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Friday Fizzle – Skimming the Top of the 2.5% Range

 

SPY 5 MIN CHART

Was this a "good" week for the markets?

 

 

Yesterday morning I put out an Alert to Members regarging our level watch:  "Keep in mind that our 2.5% levels represent a 5% run from the bottom since last week so it’s natural that we get a 1% pullback from there so the key is to hold the 1.5% line – THAT will be our bullish indicator:" 

  • Up 2.5% (we hope): Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650
  • Must hold at 1.5%: Dow 10,353, S&P 1,086, Nas 2,233, NYSE 6,902 and Russell 644
  • Middle Range (MUST hold): Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.

As you can see from David Fry’s SPY chart, it was an interesting day and we did pull an aborted stick into the close which kept us over 1,100 on the S&P and 7,000 on the NYSE and , as you can see, our 1.5% lines did pretty much hold up as a bottom test, other than the Russell, which we had already given a pass to in the morning post as they’ve been so pathetic we’re just proud of them if they try.

SPY WEEKLY CHARTWe had shorted PCLN in the same Alert (congrats to all who took that one!) and the inventory report chased us out of our upside oil plays (but not nat gas) at 11 and that initiated the market slide along with, as Dave notes, a poor Treasury Auction that finally got TBT back over $33 (I had also mentioned shorting TLT several times in the past few weeks).  Is this the beginning of the end of the free money express - stay tuned for more action next week!  

This week’s action isn’t done yet and we still need to hold our levels.  As I said yesterday, the best time to take disaster hedges is when we’re testing our 2.5% tops, as we were in the morning.  The Dow topped out just over 10,455, tested it until about 12:45, then failed BEFORE the auction, the S&P topped out at 1,110 and held its 2.5% floor, the Nasdaq hit 2,255 on the button at the open, the NYSE also held their 2.5% line as a bottom, and the Russell fell hard but then played around the 635 line in the afternoon so we continue to watch and wait on that one.    

I am not TA guy but If I were a bear, I’d be pretty darned concerned about the charts as it looks to me like the 20-day moving averages are registering a short-term mistake in a generally rising trend.  If you hold these charts upside down, it does look like a head and shoulders pattern is forming so we’ll be looking for oil to pop up (but not too high – $77.50), gold to come down (but not too far – $1,150) and the SOX to hold 320 and get over that 340 mark (we picked up some Semis this week and I like USD, now $24.71, as a general SOX play). 

Europe and Asia are also looking much improved, with rising 50 dmas everywhere but Japan so EWJ makes a fun upside bet as that index is off about 10% since April.  EWJ is just $9.73 with the Nikkei laying around 9,200 and the March $10 calls are just .40 with a delta of .40 so they will double if the Nikkei gets back to their April high in the near future and, as long as they do it by March, we can hope EWJ follows back to their April high of .60.  Since the reasonable goal on a trade like this is to make 50% and the best expected case is a double – we should be quick to take a 50% gain off the table if it happens unless things look super-bullish

Copper is a very important indicator for us.  If they can’t hold their lines – then we get worried again.  Also we need to watch the Baltic Dry Index as they test that 3,000 mark, which provided good support in the spring.  Asia was up across the board this morning and China had a huge 35.2 increase in imports, which poped the Nikkei 1.5%, the BSE gained 0.7% and the Hang Seng added 0.4% (again) and the Shanghai bounced 0.26%.   China still has a $20Bn trade surplus but this is very good news with China spending $119Bn on other people’s stuff in August – a new record – and that makes all their trading partners a little bit happier. 

Housing prices in Hong-Kong are back to their 1997 highs and even Japan’s economy is slowing less than anticipated, with Q2 GDP revised up 225% to 1.5% from 0.4% although prices still dropped 2.5% in the quarter.  Prime Minister Kan rolled out a 920Bn Yen stimulus package today and everyone was very excited until they realized that was just $11Bn so back to the drawing board on that one… 

Europe had a rough open but recovered to flat as of 9am – there were merely reacting to our disappointing fizzle yesterday.  Greece’s budget deficit fell 32.2%, year-to-date and that’s well ahead of their 26.5% goal and on their way to a 39.5% cut for the year.  "The progress of deficit reduction has been temporarily hampered over the last two months because of a buildup in interest payments which amount to 40% of the year’s debt-reduction target," the ministry said in a statement.   Also improving in Europe, UK house prices hit a 6-month high.  This is good news for us as they began failing about 6 months before we did so hopefully we can follow them out of the hole we followed them into.  

We’re not expecting much from the markets today – lots of reading to do this weekend ahead of next week’s heavy data and there will be lots to talk about but, for today, we’ll just sit back and see how the indexes perform around our levels, which we’ll be happy just to hold into the weekend.

Have a great weekend,

- Phil

 


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  1. Phil and everybody,
    I am new here and just wanted to finally say hi and thanks for all the great stuff I find here. I am learning a lot and can’t keep up with Phil (he seems to write faster than I can read- or is it because I have to read it 3 times to get it ??? )
    Phil I would like to ask you a question about upgrading. Is it ok to send you an email through the administrator?


  2. yodi – help me understand when you said "the putter went up to 11.72 and that it still had 1.72 of premium left". (or something similar to that) Thanks


  3. msf – i have always had good response from Greg at admin@philstockworld.com    


  4. TLT/pstas – I don’t use any trend lines, I just eye it in TOS.  Here is a good one though.  I will let every one know when/if I decide to get in.  I want to see where we are headed today, although with the Jewish New Year yesterday and today, not much conviction on anything until next week.


  5. morxlntway
    Example RIMM @ 45 The 55 Jan putter is 11.72 so I am down on my putter 10.00 – 11.72 = 1.72 still premium


  6. Hey all,

    I have two new positions that are ready for action this morning in Dr. Pepper Snapple (DPS) and Computer Sciences (CSC). 

    Also, be sure to check out the article to read about the 11% gain we are making this morning.

    Check it all out here!

    Good Investing!


  7.  Anybody having problems starting TOS up. Can’t seem to get past the initial screen. I contacted them but they said everything running smoothly. Rebooted and still same problem. Anybody else or just me?


  8. TOS is fine here.


  9. Phil- Kudos where kudos are due. Although I consider yoy a dichotomy and an oxymoron as you are a HARD WORKING CAPALISTIC LIBERAL- my hat is off to you for your work ethic and your site. for anyone who complains about cost tell them to go to a cheaper site and get what they pay for- you are verbose if not prolific!-LOL!- a little of both my friend.


  10. fortep
    no problem with TOS here suny CANCUN


  11.  fortep
    No problem with TOS here.


  12. pstas/Oct strangles: I need to look at it carefully this weekend. IMO, strangles are entering the caution zone. If SPX can fully support 1100 and move up from here in conjunction with continued VIX reduction, I’ll be cutting back. Unless I can construct a combination of shorts with put verticals that I feel I can manage effectively with a 10% price pullback combined with a +10 or more VIX increase. That’s what I’ll look at this weekend. I’m not expecting much on that front, but you don’t know until you look.


  13.  Got TOS working. Was using a USB modem temporarily and for some reason didn’t like it


  14. Welcome MSF65!  I’ll try to write slower when I have time…  As to upgrading, yes, Greg deals with that stuff (I just work here!).

    How do you get that pretty chart Pharm?  I’d like to do those…

    TOS/Fortep – I just restarted them around 8 and no problem.  Maybe something went wrong in an update and it’s stuck? 

    Thanks Jthom (I think)!


  15. Hi Phil,
    Too early to sell puts on PCG?


  16. Phil / SKX  There was a 20% short interest, 7 m shares, most of which I suspect were covered yesterday at a huge profit.  Wonder how much it cost to buy a downgrade?  Based on my own store survey Sketchers is hot and ‘shape-ups’ are red hot with most customers intending to buy multiple pairs.  At less than 7x pessimistic fwd p/e and $7 a share in cash, with huge international growth underway, SKX is a bargain at these prices.  I bought another 6000 shares yesterday during the illogical panic.  Your put sale strategy has little downside.  As soon as Mgt and other analysts come out and reaffirms guidance this stock should bounce.


  17. Charts/Phil – stockcharts.com….although I usually go to Chartly Blog, b’c someone has already done all the hard work….!!


  18. pharmboy;
    read article on Arena on The street.com says 75% of hedge funds polled  think stock will sink and not get approved.
    For what it is worth, I think that because the drug lorcaserin is not shown to have heart attack risk like all the other weight loss drugs, Arena will most likly get approved.


  19. PCG will be a great short sale if they are found responsible…if they aren’t though…nothing will happen.


  20. Pharm- so, I take it you are not buying the recent uptick in TBT/donwtick in TLT? I.E., you see the yield falling further (below) the bottom channel line on the chart I referenced the other day (the 30yr yld chart) ?


  21. Hedge funds are short, no surprise there.  Safety and efficacy are there, the rest is up to the FDA panel’s gut feeling…..


  22. We’ve got wholesale inventories for July at 10am


  23. Second verse, same as the first:

    We’re still watching the same levels and using the 3 of 5 rule to guide our short-term trading so not too bullish until )(if) we pop the Dow AND the Nas, who were close but no cigar on Friday:

    • Up 2.5% (we hope): Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650
    • Middle Range (MUST hold): Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.
    • Down 2.5%: Dow 9,945, S&P 1,043, Nas 2,145, NYSE 6,630 and Russell 619

    Let’s see what holds up.  I liked the SQQQ as a cover yesterday as the Nas seemed most likely to fail and that was at $53 (now $53.45) so still pretty good and we looked at the Oct $55s at $3.90, now $3.60 so you didn’t miss anything and the idea is to hopefully cover them with the Oct $58s, now $3.20  for $3.90 or better and that makes for a nice, free $3 spread to hedge against the Qs.  If they begin to fall, they can be rolled lower and puts can be sold so it’s a nice, adjustable hedge you can stick with through the weekend.

    TBT looking strong, that’s always a nice sign (as it means money is in demand) but remember it’s all about RUT 635 and copper $3.50.  Also, I still like watching that $263 line on AAPL as an indicator of Nas health (they are 20% of the Nasdaq).

    Volume is low and meaningless again today so the real action comes next week, which should be fun.

    At the open: Dow +0.15% to 10431. S&P +0.13% to 1106. Nasdaq +0.19% to 2240.
    Treasurys: 30-year -0.26%. 10-yr -0.18%. 5-yr -0.05%.
    Commodities: Crude +1.75% to $75.55. Gold -0.56% to $1243.90.
    Currencies: Euro +0.07% vs. dollar. Yen -0.45%. Pound -0.24%.

    Stock futures edge higher on little news ahead of an 11 a.m. Obama news conference. S&P benchmark +0.3%. European bourses fluctuate on banking concerns ahead of Basel III and Deutsche Bank’s reported plans for a huge stock issue. Asian markets closed mostly higher. A light economic calendar today, led by wholesale trade.

    Potential Basel III hangup: U.S. and German regulators are fighting over how much time to give banks to comply with new capital requirements. The U.S. wants five years, while the Germans push for 10. “The longer time they have," one analyst says, "the less banks will be forced to raise capital and can instead turn to earnings for replenishing capital."

    Mastercard (MC) says it expects China to overtake the U.S. as the world’s largest credit card market by number of cards by 2020 because of the country’s fast urbanization. But that doesn’t necessarily mean Mastercard will benefit, as China UnionPay Ltd. owns a monopoly on processing card payments.

    Nouriel Roubini’s new "Paradise Lost" article seems to dare other pessimists to out-gloom Dr. Doom, Ryan Avent writes, but Roubini and co-author Iam Bremmer are missing a couple of big reasons for hope, in technology and developing countries.


  24. Yes, I think yields will fall further (increases in price), and TBT will be below 25… Wall ST. wants money in the market….but why are people withdrawing from funds and putting it in bonds?  Low volume upticks are just a farce in my mind. 


  25. Chaps, would you mind posting what you come up with on the short strangles next week.  I am very interested in your opinion moving forward on the SS.  Thanks.


  26. Chaps- thanks, I am of similar thinking re: strangles right now. I am just not seeing these levels holding. Would be much appreciated if you can share the results of your analysis over the weekend.
    Related to this issue, assuming you just don’t see the risk/reward for strangles near term, do you switch to something else or just wait and see?
    Thx


  27. hi phil – EOG spread filled at eod but not put. Shall i take what i can get and wait for an op to sell an extra put or 2 later?


