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Turning $10,000 to $50,000 by January 21st – 1 Week Left!


Actually we're not going to make it.  We played very aggressive but on the short side and had our asses handed to us trying to get from $26,000 on Thanksgiving to $50,000 in 60 days.  Did we learn a valuable lesson here?  No – it was kind of fun and we didn't do too badly but we did come close to giving up our early gains (we had jumped to $29,957 in cash by Dec 16th and $30,737 on Jan 3rd) as we were forced to press our virtual bets against an ever-rising market.  

Back on the 3rd we had $30,737 in virtual cash against and unrealized loss of $4,810.  All the moves since then (originally from daily Member Chat) are detailed under the main $1050P post in our Virtual Portfolio Tab but the short story is we killed the XRT Jan $46 puts even on the 4th and, that turned out to be a bit early as they flew all the way to $2.50 and, even now, are $2.03 but it doesn't pay to have regrets – but it does pay to review your actions to see if you could have timed things a bit better!

That's the purpose of tracking these virtual portfolios – hopefully, we learn something along the way.  Keep in mind we were losing big time on the XRTs on the 3rd and the call in that morning's alert was to roll the 10 Jan $46 puts, which we had bought for $1 and were down to .30 so we rolled them to the $49 puts for .80 more and then Doubled down at $1 for an average entry of $1.40 when the puts were down to $1.  Why do we do that?  By rolling up to a higher position, we increase our delta so that the pullback, if it ever does come, gives us more bang for our buck.  So spending .80 to roll up $3 in strike made a significant difference in the delta and put us in a position where we still could win at a net $1.80 entry.  But the $49 put was only $1 and needed a huge move in XRT to get us even so, logically, doubling down at $1 and bringing the average entry on 20 down to $1.40 meant we had a far better chance of getting our .40 back.  

I often say, this is both the pain and joy of fundamental trading.  We KNEW from our PSW survey and from the retail reports we were seeing, that the sector was not going to live up to the hype.  However, just because we KNOW something doesn't mean the rest of the World does and, as Lord Keynes famously said: "The markets can remain irrational longer than you can remain solvent."  He knew this from experience – having lost a fortune in his own market speculations at one point.  

As I commented on the 3rd in the Morning Alert, we were watching reports from SONC, FDO, RT and SRZ to get some idea of direction.  Our foodies did OK but both FDO and SRZ were nightmares.  Because we were behind and ran our commitment up from the original 5 Jan $44 puts at .80 ($400) to (through a series of rolls and doubles) 20 Jan $49 puts at $1.40 ($5,600), we were THRILLED just to get our money back (actually it was $1.50 for a $200 profit).  The trade had gone very wrong from day one and once you get to an over-allotment on a position (20%) – you can no longer afford to take chances.  

Running the position up to 20 Jan $49 puts at $1.40 put us up to $5,600 and that position was already down .40 ($1,600), which was a 5% loss on our $30K virtual portfolio.  At most, we were willing to let it go to .65, which would have been a devastating 10% loss and HAD WE NOT BEEN WELL AHEAD AND PLAYING AGGRESSIVELY TO DOUBLE UP IN A SHORT TIME-FRAME – we never should have exceeded the max position loss of $1,000, which is 20% of a 20% ($5,000 of a $25,000 virtual portfolio) full position allocation.  Make sure you read our Strategy Section as well as the lined article on scaling in and comments because that's what this exercise is all about!  

Another very important thing I want to point out here is that we are now, 6 weeks later, at the EXACT spot on the S&P (1,293) that the channel we were tracking in the November 27th article predicted (see chart there).  Also in that post, we discussed that our 3 most important Fibonacci levels are: 38.2%, 50% and 61.8% – 1,293 is that 61.8% line off the 2008-2009 consolidation at 800 and boy did they try to jam into that one on Friday!

The actual Fib number would be 1,294.40 (I'm not very good at adjusting the lines on charts but I am good at math!) and the high of the day on Friday was the S&P's close of 1,293.24 so the big, giant breakout for the S&P is going to be next week.  We have stayed bearish in the 1050P because, with our very aggressive goal and short time-frame, we had a much better chance of doubling up on a pullback than we did of getting a gigantic rally but, as you may have noticed, a gigantic rally is just what we have gotten so far.  

