker currency contributed to a surprise rise in factory orders, marking the second increase in a row.

    Negative spin this morning:  Bond markets could get very nasty over the coming months while stock investors could "take a few months off," Anthony Fry of Evercore Partners tells CNBC. “Governments need to cut spending and raise money, and if they do not do so credibly, will be killed by the bond market.” He eyes three possible outcomes for the global economy and none of them makes for comforting reading.

    Bear market options are at a record, so Blackstone’s (BX) Byron Wien says: Buy. “People are trying to protect themselves and they are willing to overpay for it." The 10-day average premium for options paying off if the S&P 500 drops to 940 rose to 75%; when it’s been over 50%, the S&P 500 has gained 7.2% in the following six months.

    Another in a series of short debates between Ian Bremmer and Nouriel Roubini, this time on the chaotic world economy, finds Roubini actually looking on the bright side of crises in the Gulf of Mexico, Greece, and Korea and Thailand.

    The airline industry will post a $2.5B profit this year thanks to a rebounding economy, according to the IATA, reversing a recent prediction of a $2.8B deficit. A profit would be the industry’s first since 2007, and only its third profitable year in a decade.

    Sanofi-Aventis (SNY) reports "stunning" results in the last phase of trials for a drug that addresses breast and lung tumors. "As I look at the oncology unit, I see the transformation of Sanofi-Aventis," says CEO Chris Viehbacher.

    Grass-roots opposition to Wal-Mart (WMT) stores are often secretly funded by giant supermarket companies including Supervalu (SVU), Safeway (SWY) and Ahold (AHONY.PK), according to a WSJ report. The companies hire a consultant specializing in using political campaign tactics to build support against Wal-Mart developments.

    Eight officials charged in connection with Union Carbide’s 1984 Bhopal gas leak have been found guilty of "death by negligence" by a district court, Indian news channels say. The accident killed thousands and left many more with lifelong medical problems.  Wow, only 26 years to file charges – those guys are really on the ball!

    In other criminal activity:  The Financial Crisis Inquiry Commission subpoenas Goldman Sachs (GS), saying the firm hasn’t complied with requests to supply documents.

  88. Phil Seeing you got questions on STP now below the 52 week low trading at 8.90 I have sold the jun 15p for 3.12 now up to 6.20 sold the jun 18c for .59 now down to .02 what shall I do with the putter your thoughts thks

  89. 1/4 out of TNA at $41.41, 1/4 at $41.02

  90. JRW…..Been wondering…….As you determine that you must exit TNA, why don’t you enter TZA simultaneously?

  91. Iflan,
    I think we are going up; I still have 10K TNA, just less conviction at the moment. If we blow 62.68 on IWM, I may have to buy some TZA !!

  92. Right on that 631 line on the RUT.

    Taking a stab at shorting gold with GLL July $39 calls for $2.20.

  93. snow…. cheap labor… this has been an ever changing landscape since the beginning of time. The railroads that were built from the east to the west coast were built with Chinese laborers brought in for this purpose. The factories that dominated northeastern US 80 years ago were closed, and reopened in the southeast, solely to take advantage of cheaper labor. Automation of factories was incentivised to remove labor cost. As you say, this dynamic moves from one geographical place to another seeking cheaper labor. As China raises labor rates, their exports will be diminished to the US.  Labor is a large component in the cost of goods in many of our consumer products, and the countries that are able to keep their labor rates lower, comparitively speaking, they will be the beneficary of the shift. This change is opportunity for those areas that are trying to provide opportunity and an increase in the standard of living for their population. Unionization of the workforce kills the opportunity for expansion, as the dynamic forces in play will eventually see the labor needs of a corporation shift to a more competitive location. China is a good example, as they are the largest manufacturer of autos in the world. The UAW in the US is the principal reason for this geographical change.

  94. Phil – Any updates on a day/momentum/trend traders PSW forum tab?  You are exactly right…it is awkward mixing options and daytrading in the same forum.  I’m not sure if you have reviewed the features of the top forum software package ( )?  I have moderated such forums years ago, it is relatively easy to mod, admin, and create different boards (eg…. long term stocks, black swan hedges, shorting opportunities, options spreads, JRW II section, Pharmboy section, etc…), create user polls, etc…some food for thought.

  95. Phil, As the Top 20 (positions/stocks)change from week to week or month to month, what are you recommending we do with the positions that are locked in with Jan 2012 sold puts /calls.  (as some of the recommendations are with 2012 options). For example, if they are no longer on the top 20 are you recommending we close them?
    Also, DO you ever provide what your specific portfolio looks like in terms of positions (which stocks and spreads) not dollar amount or contract size?

  96. goldman, don’t push it.  We have less than 20 posts and half of them are JRW.  We already solved the ‘problem’.  If you just want to read Phil – he is in blue color – it’s very easy to scroll.  I will not talk anymore on the topic until the after the close.

  97. 1/4 more TNA at $41.21

  98. Great call on the ABX calls on Fri.  They have doubled.  Sold half.  Now what?

  99. lapper – review the last few days of forum posting from Phil…Phil is the one talking about a new forum, not me…I’m just asking about the discussion he was to have with JRW over the weekend. 

  100. Phil,
    Any World Cup trade ideas? :)

  101. DCTH – here is a big part of the move….From Businessweek: Delcath Systems Inc. (DCTH US) dropped 13 percent to $12.80, after erasing as much as 15 percent, the most intraday since May 6. Dirk Schadendorf, a reviewer at the American Society of Clinical Oncology’s annual meeting, criticized the company’s study design on an experimental chemotherapy system and its lack of survival benefit, according to Cowen & Co.
    Then you have theStreets Adam F. – All the data I have read is very different than Cowen’s argument, but Cowen is well respected…until now.  I think they are trying to get people out to sheeple theirs in.

  102. Sold 1/4 TNA at $41.23; still holding 1/2

  103. Thanks to the financial reform discussions and my vacation, I am sitting with a loss in Visa. Do you have a repair strategy idea that might help?

  104. lapper – JRW posted 11 out of 103, not 10 out of 20.  Email me if you need to discuss further…thxs.

  105. Phil: Started to buy the INTC 2012 $10/20 spread from the buy list, but it shows the spread is net $7 instead of $5

  106. Goldman  Lapper  you guys need to buy some bigger underpence saludos

  107. Phil, how does gold feel to you?  Obviously broke out, 1250 seems to be the next stop.  If she breaks whats your guess on the next top?

  108. LIONEL – yes nike. they were downgraded on the usual eurobullshit, but their worldcup gear is off the hook. Similiar to apple, people buy what they want not what they need. all of my medicaid patients have apple, nike, and coach. (sorry for the social commentary but trying to explain the investment thesis)

  109.  TNA  - in at 41.58, half out EOD, half out tomorrow around ~ 11 AM

  110.  Phil, I think the other Craig should have to change his name since I was here first.  I keep reading your replies to him and getting confused that you are answering questions I dont remember asking ;)

  111. NIKE
    Jo, what do you think of that trade
    Selling OCT Put 62.5 for $2.85
    Buying Call spread OCT 65/75 for $5.50
    Or $2.65 for a $10 spread with the risk of owming NIKE at $65.35
    I picked OCT because AUG & SEP are not available yet

  112. Back to 3/4 with a 1/4 buy at $40.58

  113. Of course that was $41.58

  114. Craig/Craig- Sorry man. Not sure who was here first. I was "powermd", but some guy got offended that a ‘doctor’ was trading in between seeing patients. I think it’s more personal when first names are used anyway. I could go with my initials FCL as a shout out to JRW. Of course, you could be CZ, I could be CL. Hmm… 
    Gambling on DIA 103′s heavy today. 

  115. I’m getting than buoyant feeling.  :)

  116. ‘that’, not ‘than’…..and don’t ask what I’m smoking on both counts. 

