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Mandarin Monday – China Tightens, Snow Chills Markets

It's going to be another light trading week.

Europe is off 1.25% this morning (8am) as the Shanghai fell 2% and the Hang Seng dropped 0.3% on news that China was raising rates 0.25% for the second time in 2 months – weeks ahead of what most considered a fairly aggressive tightening schedule.  Chinese Premier Wen Jiabao voiced confidence Sunday that his government can contain rising prices.  

Speaking to listeners during a visit to state radio headquarters, Mr. Wen acknowledged that recent price increases have "made life more difficult" for middle and lower-income Chinese.  But, pointing to measures the leadership has taken in recent months, he said: "As it looks now, we are completely able to control the overall level of prices." The remarks, in a session where Mr. Wen was asked repeatedly about prices, reflect the issue's political sensitivity for Beijing.  

Our futures would certainly be taking a much bigger hit if the dollar wasn't down half a point since Friday, inflating the prices of stocks and commodities and giving us the illusion of stability in what can easily become a rough morning.  Of course we felt that last week's zero-volume move higher was fake, Fake, FAKE but, when the acting is that good, there's nothing else you can do but sit back and enjoy the ride.  One long we did take on Thursday was a long on the VIX as we expect volatility to perk up in January.  We took a short position on FCX at 2pm ($119) as a proxy for shorting gold and copper and we have an obvious exit point if they hit $120.  

On the other side of the tape, I put up 4 major inflation hedges for 2011 that will serve us all well in a runaway market this year (along with one strategy that can give you up to a 50% discount on an Annual PSW Membership).  These are, of course, bets that Chairman Wen is wrong and prices cannot be contained.  After all, what difference does it make how much China tightens if The Bernank has the spigots in the US running full blast and flooding the World with Dollars?  The more dollars he prints, the more dollars are demanded to buy oil, gold, copper, cotton, silver, corn and whatever other dopey thing Goldman Sachs can buy low and sell high and those dollars go to producers like OPEC, who spend them new cars and donate them to Terrorists, who in turn put that money back in circulation to buy plastic explosives, detonators and airline tickets – isn't the global economy wonderful?  

Let's not kid ourselves folks, oil is up $20 a barrel since September and that gives Ahmadinejad $84M PER DAY extra cash which he can use to help defeat the Great Satan.  They are pumping the same oil as they were before – simply for a lot more money thanks (as usual) to Goldman Sachs, JP Morgan and the other patriotic speculators who are willing to bankrupt the people of their own countries in order to scrape a few extra dollars of commissions and profits off their energy trading.  At $90 and 4.2M barrels a day, Iran gets 138Bn American Dollars a year to spend however they think is best and, if they thing that money is best spent buying roadside bombs for their militant friends in Iraq – well that's just good old fashioned Capitalism at work, right?

[CHIRATES]The entire GDP of Iran is $331Bn so almost half of that is oil money.  If you ever wonder why Iraqi people are pissed off – their GDP is $65Bn and they pump 2.4M barrels a day, which at $90 times 365 days equals $78.8Bn so SOMEONE is getting ripped off in Iraq, don't you think?   Even Nigeria gets a better deal than Iraq does with a GDP of $173Bn and 2.2Mbd of oil pumped out daily.  We're still short oil – there is no shortage, just hype and speculation that will run its course.  The question is, when?  

Wen, is the question everyone needs to be asking as China's last round of rate tightening, also spurred on by ridiculous rises in energy prices that the government was determined to put a lid on, was a trigger that collapsed the global economy in 2008.  As you can see from the chart on the right, the last series of rate hikes took them from 6% to 7.5% in just over a year but, from their perspective, were not aggressive enough as oil soared to $140 a barrel in 2008 because Bush was giving away stimulus money as fast as China could remove it from the system.  

Obama and the Bernanke have already teamed up for a $2Tn money drop in 2011 and that $20 that oil has risen since The Bernanke announce QE2 in September is $20 per barrel that China has to subsidize for their people, who pay a fixed rate.  So take the $30Bn bonus that we're shipping over to Iran and multiply that by about 4 and that's what it costs the Chinese government to cover that extra $20 per barrel.   Believe me, they DO NOT want to see $100, let alone $140 again, no matter how much CNBC, GS et al salivate over the possibility…

Somehow, the MSM seems to think American Consumers have an extra $400M a day to spend on oil and that, of course, is just 20M barrels times $20 extra or "just" $146Bn a year that will be spent on oil instead of ITunes.  Of course, then you have refining mark-ups (great for our VLO, who are up 20% since Sept) and ancillary inflation in food, heat, electricity etc and you can easily double that to $300Bn.  Figure each $10 rise in oil costs US Consumers $150Bn more to consume the same food and fuel that they did before and then contemplate that the bottom 90% of wage-earners in this country are making 5% LESS than they did in 2005 AND that 10% of them have no jobs at all.  

That's why, in my very humble opinion, anyone who tells you that oil will be over $100 AND the economy will recover – is on crack!  The Fed cannot create money fast enough and the Treasury cannot print money fast enough to wallpaper over rising food and fuel costs (which are, of course, not part of the "core" CPI) and give us a consumer-based recovery at the same time.  

What we are seeing this holiday season is consumers RE-leveraging for the holidays.  Now, I'm a little early with this, you won't hear about it until the data comes in later in the month – just like I told you about the Muni Debt months before it became a popular theme so let's just consider this something we'll need to watch out for in 2011.  

As you can see from the chart on the left, we are in a contraction on CMI data, which takes into account broad consumer spending trends and clearly indicates we are in no way out of the woods yet.  As Housing Time Bomb points out: "The CMI goes on to explain how the majority of our growth in 2010 was as a result of massive government stimulus combined with improved exports thanks to a falling currency."  Or, as I said last week – we have fooled almost all of the people some of the time in 2010 – whether that will last into 2011 or not is the question we must ponder for the new year. 

Meanwhile, baby it is cold outside in the Northeast and that, of course is bad news for retailers, who want consumers to come out and cash in those gift cards.  It also stops air travel and keeps people at home and not driving – all bad for oil prices but we're not expecting them to fail $90 as long as we keep getting short-shipped over 10M barrels a week from our good friends at OPEC – a trick they've been using all of December to create artificial draws in US crude supplied.  Last week, 8.7Mb of oil were imported per day and at least that was some improvement over the prior week's 7.7Mbd of imports, quite a bit below our 5-year average of 10Mbd.  

This effectively shorts our inventories by 10-15Mb PER WEEK so it doesn't matter whether you try to conserve oil or not, they will just short-ship us and call  the draw-down in energy "consumption" because that is the totally BS way they measure it.  As I said, we are short oil and short the markets at the moment as we still aren't quite seeing how they can keep all these balls in the air – no matter what, it's going to be an interesting New Year – but let's try to get through the week first!  

Be careful out there!  

