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Monday Market Movement – All in on Bonds!

Bond funds are attracting cash like stocks during the dot-com boom.

That's the headline this morning on Bloomberg, who says: "The amount of money flowing into bond funds is poised to exceed the cash that went into stock funds during the Internet bubble, stoking concern fixed-income markets are headed for a fall.  Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000, according to data compiled by Bloomberg and the Washington-based Investment Company Institute."  $480Bn?!?  Whuck!?!

First of all, who the hell has $480Bn to do anything with in this economy?  That's where I stop reading and start pondering.  Of course, not all this cash is from America but holy cow – that is A LOT of money in these troubled times.  Imagine if some of that money starts going into equities.  Well, don't imagine that if you are bearish because you won't be able to sleep at night!  The cash inflows have pushed investment-grade US Corporate Debt down to a record 3.79% while Treasury Yields fell to an all-time low of 0.5%.

The money flowing into bonds is “probably not repeatable on a consistent basis,” said Joel Levington, managing director of corporate credit in New York at Brookfield Investment Management Inc., which oversees $24 billion. “Eventually it won’t be sustainable. Whether that means five years from now or five weeks is a little difficult to tell,” he said.  Let's be very clear about that last part – in order for any bubble to sustain itself it must continue to be fueled.  $480Bn is A LOT of money being put into instruments that provide little return.  I just did some charts and data on historical inflation in this weekend's "Defending Your Virtual Portfolio With Dividends" post for Members as we already see the writing on the walls with the Bond market and need to move into things that will actually make money (and protect our basis – which bonds do not at these levels). 

Investors took $9.1 billion OUT of equity funds in the week to Aug. 19, the most since July, according to Oleg Melentyev, a credit strategist at Bank of America Merrill Lynch Global Research in New York. Stock funds have had $215.4 billion of outflows the two years ended June, ICI data show.  Citigoup's Tobias Levkovich says The “extremities of the money flows” into fixed income from equities is troubling.  "In 2000 or late 1999, we saw massive amounts of money going into the equity market at just the wrong time,” he said, while still predicting the S&P 500 Index will rise 9.6 percent from now to end the year at 1,175. “I feel the same way when I look at all the money going into bonds.”   

Meanwhile, stocks are holding up pretty well considering the $215Bn outflow handicap since June of 2008.  The Dow was at 11,350 on June 30th of 2008 and, despite the long, strange trip we've been on – we're only down 10% at 10,200.  The S&P was at 1,280 on the same date in '08 and is down 16%, which makes sense since the Dow was goosed by the switch from GM and C to TRV and CSCO, who have helped boost the Dow's performance since last June and make historical Dow Jones comparisons a little tricky.  I had advocated replacing GM with TM, which would have been more realistic but Uncle Rupert never listens to me otherwise he wouldn't have gotten caught with his hand in the cookie jar by John Stewart:

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
News Corp. Gives Money to Republicans
www.thedailyshow.com
 
Daily Show Full Episodes Political Humor Tea Party

At least Rupert's money is well spent as trust in Government has never been lower.  Heck, if I say something positive about Washington I get a ton of angry EMails calling me a sell-out so I guess I'd better learn to be a good boy and just blindly hate everything about Washington if I want to "fit in," right?  Speaking of Australians can make Americans say "how high" when they say "jump," it's the LIBERALS in Australia who want to kill the mining tax and that may happen as the Labor Party has been unable to form a majority in this weekend's elections (civilized countries have their elections on weekends so the people who work are able to vote).  This could be great news for RTP and BHP (who are bidding for POT) as they are slated to be hit with $9.4Bn worth of taxes in the first two years of the levy. 

A fun way to play RTP long-term (and a nice inflation hedge) is to buy the 2012 $47.50 calls for $11.70 and sell the 2012 $52.50 calls for $9.50, which is net $2.20 on the $5 spread.  RTP is currently at $51.05, so you start out with this trade $3.55 in the money (up 61% if it expires here) with an upside potential of $2.80 (127%) and a maximum loss of $2.20 but a stop at $1.10 is sensible and the net delta on the spread is .07, which means a $10 drop in RTP should only cost you about .70 in the short-term so a fairly easy-to-manage trade that should be well on track if either the mining tax goes away or it turns out to not look like too big of a hit or if we have runaway metals inflation that boosts RTP's earnings or if some of that bond money just flows back into the markets.  Lots of good reasons to try this one!

Of course miners risk the dreaded "China slowdown," if it ever really comes but I'm still hoping for a US speed-up but the anti-stimulus rhetoric is still coming in hot and heavy from the do-nothing side of the aisle.  US Corporations are sitting on record piles of cash and they have their pick of the litter with what little hiring they do decide to do and the last thing they want is the US government putting people back to work - especially in small businesses that may offer quality local service and production to draw consumers away from their cheap, outsourced goods and labor.

One way to keep US consumers from "buying American" for a little bit more money is to make sure they don't have any and the banksters are on the job, jamming credit-card rates to a new nine-year high.  The EU continues to NOT be a safe haven for investors so, despite the many and obvious concerns, I still like US equities.  Mike O'Rourke of BTIG agrees with me and says that "the current environment is that the level of equity undervaluation relative to Treasuries today using this model is equivalent to the extreme levels registered in early March of last year." (see chart) 

We're not going to hang our hats on it but we will continue to watch our levels, which have yet to be breached in a meaningful manner and, when you consider the handicap of negative outflows from retail investors as well as the flows we discussed above – that's pretty impressive so far.  We have Durable Goods, New Home Sales and revised Q2 GDP this week so light data but Durable Goods will be a big market mover, especially if it's negative.  

It's going to be an interesting week.  We're ready to look up but let's be careful out there! 

 


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  1.  Good Morning! 


  2. Current Wall Street S&P 500 year end predictions….wanna guess where it is supposed to end up?


  3. Phil, I guess the Pimco boys beating the drums really has worked for them hasn’t it? And they’re reducing their percentage holdings in US bonds!


  4. Phil, the 480B was in 2 years not one month……
    Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June,


  5. I’ll guess Pham …. 1250


  6. I am looking at ATPG BEXP & HAL to buy on any opening weakness  — fwiw


  7. Yes, let’s listen to a strategist named "Binky" ….


  8. Yeah, I like Blinky as well….shorting D. Bank today b’c of that one!  On another note of doom, Pragmatic Capitalist has a little blurb here on PSW in case one missed it during the political manifesto book that was written over the weekend (I sent it in to Barnes & Noble).  I will let you know it they accept it to their e-reader program!


  9. Peter and other SS-- please let me know what your thought on range of SPX and Rut and when is the best time to scale in thx


  10. FMD to the up side today.  ARNA – If one took assignment of the $7 P on Friday (I did on about 3/4) I would sell 1/2 today on any run up….I am looking at 7.20 or so.


  11. Good morning,

     

    IWM 59.04, 60.45, 60.98, 61.84, 62.12, 62.82, and 63.33

     

    Good hunting !!


  12. Pharm- ARNA…I took assignment on it but do not have any LT on it besides that. Would you still recommend selling it? Do you recommend a spread on it? Thank you.


  13. Any opinion on SIRI buy-write.  Stock trading at .99 selling the Jan 11 1.00 calls and puts for .27?


  14.  Phil I posted this on Friday at 4 PM but I guess you didn’t have a chance to respond…
     Phil, 
    As I mentioned I was off to Europe for a couple weeks… and with your help tried to position to be as neutral as possible. It would have been OK, however I had -10 AUG TBT 35’s Puts sold for .70 (and 300 shares of TBT) and they have obviously been hammered. Do you recommend rolling them (I am going to be assigned the 1000 today and I have the 300 that I have held already for 8 months now down over $4K) so I took a bloodbath on these…To make it back would you recommend selling the shares at a loss and selling new puts? Which exp and strike would you recommend? 
    Thanks


  15. Welcome back JR


  16. Good morning!

    Doesn’t look like we’ll be breaking down but you never know so keep watching good old:  Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.

    It don’t mean a thing until we hit our goal on the RUT as they are well below the range and the Nas should encounter heavy resistance at 2,200 – breaking that would be our good sign of the day and I’m expecting that after some trouble.  I think we are probably good for a nice run up now and if you don’t have our 500% upside plays from last week – at least try not to be too bearish with the Nas over 2,200.

    Hoenig has a speech at 10:30 titled: "Too Big Has Failed:  Learning from Midwest Banks and Credit Unions" and he’s saying that the low-rate policy MUST end.  That’s going to keep a lid on the markets but Europe is up 1% and if they hold that through 11:30 – there’s no reason we shouldn’t expect the same for the day


  17. Predictions/Pharm – Thanks:

    Pimco/Jbur – They are good at what they do.  They are herding all the rats into the sinking ship as they cash out of the US bond market and they’ll be back when people panic out of bonds (probably it will be them telling people how it’s the worst bond catastrophe in history while they are buying). 

    $408Bn/Doro – Thanks, that makes more sense but now I have to fix the post! 


  18. ARNA/nic – I am going to be reducing my stock position over the coming few weeks.  Buying on dips/selling at step ups on the chart.  I still like the 5/10 Jan bull call spread at 1.65 or better.  The volatility continues to rise, making the sale of Ps very hard to justify, but I will be buying a few with some of our winnings JIC they implode after the committee meeting.


  19. Holding USO Sept 34 calls bought at .71


  20. gucci/short strangles: Just my opinion. I don’t do near-term short strangles on RUT. On SPX, it’s been good for short strangles lately, because the market has been range bound and the VIX has been holding up enough for short strangles to have pretty good premium a safe distance out of the money.
     
    You might try selling puts 15% out of the money and calls 8-10%. Then spend $1.30-$1.80 for $10 spread put verticals, buying one vertical for each short put.
     
    If the VIX drops below 20, I’d get out.


  21. fjd – Phil often says "you shoulda known to get out when it’s down 20%". I’m in the same boat, down 19.6 at the moment.


  22. Bought some INTC at 18.71


  23. On oil, it is tempting to hold the USO calls a bit longer here with oil at the low end of its range after dropping about 10 bucks in a week.  But oil and the market not so strong in the last 1/2 hour.


  24. exec,

    Thanks, but I’m still on vacation; I was just up and interested to see what was going to happen after Friday’s Hammer.

    It should be a FMD to the upside, and it’s a Monday, but ……………good hunting !!


  25. Thanks again Doro! 

    Warning to Members – I’m a little pre-occupied as my step-father is very sick and in hospital.  I will very likely be having to head down to Fla near the end of the week but hopefully just to see him although his condition is very iffy at the moment.  My brother is going down today and I’ll know more when he’s had a chance to talk to the doctors (he was pre-med).  

    Blinky/Cap – Well I find it very interesting that NO ONE has a target less than 1,145, which is still 5% up from here and that’s the crazy UBS and Montreal guys, who have been all over the place and seem to use a random number generator to make their decisions. 

    Well, so much for that rally!  Hoenig really bummed people out.

    Welcome back JRW!  Do you have an opinion on direction?

    TBT/Amatta – Ah yes, after my trip to Treasury we’re kind of off those as Timmy seemed perfectly happy to have rates near zero for as long as possible under some misguided impression that this helps anyone but the banks.  We even had a whole discussion about how HAPM (mortage modifications) isn’t working so the low rates are a sham but refis were up 17% for the month and they consider that a victory but it’s not even a dent in the overall problem.  Anyway, long-term, I still think TBT heads higher but there’s no need to hold so many shares.  Just be happy Hoenig is giving you a pop and maybe sell some more puts, like the Oct $31 puts for $1.35 with a very tight stop on the ETF.   While the shares are loss, keep in mind that you did wipe out the premium and simply try to get back $1,350 over 2 months 3 times rather than $4,000 all at once.  If it’s too much bother, I do still believe in the Jan $30 puts at $2.05 for a short sale and you can roll to 15 or 20 of those.  TOS says selling 20 is $3,399 in net margin, which is not bad on $4,100 collected.