  117. lflantheman
    Hi still looking for that GOOG anchor down 6.90 today do you think they will ever get down to 470 or 480 ???

  118. phil, thiking to add to my TBT position , i have Sept. long 37 calls and short June 41 calls
    suggestions as to an add right now?

  119. I read "than" as "that"…I must be smoking what your smoking as I didn’t even catch the error…=D

  120.  I wanna gamble on DIA’s but there’s no news this week to really get the bump needed to take the risk.

  121. Phil : I need your help since I don’t do trade every day. I have 25 INTC  Jan. 2011 $22.50/ $25.bull call spread at $$1.08 net paired with 15 short Jan 2012 $17.50 put at $1.56 for an original net of $.48 ,now $1.73 ( I don’t remember why I have 2011 and 2012 options in the same spread). should I leave it alone,roll the 2011 calls to 2012 ,or go with the your new 2012 $10/ $20 bull call spread.My ultimulte goal would be to get the shares at $17.50 as worst case.Thank you.

  122. Iflan/Yodi – Goog has  bounced 490 three times today…seems to be an important support for now

  123. Iflan/Yodi – good support crushed on  high volume…

  124. Phil… do you have sentiment on SNDK as a long term play?

  125. Goldman  GOOG yes now at 489 but is this a bottom for a long buy ?

  126. yodi/goldman/GOOG………I doubt it will get to 470, but who knows?  If you want it at 470 just sell the puts.  Then if it never gets there just keep the cash, or use the cash to buy call anchors. 

  127. Not that I know much, but I agree with Phil, I think its going to be a big flush down to S&P 1040-right to the chart break point, then up.  The ARMS index hit over 13 on Friday.  We live in Missouri, and at least one of the factories here are hiring back, and from what I hear from those that work there, they do have orders to keep them busy through Jan.  My nephew is in construction and he is busier than he has been in the last 3 years.  Indicative of the market??? who knows. (I wish I knew more about making money on what I think the charts tell me will happen.)

  128. I believe GOOG is a buy at this level, but it may not be a bottom for the stock. 

  129. Yodi – I have not went long on Goog since 300 (day they re-set options for employees)…I tend to play it daily, not sure below 489.  Various supports in the past were 465, 472, 490, and 500…but I can say I don’t like the way it "feels" today, but that is very subjective…

  130. UNG/Jossie – There is a two step process to lock in profits in a situation like this (up 77%).  Step 1) Take the money  Step 2) RUN!  If this is two complicated for you, I suggest seeing a specialist.  You risked .96 to make 100%, now you are risking $1.70 to make what?  Another .30 (20%).   Once you have your profits, then you can decide how much of them you want to risk on a further move up.  Maybe 1/3.  So you make .74 and you look for a .25 play like the Oct $9/10 bull call spread at .25 and then you decide if it’s worth the bother.  If you are not that bullish – then that’s why you followed the first two steps in the first place…

    And once again oil is $72 and once again that’s an out!

    GLD/Eric – Well good luck to both of us then… 

    Thanks Ekor!

    Cheap labor/Snow – That’s already planned, when we run out of humans to exploit, we switch to apes (spoiler alert – it doesn’t end well for humans). 

    STP/Amatta – Best to sell the July $10s for .35 and roll over to the July $8s for + .33 and hope to get out about even.  If they start looking good, you can add more calls or take out some callers but the market is too shakey to throw new money at it. 

    Advice/Sean – Make sure you watch "The Man Who Planted Trees."  It’s in the New Members Guide and it pretty nicely sums up my long-term investment philosophy.

    TBT/BDC – I doubt they do much through June.  Very tempting to sell June calls against the position (1/2 June $39s for .90, can be rolled up to 2x the July $43s, now .52).  

    DIA/Trice – Because the Dow is easier to watch and I like the movement better on DIA.  Also, if the Dow is moving up or down I can see what all 30 components are doing in 10 seconds to decide how real I think the move is.

    Coupons/Kwan – You don’t really need to print them, they can scan the lines off your phone’s sceeen now. 

    MSFT/Samz – I wouldn’t short them but they are off my long list.  Their inflexibility on pricing and obnoxious license protection already made them a huge annoyance, especially when old docs were barely compatible with new Office versions and old office versions couldn’t even read new office docs unless the person with new office jumped through hoops.  In a big company, that’s a friggin’ nightmare and the GOOG system is miles cheaper and much easier to administer (as long as security isn’t a concern, of course) - something MSFT should have done 5 years ago but they were too interested in protecting the golden goose.   Bottom line – Ballmer is an idiot. 

    Dimes/Samz – It’s tricky to get used to and the scaling can get very expensive but I’d say enjoy the dimes and practice 100 times and you’ll get the hang of it.  I’m actully sclaling into a short now from $72.30 to $72.60 fro a $72.45 avg short but it’s too complicated to cal positions both ways so I stick to long onlys when we’re at the bottom of the range ($70) and short onlys when we’re at the top ($85) when the opportunities present themselves.  

    STP/Yodi – No biggie if you REALLY want them as you can roll the June $15 puts to 2x the Jan $10 puts at $3 and then just forget the calls so you are in for net $1.76 credit per contract so your BE is $8.24 in Jan.

    Forum/Goldman – Thanks but it would be much easier to make a post for TNA people and just let them use the comments in that post.  There’s no real benefit to a whole different chat system just to handle another topic.  Since things calmed down substantially after that day, I havent’ been worried about it.  I happen to be interested in the day trading too and I’d rather not have to flip around if it isn’t getting in the way of other chat.  I think as people get used to it we can go back to JRW’s excellent quick notes and the occasional Q&A when things come up.  Some people like that forum design and some don’t – I’m one of the people who don’t…

    Top 20/Dean – At any given time they are just trade ideas.  I generally follow up on positions on the Buy List once a month, but don’t use me as a crutch.   We have strategies and you need to learn them and stick to them!  Usually during expiration weeks, I go over adjustments or drops and adds on our active buy list but, frankly, this one is all 2012 and if the market isn’t going down, there will be no reason to do anything until Dec 2012.  If these look good and we’re back over all our bottom levels – then I’ll probably do another, more aggressive Buy List where we can deploy another 20% of the cash.  I don’t have a specific portfolio outside my hedge fund and no, we don’t publish that and it’s way too risky and margin intense for the average investor anyway.  These are meant to be nice, stable, conservative strategies that anyone can follow long-term.  I just put up the best trade ideas I see every day but there are always new ones and no one can trade them all but if I stuck to 20 all year, how would that help new people coming in?  Lean to balance your portfolio and then you will KNOW what kind of trade you need to shit to more neutral or aggressive postures.

    ABX/Hia – When you make money that fast it’s best to take it off the table.  Selling 1/2 is good and if you set a stop on the other half at 50% of the profits then you lock in 75% of what you would have had if you had just cashed out now.  I just went bearish on gold though so my call would be getting out. 

    Wold Cup/Lionel – Not a clue as to what’s good in soccer world.

    V/Ranger – That depends.  What’s your position and basis?

    INTC/RJ – Well I don’t know what it was before but I see the $10s at $10.80/10.95 now and the $20s at $3.80/3.90 so about $7 and that’s not worth it. 

    Gold/Lapper – I just took the GLL trade above.  I think gold is overdone and the higher it goes the more I want to short it. 

    Craig/Craig – I will try to remember to differentiate you two unless the artist formerly known as PowerMd switches again and makes it a non-issue. 

    NKE/Lionel – They are not on sale so I wouldn’t buy them.  There are so many excellent companies trading much lower in their range, why chase NKE?  The logic of the trade is good but certainly today isn’t making us super-confident that the market will hold up, right?