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  1. NET $ = +.31%, dx/y = (.23)%
    highest NET I have seen overnight is +.84% and this is the lowest here at 9:05
    S&P futures overnight
    current = 1247.50, high = 1251.00, low = 1245.50

  2. Negative article on Netflix in Barrons, I do not have full acess

  3. Looking for a buy/write for a small IRA.  I want to set it and forget it (to channel Ron Popeil) I don’t have much leeway to make adjustments.  Ideal candidate would be a nice dividend payer trading for $30 or less.  I’m thinking about BMY or HRB, but could use some other suggestions.

  4.  Good morning:   
    NFLX – this should help mike…
    Theback9 Theback9 


    Barron’s Cheat Sheet; $NFLX, $CSCO

  5. Phil,
    Will you please help me with a new discovery, SIGA Technologies (SIGA). It’s a drug company that has invented a cure for small pox and our government may be stockpiling it @ $2.8B!  If so, it will probably explode. Options only go to June. I’m a new member and need assistance on how to minimize risk on this one but take advantage if it does explode. Thanks

  6. Eph – PLDI or PGH are nice players, selling calls and puts against and both less than $15.

  7. Phil,
    Light Volume = Bots take over around 10:00am to bounce the market and give the impression that nothing that happens in the world effects our super powerful market.
    Yes/No ????

  8. PLDI?

  9. C = 1251.61, F = 1247.00,
    so the cash has not broken the 1250 yet, Dow held the 11,500
    10yr = +.29%,  30yr = (.09)%
    VIX + 10.99%
    oil (.58)
    Net $ =  +.35%,  dx/y = (.27)%

  10.  Phil,  I have been toying with the idea of implementing a hedged bearish strategy similar to the one you initiated on NFLX for CMG.  I was thinking of the Jan 230′s for 11, selling the jan 200′s for 1.8 and the Mar 200 for 8.7 for a net .5 entry and the ability to roll the jan puts out if the downdraft really gets going.  Do you agree and if so what adjustments would you suggest?

  11. HRB / ephem – For the past several years in early December, HRB mailed me their TaxCut software, since I was a regular user. Mind you, they charged me for it, but it was a convenience for me that made a sale for them of their $40 package. This year, nothing, so last night I stopped by Target & picked up the "basic" package of H&R Block At Home ("formerly TaxCut", the package says). Not good, long term or even short.

  12. Clarance – SIGA is tangled in a lawsuit with PIP.  Until this gets resolved, the better play is PIP IMHO.  The judge has thrown out the summary jugdgment, so they got to trial and July is when they say the final judgment will come.  Why not wait or start by selling some puts to get a better entry?

  13. Cannot even make this stuff up, Egypt stimulus plan
    "The plan, based on letting 5.7 million state employees borrow against salaries to make retail and other purchases"

  14. Sorry, PDLI…..

  15. Phil, what are your thoughts on TOT right here? Obviously a crash in oil and the troubles in Europe might cause further price depreciation, but its looking pretty good to me down here….

  16. Pharmboy-- thanks. I’m aware of the lawsuit with PIP but not the July date. Good advice and I appreciate it!!!!

  17.  Good morning! 

    My apologies – my reading took me down a dark path this weekend and I came off a bit negative in the post.  I am really trying for the new year to try to embrace the bullish premise because that’s what we had to do in 2006-7 and 1998-1999 – DESPITE the fact that we all knew it would end in disaster – that’s still no reason to miss out on a good rally, right?  

    Volume is super low this morning so don’t get excited about a downside move.  I am very happy with our upside inflation hedges as well as last weekend’s bullish S&P plays and the prior week’s 18 bullish stock picks (and we should get another chance to enter them if we get a nice sell-off) because the momentum is still clearly to the upside and won’t be broken UNTIL/UNLESS we fail 3 of our 5 breakout levels which are, in case you have forgotten:

    Dow 11,500, S&P 1,220, Nasdaq 2,600, NYSE 7,750 and Russell 725 

    They are ALL green and only the Dow is even close to failing with the others nicely in the money.  

    The Nas is going to be interesting to watch as 2,600 was the breakout and they hit 2,675, about 2.5% over and now back to 2,650 – leading the downturn.  As I said last week, it’s really not worth charting out as these low-volume moves are meaningless but keep an eye on those significant 25 lines to see if the Nas is in trouble or not.  

    This is a fairly low POMO week with around "just" $15Bn of planned infusions (see Stock World Weekly) so it will be interesting to see how the market does with less than 1/2 of it’s usual fix for the week and we do have 5 full days, albeit slow ones.  

    I don’t have Asia’s schedule this week but I think Japan is closed some so hard to say how that will affect us.  NFLX, PCLN and AMZN shorts all looking good but don’t be greedy – we are lucky we got a nice sell-off and we don’t want to ride out bounces so keep reasonable trailing stops and those 25 lines on the Nas are very good points to watch along with 1,250 on the S&P and, of course, 11,500 on the Dow.

    We can spend this week discussing everyone’s 2011 predictions and, hopefully, make a few of our own.  It’s going to be a nice, slow week and we are well-positioned for a pullback so let’s just sit back and enjoy the ride and see where it takes us.  

  18. Big jump up on the NET $
    Net $ = +.76%,  dx/y = (.34)%
    C = 1251.85, F =1248.00
    10yr = +.41%
    VIX +10.81%

  19. SIGA – looks like one could also do a Mar 11 $12/15 bull calls spread, selling the $12 Ps for 1.35 for a net credit of 20c.  That puts you in at 11.80, which is down almost 10% from here if you REALLY like them.  I think they may fall back to the gap, and they are moving down now, so I would still wait to see how the chart shapes up.  IF $22 is the target, then spread is a nice big winner of as much as the stock.

  20. Good Morning!  :)

  21. CSCO   Still looking for another buy/write, but I just used part of my margin for synthetic long: +1 Jan 12 17.5 Call/ – 1Jan 12 20 Put for a net $140.   No dividend to collect, but I like the risk/reward.

  22. FCX just took off for no apparent reason … gonna try a small short here …

  23. eph – nice one.

  24. FCX P/E is much less than ABX and GG.  Dangerous to short….

  25. Vegas casinos should have a strong finish this year. The traffic heading into town last night was a slow crawl on I-15 from the Vegas strip to the Cajon pass in California – about 200 miles!!!  (Not a typo)  Great for them – the town is in the Crapper…..

  26. The Clark County school district (5th largest in the country) will receive 300 million less this coming school year after facing deep cuts the previous 3 years and the state of Nevada is facing a 3 billion dollar shortfall this coming year…..

  27. Onward and Upward!  :)

  28. C = 1253.76, F = 1249.75

  29.  Ags are heading higher at the moment, bucking the downtrend.  SOX still leading us down with 407.55 their 2.5% line off the 418 high so they need to retake that to show that this was just a normal pullback off the run from 372 (10% would have been 409 – overshoots of 2.5% are normal).  

    FCX annoyingly still going up.  XLF looking strong.  Oil holding $90.75, copper $4.25, gold $1,382.

    Dollar/Mike – Strange day indeed.  They are still down at 80.65 but it’s not like the Euro or Pound look strong.  On NFLX – I don’t know what it’s going to take to kill them other than the fact of their earnings report.  

