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Take-Off Tuesday – Playing the One-Way Market

Up, up and away! 

It's Super Market!  Strange index from another reality, who ignores bad news and achieves p/e multiples far beyond those of rational markets.  Super Market, who can break resistance on low volume, move higher without consolidation and who – disguised as a genuine Price Discovery Mechanism, an actual indicator of the true-value of listed companies – Instead fights a never-ending battle with rational thinking and negative data because, in America, the market is only allowed to go one way!  

OK, I got that sarcasm off my chest, now we can cheer-lead.  Go Russell 800 go!  Is today finally the day?  After a rational-looking sell-off yesterday on very legitimate concerns over the fact that Portugal is now borrowing money at over 7% interest (a rate that would cost the US over $1Tn in interest annually), we had essentially a "Free Money Day," where the market goes up and up and now we have even better futures, where another 0.5% is being tacked on in early trading (7:30).  

Let's embrace the positives first and foremost.  Both Japan and China have now stepped up to assist the 17-member EU to beat back high rates by pledging to actively participate in this week's bond auctions, the first of the new year.  The IMF (mostly the US) has also pledged to backstop loans – all this is giving the Euro a nice 0.5% bounce that has knocked the dollar down to 81, which is down 0.6% from yesterday's open so of course our markets are up 0.6% – THATS WHAT ALWAYS HAPPENS!  

What doesn't always happen is the Nasdaq punching through the 2,700 mark on the back of AAPL's run to $345 as the expected announcement of the Verizon IPhone is pushing Apple's expected 2011 earnings past the $20 per share mark so $340 (p/e 17) sounds almost conservative compared to BIDU (p/e 87), AMZN (p/e 74) or NFLX (p/e 71) and, if you think about it, Apple has a search engine, sells things on-line and has Apple TV, which does Netflix's job so if Goldman Sachs can call Netflix the "killer app" for tablet computers – what does that make Apple TV, which is designed to run off the IPad and includes Netflix as just one of its offerings?

The Wednesday before last, we made shorting the AAPL 2013 $175 puts at $8 the base for buying 2 SPY 2012 $125/135 bull call spread at $4.80 each for a net $1.60 in cash on $20 of potential upside (1,150% potential upside).  That's a pretty bullish bet as SPY was just $125 at the time so we are playing for a 10% gain.  This is a hedged offset as we are GUARDING against a SPY run of 10% by agreeing to buy AAPL at $175 if the market collapses.  

I think if people are ever going to understand hedging, this is the best example as the main premise here is:  IF someone wants to sell us AAPL at $175 per share (now $340) in 2013, we will be happy to buy it.  So now we say we're willing to buy 500 shares, which would cost us (at 50% margin) $43,750 and AAPL would then be a long-term investment for us at 50% off the current price.  In exchange for promising to buy AAPL in 2013, the person who currently owns the stock at $340 pays us $8 per share now or $4,000.  We take that $4,000, plus $800 more and buy ourselves 1,000 of the SPY 2012 $125 call options and sell 1,000 of the SPY 2012 $135 call options for net $4.80 each (10 contracts of 100) and now our WORST CASE is owing 500 shares of AAPL at $175 and our best case is getting back $10,000 at SPY $135 or higher (we always have a $10 advantage over the caller) against the $800 of cash we laid out.  Even if we had to set aside the entire $43,750 in margin (it's actually just $1,755 with an ordinary margin account), the return is still and attractive 22% but, as I said, over 1,000% on the actual cash commitment and 500% on cash and ordinary margin).  

Trades like this can help you keep your virtual portfolio mainly in cash while you wait PATIENTLY for the market to clearly show which way it is heading.  That is our current game plan.  It is BORING and we amuse ourselves with day trading but we are not, on the whole, day traders – merely active market participants who know better than to commit too much capital in uncertain markets.  Warren Buffet has been known to wait a decade or longer before committing his capital – we've been waiting since November!  

This is how we trade uncertain markets.  It can even be argued that I'd rather get assigned 500 shares of AAPL at $43,750 than get my "consolation prize" of $10,000 if the markets move up – that would be the Buffett way.  Two Tuesday's ago I asked if we were "Topping or Popping?" and we discussed our many, many long-term bullish plays as well as a dozen other bullish trade ideas we were working on besides AAPL and, of course, we still have our "Secret Santa's Inflation Hedges for 2011" and XLE, XLF, DBA and even XHB are all still playable as the markets still haven't gotten away and these are long-term plays but they are long-term plays with the potential to make HUGE amounts of money so, no matter how cynical you are about the current market moves – it's worth considering at least some hedging to the upside – in case this thing really starts to pop.  

Now that we have discussed the bullish premise, which is A) Inflation B) An improving economy and C) The Psychotic Fear Global Governments Have of Letting the Markets Decline and we have discussed (in the links) dozens of long-term upside trades that will make HUGE money if the market go up – we can move on and discuss a few shorter-term downside hedges and why I think we still need them.  

Back to our AAPL example – I KNOW if the S&P rises 10%, I will make $10,000 and if AAPL justifies $300, I will not see much increase in my $1,755 margin requirement.  Assuming my commitment was to make AAPL 10% of a $500,000 virtual portfolio ("worst case") then I still have oodles of cash to play with in the short-term.   Where is my risk?  I don't really lose anything other than my $800 cash if the S&P doesn't hold 1,250 for the year.   My danger is in AAPL selling off hard.  Since AAPL is now close to 25% of the Nasdaq, it's very logical to use the Nasdaq as our short-term downside hedge.  

QID is the ultra-short on the Nasdaq and has been brutalized at this point down to $10.96 and even lower at the open.  It's a 2x ETF so if the Nasdaq drops 5%, QID should go up 10% but be wary on ultra ETFs because they experience decay and tend not to give you the expected returns over time.  Nonetheless, for AAPL to hit $175 we would expect a catastrophic drip in the Nasdaq of at least 25% and that should bump QID up to $15, right?  We are mainly worried about the market between now and April.  If we keep going higher through earnings and the Fed keeps dumping money on the markets then we should be well on our way to S&P 1,350 by April and less worried about a correction than are now.   

QID's April $10/13 bull call spread is just .92 and is, of course .96 in the money.  You can buy as much of it as you want for a straight 3:1 pay-off if QID goes up 20% (Nasdaq falls 10% back to about 2,400).  Now, if the Nasdaq drops 10%, what would I like to buy?  How about DECK?  DECK is down a bit at $80 and they get pretty attractive at $70 and VERY attractive at $60 and did you know there is a guy who is willing to pay is $3 today in exchange for our promising to buy DECK from him for $60 in June (selling the June $60 puts for $3)?  This is the "Wimpy Strategy" we discussed in last week's Weekend Reading.  Well OK to that!  So let's say we're willing to own 500 shares of DECK for $30,000 and that would be, at worst, $15K of margin but about $3,000 in an ordinary margin account for selling the puts.  

We collect $1,500 and buy 15 of the QID April $10/13 bull spread and those will pay us $4,500, which is another 15% off the potential assigned price of 500 shares of DECK if the Nasdaq drops 10%.  Is it possible for DECK to fall 25% to $60 without the Nasdaq dropping 10%?  Sure it is – these hedges aren't perfect.  We just look for logical combinations of stocks we don't mind owning and trades that give us good index protection.   

So we are in cash with very small margin commitments and we've decided we're willing to spend $43,750 on AAPL and $30,000 on DECK as potential long-term virtual portfolio holdings if they go on a massive sale.  If the market goes straight up, we won't own them but we will get $10,000 in cash from the S&P.  If the market goes down, we'll get a bonus $4,500 in cash from the QIDs towards our possible purchase of AAPL and DECK and, if the market does neither – then we didn't miss anything and we continue to watch and wait for bargain opportunities using our "How to Buy Stocks for a 15-20% Discount" Buy/Write Strategy, that pays us whether the market goes up or not.

As I also said recently in Member Chat, this is a "Ty Cobb Strategy," we are swinging for average, not for home runs.  As long-term investors, average trumps home runs every time and even Ty Cobb accidentally hit a few home runs once in a while.  He won the triple crown in 1909, leading the league with 9 home runs while batting .377 with 107 runs batted in.  That's the goal of a hedged investing strategy – always look to improve our average and the home runs will take care of themselves and we'll pocket those 20% gains one by one all season long.  It's the kind of trading that works under almost any market conditions.  

Ty Cobb was asked once how he thought he would hit against modern hitters and he thought about it for a moment and said "I think I would hit about .300."  Why so much less than your lifetime average, asked the reporter.  "Well," said Cobb, "you've got to remember, I'm seventy-three now."  If you want to be a successful investor when you are 73, take the time to learn to hedge your virtual portfolio now – it's a valuable skill that will serve you for the rest of your life.  

We don't need to look at the news today.  Everyone is rescuing Europe and it's all about Russell 800 again.  I think until we get past this week's bond auction in the EU we have no right to be as complacent as the markets are indicating and, of course, next week we finally begin to see some earnings so, again, why are we swinging so hard when we haven't even seen the pitch yet?  

The move up on low volume, especially in the thinly-traded futures, smacks of desperation on the part of the manipulators more so than a genuine rally.  We will continue to favor the short-term short plays and oil finally hit our $90 target where we are thrilled to jump in on the short side there.  WYNN ($119), NFLX ($190), AMZN ($185), FCX ($120) BIDU ($107) and PCLN ($440) are all overpriced and ripe for a fall, despite all of Cramer's button-pushing, so we'll be looking for short option plays on them as well as our QIDs (already in) and DIA (already in) short positions.   

It's fine to pick up long positions in good companies that you don't mind buying more of if the market falls 20-30% but try to stay out of momentum stocks – even AAPL as we are stretching the rationale of any kind of bullish positions until we have more solid evidence, not just speculation, that these companies deserve to have higher values now than they had in 2007, when earnings were higher and we thought there was no possibility of Bank Failures, Sovereign Defaults, Deflation, Inflation, a Housing Collapse, a Flash Crash and the World's 6Bn people were $18Tn less in debt ($3,000 each!) and 10% more of us had jobs!  

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  1.  morning phil, need some advise on appl, i bought appl shares at 250 sold jan.2010 calls 270 for 21, now what?

  2. abel1236
    AAPL my two cents of opinion. you got your 20$ on the bull spead both legs have a delta of 1. take the money and run.

  3. Video worth watching Bangladesh investor riots - any thoughts? Can this be the first out of many? 

  4. Phil / SVU – good call on avoiding them.  down 10% today. 

  5.  stjeanluc: TLT
    Thanks for the TLT chart

  6. Phil/XLF, What is a good trade for XLF now? I’m thinking 2012 15/16 BCS selling the 2012 12 puts for .05? Would like your input. Thanks

  7. NUVA and VRTX are movin’…..

  8. Good Morning, 
    Anybody have the plays mentioned on the post? "XLE, XLF, DBA and even XHB"  I do have the XLF play but not the others. Thanks

  9. ditto your call on SVU to short the puts before buying the stk
    I did short the Apl 8 p for .7 giving entry now of 7.3 and will look DD and /or at picking up the stk for same if it gets there.
    should be 5% div at that point — assuming it doesn’t cut it.
    SVU headquartered in Edin Parie Iowa home of the most conservative (meaning cheap) folks around so I’m counting on them getting this thing back on track

  10. Phil/NFLX
    SOLD the $185 weekly for $4.00, now $6.00
    Buy higher monthly calll? Which?
    Roll to monthly $190 call? Per our original plan from yesterday?
    Or wait for now?

