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Flip, Flop Friday – This Week It’s Europe!


Ah, you guys fall for it every time, don't you?    

They take it up for BS reason, they take it down for BS reasons and, somehow, they get you to commit to some thing or another that goes the wrong way within a day or two.  And you guys wonder why I like cash…  You can't leave anything on the table in this market!  Today's reason du jure for the markets pulling back is Europe again and, as we laid out for you weeks ago – it's now on to Portugal as the next "crisis" in the making.  

It looks like almost all of Wednesday's gains will be wiped out by the time we open but let's keep in mind all this EU nonsense is nothing but hyena attacks as most of these countries are not in that bad shape overall – certainly no worse than we are (maybe we're next!).  Anyone can be next.  If you want to attack a country, you can attack any country where you can get traction on rumors that POTENTIAL bank losses exceed GDP – that's a banking failure.

Once you get just a small amount of people to believe the banks may fail, then the rates start going up (and big investors can give them a little push artificially, of course, to get the ball rolling).  Once the banks have to borrow at higher rates, then they need more capital reserves and then you can scream that they were lying about their capital requirements and call for "investigations" and that will convince more people they are hiding something and then the rates go higher and they need more capital and the bears can then parade on TV saying that they knew all along and that the banks are insolvent and they can EXTRAPOLATE that, at the rate things are going – the whole country will be bust in X amount of time…  

You can do this to anyone, anytime.  Only if we stop the speculators from profiting from this game will it ever end.  The reason that there are no runs on banks in China and Russia isn't because their banks are more solid – I'll bet there are Chinese banks who have nothing but a fortune cookie in their vault – but the difference is in Russia or China they will cut your head off if you try to run their banks.  In America, when you cause a run on the banks, all they care about is how much you made so they can laud you as the next celebrity fund manager.

Nonetheless, our motto at PSW is "We don't care IF the game is rigged, as long as we can figure out HOW the game is rigged and place our bets accordingly."  I may express my outrage at these various market scams in my posts but, once the market opens, we play to win!  As I mentioned in Wednesday morning's post, our plan with our Members was to let the market move up and then we would short it.  We grabbed an aggressive December TZA spread out of the box in the Morning Alert and then played the SPY Dec 3rd $119 puts at .90 (average) and we went back to naked on our DIA Mattress Play (fairly bearish) and added the USO $35 puts at .65 as oil spiked up.  We also found 3 longer-term bullish plays but those are well hedged as we're just looking for a little balance – nothing like our aggressive short side. 

With the Euro plunging to $1.32 early this morning and the Pound back at $1.56 – we finally have our Dollar pop over $80 and, of course, the commodity pushers don't like that one bit and even the expected Rent-A-Rebel attack on an oil tanker and more crazy talk from North Korea couldn't hold oil at the $84 mark against a rising dollar.  As I said in yesterday's post, which I called "Thanksgiving Thursday – Stuffing the Futures," as we got more ridiculous pumping while the US markets were closed:  

I’d feel better about ignoring the plight of this nation’s 20M unemployed and underemployed people if it wasn’t for the fact that consumable commodities have gotten so high. I don’t care how much money Donald Trump has but the World Record for corn eating is 46 ears in a sitting so, no matter how hard The Donald tries, he can’t consume enough corn to make up for the millions of people who have to cut back this holiday season. While 3D TVs and IPhones and Mercedes only need a few million customers to have a good year – it doesn’t make sense for broadly consumable commodities to assume the bottom 80% can continue to buy at these prices.


Of course, don't go getting too bearish now.  We'll be taking our bearish money and running this morning as we have a $45Bn money drop scheduled by the Fed next week and, while I don't think it's going to be enough to turn the tide if the Dollar keeps rising, I don't think it's worth risking much to fight it.  

As usual, we will get back to cool, liquid cash and simply ride the waves, looking for the next opportunity to dip our toes into.  The EU needs to get their act together but if you take a look at this video of UK's Godfrey Bloom calling Germany's Martin Schultz "an undemocratic fascist" and getting ejected from the meeting – you'll see that they aren't all that close on coming to a general agreement on how to deal with their little PIIGies.  Here's another "must see" video, an impassioned speech by UK's Nigel Farage condemning the entire proceeding!


Man I love European Politics!  You might think that the EU spiraling out of control and a possible war in Korea would be great for gold but then you wouldn't be a PSW Member because we know it's ALL about the dollar and money flying out of the Euro doesn't go to gold, it goes to Dollars and Yen and a rising dollar is NOT good for gold and we'll get a nice move down there as the dollar moves back up.  Our re-entry point on gold is $1,150 so we have about $200 to go, which is 14%, which is about Dollar 88 so that will be fun to watch if the Dollar gets a real squeeze but, at the moment, we are only counting on the Dollar hitting 82 as that's the 200 dma but woe unto the commodity pushers if it breaks over that mark so stabilizing the Euro will be critical this weekend for commodity bulls.  Hopefully Bloom and Schultz will work out their differences by then (end extreme sarcasm font).  

Spanish Prime Minister Zapatero must be a PSW Member as he is taking my advice this morning and going directly after bond speculators, "ABSOLUTELY" ruling out an EU rescue of Spain, saying: "I should warn those investors who are short-selling Spain that they are going to be wrong and will go against their own interests."  Meanwhile, Portugal has denied a report that several EU countries as well as the ECB are pressuring the country to apply for a bailout. Separately, Portugal's finance minister says the EU cannot force his government to accept a bailout. The spread between Portuguese debt and German debt now stands at 444 basis points – that's 4.44% MORE for Portugal to borrow money than Germany.

The EU Commission is now (8am) suggesting doubling the size of its $588Bn bailout and that is boosting EU markets, who were down close to 2% going into lunch and are now recovering slightly on that news.  That's how quickly things can change around here.  Did I mention how much I like cash lately.  Those dollars are getting more valuable every day!  

So it will be take the money and run this morning, especially if our Dollar fails to hold 80.50, which would be disappointing on such bad news from Europe.  We'll be watching copper between $3.70 and $3.75 to give us a directional signal as well as oil at the $82.50 line, which would be tragic if it fails.  Natural gas has been our lagging commodity of choice and they are finally getting themselves together with a pop to $4.44 as LNG is once again being touted as driving future demand.  It's all nonsense, of course – all LNG does is enable a two year supply of natural gas to be shoved into frozen storage but TBoone and his industry buddies have suckered enough governments and investors to buy into this nonsense that it has taken on a life of it's own and we are just going with the flow.  CHK is the way to play Nat Gas long-term and they are quite a deal at $22.  

