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Testy Tuesday – Dow 12,000 or Dow 11,500?

Are we "still too heavy"?

That was what I said about valuations back on May 4th, when we set new watch levels.  $96 was our goal on oil, we hit that and went long yesterday.  Of course, in our upside-down Wonderland Market, falling oil prices are somehow BAD for the Transports and we thought we accounted for that with our 2,448 target but they failed that last week and fell another 125 (5%) since then.  Similarly (easier to write than say), the Nasdaq blew through our 2,700 line and bottomed out at 2,639 yesterday (-2.25%) but the Russell has been the biggest surprise, leading us all the way down to 773 in yesterday’s action before bouncing back to lucky 777.

As we expected yesterday, the Dollar was sacrificed on the altar of keeping the markets from going to Hell in a handbasket – dropping all the way from 75.20 to 74.80 (0.5%) which gave us only a flat market but the 74.60 line held in overnight and we’re back to 74.80 and now the pre-markets are wondering why they gained 0.75% in overnight trading.  Oil popped all the way back to $97.80 before failing spectacularly back to $96.50 but we have stayed on the sidelines so far, waiting to see if we can establish a new (hopefully lower) range to trade in. 

We did take a poke at higher oil prices with the USO July $39 calls at $1.10 and they finished the day right at $1.10 so very dull so far but we figured oil might be good for a pop into Wednesday’s inventories.  We also shed most of our bearish bets on yesterday’s dip and flipped fairly bullish but we haven’t done a lot of bottom fishing yet as our main plan is to use a fake market rally to cash out the longs we have left and flip short into the holiday weekend.  As the moment though, I have noticed that the Dow has been holding up much better than it’s peers and we have that lovely 12,000 line to use as a stop so let’s construct a short hedge that pays big bucks below 12,000:  

Notice how the Dow is holding up better than the other indices.  Part of that is a flight to safety as several Dow components are considered "safety stocks" like KFT, MCD, JNJ…  But, in the long haul, they all fall down eventually so we can make a downside bet on the Dow that simply stops out over the 12,000 line with the DIA July $119/116 bear put spread (you buy the $119 puts and sell the $116 puts) at .95.  That spread, by itself pays $3 (up 215%) if the Dow is below 11,600 on July’s expiration day (15th) but we can greatly enhance the returns by picking a Dow component we REALLY want to own and selling a short put to offset the cost of the spread.  

The great thing about hedging with the short put offset is that, if the Dow does NOT go lower, it is doubtful that our short put Dow component will cost us money so our losses (on what is meant to be an overall protective hedge) is limited.  We already played an AA spread yesterday so that’s a good one to start with (also alphabetically) and the July $15 puts can be sold for .63.  That lowers our net on the bear put spread to .32 with an 837% upside on a Dow drop.  On the Downside, we end up owning AA at net $15.32 (as we count the loss on the  put spread) but, if we make $2.68 on the spread along with the .63 we collected for the short sale, then our entry on AA is down to net $11.75 – 22% lower than the current price.  A couple of other fun Dow put sales are:  

  • BAC 2013 $7.50 puts at .60 – collect $600 (assuming 10 sold), net margin (may vary by broker) $750. 
  • CSCO Jan $14 puts at .92 – collect $920, net margin $1,900.
  • DIS July $37 puts at .55 – collect $550, net margin $6,200.
  • GE 2013 $15 puts at $1.40 – collect $1,400, net margin $1,400. 
  • HD Aug $32 puts at .82 – collect $820, net margin $5,150. 
  • HPQ Jan $31 puts at $1.60 – collect $1,600, net margin $3,100. 
  • INTC Jan 2013 $20 puts at $2.71 – collect $2,710, net margin $2,700
  • MMM July $87.50 puts at .71 – collect $710, net margin $14,150.  
  • MSFT 2013 $22.50 puts at $2.75 – collect $2,750, net margin $3,100.  
  • VZ 2013 $35 puts at $5.10 – collect $5,100, net margin $6,318
  • WMT Jan $50 puts at $2.05 – collect $2,050, net margin $7,750.  

