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Sunday, December 4, 2022

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Friday Already? What Next?

QQQQ WEEKLYWhat a wild week! 

The Dow is up 400 points since Monday and we are just 150 points away from our November 4th high.  Once we get over 11,500, we have no reason at all to be bearish from a technical standpoint and fundamentals are out the window so what else should we be looking at?  We ended up too bearish on our $10K-$50K Virtual Portfolio as we hit our double-down targets on a couple of index shorts so I am CLEARLY in the bear camp this morning as we're still playing this as a double-top, rather than a breakout but what if we do break out?  As David Fry said this morning:

Any worries from Europe, China tightening, higher Jobless Claims are mere inconveniences when the light is a bright green.  Let’s face it; this is what the Fed stated they wanted with their POMO activities—higher prices overall with higher stock prices emphasized. The Fed prints money and buys bonds from the Primary Dealers and (wink wink) they know what they’re supposed to do with it. Bears just better get out of the way. 

Looking at David's Nasdaq chart, we can see that we are back at 2007 highs.  I find this truly amazing as it seems to me things aren't quite as good in America as we THOUGHT they were in 2007, before we found out that Financial earnings were a scam and before our homes lost 1/3 of their value and when our neighbors used to all have jobs but CNBC is telling us over and over and over and over again how great things are so it must be true because they are on TV and TV doesn't lie to us.  

 

So there's our ridiculous rally premise and we're "very excited" to go bullish if we break over the 2007 market highs.  XLF has been a real laggard so we like taking advantage of a run in the banks with trade ideas like the FAS April $20/25 bull call spread at $2.70, selling the April $21 puts for $2.55, which is net .15 on the $5 spread that's already $4.25 in the money.  So, if FAS makes a .75 gain between now and April expiration and holds it, this trade makes a 3,233% profit.  That's pretty good right?  

See, that's why we don't fear the upside.  If the Fed insists on printing money, we sure know how to grab our share!  The risk on that trade is FAS falls 20% and you are obligated to own it at net $21.15 and FAS hasn't been much below $20 since mid-2009 – so it's a nice trade on continuing upside – don't say I didn't give you anything for Christmas!  

Want another one?  Our Members are already in FAS, UYG and XLF combos from when they were cheaper and we're also in DBA but DBC is a fun way to play commodity inflation as well and DBC is still nearly half of where it was in 2008 so if Goldman Sachs get's their Christmas wish of $100 oil, we can be off to the races on DBC as well.  

You can make a simple bullish play on DBC by buying the April $27 calls for $1, those should double if DBC goes up 10% (now $26) near-term.  If you don't mind being a long-term commodity player, you can buy the 2012 $26-30 bull call spread for $1.40 and sell the $22 puts for $1.10 and you are in the $4 spread for .30 with a nice 1,233% upside if DBC hits $30.  Keep in mind it was $45 last time the markets were this irrationally exuberant so we're not asking for much, just 1,200% to see us through to next Christmas!

This is why we have kept our cash on the side, we can turn that cash into BIG MONEY on a breakout and we only need to commit, for example, 1% to each of these two trades and, if they both work out, the whole virtual portfolio gains 44.66% so that's a nice way to start 2011, don't you think?

Our last Member Virtual Portfolio was a fairly conservative one called "Defending Your Virtual Portfolio With Dividends" from October 23rd.  We're done with those as it's going to be time to get much more aggressive if we're breaking out (and we wanted to be in cash in case we don't), so feel free to browse as it has a lot of good notes on sensible long-term investing strategies using options and, as a bonus, several of those stocks have come back down a bit and are still playable (BMY, for example, just tested our $22.50 target and looks good!).  

8:30 Update – ROFL!  It looks like we won't be needing those bullish plays just yet as Non-Farm Payrolls are a very disappointing 39,000 (160,000 expected).   This is great for us of course, as I mentioned above, we were forced to get very bearish yesterday following our rules and CNBC was scaring us but, surprisingly, it turns out they are complete idiots who give terrible financial advice and resemble a proper news station about the way I resemble Brad Pitt (see yesterday's post for more on that subject – on CNBC, not my Brad Pitt envy..).  

We're not surprised, I told you the jobs numbers were not real last Thursday and we expected a reconciliation in the more reliable NFP report and we're positioned 100% bearish in our $10K-$50K Virtual Portfolio (which now is looking a lot more like we'll get our $50K!) – we're mostly relieved to see that fundamentals can still be useful in this market but it is SO HARD to wade through this non-stop media BS that even I was worried and making preparations to go long (see above).  Of course we learned in the Boy Scouts to "be prepared" and that's what those 1,000% trades are for – they are a way we can dip our toes in the water without committing much cash at the early stage of a rally, just like our bearish bets (had they failed) would have formed a backstop for a larger commitment of upside capital.  