    Craig/Craig/Craig – Just change your L to a capital L and I’ll remember to include it although I thought PowerMd was good.  It would be kind of useful if everyone was know by their profession – kind of like the dark ages (very appropos if we are heading into a full-blown global collapse),   I can be Prognosticator Phil and you can be Dr. Craig….

    TBT/DMan – Waiting would be my suggestion.  Try VLO.

    INTC/Dflam – I’d be inclined to leave it for now.  The market is down huge and INTC is holding $20.65 but if you are inclined to add cash, there is merit in rolling the $22.50s at $1.40 Down to the $20s for +$1.10 as you pick up .65 of intrinsice value and widen the spread to $5, all for $1.10.  The downside delta only goes up .18 so it will cost you .18 more on a $1 drop from here (inconsequential) and, if things look worse, you can roll the $25 caller (.70), downto the $22.50s for + .70 and that would drop your net back to $1.48 on the $2.50 spread and you only need INTC $22.50 to come out well.  The puts, of course, I wouldn’t touch. 

  131. yodi….why not buy 1/4 of what you want in GOOG, in the form of far out ITM calls? 

  132. LIONEL, how about NKE Jan 2012 60/70 spread for a net debit of 5.  It is in the money with a pretty good downside protection.

  133. Thanks lflantheman
    I see only the margins on just 2x 470 dec puts are well in the 25,000 at TOS

  134. Hey all,

    I have a new Weekly Play available for you in The Men’s Wearhouse Inc. (MW). The company is at an extreme low right now, and it is reporting earnings on Wednesday evening. We are looking for 4-6% gains.

    Check it out here.

    Good Investing!

  135. Phil-  I’m dying on the DIA $103 calls.  Started them off as $1.30 $105 calls, then rolled up (down?) to $103 after they’d dropped a lot and now the $103′s have dropped a lot.  Any suggestions?

  136. Powermd
    Sorry Iused you but the TNA thing that day also turned Phiil on the chat, 150 out of 250 comments, you also were the first post of that day. Please continue powermd nobody can actually hide on the net and that was my point exposure of and undermining a workable system, different ideas, why did we join, why members only? No offense to you please.

  137. I like reading JRW and YIP keep em here.

  138. Out of TNA at $40.48

  139. NIKE/Jomama,
    Thanks Jo.
    David has a good point. Nike is not trading at a cheap valuation at the moment. Adidas is actually slightly cheaper.
    Regarding the maturity of the spread I was trying to capture Nike next earning report. Or even better Q3 report in October. 2012 seems a bit far away.

  140. JRW – do you feel like you are talking into an echo chamber?

  141. PFE  14,6, sell 2012jan 15 calls 1.87 and puts 2.95. Entry 12.73/9.78 Max up 53% 17 monts, if down you own 200 PFE at 12.39

  142. Pharma/SNY  With only 30% of sales in Euro, does value look good now?

  143. Phil: when last Friday, the market was run down to precisely the low of the socalled (unexplained) computer glitsch,
    Question: there is no economic meaning of this low, why was the market run down to that point , and how is that technically done ?

  144. ss,
    Welcome back !! 
    Echo chamber ?
    BTW, I’ve been very undiciplined today, hopefully you and judah bought and sold on the primary lines and you’re up nicely on the day !!

  145. Phil/TBT – Unusually strong today…yet rolled over in last 60 minutes…close to intra-day low.  So has TBT become the new fear factor index???  It moved today like a daytrader stock!

  146. And here comes my lovely Theta.  She returns at about this time every month, the last two weeks before options expiration.  Her entrance has been slow, but she will become more energetic, and her presence felt more intensely as time passes.  And the last 3 days before expiration?  She’s marvelous.  Theta, the rate of change of an option value as one day passes.  For GOOG June 500 she’s 0.47.   For GOOG Dec 500 only 0.12.  She loves to be used for profit.  Sell her when she’s high!  (And she’ll get higher every day).  Bring her into your home, keep her a couple of weeks, then kick her out, or not.  She’ll leave anyway.  But not before she’s made you really happy.  Enjoy Theta!

  147. Sold FCX Jun 60 puts $2.55 and calls for $2.77. 

  148. Anyone feeling a stick save today or to much downward sentiment?

  149.  MW 18.62
    I’m pretty much 95% bullish bias now. A couple of DIA Sept puts at 98 is all that exists between me and a 20% loss if things fall apart

  150. JRW – made some on IWM puts using your S/R and my trendlines.

  151. JRW – you had perfect IWM lines today…thank you very much!  I ended up selling at triple bounce off 200sma early (missed smaller run to R1/63.56).  Do you use the MAs as indicators?  Also, what indictors do you use below IWM 62.56?

  152.  Phil, the july spread on the STP is net -0.75 to -.8 at best… nowhere near +.33 as posted? So not sure I follow…

  153. DIA/BDC – should be fun next week on expirations.  Kind of crazy with the premiums they are asking now for 2 weeks. 

    SNDK/Gel – I do like them but now they are not cheap.  WFR is still very cheap. 

    Hiring/Fizz – Clearly things are improving.  The problem is if things aren’t ALL BETTER instantly, the media considers it a failure , as does a population raised on expecting people to wave magic wands and away go all our troulbes by the end of a 30-minute show… 

    GOOG/Iflan – War with MSFT can get expensive.  If they do go lower I will like them more. 

    MW/David – I like them.  They do well when people are job hunting and need cheap suits.

    DIA/GS – Those are painful with 9 days left to trade.  That’s why we sold those $102s but water under the bridge now.  I think it’s best to roll to the July $100/101 bull call spread at .52 (+.05) and be happy to get $1 back or you can DD if you feel confident but today is no reason to be confident so far…

    PFE/Pahurik – Nice trade! 

    Setting up for 3pm stick with volume only 113m at 2:44 (after a good start this morning).  Maybe the Consumer Credit data gives us a lift…. 

    RIMM right on the 5% line so I like the Qs here at $44.50 to hold this line and the $45 calls are .75 with a stop if they lose a dime.

  154.  Never mind I got it…

  155. tusc – I woudl just wait here, or initiate a P sale if you really like them.  GSK is my preference, then MRK and BMY.  BMY is in bed with SNY on clopidogrel, and BMY is a takeover candidate.  I have been saying that for a year now, but it took the MRK/SGP about 3 yrs to make it happen.

  156. Phil, never got feedback on the DIA 102 Puts sold, on Friday you said to hold on to them as they were paper losses. At this point they are down 45%… 

  157. Visa loss. Position is 100 shares. Basis is $84. I do not recall seeing general guidelines here for repairing positions. I am new to options and unfortunately have held on to Visa (and a few others that I will not admit to)  too long. Looking forward to keeping myself out of trouble in the future! Thanks for your help.

  158. SNY/RMM     I have liked SNY for a while and think now is a good time to enter, although I  am not happy with the option premiums.  Don’t forget they bought Chattem ( I had stock in it) , an excellent managed over the counter distributor of some popular brands like Bullfrog, Icy Hot,  Pamprin ,  Gold Bond   any others.  THis is not even mentioned in their yahoo profile.  Chattem has an excellent  USA distribution channel for SNY’s   prescription drugs.  

  159. David/MW
    I joined you on this one.  It looks like a winner, and "I guarantee it". What is wrong with two suits for the price of one?

  160. Phil – Here is a Sanford and Son video you can post when the next "big one" hits the stock market.  I owed you a video after the goofy one you replied to me last week…=)

  161. Sorry that SNY comment was for tuscadog

  162. In TNA at $39.68 (1/2)

  163. Man does TNA move fast.

  164. I had TNA loaded at 39.58 and couldn’t pull the trigger.

  165. goldman
    Yes, I watch the MA’s.
    IWM 58.68

  166. Gel1 -

    Haha nothing at all…

  167. I bought my first suit at the Men’s Warehouse for my first internship in college many years ago.  Bought some at 18.54 just for nostalgia sake :)

  168. Wow, volume really low today.  Maybe eveyone’s hedged to the downside and are just content to get more put to them?  Maybe they know we’re going to flirt with the February’s lows and then miraculously go up?  Hard to say.  But if the volume selling is low, the volume buying is even lower.  We’re definately in the hands of our masters.  What shall they do with us?
    The article Phil linked to on Bloomberg about put premiums at an all time high is telling..