Keep in mind, when you sell 10 puts, you are committing to BUYING 1,000 shares of the stock at the strike price so make sure you REALLY, REALLY want to own the stock at the net entry!  Notice some short sales give you more bang for your margin buck and I can’t, for example, imagine anyone who wouldn’t want to have 1,000 shares of GE at net $15 as a long-term hold, so sales like those are a no-brainer – if you have room in your long-term virtual portfolio.  Others, like DIS, we make a bigger margin commitment because our chance of assignment is higher (DIS is now at  $38.37) but we also know we can ultimately roll the July $37 puts to the Jan $30 puts (now .75) so we pay the higher margin on the assumption it will be held open for a short period of time.  

If none of the above put sales appeal to you, then you are just super bearish and you should just take the bear put spread with a reasonable stop.  Heck, it pays 315% back on your money so if you slap $3,500 down on the spread and the Dow falls below the 11,600 target, you get back $11,025 – THAT’s NOT BAD!  So a reasonable amount with a reasonable stop (using that 12,000 line and perhaps a stop-loss of $1,000) keeps the risk down vs. the potential $7,525 reward.   Don’t forget, when we’re hedging – it means we have bullish plays we’re protecting and hopefully they make more than $1,000 if the Dow heads back up.  

I wanted to get that out of the way first thing BECAUSE we went bullish and it’s good to have a hedge – in case we are wrong.  Also, any of those short put plays make nice, naked, income producers and are a great way to initiate a position in any of those stocks you may be interested in.  If you have $500,000 in cash sitting on the sidelines and you’re not sure it’s a good time to jump into the market, selling those Dow puts generates $19,840 against $55,318 in margin (35%) and you can very simply protect against a drop by buying DIA puts if the Dow heads below 12,000 or 11,950 or whatever line violates you comfort zone.  These are the kinds of trades we do in our Income Virtual Portfolio every month.  

We have May Retail Sales, which should be better than -1% expected ex-auto but with auto, maybe worse.  PPI is doubtful to be down to 0.1% although I guess we did pull back a bit off the crazy April commodity highs and it’s all relative to the prior month so maybe not so bad looking there either.  Business inventories in April (which did have weak retail sales) is very possibly a build and people still think builds are good (on the assumption that they will be sold) so, on the whole, we could have a positive data day tomorrow. -  My predictions for today from yesterday’s Member Chat

8:30 Update: I love it when a plan comes together!  Retail Sales ex-auto were UP 0.3% and down 0.2% including auto sales.  PPI was up 0.2%, as expected with even the core PPI up 0.2% and we’re waiting on Business Inventories at 10.  My other prediction for the day was that some way, somehow – "THEY" would kill the Dollar and that already happened last night with the usual suspects like Bill Gross and Jim Rogers taking their whacks at the Dollar as these are men who are happy to work towards the destruction of the life savings of 300M Americans as long as it pays enough to gas up their Gulfstream.  Think about it – when’s the last time CNBC asked a poor person what they thought about anything?  

Assuming everything is going according to plan, Greece should be "fixed" again tomorrow and that will pop the Euro over $1.45 and the Pound should at least test $1.65 to give our market and extra boost as we gather momentum into expiration day.  Our goal for Friday is to get back to those "Must Hold" lines at Dow 12,200, S&P 1,300, Nasdaq 2,740, NYSE 8,280 and Russel 815.  I had commented to Members at 1:40 in yesterday’s chat that "I smell a bottom" and my after-hours comment on levels was:  

Levels – Not a robust looking chart but we pretty much held Friday’s lows with the Nas and the RUT weak on the SOX downgrade so we can excuse them for today.  The Nas is right on that -3.75% line, which would be the bounce zone off the 10% drop from the top.  The RUT’s line would be about 785 so they really need to get there tomorrow somehow. 

We’ll be watching to see if we can take out that key level today but it’s all about keeping the Dollar below 75 and, to do that, the Yen will have to sacrifice it’s current 80.54 level while the Euro needs to hold $1.44 and the Pound $1.64.  The data wasn’t that good – it was just good enough to stage a rally – which is good enough to give us a cheap entry on our DIA hedge so we are happy, happy, happy this morning!  Assuming they can jam the Dollar back down to 74.50, we’d be looking for 1.25-1.50% gains in our indices, which is just what they need to look better for the TA people.  