    Buy/Write/Eph – PFE is about my favorite "safe" dividend payer.  $17.47 and you can sell the 2013 $15 calls for $3.30 and the $17.50 puts for $3.05 for net $11.12/14.31 so a nice 57% upside over 2 years and a 20% discount if put to you plus a .80 dividend while you wait so even if your margin is a full $17.50, plus the net $11.12 stock, that’s still 2.7% annual dividend on $28.62 while you wait for your $6.38 bonus (22%).  Not bad for a tax-free investment.  

    Already they are pushing the markets back up, QQQQ WEEKLY $53 calls are $1.38 and make good protection for the Nas going back over 2,650 – you can just kill them if they fail that line or hit $1.30 but we’ve seen enough sticks last week to expect this one – 20 in the 1050P as we have a lot of shorts to protect!  .  

  30. 1020
    Of course…..the bots have concluded that what China did was good for our economy.

  31. Good Morning Phil, 
    I hope you had a great holiday weekend! 
    The NFLX short you are talking about are the 190 long and the short 165 Jan/Feb? I thought the plan was to stick with them till Jan?

  32. I have been trying to grasp CLDA and their drug vilazodone.  I started to write a post on the compound, thinking that they would be a good long to take a risk on, as their PDUFA date is Jan 22….OPEX of course.  I think the best way to play it right now is let it run up like we did with several of the companies we played and then get out.  I am looking at the Jan $15 straddle, selling the Ps.  That means the calls are 100% ITM.  Getting out Jan 15.

  33. MSFT    How about Mr. Softy as a buy/write…you get $6 for selling the Jan 12 27.5 P/Cs, and with them buying back a bazillion shares of stock every year, how much downside can there be?  Plus they pay 2.2% in dividends….no bad, chad

  34. NET $ = +.80%,  dx/y = (.29)%
    C= 1254.55, F =1250.25
    10yr = +.77%
    VIX = +9.71%

  35. 1020…they weren’t going to Vegas…they were going to skii….!!!!???  More snow in Mammoth and Big Bear than any other resort in the country!

  36. Hello, Phil, hope you had a good holiday weekend and another coming up!  Thanks for the weekend hedges!
    Question for you reg FAZ and SRS. They are my last remaining big losses from the crash of a couple of years ago: I’m about 90% down on them, just sitting on them cause too cheap to sell.  I have been contemplating a couple of spreads and I wanted to know your opinion: How about selling $6 2012 puts (.85) and buying $30/39 2012 bull call spreads ($1.90/1.10)?  Or selling $5 2013 puts alone (I don’t see anyone puts/calls for 2013 beyond $17.50 strike price).  Or in combination with the 2012′s?  I"m going on the assumption that we’re at or near a low on the underlying and I don’t mind holding more FAZ in case of an upcoming downturn or even flash crash…
    Same thing regarding SRS: Does it make sense to sell $15 2012 puts ($2.50) and buy $30/40 bull call spreads ($1.04)?  Or sell 2013 $15 puts ($4.00) and buy 20/30 spread at $1.45?  Thanks for your thoughts…

  37.  UBS with a negative market note (from Caps link).  

    SIGA/Clarence – Well, Pharmboy is our expert on the actual companies.  My general opinion of biotech is it’s like going to Vegas but you don’t get free drinks while you’re playing.  Why would our Government be stockpiling smallpox?  Have we found new unexploited natives to hand out blanket to?  Technically, it’s an eradicated disease, which means it can only be released as a weapon and, even then, the vast majority of humans have been vaccinated.  SIGA is already up 500% from their 2008 lows and up almost 50% since Sept so you may be a bit late to the party but, if you wish you would have bought some at $10, then you can sell the June $11 puts for $1.40 and you can buy the June $13/17 bull call spread for $1.30 so that’s a .10 credit on the $4 spread that’s .25 in the money to start and your worst case is you own them for $11.90.  I would suggest though, if they drop back below $12.50, that you consider buying some shorter-term puts to protect the Downside like the Feb $11 puts, which are .92 at the moment so figure if they go over $1, plan on buying them with tight stops to protect. 

    Bots/Exec – We do seem to be getting it pretty much every morning.  On the whole, no drop goes unbought and that’s just what happened in ’07 and ’08 – it works until it doesn’t and then all hell breaks loose.  

    CMG/Trad – You’ll notice I’ve given up on them.  Of the 4 horsemen of the overbought apocalypse, CMG is the one you can most easily justify the high forward p/e.  Still, your combo reflects that although you do risk earnings disappointment dropping them hard and fast but, as you know, you’ll have $30 in your pocket before you have to deal with the March putter so I like that combo as a downside play but keep in mind that a move up into Jan can wipe out your $230 put but the March $200 putter has just .27 delta so he’d only lose about $2 and you’d still owe him $6ish and would have to wait out the next two months with the naked put – not terrible as long as you don’t mind it becoming a long-term annoyance.  

    Egypt/Mike – Fine example of our oil money at work!  See this is brilliant – the Fed inflates our money, commodities go through the roof, US consumers are forced to dip into their pockets and the money is sent overseas where OPEC nations can use it to stimulate their own economies – allowing their citizens to compete with us to buy commodities that they could not otherwise afford which, of course, drives up the price of commodities for US consumers even more.  BRILLIANT!  

    $1.47 on the Qs is a quick .09 gain so now we stop out even if we pull back.  Boring but necessary so effectively a .10 trailing stop from here forward.  As it’s just a protective long, we don’t mind if we don’t make money on it – now it’s just "free" insurance.  

  38. thong, thong, thathong, thong thong! Go Cisco go! :)   Pharm – how’d the championship game go for you?

  39. jr – still waiting for Vick and White.  Not well as Hillis and Jennings (Jac RB) did not pull through. Also, Dallas D was fine, just Kitna’s 2 INTS did not help on the scoring front.  Need 56 from the 2 to make it a W.

  40. Phil, re:CMG, at what level would you be comfortable owning them?  I have been in the camp that 200 was a reasonable good place, thoughts?

  41. Phil I was reading the link from UBS you posted
    from the same place here is link on money market funds and Bernanke, interesting

  42. Pharm – that’s tough. It will be close, but with Vick and White it’s definitely doable! I was a bonehead and put in Tebow over Rodgers which cost me 3rd place…

  43. Pharm/ski  Could be.  The line just started in Vegas. They could have been headed to the ski mecca of southern Nevada –  Mt. Charleston!!!   ;)

  44. jromeha – Tebow over A-Rod!?   What were you thinking man?!!   ;)

  45. Phil, 
    I can’t trade weeklies for the qqqq posted… I guess I missed the run up as I am intermittently on my computer. If we move back down which can take the place of the weeklies. 

  46.  TOT/Jrom – They are a good company as a long-term investment.  I’d like them better back at $45 and with a better VIX to sell into (although up to 18 today is a nice improvement).  I’d go artificial with the 2013 $40/50 bull call spread at $7.50 and sell the 2012 $50s for $5.50 so that’s net $2 on the $10 spread and if they keep going up, you can spend $2.70 more to roll the callers up $5 and if they head down, then probably you’re rolling the puts to 2013 $45 puts (now $5.50) which is a nice entry on them long-term.  

