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Foreclosure Friday – The Top 1% Stick It To The Banks

"The rich are less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest." – Brent White

One in seven homeowners with loan over $1M are in default.  That compares to 1 in 12 loans below the $1M mark.  This is putting a huge amount of stress on the financial system as 23% of all luxury homes bought as investments are now 90 days or more overdue compared to just 9% of the smaller homes.  Don't think of this as a 1:1 relationship either as the cut-off of $1M means that a single $10M unpaid mortgage above the line is worth 100 $100,000 loans (the national average) that are unpaid below the line so the distortion from a cash basis is close to a level of 100:1, which just so happens to be the difference in the income level between the top 1% and the bottom 99% as well!

Back in February, I detailed 3 ways that can save you $100,000 in payments on a $200,000 mortgage that could be accomplished without a default - so don't blame PSW Members for this annoying trend - we are part of the solution!  Unfortunately, the same can't be said for our fellow investors:  CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. 

The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.  The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, CoreLogic's Senior Analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”  Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.  “I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

As we discussed in the weekend post, this is just another mechanism to transfer wealth from the poor to the rich as Chamillionaire's fans end up bailing out the bank who partnered with the rapper on his bad investment and neither the bank or Chamillionaire suffer from the bad investment they made together.  Instead, the government picks up the tab and bills the taxpayers, who become poorer and less able to afford homes of their own, enabling Rappers and Banksters to use their bailout money to scoop up some real bargains in round 2 of the Great American Land Grab.

You can trell round 2 is starting because "No Doc" or "Liar" loans are making a comeback.  Forbes has learned that banks are quietly reestablishing the no-doc and low-doc mortgage market. In fact, low-doc loans accounted for 8% of newly originated loan pools as of this February.  No Doc Loans are favored by wealthy real estate speculators, who like to dispense with the paperwork to shorten the loan process.  Will the banks EVER learn?  Why should they – it's not their problem when the loans turn bad, is it? 

China (who turn out not to be currency manipulators after all in our land of make believe) is prepared for their own housing crisis as April home prices climbed 12.8% over last year while the banks claim they could withstand a 30-40 percent decline in home prices.  Lei Hua, a senior analyst with the China Index Academy (CIA), said the non-performing mortgage loan ratio is not high and a30-40 percent price drop won't increase the ratio.  "Sufficient funds hold back developers from reducing prices and house price cuts won't be seen soon," Lei said, adding the decline will be less than 30 percent.  Oh good – everything will be fine then…

Don't forget we are ALL counting on China not to collapse on us but RTP's CEO says China's 9% growth rate is not sustainable and that their economy is more likely to grow at 6%, which is impressive but not impressive enough to pull the rest of the World out of the doldrums by themselves.  That is leading the IMF to call for the ECB to provide more stimulus in order to offset local budget cuts (Greece just approved a massive pension overhaul) and that has been sending the Pound and Euro lower this morning, boosting the Dollar and the Yen (as if we are in better shape).

While the IMF stopped short of calling for the ECB to launch full quantitative easing (QE), it is clearly worried that the bank's passive policies have allowed credit to wilt and led to fresh strains in interbank lending markets and sovereign debt. "Downside risks to the recovery have risen sharply. Bank funding pressures may accelerate the ongoing deleveraging process. It is too early to tell if actual bank lending growth will worsen in the euro area, after recently stabilising at barely positive year-on-year rates," it said.  

Jean-Claude Trichet, the ECB's president said yesterday that the need for fresh purchases was "progressively diminishing" but pledged that the bank would continue to provide lenders with unlimited liquidity for the time being.  With German industry was booming, he said there is no risk of double-dip recession. "I see perhaps a tendency from the outside to be excessively pessimistic. The numbers we have are not confirming this pessimism," he said.  The IMF's implicit criticism comes amid press reports that the US Federal Reserve is drawing up plans for fresh monetary stimulus in case recovery stalls, including more bond purchases. The news story has been widely seen as "kite-flying" by doves on the Fed Board to test the response to a fresh burst of QE.   

Paul Krugman and I have been pushing for more stimulus and, frankly, I expect it because we need it and the administration doesn't have a lot of arrows left in their quiver other than to bite the bullet and take responsibility for actually doing something to help the struggling middle class.  It might lose them the election, but it's the right thing to do.  As Paul says: 

The Obama administration is in a difficult spot. It’s now obvious that the stimulus was much too small; yet there’s virtually no chance of getting additional measures out of Congress. The administration has chosen to deal with this by trying to have it both ways — condemning Republicans, rightly, for obstructionism, while at the same time claiming, falsely, that we’re still on the right track. How did things end up this way? We’ll never know whether the administration could have passed a bigger plan; we do know that it didn’t try.

Something needs to be done this month in order to put people back to work next month.  We are down 9M jobs in this recession and, over 3 years, another 3.6M new jobs should have been created to keep up with population growth so 12.6M jobs behind plus 100,000 jobs a month needed as a baseline to have growth is about 400,000 jobs a month for the next 4 years – just to get back to more or less full employment.  The Federal Reserve has a dual mandate which includes promoting full employment – how are they doing on that front?

Asian markets were up nicely today with the Shanghai Composite jumping 2.3% to 2,470 – just under what would have to be considered a nice recovery at 2,500.  The Hang Seng gained 328 points (1.6%) to 20,378 so now firmly above our 20,000 goal and the Nikkei is still pokey at 9,585, up just 49 points (0.5%) for the day yet the BSE keeps going up and up (1% today) as India is leaving the rest of the World in the dust.  Thinks are so good in South Korea that the BOK raised rates to 2.25% as they shift to inflation-fighting mode.  Korea is pretty much a "Company Country" with 1 in 10 people working for Samsung so I have to think this bodes well for electronics earnings this quarter. 

Of course Samsung provides their own stimulus – investing $20.6Bn and hiring 45,000 workers as part of its expansion into solar, energy efficiency, light-emitting diodes and other green markets. Samsung has already said it wants to be number one in solar by 2015.  Yes, that's right, while Obama celebrates wrangling $2Bn out of Congress to expand US solar projects - Samsung makes that their MONTHLY budget.  Anyone want to take bets on who will be number one in solar by 2015?  Anyone???

Oh well.  We did get good news out of Asia as GOOG got their China license renewed so congrats to our Google bulls this morning as that's going to give us a nice (but expected) pop.  What's really going to be interesting is to see what levels BIDU holds.  Europe is up ANOTHER 1% this morning despite the currency worries as CDS swap rates fall for the third consecutive day as the global gloom and doom squad has to pull back and regroup after failing to cause a critical market break.  Today is going to be a very big deal as we retest those broken trendlines – getting above them will put us in a nice position to set up for a short-term "Life Cross" or "Golden Cross" during earnings season as the blue 20 dmas cross back over the red 50 dmas (and notice the SOX are already there):

Have a great weekend,

- Phil


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  1. Phil, what is your outlook on YRCW?  Yesterday it touched the stop-loss you outlined earlier at 0.11 but since I don’t have a position, I am wondering if this is heading for bankruptcy or just driven down.  (Pun not intended.)

  2. Phil, I can’t believe they are really reinstating No Doc loans.  That was at the heart of the RE Crisis.  This is just crazy!  How can regulators allow that?

  3. GILD- Hey Pharm, what’s your current read on GILD?. Earnings coming up on 7/20; Chart may have bottomed here with a very minor uptrend.
    I am down on a Jan11 35/40 spread and considering rolling this down and perhaps selling some puts to improve my position. The fundamentals on GILD still look good but the obvious sentiment sucks. What is your take?
    Phil- feel free to chime in.

  4. I’m telling you Phil…..we need to get you elected to the Senate FAST!!!!……otherwise they’re going to  spend all the money bailing out everyone else and their won’t be anything left for us. 
    How long do you think it will take you to get the Day Trader Bailout Fund up and running once your in????

  5. No way Phil for senate!  Who will run this site if he leaves? :)

  6. From Forbes (Mr. Karlgaard):
    Reduce income taxes at the margin and you’ll get more income because people and companies will be more motivated to produce. A simple thought experiment is to imagine your tax rates for a week’s work: 0% on Monday; 25% on Tuesday; 50% on Wednesday; 75% on Thursday and 100% on Friday. Would you work Friday? Not many would.

  7.  PSTAS,   negative sentiment on GILD is a bit of a understatement.  They still have the AIDS franchise – a lot of cash, buyback etc.  But their is a overhang of patent expiration in the future with a nondiversified portfolio.  They were a hedgie favorite, now they are not – in addition, there is some concern about government budgets since they subsidize AIDS RX.  

  8. sorry I don’t know what happened and I don’t know how to fix the air under my last post.

  9. JRW/Phil 
    I have been trying to work the IWM trades this past week and a half, and it hasn’t been good. If it wasn’t too much trouble and for the good of all our readers, several of whom I see are also attempting to get a workable system going based on your technique, I was hoping either you or Phil (if he is doing the trades as well) could kindly--when you had time--put up a post with the specifics of the system (ie setup-- 3 min chart along with 1 minute chart to anticipate direction changes/ Fast Stoch (what settings?) Volume (what are we looking for?) RSI, etc).
    I think all readers would appreciate this. 
    Thanks a lot!
    And I hope another volatile day in the IWM is in the offing today for another of your 10% days!!!!  ;-)

  10. Who needs docs on loans anyway if you don’t expect them to be paid back.
    Just this time, if they are giving money away, will someone please tell me when and where and how to get some ?!?!

  11. Loopy -

    I fixed it.

  12. Hey all,

    I have two new positions for the day we are looking at. The first is a Buy in Ultrashort Proshares Financials (SKF). The second is a Short Sale in PriceSmart Inc. (PSMT).

    Check out all my commentary, analysis, entry, exit, etc. here.

    Good Investing!

  13. Good morning, and I am back in full swing after a bit of business at work and a holiday of relaxation!
    GILD/Pstas – jomama has it right.  Hedgies hit them hard (cough cough DCTH, STEC), and now they are stuck in no man’s land.  I think they hold it here, as they have not fallen further (yet?).  Earnings will be interesting, and they should make a nice bundle, but the writeoffs from the recent failures in clinic may be rather large (from Myogen purchase).  They have 8 yrs for their patent expirations (as jomama notes), and their pipeline is still there with results from a phase III study of TMC278, co-developed with JNJ are due (AIDs drug as well). Positive data should allow Gilead to file regulatory approval for the drug by the third quarter of 2010.   Moreover, a phase III study of the company’s four-in-one HIV pill, Quad, is expected to be initiated in the second quarter of 2010. Successful commercialization of these products will further boost the company’s top line.
    As for revenue growth, royalty income of Cayston (just approved by the FDA) for the treatment of lung infection in patients with cystic fibrosis will enable them to diversify its revenue stream. 

  14. Good morning! 

    Very important to watch the lines in the chart on the morning post.  We hit our targets on the nose last night but now it’s time to see if we’re going to make it to level 2 but that can wait for next week.

    The quick summary this morning is that green is good and red is bad and we need keep an eye on $75 oil and XLF is very weak so $14.25 is bad there and not good until we see $14.50.  Of course we have resistance up here after that spectacular run and our big obstacle of the day is the 10:30 ECRI Leading Index – if we can get past that staying green, we should then at least be able to mirror the EU’s close (currently up just 0.3%) so we’ll watch that closely too. 

    I’m still generally bullish.  It won’t take many good earnings reports to send us flying next week but we’ll want to be cautious into the weekend – just in case.  

    Our goals for next week are still Dow 10,290, S&P 1,102, Nas 2,257, NYSE 6,930 and RUT 651.

  15. Good morning,
    IWM 60.64, 61.26, 62.07, 62.36, 62.95, 63.41

  16. Pharm
    Good to have you back, and hope you got some sun. I’m still struggling with a cover strategy for ARNA, up nicley on the stock investment, but think it could go much higher. What’s your plan?

  17. Phil; I sold rimm aug. 55 puts,at $4.00 per contract, hold or buy back?

  18. ARNA – if you want to minimize risk, do the spread that Phil mentioned with some of your profits (minus the puts if you want to minimize risk).  Otherwise, you can sell 1/2 and let the rest ride.  I sold 1/5 yesterday to protect some of my gains, as well as sold back 1/2 of my puts for 15c (Julys).  The rest is riding as I think they move back trough $5. 

  19. ARIA is holding its 5d MA here on the daily.  I sold the $3 P (July) a while ago and am going to try and roll them for a ‘lil better entry, and will also buy a 1/4 round of more stock.

  20. Good Morning!  Personally, I like the "no doc" loan. With a 25% down payment and a 750 fico score, whats not to like?
    The biggest pain in the ass was to secure an SBA loan. All the paperwork, all the time. You could have had a business in 2005 that made gobs of cash and then 2008 comes around. What is a for profit, publicly traded lending institution to do?…..

  21. MON has come to life…..

  22. David Ristau
    July 9th, 2010 at 9:23 am | Permalink   Loopy -I fixed it.
    Thank you, Sir!!

  23.  Phil,
    Now that TNA / TZA are in the same price range can you recommend a trade to benefit from the decay of a leveraged ETFs?

  24. YRCW/Jordan – I’m still in them as I don’t believe they are hopeless but they sure look hopeless but, so did SIRI for ages and, when we entered the play, that’s what I said it was going to be like.  I have no desire to buy more until they are down to .02 but, unless they are BK, I probably will buy more then. 

    No docs/Trad – Those who ignore the lessons of the past….   That’s the problem though – what lesson?  Lend out money on stupid loans, collect huge fees and bonuses and, if it all falls apart, the government saves you and you have to testify before Congress and say you are sorry but then you go right back to work and do it again. 

    Senate/Exec – I think Day Traders should get the same treatment as any IBank:  Access to the discount window at 0.25% and any bad stocks you end up with at the end of the day will be bought back by the Fed for whatever you paid for them.  We’ll all be moving up to Table #1 if we can get that passed!  8-)

    Running the site/Lapper – Have you watched CSPAN?  What else would I do to keep myself occupied while those idiots drone on on the Senate floor all day?  You’ll always know where I am in the room, I’ll have the seat surrounded by 8 monitors….