Of course it's Black Friday and it's all about Retail Sales today and expectations are through the roof for a FANTASTIC holiday shopping season because all the people on TV (average salary $200,000) and all the analysts (average salary $250,000) and all the Retail CEOs (average salary $2.5M) and all the shopping mall owners (hanging on by a thread and will say anything it takes) say it's going to be a great holiday because everything is fine and all of their neighbors who haven't lost their homes yet are planning to buy something.  Isn't that special?  

Members, please take the time to participate in the 2010 PSW Holiday Shopping Survey.  Last year we were able to accurately predict what turned out to be disappointing retail sales from our observations – we have a lot of very sharp people with a wealth of experience to draw on and I urge you to read last year's post and comments to get an idea of what we're looking for.

Have a great weekend, 

- Phil

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  1.  Wow!!

  2. Phil — how long before the collapse of the euro?

  3. "This is like deja vu all over again."  -  Yogi Berra

  4. NET $  = (.39)%,  dx/y = +.69%
    high = +.36% at 5:30 am, low = (.39)% now
    F =1187.25
    overnight high = 1200.50, low =1182.50

  5. NET $ (.50)% highest I have seen

  6. Good morning Phil,
    Just a follow up on you answer thanks
    November 25th, 2010 at 7:11 pm | Permalink  
    Hi Phil Thanks for the great wrie up on CMG.
    There is only one thing not clear to me you write
    If CMG pulls back all the way, you’ll still be down $7.50 on 6 but isn’t that much better off than you are now?  If CMG goes up to $270, however, you’ll owe 3x $20 (out of pocket) and 3x $5 so $45 better off than if you let them all ride and that’s as good as killing one of the short calls.  It’s just as good to whittle away one call each time as it is to make 20% progress on the whole thing.
    the 20$ is clear but how do you get the 3x$5 =45$
    Shall I roll 3 x Jan11 200 to Jan 11 250 at 15 and 3x Jan11 200 to Mar 11 240c for 30$ Here I am still short the 45$ as I got only 15$ for the Jan11 250 caller is this correct ? thanks

  7. Phil:
    Do you like CHK with the following buy/write? 2012 $22.50 calls@$3.26 and $22.5 puts at $3.75 for possible 32% or additional entry at $15.17……or………the 2012 $25 calls @$2.23 and $20 puts at $2.40 for possible 35% or additional entry at $17.55………or another you would suggest? Thank you.

  8. big jump up
    NET (.14)%

  9. Phil / re: your comments  So are you sugesting placing short on gold?  Pomo – should we consider the $45B to be $450B to be spent by the banks on Treasuries and equities, after 9:1 leverage?  If so next week should be bullish?

  10. NET $ (.11)%,  dx/y = +.67%
    C =1189.37, F =1185.75
    10yr = (1.27)%,  30yr = (1.61)%
    VIX +8.49%
    Oil  (.43), Gold (19.00)

  11. NET $ (.05)%
    C =1188.94, F =1187.75

  12. Good morning!

    Wow, what excitement!  Europe is down about a point at the moment after getting a 50% bounce on news of doubling the amount of money available to bail out countries.  That should cover Spain but Italy can still be questioned and, if Spain and Italy go – why not France?  This madness never ends when people like Bill Gross can attack countries with hundreds of Billions of leveraged capital. 

    So some quick profits on the short trades and, if anything, I’d take a long flyer on gold as EU money dumping and Fed money dumping next week and a possible retrace on the dollar would make that a pretty good recovery bet.  I know I don’t like gold but they had a nice fall and conditions are ripe for a move up so, AS LONG AS THEY HOLD $1,350 (now $1,354), I like the UGL $68 calls at $1, which were $2 on Wednesday and should take a while to lose 20%.  

    Other than that, I like cash and next week we can find some bullish plays but who knows what’s going to happen over this crazy weekend with Europe and Korea still up in the air (and Japan just had still-deflationary PMI numbers so don’t forget about them).  

    We’re still watching: Dow 11,120, S&P 1,185, Nas 2,500, NYSE 7,550 and Russell 715 as levels that need to be retaken for this to be anything but a bounce and we were over on all on Wednesday but now we lost the Dow and the NYSEso we’ll watch those closely and, of course, not go short at all if we’re over on all 5 but I’m still thinking we get rejected there.  

    Our other levels are still in play at:

    • Breakout LevelsDow 11,500, S&P 1,220, Nasdaq 2,600, NYSE 7,750 and Russell 725
    • Up 10% (must hold)Dow 11,220S&P 1,177, Nas 2,420, NYSE 7,500 and Russell 700
    • Up 7.5%Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672
    • Up 5%: Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666 

     Copper is key if they pop $3.75 (right on the line) then it’s bullish and you can play the copper futures over that line.  Oil already bounced back over $83 and only gold is lagging (so I like it). 

    Be careful out there and have a great weekend, 

    - Phil


  13. Volume is pretty low so this move back up is meaningless but the same could be said about the move down as it was just a futures reaction to EU fears.  

    If we assume the Dow catches up then the DIA $112s at $1.15 are a good play for Dow over 11,100 – using that line as an on/off level.  

  14. NET $ (.09)%,  dx/y = +.58%
    C =1191.73, F =1190.25

  15. Collapse/Rain – I don’t think the Euro is likely to collapse.  They can print just as much money as we can to shore up their members – it’s really just a matter of what Germany decides to do and they can’t afford to let their export customers fall apart or they will be next anyway so it’s one of those "all hang together or certainly all hang separately" kind of deals.  

    And again and again Kinki – including the reverse we had last Friday ahead of Monday’s drop:

    This is just lazy, they can’t even be bothered to change the bot program from one Friday to another anymore!  