  169. And out at $40.36; had to make something today !!

  170.  Hey everyone,

    For this week’s Daily Discourse, I am doing a World Cup theme. I am going to do over the next four days leading up to the Friday opening of the Cup an investigation into four of the countries. This will be sort of like the Egypt story I did aways back. I am looking at these as the following options:

    Algeria, Argentina, Brazil, Cameroon, Chile, Ivory Coast, Ghana, Honduras, Nigeria, Paraguay, Serbia, Slovenia, South Africa, and Uruguay. 

    If you have any requests for any you are especially interested in, let me know.

  171. if want buy TBT, Jan11 35/43  8 spread for 3,7, sell jan11 37 put 3,7, net entry 0

  172. I hear you on the low volume.  I’m thinking the stick saves are losing their magic.  I’m tempted to go short into the close.

  173. Come to think of it,turnaround Tuesday’s haven’t been all that magical lately either.

  174. FAS is just 16 cents from the intraday low of May 25th and less then $1 away from the Feb 5th low!

  175. Consumer credit is up 0.5% but revolving credit is down 12% (annualized) and fixed credit is up 7% so interesting but nothing to give us a real lift. 

    Not worth taking a chance with Bernanke our only hope this evening! 

    Meaning/RMM – They flushed the stops back on the 6th to see where the trigger points were and then they used that knowledge to adjust their programs for the real (volume) selling from that point forward.  This happens all the time but usually not so drastic but, sadly, as we suspected for quite some time, the rally was being driven by tons of BS buying and that meant that the people manipulating us up would reach a point where they had to dump their stocks one day and this past month was that day.

    Meanwhile that was a fun sell-off, now let’s see if they can reverse it.

    Oil close to $71 again but not worth it overnight but I do like Dow 9,850 as a line to play on the futures if we can cross back over it.

  176. TBT – 38.50s range- low of the day, 37.55 = 52wk low

  177. How’s that for a stick save!  Hahaahhaha… sorry.

  178. Knock, knock, knocking on May 25ths dooooooor….  ay, ay, ay, ay, ayyyy-

  179. Here’s pretty much our last line of recent support before the move to 1040, I think.

  180. Hello LINEDRAWERS: at what low point do you get your line today ? 

  181. This is painful.


  183.  So all the levels have been broken… Is this the time to be full fledged bearish? I had been for the last few weeks, just a gut feeling with all negativity flying around… should have heeded my instincts. 

  184. Back in TNA at $39.00 (1/2)

  185. Done.  Just one more low to go for the big banks before it’s smooth sailing to the downside.  Sadly, we can’t just go ahead and pop it.  8-)

  186. Phil: we have reached a point BELOW the computer-glitsch-point.
    Now the logic does not quite hold or there is something we do not know.

  187. This is a crucial time if we don’t stick today or by tomorrow, we going lower.

  188. Don’t give it back JRW

  189. Phil, FCX a buy here? Copper heading where?. Thanks

  190. SnP wants to get to 1040……

  191. ……lets hope it does so we can move up  :)

  192. 850 s@p?

  193. Damn, still no volume and still no VIX improvement.  Very strange sell-off. 

    At least FXP finally got it’s groove on but yuch on the whole!

    FCX/Hia – Too wild for me.

    STP/Amatta – They are down .40 from my 11:30 comment so perhaps the prices changed..  You have the July $9 calls and I said you can sell the july $10s for .35 (now .30) and roll your $9 calls (.60 now) down to the $8 calls (now $1.12), which would now cost you a net of .22 (the .52 you spend to roll less the .30 you sell calls for) to roll yourself .60 in the money with a $1 upside. 

    DIA/Amatta – Well now they are bad!  You can roll them down to the July $99 puts, which are $4.05 for about .30 and that’s the way to go at the moment if you don’t want to wait for a bounce.  You can also buy 1x Sept $95 puts for $4.60 to stop the bleeding and plan on rolling the putter to 2x a much lower strike if we keep going down. 

    Repair/Ranger – There is no "general" way to repair a position but you should read the article in the Strategy Section on scaling in which is about "salvage plays."  The comment section under that article has lots of good stuff in it too.  V is at $72 (down about 15%) and if you don’t mind possibly owning 200 shares down the road you can sell the 2012 $70 puts and calls for $27 and that drops your net entry to $57 but if V is below $70 in 2012, you will have to buy another round at $70 and you’ll have 200 shares at an average of $63.50, which is another 10% down from here so not a bad "fix."

    Sanford/Gold – I remember those!  Ironically, he died of a heart attack and people thought he was faking…

    QQQQ $45s are still .70 but the Qs blew $44.50 so not worth the risk, sadly.

  194. Those  bastards.. I had a limit in to fully cover my FAZ with FAS at 20.01.  Where was the low before bolting higher?  20.03.  Will I get another chance today?  Doubt it.   Besides, I went ahead and covered.  The deliberateness of today’s action on such low volume is highly suspect.

  195. Phil, Your 2.50 pm reply GDP/Tusca  You will be right long term, but I don’t understand the logic of your reply versus being all in cash, totally hedged or uber short and buying these great cos when the prices reflect the reality of coming lower eps expectations.

  196. Out of TNA at $39.16; 2% on trades, 1% on the day whoooopie !!

  197. trice,
    If the ‘waterfall’ I mentioned this morning came to fruition, I’d target 875 as the intermediate low (basically doubling the move off of the highs to 1040). After that we’d probably bounce back to these levels, which would then serve as overhead resistance.

  198. Where is that sarcastic font button ? Anyone ?

  199. Is this because of EURO drops below 1.20?

  200.  Hi,
    I am new (basic) member. I am currently 100% in cash. Doesn’t look like a good time to buy hedges – but also going long without protection doesn’t seem like a good idea…
    What to do?

  201. Phil
    Your thoughts on BIDU adjustments to take advantage of todays drop in lieu of your comment that we may NEVER ever see such prices again. Afte having held onto my shorts (no pun intended) for so long I would hate to abondon ship just as it may be coming in.
    I am SHORT:
    150 June 65 Calls @ $6.5
    50 June 60 Calls @ $6.5
    50 June 50 Calls @ $5.5
    150 June 60 Puts @ 2
    100 Sept 80 Calls @ 2
    As an offset I have
    200 Jan 65/70 Bull call spread @1.8
    I am assuming that the PUTS will expire. 
    I would like to reduce my call exposure post- June and hedge any rolls given that BIDU announces earnings in July.
    Your considered thoughts are much appreciated.

  202. Stick/Matt – Yeah that really sucked (not for you, I’m sure).

    Below/RMM – If this doesn’t flip tomorrow we are in BIG TROUBLE. 

    Oh, and what Yip said!  8-)

    FCX/Phlit – Looking at today’s action – there is no buy opportunity on anything at the moment.    We blew our levels and that means there’s no reason to get bullish here.  It doesn’t matter what’s real, if investors are going to dump everything they have.

  203. In DDM 38.94

  204. Gold futures with a new closing high.

  205. How come no EXPERT LINEDRAWER predicted this line ?

  206. Today was pathetic.  All I can say is: Thank god for the hedges…

  207. RMM
    IWM 61.94 is a line on the closeing low of the day 2 weeks ago Tuesday !!

  208. Phil: you talk about "investors" dumping everything: is it the big money or retail-investors ?
    And there was not even a lot of bad news around, the oil leakage has some positive aspects, I never understood why  "small" Hungary was an issue as they do not even use the EURO.
    Nodody has been crying: stay IN for an upturn.
    Its time to empty ones stomach and guts.