    Gold got a nice run to $1,210 – I think the wild stock moves are currency related this morning and probably a lot of EU profit-taking into the close.

    Taxes/Loopy – You realize how flawed that is right?  Only people who earn enough money to imagine they hit the cap even care for one thing and the problem is if I have to pay Karlgaard $2M on Mon – Friday and he’s taxed $500K on Tuesday and $1M on Wednesday and $1.5M on Thursday (which is ridiculous of course but that’s how Forbes routinely insults the intelligence of their readers to make their points), then when he takes Friday off because it doesn’t pay for him to work either his company will simply save $2M that day or they can hire 50 guys for $40,000 to replace him on Fridays.  The myth of tax reduction is that the money is created from thin air.  It is at the government level but then that money goes into circulation and everyone else fights for every dollar and $10M for Karlgaard is $10,000 less for 1,000 of his fellow workers. 

    GILD/Jo – Possible vaccine is in the works.  It’s a ways off but what a revenue killer for GILD and others. 

    IWM/Amatta – Not my thing!  I am not a big day trader.  I do it when there’s nothing else to do or if I think I see something obvious but I don’t have any system whatsoverver for playing things over and over again.   I  look for things that are too high or too low and try to catch them on the turn. 

    SKF/David – Really?  I’m not seeing that one. 

    RIMM/42L – I still like them and Aug is a long way off.  Also, still rollable anyway so if you don’t mind ending up in Jan $47.50s, you have nothing to worry about. 

    I cannot emphasize enough the difference between selling puts in stocks you REALLY want to own vs selling puts as a gamble.  If you sell the RIMM $55 puts for $3 and they go to $6 and you are gambling – then you are down 100% and freaking out.  If I sell the RIMM $55 puts for $3 and, RIMM drops to $50 and they puts go to $6 then I am down 4% off my net entry at $52 and I’m not even remotely concerned about it because, once I’m assigned, I’m only going to flip it into a buy/write anyway and knock 20% off the next round.  I see way too many people freaking out about short put or short call sales and you should NEVER sell a naked short put or a naked short call if you do not fully intend to be in the actual net position long-term

    No Docs/1020 – I like them too.  Anyone buying a property likes them but the banks don’t use them responsibly and they get in trouble and that’s not fair to the people who trust their savings to those banks. 

    Lots of resistance up here and volume sucks at 24M on the Dow at 10:15.

  25. amatta,
    The easiest system is SS DIRK’s  a 3 min chart, candles, and an 8 period ema. Set in the S/R lines and when the index bounces off a line get in; get out when you see an engulfing candle on the opposite side of the 8ema

  26. JR,
    What causes those long spikes?

  27. May Wholesale Inventories: +0.5% vs. +0.4% expected, and +0.2% prior (revised from +0.4%). Wholesale sales -0.3% M/M to $350.65B.

    No ECRI indicators yet but it seems they release the report at 9:10 to their subscribers and, since we’ve been heading up all morning – I have to assume it was pretty good.

    The weight you put on the stock market’s recent death cross depends on whether you think the last two decades – when the death cross has not been a reliable predictor of bear markets – are a mere exception to the long-term – when it has, Mark Hulbert says.

    Whuck?  "We will dismember them, put them out of existence," Tim Geithner tells NPR in an interview this morning, clearly hoping to dispel the notion that some firms are too big to fail.

    "The worst is over" in the European sovereign debt crisis, the ECB’s Juergen Stark says, thanks to last week’s expiration of loans to eurozone commercial banks without any major hitches. The austerity drive initiated by governments across the continent won’t result in deflation, he adds.

    Strong industrial output figures from the three top eurozone countries point to a consolidating economic pick-up, though analysts warn the recovery may slow in the second half. In Italy, output rose 1%. In France output rose 1.7%. And on Thursday, Germany said output surged 2.6%. The numbers easily beat expectations.

    ECB President Trichet dismisses warnings that drastic spending cuts planned by eurozone governments could send the bloc back into recession. "We are totally against the view that reducing public expenditures will hinder economic growth," Trichet said at today’s ECB watchers conference. (full speech)

    The yuan moves higher a day after the U.S. decision not to name China a currency manipulator. It’s the right call, Morgan Stanley’s Stephen Roach says, and the U.S. should seek to tackle its trade deficits instead of bashing China.

    Boeing (BA) submits its proposal to the U.S. Air Force to provide a next-generation aerial refueling tanker aircraft, a day after EADS submits its proposal. Boeing’s supporters say the Pentagon should add to the Airbus bid price the estimated value of subsidies on the Airbus A330-200, the model on which the EADS tanker is based. But EADS says its plane is just better.

    H-P (HPQ) wins a contract for continued U.S. Navy information tech support that could be worth as much as $3.4B if all the options are exercised. The initial award is for $27M, and work could potentially continue until July 2015.

    An embarrassing string of recalls, including one yesterday, is hurting J&J’s (JNJ) sales. Sales of J&J’s pain reliever pills fell 56% in the four weeks ending June 13 vs. the year before as the company faces "pain by a thousand cuts."

    GlaxoSmithKline (GSK) shares slump ahead of a scheduled FDA safety review of its Avandia diabetes drug. The agency is expected to release its preliminary findings today, and European regulators say they are also reviewing Avandia’s safety profile. GSK -2.5% premarket.

    A federal appeals court last night upheld a lower court ruling against the moratorium on deepwater drilling, but related stocks aren’t reacting to the news one hour into the session. (ETF: OIH)

  28. amatta,
    Further, I would sugest you PRACTICE with any system untill you’re confident, not just comfortable. My #1 Rule has always been NEVER LOSE MONEY !!

  29. exec
    Bots fishing for stops.

  30. US growth gauge falls to lowest since July ’09-ECRI

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    Reuters.utils.addLoadEvent(function() { Reuters.utils.loadScript(‘sJSON’,'/assets/multimediaJSON?articleId=USNLL9IE68V20100709&setImage=300&view=100&startNumber=1′) });

    Fri Jul 9, 2010 10:30am EDT

    July 9 (Reuters) – A measure of future U.S.
    economic growth fell to the lowest since July 2009, indicating
    that the economy will continue to slow, a research group said
    on Friday.


    The Economic Cycle Research Institute, a New York-based
    independent forecasting group, said its Weekly Leading Index
    fell to 121.5 for the week ended July 2, down from 122.3 in the
    prior week.

    That was the lowest level since July 24, 2009 when it stood
    at 120.3.

    The index’s annualized growth rate fell to -8.3 percent
    after a -7.6 percent growth rate a week earlier.

  31. TNA/TZA/Yshen – Well we can assume they both become worthless over time so I think the following should work:

    • TZA 2012 $45/40 bear put spread at $4
    • TNA 2012 $45/40 bear put spread at $3

    So you are risking $7 to make $3 in 18 months but you really shouldn’t be able to lose both at the same time so more like risking $3 to make $3 (as you make at least $1 on the winning side, which is very reasonable since we pretty strongly believe the $3 is there.  You can add some extra puts or take out some putters when a spike goes against you (making them cheaper) to give yourself more upside but it’s a nice way to play for the time decay on the two ultra-ETFs

  32. phil, thanks for comments on selling naket puts.  My question is this: Do you see a difference between selling deep out othe money puts vs. selling close in puts, i.e. a few dollars out of the money.  For example, what is wrong with selling Rimm puts that are 50% below the current market price?  Yes, you get less premium, but the chance of a total collaspe is small.  Then time decay starts to work in your favor.  It will take a 50% move to lose money, if the option is held to expiration. Isn’t it prudent to ‘gamble’ that the stock will not be cut in half in 6 months?  So you are selling a put option that has a high degree of certainty to expire worthless.  An approximation of what you have said before is this, "the worst thing you can do as an investor is to buy out of position premium, you are better off selling it."  Perhaps the bottom line point is that as an option seller you better have the cash to take the assignment, should the stock collaspe to the lower level.  And don’t sell too much premium in one stock.
    I cannot emphasize enough the difference between selling puts in stocks you REALLY want to own vs selling puts as a gamble.  If

  33. Gold Juniors / Phil – I have a lot of gold and silver junior mining companies and wonder how you’d suggest hedging them. I’ve tried using general market hedges (DXD and so forth) but they’re not well correlated with the juniors, and the juniors are way more volatile. Suggestions?

  34. IWM testing 62.36 as a floor now.

  35.  Hi Phil next week is China GDP report. I think this report will be tricky. target is around 9, observing the reports so far, I think they will overshoot again, may cause some downside bias again

  36.  JRW, 
    Yea, thanks for that been doing too much of that lately, not sleeping at night.
    I had gotten that far (SS system) but was hoping to get a little more enlightened as to where you can take it from there to fine tune it (as I think this makes the difference between making or losing money)…
    Thanks again

  37. Phil – I know the BDI has been beaten down, but what do you think of -
    DRYS Jan 11 bull call spread 2.50/5.00 for net 1.04, selling the Jan 11 $4.00 puts for .93 for net .11 This is a spread (stock currently @ 3.72) 1.22 in the money. Worst case is getting the stock for 4.00 in Jan less any amount you may make in the spread.

  38. Freakin Bots……That’s why I quit using stops long ago……no matter where you set them they find them and run up off of them.

  39. JR,
    Through your support and 3 day under 8ema.  Is that enough conformation for you to go TZA

  40. Phil> "Access to the discount window at 0.25%"
    So how can I get an account at the Federal Reserve Bank?
    Phil> "I’ll have the seat surrounded by 8 monitors…."
    I had to leave my desk and head out to the hallway to keep from bursting out laughing. That’s what I get for checking this during work.

  41. Exec/Bots- a lot like playing poker, and when you put in your stop, they see your "tell" in a millisecond.

  42. JR,
    Just out of curiosity, that Bot spike at 10:29.  I noticed that following it, there was a decent run up.  Have you noticed a pattern of this?  Bots take out the stops first then follow with a run up?

  43. Phil / Google, Micron   Should I buy Google on this China news?  MU looks incredibly cheap viz p/e ratios, a good buy today?

  44.   Guys 
    I have a position in VZ and my reg options changed to (FTR 24; US$100) Could anybody explain please what kind of options are they and why they have very strange prices in TOS

  45. Jbur
    "tell" ???

  46. It’s also like when you put in a bid and the ask moves away from you.. have you ever had that happen? They have all that figured out… the bots who work for the faceless big people.

  47. Oxen Alert – Exiting Positions

    (The following is a preview of an Oxen Alert I recently sent out. Alerts are for Oxen Alert members only, and they are an extremely important part of trading any positions that I open. If you do not have Alerts and would like to receive, ask me how)
    SKF – I got out of this for a 1.5% loss at 21.33. I was not feeling that it would improve and probably decline more.
    AA – I am exiting AA at 10.91 here for a gain of 3.5%. I am worried about this one holding up on Monday, and I cannot pass up the opportunity to make some money here. I will definitely think about reentering on Monday.
    PSMT – We got involved at 25.35, and we are up a little over 1% right now. We will continue to hold, looking for it to break
    into the 24 area.
    Good Investing!

  48. ERCI NOT Good:  Following its recent slowing trend, the ECRI Leading Index drops to 121.5, its lowest since last July, from 122.3. The index had been gaining but at a seriously slowing annualized rate; its annual growth now -8.3% compared with last week’s -7.6%.

    DIA $100 puts at .60 are good below 10,150 on the Dow but out above that line.  20% is GOOD MONEY on a day trade – keep that in mind.

  49. BP/"Backup Solution" – I believe BP is priming the public for a possible failed relief well effort…publicizing a new option that will only take a couple of weeks longer (late Aug).  The leak will get plugged…there is no way the govt will allow 100 Billion gallons of oil in the gulf…question is "when" and "how"…

  50. I guess that is what Phil was referring to when he said he’d try to trick them by playing both sides. 
    Phil’s like a uncontrollable virus to them Bots……..they’re going to get sick of his crap and send Agent Smith to hunt him down !!!

  51.  Phil—I’m in a EFA JUL 50/47 put debit spread with a net basis of 2.24. Thinking of buying back the 47 and selling the JUL 52 put for 2.14 credit. Is there a better solution for managing this one? Thanks!!

  52.  Phil- I really liked the article this morning.  Turns out the rich are as much, if not more, of the foreclosure issue than was previously recognized.  I really hope the general population sees this and understands that the people who created this mess did so with reckless abandon in search of a quick profit and saw it as a business deal.  I have to decide weather to rent out my property or send it back before I move in a year.  I bought because I wanted to be a home owner and to get into the market.  This was my first property and I was encouraged to get a pay option arm with the advice that I could pay interest only, invest the money I saved and then re-fi later at a better rate or just get the same type of loan again and start the process fresh later.  Turns out they were making tons of money giving out terrible loans and then giving out even more terrible loans to the people in trouble which only made things worse.  Part of me really wants to stick it to the bank, consequences be damned.  But I don’t want emotions to drive my decision.  Morally, I do not think it’s wrong and maybe now others will take the key from the rich.  The bottom 99% should get their’s as well.
    But I think the most important fact here is that it was not, and is not, the bottom 99% who are responsible solely, for the crisis.  The whole mess is just an elaborate bait and switch, blame the middle class who took bad loans and let the rich slip in behind that cover.  Sorry about the long, non-market related post but I couldn’t resist.   

  53. Exec- from Wiki: "A tell in poker is a subtle but detectable change in a player’s behavior or demeanor that gives clues to that player’s assessment of his hand. A player gains an advantage if he observes and understands the meaning of another player’s tell, particularly if the tell is unconscious and reliable."  
    You put in your stops, they already know what you will do when X happens. They, the big players,  have an advantage b/c they have that info… you don’t know if and what their stops are.

  54.  Am I the first one to take a dip? Sold 2 TFU10 for 620, stop (undisclosed!). Looking weak, technically good entry, and ERCI not good. 