It almost seems silly to look at the news in such a blatantly manipulated market but it is kind of fun to see what excuses they will be using to justify this morning’s rally:  

China had some nasty inflation, as we expected yesterday, at 5.5% officially for May.  That’s the fastest (admitted) pace in 3 years.  This makes it more likely the Central Bank will tighten and helps keep the Dollar down on the theory that China will have to float the Yuan to keep inflation in check.   China has already hiked their reserve requirements to 21.5% for large banks and 19.5% for smaller lenders.  Over in Japan, the BOJ kept their lending rate unchanged at 0-0.1% (and wouldn’t you feel ripped off if they are charging you 0.1%?) but they did raise their economic outlook saying "Japan’s economy continues to face downward pressure, mainly on the production side due to the effects of the earthquake disaster, but is showing some signs of picking up.”   Ashley Davies contends the sharp move higher in equities following the Chinese data last night means the market was more concerned about economic slowdown, which hasn’t materialized. 

India also had a lot of inflation, 9.06% over there for May as India still includes food in their inflation figures – something China recently chose to de-emphasize for some reason.  Expectations are for a Central Bank rate hike on Thursday.  Speaking of hikes:  Greek (17.5%), Irish (11.4%), and Portuguese (10.8%) 10 year sovereign yields are all on the rise today, sitting at record highs. Spain and Italy are lower by a hair.  

Of course such awful news brings on DOCTOR DOOM and Professor Roubini has not been shy about his opinion thatThe muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the Union. If this continues the euro will move toward disorderly debt workouts and eventually a break-up of the monetary union itself as some of the weaker members crash out.”  Sure we may have heard it all before (and it was totally wrong last year) but it is summer re-run season, after all….  

As I said, we flipped bullish yesterday as we had a very nice sell-off and we caught it right and we’re not greedy.  Now we’ll see what kind of bounce they can put together but – if it’s not a REALLY big on – we’re going to lose interest pretty quickly and get back to mainly cash, teeing up for a possible collapse in July.  Tomorrow we get the CPI, which should be in-line with the PPI and also Industrial Production at 9:15 and, of course, our oil inventories at 10:30 so plenty of fun and games ahead of Thursday’s job losses, Housing Starts (DANGER!) and the not-so-fabulous-lately Philly Fed Report.  Then Friday is expiration day so they really need today to get the momentum going if they are going to clear Thursday’s hurdle and take us into Friday back at our Must Hold levels.  

Boy, this is exciting!  



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  1. Oil Lines
    R3 – 101.97
    R2 – 100.59
    R1 – 98.89
    PP – 97.58 (we are here now)
    S1 – 95.81
    S2 – 94.43
    S3 – 92.73 

  2. FAS – got perky this morning

  3. So would this be a huge one day rally where we start getting short again, or does it continue for a few days?

  4.  Good Morning Phil,
    The DIA 119/116 Bear Put spread is for July – correct?

  5. Dollar Lines
    R3 – 75.74
    R2 – 75.53
    R1 – 75.17
    PP – 74.96
    S1 – 74.59
    S2 – 74.38
    S3 – 74.02
    Also, there is a strong Fib line around R1 that has acted as support and resistance over the last month or so. 

  6. Or they sell the rally  . . .

  7. Test

  8. Good morning!

    So far so good across the board.  XLF strong but not too strong and oil up at $97.60 (USO $38.50) and the Dow at 12,050 already so we don’t need to worry about the bear side of our hedge (see post above) unless the Dow fails to hold 12,000.  

    Keep in mind I like ALL those short put plays from the morning post – they can all be used to generate money to pay for hedges we may need later or as stand-alone short put plays as they are all lovely companies that we’d like to own long-term, even if they do drop another 20%.  

    It’s all about the Dollar, of course, now 74.85 and we expect them to be able to knock it down 0.35 to 74.50 and that should get the indexes up about 1.5% and then the trick is to hold it.  Of course, if the rally to get the indexes back up is all based on keeping the Dollar down – then we will wait for them to announce that Greece is "fixed" and let the Dollar get to a low and let the indexes move up and  then we will dump our longs, get to cash and take some aggressive shorts because that is a move that is not very likely to last!  

