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September’s Dozen Update

It's only been three weeks but it's time for an update!

Back on the 3rd, I had said: "Let’s take a look at a quick dozen trade ideas for short-term gains.  I like all these stocks long-term too (it’s always better to play short-term where your fallback is you own the stock long-term) but we haven’t been doing much gambling lately as it’s all been boring-old hedged positions that were smart, but not really giving us that immediate satisfaction you can get from some quick, monthly gains."

And what a month it's been, a dozen stocks, about 30 different trade ideas and we're already up to our 50% and 100% goals on most of the shorter-term ones.  The longer-term positions are mostly looking good and we have hedged to cover them but let's go over each postiion to make sure it's worth keeping.   I already called an out on HMY as they poked through $11.50 the other day but that was a directional trade (the October $10s) that was already up 133% and one thing we're not is greedy, right? 

HMY was the only trade that was a pure short-term, directional trade.  Virtually every othe stock had longer components and that's where our decision-making process comes in.  I went over the logic of each entry in the original post and I won't rehash it here as we'll just look over the possible trade adjustments and decide what looks good to keep and what to cash.  For purposes of this discussion, we'll use this multi-chart which indicates the 20 (blue) and 50 (red) dma:

So, how worried are we?  We picked these stocks based on fundamentals.  As you can see, they certainly didn't have any upward momentum on Sept 3rd!  It should be no surprise that they outperformed as the market rose 10% for the month but the question we have to ask now is: How comfortable do we feel about holding them through a downturn?  One of the reasons we us disaster hedges and short-term hedges is that, rather than just feel compelled to cash out as we hit resistance on our positions, we now have a cushion that we can sit back and CALMLY observe how our stocks handle a market pullback

BRCM

  • Sept $32 calls at $1.25, out at $3 – up 140%
  • Oct $30 puts sold for .70, now .20, up 71%
  • Jan $30/34 bull call spread at $2.15, now $2.45 – up 14%
  • 2012 $22.50 puts sold for $2, now $1.70 – up 15%

What we have here is the end of a very aggressive directional play where we used the sale of the $30 puts to pay for the $32 calls for net .55 on that pair.  These are great plays for situations like we had on the 3rd, where we weren't sure BRCM would go up, but we sure felt good about entering a position at $30, or net $30.55 as the case may have been.  Once you complete one leg of a trade like this, you have to think long and hard about the risk you are taking with the other leg. 

On the one hand, the extra $1.75 profit means we are lowering our basis on the Oct $30 puts to $28.05 but boy will we be pissed at this point if we get assigned there.  At $33.87, it's not a big concern but we need to set a stop at .35 on the puts, so we don't give up more than .15 of our gains. 

On the longer spread it's a little different.  Are we willing to buy BRCM for net $22.65 in Jan 2012?  If yes, then the $30/34 bull call spread is essentially a free trade other than the patience required to get our $2 back (when the $22.50 puts sold expire) but, selling a long put, that's what we expect anyway.  I still like that put sale naked, even at $1.70 as it's a hell of a discount on BRCM. 

Anyway, what have we learned since September 3rd (see Microwave Oven Theory) to help us decide what to do going forward?  BRCM topped out at $36 in mid-September but then dropped hard and fast through the 50 and 200 dma back to $32 – but held that!  Overall, their move was WEAKER than the SOX, which went straight up 13% during the same time-frame so, from a technical perspective, BRCM is not that strong.  Since we paid $2.15 for the bull call spread, we need $32.15 to break even and the most we can make is $1.85 on that leg so, at up .30, if they fail to hold $33.50 we can just kill this leg and ride out the short-put.     

TRLG

  • Apr $15 puts sold for $1.50, now $1 – up 50%
  • Jan $17.50 buy/wite at $13.45/15.48 – on target (TRLG at $20.88)

This one is a no-brainer as we are way in the money so no worries unless we fail that rising 20 dma.  Actually, if they do fall back to the 20 dma and hold up, I'd be inclined to make a more aggressive upside play on them as they are a very nice retailer (with good ads!). 

KR - I dropped the chart for KR as it's the same as SWY with all the same fundies as SWY and we can only do 9 charts at a time… 

  • 2012 $20 puts sold for $2.65, now $1.80 – up 32%
  • Oct $19/$21 bull call spread at $1.75, now $1.65 – down 6%
  • April $18 calls at $3.20, now $4.50 – up 40%

What was originally an Oct $19/Sept $20 bull call spread burned us and the roll to the Oct $21s cost another .80 so, at this point, it's better to take the small loss on the spread and move on.  The Apr $18 calls need a very tight stop – pretty much if the now $22.09 stock can't hold $22 but the puts make a nice net entry of $17.35 so that's just a matter of whether you like them for a long-term play or not.

SWY – Don't forget the theme was value and safety last month.  If the market breaks higher, safety becomes a bit less of a concern and grocery stores start to seem a little dull(er). 

