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Testy Tuesday – Are We There Yet?

Once again CNBC has gone too far!

The futures were doing very well, up almost 1% until CNBC put together the tag-team guest spot of Mohamed El-Erian, the notorious bond pusher from Pimpco and "Doctor Doom" himself – Nouriel Roubini in a classic bear and bigger bear face-off that was timed right into the EU's lunch hour.  Roubini's new book is called "Crisis Economics" and there's nothing like a crisis to chase people into the loving arms of PIMCO, where El-Erian gets the fees.  It's odd that there's not even a simple disclosure statement from El-Erian to guide viewers like: "You know, I do well when the market does bad."    

This same gloom and doom tag-team was touring America in September of 2008 (see "Roubini, El-Erian – 'Things are Getting Worse'") and we're up about 20% since then but, to be fair, things did get worse first.  The boys teamed up again this February (12th) and their predicition of an additonal 20% drop off the February lows (also brought to you by the fear-mongers at CNBC) was completely wrong at the time but the boys dusted themselves off and took this show on the road again as noted in this May 28th article pairing the two's depressing outlook.   

Things were getting better yesterday until Moody's (the company Buffett owns a large stake in but has nothing to do with according to his testimony) downgraded Greece in the afternoon – something that was not at all unexpected but was treated as market-moving information on a slow news day.  Does CNBC push doom and gloom for ratings or are they trying to help their bosses at GE water down the financial regulation bill by making it seem like the average investor is against it or are they just trying to keep Cramer and the Fast Money team from looking clueless?  This is why we used to have LAWS that kept our news sources "fair and balanced" - the moment a news provider takes a side with one of their high profile shows or personalities – they then have a vested interest in MAKING the prediction come true – how can that not color their future editorial positions? 

As I said last week, Dr. Doom doesn't have to be in on a conspiracy – He's Doctor Doom!  The media loves him because he is predictable tool and he is happy to perform his little act on command like a one-trick pony because that one trick has gained him fame, fortune and, apparently, women – something few modern economists have ever achieved…  As Paul Simon says:

He's a one trick pony
One trick is all that horse can do
He does one trick only
It's the principal source of his revenue
He's a one trick pony
He either fails or he succeeds
He gives his testimony
Then he relaxes in the weeds
He's got one trick to last a lifetime
But that's all a pony needs

We had a different theme song in mind yesterday as I cautioned we were very likely to be rejected by our bounce levels on the first attempt and that it would be a "Take the Money and Run" day for our short-term bullish positions.  Those levels, which I've been posting for a month, are Dow 10,250, S&P 1,100, Nas 2,260, NYSE 6,820 and Russell 666.  Yesterday's highs were Dow 10,328, S&P 1,105, Nas 2,278, NYSE 6,922 and Russell 662.  The Russell was our only failed indicator but that saved us from staying bullish and, in fact, we actually flipped bearish at 10:36, when I said to Members "I’m for taking the downside hedges here, naked on DIA mattress play (Sept $105 puts, now $6 and good for a new entry) and I also like the TZA $6 calls at .70."  Of course, it was only day-bearish – we killed those TZA calls already after getting a very nice sell-off thanks to Moody's.

Just because you are generally bullish does not mean you can't take advantage of bearish moves when they present themselves.  As Pharmboy pointed out, we are in a string of about 29 out of 30 days in which the Dow moves more than 100 points in a day.  In a day!  Maybe I'm too old but we used to call that an active MONTH!  My conclusion at the end of trading yesterday was: "On the whole, I think that was a gap-fill and a healthy pullback but they sure did make it ugly-looking!"  Nonetheless, we did put on our TZA disaster hedge (pays 900% if the Russell drops about 20%) as planned in the morning Alert on our test of Dow 10,250 and now we can relax again as we are very well-covered to the downside with cheap insurance (we elected to be naked bullish last week, rather than buy expensive insurance). 

Keep in mind, we are right on track with the 5% Rule numbers we have been using all year and now we need to see the S&P crawl back up the series we predicted they would crawl down on May 5th (S&P was still at 1,170): 1,155, 1,114, 1,100, 1,073 and 1,045.  I said at the time that I expected us to go back to at least 1,100 and IF IT HOLDS, I would get downright bullish.  We are certainly not "downright bullish" yet with just 25% of our virtual portfolio invested in heavily hedged bullish positions but we're hoping to be if all goes well this week.  We fished for a bunch of bullish 500% to 1,000% gainers last week and I'll be adding some more to that last if we can get over this hump but now it's wait and see time at PSW…

Today is a very busy day with 10 major items on the Economic Calendar:
6:15 Fed's Bullard: 'Asset Bubbles and Monetary Policy'
7:45 ICSC Retail Store Sales
8:30 Import/Export Prices
8:30 Empire State Mfg Survey
8:55 Redbook Chain Store Sales
9:00 International Capital Flow
9:30 Hearing: Drilling Safety (XOM, CVX, COP, BP, RDS.A)
10:00 NAHB Housing Market Index
5:00 PM ABC Consumer Confidence Index
8:00 PM Obama delivers address on the Gulf oil spill

It's 8:40 now and Bullard didn't move the markets, ICSC Retail sales are down 0.7% for the week but still up 2.9% fro the year, Import Prices were down only 0.6% vs. -1.2% expected and up 0.5% ex-energy and the June Empire Manufacturing Survey is pretty much in-line at 19.57, up from 19.11 in May while new orders are up at 17.53 vs. 14.3 last month.  Pricing is still an issue and the deflationary slump continues as prices decline from 5.26 to 4.94 so our worry for Q2 earnings is going to continue to be margin pressures taking down earnings

Margin pressure was the story on BBY, who dropped 6% on earnings this morning as net income only grew 1% on 2.8% more sales.  So there is a price consumers will buy at - it's just not necessarily a price that makes the seller any profits…  The BOJ is working hard to keep the consumers in play by holding rates steady at 0.1% this morning AND rolling out a 3 Trillion Yen lending program to small business.  Unfortunately, 3 Trillion Yen is only $32.8Bn, even at these lousy exchange rates and analysts are skeptical, saying: "There is already an abundance of available liquidity, which has failed to translate into strong credit growth primarily because of sluggish demand."

[MERSARK]Asian markets were pretty much flat this morning, not knowing what to make of our crazy session yesterday and Europe was off to a rocking start until CNBC released the Doom Squad but they are still up over 0.5% coming into 9 am in New York.  France and Germany may be taking their bonding a little too far, according to this photo, but it's a good thing for Europe to have those two show a unified front.  Huggy-kissy photo ops like this send a signal to those who are betting on the collapse of the Euro (Pimpco, of course!) that Mommy and Daddy are committed to working things out and it may be too early to start dividing up the furniture.  

Meanwhile, Japan can't stimulate their businesses, Germany's ZEW Survey shows economic expectations dropping the most since October, 2008, Spanish banks are facing a credit crunch and the UK is cutting their growth forecast - so where else are you going to put your money other than US equities?  Of course El-Erian would argue that it's far better to buy low-yield bonds and pay him a fee to sit on them for you.  In fact, the more you buy (driving down the rates), the more valuable his $1Tn worth of bonds becomes but I think I still prefer stocks thank you – many with dividends that pay far more than even risky bonds and we can mitigate our risks by hedging our positions while still giving ourselves room for significant upside in case the Doom Squad is wrong and the world doesn't fall apart.

Like China and Japan and even the US, the Euro-Zone's industrial production increased in April – up 9.5% from a year earlier.  That data was the cause of the rally that was stomped out by the Doom Squad this morning but is not getting back on track now that the boys have had their say.  Our EUO short position ($26) is going to be rockin' this week and we'll probably be done at $1.25, which will be about $23 but much nicer on our put play (probably 100% gain). 

The Dow was at 9,500 and heading higer a year ago and we're 10% stronger now so I maintain that my 10,700 target (1,145 on S&P) is a very fair value for equities coming into next month's earnings.  If we can escape margin issues, then we will have room to test the next 5% move up in our range but I'm perfectly happy if we drift along the low end for now, between 10,200 and 10,700 and that's our hope for this week – to re-assert ourselves over our bounce levels, which will hopefully become a floor for a sustainable trading range going forward – not the V-shaped nonsense we had in March and April

Great video if you haven't seen it, by the way: "What Happens When BP Spills Coffee."  Good warm-up for today's hearings…


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  1. Seems to me like the big boys are just going to milk this channel between 1040-1100 for the entire summer!

  2. It seems that the boys did not achieve their objective as the futures are at session highs.  Maybe they should pull a sludge coated Pelican out of their hat and beat that drum for a while.

  3. Phil,
    Is BBY a buy today with the drop in price, or does it need to come down more?

  4.  CWAN / Iron Condors
    I don’t know of any site.  I use a secret formula to do a rough calc.  haha – here is what I do:
    1.  I make sure HV > IV; if it isn’t, stop here
    2.  1SD = (Current Price * IV*(sqrt(days to expiry/365))/100
    3.  Take #2 and add/subtract from current price and compare to support/resistance levels from chart
    4.  Take #2 and set your short calls/options just beyond current price +/- #2; 
    5.  I only use $2 wide wings so take #4 and add/subtract $2 and there you have the long puts/calls.
    6.  If credit is less than $.54, I don’t do
    That’s about it, along with my own opinion on support levels, etc.
    I ONLY use ETF’s – reduces outlier news risk – call me conservative.  I DO NOT use inidivudal stocks, I don’t care how long they have traded in a range – they will until they won’t.

  5. Phil
    Saw your post yesterday on BAC
    What would be the trade on BAC without buying the stock?

  6. Anybody has a time of CBOE opening?

  7. What do you think about BP today.  Might be an ugly day as a prelude the to whoopin Bama is going to give them tonight.

  8. Salvum / Condors:  Thanks for sharing your rules. Wanted to make sure I understood your reasoning for your first point. By ensuring the IV is less than historical volatility, you are implying that the market also doesn’t expect much of a near term move. But then that also means that the options you’re selling are at lower premiums than normal. I assume that means that you really don’t want any risk of a move, and hence are letting the market tell you it doesn’t think one is coming.  The reason I ask this, is because a lot of premium selling strategies look for the opposite set-up, where IV is greater than historical volatility, and the options are expensive. But given your rule 6 (checking whether the credit is $0.54) is maybe your filter to make sure it is still a good risk reward? 

  9. Concerning BP: Must read analysis about what the probable scenario at the BP Well currently is — and it is not sounding good.  Based on the actions BP has taken to date, and the outcome of those actions, this commenter is suspecting that the integrity of the well itself has been compromised and is now leaking down-hole which could lead to a total collapse of the system and terrible disaster:

  10. Anyone know where i could buy a Roubini bobble head, had no idea he was such a stud!!

    GOOG needs to show some strength today

  11. Regarding BP, it seems that the other companies (XOM for example) are getting ready to throw them to the hyenas… This cannot end well for BP. I would think that BK is becoming more and more the only option. XOM has been able to fight the Valdez drama in court for 20 years without paying a cent of damages, but BP will be facing the US government this time. Might not be as easy! 

  12. I looked at NBG when the Moody’s downgrade of Greece came out.  It and other Greece adr’s seemed nonplussed by Moody’s announcement.  Factors other than Greece were in play yesterday afternoon.  Perhaps just a bit too much of a stretch for one day.  By that I mean that I do think the market will get North of resistance at the SPX 200 day line; but that it will take a few days to do so.

  13. Good morning!

    Same old levels but every day we don’t make them is worse for the bulls.

    The 3 of 5 levels we want to see taken to the upside are: :  Dow 10,250, S&P 1,100, Nas 2,260, NYSE 6,820 and Russell 666.  As usual, the S&P is super-critical so we’ll be watching them carefully and this is the EXXACT same as yesterday so far.

    For now, until I recast 5% lines, let’s call our old lines (from February) the new "MUST HOLD" levels, below which we actually get bearish.  They are:  Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620.  Notice the NYSE is ALREADY below the line so they have lost ground in the past 4 months against the other indexes and, since they are the broadest index – I’d say we will have to remain cautious UNTIL we get back over 7,000 line on the NYSE.

    You are SO lucky to get another chance to run the TZA hedge if you don’t have one already:

    TZA Jan $6/11 bull call spread for $1, selling 1/2x $5 puts for $1 is net .50 on the $5 spread so 950% upside on this very simple hedge and we can roll the putters out to 2x the 2012 $3 puts, at least (now .65).

    Keep in mind you can protect $100,000 worth of positions from 1/2 of an 18% loss with $1,000 on this hedge.  It’s INSURANCE – you are not meant to "win" it but, if we are lucky, we won’t lose it all by the time we feel safe enough to move on without it. 

    Premiums are fading due to expirations on Friday (and if own June puts and calls you are taking a big risk here) and that makes the DIA $105 calls at .15 a fun gamble, in case we get a big run for a quick dime but it’s a craps roll.

  14. Good morning Phil,
    What shall we do with the DIA play Jul long bought for 1.15 now 1.37,  Jun 104 short sold for .44 now 40

  15. By the way, the other "excuses" for a sell-off were related to banking assets in Spain.  I do admit that Banco Santandar (STD) did pause from 4 prior dramatic up days yesterday.  As of this morning STD is back in positive territory.  The price action seems positive for these situations regardless of the chatter from talking heads.

  16.  The value of the BP brand in the US will be gone after this runs it course.   While the market value of their assets will hold and quite possibly increase due to regulations that will impede supply coming online, its hard to see how the corporation will continue to exist in its current form, even if it is able to financially.   I think a strategic bankruptcy (as opposed to a financial one) will be pursued, and in that process, BP will restructure itself to become a new entity with a new brand to sell the same commodity to americans.   Perhaps the brand will survive outside the US, but I can’t see how their green logo and fake environmental ads can continue to play here in the future.    So, I’ve sold the Jul 31 calls, since it won’t take long for others to come to the same realization.