    USO/FJD – We have a strong dollar day today, with the Euro back down to $1.268 and the Pound at $1.55 as Greece and other nonsense is still and issue there (see link in post to EU trouble) and we’re weak against the Yen again (3am trade picked up 0.3 today) and there were no rebel attacks and Iran isn’t at war etc. so not what the oil speculators (including us) were hoping for over the weekend.  Those calls are down to .56 and if we can’t hold $73.50 and you don’t want to take the hit (and if you are early in the scale and not over-commiting) then it makes sense to wait for a test of $72.50, which should be about .40 to make a roll or DD decision so that’s what’s at risk right now.  That’s how you should always look at your trades when they hit the 20% mark – what will your next move be if they go higher, lower or flat over the next few days and, if you don’t like your choices – then best to take the loss and move on!  Of course they were .73 less than an hour ago so it does seem very premature to be worrying about them.   

    I still like QLD best, you can sell the $50 puts for .95 and use that cash to offset the $53/56 bull call spread at $1.80 for net .85 on the $3 spread that’s $2.50 in the money.  We expected resistance at Nas 2,200 but hopefully we break on through eventually.   618 on the RUT will be considered progress


  26. Phil/Anybody
    As a matter of strategy only and not considering your investment objectives or amount of cash available,
    1. When would you consider a Buy/Write INSTEAD of a Bull Call Spread, partially financed by selling puts?


  27. Phil,
    Good luck with your step father’s health!


  28. Pharm / JAZZ – nice call on the stock.  I sold my position last week.  Thanks!! 
    What are your fav biotechs at the moment?  still buying CRIS?


  29. sorry to hear about your step-father--hope everything works out well


  30. Phil  /  takeover plays – do you like any of these mentioned in article linked below?  Thx. 
    http://seekingalpha.com/article/221785-15-possible-takeover-candidates?source=yahoo


  31. Phil, hope your step-father feels better soon.
    Glad you mentioned the money flows going into bonds. Half a trillion dollars is insane. Your question is a good one — where does all that money come from? 401Ks/Pensions, Top 1%, and sovereign wealth funds? Do you know of a good resource that tracks money flows?
    Wow, RUT just went negative.


  32. 08:00 AM On the hour: S&P +0.63%. 10-yr -0.15%. Euro +0.06% vs. dollar. Crude +0.75% to $74.37. Gold -0.01% to $1228.70.

    09:00 AM On the hour: S&P +0.28%. 10-yr -0.05%. Euro -0.21% vs. dollar. Crude +0.33% to $74.06. Gold 0% to $1228.80.

    09:30 AM At the open: Dow +0.36% to 10251. S&P +0.4% to 1076. Nasdaq +0.51% to 2191.
    Treasurys: 30-year -0.07%. 10-yr -0.09%. 5-yr +0.04%.
    Commodities: Crude +0.07% to $73.87. Gold Currencies: Euro -0.16% vs. dollar. Yen +0.64%. Pound -0.01%. ed>-0.08% to $1227.80.

    10:00 AM On the hour: Dow +0.47%. 10-yr -0.07%. Euro -0.06% vs. dollar. Crude +0.2% to $73.97. Gold -0.02% to $1228.50.

    July Chicago Fed National Activity Index: 0, its historical average, vs. -0.7 prior (revised from -0.63). Three-month moving avg. -0.17 vs. -0.12 prior (revised from -0.05). The results were led by improvements in production-related indicators.

    Even after FinReg, community banks are facing higher costs of capital because the market is still seeing some banks as too big to fail, says KC Fed President Thomas Hoenig. He says the discrepancy is the most lasting threat to the survival of smaller banks.

    Market assassins:  "Given the magnitude of the fiscal challenge and the need to sustain tight fiscal policy for several years, the risk to economic growth are clearly a downside risk for sovereign ratings," says Moody’s in its European Sovereign Outlook report. The continued divergence between European economies also poses a risk.

    Stimulus?:  The $20B compensation fund for economic victims of the BP Gulf oil spill opens for business today. Ken Feinberg’s goal is to pay individual claims within 48 hours of the claim being finalized and business claims within seven days, but insurance experts say that calculating claims for businesses would prove especially difficult.

    Big Stimulus: Talk of mortgage reform has started percolating in Washington, but data for sales on existing and new homes later this week are likely to reinforce the notion that the market is still far too weak for radical surgery and that the era of building wealth through one’s home is over.

    Anti-Stimulus:  Stimulus is the wrong medicine for the developed world’s current problems: Too much will cause inflation and bubbles in emerging economies and inflation in developed ones, Andy Xie writes. "Demand is local, but supply is global," he says. "This is why the old assumptions on stimulus are no longer reliable."

    Our "dysfunctional and corrupt political culture" may extend the Bush tax cuts for the wealthy, Paul Krugman writes, even though "it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty." But a new BofA (BAC) research note says allowing the cuts to expire could trigger a double-dip.

    Sinochem and Vale (VALE) have reportedly contacted Potash’s (POT) board with initial inquiries about merger talks. Another potential suitor could help Potash fend off BHP’s (BHP) hostile bid, or it could backfire; some analysts think a tie-up with Sinochem could hurt future flows and push Potash’s stock price down.

    Miners are getting a nice premarket bump on hopes Australia’s hung parliament will result in the reversal of the country’s controversial mega-mining tax. BHP +1.5%, RTP +1.9%, FCX +0.9%, X +0.5%, AA +1.2%.

    Speaking of our HD play: Goldman Sachs upgrades Lowe’s (LOW) to Buy from Neutral with a $24 price target. The firm sees an inflection point in EPS growth, citing several factors including recovering margins and limited sector downside. Shares +1.1% to $20.87.

    UBS upgrades First Solar (FSLR) to Buy from Neutral, and raises its price target to $150 from $130, on increased global demand. Shares +2.4% to $127.98.

    Starbucks (SBUX +0.4%) has made a remarkable recovery but faces a major hurdle over which it has little control: coffee prices have hit a 12-year high, and storms that could plague Vietnam and Mexico may push them even higher, 24/7′s Doug McIntyre says.

    I forgot to mention the most interesting article of the weekendHomeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?


  33. Maya: One difference is that with a buy-write you make an initial commitment to buy stock, plus a commitment to buy more with the put sell. So you start out 1x and are either called away or end up with 2x.
     
    With bull-call spread funded by put sell (artificial buy write), there’s no commitment to buying the stock initially, but you end up with 1x if put to you. So it’s "half" the commitment of the buy-write
     
    If that’s not a concern to you, then it’s often simply a case of which you think gives you a better deal. And of course, you could do a buy-write for 1/2 the number of contracts as an artificial buy-write.
     
    Also, you can initiate a buy-write by first just selling puts. If not put to you, you keep the premium. If put to you, then you can initiate a buy-write. The potential advantage here is you get a discount on your initial commitment from the put premium.
     
    One common mistake is to think that buy-writes are always good. They’re not. You usually want to enter them when the stock has taken a dive and option premiums are relatively high. It’s basically a value-investor strategy. Enter good stocks when the market is shunning them.


  34. BWLD on the old sell Sept 35 Puts Buy Sept40/45 Bull call spread, i bought back the puts for .05.  Not much upside left there.
    Thanks


  35. Maya: Also, if the stock is a  significant dividend payer, that might tip you towards the buy-write, since getting the dividend requires stock ownership. However, option premiums are usually  much higher than dividends – so dividends can be less important than you might think.


  36. Hope everything works out, Phil.


  37. Markets being pushed down on little volume. Buying Sep QQQQ calls


  38.  Phil, was reviewing the Buy List. What do you think about UYG Jan 35/50 selling Jan 41 puts for net $5. Hedging with FAZ Jan 16/23 spread for $1.40?


  39. Phil,
     
    Best of luck with your step father.


  40. Family / Phil – it’s ok, Phil, take care of family and yourself. We can watch out for ourselves for a little while, anyway. ;-)


  41. Chaps- thank you for the good explanation to Maya. I am learning a lot.


  42. Considerations/Maya – Well a buy/write increases your chance of long-term ownership so, to a large extent, it depends how you really feel about the stock over the long run – that IS the main consideration.  I "like" HD but if it falls 20% I’m not really inclined to DD so I’d rather have an artificial (assuming the math was even or better), which, in worst-case, assigns me 1x at my net strike.  On the other hand, I LOVE VLO and if some sucker wants to sell me 2x for net $12.50 (selling the 2012 $15 puts for $2.50) then I’m BUYBUYBUYing and, if it falls to $8.50, I’ll likely want to buy even more.  From that perspective, it’s a free $2.50 because I would absolutely buy VLO for net $12.50 any time they offer it.  In fact, it’s disappointing NOT to get that price and just get the $2.50 as a consolation prize.  So it’s your long-term desire for the positions and, of course, the actual math of the trade (especially dividends or no) that determine which is better on a stock by stock basis. 

    And what Chaps said!

    Thanks on my Dad all – I didn’t want to take up the board with it but I thought you should know as I may have some spotty participation this week

    Takeovers/Terra – Well I think its insane to buy X with their burdened health and retirement costs.  SYMC maybe but that’s a knee-jerk to last week’s INTC/MFE deal and AKAM has been in play for 2 years.  STX we already like and you can make the same case for WDC.  DFS, GRA (not sure about asbestos issues) & VECO I wouldn’t touch (what is the media fascination with VECO anyway?) but GT is interesting as is HIG, CNO and HBAN.  The others I don’t really have an opinion on.

    Money flows/Mattl – Good question but I do not.  I just wait for Bespoke or Barry to put up a chart.  Maybe one day I’ll get a research department…  The bottom line is $480Bn into bonds and $215Bn out of stocks over the same time frame is a $600Bn imbalance and I think the fact that that ONLY impacted the S&P by 16% says a lot.  Maybe it says the S&P is a non-cash supported house of cards that is empty inside and can be knocked down by a strong breeze or maybe it says that the $10.7Tn market cap of the S&P (rule of thumb is about 1Mx the S&P price) maybe is overeacting by being down from 15Tn on "just" $215Bn in outflows.  Of course, more likely, it was UP too much on whatever inflows took the S&P to 1,500 – which was my contention all along (and the kind of thing I complain about whenever we are up on low volume).

    Net of all nonsense, we can assume that, with $480Bn into bonds and $215Bn out of stocks that there is net $265Bn of new cash to be distributed somewhere over 2 years and that’s just $130Bn a year of actual directional money to flow to either stocks or bonds which answers the question "How can GS et al move the whole market with so little relative cash?"  Just $500M one way or the other will do a big job on an average day! 

    BWLD/Rexx – Not unless football season gets them off with a big bang.  I still like them long-term and the $40s are still $2.55 with the $45s just .20 but this is the time of year they should be moving up and they are stuck below the 200 dma at $42.50 and are not likely to break over without the broader market perking up. 

    Dow volume at 11:30 is 58M – not heavy at all.

    Qs/Lionel – Good call, I think!

    UYG/Ajay – I like that play as you are starting out in the money and they have to take your $10 profit away from you and, if they try to do that, then you have up to $5.60 coming back on FAZ so very nice

    11:00 AM On the hour: Dow +0.02%. 10-yr -0.01%. Euro -0.39% vs. dollar. Crude -0.24% to $73.64. Gold -0.26% to $1225.60.

    Stocks’ strong performance out of the gate evaporates with major indexes gone into the red. Technology and capital goods are dragging down stocks that were lifted by good utility performance; high dollar volume in Caterpillar (CAT -1.1%), Deere (DE -2.5%), Cummins (CMI -3.7%). Nasdaq now -0.4%.

    Well, they want cuts:  As part of a wider look at spending cuts, the Obama administration is reviewing 26 troubled technology projects worth up to $30B, in order to find fixes. OMB officials say the projects are over budget, haven’t worked as expected or both; key contractors include AT&T (T), Lockheed Martin (LMT), Accenture (ACN), IBM (IBM) and Oracle (ORCL).

    Banks are still hitting the Fed’s discount window less, with credit outstanding to banks at $100M as of July 28. Commercial bank borrowing rose to just $57M as of the last weekly report, up from just $1M the week before.