When the market goes against you, sticking with unhedged positions like these is kind of like surfing – we roll and adjust to try to stay on top of the wave that goes against us and we hope that it breaks before we wipe out so we can get a good ride down.  We added $200 closing out the XRT's with a whopping .10 profit and that brought our virtual total up to $30,937 and we already knew the market was kicking our ass on the 3rd so our remaining moves were mainly about trying to get out from under $4,000 worth of unrealized losses from our remaining 3 positions.  

We caught a big break on the USO Jan $41 puts on the 4th as well and got out of all 40 of those at $3, which was a nice .50 gain and that added $2,000 to our total ($32,937) and, more importantly, put cash back in the virtual portfolio which left us able to adjust our other positions.  A big mistake people make in a virtual portfolio is not taking winners off the table as they try to "make up for" the losers.  Notice that what we do here is try to turn each position into a winner, one by one, and we're happy to get back to cash around even on recovered positions – as that cash then lets us make adjustments on positions that "haven't won yet." 

This is a core tenant of the Strategy Option Sage and I advocate and you can read all about that in our Education Section or, if you want to brush up on your trading basics, Sage waives the $2,995 sign-up fee at Market Tamer for our Members and also gives a free two-week look at his $149/month training site.  If you are a fast reader – that's a hell of a deal!   .    

On Wednesday, the 5th, at 12:57, my comment to Members was:

We’re unfortunately back to Monday’s highs, where we pressed those bets in the 1050P but the logic is the same – we are taking a last stand here and a lot happier about it now that we booked a profit on USO and got out even on XRT so we actually could even stand to press them some more now that USO isn’t weighing so heavily on us. At the moment – best to watch and wait to see what they can make stick. Certainly by Friday we’ll want to throw in the towel if things don’t improve (for us, not the market).

Oil/Mampcs – Yes, they must get those 310Mb worth of contracts out of Feb by expiration day (21st) so they have 12 sessions to dump 280Mb of oil into the longer contracts and Feb is already pretty full. Hopefully oil gets back to $92 and we can jump back in on USO puts. Dollar down to 80.35 so they may be able to pull it off. 

On Thursday, our bearish premise was given some legs when reporting retailers had 14 misses against just 11 beats (leading to deep regrets on the XRT short!)  on Friday we decided to risk the weekend but we didn't like the open on Monday (from a bearish perspective), the 10th and my comment from the 9:48 Alert to Members was

I’ll be kind of surprised if we break down here. Volume is kind of low and we have easy note auctions (3 & 6 months) to celebrate today and no real new until tomorrow, which is mostly the already ignored Retail Weakness. So let’s expect 11,600 to hold along with S&P 1,260, Nas 2,675, NYSE 7,900 and RUT 775 but keep in mind that NYSE 7,935 and RUT 800 are goals for Breakout II so we continue to trend dangerously close to a 2nd (NYSE) and 3rd (Dow) red line on these little dips. When you begin to test the bottom of a range more often than the top – worry more about breaking down…

Still, it’s "Buy the F’ing Dips" until it doesn’t work anymore and AAPL is still fueling the Nasdaq all by itself and, at over 20% of the Nas, it can do that if it wants to. I like the DIA Jan $116 calls at $1.10 for an upside momentum play above Dow 11,600, with as stop below that line, maybe at $1.

The Dow never did go back below 11,600 and those calls are up 80% from the $1 entry we got at 10:15 but, unfortunately, I did not make that call officially one for the 1050P – it was just a general call to cover with the DIAs for the upside.  At 10:15 we also called the bottom with a cover on the Mattress play by selling a full cover Jan $115.75 puts for $1.15 against the June $118 puts, which were $6.90 at the time.  As of Friday, the June $118 puts have fallen to $5.50 while the short puts have dropped to .20.  This allows us to roll up to the June $120 puts (a move I suggested on Friday) combined with the sale of the $117.75 puts at .95 to hold us over the weekend.  