  209. RMM,
    I do think what I said at 10:14 may have something to do with this. There’s a lot of unknown bank exposure in Europe.

  210. JRW, I hate to remind you of your ‘atheism’ when it comes to being a bull or a bear for fear of TNA taking off like a rocket tomorrow.. but for someone who claims to be agnostic.. you sure trade a lot of TNA!
    Make no doubt, without some major catalyst, be it real, imagined or otherwise, we are definately popping this thing in the next two days.

  211. eric: too bad you may be right.

  212. RMM / short term
    We are half way through a DeMark cycle, ( 9 weeks ) and if "they" can’t turn it HERE, we should all get a large TZA position !!

  213. JRW – GooG had me worried mid day…kept cautious from that point on as I trade GooG often.  I had IWM 61.84 as a line from May 25th but didn’t think the beat stick would get us that low EOD.  Wasted day for me…missed the TNA open, hope you got that first $1.50 as I did not…

  214. JRW,
    I was looking at TZA.  Fast mover baby.

  215. matt / Agnostic
    Well my June 62 IWM puts are doing OK !!

  216. JRW III: so you had this line, I looked and could not find this darn low point.
    Please explain briefly what a deMark cycle is, is it again something the big traders stubbornly follow, no matter what.
    If this is important, what is is coming in the 2nd part of this deMark cycle ?

  217. goldman,
    No, unfortunately, I botched the day. I had the $1.50 but then let it slip away. Ended the day at about +1%, yea.

  218. Calling all sheeple!    GS’s Cohen would like to have a word with you..  they need a few more trustworthy folks to hold their bags of valuable equities.  Could that be you?

  219. RMM
    May 25, low closing 30 min period of the day.
    As to DeMark, it can break any time, but that, like inertia, takes an outside force; so if no GOOD NEWS SURPRISES, we get more of the same for the next 3 to 4 weeks !!

  220. Phil, with all the levels broken we should be bearish right? What would be some bearish positions to enter now?
    Also on the recommended DIA 95 Puts, (buying to cover the 102 puts sold), what should be the number? I sold 20 102 DIA calls for $2.75, now $4.50. Since these 95s are way out of the money, won’t they have a lesser delta and thus be gaining less than the 102′s?

  221. Matt – LOL…"Calling all sheeple"….baaaaah…=D
    JRW – 1:15 threw me off as we shot up fast on momemtum above the 200 sma….nice head fake, as the entire day we bouced off the 200 very quickly…

  222. Phil,
    Regarding the DIA short $102 Put, you suggested buying the Sept. $95 and then rolling down the $102.  So if I understand correctly it is turned into more of a calendar trade and I would then roll down and out the June $102 to something lower than the DIA before expiration in June and then plan on rolling or even selling the DIA put again in August and Sept. against the $95 put for backup to recoup any losses.  Am I on the right track here?

  223. Wow, Germany is proactively cutting welfare spending.  England is proposing cuts to their budget that will affect every single citizen!  And the US?  Obama has his second party with musical guests in a week.  Oh and the sexually ambiguous Romer is breaking the ice on the next stimulus package for the US. 
    Once Europe starts to clean up their act, and they are trying, the bond buyers will turn on the US.  We will then HAVE TO prepare austerity measures of our own which will put the brakes on our economy.  My question is simple.  Why the hell didn’t we just do it in the first place and save the taxpayers the billions that they’ve been saddled with since the Keynsian’s took office?  What a friggin mess.  We will get the worst of both worlds.  A huge deficit and depression.  F-ing morons.

  224. JRW III: ok, I found the May 25 LOW,
    is there a line below that one ?

  225. goldman,
    I think if we open even tomorrow, it’s an up day, still in a downtrend but if Monday doesn’t look like a Monday, Tuesday………………………………….

  226. RMM
    Please read my posts, 3:04 PM Eastern, IWM 58.68. WE are trying to cut down on excess posts !!

  227. JRW – I agree, as Friday we didn’t get close to the 200 by a long shot, today we broke through for a couple of minutes, and tested the 200 up until the last 2 hours.  Do you ever hold TNA over-night?  Very tempting today…

  228. goldman / over-night
    Only on a 3-day weekend after a big move in either direction into the weekend; otherwise, that’s what options are for !!

  229. futures moving up in AH trading…

  230. Cash/Tusca – Because they may announce stimulus tomorrow and we could fly up 5% in a day and you’ll miss the boat.  If I buy RIG here at $49 and sell the 2012 $50 puts and calls for $27.50 (crazy!), then I’m in on the stock for net $21.50/35.75 and if it tracks the market, I’m good for another 30% drop from here with no harm to my position.  Of course if I wait for it to drop to $35 then I can make an even better hedge and I can use that logic to justify never buying anything ever.  On the other hand, if RIG jumps back $15 the other way to $65 and I already have the stock, at net $21.50, I can either get called away for a proift of $28.50 in 18 months or I can spend $65 and I’ll be in 2x at an average of $43.25, which is still lower than it is now, and I can roll the callers out to 2014 $65 puts and calls and collect and that’s the beginning of my long-term full position in RIG where I collect 10-15% each year just selling covered calls for many, many years. 

    If I’m going to be right long-term, what am I waiting for?  We have a plan to buy a little now that leaves us very flexible and assures we don’t get caught with our pants down if the market zooms up.  As I mentioned in the Buy List post, the BEST thing that can happen this early in a scale is we have a huge sell off because if I have $2,1,50 of RIG and I bought a $300 hedge that pays 5x if we’re down 20%, then if RIG is down below $35 (RIG is a bad example actually because they are uniquely affected by something) and the S&P is down at 892 and SSO is up to $44, then I get my $1,500 (plus the $300 back) and even if RIG is at $24.50 (down 50%), I will get assigned another 100 shares at $5,000 of my cash, LESS the $1,500 from the puts so $3,500 plus the net $2,150 I spent on the first 100 shares is $5,650 for 200 shares (avg $28.25) of RIG with RIG at $24.50.

    At that point, I can then sell 2014 $25 puts and calls for about $8 and drop the net to $20.25/22.63 and, as I say over and over and over again – If you don’t REALLY WANT to own 400 shares of RIG for $22.63 (54% off) then DON’T buy ANY at $49!  Isn’t that a nice, simple rule of thumb?  Since I DO REALLY WANT to won 400 shares of RIG at $22.63, then I am more than happy to buy 100 shares of RIG at $49 and hedge it out.  If I get called away, I will get paid $2,850 in profits to give up on my dream of owning 400 shares of RIG at $22.63, which is still a 31% profit on all 400 shares I couldn’t buy!  If I don’t get called away – then I’m on my way to my goal of owning 400 shares of RIG at $22.63 a share. 

    Why does this bother you?

  231. Any comments from anyoone!
    The last time the S&P fell below the 200dma was Jan 09. that was a short drop until Mar. This time we have done it twice. JRW comments on tomorrow are real to me but 6 weeks 09 was three months? My down hedges continue to not even things out. One rule before joining was 3 strikes your out and what part of no due you not understand? Phil is Mr Stick broken by BOTS listening to you? Listen you dummy, what?