  • 2012 $17.50 puts sold for $2.10, now $1.45 – up 30%
  • Oct $18 calls at $1.65, now $3.20 – up 93%
  • Jan $17.50/20 bull call spread at $1.45, now $1.95 – up 34%
  • Jan $17.50 puts sold for .85, now .30 – up 58%

Again, these are always tough but now it's tying up way more money than we comitted and that's the bottom line.  This is how much these positions made in 3 weeks so the question is will we make 20% more next month (at least) with these same positions at little risk or are we better off going to cash and PATIENTLY waiting for the next really good opportunity.  I think B is the obvious choice for a grocery store that's up 12.5% in 3 weeks

I guess this kind of goes towards what our general market outlook is.  We are in the middle of the upper end of our range with perhaps (we think) another 5% left to move up before we become seriously concerned the indexes are overbought.  They are a bit overbought now due to the speed and low-volume of the recent rise – it's like building a house of cards fast instead of carefully – it's much more likey to fall, and low volume is like removing one quarter of the cards holding things up.  A rational person will get more and more nervous as each level is added, right? 

HRB 

  • Jan $11 puts sold for .85, now .50 – up 41%

This is just a toss at a cheap entry so no need to do anything other than wait for the other 59%.

NDAQ

  • 2012 $17.50 puts sold at $2.50, now $2.10 – up 14%
  • Jan $19 calls at $1.40, now $2 – up 50%
  • March $15/19 bull call spread at $2.50, now $2.90 – up 16%
  • March $17 puts sold for $1.20, now .70 – up 42%

Notice how those sold puts perform much better than the vertical part of an artificial buy/write.  This is why I'm not a big fan of stand-alone verticals, you don't get an early pay-off…  This one went just like we thought with the markets coming back adding fundamental support so no reason to bail on this one as long as they hold the 50 dma at $19.50.  

SNDK

  • Jan $32 puts sold for $3, now $2.40 – up 20%
  • Oct $32/36 bull call spread at $2.50, now $2.75, up 10%
  • Oct $35 puts sold for $2.20, now $1.25 – up 43%
  • Sept $35/37 bull call spread at $1, expired at $2 – up 100%
  • Oct $33 puts sold for $1.40, now .60 – up 57%

Like BRCM they are all over the place and weaker than the SOX but we like them for a long-term hold and we already cashed $1 so good unless we begin breaking down, at which point we salvage what we can.  The stock is at $35.85 so it does seem kind of silly to give up on the Oct $32/36 spread with just a quarter (out of $1.50 possible) unless there's a good reason.  Do we think they hold $32 through Jan?  Yes, so it's really all about watching the October positions with stops.  

IRM 

  • Apr $20 puts sold for $1.70, now $1.25 – up 26%
  • Apr $17.50 calls at $4.30, now $4.65 – up 8%
  • Apr $17.50/22.50 bull call spread at $2.90, still $2.90 – even 
  • Apr $20 puts sold for $1.70, now $1.25 – up 26%
  • Oct $22.50 calls at .30, still .30 – even 

We didn't think this one was going to be exciting but it's going nicely and if they pop that 50 dma at $22.10 – it WILL be exciting!  If we get rejected then we can be a bit concerned but it is a 10% run so a little pullback is to be expected.  

DV

  • Oct $35 calls at $5.80, now $12.10 – up 108%
  • Feb $30/40 bull call spread at $5.50, now $7 – up 27%
  • Feb $40 puts sold for $5, now $2.50 – up 50%

I'm proud of this one as it's the kind of play we should always aspire to look for.  The sector was beaten down severely and, as I said back in the original post, DeVry is NOT like all these BS diploma mills, they've been around since the 30s and are a highly respected institution.  Obviously the October calls are a stop-out if they fall to 100% or if the market looks week. The Feb combo is a nice net entry at $40.50 so no need to worry unless they blow $45.

TXT – We're rolling the dice on this one as we don't know where the military end of the budget ax will fall.  They popped 10% off our entry and are looking strong over the 200 dma at $20.15 so that is going to be our watch line.

  • Jan $16 puts sold for $1.20, now .53 – up 56%
  • Jan $16/19 bull call spread at $1.70, now $2.20 – up 29%
  • 2012 buy/write at $10.20/12.60 – on target

I was super-bullish on these guys at $18.40 and I still like them at $20.74 so the spread stays.  Notice in the original post I had 3 different ways of doing that $16 put sale as a net $14.80 entry was just silly.  I even suggested selling 2x the $16 puts to overpay for the spread – that one worked out great!  

All in all, a very good set of picks and I've been thinking of putting up some short plays for October but I want to see what's what in the week ahead as we can still go either way and we're certainly bearish enough in our covers.  There's a reason I only do posts like this once in a while – I like to do them when the results are likely to be like these!  