  55. exec / TZA
    Very choppy morning, I think "they" want to finish here or better. I bought in about 10.15, into that buy program and sold when it hit a trend line about 10:40, but not a lot of conviction. I didn’t switch to TZA and am set up to get back into TNA at IWM 62.07 on the way back up.
    Nice call on the TZA though !!

  56. Phil, vaccine is miles down the road for AIDS.  Various strains, mutation etc.  They will not be able to introduce vaccine until it is foolproof due to moral hazard.  You don’t really want to introduce risky behavior etc.  More likely, to be a "morning after pill"  for health care workers after a needle stick.  IMHO.

  57. GILD/Phil – vaccine is years, and I mean years away.  MRK tried it and failed.  NIH has an antibody out that fights it, but yet to be determined in humans.  GILD still has the corner on the market until otherwise noted.  I am more worried about PFE and LLY right now, so shorting would be a good idea…….JMHO.  LLY loses 3/4 of revenue in the coming few years.

  58. Oh, and what Jo said (always wanted to do that!!!!)….

  59.  I probably should have waited to see if it breaks 62.07… I’d hate to trade against JRW’s opinion. Here comes the test…

  60. DIA Iron Condor (TOS) —  selling the August 105 calls and August 95 puts and buying the August 108 calls and August 92 puts for a credit of $1.16.  Break-even points on this trade are $93.84 on the downside and 106.16 on the upside.  Using TOS – 77 and 75% probability for worthless expiration of the call/put side respectively of the DIA condor.

  61.  And I’m out. Looks like JRW was right again!

  62. drcraig: it went below 62.07 to 62.04,

  63.  RMM- bent, not broken!

  64. PHARM,  PFE seems to have already priced in patent losses?  Their biggest wildcard seems to be who are they gonna buy?

  65. This market is choppy.  I’m thinking yesterdays stick is going to get chewed up.

  66. Phil, you said yesterday regarding uncomplicated to look for a delta this week of  .10  at .50   i was looking at aug 89 put ask.50  with delta ,095 and aug 90 put ask .58 with a delta .103 does it make a diffeernce which one i choose since deltas are so very close

  67. What do you usually do when a sold put, or a buy/write for that matter, come to within your general 2 week before expiration period and, employing the Microwave Oven Theorem, you find yourself less convicted regarding having the stock put to you, but not entirely persuaded to dump it? I have that exact situation regarding ACI, bought 3/2 @23.35 selling JUL 25 Calls and 21 Puts. I still like the Energy sector, which you have said you’re not so keen on, and I still like ACI, which you have said is a good company, but inferior to BTU and CHK. Itt seems like a viable candidate for another call/put write with roughly the same $4 spread, but maybe it would be bettter to move on to a better play. When you have time, I’m more interested in your comments regarding the general situation so I can learn how to do this right, but the specific would be nice as well.

  68. Phil, thanks for the long explanation on the AA buy/write and artificial this morning. This makes a lot of sense! I have however some follow up questions if you don’t mind as I like to have a good plan before moving forward. Suppose I have the 1000 AA shares now and sold the 2012 P and C against it. Now, bad news happens in August and AA drops to $8.00. No problem, I get assigned another 1000 shares at my cost of $8.04. The plan would then be to sell 2012 7.5 P and C against the new 1000 shares to drop my cost. And then sell 2012 7.5 P against the original 1000 shares (the original 10 P have been assigned) and roll down the original 10 C to 7.5 (the 10 C should have been cut down to close to nothing by then) and collect some more premium. Correct?
    Now, good things happen and AA jumps to $12. My shares get called away. Not a bad thing, but since I am an investor, I want to keep them for the long run. What would be the plan then. The 2012 7.5 P is worthless then, but the 2012 10 C is now probably $3.5 or so. With decay and no 2013 LEAPS yet, I don’t have many options to roll it up. What to do? Roll the 2012 10 P to 12.5, collect some premium to pay to roll the 2012 10 C to 12.5? I guess I need to redo all the calculations to see what my cost basis would become then… As soon as 2013 LEAPS become available, then I think the plan would become clearer. Just roll to 2013 12.5 P and C I guess. Thanks again!
    And thanks for the comments about Cramer and China. I wonder how you track all these videos from these bozos on TV (or just google them last minute)?

  69. DCTH up 11% on big volume, might be getting a squeeze on.
    We’ll see

  70. RMM / 62.04
    You’re right, I guess I’ll just have to give up on this whole stock market thing !!

  71. yeah, Jo PFE does seem to be priced in, but losing 1/4 of the revenue on 1 drug is a dividend slasher as well as increases that P/E substancially compared to its peers.  The debt is also astronomical, although they have a 17B warchest….I still think they are WAY overvalued compared to MRK, GSK and GILD for that matter.

  72. Copper on 5 min chart moving up again.

  73. exec/stops — do you have conditional orders (i.e. If last < x, then sell at bid)?  You can probably setup an artificial stop using them and the market wouldn’t be able to see it. I don’t think trailing stops are presented to the market either. Of course if it’s YOUR broker running the bot, then all bets might be off!

  74. JRW – Yeah, you suk at suking at this game! =D…………continue the suckage!  By the way, how did you get 62.36 on IWM?

  75. OK JR,
    Let’s test your skills……where we going with the lunch crowd……a run up through .36 or reversal down through .07?

  76. BSX getting some love.  Maybe LLY will move into the space, as they are interested in Med Devices…….St. Jude would be another.

  77. Rain,
    SS pro has several options.  In general, I don’t like any kind of stop except on long term trade where I’m up a decent percent and can set a protective stop low enough not to get picked off.  Stops are difficult while day trading because we’re playing with small percentages and the spikes in these triples will take them out. 
    I’ve been thinking about setting up the hot keys which enables you to make a trade using one keystroke.

  78. Phil / 2nd half guidance    2nd qtr results expected to be good, but already WAG, NIKE, BB, DF and FDO have guided caution re 2nd half.  Our growth is zero net of stimulus.  The reaction to FDO guidance was particularly ominous since it was essentially good further revenue and earnings growth, but marginally below expectation, but the stock was crushed.  Aren’t you concerned that guidance, also coming up against better y/y comps, (in spite of good 2nd qtr eps) could push us down sharply starting next week?

  79. goldman / 62.36
    Last Tue and Wed 6/30,31 30 min chart.

  80. DCTH – IF you really like them (I do), buying here and selling the August 6/5 C/P strangle for 1.40 is a nice way to play them.  They are real, one makes a bit north of 10% for a month (depending upon commission costs).  I am going to try it….

  81. exec / direction
    If we’re lucky we get both !!

  82. BTW……..
    My boy done stuck us good.  They’re crying like baby’s around here.

  83. Ya but I’m back to cash…..not sure what way to go.

  84. These continuous engulf’s through the 8ema are F’ing with the system.

  85. Pharm, what do you think of MYGN downgarde by JPM?

  86. exec
    Don’t forget confuation ?sp today I have not been seeing it.

  87. DCTH flying, + 18%

  88. I’ve posted my longer-term SPX Models again today, as I read way too much bullishness at the usual array of market commentary sites.  This summer will end much the way it began at the end of June, only at a higher degree of panic and dread.  This lull should be short-lived and then forgotten as swiftly as it appeared.

  89. DCTH, rumor, and rumor only at this point is DCTH board in talks with Bayer Health Care.
    Repeat, rumor only

  90. exec,
    If you’re long,it’s siting on an upward trend, if it breaks south you should be able to get out without a loss ( before 62.07)
    if it breaks north, just watch the strength around 62.36, if it’s weak, take your profit.

  91. Look at $RIMM …. gonna take a small short here….

  92.  Phil, 
    Is this a good position now to set up a mattress play? I have gone over the post on mattress plays but it really doesn’t get into how you cover them as I see you do frequently on the posts… Would you mind if you have a minute running a scenario setting one up to protect against a drop next week? 

  93. RIMM in a robot driven squeeze !!

  94. Puts/Fjd – If you sell, for example, a RIMM Jan $32.50 put for $1.15, you use $3,265 in net margin for 10 after collecting $1,150.  If RIMM falls 10% to $47, then the put jumps to $1.95 and you are still down 69% and your margin requirement starts climbing as well so, if you didn’t INTEND to own it and you didn’t put the money aside to buy it, you can still get yourself in a boatload of trouble.  So yes, don’t take on too much exposure in any stock, no matter how attractive you think it is.  The collpase of the financials, PFE and BP are all good examples of how you can never be so smart as to pick a company that isn’t going to tank on you.   

    Gold/Tenger – I’m not a big fan of gold up here.  I think they need to re-test $1,150 badly.  I think the best hedge is going to be a simple long put on UGL as we expect it to decay a bit anyway so something like the Jan $56/53 bear puts spread at $1.90 doesn’t cost you money unless gold goes higher and pays 57% if gold goes down even a bit.  Inerestingly, you can offset that with the sale of some $40 puts for $2 so let’s say you sell 10 $40 puts for $2,000 (about $10K in margin) and you buy 20 of the put spreads for $3,800.  Then you are in the put spreads for .90 each with a $4,200 profit if gold simply doesn’t go up and you don’t lose anything on the put sale (which you can roll to 2012 whatevers) until UGL is below where it was when gold was just over $1,000.

    China GDP/Chyer – Hard to say what the reaction would be as good GDP may bring fears of more tightening but bad GDP may bring fears of overtightening but earnings will trump all next week I think…

    Europe closed up half a point.  I’d expect the same for us in the very least.  I think our dip had more to do with EU boys taking the money and running ahead of the weekend than the ECRI report. 

    DRYS/RJ – Not until the BDI turns up.  That’s what DRYS sells.  These shipping companies are all debt and if they can’t get prices it jams them up pretty quickly.  There was a story about empty containers being moved from port to port.  They only do that when there’s not a scrap of paying business.  If China has good GDP next week and if our earnings are good - then we’ll probably see a jump in Christmas orders and the BDI will pop back over 2,000 and that would be the time to get in. 

    Fed account/Jvest – I guess we could all chip in and buy a small community bank and then lend each other ridiculous amounts of money at max leverage until we are too big to fail and then the Fed will shower us with riches – how’s that for a plan?

    Spikes/Exec – Yes, they do that to find the next significant buyer or seller so they can then set their program to trade up to that limit.  If I want to take AAPL to $265, I make an offer to buy at $265 and try to see where the first big seller is.  Say it’s $262.50.  Then I set my buy program to step us into AAPL from $257.50 to $262.50 – assuming I really want to own it.  Then I let the other retail buyers jump in and fight it out with Mr. $262.50 seller and, if the retailers win, I may run my next upside series after another spike test but, if I was just trying to jack AAPL up or if the retailers lose and Mr. Seller drops to $262.00, then I will dump my entire order underneath him for $260-261.50 and hopefully average $260.75, which is .75 or more over my average entry and then I wait for Mr. Seller to panic and start dumping his shares and I’ll cycle back in ahead of whatever downside buyer I flush out. 

    That’s the big picture but what happens these days is bots do all of that every 5 or 10 cents over and over and over and they are thrilled to make a penny each time.  It used to be they just looked for the big sellers but efficiency now means they can drill down and run programs against each and every individual trader on pretty much everything they buy.  There was an article on this in the USA Today this morning so it will be interesting to see what, if anything, happens when Main Street America catches on to this scam.

    MU/Tusca – Yes they do seem cheap but they are one of those companies that can drop 30% for no reason at all.  If we’re not going to get SOX 350, I’d wait on Semis.  GOOG is already up $7 but back from $12 and I do think they are setting up for positive earnings outlook on Thursday night.  Unfortunately, they are expected to be up 20% from last year and they haven’t surprised by more than 5% other than Q3 last year and I don’t know if that’s enought to spark a rally.   Yesterday I would have said go for it with them but now that China news is done – it’s a tough one to leave up to earnings.  I think, on the whole, I’d hope for a miss and get in at $400 or less with a strong play rather than gamble earnings. 

    VZ/Tusca – Has to do with FTR deal.  You have some shares of FTR plus cash.  Best to call your broker, they should be able to give you the breakdown. 

    No way/Goldman – Famous last words…

    Agent Smith/Exec – That’s OK, I can see his code too!   8-)

    EFA/Fortep – So you had a bear spread and own the $50 puts for net $2.24 and you are down to .73 and you want to solve that by flipping 5% bullish from here by selling the $52 puts, now $2.35.  Well, the good news is you can only lose the net .40 you have left in the trade but I am not a big fan of reversing stances after you’ve been wiped out of a position – you only compound your misery if the index turns down and then you are stuck in a position that you totally don’t believe in.  The Sept $52/51 bear put spread is .40 and you can take your .73 and buy 2x of those and get 3/4 of your losses back if EFA doesn’t crack over $52, which will probably be the 200 dma by then (it’s now declining slightly at $53).  Anyway, I’d rather have that play and then, if EFA breaks over $50, you can buy an upside call as a momentum play instead, knowing that you have Sept money coming to you if it can’t hold that line. 

    Mortgage/Jtiff – Don’t be emotional about it at all.  Think of it as a business decision but make sure you analyze the consequences (it may be difficult for you to buy your next home) as well as the benefits.  If it’s more logical to throw the keys in the bank’s face – you should do that because they are your business partner on this transaction – not the victim.  You both made a poor decision on a home and you are the working partner and they were the money partner – you have no obligation to try to hold them harmless from damage, that’s just nonsense propoganda being drilled into people’s heads by the banks.  You need a lawyer and an accountant who know the state laws and what can and can’t be done but, if you are upside down on a home, you actually have a lot of leverage with the bank. 