  11. Phil, 
    OPEN has been on a tear. I bought back the 55 Puts bought and the 60 puts sold for a small profit. What would be the play on them now? You had suggested the selling 1/1 Feb 62.5 puts and buying the July 65 Puts. Not sure if with the move up maybe rolling up a bit?

  12. Pharmboy
    Still worth entering vrtx here?
    how much could fast track approval pop them from here or is it already priced in?

  13. C = 1274.49, F =1270.50
    10yr = +.15%,  30yr = (.04)%
    VIX (2.85)%
    OIL +.71,  gold +3.30
    My currency data has been not working this morning

  14. Just a quick follow up on the ParSars (indication of trend) that I follow
    The two biggies:  S&P and the Dollar
    S&P cash gave a negative trend signal on Friday 1/7, the reversal point is at 1277.84.  So below there the negative trend indication is still in tact.  A break above would mean the negative trend ended and a positive trend has resumed.
    The Dollar gave Bullish trend signal on 1/6.  Staying above 78.91 and that trend stays positive.  The VIX is also on a positive  trend indication.
    Others that gave negative trend indications last week:  EEM, EFA, XLB, XLY, XLE, SLV, IYR-(yesterday)
    Just info
    Note that trend following indicators can be much less useful in range-bound markets

  15. We walked right up the ParSar area I was watching and I was supposed to be ready to take a FEB 1270 S&P puts short when we hit 1275.00 earlier and I missed it.

  16. C = 1272.82, F =1269.00
    10yr = +.18
    VIX (2.22)%

  17. Is today the last POMO, then a new schedule tomorrow?

  18.  Good morning!

    Russell 8-0-0, Russell 8-0-0, wherefore art thou Rusell 8-0-0?

    If I didn’t hammer that point in last week I give up.  All we have this morning is yet another pre-market pump job where the Dollar was knocked down to pop commodities and the futures.  Just because the store manager (cough, Goldman, cough, cough) marks up all the prices overnight – DOES NOT MEAN the customers are going to come in and buy for those prices the next day. 

    You can’t just put a sign outside your house that says "For Sale By Owner – $1Bn" and then declare yourself a Billionaire because of your home asset, can you?  Well stocks are like that too.   GS and Cramer hung a sign in front of NFLX saying it’s a $10Bn stock ($192) but until you get at least $1Bn worth of customers to buy 10% of it – what’s the reality to that statement?  At this point, NFLX averages 6M shares a day so call it $120M a day which means you want to see a solid 8 trading days above $190 before you should say, "yes, NFLX is worth $190 to enough people that I’m willing to buy into that $10Bn market cap."  

    So we shorted the weekly $185 calls yesterday for $4 and now they are $6.60 and the plan is to roll them to the Jan $190s, now $6 and, ultimately, to the Feb $205s, now $8.  Keep in mind that the $185s still have $1.60 in premium that will burn off on Friday so unless that Jan roll goes over $1, there is no pressure to hit the button.  The Feb roll has been a very steady +$2 and we’ll watch that too but unless we are now worried about another 10% rise in NFLX on earnings – this is a paper loss only.  

    I mentioned that we can run an upside hedge and the Jan $200 calls are $2.50 and you can play them over the $191 line as a momentum trade with tight stops – just to guard against a big pop but, as I said, the rolls are pretty comfortable so it doesn’t seem urgent, especially with the Nas so clearly overbought. 

    Speaking of overbought.  The 1050P has just two positions left:

    • 20 DIA Feb $119 puts at net $5.30, now  $3.60 – These are waiting on earnings before we capitulate.  
    • 20 QID Jan $10 calls at $1.30, now .90.  They have a delta of .93 so just a .50 move in QID (5%) gets us even.  Can the Nas realistically drop 2.5% in 10 days?  That’s a tough call and mainly up to AAPL.  This is a $800 loss and we’d like it not to become a $1,000 loss so we’ll watch .80 very closely but I’d really like to see the Beige Book tomorrow (2pm) before pulling the plug.  

    So Russell 800 or bust and I don’t like anything long (other than our long-term hedged plays) until we are firmly over that line.   Meanwhile, in additiona to still liking the NFLX shorts, you know I like shorting oil futures off the $90 line, where we still are this morning.  

    Our premise is that NYMEX traders will be forced to dump about 250M barrels of oil over the next 10 days to clear the Feb contracts and the announcement of the Alaska pipeline coming back on-line should trigger a drop so the USO Jan $39 puts at $1 are the way to go and I like those enough that I’ll call it 20 in the 1050P as well and yes, we will be doubling down or rolling if oil goes higher.  

  19.  Phil/SVU
    they reduce earning est. for 2011 to 1.25-1.30 and price dropped to 7.5. P/E only 6. Do you think it time to DD???

  20.  Phil: Too conservative?
    RE: the AAPL/SPY hedge.  You look to worse case owning AAPL @10% of 500k portfolio.  So you are using the margin requirement as your put to price.  Am I am being too conservative in building my portfolio (1mil.)?  I have been setting Jan 12 positions, PFE, KFT, ITNC,CSCO for example, buying 1/4 of $50-$60,000, assuming no more than 5% per position.  Then selling number of puts that would equal another 1/4 of the full position but based on the full cash outlay if put to.  If there is a way to be prudently more aggressive? TIA

  21. Phil--re SVU--  DD or go for a DF play instead--if so any suggestions?

  22. I took my third and final S&P put here.  So I have 3 FEB 1270 puts on, 1 from this morning and 2 from Friday.
    My average cost is 27.30
    I f I see 36.60 on the that option today, I would look to take of all 3 there.  Late day if I see 28.50, I the one I added this morning off and hold the other two.
    My stop is 1277.84 on the S&P, on a break above that ParSar number and indication of positive trend, I would look at the next pullback and try to take all 3 off. (scratch or small loss)

  23. should say
    Late day if I see 28.50 near the bell, I would take off the one I added this morning and hold the others

  24. Phil/NFLX
    Thank you for the reasoning and logic….now I am happy…as I know reason for plan of action.
    BTW: From your article of this morning, AAPL was forcast to earn $6-7 in 2007 and I believe the stock traded at a multiple of 20-25.
    It is CURRENTLY earning $19 for 2011 and has a PE of 18….

  25. C = 1273.84, F = 1270.00
    10yr = +.97%
    VIX = (2.39)%
    NET $ + .41%,  dx/y = +.21%
    both  heading in the same direction up, so I would hope that helps lead to lower markets, that  would be my expectation
    But, I just do not know anymore with all of the funny money flying around

  26. Phil,
    What abour SVU down here; overdone or not.

  27.  AAPL/Abel – That’s just regrets.  You made 20% – CONGRATULATIONS!  You are a winner!!!  Don’t count money you never made, you got paid 10% up front to net $230 and left yourself about 10% of upside and now it’s over $270 and YOU WIN!  Be happy with 20% – there is no failure on your part for not making more money.  Now, I assume you would be happy to buy AAPL again at $250, right?  So sell the 2013 $275 puts for $31 and use that money to buy the 2012 $250/300 bull call spread for $29 which pays you another $23 if AAPL just holds $300.  If you want to be more bullish, you can spend about $6 of your $40 profits for each $10 you want to push the caller higher and that way you can capture all the fun you missed over $270 after the fact and your only risk is owning APPL again at net $275 (less whatever profits you don’t squander being too aggressive).  If you would rather keep the stock, you can spend your $40 profits to buy 1/2 x of the 2013 $315 calls for $80 and roll the $75 callers to 1.5x the 2012 $335s at $49.50 ($74.25 for 1.5x) and then let it ride.  That gives you another $65 of upside on the 1x stock before getting called away and then you have a $20 + 1 year advantage on your 1/2x spread that cost you zero (other than the original $40 of profit).  

    Or what Yodi said!  

    Bangladesh/Russian – According to CNBC, it never happened.  I haven’t heard a word about a stock market riot on TV from the World’s "top" stock market news station so I have to conclude everything is fine and don’t you dare say otherwise!  8)

    SVU/Terra – Thanks.  Just keep in mind that anyone who has to buy commodities and sell to consumers is going to be screwed except, of course, fuel (VLO) and Health Care, which people have already cut to the bone so now it’s a question of buy or die – which is always great for Capitalists as it puts them in a nice negotiating position right from the start.  The thing with VLO is that they make so little money per gallon usually that they are happy to sell 10% less gas if their margins go up 10% as it’s all work for them to make it otherwise so they are not an apples to apples consumer retailer.  

    XLF/Jomp – That’s a good spread.  Bottom line is – Do you mind owning them long-term at $12?  If not, then where’s the downside to taking that trade at $16? 

    Plays/Amatta – Those were the Santa Hedges, the link is above.  

    SVU/Ban – As long as they don’t go BK (doubt it) they will come back over time.  It’s a period of price dislocation as input costs (commodities) are rising faster than they can push through price increases.  It’s not like this is the first time in US history this has happened, it just takes a while for wages and/or habits to adjust.  

    NFLX/Maya – See Alert, nothing right now.  The roll is to prevent it getting away from you and as long as you are getting paid at least another $1 (currently $2) to roll to the Feb $205s, the price of the intermediate roll doesn’t matter.  

    AMD/Reza – Well, that’s never good, is it?  

    OPEN/Amatta – Now there’s a joke valuation!  This is why I’m getting my PPM out on my real estate data venture right away, we may be heading into another one of those times when you can IPO things for ridiculous amounts of money in a year or two!  The FORWARD p/e on OPEN is 75 on the assumption they DOUBLE revenues next year.  That will be impressive as it’s not even clear they will be up 50% this Q.   The original play was based on the fact that we knew expectations would be high into earnings and selling puts paid for the long position where you can patiently wait for reality to hit them .  A $10 drop should take the July $65 puts from $5.70 to $9.50 (the price of the $75 puts) which is 66% up.  Call me old fashioned but I tend to be satisfied with 66% gains but if you want to be more aggressive, you can roll up to the $75 puts and take (AND RISK) another $3.80 out of your pocket and then you will make $5 on a $10 drop (the price of the $85 puts is $14.50) which is 52% of $9.50.  In addition to paying you less when the stock goes down, the higher puts lose a lot more on the way down.  Rolling up is not always the smarter play – do your math!  