  232. More data from DCTH – Dr. Whitman perspective who is in the liver field:
    Well, this presentation went very well, I thought. The data was even better than the intial press release from April. The hepatic PFS (primary endpoint) was 245 days in the PHP arm and 49 days in the BAC (best alternative care) arm. There was no survival benefit on an intent to treat basis BUT (and this point is currently rattling the cyber sphere) 55% of the 49  BAC patients crossed over to PHP after progressing. Since OS analysis is based on MEDIAN survival of the group, if over 50% of BAC patients end up eventually getting PHP AND benefit similarly from the delayed PHP, then the survival curves should superimpose, as they do. The only way in a crossover trial for the OS curves to NOT superimpose when over 50% crossover would be if the delay in getting PHP resulted in a lesser clinical effect (which clearly was not the case). There was an interesting survival curve they showed comparing the BAC patients divided into whether or not they received PHP at any point. The curves were WIDELY separated, but the analysis was not prespecified and carries no analytic weight statistically. Overall PFS also signficant although less so than hepatic PFS, which is logical. This was 189 days vs 46 days. The response rate data was: 34.1% PR, 52.3% SD. It was noted that NONE of the patients who actually received PHP progressed on initial assessment. There is no question in my mind that this is clinically effective and I was surprised when the discussant, seemingly from left field, pooh-poohed the results and said it was biased, ineffective and not worthy??? The format of the presentations prevented any questioning or commenting of the discussants.

  233.  Phil (or others)- my broker, Wells Fargo, will not allow for options on leveraged ETFs.  What brokers would be recommended for this… I thought I read TD allowed for this.

  234. cm33: The favorite broker on this board is  Email scott at thinkorswim dot com, and mention that you are a PSW member, he should be able to give you discounts on commissions.

  235. cm33 – Think or Swim.  scott at thinkorswim dot com.  They should give you a good rate.  Phil noted Interactive Brokers also has good rates as well, so look into both.

  236. Pharmboy:  News out of Japan of a discovery at Tsukuba University of a protein "Allergin-1" that inhibits allergic reactions in mice. 
    The write up in the Nature Immunology Journal is here:

    In a country like Japan where hay fever is widespread enough that calling it an epidemic would not be an exaggeration this is getting lots of attention.  It also has implications for treating asthma and eczema. 
    Its no cure for cancer, but every "good black swan" is appreciated in this economic environment.  Getting a lot of mass media play, so something to keep an eye on in the near future. 

  237. Phil what makes you think stimulus?

  238. Phil what makes you think stimulus?

  239. Phil,
    I cashed out my SDS June hedge when we thought it was the floor this morning. Now I only have a small TZA hedge (2.5K) covering all my longs (140K in stock and 130K in naked puts and buy/write puts) with no mattress DIAs. I was previously overwritten on naked puts and trimmed up to get even with cash on hand  (130K) and have been patiently waiting, rather than turn bearish and get burned again on the incessant rebounds back upward. Please advise.

  240. cm33- Fidelity also allows it.

  241. Oil popping off $71 now that we’re closed!

    LOL JRW!  We could use that font – it comes up a lot…

    Welcome Yshenhar!  I agree, not a good time to buy hedges but how about this idea.  Let’s assume the S&P holds 1,050 for the year.  Then we can assume SSO (ultra long S&P) will be at $33.62 or higher by Jan and we can take the Jan $29/33 bull call spread for $2 and sell the $20 puts for $1.50 and you are in the $4 spread for net .50 with 700% of upside if the S&P doesn’t go down further.  The $20 puts are so far out of the money that they have little margin requirment, TOS says I can sell 10 for net $1,995 of buying power and the spread would be another $2,000 so total margin requirement of $3,995 to make $4,000 in 7 months – simply if the S&P does not go lower.

    IF the S&P does drop 20% to 840 then that will trigger your purchase of 1,000 shares of SSO at net $21.50 and that then begs the question of, IF the S&P drops 20%, wouldn’t you like to buy the ultra-long on the S&P as a long-term play? 

    So, if the answer is yes, you can spend $4,000 (but be prepared to come up with that $21,500!) on this upside play 1st.  NOW you are ready to get bearish!  Best way to decide where to get bearish is to see which index has fallen the least and that (on the year chart) is the Russell.  That brings us back to our TZA hedge and now you have to think of your SDS spread as a hedge of a hedge.  In other words, now we are prepared to have $4,000 of TZA put to us no problem because we have it covered if the S&P goes higher (and we assume the RUT and the S&P won’t go in opposite direcitons).  So now we can buy the TZA Jan $4/10 bull call spread for $2.10 and sell the $6 puts for $1.45 for net .65 per $5 spread, which has a 669% upside ($4.35) if TZA goes from $8.13 to $10 (25%), which requires just an 8% drop in the RUT

    Now, keep in mind that if the RUT (S&P, really) does not go down, you make $4,000 on spread #1 so you can be pretty comfortable that if the TZA is put to you at net $5.65 (down 37%, down 12% on the Russell) that you will have $4K in your pocket.  So let’s now say that you don’t mind if you end up owning TZA long-term at $3 (you can sell .10 calls every month for a 50% annual return in the least) so your $4,000 allows you to have $9,000 put to you no problem as that means you’ll be sprending net $5,000 for 15 contracts (avg $3.33 per TZA).   So now we have arrived at our ideal contract amount and it’s a very innocent 15 of the above TZA spread which pays a very nice $9,000 the Russell drops 8%.

    So – our worst-case to the downside is we own 1,000 SDS at $21,500 but we get paid $9,000 from the TZA spread for a net $12.50 on SDS.  On the upside, the worst case we own 1,500 shares of TZA at $3.33.  In between, since both trades pay off on a non-move – it’s actually possible to win on both sides.  Since the spread is imbalanced bullish, you can then take out a $20,000 buy/write with 20% protection to the downside and consider the imbalance to be a few thousand extra downside protection if we fall 20% or more (15% more protection) so, of the $9,000 you would collect on TZA in such a catastrophe, you would allocate $3.000 to your buy/write and $6,000 to the purchase of SDS calls, which would put you in your stock at a 25% discount along with 1,000 shares of SDS at about $15 a share.

    If that is appealing to you, then you can start buying.  Of course the trades can be adjusted along the way so it’s fluid but you get the idea.  When you think we’re at a bottom, hedge up and when you think we’re at a top, hedge down but make sure you have a real premise and you’re not just putting yourself hopelessly neutral.  Once you learn how to control the balance, then the goal is to widen the spreads so your payout zone in the middle gets wider and wider while anything less than a 20% drop in the markets gives you another round of stocks you REALLY want to be in long-term at a substantial discount.

    I think what confuses people about this strategy is that it’s a LONG, LONG-TERM srategy with the aim of accumulating a portfolio of very cheap stocks over many years.  I can tell by the very impatient comments I read that most people are not looking to see how a 7-month first-round investment plays out and it’s important you know that about yourself BEFORE you make a commitment to long-term plays.  Markets go up AND down and sometimes you will be ahead and sometimes you will be behind but, in the above RIG example, if your goal is to own 400 shares of RIG at $22.63 a share in 2015 or pocket $2,850 because it went up too high and you got called away in 7 months, then it’s a great strategy!

    Euro.Shadow – more or less but no major panic below the line so far. 

    BIDU/Oncmed – Now those prices I’m not so worried about getting away.  I thought BIDU was worth $550 ($55 now) with $65 being within the realm of the possible but I was sure they should be shorted at $80.  You have a terrifying amount of BIDU though but I guess that’s partly due to rolling down and the split?  I guess the Sept $80 callers are safe, I sure wouldn’t pay them $4.75 but be careful if China somehow rallies.  The June calls are way too close to the bone, of course and you have $20, $10 and $5 for an average of $15 on 250 callers ($375,000).  The June $60 putters should expire worthless and if they don’t, you saved $325,000 on the call side so who would care?   The safest play is to split the calls to puts and calls at about $7 each and hopefully just keep widening the gap each time you roll.  Assuming they expire here ($375,000) and ignoring the $30K you would make on the putters.   Oops, I forgot you also collected $150,000 at the outset so your’e really "only" down $225,000.  That makes life easier because we can look for 250 $5 puts and calls on each side and that would be the Sept $79 calls and the $61 puts for $5 each.  Hopefully, when Sept comes around, you only owe one side or the other $5 ($125,000) and then you split to whatever Jan puts and calls are $2.50 each.  At some point, hopefully, you end up in the middle and pay neither side. 