I'll just do a quick commercial here for balance.  BALANCE IS GOOD!  A couple of people have talked about losing money by being too bearish and, although we are 100% bearish in the 1050P, it's a hyper-aggressive virtual portfolio aimed at making a double in a very short period.  That you can't do with balance but, even so – if we weren't playing with 200% profits from when it was $10K, even in a fun virtual portfolio I would not endorse this kind of activity!  

In an actual virtual portfolio that is not just a "fun," gambling part of your account, VERY bearish should be 70% bearish and VERY bullish should be 70% bullish and otherwise, you should be 60% one way or the other.  That way, even if you are VERY bearish and take and extreme loss, like the 20% loss on the June DIA puts and they were 70% of your virtual portfolio (14% loss), then the 80% gain on the long side on 24% of your virtual portfolio would make up for it (24% gain).  Or, let's break this down to a $25,000 Virtual Portfolio example:  Let's say that the DIA Mattress play was a double full position, taking up 40% of the virtual portfolio because we went to 20% and kept losing so we doubled down and ended up with the June $118/Jan $115.75 spread.  

The net loss on that position was "just" .50 or about $1,000 on 20 spreads (an $11,500 allocation).  Even if we had made only an initial entry on the DIA $116 calls at $1 to offset with a 20% of $5,000 allocation to offset our extremely bearish position – that $1,000 would have returned $800 and offset a good portion of the bullish positions losses.  See, hedging is GOOD!  That example is 90% bearish and it still beats the hell out of 100%, doesn't it?  When we concentrate on selling premium, we make money if the market goes up, down or flat unless it goes way up or way down and, in those cases, if we are 60:40 or 40:60 – there is very little damage no matter what the market does and WE LIVE TO FIGHT ANOTHER DAY!  

I don't know how many ways I can say this to people but making 10-20% every year for 20 years is much, much better than the outcome you would get even if you made 40% and lost 20% on alternating years.  EVEN if you make 40% two years in a row (196%) and then lose 20% on the 3rd year (156.8%), you are blown out by a guy who makes 20% 3 years in a row (172%) and you are barely ahead of someone who makes 15% 3 years in a row (152%).  Unless you are NEVER wrong – HEDGE!!!  Even if you have NEVER been wrong – imagine that one day you might be and HEDGE!!!  

Also, keep in mind we are talking about a year's performance but DURING the year, you are doing this to yourself trade by trade if your habit is "going for it" rather than following sensible strategies that are aimed at generating modest profits on a trade by trade basis.  Our 2011 virtual portfolio will be a a good example of this as we try to turn $25,000 into $100,000 over the year.  While that seems ambitious, we have taken $10,000 to over $30,000 in this virtual portfolio and this has been a really rough year!  

Getting back to the current virtual portfolio:  Tuesday the 11th we had the 20 DIA Feb $119 puts at net $5.30 ($10,600) and the 20 QID Jan $10 calls at net $1.30 ($2,600).  I liked the USO Jan $39 puts at $1 again so we added 20 of those ($2,000) to the virtual portfolio in the Morning Alert.  By 11:52 we took a DD at .80 for a .90 average ($3,600 for 40).  We were aggressive on the oil shorts because I just could not see how "THEY" could hold the NYMEX up based on the barrel count we were tracking.  My comment at 2:53 on Tuesday was:

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.

Again we see the dangers of being a fundamental trader.  We tend to stick to our guns while the technical guys are bailing and, if you ALSO trade technically, this can set up some very deep conflicts that make it very hard to ride out moves that go against you.  In addition to that, you have idiots on TV telling you oil is going to $100 or China is increasing consumption or pirates have seized a tanker in Somalia or whatever the day's excuse is for the wriggles on the chart.  

My fundamental note on the afternoon of the 11th on USO was: "Note 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."

On Wednesday morning the market popped yet again and we decided to "go for it" by pressing our bets on the Dow, adding 20 more Feb $119 puts at $3.10 for a $4.20 average on 40 ($12,500), now tying up a good portion of the virtual portfolio.  We wanted to get 1/2 back out even on those and all out for $1 on the QIDs but that never happened.  The USO 40 Jan $39 puts at .90 were rolled for .62 up to the $40 puts, putting us in for net $1.52 on those ($6,080) and we were very lucky to get out Friday at $1.60 ($6,400) leaving us with $33,257 of virtual cash against (as of Wednesday) $14,300 of DIA and QID positions.  