  28. PHarm, how do your arrive @ 25 for TBT?


  29. INTC   What do you think of them for a buy/write?   The Jan 12 17.5 P&Cs = 5.25 which brings net cost down to 12.75


  30. Technically, it is a WAG, but drawing a trend line on the dailys from TBT high of about 60, ignoring the noise in here, and thinking if the 10 yrs and 30 yrs fall another 300-400 basis points, that puts TBT in the 25 range. Being an Ultrashort, its decay is a bit faster than others.  It will take some time, but I still think the yields head lower.


  31. Dia mattress into the weekend — do you leave nake jan 104 put or with some cover – thx


  32. takeover roomers on stec
    dell mentioned
    anyone follow this stock?
    dell probally itching to buy someone, have no idea how viable a candidate stec is but should get some mo/mo trading today


  33. I like David’s DPS idea, someone remind me to check on them next week.  Hopefully they test the 200 dma at about $34 and then they’ll be very exciting.

    PCG/JG – If anything, it’s a buying opportunity when news like that tanks a stock.  A gas line blew up – it happens but it’s not fatal.  Either that’s it and they head back up (nice 4% dividend in a recovering part of the country) or they are found negligent and go down further and then they make an even better buy.  In an old town like SF though, there’s not likely to be any fault by the gas company in a blast unless it was a recently installed line. 

    SKX/Tusca – Reading the comments by two analysts yesterday, I took it that the bearish girl has no actual retail experience and doesn’t get the concept of either a product roll-out or even what a holiday sale is so I’m pretty much discounting her entire bearish theory.  You can still sell the Jan $22.50 puts for $2.85 and I still like that trade for a net $19.65 entry.

    Stockcharts/Pharm – Oh, you didn’t make that?  I want to learn how to make my own pretty charts like that. 

    ARNA/42L – Well approval is pretty much priced in at the moment and The Street is famous for being clueless.  If you want to play them, the April $7/11 bull call spread is $1.15 with the stock at $7.19 which should clear easily if they get an approval and, if they don’t, you hopefully can get out with a .50 loss or, if it’s just a set-back, you can sell puts and roll.  

    Yield/Pstas, Pharm – Demand for money is picking up.  All these M&As need to get funded and bond yeilds are not attractive enough to bring in capital without fear so any loss of global fear is going to drive rates up.  The CB’s can try and try but, eventually, the dam breaks and rates rise. 

    10:00 AM On the hour: Dow +0.23%. 10-yr -0.25%. Euro +0.03% vs. dollar. Crude +1.67% to $75.49. Gold -0.19% to $1248.50.

    Jul. Wholesale Trade (.pdf): Inventories +1.3% to $405.0B vs. consensus of +0.4%, +0.2% (revised from +0.1%) in June. Sales +0.6% to $350.1B. Inventory-to-sales ratio rose slightly to 1.16 from 1.15 in June.

    Losses in the chip sector pressure tech stocks early, after Texas Instruments (TXN -1.5%) and National Semiconductor (NSM -5.2%) lowered Q3 guidance after the bell Thursday. Both companies cited weak demand for personal computers and other devices that use microchips, and NSM said consumers were not spending as much as expected.

    Dubai World says it has gathered 99% support among creditors for its proposal to restructure ~$24.9B of debt. The announcement comes after a deadline expired Thursday for Dubai World’s senior creditors, holding around $14B in debt, to accept a lockup agreement.


  34.  Phil,
    I have a couple of disaster hedges expiring next week and am looking for replacement insurance. As I recall your advice this "insurance" should be taken out when the market is looking positive (like now) rather than when all hell is about to break loose. With this in mind, how do you feel about SQQQ Dec $49-$55 Bull Call Spread mostly paid for by selling the Dec $40 Puts? Looks like pretty cheap insurance?
    Thanks


  35. stec moving quickly right after my 1015 post
    you guys jump in there? lol
    I did buy some oct 12 for .80
    like those quick movers
    lucky


  36. Humm, inventories rose, revision also worse…..hummm, what does that mean?  It means that we ain’t buying.  Going to put pressure on prices, etc etc etc.  August is gonna be ugly if we get another 300% miss!


  37. Pharm – have you started buying protective put on the ARNA stock you own? Or are you getting completely out next week?


  38. rwvj5
    Optrader has done STEC before, they have been much higher recently, give them a reply.


  39. Just sold some PCG Oct 45 Puts at $.95


  40. Pharm- "Technically a WAG" – I love it. I have always subscribed to the notion that one can gain 80% of the knowledge needed for a decision with 20% of the effort. More than that leads to dithering.
    So, the old saw is know what you know but more importantly, know what you don’t know. For now, the trend is your friend but at some point these long term yields are not gonna fly. What I don’t know is how to define the pivot point?


  41. rn – I am holding the stock until next week.  I will continue to buy verticals into it as well.  Protective Ps will come next week.  I still think they pop Monday and/or Tuesday, then one will have do decide how much they want to keep into the FDA. 


  42. LULU flying, nice call by David!  Testing $40 now.

    EOG/Morx – Unles oil breaks over $76, you may as well wait for the weekend as there are no hurricanes at the moment so maybe they go lower next week.  If not, your bull call spread will be in good shape so no misery to get a bit less for the puts. 

    INTC/Eph – Absolutely, $12.75 is only about 10% over the crash lows!

    PCLN coming back for us but no play if AAPL is over $263 and the Nas is looking strong. 

    Hedges/Cslan – I hope they are not losses!  Before those hedges get stale, it is best to roll them.  Yes to the SQQQ play but $40 isn’t that far away so why not hold off on selling puts UNTIL it moves against you.  If it goes your way and keeps going, that spread is goof for 200% on it’s own so why be greedy? 

    STEC/RW – Nice call!

    Inventories/Pharm – Er, maybe it means the stores ordered the fall lines in anticipation of selling them…  It has been know to happen.  There is this sudden pre-supposition that Retailers don’t know what they are doing but the dumb ones have been culled from the herd and the ones left are pretty sharp cookies, for the most part.  Also, they are as scared as anyone and they are damn sure not going to be ordering stuff they don’t firmly believe they can sell – especially in a tight credit environment.   Don’t forget June it the  month we were paniking in July about and sales were UP 0.6% to $350Bn so they pushed inventories UP to $405Bn with a less than 1% increase in inventory to sales ratio – which is what really matters in that report. 

    So I like the report and I’m tired of this attitude that people have (everyone, investors, analysts, pundits, etc.) that everyone else is an idiot and doesn’t know what they are doing.  There are plenty of smart people running companies as well as (gasp!) working in them and the bottom 10% or more of most corporations were fired.  Does every think they fired the best 10% and kept the rest?  So corporations are now "smarter" than they were and they are more experienced than they were handling this economy and they are getting used to the "new normal," such as it is yet everyone acts as if they are totally clueless and are constantly making critical errors that will lead to disaster. 

    The same goes for politics but let’s not get into that now.  Perhaps it’s because I was paid to fix business problems in my previous life and I’ve consulted with hundreds of companies and quite a few governments as to how to fix things WITHOUT cutting 10% of the people (which was not usually on the table at the time) and my attitude after all my experiences is there are very few things that can’t be fixed by people who are willing to accept the situation and are willing to change and adapt do the work to move forward.  I know that sort of "can do" attitude is frowned upon these days but I grew up in a country where it worked for everyone and, one day, I hope to live in one again.


  43. pstas – yes, trends is UR friend.  I try to ignore the daily noise, but things are still in the trend.  When will it end….well, just ask Japan.


  44. Can Obama get us over the 2.5% lines?  This will be interesting as it’s a Q&A for a change.


  45. Phil,
     How ’bout that RIG? =)


  46. 11:00 AM On the hour: Dow +0.4%. 10-yr -0.33%. Euro +0.23% vs. dollar. Crude +2.92% to $76.42. Gold -0.22% to $1248.20.

    Labor-Market Woes in U.S. Prompt Economists to Cut 2011 Growth Forecasts. The U.S. economy will slow more than previously estimated through next year as elevated unemployment tempers consumer spending and companies trim investment plans, economists polled by Bloomberg News said. The world’s largest economy will grow an average 2.5 percent in 2011, less than the 2.8 percent projected last month and slower than an estimated 2.7 percent this year, according to the median of 59 forecasts in the survey taken Sept. 1 through Sept. 9. Analysts also expect household purchases will cool and the jobless rate will hold above 9 percent.

    Economy to Slow Further but Rebound Next Year: Bullard. The US economy will slow in the second half but return to more normal growth in the first half of 2011, James Bullard, president of the St. Louis Federal Reserve, told CNBC Thursday. “The consensus is developing in the forecast community that we’ve got a slower economy in second half of this year,” said Bullard, who is known to be an outspoken hawk on monetary policy. “But we will pick up in 2011, probably back to trend growth, or even better.”

    Growth to Halt in Second Half, Payroll-Tax Cut Needed: Roubini. With stimulus programs no longer boosting the economy, growth will come to a standstill for the remainder of 2010 and feel like a return to recession, economist Nouriel Roubini told CNBC. The head of Roubini Global Economics said a technical double-dip may not occur but that won’t matter. The current consensus of meager gross domestic product growth won’t even be matched, and that in itself will provide more trouble for the financial markets, he said.
     

    The ECRI Weekly Leading Index rises to 122 (a four-week high) from 120.5, but it’s still pointing to anything but an accelerating recovery. Its annualized growth rate rose to -10.1% from -10.2%.

    62% Say No Matter How Bad Things Are, Congress Can Make Them Worse. Heading into the final weeks of the congressional election season, 62% of Likely U.S. Voters believe that no matter how bad things are, Congress can always make them worse. A new Rasmussen Reports national telephone survey finds that just 19% disagree.

    Chamber Fall Campaign Rips Dems. The U.S. Chamber of Commerce has launched a national campaign to challenge congressional candidates to reject new spending, more regulation and higher taxes for business owners and high-income Americans. In a clear shot at President Barack Obama and Democrats across the board, the Chamber’s post-Labor Day political push will be a multipronged plan that includes online advertising, a new text-messaging campaign and 20 events at colleges across the country to stress the importance of a free-enterprise system.

    Swiss GDP will grow 2 percent this year, according to the country’s central bank. That’s double the European Commission’s estimated rate for the EU. In an index compiled by the Geneva- based World Economic Forum, Switzerland ranks as the world’s most competitive economy because of its innovation and business culture. The U.S. placed fourth and Germany was fifth. Seventeen of the world’s 500 biggest companies are Swiss, amounting to about one for every 500,000 residents, compared with one for every 4 million people in Germany, according to Bloomberg data.

    EU to Lift the Rock on Abusive High Finance. Michel Barnier, Europe’s single market commissioner, has warned banks and hedge funds that Brussels plans to use its sweeping new powers over high finance to end abusive speculation and impose order on the City of London and other EU bourses. "We want to know who is doing what. The EU authorities are going to look at every product. They can restrict leverage, or in exceptional circumstances even ban a product temporarily," he said, speaking to The Daily Telegraph. "We need markets, and we need financial institutions that create value-added, but everyone has to answer for what they are doing. People taking crazy risks linked to crazy rewards have to be brought to their senses," he said.

    John Carney speculates on the unintended and potentially harmful consequences of higher capital requirements: “It was prior capital requirements that encouraged banks to hold large inventories of mortgaged-backed securities.”

    Steelworkers Blast China on Subsides. The United Steelworkers filed a complaint with U.S. trade officials Thursday charging that China is unfairly subsidizing its clean-energy technology sector, presenting the White House with a potential political headache ahead of congressional elections in November. The union’s 5,800-page brief asks U.S. Trade Representative Ron Kirk to take action against China’s efforts to build its green-technology manufacturing, from compact fluorescent light bulbs to wind turbines. China has used "hundreds of billions of dollars in subsidies, performance requirements, preferential practices and other trade-illegal activities to advance its domination of the sector," the USW said in a statement.

    The Man Who Makes Your iPhone. Foxconn founder Terry Gou might be regarded as Henry Ford reincarnated if only a dozen of his workers hadn’t killed themselves this year. An exclusive look inside a postmodern industrial empire.