  17. JRW what are the lines?  We are in the dark here :)

  18. Kink/BP:  I just read your post.  I new it was bad.  Holy Cow…’s the worst possible scenario.
    Bama must be aware of the full extent of the problem by now.  I wonder if he intends to break it to the public or try to distance himself from it during the address tonight.

  19.  Phil,
    On TZA I currently have 100 contracts of the Jan $4/12 bull call spread for $2.  Would you recommend I roll out of this into the Jan $6/11 bull call spread with the 1/2 $5 short puts?

  20. Futures/Exec – Don’t forget yesterday’s sell-off was silly so it’s almost a no brainer to go back and retest those highs.  We do need to punch it up soon and make new levels or those 50 dma lines will bend a little further south and the TA guys will start thinking they have a shoulder to cry on…

    BBY/Kurur – No, they are priced for better growth than this and I’d rather see them retake and hold $40 than gamble that $38.50 would hold but I wouldn’t mind taking advantage here and selling Jan $37 puts for $4 since $33 is a fine net entry on them anyway

    ETFs/Salvum – Very wise.  As we’ve seen recently, even the ETFs can blow your range more often than you think.  Stocks can completely wreck them!

    BAC/QC – I think the 2012 $15/22.50 bull call spread at net $2.50 is a great spread as I can easily see BAC in the mid-$20s by then and that’s 200% upside.  If you don’t mind owning them, you can pair it with the sale of the $12.50 puts at $2.05 and that’s net .45 on the $7.50 spread with 1,566% upside at $22.50 and your worst case is you own BAC for net $12.95 (now $15.45)

    BP/Exec – It’s probably going to be a great day to sell puts if you are brave.  If they can escape the day without being siezed and shut down, I think the bears will be disappointed.  Selling June puts is too risky but you can sell July $26 puts for $2.15 and that’s not a bad risk or you can buy the July $30/32 bull call spread for net $1 on the $2 spread so a nice 100% if they turn up.

  21. Good morning,
    IWM 65.73, 65.91, 66.42, 67.09, and 67.81

  22. exec:  well if the commenter is right, its a race to get the relief wells in place before the well collapses, so there is still hope of mitigating the disaster.   Here’s hoping we win that race.

  23. Phil/BP after reading Kink’s post…..I’m staying away from BP.  They have a major nightmare brewing in the Gulf.  It’s just a matter of time before our economy feels it.  Speaking of which, the fisherman and tourism will suffer, but someone has to benefit.  Have you figured out who that will be?  Besides the lawyers of course.

  24. exec:  I bought CCJ on Phil’s buy list.

  25. Hi Phil — Question on Med buy write — I have Med stock bot at 30.94 and sold June 30 call (3.15) and put (2.10), stock now 29.92 , what happen at expiration if stock is at 30, will I get stock put to me or call away — thx

  26.  Just trying to get the feel of how to use these options for things I think might happen.  If I think XOM will go back to $60 in the next few days, should I buy the July  $60 put for 1.10? THanks for the info-don’t have any experience with options yet--except the other day I was only able to execute one side of the trade suggested, & my lesson cost me $100 but I won’t forget it--now I KNOW that if you short a put and the stock price goes down--that’s not good. 

  27. fizz,
    " If I think XOM will go back to $60 in the next few days, should I buy the July  $60 put for 1.10? "
    No, because part of the move to $60 is already priced in and premium will drain away from your option. If you’re confident of the move and want to make a directional bet, you should do something else. There are many possibilities, but two are to sell XOM calls short, or buy a deep ITM put that has almost no extrinsic on it.
    Phil has provided tons of education resources such as the ebook at the top of this page, the trading education section, and so on. Don’t start buying or selling options until you understand unless the money you are using is really play money.

  28.  JRW, good morning
    Any lines below 65.73? thanks.

  29. I’m not sure why the market is up this morning……

  30. EricL.  Thanks for the answer and the advice. I appreciate your study of charts very much.

  31. In TNA at $45.86

  32. Fizz- I’ll leave Phil to present his usual lecture but it would seem to me that you need to watch and learn. Buying the XOM put could work for you but I would be more inclined to sell calls if I anticipated a pull back. One of the "rules" here is to always try to sell premium , not buy it – but it all "depends".
    Shorting puts can be a great way to make money but take it from me and I am sure others will agree, it can get you in trouble in a hurry if you are not absolutely sure about what you are doing.

  33. balance,
    65.33, but I doubt we see it.

  34. Ahhh, all that JAZZ…..hitting 200d MA on OH resistance. 

  35. Phil, could the markets rise have anything to do with the CBOE ipo this morning?

  36. HI, Phil, on TBT, i’ve got 50 Sept.  37 calls and short 50 June 40  calls,  what kind of adjustment should I make , if any…. ?

  37. JRW,
    Man does TNA move fast.  Are you just nipping of quick hits or are you holding?

  38. Volume is dreck here, just 22M at 10am so meaningless movement at the open.

    Well/Kinki – I’m not buying the worst-case yet.  This is a problem on planet earth (we’ve mounted space rescues faster than this!) and, as mentioned before, the Russians have gone nuclear on a couple of well disasters and shut them down.  I think something less than a nuke can do the job and just slam the thing shut but we’re not at drastic measures yet.  The problem is that the Administration can’t say things aren’t so bad because it sounds like they are sucking up to the oil companies and if BP tries to say things aren’t so bad they are laughed at and the media loves the doomsayers so they are getting all the traction. 

    Roubini/Kustomz – I’m sure these guys can help you.  Might be a good business

    BP/Stjean – That is the worry, that the US gov will circumvent laws and change the rules and destroy BP but I don’t see it happening when a compromize can be worked out that would let BP pay up to $100Bn.  If they slam BP, they only end up guaranteeing that all wells in the future will be owned by untouchable LLCs that sell their oil to the majors.

    Greece/Dez – Surely not the only thing but clearly the market mover at the time.  STD is a factor too as is BP and today BBY – it’s always something but I don’t put a lot of weight into rehashings of news we already knew. 

    DIA/Yodi – We wait for the caller to expire.

    BP/LV – I guess you’ve seen my take already but just be very careful about tonight.  If they get through this day with anything that looks like a compromise with the administration that will boost them and any actual stopping of the damanges will bring the arb guys right off the sidelines.

    TZA/Cslan – Why would you do that?  The $4/12 spread is $2.77 in the money and you’re not taking enough off the table to make it worth moving to a pure premium position.  If you want to collect some cash, then you can roll from the $12 callers to to the $8 callers for .80 and/or sell some short puts but there’s really nothing for you to protect unless TZA is falling below $6 so THAT’s when you should be selling puts, as you’ll get more money then. 

    Benefits/Exec – That’s kind of like figuring out who "wins" in a nuclear attack.  Just bet on tourism that isn’t in the Gulf – could be a nice break for California this year and South Carolina assuming oil-canes don’t drag the water from the Gulf up the coast.  I have been looking and looking but I can’t get a handle on the size of the Gulf coast economy – that would be a good thing to know.

    MED/Gucci – Have you read Sam’s post on them?  I would NOT be hanging out in that stock.  If they are over $30 you get called away and $30 is put into your account.  If they are under $30, more stock is put into your account and $30 cash is taken out.  Either let them get called away or shut it down I think – not worth the risk.

    XOM/Fizz – Well we are very much against buying premium unless you have a very good reason (and gambling with limited risk is a good reason – as long as you realize that’s what you are doing).  XOM is at $61.80 and if you buy the July $60 put for $1.10 you need XOM to finish at $58.90 just to get your money back on the 16th so about 4 weeks for XOM to fall $2.90 or about .75 per week so any week that XOM doesn’t drop .75 closer to your goal is a loser for you.  So your real bet is that, over the course of the next 5 sessions, XOM will fall more than .75 and that will give you a gain.  That makes your target $61 by next Monday and now you have to consider what you will do on Friday if XOM is at $63 and your put is down .33 (the delta).  Will you want to hold it into the weekend and risk a 50% loss?   If that’s the case – then maybe you are better off simply going with the July $60/57.50 bear put spread at .50 since you can probably pull that with a 50% loss and you are in WAY better position to make a profit and $2 is PLENTY to make on a .50 bet so no need to take bigger risks out of greed.  I don’t agree with your premise by the way and I’m long on XOM but I thought it’s a nice way to go through the logic of selecting a play…

    And what Eric said! 

    Why up/1020 – Because there is nowhere else to put your money.  This isn’t about everything being great, this is about there is a certain amount of money in the world and only a certain amount of things to put it in.  Homes no longer work, commodities are questionable (even more so if doom and gloomers are right, in fact) and banks and bonds pay no interest for holding your capital but there are THOUSANDS of companies that are making good profits every day and provide returns on capital in factors of 10 above passive investments.  Why should it be surprising that SOME people find it enough reward to justify the risk? 

    Lecture/Pstas – Damn, am I getting that predictable?

    CBOE/1020 – If the IPO goes well it should be a bit of a boster…

  39.  JRW, thanks!

  40. Hi Peter and other SS — when is a good time to start position in  SS for SPX or RUT for July and waht range are you setting at – Thx

  41. Phil, I have been assigned MEE. My cost is $34.50. Any suggestion to write calls & puts for income or lowering costs? thanks

  42. YRCW just hit .22 again.

  43.  Phil, 
    I followed your advice on the June hedges (SDS 32/35 (no put) and TZA 8/9 July 6 P) but never got a chance to exit as the market has turned again. Should I hold on for a dip or do you think this rally is sustainable into Friday?

  44. pstas--ur right of course, but I’m just getting antsy--and I have been studying the options ebook--read about how it works like reading about math, but feel like I need to do the math problems now--that option I did the other day taught me alot though.  I just had to get a reference point in my brain to remember what change in price does to an option, I guess--won’t try it again for real for a while-maybe never if I cant figure out the implications of a purchase on my own like my XOM question!!  If you don’t mind, I will show my ignorance more often, by asking more questions--I’ve tried to just watch for a while now. 

  45. exec
    In a perfect world I buy in the morning and sell at 3:59 for 15% !!

  46. Hey hey! Euro just hit 1.23

  47. Thanks Phil. I think I’ll wait until IWM 65.33  :)

  48. JRW,
    I’m tempted to jump on board with you.  Might be late in the game today though.

  49. NAHB Housing Market Index: -5 to 17, sharpest drop since the height of the financial crisis as the expiration of the homebuyer tax credit dimmed prospective sales. All three components of the index fell, and builders were more discouraged in all four regions of the country.

    Apr. International Capital Flow: Net foreign purchases of long-term U.S. securities was $83B vs. $140.5B in Mar. International demand for Treasurys was $76.4B vs. $108.5B in Mar. China remained the biggest single holder of Treasury debt, with $900.2B; Japan was second with $795.5B.

    Redbook Chain Store Sales: +2.7% Y/Y vs. +3.6% last week. Reduced discretionary spending and less traffic led to the dip in sales.

    The Federal Reserve Bank of New York is poised to have its powers expanded, but at the risk of reduced independence. Lawmakers want its chief, now nominated by the bank’s board, to be a White House appointee. Combined with the addition of a proposed "diversity czar," WSJ calls the provisions "the most brazen attempt to hijack central bank policy since its founding nearly a century ago."

    Fed officials have quietly begun to discuss their next steps in the event that the recovery fizzles or inflation keeps falling. One of the few avenues left to the Fed would be asset purchases.

    What’s happened to Wall Street’s mighty lobbying army? It’s still pushing to shape the financial reform bill, but some of the toughest regulations appear destined for the final legislation anyway. Some lawmakers want to avoid even the slightest appearance that Wall Street is influencing their vote.

    U.S. banks have no significant exposure to European sovereign debt, FDIC’s Sheila Bair says, and U.S. economic recovery should not be affected. Lenders from the U.S. were owed $17B in Greece at the end of 2009, data from the Bank for International Settlements showed, while French and German banks were owed $120B.

    The Greece rescue bought a "maximum" of 18 months respite before deeper structural damage triggers a "probable" default by Greece, setting off a chain reaction across southern Europe, AXA’s Theodora Zemek says. "We are in a very major crisis that has even broader implications than the credit crisis two years ago."

    Investors have long since decided that Greece wasn’t investment-grade, but Moody’s downgrade of Greece’s bonds to junk is still relevant. The cut removes Greece from several major bond indexes, which will require some funds to sell their Greek holdings. The downgrade could also hit banks, and the volatility in the rating will be intolerable for many investors.

    The global economic recovery is likely to be "slow and tortuous," says China’s Banking Regulatory Commission, and China faces several risks stemming from "unwise lending," sovereign debt crises and USD exchange rates.

    CBOE Holdings makes its public debut today, after having raised $339M selling 11.7M shares at $29 each. The operator of the biggest options exchange will begin trading on Nasdaq under the ticker CBOE.

    Even a bankruptcy filing wouldn’t be enough to fully protect BP (BP) from the costs of the spill, which Credit Suisse recently estimated could climb as high as $37B. Kinda puts the request for a $20B escrow account into perspective.

    Fitch downgrades BP’s (BP +2.9%) credit rating a staggering six notches on cost concerns after lawmakers push for a $20B escrow account to cover spill costs.