Unfortunately, we were over-committed on the Dow so we couldn't also overcommit to the USO puts when I picked them as a general selection on the morning of the 13th at $1.05.  The only other changes we made for the week was buying time on our QID Jan $10s by spending another .15 to roll them to the Feb $10s and doubling down to 40 at an average $1.15 ($4,600) and, because we are now inflexible on both of those positions (as we're not going to DD to 80 of anything!) we covered with 40 short DIA Jan $117 puts sold at .95 to, as I said in the Morning Alert "hold us over the weekend."  That gave us another $3,800 cash (and BALANCE!) to work with and, if next week begins like last week – I will not forget to include another upside play on the Dow in the 1050P!  

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  1.  Phil, I am in a similar position with SQQQ.  I just can’t believe the runup in the nasdaq, but was in the Jan 35, rolled to the mar 30 am down 30% and need to decide whether to roll again and this time double down.  Timing may be good with Apple reporting Wednesday, but do they ever miss?  Thoughts?

  2. Phil, An opportunity awaits us, PETS will announce its Q3 on Monday, MLK Day, how will the Street respond on Tuesday? 
    PETS has some 30% Short Interest and a 5 to 1 put/call ratio – sure looks like it should dive, however they are profitable with earnings growth reduced to ca. 12% annually now (and poor Nov/Dec weather favored mail order businesses). Also, they have been buying back shares having announced a third $20M buyback on November 1st (could reduce float to 21M now) and they instituted a 3% dividend which should go X-div in early February.
    Just before the quiet period began some ten trading days ago, PJ and other experts downgraded PETS leading to a $18.5 to $15.50 fall  -  there is plenty of room for it to recover or fall further (PJ says $12.5). Want to weigh in, hmmm?

  3. Phil
    Looking to follow this up from Friday’s chat – can you clarify:

    My SDS hedge is getting away a bit and I’m looking to adjust – I have the Mar 24 calls with the 33′s callers sold, and short the 29 puts – looking for a good adjustment to move to, thanks,
     "On the put side, you’re not so far out so just keep an eye on the roll to the 2012 $20 puts which should be better than even so as long as you can do it for even, you can hang onto the Marches to give them a chance."
    Can you clarify? 

  4. 94% Of The S&P 500′s Performance In 2010 Was From Gains On Just The First Trading Day Of Each Month

    Submitted by Tyler Durden on 01/10/2011 11:03 -0500
      @font-face {
    font-family: “Cambria”;
    }p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0in 0in 0.0001pt; font-size: 12pt; font-family: “Times New Roman”; }div.Section1 { page: Section1; }
    Weekend musings: Possible reasons for 1st day run up. When I was at LEH we used to receive huge (Billions) index adjustment programs from Barclays Global – (now Blackrock) to adjust positions on the last trading day of the month at the close. This was fixed income, but it may affect the market. Funds typically have buy orders from client’s Automatic 401k contributions on those days as well. It is up to us to figure out the bots programs.
    Market & blinding snowstorm:  I recently have had an experience with this in the middle of the night near the middle of North Dakota. Driving to Montana after Xmas, a semi passed us and cut back into our lane. It put up a blinding snow wake that lasted at least 10 seconds. I totally lost all perspective and tried to slow down without skidding. I then felt the car going onto another surface. When the cloud cleared, we saw the road to our left- turns out that was the oncoming lane and we were in the median. The snow was so deep; we could not open the doors on the passenger side. At least we had Onstar and cell reception, but there were no tow trucks available for hours. We started digging with the tops of cookie tins. Necessity is the mother of invention! A truly good Samaritan named Jonathon
    Stopped and helped us with shovels. He said had passed us and turned around at the next exit, which took 10 minutes to come back. He told us he thought that he would not leave his best friend on the road and would not leave us either. We started making some progress, and then another truck stopped and pulled us out with a huge chain. What justice, and it improved my overall feeling towards man & truck drivers.
    Phil: I will be teaching in schools with Best prep- the stock market game. I will be able to manage a $ 100,000 portfolio along with the kids- Stocks only. Do you
    Have any suggestions? I also am looking at setting up a car fund for my son who
    Will be turning 16 in May. The performance could affect the quality of his ride.
    SVU: the same son goes to school with Craig Herkert’s (CEO) son. I have met him a few times and he is really nice, normal (and busy) guy. His experience with Walmart should help them. He does have a lot work to do; The Albertsons acquisition will not help them.
    Thanks for all your insight:

  5. Phil, 
    I am still on the NFLX play: Jan 190 Puts (bought for 12.50, now 2.80) Short Jan 165 Puts (sold for 2.30 now worthless) and the Feb 165 Puts (Sold for 7.60 now 3.60). So I am down $3.50. Would the play to be in a similar position as was the original one, to roll to the Feb 95 Puts for $12, and roll the Feb 165′s to the 170′s (+$1) and sell the March 170′s for $7.50? So I would be in it for net $3.50 correct? (instead of the $2.60 originally). 

  6. Sorry the combined position with the carryover loss would be $6.10…  So in essence max profit available would be $3,600 if in March NFLX is at exactly $170. Breakeven (for combined play) would be 183.90? 
    You think is a reasonable roll? or any better suggestions

  7. Can’t wait for the run on Qualcomm now… Just rumors waiting to be confirmed though!
    The new iPad will feature a dual GSM / CDMA chipset produced by Qualcomm and will mark Apple’s shift away from Infineon as its chipset maker to Qualcomm for all of its mobile devices. It’s not clear if the chipset being used will be based on the company’s EV-DO / HSPA Gobi variety or an entirely new design. Presumably, the strength of the new dual-mode chipset is that it will allow both Verizon and AT&T to offer the iPad simultaneously. 

  8.  Phil,
    Great work in the 1050P
    & for your amusement :

  9.  Dear Phil: I’ve become convinced that munis represent an excellent buy, based purely on my perception that Congress will change the law preventing the Fed from bailing out  threatened or imminent muni defaults.  Rather than argue the case, which is that the sums required appear to be chump change [$140 B?] compared to aggregate bank bailouts [$12 T], much less ask for your endorsement, I will confine myself to asking — how best to put it on?
    Tradable muni funds seems to be very thin on the ground, and options on the few muni ETFs that have them are thinly traded.  Given that HYD, the junk muni fund, priced at $27.3 is currently yielding 9.67%, with no options outstanding, would presumably be the largest beneficiary of a bailout [again, my own reasoning, unleavened by wiser heads] — maybe just buying the damn things in sufficient quantity is the better move, since holding them for the rest of the year gives me a 9% cushion against loss.
    My question, then, is — how would you suggest I approach scaling in?  The time frame on my hypothetical Congressional bailout is quite imponderable — a strengthening dollar might take heat off of the munis — but if it’s going to happen, I would expect it this year.  And if there are options, or option strategies, that might take better advantage of my foregoing assumptions — for which, again, I would hold you not at all responsible — any comments would be helpful.  Thanks, ZZ

  10.  Good afternoon!

    Chicago game is a blowout already so I’m taking a break.  Should have listened to my daughter, who told me it was "totally obvious" that there was no way a Seahawk could defeat a Bear.  I asked her how she felt about a bull/bear matchup and she gives the bears a very good chance "as long as they don’t wear anything red, because then it would be all over as the bulls go crazy when they see it."   Out of the mouths of babes…

    SQQQ/Trad – It’s not about AAPL missing but about "can they exceed expectations?"  They are up 10% more this month on top of a 12.5% run since last Q (from $280) on expectations that they hit $5.38 in EPS for the Quarter, which is up from $3.67 last year (46%) when the stock was at $200.  So the stock is already up 74% on a 46% gain in EPS (and they sold off after earnings last Jan), which means they are running a bit ahead of themselves so ANY disappointment is not likely to be taken too well, whether it’s soft IPod sales, lowered guidance due to memory supply constraints or any sort of decrease in margin.  I wouldn’t bet on those things happening because AAPL is the greatest company on the planet Earth but – even with all that going for them, at the moment 2011 is projected to hit $20 EPS, up from $15 last year (33%) and 2012 is pegged at $23.15, up a mere 15% – that is slowing growth and, as we often point out re. extrapolating – AAPL is NOT priced for slowing growth and, also as I have pointed out – unless they come out with cars or TVs they can sell to the top 10% over the next 5 years – they soon become a company that will go back to refreshing the same old things, fighting for market share with everyone else.  