    7-Eleven Inc., the biggest U.S. convenience-store chain, is in talks to acquire rival Casey’s General Stores Inc. for $40 a share.  Casey’s yesterday confirmed the offer by 7-Eleven, a unit of Tokyo-based Seven & I Holdings Co., which beats a $38.50 bid from Alimentation Couche-Tard Inc. The bid is about 9 percent less than the $43.95 price for Ankeny, Iowa- based Casey’s shares yesterday at 4 p.m.  The Japanese retailer’s attempt to expand 7-Eleven’s 6,389 convenience-store chain in North America by acquiring Casey’s comes as surge in the yen and stagnant consumer spending at home have boosted the appeal of investing in growth outside the country.

    Texas Instruments(TXN) Narrows Quarterly Outlook. Texas Instruments, whose chips are used in products ranging from cars to cellphones, on Thursday narrowed its third-quarter earnings and revenue outlook but kept the mid-point of its forecast range. Shares of TI were more than 1 percent lower in after-hours trading Thursday.

    Copper Heads for First Weekly Drop in Four as China Delays Data. Copper extended yesterday’s slump, heading for the first weekly drop in four, as China brought forward the release of August economic data to Saturday, prompting speculation the results may disappoint investors. Copper could really pop next week if these fears are unfounded.

    Speaking of China – Workers of the World are still unitingChina Trade Unions Plan to Increase Role at Foreign Companies, Daily Says. The All China Federation of Trade Unions will work to increase the power of workers unions to negotiate wages at private and foreign companies in the nation, the China Daily reported today.


  47. Phil / BOTS    Phil, you’ve taught me that on thinly traded days like today the BOTS rule.  The question is, what do you think they would like to do today, positioning into the busy info week ahead?  Should they want to penetrate the 200 day averages?


  48. hi phil – i looked at your charts ,i see the potential reverse h@s , at the same time we are formimg a normal h@s pattern . there is no volume on this rally , it sems like they are really desperate to keep this market up . a lot of stops being pulled out , i think weare going to tank . do you feel that at all? tia


  49. b etter chance of him getting us under it- he is not good on TV for the market


  50. LOL – Roubini’s turning bullish! "the head of Roubini Global Economics said a technical double-dip may not occur but that won’t matter"
    Is that CYA or what?


  51. Obama sounds kind of flat and depressed, It’s gonna be up to the bots to do any lifting from here.


  52. Phil – looking at a couple of JAN12 buy writes I have intitiated, the stock is underwater (ie BAC @ $14). Does selling the stock ($.40) and selling a JAN17.5 put at $5.80 put to lower my basis to $12.10 make sense?


  53. Obama needs to make an "obvious" connection for the "less" informed. Allow tax cuts to expire, use the savings (borrowed) to go directly to job creation…..


  54. Phil – disregard previous math – I was looking at the wrong screen/option combo.


  55. Phil,
    a trade management question:
    i am in a rig 45/60 2012 bull call spread and i sold the 45 2012 puts--with rig now at $59.28 i am up nicely  but not sure how to handle the $60 2012 calls that i sold--buy them back--wait for a pullback and buy them back--its still 15 months away?? i have no idea how best to manage the trade--
    thanks


  56. Phil / Oil   You’ve written in the past that oil is overpriced vs demand currently, but that the mkts are in the hands of financial speculators.  Others have also written that all previous recoveries benefited from cheaper oil which helped the consumer.  Given the current consumer problems, should I sell my big oil stocks and buy back in after an oil price correction reflecting the moribund economy and oversupply?


  57. Phil,
     
    What’s your recommendation for a disaster hedge.


  58. My God, he’s making Bush look exciting.  Wake me up when its over.


  59. chaps, you are absolutely correct that the short strangles are entering a cautious zone.  I’m slashing my positions by a large percentage today and adding more put verticals.  Adding protection is wise, heading into the weekend.  This is not just any weekend, but is THE weekend.


  60. Go SKX! I bought back the $28 calls yesterday; still long the $22.50 calls and still short the puts. Now just need to decide whether to sell the $28 calls again or pick a different strike.


  61. Obama talks Bush up, then religion, market goes down. How much does the media pay people to ask bad questions?


  62. Peter- please elaborate- THE weekend?


  63. Go SKX!!   nice call so far Phil.   got in this morning. 


  64. pstas, it’s the 11th of this month.  We don’t want ourselves wake up on Monday morning with VIX up 10 points!


  65.  Phil,
    On ARNA--how about playing the volatility skew and buying double calendars based on the straddle price of the Sept. contracts?  Sept/Oct 11/3 for .40?


  66. SKX is also benefiting from a trade-down effect.  They are cheaper than NIKE’s.


  67. Peter D and pstas,
    I find it incredible how you guys are looking for ghoasts in every closet. Be positive. You are looking for bad things, surely they will find you. Now you will come up with provention, right? Thinks can happen every day.


  68. Market slowly smothering under a wet blanket…. Somebody get that guy doing the press conference a teleprompter and a Jolt Cola.


  69. RIG/JG – Word is they will have limited damages, far below the $6Bn that the stock has dropped.

    Bots/Tusca – Per the title in the post, I think we drift along the test of the 2.5% line but bots can’t usually take you over restance lines without a catalyst that daws in other buyers/sellers.  Within the lines – they totally rule but those lines wake up the sideline players and the bots don’t have infinite amounts of money, nor do the people controling them want to throw money away fighting the tide. 

    Tank/Trice – No, I don’t feel it but that’s because I’m not a chart guy.  What I feel is fundamentals and, fundamentally, we are in a slow but recovering process and that does not support sub 10,000 valuations for the Dow components, which means it doesn’t support sub 1,070 on the S&P and I actually think the Nas (tech) is in better shape than those two to move forward into a recovery.  As I said yesterday, the average person who has a job is on track to KEEP their job for 6 years.  People have been living in terror of economic catastrophy for 2 years now and, just like terror alerts, they are getting tired of it and soon they will go back to business as usual. 

    Another statistic I like to point out is that ony 300,000 new homes are being built this year, about the same as last year.  There are 110M homes in America so we are replacing them at a rate of one every 300 years.  If your home doesn’t look like it’s going to last that long – then at some point we can expect the pace of homebuilding to pick up again.  In fact, lumber futures have been climbing for the past few weeks (which makes JOE a nice buy at $25.33). Q2 earnings were very nice, we’ll get Q3 in a month and if those are good too, then what for the bears?  "Wait until Q4 – THEN you’ll see!"  Yawn…

    Roubini/Snow – He did that last time too, major butt-covering. 

    Obama/Gmart – He’s friggin’ tired.  Imagine dealing with this nonsense every day from the minute you wake up until the minute you fall asleep (not to mention getting woken up in the middle of the night whenever there’s a crisis).  Also, I think he’s going for rational and measured as opposed to the firey sort of act he’s been taking on the road.  Hard to argue his logic on the tax cuts – permanent under $250,000 for everyone is not really a rational thing to block just because Reps want it for those over $250K.  Not only that, but if they expire, the guys making $500K pay a big bump while extending the under $250K deduction keeps them net neutral (half their taxes get a cut, half lose the cut).  So really, only people earning over $500,000 PER YEAR are being served by fighing for more tax cuts while the other 295,000,000 all get screwed over, as usual, by (not to be political) those that oppose Obama’s proposed extension – whoever they may happen to be. 

    SKX moving on up! 

    BAC/Brook – How about just selling the 2012 $12.50 puts and calls for $5.20 to drop you net to $8.80/10.65?  That’s another 30% downside protection and you make 42% at $12.50, which is lower than it is now.  If you want to stick with it, don’t be greedy, a safe(ish) 42% made 5 times in 10 years (210%) is just as good as taking risks to make 60% if even one of those risks ends up being a 20% loss (220%)

    Obvious/1020 – You are right, he doesn’t do the sound-bite thing.  If you can’t make a Tweet out of it, you can’t sell it to America!  8-)

    RIG/Datuu – You could do nothing, keep the insurance cover and just count your money in 17 months…  Here’s what I would do – I would NOT spend $11.50 to buy out the $60 caller because the stock is at $60 and that’s paying a 20% premium – what am I, a sucker who BUYS options?  I might consider spending $6 to roll him up $15 to the $75 puts but where would I get $6?   Hey, I know, you owe the $45 putter $5.80 so what about collecting that money early?  How, well you roll them to the Jan $57.50 puts ($5.30) and LEAVE THE $60 CALLERS ALONE.  If your premise is right, and RIG goes higher, then the $57.50 puts will expire worthless and you have $5 in your pocket to roll up the 2012 $60 callers with (or roll yourself down).  If you are wrong and RIG falls, you can always roll the putters back to 2012 and you’ll be damn glad you still have those $60 calls for cover!

    Oil/Tusca – We are not as oversupplied as we were.  OPEC cut production and 2/3 of the tankers that were storing oil have dumped it over the summer so that means they can re-fill them any time and fake a big move in demand.  Other than playing for wiggles betwen targets (currently $72.50 and $77.50) I have no interest in playing oil long-term.  We still are in hurricane system and that can spike them up but also, coming out of summer driving system can tank them too.  Look at the strip, we are currently in the worst month for oil as there is a huge build in December (pile-up of contracts that have been rolled all year and are being held at the monent for tax considerations) and that puts almost 700Mb worth of contracts on the 3 NYMEX front-months vs the normal 500Mb so they have to get rid of 200Mb somewhere.  That is likely to lead to a  huge sell-off if there is no hurricane that halts our 10Mbd imports for more than 10 days between now and December.   BUT, bidding hits $80 next April and is $85 at the end of 2012 and someone just ordered 14M barrels next December at $82.93 so I don’t think there will be any great sell-off unless the economy deteriorates significantly from here. 

    Hedge/Exec – This morning’s SQQQ at the moment and I still like the SDS plays until we make 3 of 5 over the 2.5% lines and hold them for a day or two. 


  70. Phil / POT
    The 2012 calls and put are selling at 50% discount; this might be a good time to start the first leg of an artificial. If POT is going to be sold, I think that China will get involved, this would make me establish a bullish trade but nevertheless, buying both call and puts at the same strike is still cheaper than the theoretical of either.


  71. The media is controling the pres and tanking the market, sure hope he ends with a friendly question!


  72. Good morning, a very bad day in the Bay Area !!

     

    IWM 61.89, 63.01, 63.37, 63.74, 64.03, 64.37, and 65.40

     

    I expect a profitable range trade between 63.37 and 64.03; a good break of the range in either direction could happen this afternoon


  73. Thanks Phil


  74. Yodi- no need to look for ghosts in the closet- they are right out in the open. Just taking profits and planning on doing it again- sell high and buy low/rinse and repeat. We have had a nice little run up here and prudence dictates some caution. If I am right, I can re-load and do it again. If not, plenty of time to do it also once new levels are established.


  75. Phil/500k  Could be a tweet as well, though the "less" informed may have difficulty with that one. :)


  76. Hi Phil,
    I am still in RIG Nov 60 call long at 3.16 now 4.68 and Sept 55call short sold for 1.10 now up 5.10 still showing some .30 premium. stk trading at 59.80 .  I have increased my original 3 longs to 5 longs so I am even there. Question is do I roll the short caller now, or wait till the dust settles next week. thks


  77.  Phil / "Other than playing for wiggles betwen targets (currently $72.50 and $77.50) I have no interest in playing oil long-term."       So you’re saying you wouldn’t include big oil stocks in the long term portion of my portfolio at this time?


  78. NETL – I’m not a chart guy but if I draw a line across the lows of the last year, it just broke through that line to the downside and this is normally where I reevaluate something.  So if you’re in Phil’s NETL trade, you might want to add protection.


  79. Pharm / FYI

     


  80. Phil / Weekend concerns of members.   Strikes me there is no info until Tuesday’s retail sales, which should be down slightly because of the heat, but recent retail reports make it clear that retail is heading up in Sept, so hard to see this tanking the mkt?
    So, not much to move the mkts until Wed, with Industrial Production, then initial claims again on Thursday?


  81. ACAS - hey chartists, did this one just break out of an Ascending Triangle?  I already own it but if you’re looking for a buy-write this one might be worth considering, it has dollar strikes which I love for rolling.


  82. Wow, discussing that mosque at the end was a hell of a risk! 

    ARNA/JG – It’s not a bad play very doubtful the move will be that exteme in next 5 days.

    RIG/Yodi – Well they got a good pop and you can roll the $55s to the  Oct $57.50s for about .30 so, unless they get rejected here ($60) by the day’s end, it’s safer to roll them up $2.50 for .30. 