    CMG/Yodi – Damn and they are up again!  I was saying that you should take 1/2 of the short calls (3) and roll them to the higher strikes so at least the $15 premium becomes a buffer for you if they head higher.  The key is you must sell premium.  If you sell $10 in premium every month you can withstand a $120 move up but, if you don’t, then that money comes out of your pocket if they don’t pull back.  Obviously, you are accepting the short-term loss but the point is you ARE selling more premium and if you keep selling premium and they one day (miracle of miracles) stop going up, you will make at least a small victory and then you can do it again.  I wasn’t advocating rolling the other 3 right away, just keep an eye on your potential roll and don’t let it get away from you (price-wise).  The hope was they may pull back and you still might make that $50 back but DAMN, this is one crazy mofo stock.  

    Speaking of crazy stocks.  My beloved CSTR is making new highs as their RedBox DVD rentals should do better as NFLX pulls away from the home delivery market so they make a logical switch.  

    CHK/DClark – Their dividend is lame and they may get bought out so I like the 2013 $12.50/17.50 bull call spread at $3.50, selling the $17.50 puts for $2.50 for net $1 on the $5 spread that’s 100% in the money.  That’s a 400% upside in 26 months if CHK holds $17.50 and the breakeven is way down at $15 (33% off).  Also, the net margin on this trade should be about $4 so 100% return on ordinary margin with 33% free protection – what’s not to love about that?  

    Gold/Tusca – You can’t really short gold in this environment other than something like the hedge we took on our long gold plays.  As you saw above, I liked the long play today for a quickie but I have no faith in gold at this price ($1,350) but there’s too much monetary and political uncertainty to bet against it at the moment.  Yes, next week SHOULD be bullish and, if it’s not, then POMO is going to seem ineffective and that could lead to a whole new round of panic.  

    Poor dollar knocked down to 80.40.  Yen kicking up to 84.17, that has got to be thrilling Japanese exporters at the moment.  Euro not getting stronger, this just seems like profit taking on the Dollar breaking 80.

  16. Thanks Phil on CMG I just rolled all 6 200 to Mar11 240 getting 31$ odd of premium. They must crack one day so the hell with it Will sell Putters on a down draft if ever.

  17. NET $ (.02)%,  dx/y = +.57%
    C =1193.14, F =1191.50

  18. Phil
    What do you do when there is no volume on an option strike? Is there any good way to trade those or are you generally stuck with whatever the bid price is (if it executes)?  Thank you for your idea on CHK.

  19. Hi Phil, what do you think about FCX as a gold play? Also, what is your opinion about ROC (one of the largest producers of lithium – car batteries) as another commodity play?

  20. Phil / POMO leverage, am I understanding this correctly, that $45 B get leveraged by the IB’s and much more gets invested in Treasuries and stocks next week?  How does the leverage work?

  21. Phil:
    On the CHK trade from above:  selling the 17.50 2013 puts  for $2.50, correct? thank you.

  22. Don’t forget, we’re only open until 1 today so forget all those stick rules and everything else.  

    At the open: Dow -0.7% to 11086. S&P -0.78% to 1189. Nasdaq -0.54% to 2529.
    Treasurys: 30-year +0.54%. 10-yr +0.18%. 5-yr +0.09%.
    Commodities: Crude -0.38% to $83.54. Gold -1.32% to $1356.80.
    Currencies: Euro -0.82% vs. dollar. Yen -0.36%. Pound -0.78%.

    10:00 AM On the hour: Dow -0.72%. 10-yr +0.11%. Euro -0.86% vs. dollar. Crude -0.23% to $83.67. Gold -1.35% to $1356.40. 


    European indices bounce 1% off their lows as they head towards the close. Shorts are likely covering after a profitable week and before yet another ‘Bailout Sunday’. The Euro Stoxx 50 is down less than 1% after having been down over 2% earlier. 

    The EU Commission suggested doubling the size of its €440B ($588B) bailout fund for eurozone governments, but sources say Germany dismissed the idea. Meanwhile, Portugal’s government flatly denies it’s under pressure by Europe to accept a bailout.  

    New accounting rules in Spain may cause a tripling of foreclosed homes next year. Banks must now make provisions for bad loans after 12 months instead of as long as 72 months, making it more likely they will try to unload non-performing assets. Banco Santander (STD -5.24%) will miss its 2010 earnings goals because of the accounting changes.

    It could never happen here In a move to try and cut the government debt, the Hungarian Prime Minister orders citizens to shift their private pensions into a state-run fund. Hungarian shares fall more than 3% and the forint drops nearly 2% against the dollar.

    Japan’s core CPI fell 0.6% from a year earlier, following a 1.1% decline in September. BoJ’s forecast for an end to deflation in the next fiscal year looks unlikely, and the bank may be left with little choice but to boost asset purchases if the economy and the price outlook deteriorate.

    Japan’s top three automakers posted drops in domestic output in October, hit by sagging demand after the government ended a purchase incentive program the previous month. The diminished appetite in Japan for new cars puts more pressure on Toyota (TM), Nissan (NSANY.PK) and Honda (HMC) in their struggle to cope with the strong yen.

    The next financial crisis could start in Washington, writes the FDIC’s Sheila Bair in a WaPo op-ed, unless the government urgently cuts its debt. "Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations." 

    A large number of mega-cap stocks see sharp rises in their short interest, 24/7′s Doug McIntyre writes. Among the biggest spikes: Ford (F) rose 15% to 324M shares, Sprint (S) jumped 52% to 131M, and Motorola (MOT) moved up 36% to 44M. Banks mostly held their own, but short interest in Bank of America (BAC) rose 12% to 111M.

    To avoid another crisis, regulators must acknowledge that markets aren’t effective pricing mechanisms, unefficient markets hypothesis advocate (and Zombie Economics author) John Quiggin says. "We need to redesign regulation in ways that support free markets, but at the same time reflect the fact that things go badly wrong." 

    Toys R Us CEO Jerry Storch sums it up for retailers: "I believe it’s going to be the biggest Black Friday we’ve had. Everyone has been focused on decreasing prices and these prices may never be repeated." But with many of the consumers lured in by rock-bottom prices, it’s unclear sales will translate into profits

    The web isn’t killing Black Friday, as an estimated 138M shoppers descend on stores this weekend – up 4M from 2009. But as of 7 P.M. on Thanksgiving, online sales were up 15% from the same time last year. Retailers must plan a two-front war for some time to come.