    CSCO/Eph – I like them a lot and the play is good. 

    FCX/Cap – Whole lotta shakin’ going on it looks like to me.  

    FCX/Pharm – Yes but they respond almost lock-step to prices in gold and copper (mostly copper) and shorting copper is way too dangerous and ABX is a long I like.  

    Vegas/1020 – Is that normal?  

    Clark/1020 – I read this weekend that there are towns all over America simply shutting things down and a couple are even reneging on pension promises already.  For municiplaities that have to balance their budgets, things are going to be very ugly this year.  

    China/Exec – Well if they strengthen their currency it’s good for us.  Japan is happy about it already.  

    NFLX/Amatta – Oh not that one!  I mean directionals, of course.  

    MSFT/Eph – Good but dull.  Also, I do see ways they can dip – don’t forget what happened to them back in 2007, which began with a bonus dividend and then spun them all the way down to another 50% drop.  The trade is fine but don’t get too complacent with them.  

    FAZ, SRS/Jerconn – I take it the first was FAZ and I’d ask for .90 for the 2012 $6 puts.  Actually, I’m long-term bullish on the financials and they only have to go up about 12% for FAZ $6 puts to go in the money so it’s not a premise I’d make a trade on.  Why not just take $1.50 and buy 6 2012 $11/13 bull call spreads for .25 with a stop at .15 so you risk .60 and can make $1.75 without having to deal with the put side?  As the net delta is just .08, you will be able to watch a 20% move against you before stopping out and you can always sell some short-term puts on a big dip to offset your losses (maybe selling Feb $8 puts, now .10 for .35 if FAZ falls to $8.50).  

    On SRS – With the Fed taking all bad assets off the banks’ hands, that’s a tough short.  The way they have decayed on us, again I don’t like that long put sale – you don’t want to give them that kind of time, you are better off selling a few closer puts each month, like the Feb 17 puts, which are .50 so 1/2x of those that you can roll to 2x the Apr $13 or $14 puts makes sense.  With SRS at $18.60, I doubt you will fill the $20/30 spread – how about the 2013 $21/25 spread for $1 and just try to make that $1 selling puts for a free ride?  

    CMG/Trad – I’m still at $170 max and they still wouldn’t be my choice in that sector.  

    Citi Research/Mike – That guy does have an interesting bunch of stuff.  I can’t believe he gets away with publishing those though as they are copyright violations.  Zero Hedge does that too and sometimes we get in trouble just for putting up their posts.  

    No weeklies/Amatta – There’s not a good substitute other than going very deep in the money like the QQQQ Jan $51s at $3.60, which have .22 of premium and a .86 delta.  The idea is to make a dime and not lose a nickel – very similar to the way we play the lines off the futures – you want to play them at a cross and keep very tight stops at the line.  The Qs are not bad as they have a .01 bid/ask spread, that’s why I like to use them here.  

    AIG heading for $60 Cap! 

  47. Phil / Fed        Mkt positives: unlimited POMO and Fed QE
    Mkt negatives: No GOP fiscal stimulus in 2011, reacceleration of housing price collapse, net job losses due to State/Municipal debt crisis, commodity inflation hurting consumer spending, austerity in Europe, blocking by Congressman Paul.
    The bit I don’t get: Will Paul, as committee head, be able to rein in the Fed, removing the huge mkt crutch? And, surely the banks are too smart to be left as the main buyers and holders of stocks at overvalued levels. Even if Treasury ends up holding a few hundred billion of overvalued stocks, surely this is not enough to prop up the mkt? Is it only Treasury who buy stocks or does the Fed itself stealthily buy stock to prop the mkt? I’m confused as to who the ultimate bagholder will be when this ponzi scheme collapses? I’m assuming the banks are too smart to be left holding trillions in stocks and long bonds?
    Also, couldn’t the Fed and Treasury buying be undermined by questions from Paul along the lines of ‘How much mkt risk are you taking on and what would the cost to the taxpayer be of eg a 40% equity mkt collapse or a 3% increase in the 10 year Treasury?   And " This Gov’t manipulation of capital mkts for the benefit of insiders (the banks), at the expense of other investors and the taxpayer, must end".  Or, will Paul just be marginalized like every other pol, allowing the ponzi and mkt manipulation to continue for another couple of years?  Your view on this is very important to guaging how to play the macro mkt in 2011.

  48. C = 1254.70, F =1250.00
    10yr = +.41%,  30yr = +.20%
    VIX + 9.17%
    Net $ = +.44%,  dx/y = (.28)%

  49. 1020 – I know… I guess I was thinking Tebow was playing against the worst D in the NFL and Rodgers, coming back from a concussion was playing against the 2nd ranked pass D that has a history of knocking QBs out….. Tried to get too clever and it cost me some $….

  50.  1050P QID position adjustments?

  51. very tight on the futures, a function of light volume I guess
    between 1249.60 – 1250.80 for over an hour

  52. Phil, Looking at the DBA play where I hold Jan 12 25c long bought for 2.84 now 7.80 Jan 12 31c long bought for 1.86 now up to 4.10. I sold the Apr 11 28c for 1.58 now up 4.35 thinking of rolling the same to Apr 32c for a net cast of 2.78 to go from 28c to 32c . Your thoughts pls. thks

  53.  London had a half day and look at this joke of a stick to give them a better close:

    The DAX had a full day and dropped like a rock at the open and stayed down 1% all day.  CAC was about the same.  

    At the open: Dow -0.41% to 11526. S&P -0.42% to 1253. Nasdaq -0.75% to 2647.
    Treasurys: 30-year -0.05%. 10-yr -0.14%. 5-yr -0.18%.
    Commodities: Crude -0.61% to $90.95. Gold +0.2% to $1383.20.
    Currencies: Euro +0.29% vs. dollar. Yen +0.12%. Pound -0.25%

    10:00 AM On the hour: Dow -0.41%. 10-yr -0.2%. Euro +0.28% vs. dollar. Crude -0.81% to $90.77. Gold +0.13% to $1382.30. 

    11:00 AM On the hour: Dow -0.25%. 10-yr -0.25%. Euro +0.27% vs. dollar. Crude -0.75% to $90.82. Gold +0.12% to $1382.10. 

    Current and future production11 am market boosterTexas manufacturing continued growing, the Dallas Fed reports, with the production index positive for the fourth straight month (at 12.8) and general business activity also at 12.8. Labor market indicators showed the most promise, with the employment index jumping to 15 from 6. At noon we’ll see whether Midwest manufacturing maintains last month’s broad expansion.  Notice they have overestimated Future production for over 5 years – but still, it’s a very positive report.  

    The economy is improving and the Fed is getting flak both domestically and abroad. But if the Fed had known this back in November, it probably would still have moved forward with QE2, says WSJ, arguing that hindsight doesn’t change much here. 

    98 bailed-out banks are slipping towards failure, with smaller institutions hit hardest by souring loans and eroding capital levels. The 98 banks, up from 86 in Q2, collectively received more than $4.2B in TARP funds. 