In fact. we WILL be taking a modified version of that FAS play now, to protect our BEARISH profits.  I regretted not being more aggressive on the XLF yesterday and now we should get a nice dip that will give us a good re-entry so stay tuned in Member Chat and we'll find something that could pop for us!  Sorry if I sound excited but I am – I'm always happy when Fundamentals triumph and I'm very happy when the market obeys our trading range – it makes it so much easier to make our calls…. 

Now, you'll have to excuse me as there's going to be a lot of work to do today.  What's striking me at the moment is that the Dollar has been jammed down to 79.6 from 81 yesterday, which is down 1.7% in 24 hours, a pretty big move for a currency that is over 60% of all the money in the World, don't you think?  That's stopping the markets from collapsing and sending gold over $1,400 (I already gave you a long play on gold last week – don't be greedy!).  This is a truly insane way of propping up the markets into next week's uncertainty with Ireland voting to accept or reject the EU loan package on Tuesday as a rejection there can send the Dollar over 82 and that can knock the markets down 5% at this point.  

As I mentioned to Members in the Morning Alert today, Ireland's Parliament votes on the EU aid package and the defeat of Cowen's supporter in last Thursday's election has left his party, who are likely to be thrown out of office right after Tuesday's vote, relying on two independents to pass the aid package.  Keep in mind that Ireland is being forced to accept these loans to save Europe – Europe is not saving Ireland but they need Ireland to save Europe – and US!  

Have a nice weekend – next week is going to be fun!  

– Phil

 

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I was slightly annoyed, though somewhat amused, that The Bernank and the FED we’re going forward with QE2 set at $600B, but even the thought of going over that is beyond reproach. Seriously, more QE??? WTF!?!?!?!
 
Silver is at 30, gold at 1400+ — I thought people were on the fringe predicting things to double from here, but now I am starting to see it. Gold 2500-3000 is very realistic and we are heading for very dangerous territory in this country. Somebody needs to stop these people, it is getting ridiculous now.

terrapin
 
Bernanke is a fool… and an embarrasement to the investment community. Why would he appear on 60 minutes in the first place and additionally telegraph his thoughts to folks that know nothing about money and banking. I’m in shock!
 
Yes Gold, Silver and CEW look better each day. !

I’m a moron for having SLV puts.
 
Probably time to get on board this train more than I have. Long plays (especially financials) with key hedges in place for meltdowns (of course), but generally, very long is the way to go the next several months.  
 
The Bernank(rupt) – insanity. The insane part is what happens once the shit hits the fan and they try to put a lid on it. That’s when the fun really begins (and TBT finally becomes a good pick). It’s like a smelly fart – there AINT NO PUTTING IT BACK IN THE "BOTTLE." I don’t know when we are going to face it but when we do it is going to be sick sick sick.

biodieselchris
 
You have it all figured out –  you are fortunate as you are early, and so many are still clueless ( most ).  LOL – funny bot appropriate analogy !

Feel like a total moron for not embracing the QE2.

Most people do not change much in their beliefs over their adult life – Bernanke is no different.  He is the "alpha dog" when it comes to QE, and wrote his PHD thesis with an emphasis on this theory, as a resolution to economic stagnation. This activity is destructive to the Dollar, and is the path for "hyperinflation". We as investors should accept this eventual outcome as a "probable" event.  I like long term trends that are identifiable, and we are in the midst of one right now. Phil, I know, has a concern for this ( I believe he is recommending some gold positions at the moment – ABX, HMY ) so I am not alone. I closed out some of my precious metals plays last week, but the news out of our government keeps on coming that dilution of the dollar is ongoing, and steps are needed for all investors to take advantage – or at least hedge the circumstances that are on the horizon. I am back into the "gold bug" disguise.

gel – As usual pls post your trades. Many thanks.

gel1, I’m not for more QE.. but I don’t have anything against the Bernank for going on 60 Minutes.  Who cares what the intelligence of the viewer is?  If they are interested, they should here what he has to say- 
 
Terrapin, I share your frustration but I don’t think the fact that some people knew he is going to be on a TV show before some others knew is considered insider information-  However, it would have been very profitable information to have today and I’m sure, since the interview was taped Tuesday, others have been profiting from it since then.  How does that grab ya!
 
Samz, It’s not as ez as simply embracing the QE2.  I was an early adopter.  I went long minutes after it became official that QE2 was actually going to happen on the 6th of Nov.  I sold later in the day.  Bought again the next day and took a loss.  Since then I’ve been thrashing about.  Maybe the whole European debt crisis, which seems to appear periodically out of nowhere, was a clever ruse to take the market down to flush out the weak hands?  If so, it’s clear the ‘Gang’ isn’t about to hand out money for the Fed without a fight.  Time to check one’s emotions at the door.