    12:00 PM On the hour: Dow +0.1%. 10-yr -0.18%. Euro +0.29% vs. dollar. Crude +2.33% to $75.98. Gold -0.18% to $1248.60.

    At an uneventful news conference, Obama announces Austan Goolsbee’s promotion to head the CEA, calls for passage of a bill establishing a $30B fund to loan money to small businesses, and says he’s ready to sign off on middle-class tax relief this month.

    Stocks are holding moderate gains after the biggest rise in wholesale inventories in two years – a surprise to economists who still think the restocking is peaking, but a vote of confidence in the recovery by businesses. Capital goods leads major sectors, with dollar volume in Caterpillar (CAT +0.9%), Honeywell (HON +1.7%) and Deere (DE +1.5%).

    The "effiency" of CapitalismA floor-care products maker accuses a rack of defendants – including International Paper (IP), Packaging Corp. of America (PKG), Smurfit-Stone (SSCC) and Temple-Inland (TIN) – of creating an artificial shortage of containerboard, used in boxes. The complaint from Kleen Products says the defendants have 83% of the market and all refrained from increasing production as prices went to nearly $700 per short ton from $450.

    Where’s the bad economy? Part 1: JetBlue (JBLU -2.3%) reports a 7% increase in traffic – to 2.74B revenue passenger miles – on capacity that was up by 7.3%, meaning load factor (percentage of seats filled) slipped to just 86.4% from a year-ago 86.6%.

    Where’s the bad economy? Part 2: Philip Morris (PM +1.4%) bumps its quarterly dividend up 10.3%, to $0.64 a share – an annualized rate of $2.56 per share. (PR)

    Are you still out there? More traders are taking off from 11:00 to 2:00, with market action increasingly concentrated in the first and last hour of trading. Maybe it limits potential gains – but think of all that golf and tennis time.

    Three lunchtime reads:
    1) What can be done to slow high-frequency trading?
    2) From zombie banks to zombie mortgages?
    3) Eight stocks for the market’s next rally


  83. robert/pstas short strangles: Sure. I’ll post what I come up with.
     
    pstas/investments besides strangles: Definitely invest in other things, which I do regularly anyhow. Just try to pick up trade ideas from Phil et. al. When the market is feeling confident – moving up and low VIX – I tend to look for selling front month callers against long call leaps. In contrast to short strangles and buy-writes, you’re not as dependent on lower prices and higher VIX. If the market keeps heading up, you can keep rolling your callers for even money. This may require adding additional number of caller contracts, which in turn could lead to requiring more long leaps for cover. You want to keep you caller on the ragged edge (near the money), and avoid negative delta on the overall trade.


  84. mrmocha
    Hi on ACAS where is the beef? 1$ of its years high, no div. , PE 13.85 and a beta of 2.3. Why would you buy the stk?


  85. JRW / TLT   With no big fiscal stimulus on the horizon all we’re left with to avoid sliding into deeper recession is Bernanke QE2 and even lower cost mortgages to stem the foreclosure flood.  After watching Japan, it might be dangerous to bet against the Fed’s check book before we see meaningful employment growth.


  86. He’s friggin’ tired
    Probably needs a vacation. I have a suggestion- perhaps a long weekend in Havana- a little R&R plus he can get Fidel back on the reservation.  :)


  87. Pharm or anyone,
    What is coming up for ARNA next week, exactly?


  88. Chaps, Thanks and i will look forward to seeing what you come up with.  One other question, where do you position your leaps in respect to the short ATM calles?


  89. pstas- he just got back from martha’s vineyard so we could remodel the White Houseand not inconvenience the family  LOL!


  90. I like JBLU on that dip.   $5.60 and you can sell 2012 $5s for $1.65 and March $6 puts for $1 for net $2.95/4.47.

    Oil/Tusca – I like XOM and SLB and VLO and SUN and, on the gas side, I like EOG, CHK and UNG but that’s about it in that sector.  It’s about buying long-term operators who can ride out a panic drop to $30 oil for a year or so.  It doesn’t matter how fast we switch to solar – it will only drive down the price of gas and that will up the usage of oil in developing nations – that’s the natural cycle and will be fine, developing nations use whatever developled nations are tired of so, while oil may be volatile and drift between $60 and $80 for years (plus the occasional shocks up and down), the companies that use it as a business should continue to do very well. 

    NETL/Mr M – I hope not.  SOX are down 2.2% today, that’s not helping much and it’s keeping the Nas red but this too shall pass if the rest of the indexes can hold it together. 

    Retail/Tusca – Well never underestimate the damage that can be caused by a poor report.  These are the August numbers and I think auto sales will be a drag.  Expectations are already low (0.2%) but a negative number (doubtful) would freak people out.  Keep in mind we have tough y/y comps as we had a very good August last year coming off a terrible July.  Meanwhile, keep in mind that the Dow was at 8,200 in July, hit 9,500 in August, 9,800 in Sept, 10,200 in Oct, 10,500 in Nov and Dec so all these wacky moves in Retail sales did nothing to derail a 30% move up in the fall.     

    Oh yes and oil was between $70 and $82.50 for almost all of the end of last year AND the market rose 30%!  During that time, TLT fell from 95 to 86 (rates went up 10%) and copper rose from $2.75 to $3.50.  Copper is now $3.40 (gold was between $1,050 and $1,200). 

    1:00 PM On the hour: Dow +0.21%. 10-yr -0.13%. Euro +0.18% vs. dollar. Crude +2.52% to $76.12. Gold -0.47% to $1245.00.

    The big narrowing of the trade deficit is more proof that capital spending, not consumer spending, is driving any recovery. And if retailers have stocked up early for the holidays, imports will slow further – maybe adding a half-percentage point to GDP this quarter.

    Are they crazy?!?  This will be some party for us, thoughNow facing seven rival options markets and looking to innovate, CBOE has asked the SEC for permission to list options that expire within one day. The operator of the largest options exchange says contracts of 1-4 days in duration would help companies hedge overnight and weekend risks at a fraction of today’s costs.


  91. LOL, I can’t wait for Daily Options but it will be confusing in chat with people saying "Is that the AAPL $250 Friday calls or Tuesday calls?"


  92. robert:
     
    As learned from Phil: Lower strikes on the leaps. How much depends on the underlying, but you generally want to maintain a position advantage (lower strike equals better position on calls), so your callers can’t bury you with their delta quickly getting higher than you leaps’ delta, if the underlying shoots up.
    Usually start out with half covers w/ positive overall delta. Roll callers even if you have to if the caller beats you, up to full cover if necessary. If you have to keep adding callers (underlying continues going up), add more leaps (i.e., maintain full cover) to maintain positive delta. I would generally add these leaps at higher strikes than the original. If you make a lot on your original leaps, you can take profit and roll them up.
     
    If you beat the caller, you can consider using the money to roll down you leaps to a better position.
     
    In a bull market, you’ll generally make money.


  93. Phil – I couldn’t agree more on the ‘can do’ attitude, but I am looking at a few pieces of info that I think support my take on inventories:

     

    1. GDP is moving opposite of continued expansion (while still expanding, it is at a slower rate).  Just to put 1.6% into context. History tells us that  four quarters following a bottom in GDP, growth runs at > 6% annual rate.  For the market to rejoicing over 1.6% because it wasn’t 1.4%, particularly in the context of the most radical bailout, monetary and fiscal stimulus in U.S. history, totally misses the point that we are operating in a totally abnormal and fragile economic environment.  Now, even GS is a pessimistic bank on US GDP, when it was a cheerleader – why switch now?  Inventories should continue to build.        
    2. Consumers aren’t spending, and draw down savings to pay for essentials (so that’s not going into the market).  Cap had several posts on this as well.  This does not help inventories.
    3. Real final sales – GDP excluding inventories – was actually marked down in the Fed most recent report to a meager 1% annual rate – that can’t be good for inventories. That is really soft and underscores the overall weakness in the demand guts of the economy. We know from the monthly data that much of this paltry 1.6% growth in Q2 was baked into April – four months ago! – and that the pace of activity has weakened markedly ever since.
    4. The cutbacks at the State and Local government level could be a very big drag in Q3 after what seems to have been a statistical Q2 blip.
    5. There is no credit lending and the desire to borrow has collapsed (I cannot refi some properties b’c I own too many!!!!), and so long as there is no leverage (credit) in the system, we cannot recover and better than expected blips in inventory are insignificant.

    I hope these are proven wrong in the coming months/year!


  94. yodi – Re ACAS, I like it because (1) John Paulson owns a lot and he’s pretty smart, (2) I bought at 2.50 and love selling dollar strike calls against it (3) Yahoo! says the P/E is 2.5 (or 8.5 forward).  I simply thought it was "worth considering".


  95. Good afternoon folks …
     
    RIG — wow (is there a weekly in play here ?)
    AMZN — shorted the highs today (and covered)
    PCLN — they tried to pump it; failed; [when] will it tank ?
    NFLX – same Q.
    EOG – having a nice day; would like to see it get over 95 by opex next week
     
    BHO — he’s tired ? I recommend some golf or hoops ….
    (or what pstas said)
     
    Bullard — what the heck is he talking about re: "above trend growth" unless he thinks the "trend" is negative.
    He said nothing as far as I can tell as to what would actually drive such growth….. unless he is counting on China and India.


  96. JRW – thanks for the TLT chart..  Blip for now.  Let’s see how the next week plays out.  Right now, TLT has a doji on the dailys and holding the 50d MA.  Next stop is 98, so if they can’t hold it, then I expect the move down.


  97. Play on BRK/B (currently $82.50): Just sell 2012 $75 puts for $7.40. Reg T margin is $9.15. You keep the $7.40 if BRK/B holds $75. If put to you, you pay $67.60, which is an 18% discount.
     
    I looked at the the artificial buy write, equivalent from a P/L perspective, of the long $70/75 bull call spread combined with the short $70 put, but TOS says it’s more margin ($10.51).
     
    If you have portfolio margin, net margin is around $5.08.


  98. mrmocha
    ACAS thanks for your reply. Agree Paulson made his point, owing the stk at 2.5$ helps TOS gives a much higher PE. I just prefer a stk paying some div in the play.


  99. Weekly options:  I just did some checking.
     
    RIG – no weeklies
    AAPL — heavy action at 260 Put strike for weekly.  Hard to see AAPL closing there today, so maybe just sellers.
    AMZN — same comment regarding the 140 PUT strike.
    NFLX — has weekly’s in $5 increments … PIN at 145 ?
    PCLN — no weeklies.


  100. Phil, some one I think yesterday still asked on the DIA mattress play. I am still holding some Sep 103p for a good sales price hoping the will expire worthless next week. Sell more 104′s at .72 looks a little ify in this up and down market. Sep quarters 103 at 1.10 and 104 for 1.46 look a little better. Your thoughts pls thks


  101. chaps,
    your posts are very interesting, and wise. thanks for teaching us.
    so you bought leaps, you sold 1/2 ATM calls, and stock is moving lower. how do you manage your spread? roll leaps down, using profits from callers?


  102. Hi Phil what should dia mattress into the weekend just nake or 1/2 cover- thx


  103. Credit analyst bullish on equity market … fwiw
    http://www.capmarkets.com/ViewFile.asp?ID1=144257&ID2=438429145&ssid=1&directory=6571&bm=0&filename=09.10.10_We_Felt_Alone.pdf
     
    basically his view is that credit is strong, therefore equities should be strong.  But he is ignoring why credit is performing so well (flight to yield and risk aversion).


  104. Buying ITM Oct P one DE and CAT.  Toppy here.  Stop at $72.5 and $69, respectively.


  105. DCTH – Phil, et al — can someone explain to me how this happens? Add candles to the DCTH daily chart for today and you see a sort of Flash Crash down to 6.00 at 13.35.  Then look at the Time and Sales and it appears that someone really sold 4500 shares at 6.00 when the price was around 6.45.  If he had entered a Market order, that would fill at the Bid, right?  So he fat fingered a Limit Order for 6 by accident and that filled at 6.00 regardless of the Bid/Ask?  Is that what happened?


  106. Phil…WHR seems to move around a lot. What about a Dec 10 70/80 bull call spread at 4.70, selling 65 puts for 3.70..net 1.00?


  107. QCOR FDA decision is due out sometime soon (next week, but could be longer).  Buying October 10/12.5 Call vertical, selling the 10 P for a net credit of 15c.