    The RUT already hit my 785 goal and the volume is really low so either we’re going much higher or that was just a BS pre-market move they can’t sustain.  We’ll find out shortly.  It’s VERY IMPORTANT that the Nadaq (2,672 – not there yet) and the NYSE (8,073 – 40 over) hold their 2.5% lines while they wait for the RUT to catch up.  That means the IWM June (Friday) 78/79 bull call spread at .60 are still a fun play with a 66% upside in 3 days if IWM can make it 20 cents higher.  You can offset 2 of those with the sale of 1 July $75 put at .96 for net .12 on each $1 spread that’s already .80 in the money.

    Tuesday’s economic calendar:
    7:30 NFIB Small Business Optimism Index
    7:45 ICSC Retail Store Sales
    8:30 Producer Price Index
    8:30 Retail Sales
    8:55 Redbook Chain Store Sales
    10:00 Business Inventories
    2:00 PM Bernanke: ‘The Debt Ceiling, Fiscal Plans, and Market Jitters’

    At the open: Dow +0.6% to 12025. S&P +0.59% to 1279. Nasdaq +0.88% to 2663.
    Treasurys: 30-year -0.8%. 10-yr -0.47%. 5-yr -0.32%.
    Commodities: Crude +0.04% to $97.34. Gold +0.08% to $1516.80.
    Currencies: Euro +0.09% vs. dollar. Yen -0.44%. Pound +0.1%.

    Market preview: Stocks are poised to burst higher, with S&P futures +1.2%, as a fall in May retail sales is softer than expected, May PPI drops from April, and China’s industrial production rises sharply. Treasury yields move higher. Nokia +3.4% after settling a patent disputewith Apple; Best Buy +7.2% as earnings beat forecasts. Later: business inventories, and Bernanke speaks.

    NFIB Small Business Optimism Index: -0.3 to 90.9, vs. -0.7 prior. It’s the third consecutive month of decline in small business optimism, with 1 in 4 owners still reporting weak sales as their top business problem; "the index makes clear that optimism is moving in the wrong direction."

    May Retail Sales: -0.2% vs. -0.3% expected, +0.3% (revised from +0.5%) prior. Ex-auto +0.3% in-line with expected, +0.5% (revised from +0.6%) prior.  

    ICSC Retail Store Sales: -0.8% W/W, vs. +0.4% last week.+2.4% Y/Y, vs. +2.5% last week.

    Redbook Chain Store Sales: +3.2% Y/Y vs. +4.2% last week. 

    May Producer Price Index: +0.2% vs. +0.1% expected and +0.8% prior. Core PPI +0.2% vs. +0.2% expected and 0.3% prior.

    Women are are more likely than men to make money in the market, a study from Barclays Capital and Ledbury Research has found. This reason is mostly because women don’t take as many risks, prefering to buy and hold.

    EU finance ministers are due to meet in an emergency session today to resolve differences, particularly between Germany and the ECB, over the burden bondholders should share in a €172B ($247B) bailout for Greece. 

    EU authorities are experts at buying time, says George Soros, but they’re doing little to actually solve the debt issues facing Greece, Ireland, and Portugal. Each day that goes by decreases the odds of a constructive resolution.

    It being peak tourist season, Greek air traffic controllers call off a strike planned for tomorrow, when lawmakers will be voting on new austerity measures. Protesters in Syntagma Sqaure plan to form a human chain around Parliament to prevent MPs from entering the building.

    Liquidating assets to try to pay down its debt, Italy’s attempted $3.5B sale of broadcasting frequencies may be a failure. Broadcasters don’t want to give up their share of the spectrum without more compensation, causing telcos – the likely buyers – to pull their bids.

    The Swiss government lowers its 2012 GDP growth forecast from 1.9% to 1.5% on concern about the franc. Exports account for about half of GDP, making the economy vulnerable to moves higher in its currency. The franc falls a bit vs. the euro and the greenback, but remains near record levels. 

    It was 6 months ago today that S&P warned Belgium faced a downgrade within 6 months if it hadn’t formed a new government. With none in place, is a downgrade imminent? Or has S&P reconsidered and decided a country with no government deserves an upgrade?

    Under pressure to set a date for his resignation, Japan PM Kan says he will step down after seeing through the passage of a disaster spending bill and renewable energy legislation. Public support for Kan has dwindled to 22% according to the most recent survey.