  43. Pharm – predictions… 1300 if Republicans make big inroads this November, otherwise 1000 if Dems hold their ground.


  44. anyone own NETL bull call spread sept  25/27  and sold the sept 22.5 put—are you doing anything (rolling etc) now?
    Tx


  45. Chaps/Phil
    Thanks for the info.


  46. CRIS/terr – yes accumulating in this area.


  47. Also accumulating DCTH, ALXA (next month FDA so expecting a run up), NNVC and NWBO (last two are for put away and forget about for a while). 


  48. lionel
    I have my eye on the USD/JPY. Based upon the PPP (purchasing power parity) , the Yen is overvalued relative to the Dollar by two standard deviations. The most overvaluation took place in the mid 1990′s when it peaked over three standard deviations. The "fair" value puts the USD/JPY at 104. I am watching this one closely for any indication of a Yen breakdown as I believe stress is building. -  Thanks for your input last week relative to the AUD – it turned out to be a cliff-hanger.


  49. Sorry about the hardship Phil, will pry for him


  50. Family / Phil – I echo Snow’s encouragement to take care of family obligations, AND for the benefit of us basic members who only see Phil’s commentary during trading (more or less), should Phil have to step out then I hope Eric can open the faucet a bit so that I hear something during the day.  I have no idea how PSW figures out who or how much conversation gets directed to basic members, all I note is that it’s essentially all Phil (which is fine of course) during trading hours and not much will be left if he has to go off-line for a while. Don’t get me wrong, i am not criticizing anything, just giving Eric a heads-up, and DO take care of family first.


  51. VNO and BXP are both up around $82.  Hard to see how these two CRE giants can be having such a party (up 25% this year) if things are in such rotten shape.  My theory on the big CRE players is the patient money is investing in them as they may not be doing great now but they sure are picking up a lot of properties at great prices but this is a major relative outperformance so there is a very sophistaced set of long-term investors (and BX just made a big CRE buy too as well as in China) who do think out economy is on the road to recovery.

    USO at .44.  To stick with trade as we approach $72.50 I prefer the roll down to the $33 calls for .30 (net $1.01 and then a DD at .69 for an average entry of .90 and down about 20% on the $1 lower strike).  Half back out even, of course and a breakdown below $72.50 is a good time to give up for now

    NETL/Savi – So much for a quick bounce from them!  They did have a little pop to $25 but fell apart quicly since.  They just can’t fight the tape without some breaking specific news and the SOX have been sucking in general but I still like them and I still like USD for the month and I still like the Nas to lead us out of trouble but it’s the RUT that’s acting like a lead weight on the market. 

    What I’ve been noticing this weekend is how many hard-core bears there now are.  It used to be that bears KNEW they were going against the flow of history and looking for short-term corrections or stalls in the market but they never used to predict we’d all be wearing sack-cloth by Christmas like they are now.  I know we have our shares here and I’m not looking to make a major debate out of it but think about it – growth is the long-term nature of economies because growth is the long-term nature of human society.  Why are so many people so sure that this time, for the first time since the Dark Ages gave us a 500-year contraction, it’s different? 

    12:00 PM On the hour: Dow -0.11%. 10-yr +0.12%. Euro -0.38% vs. dollar. Crude -1.25% to $72.90. Gold -0.29% to $1225.20.

    The 41% gain in 3Par (PAR) – to $25.43, after H-P’s $24 bid – shows investors expecting a bidding war with Dell (DELL), and they might get it, between two suitors badly in need of a sparkly acquisition to get their mojo back.

    One place interest rates aren’t tumbling: credit cards, where rates hit a nine-year high, likely one of the spillover effects from new rules limiting penalty fees that went into force yesterday. Average interest on existing cards hit 14.7% in Q2, highest since 2001 – and the spread of 11.45 points over prime is estimated to be the largest in 22 years.


  52. Gel/
    No worries.
    I am watching JPY/USD as well. Actually I am selling 87Yen puts for a bit less than 2Yen and buying call spread with that (ATM-ATm+5Yen) on 3m and 4m expiries . Volatility hasnt picked up much eventhough an imminent BoJ intervention is being more and more rumoured. We may break lower than 85Y so I build up slowly my position on dips like the one on last Thursday.
    I am expecting more dips ahead…


  53. re: What I’ve been noticing this weekend is how many hard-core bears there now are.
     
    And you have to believe the "big money" knows this too. So do we think there’s some big player out there who is completely clueless about the bear sentiment and is going to wake up 15% lower than here and say, "Gee, maybe it’s time to sell."


  54. just to be clear-- hold NETL?
    Tx


  55. Hello all,

    We have a new OT in my favorite solar company Trina Solar (TSL). I am looking for the company to beat earnings and have a very solid day tomorrow morning. 

    Check out my analysis, entry, etc. here!

    Good Investing!


  56. gel1 – Did you ever dive into NSPH?  I’ve been watching for a bottom and it may be in…


  57. Hei, I like INTC, but stock is little to much for my small account. Idea is buying 2012 jan leaps and selling short term calls. What strike leap is better to buy? jan2012 15 = 4.8 and17,5=3,25


  58. Phil, do you think allnof this rimm stuff is overblown. they definitely are behind with the uber techies but they still have devices that are the best for email, texting and TALKing. your thoughts?


  59. Update on the Iron Condor in SPX initiated on August 19 th, we are buying our short September 1135 calls and 1035 puts and selling our long September 1140 calls and 1030 puts for a debit of $1.60.  Nice!


  60. pstas: To answer your question from last night. Let’s assume I have the following Jan short strangles: AMZN 80/150, GOOG 280/620, RUT 400/700, BIDU 55/110.  Let’s say I got $15,000 in premium in aggregate and it’s currently requiring $30,000 in portfolio margin.
     
    I consider the spreads pretty conservative, and they can be rolled, but if there’s a major market meltdown, I’ll be down on paper and my margin requirement could easily double or more – thereby reducing my buying power.I bought Sept and Jan SDS artificial buy-writes for protection. Specifically, bought Sept 35/38 bull call spread and sold Sept 27 puts for net $.32. So that’s almost a 10:1 payout if SDS finishes above 38.
     
    Similarly, I was able to get Jan 32/37 bull call spread, selling Jan 26 puts for net $0, which will pay $5 if SDS finishes above $37.
     
    So, instead of buying put verticals on individual stocks, which would be a pain to manage, you can consider taking some of your short strangle premium and buying insurance using SDS artificial buy-writes.


  61. Hi Phil :  In your recent IRA article, you say MCD,XOM, and CVX are too risky. I can see MCD since it’s at the top of the chart,but CVX and XOM ?  CVX appears to be in the middle of a trading range and XOM is at a 2 yr. low.What  is your concern ? Thanks


  62. VNO and BXP – I shorted these and other CRE giants around the start of 2009 and finally had to pull my fingers out of the vise of their powerfully appreciating prices as they continued to rise. And this was when all the "smart" analysts were pointing to CRE as the next ship to sink. My conclusion is that their price is not determined by things fundamental, as Phil suggests, but by back room deals to which we are not privy. At its simplest, though probably not correct, it looked like someone was supporting their stock price by agreement, or enabling them to white wash their books, or both. All legal, of course.In my view CRE epitomizes the artificial inflation of the general markets over the last 2 years. That is not to say fundamentals are not involved, only that I do not trust projections based on CRE fundamentals.


  63. On Rimm, they also have a ton of government contracts and I don’t see those going away any time soon.


  64. Strategists …. always expect the market higher; often wrong; never in doubt.


  65. Phil – Best wishes to your step-father and your family …


  66. Hi Phil I also had a question on XOM like dflam but also wondering if you could suggest a covered call strategy on XOM like the one you wrote for MSFT this am?? Many thanks.


  67. Hi Phil, sorry to hear about your stepfather, hopefully you’ll cheer up with good news soon!
     
    What is your opinion about USO at this point?  Are you seeing them up to $35 again before next opex?  (they have been range-bound between $32 and $36 for a while)


  68. USO – I see you answered this one.


  69. Mr. M / NSPH
    No… I did not do anything with that one ( lucky me ). The chart is really ugly, and I have no idea if this is the bottom. I believe we will have much general market weakness for some time to come, so I am very cautious.


  70. tenger-  I’m seeing either: an all our rout when the political will is not there to support CRE and ‘let chips fall where they lie’ mentality sets in; or huge CRE bailout coming.  How else can SPG be almost $90?  I mean seriously??  71x /36x 2010/11 P/E.  It seems fundamentals went out of style in ’08.


  71. Still no volume – I think we have reached 100% algo trading today.
    Can’t keep the Terminator soundtrack out of my head for some reason :)


  72. jomama
    Phil will have an oppinion as do I. The super techies are never satisfied and they will buy a undetectable but preceived improvement. RIMM and Verizon have taken a stand and others will differ, AAPL would love to sell them iphones. The problem with iphones for all but the wealthy is how much they will cost to use their super apps. The bandwidth lines are drawn in the sand and as the phone bills go to the moon people will migrate to usefulness. Can the $30,000 per year man spend 1-200 per month to watch video on a tiny screen that runs out of power quick? I say no he can’t and for less money he can have a zillion stations on his $600 HDTV. The fact that nobody on this board sees or hears this future fact also proves the hardware sellers, manufacturer, or telecommunication company are pointing out what is happening very soon, it is not a maybe, the free ride is over, and there are not enough rich people to sustain the industry. Joe 6 pack is only buying cheap beer, and the phone will go first, beer last!


  73. lionel / USD/JPY
    I am watching the correlation between the USD/JPY and the 10 year treasury yield rate. If you place these charts over each other it is like a mirror image,  as they follow each other very closely.  A breakout in the 10 year rates will likely see this currency pair make a move to the upward.


  74. On RIMM / jomama : Let me start by saying that I use to love this stock. Now, i’ll tell you why i dont like this stock anymore. I bought a blackberry years ago. Companies were using blackberrys, and they became personal products because the worked, had easy email, and data above what was available. Security was a big plus. They have remained relevant because in the enterprise/corporate space they have had something of a first mover advantage. Same with government. This is what is keeping them afloat. Now, several personal stories: My brother works for a very large NYC firm that has used exclusively RIMM products. This fall for the first time, they will allow Iphones. The university i work at will also start allowing executives/management to use Iphones. I know several other companies that will allow users to switch from RIMM soon. The new device (don’t know if you’ve seen the torch yet) is not comparable to other devices on the market, although still an improvement. So, while RIMMs earnings are still fat and juicy now, what happens in 3-4 quarters if all these recurring customers in the corporate space are able to get Iphones or android products?? The contraction in RIMMs earnings could be swift and abrupt. Now, they can still stop this with several back to back good product roll-outs. But, until that time, I would be careful as this may represent a value trap based on non-repeatable trailing earnings results…..Just my two cents….


  75. lionel…. I found a good Forex trading ( on line ) brokerage in Singapore – Oanda (Asia Pacific).  Am opening an account with them. They also have an application for the iPhone, for alerts etc.


  76. shadow/hanna – thx – i am on my 3rd iphone, because in the operating room i use it a lot for financial stuff. but i do think it is a lousy talking phone that uses a lot of bandwith which will get metered. just ruminating about the value of RIMM as a company.


  77. chaps
    thank you very much for your answer to pstas about short strangles.


  78. Gordon Long’s depressing chart

    Family/Tenger – Good idea on the basic thing.  I assume you meant to say Greg but I’ll speak to programmers and see if something can be done there. 

    Bears/Chaps – The biggest bears on the pro side are the ones who don’t have any skin in the game like PIMCO.  There are no Ackmans and Paulsons out there shorting the market like they were in ’08.  There are bears who buy metals and want to chase money out of the market and into commodities

    NETL/Savi – I wouldn’t dump them based on a weak day’s action.  If the Nas pops 2,200 and they lay there, then maybe they are dead. 