  28. crap
    not my day
    up late, had other computer problems, no currency data, missed putting my FEB put on the first time at S&P 1275, so had to wait
    then did the trade this morning and just realized that I traded the January 1270 put instead of the FEB 1270, so I have my 2 FEB 1270′s from Friday and a January 1270 from this morning which I will scratch first chance I get
    another lesson for me, I would have known by checking the price data and confirmation on my trade this morning, that I had done something wrong immediately, but I did not worry about it because I try to use only limit orders
    But , i was upset about missing my first shot at the 1275, so I fired off a market order and did the wrong option and did not check my order confirm immediately
    so I not only broke two rules:  only limit orders and check my confirm  immediately, I did a trade on the wrong option because I was upset about missing an opportunity

  29. I took a small loss on the Jan 1270 here to fix my mistake, have only the 2 FEB 1270′s
    trying to decide on the third FEB 1270
    sometime when I have a calamity of error like that, it is my warning not to trade

  30. C = 1274.92, F = 1271.25
    10yr = +1.36%
    VIX (2.91)%

  31.  mike5885: Thanks for sharing
    it’s nice to hear when others F up. makes me feel better, plus shows you have high self esteem when willing to admit mistakes :)

  32. Phil / Mass. mortgage decisions.   Ilene’s post today by ‘Daily Bail’ on the implications of the rulings, essentially 80% of mortgages with fraudulent docs and lack of proper assignment leaving them essentially ‘uncollateralized’, is disturbing.  Do you really think the Fed, Freddie etc., and the banks can side step this $multi-trillion exposure as people stop paying mortgages and work with their local lawyers to exploit this windfall (there are already 10 million homeowners incentivized to call their lawyer and another 10 million waiting in the wings).  The writer explains why he doesn’t think the Supreme Court can overturn 100 years of State laws.  Nervous about my XLF position!
    You previously mentioned, don’t worry the (bankrupt) Fed will bail the banks again, but this could get very ugly (as an investment) before we reach this stage.  And, the new Congress may have some problems supporting yet another bank bailout?

  33. F*ck oil

  34.  Cap/CMG, as soon as Cowen released the notes from the presentation slides where CMG stated they see comp rest sales in the LOW single digits for 2011 and between 135-145 new openings in the year, the stock broke down on heavy volume.. I was able to roll my short Jan $230 puts to Jun $190 on time ($180 got away from me).. with this, I’d assume CMG will have a correction in its price following its earnings announcement, and I’m thinking strongly to roll down my 9x Jun $220 short calls to probably Mar $210s..

  35. Thanks redlog, I appreciate it.  I make lots of nistakes.  I try not to repeat them, but this morning I did a bunch.

  36. spelling too mistakes :)

  37. Phil,
    Would you recommend hedging a Gnma income position with a TBT bull spread – assuming the Euro auction goes well (with the support of Japan, China and other world brethern)? If so which spread – 37/40, 38/40,etc – and time frame?
    Thanks, as always.

  38. CAKE is yuck!

  39.  Have you guys heard of the Colbert BUMP.  I think OIL may be experienceing the PSW BUMP at the moment.  
    Is there any way to get real time volume on options?

  40. C = 1276.30, F =1273.00
    10yr = +1.48%,  30yr = +.78%
    VIX (2.88)%
    oil +1.48,  gold
    NET $ = +.08%,  dx/y = +.20%

  41.  Holy crap, USO is dang near vertical.  Wished I’d held on the PUT purchase…

  42. And the winner is ….. Apple:
    In an interview with the Wall Street Journal this morning, Ralph de la Vega said "we’re ready" to lose exclusivity because "we are much bigger than this." That definitely sounds like someone just got spurned by their biggest partner, but don’t think AT&T’s just going to ignore Verizon — it’s planning an ad blitz that will highlight the iPhone’s better data speeds and simultaneous voice / data capabilities when used on its network. 

  43.  By the way, if anyone had asked for a copy of the PPM for the real estate data project from Greg and didn’t get it, please resend to him ASAP as we’re expecting to close it out this month.  You can contact Greg at philstockworld dot com and I think he needs name address and phone number to send the stuff to.  

    Crazy action this morning.  Dollar flew up to 81.5 and now is smacked back down to 81.2.   I didn’t hear on the note auction in Europe but I think it’s a given that it will be bid down well below 7%.  Euro still below $1.30 though and Pound having trouble at $1.56 so wee shall see.  Copper back to $4.34 but under $4.40 we’re not impressed as with silver under $30 (now $29.50) and gold $1,400 ($1,377).  So, essentially, we are once again pushing all the limits with the Russell holding us back below 800.  

    Money is coming out of bonds over here and TBT is back to $39 (yawn, but don’t forget that’s the top of our range again!) but maybe we’re staging for fresh money coming into the markets if they can finally hold the levels.  That means we’ll have to find something to buy!  Oil is $90.50 and CNBC is pumping so hard I’m worried their going to burst their own pipes!  

    SVU/Tcha – I’d give the downgrade police a day or two but yes, I like them long-term so if you are looking to accumulate you may want to sell July $8 puts for $1.45 as a nice way to add more at net $6.60 (p/e 5).  

    Conservatism/Red – I would not be more aggressive right now.  Those are great companies and a sound strategy and the key is you are FLEXIBLE because if the market flies higher – THEN you want to be more aggressive and if the market goes lower – THEN you can be aggressive in adding to and rescuing those positions.  Don’t forget, other than CSCO, it’s not like the other stocks are having a sale.  We did not know BP would have a spill last spring but, when they did, it was pretty obvious to all of us value investors that they were a screaming buy at $30 and RIG at $45 was nice too and we even liked HAL at $25 and I HATE those people!  MEE was another disaster we bought at $25 and SKX is still $20 and there are tons of other great stocks were were able to buy on sale BECAUSE we were not over-committed.   You need to step back and think of where you are in the perspective of a lifetime investing career ahead of you and don’t feel so much pressure to press your cash into play.  It took you many years to earn that money – it doesn’t have to be all deployed overnight.  If you are patient, the opportunities will present themselves.  

    SVU/Savi – What’s the position?  

    AAPL/Maya – I agree, I do like them.  I’m not saying to short them but there is generally a law of large numbers that affect $300Bn companies as you do get to a certain point where you need to collect ALL THE MONEY IN THE WOLD to continue growing.   Fortunately, since all the money in the World is increasing at a rate of about $10Tn a year, it is now possible for people to invest in AAPL under the assumption that they can continue to grow at their present pace without using up ALL THE MONEY IN THE WORLD.   Of course, since that’s also the forecast for NFLX and BIDU and GOOG and AMZN etc, we are still going to need a bigger planet eventually but that’s tomorrow’s problem.  For now, we can just go with the flow….

    SVU/BPS – Well, they’ve lost trust so it maybe take a while for them to get stable but I sure do like them long-term.  You can sell the 2013 $5 puts for $1.10 and use that to buy the $5/7.50 bull call spread for $1.30 and that’s net .30 on the $2.50 spread.  I think that sets aside about $1.50 in margin to make $2.50 at today’s price so you don’t miss out on any upside profits until they pass $10 and your worst case is you own them for another 1/3 off.  

    Don’t worry Mike, practice makes perfect.  

    Mortgages/Tusca – Obviously, investors are not giving that story much traction.  I have said from the beginning (and I was in the Real Estate Title Business for many years) that this is essentially a paperwork issue that will ultimately be resolved by lawyers and accountants but that will be the only expense to the banks.  If I lend you money (and SOMEONE lent you money to buy a home) and you sign a mortgage contract with me, then I have the right to do what I want with the contract.  No matter what I do with it, including selling it to bisexual crocodiles who illegally immigrated from South America – it does not alter YOUR obligation to make the payments.   If I sold the mortgage to Countrywide and they had the clever boys from Goldman Sachs chop the loan up into 5 categories and sold each one for a premium to what they would have gotten as a single loan – then the people who bought those chopped up loans were idiots but that still doesn’t change YOUR obligation to pay the mortgage.  

    The issue comes up when one of the 5 idiots who bought 15% of your virtualized mortgage tries to foreclose and they find that they don’t, as such, own your mortgage.  Most states require a proper transfer of paperwork – they don’t need your approval but they do need a properly executed document from your bank to Countrywide to Goldman to Mr. Idiot and that didn’t happen.  Even if the paperwork is lost, all transfers of property liens must be recorded at the county records office so, in absence of any other paperwork, the OBLIGATION you have to pay your mortgage still falls back to the last person to properly file paperwork and they have the full and absolute right to collect and/or foreclose.  

    Everything else is just back-office BS that the counterparties need to straighten out BEFORE they go to court and that’s what makes BAC so scary as they absorbed both Countrywide, who held so much of this paper, as well as MER, who chopped up the papers and resold them to the people who now have trouble collecting.  Those guys all have a lot of cleaning up to do, which is why I’m very excited about getting into the mortgage data business again!  

    Oil/Jrom – They are pounding the Dollar and driving everything up.  This is going to be a great short I think, now $91.  

    USO $39 puts good for a DD at .80 so 40 in 1050P at .90 avg.

  44. Phil / real estate data project: when your talking about the PPM what are you talking about ? we can become part invertor with you or what ? i missed this conversation someplace :) please tell me …

  45. investor *

  46. so I all ready fix that mistake earlierr
    an now took the proper FEB 1270 put trade on the S&P
    so I have 3, 1 from this morning and two from Friday
    my average price is 27.10 for the three
    I will take all 3 off at 36.40+ if we start selling off.  Late day near the bell, I will flip this last one off at 28.0 + and hold the other two
    my stop trigger is still the 1277.84, a break above that ParSar number and I need to look to get all 3 off on a pullback

  47. the 200 MA on the dollar may act like a lid 81.66 – 80.41
    (sma and exponential respectively)

  48. C = 1275.57, F =1272.00
    10yr = +1.85%
    VIX (3.88)%

  49. Phil,
      Am I understanding it correctly that your PPM (Private Placement Memorandum?) would allow for investors, such as those of us at PSW, to participate in your Real Estatte Data venture?

  50.  Guys
    what is PPM for real estate data project????

  51. HGSI – Take the profits and run.  Done at 2.50.

  52. Irritated about SGEN.  Took off too fast.  Hope some of you got in.

  53. MBI price spike:

    NY Appeals Crt Dismisses 1 Of 2 Lawsuits Against MBIA -Report   (Dow Jones)

    MBIA Wins Key Court Ruling In New York On Co Restructuring -Report   (Dow Jones)

  54. Here is the link to the JPM BIotech Conf.

  55. Phil / Morgages   The arguement in the article was that many of the loans would now be regarded as uncollateralized and therefore subject to the same scale of losses as credit card defaults (which is one of the reasons banks charge 25% interest).  Maybe take a look after hours to see if there’s a hole in his legal assumptions?

  56. ONXX -gotta watch them closely.  If they can pull back some, might be time to pull the trigger.  This is going to be a busy/big year for them, and they are also on the radar for takeout….Next writeup will have something about the company.

  57. I have been trying to figure out what ETF tracks the price of oil more closely. It’s frustrating to see the issues with USO – oil is up 14% in 2010 and USO is down 4%. I tested with USO, OIH and XLE. The results can be seen at:
    For me, the winner is XLE. It seems to track oil prices more consistently. 