    Apple (AAPL) quietly unveils a new Mac mini, "the world’s most energy efficient desktop," measuring a svelte 7.7 inches square and 1.4 inches high. The $699 model includes Intel’s (INTC) 2.4 GHz Core 2 Duo chip and 2 GB of DDR3 SDRAM. (PR)

  50. Look at Dave’s CAAS trade.  It’s rippin’ up the road.

  51. kinkistyle – thank you for that oil article…amazing scientific details on what might be happening.  If the worst case bore casing fracture/complete bleed out occurs…a possible 105 BILLION gallons of oil is sitting 12,000 feet below the ocean floor, according to some sources…crazy bad worst case scenario.  At best case, the well gets plugged in two months.

  52. Phil, thanks for your time explaining the reasoning--that’s what I needed.

  53. exec
    Wait till we break over 65.91 solidly; see my levels !!

  54. Dollar breaks 86 to the downside we can head much higher..Euro needs to break 1.2325

  55. JRW…Could you briefly explain your levels to me, again.  Sorry to bug you.

  56.  Hi Phil,
    Got a spec idea and wanted to get your thoughts.  I think AOB could have hit its bottom around here.  Although I can never vouch for a Chinese company’s books, I have to go with what is filed.  Excellent price to book value. Revenue growth yoy seems to be solid.  Total Cash is 96M, total debt is at 129.5M but Operating cash flow is 27.64 so risk of BK is not high.  And unless the Chinese folks decide to really hunker down and not spend on pharma and healthcare products, I don’t see this going under.  Of course the risk is that these numbers are rigged.
    AOB- Buy Jan 5 call, sell the 2.5 P synthetic long for net credit of .20.  

  57. GOOG….Selling June 500 calls seems a decent trade for today.   They can easily be rolled to the July 550s for the same money. 

  58. JRW,
    I don’t understand your levels.  You say 65.91.  What does that mean?  TNA is trading at 46.62

  59. Iflan
    When IWM bouces off one, buy that direction; be ready to sell at the next level, or the next, or the next

  60. exec,

  61. exec, levels are for IWM.  But everybody trades 3x leverage via TNA.

  62. Phil,
    How do you feel about the mattress puts Jun and Jul Sold still yesterday some 102 and 101 showing a profit of 40 % do you think DIA will hold 102 now 103.15 until Friday ??? thks

  63. Adjustment/DMan – If you are brave you can try to roll down your call.  About .60 per $1 is the most I like to go and preferably $1.20 for $2 so as not to churn fees. 

    Whee, oil up at $76.43 – that’s going to make XOM happy.  OIH over $100 again. 

    MEE/Jossie – Sure, you can take $17.25 (50%) by selling the 2012 $35 puts and calls.   Of course that $17.25 goes back to pay for margin on the put side but you drop your basis on the stock you have to $17.25/26.13 so it’s like having free 20% insurance and a 50% pop on the total commitment (stock basis plus margin) in 2012 if you clear $35. 

    YRCW/Kwan – Thanks, I still have a .21 buy order in, maybe I’ll splurge here and sell 1/2 at .24 for a .20 net basis – Oops, scratch that, I filled at .21!  That was me putting in the bottom but the above plan is good for people who missed it. 

    Hedges/Amatta – If they were a gamble and not insurance, best to get out as we don’t look like we’re going down.  I am for keeping the July $6 putter open as I don’t mind rolling him along.  I do think the rally is sustainable as it’s not a rally, it’s a bounce.  If it becomes a rally, then both of those positions are toast!

    Don’t worry Fizz, you have the right to ask dumb questions and we have the right to make fun of you for asking dumb questions so it all works out.  The only thing that bothers us is people who ask the SAME dumb questions over and over again. 

    Go Euro go!

    OK, here we are again.  Let’s keep an eye on yesterday’s highs and, of course, RUT 666 but SOX are up 3.6% and transports are in-line with the rest at 1.4% so a nice, orderly move up so far….

    CAAS/Iflan, Dave – Very nice.  Totally amazing winning percentage for Oxen in a choppy market!

    AOB/Jdub – I like it from the numbers but I don’t touch those ADRs other than a very few that I feel have gotten enough attention where I figure someone would have noticed monkey business if there were any.  AOB sure looks great on paper and that trade makes it worth a flyer just like any crazy US biotech. 

    GOOG/Iflan – Selling June $500 calls for $2.60 is a bit risky, I’d rather sell the $480 puts for $2.40 because I WANT to own GOOG if I end up rolling them down to (for example) Jan $250 puts.  I do not, however, want to be short on GOOG if they are jamming me up to the Jan 700 calls as they gather steam

  64. exec…..easy way to remember to track the IWM for JRWs trades on TNA/TZA is ….IWM="I Want Money"   :)

  65. Got it

  66. JRW,
    Are you buy TNA  stocks or options?

  67. Phil….Well, on GOOG I’m selling the calls against long September  500 calls, so not naked.  Thanks.

  68. lapper--What?!!  must’ve missed that part.  I had assumed you guys were buying the stock--I should’ve known it wouldn’t be that simple!! Man I’m behind the times.  LOL

  69. Phil – How can individuals profit from a future negative fed fund rate (-2.9% to -5% according to articles concerning Ben’s "play book" to fight deflation and stubborn unemployment)???

  70. exec
    I’m in the stock; I buy the options for mid-term movement, and that’s in a different part of my portfolio that I don’t report on. This box is for current market S/R levels and direction.

  71. Lflan and Phil -

    Thank you. It is a good company with great future ahead. I highly recommend it.


    Up about 4.5% on it. TSL is up 8%. GMCR, however, is the loser of the group down about 4%. Long Term Portflio 2/3.

  72. Fizz:  Why just have excitement when you can have 3 TIMES the excitement?

  73. I’m starting to eye the REITs for some possible short positions again (SPG, VNO, SLG, etc.). They are back up near the top of their recent ranges.

  74. Phil / Banks    Bank stocks are largely discounting a foreclosure tsunami.  But I read that a large part of the bad RE loans have been sold on to investors and more recently various Gov’t or taxpayer funded (Fed, Treasury, Fanny/Freddie, FDIC guarantees etc) enitities, some argue over a trillion.  Do you think that enough of these toxic loans have been removed that even 7 million more foreclosures will not destroy bank profitability / book value?  If this is true, then ZIRP through 2011 (and maybe longer with even Goldman seeing little growth ahead) will produce a lot of profits in the big banks like JPM and BAC.  Very confused about this loan exposure issue vs benefits of obscene spreads.

  75. goldman:  Phil predicts TBT at 60, and that very well may be why it will eventually go there…

  76. JRW,
    I’m all over it now baby!!!!  
    I have the levels plotted and ready to wreak some serious havoc.

  77. kinki--good point, but now--here it comes…..--how do you do that?

  78. Jdub,
    I have a small position in AOB for a long-term hold and, hopefully, a ten-bagger! :-)
    Thanks for the heads up. I’m in with you selling against a Jan long call.
    ATPG also rockin’ since our call!  I can’t take credit; someone else mentioned it a couple weeks ago and I just watched it and reiterated, then Phil turned it into an official position. Soooo, good teamwork, people!  Sold some calls against the position.

  79. JRW – what’s up,  we are hanging on to our white sand beaches by a thread.  Been busy with other endeavors, but following lightly.  I have an off-topic question if you get a chance dowupdown at gmail dot com.

  80. Phil: I know we discussed this before; but here is the article that discusses the risks of leveraged ETFs:
    "The unleveraged iShares Russell 2000 Index (IWM 65.93, +0.58, +0.89%) lost 6.5% annualized over the three years through May. But the leveraged bull fund fell much harder, losing 26%. Given the index’s decline, an investor might have expected the leveraged bear fund to gain; instead it tumbled 22%.
    Leveraged funds’ returns can look disjointed even in shorter periods. Year-to-date through May, the Russell 2000 index rose 6%. The twice-leveraged Russell 2000 bull fund was up not 12%, as might be expected, but 10%. Its bearish twin was down not 12%, or twice the inverse performance, but 19%."
    Could you share your thoughts?
    Also, do you like BSX as long term play?  Buy stock at $6, selling Jan12 put/call for $3.44, so net 2.56 cost, with 100+% if called.

  81. SeanC
    The lesson is don’t hold leveraged ETF’s for 3 years; sometimes I only hold them for 3 minutes !!

  82. kinki--that really was stupid now wasn’t it!!  TNA & tza are the 3x leveraged  for the IWM, right?

  83. phil, what exactly do you mean by this:  Adjustment/DMan – If you are brave you can try to roll down your call.  About .60 per $1 is the most I like to go and preferably $1.20 for $2 so as not to churn fees.

  84. JRW,
    I’m watching this pull back.  What is your strategy for determining whether on not to buy a level if there is a pull back?

  85. If want owned long time 3x leveraged ETF, its better short opposite ETF

  86. BP backspread:  3 Oct $33 calls at $4 ($1,200), selling 5 July $33 calls for $1.95 ($975) is net $225 on the 3 contracts.  If BP heads higher, you cna buy 2 more calls and roll the callers up and out into a vertical.  If BP flatlines, could become a nice income producer.

    Mattress/Yodi – If we are over the 10,300 line, then stay fully covered and let the premium run out.  If we fail there, you just need to use 10,250 as a stop line on the $101 puts and the $102 puts are an easy roll to 2x July whatevers

    Negative funds/Goldman – How does that work?  They pay you 5% to borrow money?  Well get me a Trillion and I’ll see you on the island!  You can short TBT as treasuries that pay 3.5% will fly up in value but look at the TIC flows above – no one is buying notes at 3.5% – if they drop them, who will be buying?   This is like a person who’s debt is maxed out having a "plan" to get another credit card and spend some more – it’s not realistic or sustainable.

    RIETs/Eric – Dear Lloyd – lead us not into temptation…

  87. Out of TNA at $46.65; reloading.

  88. Hi gucci,
    VIX is dropping, so it’s not as a good time to get into July.  It’s better to scale in as VIX climbs generally.  However, if you worry about missing out on the Theta decay as time is slipping away, you can enter a spread anytime with a big caveat that there should be sufficient margin to roll 2X twice.  For example, you can sell SPX Jul 950 put for $4 (which is about 14% OTM).  Rolling 2X would give a 4-5% cushion each time, so you can get down to SPX Jul 870 for a breakeven point, which is very good.  As we all know, VIX will jump (and your account balance drops) if we get that far down, so you’d need to have the right number of contracts to start with.

  89. TNA/fizz:  Buy TNA to play the russell to the upside and TZA to play it to the downside.   Easy enough to do, but actually making money like JRW is much much harder than it seems.  Especially in the crazy whipsaw days that are specifically designed to destroy day-traders.

  90. IWM players,
    You should all have a resistance line from the top at 11:22 yesterday through the tops today, and a support line from the bottom at 2:40 yesterday through the bottoms today; FYI

  91. Very strange action in currencies, all but the Yen weak..a few min ago

  92. JRW,
    Are you working on a 2 day/ 5 min chart?

  93. JRW     What  would you call the 66.08 line today?

  94.  BP oil spill
    Some things to think about:
    1.  The diameter of the well was drilled to be about 7 inches, according to initial reports.  The deep sea oil spill off the coast of Australia was drilled to be about 12 inches.
    a.  This diameter probably widens over time, because the stuff coming up is under tremendous pressure.
    b.  It is difficult to hit a hole this size with a second well.  It certainly hasn’t been done before.  
    c.  Bombs detonated at the upper end of the well will only widen the diameter.  (And if society is talking about putting a nuke down a 7 inch hole it means society doesn’t know what the hell is going on, and those who know are happy to keep it that way.)
    2.  The pressure one mile beneath the sea, where the top of the well is, is about one ton per square inch.  Generally, a few orders of magnitude higher than at the surface.
    a.  One can approximate that the pressure where the oil is (~ 3miles closer to the center of the earth) is a few orders of magnitude higher than at the sea floor.  
    3.  Wait for the Gulf Stream to bring the problem to the Atlantic Beaches
    The gulf stream warms the coasts of the eastern seaboard.  By September, or later in the fall, the gulf stream will bring the underwater plume to the eastern seaboard.  
    Here is a model:  To see the model, go to 48:00 in the talk.  The guy giving the talk from, which has been all over this.

  95. Phil,  I have TBT   June 39 short put.             WWPD?

  96. kinki--Yes, I see that--I’m just watching for now and focusing on asking my stupid questions today.  I did have the TNA and TZA figured out-by the way--when you said 3x the leverage-there is so much I don’t know--I was thrown. JRW made a play in both yesterday as I watched.

  97.  this is not to say "buy puts on BP now!"  This information has been out there for a while, but the implications are slowly being realized.  I know that it seems reasonable that BP can pay for the clean up, but the big unknown to me is if they ruin the tourism economy of Florida, and everyone else that the gulf stream touches, how much will that cost?

  98. Phil, my intention was to protect the longs, but as you said the protection is for drops of 20% or more. The problem I have is that the market did drop from the moment I purchased the insurance but not enough to make the trade profitable… The question is when do you know what is the right moment to take it off the table?  
    I still hold the Sept SDS 29/36 30 hedge and the Oct 23/27 23 DXD hedge (they are covering $30K in downside from longs) What do you suggest doing with this one at this point? I intend on putting 25% of the cash ($100K)now to work on some of the buy writes recommended from the buy list (Is this a good entry point?)

  99. Phil,
    Here comes that retest you talked about.  High Noon…..right on cue.

  100. exec
    I have several, but for this I use the 2 day, 1 minute, W/ momentum, stoch, rsi and volume

  101.  Phil,
    FINREG play- clearing house firms theoretically should be a winner right? PNSN and/or KCG?

  102. stockbern,
    Inconsequential,; it’s more about that upper trend line averaging 66.08,

  103. TBT just went vertical…

  104. A Typical Problem
    In the last few months, smartphone makers have had difficulties meeting demand for most cutting-edge devices due to component shortages, especially for the large, high-resolution screens used by these models.
    Sprint has sold out of its stock of the HTC EVO 4G, while Motorola’s CEO has admitted his company could sell more of the Motorola Droid if it could make more.
    Verizon’s online store says new orders placed for the HTC Droid Incredible today will ship by July 13.