  95. I went short a couple of minutes ago

  96. Phil, I got some FTR(Frontier Communications) stocks spin-off from verizon. It pays more than 13% dividens. Do you think it’s worth keeping it?  Should I write puts and calls against it?  thanks

  97.  Any thoughts on APOL? They were beat way down on a bunch of bad news but starting to come back.

  98. I just love those clips. 

  99. Gold / Phil – thanks for the UGL strategy, I’m going to chew on that for a while. Here’s what I did for now based on GDX (gold miners, now at $50.67) : short 1x Sept 57 C, long 2x Sept 46/39 put spread for a net of 0.4 and a total delta of -.47 against GDX. This executed much better than I hoped giving me an upside of 700% if GDX tanks, and forcing me to sell GDX at 57.4 if GDX rises, and I can live with a Sept deadline as we’re all nervous about gold shooting up in the long term. I was also happy to hedge $24K of mining stocks with $400 of insurance. On the whole, however, I could not find many good alternatives for this hedge, which is why I appreciate your suggestion. Thx.

  100.  Disgusting behavior……Sorry Phil, I can’t wait till after hours on this one.   I went to a baseball game last night with some Little League players.  We were all sitting in the ‘cheap seats’ just below the expensive enclosed boxes above.  In the 8th inning some rich jerk comes out with left-over bags of potato chips and wrapped hot dogs, etc.  and start throwing them down to the crowd below.  Not handing them out  but throwing them.  I found this condescending and disgusting, so (not being able to help myself) I gathered several of the items up and threw them back at him.   He looked astonished that someone would not gladly accept his generous offering of food that he was raining down on the ‘less fortunate’.   Knowing that many on this site are very well-to-do, always recognize the fact that the less fortunate don’t deserve this kind of behavior, and that some who appear less fortunate (but are not) may only be sitting in the cheap seats because …..well, just because that’s where they choose to sit.  

  101. What do you think JR…..we just see the lows?

  102. .
    Iflan, You are beyond correct. Bad behavior knows no economic bounds.
    A pox on his drunken house.

  103. tenger,
    good article at Seeking Alpha suggests this is weakest time of the year for gold

  104. Phil – quick question, I covered all my hedges Tuesday and Wednesday morning, and have seen my portfolio value explode as we’ve moved up this week.  Liking that, but beginning to think about putting some hedges back on when/if we approach 10,250.  I’m thinking maybe 1/4 to 1/2 of them around 10,250 and the rest if we go up to 10,400(sorta the range you’ve been touting).
    My question, what hedges do you think work well in this scenario.  I had a TZA vertical call with put sale and an SDS vertical call with put sale(both of which I cashed with a small profit that I can use to reposition).

  105.  Did somebody say free hot dogs?

  106. Phil, I bought UYG 2011 Jan $40/55 bull cals spread @7.85, sold $45 puts @7.71. net $0.14. Now net profits is about $3. I’m not sure what’s your strategy in this situation. That is, take the profits and run now or wait till expiration to either get the $15 profits from the call spread or get assigned @45.14 which I don’t mind to own. thanks

  107. I could use some free hotdogs, no lunch for me today…:-)

  108. Phil:  After a week of travel I’m ready to work on the "9 fabulous plays + Chipshot."  I finally have $35K at OptionsHouse and another $40K waiting in the bank to allocate to the long-term portfolio.  I’d like to start with 100 shares of KFT and ease my way in.   KFT is up around $28.80 versus $28.25 in your original post.  It looks like KFT might deteriorate back down to your original entry point of $28.25, would you wait for it, or not worry about it?     On my hourly chart it seems to be hovering over the 5-day SMA but below volume-weighted resistance at $29.   I  also want to look for an entry to the DIA disaster hedge.

  109. lets start the stick early today. I know that’s what Matt wants!

  110. Phil, 
    Also I am exiting the SDS hedge as it is getting a little too close to the bought strike and I still have profits there. Do you have a current replacement for it, or do you think I should stay only half covered with the DXD for OCT?

  111. Vaccine/Jo, Pharm - I don’t know, at $500Bn a year for treatment going up 10% a year, I’d be rolling it out as quickly as possible but, that’s still years, of course.

    DIA/Z4 – Hell yes it makes a  difference.  Your goal is to make .10 on a 100-point drop in the Dow ($1 on DIA).  So you can makde .09 on .47 (19%) with the $89 puts or you can make .11 on .55 (20%) with the $90 puts add to that that the $90 puts are in better position to make gains and that makes them a better play IF YOU ARE RELLY BEARISH.  If you are just covering to be safe, you may want to go with the $89 puts because they lose less money on the way up so your choice depends on the math and your real feelings about the position. 

    60M on the Dow coming into 1pm.  Are the markets closed today?

    ACI/Kevin – Well if you are in for less than net $21.50 you have at least successfully not lost money in a big sell-off so that’s good.  Now you have to look at your cash position and compare ACI to BTU and CHK, not just as values, but as what kind of play can you make out of it.  With ACI, you have a $21.50 net and you sell the Jan $22.50 calls for $2.80 and the $19 puts for $2 and you are down to net $16.70/17.85 so not bad with a free 15% downside protection.  BTU is $43 and hasn’t dropped as much as ACI so no fun but CHK, not only is beaten down but its about the same price AND we have a very good reason for buying it (big hurricane season by Jan) so now we look at buying them for $21.50 and selling the Jan $21 puts and calls for $5.10 for net $16.50/18.75 so you would make more money with ACI at $22.50 than you will with CHK at $21 (this is the power of continually rolling over your buy/writes) and it’s a whole $1.30 more AND your put-to price is $1 less so no reason to flip to CHK given those two choices..  See, you just have to work through it and the answer presents itself…

    AA/STJean – Well we don’t mindlessly cover.  If AA is down 20% and put to you, you may not want to go full cover in the next round.  We had tons of naked plays in March of ’09 as the drop from Feb expirations was reason enough for us to take out our callers and hope for a bounce.   Depending on how full your position is, there are al kinds of adjustments to make and it all depends on the VIX and the overall market and what other positions you have (to balance) so it get’s to be like asking a chess player what their plan is for move #7 – there are too many possibilities to even think about it so far in advance.  This goes back to the same old story – Patience and Practice.  You are not going to get 3 years worth of experince dealing with options over time by pre-guessing what to do in 2013.  Imagine how worthless that speculation would have been two years ago when the VIX was at 60 compared to 25 today…  As to youtube – I’m just good at thinking of which key words will bring up results. 

    Copper $3.05 but the Pound back on the $1.50 line.  Europ at $1.263 and Yen (once again the winning 3am trade) at 88.5.  Oil fading out again with an hour to go on NYMEX – down to $75.40, nat gas $4.40 and gold still strong at $1,209 but can’t close the deal at $1,210 so not good for gold bugs either

    Stops:  I usually put in small orders to sell and then the sound of the sale alerts me to see what stop go hit and then I bring it up on screen and decide what to do with the rest.  Also, I always buy even blocks so I know any time I see at a glance a 9 on one of my counts that a stop got hit – even if I didn’t notice it happening

    Guidance/Tusca – The negative guidance I’ve heard so far is more outlook than factual.  Everybody was freaking out last month and everybody pulled back and CEOs consume the same media you do so they aren’t going to get on a CC and say things look very good when every tells them they are not.  Also, when you are a CEO and someone gives you an easy out to lowball guidance – you take it!  Under promise and over deliver is CEO 101 so part of the idea of releasing the doom squad prior to earnings was to create a ripe environment for negative guidance.  I pay much more attention to EU CEOs than US CEOS – the EU CEOs tend to be honest to a fault – they don’t generally sugar-coat their earnings or outlook. 

    Mattress/Amatta – Generally we first enter a mattress with a 1/2 cover.  At the moment, the spread would be the DIA Dec $100 puts at $6.50, 1/2 covered with July $102 puts at $1.37 as they can easily be rolled down to 2x whatever if we crash or they will exire worthless for a nice 10% pickup on the long side by the end of next week.

    FTR/Jossie – I don’t know what the rules are with them or how the new operation looks.  Remind me on the weekend and I’ll take a look. 

    APOL/Oakd – I was under the impression they were going down for no good reason.  I think there will be a big jobs announcement and I think APOL will benefit so I do like them but chasing them is tough.  I suppose $40 is a good price to own them so selling the $40 puts for $1.25 and buying the Aug $44/47 bull call spread for $1.30 is a fun way to make $2.95 on a nickel

  112. drcraig – I don’t know why comments like "Did somebody say free hot dogs?" makes me laugh so hard…LOL…probably why I’m attracted to Phil’s articles, as he "whale hunts with spears crafted from exotic wood" while unemployment U6 hits 18%…  It is good to be able to laugh at something every day IMHO…to distract us from watching Rome burn.  I unfortunately agree with the CNBC guest Beder, who thinks we are in for a "rainy decade"…and agree 100% with the few articles that JRW has posted on the subject…but is good to have daily humor and "Phil balance" articles/comments…and I thank you and Phil for that!

  113. Any / Permalink    What is this for and how to use?   Is there a way of pulling up only the comments from one member in time/date order.

  114. Gold,
    I’m hearing you.  I’ve read several doom and gloom books including the last "the next great depression" which raises several compelling arguments as to why we’re in deep dodo.  Unfortunately, I took a lot of what he and the others to heart and missed an impressive rally over the last year or so. 
    So the moral of the story…..forget about what everyone is predicting and keep a close eye on your positions and make sure you have protection in place.  I can’t believe how so many people can just take all their money and give it to a broker to invest as they see fit.  If these predictions come to fruition, then they are F’d.
    I agree with you……Senator Davis does keep everything balanced and real.

  115. Phil, since we mention idiot pundits often, what about James Altcher? How does this guy even get on the airwaves!? I would argue that he is WORSE than Cramer. He may not have the following but his predictions are soooooo far of the mark… I’ve only been active in the market for a couple of years but during that time he advised people to sell everything and dump it into UNG (when it was at 15$), he advised people to dump solar (before it exploded upwards), and has many others…  I only mention this b/c Marketwatch has an article with him…. Im curious to see how much money this guy has made his clients..

  116. tuscadog – place mouse over the permalink you want to copy…right click, then highlight and copy (Ctrl-C or right click/copy) the address in the window.  Go to the forum box and click on the globe/chain icon…paste in the copied link into the "URL" section, hit "Ok".

  117. jromeha, you just got your stick for the day.  That’s a wrap.  It’s all down now and one small blip up from there!

  118. I got talk radio going here…….man….. they’re having a major pissy fit over LaBron bailing on us.

  119. Few tid bits from Dave R today:
    The MSCI global equity index is heading for its best week in a year (up 4.8%), led by recent gains in China, no less. Bond yields are up as well as the 10-year Tnote moves further above the 3% mark – even in the face of that massive deflation in consumer credit ($9 billion –see more below) that came out from the Fed yesterday. How the economy can grow on a sustained basis when outstanding household credit is contracting is a very interesting proposition – and one we don’t see.
    We still have no clue why so many pundits detest the Treasury market when it is working so hard to rejuvenate the  depressed housing market. Because of the rally in bonds, the 30-year fixed mortgage rate managed to set a new low
    in the past week to 4.57%. Be that as it may, demand is still very soft and the overall supply of existing homes, including foreclosures is far outstripping sales activity (have a look at page A6 of the Investors Business Daily – “When Will Houses Appreciate? Not Until Supply Bloat Clears”.

  120. JRW, I know you posted your lines but I’ve been out for much of the day, are you in anything right now?

  121. Exec, what part of Ohio are you in?

  122. Matt,
    Do you have your crystal ball going or just guessing.  I was thinking the same thing, however, Mr. Stick seems to be getting his strength back and this low volume day is right up his alley.

  123. Matt, are you talkin’ your book?   :-)

  124. VZ/Tusca : You should have received appox. .24 shares of FTR  per 1 share of VZ. FTR currently paying approx. 13.3 % dividend  

  125. Hi Phil,
    When did we move the long putters from Sep to Dec? thks
    At the moment, the spread would be the DIA Dec $100 puts at $6.50, 1/2 covered with July $102 puts at $1.37 as they can easily

  126. Suburb of Cleveland…….choke capitol of the world.

  127. GDX/Tenger – That works great as long as you REALLY don’t mind being short GDX up there. 

    Cheap seats/Iflan – Free food?  Cool!   8-)

    Hedges/Hoss – First of all, you should really have SOME kind of hedge into the weekend.  When we have a disaster, it’s often on a Monday or Friday.  Right now, I’d go with the assumption that Whitney is right and Friday is a disaster for banks next week so a 5% drop in XLF back to $13.75 (they are testing $14.50 now) would be a 15% boost in FAZ to $17.25 and the Aug $15/17 bull call spread is .62 and you can sell 1 UYG $45 puts (20% out of the money, 10% down in XLF) for each 3 FAZ spreads you buy and you drop the net on the $2 bull call spread to .22.  If FAZ goes over $17 (more than 5% drop) you can layer up the protection to cover the short puts and if FAZ doesn’t pay off, you won’t lose on the naked puts and the whole spread costs you .66 for 3 so $660 spent on 30 FAZ Aug $15/17 bull call spreads net of selling 10 UYG $45 puts for for $1.20 each gives you $6,000 worth of downside protection and your worst-case is you own 1,000 UYG at net $45.22 (now $54.76).  TOS says 1/3 margin or about $15,000 on the put side.

    Menwhile, coming up at 2pm with 70M shares traded on the Dow.  Very stickable.

  128. gold / ekor – thanks for that Seeking Alpha link, which says these are the months to buy the metal, not short. Nevertheless, the miners are way more volatile than the metal, and they get dragged around by equity investors as much as gold bugs, and in sometimes opposite directions. After having the stuffing punched out of my mining stocks over the last week, at the same time that my market hedges were losing money, I decided that by setting aside a pint of my own blood for the future would help me sleep better, so I entered that GDX hedge which targets the miners in particular, and I only hedged 25% of my exposure.  Investing in mining stocks is like driving an overpowered sports car…

  129. Nope, they want to make this rally appear idiot proof.  It’s funny, today Cramer said that you can make a lot of money simply following the herd and that even a bear market rally is a rally.  So at least now he’s not covering up his intentions.  
    Just once I’d like to see ‘them’ have to deal with a truly paniced public and get it handed to them.  But since March 9th, 2009 they have operated without impunity. 