    Despite speculation among traders that bond auctions could be put off by the New York snowstorm, the Treasury will sell $35B in two-year notes today on schedule, along with $57B in T-bills. The two-year note auction closes at 1 p.m. Shorter-term Treasurys are off: the five-year yield +0.07 to 2.12%; two-year +0.06 to 0.72%. 

    More snow fallout: With Eastern U.S. storms shaking up one of the year’s busiest shopping days, retailers might have to deepen discounts to get snowbound shoppers out of their homes: "Look for sales to be repeated… They’re going to be more aggressive. They’ve got to throw another party." 

    AIG (AIG +4.5%) signs $4.3B of credit agreements at it works towards exiting its government bailout; "As we approach years end, we believe we are close enough to completing our recapitalization plan that we can see the finish line." (8-K, PR)

    Molycorp (MCP) resumes operations at a major U.S. mine for rare earth metals; the site had been shut down in 2002 over environmental concerns and because of the lower costs of Chinese-based mining. MCP +8.6%. Rival REE +7.9%.

    McDonald’s (MCD) was one of the country’s best-performing restaurant chains during the recession, as it combined value and variety. The question is whether McDonald’s can sustain its growth now that consumers are starting to spend more freely.

    Netflix (NFLX) is under pressure this morning after Barron’s sided with short-sellers about the stock. Shares -2.6%

    Good entry opportunity – someone will replace HBC:  H&R Block (HRB) is -7% premarket after an announcement late Friday that HSBC (HBC) has terminated its long-term arrangement to provide all of H&R Block’s refund anticipation loans. H&R Block peer Jackson Hewitt (JTX) +10.7%.

  54.  AIG … that’s just crazy … wish you could short the stock now … should be able to after the gov’t sells, but AIG will be back to $40 by then.

  55. Phil / China    Do you think China will choose to stifle inflation via currency revaluation or via interest rates / bank deposit rates? My view is via revaluation as it’s least damaging to their economy and will stimulate consumer demand via increased spending power. It also reduces the real cost of imported commodities like oil. I don’t buy the argument that it kills Chinese exports. Wages are lower in Vietnam, Indonesia etc, but they just don’t have the sophisticated support infrastructure needed for large scale manufacturing and their productivity is relatively poor.
    Chinese banks have too much invested in RE and the Gov’t can’t afford a US style RE collapse, so they can’t afford to spike interest rates. Enriching the Chinese consumer with a 30% revaluation looks like the least worst option to me (and US and Europe would love this). It strikes me that a 30% currency upside plus growth in the consumer sector ahead makes China plays the most compelling overall investment? If you agree, what China consumer oriented stocks would you recommend?

  56. And the RUT continues to rise regardless of the news or market! I really do hate TNA ;-(

  57. Interesting Factoid from the Census:  For the first time since the 1849 Gold Rush do a majority of Califorians report being born in California  (160 years of immigration to California is over)

  58. PHil, DIA mattress play sold the other day jan11 112p for 1.05 now down to .67 regret not to many now the 114 p is selling for 1.14 little bit close to todays 115.44 what do you think thks

  59. NET $ = +.35%,  dx/y = (.24)%
    C = 1255.69, F =1251.25
    VIX = +8.99%
    10yr = +.29%

  60. Phil/normal  Not really, but like Pharm pointed out, many were headed out to the ski slopes.  New Years is a huge event for Vegas that usually fills most the rooms and with the low room rates (except for new year’s eve) Vegas should be packed….

  61. just FYI
    is this correct, we are open Friday?
    "New Years’ Day (January 1, 2011) falls on a Saturday.  The rules of the exchange state that when a holiday falls on a Saturday, the preceding Friday is observed, unless the Friday is the end of a monthly or annual accounting period.  Friday, December 31, 2010 is the end of both a monthly and annual accounting period"

  62. Does Netflix use this funny accounting?

  63. Good morning,


    IWM 80.03, 79.39, 79.26, 79.06, 78.75, 78.49, 78.29, 77.99,  and NO POMO


    Currently attempting to break out of the descending channel from last Wed and Thurs; target 79.06 !!

  64.  Phil,  I’ve been reading a lot lately about how Australia is a great short right now.  Do you have any thoughts on the subject?  

  65. Another thing on my mind was that GE Capital sale of real estate mortgages in its Mexican division
    2 B of assets for 170 M, that .085 on the 1$, huge haircut
    Granted, they did not disclose the debt assumptions on it, but probably did not want any to know

  66. On the books, according to a relative, GE is only a $10 stock FWIW.

  67. HRB — will someone really replace HSBC? It sounds like the OCC blocked the use of Refund Anticipation Loans (RALs), so there may not be a replacement.

  68.  Paul/Tusca – I don’t think Congress has any teeth in dealing with the Fed other than to get the ball rolling on legislation to abolish or regulate them.  He can make things very uncomfortable and subpoena records and depose people etc – which would be totally fun to watch but will probably accomplish about as much as it did when they dragged the banksters down to testify or when they dragged the auto makers in and criticized them for not driving before handing them hundreds of Billions in bailouts.  Actually, I think, if anything, Ron Paul may expose the farce to a wider audience and, in fact, drive down the dollar and drive up rates – which is kind of what he wants anyway as he’s essentially a gold bug and, as one reaches 75, a person gets very hungry for their "I told you so" moment – enough so that they may want to force the issue if they can…

    The ultimate bagholder is any sucker who has retirement savings in cash or bonds or (as with 80% of the American people) none at all and the 1/3 of American families who do not own homes – all of whom will be left in the dust by runaway inflation while the asset/investing class jump maybe a factor of 10 ahead of them in wealth (again, this already happened in the last 30 years).  At that point, the wealth gap between the average US citizen and people in the top 10% will be as much as it is now and the top 1%, which is a gap so severe that it can only be compared to peasants and the king of England in the 17th century.  

    Face it, whatever property the bottom 90% have accumulated over the past 2 centuries is about to be taken from them through inflation.  This isn’t new, this is how the nobles always steal land, it’s something Jefferson warned about over 200 years ago if the bankers were allowed influence in our country and it’s in full force right now as the Fed and the Government are putting the people of the US Trillions of dollars into debt to make the bankers more liquid yet they only lend to the top 10%, who buy up the bottom 90%’s assets in foreclosure while the government tells you how well everything is going.  

    So Ron Paul may do more harm to Americans than good in exposing the Fed or "THEY" may be using his son as leverage to turn the "investigation" into the same sort of joke that energy, banking, auto and 9/11 investigations became – just bread and circus for the masses while the looting continues in the background.  How’s that for an outlook?  8)

    QID/ITrade – Well that’s why I went with the QQQQ covers, hopefully we will pick up some cash towards a roll.  I have to go over that whole thing tonight. 

    DBA/Yodi – You don’t need to hold those $25s so deep in the money.  You can roll back to 2x the 2013 $30s at $6.50 for + $5 and roll the April $28 callers to 2x the July $32s about even as I think that’s a better way to spend money.  This is still playing for a pullback but you gain a year to play with and next time you’ll know to add 1x more calls, like the 2013 $36s for $4.5 (now $3) if DBA pops $35 to keep you out of trouble.  