  105. Wow, people are standing in line to pre-order the iPhone 4. Apparently the online system isn’t working too well at the moment.

  106. Fizz- I like to think of day trading TNA  kinda like this: juggling fire batons while wearing highly flamable clothing. Sounds exciting doesn’t it?!!# :)

  107.  kwan, waiting list at every apple store in phoenix (five of them) for Ipad3G.  A lot of demand – interesting with 10% unemployment – people pay for what they want regardless of how much money they have.

  108. JRW  -  I use the same exact chart and indicators (2 day/1min, etc) but also have MACD signal, line, and histogram in addition.  Not sure what to think today about the decreasing trend line on the RuT volume…and the 68M Dow volume at noon.  There doesn’t seem to be much conviction today…

  109. exec,
    Just saw your 11:35 post, sorry. Well, I bought back TNA at $46.33 as IWM 65.91 provided suport again. That’s pretty much how it works !!

  110. kwan/iPhone4 – Yeah, I tried pre-ordering online this morning at both the Apple and AT&T sites and they both went down multiple times.  I finally gave up.  Will try again later.

  111. Loans/Tusca – Here’s the thing.  At 6%, a bank collects $430,000 for every $200,000 it lends.  This number freaks people out but it’s real (see "Interest Scams and How to Avoid Them – Mortgage Madness!") so, as long as they can keep the game running long enough – all these "losses" wash out over time.  That’s why, even when we were crashing in March 2009, I was pounding the table on buying EVERY financial.  My logic was simply that they couldn’t all go BK and the winners gains would wash out the losses on the losers, even if they went BK.  As it turned out, our only major loss was WM, who we thought would make it and everything else was pretty much a grand slam.  I still like simple old XLF as a long-term play as well as C, BAC and JPM who top my TBTF list. 

    I like the fact that Tillerson (XOM) is a CEO who actually knows his stuff.  Almost encouraging to hear him answer questions on how drilling should be done properly. 

    Leverage/Sean – All ultra-ETFs lose ground to the main index over time.  It’s not complicated.  If IWM drops 10% then TNA drops 30%.  If IWM goes up 11% (from 90% back to 100%), TNA goes up 33% from 70% to 93% so on a move that is "even" on the IWM in 2 days, TNA loses 7% – over time, alll ultras will be ground into dust and the more volatile the market, the faster it happens.  ALWAYS be aware of that when you are playing with these things!

    TBT/Dman – REALLY?  Please stop playing with this ETF, you are driving me nuts!  I’m talking about one of the most basic strategies in the mattress plays which is rolling down the calls you own for .60 per $1 strike where you buy $1 of intrinsic value for .60 on the expectation that the drop will reverse itself.  Why do you ask to adjust the play constantly if you haven’t even bothered to learn what adjusting is?  In the second part, I’m suggesting waitin until you can roll down $2 for $1.20 so you don’t pay 2 fees for rolling your calls lower ($1 roll x 2).  As usual, you are in a TBT position you do not have faith in and when it turns down, even though it is 3 moths to expiration and even though you are $2.35 out of a possible $3 in the money you are worried about your position.  It is not good to have ANY positition you obsess over – you are letting 1,000 opportunities pass you by while you stare and stare and stare at this and ask another question every single day on what is, on the whole, meant to be an insurance play against the value of our cash being lost to inflation. 

    Shorting ultras/Pahur – Yes, that is the smarter way to go.  I prefer to go long on ultras that I don’t mind getting stuck with at the floor price, which I why TZA is my current favorite as, even if they do fall to $3, they still make good protectors in 2011

    Well/Occam – The hole you see is the top of a 1-mile hole as the actual oil is a mile beneath the floor of the ocean.  You can put a bomb 1/2 mile down, blow it and collapse the hole.  There is a fracture risk that means you don’t make it your first choice but it can be done.  My understanding is Russia has blown up wells like this 5 times but, of course, the Russians have also used nukes for terraforming so they are a lot less worried about environmental impact than we are (although Futurama teaches us that radioactive lobster-men are kind of cool).  

    TBT/Stock - It’s at $39.50, what do you think?

    Wheee – go BP!  

    Insurance/Amatta – You should always have some.  The Sept/Oct insurance is very good for another month at least and, then they can be rolled to Jan insurance for another couple of months of use before rolling again.  Insurance is USELESS if you are not benefitting on the long side, the idea of Disaster Hedges is you are hedging plays like the Buy/writes that you know FOR A FACT will make far more money if the market does not go down than you will lose on your insurance play.  If that is not the case, then you are out of balance and you need to rethink, not just the insurance play, but what your strategy is for your whole portfolio.  

    OK – This is the point where we made a ton to the short side yesterday but I am not feeling it today.  We don’t have bullish short-term plays left to cash out (or if you do, this is a good time to cash out!) so this is all about just patiently waiting to see if the RUT can join us in happy-land today.  Now that we have 10,300 – we want to hold it as well as S&P 1,100, of course, NAS 2,275, NYSE 6,900 and RUT 660.  That now becomes a new 3 of 5 we need to keep to to stay bullish.  Watch VNO as they test $80 – if they pop that we could be breaking out.  XLF $14.50 is another line in the sand.  

    DIA $105 calls are .20 and that’s a nice gain.  You can take 3/4 off the table and what’s left is a free call.

    Short side play would be TZA July $7s (too late for the Junes) at .66 if we fail 2 of 3 of the above levels.

  112. Jomama- was thinking the same thing last week while on vacation. Cruise ship, fully booked. Every flight, full and overbooked. Everyone at the airport had an ipad, ipod, iphone, laptop… wonder what it takes for people to really cut back hard. I just don’t get it.

  113. JRW – I keep seeing this strange 55,000 shares @ 6.66 purchase on TZA at level 2 (today @ 12:19pm)….it was purchased at 5 pennies higher than ask just now, and on Monday the same size order was sold 5 pennies lower than bid.  Why would someone loose $2750 on purpose???

  114. goldman / conviction
    I agree; but I think we are going to 1108 on SPX anyway !!

  115. goldman
    Phil will tell you about all kinds of games these guys play; but to answer your question, to move a candle across a line.

  116. Out of longs, all i can hope for now is some Euro weakness

  117. Jbur / FLAMES
    LOL !!

  118. Jbur--there are sure different ways of looking at it!  JRW is pretty good at it with his lines--it is interesting to me, but I know you can’t win every time.

  119. AI That Picks Stocks Better Than the Pros - any programmers here think we could write a similar algorithm that mines google news for nouns and then makes similar short term trades based on the nouns used in the article?

  120. Phil – The Russians used small nukes to close off 3 natural gas wells, but they were above ground wells on dry land.  The fourth and final attempt failed…and they have not tried the procedure since.  The issue in the gulf is the radiation fallout, as if there are any substantial void and the well collapses, etc…the gulf would have bigger issues to worry about than just simply oil.  I really don’t see it as a valid option…other than complete desperation.
    Also, concerning negative fund rates…the link below discusses  how it could be accomplished:
    Another article of interest, section pasted below:
    Mr. Rudebusch concluded from Fed decisions over the last two decades that there was a statistical relationship between core consumer price inflation and the gap between actual unemployment and the natural, or normal, rate of unemployment.
    Given that relationship, as the recession worsened and inflation slowed in 2009, the Fed in theory should have lowered the federal funds rate by another 5 percent, Mr. Rudebusch wrote. In reality, since the Fed had already hit what it calls the “zero lower bound,” this was impossible; the central bank left its target range for the fed funds rate at zero to 0.25 percent.
    “To deliver future monetary stimulus consistent with the past— and ignoring the zero lower bound — the funds rate would be negative until late 2012,” Mr. Rudebusch wrote.

  121. Out of TNA at $46.91

  122. BMY 25.50.  Buy here selling the Jan11 $25 C/P for $4.30, or one can move out further to Jan12s for $7.35.  THAT IS A NICE ENTRY ON BMY!

  123. FINREG/Jdub – I think that’s probably flawed somehow as the stocks sure don’t reflect any optimism.   I do think PNSN is a nice little company at this price and you can buy the stock at $6.52 and sell the Jan $7.50 puts and clals for $1.90 for a nice, net $4.62/6.06 entry but they are thinly trades so it’s likely you either get stuck with more or called way – adjusting is unlikely. 

    Oops, game on for the TZAs!!

  124. SS
    Thank you for the 8ema trigger getting me out; don’t know what happened but the trigger sure worked well !!

  125. JRW- that’s what it was like last time I got burned… couldn’t find a fire extinguisher fast enough!

  126. for what is worth – euro just failed to make a new high and could be turning over – it rallied strongly past the european close

  127. Thanks Phil. But you are not concerned when you play those disaster hedges with supposedly 500% upside? – that 500% could be much lower or much higher, depending on how the underlying index zigzaged, I guess…
    You missed the second part of my question: do you like BSX as a long term play?  Buy stock at $6, selling Jan12 put/call for $3.44, so net 2.56 cost, with 100+% if called.

  128. Here is today’s Daily Discourse…

    Thought you guys might like to check it out:

    The Daily Discourse: The Amazing Success of Pixar Films – Creating Dreams

    Pixar Game – Name the following movie where this line appears (answers at the end of the article):

    A."You’ve got a friend in me"

    B. "It’s a bug-eat-bug world out there."

    C. "Hey there, Mr. Grumpy Gills. When life gets you down do you wanna know what you’ve gotta do?"

    D. "Hey, let’s play a game. It’s called "see who can be quiet the longest."

    E. "EVE!!!"


    Perhaps some of you were not as successful as that as some of the younger readers. Amazingly, Toy Story was released I was seven years old. It was a big hit in my household. I recently saw an amazing statistic on Business Insider about that every Pixar movie that has been released has been a Top Ten box-office hit on the year of its release. That is an amazing statistic that I do no think any other studio can claim. When I heard that statistic, I wanted to dig a bit more deeply into the company’s history and recipe for success.

    Pixar Studios began as a division of Lucasfilm in 1979 as the Graphics Group. The original company worked less on films and more on various animation techniques and parts of larger films. The Group’s big success was the Genesis Effect in the movie Star Trek II: The Wrath of Khan as well as the Stained Glass Knight in the Young Sherlock Holmesfilm. Steve Jobs came on the scene in 1986 and bought the Group for $5 million. The company soon changed the name to Pixar and worked mostly as a high-end hardware company that sold computers to the government and medical community. 

    In the late 80s, facing possible bankruptcy, Pixar began to do commercials for various companies’ commercials and was developing a relationship with Disney in a program for computer animation. Check out Pixar’s 1990 commercial for Listerine. Finally, in 1992, Pixar made a deal with Disney to produce three computer-animated films for only $26 million.Toy Story was the first grossing $350 million from 1995. The company made its first IPO in late 1995 for $22 per share on the Nasdaq with a listing of PIXR.

    From 1995 on, the company went on to make A Bug’s Life, which grossed $350 million as well in 1998. The companies went on to make Toy Story 2, Finding Nemo, The Incredibles, and Cars. In 2006, Disney bought out PIxar for $7.4 billion. The company had grossed nearly $3.5 billion by the time it was bought out. Since being bought out, the company has produced Ratatouille, Wall-E, and Up. Thus far, Pixar has racked up 24 Oscars, six Golden Globes, and three Grammies. 

    So, how has Pixar made such successful films? For one, they have had the Disney name behind their creations. The Pixar films are nearly as much Disney films as much their own, but in the same timeframe from 1995 to 2009, Disney has released only four movies that grossed more than $200 million: the three Pirates of the Caribbean series and the Chronicles of Narnia. This is despite releasing some 200 movies during that period.

    There is a Pixar success for sure. So, what makes Pixar’s success?

    Pixar’s John Lasseter says its quality. They only make one movie every year or every other year, while another company makes five or six and grosses nearly as much. It is, therefore, a matter of producing one great film a year or a handful of so-so to good films. Pixar has chosen the prior, and for that reason, have become such a success.

    This quote from Lasseter is great:

    One of the key things we do is we get comments, but from other filmmakers. Our creative brain trust is our own minds. So we know that we’re getting a reaction that comes out of total support, not ego. We have a rule: No note is mandatory, which allows you to be more open to criticism. We only use the notes that help us step back and look at the film through fresh eyes.

    Pixar is a dream machine. Period.

    They make fantastical movies about heroic characters come to the life with vibrant animation. They take the story linesthat cannot be done in reality and make them come to life: from toys to fish to bugs to rats to robots. The art of personification is on what Pixar thrives. They give normal human stories to fantastical characters and make you love them. There is not a touch of there films that is not nearly perfect – from the animation, to the voices, to the jokes, to the music.

    Pixar’s next film is Toy Story 3 – releasing this Friday should shine again. While it will not be as successful as the prior Toy Story films in creating an original idea, the creation of another success story is still on the way. On the plate for Pixar into the future. In the future, next year, the company will release Cars II. In 2012, the company will release a new story about bears – Brave.

    Since buying Pixar in 2006, Disney’s share price has increased from $25 to its current $35 per share. You can invest in Pixar by picking up shares of DIS!

    Good Investing,

    David Ristau


    (A – Toy Story, B – Bug’s Life, C – Finding Nemo, D – Up, E – Wall-E)

  129. Phil, I have had an order in on the BAC bull call spread, selling puts all morning at net 45. The mark is now .54. I don’t like chasing these things… what are your thoughts, just be patient?