    The early start to Black Friday weekend notwithstanding, retailers worry that this year’s holiday shopping will be "back-end loaded" as hard-pressed consumers hold out for bigger bargains. If the early start fails to lure the shopper’s dollar, retailers may be forced to turn to even more audacious promotions as the holidays draw closer.  

    North Korea’s military fires more artillery in what appears to be a drill on its own territory, but South Korean markets are rattled and war fears continue. The North warns that a planned U.S.-South Korean military exercise could push the Korean Peninsula closer to “the brink of war." 

    A new piece of evidence confronts Big Tobacco, as a study from the medical journal Lancet says that 603,000 people died of second-hand smoke in 2004 (the most recent year for which data was available). 

    Sources claim the iPad 2 (AAPL) heads to production this month and will be on sale in Q1. Features will include video calling, two embedded cameras, and new display and touch capabilities.

  23. Good morning all!  Back from Vegas….and it was not that busy there.  We left b’f Thanksgiving, but most of the tables were empty, and one could walk into the nicer restaurants without a problem. 

    REGN – I have been watching this company for a while and wanted to see how their data came out against Lucentis for AMD.  They blew it away to be blunt.  Their options are not attractive unless one is patient, so we will have to find a way to do a buy write.  I will try to get around this weekend for a writeup. 


    For DCTH, BSDM and CRIS, things are good there.  Just waiting…..PODD is starting to move as well…..


    ARIA has some option volumes that are interesting.  The Ps are outweighing the calls now, and it is a 3.5:1 P/C ratio.  Not sure if someone knows something, but data are due out in 1Q11.  We currently are in the 3.5/5 May bull call spread for 45c, selling the 3.5 Dec10 P for 25c.  The Ps are 5c now, so will hold into next week and then we should buy them back for 5c, reducing our risks JIC.  The stock cannot get through $4, but if it does, it’s gonna take off. 

  24. Phil – our TZA Jan11 $22/26 play, we need to roll those up and out.  I know there is 2 mo to go, but the April one was cashed in for a nice gain (after the roll to the Apr11 $19s….so i was thinking of the Apr11 $19/25 spread is it too soon to roll back out?

  25. Poor man’s CSCO, BRCD can be had for $5, selling the Jan11 $5 P/C for 68c is a nice 11% if called away in 2 mo.

  26.  Hope everyone had a good holiday …
    Can you believe this CMG ?
    I can’t !

  27. NET $ (.06)%
    C =1190.74, F =1189.25
    30 min till Europe close

  28. CMG/Yodi – Yes, more relaxing I guess but you will regret it if the do fall sooner.  

    No volume/DClark – I just offer what I want to pay/collect and wait.  If it’s thinly traded, unless you plan to ride it out to expiration day then you should stay away anyway.  Anything with open interest under 500 is usually going to be tough to get out of at a good price and under 100, you will get screwed on bid/ask every time you are in a hurry.  

    FCX/Alik – They are a 25% gold play, 75% copper.  I like to short them over $100 so I sure don’t like them long at $98.  HMY is a gold play, ABX when they are in the mid $40s, NAK if you want to own a mine for the next decade or so.  ROC is priced back at ATH but they are a good grower.  I don’t know what percentage of their Revs is lithium but overall they are a nice company.  They don’t pay a dividend so I’d go for the May $35/40 bull call spread at $2.60 and sell the $30 puts for $1.50 and that’s $1.10 on the $5 spread that’s $3.20 in the money and the worst thing that can happen to you is you end up owning them at net $31.10, which is 18% lower than they are now.  

    Leverage/Tusca – It seems to me that the Fed is concentrating on buying Treasuries in the 2-10-year range so that only adds liquidity if the banks had previously been "stuck" with notes they couldn’t unload.  Once those notes flip to cash, the bank can do what they want with that money at their normal 10x leverage but the question is whether they have any motivation to buy equities with it.  Very possibly not, which is why I think POMO may fail next week in that it may not boost the market past the lemmings who follow GS and Cramer’s suggestion to buy on POMO days.  That may have worked in the last round as they were only 2x a week and covered equities.  If every day is a POMO day – what kind of buying premise is that?  It would be exactly as idiotic as Glenda the Good Witch saying "Why you should buy into the market EVERY day because every day the sun comes up."  It only sounds like a strategy coming from GS and Cramer because they wrap it up in their usual BS to herd the sheeple in for the slaughter.  

    CHK/DClark – Yes, sorry, that was selling the $17.50 PUTS.  

    Oops, looks like our little "rally" is out of gas already.  Not worth sitting in the long plays if they are not working either.  Lovely cash for an uncertain market! 

  29. Dollar back over 80.50 – that’s why…

  30. Phil,
    I’m really interested in the new guy who is "excruciatingly dull" at 10% a month.

  31. Phil/Anybody,
    Trying to get a handle on when it is the appropriate moment to roll… I sold 4 CMG 250 Calls for $4.20 a few days ago (now , $9) these I am 100% sure you should’t roll as they are still all premium right?. But at what point you consider rolling them? After the play is $4 in the money? and I look to roll to a srtike OTM and out in time to recapture the same amount that the current play is valued at? 

  32. Amatta – for what its worth, they should also lose value over the weekend just via decay. But, this CMG is certainly a crazy stock…

  33. CMG…Just insanity. This pig keeps flying, there’s no holding it back.

  34. REGN/Pharm – If you have faith you can probably get the May $28/33 bull call spread for $2 and sell 1/3 the May $25 puts for $3 so you drop the cost of the spread to $1 and you don’t get stuck too hard if they go lower.  

    TZA/Pharm – No point in buying out the caller but you could roll them down to the Apr $29 calls for + $1 and that will pay for you to roll to the Apr $25s ($2.45) and it should be about .90 more if you want to go to the Apr $21s, which gives you a better spread with a lower strike and 3 more months for $1.  As long as it’s a hedge protecting stuff that’s April or further then it’s not too soon as that’s a pretty good deal.  I wouldn’t rush to the $19s, you can simply do either roll later when it’s cheap and, if TZA is heading higher and the rolls are expensive, then you still have a nice spread.  If TZA goes lower, then the rolls get cheaper.  

    BRCD/Pharm – That’s not a lot of protection.  I would prefer selling the 2012 $5 puts for .95 and using that to buy the Apr $3/5 bull call spread for $1.55 so you’re in for .60 on the $2 spread that’s $2 in the money (233%) and if the first one works, you get to do it again for another .60 or so.  