    AIG/Cap – Like I said, there’s really no way to get a handle on the real value of those guys.  Of course you have a bad feeling about them but the way they’ve been stripped down and reassembled makes them like GM – probably bad but too dangerous to bet against.  

    China/Tusca – I think they try to tighten away first but it’s not their people who are causing the commodity rush, it’s our own Western speculators (you can tell by ETF inflows and NYMEX movement and action on the LME).  So what can China do about that?  As I mentioned above, $100 oil costs the government $40 because they subsidize it to about $60 so $40 a barrel x 8Mbd is $116Bn a year of subsidies at $100 oil plus their food etc price controls is good for $250Bn that the Government has to fork over just to prevent riots.  So there’s a certain math they have to do as to whether it’s worth selling the US cheap crap on their devalued currency to raise the $250Bn through trade imbalances or if they float their currency 20% higher to offset rising prices, how much less business will they then get from America?  The Chinese are pragmatists, they will do whatever is the best deal for them.   Your idea makes sense but the consumers won’t feel like they are getting 30%, will they?  They will simply experience deflation and that itself can have very poor consequences.  I’m sure China is much more afraid of repeating Japan’s mistakes than we are as they have passed them by as an economic power over the past decade.  China is doing the exact right thing at the moment – making their currency a bit more valuable while keeping the growth moving along at a nice, but not crazy clip.  It’s a tough balance to maintain but, of course, they have a lot more power (and money) than our government and none of those pesky voters to please…

    Cali/Humvee – Now begins the 160-year exodus?  

    DIA/Yodi – Well DIA is at $115.42 so not much point in buying back to the $112 puts, right?  If you want to spend money, roll the long puts up and then roll the putters for another $1(ish) if the Dow breaks 11,550.

    Vegas/1020 – That’s right, I was in Vegas for New Year’s a couple of times and it was kind of packed.  That’s why I don’t do it anymore…  Tahoe is much mellower.

    Friday/Mike – Yep, we’re working!  On NFLX – I don’t see how that would apply to them although I would question the way they cost out huge payments for current TV shows as the value of them pretty much expires within a week or two and then becomes just like any other rental. 

    Qs making their move now!   $1.62 is very good on the $53s but it’s only 1pm so stop at $1.52 locks in a 10% gain so keep on top of that.  Maybe failing 2,655 is going to be time to get out

  69. Pharm, wow – so you are saying that GE is 1.8 book?  So there are all of these people (some very stupid, but some very, very smart) buying at 1.8 book?

  70. Phil:
    Do you like HOV here? Thinking about an earlier play Buy 2013 2.5 calls and sell the 2013 5 calls, sell the 2012 5 puts.

  71.  JRW   Thanks for the lines.  We are out at 79.01    Should have held for more but taking money and runnin.

  72. Phil/Vegas  Tahoe is great.  Do you lease out your Marriot property?

  73. Quick read on understanding how banks hide leverage

  74.  Wow, being bullish is fun!  We don’t need a reason, just up and up if we buy the f’ing dips…

    Australia/Palotay – You want to bet against the guys who sell commodities to China?  No thanks!  I like EDZ as the overall hedge against emerging markets, trying to short Australia is a bit convoluted by comparison.  

    GE/Mike – It wasn’t $2Bn for $170M – They got paid $170M and Banko whatever assumed $2Bn worth of debt on about $2Bn (maybe) wortth of properties.  Bottom line is GE now has $2.17Bn free to spend on some other bargain they like better.  

    $10/Pharm – That’s kind of harsh, I think.  

    HRB/Jvest – I think that’s long priced into HRB.  Also, this has been going on for ages with HBC.

    Holy cow – $1.85 on the Qs!  Very nice $1K gain so we totally protect that now with a stop at $1.80 (back to trailing .10 at $1.90, expand to trailing .15 at $2).  Better to get out early than late at this point!  I really kind of doubt the Qs plow through $55 without a pullback.  

    HOV/DC – Absolutely I like them at $3.98 and yes to that spread.  

  75. Thanks for the GE clarification Phil, I appreciate it

  76. C = 1257.67, F = 1253.00
    10yr = (.38)%
    VIX = +8.14%
    NET $ = +.14%,  dx/y = (.19)%, lowest I have seen on the NET $ today, and the market has rallied as it fell

  77. Jo – yes.  The financial books are in shambles – GE is not much of a company without its financial wing, the rest of the company is fine.  Same relative said they would go to $8 in the crisis….Hummm….what’s changed?

  78.  Interesting – same pattern as last Monday almost to a T: 

    Run-up ended at 2:15 so stay alert but then another buy the dip opportunity tomorrow morning.  

    Marriott/1020 – It’s just a 1Br, we never even use it as I get a free suite at Caesar’s, which is way bigger.  It seemed like a good idea when it was just Tina and I but useless with the kids but it does trade well (with RSI time-shares) and we rent it out the rest of the time.  

    Very good explanation of leverage Mike!  I guess when I say 10:1, I’m off by a factor of 6!  

    Looks like $1.85 is good on the Qs – No sense waiting for it to actually fall once the momentum runs out.  

  79. Two more trades for HOV,
    1. Buy HOV for 3.98, sold Jan 12, $2.50 C/P for 2.10, 32% if called away.  Very safe I think.
    2. Buy HOV for 3.98, sold Jan 12, $5.00 C/P for 2.85, 342% if called away.  Very interesting.
    Phil, which do you like it better?  Thx.

  80. if it posts more then once, my apologies, I think I screwed the investopedia link up

  81. Hello DSCO!  Up from our 21c entry….nice BIG volume!

  82. Phil:
    Do you still like March 16/19 VIX trade here? Missed the trade and don’t want to chase but I think the low 20′s is still doable.

  83. Phil / Fed, China.   Thanks, so I conclude you mean no one, including Paul, will stop the banksters, so need to hold stocks not cash? (I’m 90% cash and10% short, so I’m confused again).  Sounds like I  have to own the banks, inspite of the coming foreclosure acceleration, since the Fed will find yet another way to bail them out?  And, you think China will be managed pragmatically and currency will appreciate – so double win from owning their stocks – so which ones?

  84. HI Phil :
    In  my non IRA account, I bought PFE at $16.61 and sold 2012 $15 P & C for $4.61 for net $12.00  Now, PFE is at $17.50 with calls at $2.95 and puts at $.93 for net $13.61. Thinking of rolling to 2012 $17.50 P & C now at $ 5.00. I did see your 2013 play,but 2013 seems so far away. thank you

  85. I hope January is more interesting !!

  86. Pharm, "what has changed" – one word – the government – they will not let them go to 8 – they will/have pulled out all the stops to prop up these companies.  Me thinks they go to 25 buy end of next year.  Betting on the fundamentals and "what you think should happen"  is not a good strategy under the current dynamics imho.  should iwm go up in a straight line or be up by .3% while the dow is down by 60?