  130. JRW,
    I understand that you’re buying back at the support level, I was wondering though, given the tendency for TNA to have sharp candles down, if you have a strategy that you deploy to determine if the drop is going through the first support level then bounce off the next lower support level.  For instance, instead of reloading at 65.91, how do assess whether the drop will take you back to the 65.73 level?

  131. According to a friend who went to DIS last week (Tuesday/Wednesday)….CRAZY BUSY!

  132.  Where the oil is coming from--
    According to this diagram the oil begins at 18,000 below the ocean floor.  That’s 3.4 Miles.
    It’s also posted as 3.4 miles below the ocean floor elsewhere
    The relief well will be spud about half a mile from the Macondo well, in Mississippi Canyon Block 252, and will attempt to intercept the wellbore close to its total depth of 18,000 feet.

    Once that is accomplished, heavy fluids will be pumped downhole, followed by cement, to kill the well.

    -- Let me know if I’m missing something because the pressure of the well is a pretty big deal to me.

  133. exec
    You just have to be ready at each level., watching the one min chart stoch RSI and momentum. The 8ema on the 3 minute chart using candles is a great indicator of directional change !! ( If you have multiple screens )

  134. Baker Bro. Life Sciences are gobbling up SGEN in this range.  I think a little entry of the stock 13.20ish selling the Sept10 12.5 C/P for $3.40.  Again, this is a small entry to see if they run up more……SGEN info:
    Brentuximab vedotin targets CD30 and has been effective and well tolerated in Phase I trials with relapsed/refractory Hodgkin’s lymphoma patients. However, these data come from a small study and so the results must be treated with some caution but the high percentage of complete responses in heavily pretreated patients was encouraging. If these results are confirmed in the Phase II pivotal trial then brentuximab vedotin would be an attractive treatment option. Key opinion leaders interviewed were generally positive about the drug’s chances of success.
    “One drug I am excited about right now is brentuximab vedotin. I am interested to see what its trial results will be and where it will fit into treatment in the future.” KOP

  135. JRW
    Amazing I’m preparing for a trip/wedding in Europe so I’m unable to focus on trading and I’ve NEVER seen JRW post so much insight!  Figures…
    Phil…I’ll be gone for a week and I wanted to know if there is anything I should do with TASR.  We are in a massive bull move today but TASR as I’m sure you see is down 5% and is not participating.  Are we just holding that stock or do we have an exit somewhere if she keeps dropping? 

  136. From David Rosenberg (He and Mauldin are buddies!!): 
    There has been a sudden and sharp turndown in railway car loadings in the latest data that came out for the week of June 5th — the YoY trend is down to a four-month low.
    ….there is growing speculation that Spain, whose banks are facing a major liquidity crunch (as they have been shut out of the interbank lending market), will also have to draw on the EU-IMF financial rescue plan.
    Even if we don’t get a double-dip recession (I was the only one at the weekend retreat to see the odds as being more than remote) economic growth will probably be insufficient to absorb the still-large amount of excess capacity in the system. In turn, what that means is that the U.S. unemployment rate will stay near double-digit terrain for an extended period of time. It also means that inflation and interest rates will remain low for a sustained period of time. And, it means that a stock market priced for peak earnings in 2011 could be in for some disappointment.
    Excessive debt in the household and government sectors remains a significant problem, and this is a hurdle for the corporate earnings outlook globally. Governments continue to adopt policies that seem to suggest that the problems are merely liquidity-related, when in fact they are highly structural in nature and will require years of fiscal belt-tightening on the part of consumer in much of the industrialized world, and in the public sector as well.

  137. Pharm - Anything particular going on with BMY now? It doesnt seem too far off it’s $27 high…

  138. stockbern / 11:39 post
    See, it’s not 66.08, it’s the line from my 11:39 post !!

  139. Phil – "I still like simple old XLF as a long-term play as well as C, BAC and JPM who top my TBTF list".  TBTF?

  140. Phil… and I don’t think Dent is needing that towel eh?  Has called the big trends perfectly for over a year now.  I’m pretty amazed he keeps on calling it.

  141. Rainman--TOO BIG TO FAIL

  142. Volume at 12:50 is 76M on the Dow, about normal for a program trading day.  We are more likely to get a stick if we have a dip back to the open (10,275 on Dow) than if we hang around up here, just under our breakouts – where we are more likely to form the candle we should have formed yesterrday, with a finish near the highs just under the tested tops.  The 2nd case is more bullish than a stick-save finish would be.

    Supply constraints/Kustomz – That’s why I love GLW.

    Cutting back/Jbur – That concept is rolling around as a post for me.  Last weekend I talked about the story of Joseph and Pharaoh and saving up for a rainy day.  Well, there are a couple of kinds of savings.  To some extent, the Europeans have banked, for lack of a better word, happiness.  They have a huge social safety net and support their sick and elderly and pay for educations and house the poor etc.  They work much less than we do and they are taxed much more.  What that means though – it they have a dozen different ways to tighten up and get more "efficient" if they have too.  They banked their excess profits into what Americans consider "exploitable inefficiencies."  That means they CAN get through this crisis by simply changing their lifestyles, something they are able to do as they are only 1 or 2 generations away from people who lived with war and horrible shortages so they "get" the idea of hard work and sacrifice – even if they may not like it..

    We, on the other hand, have already given up all our liesure time and vacation time and benefits and, rather than "banking" that excess – it has been drained out of the system in the form of corporate profits.  On that side, the American workers have little left to give.   On the other hand, our lifestyles are still off the charts and we can afford to cut down 1/3 of our food consumption and 1/2 of our living space and 1/2 of our living expenses and transport expenses and still be bigger spenders than our counterparts in Europe and Japan.  That, and the fact that we have the lowest tax rate in the industrialized world means the clearly realistic solution is to tax, tax, tax and let the people downsize their lifestyles and stop being the designated shoppers for Planet Earth.  It will suck for the people, it will suck for coroporaitons but we can balance our books and move forward from there.  That’s what we’re left with – we have nothing left to give but our lifestyles….

    Why/Goldman – As JRW says, that why is to hopefully trigger a move that makes them $270,000 a few minutes later.  It’s bait for fishing.

    News/Cwan – If someone knew you were running it with big money they could game GOOG news on you and make a fortune.

    Nukes/Gold – I’m not advocating nukes but we have some big-assed non-nuclear bombs.  We have thermal bombs that would melt the rock and, unless the plan has been thwarted yet again, those sharks with laser frickin’ laser beams attached to their head  should be ready to go..   8-)

    BMY/Pharm – Good one!

    BSX/Sean -  Yes, I do like BSX at this price and that’s a nice hedge.  As to the hedges, it’s all about what happens in a short, sharp drop.  A string of consecutive losing days does amazing things to the value of an ultra ETF.  The idea of the plays is to have a limited and acceptable downside vs. a high-reward upside.  If you are worried that the downside will be blown out – then you are too bullish to buy insurance.  Many people go around with no life, health or auto insurance and the vast majority of them are fine and save huge amounts of money in insurance payments that other silly people feel they have to pay so they can sleep soundly.  It’s all a matter of how you want to live and what risks you are willing to take.

    BAC/Jbru – If it doesn’t come back, then you make money on the puts and that’s that.

    RUT is not following other indexes higher.  Be careful as it’s either going to snap higher or everyone else will pull back.  SOX are up 4.9% so watch that 5% line.  That is pushing the Nas up over 2% and everyone else is up between 1.5 and 2% so I think we go higher.  TZA June $6 calls (.58) can be sold to cover July TZAs but with tight stops!

     Under water on NVTL at 7.00 now 5.90
    Sell for a loss, or wait any ideas

  144. In SDS at 1108 SPY …..

  145. Phil: the LURE you in and SCARE you out candles: for days now these enormous long candles on TNA are appearing, this must be a programmed event, I have been staying away for weeks from this.

  146. BMY/Brook – they are getting coverage (upgrades) for their mAb in melanoma.  The Imclone deal may eventually pay off for them, but they have a ways to go.  Their pipeline is OK, but I still like GSK and MRKs better from a ROI and risk perspective.  Since their Div Yield is ~ 5%, they are a good, risk/reward – better than PFE IMHO.  Also a take over target for NVS or SNY.

  147. JRW III: I know you use EM8, Stoch, RSI, momentum: I do the same yet these have never guide me well. I have added in lines at 20, 50 and 80 to look when those are crossed.
    On EM8, Stoch, RSI, momentum: what do you look for? change in direction, crossing 20 or 50 or 80 or what ?
    With regard to this , either TNA or IWM is ok to use, after all they are related and TNA gives aa exaggerated response.

  148. Bombs/Phil  – I’m no real expert on this, but my understanding is that our really big non-nuclear bombs like the daisy-cutter, are fuel-air bombs. They sort of pop & spray open, initially filling a large volume of air with liquid fuel, then that large volume all explodes. I don’t see how this would work underwater.

  149. RMM
    Read my 12:58 post; at the line, it either goes through or bounces off, take appropriate action !!

  150.  Hi All
    I’m new, and have been watching the dialog with interest. Thanks for all of your comments-I’m learning.
    I’ve been following SIRI since the beginning of the year, and have ridden it up. It has been chosen for inclusion in the Russell:
    Institutional buying should take place 6/25, and there may be a pop before (but it may drop after…). 
    Phil-do you folks make these types of plays?

  151. Hi Peter — thanks for your input-- I am not quiet good at know when is reasonable time to open a position without get a whip saw after I open it from the last several mos.  At what Vixx level that you said would be a good time to open with a reserve of 2x for cushion, on a next pull back???? if we do not have a pull back for example in July then just wait for the next month ? I have june RUT SS put so far and look like it will expired wortless my strike are 570 and 580 short put right now.  Not much premium let 0.20, I think I will closed it out today and wait for the next round to sell short put.  BTW — for RUT SS do you still use -15/+10 percent rule thanks ahead Peter

  152. Just touching base, put up the TZA hedge today.  Jan 6/11 bull call spread for $0.95, and selling 1/2 Jan 5 puts for $0.97.  This should hedge about 1/2 my portfolio gains.  That look ok to you? 
    What about resetting the DXD Oct 23/27 hedge from before, or should I look at Jan on it too? to maybe protect the other 1/2?

  153. JRW III: Directional change: that is your word.

  154. RMM,
    You beat me to the questions

  155. Nice chart Occam:

    So I’m saying drop a bomb and blow it between the floor of the ocean and the water – that doesn’t seem too crazy does it? To keep things in perspective, 200,000 GALLONS a day is 5,000 barrels – everyone keeps flipping these terms.  In a month that’s


    but the Gulf of Mexic (not the whole ocean) is about 1.5MKm on the surface and 1,300 meters deep and that works out to:

    650,000,000,000,000,000 gallons in the gulf so monthly oil in gulf works out to 1 part per 100M per month. 

    This is not to belittle the crisis but to put it into some perspective…

    TASR/Yip – I like them for the rest of the decade.  They are down until people get comfortable with the sales coming back and, with all this talk of fiscal restraint – that could be a while….  We expected a test of $4 though. 

    Dent/Yip – Did he call this before I did?  I’d like to get a handle on his actual timing.

    NVTL/QC – I’m not fan of them as I don’t think they do anything special and they are priced for extreme growth while they are actually shrinking or treading water at best.  If you REALLY like them, you can just get out of the stock at $5.90 ($1.10 loss), sell the Jan $7.50 puts for $2, which pays back your $1.10 and leaves you back in the stock at net $6.60 at worst.

    Staying out/RMM – Good call, this has been crazy to trade. 

    Bombs/Snow – I’m sure we have things that simply blow up with a big ka-boom…  James Cameron could probably get the whole thing fixed in 3 months for $100M and he’d make an IMAX special out of it at the end. 

  156. RMM
    What is your question ? The 8ema? Engulfing candle on opposite side of the line is conformation.

  157. Phil, We seen the run up of today before only to drop the same amount next day I am looking at FSLR which I have plaid in the past and I am still holding a Jun 95 p short which looks like running out worthless thanks to some one.
    Would you look at any call ply as the stock is up today by 9.00 thks

  158. The top of the 5/20 gap lower is at /ES 1110, FWIW. At this rate we will fill that gap very soon, perhaps today or tomorrow, and which point we will be pretty overextended, obviously.

  159.  The thing about the whole bomb/ creating a seal is that you have to figure that the pressure 3.4 miles below the seabed is several orders of magnitude higher than the pressure at the seabed.  
    So, yes you might be able to create some type of melty reaction on the surface.  But that has to seal quickly enough to defy the pressure.  Also, the seal has to be of sufficient mass to stop the pressure.  
    So these are the unknown questions in creating a seal at the top — can you create it quickly enough so it actually seals and can it be of sufficient mass.  
    Creating a seal at the bottom is also subject to unknown physics.  First, if you pour cement into the hole at the bottom, it is being sucked up to the top.  So, can you pour sufficient cement in the bottom that it will create a seal?
    Second, at that pressure, 3.4 miles below the seabed, I don’t think there would be much of a difference between "heavy water" or gold for that matter, and the rest of the stuff down there.  I don’t think anyone knows how cement behaves at that pressure.  
    So I have doubts, and I think that the ultimate disaster for BP is when homeowners along the Gulf and Atlantic sue BP for the depreciation of their property.  St. Joes will lead the way.  
    Of course, I don’t know what will happen, but none of the solutions to the problem seem possible to me.  I’m waiting for the St. Joes suit.  