  130. Matt - CNBC is cheering hard right now about the economy…should be fun to see if they have any control of the market psyche…

  131. GDX/Phil – who says  "That works great as long as you REALLY don’t mind being short GDX up there (at 57 in Sept)"
    Yeah, well… stiff upper lip. I might be tempted to bail out at a loss if and when the call comes ITM. And as you say, the loss should be more than made up by the appreciation of a larger portion of miners in my portfolio. And I DO unload the miners when they get high, so shorting GDX is in keeping with the general plan, except in the case of the miners I don’t short I just sell. Though to be honest, since joining PSW I’ve been trying to replace buy/writes with synthetic longs.

  132. Capt.
    Welcome back, you haven’t missed much, I’ve done 3 TNA’s (only one was a full position). bouncing between IWM 62.07 and 62.36; I’m barely up 2%, boring !!

  133. exec,
    Bay Village ?

  134. JRW, I gotta hand it to you again.  Your lines have been great.  Unfortunately, They are keeping this between the narrowest range of your lines.  A good day to have played golf.

  135. Phil: with the market as you see it, I wonder about my uncovered TNA jan30/50 spread (previously jan35/50 until you told me to go 330/50),
    have the jan35 putter but no callers at present as I was waiting for a higher premium, wonder whether I should still wait ?

  136. Phil : I close my TZA protection  a few days ago as u suggested. I need to get some protection for a 10 to 15% drop on my buy/writes. Do you stil like the DXD Oct $30/$38 with Jan$26 puts. DXD now at $28.52 and spread costs is net $1.40 versus your original recommendation where net costs was $.10. Thank you. 

  137. JRWIII  – SS DIRK’s  a 3 min chart, candles, and an 8 period ema. Set in the S/R lines and when the index bounces off a line get in; get out when you see an engulfing candle on the opposite side of the 8ema
    Have you looked at other 3x funds EDZ/EDC, FAS/FAZ, ERX/ERY…etc. where this strategy would be applicable?
    60M on the Dow coming into 1pm.  Are the markets closed today? – Classic…

  138. Hi phil — with new TZA reverse split what is the current hedge position should be for next week. thx also DXD Oct 30/38 buu spread still good hedge to slowly add position ? i forgot what is the sell put strike for this spread  was it jan or oct 26. thx

  139. tenger,
    What’s wrong with an overpowered sports car ????????????

  140. JRW tenger
    Ever noticed the look on someone’s face after 20 to 60 mph under 3 sec.?

  141. loopy
    I play the Russell because it’s diversified ( as opposed to sectors) and more volatile than the other indexes ( more opportunity ) but you can use any system on any stock.

  142. shadow,
    I love that, I wish I could offord an F-22 !!

  143. JRW – 0-60 sub 3…0-100 sub 7…one of the fastest track racers out there at a super efficient price.  When the markets close, check out the Ariel Atom 2010 open air racer!

  144. UYG/Jossie – See, when you REALLY don’t mind the downside (owning UYG at $45.14, then you have all the power, right?  Well, it always depends on whether or not you think you can do better with $3 somewhere other than leaving it in that spread.  Since the upside is $15 and the spread is almost all in the money – I’d say not!  So generally I’d say leave it in and you can do something like the FAZ/UYG spread above to take you through earnings and then take it off once you feel secure again.  You can lose $1 4 times no problem protecting that position from a drop between now and January and you’ll still gain $7 more! 

    BXP right on $75, VNO right behind them – watch closely for breakout signs!  XLF $15.50 is also key as is AAPL going green – those would be our first stick signals (or anti-stick if we can’t make it) today.

    KFT/Poindexter – As long as the net is the same, then the individual legs don’t matter.  If the net gets more expensive, you have to decide if it’s still worth it but, with 2012 plays – not much difference based on a small move. 

    Replacement/Amatta – For next week, I like the FAZ/UYG  hedge above.  I think if we’re going to get taken down, it will be the financials.

    Balance/Goldman – I’m a big fan of looking on the bright side of life

    Comments/Tusca – One of the changes we’ll be working on over the summer. 

    Depression/Exec – Things just aren’t bad enough yet for a depression.  We are on the ropes and they could get worse but there are many, many rounds to this fight and even a knockdown doesn’t always mean the fight is lost and, meanwhile, each round can go either way and that’s how you have to invest.  Anyone can have a good quarter or two and anyone can have a bad quarter or two but the markets are like watching a fight and being able to bet each round (which is fairly random) but also being able to change your bet on the outcome as the fight goes on and that is your key advantage.  The problem is most "traders" blow all their money betting on rounds and have nothing left to wager on the final decision – even when it’s totally obvious.

    Altucher/Jrom – There is not time enough in the day to single out all the morons who work for Cramer so I just generally point out what an idiot Cramer is as a sort of blanket observation…  I don’t think you realize that Cramer builds these guys up as sacrificial lambs so they can go crazy on a sector while Cramer and his buddies take the other side and screw over everyone who follows his boys.  When people get tired of one of them, he has 100 more lined up to take their place – like a hydra!  That’s the brilliance of TheStreet – it’s a non-stop hype machine and, with CNBC/NBC/MSNBC, Cramer can elevate guys who shouldn’t be followed in a check-out line to guru status based on nothing but the exposure he can get them.  They have no real reputations and don’t need to spend years proving themselves – they are simply annointed by Cramer and then followed by the mindless massess.  It’s a great scam…

    Mattress/Yodi – As a new play, you don’t want to be in Sept and we need to move next week anyway. 

    Oil getting jacked up into the close ($76) so now we can see if XOM can pop $58.50 to get the Dow moving.

    Good plan Tenger.  Buy low and sell high never fails but many fail to do it.

    IWM $62.40 seems to be tough resistance on my 4-hour pivot chart.  We’ll call that RUT 625 and figure that’s a good spot to watch as a goal for any sort of proper break out.  Then Nas 2,200 and SOX 350 and, of course Dow 10,150, which should give us not trouble and is trouble if it does.

    TNA/RMM – You won’t know until next week but if all you have is naked puts – then that’s your play and you are well in the money at the moment.

    Protection/DFlam – the above FAZ/UYG play is my new favorite.  As to DXD – I certainly don’t like paying 1,300% more for a trade than we started with!

    Hedge/Gucci – See above.

  145. DCTH, up 22%, looks like a bunch of shorts getting nervous about holding those positions into the weekend. Short interest was at 8-9 days to cover.

  146. This market is absurd…as Phil said….so slow..
    Is anyone home?

  147. Phil: What are your thoughts on the SDS (ProShares UltraShort S&P500) spread that you suggested (i.e., Buying the SEPT. 36/42 CALL spread and selling JAN 2011 26 PUT). One can now get it for +/- 0.02. I’m concerned about rolling into the weekend with about 125k in long stock positions unprotected.

  148. Hi, Phil, re FAZ/UYG hegde, you said "If FAZ goes over $17 (more than 5% drop) you can layer up the protection to cover the short puts".  What do you mean by "layer up the protection to cover the short put"?

  149. gmarts – couldn’t get the hedge on for DCTH, so no go from here.  Hedgies love this stuff.  Look at STEC for an example of the things they do to stocks…..STEC is also a big part of my TA book!

  150. Just out of curiosity: Are there any PSW Members in the Colorado area?

  151. Phil: TNA spread:
    have jan calls30, jan putters35, all about even at present
    and NO callers at present,

  152. DIA 5 min have shown all day a bull flag….

  153.  Bright Side/Phil – I guess you want a funeral like this?

  154. Sorry matt

  155. Pharm, I’m not reccomending a buy, but rather I’m long of 20K battered shares plus some calls….
    I’m just enjoying the action

  156. Pharmboy-
    Do you have a take on VVUS and their obesity drug?  I think the FDA issues something on the 15th?  Playable?

  157. Phil:
    have a number of stock positions WITHOUT putters and callers for premium: should I make them a buy/write ?

  158. HHFIV
    Next door Wyoming.

  159. loopy – I like ARNA.  VVUS has great data, but they use two marketed drugs, one being Topiramate which is an anti convulsant/psychotic.  They had a high drop out rate and too many adverse events (AEs).  I was short them, but now am out and betting on their failure and ARNAs gain.  One could play the 11/9 bear put spread this month, but Thursday is the day, so premium will be squeezed.  I think we should wait until Wednesday and take a stab at a short…..
    Medivation is the last one we did this with (bet on failure) and several here made a bundle!

  160. CNN doing a story on the oil spill in the gulf, divers surrounded by sharks…could get interesting..

  161.  Wow, RIMM freaking woke today!  Any news?

  162. There is the pennant….up  up up to Phil’s 10250 should be good….

  163. JR,
    Bay Village is on the west side.  I’m east Highland Heights.

  164. Phil
     Right after your post IWM 62.40 we hit it now they know our line in the sand. The Bots are listening to you.

  165. Where are you?

  166. I’d feel better about a move up if we got a blow-off back to the 10,120 first but doesn’t look like we’re going that way so get ready to rumble

    DIA $103 calls at .50 are a fun upside play over 625 on the RUT.

  167. Ok……knows the time to go BD in TZA.

  168. exec,
    Currently on the Sonoma Coast, northern California

  169. I don’t know, If it walks like a stick, and quacks like a stick….

  170. Be careful aroun IWM 62.93, if things get weak !!

  171. Nice… every considered moving to gloomy Cleveland.  The crimes great and the weather is fabulous here in the snow belt.

  172. Alrighty, Im out, thank you Phil and JRW for making my week profitable  – ya’ll have a nice weekend!

  173. DCTH + 32%

  174. should I cont. holding qqqq july 44 over the weekend, got in @.70

  175. exec/cleveland — geeze, I’m must be getting old cause I’m getting CRS badly. I grew up with the crew cuts and white socks but can’t  remember where highland hights and bay village are. Been 25 yrs, but still worrysome. I’m in Vancouver, WA now.

  176. Wow! They’re sticking the stick!

  177. Phil, can you explain why you would hedge with a bull call spread on FAZ (bearish on financials) plus a put sale on UYG (bullish on financials)? For us mortals who don’t dream about hedges at night yet.

  178. Any sign of an anti-stick coming?

  179. No sign of anti stick .. if there is to be one, I am guessing last 5-10 minutes.
    RIMM going full crack head now !
    I say it gives up 1/2 by Monday …

  180. What was that?

  181. That was the Antichrist at the Bot center scooping up your money with their big scooper!!!

  182. loopt,
    Sorry, I think that was me.

  183. Perhaps a few bots don’t like holding into an AA Monday morning earnings report?

  184. CAP, I am kind of taking the other side of that RIMM trade (long term).  I think their demise is overrated.  Android and Apple will take plenty of market share from them, but RIMM is priced to go down the crapper (IMHO).  They are still a better email platform and they still make a better "talking device"  I  personally have a iphone but that is for the internet in the hospital.  It is a lousy "talking" phone.  VZ will get the iphone, this should provide a nice tradable bottom or a short covering opportunity IMHO.

  185. What did you do….just dump 10000 shares?

  186. UYG – sorry, i went back and read it again. It was in the fine print.

  187. BTW, this is what "getting weak" looks like.

  188. That scooper was the pooper!
    JRW — that was fun! do it again! do it again!

  189. hi Phil what do you think of this new adjust on DXD Oct 28/31 call spread and sell 1/2 jan 26 put for 77cent credit on a $3 dollard spread

  190. JR,
    Does the conformation rule apply during the last half hour when things get silly?

  191. RIMM I’ve got Jan 50s currently naked, should I sell a 1/2 cover here or see if the run continues next week?

  192. absolute nonsense ….

  193. SDS/HHF – I still like it.  Just keep in mind it’s a disaster hedge so you buy as little as you need for .02 and, if there is a disaster, it will pay off big.  Otherwise, say $200 is the cost of your insurance and you get out of the trade while you can. 

    FAZ/Cwan – Layer up like buying some FAZ $19 calls or buying back some of the UYG puts to reduce exposure on that side. 

    TNA/RMM – Well you may want to lighten up on the putters if you are worried.  Then if TNA goes down you have more expensive puts to sell but that play is very bullish into the weekend as it is.

    Chapman Funeral/Rn – Absolutely!  In fact Tina and I are in the 2nd row on the right side of the screen at the re-hash of the memorial in Aspen – it was great! 

    Stocks/RMM – Overall, yes, you should cover but today is not the time.

    Bots/Shadow – I think they are also on my 4-hour candle chart….

    Can I get a wheeeeee!

  194. Exec
    30, and now getting back in with less than perfect entry price !!

  195. Phil,
    It seems as if enough people are expecting a good earnings season. Doesn’t that argue for valuation to be priced in and more likely to see disappointments or are you expecting even better surprises and/or guidance?

  196.  ephmen – I would sell aug 55′s – at least 1/2.  This mofo could go either way/fast.  There is already a lot of negative sentiment, combine that with a poor acceptance of their new product release……..

  197. Thanks Phil, I appreciate the suggestion.  I put on 1/2 of the hedge you suggested, as I only need $3,000 in protection(small portfolio).  But picked up the FAZ 15/17 for $0.62 and sold 1/3x the UYG 45s for 1.15.
    I’ll look at layering on other hedges if we develop weakness next week.  I have found it pays to be flexible about the hedges, getting them on and off quickly has made quite a tidy profit.  I’m learning….slowly, but getting there…

  198. Phil: Just wanted to thank you for the great explanation of the general adv./disadv. of buy writes and artificial buy-writes.   Each day I hang out here, I start to appreciate more and more the message contained within "The Man who Planted Trees".  Because each day it looks more like a desolated wasteland out there.
    Have a great weekend.

  199. Buying is being crushed by the forces but a big run up would bring out the bears Monday.

  200. I’ve had enough.  Have a good weekend all.

  201. Speaking of the "Man Who Planted Trees", it really works.  I bought BTU back in March at $49.87.  I practically bought it at the tippy top.  However, I soon afterward found this site, started learning Phil’s methodology(and those in the strategy section) and began selling calls/puts regularly against my bad position.
    As of yesterday, I still own the original 100 shares, but have brought my basis down by over $11.00.  Couldn’t be happier, what started out as a really bad entry, I have managed to work down to a good basis.  Had I not watched that video and learned, I would sold out of the position, and been kicking myself for making such a bad entry.