 


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  1. arbolito
    Weeklies you find on the TOS trading platform if you open the trades put in the relevant stk in this case AAPL and look under Sept options and you find the weeklies. I trade with TOS = Thinkorswim others have other trading platforms. Should you not have a trading platform this is the first thing you need to realy trade. Most brokers like TOS have two platforms one for paper trading with a reset button, this is always the best to start with, before you lose any money.
    good luck


  2. YODI: Thanks a lot. It has taken me some time to get used to the lingo, and I am really learning a lot. Most of the time I can’t follow, but I have managed to hedge my portfolio with the buy/writes and still working on some ideas. Now I have to put my hedges in place but I still don;t understand them too well. For example how many and which hedges should I use to protect awhat amount of shares, It is ablur to me. Any help would be soooooooooooo appreciated.


  3. Tusca: In case you are watching, how would you play SKX, I realy loved the stock. buy writes and if so which strike and time? Can you help me with this? Tha nks a lot


  4. Yodi: I have 2000 SLV at 18.00 of which I sold jan 11 21 calls for .85. Stock trading around 21, what should I do with this, I don’t  quite understand the roll over strategy, can you pls go over that with me?


  5. September Phil, just a heads up on he spelling in your posts title :-)

    This is why we’ve seen a slight slowdown In production..  Most notebook ODMs to ship record highs in September
     
    Most ODM notebook makers are expected to see their shipments hit record high levels in September 2010, with Quanta Computer’s shipments likely to reach five million units, Compal Electronics 4.5 million units, and Wistron 2.5 million units, according to industry sources.
    Quanta is expected to ship a total of 13-13.2 million notebooks in the third quarter down 3-5% from 13.7 million units shipped in the second quarter. The company shipped 3.6 million notebooks in July and 4.4 million units in August.
    Meanwhile, Quanta has reportedly landed orders for 11.6-inch MacBooks from Apple. Shipments of 11.6-inch MacBooks are expected to top 400,000-500,000 units in 2010.
    However, Quanta and Compal both are expected to see their notebook shipments begin to slow down in October


  6.  JRW- I’m sure you have better things to do on the weekend (I certainly would if I lived where you do!), but I was wondering if you might be willing to give an idea of the framework you use every morning to approach calculation of confluence lines. I’d like to try applying your technique to other issues. I know you take fibonacci retracements off of multiple trend lines and compare them to swing high/lows, gaps, and moving averages, but how do you organize the process? What do you start with? For example, do you first look at projections from a particular current moving average, then move on to others, then swings, gaps, etc? If so, which ones? I’d like to use your method as a jumping off point for my own calculations because your technique is so accurate. 


  7. Phil,
    The interview (under you favorites) with David Tepper was very good. I think he does a good job of putting everything into perspective. In case some of your newer members read this post, I would like to make a comment. There are many intelligent people giving trade and economic ideas on this site, but after several months of observation I believe Phil to be the only one who can consistently make trading decisions without his emotions guiding his decisions. Phil, I am definitely not saying you are not emotional, but I am saying the trading decisions and suggestions you give to your members appear to be based on your best guess after studying as many factors as possible and are not made because of your love or hate for any particular political party. If some of your more tenured members think they too make unemotional investment decisions I suggest they go back and read their own posts when the markets are down and contrast those with their posts when the market is up.


  8.  rj_jarboe 
    That`s an interesting and thoughtful post.
    Phil is a real professional, with a trading strategy that he adheres to despite seeming to be a highly emotional individual. 
    There are others who seem highly professional: JRW, Pharmboy, Chaps, and others I`m surely missing.
    I think you may underestimate the other veteran members because they are so vocal politically. The most amazing thing here, for me at least, is when it comes to making money, politics be damned. The most political and emotional posters are such successful egotists that they are`nt looking for Phil to trade for them, they are thinking and adding invaluable ideas to the board.
    For instance:  Gel, is highly political AND emotional, yet a lot of his trading ideas are money. The trading style and entries are`nt for me, and they may be influenced by his politics, but I had never heard of IDCC or numerous other stocks he offer, now they are in my chart list and at some point are going to be a big winner in my trading system.
    Tusca, he`s pretty emotional about SKX iright now , and I don`t agree with the entry , but its a great gift to all of us and how much money are we going to put in our pockets on that?
    Iflan,, with this AAPL thing, he`s on a ride with the trend and what a contribution he`s making.
    There are others I`m missing who have made me money.
    I guess what I`m saying is that you`re right in what you say, but if you can filter the other posters for their amateur enthusiasm, their contributions are extremely valuable. And that is what makes this board the gem it is.