  160. Out of TNA at $47.38 for $0.98

  161. Gold strong today, despite the stronger Euro and market bullishness.

  162. I’m doing JRWs trade today but with a different twist.  Bought TNA at 46.23 and now have a trailing stop at .15 with TNA now at about 47.60.  Rather than get out voluntarily I’ll let the trailing stop kick me out at failure to hold the .15.  I did 1000 shares, to get my feet wet on his methodology.

  163.  Note on the graphic — that was from about day 15 of the oil spill.  So the estimates are the old "it’s really not so bad folks!" BP estimates.
    Also, I don’t know all the disciplines involved, but I think that pressure probably increases exponentialy rather than linearlyl, so a bomb would have to explode below the midpoint of the 3.4 miles of seabed.  

  164. I am curious at what level of VIX does the team think we should stop selling premium? And what then is the preferred strategy when premium is moving lower? 

  165. JRW III;
    when 8EMA and StochRSI are under the 20 level, momentum is then under the 100 level, that means its oversold and a reversal is possible meaning an upturn,
    when these are over 80 and 100 respectively, then its overbought and a down ward reversal is possible,
    these changes are usually followed by engulfing candles on the IWM and TNA charts,
    Using this in conjunction with your lines as support/resistance lines, entry and exit can be made.
    Is that your method ?

  166.  Phil what is your stance on mattress here?

  167. Trying to get the TZA 6/11 bull call spread  on both TOS and TDA,  i am offering .90 for the spread, the working price is .88 but neither order will fill.    Not going to chase it, but WTF!!

  168. FMD !!

  169. RMM
    I got out because it hit my 66.42 then started to fail; I got back in ( $47.58 ) because it then blew back through to the up side, next stop 67.09 or a failure in between. Watch the stoch !!

  170. Kicked out of TNA trade by trailing stop at  47.95     3.7% gain.  Very acceptable. 

  171. My short SPY condors have finally rolled over bearish (they were bullish coming in this morning). I’m leaving them that way because I’m doubtful we break through ES/1110 or SPX 1115. In fact, I may add a few puts at those levels.

  172.  Phil,
    What are your upper levels to watch for this rally?

  173. Short some SPG with July put verticals, buying the 100s and selling the 85s.

  174. If SPG breaks over 91.50, I’ll either reposition those or get out.

  175. JRW…knows exactly what he’s doing…. Listen and learn…  I haven’t traded in 2 days because I’m busy but I’ve been half watching that has given me a different perspective.  JRW is like another friend of mine who is retired at 44 because of his knowledge of S/R, Fibs, Trendlines…and the like…  I’m still trying to catch up there! 

  176. lflan: trailing stops on TNA: risky, what did you use ?

  177.  CAP,  you are very right.  Using this gift to reposition and sell come calls – I think Obama is gonna put everyone in a greasy mood tonight.

  178.  Same question as yshenhar.  i’d like to see a longer consolidation after the break of 200SMA

  179. RMM  why risky?

  180. SPX – buying the 1075/1065 P spread is 2.75 or better.  This is a crazy stupid run when NOTHING has changed. Will hedge it out with a few lower strike covers.

  181. RMM  why risky?

  182. Out of TNA at $47.89

  183. RMM….I used 0.15 cents trailing stop.  Good volume.  Not much risk that I can see.

  184. Pharm, could you elaborate more on your comment about hedging the P spread.  I am guessing you would be selling lower strike?  Any explanation would be great.  Thanks.

  185. Welcome Oakd!  We were in SIRI at about .80 a while ago and got out when they popped.  I think their value is very much dependent on re-signing Howard Stern, whose fans account for a big chunk of SIRI’s subscribers.  If Stern retires, SIRI is in luck as it’s going to be hard to go back to regular FM for fans but if Stern goes to free radio again or if he goes on the web an starts charging $10 a months (he can make way more doing that than SIRI pays him) then they lose millions of subscribers.  That makes it a tough stock to play but $1 is a good price for the gamble and you can sell the 2012 $1 puts for .33 and that drops your net to .67 or you can buy the stock for .97 and sell the same puts plus sell the $1 calls for .31  and that gives you a net of .33/67 so the same .67 on 2x but you make .67 if you are called away at $1.

    TZA/Hoss – That’s the way to do it!  If we hold our levels, probably we kill the DXD as the TZA is a better play. 

    FSLR/Yodi – I don’t like that company.  The only time I play them is to short them at the top of a big run, otherwise, they are too dangerous…

    GOOG having a nice day.

    Pressure/Occam – I assume that pressure is a major factor but we have robots that get down there so it’s just a question of delivering the right solution using the tools we have.  I don’t understand why the relief well doesn’t just go into the same damn hole (slant drilling) rather than so far away.  I still think they are generally only trying solutions that don’t damage the golden goose…

    Mattress/BG – DIA Sept $105 puts, now $5.30, 1/2 covered with July $101 puts, now $1.63.

    VIX/Maxim – We always sell premium but we buy more when the VIX is below 20.  The plays we make depend on the overall market conditions (steady, coppy, rising, falling) and our outlook over various periods so – it depends.

    TZA/Humvee – I think our guys have bought everything and the MM is trying to fill his own orders right now.    That’s why I usually put up mutiple hedges – not good when everyone wants the same one. 

    Upper levels/Yshen – See above post.

    Mexico’s growth could surpass 5% as it emerges from a deep slump, Finance Minister Ernesto Cordero says, agreeing with analysts that the country will outpace official forecasts of 4.1% growth amid strong data on industrial production, manufacturing and sales. (Mexico ETF: EWW +1.7%)

    Not only do JPMorgan Chase analysts think the Gulf of Mexico spill won’t put much of a dent in U.S. economic growth, "a near- to medium-term boost to activity" from cleanup efforts might add to economic growth – at least in strict GDP terms.  Very Keynesian!

    Continental Airlines (CAL +3.3%) expects its Q2 free cash balance to be $3.5B, its highest ever, CFO Zane Rowe says. Airline stocks overall are seeing their second straight day of solid gains amid reports of a "dramatic" recovery in business travel: CAL merger partner UAUA +3.7%; LCC +5.9%; AMR +1.1%; DAL +1.1%.

    Pratt & Whitney Canada (UTX) believes the jet-engine market will return to peak production by 2015 and plans to make a move from the small and medium jet business it leads into bigger planes along the way. The company says it sees competition for aircraft that aren’t yet public, and that heavy-jet interest is leading that in smaller planes.

    Stocks are staking out new session highs on a good day for technology and conglomerates, not to mention financials; options volume leader CBOE is up 15.8% on its first day of trading after pricing at $29, the top of its range. CLSA initiated coverage of CBOE at Outperform with a $32 target. S&P 500 +1.7% to 1,108.

    Shares of solar companies spike on hopes that Obama will use part of tonight’s address to the nation to promote alternative energy development. Clean energy firms have tumbled one-sixth since the April 20 Deepwater Horizon blowout (ETF: PBD). FSLR +8.1%, JASO +7.7%.

    Callaway (ELY) off premarket lows but still down sharply after pre-announcing Q2 sales and earnings well below consensus late yesterday. "Management was vague in its explanation for the miss, noting increased economic and political instability in Asia and Europe, as well as sluggish consumer spending in the U.S.," Wedbush says, and drops its price target to $9 from $12. ELY -7.3% to $7.04.

    Three lunchtime reads:
    1) Understanding employment statistics
    2) What are commodities and gold telling us?
    3) Enjoy the traders’ rally; it won’t last

  186. TNA daytrading is like trading ES futures. What is ordinary people edge? Yes I can win a lot, but if you have not strong distsipline and dont use smart protective stops, it is long period lost game. What somebody think, that we can read TA better then computer programs? I think, not. Sry, but this is my 1,5 years trading experience and everybody must find this is your edge, if you dont know, you gambling…

  187. Phil
    Sold 1/2 DIA 105 C; other 1/2 now free.  You keeping them? I gotta run to school.

  188. Robert – First, I only did a few (2) for a easy DD if needed.  Then, I will sell an iron condor strike, but it will be a spread as well if we break 1110.  This is in an IRA, so it would be less margin intensive.  I don’t know which ones yet, but I am looking at the Jun Quarterly P and the Jun regular C.  My reasoning – we have moved almost 10% in a week, and that is a ton.  To move another 3% b’f OPEX would be a feat in and of itself so on the C side 1135-1145 sell (this is very risky of coarse).  On the P side for the quarterlies, the 1005/1000P for 60c. 

  189. Phil / Callaway
    I didn’t know they had twin turbo Corvettes in Asia, or for that matter, that Callaway was even Public !!

  190. SOX at 5% on the nose.  Transports at 2.25%, nas at 2.25% and everyone else just under 2%.  Can’t ask for much more than that on a day’s move.   Volume just 114M at 3pm so very stickable and that might finally wake Asia up if we head north from here but I don’t see it.  The need the firepower to insure the RUT pops 666 tomorrow and NYSE can’t close the deal at 7,000 with tomorrow a do or die day to fix the 50 dmas.  So a small sell-off back to 1.5% gains for the majors would still leave us with a very strong close and a good day but anything can happen in an hour

    DIA/Rexx – No, thanks for reminding me – done at .32 on DIA $105s is a good day’s work!  Congrats to all who played.

  191. lflan: it kicks you out easily as the variation/ATR is high. what trailing stop did you use ?

  192. pahuric
    That’s why I’m here !!

  193. Pahurik.. Respect to you my friend but 1.5 years means your in like… 2nd grade.  When you’re JRW and have a PHD you can day trade.  You said it correct though.  You need to have a LARGE degree of discipline and focus.  You’re entries better not be taken unless you have already established your stop loss.  No entry should be taken unless there is a sensible stop.  Lastly you’ve got to be quick.. One thought, Two thought…too many…

  194.  Phil, do that many people really listen to howard stern – i have had sirius for a few years and go out of my way to skip that crap.

  195. pahuric…….what JRW said!!!
    RMM….I told you, I used .15 cents trailing stop.

  196. TZA spreads finally filled at .90 and sold 1/2 the puts at .95!  It took a long time but they did fill via TOS and TDA.

  197. Phil
    What would be a good trade on JPM, similar to the BAC from this morning?
    I checked the buy list and could not find

  198. TNA $47.74

  199. lflan: TXS, did not see your answer, some of those candles are more than 15 cents wide, I usually get closed too early, it all depends on the TS.

  200. Phil,
    I am not sure you replied to some other member on TASR an other dead horse in the run down to 4.00 today on a wonderful run up today . I can not get out of the losing side. holding Jan11 2.5c long pd 4.20 now 1.67 sold out of frustration the Jan 7.5 p for 1.94 now up to 3.60 is there still any SPARK in this company your thoughts pls thks

  201. RMM…Well, what I do is follow a stock or ETF up with an ever-widening trailing stop.  Example:   Buy XYZ at 25.00   Set TS at .25   If I get kicked out I’ve 1% loss and can rethink.  If goes to 25.50, reset stop at .50 so I don’t get kicked out too soon or too easily.   You pick your own numbers on this but the idea is       a.   Don’t lose a lot right away on a bad trade.   and b.  Don’t get kicked out too soon once it’s moving in your direction. 

  202. GOOG looking good today, as Phil noted.  Interesting to watch the stock sit quietly at just under 500 while the June 500calls go slowly up in value.  Will it be pinned on Friday at 500, or at 510?   (Rhetorical question)

  203. Phil i think the Euro is spent, but i also believe Bernanke will some how kill the greenback while momentum is on his side…what are your thoughts

  204. Hello Phil,
    I got some IGT cost base at 19(forgot why I bought it :-( ) ,  got little profit now,   Should I sold it now or wait for it get back to recent high(ovre 21)?

  205. What effect will Obama speech have on BP price tomorrow…..any?       Anyone.

  206. Callaway/JRW – Oh yes, they were a father’s day pick of mine last year when they were down around $6.  I contructed a play that paid for a set of clubs!

    SOX at 5.4% now and Transports just popped 2.5% so it looks like they’re going for it today.  FXP July $35 puts at .95 are a fun way to play a big move in China.

  207. Phil / 25% net long   I followed your advice and went to 25%, especially oil integrateds which has been great.  Now added banks you recommended.  Is 75% cash still your guidance now 200 day broken?

  208. Please note RIG the 50$ play of the other day is coming up very nicely !!! Trading at 48.00

  209. Phil;\, 
    Wrong Calloway !!

    The Callaway Corvette is a specialist version of the C6 Corvette, built by Callaway Cars Inc. and sold through selected Callaway/Chevrolet Dealers
    They are professionally engineered, seriously fast and an unbeatable value. They are also fully warranted and emission compliant in all states.
    New cars may be ordered through, and are serviced by, trained and authorized Callaway Corvette Dealers nationwide.
    580 and 606 horsepower, super high performance is now available in multiple platforms: Convertible or Coupe. Grand Sport and non-Grand Sport. 6 speed manual or 6 speed paddle-shift automatic transmission.
    The 652 horsepower Callaway Corvette has been introduced based on the Z06 platform.
    Thinking of a Z06 or ZR1?  Consider a test drive in the Callaway Corvette at your Callaway Dealer.
    The performance of the Callaway Corvette SC606 is within two tenths of the ZR1 in the quarter mile and costs substantially less.
    The Callaway Corvette SC606 has approximately the same price as a standard Z06. However, it has 101 more horsepower, it is faster and more exclusive.
    For those seeking an even more exclusive automobile, see the Callaway C16.  Versions of the C16 start at 650 hp and range to 700 bhp.
    The 2010 Callaway Corvettes are here now. Call the Callaway Headquarters, 860 434 9002 in Connecticut or 951 279 0400 in California. Speak to a Callaway Corvette specialist. And don’t miss a test drive at your Callaway Corvette dealer!