    Airlines bagged $5.7B in fees for checking in luggage and changing reservations in 2010, up 10%. The disclosure of the figurescome as airlines try to persuade the government to delay an upcoming deadline requiring easily accessible bag fee and fare information.

    The banking industry now believes it will probably take its battle over the new rule limiting swipe fees to court. Industry lawyers and executives reportedly are waiting for the Fed to issue a finalized rule on the Durbin Amendment; once that happens, they are likely to allege in court that the Fed has misinterpreted the law.

    Commodity giant Glencore’s (GLEN.L) quarterly profit nearly quadruples from last year, but falls short of expectations. Shares -3.2%today, are off nearly 5% from last month’s IPO. The company denies reports it is interested in acquiring miner ENRC.

    Honda (HMC) predicts its FY net profit (.pdf) will plunge 63% to ¥195B ($2.4B), way below analyst estimates of ¥375B. "It seems as though Honda won’t be able to recover in the second half, even though Toyota (TM) and Nissan (NSANY.PK) may be able to,” an analyst says.

  9. ancient evenings/zero  yah that quote on will was… i think.. from that gartman quote zero offense to the gooberae among us but i  doubt he knows much about the plantagenets (and their pepper lust)..and that WAS the ancient  greek for ‘no effing way’…and its true i think tricchet’s arrogance is exacerbating a bad situation…the germans are the backbone of europe if it werent for them having their balance sheet leveraged the euro would be a memory…
    market is going to finally rally off a v oversold condition..let’s watch the quality of the move and see if there’s a hint of a more durable bottom..magical sloppy buyer was like a monkey humping a football yesterday and will not like the early tepidness of the maybe he keeps buying up the xlf li

  10. Quiet this morning – everyone must be selling Dow puts!  

    Looking good so far with oil on the way to our $98.50 target.  After that – I do not know what it will do.  Of course we have to get through $98 first and that’s about $38.65 on USO.  Those July $39 calls are slow movers at $1.20 but I guess we should now set a stop out even at $1.10 – just in case we don’t make it over the line – that goes for the $25KP.  

    Also in the $25KP, those FAS calls shot up to .85 but that’s a lot since FAS is at $24.50 so we’ll sit tight for now and see what we have to roll to on Thursday.  

    Business inventories were up 0.8% and last month was revised up to 1.3% from 1% so not too negative but it’s a GDP component so we should get a knee-jerk pullback and we’ll see what happens AFTER that, which will be key.  

  11. phil i hate to put the juju on you before we have even shaken hands…but you may be th ebest short term oil trader i know…

  12. angelcur—I believe in juju so please do not say that --I feel the same but won’t say it  :-)

  13. Short again/Rustle – Well, my massive conspiracy theory is "THEY" don’t want to expire options more than 2.5% below last expirations, which takes us back to our Must Hold lines.  If we finish well above them, then I’ll be a more bullish, assuming then that "THEY" don’t want us finishing down for the Quarter as that may scare off the Retail Buyers so then I’d expect us to keep going up through the end of the month.  If they fail to hold us up through Friday, then I will think that reality is too much to fight against and "THEY" are on the run and we’ll get more aggressively bearish.  

    At the moment, it looks like they are winning with the Dollar smacked down to 74.75 again to get oil and the indexes over the hump and on their way to a nice 1.5-2% gain.  

    July is right Jasu – Thanks, I fixed it in the post.  

    Watch those financials – they are weak against the tide and below XLF $15 is a drag on the whole market.  

    Thanks Angel!  And yummm – spam!  

    Thanks for not mentioning it Savi!  8) 

  14. 74.71 – breaking below 74.70 is key to get us over the top!  

    SOX up 2%, more than reversing yesterday’s drop in the sector downgrade which does make me think Da Boyz were trying to force a bottom yesterday prior to the "rally".  

    10:00 AM On the hour: Dow +1.03%. 10-yr -0.52%. Euro +0.22% vs. dollar. Crude +0.61% to $97.89. Gold +0.13% to $1517.60. 

    April Business Inventories: +0.8% to $1,497.5B vs. +0.9% expected and +1% last month. Sales +0.1% to $1,185.6B. Inventory/sales ratio rises to 1.26 from 1.23 in March, and vs. 1.27 a year ago. 