  58. Phil,
    Sounds like you’re starting to lose your bearish edge.  Have you capitulated?
    Check this kid out.  We could use him here in Cleveland.

  59. Phil look at this although to be expected. its just sad to see that we move jobs to china, we loose jobs here, standard of living here, they build weapons to poke at us ??? hmmm

  60. Phil or anyone else……Have an opinion on the high yielders such as AGNC ,HTS, CIM,NLY,WAC etc? I’m aware of the interest rate risk and some of them definitely look top heavy but are they worth a spin for a year or so to collect the high dividends? Especially if they can be hedged?  Thx

  61.  Hedging with TBT/8800 – That’s kind of tricky but you want to stay low on TBT as they are subject to decay.  Let’s say you have a $1M adjustable so each 1% is $10K a year cost.  That means if rates fall 2.5%, you save $25K so there’s no reason not to sell 20 TBT Jan $35 puts for $3 as you collect $6,000 and they don’t even get put to you until you save over $20,000 in interest, which pays for $26,000 of the $70K potential commitment so that’s like TBT $22 as a hedge into the next year!   You can then take that $6,000 and buy 40 2012 $35/40 bull call spreads for $2.30 so that’s $3,200 out of pocket and you collect $20,000 if TBT is just at $40 next Jan.   So you are well covered for a 0-2% rise in rates and, if rates head higher, you can simply layer up the bull call spread with stops on your lower spread.  The nice thing about a low entry like that is rates can pretty much flatline and you still get that $20K vs. having to "WIN" and you don’t lose the $3,200 until TBT is below $36, where you clearly save more than that on the variable loan.  

    CAKE/Morx – Good buying opportunity if they hold $27.  

    Bump/Craig – Absolutely.  In a think market, we make up a significant block of the trading.  Investools says 2,136 of the Jan $39 puts this morning thanks to huge volume spikes at .80 (someone bought 400 on one order).  This is, by far, the most active this contract has been since Jan 4, when we took money and ran on it (and Jan 3 it was also bottomed out at .75 before running to $1.70 the next day but that was a week ago and nobody expects you guys to be market historians, right?).  

    PPM Micro, Kevin, Tcha  - Yes, some people had expressed an interest a while ago when I was first contemplating getting back into real estate data as I think it’s great timing (at the hopefully bottom) and the needs of the banks to clean up title info should drive business in addition to the normal activity.  It’s very similar to the business I used to own – I sold that in 2004 and my non-compete finally expired.  This has nothing to do with PSW and is not about PSW – it’s just a separate project I’m working on and if you are a qualified investor, then it’s something you can do.    

    With all this happy market movement, AIB is getting tempting again.  You can buy them for .85 and sell the Aug $1s for .25 for net .60 on the $1 entry – not bad as long as Ireland doesn’t go bust by then.  

    ONXX/Pharm – You don’t have to wait for a pullback if you’re willing to sell the May $32 puts for $2.15 and then you can buy the $33/38 spread for $2.50 and that’s net .35 on the $5 spread that’s already $2.77 in the money.  

    USO/StJ – Yep, USO is awful but that makes then a great short.  DBO is probably the best overall tracker and OIL is also a good one if you are looking for a 1:1 relationship.  If you want to play oil up, try DIG, as they have really been driving up much faster than oil lately (I was thinking of shorting them but too risky).  DUG, on the other hand, is getting attractive as a way to short oil with an inverse ETF but I’d like oil to test $100 first. 

  62.  Phil
    Missed the morning fun with NFLX – is it still good as a short?

  63. C = 1276.75, F =1273.25
    10yr = +1.66%,  30yr = +.69%
    VIX (4.50)%

  64.  Capitulation/Exec – I’ve always been wiling to go technically bullish over our levels.  It doesn’t mean I’ll like it but you can’t wake up every single morning and see the markets pumped up another 50 points without thinking maybe that’s the side to be on.   After all, one day the sun will burn itself out – there is not enough matter to sustain a reaction forever and that’s a fact and we can debate whether it will last 1,000 years or 10Bn years but when it rises day after day after day without incident and you asl me what my bet is going to be tomorrow – I’m going to have to go with rising…   I’m also going to bet on that kid – that is really amazing stuff!  Of course I’m uspset with you now because I was all proud of my daughter last night for scoring all 8 points for her team in an 8-12 loss but that kind of ruined it for me, probably forever….  8-(

    Stealth/Micro – That’s what I was talking about with the GE deal.  You can’t turn over advanced avionics to the Chinese!  All that stuff is connected and the same solutions that help BA run a 787 help a J20 sneak up your ass with a nuke!    

    AGNC et al/Sundevils – They are a little stretched and, of course, the VIX sucks at 16.77 so I’d say no for not – they are the kind of things you do want on a big drop but, otherwise, they make for pretty dull plays.  Too dull…

    NFLX/Yshen – Well it’s still more than where we shorted yesterday so yes to selling the WEEKLY $185 calls, now $4 again – just keep in mind people were freaking out that they were $6.60 just 4 hours ago!  

  65. phil,
    The vix is 16.75. The VXX is 34.94. The weekly 34 puts are .3. What would you think of selling the 34 weekly puts. Or maybe the Jan 34 for .75?
    Even if this market goes up can the vix really go that much lower. Since this is very short term, I am assuming that the vxx will not incur too much etf decay.

  66. futures breaking lower, any news?

  67. Woooohooooo!  Was playing for the doji by eod on TZA.  But I’ll take it now!  Thanks!!

  68. C = 1272.77, F =1268.50
    the nET $ jumped, NET $ = +.85%,  dx/y = +.01%

  69.  Here goes Oil….  

  70. Phil,
    I have the JAN QQQQ 56 puts from last week bought at .72 (now .54). Are you still a hold on this or a good time to bail?

  71. thanks for the basketball video, awesome

  72. Phil
    Thanks for the response (below). Actually my  GNMA position is in mutual fds, not a variable loan. Probably the same hedge in principle but with a different spread?
    I note TLT coming back from lows (92.39 vs 91.69) – any news?
    Thanks again.
    January 11th, 2011 at 12:55 pm  
     Hedging with TBT/8800 – That’s kind of tricky but you want to stay low on TBT as they are subject to decay.  Let’s say you have a $1M adjustable so each 1% is $10K a year cost.  That means if rates fall 2.5%, you save $25K so there’s no reason not to sell 20 TBT Jan $35 puts for $3 as you collect $6,000 and they don’t even get put to you until you save over $20,000 in interest, which pays for $26,000 of the $70K potential commitment so that’s like TBT $22 as a hedge into the next year!   You can then take that $6,000 and buy 40 2012 $35/40 bull call spreads for $2.30 so that’s $3,200 out of pocket and you collect $20,000 if TBT is just at $40 next Jan.   So you are well covered for a 0-2% rise in rates and, if rates head higher, you can simply layer up the bull call spread with stops on your lower spread.  The nice thing about a low entry like that is rates can pretty much flatline and you still get that $20K vs. having to "WIN" and you don’t lose the $3,200 until TBT is below $36, where you clearly save more than that on the variable loan. 
    Would you recommend hedging a Gnma income position with a TBT bull spread – assuming the Euro auction goes well (with the support of Japan, China and other world brethern)? If so which spread – 37/40, 38/40,etc – and time frame?
    Thanks, as always.

  73. Testing the ‘breakers’ for the next time? or do ‘they’ need to increase the premium on the puts for another round of sales.  Unreal.

  74. futures fell from 1272.80 to 1268.00 in just a few minutes and bounced

  75. not huge, but was a large move for how fast it happened
    VIX (2.85)%, had been down (4.50)%

  76. Phil/SVU  What do you think about SVU at $7.65 JAN12 5 C and $ 7.5P for net $2.89. If it holds $7.65 a 72% return and if it fails $7.50, then DD at $5.30. Requires more capital than the vertical but 1 yr quicker.

  77. C = 1273.79, F =1270.00
    10yr = +.97%,  30yr = +.13%
    VIX (2.91)%
    oil +1.75,
    NET $ = +.96%,  dx/y = (.03)%
    see what the second half brings

  78. Once again- Fickle fat finger of fate foments a futures fubar!

  79. Phil,
    Are you aware that messages typed into the PSW comment box using Mozilla Firefox are highlighted for miss-spellings but  users can not correct or list the proper spellings drop down box as with other web site message boxes including gmail and hotmail text boxes..

  80. What happened to AAPL today is bite gone out of the apple???

  81. wow, I just watched that McCabe basketball video again,amazing

  82. yodi,
    its sell on the news but stock is holding up to yesterday’s ath’s. if it keeps 340 levels that is very bullish!

  83.  Simon on CNBC did a pretty good job explaining the EU bond situation at 1:30.  

    VXX/Judy – I like that, I’d go for the short Jan $34 puts at .75.  Not a lot of decay in 2 weeks!  

    QQQQ./Novice – If you are still in them then I’d hold up. You have 10 days but really until Friday otherwise weekend decay will get you.  You should have asked me earlier as the real correct answer is you should not have held last night at .60 if you were not willing to DD this morning at .45 and then your average would have been .53 and you’d be 1/2 back out now even and not worried at all!  

    TLT/8800 – Just the usual silliness and that TBT hedge is an interest hedge no matter what you are guarding – just keep in mind your risk is being assigned a substantial position in TBT which is fine to offset a loan but questionable to a mutual fund so you may want to consider self-funding the spread as a small offset to interest-bearish positions.  

    Unreal/Pharm – Isn’t it just?  I can’t even understand the question when people say they don’t want to be mainly in cash in this market – it just doesn’t compute…

    SVU/Brook – It’s fine as long as you are 1/2 in at that DD point because it may be rough for more than a year.  Good way to play the spread for a more aggressive entry!

    Firfox/Highlander – I’m not even aware of what that means!  I will, however send it off to Matt – maybe it’s a plug-in that wasn’t installed in WPress.  

    AAPL/Yodi – Sell on the news.  

    And what HIgh said! 

  84. Good morning,


    IWM 80.74, 80.01, 79.68, 79.13, 78.83, 78.46 and $8 Bil of POMO (last day?) !!


    The $ollar is at resistance, if it falls here we could get a push higher, if it breaks through we should get our pullback; right now it looks like consolidation above IWM 78.83

  85. Phil – do you like TLB at these prices or do you think it has further to fall?

  86. Cake does look tasty!   May just sell some 2013 20 puts and just wait.  I have had to buy back a bunch of 2013 puts that have been part of buy/writes since making 35 – 40% with over two years to ago seems like a bad risk/reward.