    This is another case where scaling is key because, even if you just took the short sale of the $50 calls last week for $5.50 and BIDU shot up to $70 and put them $20 in the money, then you could roll them to 2x the some spread of puts and Sept puts and calls, which is $18 wide (25%) and, even if BIDU made another massive move to put one side or the other back to $10 – you would still be at the same spot so you don’t lose any ground between $51 and $89.  Anything between those, even if not a clean win, is progress and you can, if early enough in the scale, then DD again and widen the spread to absurd proportions. 

    Investors/RMM – As I said, it seems the fastest growing class of investors is idiot fund managers.  There are funds that behave like retail traders now and it’s pretty scary but just look at how many thousands of ETFs are now out there and how many asset funds are pushed by banks and how many hedge funds and then think about what the odds are that 20-30% of them are managed even 1/2 as incompetently as any other financial institution…  The newsflow has turned sour and every day there is a new reason to panic – all we can do is ride the rapids down to the bottom and see where we end up.

    Bearish/Amatta – I like the TZA spread (above) still.  On the DIA idea, you want to buy the same number of long puts and, if we keep going down, you will be able to roll the existing putters down to 2x a much lower put striks and, hopefully, you will be able to stay ahead of them.  Yes, you’ll have a lesser delta because it would be pointless if the market bounced and you lost as much on the long puts as you gained by getting rid of the putter, right?

    DIA/Rev – I’m saying that you can buy the Sept $95 puts to stop the bleeding.  If we keep heading even lower, then you can roll the $4.50 $102 puts to 2x the July $93 puts at $2.20 and those, in turn, can roll down to the Aug $89 puts (estimate) and those to the Sept $85 puts where you’ll be $10 in the money to your putters and you can roll your Sept puts out to 2x whatever Jan puts are $5 and keep the cycle going.  If you think that 8,500 by September is too dangerous to have putters then why on earth wouldn’t you buy out the $102 puts now for "just" $4.50?  At some point you need to decide what price you will defend – you can’t just extrapolate every down move like it will continue all the way to zero. 

    Morons/Matt – You said it!   Still, I don’t think there’s any amount of cutting that will fix our problems without higher taxes.  Appoint me dictator and I will accomplish the following:  10% VAT (or whatever) on every dollar of revenue taken in by corporations. 

    That would raise $600Bn right per year right there.  Then you put in a flat tax of 25% with no deductions for people making over $100K and 15% with no deductions for people making under.  That would add another $1Tn to collections.  So now we are taking in $1.5Tn against our $1.5Tn deficit.  Next we cut military spending 50% over 3 years, saving $4Tn for the decade ($400Bn a year) and we also pare back SS and Medicare by 20% over the decade to save another $100Bn a year.  Pass a balanced budget ammendment NOT INCLUDING our special $3Tn in new taxes that takes effect over 3 years and we pay off the entire national debt in 10 years and run a surplus going forward until some jackass decides to use it to promise rich people tax cuts again.

    Look at this chart and see how long you can fool yourself into thinking that it’s up to those bottom 240M to fix things:


    It’s actually gotten much worse since 2007, of course.  We’ve already driven the bottom 40% out of 99.8% of the net worth of this country and they are 1% of the country’s "non-home wealth" in debt.  They simply can’t buy anything without taking on unsecured debt and no one is willing to give it to them so say goodbye to 40% of all potential shoppers.  The top 20% have 93% of the wealth and if you should happen to fall from the top 20% to the next 20%, you have to fight over 6.8% while the 60% below you share the remaining 0.2%. 

    On the bright side, they (the bottom 60%) did get 20.8% of the income while the top 20% got 61.4% and the middle management crowd made 17.8%. 

    You can tax the bottom 60% 50% and you won’t put a dent in the debt.  The ONLY way to balance the US budget is to tax the rich and good luck getting that to go though!  Notice how other major countries don’t have this kind of skew (but still bad and much worse in US over past decade of course):

    Why stimulus/Kustomz – Because the alternatives will be a disaster in this country.  We’ve got a massive population of people (bottom 60% is 180M people) who have effectively NO ownership interest whatsoever in this country.  They own no assets, they are in debt and they make just 20% of the income (so each one effectively makes 0.33 for every $3.07 earned by a top 20%’er.  And the Republican plan is to tell these 180M people that they are a burden on society and we are "all" suffering from this crisis so WE are going to have to cut THEIR benefits and shut down their children’s schools (because we can send ours to private ones) and cut back their health care (because we can afford to go to a doctor) and rescind our promise to give them back the money they thought they were saving for retirement and, while we’re at it, we’re going to put a stop to those extended unemployment benefits and stop all that silly welfare nonsense.  Oh yes – great idea – what can possibly go wrong?

    Oddly enough, we also defend the rights of those 180M people to bare arms.  Maybe those founding fathers were very clever there because, one day, I’m sure they realized there would come a time when the people would have to revolt against this government too and they made sure The People would be able to win again…

  242. Phil: Do you suggest short-term hedges now?

  243. Hi Phil,
    Another noob here.  Enjoying the commentary (and the wisdom!) thus far.
    I have a question about longer-range hedges using leveraged ETFs like SDS or TZA.  What consideration do you give to the price decay on these leveraged ETFs over time, especially when doing things like buying call spreads or selling puts out as far as January?  Just as an example, RUT hit a low of 647 on 5/7 and a lower low of 640 on 5/20 (1% lower), while TZA’s high on 5/7 was 7.85 and on 5/20 was 7.68 (2% lower), where one might reasonably expect TZA to be 3% higher at that point.  That’s quite a bit of decay for just two weeks.  The effect is most pronounced during times of high volatility (like recently), but it seems that that’s when you need these hedges the most.
    Is this something worth worrying about?
    - Boo Bear’s Dad

  244. BooBear, that is a very good point you bring up. I ran the 52 week for the S&P 500 and the corresponding Ultra (3x) and the difference is about 2% for the whole year, but 1% in 2 weeks is absurd!.. I understand that this is a result of the cost of rolling futures to match but how can that explain such as wild discrepancy?

  245. As I understand it, it’s not just about the cost of rolling futures to match.  It’s because the goal of a leveraged ETF is to match the leveraged equivalent of the daily performance, as opposed to the leveraged equivalent of the long-term performance.
    Example: Suppose S&P is at 1000 and UPRO (3x bull S&P ETF) is at 100.00.
    * Day 1: S&P moves up 2% to 1020, so UPRO makes a corresponding 6% move to 106.00.
    * Day 2: S&P moves down 0.98% to 1010, so UPRO makes a 2.94% down move to 102.88.
    * Day 3: S&P moves down 0.99% to 1000, so UPRO makes a 2.97% down move to 99.82.
    And in three days, UPRO lost 0.18% even though S&P was flat.  The effect is worse when the percentage moves are larger (see FAS, FAZ for an even better example of that).  It’s not a big effect over a few days, but it can start to add up over the course of several months.

  246.  I think this article is very helpful and actually very disturbing… 

  247. Great link.  That’s exactly what I’m talking about!  :)
    So I wonder how this might factor into one’s analysis of using leveraged ETFs as hedging instruments, and why I never considered doing it until I read Phil’s approach to hedging, which seems to hinge on finding hedges that pay 4-to-1, 5-to-1, and bettter.  Leveraged ETFs offer that possibility, but how do they work out in practice over the course of many months?

  248. Amatta…. Great link.  I learned about this about a month ago.  I decided the 3x ETF’s are less volatile and less time sensitive naked option plays.