    PETS/Albert – I agree, probably undervalued here.  I wish you had said something earlier as I like them for a bullish flyer.  They have very low expectations (.20) against .25 last year and the whole year of 2011 is pegged as 15% down from 2010.  They did miss the last 2 Qs by 15%, hence the short-fest but I think the .03 lowered expectations based on last Qs statement is going to be hard for them to miss by another .03.  

    SDS/Deano – I think I thought you had the $24 puts, not the $29 puts.  While it’s still a long way off, you need a 10% drop in the S&P to get to $29 and that’s asking a lot.  The March $29 puts are $6.50 and use about $5 in net margin – you can’t do better than that on a short put so I would just roll down to 1.5X the March $24 puts at $3.05 and, if you are lucky enough to get rid of those, then sell something else for $3 later.   This all goes back to low VIX making for poor rolls.  There is no major hurry for this, you might want to give it until the week after expiration to see if we get our sell-off. 

    First Day/Randers – Yes, that’s one of the great market scams of all time.  They just deduct money from people’s paychecks and throw it into the money using indexed funds with telegraphed entries – that’s why retail investors get eaten alive by "smart money" and, of course, the retailers are precluded from giving money to active fund managers "for their protection"!  What a crock!  Thanks for insight into the fund World – we really appreciate first-hand accounts from you guys who have been in the trenches.  As far as a $100K Portfolio – if no options I’d go for dividend payers (4% or more) as well as story stocks.  If there’s on thing to teach kids it’s to be patient and buy value when the opportunity comes.  What they should be doing is looking for what stocks were the worst performers each week and then find out WHY they went down and decide which ones seem ripe for recovery.  

    As a car fund for May 16th, I think that’s expiration day but not many may contracts for May yet.  If you are willing to buy a Camry’s worth of TM ($30K) at $75, you can sell 4 2013 $75 puts for $6.50 ($2,600) and buy 12 F 2012 $17.50  calls for at $3.25 and sell 12 June $20s for $1.10 is net $2.15 ($2,580) and hopefully they can roll into a good-looking $5 spread (with the 2012 $22.50s, now $1.35 or even the $25s, now .85) and you can feel confident enough to kick in an extra $6K on the new car.  

    NFLX/Amatta – That’s not going well, is it.  50%.  50% is the point at which you either kill a vertical or roll it.  If you lose 50%, you can make it up next time with a 50% win and, since most of our verticals make 100% (or I’m not very interested) then you only have to be right 1 out of 3 times to be even.   Once you lose 66%, you then won’t be even, even if you win 50% next time.  That will then cause you to wait too long "trying to get even" when you should damn well be taking 50% wins off the table most of the time.  Thank goodness for the other leg or this trade would have sucked.  

    You had a net $10.20 Jan $190/165 bear put spread and, had you cashed that at $5.10, you would have a net $2.50 credit on the short Feb $165 puts, just waiting for the premium to drain out of them.  Also, the original play from 12/22 was:

    So, how about this idea for NFLX:  Buy the Jan $190 puts for $10 and sell the $165 puts for $2.10 AND the Feb $165 puts for $7.30.  That’s net .60 on the $25 spread and you really don’t take a hit until around $153, assuming you even get hit in Jan.  If the Jan puts expire worthless but NFLX is still over $178 (down $10) we can assume the Feb $165 puts will be worth about what the Jan $175 puts are worth now ($4.40) while you collect $12 and either buy back the putters or let them ride.  