  87.  FCX $120/119 bear put spread is .42 – I like that!  

  88. Damn, missed the USO DD… 

  89. Phil,
    Even assuming that AAPL drops to a PE of 18 after earnings (it is currently at 23 PE), based on the following earnings forecasts the stock price will be as follows:
    whisper#     $5.90 --> $424
    high #          $5.72 --> $412
    avg #           $5.31 --> $382
    low #           $4.93 --> $355
    Yet, look at these guys!!!!
    BIDU = 90 PE; AMZN = 75 PE; Cy = 51 PE; MOT = 46 PE; GOOG = 25 PE; YAHOO = 22 PE;

  90. Buying TNA here ($74.28) at IWM 78.88 in spite of this………

  91. AMD
    A little update today mainly because CNBC is spreading BS. AMD processors are inferior at the high end, INTL released their 2nd generation of Icore chips and the only sales are at the high end. My own personal survey is I have never heard of an INTL processor failure but have a dead AMD right beside me now and it is not the first one. People like me tell people to spend the extra bucks on Intel chip equipped computers.
    Another news maker of graphics cards. High end gamers are going elsewhere because of heat issues along with noisy fans. The factory gave large rebates in December another sign of slow sales. They have good customer service, upgrade trades, and excellent tech support so I believe this will be short term, don’t expect great earnings this quarter.
    Other tech issue is solid state memory is low profit in sticks and the replacement for hard drives although fast is not even close to holding large video, picture, or music files, also in the news.

  92. TBT / 8800 - I would agree with Phil that any TBT position is tricky. Decay will eat you up. Look at 2010, TLT was basically flat, but TBT was down 25%!
    The mid-year bump in TLT killed TBT for the year. It has recovered some since then, but another hiccup in TLT could produce another hit. Rates will have to go up, no doubt. The question is when.
    Phil, I guess shorting calls in TLT is more expensive margin wise, but isn’t safer in the sense that it tracks rates much closer?

  93. Target TNA at $75.50, IWM 79.38

  94. amatta, it’s better deal for USO DD, 0.74/0.75 now.

  95. Oil – lol. guess I shorted a little early at 90.95.  Didnt think we’d all of the sudden find a flood of buyers 23 minutes before close. What a crock….. Phil, what are your feelings on Asia overnight? Im thinking of holding my contract and waiting on a pullback tonight….

  96. Phil, 
    WYNN finally letting up a bit… can you see a line I would need to watch to do the roll (I have the 102′s and 107 short, sold for 3.5 and 8.20 respectively). I’d hate to roll if I can take the higher delta on a sustained move down. Your thoughts?

  97.  Phil – re: real estate data, no idea what qualified is, but I’m interested in U.S. real estate.

  98. real estate biz PPM so there is no way for us lowley non-qualified small time investors to pitch in some how ? :) o please o please :)

  99. FYI

  100. Hi folks,
    I’m back from a long vacation.  The vacation proofing effort worked well with a 2.5% gain.   No crash in the past 4 weeks also helped.  VIX at 17.21 is quite low for short strangles.  Well, let’s play SPX Feb 1140/1345 short strangles with a small number of contracts, 2 SPX contracts per $100k in Portfolio Margin accounts.  There are plenty of margin to roll away from potential troubles.

  101.  I just let a 17% gain on the USO puts get away from me.  I don’t know why it is so hard for me to set trailing stops.  

  102. we went into that Flash Clash time frame 2:20-2:40 and everything went to a screaming halt on the futures
    oil closed
    still no movement

  103. C = 1272.90, F =1268.75
    10yr = +1.18%, 30 year flat
    VIX (1.88)%
    Net $ = +.66%, dx/y = +.01%

  104.  Good morning JRW!  Nice chart array, what program is that?  

    TLB/Jrom – I think give them time as the whole sector still has to pull back.  I could cry that we gave up our XRT puts too early but we were glad to get out even at the time.  

    CAKE/Jo – They did guide down so I’d give the downgrade police a chance to get their licks in but they took the hit on this anticipated news last month, when they plunged from $33 to $31 so back above $30 is time to jump on board if they don’t fall any further.  

    USO/Amatta – Any time you hit 20% – it’s a decision point, whether up or down.  Meanwhile, you probably did not miss much as they should get a goose into close back to that $91 line.  Tomorrow we have inventories and maybe another pop up but then the sell-off should begin.  They have already dropped Feb down to 226M barrels with 270M in March and 97M in April so the same 600M barrels being shuffled around but now stuffed to the gills in March.  May is still 81M and it looks like June is swelling at 101M already.  It is doubtful they want more than 26M in Cushing so 200Mb must get spread over those next 4 months.  8 sessions left, 200Mb to go = 25,000 contracts per session must die.  Anything less than that is a problem so we’ll have to watch to see if they are on or off track this week.  

    P/E’s/High – Yes, it’s totally out of control.  It’s one thing to give a start-up a p/e of 90 based on outstanding 5-year growth projections but BIDU and AMZN have been around for a while.  If you call 20 a "normal" valuation then both of those companies have to grow 4x to get to that and for BIDU, that will make them a $150Bn company even though it took them 10 years to get to $35Bn and for AMZN, they’d have to get bigger than AAPL at $350Bn and, unless their margins improve drastically, they’d need to increase sales from $25Bn to $100Bn, which would make them 1/4 the size of WMT who earn $14Bn a year on $400Bn in sales vs AMZN earning $1Bn a year on $25Bn in sales.   Let’s face it – there are A LOT of idiots out there both buying and recommending stocks – so many that it becomes DANGEROUS to use rational thought when trying to determine value…

    AMD/Shadow – Good point, there’s no threat there at all.  NVDA is also in danger as INTC’s video on chip is going to be good enough for 95% of buyers and they just paid NVDA off for what they stole so it’s game over now as INTC can go into mass production without fear (not to mention they want to recoup the $1.5Bn). 

    TLT/StJ – Yes, you do avoid the decay issue.  Keep in mind though that TBT is looking at a 4% note and going to 5% is a 20% bump so it’s not like we’re expecting TBT to wriggle up once rates break, they can fly to the moon if even just a trickle of what’s going on in Europe spreads to us.  

    Meanwhile, CNBC’s number of the day is $4Tn.  They are counting China’s $3Tn of FOREX and Japan’s $1Tn and combining them and treating it as if it’s a fact that the EU just got a commitment from a $4Tn bailout fund.  Of course it blows my mind that China’s trade surplus is so intense that they added another $600Bn last year even after spending $500Bn to stimulate their economy – those guys are unstoppable!  

    Oil/Jrom – If you are talking the futures, those are meant to be razor-tight stops off the lines so if you short at $91, you should be stopping out at $91.05 and you don’t go short again until you get $90.99.  You can hold it overnight as a solution to BP can give you a huge move down but there’s always the usual shenanigans overnight and, as I mentioned above, the Feb traders have a $22Bn problem they need to get rid of so that puts wiring $100K to Nigerian Rebels or Somali Pirates to attack a pipeline (or wiring $50K to pay a guy in Alaska to loosen a bolt) into perspective, doesn’t it?   

    WYNN/Amatta – Yeah, I’d be worried about $120!  So you are down about $7 per contract and the correct move is to roll up to 1.25x the Feb $115 calls, now $6.20 so keep your eye on those.  If you want to be more aggressive, you can go 1.5x but when you are behind, just worry about getting even.  You don’t have to roll now, maybe you get lucky, but that’s the roll you should have your eye on.  

    Qualified/ZZ – You can send an Email to greg at philstockworld dot com.  He’ll need name, address and phone number to get you the information.  

    Unqualified/Micro – I don’t make the rules but PPMs do tie up money long-term and are illiquid so it’s not the kind of thing you want to go into if you don’t have a good net worth and plenty of free cash.   It’s another one of those fun things that rich people get to gamble on that is kept out of the hands of average investors, which is good as they quickly get oversubscribed as it is!  

    Hola Peter – welcome back!  

    Stops/Palotay – You have to get used to dealing with the fact that making 10% in a day is a lot of money on day trades.  I know it sounds obvious but, as you can see, in practice it’s hard to pull that trigger.  Don’t worry though, it was intended to be a short through inventory. 

  105. Phil, USO Jan 39 Put is at $0.72/0.74, it’s about 20% down for average 0.90 entry, take the loss?

  106. Phil/AAPL:
    In your 10:50 AM recommendation to Abel, you suggested he sell AAPL 2013 $275 P for $31 and buy 2012 $250/300 bull call spread for $29 to pick up additional $23. My math says I net $2 on this overall combination for potential profit of 450 on bull call spread,or total of $52 if AAPL is greater than $300. What am I missing here? thank you.  

  107. Sorry, Phil, just saw your USO answer to Amatta, forget my question.  Thanks.

  108. Oil / Phil – I tested DBO and OIL as ETFs tracking oil and they seem to suffer the same problem as USO:
    If you look at the relative performance over the last year or so, USO, OIL and DBO got left behind by oil big time. These ETFs probably make good trading vehicles, but they suck as investment if you want to track oil prices long term.  I surely would love to hear why. Is contango the only explanation? I got the software to find a model that was over 90% accurate for DBO and it got destroyed over the last year! I still think that XLE might be the better vehicle long term. Not perfect, but better!
    DIG and DUG suffer the fate of many leveraged ETF with decay. I am still trying to model these to get a better picture.

  109. Phil--I almost died holding my breath on PCLN (:   —-what is the play on CAKE--sorry I must have missed your post

  110.  Hello Peter D- welcome back. 
    Would appreciate your thoughts on the new section – Income Trader- Iron Condors.

  111. Phil, 
    Thanks for the OPEN response, I was asking what would you sell to cover some of the cost to buy the July 65 Puts…? Still the feb 62.5′s? or would you go with the 65′s? Also what is the rationale to buy the July expiration versus a closer one? Isn’t it a play on upcoming earnings? And wouldn’t the closer expiration have higher delta and less premium? 
    Thanks trying to get better at this… 8-) 

  112. When you see how quickly MySpace disappeared from most radar screens (laying off another 50% of their staff) it makes you wonder about any valuation for Facebook! What IP do they have that could not be replicated? Just wondering…

  113. Phil / charts


  114. Savi – he was saying wait on CAKE; i don’t think there is a play yet.

  115. stick coming?
    I would like to give the market the stick

  116. stj – i was with some neighbors last night and a guy in his 1st yr of college said with a smug look that he had deleted his facebook page. So i was  wondering too what happens when it isn’t cool any more or something else comes along that appeals to the next generation.

  117. Phil:
    With C earnings report coming up on the 18th, does any play look enticing?
    Acc. to certain sources, the reaction post-earnings have been lackluster of late. What do you think?

  118. C = 1273.39, F =1269.25
    NET $ +.88%,  dx/y = (.06)%

  119. Out of TNA at $75.03 average; "they" can’t seem to get it back to IWM 79.38, strange !!

  120.  EOG making nice run. 2 pts to cross 200dma.

  121. Facebook / Morx – Indeed, how much time can you spend all day looking at what your friends and other people are posting on the Internet? Oh wait…. ;-)

  122. Yeah, but this is work!

  123. marx--tx

  124. Phil,
    I didn’t mean to rain on your daughter’s sunshine but when you see something the likes of that kid you need to reconize his dedication and effort.
    As for the markets heading higher and higher……well……call me stuborn but I’m heading south for a few days to hit that stupid little ball and enjoy the sun and I’m feeling the need to load up with with some April TZA calls while I’m gone since there’s just no way it could go any higher (right) and I’d be more pissed if it fell off a cliff in my absence rather than if it costing me a few bucks if Loyd and the boyz continue to pump it higher.   What do you think about that???