    CMG/Cap – Still rising!  

    New guy/AC – I’m pretty sure it’s a done deal and Ilene is setting him up to be featured next month.  He should be available for chat and will be teaching people how to construct index condors and the idea is to follow them through on a monthly basis as a long-term learning experience.  It’s part of an experiment I’m starting in live options training – doing it over time in real market conditions as opposed to just jamming text-book examples at people.  

    CMG/Amatta – What is everyone’s fascination with this one?  Anyway, yes, they are mostly premium so you let it wear out (hopefully) and you can see that the $250s can be rolled to the March $290s ($10) and as you have $7 premium in the Dec calls, it’s very reasonable to assume that should at least become an even roll.  The March $280s are $13.30 so your "risk" is that you let the $290s get away from you but then you make damned sure you make that $280 roll before it costs you money.  So there’s a plan and a back-up plan and you can add to that the idea that if you have to do that roll, then you could sell a March $180 put for about $3 (now $3.80) as you can see $3 makes more than a $10 difference in your next roll. 

    CMG Dec $210 puts are .70, were $3.50 last Friday so I like them as a gamble.

  35. Phil One thing I must say all our predictions on CMG swear words mice droppings wars devaluations of dollar, Euro, Irland and downdraft in market has not shown this stock going any lower, they must be smoking the right POT.

  36. Phil:
    I want to roll my short $230 calls to the June $270, but no volume which means crappy prices. I worry that the trade is getting away from me. Does it make sense to roll instead to the June 260 (where I can sell more premium)? The June $270 will give me better peace of mind, but unless this idiotic stock goes down, I can’t do that roll without taking a hit.

  37. Phil / SKX  Listened to yesterday’s conference call at Brown Shoe website (Famous Footwear), SKX’s biggest customer. Some of same analysts covering SKX on call. As proprietary traders they must have been buying SKX like crazy yesterday.
    Toning will continue to be 6 to 7% of store sales in 4th QTR and next year.
    Expect moderation of the high growth trend, but toning will continue to contribute to high single digit sss growth trend in 4th qtr (less growth than 1st qtr, but still growing).
    Toning has increased Famous’s average price point.
    Toning prices have decreased only 12% versus YTD average. Currenly averaging $82 at Famous
    Expect toning margins going fwd will remain at the average Famous store margin and will be flat to up next year. (But note, toning is the highest average price category at Famous, and other retailers).
    "Healthy Living and Fitness" lifestyle trend a big part of their strategy. 30% of customers purchasing toning product were new to Famous (hence the continued commitment to A&P and store positioning prominence for toning and SKX).
    "Toning will remain a significant part of our business going fwd"
    Confident toning inventory will be balanced by end of 1st qtr.
    Happy with way managing the repeat flow of toning deliveries.
    Toning, lighweight running and boots the current drivers.
    The Brown conf call effectively dissed the short case that toning is a fad about to crash and burn.  But, this will only become clear with Q1 report next year when SKX report inventory rebalanced, strong 1st qtr Shape-up shipments for Spring (after slow 4th qtr Shape-up shipments due to high retail inventories), and possibly a buy back using some of the $300mm of cash.

    Still holding SKX as a LT investment expecting strong international growth to continue beyond current 25% of business.  International franchisees are financing the store growth, which I like.

  38. NET $ =0.00 as Europe closes

  39. Phil:
    My question was in regards to CMG. I just read your statement above(before I wrote above request). Its not fascination more like frustration. Sorry for the additional question on CMG. Your help and patience always appreciated.

  40. 10yr = (1.82)%,  30yr = ( 2.09)%
    C = 1189.43, F =1188.25
    gold (18.00), oil (.48)
    VIX +8.33%

  41. Phil/aclend
    i don’t know how i missed it --but where can i find out more about the very dull 10% a month--also Phil i really like your idea about having live options training on the site and following trades all the way through--it would be a great help to me--

  42.  CMG burritos help w/ toning !

  43. Combine SKX and CMG and you’ll have one hot ass!
    Maybe they can do a combo meal together ;-)

  44. NET $ (.09)%

  45. Phil
    I have the GE  14/16 call  Jan 11 spread
    Should I take out the 16 ? close it out

  46.  CMG…….."The market can stay irrational longer than you can stay solvent"  ….  John Maynard Keynes

  47. Phil
    Do you have any thoughts on your play of a few months ago on YRCW?
    If yes, why do you believe in them?

  48. so, what about your beloved SPWRA, which appears about to auger in?

  49. Lflan
    The market solvency…possibly true only if it stays irrational in a single direction…usually it does not, though!

  50. dattu
    See Phil’s post at 1:49 PM yesterday for the reference to the new guy that is an expert in Iron Condors (10% per month). 

  51. Have a good weekend all, have to run

  52. "No, thank ye, Bunger," said the English captain, "he’s welcome to the arm he has, since I can’t help it, and didn’t know him then; but not to another one. No more White Whales for me; I’ve lowered for him once, and that has satisfied me. There would be great glory in killing him, I know that; and there is a ship-load of precious sperm in him, but, hark ye, he’s best let alone; don’t you think so, Captain?" – glancing at the ivory leg.
    -- Moby Dick, Herman Melville.
    Easier to let it die of old age says I. ;)

  53. CMG – 256 !
    This is such unbelievable manipulation; i just hate the fact that "they"  (Fed/Treas/SEC) are tolerating such bubblemania behavior amongst HFT’s and turning a blind eye.

  54. Maybe we should buy calls on NFLX, CMG, AMZN and PCLN? Then we can all retire in January as rich, rich folks.

  55.  I was thinking of selling puts for AMZN. They have far better deals in LCD/LED than the big box store. Been everywhere this morning but can’t find anything like the deals on amazon.

  56.  Have a good weekend.  Off for a hike.  Thanks for the CHK play  phil – going more for those type of plays.  Too much whip-saw topsy-turvy action for me.