  108.  check that – 30c credit…


  109. MrM – yeah, that happened to me on an order where I put in a small lot at the wrong price to sell, and it filled at my entered price, not the ask/bid….!


  110. Fragile/Pharm – But fragile does not mean WILL BREAK, it just means "handle with care".  The fact that there are still thousands of Faberge eggs in the world is a prety good indcation that fragile things can be far more durable than you think.  We had a fragile peace with Russia from 1950-1985, we maintain fragile alliances and people trade on fragile premises every day and I think (and this is just my opionion) that betting on a $15Tn economy to collapse because it’s "only growing" at $250Bn a year is pretty damned fragile.   Also, since our beloved multi-national corporations (pretty much the only ones I’ve liked lately in case you haven’t noticed) do 50% or more of their business overseas, where the GDP is expanding so fast they are trying to reign it in – I just can’t bring myself to join the doom squad on the basis of slow GDP in the US. 

    As to consumers, again, those are US consumers, Chinese consumers just broke the record and Inida is right behind them with about $2.5Tn worth of imports between them.  So if we assume consumer spending is still 70% of GDP (which it isn’t) that’s about $11Tn and if we assume it’s off 20% (which it isn’t) that’s $2.2Tn less US revenues for US corporations to fight over but 10% of the retailers closed last year so that’s just $1.1Tn they need to maintain all-time highs and even if they can only make up $400Bn overseas, the $250Bn growth in our own GDP, pathetic though that may be, still leaves a net imact of $350Bn less out of $15Tn in total sales or down 2.3% from all-time highs. 

    I’m pretty sure that cutbacks are done now that we’re into FY 2011 on the local level.  Every time a bank forecloses on a property, a town collects all the back taxes (they get paid ahead of everyone) and pick up a deep-pocket new homeowner to pay them in future.  As noted, just a 10% decline in retail sales isn’t going to force towns to cut more than the average 10% and, of course, they’ve been able to renegotiate contracts and float cheap bonds to save themselves tons of money that not only helps a lot now but creates a much stronger base for moving forward.

    As to credit.  From the BBook and other reports – nobody is really asking for more credit right now.  People are buckling down and paying off their debts instead of taking on new ones.  People are downsizing rents and cars and homes even if they don’t lose their jobs and that puts pressure on the housing market but it frees up a lot of cash for the consumers.  Auto sales are about 10M, down from 16M, that’s 6M $30,000 cars not purchased ($180BN) two years in a row and still in consumers pockets and that is nothing comared to how much they saved by not buying 1.5M new homes for $250,000 each ($375Bn).  So call that $550Bn times two years and that’s why consumers didn’t need to borrow $1Tn for the last two years. 


  111. ed/rolling down leaps: Rolling down leaps should be considered. Say, for example, your leap strike is at $25 and you can roll down to $22.5 strike for $1.80. Now say you you kept $.50 from your caller, so you net for the roll is $1.30 for a $2.5 improvement in your long position. If you’re confident about the underlying being worth $25 eventually, it’s a compelling roll.


  112.  Pharm – so you’d be willing to own QCOR if the fed decision was negative?


  113. Cool chart: 

    wheredidthemoneygo


  114.  Phil or Pharm/PFE:  I have SEP 16 calls naked on PFE. Am looking at buying back and selling the DEC 16 straddle along with buying the MAR 18 call for net credit of .68. Below 16 I can roll or take assign as PFE pays good divs. I have 20 contracts on the naked call and was leaning toward reducing the straddle and long call to 10 contracts, still with a net credit of .11. Would it be better to double the contracts on the long call vs. the straddle just to have the ability to double up the short calls if necessary and turn it into a spread if PFE heads higher? Thanks!


  115. We need to spend more money on Alcohol !


  116. Hanna – the panel had a 20-1 and 20-1 vote in favor.  If the fed shoots it down, then I will loose all confidence in the FDA.  QCOR has no debt, and is profitable.


  117. Cap / Alcohol

    I think that’s a WEEKLY $ figure !!


  118. cap
    More alcohol is being bought but it is cheap beer so right now the total dollar is less, Simple give more to to masses and alcohol spending goes up! The .01%ers can’t drink enough to support expensive imoprts and cheep beer!!!!


  119. Education expense in the chart looks low, especially when you need day care!


  120. Phil:  on the chart  that $457 Alcoholic beverages, is that a week or a month?


  121. http://blogs.wsj.com/washwire/2010/09/08/boxer-staffer-quits-after-pot-arrest-at-senate-building/
     
    so next time if you have to ask "are they on drugs ?", you know the answer.


  122. humvee- could be a night if it is saturday


  123. Education: $945… I’ve got 2 kids in college and 1 in private prep school and I’d be doing somersalts if that would cover my WEEKLY toll


  124. chaps,
    thanks a lot


  125. This seems to be the problem !!


  126.  Hey all,

    We have a new Longterm rating and valuation of First Solar. The company is currently rated at a hold. The stock looks like a buy below $130 and sell above $180 with a FV at $174.

    Check out my thesis, valuation, etc. here!

    Good Investing!


  127. Hi,
    I am a new member; joined in Aug.
    Trying to catch up on reading all the recent articles;  is a bit like drinking from a fire hose.
    Phil
    Any thoughts you may share on whether CRM is a good bear [spread]  candidate (at almost 52 wk. high)?


  128.  Pharm – bought a CAT 75/70 Bear Put Spread and some OCT DE 70 Puts.  Deer looks pretty weak on a up day.  Closed out TLT put spread for a nice little gain (thanks phil) which will help offset some of the TBT rolls that i will do next week since i still have the 46 TBT puts that i sold ages ago for 2$ that i’m gonna roll for 2x 35 TBT 2012′s.



  129. @chaps

    Question re: BRK.B
    Sold 2012, $70 BRK.B puts three months ago and they have risen 50%.  Do you recommend staying with them or taking the gain and selling the $75.00,  2012 puts as you detailed above?


  130. Look for a bounce off IWM 63.74 to close above 64.03, maybe even 64.37 !!


  131.  David,
    The moment of truth for SVNT with respect to FDA is one week from today (or perhaps sooner). Might be worth a look!


  132.  Cslan -

    I will def take a look on Monday…poss. Play of the Week?


  133. JRWII
    Was that a double bounce off 63.74?


  134. PHIL
    do you think the RUT is still our canary, if not which indicator is?
    thank you


  135. AMZN/Cap – Someone upgraded their price target today but only to $140.  PCLN just missed a re-entry on our short this morning.  NFLX is still ripe for a nasty fall and we did EOG already.  As to growth - see above.  As my man Timmy said, "Welcome to the Recovery." 

    Another interesting chart on Hong Kong spending vs. RoW:

    Image

    q2-econ-current

    Q2 2010 Consumer Scorecard: A Story of Developed vs. Developing

    BRK.B/Chaps – Selling the 2012 $75 puts for $7.40 is BRILLIANT! 

    Weeklies/Cap – Man, you are so out of it, soon we will have daylies to play (see news above) then hourlies and then, dare we dream – MINUTE OPTIONS!  8-)

    Mattess/Yodi, Gucci - I believe we left that one off with the Jan/Sep $104 spread didn’t we?  In theory, it was a 1/2 positions on both ends after the way we got stopped out.  I’d take .74 for the $104 puts for the ones you have open and just stick a stop on the $103 putters at like .50 as they are pretty beat up anyway.  Of course, over the weekend, you may want to be a bit less covered than that.  I’d look at those Sept quarterlies as a roll out if you have to but you can roll a full cover of the $104 puts to a 1/2 cover of the Oct $102 puts (now $1.50) so no worries

    Credit/Cap – Yes, well there’s always a reason and that’s why we have economic cycles.  People flee high-risk equities, move to bonds, make money cheap and the next round of capitalists take advantage and borrow cheap to start new businesses.  I’m rasing cash to restart my old real estate data biz and, amazingly, there are people who are interested in what I thought was going to be an impossible market to raise money in.  Of course, it’s not really a start-up since we did it before but I was very surprised at how many of my old VC contacts are actively seeking deals again. 

    DCTH/MrM – No, if he put in a market order for 5,000 and there was only 500 bid at $6.45 and no other bidders until $6, that’s what happens.  If you want to game it though, you can put in for a block trade of 4,500 at limit and then buy it from yourself or, since that’s very illegal, have your buddy do it (you can return the favor later) and that tanks the stock right through any number of regular buy orders and can set of a panic that drives down the stock and lets you buy cheap.  Don’t do this of course, it would be wrong and therefore I’m sure it never happens.  (end extreme sarcasm font)

    WHR/49O – No thanks, one of the weak spots of the BBook was durables so I’d wait for a bad report to knock them down and THEN I’ll like them as a long-term recovery play.

    QCOR is so not priced like they are expecting a big move – what’s up with that?

    PFE/Fortep – Very greedy to hold the $16s over the weekend after that move up.  PFE has had after house spikes down in the last two days as if someone things something very bad is going to happen so be careful.  I like your plan as you’re right about the entry being fine if put to you but what I don’t understand is why you wouldn’t want the March $13/16 bull call spread at $2.40, selling the 2012 $12.50s for $1 which is net $1.40 on the $3 spread and worst case is you’re in at net $13.90.  Net margin on the $12.50 puts is just .62 to make $1 so you gotta like that one and you pick up .60 by Jan if they hold $16 and that puts your worst-case net down to $13.30 and then you can do another bull call spread for 2012 or just wait patiently for your next $1.

    Chart/Peter – It’s an average over 72 years don’t forget.  That’s why half a kid, even if you have 2, they are only there for about 36 years between them. 

    Alchohol/Humvee, Shadow – Yeah, that one baffles me too.  I suppose most people drink out and it’s under food away from home or entertainment.  Utah drives down the average but then Boston must make up for the whole state of Utah.  BUD alone has $35Bn in sales though so I don’t see that number at all.  Maybe just a tendency for people to understate their drinking.

    Drugs/Cap – OK, now that guy is a dumbass!  A connected guy from California and he couldn’t score a medical permit?

    FSLR/David – That is a stay away for me.  Generally we short those guys any time they have the nerve to go over $140 so be careful.  Long story but they have long-term growth issues because the system they use relies on Tellurium, which is an accidental by-product of copper mining (in other words they couln’t possibly pay enough to have it mined on its own) and which, in a normal economy, is in very limited supply.  It makes excellent, cheap, efficent solar cells but for FSLR to double in size, they would need the World’s entire supply of Tellurium and any growth past that is physically impossible.  Had it not been for the collapse of other users of Tellurium, FSLR would have hit a growth wall already.  For now, they will show great results as copper mininng stayed strong (China stockpiling) while trace metal demand was low but I do NOT like these guys long-term. 

    Welcome Reza!  I think CRM’s problem, at the moment, is they are a per-seat, per month expense that is either being cut by management or, even if they are still in the company, they are selling to a smaller staff.  The HAD great growth through last year as their contracts are generally a year but growth has slowed considerably since then, dropping from almost 100% to a still-respectable 35% projected in 2012 but that does not justify a p/e of 210, does it?  Even if they hit projections for this year (to double) and next (up 35%) their 2012 p/e will be 77, so it will take 77 years for them to pay you back $1 that you invest in the company.  So I like the idea of being bearish but they are a momentum stock and that makes them dangerous, depsite the fundamentals and, if jobs pick up, people will buy them and if retail sales pick up, people will buy them and if they announce a split, people will buy them and if they get included in a new index, people will buy them which means they are generally a "stay away" stock for me. 


  136. JR,
    I like the charts you’ve been posting.  Is that something new?


  137. JRW , Phil,  /  bounce    Thanks JRW, strikes me Phil that the bid under oil may create a bit of a bullish push into next week.  I’m hesitating to put on some hedges for the weekend.  Last minute advice??


  138. The rut needs a medical permit now!


  139. Phil -

    Interesting point. I did not know this…I actually will have to rethink my position a bit in the future if this becomes more of an issue…they hide this well.


  140. Buying more ARNA at $7 or better.  this is gonna be fun (and give me heart issues).


  141. Phil
    Is there any trade on SIRI?
    With the talk of Howard Stern leaving
    Thanks


  142.  Pharm, you are brave – i closed out of my previous ARNA 7.5/15 2012 spread for a small profit.  ARNA seems too much like a gamble for my blood.