  9. arbolito
    Well lets start with silver trust. This silver fund works in conjuncion with the rise and fall of silver. Even that silver is not to much in the lime light it somewhat goes up with the gold. Gold reached 1300 the other day and some are looking for 2000. It all depends how the world manages its finances. Not to good at present printing paper money like it is going out of facion. I remember my father wallpapering the wall with note as they were cheaper than buying wall paper.
    So I would hold the 2000 shares. You sold the 21 jan 11 caller for .85 which was 3$ OTM when you entered the trade. the same option is now trading for 1.47. However the complete amout is total premium (extrinsic value) The .85 you received is always yours however at the time you limited the profit for the stock at 21. So you actually gained sofare 3.85 on the play. You do not roll anything at this time as nobody will call a stock away with 100% premium. The 1.47 could as well be 5.00. However if your stock goes further  until Jan to 21.85 it has reached the limit of your premium you received.
    Savegarding your stock you possible will have to wait till Jan11 to see what silver it trading for. Remember time is always on the sellers side and say the silver would go up to 25$ just before experation date the 21 caller would have than 4.00 in Intrinsic value and possible would be trading for an other 1.00 in time value which is running out fast. Until
    the stock runs out of time value you do not have to roll. At the time you find the caller is trading for say 4.05 to 4.10 stk being still 25$ you think of rolling to one of the following month. Check out that you do not want to pay more for any roll as you received to save your stock being max. 3.85. However the would be a very high amount to pay for a roll possible you would roll at that time by paying around 1.00 protecting your stock up to 28 or even 30.00
    I trust as this is understandable in my German English, and I can see the smile on Phil’s face. 
    SKX was trade as follows> I purchased the stock at 21.75  


  10. Sorry clicked the rong button
    sold the OCT 21 call for 1.70 and sold the Jan 11 put 22.5 for 3.20 giving you a down protection to 17.60. I trust this will make sence to you.
    Alway buy in small quantaties as the 2000 stock in silver would be high to sell 20 options. You can always protect your stock by buying a further out and out of the money put. Even that buying calls and puts is for suckers as Phil would say.
    good luck


  11. Portfolio/Arbolito – Please do not repost entire posts into commments.  It makes it annoying to read for everyone and we are forced to mark it as spam (ie, a comment to be deleted) and then the system begins to consider you a spammer, which will lead to more of your comments held up for moderation.  I track the portfolios (virtual, of course) that are under the Portfolio Tab.  The idea is to help people learn and review over time.  As you know, I’m always happy to help (well usually happy) with suggestions for your own positions.  What we DO NOT WANT is to end up like Cramer, where all the members stampede in and out of positions at the same time, which also leaves them vulnerable to attacks (like the time we shorted AMZN en masse).  The idea is for YOU to learn how to construct, manage and BALANCE your own portfolio – not to follow any particular one.  

    Buy/writes/Arbolito – Also be aware that the VIX is much lower now so trades that seemed like a good idea a month ago,  with the VIX at 27, don’t seem as safe with the VIX at 21.  Why?  Because if you sell a short put with the VIX at 21 and the market goes down, not only will you lose money from the increase in delta and position but the deltas will expand 20% as the VIX climbs back up so you can go down 40% literally one day after you sell a short put – that’s why you don’t see as many picks for them when the market is on an up-swing.  I strongly recommend you read the original of this post as well as the logic of our changes in the above post (taking longer than I thought because I average about an hour of research to write about each stock) and that you also go back over Sage’s articles on "Smart Portfolio Management" – also back in the Portfolio section.  

    What you cannot do is pull year-old portfolios looking for trades.  Looking to learn – absolutely but looking for trades – NO WAY.  The market conditions change constantly and that’s why I rarely put up big list like the one above (aside from the ridiculous amount of my time it takes to do it – it has to be when I’m VERY confident that the conditions are right to post a bunch of trade ideas that a lot of people may follow).  On the other hand, there are more trade ideas each week in chat than on one of these posts and they are current and up to the minute for the market conditions – learn to balance a portfolio, learn to understand what kind of trade you are looking for to give yourself better balance and then PATIENTLY wait for an idea that fits the bill to come up.   The worst thing you can do is say "I need to buy 20 things for $300,000 on Monday" – not that you said that but it’s the kind of mentality that gets people into trouble.  Scale, SCAle, SCALE is the key to success along with BALANCE.

    Spelling/Kustomz – Thanks!  Notebooks much better than I expected.  Makes INTC seem like a buy again.

    Tepper/RJ – Good point.  I am a little unemotional.  My Dad was downright detached (Mom left him), I get my passions from her but I do have a knack to switch them off and go all analytical, which you absolutely have to do with the markets. 

    Emotional/Ben – Same as above except I will point out that a lot of it (in regard to trading) is a funcition of experience.  The same way they subject army trainees to constant combat drills, you too will become battle-hardened once you ride out a few market cycles.  Also like the army, we can teach you what opportunities to look for to advance your postions and how to survive adverse conditions and, as I was saying to Arbolito above, most importantly, how to contruct a balanced portfolio that greatly increases your chance of success in any situation and preparing you for battle is what it’s always about.  We are actually lucky becuase, in the last few years, we’ve had real-time experience of situations that were only read about in books by most taders.  Look how calm we all are on up 200 and down 200 days – that’s nuts!  I remember when a down 200 WEEK would have made the cover of Time…


  12. Phil, regarding the ADBE trades from earlier.  I am in the stock at $29 (bought after hours following one of your posts that it was a good value when it hit $30 after hours).  If I want to switch to a options-based position, what would you recommend?  Also, I am grappling with the contradiction of an impending sell-off in the NASDAQ (hence your QID calls recommendation) and a rise in ADBE.  Can both happen?