  57. Pharm Phil /  CVS vs Medco   Recently got a call from Medco to transfer my Rx to quarterly by mail.  I thought they were CVS’s supplier (my existing Rx source) so assumed it was just CVS becoming more efficient / convenient.  But, I found later, when CVS kept leaving messages asking me to pick up my Rx that Blue Cross had been encouraging Medco to contact all of their customers with this quarterly mail proposition.
    This sounds like a disaster for the Pharma stocks as people like my wife and I will now only visit the pharmas occasionally rather than frequently and they depend on those ‘forced’ visits to get us to buy the front end higher margin stuff which competes with Walmart, Family Dollar etc.  I’m thinking buy Medco, short pharma?  Also, this could be the final nail for Rite-Aid?

  58. lflantheman, are you still playing appl.  currently in, or waiting?

  59.  tsca/SKX – I was at the mall all morning. Looks like this toning thing is taking off. DSW has a huge selection of toning shoes for women and some for men as well. I tried them on and they are decent looking. Must be the lower toning structure. I saw the shoes at The Shoe Depot and a bunch of other places. Some of the toning and regular models were in Finish Line and Lady Foot Locker too.
    Will probably add more SKX on dips.

  60. nicha – my brother went to best buy to get a 50 inch LED. The salesperson gave him the price. He looked up AMZN on his smartphone – the TV was $400 less. The salesperson said they would match the price. He then got a call the next day (from BBY manager) saying the salesperson was wrong and BBY would only match prices of physical stores in NYC (where he was shopping). He asked to cancel his order, and they said he had to come in and do it. He did. Got the same exact TV on AMZN for less, with quicker shipping. So much for BBY…go to look, and then go back home and order off AMZN…

  61. Very good article on Chinese Inflation and EU Defaults by a guy who teaches economics in China

    Pot is right Yodi!  And, like POT, they can go insanely up and up for a very long time but everything reaches an apex eventually.  

    Rolling/DClark – Back to CMG, I assume.  This is the same thing we went through when AMZN popped about a year ago and everyone rolled out to silly long-term plays because "they couldn’t take it anymore" and about 2 weeks later, the stock fell back to $100 and everyone would have made money except now they had to wait 6 months.  If you see a roll, just keep your eye on it and have a backup (see above example) and just set a "roll-stop" – a price at which you will execute the roll before it costs you too much.  Is it worth $1 for you to wait and see if you can be done with this thing in a month?  Is it worth $5 not to give up yet?  You need to decide that and then that will help you decide when it’s "right" to roll.  If you are genuinely that bullish on CMG then sell the March $220 calls for $11.40.  It’s free money if CMG is going to $270 or even if it holds $250 or even if it drops $35 and if you think it’s going to drop $35 by March – THEN WHY THE HELL ARE YOU ROLLING TO THE JUNE $270s NOW???  See, just try to work out the logic of your position – don’t just panic around like a headless chicken.

    SKX/Tusca – Thanks, sounds very good but that’s what we expected.  I wish the VIX were higher as I’d love to sell more puts.  Hoping for a post-holiday pullback in retail to do some bargain shopping in the market.  

    Dull 10%/Datuu – Wow, I’m sorry I mentioned it.  You guys are like my kids when you tell them there’s a surprise…  It’s a new guy we’re bringing in.  We have several new people coming in and David is moving out.  

    Not very long left to trade and volume just 41M at 12:15 (super low).  I wonder if they try to stick us into the close?  

    GE/QC – I would think that’s a really good spread if GE closes at $16, why exactly are you adding risk?  If you spend .50 to take out the callers that are 100% out of the money – then you are just becoming the sucker we sell premium to, paying 1.5% per month in premium on GE.

    YRCW/Maya – I think we liked them back at $3.60 on the premise that they might not go BK – not exactly a ringing endorsement…  Since you can buy the Jul $1.50/2.50 bull call spread for .75 and sell the $2 puts for .55 that’s net .20 on the $1 spread that’s .70 in the money and worst case is you own them at net $3.05 (current price) with a break-even way down at $2.28 – I still like that.  If you are bearish – it’s a way to hedge on good holiday shipping.  

    SPWRA/Barf – Ah, we were supposed to be watching them but I’m not sure they are done going down yet.  I do love them down here but I’ll love them much more at $10.  If you are impatient, you can buy them here ($11.94) and sell the 2012 $10 puts and calls for $5.90 and that’s net $6.04/8.02, which isn’t bad but I do think we can do better but if the trade runs up to $6.54/8.27, I’d want to take it by then.  

    Later Mike! 

    Arrrrgh Kinki says I!  

    AMZN/Nicha – Just because they are selling something doesn’t mean they are making money.  Especially with all the free shipping I don’t think it’s so positive if their best sellers are getting heavier.  

    CHK/Jo – Yes, this is not the market to pick unhedged positions in.  Have a good weekend.

  62. TSN play: Bought @ 16.27 sold the Jan 16 put and calls for $1.64, yields 10% in 2 months or gives you an entry of $15.31 (6% discount). The position is 1.7% in the money. You’ll also pickup another .25% on monday’s ex-dividend. TSN is selling at an 8 PE with a forward PE about 8.31. TSN is building support at 16 but there is gap down to 15.75 with the next support around 14.60-14.80     

  63. Tusc – ExpressScripts, Medco, etc are all competing in very hard space to put retailers (CVS, RiteAide, etc) out of business.  I think this is the wave of the future for prescription marketing, and economies of scale are needed. I would not be surprised to see these end up back in the hands of big pharma/generic makers.  MRK was the owner of Medco, Pfizer had theirs…etc.  TEVA, Watson, could become good candidates to get into this market space. 


    As for shorting Pharma, there are only a handful I do not like from a cash flow for the next few years.  FRX, LLY and PFE top my list.  I like MRK for future growth, and GSK has some good things coming along.  SNY is ok, JNJ is ok, and AZN as well. I am really interested in the later stage biotechs that have blockbuster potential.  DCTH, IMGN, CRIS, ARIA all fit this bill.


    Biosimilars are coming of age, and MRK is trying very hard to gain in this space.  SNY is as well, so it needs to be watched very carefully as AMGN and Roche will not like this AT ALL. 

  64. You  are right Hanna, that smart-phone matching is going to kill retail if it catches on.  IPhones have a thing where you can take a picture of a bar-code and it automatically finds you the best price on the item.  

    11:00 AM On the hour: Dow -0.75%. 10-yr +0.23%. Euro -1.11% vs. dollar. Crude -0.42% to $83.51. Gold -1.28% to $1357.40.