    Testifying before the EU Parliament regarding his candidacy for ECB President, Mario Draghi causes the euro to lose a bit of air when he says a debt exchange for Greece doesn’t look entirely voluntary, giving fuel to ratings agencies who have indicated they would consider it a default. 

    Major economies, except the U.S., are losing momentum as the outlook for growth worsens in the EU and in developing countries, OECD April indicators show. The composite indicator for OECD members was unchanged at 103 points, but the euro area indicator fell to 102.8 from 103.1 in March. (PR)

    HUD claims Bank of America (BAC +0.75%) "significantly hindered its foreclosure review process by delaying information and interfering with employee interviews. The finding is likely to cause more legal hassles for BoA, with Arizona entering it as an exhibit in its lawsuit against the lender, and more state AG’s likely to follow.

    Morningstar weeds out the 10 most widely-held high dividend-paying stocks among its 26 top-rated mutual fund managers: VOD,NSRGY.PKLLYGSKTOTBMYMRKPFEABTPM

  15. jujujujujujujujuju….listen time for our burning pipe dance AND we need a site handshake

  16. ill bring a couple to our meeitng phil

  17. phil, any thoughts on AAPL.  bought some July 330 calls before end of day yesterday at $7.20…now $9.40.  trying to play the range. thanks.

  18. Buy Kimberly Clark.  They just boosted the profit on their toilet paper by 15%.   I noticed this a.m. that they cut 3/4 of an inch off the sheets for the full length of the rolls.
    I won’t tell you how I found out.

  19. @ Phil: when you say "i smell a bottom", do you mean short term? If the second half of june is a good one for the bulls and we retake "our levels" (but the dollar gets crushed), shouldn´t we be getting more bearish?? (because once again it was a BS rally) Thanks!

  20. not that were meeting!

  21. we should try toset up a get together --would love to meet everyone

  22.  Phil: DIA put spread
    Would DDM puts make an appropriate substitution given decay factor?  TIA 

  23. CSCO – arg! just seems to keep sucking money out of me to ‘improve’ positions.

  24. EYR/USD – getting ready to short again.  That was fast!  Good morning!

  25. CSCO – wow, that is a falling knife.  Will RIMM follow?

  26. Scott / CSCO
    I feel your pain!  How much lower can it go??  March 2009 it hit a low of $13.50 are things really that bad NOW??

  27.  Meeting — Vegas!  October?

  28. I am in

  29. 74.64 and we have Dow 12,090, S&P 1,288, Nas 2,680, NYSE 8,140 and RUT 793 so just the RUT short of goal at the -2.5% line, which is pretty much our weak bounce off the 10% drop.  

    Oil is in serious trouble as it can’t even hold $98 on this drop in the Dollar – apparently there are still a lot of sellers out there.  

    Hopefully, this is just the pause that refreshes at the moment. 

    AAPL/Lunar – Well buying naked calls is never a good idea as you are the sucker paying premium.  Short-term calls are the worst so if you can’t be happy with a 20% gain in a single day, I doubt I have anything to say to you that you don’t think you know better than yourself…

    Bottom/Asaenz – It’s just the move we expected into expirations.  Any time we "rally" on the dollar dropping, it’s not likely to hold up.  I thought I said all this above?  

    Meeting/Angel, Savi – If anyone wants to fly me to Vegas, I can be persuaded to hang out for a weekend!   People tried to organize something in Vegas last year and it never got going though.

    DDM/Lincoln – Sure, you can go DDM July $61/57 bear put spread at $1.30 with the same ofsetting puts.  DDM is currently $59.93 so you start off $1 in the money.    

    CSCO/Scott – That’s what a good sell-off is supposed to do!  That’s how Buffett "accidentally" ends up owning 50% of a company that he started with a small investment in.  The key is to just keep making sure your LONG-term premise is still sound before you make the next round.  