    RIMM/Jo – Yes, I think long-term it’s a Coke and Pepsi and Dr. Pepper thing with IPhone, Android and BBerry platforms.  Palm is kind of like Orangina.  8-)

    Also on RIMM – when the company is having hassles because the Saudis and the Indians can’t spy on their networks, I think that’s kind of a selling point….

    CVX and XOM/Dflam – I am worried that oil could collapse.  It probably won’t but it’s more likely oil collapses than VZ does and it’s a matter of relative choices.  I do like XOM but not CVX as CVX is more gassy.

    CRE/Tenger – See John’s chart above, he still thinks we’re cycling into that.

    XOM/Chip – I like selling the 2012 $57.50s for $8.20 against the stock at $59.64.  That drops the net to $51.44 with $6.06 upside 11.7%, which is a little light on our 1% a month target but with 13.7% of free downside protection and a very nice bonus from the $1.76 annual dividend (another 3.4%) for a respectable 15.1% total

    USO/Jordan – Yes, I am counting on a revisit to $77.50, which should be $36-37 and that should come about the beginning of Sept but looks like we will get there the hard way (if at all). 

    Dow volume at 1:34 is 82M so not much activity at all in last 2 hours – very stickable but Tuesdays are usually our big up days, not Monday other than the gap opens.


  79. Chaps / SDS for strangle protection:  Chaps, I’m always interested to read your comments as I am running many of the same strategies as you. I also am always covered with SDS call spreads paid for with short puts. However, the one thing slightly different, is I always leave some of my SDS calls (the ones I’m long) uncovered. So if I’m long 50 SDS $35 calls, I only write 25 SDS $38 calls. During big market down days, I sell the uncovered calls to book profits to use for strangle rolls. With a fully covered spread, similar to the "Peter D Crazy plays" I find that when you most need to exit the spread or book profits, the bid/ask will make it prohibitive to do so. By the time the market calms down, you won’t be able to take advantage of the spike. To pay for the slightly uncovered SDS spread, I just write slightly more aggressive SDS puts.


  80. These BOTs are unreal.  Sell a block and the price immediately jumps up after the execution.


  81.  ajaytoo
    Thanks for your the idea on the UYG/FAZ structure.  I’ve implemented this but was not quite able to do it at the prices you estimated. Final cost of 5 leg structure was $7.50 per share.  All in all quite attractive for a $15.00 Call spread that is %100 in the money and married to a hedge for significant downside protection. Of course stupid me wasted $1,300 by mistakenly using Puts in the first place instead of Calls on UYG and then having to reverse that mess before setting it up properly as you had outlined. Thanks again.


  82. never/strangles: That is really clever! Makes a lot of sense. Options trading on leveraged ETFs is often dicey. And, as you say, "dicier" when things get crazy. Thanks!


  83. Timing is right to get back into DAL – Just did a buy/write selling the December 11 straddle for a 25% discount on the stock.


  84. Gel/
    I have checked your correlation UST10Y and USD/JPY.
    It is the flight to safety. The only problem I see is UST10Y yield is not going anywhere but down in the near future…so hopefully the correlation pattern will break down or we may touch 80Yen…
    This is why I buy 3 and 4 mo options on that trade.
    Sorry I forgot to ask for you about an FX online broker. I will ask tomorrow morning.


  85. lionel, I have IB account and forex spreads and all is very ok.


  86. From Allabouttrends here at PSW.  JIC some are thinking of going short, I am waiting for the retrace to 1100 or so, then I will open up larger than normal short postions FWIW.


  87. Pahurik/
    Thanks for letting me know.
    Gel was looking for an online broker based in Singapore to benefit from Asian FX research.
    I use IB as well and agree with you on the execution side.


  88. Options Assignment Story
     
    I had the FSLR 125/135 bear put vertical.  FSLR closed at 125.03 Friday.  BUT, for some reason, someone decided to exercise their 125 puts, even though they were out of the money.  So instead of ending up short 10,000 shares of FSLR, I ended up with none.  Just something to be aware about, as it can happen to you too.
     
    The interesting part is that my broker, IB, insists they learned about the options assignment from the OCC after Friday’s close.  What I don’t get is how can anyone exercise an option after the close on an OpEx day.  Does anyone know if this is possible?  In the past, when I have had a contract exercised against me, I have received a very prompt notice, during trading, of the assignment.  But not thins time.


  89. Thanks as always Phil!!


  90. Tx Phil


  91. jordan
    Although options expire at 4 PM Friday, the actual clearing, exersizeing is done on Saturday. All orders are closed on Friday at 4 PM. Hope this helps you understand.


  92. chaps / neverworkagain,
    I am reading your posts with great interest.  I have some questions:
    - Let’s take chaps’s strangles on AMZN, GOOG, RUT, and BIDU as an exampe (12:57pm post today), how do you determine how much SDS protection you want to buy?
    - If the market does NOT drop, when do you begin to consider cashing out the remaining values of the soon-to-expire SDS spreads and buying new spreads?
     
    Neverworkagain: I vaguely remember that you suggested buying VIX put options, in addition to SPX put spreads, to further protect the short SPX strangles.  Are you still doing that?  Do you have some rule-of-thumb guidelines in which strike/month of VIX options to buy and how much?
     
    Thanks!


  93. Jordon – I will typically exercise my options if they fall within a few pennies of the strike (ITM or OTM), cause more often than not the swing the next Monday will put them ITM (hypothetically).  It is a risk, but more often than not it has worked out fine.  The MM are stealing pennies (millions of them), so I have started playing along!


  94. Oh Waht a nice stick, well guessed Phil


  95. Jordon, since fslr is up $3 today, maybe someone did u a favor


  96. Jordan, some months ago I have GS calls and I never exercise calls and think try after close. I havent money for this on account, but monday moning I have lot GS stock on my account. I was lucky and I can sell stock pre market time without margin call.


  97. Phones/Shadow – Don’t underestimate people’s love for a device.  Razr Phones used to sell for $599 and all they could do was remember the last 10 calls!  People like cool stuff and, out of 6Bn people, 60M of them (top 1%) are fairly well-off and can afford whatever they want.  It’s already been established that 1.5Bn people are willing to pay monthly phone contracts so now it’s a question of degree – not an absolue either/or situation.  Also, consider how you would have had the same conversation 20 years ago if we said the new phones would send 1 Meg files around.  OUTRAGEOUS – that would consume all the bandwidth and all the storage capactiy in the World!  Telcos are not just a Trillion-dollar industry but they are one of the only segments of the global economy that is actually growing.  That attracts virtually unlimited R&D and product innovation and I sure wouldn’t bet on them banging into any technical walls very soon and I certainly don’t think they will run out of customers in the near future. 

    RIMM/Hannah – I agree but aren’t they already priced for a rough road ahead at just over 50% of last year’s highs and less than 1/3 of their ATH?

    SDS/Never – Nice strategy. 

    Bots/Exec – You have to out-wait them.  I know it’s crazy hard because they are getting so good at messing with us but they do have limits.  That’s a good thing about TOS, you can put in a price and if they run it the other way, you can cancel with no charge and see if the Bot lets it come back.  If they do, you know the move is likely BS and you can choose to wait a little longer. 

    DAL/Gel – Interesting.  I will be at the airport this week, I’ll let you know how things look.

    Assignments/Jordan – Yes, they often come in after the close.  They have some certain amount of time, I think the next day, in fact.  We do to – it’s just that it would never likely occur to one of us to do it.  That was a totally BS assigment though at the last minute and I have trouble trusting IB (sorry Andrew) as they route so much of their own stuff it’s hard to say whose interest they are protecting.   FSLR caught the upgrade today, that’s the only reason they jumped.  If the market doesn’t pick up I doubt they sustain it. 

    1:00 PM On the hour: Dow -0.02%. 10-yr +0.09%. Euro -0.37% vs. dollar. Crude -1.04% to $73.05. Gold -0.12% to $1227.30.

    2:00 PM On the hour: Dow +0.1%. 10-yr +0.1%. Euro -0.33% vs. dollar. Crude -1.1% to $73.01. Gold -0.11% to $1227.40.

    The Treasury sells $7B in 30-year TIPS at 1.768% (.pdf), with solid interest in the first of a week of auctions. Bid-to-cover ratio of 2.78, vs. a prior 2.23; indirect bidders take 38.9%, vs. a prior 42.4%. Direct bidders take 28%, vs. 6.4% in February. Treasurys little changed; 30-year yield still +0.02 to 3.68%; 10-year -0.01 to 2.61%.

    The Fed has lost its appeal of a ruling forcing it to name firms that would’ve failed without a bailout. The central bank may still appeal to the Supreme Court; the 20 commercial banks that joined with the Fed in the request already say they will appeal.

    The problem with financial reforms, Neal Gabler writes, is they always try to tweak the structure or mandate institutional limits like reserves, instead of dealing with the human factor: Bankers love getting rich(er), and the system will go awry as long as greed is what’s rewarded.

    U.S. manufacturing employment has been declining longer than you think – for more than 50 years, predating the end of Bretton Woods, deregulation, Japanese dominance and China’s surge. Yet output has grown steadily; the story is technology, Ryan Avent says, and not China’s export subsidies.

    It’s taken some time, but pay TV is feeling the recession’s sting – logging its "worst performance on record" in the second quarter, with net subscriptions dropping 216,000 in a sharp reversal from previous gains.

    Air travelers can expect higher fares this fall, says one expert, after increases of 16-20% over the past year – but carriers will be cautious amid lingering concerns about the recovery. Planes are loaded fuller, and companies are looking to slowly add capacity.

    A titanium bottleneck may occur with the threat of strikes in South Africa (source of one-fifth of the world’s supply) at Rio Tinto (RTP), BHP Billiton (BHP) and Exxaro (EXXAY.PK). Work has already halted at Exxaro’s site, though the company doesn’t see supply disruption happening at this stage.

    Three lunchtime reads:
    1) Still in stocks? You’re not alone
    2) How to profit from the next black swan
    3) The U.S. housing fetish hurts the American dream


  98. Hi, Gel1,
    Doesn’t Oanda also have offices in the US?  Are you sure that they have a local research team in Singapore?  Many of those forex brokers have operations all over the world.  But who knows what they really have in any particular location.  Maybe just a PO Box?!
     
    A while ago, CFTC (or some US agency) decided to prohibit "hedged" strategy in forex trading.  That is, you can’t have both long and short open positions on the same currency pair.  I know some traders use that strategy very successfully in forex.  They bet that the currency pair (say USDJPY) will fluctuate around the current price.  So, they go both long and short to take advantage of the zigzags.  When CFTC’s decision came out, the brokers opened up new branches in places like UK, and those traders simply moved their accounts to a non-US branch of the same broker.


  99. hi, Phil, we gotta do something finally with TBT.  it’s just too cheap.  why not sell some 31 puts for 80 cents?  can always roll them down if we need to….. but seems like fair price to me to own TBT at 30.20
    thoughts?


  100. Pharm--I sold  sept 7.50 naked puts --when is the FDA meeting for the co--should I buy some puts?
    Tx


  101. Bloomberg Article – Phil, I’m not persuaded by the whole buy equities because they’re cheap relative to bonds. If equities get a bid because of money flow dynamics and what smells like a sell-side pitch regarding the relative cheapness of stocks to bonds, that’s not inspiring. In other words, I don’t think a real move to the upside with above average volume can be sustained resting on these supposed catalysts. Unfortunately, I think the only way volume returns to the equity market during up days is if expected returns are higher. If I remember correctly, 10 year expected returns are around 6% at current levels. That’t not so great given the risk of another air pocket flash crash, which is still fresh in the minds of many 401K holders.   
    Also, I think money managers are beginning to question whether the S&P deserves a mid/high teens multiple given that we have entered a "new normal" of cost-cut driven earnings growth. Why should the higher multiples of the last 20-30 years continue to apply in the context of a balance sheet recession and waning government stimulus. Perhaps developing countries will pick up the slack and boost aggregate demand and therefore drive higher valuations. Seems like a stretch over the short term.
    But to your point, GS and the other manipulators have proven that they can move the market higher without broad participation. However bull markets don’t begin with algorithmic trading programs based on some trivial technical indicator or a best of the rest rationale for buying equities. At some point fundamentals and valuation have to be compelling to attract money off the sidelines. The never ending sell-side mantra of the "market is cheap" doesn’t resonate anymore. A lot of people missed the rally off the March lows and have been waiting for another opportunity to buy the S&P below 1000. Long term I agree 100% with your impressive thesis for global growth over the next 30-40 years, but in the near term I don’t see a catalyst for a fully subscribed move higher out of the current trading range. I guess I think we need to move lower in order to move higher with any conviction. Although I can’t say the path of least resistance is lower. The plutocracy and political elites don’t stand to gain much from lower stock prices.