  210. I buy CLF 55/70 okt spread 3.75 6 days back then Phil says bottom. I thik if we rally, steel and alu stocks recovered. For example CLF was 75 . Spread is up 60% for week.

  211. VVUS finally tanking….now if ARNA could get off the floor just a bit…thx.

  212. OH yeah, 26 fer 26 on 100 pt days.  Absolutely nuts (Do I sound like Matt now??). 

  213.  Hi Phil,
    I have a small PFE holding (stock @ 15.48, sold Dec 15 call and put for a credit of 2.55).  I don’t want to overload on pharma stocks but looking at ABT and thinking of Jan 48/50 for .91 and selling 40 P for 1.35.  Gives me a $2 spread for free and more than 20% downside protection.  Advice on taking on both, getting rid of PFE or just stick with PFE?  PFE has a nice dividend but it crawls on up days and underperforms its peers.

  214. Long a small number of July SPY 118 puts here (/ES 1110.5) to hold overnight.

  215. Another flash crash?  That volume spike someone just SOLD…..

  216. That was just my SPY put purchase Pharm. Sorry. ; )

  217. Thx Eric…I was worried!  What am I saying, I am like Melvin…I am worried.

  218. lol, callaway/JRW – do you own one? or a dealership? Personally, I love my ’97 miata.

  219. RTH  just hit 666!!

  220. Out of TNA for the day at $48.45; for 7 1/2%  on the day………………
    Sold too soon it seems; oh well, do that every day and it’s 1875% annually !!

  221. JRW why did you buy 47.74?

  222. Nice work JRW>    Beats the socks off my 3.5% on TNA.   

  223. snow
    yes, one of my vices !!

  224. lapper’
    I have a trend line from 5/28 there; once back over I was long !!

  225. Phil
        My FTR position for August got called out today. :) I still have the put leg.  Should I close
    it out now that the stock is gone or do you hold to maturity to take maximum profit?  Thanks

  226. Bulls are back in control; no real selling since the early morning. Let’s see if we can at least get a pull-back to the 1100 level, where there is now decent MA support.

  227. Iflan.
    Thanks, but I had to work a bunch of trades; your way allowed for a nice 2 martini lunch and a nice profit !!

  228. Howard/Jo – I think the number is something like 2.5M subscribers followed him to SIRI and, at $10 a month, that’s $300M a year, which is about half their revenues.  He’s not happy because he used to have 20M+ listening on the radio so his degree of fame has fallen a lot since 2005 and he doesn’t need money so it’s hard to say whether SIRI can come up with anything that will make him happy vs a similar contract on national radio. 

    JPM/QC – They were kind of iffy for the buy list.  Didn’t want too many financials and planned to go with XLF if they re-took $14.50 (they did now).   I like the artificial buy/write on them with the 2012 $30/37.50 bull call spread at $4.40, selling $22.50 puts for $2.25 is net $2.15 on the $7.50 spread that’s already 100% in the money so they have to work hard to take the $5.25 profits away from you!

    TASR/Yodi – They hit my bid at $4 and then took off, that’s two bottoms I made in 2 days – kind of scary…  Even scarier is the term "sold out of frustration"!  I like them well enough to be patient and roll them along and also enough to roll the $3.50 putter down to 2x the $5 puts at $1.30 but you can hang tough.  If the world is recovering, they are back in business and, if not, they can run a small operation while they wait.

    Euro/Kustomz – I think between $1.25 and $1.30 is good for the Euro.  As I kept saying the past couple of weeks – they were priced for a breakup of the Union that wasn’t going to happen.  All dollar moves are relative to the Euro and the Yen will most likely be the next to fall under attack because money will move back to the Euro and Japan WANTS a weak Yen so the Hyenas will have government support taking down the currency – what a great deal for them!  I’m not talking major but we’ll see the Yen back over 95 to the dollar easy.

    IGT/Bob – They are priced for huge growth so you risk earnings, guidance etc.  It’s not a stock I’d want to be in but, as long as they hold the 200 dma at $19.50, you don’t have to hurry out of it. 

    BP/Iflan – I think it goes to a relief rally.   At least that’s what we bet on…

    25%/Tusca – Hey, one step at a time!  It was a big deal moving from 20% with 5% covers to 23% with 2% covers so let’s stay above 1,100 for more than 5 hours before we double down….  8-)

    RIG/Yodi – Cool!

    ELY/JRW – I’m pretty sure they make clubs.  I don’t drive vettes so I have no clue on the other but it does look nice. 

    ABT/Jdub – I like that company and the play.  As to PFE, they are a "safety" stock so money goes into them for storage when the market turns down and money flows out of them so people can buy more exciting things when the market moves up.  I love them for the dividend and your baisis is so low it drives it up anyway so I’d keep both or NOT drop PFE. 

    Nice job JRW!

    Oh no, Iflan only made 3.5%.  I will invest in a nano-tech company so I can have them build a very tiny violin I can play for you…  Next time bet the house on the little DIA play – up over 100% for the day and you can pack it in for the year!  8-)

    FTR/Wilsons – Those are short puts right?  Just let them run down and your worst case is you own the stock again at the net.  Unless you need to free up the margin….

  229. SGEN did not fill on either end, which is fine.  BMY filled on the covered call, but the P will have to wait for a better price possibly (like a pullback when the market coughs).   Giant short squeeze today.

  230. Thanks Phil    Yes short puts.  Margin not a problem.  Appreciate the site and the help!

  231. OK, screening through the garbage of today….I came across RINO.   Strong volume today!  Now, they are a Chinese stock, but their CEO makes 99K!!! for a 450M market cap.  Anyway:  RINO International Corporation, through its subsidiaries, operates as an environmental protection and remediation company in the People’s Republic of China.  Lord knows they need to clean some things up.

  232. Market recap: Stocks surged all day after a string of favorable economic reports and roared to a strong close, with the S&P breaking through its 200-day moving average and all 30 Dow components posting gains. But the biggest gains were on the Nasdaq, as Best Buy’s (BBY) report noting strong PC sales boosted techs. The euro rose past $1.23, reflecting more confidence in Europe’s handling of its debt crisis.

    Still trying to squash the rally at 3:10:  The recovery is far from a V – "[it's] more like a square root," Pimco’s Mohamed El-Erian tells CNBC. "We’re going to come back off [the bottom] and then we’re going to level off at about 2% growth." He says the reduction of private and corporate debt and the increase in public debt is not the "ingredient for sustainable growth. That is the ingredient for a multi-year adjustment."  Watch out, if this doesn’t work they’ll release the Greenspan!

    Credit card lenders are trading higher after several reported lower monthly delinquency rates in May. American Express (AXP +4.2%), Capital One (COF +4.9%), Discover (DFS +3.9%) and JPMorgan Chase (JPM +2.3%) each reported 30-day delinquencies down roughly 3%-5% from April.

    In this economy, many companies wish they had this problem: Pre-orders for the iPhone 4 overwhelm Apple (AAPL +2.2%) and AT&T (T +1.4%) websites on the first day customers could sign up to buy the new phone.

    These guys are the AAPL of Japan: Nintendo (NTDOY +5.7%) introduces its new 3DS handheld gaming console, which renders games into 3D images without the need for glasses. No launch date or price was given for the device.

    See – I told you Hollywood could fix thisThis is not a joke: BP (BP +1.9%) plans to purchase 32 oil cleanup machines made by Kevin Costner’s company. "We were confident the technology would work but we needed to test it at the extremes. We’ve done that and are excited by the results," COO Doug Suttles says.

  233. JRW,
     Do you generally hold leveraged ETFs for less than one day?

  234.  Phil,
    I bought TASR today at $4.00 – would never have considered this company without your mention – thanks.  Would you consider this a candidate for selling the 2011 $5.00 strike P&C for approx $1.75 or is this something you would hold without the options?

  235. euro up, dollar down, stocks up . if we get TBT going all’d be great . bought $2 for .51 ITM, TZA Jan 7-5 roll, just in case something goes wrong.

  236. dbarakat
    Almost ALWAYS !!

  237. RINO/Pharmboy – Rino has excellent numbers and is the most profitable Chinese environmental company. Option premiums are high. Worth looking into. I’m long and looking to DD here.

  238. Phil: I wish that after the market closed, you would briefly state:
    the good news which supported that market went up and stayed up. Kind of a correlation and it would restate how market  gets pushed Up or Down by news.
    Could you, would you please ?

  239. Pharmboy,
      Suggestions for a new entry on ARNA?

  240.  Hi Phil,
    I read your weekend post on BP @ Alphatrends (below)although my net entry is a tad higher than your $320 (mine is $360).  In light of latest news on BP (BofA telling its traders no positions that go beyond June 2011 possibly them saying that there could some credit issues with it at some point).  I’m down on this position but like the thought process of selling upside calls for the next 18 months.  Should I bail on this one at a certain level or does your hypothesis stay the same despite this news?  I expect more similar news from other IBs to come out after this.
    "In a logical world, BP will go to some kind of bulk arbitration but it will take YEARS to settle so the play on BP I do like is buying 2x the 2012 $37.50s at $7.20 ($1,440) and selling 1x the Jan $29s for $9.20 ($920, net $520) and selling 1x July $37s at $2 ($200) so your entire risk on BP going BK is $320 but you are in position to sell $200+ in premium for the next 18 months ($3,600) against $320 in cash (to start) and $750 in margin.  The expectation is there will be little change in the $2 cash spread between the 2012 and Jan caller and, of course, you have 12 months to roll them too!"

  241. Phil: New to the site.  Want to thank you on the DIA 105′s.  Just reading the comments today and as rexx did, I sold half and now playing with the Casino’s money.

  242.  BP SPILL RATE now 60K.  This was the orginal worst-case estimate given in a confidential NOAA report that the New Orleans Times Picune got its hands on around day 15 of the spill.  
    So now that reflects the reality of the spill.  It also means that the flow rate is as strong as from the beginning, if not stronger. Over time the well dregrades (the rocks from the well hitting the openning act like sandpaper).  But it is unlikely to double again.  The well hole again is only 7 inches in diameter.
    So now we wait to see if the rate abates because the well runs dry.  This is the end of the bad news that was known to come out.
    The rest of the bad news deals with time, and law suits based on degragation of real estate values.  

  243. ARNA/Jp – keep the path.  Buy here, sell 1/2 the Jul 3 C 30c and full load of 3 P for 35c or better.  That is 20% or more on the $3 stock.  I am going to do it tomorrow based upon this move.  Hell, most of my IRA is ARNA now….. 8)

  244.  Phil, 
    I am writing after trading to request some help with my overall strategy and positioning to recoup the losses I have been incurring the last weeks.
    I followed your recommendations to sell the short term bullish positions yesterday (was I hitting my head against a wall today) and to take out the callers for the SDS and TZA hedges! So all went absolutely the wrong way…Needless to say I am not going to sleep well at all tonight!
    Today you recommended I get out, but I didn’t have the stomach to eat the 70% losses on the positions. I have now obviously less than even that, plus I missed the upside that would have compensated for the loss.   
    I am just trying to keep my head and calm here, to try to make it back. I need your help here… What positions do you think will be my best bets to get into now. I have put orders to exit all my longs and want start fresh… I belive you are recommending now to be 25% long (buy-writes) with 2% hedges? I have now a $460,000 account. (Down from $495 at the start of April. 
    Thanks a lot for your help. 

  245. Pharmboy, ARNA buy and write play for 19 months, buy, sell 2,5 call and puts or 4 call and puts?

  246. All traders lost after close, boys 1 have 1.15 at night…to learn make money is full time job, not only open hours.:P

  247. ARNA/pah – not sure I get what you are asking/saying, but the above positions are all July 2010.  Jan2011 is too far away and there will be plenty of time for capturing ARNAs upside (if they have one).  Since the FDA is in November…we are going to take our profits from these trades and set up something for a gamble on them in the coming month for the FDA.  I expect VVUS (down today big) to crash and burn (my opinion), and that should give ARNA a boost to our July plays.  Meanwhile, we can start accumulating the stock for a nice play later on.
    WARNING:  ARNA is a one trick pony all, they have very little else in the pipe for the coming years, so play accordingly!!!!  If they are rejected by the FDA, they will be a penny stock.

  248. SJM making a nice run above the 5d MA and it is crossing the 20d MA.  Might be good for a short run since they have been beaten down and need to now cross the 200d MA like the rest of the DOW.

  249. Thanks Pharmboy. Great TA PDF by the way. Any plans to publish it?

  250. Bios are very dangerous plays and for rookies its is better avoid if you dont know stock and earnings, agree.

  251. YRC Worldwide CEO: Reverse Stock Split May Not Happen In 2Q

    Jun 14, 2010 12:33:50 (ET)


    By Bob Sechler

    A reverse stock split that YRC Worldwide Inc. (YRCW) previously announced would take place in the second quarter now may not happen until August, Chief Executive Bill Zollars said Monday.
    Zollars, speaking in an interview, offered no specific reason for the possible delay except to say the struggling trucking company’s board of directors has not made a decision on the timing yet.
    He said it’s still possible the reverse split will happen in the second quarter.
    YRC announced in March, and reiterated several times since, that it would enact a reverse split in the second quarter, a plan aimed at boosting its share price above $1 and avoiding delisting by the Nasdaq stock market.
    But YRC also has noted that it technically has until Aug. 30 to satisfy the Nasdaq listing requirements.
    Zollars said Monday that the company definitely plans to avoid delisting by enacting a reverse split, regardless of the precise timing.
    YRC shares were trading recently at 25 cents, up 2 cents, or about 8.5%.
    The specific ratio for the planned reverse stock split hasn’t been set yet, although YRC has said it will range from 1:25 to 1:5.
    -By Bob Sechler; Dow Jones Newswires; 512-394-0285;
    (END) Dow Jones Newswires
    June 14, 2010 12:33 ET (16:33 GMT)

  252. Japar – thanks!  This is for PSW members….so, no intentions on publishing it.  I hope we can get it on the site somehow with Sage’s book for all. We are working on it.
    CRIS – still waiting, but may have to buy shares again.  I would like for them to move back to 200d MA on dailys (2.77ish).
    Pah – bios are great plays if one understands the science (and the company has capable managment).  A friend on this site (Colberg) and I used to joke that if we had a hedge fund, you could short biotech b’c 9 out of 10 go belly up. 