  249. Read this one, this seems to be a yet unverified strategy, (but which really is?)….

  250. Phil!
    Music to my ears I loved reading your blog for years but ever since Econ101 I knew we were in trouble and the only solution was flat rate taxes which is the only fair to all tax. I may sound like a fun stopper at times and admit I even fear hedging but my take on the real situation in the great USA is we are in 2X the 1929 problem. I actually believe by my numbers that if nothing is done soon a 90% contraction is in the deck and I don’t like the statistical projection on this debt more. I have been resisting sell sell sell for about 3 weeks! If the system fails what guarentee is there that the hedges will actually PAY ANYTHING?

  251.  Phil,
    Thanks for the clarification on the DIA 102 Short Put.  That is an awesome rolldown and a great bailout of my position.  I graphed it on thinkorswim It basically flips my position from being bullish to bearish on a dime, but I have almost no risk if the market goes up!  

  252. Sorry fogot that is DOW 1,000, S&P 100 NAS 200 and most banks closed, round easy numbers! Maybe lower if nothing is done on the way down and I remember Dow 700 when I bought my first house in California for $30,000, expensive at that time.

  253.  Hey rev, what is that rolldown? I am on the same boat… stuck with the Puts now…

  254. I think the Democrats are too scared to allow any new stimulus.

    Bloomberg, you cant hlep but laugh…the same guy who called the housing bubble (not) says things are just fine..
    Asian stocks rose after comments from Ben S. Bernanke, the chairman of the U.S. Federal Reserve, eased investor concerns over the strength of the global economy.


  255. Matt…. Your 4:38 post says it all. We are in the toilet, it has been flushed, and we are headed to the sewage plant next to the Potomic river. The folks over at the big house on Pennsylvania Ave are having a party, and have no clue whatsoever what in the hell to do to resolve this mess. The catastrophe in Europe is a signal, however nobody at the party is sober enough to think for a moment our fiscal health is far worse than our European neighbors. It will all play out, and the hangover will be very painful!

  256. German Trade Balance for April printed lower than expected coming in at 13.1 Billion euros versus 14.1 Billion projected. Exports were down a seasonally adjusted -5.9% in April while imports were also lower by -7.9%. The current account posted a surplus of 11.8 Billion euros down from 18.1 Billion in March but still registered the second best reading this year.

    Read more:


  257. Phil,

    TZA and SDS are both ultrashort ETFs. How can they hedge each other??

  258. amatta,
    I think, this strategy can be tried on vertical P spreads

  259. Good morning!

    Hedges/Cwan – It depends what you are trying to accomplish.  I think we are going to consolidate within 5% of the 10,200 line (9,700-10,700) for a while because that’s the "right" price (p/e) for equities given the current outlook.  This is not a change of strategy for us really as I was warning we were overbought early in April (10,900) and it got so ridiculous that we ended up getting blowback that took us below the median line (10,200) but look at the rising (and flattening) 200 dma at 10,700 on the chart and the falling 50 dma at 10,300.  That’s the only part of a chart we really need to pay attention to – over the past 200 trading days (almost a year) that’s the top and bottom of our channel – the exact 5% top and bottom of the channel we predicted last year. 

    So I’m not very into short-term (lose money quickly) downside hedges AT 9,800.  If we do break below 9,700 THEN I am all for betting we go back to 9,200 or even 8,650 – which was the middle of our old trading range in 2009 but that was when we thought any bank could fail at any moment and the auto industry was dead and retail would never recover and no one would ever buy another house…  Now all we’re worried about is people will have to spend a little more wisely and state and national budgets need to be tightened. 

    Yes, it’s going to knock down growth prospects for the next few years (and we will be thrilled if the market calms down and we can sell puts and calls every month without worrying about 10% moves) but the bottom line is that if I give GE $15.41, they are going to earn $1.25 a year 8% and pay me a 2.5% dividend.  I can also expect the value of the stock to rise with inflation.   If I put my money in the banks or bonds, they won’t do as well for me so the logical investment is stocks, ESPECIALLY if we are questioning the safety of the banks and bonds! 

    Things may get worse, we could always have a terror attack or a major bank could fail or a nation could default (even more reason to buy stocks, though) so ABSOLUTELY long-term hedges are a MUST but short-term hedges are gambles and I don’t favor them as what we hope are the bottom of ranges.  I called a bunch of them at 10,200 and we’re done at 10,800 and earlier I put up an upside hedge (SSO) to take first and the TZA to take AFTER we have the SSO in place (and we still look weak). 

    Welcome Boobearsdad!  If you use ultra-ETFs expecting to see fine-tuned results, you will be sorely disappointed.  They are blunt instruments and are pretty useless as investments EXCEPT for maginifying very short-term moves or maginifying major moves.  That’s why we like them for CRASH protection, not for blip protection.  They do decay over time because a 5% move down in the RUT from 100 to 95 knocks TZA from 100 to 85 and then a 5% recovery in the RUT from 95 to 99.75 would only get TZA back to 97.75 so they are constantly losing ground in any kind of market chop (not to mention the ridiculous fund fees and churning costs from constantly shifting positions).  Notice I generally play them long because, when we go long, we are SELLING puts and calls for huge premiums while spending as little as is reasonable to secure our position.  With a 3x inverse ETF, like TZA (which is now $8.13) in a major crash where you have consecutive down days on the RUT like 5%, 3%, 2% and 1%, the ETF can rocket to $9.34, $10.19, $10.80 and $11.12 so up 37% on just an 11% drop in the Russell.  So, in a real disaster, these funds outperform expectations and it’s only a real disaster that would give us no opportunity to adjust our longs that we are worried about.

    Interesingly, we tried to test the theory that any 3x ETF would HAVE to decay over time by shorting FAS and FAZ at $45 last year.  In theory, they couldn’t both go up at the same time and they both should decay so the net of the two shorts would stay below $90 but a relentless string of upside days took FAS over $100 while FAZ only fell to about $20 but we bought back FAZ and stayed short on FAS, which crashed and we had a happy ending but the moral of the story is don’t assume anything with these crazy-assed ETFs! 

    Ultras/Amatta – I need to compile my posts and comments into some kind of indexed book as we’ve had all these ultra-ETF discussions before (2 years ago I think) so, for me, I never think to discuss it again but, of course, there are many new members who don’t know this stuff, which the long-time members take for granted.

    Guarantees/Shadow – Yes, I pointed that out to the bears in the last crash.  If the financial actually do start to collapse, there is little chance those puts are going to get paid.  We took GS 2012 $70 puts (which are riding free as part of a 2-way play last month) but if GS does go BK, I’m not sure it will get paid because the people on the other side of the bet will get margined out and if they can’t cover, then who?  For one thing, half of these things clear through GS and the LEH people are still waiting for their checks.  We all have faith in a system that’s probably a lot more fragile than most people realize, which is why I feel it’s always good to take profits off the table sooner than later (but, even then, what do you do with money?).  Of course, keep in mind that when the markets were wiped out, JP Morgan and JD Rockefeller were just fine – the money of the rich will be protected at all costs – just make sure you are one of them! 

    You are welcome Rev.  It’s a very important "stupid option trick" to learn.

    Roll/Amatta – It’s the same one I told you, outlined for Rev above the charts in the previous comments.

    Bernanke/Kustomz -  We were up 100 at 3am but it’s been all downhill since Europe opened and Fitch warned on the UK.   Gold is going through the roof at $1,253 as EU people are just stampeding into it.  Oil was $71 at 6pm then $72 at 3am and now back to $71, where it’s a good long yet again.  Both oil and copper are good buys if gold sustains this move (but I’m betting against that) as they are also commodities that can store wealth

    Hagover/Gel – Did you ever read my Hyek vs. Keynes article?

    Germany/Kustomz – They were on a heck of a run there, maybe a pause or maybe it’s over…

    TZA/Roma – Oh no, did I mix them up again?  I meant that SSO play above, not SDS, of course.