    TBT with a respectable move back over $33.50.  It’s like a fish you have to keep reeling in…

  30. if we can put something together it would be great--I am game to give it a shot--anyone interested we can talk after hours--Oct would be a good time

  31. The frustrating thing about CSCO is that fundamentals are not bad:
    P/E – 11 (way below industry average of 36)
    Forward P/E – 9.85
    Predicted earning growth for the next 5 years – 11% (that’s below the 15% of industry average, but not much)
    Price/Sales – 1.93 (that’s a bit high but below industry average) 
    So they trade at a P/E equal to the 5 year projected earning growth rate. So does INTC with projected earning growth of 10% and a P/E of 10. For comparison, AAPL trades at a 15 P/E with expected earning growth of 18% for the next 5 years. In that regard, AAPL trades at a discount compared to CSCO and INTC and maybe that’s the problem – there are better bets than CSCO. Doesn’t mean it’s bad, but maybe it’s fairly priced now – for what it’s worth in this market!

  32. Put a .10 TS on USO calls. So my stop is now 1.14

  33. Anybody know what’s going on with UAN?  They’re on a three day rally, despite the last three days…flight to safety?

  34. Phil: position sizing
    how should I view a position like my current CSCO 30 Jan 13 15 calls?  I have been also selling puts with an eye to take assignment on the stock when the Jan 13 calls expire.  A full position (5% of portfolio) would be $45-$50,000 worth so in a  sense I feel like I’m already committed to a full position.  Yet it seems very tempting to increase my exposure with CSCO at this level.  TIA

  35. FAS – I didn’t cover yesterday – would you recommend
    1. to half-cover now by 24 at .8
    2.cover full by 25 at .27
    3. wait

  36. Something is wierd with BBY. It looks like the bots are trading it in the 29′s and someone else is trading it at nearly 31 at the same time.  Anyone else notice that?

  37. phil/AAPL, good point!  that comment is perhaps more valuable as any other advice you could have given me like buy, sell, or hold.  thanks.

  38. This has nothing to do with trading today, but I hate Joe Kernen.  I hate when the CNBC people play dumb and he is one of the leaders among them.  When they were talking about Minnesota politics, he was saying, didn’t they even have that wrestler there, um Hulk Hogan or one of them.  Fact is Jesse Ventura was a good governor and did fight alot of the bs that goes on in government right now. 

  39. Good evening,

    Well, yesterday we dropped through IWM 77.50.and bounced back above triggering the sale of another 30% of my short positions (now down to 30%). I show resistance at 79.65, though we may not revisit the low this week, but I don’t think yesterday was a major bottom. I’ll be back trading my system next Tuesday, until then, good hunting !!

    Here is resistance on SPY:

  40. CSCO/StJ – It’s always interesting to see how far down they can take good companies when they are out of favor.  We got AAPL at $85, BA at $60, RIG at $45 on the BP thing (getting cheap again at $60), KO was $50 last year, MCD fall to $45 in the crash.. .  Just this year, people were cursing me out for sticking with INTC as they fell to $19.50 so I’m pretty thick-skinned (and patient) when it comes to my blue chips on sale….  If $15 is "fairly priced" on CSCO and I can sell July $15 calls for .48, then 6 sales a year is $2.88 for a nice, 20% return just selling calls – seems more than fair to me.  People don’t give enough consideration to the liquidity of these stocks when it comes to generating an income selling calls long-term.  

    Interestingly, CSCO is now 3.66% of the Nasdaq so the trip from $22 to $15 (32%) has cost the Nas a full 1% (25 points!).  Consider that a boost down the road the Nas has in it’s pocket.  Also, no one noticed ORCL selling off 15% since May 1 – ORCL is now 6.68% of the Nas so that cost it another 1% (25 points) and AAPL (12.33% of Nas, fell 10% so 1.2% there 30 points) MSFT is down 15% from Feb and is 8.32% of the Nas so a full 1.25% (30) there as well and poor GOOG is down 20% and they are 5.77% of the Nas so another 1.25% on that one (30) points.   So just those 5 components have cost the Nasdaq 170 points or over half it’s drop.  If AAPL, CSCO, GOOG, ORCL and MSFT seem oversold – then a bullish bet on the Nas into earnings might be a good idea!    