  125.  Morx – I am trying to get my accountant to broaden his definition of work!

  126. Phil, 
    WYNN, I am actually down $9 per contract… (as I had rolled to the 107;s from the 102;s) so should I look to sell March 115s or increase to 1.5x the Feb 115s? When you say watch those when do I decide to make the move?

  127.  USO/Bob – Not for the 1050P.  I just went over the NYMEX and I will be very surprised to lose on this one.   Of course I have been very surprised before, especially with oil so it’s a matter of whether you want to risk it overnight.   By doing that though, we’re pretty much committing to rolling up and out (to Feb) if it goes against us.  

    AAPL/Dflam – Above $300 you keep the $2 and get another $50 for the spread, that’s right.  $29 + $23 is $52.  

    USO/Bob – Too late!  8)

    ETFs/StJ – It’s because they all roll over into contango.  For instance, The Feb contacts are $89.50 and the March contracts are $90.50 and Feb is $91.50 so if USO rolls 50% to each contract, they lose $1.50 (avg) per contract this month.   That cash has to come from somewhere and it shows up in a reduced NAV for the fund each month.  Do that 12 times a year and you are causing some pretty significant damage.  XLE is, of course, not oil but oil companies but they move with the price of oil and, since no decay, a better track!  

    CAKE/Waiting.  PCLN is funny isn’t it?   I’m switching to 1-hour charts on these silly stocks, not worth the bother of looking at shorter-term moves anymore.  

    OPEN/Amatta – I don’t think I would sell to cover at the moment (although they are down a bit now).  At the moment I think the Apr $67.50 puts at $4.30 are the best play on them but I’d wait for tomorrow to see if they bounce back.  If OPEN falls back to the low $70s, then selling the Feb $62.50s (now $1.25, hopefully for $2.20) would become attractive.  

    Facebook/StJ – They have a critical mass that’s hard to displace at this point.  It’s not like others haven’t tried so they have "clicked" with people and if I was going to take them on I’d go way simpler and strip out the ads and nonsense games (unless you opt in to play nonsense games) and just create a simple interface that also incorporates video chat so something working with Skype would be my play to go after them but figure a year to develop, a year to roll out, 2 years to get traction – trying to advertise to 100M people alone is at least $100M and that would be IF you had something so good you only needed to mention it.  So you want me to back a new venture that will suck up about $200M over 5 years before I even know if it works and won’t get me to $1Bn in value for another few years at least or I can buy Facebook now.  See the value?   MSFT should buy them and turn them into a corporate tool for communicating and meeting and integrate the system with web-shareable office software and call it WorkBook – that would be worth $6Bn to them!  

    Thanks JRW!  

    Stick/Mike – Volume just 118M on Dow with 20 mins to go is way under "normal" 170M at close so very stickable although that Bot pretty much started running at 2pm on the nose, didn’t it?  Even if the Dow closes red, unless it’s below 11,600 in 20 minutes we have broken out of the downtrend from last Wednesday’s high.  

    C/Reza – The premiums are just too ridiculously low to bother playing for earnings.  As to earnings in general, yes, I do think expectations have been set too high and we’re in for a rough time over the next month but, so far, so wrong as we just go up and up.  

    LOL StJ!  

  128. Re XRT/Phil  – If you still expect retailers to pullback, w about a Feb/Jan calendar put spread (47/47) or Feb vertical (48/45)?

  129. something about China opening Yuan trading to US

  130. Virginia alternative currency  discussion

  131. What a crappy little market this is.  Pathetic volume.  In fact, the only time there is any volume is when they are propping it up to prevent a sell off. 

  132. aapl looking to hold yesterdays high’s. very positive!!

  133. Facebook / Phil – Funny you mention Skype because I was thinking that these guys would be the one also closer to what I would be looking for. Right now they have close to 26 millions people online! That’s critical mass. The ability to do multi video conference is also so 21st century! They also have games and other interactive tools! I use that much more than Facebook (not the games, the apps!). Oh well, I am guessing that 10 years from now this chat will be virtual and we’ll be on video the entire day. I am already picking Brad Pitt as my avatar! 

  134. Does anyone know when the new POMO schedule will be posted?

  135. Matt,
    You got that right.  They must have the Bots programmed to jump in and stop any threat of a sell off.  You can’t beat them on light volume.  That’s why the "Buy the F’n dip" strategy is so effective.  They bears have been so ravaged that they cannot produce any sustained selling.
    Drink the coolaid and enjoy it baby!!!!

  136. Screw the cage match with Cap over his backward political ideals, I want a piece of these oil speculators!!! This is some BS…..

  137. Well, a less than exciting 1% on the day, although I did take the morning off  8-)

  138. Exec-
    New POMO schedule gets rolled out tomorrow- BTFD! BTFD! BTFD!

  139. Speaking of BS…..I’m listening to Maria Bartiromo on CNBC.  It’s comical…..rotate this and rotate that……she’s steering the cattle right into the pen that her bosses want her too!!!

  140.  Sunshine/Exec – No, that was way cool!  I tell my kids all the time it’s all about the practice (read Malcolm Gladwell’s Outliers for more on this topic).  TZA is a good call, we did those yesterday.  EDZ is good too on international mayhem.  

    WYNN/Amatta – I’d go with the 1.5x and you might want to consider selling 1x whatever puts pay you $2 ($97 puts at the moment) to hedge a bit.  

    XRT/Reza – Well now I hate to chase it so I’d rather wait for earnings.   Notice luxury retail is reporting good numbers and high-end teen retail is good so we need to look over earnings and find an expected bad patch to bet into.  

    Yuan/Mike – That would be interesting.  

    Virgina/Mike – LOL, that’s great.  Some gold bug pays a state politician off to do some dumb-ass thing like that and suddenly the dollar seems less stable.  As I said, they are pulling out ALL of the stops this month.  

    Skype/StJ – If I had free time I’d get skype together with the guys that make the Bernanke Bears because the missing ingredient for video conferencing is default avatars for when you don’t want to be on camera.  Maybe the Jib-Jab guys would make a faster path to your dreams of Brad Pitt…

    POMO/Exec – I think tomorrow afternoon but I think that also means no POMO tomorrow morning.  

    Kool-Aid/Exec – Oh yeaahhhhhhh!  

    1%/JRW – Was breakfast really worth it?  

  141.  Check out the sector leaders below: Oil and Energy, Autos, Consumer Staples and Basic Materials – it’s still a commodity fest!  

  142. Phil,
    Following up re using TBT as a hedge for int rates:
    (1)the Jan 2012 35/40 spread would pay approx 2:1 ($5 for 2.30) at expiry. Given that TBT has not been below 36 since Dec (trdg rge lower limit) what is  the rationale for using the 35 strike as opposed to a 36 (36/41 spread  – slightly btr #s) ? I assume that if TBT broke 36 it would tend to fall back down to Aug lows in response to a major event – Euro failing, sovrgn default.
    (2) any other TBT spread that would have grtr leverage than 2:1?

  143.  Great article on algos:
    And follow up from the author:
    The best section:

    Firstly, there are millions of individual investors doing diligent homework on companies and trying to invest intelligently in the stock market. When they finally arrive at a conclusion and the time comes to buy or sell, their collective decisions are known politely as “retail order flow,” and less politely as “dumb money”; high-frequency trading shops make lots of money by paying for the privilege of filling those orders and taking the opposite side of those trades.
    It’s possible that one individual investor—Mr Iyer himself, perhaps—can beat the odds and make more money on his own than he would do simply investing in an index fund. If he does, then it might be due to luck, and it might be due to skill. But if I know nothing about Mr Iyer except for the fact that he’s a retail investor looking at corporate fundamentals, I wouldn’t give him much of a chance of beating the market. Fundamentals-based investing is (still) a very crowded trade, and most people who try it fail—they get picked off by faster, smarter, more sophisticated players in the market.

  144. Stjeanluc/Algos
    That’s an interesting article.  I can’t imagine we aren’t in for another uncontrollable selloff or rally for that matter if the Bots are doing the thinking.
    Scary shit as far as I’m concerned.

  145. At the close: Dow +0.3% to 11672. S&P +0.37% to 1274. Nasdaq +0.33% to 2717.
    Treasurys: 30-year -0.18%. 10-yr -0.25%. 5-yr -0.11%.
    Commodities: Crude +2.34% to $91.34. Gold -0.2% to $1381.60.
    Currencies: Euro +0.23% vs. dollar. Yen -0.47%. Pound +0.31%.

    Market recap: Stocks rose modestly on earnings-related optimism and Japan’s willingness to buy European debt. Crude oil jumped past $91/barrel on supply concerns from the continued shutdown of the Trans Alaska pipeline. Energy stocks were higher as a result, and telecom shares were notable laggards. NYSE advancers led decliners by more than three to two. 

    NFIB Small Business Optimism Index: -0.6 points in December to 92.6, vs. +1.5 prior, a drop the NFIB characterizes as "not a huge change but not the hoped-for rebound that would signify more growth in the small business sector." 

    ICSC Retail Store Sales: -3.2% W/W, vs. +0.4% last week. +3.5% Y/Y, vs. +3.6% last week. The end of holiday season shopping resulted in soft sales for the week

    Redbook Chain Store Sales: +2.8% Y/Y vs. +3.5% last week. The report notes "the beginning of January is a clearance time and that stores will be stocking Valentine’s and Spring goods beginning at mid-month." 

    Nov. Job Openings and Labor Turnover: Job openings at 3.24M, down from 3.32M in October; hires at 4.21M, down from 4.25M in October. Turnover rate 3.2%.

    Wholesale inventories fell 0.2% vs. an expected 1% increase, as wholesale sales rose 1.9%, well ahead of forecasts. Despite the surprise, much of the data is priced in to markets, but the prospect that holiday demand was greater than retailers anticipated may prompt a boost in economists’ growth projections. 

    U.S. home prices declined 5.1% Y/Y in November, marking their fourth straight monthly drop, according to CoreLogic’s Home Price Index. While seasonal declines typically depress home prices during the latter part of the year, the increased rate of decline "is indicative of the uphill battle we’re facing with the housing recovery,” CoreLogic says.

    Crude’s back through the $90 barrier, +2% to $91.10, as the EIA raises its 2011 price estimate to $93.42 in the Short-Term Energy Outlook. The agency expects $99/barrel by the end of 2012.

    Told you so!  Bank and life insurer stocks will be the biggest winners in 2011, Morgan Stanley analysts say, based on low valuations and increasing clarity about regulation that has weighed on shares. Favorite names are BofA (BAC), Comerica (CMA) and TD (TD) for large cap, mid cap and Canadian banks, respectively. Prudential (PRU) and Axis Capital (AXS) top their insurance sectors. 