    Those Jan $190 puts topped out at $18.50 on 1/3 and the $165 puts were $3.50 so you had $15 on that trade and you KNOW that your premium will expire on the 21st – IT’S A FACT!!!  Net $15 out of $25 max possible and, had you pulled it off the table you would be $15 ahead on the short puts.  THAT would have been a good time to do something or perhaps at $12.50 or $10 or $7.50 or $5 but you wait until your net on the spread is down to $2.80 to decide what to do???  Come on Amatta – this is no way to trade!  If you can’t be happy enough with 50% gains on verticals to take them off the table then this is going to happen to you all the time (and it seems to).  

    You need to cut down your number of trades significantly until you are able to clearly articulate you goal for every single position you have and actively manage the trades to take profits off the table and roll or DD BEFORE you have significant losses.  I put up that chart last weekend that very clearly illustrates that once you lose more than 25% on a position, you then need to gain too much back going the other way to make success likely.   You need to study that until you BELIEVE it… 

    Meanwhile, what is there to do with this trade?  Not much at this point, you spent net $2.60 on the spread (which was $2 more than you should have) and you allowed the only place you were able to make profits evaporate.  Rolling is a whole new trade – the best you can do here is take the net $2.80 (hopefully better if we get a dip) off the table on the Jans and hope the Febs expire worthless so you are out even and hopefully a little wiser next time.  

    Thanks Ekor!  Contest looks like fun too.

    Munis/ZZ – Is it really going to be that easy to change the laws?  I’m a little dubious but I do agree that all stops will be pulled to prevent defaults.  HYD is a very good choice and only fell as far as $23 in March of 2009.  It looks like 5.89% to me, not 9.67% but maybe Yahoo is wrong (wouldn’t be the first time) or maybe you are looking at the tax-equivalent yield.  They have no options so not much to do with them but dollar cost average over time so let’s look at a couple of other possible funds to play as other people have asked the same.  

    MUB is a basket of 1,100 municipal bonds with a 3.6% dividend/yield and they do have options so you can buy them for $96.26 and sell the May $94 puts and calls for $6.50 for net $89.76/91.88.  They bottomed out at $85 (outside of a spike) in 2008 and have generally been very good about holding $90 but if you want to scale in slower, then you can risk being assigned 1x at net $95 by selling the Aug $95 puts for $5 and buying May $90/97 bull put spreads for $5 and that can give you back $7 if the outlook for munis improve and you could even decide to buy the stock if it goes over $100 and your net would be $93/94 into the Aug puts (but you could sell more calls to lower it).  

    TFI is a smaller set of bonds (301) with a 4.6% dividend and you can buy them for $21.03 and sell the Aug $19.86 calls for $1.80 and the $21.86 puts for $1.70 for net $17.53/19.70.  If you intend to go long-term, holding the underlying and rolling the short contracts, this is a nice way to play.  

  11.  Thanks, Phil, very helpful. I’ll average in, playing the winds as best I can.  I doubt the drop is over, but Bill Gross is buying [not High Yield, I wouldn't think] which is what caught my attention.  In respect of yield, I saw no reference to tax equiv. on that 9.67% numbers.  If that turns out to be a tax-exempt number, with rates @ 35%, it wouldn’t kill me to end up holding ‘em for awhile.
    Here’s Online WSJ’s link:
    I’ll check out the options mentioned, and come up with a plan. (-8

  12. {Off topic}
    Does anyone have a URL for the boy who can do so many things with a basketball? 

    Meant to earmark it but did not.
    thx in advance for any help

  13. Flip – i was wondering where everyone was. Just me & my laptop watching the jets get nervous.

  14. So the Shanghai index ($SSEC) closed under the 200dma today, and India’s index ($BSE) is right at the 200dma. The markets of the world’s strongest two economies are suggesting that the ridiculous melt-up in the US markets in the last 7 weeks (and much longer really) is wrong and will be reversed soon. Or if not, the best way to play the next leg up in the global markets is to be long China and India.  I think the SPX sells off (just like last January) and I’m positioned for that. But, I think my hedge on the long side is going to be China and India calls. I don’t like FXI much as it doesn’t track China that well, but it is the most liquid and has options. Anyone have any ideas for India?