  13. RIGHT ON PLIL THIS IS THE ISSUE OF BALANCE1


  14. Just a few examples, maybe fans are just staying home and enjoying sports on there HDTV’s and socializing on the Internet but attendance is declining at most sporting events and certainly not what I expected to find in an economy that’s on the mend..data may seem rudimentary and a bit crude but I dont work for CNBC

    MLB attendance
    Seven teams have drawn over 100,000 less fans in 2010 than in 2009 with the New York Mets topping the list with a loss of over 341,000 fans. The Toronto Blue Jays, with a loss of over 273,000 fans, the Indians, drawing over 271,000, and even the Milwaukee Brewers, who Selig used to own, have drawn over 217,000 fewer fans.
    http://bleacherreport.com/articles/435327-mlb-attendance-down-701000

    Nascar
    Writer Ben Austen noted that since 2006 attendance at races had steadily declined.
    Officials blame the economy for the poor showing, but Austen said TV viewership had also plummeted, corporate sponsors have been pulling out and the company that makes NASCAR collectibles has been teetering near bankruptcy.
    To fill the stands at the 2010 Daytona 500, NASCAR’s biggest race, Austen said, the speedway "had to cut the price on many tickets by half, remove seats and reduce what it charged for concessions and merchandise."
    What happened? The sport appeared to besoaring when last I left. Now, said Austen, it is in freefall.
     http://www.thesunnews.com/2010/09/25/1714361/whats-missing-in-nascar.html#ixzz10c0DZRtp

     
    DOVER, Del. — Although Vice President Joe Biden called this the "Summer of Recovery," NASCAR apparently didn’t get the message. Money is still tight, and teams are folding due to a lack of funding.
    And with no recovery in sight.
    "It’s definitely the toughest I’ve ever seen it," car owner Rick Hendrick said. "Of course, I guess the economy is as tough as I’ve ever seen it, and what you have is most everybody is wanting to cut back some if they can."
    http://jacksonville.com/sports/racing/2010-09-21/story/nascars-economic-engine-still-sputtering

    NFL
    I’m not alone in my avoidance of the stadium experience. The NFL expects its overall attendance to drop for the third straight season and sink to levels not seen since 1998.
    http://hutchnews.com/Sports/sangimino2010-09-25T22-27-19
     


  15.  Gel,
    Regarding your post on taxes the other day:
    Although I disagree with you, it was was reasonable and reflective of your strong beliefs on the matter.
    For someone who prides himself on being a student of history, though, I think you`re missing the bigger picture.
    1. This is not the same country it was in the 1930`s.  No one is going to wait patiently in a soup line while their family slowly starves. Everyone sees themselves as entitled and everyone is armed.
    2. Despite all the Liberal rhetoric, social programs are put in place in order to maintain a certain level of stability in society. A pacified majority does`nt have to take what it needs to survive. The reasons for their status are really moot. They exist.
    3. Again, despite the rhetoric, most governments, including ours,  are established to protect wealth by creating a workable civil structure. 
    4. The wealthy inevitably control the government which serves their needs.
    5. Eventually, the wealthy decide (or nature decides by crop failure or natural disaster) that  they are`nt going to pay the price for stability. They use the arms of government to refuse a safety net to the have-nots. 
    6. Civil unrest results.
    7. At this point, the smart ones leave the country, even though they have to abandon a portion of their wealth in property and goods.
    The greedy and shortsighted refuse to abandon anything.
    8. As civil unrest escalates, the wealthy call in agents of protection, hired hands, the police, and finally the military.
    9. Those agents eventually realize its easier to take the wealth than protect it.
    10. The greedy end up with their heads being paraded through the streets on pikes.
    11. Chaos
    12. Repeat steps 1 thro 11
    I`d say we are just getting ready to strip the safety net, and though the consequences might not be fully felt in our generation, if we continue down this road, quoting from the Deer Hunter, " this place is gonna get caught in a terrible sh**tstorm".


  16.  ADBE/Jordan – It’s still a good value at $30 but very important to scale in to any purchase, then you would have room to DD at $26 but no biggie at $29, either on this one, even though 10% is a lot generally.  For one thing, you can sell the Apr $25 puts for $1.90 and $29 calls for $1.90 and that drops your net to $25.20/25.10.  If you want to flip to an artificial, I like the 2012 $22.50/30 bull call spread at $3.70, selling the $22.50 puts for $2.15 for net $1.55 on the $7.50 spread that’s starting out $4.37 in the money (up 182% if they hold $26.87).