    12:00 PM On the hour: Dow -0.78%. 10-yr +0.24%. Euro -0.9% vs. dollar. Crude -0.48% to $83.46. Gold -1.26% to $1357.70.

    "You have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake," Paul Krugman writes of the Irish crisis. Ireland is now in its third year of austerity, and its government keeps saying such steps are needed to restore confidence, but that confidence keeps draining away.

    Michael Pettis, citing the axiom that you can never be certain of something until the government denies it, sees bailouts for Portugal and Spain coming soon. He also predicts restructurings, if not outright default, for the PIIGS, as well as Belgium and most of Eastern Europe. 

    Belgium’s problems have largely been flying under the radar, but reckless cross-border lending by big banks has made many nations, especially Belgium, vulnerable to Ireland’s fiscal crisis, Simon Johnson writes. CDS linked to Belgian debt have risen to a record high, and the country faces an important test Monday when it tries to sell €1.5B-2.5B worth of bonds.

    The hedge funds that have been raided by the feds are probably finished, sources tell Business Insider. If that seems a stretch, consider FrontPoint, the hedge fund where Chip Skowron allegedly traded on insider information: FT says FrontPoint investors have requested to pull out $3B – nearly half its assets under management. 

    SPDR Gold Shares (GLD -1.3%), the fastest growing major investment fund ever, has democratized the gold market, its fans say, paving the way for investors of all stripes to get direct exposure to gold. But skeptics argue the fund has turbo-charged gold prices and could expose legions of small investors to big losses if the gold rally reverses sharply.

    Multiple reports on brisk Black Friday shopping this morning (I, II, III), with lines seen outside stores to get at deals even though some stores were open on Thanksgiving. But Mark Hulbert says investors often read too much into the day’s action. Retail stocks are picking up a bit: BBY +0.5%, M +0.4%, WMT -0.3%, SHLD -0.4%, TGT -0.6%

    Amazon (AMZN -0.1%) fires back at iTunes’ (AAPL +0.6%) offer of the Beatles Box set, slashing its sale price of the 14-CD set – plus a DVD containing a “making of” each album, and free shipping – to $129.99, undercutting Apple’s $149 deal. Apple sold 2M Beatles songs and 450,000 Beatles albums in the first week it made the songs available on iTunes. 

    Three lunchtime reads:
    1) Rally in tech shares to the end of the year?
    2) Assets matter just as much as debt
    3) Were U.S. auditors told to fudge opinions on TBTF banks?



    Graphic: Money owed to German banks



  65. Pharm / I was thinking of long Medco and short CVS, Rite-Aid, Walgreens?

  66. Phil / Are you anticipating another pump job on Monday?

  67. Any projections on oil for Monday?

  68. Phil:
    I love your responses. The only reason I am looking to roll is because I do not want to get called on my DEC short calls. I assume that how deep ITM I am does make a difference? If you were to ask me my thoughts on CMG I would tell you the price is ridiculous, but I would also tell you that I am not sure when the nonsense will stop. Hence, I am worried that the 22 days I have left before expiration won’t be enough time for drop that I am waiting for. Signed: Headless Chicken! 8)

  69. Phil, 
    CMG, sorry but it is not clear to me when I would need to do the Roll before it starts getting away from me? Is there a rule of thumb (i.e. when the premium you sold is 2x less than the current value of the option? or something like that…) What is exactly the goal? 

  70. Pharm  ARIA, thanks for the update.

  71. WTF is going on in the market right now?  Flash crash?

  72. Long MHS is fine, as they are undervalued compared to their peers.  Shorting CVS, don’t know as much about their business nor how much is garnered from prescription vs retail sales.

  73. Have a great weekend all!  Will give updates for So Cal on the shopping links, as I think it will be a good indicator for us in 1Q.

  74. Doh!  Forgot market closed early today.  Just FAS rebalancing.

  75.  matt … the question is how did they hold it up (on low volume) all day ?

  76. Looking over at CMG valuation compared with MCD it is pretty much in line. YOY earnings growth for MCD is 10% and CMG is 30% and that equates to a PE of 17 for MCD and an inputed 51 for CMG… which is pretty much where it is. 
    I understand they can’t maintain that growth for that long, but as long as they keep it up it surely looks the pig will keep flying… 

  77.  lunar….I”m in AAPL Jan 300s, against which I sometimes sell weeklies.   If  stock goes below 310 in near term, plan to buy more.  Expect significant "holiday/earnings bounce" during next 2 months.

  78. Medco/Tusca – I don’t know how wide-spread it is but it’s a good premise.  Might explain that sharp uptick in abandoned prescriptions we noted about a month ago as there may be double orders during the transition.  

    TSN/Rain – I’ll be curious to see how that plays out after the dividend.  

    Speaking of wave of the future.  I tried Hulu Plus on my IPad and if A) I could easily transfer it to my TV and B) they worked out the same content deals as satellite or cable – I would cancel my other services.   You just pick whatever show you want to watch and it has all the episodes there for you any time you want them.  If you want a movie, same deal.  Some combination of Hulu and NFLX’s content if they can wrangle all the networks would really make satellite pointless (you still need cable to get the connection).  I think it’s a matter of who does it and when, not if it happens.  I am really surprised that GOOG blew their multi-year lead on this market but Hulu is way better quality than YouTube and YouTube still has no professional content.  

    Monday/Tusca – I think it’s too iffy to call.  I think the EU doesn’t come to an agreement and we gap down at open and then I’ll want to go long on POMO but happier to be cash neutral than worried about it either way.   

    Oil/Praiz – It’s early in the contract cycle (contracts terminate around 20th, usually a Tuesday) so they can still pump them up and they probably will.  You never want to short oil into a weekend – too much craziness can happen but there’s no reason at all to go long at $84.  

    CMG/Dcalrk – Not that often you get assigned a call early.  Don’t trade out of fear, there’s still some premium and, if you get assinged, you just have to buy it back with the cash that goes into your account.   It always seems like a big deal until it happens to you a couple of times and then you realize it’s not.   Obviously, this kind of trading is not for you.  If you don’t have a conviction about a price you are willing (and able) to stick with then you are doomed to always take very poor exits when things go against you and that means your risks will exceed your rewards.  It doesn’t matter if a trade LOOKS reasonable when you enter it – if you don’t have the ability to ride out a 20% move against you – you should never enter the trade.  The same goes for rolls – if you can’t stand another 20% move against you – get out – don’t just keep going or you only are putting up more money you’ll be forced to walk away from.   