  143.  Phil—sorry I didn’t make it clear. Those are short $16 calls naked  I have on PFE. The straddle is to pay for the roll (I’m currently down .64 on the naked) with the possibility to work it into a long call if PFE keeps on going up. 


  144. Jo – I will be out of stock next week.  I will hold the verticals.


  145. Pharm – When exactly does the FDA report on ARNA come out? I know it’s the 14th but what time on the 14th?


  146. Paper out 14th, FDA panel 16th.


  147. Hey all
    I will hold 100 IWM 64 over the weekend in case your taking a risk your not alone!


  148. That is Oct 64!


  149. Phil,
     
    I had a RICK trade while back, 
     
    Bought RICK at 8.91, sold Nov call for 0.85 and Nov Put for 1.79.
     
    Advise to roll?  Thanks.


  150. GS waking up, popped $150.  XLF over $14.50 so all is well in Financial land at the moment.

    Canary/Z4 – Still RUT 635 as they are the only ones still threatening below our mid-range.  AAPL $263 is key as is copper (under $3.40 bad, over $3.50 good) and oil (under $75 bad, over $77.50 good, over $80 bad). 

    Hedges/Tusca – It’s always worth spending 1% to have a 5% hedge that’s already in the money.  Unless your other 99% doesn’t make more than 1% if the market goes up 5%, then you have nothing to lose but 5% to save if things go bad.   Neutral is a gear on a car for a reason – sometimes you just want to sit idle and wait for a clear signal!

    Hiding/David – FSLR is one of those shell game companies where Cramer-types put together a company that looks fantastic on paper so they can talk it up and dump it on investors.  Usually, companies like them just get sold once and die but the FSLR plan is so brilliant (us a cheap material that does work well but no company that seriously intends to build a market would touch) that they have been able to keep this game going for a decade.  The original CEO, Mike Ahearn, wasn’t even in the industry, he was the head of an investment company with a law degree – that’s a huge red flag right there!  Now they brought in an actual Honeywell engineer to run the place and they are trying to be a real company but, long-term, they are still constrained by the platform they chose. 

    SIRI/QC – I’m done with them because you can’t get a straight answer from anyone.  On the whole, I’d love it if Howard leaves and they drop to .10 again where I’ll love them again but his staying may give them a small pop but he’s been there for 5 years and $1 is the price. 

    Well that was a fun day – right between the lines all day long, works for us.

    Have a great weekend everybody!

    - Phil


  151. For a low volume day.. that was pretty heavy selling of FAS into the close.  Net short over weekend.  Go figger!  8-)


  152. Thanks Phil.
    Interesting points you make on how perilous playing (bearish)  "popular" momentum plays could be as there are too many reasons it  could move against you on a dime.


  153. Just pulled up the /ES 5 minutes chart today and I haven’t seen anything like that for a while.  Very indecisive.  The back and forth did help to get my orders executed today.  Now, I’m hedged and ready for the weekend.  Have a good one!


  154. flip/BRK.B: You made a good trade. Assuming you’re willing to own it for what it would cost put to you (I certainly would be willing), I’d hold on. If you rolled to the $75, you’d only be netting about $1.35 in premium to give up $5 of position ($70 to $75). Not worth it, IMO.


  155. Pharmboy:
    When do you plan to sell your shares? After the report is released or Friday before FDA panel?
    Thanks.
    dclark41


  156. Can someone share with me the philosophy of how you handle a Buy/Write once you are in (ie Buy current price stock, sell Jan12c, sell March 11p or a link to the strategy within the site?


  157. Can’t wait for those daily options !   And hourlies !  LOL.
     
    No pinning on the weeklies that I can see; not even on indexes.


  158. Interesting article on Barry’s site:
    http://www.ritholtz.com/blog/2010/09/smackdown-paul-kasriel-vs-michael-boskin/
    The employment graphic at the end seems to confirm that as with the last 2 recessions (1991, 2001), we face a jobless recovery! 


  159.  Quick question on evaluating trades.. Would appreciate feedback on how to best think of the risk/reward ratio
     
    I have sold Sept Puts on Pacific Gas & Electric (PCG)  in light of the recent drop of 8% to 44.30 due to the pipeline explosion.
     
    50 Sept 40 Puts for .20            Margin 23K            Premium 20c        Intrinsic 0
    50 Sept 45 Puts for 1.30          Margin 50K            Premium 60c        Intrinsic 70c
     
    I am assuming that PGE does not get held responsible and that the stock makes a recovery back over 45 even though it may drop short term.
    Which trade constitutes a better risk/reward profile? Comments would be appreciated. 
     
    TIA


  160.  Hi OncMed and everyone,
    I too sold Sept puts.  Sold 40 P for .30.  But I think Phil and most people here would agree, you sell puts on stocks you want to own.  I don’t mind owning PCG at 39.70 but I also know that things could be uncovered between now and OpEx which could just slam this and so I didn’t sell as many contracts as you did.  Those 45 seem dangerous.
    I sold 20 contracts at .30, took 1/2 off at .15 and hedged those 10 contracts by buying 3 Oct 45 contracts.  The IV is purely in the front month.  So actually selling Sept puts and hedging with back month contracts ain’t a bad idea.  
    I am somewhat worried about your Sept 45 P.  But again, if you feel comfortable being owning PCG between here and 40, then no problem.
    Another thing I want to clarify--your basis for selling puts is that PGE will eventually head back up sometime in the future.  Then why not sell back month puts?  Unless you’re okay with the stock being put to you especially since they will be paying a div later this month.   And if you’re playing it for an up move, why not buy some calls? 
    Just my opinion.  
    Good luck to you.  


  161. ARNA/dclark – Wednesday next week.  Data released on Sept 14.


  162. PFE/Fortep – Oh you shorted them?  That’s not good.  Sure then, that play makes sense then. 

    RICK/Bobhu – So you are in RICK at net $6.27/6.89 and it’s at $6.50 so certainly nothing to worry about at the moment.  You can pick up .35 at most rolling the puts to Feb so doesn’t seem worth it as the Nov $7.50 puts still have .40 of premium.  With thinly traded options like RICK, you really have to wait it out unless you are really worried and want to roll to the Feb $5 calls, which are $2 and you can pick up +$1.60 and drop your net to $4.67/6.08, which screws your upside but gives you another 10%+ of downside.  I would just wait, you are only $1 below target and they seem to have bottomed. 

    FAS/Matt – Yeah big spike but there was one yesterday too.  Don’t get too excited…

    Perils/Reza – Great!  That’s my job, getting you used to THINKING about your investments.  Our goal here is to turn everyone into sharp market observers so we can have 500 pair of eyes watching the markets and share our ideas and observations.  That’s what makes a great site, not just me saying yay or nay to trades….

    Hedging is good Peter!

    Buy/Writes/Newbie – Ah, that’s the great secret.  You handle them the way you handle an oak tree that you plant in your backyard to be a swing for your grandchildren.  See "The Man Who Planted Trees."  Basic strategy is "How to Buy a Stock for a 15-20% Discount." 

    Oh no, now the Liberals are having some sort of rally in DC – let the crowd counting begin! 

    Jobs/Stjean – Of course we’re going to have a jobless recovery because Big Business is recovering just fine – it’s just that they don’t want to hire any Americans!  What are the years of "jobs" recoveries?  1961 (best) and 1975 (2nd best).  A mile behind them are 1991 (Dow 2,400, went to 4,000 by 1994 and 11,000 in 1999) and worst (so far) was 2001 where the Dow went from 8,000 in 2003 to 11,000 in 2006 and 14,000 in 2007 with less jobs and lower wages for American workers every time.  Now we have another crash and another excuse for Corporate America to hack away at contracts and pension etc. and ship jobs overseas "for the sake of the country" or "the greater good of trickle down" or whatever and we have yet another jobless recovery where working America is screwed over and the top 1% make out like bandits.   In other words – so, what else is new?

    PCG/Oncmed – I just would not tie up $23,000 to make $1,000, even for a week unless it was so rock solid that I couldn’t possibly see a way to lose.  The chance of another opportunity coming along that returns more than 5% in a week (or 20% in a month) is too great.  So, I prefer the more expensive play, simply because at least you’re getting an amazing 13% in a week if it goes well and I think you have a measured view of the risk but it is very much there as they could be found guilty of something tomorrow and open down at $35 on Monday and then you are down the whole $50K.   We discussed it earlier and there was not enough information to make a trade – tempting though it was to risk/reward dictated that staying away (investing zero to get zero with no margin and no risk) was the best overall strategy.  If they head back up on the all clear, then I might want to sell Oct $45 puts for $1 or so (now $2.20) or if there is outcry and accusations and politicians stomping around "outraged" in the affected district and the stock goes to $35 – then I would be excited about selling puts.  As the great philosopher, WOPR, once said "Sometimes the only winning move is not to play."


  163. My political comment of the day.  Hey, looking at that chart, I just realized something.  Bush may have set a record for being the first President ever to have 2 recessions in the same Administration!  That is just amazing…


  164. @chaps
    Thx, for the reply.  That was one of the first trades I made on Phil’s recommendation, and caveat,  two months ago.


  165. Pharmboy:
    So I assume you expect the price to go up after the release of the report on Tuesday. May I ask what the range of prices you expect after the report. Do you have a best case/worst case scenario. I was in on Dendreon and now Arna.  Looks like deja vu!
    Thanks
    dclark41


  166. ARNA/dc – I expect on Mon or Tues for them to at least get back to $7.5, but I am looking at more like $8-9.  Watch over the weekend or on Mon morning, someone will say BUY…..short interest is way up, and I want to know what/when it was, but refuse to pay for the service.  I think the squeeze is on. 

     

    As for DNDN, look at where they are now, compared to where they were.  ARNA is a roll of the dice, but now that Adam F. from the street dot com has info out on them, he is the BEST contrary indicator!!!!  he said VVUS was a slam dunk, DNDN was not going to get it…etc….


  167. oncmed
    PCG. Phil explained it very mildly. I would rather have taken a trip to LAS Vegas enjoy a nice show and play the rolet table just on black and red.
    We just had a very clear example what can happen with BP. a solid company, where millions of people now waiting for there pension money, never mind what you lost on stk and option value. Just look what happened to the place after the explosion. The nearby hotels are already full with lawyers, like shake feeding frenzy. Selling an ATM put to hope that the stock will go up within a WEEK,. I saw DB yesterday taking a dip to 59$ thinking I take the gamble selling 5 Oct 55p for 1.61,  they back to 60$ today no fire no dead people, no burned down houses. I can sleep with that.
    Possible PCG get saved by a white knight, but in the end tell me who owns the pipeline??? Good luck we see in a week.


  168. Now why didn’t I think of that – just give myself my own personal tax cut—

    http://latimesblogs.latimes.com/washington/2010/09/congress-taxes-irs.html


  169. Sorry Phil,
     
    The calls and puts I sold on RICK(bought at $8.91)was for Nov. $10, so my net will be 6.27/8.14.   I will wait it for a while.
     
    Thanks and have a great weekend.


  170. Pharmboy:
    Thank you for your insight. Just curious why you don’t sell the Sept. $7 calls covering your shares. I believe if you are called it will be effectively $8.85 a share. Unless you think there is a reasonable chance for it to eclipse your $9 ceiling?
    dclark41


  171. Taxes/Pstas – I think the question is how many people in a sampling like that normally owe back taxes?  I think the real irony here is that Sam Zell bought the Tribune Company in 2007 and bankrupted them in 2008, screwing $12.9Bn worth of creditors and writing off Billions of his own taxes in the privatization.  Of course this is a perfect example of what I’m talking about – a Billionaire uses clever tax dodges to steal Billions from the government and then points his finger everywhere else to distract people from what’s really happening.  Amazingly, it doesn’t bother you at all that one of the country’s top 10 papers was bought out by yet another top 1%’er and turned into yet another right-wing rag that endlessly attacks the admininstration. 

    I guess that’s because, for now, they are on your side but make sure you stay in that top 2% because they are already screwing over the bottom 98% and once they are done with them, they’ll move on to the bottom 99%, then 99.5%, then 99.9%, etc.  You may laugh now but print this prediction and put it in a drawer for 20 years because, if this BS continues, the US is going to look more like Russia than Europe or Japan – a decaying superpower run by corporate cartels and gangsters.