    Sports/Kustomz – The football is most disturbing as generally you have to wait for a season ticket so that means people are opting out long-term.  Of course, the new prices they are charging in many stadiums are insane anyway and they are destroying their own games by making it too expensive for families to take their kids – I spend as much money to take Tina and the kids to a Yankee game (at LEAST $600 by the time you are done) as it costs to buy the kids an HDTV – very hard to justify the game.  When I was a kid, bleacher seats were $5 and box seats were $20 and a $1 was the cost of a Coke or a hot dog or Cracker Jacks – maybe less but that’s what I remember.  T-shirts were $5, that I know as I have a ton.

    This is why sports are dying.   When I was a kid, I went to a ballgame at least once a month, my kids haven’t even gone to one per year and many kids in my neighborhood have been once their whole lives (but still I don’t know anyone here who never went).  How can they afford to become fans at these prices?

    ticket1.bmp

    ticket2.GIF

     

    Barron’s Alan Abelson asks for a little discretion from those ready to slam the door behind departing Obama aide Larry Summers: "Whatever Larry’s flaws, it isn’t every man who can boast of having screwed up the economy under two presidents." (via

    Who let the bulls in? Market watchers detect "a big psychological switch in just the past few weeks to the point where it’s scary how fast things have shifted." But without volume, it means nothing more than "machines talking to one another." 

    James Grant craftily eviscerates John Kenneth Galbraith, the non-economist’s (non) economist: "When, for example, Galbraith complains that governments can’t borrow enough, or that the Federal Reserve is powerless to resist inflation, you wonder what country he was writing about, or even what planet he was living on." 

    The American dream is dead: We grew up with the promise that hard workers would get ahead, but now only half the country believes it. Or perhaps all the angst is overwrought and alarmist - things aren’t perfect, but they’re far from disastrous. 

    The U.S. government moves in to seize three wholesale credit unions and announces a sweeping plan to manage $50B of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30B-$35B in government guaranteed bonds, backed by mortgage-backed securities.

    What are the chances they’ll knock down some of the multi-billion dollar Dubai skyscrapers for lack of tenants? Really? 

    Whether you’re looking at the fundamentals or the charts, does the dollar have anywhere to go in the near term but lower? An "ugly contest" is under way for global currencies, but don’t bet against the greenback in a race to the bottom. 

    After years of having their orders picked off by nimble high-frequency traders, fund managers are gathering with an eye toward new restrictions on fast trading.


  17. New post on BIIB on the main page.


  18. Ben
    I appreciate your thoughts, as I recognize I have a tendency to become very passionate about the subject of taxes. We are all a product of our individual collective experiences in life, and I have to tell you I have been audited consistently over my carreer by the IRS, as well as the state taxing agencies. Some of the audits took many years to resolve, and I spent a fortune in money and time working through these horrible experiences with the help of my very expensive accountants. This activity was surely precipitated by my income level ( which was always very high ) and the fact I was very heavily invested in foreign assets and entities. I guess I fit their targeted profile. As a result of this long protracted effort to bring me down, I became very bitter. After scores of audits, the IRS and the Franchise Tax Board found my returns were accurate to the penny, and in a couple of cases I received a refund from the process. All of these auditors went into the process with a presumption I must be cheating, because I was so successful financially, and because of their bias and desire to bring me down, they wasted on hell of a lot of the governments money in their quest. I will never be able to forgive our government for this activity. I see the same today, in the current administration trying to bring down anybody that is successful, in hopes of raising up some who are not. Ben, I truly wish I could get over this angst, but it is too ingrained in my attitude for the reasons I have stated. I’m orry for pressing this issue as it is I’m sure not popular with so many that read my posts.
     
    My three years in law school were spent , for the most part, trying to understand legal issues and debating one side or another relative to how the issues might interface with case hstory or statute law. These were basicially "mind exercises" that serve to better prepare you for your eventual activities as a lawyer. I always enjoyed this challenge, and for this reason I sometimes take an adversarial position that is the opposition to Phil’s very direct positions politicially. Some of it is "tounge in cheek" and my commentary is offered primarily for recreation, and the re-enactment of some debate exercises. I hope it is not offensive, and that I am not taken totally serious about some of the statements.
     
    I have been very fortunate over the years as an investor. Last year was on of my best in terms of percentage gains. I have to attribute much of this success to my membership in PSW which gave me the best education available anywhere when it comes to the understanding of option trading , discipline and general trading strategies. I will be forever grateful to Phil and the many "highly skilled" traders that have offered their advice. In an effort to express my appreciation, I occasionally post some of my "findings" from the research that I continually pursue. I am fortunate that over the years I have been able to accumulate some of the best research available anywhere, and I post only the plays that I am in, and feel comfortable suggesting. Many I take positions in are very risky, and I do not suggest these type of plays in my PSW posts.. I get some direct advice from guys I have known personally for many years, that are correct over 80% of the time, so this is investing and not gambling.
     
    Your post makes a lot of sense… and as you say, we must above all else, maintain peace in the streets, and this is a very contentious difficult balancing act.