    Also, I told you so – this is going to be huge business!   If you’re a homebuilder, how do you make money in the worst housing market in generations? By doing something other than building homes. Lennar’s (LEN +8.1%) Rialto Investments unit, focused on distressed loans and real estate, is allowing the company to sustain profitability while it waits for better days. It’s supporting the whole sector today: DHI +3.3%, KBH +1.5%, TOL +1.2%.

    Philly Fed’s Charles Plosser hedges his bets on QE2, signaling there may be more room for easing if serious deflation risks emerge while noting "the aggressiveness of our accommodative policy may soon backfire on us if we don’t begin to gradually reverse course."

    11:14 AM The Fed buys $7.8B in Treasurys maturing 2016-2017, of $21.1B offered by dealers in today’s open market operation, and stocks are climbing vertically to session highs. The Dow +0.6% to 11,702, S&P 500 +0.6% to 1,277, and bonds are trading lower: 10-year yield +0.07 to 3.36%; 5-year +0.05 to 1.97%. 

    European banks are higher and the euro flat after Japan pledges to join China in helping to prop up one of their best customers. Separately, Portuguese PM Socrates denies the need for a bailout. Euro buys $1.2946. Stoxx 50 +0.89%. Portugal +1.65%.

    At the start of a busy week in the bond market, the U.S. can thank Portugal and the other troubled euro-zone countries for keeping its own borrowing costs in check. Until Europe’s problems are resolved, sovereign debt investors are likely to favor the least-worst market – U.S. government debt – which should help absorb heavy U.S. debt issuance this week.

    The Treasury sells $32B in three-year notes at 1.027% (.pdf). Bid-to-cover ratio of 3.06; indirect bidders take 39.4%. Direct bidders take 16.2%.  Despite some decent demand in the Treasury’s three-year note auction, bonds slip a bit lower: 30-year yield +0.06 to 4.52%; 10-year +0.08 to 3.37%; 5-year +0.06 to 1.97%; 2-year +0.03 to 0.6%. 

    The fire sale’s not over for the big five Canadian banks, who look likely to follow a record $15.9B in acquisitions with more purchases of U.S. regional and smaller banks, including SunTrust (STI), Zions (ZION) and Regions Financial (RF). Canada’s banks are the world’s most stable – and they’re flush with cash.

    “Sell into the strength" – that’s the surest way to profit from takeover speculation. Out of 1,875 reported rumors about potential buyouts during 2005-10, only 14.5% actually materialized. While takeover speculation stocks initially jumped 2.9%, betting on declines yielded average profits of 1.2% in the next month, an annualized gain of 14%.

    Talbots (TLB) updates its FQ4 and full-year outlook, citing deteriorating sales in the last two weeks of December. The company expects an FQ4 loss of $0.15-0.19 per share vs. consensus of a $0.02 loss per share. Shares -16.1% premarket. (PR)

    Marks and Spencer (MKS.L) falls 2.42% in London as it warns that rising inflation is squeezing margins. More upscale than Tesco (TESO) or Asda (owned by Wal-Mart), M&S still faces pressure to compete on at least some pricing with those chains. 

    Sears (SHLD +6.4%) has traded up since before the open on raised guidance despite a slowdown in same-store sales. Why? Maybe because outstanding shares are declining faster; the company’s keeping up a rebuy rate of 10M shares a year over the past five, meaning a small group of big shareholders might squeeze the shorts yet.

    The dichotomy between Tiffany (TIF -0.5%), which raised its profit forecast after reporting an 8% jump in same-store sales this holiday season, and Supervalu (SVU -9.8%), which reported a quarterly loss and lowered its full-year forecast, highlights the growing divide between high- and low-end retailers and consumers. 

    Alcoa (AA -1.1%) is falling premarket, despite its AH earnings beat. On the company’s conference call, CEO Klaus Kleinfeld was quite bullish in his outlook (transcript), but analysts wonder whether the rosy forecast is realistic.

    Out of 100 stocks on 30 Wall Street strategists’ 2011 lists of recommendations, the nine most touted: Microsoft (MSFT), Procter & Gamble (PG), Cisco (CSCO), Occidental Petroleum (OXY), Aflac (AFL), Baxter (BAX), IBM (IBM), Pepsico (PEP) and Qualcomm (QCOM). 

    By concentrating on the prior year’s top three sectors, an investor would have outperformed the S&P 500 70% of the time during the past 40 years, according to an S&P study. Top three sectors last year: consumer discretionary (+26.8%), industrials (+24.7%), materials (+20.6%).

    Three lunchtime reads:
    1) Could the U.S. central bank go broke?
    2) The economic impact of the foreclosure slowdown
    3) The Fed’s QE2 traders, buying bonds by the billions

  146. Great Dimon pimping away

  147. A tough day for Verizon despite the iPhone hype… Some charts: 
    I would say that for me the Verizon iPhone is non-starter. It’s not a world phone so you would need another one when you go outside the US! So, sucky network with AT&T and no world phone with Verizon. Hmmmmm!

  148. pstas/Income Trader,
    I like the insurance piece in the scheme.  There are some risks with the scheme, but looks like the long term profit/loss expectancy is Positive, i.e. making money over the long run.  The strategy description mentioned that the chance of success is 84%.  Without the insurance, let’s say if we make 10% for each win and 100% for each loss, then Expectancy = 0.84 x 10% – 0.16 x 100% = -0.076 (not good).  However, with the insurance, the loss could be 50% or less, and there could be a big profit if there is a blowout in either direction (from the P/L chart).  If the loss is say at an average 35%, the Expectancy = 0.84 x 10% – 0.16 x 35% = +0.028.  There is a bit of luck needed with this scheme, but it can work.

  149. And some AT&T charts:
    Phil, it seems to me that T is a more compelling choice than VZ at this moment. They have retraced close to their 200 day MA (see charts above) and the fundamentals are pretty good. Forward P/E is at 11 (VZ is close to 15) and their dividend is over 6% now which should support the stock around here. 

  150. Buy/Write – interview with Rick Rule where he talks up the buy/write strategy at about 5 minutes in (using KGC as an example).

  151.  T / Phil
    To chime in on the conversation, I am interested in establishing a position on T.  I have been active in a covered call play for the past year, but now have the opportunity to jump into a hedged postition.   Your recommendation is appreciated.

  152. Phil--what do you think of HI ?

  153.  Peter- thanks for the comments. I don’t fully understand your calculations but I take it that your thinking is that this Iron Condor strategy has merit but entails greater risk than the short strangle approach? As would be expected since the relative reward, given present low VIX  is more with the Iron Condors. Agree?

  154. As Rosie says, a picture is worth a thousand words….


  155. pstas,
    This is a modified Iron Condor with limited risk due to the nice idea of buying "insurance" on both ends.  Looking at the P/L curve, published by Income Trader (or you can recreate yourself using TOS), you’ll see how both the extremities turn up as profit instead of losses.  Basically, there is a band of +10%/-10% where we make the set amount of X%, then there is a gap of 2-3% on each side where we can lose 100% of money at risk.  After that the P/L curve improves significantly.  So if the market drops 20% within 5 weeks, we actually make a profit with this modified Iron Condor.  If the market drops 11%, we are in the lowest zone of the P/L curve where the loss is 100%.  That is why I said we need some luck that the market doesn’t move 10-13% each way.  It can move less or more, but not within the 10-13% range (or whatever the lowest zone of the P/L curve for that month).
    As always, money management is the key.  Income Trader suggests risking 50% of capital.  In a good month, we can make 8-10% of 50%, which is a nice 4-5% of the total account balance.  If we don’t hit the lowest zone in the P/L curve, it’s an excellent return annually.  In skimming through the posts, I didn’t come across a potential adjustment yet.  Adjusting an Iron Condor could be slow because of the high number of contracts needed.  Imagine having 550 contracts on each side of the Iron Condor for a $1M account, we need to trade 2,200 contracts to make an adjustment (buy back two old legs, 550 contracts each, sell two new ones).  Adjusting a similar short strangle leg would be around 100 contracts, which is a much easier tasks.
    One scheme is not necessarily better than another scheme.  I do like the risk profile of this modified Iron Condor, so you can give it a try with say 20% of the capital at risk and try to make 10% (which is 2% of total account value per 4-5 weeks), and see how it goes.

  156.  TBT/8800 – Well it’s good to have a lower target as a 2.5% lower price on TBT pays you in full. It’s all trade-offs and, with an ETF that decays over time, I prefer to error on the side of caution.   Keep in mind that if you trade for 20 years and always take trades that pay off 2.5% lower then you accumulate a 50% better chance of success than someone who "goes for it" to make 10% more than you.  As I was saying in the morning post, it’s about swinging for average vs. swinging for the fences – they are both valid styles but there are 3 times more players who hit for average in the Hall of Fame than there are players who hit home runs but, of course, the home run hitters do tend to be more famous…

    If you want to leverage TBT aggressively  and play for persistently high interest rates then we can assume rates tick up to 6% (up 50%) by 2013 as the Fed can’t run their balance sheet to $5Tn and the Government can’t borrow another $3Tn without some sort of backlash over the next two years (and that’s assuming everything goes well and we stay on target!).  So you can sell the 2013 $34 puts for $5.20 and buy the $35/50 bull call spread for $5.35 and that’s .15 on the $15 spread for a Billion percent return at $50 (maybe less but it’s late and I’m not in the mood for math).  THAT’S LEVERAGE!  

    Algos/StJ – Obviously, I have to disagree on the value of fundamentals.  Algos just cause short-term disruptions but, as the markets have proven over the past few years – we do tend to revert to the mean for the more patient investors.  Scaling into positions is critical to fight the Bots, especially as they are now able to drill down to your individual trades at this point.  NFLX this morning was a good example as they spiked up to $181, ran the weekly $185s up to $7.50 before dropping to $3.30 later in the day.  If you have discipline, you can ride it out and if you are scaling in as a day trader, it’s a gold mine as the logical first DD was at $6 to raise the short basis to $5 and then at $7 to raise the short basis to $6 and then, of course, 1/2 back off the table at $6 to leave you in 2x at $6, which would be up over 40% already and wouldn’t have even been worth risking overnight at this point.  

    I don’t like to talk about playing that way too often because the risk gets out of control quickly for a lot of people but if you have huge margin and like to day-trade aggressively, that’s the way to play.  As a basic fundamental trade, our original premise was that they can’t hold $205 on earnings data.  I warned when we went in that we would be targeted by Bots and the price would rise and we kept our eye on our roll this morning and didn’t panic and, of course, logically, we don’t give a damn about any movements NFLX makes between now and earnings because it’s just speculation while we feel we have facts on our side.  

    I SAW NFLX spending a lot of money last Quarter.  I SAW NFLX lower prices last Quarter – wouldn’t that include their current subscribers?  I SAW NFLX move away from their existing business model last Quarter.  I SAW NFLX spend a lot of money on promotion last Quarter.  I also saw NFLX rise 25% last quarter because people like Cramer BELIEVE they will do this and do that AT SOME POINT IN THE FUTURE.  