  172. RICK/Bob – That’s why the point of a buy/write is to CONSERVATIVELY hedge and give yourself a 20% discount on the put/to price.  What you end up doing by taking the $10s vs. the $7.50s is effectively go from $6.27/6.89, where you make 20% at $7.50 and worst case is a 2x assignment at $6.89 to $6.27/8.14 where yes, you make much more if they get to $10 (59%) but your risk having it assigned to you for 18% more.  That’s fine if you accounted for that in your downside hedging but RICK is not correllated to the S&P, or anything else for that matter, so an index hedge doesn’t cover it.  That means this bet is a stand-alone risk and the only protection you have is how low you can get the put-to price.  So the choice was risk an assignment of 2x $6.89 to make $1.23 (9%) vs an assignment of 2x $8.14 to make the same $1.23 at $7.50 (7.5%) and maybe $3.73 (22%), but only if the stock jumped 25% to $10. 

    If you are going to take a gamble like that, then you are better off with a vertical or artificial buy/write.  For example, The Feb $5/7.50 bull call spread is $1.45 and you can sell the $5 puts for .50 so .95 on the $2.50 spread that’s $1.50 in the money with 163% of upside.  To make the same $3 you were looking for on RICK, you would have to buy 2x this spread but your risk of assignment is 2x at $5.95 but your break-even is $5.48 because you own the $5 calls.

    The point of the buy/writes is to take LESS risk.  Giving yourself 20% built-in protection every time you enter a stock position is a great benefit over the long-run.  Yes, it limits your upside but, unless you have a 10-year history of averaging 20% a year in the markets and feel confident you can do the same in the next decade, this is a nice, sensible, conservative way to build a portfolio.

    As I mentioned last weekend, if you just put half your portfolio in plays that have a high probability of making 20%, then you can gamble the other half and even if you stop out at 20% on the whole other side, you can still come out even for the year.  If you are as good as you think you are and you make more than 20% on your gambling side – say 50%, then your average gain is 35% but that trade-off, earning 35% with a more conservative mix – is a lot better than gambling to make 50% on your whole portfolio and accidentally losing 50% even just one time and, if you are playing to make 50%, never kid yourself, you can also lose 50% just as easily… 


  173. @Phil
    RE: Alternative minimum tax:
     The vast majority of those making $250k or higher are already stuck in the AMT trap. Therefore the bulk of this increased tax burden (if AMT is not allowed to expire) would fall on those making between $100k and $250k.
     
    Estimates range from $4,000 to $6,000 increase in taxes per year for a $100,000 a yr. earner.
    For or against?


  174. Great article on Zell and the Times:

    During his first year in journalism, Zell has visited the city rooms and Washington bureaus of a number of Trib publications to deliver obscenity-laced warnings and threats to employees that whatever it was they were doing, it wasn’t working. There was too much coverage of world and national affairs, he told Times writers and editors; readers don’t want that stuff. Last week, the company decreed that its 12 papers would have to cut by 500 the number of pages they devoted every week to news, features and editorials, until the ratio of pages devoted to copy and pages devoted to advertising was a nice, even 1 to 1. At the Times, that would mean eliminating 82 pages a week.

    As the company prepares to shed more reporters, it has measured writers’ performances by the number of column inches of stories they ground out. It found, said one Zell executive, that the level of pages per reporter at one of Zell’s smaller papers, the Hartford Courant (about 300), greatly exceeded that at the Times (about 50). As one of the handful of major national papers, however, the Times employs the kind of investigative and expert beat reporters not found at most smaller papers. I could name a number of Times writers who labored for months on stories that went on to win Pulitzers and other prizes, and whose column-inch production, accordingly, was relatively light. Doing so, I fear, would only put their necks on Zell’s chopping block. So let me instead note that if The Post’s Dana Priest and Anne Hull, who spent months uncovering the scandalous conditions at Walter Reed Army Medical Center, and whose reporting not only won a Pulitzer but caused a shake-up in the Army’s treatment of wounded veterans, had been subjected to the Zellometer productivity index, they’d be prime candidates for termination.

    It’s Zell’s money, some would argue — only, it’s not. Of the $8.2 billion he used to take the paper private last year, Zell put up $315 million of his own money and used the employee stock ownership plan (without the consent of any employees, of course) to finance the rest. It’s all legal, but that hardly means the deal was good for journalism or the cities where Zell owns papers.

    Also, from Wikipedia:

    With an estimated net worth of US$3 billion, he is ranked as the 68th richest American by Forbes.[1]

    Zell was recently implicated in the complaint against Democratic Illinois Governor Rod Blagojevich. According to the Associated Press, Zell "got the message and is very sensitive to the issue." The issue in question was the firing of certain editorial staff members in exchange for tax breaks on the sale of Wrigley Field. [11] Zell has yet to state that he would not have fired the editor mentioned in the federal complaint in exchange for the tax break in question.

    In April 2008, Zell made a controversial comment about the subprime mortgage crisis at a conference in Los Angeles, where he stated, "This country needs a cleansing. We need to clean out all those people who never should have bought in the first place, and not give them sympathy.” [15]

    Tribune Deal Makes Zell Ace of Tax Dodgers:

    The $34-a-share, $8.2 billion buyout of Tribune is being run through an ESOP, using borrowed money. (Including Tribune’s existing debt, the transaction totals roughly $13 billion.) Now, watch: Zell is lending the post-buyout company — which we’ll call New Tribune — $225 million. He’ll pay it an additional $90 million for a warrant that gives him the right to buy 40 percent of it for prices ranging from $500 million to $600 million.

    After all the papers are shuffled, Tribune, currently a C corporation, will convert to an S corporation. New Tribune’s only shareholder will be the employee stock ownership plan, which — like all ESOPs and other employee-benefit plans — is tax-exempt. So New Tribune will be a tax-free company (with a few minor exceptions we won’t go into here).

    How will Zell and Tribune’s management avoid taxes on their pieces of New Tribune (40 percent and 8 percent, respectively)? Easy. Management will have "phantom stock," not real stock. It’ll get the economic benefit of ownership but not actual ownership and thus won’t be liable for taxes on New Tribune’s income. Zell’s warrant gives him the right to buy 40 percent of New Tribune, but he won’t owe tax on his 40 percent of New Tribune’s income because he won’t own any of its stock. (An aside: Zell will probably take his profit, if any, by selling his warrant in a tax-efficient way, not by holding New Tribune stock.)

    Sam Zell’s Next Tax Game Could Be With the Cubs:

    Tribune put Newsday into a partnership to which Cablevision Systems contributed $650 million of promissory notes. The partnership borrowed money secured by the notes and paid $630 million of the proceeds to Tribune. Tribune ended up with all that cash and a 2.8571 percent sliver of Newsday. Cablevision ended up with 97.1429 percent of Newsday and operating control.  Tribune claims the money is a nontaxable distribution from a leveraged partnership.

    A leading tax authority, Robert Willens of Robert Willens LLC, found the Newsday transaction so gamy that he’s told clients he expects the IRS to go after it. "The IRS has many weapons under the anti-abuse rules with which to attack this transaction, and I fully expect it to be challenged," Willens told me.

    So come on Pstas, where’s the outrage at the hypocrisy?  This guy is just the perfect example of the way the Billionaires control the media and push out the politicians they don’t like (Charlie Rangel tried to close the loophole Zell used with the Tribune deal and Zell had him investigated and tried Rangel in his papers).  This is a guy with an enemies list who goes after anyone who stands in his way (like Dick Durban and Rahm Emanuel, who opposed the Tribune deal) with no consideration of ethics and there is not just a Billion in taxes riding on who gets elected for Zell but also his imminent estate tax payment (he’s 70).


  175. AMT/Flips – Well a big portion of the "wasted" bailout money went to AMT tax relief last year, voted in by Devil Obama and that Democratic Congress so they do want to change it but can’t get the votes as all tax legislation is held up unless the Reps get their top 2% tax cuts to go along with it.  If the law isn’t changed, almost every taxpayer in the $100-$500K bracket will be subject to AMT, pushing into the top 1% while the top 1%, who the law was actually designed to keep in line, are outside it’s influence – what a joke! 

    WarAMTcostsadded.jpg

    CBPP Deficit Chart.jpg


  176. Outrage/hypocrisy/taxes
    Your point about wheather the unpaid taxes are out of line with the general population is a fair one. That would be interesting to know. Perhaps your contacts at the Washington Post could provide that info as they (according to the LA Times article) were the source for their story. I just found the point of the piece to be mildly ironic and entertaining in light of the current tax issue debate. If you have a beef with the article, take it up with the LA Times and the Post, not me.

    "yet another right-wing rag"

    Really?  – The Tribune endorsed Durbin, Emanuel and Obama in 2008

    http://www.chicagotribune.com/news/opinion/chi-08endorsements-htmlstory,0,5602186.htmlstory

    As to Rangall, I think he cooked his own goose. He did not need any help from Zell.

    Outrage? Yes – at a tax system so convoluted, complicated and corrupted that citizens (both rich and not so rich) are compelled to hire attorneys, CPA’s, estate planners, work out specialists, preparers, software developers, storage facilities just to navigate the maze.

     


  177. Thanks Phil,
     
    I took that RICK trade from your post on 6/21/2010 when I was a new member… now I know better.
     
    "Speaking of strip clubs – RICK is pretty cheap again at $8.85 and the Nov $10 puts and calls can be sold for $3 for a $5.85/8.93 entry, which is obviously bullish but I think this stock is very undervalued and you make a whopping 70% at Nov expiration if they are over $10."


  178. ARNA
    Good description of the FDA process http://www.gekkowire.com/


  179.  Good morning everyone.  I just put up a new article for this week about trading with an edge for monthly covered calls.  Click on my user id and let me know what you think.  It is easier for me to track comments on my website.


  180. Oh Boy, its Sam Zell’s fault that Charlie Rangel is a crook !
     
    Now I’ve heard everything !


  181. @Phil
    So you are in favor of the AMT and the additional  of $4,000 to $6,000 on top of the tax rate ( already in force confiscating the earner’s money), that would affect a $100,000 earner,  right? Just forget about the political shenanigans and who did what,  that one party plays on another, for once, and deal with the question WADR.


  182. As for Obama & his super majority Dem Congress not getting anything done do to those pesky minority Republicans, consider this:
     

    http://www.nypost.com/p/news/opinion/opedcolumnists/damned_by_success_AOcrx67rshnYt9aTtBcaCP#ixzz0zFCnK4g8
    The electoral crisis faced by Obama and the Democrats isn’t solvable between now and Nov. 2, and will be difficult even to mitigate.
    The problem is that Obama and the Democratic leadership in Congress have done what they wanted to do. They wanted a gigantic fiscal stimulus and they got it. They wanted health-care reform and they got it. As their supporters among the chattering classes argue incessantly, Obama has had a historic first 18 months with an astonishing record of achievement.

    They should be proud, no? Usually, successful people don’t want to hide from their successes.
    Except when they are catastrophic successes. And these were.
    In arguing for the enactment of these very dramatic policies, Obama and his people made claims they clearly now regret, as when his chief economic adviser said the unemployment rate would fall to 8 percent as a result of the stimulus. …….
     

    http://www.nypost.com/p/news/opinion/opedcolumnists/why_we_miss_bush_9o63exgvXPSRHG0LYe9bSK
     
    http://www.nypost.com/p/news/opinion/opedcolumnists/bam_in_the_bunker_wq02ywZxJFUza5mICzBQVK
    "still pitching ideas voters hate"
     
    And also:
     
    http://www.nypost.com/p/news/opinion/opedcolumnists/their_feast_our_famine_l4AlbMStL0ZEfdONzdUVdJ
     
    http://www.nypost.com/p/news/opinion/opedcolumnists/mta_free_pass_for_labor_3k0cEmL5vdi7AWbYeKWgUN
     
     
    As Deval Patrick recently said (paraphrasing)," the problem is we live in a free country; I wish it weren’t but that’s what we got.".   That’s the regret of the whole party in power, it seems, super majority’s aren’t enought, they know what’s good for us even when we say Hell No !


  183. ARNA/d – b’c if they are denied, they will be less than $3 if not less IMHO….Not worth the risk for me at this time.