  202. So – who is better – T or VZ?  P/E  and boook value is give T the edge, EPS = T, Debt = VZ (not much) and dividend = VZ.  Something has got to give. Either T goes up or VZ moves down…..have to look into this one.

  203.  Pharm,  phil always went with VZ based on FIOS.  But they have put the keebosh on FIOS or have they in regards to expansion?

  204. Hedges/Jvest – FAZ moves very fast and will be in the money long before the UYG puts are tiggered (at about a 10% sell-off in XLF).  If XLF turns down 10%, to $13 because of some bank scare, we don’t really mind owning UYG anyway to hold for a recovery and if our FAZ spread expires worthless, then the UYG putter must expire worthless so we have minimal exposure to our downside (on the financials) hedge.  So our hedge is covering any kind of pullback in the financials that doesn’t exceed 10% with a very minor loss if the Financials head higher - it’s a bullish hedge – kind of insurance for people who don’t really want to buy insurance….

    AA/Goldman – I’m pretty sure that’s after hours. 

    DXD/Gucci – That $26 is very tight.  10% Dow move up takes DXD dwon 20% to $23 and then you owe the putter $3 so be aware of that.

    DIA $103s at .56, just 10% but we’ll take it.

  205. $39.83 at close to my line late in the day for another 43 cents

  206. Jo – i know, but with the spin out to NF, I am thinking T has a better group now unless VZ does in fact get iPhone ….

  207. JRW, Fantastic lines today, brother.  It is going to land right on the button.  I figure 62.93 is good enough.  Those two runs at the end of the day made all the midday stasis worthwhile.  Have a wonderful weekend. 

  208. Utter nonsense.  They sure make it look ez don’t they?  I sense a big gap up at open on Monday and then a crushing fall from grace.  C’mon.  If everyone is looking for 1100 to bail.. do you really think they’re going to take you there to let you out?  They’ll either go past it or short of it.  Which one you think I think they’ll do?

  209. Other thoughts and some was covered yesterday until I saw:
    We had some eye-popping consumer credit numbers yesterday with the Fed reporting that consumer credit plunged $9.1 billion in May (missing consensus estimates to the downside by 5x). On top of this, there were major downward
    revisions to the April data, which were taken down from +$1.0 billion to -$14.9 billion
    .  In fact, once all the revisions are taken into account, credit actually came in $22 billion below consensus estimates for the month! This is clearly signaling that consumer spending is slowing and that the just released July consensus figures for Q2 and H2 consumer spending may still be too high (at 2.8% and 2.6%, respectively)

  210. judah
    Thanks, another 5% day; have a great weekend !!

  211. FAZ has fallen 21% in just 4 short days.  That’s awfully hard to swallow.  I’m really having trouble remaining agnostic!

  212. From CNBC,
    Perhaps the past week’s stock market rally was only a mirage: Fund-flow data showed retail investors ran for the exits even as the major averages were staging their biggest surge in months.
    That’s because they are tired of being raped by this sham of a market these crooks operate!

  213. Expectations/Ac – My quick answer to that without getting into a whole lecture on value is let’s assume that everybody who trades is not an idiot and the price of companies in May (post earnings) was a reasonably accurate reflection of their value given the expectations of Q3 at that time and looking back on how they came through the crisis.  More or less that was S&P 1,100+ so, if nothing BAD happened in Q3 and earnings and guidance are flat to up, then anything under 1,100 is underpriced.  Now we’re up 6.5% off the lows so I’m not going to be pounding the table and screaming BUYBUYBUY because it’s no longer a no-brainer to buy but 10% down from a fair value on the S&P was ridiculously pessimistic for Q3 earnings.  Even now, at 1,077, no "GOOD" news is priced in – just in-line at best (and we did head all the way to 1,200 right after earnings).   You can’t reset your expectation based on whatever the chart said last week – you need to think in terms of the bigger picture

    Hedge/Hoss – Nice job.  That’s the way to do it, ease in and out of things, like rebalancing on a surf board…  Very nice job on working the BTU position too – I love to hear that! 

    Trees/Kinki – Don’t worry, you’ll get to the promised land eventually.

    I like T now Pharm.  Not having AAPL is hurting VZ like a very slow bleed out and FIOS is very disappointing – people are not willing to pay up and they have spent a boatload on that. 

    Now, now Matt, don’t act all surprised the stick is back.  It was bound to happen….

    Have a great weekend everyone! 

  214. Pharmboy & Matt – The quickest way to loose money is to apply logic to an illogical market.  And as Phil says…the consumer is "deleveraging"…I doubt it is voluntary, but does it matter?  The corporations horde cash instead of paying employees, that could be good for the bottom line???

  215. VZ does have a nice 7%+ dividend, so from that perspective it’s worth a pick using a buy/write.

  216. Ola All,
    Looks like I missed a good day doing work like stuff.  I don’t understand the logic of Phils  TNA/TZA Bear Call sprds.
    Seems like you’re risking $7 to make $5.   Any help ?
    Thanks & have a good wknd.

  217. Phil, it has been really nice of you not to make one comment to a certain PSW member who cashed all longs recently.

  218. gold – deleveraging = deflation =>  TBT = lower still is my premise and I will stick to it until inflation starts to come around (not for at least a year or two) – JMHO.   Bonds performed horrible this week, but bid to cover was still high, so someone is buying them.  CYE and HYV, two Blackrock closed end corporate bond funds are holding up well in this environment b’c if the companies held it through the worst of it (if that was the worst), then corporations who hold cash and have restructured their debt should survive.  What other bullets does the Fed have to keep things under control?  In the 80s, 90s and early 00s, the feds could lower the rates….now they cannot.  The EU is far from out of it, and China, well we know they are manipulated.  I just go along for the ride, but want to make sure we have other ammunition to think of when we do ‘invest’ and manage our ‘portfolios’.
    My logic falls is in the biotechs, not the overall market – but the few things I do see are still not great.  Depression, most likely not (I hope).  But we are still treading water from my point of view!

  219. Pharm
    I’m seeing the deleveraging/deflation as well, but that’s OK as long as I keep my main strategy in place now. When matt’s happy, for more than a week, buy, when cap’s saying bs and matt’s hurting for more than three weeks, sell. Working pretty well. Who needs things like numbers, fibs, and 5% rules, my system is much more fun ;)
    Happy weekend all!

  220. TNA/TZA/Ekor – The premise is you can’t (we don’t think) lose on both sides of the trade.  Both ETFs are below $40 now so, in theory we will collect either $2 on the TNA spread or $1 on the TZA spread and we can’t lose move than the $4 on the TZA side so our worst-case scenario should be a loss of net $2.  That is our true capital at risk to potentially make $3.  The premise of the playis that ultra-ETFs decay over time and that it’s very possible that both TNA and TZA will both be below $40 in Jan 2012 and we will make a $3 profit.  It’s an experiment but, if we can prove this out over a few trials – it’s a pretty nice amount of money to make in what should be a low-risk trade. 

    System/Deano – Brilliant!  8-)

    Market recap: Stocks drifted higher on light volume in cautious trading ahead of next week’s start to earnings season. The argument for a global recovery picked up some momentum after the Bank of Korea became the fourth Asian central bank to hike rates this month. NYSE advancers outnumbered decliners nearly three to one.

    At the close: Dow +0.58% to 10198. S&P +0.72% to 1078. Nasdaq +0.97% to 2196.
    Treasurys: 30-year -0.47%. 10-yr -0.23%. 5-yr -0.15%.
    Commodities: Crude +0.99% to $76.19. Gold +1.2% to $1210.40.
    Currencies: Euro -0.46% vs. dollar. Yen -0.26%. Pound -0.65%.

    On lackluster volume today, the standout sector has been basic materials, with stocks finding bids on hints of a broader global economic pickup: Freeport McMoRan Copper (FCX) +3.4%, U.S. Steel (X) +4%, Newmont Mining (NEM) +3.2%. Monsanto (MON +6.1%) has been leading S&P 500 gainers today.

    On the cusp of earnings season, 28% of the S&P 500 stocks are trading above 50-day averages – just barely above the low for that number reached during the past year’s pullbacks, which gives some fuel to bulls and bears alike.

    Alcoa (AA +2%) will kick off earnings season after the close on Monday, but it may prove an inauspicious beginning as analysts have been cutting forecasts. Aluminum prices are tumbling, likely limiting the stock’s upside potential in the coming year.

    Are stocks cheap? (And which ones?)

    MarketBeat notes the five things (right or wrong) bulls have pointed to in explaining this week’s rally, the best week for stocks since last July – including Europhoria, Chinese equities and a closely watched 10-year T-note.

    The Fed may have begun to realize that economic activity will not bounce back rapidly (I, II, III), but they seem unwilling to do much more about it. To generate a significant impact in a zero-interest-rate world, Tim Duy says the Fed will need to commit to policies "that look a lot like debt monetization. We are nowhere near that stage."

    FDIC reports one bank failure: Bay National Bank of Maryland, with $282M in assets. It’s the year’s 87th bank failure.

    Don’t be fooled by this week’s rally, Mish Shedlock says – "It’s nuts to be net long" stocks now in the face of so many headwinds. A test of the March 2009 lows is "likely," and he says he’ll remain bearish until he sees signs of sustainable job growth. "The bull market in Treasurys is not over," Mish says, and he would buy gold on the dips.

    Ten reasons why we are headed into a recession

    Bear vs. Bear: Doom from inflation or deflation?

    The Baltic Dry Index has fallen for 30 straight days and has collapsed nearly 55% since its recent May 26 peak. But one analyst says the index fell by even more in 2004 and 2005. Another says BDI looks backward and offers little help in forecasting prices, "where there are much better reasons to remain bearish."

    The SEC is reportedly moving quickly on its Flash Crash response, with requirements for market makers to submit quotes less than 10% away from a stock’s current price and the elimination of stub quotes. Market-making rules are "front and center" for the agency as it tries to ensure liquidity during market stresses.

    Ah, that’s what Geithner was talking aboutSurprise! A little-noticed amendment in the financial overhaul bill gives federal regulators the power and responsibility to limit the activities or even break up big banks if they pose a “grave risk” to the financial system. "More than a surprise… stunning!" Simon Johnson says.

    Canada’s employment rose by 93K in June, almost five times more than economists expected, restoring most of the country’s job losses since 2008 and boosting the likelihood for the central bank to raise interest rates. The jobless rate fell to 7.9% from 8.1% in May.  And they are 1/10th out size – that’s like us adding 930,000 jobs in a week!

    U.S. businesses with fewer than 20 employees – companies that typically drive the unemployment rate down – made fewer hires last month than in any month since October. "It’s a bad sign," an Intuit economist says. "Small businesses hire first – and they’re losing their steam."

    U.S. corn farmers can’t keep up with demand including exports, livestock feed and ethanol – as corn carryover is shrinking to its lowest level since 2006-07 despite what may be the third record crop in four years. The USDA estimates 1.478B bushels in bins on Aug. 31, 8% lower than previous estimates.

    BP enjoys a notable recovery in its credit after months of pressure on the downside. BP’s credit default swaps have fallen in price to almost half of what they cost four weeks ago, as bondholders gain confidence that the company will stem the flow of its gushing Gulf well – and its financial bloodletting.

    Apple (AAPL) and Google (GOOG) gave us products we didn’t even know we needed, but if Microsoft’s (MSFT) Windows Phone 7 was cancelled today, Michael Comeau wonders, would anyone notice?

  221. Phil,
    You have a nice back spread or similar play for YUM earnings Tuesday?

  222. Phil,
    26% on the week for the 20% I day-trade, and since drinking the kool-aid last fall, the whole portfolio has doubled.
    Have a great weekend !!

  223.  Phil / Anyone / Rates : As Canada, Australia, and other countries move to raise rates in the face of local job growth/ economic strength, what if any impact do you think this will have on demand for US Treasuries and rates? Just from a private investor perspective, you’d think that if you could get 5%+ in Canada the demand for US Bonds at 2% would dry up. Although i understand that local inflation and relative currency strength play into it; ultimately, there seem to be too many factors for me to make heads or tails of it….but it seems like this should have SOME effect on US rates. But, what?
    Meanwhile, congrats to all those who were still in MON, either with Opt, or from older positions!! Was a great stock today (for a change).

  224. I am looking to transfer my brokerage account from Vanguard.  I think that Vanguard is great for mutual funds and stocks if you ‘buy and hold’.  Its fees are relatively high and its online functionality poor (some trades can’t be executed online).  Can someone make a recommendation to me.  I intend to execute trades along the lines of what is discussed on this site. 

  225. Small Business Hiring / Phil
    Ok, this is like the bit about temp hires rising:
    "U.S. businesses with fewer than 20 employees – companies that typically drive the unemployment rate down – made fewer hires last month than in any month since October. "It’s a bad sign," an Intuit economist says. "Small businesses hire first – and they’re losing their steam."
    Historically correct, but I’ll bet health care insurance costs are killing the small businesses – until that’s fixed somehow, they’re unable to afford to hire. And likely the big guys are just as happy to scoop up the little guys’ business.

  226. fjd
    Many on the site use Think or Swim as their broker. That is the what TOS reference stands for in many posts.  Some others are using Interactive Brokers, Optionsxpress and Schawb. I know TOS and OX offer free paper trading accounts to see if you like the site, guessing the others do as well.

  227. Thanks, will take a look at TOS and IB. 

  228.  Phil / Canada   
    The Canadian economy looks strong with continuing job growth. Do you share this view? If so are there any Canadian companies you like as a long term hold?

  229. MYGN/margret – sorry, I missed your post earlier….things have turned against them in the recent Q or two.  With the patent situation, downgrades, and testing out of favor (for now), I think it is best that we stay away.  They have no debt and some cash,  but still not worth the risk at this point.  If they fall to 12 or so, we might get a bit more interested.