  102. DMAN, OHH NOOOO!  After Phil gave up on TBT, and then Gel, and you didn’t ask about it for a couple of days, I thought it was time to get back in.  I’m screwed now…


  103. Phil jordon
    I believe RIMM is in a very good position and last I checked they had a product that was close to an iphone but used low enough bandwidth that Verizon had a fixed price unlimited use contract. I also believe that AAPL will realize their future phone needs to compress like the ipod, HDTV is not detectably superior until app. 32 inch screeen, Good for advertisment but 1/3 the bits looks the same, MP3 sounds Ok on cheep earbuds lossless sound similar, but on good headphones the difference is night and day. The average person listens to 104db while exersizing because MP3 leaves out more than it maintains. Bring back the bits through good speakers capable of producing 104 db and everyone will cover their ears. This is why people are hurting their ears those microdynamics do make it full and loud. Without a big screen you need a microscope, also how many pictals are on that screen and how many are dropped? The telcos will have to redue their networks and don’t foget why we dropped analog, to free up bandwidth, my bet is our great and ultra smart government will not allow that for security issues.


  104. CapHK is at the place in its channel where it usually bounces, I’m considering a re-entry, what’s your take?


  105. look at  FXI


  106. Salv – I assume you are referring to ARNA on the 7.5 Ps?  FDA is in October, but committee meeting is Sept.  Here are the dates we are watching.


  107. cwan/strangles: Last night, I said I hadn’t worked those issues out to my satisfaction. That’s something I have to do. Using TOS, I’ll probably run some scenarios with reasonable combinations of price drops, "beta" (e.g., how much is AMZN going to drop relative to the market) and volatility increases.
     
    Since your margin to cover these strangles is volatility sensitive, I’ve looked some at VIX options, but couldn’t find anything I liked. But it wasn’t an exhaustive investigation by any means. Maybe Never is further down this path.


  108. Pharmboy — sorry what is FWIW stand for — I look up no stock with this symbol — currious on your comment


  109. Pharm--Tx for the link
    I was referring to DCTH for  some reason I thought they had an FDA mtg next month


  110. Cwan / chaps:   Cwan, I think in your question you mean "long VIX calls" rather than puts. Yes, I still think that is a possible hedging technique, particularly in a crash (more than 10%) scenario. But I have not used them actively in recent months as my artificial SDS buy-writes have become so profitable trading-wise. I am finding that rather than being an insurance payment, I am always able to cash in either some of the calls (the uncovered ones as per the above post) or have the puts expire, meaning I am actually making money on the short strangle hedges. This requires some trading around and I don’t count on that to always work. But it means I always have some uncovered hedge against my short strangles.
    In terms of size, my rule of thumb is that I want my hedges to "plug" close to the size of the hole I would get in my buying power if my short puts tripled in value. Now, since I have used that rule of thumb, I have not had to use the hedges to that degree. But that calculation depends daily on what hedges I have in my strangle portfolio. In addition, that portfolio is ALWAYS negative delta, more than made up for by the theta decay.
    Another point having run this strategy for about a year, is I do NOT use individual stocks at all. No go. I had a number of "lessons" that finally brought me to this conclusion. The last one was BIDU back in April. I had a $25k position movement in my BIDU strangles overnight when they announced their stock split. I couldn’t hedge properly in the after market or pre-market. I vowed to never use single stocks for the short strangle again. I now see that with Chaps using longer term strangles, maybe this idiosyncratic risk can be reduced, but I find just using indices and ETFs can hit my 3-4% monthly target, so no need to ‘juice it’ and take single stock risk. 


  111. Hello all,

    I just posted a new Oxen Alert for a Play of the Week in International Rectifier (IRF). You can see the alert here. I am looking for 4-6% growth on IRF this week before earnings and think the stock is a buy in the 18.80 – 19.00 range.

    Check it out here!

    Good Investing!


  112. Chaps- Strangles- thanks for the info-  I have some questions.
    I just went through TOS and totaled the premium on one strangle each of above individual stocks/strikes – it comes to $28.91.
    Now this is a question which I cannot seem  to get a comfortable answer to. With PM, and using the BP effect for margin calculation- The BP effect is ($6148). Again , with PM and using Margin Req option- it is +$3207.
    I have been working under the assumption that BP effect is the more "correct" margin requirement – in other words, if I sold the above strikes, my overall BP effect would be reduced by $6148 and that I then take in to consideration the change from up/down 10%/15% respectively.
    Do you use the same or similar assumption?
    Under the above scenario, how would you best go about calculating the effect of volatility on the BP effect/margin?
    I am not seeing your premium/margin numbers?


  113. FWIW/guc – for what is worth……LOL!

     

    DCTH/salv – ok, I am holding on to those and we can roll if necessary.  Sept/Oct are usually biotech friendly (unless you have failing data!)…They could go back to the 5.69 area, but LT, I like them an will continue to accumulate in the sub 7 range.


  114. never/single stock strangles: I generally agree. I remember how insane BIDU’s price run-up  was when it split.
     
    I would also never do strangles on individual stocks, except long-term. They are very dangerous short term. And what I’m doing is a small % of my portfolio. And a small % of what I’m doing on SPX, which is my "bread and butter" on short strangles. It’s kind of an experiment.
     
    I do like doing it on AAPL and have done that for quite awhile. GOOG is my next favorite; also been doing that for several months. I gave up on RUT for short-term strangles, but so far I like selling a few of those long-term as well.


  115. Pharm, correct me if Im wrong but VVUS had over a 1B market cap going into the FDA review. Why are you ‘lightening up’ on your position right now? Was VVUS’ drug expected to be that much better than ARNA’s? Does VVUS have other potential drugs in the pipeline? If you view ARNA as pretty much the in the same boat as VVUS pre-FDA decision and we give them a similar market cap of around 1B then they should be trading in the 8.40-9$ range preannouncement and still have a ways to climb…


  116. GOOG finally fighting the tides to have a nice day.  XOM leading the Dow.

    TBT/Dman – It always looks good but it never works!  It seems to me there’s more bang for the buck in shorting TLT at this point.  How about the 2012 $105/90 bear put spread at $7.50 and sell 1/2 Sept $103 puts for $1.  If you can pick up .50 per week, it’s a free spread with a $15 upside.  This would also work if you sell TBT calls instead but there is more risk of getting spiked there. 

    Relativity/Mattl – That’s only because bonds are considered zero risk at the moment.  A single shock to the system will start a stampede back to good old stocks.  Also, you are looking in terms of buying the S&P while there are 450 S&P firms I have no interest in owning.  This throwing out the babies with the bathwater mentality that has gripped investors is creating a fantastic opportunity for people who don’t think AIG and AFL are the same investment. 

    I remember the mantra of "A lot of people missed the rally off the March lows and have been waiting for another opportunity to buy the S&P below 1000" from 1999 and they did get their chance in 2003 but most did not take it and then there was another opportunity in 2008 and they waited and then in 2009 they missed the boat and now the mantra starts again as they all wail at the prayer wall and demand the market gods give them 800 – at which point they will probably wait for 666 anyway so what’s the point of answering the prayers of people who are never satisfied?  Anyone who didn’t load up the truck at 666 and didn’t buy in 2009 when the S&P averaged under 900 isn’t a value investor at all. 

    The people who are waiting around to see sale prices that were brought on in an environment of mass hysteria are what we call in the sales industry "looky loos," people who like to look but have no real intention of buying.  No matter what carrot is dangled in front of them, they will always be looking for something else to tip a decision that never comes and they are a waste of time and good salespeople learn how to politely hussle them out the door while they move their business forward with the real clients. 

    XOM, who is 3% of the S&P, made $20Bn after taxes last year and that was their worst year in a decade.  They are pacing 50% higher this year, making about $30Bn on their $300Bn market cap.  The company has 22Bn barrels of proven reserves which, at $50 a barrel, is worth $1.1Tn and can sustain 14 years at their current production output.  I thought they were overpriced at $450Bn ($90) and wrote extensively about it but at $60 ($300Bn) it was a BUYBUYBUY and if you want to wait for $50 or $40 or whatever – go right ahead because they wouldn’t be this cheap if it weren’t for all the non-buyers, would it?

    We may get a shock and move lower but we may not so we buy some very attractive stocks now and we give ourselves built-in 20% discounts with the buy/writes and we hedge for disaster so, at least – if things don’t all go to hell in a handbasket – we still make 15-20% on the stuff we bought while others waited for better prices.  

    LOL Rdn4!

    AAPL/Shadow – Do you have the new IPhone?  It’s gorgeous.  It’s like owning a really good swiss-army knife – it just does a whole bunch of stuff well enough to make it indespensible.  You look at everything from a technical perspective but my daughters and their freinds and the other 100M people between 10 and 25 in this country are a lot more concerned with whether it comes in their favorite color than how many pixels are being dropped or whether or not their audio experience could be enhanced.  In fact, one of the most annoying things about kids with the new IPods and IPhones is they use them like boom boxes and play them without headphones, which gives audiophiles like me a major headache as the cassette player in my 68 mustang sounds has higher fidelity but that’s what the kids like and I remember Japan was like this 10 years ago with all the little tinny mp3 players that they listened to on the streets so I guess we’re just catching up.

    Damn, yet another late-day sell-off.


  117. never/chaps – how different do you think is the risk associated to a short strangle on an individual stock to owning the stock and facing the risk of a ver bad news hitting the wires that simply plummets the stock significantly overnight? Does your aversion to individual stocks simply mean that you don’t play individual stocks at all using other strategies? I’m trying to asess your rationale here because if you are playing the house in a casino, you will always face risks like those when a single player is extremely lucky and gets a lot of money out of the house.. but more often than not you end up winning. Is playing the indices THAT MUCH safer?


  118. Pharm – by the way, the only reason I ask is b/c I am following you on the trade and will be lightening up as well. Im definitely not presuming to have anywhere near the knowledge that you have, just curious as to your thought process on lightening up this soon. THx


  119. jrom – I am initiating bull call spreads on ARNA. I agree with the assessment and think ARNA should be in th $9 range.  I will start lightening up when they move up another leg and I will be out of most if not all of the stock by the Sept date.  We are in accumulation right now (again).  I am trying to weigh the risks.  ARNA and VVUS have nothing in the pipeline that should even warrant attention.  VVUS was a company using two generic drugs but a patented formulary.  We have had a great run on ARNA since 2.80, and I would think it is wise to move some into a cash position and risk only the spreads with some of our winnings.

     

    ITMN, VVUS, Medivation, JAZZ, these are all companies (for better or for worse) that have imploded on the advisory committee meetings.  Not worth the risk, for the large amount of shares I currently own.


  120. Not selling any ARNA now, just setting the table so that all know where I am going.  I hold out the hope for $9….but not banking on it….hope that helps.


  121. ALXA is beginning to move.  Bouncing in this range, but hoping for a leg up in the coming few days.


  122. That Russell rejection at 618 really marked the day

    03:00 PM On the hour: Dow +0.17%. 10-yr +0.11%. Euro -0.22% vs. dollar. Crude -0.95% to $73.12. Gold +0.02% to $1229.00.

    Rosenberg’s market buster of the day:  The 45-to-54-year-old demographic rose every year during 1984-2010, but David Rosenberg points out that this key age group that often sparks the economy and the markets will decline every year to 2021. The last time sustained declines in this group occurred was 1975-83, an awful time for the economy and the stock market.