  87. I do not have an Ipad, but fyi on cool apps of 2010

  88. Interactive CDO guide and how the bank ownerships overlap

  89. Looks like "they" may let IWM fall back to the 78.78 level  !!

  90.  Confused/Tusca – We’re all confused, that’s why the cash is good for the moment.  Nothing wrong with being 25% invested in safe things like CSCO, VLO, PFE, GE, XLF – things you won’t be ashamed to DD on if they drop 50%.  That would put you 37% invested with 2x of those stocks – that’s not so terrible and still in 2/3 cash.  No, I don’t think China is an easy win – just because their government is doing the right things at the moment – it doesn’t mean it’s going to be enough.  We could have a revolution tomorrow or we may not have one for a generation – it’s hard to say.  Hunger in the Western World is a funny issue as we generally have too much to eat and most of our hunger issues are simply distribution issues (people would rather throw surplus food out than give it to people who can’t afford it) that are solvable.   Hunger in hundreds of other countries, including places like North Korea, is a very real problem with millions of people living on the brink every day – it won’t take much to create an explosive situation and rapidly rising prices can cause this much the way oil prices went crazy and then led to shortages in the 70s.  Not only that but people are still blowing themselves up every day in Iraq, Afghanistan, India etc. and Greece just had a bomb in their Italian Embassy and England just grabbed 9 terrorists in progress last week and there are street riots in Argentina and we just blew up 18 militants inside of Pakistan – yet the VIX is under 18 as if there’s not a chance in the world the markets could pull back.  Cash is nice.  Cash is good!  

    Wow, FDX shut down tri-state operations.  That pretty much never happens. 

    PFE/Dflam – I don’t see $5 for the 2012 $17.50 puts and calls but it would be nice otherwise.  I look at it like you’re in for net $12/13.50 and there’s still $1.50 in premium in the $15 put/call combo.  Your net liq value is about $13.60 so you have 10% more to gain in a very well-protected position over the next 12 months.  Now, what do you accomplish by rolling up to the $17.50 puts and calls?  If was an even swap, you’d go to $12/14.75 with $2.50 more upside but it’s a .50 cost to roll up and that puts you at $12.50/15 so your max gain goes from $3 to $5 but your put-to price rises $1.50 so you better be very positive PFE isn’t pulling back.  In the grand scheme of things, EVERY 2013 combo is at least $5 so, as long as the roll remains + $1 – why do anything at all.  If it’s a real long-term investment and you can move it up a well-protected $2.50 a year – why do you need to EVER put money in to accept more risk until almost the day your protection expires.  Your worst-case scenario for staying well protected is you get called away and cash out.

    Apps/Mike – There are too damn many of them.  Who has time for all these things?

    Interesting link  on CDOs. 

    Volume at 3pm a super-pathetic 47M. 

  91. very cool, quick CDO explanation video

  92. Hi, Phil,  I think you missed my poat at 1:58pm.  This is a repost.
    Two more trades for HOV,
    1. Buy HOV for 3.98, sold Jan 12, $2.50 C/P for 2.10, 32% if called away.  Very safe I think.
    2. Buy HOV for 3.98, sold Jan 12, $5.00 C/P for 2.85, 342% if called away.  Very interesting.
    Phil, which do you like it better?  Thx.

  93.  Wow, NYSE volume just 300M – that’s off even worse than the Dow as usually it’s 1Bn by 3. 

    12:00 PM On the hour: Dow -0.27%. 10-yr -0.13%. Euro +0.21% vs. dollar. Crude -0.52% to $91.03. Gold +0.09% to $1381.80. 

    01:00 PM On the hour: Dow -0.25%. 10-yr -0.03%. Euro +0.09% vs. dollar. Crude -0.48% to $91.07. Gold -0.02% to $1380.20.

    02:00 PM On the hour: Dow -0.14%. 10-yr +0.16%. Euro +0.27% vs. dollar. Crude -0.4% to $91.14. Gold +0.15% to $1382.60.

    03:00 PM On the hour: Dow -0.14%. 10-yr +0.29%. Euro +0.19% vs. dollar. Crude -0.59% to $90.97. Gold +0.2% to $1383.20. 

    Nov. Chicago Fed Midwest Manufacturing Index: +0.4% to 81.1 (indexed to 2007′s 100), marking a third straight month of gains. Auto output was the sole decliner among sectors, -2.2%; machinery +1.4%, resource output +0.4%, steel +2.3%. 

    Lackluster trading continues, though the S&P 500 and Nasdaq are holding fractional gains (the Dow, at -0.1%, has yet to join them). Conglomerates, tech and transportation have joined financials in positive ground, and most actives include Cisco Systems (CSCO +2.4%), Sirius XM (SIRI -3.1%) and DryShips (DRYS -6.2%). 

    With already thin trading desks even more inactive amid severe snowstorms, the Treasury’s auction of $35B in two-year notes drew bidders with a yield of 0.74% (.pdf), highest since June. Bid-to-cover ratio of 3.71, vs. a recent 3.47; indirect bidders take 22.6%, vs. a recent 36.8%. Direct bidders take 19.8%, vs. a recent 14.7%.  High yields in a two-year note auction have stemmed losses in Treasurys: Ten-year yields go near flat at 3.4%, while the five-year yield is +0.04 to 2.09%; two-year +0.05 to 0.71%.

     New York’s JFK airport will reopen at 6 p.m., the FAA says, though it’s still unknown when LaGuardia and Newark Liberty will resume operations. 

    Eastern U.S. package service is snowbound, as FedEx (FDX) cancels service in New York City, New Jersey and Long Island as well as Philadelphia and Boston, and UPS (UPS) suspends or curtails operations in 13 states.

    Crude futures were headed for $92/barrel with OPEC signaling no boost in output, but have retreated, with concerns lingering that China’s rate hike could cut energy demand at the world’s No. 2 oil consumer; prices remain relatively stable, however, with expectations for the move apparently priced in. Crude now -0.6% to $90.98. 

    With inventories down in China, copper rises to a record (now +0.7% to $4.2865) on expectations of continued strong demand and little new copper coming in. Prices are up 49% since July 1, and Macquarie Bank thinks copper could hit $5 next year as stocks keep falling.

    A mild boost in expected pay raises for 2011, with companies increasing their salary budgets a median 2.8%, compared with 2.4% in 2010, according to a Hay Group survey. The rate still trails the annual 4% hikes of 2005-2007.

    "The crisis has passed," says Greenlight’s (GLRE) David Einhorn explaining the need for higher money rates. By holding rates so low for so long, the Fed encourages over-borrowing, especially by the government, setting the stage for another crisis when rates do rise. 

    And while AIG (AIG +8.7%) and Molycorp (MCP +9.8%) pace gainers, in the other column there’s Tesla Motors (TSLA), down 16% as its lockup period expires and 75M of its 93M shares outstanding were allowed to flood the market. 

  94. probably just light volume, but the emini bollinger bands almost touching

  95. The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm

  96. Woo hoo on expected pay….give us 2.8%, but fire 1/2 the workers.  Still boosts the bottom line and makes those work just a bit harder…..