  253. Phil – do you like SYK and SVU?  looking for bull call spread idea with put sales.  thanks. 

  254. Gucci, I think you got it correctly.  We entered with 1/4 positions, if there is no breakdown (no VIX spike), then we are happy to take the profit and play the next month.  If the market drops 5%, 10% or more, then VIX would jump and the short put strike is threatened to be run over, then we use the reserve margin to roll 2x down.  Say SPX drops 10% from 1,115 currently to 1,000 due to another fat finger day, then we’d roll 1x SPX July 950 putters to 2x SPX July 910 putters.  There is no rules based on how high VIX is for triggering the rolling 2x, but there is an unwritten rule of thumb to roll when the short is within 5% of the money if there are more than N weeks out.  N would vary with your tolerance.  It’s usually 2-4 weeks.  If SPX stays above 910 or so, we’d pocket all the money and play the next month.
    If SPX continues to drop, we have the option of rolling 4x to July 870 putters, OR rolling putters down and flipping some to callers.  For instance, 2x 910 putters would be rolled to 2x or 3x 870 putters, then selling 2x 1050 callers or which ever strike that is viable at the time.  The idea is to get the same amount of cash with credit or even rolls. 
    If SPX is down to 870 in July, the world would almost end, and your account balance would look like a disaster too.  Then we’d look to the longer dated option to hide our shorts, i.e. rolling from 2x/3x July 870 putters to 1x Dec2011 750, or 2x Dec2011 650 putters.  Having the crazy play long put verticals would help as it would give some profit to aid with the rolling.

  255.  iPhone pre-orders are sold out. damn, that was quick.

  256. Peter D -
    Thank you for explaining that,  It deffinitely could come in handy.  I think I tried to roll like 10 to 5 once & couldn’t
    change the # of contracts. Do you have to buyback & then re-sell ?

  257.  Not sure what the Obama speech achieved.  Inflating hopes at this point in time just doesn’t make sense.  His timing on just about everything seems to be off.
    With estimates of the leak now reaching 60k bbl/day, the fine estimate will reach $25B, simply for the oil leakage.   With regard to clean-up costs how can an accurate estimate be developed when the extent of the leak cannot be predicted?  Perhaps, optimistic thinkers will expect the oil to biologically breakdown before the underwater plumes begin their sweep within the gulf stream to the eastern seaboard.  With regard to recovery and redevelopment costs to the coastal economies and wetlands, etc., I imagine the sky is the limit in terms of what claims will ultimately be requested/demanded.   Especially as the impact takes months or years to play out.   
    In my opinion, this disaster may be the last straw on keeping oil cheap for America.   In addition to the payments by BP, I will not be surprised by a great increase on taxation of oil revenues and taxes at the pump to pay for the ‘next’ disaster.  ’Drill, Baby, Drill’ will be dead politically for the next ten years, and you know what that means…less domestic oil and more foreign dependence.   Perhaps a long term play on PGH or other Canadian Oil Sands stocks makes sense…

  258.  Actual oil output 120K?
    It bears considering.  Look at this report, early in the crisis
    Basically, it says NOAA believes 60K is a possibility, a controlled well produces 30K.  no one knows.  What has happenned since the leak is the 7 inch diamater of the well hole has increased with the incessant outflow.  So, it is anyone’s guess.  But I would say if 30K for a controlled well is the standard, 120K for an unconrolled well is realistic.
    I strongly suggest you BP longs look at this:
    Here is a model.  To see the model, go to 48:00 in the talk.  The guy giving the talk from, which has been all over this.
    And seriously, at least hedge your position by going out to dinner and eating seafood.  ;)
    Timing is everthing in options, but I truly believe that this environmental disaster is and will be way beyond anything we have seen. Anything.

  259. Occam,
    From what I’m reading, it’s entirely possible that this will get much worse before it gets better.  Depends on who you believe, but sources without an axe to grind seem to be painting a grim picture, relative to those with an interest in keeping things looking as positive as possible.  The well continuing to fall apart, fissures opening up in the ocean floor, the entire oil reserve emptying into the Gulf … it’s all on the table as a possibility at this point.  None of these is a certainty, but they’re all to be disregarded at one’s own peril.
    Makes me want to just find some nice, safe, unrelated investments and stick with those, my deeply underwater short put position in DO notwithstanding.

  260.  Eat fish.  That’ my sure play.

  261. Downhole integrity would be the most critical component to the entire structure..and if that’s the true problem, no wonder Simmons said BP may no longer exist.  The only way to snuff a blowout topside failed because they can’t access the well below the leak from the surface.
    They have to increase the surface flow as much as possible to try and keep the downhole structure as contained as possible.  If it completely fails, the flow could compromise the rock structure around the well causing a runaway, which could only be stopped by letting the resevoir drain completely, somewhere between 1B and 2.5 Billion barrels. 
    The only solution is the relief wells.  They can’t drill down the existing well because the downhole is compromised.  The pressure would be too great causing an even greater rupture, and increasing the likelihood of complete runaway.  They have to access it from a completely new hole, and to make matters worse, they have to have the relief well intersect the blown out well BELOW the bottom most leak or the relief well will not be able to stop the leak either.  And they may not know exactly how deep the rupture is in the drill string.
    They are in double deep doo doo with a cherry on top.  And there’s nobody can help them now.  And nuking it probably wouldn’t work as well as many hope because of the weight of the ocean causing the sea floor to collapse and allowing the resevoir to drain into the Gulf.
    BP may be BK, unless they start wholesale capturing the loose oil in the gulf and centrifuging it somehow.  This was a bad well from the get go though…they would have known about downhole issues before it blew out.  Everything gets logged.

  262. Ekor,
    Depending on who is the brokerage.  Thinkorswim allows these rolls by using Custom order.  OptionXpress is a pain to enter this type of orders.  We don’t usually buy back and resell as we don’t like to pay for the spread between Bid and Ask.  By using Custom orders, we are likely to get the Mid price.

  263. Hi, salvum1,
    Thank you so much for replying to my question on iron condor.  I was so busy today the whole day, and just saw your answer.
    A few questions: I think IV=implied volatility.  But what is HV?
    Last night, you said "That is a Short Iron Condor, the only type I do".  Do you mean that you only trade iron condors, and nothing else??

  264. HI Phil: 5 possible trades: I have 2000 SLV shares @ 18.52 base.  Strategy: sell 2012 18 call for 3.50, sell 2012 17.50 put for 4.00 and as I cannot sell naked puts buy the 2012 7 put for .05. total credit 7.45, lowering my basis to 11.07. Is this correct?how many contracts of SLV would you trade
    I have 2000 BCRX @ 11.71 base. Strategy: sell 2012 10 call for 1.85, sell 2011 put 5.00 for 1.40, buy 2.50 put for .32. total credit 2.93, lowering my basis to 8.78, if put to me the cost would be 3.92 for the second batch. IS this correct? How many contracts would you trade?
    I have 500 MSFT @ 20.19 base. Strategy: sell 2012 27.50 call for 3.45, sell 2012 25 put for 3.35, buy 2012 10 put for ??.Is this correct?  How many contracts would you trade.
    I like LDK. I want to own 2000 shares long term. Strategy: buy 1000 at 6.01, sell 2012 10 call for 1.24, sell 2012 5 put for 2.15, buy 2011 1 for .12. Can I make a straddle with different expiration years? Is this a smart strategy?
    I have a 150 k portfolio invested, that I want to hedge. following your TZA hedge recommendation, would I buy the 2012 6 call and sell the 2012 11 call , now for .68? would you sell any 5 puts for a net credit on the position? How many contracts would hedge this size of portfolio?
    Are all these smart moves? I am still learning a lot for your advice and the comments of all the valuable people on the blog. It is hard for me to follow up on everything, but llittle by little and I am sure I will get there. Thanks for your help.

  265. Hi, Peter,
    Do you think SPX 1200 July callers safe?  Thanks.

  266.  CWAN / IC’s
    HV = historical Volatility.  On TOS or, you can get a 52 week HV.  For example, right now, Citigroups HV is .45 and its IV is .73.  If this were an ETF, I would look into writing an IC on it since I would expect reversion to the mean at some point.
    I only write IC’s for credits, I do not buy them.  That is what I meant by short IC’s. 
    Also, I only go out 1 month – no further, and I never keep them past 10-5 days before expiry b/c if I have done a good job and they have stayed in the range, than the last 5 days or so the spreads widen and the pricing gets funky.
    I do IC’s when the mkt environment is conducive for them.  In my spare time (when the mkt is open), I day trade the NQ futures contract.

  267. "If it completely fails, the flow could compromise the rock structure around the well causing a runaway, which could only be stopped by letting the resevoir drain completely, somewhere between 1B and 2.5 Billion barrels. "
    Hoss – great post.  
    Given the unmitigated flow — oil methane, rock, etc.  I think we can assume that the more time passes the more the diameter of the well increases.  They drilled it at seven inches.  But this type of unmitigated flow is probably increasing that diamater as fluid and particles abrade the walls of the well.   
    So, the initial size is approximately that of a firehose.  An extra inch gives a new diameter to the well, which increase the flow rate by a factor of that.  So, in contrast to what I said above, I think that the flow rate can double from here.  It depends how much oil is under the rock.  And the oil is way down there.  So, I think it will reach full drainage and flow up the Atlantic coast, and this is going to be like nothing even Hollywood dreamed of.  
    Eat fish.  they are an endangered species.  And if they exist from the ocean in a year, you don’t want to eat them.  

  268. Hi Cwan,
    What would be your opinion on the SPX 1,200 callers?  I’m sure we all have different opinions, but my opinion is that we won’t get back there any time soon.  Lots of people would get in line to sell their longs if SPX hits 1,150 again, so we have plenty of opportunities to roll or move the callers.

  269. Find this very interesting (TBT) anyone? Fun read

    Pimco Total Return held about $2.6 billion of sovereign debt from developed countries, including $2 billion issued by the Canadian government, according to filings. The fund cut its holdings in U.S. Treasuries to $23.2 billion from $42.7 billion during the first quarter, filings show.

    Gross, 66, said in his January investment outlook that public debt was soaring, with most of the increase coming from G-7 countries “intent on stimulating their respective economies” in the wake of the 2008 financial crisis. Their own central banks bought almost $2 trillion of this debt through “check writing that required no money at all,” according to Gross, who described this phenomenon as “the least understood, most surreptitious government bailout of all.”
    The following month, Gross grouped the U.S., France, Japan and the U.K. with Greece, Spain, Ireland and Italy in a “ring of fire,” comprised of countries with the potential for public debt to exceed 90 percent of their gross domestic product within a few years. He labeled the U.K. a “must to avoid,” saying its gilts were resting on a “bed of nitroglycerin” because of high government debt levels.

  270. JRW,
    How many times were you in and out of TNA

  271. Pharmboy/japarikh – TA PDA? Gotta linky?

  272. I meant TA "PDF" not PDA.

  273. Good morning!

    TASE/Cslan – I tried to sell Jan puts for $1.35 but didn’t get a bite.  As they get closer to $5, I’d be inclined to sell Jan $5 puts and calls to lock in nice entry.  For now, I’d rather sell Jan $5 puts on a dip than chase them.  The net sale is unlikely to change much ($1.70) either way.

    Up/Down/RMM – What?  Are you asking in general why the market gets pushed up or down by news?  It’s way more complicated than that because you have to factor in sentiment and anticipation.  You can have terrible news that isn’t as terrible as people expected and boost the markets (times square car bomb) or you can have great news that isn’t all that great and the markets sell-off (EU $1Tn bailout).  It’s not just about the news, it’s about how much of it was already priced in.  That’s how we pick earnings plays all the time.

    BP/Jdub – If they can’t hold $30, then we can get concerned but, so far, plenty of buyers down here.

    Welcome Dezev!  Always good when the first play works out but TOO GREEDY!  Just 3 days to expiration and 100 points out of the money is not a good recipe for holding overnight…  Two things I often say:  It’s not a profit until you cash it out and If yoy take profits today, I’m sure we’ll find something else to trade tomorrow.

    Balance/Amatta – It sounds to me like you don’t have the long-term bullsih positions (Buy List) to balance out your short-term plays.  Even if you had committed just 25% to buy/writes ($115K) at what is now almost 500 Dow points ago, you’d be looking forward to almost $30K in gains on the long side.  Also, I take it you don’t have any of the 500-1,000% upside plays I put up last week.  You REALLY need to read Sage’s articles on Smart Portfolio Manangment (in the Portfolio section) and work on building a balanced portfolio over and above everything else.  It makes no sense at all to uncover bearish hedges if you don’t have offsetting long positions.  Still, down less than 10% with the market down 10% is not a tragedy and we have tons of ways to get that back.     Remind me in today’s chat what your exact SDS and TZA hedge positions are and we can look at rolling them to longer-term protection and then we can look at building a portfolio around those (starting with the fact that you are very well protected).   Looks like we have a little selling pre-market so you may be in luck…

    SYK, SVU/Terra – Remind me in chat – out of time..

    Anyone else, feel free to repost in next chat!