    The latest trigger in the Hindenburg Omen has prompted the creator of the technical indicator, Jim Miekka, to exit the market. “It’s sort of like a funnel cloud,” he tells WSJ. “It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.”

    FINRA is going after broker-dealers that don’t sufficiently monitor the high-frequency traders they work with, FT reports, seeking to determine if the brokers understood what was being done with the algorithm and whether traders had thought through how it would work under big market changes.

    KC Fed’s Thomas Hoenig says "too big to fail" banks have a lower cost of capital that places smaller banks at a competitive disadvantage and threatens their business model. Community banks have been tested by the "abnormally slow recovery," he says, and earnings will be hampered by commercial real estate for several more quarters.

    The Fed should consider raising rates as much as 200 basis points, Raghuram Rajan says, because near-zero rates risk fanning asset bubbles or propping up inefficient companies. “Low rates are not a free lunch, but people are acting as though they are," the former IMF chief economist says. Krugman says it would be "an utter disaster."

    Just as the plummeting Baltic Dry Index was a lousy indicator for the economy, the upward spike of the past two weeks is equally non-predictive, Business Insider says; right now, the index shows only that China is consuming more iron ore.

    Deepwater drilling in the Gulf increasingly will include only the largest, richest energy firms, spawning M&A activity, Grant Thornton’s Rob Moore says, listing potential acquisition targets: BP, Anadarko (APC), Murphy Oil (MUR), Hess (HES), ATP Oil & Gas (ATPG), Cobalt Energy (CIE), Energy XXI (EXXI), McMoRan Exploration (MMR), Stone Energy (SGY), W&T Offshore (WTI).

    Although stocks still cost more today relative to earnings than they did over most of the previous century and a half, stocks should still provide a significantly better return than bonds, Econbrowser’s James Hamilton believes.

    Dow volume at 3:50 just 125M – SUPER LOW.

    Have to like giving the Dow one more chance here with the Sept $104 calls at $1.05.  Either works or doesn’t work tomorrow so risky but low volume is a flag on today.  Of course this does put us red on all 5 levels for the first time today so don’t make upside plays like this without a good disaster hedge!


  123. We could very easily drop 250 from here on the Dow (2.5%).  Sept $26/28 bull call spread is $1.05 and is $1.85 in the money and you can sell Oct $25s for .60 to drop it to .45 on the $2 spread with 344% upside.  It’s a short-term protection if you are overly bullish short-term and trying to ride out the dip – which may turn out not to be a small one!


  124. Jordan,
    If  I’m not mistaken, options maybe exercised till 5Pm , at least it was this way a couple of years ago. my friend once exercised OMT call at 4:45 ET after earnings announcement.


  125. Phil – mystery stock is likely DXD?


  126. Hi folks-  been really busy at work and will continue to be for a few weeks.  Just wanted to pop in and say, What a beautiful day in the market!  Their tricks are coming just too often not to see through them.  Love it.  When money is being drained from the market on a continual basis.. there is just no other direction to go.  They can only lever up and absorb  the exodus for so long before they have to show their cards!


  127. mrmocha/DXD — Yes it is DXD. It was stated in the email alert, but not the post.


  128. Ravalos / Strangles:  Yes, I trade lots of single stocks with other strategies. But, for the short strangle strategy to be successful for me, I need to run it like an income fund where I aim to bank cash income every 8 week option cycle. With single stocks, you can roll out of trouble, but I always find that those are stocks that you then worry about getting whipsawed the other way too. But this is all qualitative. If you just look at the numbers though, I find that the implied volatility of BIDU options around 45% does not justify the event risk, relative to many ETF’s and indices with vols in the 25% to 35% range.


  129. DXD/Mr M – Damn, Sorry about that.  I did title it DXD in the Alert, can’t understand why I missed it describing the heddge

    Exodus/Matt – I sure hope not.  This economy really can’t take it but I’m already amazed that action hasn’t been taken.

    Wow, Dylan’s show is just nasty!  People yelling shut up at each other – Dylan using the phrase "right-wing nut-job" 4 times in the same sentence….  Crazy television.

    4:00 PM At the close: Dow -0.39% to 10174. S&P -0.41% to 1067. Nasdaq -0.92% to 2160.
    Treasurys: 30-year +0.19%. 10-yr +0.2%. 5-yr +0.18%.
    Commodities: Crude -1.21% to $72.93. Gold -0.13% to $1227.20.
    Currencies: Euro -0.39% vs. dollar. Yen +0.63%. Pound -0.12%.

    Market recap: Stocks faded down the stretch on light trading, as the morning’s flurry of M&A activity took a back seat to slow-growth and deflation fears that keep Treasury yields stuck at record lows. H-P was the biggest drag on the Dow after its bid for 3Par, and other techs also declined. NYSE decliners outnumbered advancers nearly three to one.

    Travel sites Priceline (PCLN), Orbitz (OWW) and Expedia (EXPD) are thriving as consumers shrug off a weak economy to hunt down bargains. Hotel occupancy is low, "and that’s great for consumers," Orbitz CEO Barney Harford explains. "Being able to get a four-star hotel for a three-star price can be attractive," at least if you still have a job.

    Norfolk Southern (NSC -1.7%) reopens a 100-year bond it issued in March 2005, expanding the original $300M 6% issue by $100M. Century bonds have been pitched in recent weeks by bankers as a way to take advantage of historically low borrowing rates, but their return shows how worried investors are about the economy.


  130. pstas: First, I made up the numbers in the post – though the ratio of premium to margin is generally what around what you’ll get, as hopefully you’ll see below.
     
    Anyhow, I just did what you did, using Dec for RUT because there are no Jan RUT options. What I get is $28.40, which you multiply by 100 for a single contract of each ($2,840). BP Effect was $5,015, which is gross margin. So, if you actually entered this trade, your cash account would be credited $2,840, and the net BP Effect of the trade would be $5,015. Since your buying power is the sum of your cash and the BP Effect of the positions you have on, the net effect of the trade is to reduce your buying power by $5,015 – 2,840 = $2,175, which is the net margin of the trade. That means that if you entered the trade and everything went perfectly (don’t count on it) you would’ve allocated 2,175 of your buying power to make $2,840.
     
    To see the impact of price changes on each component (GOOG for instance), I would go to the Analyze tab and set slices to "7 rows 5% step." Then, under "Positions and Simulated Trades", click on the little wrench and adjust the volatility as desired. You’ll see your position and BP Effect change accordingly.


  131. Phil
    I still believe AAPL will have to compress the iphone’s band use and the young people you mention will not ever notice the difference. Verizon was first to draw the line and they have a solution. I will admit I am an adiophile also. I own $10,000 Amps, $10,000 pre amp, $10,000 CD player and my analog rig follows if you ask you can’t afford it. Worse than that I like tube sound and own hundreds of new old stock tubes that I keep telling myself to sell from Germany, Holland, UK, and USA. If I sell them my profit will be 500 to 5,000 % profit. Very few care about sound and I don’t care about video but have a 100 inch screen/projector not turned on in over 2 years. AAPL already knows how to make the most money and they can make a lot more by not giveing what is undetectable just like the ipod. I have a cell phone and drum roll!!!! never sent a text message or gone on line, no cable or satellite TV. I don’t use facebook, twitter, or you name it because I think it leads to mush mind, what used to be called being stupid. AAPL is greedy and will as always maximize profits, ATT anything doesn’t work here but I will be shown by too many when I visit easterners soon what I am missing. Want to buy a house in paradise, cheap, will consider trades! ANYONE!


  132. chaps, ordinary brokers give leverage 4x?


  133. Hi Phil, I hope you’re soon off to the airport regardless of the phone call, just because…. and isn’t Dylan great? I love his passion and enthusiasm!!!  You and Dylan would be quite the ticket in 2012….  ;)


  134. Sold Rimm 42.50 Sept puts at the close for .81.  Good premium and a 10% downside cushion in the stock.


  135. @3:57
    Anyone:
    Received alert from Phil on possible 250 drop and a bull call spread which bore no tag.  Does anyone know which call letters he is referring to?


  136. Phil
    Now I know why Dylan has a show at Snow King instead of Jackson Hole Ski Mountain!  I am missing nothing on TV and will miss the concert also!


  137. ravalos; re: how different do you think is the risk associated to a short strangle on an individual stock to owning the stock and facing the risk of a ver bad news hitting the wires that simply plummets the stock significantly overnight? Does your aversion to individual stocks simply mean that you don’t play individual stocks at all using other strategies?
     
    I do lots of trades on individual stocks. The problem with options (on stocks or indexes) is potentially losing track of how much risk you’ve actually taken on. This can be compounded by margin in general and portfolio margin in particular. So, you can get into a whole lot of trouble with options on either conservative or risky underlying instruments. Just like with owning stocks, you just have to be really clear about where your risks are.
     
    Phil generally deals with this by only selling puts on something one is able and willing to buy. But margin, of course, let’s you sell much more than that. That’s the issue.
     
    Never’s point is that indexes are less volatile than individual stocks. So if you compare your risk on a short strangle on APPL vs SPX, where you pick the same expiration month for both and sell your strikes at the same percentages out of the money (e.g., 15% down on puts, 10% up on calls on September options), the AAPL trade is considerably riskier.


  138. Never / Chaps:  Thank you for your detailed explanations.
     
    Never: 3%-4% per month?  That’s great!  I got burned so badly in the last 6-7 months (first by the market’s relentless up and up and up, and then the sudden drop & the fat finger day) that I now become so overly cautious.  My target now is 0.5% per month, a real low target to allow myself to rebuild my confidence.


  139. Chaps/Never – Thanks for the clarification on your stake in short strangles.. I do believe you should integrate/consider the scenario where all the stocks you sell shorts on would eventually get assigned to you to understand the maximum risk you are taking. Not so clear with the short calls since your max loss could be unlimited. However I also think that in dealing with indices your risk is indeed lower but so is your return since volatility is obviously lower.
    I follow a similar strategy than you but I do it with individual stocks I’m quite familiar with plus ones I would really like to own at the short put strike prices for the long run. The risk I’ve been trying to mitigate is the upside risk with the short call side.. what I do is after entering a short strangle, I wait until the stock takes a dive so I can cover the call side of the strangle. The put side I leave it open since I want to own the stock at the sold put’s strike price.


  140. Chaps- thanks for the detail . I will have to play with this a bit more. I have been using Peter’s rule of thumb for strangles but need to get more precise. I still have some Dec strangles to which I had to roll on the infamous fat finger day so I am keenly aware of the pitfalls and do not want to make the same mistake.
    Given the market conditions and outlook it appears to me the best way to make some money consistantly is via the strangle route.
    Thanks for your patience and assistance.


  141. pahurik: In the US, there are two kinds of margin: "RegT" and "portfolio margin," the latter being relatively new, at least for individual investors. The general difference between the two is that RegT applies a margin rule to each individual component of a complex trade (e.g., this is the margin requirement for the short put, this is the margin for the short call, etc.). Portfolio margin looks at your overall trade and computes margin "on the whole." It’s more complicated than that in reality, but that’s the general idea.
     
    Individual brokers can then decide how they want to adjust the margin calculations, given the kind of margin you have. So I don’t know if 4X is a good rule of thumb or not. I think most people here have found that TOS and IB give the most favorable and coherent set of margin rules. Both offer portfolio margin. Many other brokers don’t.


  142. Weird day; I kind of expected a weak rally; but not this selloff on relatively low volume ?
     
    What (if anything) sparked the 3:15 selloff to the close.  AAPL very weak, but also low volume.  I sold a couple of Sept 230 puts.
     
    Mocha / HK …. no idea at this point;  I own enough of that stock and am down on all of it.  The only silver lining is that I have continually been selling covered calls; although now the near term premiums suck !
     
    Matt — missed you in DC/VA this weekend ! 