  97. Phil,
      2 questions: 1) what do you think of PGF for a long-term play? 2) what kind of stocks are good for IRA trading? High-dividend stocks? Thanks.

  98. Phil/PFE :  the $5 premium was the 2013 combo.My error.
    Your logic in not rolling makes sense as to risk reward. I guess that’s why I felt I felt uncomfortable with the trade & need more training. Can u recommend some reading materials on when to roll existing positions ?

  99. Phil / pomo   Pathetic volume and pomo starts again tomorrow.  Gap up tomorrow am?  Time to exit my 10% short position?

  100. 2 1/4% on the day from TNA, what a boring afternoon ; see you all tomorrow with $8 Bil in POMO!!

  101.  HOV/Bob – I guess I did.  I think if HOV fails that badly then you are no worse off having 200 long at $5 than 400 long at $2.50 and with a 10/1 upside differential, you could just buy 80% less of the $5 combo to make the same 60% as you would from 2x the $2.50 combos.  

    2.8%/Pharm – That’s going to be falling about 4% behind inflation this year.  Something is going to give somewhere…

    PGF/Japar – I don’t like them because of the speed at which they got shredded during the crisis.  There was literally no escape from 25% drops.  They have short time-frame options that offer very little premium protection on a range that’s much narrower than they typically move so not something I like.  As to high-dividends in an IRA, under the Portfolio Tab is one called "Defending Your Portfolio With Dividends" – those are some of my favorite companies and you can see how they’ve held up for the last Quarter.  If you see a couple that look like they are still good deals there, bring them up and we’ll look for good plays. 

    When to roll/Dflam – Sure, there is the great one sentence book called "When the premium you sold is gone" – although the title is a bit of a spoiler… 8-)

    POMO/Tusca – for some very strange reason, POMO does not tend to kick in until the Fed actually hands out the money.   We didn’t have any today and we went up at 10 anyway so I doubt they need the excuse.  I do think we sell off and gap down at the open and then I’ll be looking to cover again with the Qs unless another index is down better but I don’t think I’d want to ride anything significantly short that you’re not willing to risk. 

    Boring/JRW – Not a bad way to be bored…

  102.  TBT getting back into reasonable buying zone at $37.75.  Jan $37 puts can be sold for .82, not a bad entry…

  103.  Well, that’s all folks.  We gave up Friday’s gains on the Dow and not much of anything else other than the VIX jumping 7.5% – which certainly should concern you if you are bullish because someone is buying some puts somewhere…  

    We finished at 74M on the Dow – on a good day we do that by 10 am!

  104.  Phil,  When determining how much you are invested, how do you count artificial buy/writes?  Do you go by how much the put would cost if assigned?  I’m on PM now, and margin is tiny on most of these plays.   What about normal buy-writes, do you count your basis, or put to total cost? I know this doesn’t have to be a hard and fast rule, but I would like to be consistent.

  105. CMG- classic head/shoulders forming.
    Added to my short position today.

  106. JR,
    These Buy the F’ing dip moves are getting predictable.  Expecially when you have a Monday morning dip with 8 billion FOMO the following day. 
    Who needs a fancy computer assisted S&L based trading system for this market……simply hold your nose after the initial drop and pile into TNA with everything you got…..then set a stop anyware above 2% and go cocktail with your friends.

  107. % Invested/Palotay – Be careful with that PM!  That’s tricky because if I sell, for example, the XLE 2013 $50 puts, the PM is like $500 and the obligation is $5,000 but I have NO intention of owning them and I know I can roll them and I super-duper doubt oil is going to crash XLE to it’s crash lows of $36 and, even if they do, I would go long then so I would not tend to "count" that as a use of cash above the PM.  On the other hand, if I sold XOM 2013 $60 puts for $5, the premise is essentially the same but XOM is more likely to have an "event" (like BP) than the entire XLF so I would count that as a $3K commitment (because if I flip to own it then ordinary 50% margin rules apply).  

    If I do a VLO buy/write at $23 and sell the 2013 $20 puts and calls for $9.20, that’s $13.80/16.90 and I would count that at $1,690 invested because I REALLY WANT to own the 2x at that price so 200 shares at net $16.90 = $3,380 and 50% margin on those = $1,690.  That’s on buy/writes and I guess, on the whole, I figure 50% will trigger on me.  So for artificials, it’s all about the put side and then whatever cash is in should be considered a total loss until it comes back – that way you can be pleasantly surprised.  8)    On the whole, error on the side of caution. 

    CMG/Pstas – That is a classic look at that pattern.  If they break then the other high rollers shouldn’t be far behind.  

    Now you’re getting it Exec!  

  108.  Thanks Phil.  I’m trying to, but I’ve noticed it is real easy to just keep loading up on artificial spreads that look attractive.  So I’m trying to develop a more disciplined system to set limits for myself, because margin requirement is definitely not a smart way to do it. I’ve done a stress test on my portfolio recently, to see where I stand if the market moves 15% in either direction.  I think I’m pretty well hedged and balanced, with a bias towards short, with over 60% of my PM margin available.  But I’m well aware that the margin requirements can change rapidly.  I almost got shaken out of  a NFLX short calls position about a month ago, due to the margin requirement doubling when NFLX went from $185 to $208.  Most of my recent gains have been on short calls on NFLX, PCLN, OPEN, DECK, POT.  
    Thanks a lot for all of the help.  I’ve learned so much this past year.  It looks like I’m going to end the year up about 30% after making a couple giant mistakes (learning opportunities) earlier in the year.  2011 should be even better.   

  109. AAPL not mentioned once today in chat…
    Apple hikes 1Q11 iPhone shipment target to 20-21 million units, say sources

  110. Phil
    Where is the article with the 18 bullish stock picks? I missed that one, can I have a link. Thanks.
     I am very happy with our upside inflation hedges as well as last weekend’s bullish S&P plays and the prior week’s 18 bullish stock picks (and we should get another chance to enter them if we get a nice sell-off) because the momentum is still clearly to the upside and won’t be broken UNTIL/UNLESS we fail 3 of our 5 breakout levels which are, in case you have forgotten:

  111.  Good morning!  

    Sounds like you have a good handle on things Palotay.  Just watch the PM because, as the VIX goes up and the market gets more volatile, the brokers tend to change those margins pretty drastically.  Always be aware of where your weak points are so you can kill those positions sooner, rather than later.  

    AAPL/Kustomz – Wow, no mention?  That must be a record…  These are new highs for them too.

    18 bullish/Chakra – That was just the count for that week.  I had gone back to look to see if I was being too bearish and, in counting up the week, I noticed I had actually put up 18 bullish trade ideas compared to just 9 bearish so, despite my short-term bearish outlook, I realized I was still long-term optimistic.

    We had our "Breakout Defense" plays back on the 11th (and we added more in comments there) and the 18 bull plays were summarized in the "It’s Never Too Early to Predict the Future" article but you have to go to each day that week to look up the actual trades as they were all from the prior week’s chat, not some specific list I was making.