  19. Hey, bleacher prices have only doubled!!  Love the bleachers.


  20. Yodi: Vielen Dank for your nice explanations. Clear as water to me. Bis bald.


  21. Phil: So sorry to have done that large post. Never again, I promise. Again thanks so much for your advice. With it I have managed to hedge my FRO’s and my SLV’s and now I am with Pharm’s ideas trying to hedge my PGH’s. These are very old positions in my portfolio and I have been collecting a very nice dividend. I did manage to execute your ADBE suggestion and I am in with 5 contracts. Now I like SKX and considering you also said "one of the best buys now" I will try to do what Yodi did. I have another loser in it, GRO, and I am reluctant to lose so much, Any suggestions. I do want to grow my 400K portfolio to 10 positions. I am following the blog and learning, every day a new thing, but as a newbie, I am also afraid of missing something important, which of course happens all the time. I am working on uderstanding the hedges, and even though I think i’ve grasped the bone, the detail eludes me. I will get back to you on that. Another comment: I really enjoy your passion when you get political and your comments are not only informed, and accurate but full of social conscience. Wish we all had a bit of that, but I guess as we grow older we get more selfish. speaking for myself. Thanks again.


  22. arbolito
     
    I am sorry to see the blow up you resceived in respect of SPAM. I only tried to help. To avoid spam you welcome to use my email yodiet@live.com we all try to learn and understand a bit more.


  23. yodi SXK bought stock @ 21.75
    sold the OCT 21 call for 1.70 and sold the Jan 11 put 22.5 for 3.20 giving you a down protection to 17.60. I trust this will make sence to you. Sorry Jodi cannot follow the math: you received 1.70 for the C plus 3.20 for the put, different expiration dates. Stock 21.75 minus 4.90= 16.65. I arrive at 16.65. COuld you pls do the math for me in a ver simple way "apfle mit apfel" Danke schoen.


  24. IRS/Gel – Wow, that’s a great post.  Thanks for sharing!  I totally get where you are coming from now.  I could never put together how you went so far right but I see, I empathize and I kind of agree with you there as well.  The system is insane but I’d like to reform it so there are no loopholes to investigate and everyone does pay their share.  Thanks also for the kind words, you are an excellent contributor and I don’t have to agree with someone to respect their opinions – yours are most valued!  

    Bleachers/Pharm – Hmm, maybe you are right and I just need to get out of the boxes…  I’m sure plenty of kids grew up watching from the bleachers but then you get into the issue of "it’s better on TV".   By the way, check out this excellent ticket map on TicketsNow – what a great way to pick seats!

    No problem Arbolito.   On GRO – be specific on the position and it’s easier for me to make a suggestion to improve it.  If you are only going to have 10 positions, why would GRO be one of them?  Again, read Sage’s Portfolio Management posts but the basic message is that, if you are going to put $400,000 into stocks then about $300,000 should be allocated on well-hedged blue chips (like buy/writes) that are going to give you a fairly safe return and $75-100K can be played on "risky" plays like GRO, or SKX (I don’t consider ADBE at $27 to be risky).  PGH is nice because they pay a good dividend but RISKY, as should be obvious as they dropped from$22 to $4.50 on 2008-9.  

    If a stock can drop 75% of it’s value, even in a panic – then you need to really question that "value".  PFE fell from $22 to $11 and is back at $17 – there’s a value in there somewhere.  KO fell from $60 to $35 and is back at $59 – VALUE!  Not that KO is a value play at $60 but that KO is the type of stock you WANT to own when the chips are down.  MCD fell from $62 to $42 and is now $76 – way overbought but if we can ever combo them down to $50 then that’s a stock we WANT as a big part of a long-term portfolio.  

    I don’t know how old you are but you can make 15% a year, even with a low VIX on MCD, KO, GE, IBM, PFE….  And that will double your investment in 7 years and the best part is you’ll own 2x of MCD, KO, GE, IBM and PFE – not 2x SKX or GRO – who you don’t even know whether they will exist in 7 years.

    When the market is strong, our strategy shifts to looking for beaten-down stocks like SKX and ADBE, companies that have a bad quarter but don’t seem to be in a long-term downtrend.  So we do most of our buying around earnings reports and fill in the gaps with momentum or short-term plays on news-driven stocks but the most important thing to do is BE THE HOUSE!   While we wait for those good opportunities, use your time and free cash to SELL PREMIUM, not buy it.  Especially when you sell premium so your "worst case" is you end up owning a stock you REALLY want for a good price – it’s hard to lose.  You end up getting "stuck" with very good stocks at very cheap prices and THEN you have your portfolio for the long haul.  

      


  25. Phil/Sports.  I’m really sick of the Yankees as they got a $1 Billion in tax breaks for their new stadium.  (Like, they were gonna move to Harford?)  And the Mets were done by the end of July.
    But if you can stand soccer take the kids to see the NY Red Bulls in Harrison, right next to Newark.  Beautiful new stadium, and the Red Bulls have invested in some quality players, not spending as much as was spent on Beckham in LA, not as high profile as Beckham,  and certainly not as over the hill.  And its a lot cheaper for great seats.  I take my kid there on the PATH.