    Do you know NFLX missed last earnings?  They are expected to earn .71 this Q, which is up 26% from last year’s .56 on what is expected to be a 34% increase in revenues to $600M.  That’s an interesting point too.  NFLX currently has 11M subscribers that generate $2.2Bn in revenues so $200 per subscriber, which makes sense at $15 a month.  At $8 per month on-line though, they need 20M subscribers to generate the same revenue and let’s say they earn $3 per share on 20M subscribers – to grow into a $10Bn market cap and drop the PE to 25, they need to earn $9 per share which means 60M households or 60% of all homes in America must subscribe to NFLX.  That is so blatantly ridiculous, of course, that Cramer is already pointing to Europe as the growth market.  

    Anyway, didn’t mean to ramble on about NFLX – just making a point about fundamentals.  I don’t give a crap if some bozo is willing to pay $185 or $195 or $205 or $225 ahead of earnings, I say they are worth $180 on their best possible day and $150 would be much more realistic and I wouldn’t buy them for that either as they need 5 years to grow into their new model and it took them 13 years just to get their first 11M households (with atrocious churn rates too).  You can sick all the Bots you want on the position as we can roll to Feb $205 (which is +$2, by the way) and then to 2x the March $240s (now $3) and those to the June $280s (now $3.50) and those can be rolled back to 1x the 2012 $310s (now $7) which is up 67% from here.  So yes, if the Bots have $5Bn to dump into NFLX in order to dislodge our $185 or if NFLX successfully gets 20M more subscribers this year, we may be in trouble but, other than that – I like my fundamentals!  

  157.  LOL – You can see why Pharm, Peter and I have colored boxes!  We’re the kinds of guys who have dinner, go out and then come back and look over our positions and read our news again before going to bed!  

    Back to bots – keep in mind they are not uni-directional.  Right now they are up but do you think that people are writing algos that don’t have downside sell-stops?  That’s the horrifying danger of electronic trading – the more it works the more the brokerages rely on it and the more danger of a cascading system failure.  Think of the dynamics of a crash – the market begins to fail, the bots all trigger sells at the same time, they can’t find buyers and more stops blow out.  Then the Nas, etc halt trading at 10% FOR 5 MINUTES and then again at another 10% for whatever new time it is…  What’s going to change during that time – is JPM or GS going to unplug their bot or sell while they can?  Even if they had a day or days, they chance of rewriting the programs to compensate for the new conditions are minimal, it would take that long just to lower the ranges and reset buying parameters.  

    Barry/StJ – Sad and true! 

    Dimon/Mike – They are pulling out all the big guns to get S&P 1,280 and RUT 800.  Expect Lloyd next.  

    VZ/StJ – I don’t think too many Americans are really concerned about the World Phone aspects.  This is most likely a minor hit for T but not a boost for VZ as it costs A LOT of money to sell IPhones ($400 per phone).  The IPhone came out in June of 2007 and T was $40.  A year later, T was $40 and the 3G was released and a year later, June 2009, T was $25.  In Jan 2008, T could not handle the volume of turn-ons from holiday sales and their network went down.  The most bullish thing I can think of for VZ is that they may pick up a lot of switches from T by people who already have phones so maybe they add a million+ accounts without having to pay AAPL for new phones but that  won’t last long if AAPL puts out an upgraded phone.  Still, if I were VZ, I would tell people to switch now with your current phone and you will get a new 5 as soon as it comes out at no additional charge but a 2-year commitment from that date forward.  

    T/StJ, MJJ – I’d like to see them test $25 or break over $30 and hold that.   Actually, I think I want to see earnings and guidance first.  

    HI/Savi – Good business.  We were buying them and STEI (who I liked better) in the crash as they got stupid cheap and I gave a lecture about how certainly people would continue to die no matter how bad the economy got!  STEI is closer to full recovery now so I like HI and they do pay a nice 3.5% dividend, which they just increased (good sign) and they just won a patent-trade suit against Mexican knock-off coffins, which is what shot their stock up lately.  I’d go conservative on an entry with the stock at $21.67 and sell the July $20s for $2.50 for a net $19.17 entry and then wait for a pullback (maybe buy back the calls at $1.25 if you want to be aggressive) to sell hopefully $17.50 puts for $1 (now .40) and then you have a nice, dull dividend payer you can work the basis down on over time by selling premium.  

    More importantly:


    ANCHORAGE, Alaska (AP) — The operator of the trans-Alaska pipeline received approval Tuesday to restart the 800-mile line, three days after a leak was found near a pump station at Prudhoe Bay.
    State and federal regulators gave the company the green light late Tuesday afternoon to do what is being described as an "interim restart," said Michelle Egan, spokeswoman for Alyeska Pipeline Service Co., which operates the pipeline.


    That was what I’ve been looking for this evening!  Oil still at $91.30 but not much trading in Asia.  I do like the futures short here but scary as the dollar already failed 80.90 at the Euro is back over $1.30 in anticipation of winning Portugal bond sale (just $1.3Bn).  That’s a half point drop in the Dollar since 11 am.  

    They are really ramming up the futures into the EU open, back to yesterday’s highs on everything.

    Nice chart set Pharm! 

    Thanks Peter – you and Kojo should chat over in his section, would be very informative for members to see you two compare strategies.  

  158. Wednesday’s economic calendar:
    7:00 MBA Mortgage Applications
    8:30 Import/Export Prices
    11:00 EIA Petroleum Inventories
    1:00 PM Results of $21B, 10-Year Note Auction
    2:00 PM Treasury Budget
    2:00 PM Fed’s Beige Book

    JPMorgan Chase (JPM) is ready to pay an annual dividend of up to a dollar once the Fed completes its stress tests and gives final approval, CEO Jamie Dimon tells CNBC. His macro view: "Everything is better than it was a year ago," but he warns that policy makers and others attempting to halt foreclosures could "ruin the mortgage market in America." JPM +0.7% AH.

    Short Selling Against S&P 500 Drops to One-Year Low, Exchange Data Show. Bets against the Standard & Poor’s 500 Index fell to a one-year low as short sellers reduced speculation that technology and telephone stocks such as Adobe Inc. and CenturyLink Inc. will decline. Short interest on the S&P 500 dropped to 6.87 billion shares, or 3.9 percent of shares available for trading, as of Dec. 31, down 5.7 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg. It was the third straight period that S&P 500 short selling fell. For technology companies, it slid 8.1 percent to 1.26 billion shares, and it fell 16 percent to 368.4 million for phone stocks.

    US Senate Report to Criticize Goldman(GS)Goldman Sachs will come in for harsh criticism from an influential US Senate report into the financial crisis that will highlight alleged conflicts of interests in the bank’s dealings with clients, according to people familiar with the matter.

    Is The Criminal Case Against Goldman(GS) About to Be Reopened, As Robert Khuzami’s "Ethical" Reputation Lies in RuinsAfter a few days ago we described in detail the facts behind the ACA lawsuit against Goldman, we were left scratching our heads how it could be that the SEC could ever possibly scuttle this criminal case which was obviously a slam dunk through court, and which based on the disclosures presented by ACA, is a blatant violation case of 10(b)-5 securities fraud and underwriter representation. We asked: did the SEC hide a key piece of the case against Goldman to fast track a settlement process?

    Southern Copper Chairman Unloads SharesSouthern Copper Corp. Chairman German Larrea Mota-Velasco sold 400,000 shares for about $19.5 million in recent weeks in a sign the shares may be overvalued even as the near-term outlook for copper pricing looks promising. Mr. Larrea sold the shares at $48.51 to $49.90 a share.

    114 Times More Insider Selling Than Buying In First Week of 2011.

    Grain and bean traders brace for the "Superbowl" of reports from the USDA tomorrow. Bullish numbers will be needed to keep feeding powerful rallies that started last summer. Current forecasts for ending stocks are so tight that a slight deviation in either direction could cause a significant price reaction. 

    Long Bonds Rejected as Yield Curve Steepens: Credit MarketsU.S. companies are selling the fewest long-maturity bonds in almost two years as a strengthening economy diminishes investors’ appetite for the debt. CenterPoint Energy Inc. and Enterprise Products Partners LP are the only issuers of 30-year bonds this month, raising a combined $1.05 billion amid $64.4 billion of overall sales, according to data compiled by Bloomberg. Last month, $1.5 billion of debt maturing in at least three decades was sold, down 85 percent from a year earlier and the least since April 2009.

    Covered Bond Sales Deluge Drives Bank Funding Costs to Record: Euro CreditInvestors are demanding record yield premiums to buy European covered bonds, driving up funding costs for banks at a time when they are relying more than ever on the top-rated, loan backed securities as a source of capital. The extra interest investors demand to own the debt has doubled since the end of 2009 and reached a record 202 basis points this month, according to Barclays Capital’s Euro- Aggregate Securities – Covered Index. Spreads on bonds sold by banks in so-called peripheral nations, which account for 38 percent of the Barclays gauge, widened the most in the region.

    Spain’s Collapse May Signal the End of Euro, Nobel Winner Pissarides SaysThe European Union doesn’t have the resources to rescue Spain if it “collapses,” Nobel Prize- winning economist Christopher Pissarides said at a forum in Beijing today. That may lead to the end of the euro, said Pissarides, who teaches at the London School of Economics.

    New Move to Make Yuan a Global Currency. China has launched trading in its currency in the U.S. for the first time, an explicit endorsement by Beijing of the fast-growing market in the yuan and a significant step in the country’s plan to foster global trading in its currency.

    Rising Chinese Inflation to Show Up in U.S. ImportsWhen garment buyers from New York show up next month at China’s annual trade shows to bargain over next autumn’s fashions, many will face sticker shock.

    Unrealistic revenue expectations?

    Fifty-Year History of Federal Government Receipts and Outlays (1962-2012)

    Food riots in Algeria (sugar, milk and flour have spiked):

    Riots erupt in Algeria Thursday after prices spike for staples like sugar, milk and flour.

    Violence rages through the weekend as food riots spread beyond Algiers, the capital city.

    Rioters torch tires in a stand off with Algerian security forces.

    Tunesia too:  

    Street protesters decry food price hikes and widespread unemployment in Tunisia.

    Demonstrators throw stones at police in Tunisia.

    India had 18.32% rise in food prices last month:  

    High food prices spark protests in India, where food inflation was 18.32 percent last month.

    Bangladesh is calming people down by providing rice as subsidized prices:

    Poor Bengalis clamor for subsidized rice, the Bangladeshi government's solution to rising food inflation.

  159.  Peter D- Iron Condors – Thanks again for your insight. I agree that the adjustment mechanism could be a big problem. I often have problems getting decent fills on SPX strangle adjustments which are, as you point out, fairly straight forward. 
    Always good to be reminded about position sizing and money management- always important but emphasis needed in the present low VIX environment where there is a tendency , at least on my part to stretch for improved return – a potentially dangerous game. 
    As Phil suggests above, it would be nice to have you monitor and comment on developments going forward. 
    I may dip my toe in the water on this to try it out.