GLD / Phil & Gel1:
Can either of you explain Phil’s 2:26pm comment regarding Gel1’s GLD position?  I understand most of it.  The part I don’t understand is:
"GLD is at $137 and you have an upside buffer with the hedge and all you need to do is buy to cover if GLD goes over $141 with calls that have very little premium, like the $126s at $12 (.65 premium).  You sold $1.10 in premium so you can’t lose to the upside…"
My questions: (1) What is this $141?  Is it some sort of a resistance level?  If GLD breaks $141, then we assume that it’ll go higher?
(2) Let’s suppose that GLD went above $141, and you bought the $126 calls to cover your $146 short calls.  And sure enough, immediately after you bought the $126 calls, the market turns around and goes down?  And then what?  Do you use $141 as an on/off switch and sell the $126 calls?
Sorry about the long post.  I am interested because I see this as an interesting strategy that’s applicable to similar situations.

cwan
 
Phil’s spread on GLD, as an alternative to holding 250K in options that are almost $40. ITM makes a lot of sense, particularily on a stock that I am bullish on long term. By 2013, I believe we could see spot gold at $2500.
 
I to am not totally clear on the calculations as regards $141, other than my the calls purchased in the spread are at the $140 strike, and the calls sold outside the spread are $1.10. I do not otherwuse understand the relevance of $141.. I believe Phil’s arbatrage between taking losses in the regular account and moving the profit over to the IRA is clever when structuring the hedge in the big picture.The protection is the same, but taxation treatment is factored for long term gain.- Very interesting !. I too hope Phil will run through the calculations for clarification.

matt
 
My comments were intended to criticize Bernanke for leaking the content of his presentation to 60 Minutes ( a taped interview ) for later release, that sugested he would consider a further expansion of QE. This leak hit the currency markets and tanked the Dollar. I do not like this activity in any form ( about the same as manipulated markets and data ). I personally lost over 50K last night, as the currency markets reacted to this leak. The Chairman of the Federal Reserve, above anybody else, should know better – this oversight is reprehensible and negligent. The issue is not about QE, but it is about stupidity, on behalf of BB. This guy is not smart enough to exercise care in his wordage when taping a show for subsequent release. One of the producers leaked his statements. I lived in DC for 6 years, and one thing that resonated with me during my time there, and that is I was in continual amazement over the stupidity of our government – not much has changed, I guess..

 Phil / Rolling
Can you explain how and when to roll sold options? Is it better to wait until most of the premium is gone, even when a sold option goes in the money?
Thanks.

 
gel1 
Does Bernanke knows something we don’t?

 Phil:  Gels GLD play from friday
Back in Sept I was working on somewhat similar play w  long 10 GLD 2012 120 C and short the 2012 145’s, selling some near term puts as we go along to knock off some premium and you also suggested selling 5 near term calls at 125.  I didn’t quite get the best way to manage these naked calls and as GLD has moved up to 137 ish I’ve rolled the 125’s to Jan 130’s.  I have been waiting for opportunity to buy back or roll up and out further but I’m not clear what my path with the naked callers should be if I don’t get a meaningful pullback.  What should I be looking ahead to?   Cheers

Exec – thanks for the recommendation for Rue Domaine! That was the best meal I’ve had since moving to Dayton 18 months ago. I will definitely be going to that place many more times before I move to Boston in late April.

datuu:
I just read your post from yesterday to Gel1 where you said:  "i know of an ira account that will let you sell options and basically do anything else that you want inside it". Could be a perfect vehicle for my new LLC. Mind sending me the link/paste info to  burgess-jim@excite.com?  Much appreciated and have a great weekend.

All I want for Xmas is for the Dems to grow some stones!
http://news.yahoo.com/s/ap/20101204/ap_on_bi_ge/us_tax_cuts
This is an outrage! Sorry, but if you make over a million $ a year you dont NEED a continuation of Bush’s tax cuts. Seriously, all you who complain about Obama and his socialist ways need to lay off the crackpipe. He is only different in rhetoric, no noticeable differences in policy. The watered down health care bill is the only ‘change’ we have gotten….

 The Bernank on 60 Minutes … how bold of him to submit to the biggest softball interview he could find … its pathetic.

http://www.dealcatcher.com/audio-video/iphone-4-16gb-smartphone
 
I phone 4 $149 at Radio Shack 16gb w/ activation.


Few workers with neglected
401(k) retirement accounts would risk taking out second mortgages to invest in stocks, gambling that the investment gains would be enough to build bigger nest eggs and repay the loans.
 But that is just what Illinois, which has been failing to make the required annual payments to its pension funds for years, is doing. It borrowed $10 billion in 2003 and used the money to invest in its pension funds. The recession sent their investment returns below their target, but the state must repay the bonds, with interest. The solution? Illinois sold an additional $3.5 billion worth of pension bonds this year and is planning to borrow $3.7 billion more for its pension funds.

Arizona, hobbled by the bursting housing bubble, turned to a real estate deal for relief, essentially selling off several state buildings — including the tower where the governor has her office — for a $735 million upfront payment. But leasing back the buildings over the next 20 years will ultimately cost taxpayers an extra $400 million in interest.

http://www.nytimes.com/2010/12/05/us/politics/05states.html

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