  184. Good morning!

    Beef/Pstas – My beef is only with Zell (and Murdoch and others) who have taken over our media and use it to further their own objectives.  Of course Hearst controlled the press 100 years ago so I guess it’s nothing new and we should just all bend over and take it and, of course, when I say we, I mean the bottom 99%, who I do identify with even if I am not currenly one myself, having come from a humble background.  It’s not just an us and them thing though - I believe a healthy middle class is better for America and better for me.  I also think, as I’ve said before, that there is no need for a person to have more than $100M and not just because I don’t have $100M yet, but because I know plenty of people who do and I also know people who need $200,000 (5 times what they make in a year) to change their lives from struggle to something resembling the American dream and I simply do not believe that on person needing a 2nd $100M can possibly justify 500 people having less than they need to live a good life too.  

    As you say, our tax system is covoluted (on purpose) and the simple solution is a graduated flat tax with no exemptions, which is what the AMT started out as but it was never adjuststed for inflation (on purpose) and now taxes the wrong bracket while those at the top are back to paying 17% on average because they can afford all those CPAs, and estate planners and attorneys etc. and because a Billionaire like Zell can take $300M and use his accounting and legal team to concocat a multi-Billion dollar loss for himself to avoid all payment of taxes.  

    The reason you pay "a lot" of taxes is because Sam Zell and others like him pay none.  You can bitch about Government all you want but ours is not that different than any other in the World, they are all in debt but that’s neither here or there – we live in a country that currently costs $3.5Tn a year to run – you can vote to cut programs and lower costs and some people may say let’s cut the $1.5Tn miliatry portion of the budget and some may say the $45Bn Food Stamps program is the thing that’s killing us – that’s fine for debate but the bottom line is OUR country needs $3.5Tn to balance the books and if corporations and the top 1% simply paid 35% taxes without exemptions like the bottom 99% do, we would have a surplus, not a deficit.  

    What’s going on in America is the cheaters control the media and they make the pay less taxes, anti-government crowd look herioc – they are the people you should aspire to be like while those who want to balance our budget (as it exists now, not the future, fantasty-cut budget that is always promised and never delivered) the way it should be balanced – by everyone paying their fair share.  This is what cheaters do – call Geithner a cheat, call everyone in Congress a cheat, make it seem like there is so much cheating that there’s no point in looking into someone like poor Sam Zell, who’s just a humble newspaperman, after all.

    RICK/Bob – LOL, sorry about that.  I don’t know what I was thinking at the time as it’s very rare I look at spread that’s that bullish.  I think, at the time, I expected them to punch through resistance on the 50 dma at $9 but that didn’t happen at all, and they missed estimates by 50% and guided down since.  I do still like the business – how can you not like a business where the employees pay you to work there and the customers pay $10 for a beer? – but it’s a play on an economic recovery in Texas, Florida, NY (Financial guys love strip clubs) and, of course Vegas so this is not the right environment for a huge comeback in the near future.  Despite the top-line miss, they did drop $6.2M to the bottom line and they are even buying back their own stocks and paying dividends so nothing to run away from and hopefully there will be a better roll come November.

    Nice post RevTodd – thanks!

    AMT/Flips – I’m in favor of a flat tax to remove deductions.  The AMT is a poor and clumsy way to try to prevent deductions from running away so no, I don’t like it and, sadly, it is now being used as a football instead of having productive discussions on proper reform. 

    Wow Cap, the NY Post thinks Obama and the Dems are doing a poor job and that their ideas are not good for America?  That is truly shocking, thanks so much for bringing this incredible news to our attention.  Remind me to stop by your site and make endless links to the Huffington Post to "prove" the Republicans are idiots…

    I’m also shocked that there are "secret meetings of billionaires" to discuss the economy – who would have thought?   8-)

    Why are stocks moving higher when everything looks so bad? It seems the "less-bad trade" – when the market gets a lift from things not being as bad as investors had expected – has returned to Wall Street. But as investors continue to pull money out of equities, the chances of a breakout look dim.

    St. Louis Fed’s James Bullard says the central bank has moved closer to providing more support to the economy, adding that he doesn’t expect that action to become necessary. “If the Fed does take more action, I do not think it should be a shock and awe kind of move,” he says, preferring a more incremental approach.

    It’s hard for any central banker to walk a tightrope between future confidence and current credibility, and many of them think Bernanke lost his balance trying to convince us monetary policy can make a difference. If deflation gloom was the watchword at Jackson Hole, there are ways to play the situation -  including underweighting currencies of borrowing nations and credit of smaller and local governments.

    Horizon Bank of Bradenton, Fla., becomes the 119th FDIC-insured institution to fail this year, at an estimated cost to the Deposit Insurance Fund of $58.9M.


  185. I`m a chart guy.
    There are a lot of healthy signs in the charts.
    The railroads are all reaching new highs, the market leaders threatened a collapse then took off again (NFLX, GMCR, AMZN, CTSH, CMR etc)
    LULU, a stock I love to hate, went ballistic on earning.
    Some of the stocks Phil recommends for buy/writes look ready to move.
    MRK, CCJ, PFE, SPWRA, S (I own them)
    Others look like value plays very near significant support and worth a try though the charts are`nt bullish. ( I own them).
    UNG, GLW, JEC
    Some are so oversold and ignored, I think they need to be watched, they are just to good a value to be ignored.
    INTC, AMD, WDR, STX ( I don`t own them)
    The explosion of the ags makes me wonder why MON is being ignored, the chart certainly looks promising.
    A stock I am buying is ANF. Back in April, Credit Suisse realeased an upgrade that highlighted the companies international exposure which intrigued me. 8/31, it got an upgrade with a target price of $43. It was heavily sold last week, but held $35. Support at $32 and $30. Solid at $30 and below that I would think to sell.
    Options are liquid and spreads are small. I daytrade it a lot.
    Pays 2% dividend.
    12 JAN  35`s can be sold for $14.85 , stock is at $34.85. So you can get in for $20/ $27.50. 
    Retail may get a boost from LULU.


  186. Ha Ha Phil … .all those columns in the NY Post are syndicated columnists and in many other publications as well.  But you know that.
    So ignore the message; shoot the messenger.  As the articles I linked to provide clear, concise and hard to refute arguments and analysis, it is no surprise that your comments were limited to "well, NY Post, there ya go".
    :wink:
     
    As for tax policy, of course people (rich or not) will look for ways to minimize their taxes, most even do it legally.  And even the rich Democrats do that, imagine that !   Surely Buffett, Gates, Schmidt, Bloomberg, Gore, Burkle, etc. are quite expert in not paying more tax either, don’t ya think ?   And Obama’s raising the tax rates on the +250k rich, probably isn’t going to capture more $$ from these folks (on both sides) who will exploit every nuance of the tax code and create foundations to make sure the gov’t doesn’t get any of their dough.
     
    Its a big difference of course when our holier than thou elected and appointed officials in government, those responsible for writing and enforcing the tax laws, are tax cheats themselves, which is something you also seem to ignore.   "Do what we say, not what we do".   Geithner and Rangel are simply unfit to be in the positions they are in due to their own unethical behavior.  Surely you don’t disagree with that ?
     
    Anyway, off to fall Little League game; have a nice day !   Options expiration week is upon us ….


  187. Ben1be …. correct about the charts and stock movement.  However, the question remains, was this all a low volume headfake ?


  188. @Phil
    I’ve noticed your frequent referrals to the top 1@.  That if the Zells of this world paid 35% we would have a surplus.
    You may have put forth on this site, in the past,  some support for that statement.
    I’m a bit sceiptica…sceps…..scepit…..find it a bit dubious that this is the case. It just doesn’t seem possible that the top 1% are pulling down 2-3 trillion dollars every year.
    Is there a prior post I can view on this site?


  189. Charts/Ben – They are shaping up but Cap’s right (not about politics, but about the charts) – it may be a head-fake with this low volume.  Just as we thought the low-volume spring rally was BS, the same is possible here so it will take some time to confirm what’s real.  I wish I could get more excited but we’ve had so many false starts before, we just need to be a little overly cautious on the way up. 

    Post/Cap – Actually they are not very hard to refute but I’m still dealing with family stuff this weekend so enjoy… 

    Top 1%/Flips – Wow, I’ve done that dozens of times and when I say top 1%, I am including the corportations that pay no taxes (pretty much all of them).  I think the simple fact that they paid a grand total of $138Bn last year vs $2.1Bn of taxes paid by citizens on wages would be an easy tip-off that someone isn’t pulling their weight. 


  190. Phil, what you think about use credit spreads then sell puts to lower margins?


  191. Speaking of don’t shoot the messenger – Barry has a good post on latest Gallup poll illustrating why this election may not be as cut and dried as SOME people seem to think but go ahead and keep making tax breaks the key issue – we’re loving it! 

    Here is something that I hadn’t expected, probably due to the way Fin-Television has been covering this issue:  Only “one in three Americans, including a minority of independents and Democrats, in favor of extending the Bush-era tax cuts for all taxpayers.”

    Geez, based on the typical Squawk Box/Fox Business/NBC/ABC/CBS coverage, I was under the impression that a tiny minority of people were against this. (Remind me again why I watch other than Louie and Entourage?).

    The data comes is according to a USA Today/Gallup poll:

    “A majority of Americans favor letting the tax cuts enacted during the Bush administration expire for the wealthy. While 37% support keeping the tax cuts for all Americans, 44% want them extended only for those making less than $250,000 and 15% think they should expire for all taxpayers . . .

    The fate of the 2001 and 2003 federal income tax cuts that were a centerpiece of Bush administration policy could be a significant campaign issue this fall. The tax cuts are set to expire after this year unless Congress votes to extend them. Congress plans to take up the issue next week when it returns to session.

    It appears as though Congress, like the American public, broadly agrees that the tax cuts should be extended for American families earning less than $250,000. The debate Congress will have this fall will be over whether to extend the tax cuts for wealthier Americans. Most Republicans and some Democrats in Congress are thought to favor extending them for wealthier Americans. President Obama said Wednesday that he is opposed to any plan that wo7uld extend the tax cuts for wealthier Americans.”

    That adds up it 59% who favor letting the top bracket cuts (defined as $250k per year)  expire.

    Pretty fascinating stuff, given the opposite impression the news has created.

    >

    As Caroline Baum has written, this is precisely as as George Bush intended. If the Bush White House wanted a permanent tax cut, then they should have passed it through ordinary legislation, and not as part of a reconciliation bill (which automatically expires after 9 years) . . .


  192. Credit spreds/Pahur – I don’t think selling naked puts is going to lower margins unless you have a PM account but if you mean take a calendar spread rather than a vertical and sell a put for an extended sort of artificial buy/write – there’s nothing wrogn with that strategy. 


  193. Sry, my bad english.  Yes, I mean selling verticals not naked put if time frame  is shorter. For example if I sell HOV nov 4 P for 0,6, then if I can buy nov 2,5 P for 0.05 its 250 dollar less margin?


  194. Hey, at least I’m right about something !  …
    :wink:


  195. Tax Cuts:   That’s 81% in favor of them being extended (split between everyone and excluding top bracket – no surprise that would be split.  And 15% in favor of letting them expire.


  196. But whatever, this coming election is not going to be about tax cuts or tax increases, although it will play a part.
    Its gonna be about the economy; dissatisfaction with Obama and his agenda; dissatisfaction with Congress / incumbents.
    I am not going to prognosticate the election, but it looks like there will be significant turnover, the only question being can the Dems hold on to 1 or both houses of Congress, or will this be an historic drubbing ?  My votes in NY won’t matter too much to any particular outcome.


  197. Interesting chart on volume going back 5 yrs noting downward trend and so far, lack of Sept spike.
    http://stockcharts.com/h-sc/ui?s=$NYTV&p=W&b=3&g=0&id=p42264863483&listNum=33&a=208287207
    And, this one showing high volume sell-offs and low volume runs.
    http://stockcharts.com/h-sc/ui?s=$NYTV&p=D&b=9&g=0&id=p98647558538&listNum=33&a=208350806
    Nothing new here – just another look at what we already know. Could this be the new normal?


  198. And everybody loves cash:
    http://www.businessweek.com/investing/insights/blog/archives/2010/09/cash_stats_getting_extreme_it_cash_24x_income_18_of_mkt_val.html
    Especially IT/Cisco--
    Cisco Systems had the largest holdings of cash and equivalents, with $39.9 billion, which represents 33.8% of its market value, four times its 2011 street operating estimate (July,’11), five times it’s last four quarters of buybacks and infinity over its Nil dividend rate
    Historically, many companies have done some very dumb things when they have a lot of cash burning holes in pockets instead of returning the "excess’ to shareholders. Sure will be fun to see how this plays out over the next few years.