  143. cwan120
    I actually made  great profits until April but similar to you lost my ass after that. I could not understand Phils hedges or when to make them while a Broker kept telling me the market is only up. I am down $50,000 and only seem to tread water for 3 months. My only profits are day trades and 4 spreads, all stock or covered calls have lost more than $50,000 and that is almost 20% of my total. I also believe the day trade system was busted  right after I explained the system to someone. I am very good at spotting new trends and trying to form a new system but will never give a short accurate account of it on line. Beware the spys both human and machine. Matt also admitted to me losses, we will overcome this and not make the same mistakes again! NEVER QUIT! Machines are fast but stupid.


  144. Chaps, I have IB account.  I think open firm account, but next year individuals in my country not pay income tax before you take money from account. Firms pay income tax only then you pay dividens. If all money use for firm costs and etc, no tax.


  145. Does anybody here use PCLN ?   I don’t.
    How about Orbitz or Expedia ?  I don’t, except to check prices or schedules, then book w/ airlines or hotels directly.


  146. Cap, I use PCLN 2 times then I visited USA. Its work very nice, for exmple I stay in march luxury resort in Palm Springs for 80 +tax and Beverly Hills Hilton 85+tax.


  147. Also I use PCLN some times in Europe, booking.com is ok too, you not pay before and can cancel hotel free.


  148. chaps, you are such a champ today with all the excellent answers!  I’m on the other hand, just checking in after endless Monday morning meetings!
     
    Of course, never and chaps are right regarding the topic of staying away from individual stocks for short strangles.  Their option premium is not high enough to take the risks.  With regards to buying the stocks, the brokers let us leverage 2x with the 50% margin, while they let us leverage 5x with 20% margin for short options.  Portfolio Margin is 1% to 12% at the max, resulting in a leverage of 8 times or more.  A 20% drop in the stocks can wipe out a short option sellers in Reg-T accounts if they started out using the full margin.  So cwan had the right reasons to be cautious as ones need to live through the fat fingered day in May to know how significant a 10% drop in the indices is to the rise in VIX and the short positions.  Let me digress by saying that we should propose a scheme to have VIX measurement stays constant at 35 so that it’s most beneficial to the short option sellers, and we don’t need to deal with discussing VIX!
     
    gucci/9:33 AM post,
    chaps did respond to your question already.  The -15% for September puts wouldn’t give you much premium, only about $2 for selling SPX Sep 920 puts.  Combining that with selling the Sep SPX 1150 calls, we’d get about $3.  If you do 10 contracts per $100k, that’s a 3% return.  Although the PM margin for the 920 puts would be minimal, the margin can grow to 12% At The Money, which is approximately $102,000 at SPX 920, plus some paper loss built up in the put value.  So you’d need to roll the short puts way before SPX would reach 920.  Alternatively, 5 contracts would give you a 1.5% return and allows a chance to roll the 920 putters 2x to 890 putters.
     
    But it’s not that simple.  The same SPX 920/1150 short strangle for October is $14 (compared to $3) for September!!  This means that we are better off being in October than September if we want to be -15%/+8% OTM.  The equation is reversed when you are closer to the money as you’d get more credit for September.  Depending on what you want to do, there are plenty of scenarios to chose from.  As we often say, selling premium is more of an art than science. 


  149. Just returned from a quick lunch with a friend at the 19th hole ( aka -The Tap Room) ) and I see you guys sent the market down  That’s OK – I’m mostly in cash, and frankly bored to death with the activity. This is one hell of a lethargic market!
     
    Phil / DAL … Thanks- check it out for us. I understand the on-going consolidation is allowing the carriers (those remaining) are experiencing opportunity to raise fares. This should be very nice for Delta. Flights are full and they are managing the company very well, even though the economy is not co-operating. Good price today, IMO
     
    Lionel / JPY …. this correlation with the 10 yr treasury yield ( interesting overlay, eh! ) is but one signal. I do believe the opportunity to go long on this pair is not too far in the future. Your strategy has a lot of merit, factoring time expectations. I have this one on my "active" watchlist. I can’t wait for the summer to end, as I think the fall season will bring in some volatility and end the boredom, that is so common this time of year.
     
    Cwan / Oanda … I believe they are based in Singapore, and closely affiliated with one of the major banks in Singapore. I do not believe they have a presence in the US, but they do have a significant position in the Canadian FX market. Opening an account is very easy – just the usual questions, but no hassles that piss you off before you even get started..


  150. pahurik… you mentioned taxes and it peaked my interest. I am not sure where you are domiciled, but I think there is a lot of disparity in the tax policies of each country when it comes to tax withholding and reporting to the tax receiving  (snatching) agencies.  The Forex market, which is the largest market in the world ( $4 tril/day ) is taxed differently in so many countries.  Many brokers do not even bother to share trading history with many of the governments, and I assume this could apply to equity trades in some areas.  Switzerland is very secretive about their bank/broker activity, when some nosey guy with a briefcase shows up with a bad case of jet-lag.  How does your country handle these matters?


  151. cwan & shadow,
    I’m more than glad to say that I’m up 10% since the before the fat-fingered day, and hovering near 17% overall this year.  My portfolios did take a deep dive in May, but I hang on to the shorts as I knew a black swan drop is possible from the simulation that we did last year.  It’s all part of being the house in the casino after a big win by a players.  As soon as the market came back up, I moved the putters down further and flip some to the callers side, and the resulting ride has been smooth with 14 straight winning weeks with short strangles.  Now, I only have minimal positions, something like 3-4 SPX contracts per $100k, so I like to see Matt’s pink color more often, as that’s the only color that will bring VIX higher, resulting more profit to the short strangles.  We are so ready so sell more into the higher VIX! 


  152. Gel, I live in Estonia and for firms its 100% clear in our country. You dont pay tax before you take money from firm. I think our system is unique in the world. For individuals its more difficult, and you cant take off from profit  forex comissions costs…but next year individuals can report that they have investment account and you pay tax then you take money off from investment account.


  153.  Shadow/
    I had the same problem, but now I got all my money back, just start understanding portfolio composition and how to hedge:
    I split my long positions 50/50: 50% conservative buy/writes with about 30% per year potential and 50% with artificials with 100% potential – so av. 50-60% 
    hedges:
    I love to sell SPX and RUT calls as a hedge when market is toppy (premium about 5-8% of portfolio), if market continue to go higher, I’m very happy with my longs, margin of short calls will increase but margin of longs will drop, and I will double calls and move them higher and may be move to next month.
    with ETF hedges, I found that it is very important is not overhedge. let say that I bot EDZ vertical and sell put, size of position should be calculated: if you loose $1000 of hedge, your longs should make about $10k, but if market dive and you loose 10k of your longs, your hedge should compensate about 3k, which you can use to adjust your longs.


  154. Cap,  shoot!  I forgot about your trip!  I knew there was something going on for it.. but then my wife said she had plans to go out with a girlfriend Saturday night and I knew then my options were limited anyway.  I hope you had a good trip.. even though the weather pretty much sucked.  Some amazing humidity Sunday morning, huh?  Let’s try again on your next trip.  Would still like to get together.  You too, Phil!
     
    I’ve found that by watching the 1 minute chart you can get a feel for the direction of the market.  There are spikes of volume to the upside but they are short lived.  Then, there is a fairly sustained volume to the downside.  Those multiple minutes of selling can easily make up for the spike in (their) purchasing to push the price up.  It’s clear they are pumping the market up to get the best price for sellling.   The overall volume is so thin that if they didn’t play these games they’d collapse it instantly with their sales.


  155. CAP – PCLN        
     
    I use it for hotels about 7-10 days a month visiting elderly parents in SFO.  I can get a 3* or 3.5* hotel for $44 per night + Priceline’s fees (about $10).  Same hotel goes for $160.
    It’s a great deal.


  156. Gel1,
    Oanda does have presence in the US.  It may be based in Singapore.  But it is registered with NFA (National Futures Association), registration # 0325821.  You can do some search at NFA web site here:
    http://www.nfa.futures.org/basicnet/Welcome.aspx
    This is good news, because it means that Oanda is doing serious business in the US by willingly putting itself under the regulations of the US govt.


  157. cwan / Oanda
    Thanks for "heads up". That does give credibility to the firm. I am mostly interested in having a Singapore based account for the purposes of having exposure to their research.  It, for me, would be one more independant source for cross referencing opinions, as well as the exposure to data that is regionally dominant. The countries are so closely integrated in Asia, as they trade prolifically among themselves, therefore currency values are very closely watched at all times. I appreciate the link.


  158. pahurik – tera!…. Thanks for explanation regarding your tax policy in Estonia.  In the end, the government does get what they need, regardless of the process.


  159. Peter D
    re: we should propose a scheme to have VIX measurement stays constant at 35
     
    JRW has Lloyd’s cell number. I’m sure Lloyd can arrange it. :)


  160. gel, yes, but we dont want tricks to minimize firm profit. (big depreciation and etc) If you develop firm, you dont pay, if you want money for indivdual needs, you pay 21% tax.



  161. chaps
    If you can make anything constant please do it now, like patience I want it NOW!


  162. pahurik… Thanks!  Your system is supperior to ours.  Your system keeps the resources at work where it is needed for growth, and taxes the income used for personal needs - that really makes sense. The US has one of the highest corporate rates, and this is contributing to our limp recovery.


  163. gel1
    You are wrong, income taxes on personal needs is a regressive tax that excludes the rich excessive income, that not needed to survive. Our tax codes have been pushed to an extreme in your favor dispite that taxes are allowed by the ability to pay by your forgotten law. This that you preach is BS and I advise you to move to Estonia, Korea, or whereever you think life and taxes are more in favor of you becoming a responcible hero. You are also useing Phil’s knowledge to rip off and profess your views to brainwash the rest to your precieved superiority. Please leave this blog and leave the country ASAP! This crap has been professed since Reagan and it didn’t work then or under your hero GWB, lipstick on a pig is still discusting and out west where there are no unions we believe the sheep are nervious. Then as you preach let the sheep beware. I sugest you start collecting guns and even more amunition, you will need it or leave the country!


  164. CWAN120:
    I too got my ass handed to me over the past three months and have become "gun shy" with any trades I do or try. I joined PSW because I wanted to learn more and be able to read and digest what others are doing to stay on the winning side. For what it’s worth, I appreciated your honesty. Sometimes I feel like I am the only one making less than successful trades! Hopefully, I will be able to contribute something worthwhile here. For now, I will simply watch and learn. Thanks to all, especially Phil, for allowing me to read your thoughts and advice. A break from ME is what I sorely need!!


  165. dclark41
    It is my oppinion that there are more BS reporters than truth. It just turns into why is everything working out great for those with more money than god, the answer is they are the ones that can afford to loose and why they belong to this site is their desire to do as you and I, turn the truth around into an acceptable story of limited success. These peolple will never say what they win or loose or what they own or what they are worth. Members who preach better deals elseware should join gel1 and move to greener grounds in other countries. And don’t let the door hit you in the ass on the way out!


  166. That’s a very interesting set of standards Shadow.  I was in the Akihabara District in Tokyo and they have the most amazing tube sets in some of the shops – many of them totally mint and sealed in shrink-wrap for decades.  They also have repair shops in the back alleys that can fix anything or sell you the parts for anything - really amazing stuff and I’m sure you can order kits on-line somewhere.  I was thinking it would be cool to export what they have there to audiophiles around the World because, as you note, the mark-ups can be intense. 

    Airport/1020 – Yes, sadly I had to book a 1pm flight tomorrow (one-way at that).  It’s going to be a crappy week

    Hedge/Flipps – That was DXD.  I’m pretty sure the Email had it in the title but I screwed up and left it out of the body.

    Sell-off/Cap – Note the newsflow from my 3:53 comment, all those items came out in the 3pm hour – relentlessly negative.  You are right about premiums, now they are way too low.