  230. Phil,
    Using the phrase "the devil is in the details" made me think of your recent comment regarding Satan appearing on CNBC. IMO you would be hard pressed to find a more interesting take on Satan than that in Piers Anthony’s series The Incarnations of Immortality. Wonderfuly imaginative, the 9 book series considers the various aspects of immortality like Death, Time, Fate, Satan, God and Nature in an incredibly unique and though provoking way.Satan figures prominently in all.  I’ve read the first, On a Pale Horse (Death) and the second, With a Tangled Skein (Fate), and I’m into Wielding a Red Sword (War) so if you manage to get some book time – highly recommended.

  231. deano — funny ! :grin:

  232. This is amazing:
    The Baltic Dry Index has fallen for 30 straight days and has collapsed nearly 55% since its recent May 26 peak. But one analyst says the index fell by even more in 2004 and 2005. Another says BDI looks backward and offers little help in forecasting prices, "where there are much better reasons to remain bearish."
    And JRW is amazing .. I don’t know how you do it & I have your chart !

  233. JRW,
    I wasn’t around last fall…..what cool Aid are you referring too?

  234. JRW III- that’s awesome!!  Everyone have a good weekend.

  235. exec/cool aid - My own version of the "cool aid club" derives for the "cult of profits" (and the prophet says make more profits…muahahahaha)……..which ignores the fact that the markets are rigged, that everything is NOT "A-Ok", that main street is NOT in the middle of a "V-shaped recovery",  yada, yada, yada.  Sure in truth the markets are rigged, etc, etc, etc…. but why get mad, get glad and start making money!
    For example, the cool-aid version of the news article below is highlighted in bold…if you drink the cool-aid, you can ignore the truth and read only what you "need" to see (bold print)…then with a happy face, ignore any other emotions such as fear and/or anger derived from any and all logical truths and assumptions….and simply focus on making profits instead! 
    Per WSJ article:;_ylt=At6_flKQrxT2xR0V8_j0uu5O7sMF;_ylu=X3oDMTE5M2RodDlyBHBvcwM3BHNlYwN3ZWVrZW5kRWRpdGlvbgRzbGsDY3JlZGl0Y2FyZGRl?mod=bb-budgeting
     "It’s clear that consumer balance sheets are improving," says James Chessen, the ABA’s chief economist. "People are borrowing less, saving more and building wealth. These are all positive signs." (*****STOP READING HERE…GO MAKE MONEY!!!***)
    So that’s good news, right?
    The biggest reason credit-card balances are declining isn’t that people are paying them off with their spare cash and extra earnings. It’s because the banks have been writing them off as the borrowers default. Sure, that reduces the balances. But it tells a somewhat different story.

    More from Yahoo! Finance:

    3 ETF Ideas for the Third Quarter

    The 4 Key Elements Of A Well-Managed Portfolio

    Turning $200,000 Into $800,000

    Visit the Banking & Budgeting Center

    During the first quarter of this year, says the Fed, credit-card balances fell by about $19.5 billion. How much of that was written off? About $18.7 billion, according to data from the Federal Deposit Insurance Corp.
    And while the American Bankers Association data show that a smaller percentage of cards have overdue payments, the average amount owed on those cards has gone up.
    Now Phil definately has a glass half full take on the situation (cough, cough…"the consumer is deleveraging")…yet admits the markets are rigged, JRW has his own version, etc…

  236. WSJ Article goes on to explain why citizens are doing everything possible to keep the credit card available:
    To complete the picture you need to look at something else: mortgage delinquencies. Those are through the roof. The Mortgage Bankers Association says 4.6% are already in the foreclosure process. And another 10% are more than one month in arrears. In total, 14.6%—nearly one home loan in seven—is in trouble. "These are record highs," says MBA spokeswoman Carol Kemp. It means that for every credit card that’s still delinquent, there are about four times as many home loans in trouble. About 4.1% of home-equity lines are also delinquent, says the ABA.
    What’s going on?
    Here’s what: People are moving heaven and earth—and eating sky-high interest rates—to make sure they pay at least the minimum on their credit cards each month so they can keep them alive as a final cash lifeline. They would rather go into arrears on their mortgage—especially if they are underwater on the home anyway—than skip a payment on their card and risk seeing it switched off.
    Credit-card debt and unemployment insurance are the only things many of them have left. And they may not have the unemployment insurance much longer.

  237. Phil - Continuation of the "human train wreck" that I think is unfolding…I could list data all night, but I’m sure you have read most of the articles and stats.  Standards of living will never return to the peak for the majority of Americans…I think the social unrest over the next decade will be disturbing, to say the least….even for many of the college educated. 
    For high school graduates, median inflation-adjusted wages were $626 per week in 2009, compared with $629 in 2000, according to EPI. If you assume a worker gets paid for a full year, that adds up to $32,552 in 2009, down from $32,708 in 2000.
    For college graduates, weekly wages were $1,025 in 2009, compared with $1,030 in 2000, according to EPI. Over one year, that works out to $53,300 last year, down from $53,560 in 2000.

  238. Goldman,
    Yes my friends who are still in the top 10% don’t realize that people in the bottom 80% who have credit card balances (pretty much everyone) all had their interest rates raised to 30% last year, no matter what their credit.  They just ain’t agonna be payin those off   ’cause they don’t have jobs…

  239. Phil,
    I just wanted to say thank you for your advice and insight this week. I have been reading your posts on SA for about two months now, and finally took the plunge and signed up. I have a basic understanding of options.  In the past couple of days just reading the posts i have gained some more knowledge into options. I am also doing the homework suggested on your site. So options are a work in progress for me and my goal is to trade for a living once I retire.  I have a couple of things that i need clarifiacation on.  This is a broad question.
    1. When you are narrowing down the strike price you want to use it seems to me that delta would be the determining factor?  Is that correct?
    Also maybe you can get me out of a jam.  I bought CSCO 100 shares at 25.58 as you can now see i’m under water. @ 22.20  How can i use a write strategy  to get me back to even or better?
    I’m looking forward to the opening bell next week.  The more I learn the better I like this stuff. 
    Thank you so very much.

  240. z401
    Vicki , my sister is named Vicki but different from you she doesn’t get the real story. To me and probably Phil the issue is not delta but is the intrinsic value of the security. The real problem is being sold on CSCO. You could sell put and call options and lower the cost but the real issue is are you ready to expand, CSCO has an excellent product and marginally that product is the best but not that much better and therefore not going to replace the existing base of internet distribution. This is an issue of there is rotation and things go in and out of desireability, including stocks. Phil will probibly have a fix but please listen to new ideas and go with the flow. It will take time to get the systemm of cover, buy, and then you ill see the profits.

  241. Thanks Gold,
    I’ve been fighting the trend for a year and a half because I do exactly what you said I shouldn’t.  I can’t get my mind around any of this craziness.  But not anymore.  Take what they give you and don’t try to figure it out is my new montra.

  242. cool-aid/exec & gold
    Phil seems to prefer "red pill" in a Matrix reference, and I agree with him, having a strong dislike of the cool-aid bit – back in the very early 60s my parents ran a support group for parents who adopted Korean children, and held potlucks at our house. A sometime guest was a local social justice – oriented minister name of Rev. James Jones – who later moved off to the west coast. So I was young, but did know the man. He never called himself "Jim", at least not then.

  243. Hi Phil,
    you asked me to remind you about the mattress play in relation to selling and rolling short puts and selling and rolling long puts in reference to market positions.

  244. Hi Phil, 
    I am trying to get my hear around the suggested FAZ/UYG play… Usually on these plays you are using the same underlying for the sold puts. In this case not only you are not using the same but the opposite, so as I see it is is a kind of range-bound play? if the XLF stays within the desired range (going down 5% maximum) then you get a payoff.
    Also Is this just a play for the week? 
    I was looking to replace the SDS Oct hedge (covering 70% of my $30K overall hedge), but didn’t pull the trigger as I couldn’t understand this one well…
    Thanks for the clarification.

  245. amatta- I asked the same question earlier, and Phil answered it. Search the page (Ctrl+F) for Hedges/Jvest and you’ll see the answer.
    z401/vicki- Phil’s typical buy/write strategy would have you sell at-the-money options, e.g. Jan 2012 $25 calls and puts for $7.55. That reduces your cash outlay to $18.03. If called away at $25, you gain 39% in 18 months. If additional shares are put to you at $25, your average entry price is now $21.52 (a slight discount vs today’s price and 15% lower than what you originally spent).
    If you strongly feel CSCO will rebound in the short term, you could sell the $25 puts now, then wait for CSCO to rebound to $25 before writing the call side. That is a little more risky and depends on whether CSCO’s price drop reflects fundamentals or just a technical oversold condition. Phil could weigh in on that. If you’re happy with the 39% gain / 15% discount outlined above, and you’re patient enough that you won’t panic out of the stock later, then just do that and leave it on cruise control for a while.

  246. Does anyone trade on TOS on a MAC?
    Hoping to ditch my pc

  247. samz3700-- Yes, TOS desktop works fine on a Mac.

  248. shadowfax
    vicki is not a common name, i like that, i bet your sister does too, until you try and find it spelled like you do on a mug or something.  When you ask, am i sold on CSCO, if you are asking am i married to the stock the answer is, no. I only bought it cause i thought it would go up. I am very open to new ideas, and expanding. Thanks for your input i am willing to take all the advice i can get.
    thanks for the numbers side of this issue, i’m going to look close at that side this weekend. And as i was telling shadowfax i only see CSCO as a source of $ i’m not married to it. But as you can see it’s been a dog. I’m really excited about learning options I really appreciate the advice you and shadowfax have given me.  :) 
    have a good weekend!

  249. Z401
    There should not be a problem with CSCO options but be careful of thinly sold options as I learned the hard way. The stock IXPL went up and when I wanted to sell everything I bought back the calls but the puts wouldn’t fill at the ask price day after day. The powers that be would not let me make a profit and I sold a large share of the contracts.

  250. Good morning!

    So far so good on the news this weekend or, nothing bad at least.  Japan’s Government lost a lot of seats as people are fed up with the dead economy over there but that’s about all the headlines so far.

    YUM/Kururi – We generally do a ratio backspread when we expect a miss but wouldn’t mind owning the stock.  The idea is we get a short-term volatility crush after earnings and we fail the short call strike but not so badly that our longer calls lose too much value.  If the stock does head higher, we are able to add to the longs and roll the callers up, but it’s a pain in the ass and you end up in a veritcal so then you need the stock to hold up for 3 months or so.  We had a lot of candidates in April because many stocks were high coming off big runs with big expectations into earnings but YUM, for example, is 10% below where they were on April earnings so selling $40 calls with the stock at $40.27 doesn’t make a lot of sense.  A bullish way to play them is the Aug $40/42 bull call spread for .90 and the July $39/37 bear put spread for .25 so you are in for $1.15 with $2 to the upside if they do well and $2 to the downside if they miss.  If they head down, all you need is $1.15 out of the put spread and you have a free call spread (assuming you think they can recover).  Our course a flatline would suck but hopefully could be cashed out with a small loss. 

    26%/JRW – That is certainly the way to do it!

    Blame Canada/Hanna – Clearly it’s more likely that Canada or Australia will be able to service their debt than the US so if they are offering higher rates than the US then, in a real World, it should pressure the US to offer higher rates too.  But this world is far from real and nothing in it is more fake than the demand for US TBills at 3% for 10 years.  The Treasury issues debt and the Fed buys it.  As long as no one ever audits the Fed and as long as they can keep pretending there is no inflation then this game can go on for a long time. 

    Also, you have to take into account that Canada and Australia don’t issue many bonds at 5% – they don’t need much money so, even assuming there were $2Tn of demand for 5% notes – they are only borrowing $100Bn.  What should make you think though is there clearly IS NOT a lot of demand for their debt EVEN at 5% (or the rates would push down at auction) which indicates how insanely fake demand for US notes at 3% must be. 

    Another factor that WAS making US notes reasonable at 3% was the WEAK dollar.  Why?  Because if you buy a 3% note with the Dollar at 75 and expect it to be redeemed when the dollar is at 80 (that’s a basket number, of course) then your effective return is effectively 3.6% (3% per year and 6.6% currency increase over 10 years).  If people begin to believe that the Dollar will be less valuable when they are paid back in Dollars in 2020, then that eats into the anticipated rate of return.  So, in order for a real person to buy a 10-year note at 3% they have to believe that inflation will be below 3% a year and that the US will not devalue their currency by printing more money (and that is too late already) and that the Dollar will hold or improve value relative to their local currency and that the US is rock-solid and unlikely to default.  Who are these people – I have a bridge to sell them!

  251. Small business hiring/Snow – John Mauldin does a great job drilling into jobs data this weekend.  One thing that strikes me is that there were 3.1M job openings this April, up from 2.5M last yeat.  4.3M people got jobs and 4M people lost OR LEFT their jobs.  This is a factor too because imagine how many people took crappy jobs during the recession and how many people are VOLUNTARILY leaving a job when they get a better one.  That’s going to create some churn for a while.  Mauldin sees the main issue as lack of bank lending and I agree.  Bank lending is off 25% and mainly off to small businesses and nobody in a small business can hire if they have no cash flow and no credit – it puts the whole operation at risk.  That’s what the government needs to do, they need to get money to the little guys but every attempt to do so this year has been blocked in the Senate so I’m not going to hold my breath.  

    Canadian companies/Yshen – I don’t usually put any thought into who is a Canadian company as we have such fluid trade with Canada I’ve never looked at the boarder as a big issue.  RY (banking) is probably a good one as well as TRP (pipelines) and AGU (Agriculture) as basic Canadian companies that can rely on Canada’s strength to support them.  RIMM, of course, is Canadian but they rely on so much sales outside of Canada that I don’t see Canada as an advantage to them.  SU is Canadian but I worry about environmental impact costs down the road so the pipeline company is safer and Canada has many lovely Energy Trusts which I do like but the danger of changing tax regulations keeps me away from those.  Hopefully we have some Canadian members who have some good ideas…

    Incarnations/Kevin – It has been so long since I read a book for fun but that does sound right up my alley.