    I want you to understand this.  If you sold Dec $200 calls and they are now $56 in the money at $57 then you should have rolled them long, long ago but, even if you didn’t – you can just sell the $250 puts for $6.50 and that is $6.50 in premium and CMG would have to fall all the way down to $186.50 before you are in worse shape as you owed $57 anyway and you put $6.50 in your pocket.  WHY WOULD YOU NOT DO SOMETHING rather than just sit there and watch this train wreck?  The same logic goes for rolling the Dec $200 calls to the March $240 calls at $33 and the $250 puts at $22 – that’s $55 so you will improve your position on ANY finish between $195 and $295.  If you can’t get comfortable with that range – then what the hell are you doing in this stock?  If you have no clue at all what a stock will do then DON’T bet on it.  If you do bet on it, then have the conviction to ride it out.  You can make a logical hedge if it’s going badly but, like insurance in Blackjack – that’s hardly ever a good idea.  

    CMG/Amatta – You need to pick a roll you can live with.  You need to track the net cost of the roll.  You need to have a tolerance for a price at which you no longer want to pay more for the roll and you have to execute the roll at that price.  As I just said to DClark above – there are no "rules" here other than try to roll while there is still 1/4-1/3 premium left or you’ll end up buried too deep to get out.  Meanwhile – the main point is you MUST, MUST, MUST have an actual investing premise going forward and you must have a trading plan you intend to follow through – not one that changes every time a stock moves 5% ($12.50 on a $250 stock), which is something stocks can do often on their way to completing major 20% moves.  

    Crash/Matt – Yeah, as soon as we closed the indexes started pulling back.  CNBC seems DESPERATE to make people think retail shopping is going well.   Meanwhile, I have yet to see them show the interior of a store that is actually crowded.  

    CMG/Amatta – Yes but that’s the key.  As long as you can keep rolling them along to slightly higher strikes, it doesn’t take much of a contraction in that p/e ratio to cause a very nice drop in the stock.  They had the same 30% growth rate last year and the year before and their p/e didn’t go over 30.  Has anything actually changed?  They were at $155 in Jan 2008 and they were at $90 by Feb – BEFORE the crash.  After the crash they were $37.  That (range of $90-$37) was based on 2007, which had 50% less sales and 50% less income than 2009.  2010 is shaping up to be about 25% more earnings and 20% more revenues so in-line with prior 3 year growth pattern yet now pricing at $255-90 – up 3x on one continued year of growth (where top-line is slowing).  If that’s not an over-extended bubble then I really don’t know what is.  

    Damn, now the Dow is lower than the open!  

    Have a nice weekend everyone!  

  79. Long TLT, sold off TBT on Wednesday on Korea/Euro worries. Wow that was a good choice. Still waiting for the cracks to appear in the PCLN NFLX CMG valuation glass floor. If ever. Jesus H this is frustrating (especially considering I had NFLX 180 calls and CMG 250 calls that expired worthless last week … grrrrrrrr!).
    Investopedia reads PSW comments? I’ve been saying this about JACK for a week.

  80.  Phil, 
    Thank you for your answers and patience… 
    So I on the DEC 250′s sold for $4.20, now $12.20 I am looking to sell 1X the JAN 270′s for 9.90 and so I would make $1.70… I feel this is conservative. If they continue going up I can keep rolling, my goal now being only to guard against losses and not so much making money… Or do you think this is too conservative an approach?
    Thanks so much 

  81. Somebody need to tell WYNN that Casinos aren’t doing well.
    I’m so sick of these "momentum" stocks. They are really pissing me off.

  82.  There really is no need to "explain" the current valuations of stocks like CMG PCLN NFLX WYNN CSTR OPEN MOTR BIDU and even AMZN.  
    They are trading toys that are out of control; and the cops on the beat are on the take.
    They are not trading on fundamentals; its pure speculation and technicals.
    But its really pissing me off as well.

  83.  also LULU DECK and even CROX

  84.  Wow, even AAPL is discounting … that can’t be good.
    Ipad now $458.

  85. Hulu/Phil you need Apple TV ($70 today from Apple) and you need to update Ipad and Iphone to 4.2.1 so you can use airplay.

  86. or you can just hook up your mac to your tv and airplay from your Ipad Iphone through Itunes ;-)  

  87. Quick shopping report from this afternoon after the close from Orlando. Traffic on the main east/west road
    in downtown was lighter than normal afternoon. Stopped in Office Depot and Staples, parking lots fuller
    than normal, plenty of staff coverage, there were buying groups but no lines. Stopped at a power retail center, lots
    of discounters (Ross, Marshall, Old Navy, Hobby Lobby etc) the lot was probably 80% full. 

  88. Went to Fry’s in Palo Alto and had to park down the street. Never seen that before.
    My 2 cents: I think companies have hit the wall on getting any more from their present employees and will have to start hiring. Though the bottom 50% of americans are still pretty screwed, at least they might have a (low paying)job.
    As for QE2, I think it’s a good thing China is pissed off at Geithner and Bernanke. It shows what they did was in our interest, not the Chinese, as it should be.

  89.  NYC shopping seemed quiet.
    Best Buy in my neighborhood … decent traffic
    Sports Authority – Chelsea … pretty empty
    Modell’s – Chelsea …. empty
    Madison Avenue stores (mother in law report) … empty
    Radio Shack …. moderate traffic; mostly cellphones

  90. Outlets and Costco in Carlsbad, CA was moderately busy, but not like crazy busy.  Outlet mall was packed, but not over the hill the packed. 

  91.  Please put shopping comments on the survey page otherwise it shall be chaos! 

  92. Phil, question on your comments regarding LNG: My understanding is that the new interest in LNG is because it can convert the US from being a regional market for natural gas to a global player.  Instead of having to sell natural gas in the US for low prices, with LNG tankers, it is possible to ship nat gas to international destinations and sell for much better prices. Theoretically, that’s nothing to sneeze at, it’s potentially a big deal.  Look what’s happened with Cheniere Energy (ticker LNG) and you can see a lot of people jumping on this bandwagon – do you think it’s a mistake?