    That’s another point about the buy/writes that I forgot to mention.  Another reaon we lean towards buy/writes when the market is down is not just because the stock is on sale, but because the dividends are simultaneously high.  As the market goes higher and the VIX dips, then the artificial buy/writes get more interesting but, when the VIX is high, then the zero premium you pay to buy the stock vs the huge premium you are selling your written puts and calls for is an opportunity we don’t like to pass up because we don’t know if we’re going to get that kind of deal again

    Day trading/Shadow – As I said in the dividend article, I am not a fan of day-trading capital that is important to you.  It is very easy to make 15-20% with a fairly conservative strategy but adopting a risky strategy and losing 20% means you need to make 30% two years in a row just to get back on track.  That, of course, leads to more risky behavior and possibly an even deeper hole- the whole exercise is just not worth it.  Concentrate on learning how to consistently make 1-2% a month and, when you string a couple of good months together – then take the excess profits and have some fun.  It might make your days a little more boring but, long-term, it can be very satisfying. 

    PCLN/Cap – I don’t see how people use that for airfare.  You tell them where you want to go and they get you there SOME TIME on that day but they could have 1 or more stops so you could book a trip to Vegas and end up leaving JFK at 9am and heading to New Orleans, then Seattle, then Vegas around midnight and you have to agree to this blind without seeing the itinerary.  You have to value money way more than your time to do that!   For hotels it’s great – very sensible, there’s a room and you get it. 

    Airlines/Gel – Well the 1pm CAL flight I’m on only had 5 open seats, that’s pretty packed for mid-day during the week.

    Nice rundown on your allocations Tcha – thanks! 

    Shadow, you personal attack on Gel is completely uncalled for.  I don’t believe he said an unkind word to you.  Try to stick to facts and not make things personal.  I know you can be better than that!

    Gel, their superior system has a 21% flat tax AND a 20% VAT – I would LOVE that.  It’s not that our tax system is too cheap, more that the people who make 80% of the salaries and the corporation that make all the rest of the money in our $15Tn economy don’t even pay a total of $1.5Tn in taxes betwen them (10%), which is indisputably obvious as the government only collects 2.2Tn in total taxes and $800Bn of it is SS, which is only paid up to $106,800 so is disproportionately a tax on the bottom 90%.  So really, think about it, ALL the Coprorations and ALL the people in the top 10%, who draw $3Tn in salaries alone pay a total of less than $1.5Tn – that is simply ridiculous.  If they paid 20%, it would be another Trillion so it’s not really a question of taxes but the loopholes that people use to avoid collections.  I can see where people might get frustrated when you parrot things like "the US has one of the highest corporate rates" – what’s the difference what the corporate rate is if no one is paying it?  $138Bn – that’s all corporations paid in 2009.  You can call the corporate rate 900% if you want but the fact of the matter is, if all that gets them is $138Bn – then they still need to raise it! 

    School/Kustomz – OK, that is a bit whacked! 


  167. Sry to hear about your stepdad Phil, hopefully your mother-in-law is holding up fine.


  168. shadowfax… I do not have a clue what you are saying – but whatever it is, I’m sorry you feel that way.


  169. Phil… Sorry to learn of your Step Dad’s illness. That is a tough one… don’t worry about us… we’ll just put it on auto pilot and do just fine.


  170. Phil… While reading pahurik’s link to the tax system description in Estonia, it struck me that you would go for the flat tax coupled with the VAT tax. I like the idea, and it seems to be working. I don’t know if it would support our defense budget along with our entitlements though. Our Treasury Department should make a study of some of the alternative tax systems throughout the world, if only to seek new ideas.


  171. Phil – Sry, I hope your MOM is holding up fine! Not really sure where I got the mother-in-law part…


  172. matt – no problem; next time sounds good.
     
    edro – PCLN – thanks.
     
    News from Denmark – even the socialists are getting some religion – as in too much socialist welfare religion.  Denmark is changing its Unemployment benefit security blanket from 4 YEARS – to "only" 2 YEARS.  Hey, its a start. 
    Even the socialists are starting to realize that they are running out of other people’s money !


  173. Good article on the debate over the Bush Tax cuts.
    http://www.americanthinker.com/2010/08/paul_krugman_is_a_liar_does_th.html
     
    Paul Krugman gets skewered (and as Phil gets some of his arguments from Krugman, I guess Phil gets skewered too !  :wink" )
     
    Krugman and NY Times bashing aside, there is some very good info here; and y’all should read this as it counters a lot of the disinformation and demagoguery being promulgated by the Dems and their media mouthpieces.


  174. Safe trip Phil, hoping for the best.
     


  175. Sorry to hear of your stepfather’s illness.  Hoping for the best, and a safe/speedy return. 
    I took the Aug DXD 26/28 hedge when you first posted it, and it filled last Friday for a nice profit.  Thanks, and good call.  I didn’t ccapture the full value of the trade, but enough to make it more than worth my while.  Plus, the peace of mind was quite nice.  Now just need to take some of the profits and put them towards the Sept hedge as I am not bullish.  Not totally bearish because I think the overwhelming bearish sentiment acts as a counter-intuitive floor, so what I feel may happen is we get trapped in a very tight range till September when people come back from vacation.
    Peace.
    Trav


  176. I meant exercised/expire, not filled…sorry for confusion.


  177. gel1
    Sorry, really what you claim to not know is you blame others for what your beliefs caused. In primitive times your ideas prevailed but humans were lucky to live. No obligation to contribute to the general welfare of Americans and not greatful for the wealth that other people have given you. Unfortunately what you believe directly effects me. Your beliefs are an unequal distribution of poverty and wealth and that is just too bad for most. I paid into systems and insurance that did not pay up when they should and you day after day say the problem is people like me. This is an insult to me and all that strugle. It goes way beyond political view, what makes you deserve more? Last week you made a patriotic comment but don’t support it with dollar votes. How much does America spend to keep you safe? The more you have the greater the cost and that is one reason you should pay more. I believe you understand regressive taxes and do everything you can to maintain them. Why do you really want offshore accounts?


  178. Shadow, its called self preservation and a persons perspective depends on which side of the fence they sit on. Its human nature to defend whats his/hers, when the have nots kick and scream they want more from their Gov what they are really saying is take from those who have and spread it around to the have nots. I sold a property worth millions, the taxes payed on the sale made a grown man cry (me). I felt as though i was beaten mugged and shaken down by the mafia, explain to me why i had to pay such high taxes? Could it be all those Gov programs that do more harm than good? Could it be that my taxes helped pay for all those lazy Gov workers?

    Taxing us more will do nothing for you and will only help bloat an already bloated Gov. People need to get this through their thick skulls…the Gov is a wasteful entity….focus on our wasteful Gov before lashing out at people that worked in some cases 24 hours (me) when needed and lived below their means to have something to offer their children someday and not for it to be stolen by a greedy Gov and some of her citizens that for whatever reason have not excelled in life (not my business),  but dont expect me to give up what i worked so hard for without a fight!

    The disgust I suffer in regard to Washington and her policies can not be expressed without blowing a gasket. When will America open her eyes and see whats happening? They have sold our future and this country’s soul (manufacturing) to the multinationals so they can rape and pillage the poor of Asia. Washington could give a damn about its citizens plights! Stop crying for higher taxes and start screaming about wasteful Gov spending!! Focus people!

    Its easy to say you want more when your on the other end of the spectrum but going out and getting it is a different story. My father came to the US in 1970 with 20 US dollars to his name. He grew up in a home the size of most bathrooms in a nice middle class neighborhood nowadays. He wanted more from life and did not look to the Gov for a hand out and he did not ask (beg) for higher taxes from those who were successful. My brother and I grew up alone as both my mother and father slaved to give us a better life. It took years of sacrifice to get where we are today and when you come rant on this site like its your G-D given rite to take my money, it makes me furious!

    What did we think was going to happen when the Gov took away any chance of creating a successful business in this country? Im not talking about IPhone apps. Im talking about buying some machinery and creating something of use, like maybe clothing, sneakers a key chain for Pete’s sake…you cant even produce those rubber bracelets in this country!! What is wrong with you people? Focus!!! We better change whats happening to this country, its not too late but its damn near close! I got a question, how many of the less fortunate could be helped by not buying and extra 40 F-15′s? How bout we start there before you hang us in Times Square and empty our pockets to better humanity. Focus!


  179. You can only tax to the point where the majority of productive people lose their inate incentive to produce.  Beyond that you have a failed state in the making. 
     
    It’s interesting to note that the states with the highest per capita deficits in this country are predominently lefty ones.  New England states and California come to mind.  A glaring example of poor financial stewardship and never having enough money to spend.  Not that neo-cons are any better. 
     
    kus, where did your father come from?


  180. The arguments for and against taxes are all academic and ultimately futile, a venue for venting frustration and anger being the only soporific to discussing the issue. The fact is there are ever more people on the earth with nothing to do. At least nothing productive, in the classic sense, to do. These people will not be wiped out by the billions, but will only increase in number without a man-made or natural event to stop it.
    Whether it is the issue of humans born to two people with average intelligence, or below average intelligence, by the many hundreds of millions (placing them behind the 8-ball right from the start), or a national education system that favors the teachers’ and administrators’ comfort over the learning in children, or a government inhabited by bureaucrats who are in public service for purely selfish reasons, the problems are essentially embedded in the system and not going to go away.
    The taxes on the  incomes of the most productive MIDDLE CLASS workers are going to rise to unheard of levels and there is little or nothing to be done about it. While Phil argues that the middle class needs relief, the truth is the middle classes include people making arguably 50,000 to 400,000 per year. Who, earning $50,000 a year thinks that $400,000 a year is ‘middle class’ income?
    Those taxes on the middle class, (in opposition to what Phil thinks) are going to provide services and livable incomes  to the ‘least of us’ and the really rich are going to escape to other environs or protect what they earn or win, at all costs.  So the burden if going to fall on precisely the people Phil writes that he is trying to see get a better deal.
    Phil uses the middle class argument to favor taxing the rich. But the middle class is the widest (but shrinking daily) swath of income that moves thru the economy and therefore those trillions will be nipped at, at every possible moment that it moves from one checking account to another, or if it sits idly attempting to earn interest. The politicians of whatever stripe will see to that.
    So argue on about it, but at some point the day will dawn when it must be accepted that a movement to the left that began in 1913 that has proceeded apace since then in fits and starts, will ultimately result in 70% taxation from all the confiscators for anyone with a decent income. Bet on it.
    The government will grow more departments to hire those who are unemployable in any other industry. It is the growth industry of the 2000s and beyond. Whether it is defense, administration, or some other bureau to handle other bureaus screwups, if you have children you might want to advise them to work for a politician to get the inside track on a government boondoggle.  Had I realized that government would become such a lucrative place to work and make priceless contacts, I have no doubt where I would have put in my first application, and worked tirelessly for any political hack that had a chance of winning an election.  I must have been the issue of two below average intelligence people to have missed such an obvious opportunity or too passionate about keeping what I earn in my own business and railing for years about how unfair it is to have to give increasingly 50% of my income to the government to waste on $700.00 toilets and bridges in Alaska that go nowhere.


  181. Europe weak.  Futures looking weak.  We could be on the cusp of a free money day to the downside.  The big moves down come quick when few people are expecting them.  I am. 


  182. Gel, I called you out for crossing the line on the Jewish analogy the other day. I now commend you for turning the other cheek from the mud Shadowfax tossed your way, and refusing to counterattack.  A sign of character. Kudos.
    Speaking generally, I feel like the chat has gotten really chippy, personal and nasty these days.  I’d suggest folks consider dialing-it-down a little, but I’m sure some will will get cheesed off and call me a commie or something.


  183. Phil,
    I just want to send out my thoughts and prayers and hope everything works out for the best with your Step-Dad. As someone who lost his Dad four years ago this September, I know what a terribly hard time this is. 


  184. Good Morning!  Time to start looking for bargains. It’s amazing what a couple weeks away from the market can do for ones perspective. We could have a bad day because of Europe and possible bad housing numbers? I’m for grabbing the ads and a shopping cart……


  185. matt,
    You wrote:
    Europe weak.  Futures looking weak.  We could be on the cusp of a free money day to the downside.  The big moves down come quick when few people are expecting them.  I am.
     
    Seem to me that everyone is expecting it to the downside, kind fo scares me when you and Phil start to agree…