  26. Rexx, Thierry Henry and Rafael Marquez are same level players as Beckham.  In Red Bull playing estonian Joel Lindpere too. Yesterday Red Bulls won Galaxy 2-0.


  27.  gel1 
    I get it now.
    Thanks for the insights, personal and financial.


  28. Phil - wikiinvest is picking up things from here as well FYI.  


  29. gel1,

     
    I have been audited twice on my small business by the IRS and state, I can see where you are comming (I agreed with you most of the time). 
     
     
    Thanks for your helps in the past and I am looking forward to see your post in the future.


  30. ben1be/sh**tstorm  Great Quotable Comments!…. if it’s okay with you….. :)


  31.  Phil, Do you think it is a good time to enter back into YRCW since they seem to have made an agreement with the teamsters?  Any thoughts on a price target?


  32. gel1/taxes  Thanks for the helpful insight.  I too, appreciate your opinions and subscribe to PSW in part, due to contributers like yourself. Thanks gel1.  :)


  33. Gel- I subscribed to PSW 9 months ago in large part due a quote of your posted on the PSW main page.  I don’t remember exactly what you said, but it seems like it had something to do with a  60% annual return, and thanks to Phil. You are a straight shooter and very much respected and appreciated around here. Keep it up!


  34. Looking for getting involved after the Q end, and maybe buying a short call if they can fill the gap up a bit.  Let’s see how tomorrow goes in the first 30 min.


  35. Phil, First, as a new member I have been reading the information on your site and I am learning more every day. Thanks for a great educational experience. Second, I am looking to short the Bond Market and I need your help please. My question is this… What is the best way to short the bond market over a multi month and possibly a multi year time frame. After selecting a security or option position to short the bond market, I plan to make 4 trades total, averaging in whenever the bonds trade higher. This process will allow me to become fully invested in the trade, hopefully at the top of the bond market. My plan is to stay in the short position, as the bond market declines, and then to scale out near the end of the cycle. I believe that this could occur over a multi month and possibly a multi year period. In your opinion, what security or option position do you recommend for this strategy? Thanks in advance for your help.


  36. Good morning! 

    Nice early manipulation trying to punch us over the lines – not likely to last as the dollar is bouncing.  

    Red bulls/Rexx – Yeah, we like soccer, both my girls are in the league.  Also, we live right by Montclair State so we go to Jackals games, which is fun – especially when they have fireworks.  The Bears games in Newark are nice too, that’s a good ballpark.  

    Wiki/Pharm – Yeah, we let them pick stuff up.  You can mark a post "Members Only" if you don’t want it shared.  On the whole though, it’s great advertising to have the highlight of a post picked up with a link back to the site.  Great post by the way! 

    YRCW/Ash – It’s only a tentative agreement with details to be released this week and a vote in October so very speculative.  While the concessions are good (15% pay cuts, 18-month freeze in pension contributions) they don’t address unfunded liabilities.  They just sold off Logistics for effectively nothing as it cost them $11M out of $38M to close the division.  I do like them as a gamble but gamble is the operative word as they are skating along the edge of bankruptcy and FedEx is running along-side them giving them the occasional push, trying to get them over that edge.  

    Shorting bonds/Cman – For what you are trying to accomplish, I like selling TLT calls.  Since you want to establish a short position, the logic is the same as when we sell puts to establish a long position, it pays us a good premium and the worst case is we get stuck with the position at a better price.  Right now TLT is $103.50 and we called it short at $105.  You may have missed that but you can still sell Jan $103 calls for $3.25, which is a net short entry at $106.25.  If you short 1,000 shares on margin, you tie up about $6,500 and you make $3,250 at 100.25 but if you sell 10 Jan $103 calls, you have a net margin of $4,000 and you make $3,250 at 103.00 so it’s 1/3 less margin with a 3% advantage on the the break/even point.  

    Now, let’s look at the next level – You know you will make $3,250 if TLT fails to hold $103 through Jan so you can now pair that with a more aggressive short, like the 2012 $95 puts at $6.85 and those have a delta of .37 so they gain about $1 on a $3 move in TLT.  Now your risk is to the upside as you sold calls short AND picked up a long put so you can hedge that with the sale of the Jan $101 puts at $3.25.  

    Selling the Jan $101 puts at $3.25 means that if TLT goes up, you have an additional $3.25 buffer to the upside on your short play.  To the downside, the Jan $101s have a .42 delta, barely more than your long puts and you have a $3.25 buffer from the call sale as well and that means that you don’t owe any money (more than they paid you) to the short call/putter combination until TLT drops below 97, which would be about a $2 pop to your $95 puts.

    That means that you stand to make net $2 ($2,000) on the trade all the way down to $97 (and then the putter is rollable, all the way to an eventual vertical) and as much as $6,500 between there and 103, with an upside break-even around 105 so a nice way to play the range between the 50 dma (102.50) and the 200 dma (94) between now and January.


  37. Phil,
    Do you have a MON play for earnings? What are your feelings on MON these days?