    Very good catch on credit card debt Goldman! 

    Wages/Goldman – I’ve been talking about this for 4 years now, it’s friggin’ ridiculous.  You can’t have a growing economy without growing the base.  I would think that’s obvious to gardeners, architects and any kid who’s built a sand castle but it completely escapes the grasp of people in the top 10%, who think that they can take and take and take from the bottom and then, when the bottom 90% withers and dies – that they will float away on a balloon filled with money or something.  Actually, it is possible that what we have is a return to old-fashioned carpetbagging, which is described in Wikipedia as:

    In United States history, "carpetbaggers" was a negative term Southerners gave to Northerners (also referred to as Yankees) who moved to the South during the Reconstruction era, between 1865 and 1877. It was a derogatory term, suggesting opportunism and exploitation in the outsiders. The relocated northerners often formed alliances with freed slaves and southern whites who were Republicans, who were nicknamed scalawags. Together they are said to have politically manipulated and controlled former Confederate states for varying periods for their own financial and power gains. In sum, carpetbaggers were seen as insidious Northern outsiders with questionable objectives meddling in local politics, buying up plantations at fire-sale prices and taking advantage of Southerners.

    Foner notes that "joined with the quest for profit, however, was a reforming spirit, a vision of themselves as agents of sectional reconciliation and the South’s "economic regeneration." Accustomed to viewing Southerners—black and white—as devoid of economic initiative and self-discipline, they believed that only "Northern capital and energy" could bring "the blessings of a free labor system to the region.  Leading "black carpetbaggers" believed the interests of capital and labor identical, and the freedmen entitled to little more than an "honest chance in the race of life."

    Sounds like the argument a lot of people make here for the status quo, doesn’t it?  If you think about what’s happening now, the top 0.1% are letting the country go to Hell in an economic civil war that pits the rich against the poor and, now that the middle class has been destroyed and businesses are on their last legs, they have stockpiled vast sums of money that they can use to take over what’s left. 

  252. Phil, all great points from history.  On ‘floating away in a balloon,’ it remined me of a quote in Timecop which I watched again a few nights ago.  The quote goes something like this "vote for me and it’s going to be like Reagan all over again, the top 1% will get a tax cut and the other 99% can emigrate to Mexico where they can live a better life."
    Nothing will change until there is a collapse.  When the country was founded there was not a great concentration of wealth in a few.  Society was ‘flatter’.  Ever since then, we have moved toward wealth (and power) concentration, albeit in ‘fits and starts’.  Anyone feel free to correct me if I’m wrong.  It happened in the late 1800′s and then I guess it reversed somewhat after the depression.  Then we had the Reagan tax cuts for the rich which started us back toward extreme wealth concentration.  As I have said many times on blogs, under Reagan and Bush 2 there was a tax cut for the few who have the most and a massive tax increase on the rest of the population who have to shoulder the burden of providing government for all of society.  Perhaps worst of all, there continues to be a massive and unprecedented theft of wealth from the unborn.  We enjoy a relative largess today on the backs of our children and our grandchildren.  I say again.  Our kids and/ or our grandkids will curse us. This will go down in history as "the selfish generation."  

  253. Samz/ TOS/Mac
    I have been using TOS on a Mac for six months and it works perfectly. You don’t have to run it in a virtual PC mode as you do with SSPro and many other platforms. Highly recommend TOS on the Mac.

  254. Dr Craig/JRW
    I mostly do options as Phil is the absolute best in my view and options fit my trading schedule best. But about once a week, I have time to try out JRW’s method….not to state the obvious but JRW is quite skilled and most people cannot get the day trading thing to work at all, much less at the level JRW can. I am not there yet but am getting closer to being able to gain a portion of JRW’s success.
    Craig, Wanted to comment about your post last week about using /TF futures. I was out of the country at the time and did not respond then, but that is the approach I have been using, given that they are very liquid and one can enter and exit easily before and after hours. My lines are not quite perfect because I try to adapt JRW lines to the futures, but they are close…(I don’t have all of his tools to replicate the lines). I am not available everyday (day job thing) but we should keep the communication lines open on the futures. Notice how they tanked just after the run up at 4pm Friday…..nice to be able to capitalize on that.
    BTW JRW, your lines have been quite useful applied to other stocks when I am looking to move in and out of options. Thanks.

  255. Strikes/Z40 – Delta is A factor but not the factor.  Considerations choosing a strike is mainly based on my expectations of movement and then picking the option that will best suit the move.  Sometimes I want  a low delta because I’m concerned the first move may go against us and sometimes I want a high delta, either because I have a lot of confidence in the move or we may have to cover or roll etc.  As to CSCO, as long as you are willing to own more it’s no big deal.  You can sell the Jan $24 calls for $1.45 and the Jan $22.50 puts for $1.95 and that drops your basis to $22.18 with a small profit if called away at $24 (but rollable) and, if you have another 100 shares assigned at $22.50, then you are in 200 for an average of $22.34 so, at worst, you are knocking 12.5% off your basis at no cost to you other than agreeing to double down in Jan – and, of course, you can still roll out of a jam from there to 2012.  If you are already comitted to CSCO long-term, then you could just sell the 2012 $25 calls for $2.80 and the $22.50 puts for $3.50 and that drops your net to $19.28/20.89, which is not a bad save off a $25.58 entry.  Imagine how great it would be if you had covered on the entry!

    Another very important stupid options trick (assuming you want to stay with a stock you got burned on) if you don’t want to risk a 2x assignment is to take what you lost, which is $288 in the CSCO example for Z4 and simply try to get that back.  That can be done by cashing out the stock and selling the 2012 $17.50 puts for $1.60 and buying the Jan $20/22.50 bull call spread for $1.60.  That puts you in the $2.50 spread for free and you get $250 back if CSCO just holds $22.50 (much better than where you are now) and your worst downside case is you are re-assigned 100 shares of CSCO at net $17.50 – so you are taking a 22% discount off the current price as your worst case and getting back your cash in Jan if all goes well (although it should be noted you aren’t made fully whole until CSCO clears $17.50 in Jan 2012).

    Red pill/Snow – I agree, I don’t like the Kool Aid metaphore anyway and certainly not in comparison to the Marix, which is kind of my whole point about the world, investing and otherwise:  We are taught all our lives to believe in a system that is designed to screw us (unless you are at the very top of the heap) and once people step back and look at it for what it is – innocence is truly lost and life can never be the same again.  Is that a good thing or a bad thing? 

    Mattress/Yodi – Did I?  I forgot now…  Anway.  I think we are fully covered with 1/2 $102 and 1/2 $104 puts and looking pretty good for at lest the $102 puts to expire worthless.  Whichver Sep puts you have, it is time to roll them over to Dec $102 puts, which are the first ones that can’t be rolled higher for .50.  Then, of course, we seek to roll up the Dec $102 puts for .50 or less per $1 and that is the expense of keeping

    FAZ/UYG/Amatta – Yes, it’s a range-bound play for a short-term cover.  If that doesn’t pay off by the time we get some bank earnings, then it’s not very likely the SDS play would be successful either.  There are a lot of financial earnings on Friday and the FAZ play is less damaging if the market takes off and, as I said, it’s a bullish cover for a very "just in case" drop in the financials.  

    Selfish generation/FJd – It’s a very sick game being played because, as you note, the bottom 99.99% are left with national debt levels that work out to $200,000 per person but the top .01% aren’t worried about paying that debt since it’s a tiny part of their assets.  So the game is to build the wealth of 30,000 people by $1Bn by putting 300M people $100,000 more in debt ($30Tn) and then saying "we’re all in this together" and telling the 299,970,000 people that they’d all better tighten their belts and start paying off the debt but, by the way, if they try to tax you for it – you’ll leave the country – an option not available to the wider slave class.  Unless the 299,970,000 people wise up – there’s nothing left for them in this country but the bill.

  256. the post below was by pharmboy on Friday. Just wondering, why don’t we put these iron condor trades on more often.  Too much risk?  The risk has to be lower than an outright sale of the calls and puts naked.  Is there a rule of thumb to quantify losses with the iron condor if the market runs away, up or down?
    DIA Iron Condor (TOS) —  selling the August 105 calls and August 95 puts and buying the August 108 calls and August 92 puts for a credit of $1.16.  Break-even points on this trade are $93.84 on the downside and 106.16 on the upside.  Using TOS – 77 and 75% probability for worthless expiration of the call/put side respectively of the DIA condor.

  257. Here is an article that actually corrects some of Mauldin’s numbers (the author Maudlin actually pulled his info from). Compelling data on the birth/death rate (which noted is not the birth and death of people but rather businesses).  In summary, Miller says, "I have been frank about employment problems and more pessimistic than most in my regular monthly estimates.  I regularly report that we have disappointing, below trend growth that is not adding enough jobs to solve our problems.  We should stick to the facts, not making things worse than they really are."

  258. fjd – the risk is the total spread up or down minus  the credit.  So the above is a $3 spread in either direction, and one collects $1.16. So the risk is $1.84 if the stock blows through either direction.  In a market that is going up slowly or is flat lined, these are great income producers, but when it is volatile, they can be harsh.  I had one on the SPX and lost a bit when it blew through 1040 on the down side, but thankfully it recovered and I was able to get out for a small loss.

  259. Phil – in your 10:16 post above you said the government needs to get money to the "little guy" but attempts get blocked in the senate. What was the purpose of the $787 Billion Stimulus package if not to get money to the the "Little Guy". If that much money didn’t get to the "Little Guy" why would we think that the Senate or the President for that matter would send the next batch of money to the "Little Guy" even if it could get through Congress. Fool me once ………

  260. Phil
    July 11th, 2010 at 9:14 am | Permalink  
    "The Treasury issues debt and the Fed buys it.  As long as no one ever audits the Fed and as long as they can keep pretending there is no inflation then this game can go on for a long time."
    PHIL/Fed purchasing Treasuries - Tyler had another excellent article supporting what is now a know fact.  So what could stop the fed from buying up treasuries from now to the end of time…if/when the music stops, our country would be the mother of all collapses.   I’m not even sure there is a "black swan" event that could force the timeline over the next few years, as such could possibly instead herd the world into hording more US dollars.  For example, another US war would be "financial heaven", as the US ramp ups manufacturing production to exterminate "others" and thus grows GDP exponentially.  And even a couple of "Katrinas" this Fall could flood the country with jobs and new production… and  unlimited handouts of $2,000 buy-anything-you-want US "fed cards" handed out like candy…all of which is adding growth to the economy.  As long as we keep buying our own debt, and nobody can audit us…debt doesn’t matter so bad is good and good is better.  The world is held hostage and I’m not sure how this ponzi scheme could fail before another global currency, such as the yuan, was capable of replacing the dollar.  The USD is the biggest global "safe" as of today, but in the few years, things will change with accelerating economical, political, and social erosion.  The one single event that I could see expediting the timeline is if China wants to prove, sooner than later, that they are the next super-power…an exercise that even the intelligence community is currently debating…;

  261. DKGUY
    I really don’t know the hole story on the stimulus but do know some of the problems. The sales pitch was do shovel ready projects. The problem in most states was matching funds when the projects were put on hold because of no funding available they also lacked matching funds. Other requirements were also beyond reason including high cost studies and lengthly time consuming red tape. Also unfortunately too much fell under the education platform which was used to refund schools and preform studies at universities that never actually hired a new employee. I know a few who do road work and that money has gone up in government over the top reviews. Now the second summer the stimulus money  is approved to improve the Bear Creek Pass road between Wyoming and Montana that requirs 2 states to match funds for a summer only road. The other problem is nobody lives there to hire and few will go and then federal regulations on forest lands prohibits workers from camping while working on public land. I know 2 people who have camp trailers and follow the work but nowhere to camp except a DISTANT COA campground that charges almost $50 per day. Pay is reduced to $14to$18 per hour and neither the construction co. nor the worker can afford to pick up the expense. This means for Wyoming no stimulus road funds spent. Multiply this by a million projects.
    Another issue is cencus workers in rural areas, they are required to cover large areas that if you could walk, at the end of the day must walk back, even hitchhiking is against the law. Where I live these people were retired X2 and wealthy X1 and all drove $50-60,000 SUVs at $7.25 per hour while using about $5.00 per hour in fuel. I received a form and mailed it back, why did 3 people knock on my door? One admitted it was just something to do. Did this help the truly unemployed or just spend lots of money to improve statistics which are fake anyway? There is a low income housing project with 90+ % spanish speaking and they never went there at all. Sombody has to sort patatoes for MacDonalds.

  262. Ever wonder why french fries taste better at Micky D’s? First they only buy new crop, the stored last year are put in 5 lb bags and sold at your local store. Second salt water, extremely scientific secret formula.

  263.  samz – I use TOS on mac, works fine. One issue is they really like their PC shortcuts, they don’t obey Mac shortcut rules such as command+C for copy, command+Z for undo, etc. Instead they use windows control+C for copy, control+z for undo. To some extent keys are customizable however. Ironically the iphone app is superior in elegance of design. I don’t know about the PC version but TOS is a bit clunky, like a DOS program ported to run on windows. Although it is packed with great features, getting the most out of it definitely takes learning a lot of the quirks. 

  264. JRW III
    July 9th, 2010 at 5:40 pm | Permalink  
    26% on the week for the 20% I day-trade, and since drinking the kool-aid last fall, the whole portfolio has doubled.
    Have a great weekend !!

    On average, how many trades per day do you think you typically make?  26% on the week is impressive.  I’m happy when I get a 5% week with an average of 3 trades per day.

    Also, I was curious, given the size of your positions, how did you do on May 6th when the market went haywire?  Were you short when it unraveled?

  265. exec / May 6th
    The Best day I’ve had since the fall of ’08; it’s in the archives, you can bring up a chart and track the trades I posted

  266. Phil
    Thank you.