    CSCO/Lincoln – You should view CSCO naked calls just like we usually view naked calls – as something we sell to suckers who think they can outsmart the market.  Not sure what you mean by take assignment when your Jan 2013 calls expire.  If they expire worthless, that’s not an option.  If you want more CSCO, sell more puts.  I have no clue what you are thinking with calls but some sucker will pay you $2.38 for you to buy CSCO from them for the current price of $15 about 18 months from now in 2013.  If you want to own $45,000 worth of CSCO, then you can sell 30 of those PUTS for $7,140 and you either get assigned 3,000 shares of CSCO for net $37,860 ($12.62 per share) or you keep the $7,140, which is an 18.85% return on your max $37,860 commitment.  Assuming you have normal 50% margin, all you have to set aside to own 3,000 shares of CSCO is $22,500 so you make  31.7% in 18 months off your "full" allocation, even though the actual margin requirement to sell 30 2013 $15 puts is just net $8,985 according to TOS so you make 79% on that.  

    Note that your assignment on a $50K allocation comes at net $37,860.  Now, if you were assigned CSCO today at that price, what could you do?  You could sell the 2013 $15 puts and calls for $4.50 which drops your $12.62 net to $8.12/11.56 and that means your worst case is owning 6,000 shares at net $11.56 ($69,360) so just a bit over your 5% allocation – still not bad.  If you wanted to be "safer" you could sell the 2013 $12.50 puts and calls for $4.75 and that puts you in for net $7.87/10.19 and now you’re looking at a worst-case 6,000 shares at $61,110 and, of course, you can sell 60 2013 $12.50 calls for about $2 (assuming CSCO was near $11) and that would drop your net to $8.19 with a call away at $12.50 (in 2015) and you still are within your 5% allocation.   Assuming that generally works for you – then you can afford to sell 30 2013 $15 puts for $2.38.  If not, sell less until you get comfortable with the worst-case scenario.  

    Ah, there goes oil finally! $98.63 and flying all of a sudden…

    FAS/Lol – You are lucky!  I’d stay naked as long as the Dow is over 12,050 and S&P is over 1,285.  

    BBY/Sparky – Not sure what you mean as it’s fell off a cliff after failing $31 and now is in a range around $30.  Pretty normal looking as they try to find a proper level after they announced profits were down but not as much as expected.  When there is news like that, people like to feed new info into their bots and that’s why you get such strange mispricings (ALWAYS sell into the initial excitement) before they finally settle into a realistic ranger.  

    You are welcome Lunar.  Have to do tough love here, don’t have time for the nicer kind!  8)  

    Kernen/Rustle – He’s just trying to be funny I suppose.  At least he doesn’t take this crap seriously, some of these people are death and Kudlow is evil incarnate!  Even his voice is something I would imagine hearing in the 7th circle of Hell….

    Enjoy the vaca JRW.  I also think we still need a good blow-off capitulation bottom but they aren’t going to let that happen before the quarter ends most likely. 

  41. CSCO / Phil – Makes sense. BTW, regarding valuation, they are projected to earn $1.52 next year. At the current P/E, that would value them around $16.72 sometimes in 2012. They are generally conservative with earning predictions (too much!) so we can plan around that number. 

  42.  Phil: CSCO calls
    I thought by now it should go without saying that I wouldn’t own the Jan 13 calls  "naked".  Of course I’ve been selling callers against them all along, I have learned a thing or two this year. That’s not to deny that I’m a sucker in other ways ;)
    Thanks for the other thoughts.

  43. Phil / Oil   At what level would you short oil again, given the manipulators want to support the mkts through month end?

  44. Mark Fisher on CNBC is saying crude will never fall below $80 again in our lifetime.  The pump machine is on full force.

  45. Oy Vey Phil! -
    Quit acting like a Shnorrer and spend the 300 clams to get to Vegas!  

  46.  1020: LOL

  47. Oil / Tusca – 98.89 was R1 this morning so it would look like a logical place to look for a short. I also got 2 sell signals at 12:25 FWIW. But I’ll refer to Phil as he navigates the oil patch better than anyone! 

  48. Phil or anyone with knowledge specific to this. I was thinking of Selling some GE puts in my IRA at scottrade related to your ideas this morning. I’d like to have some good long term blue chips in that account anyway so I thought it was a good plan. If I choose “sell to open” it says that is not allowed on scottrade. Is that known to be the case? If so I guess I will be transferring my account if that is the case.
    2nd question. Although the margin required is only $1400 (or whatever it is), if the stock goes to $15 and I grt assigned and I don’t have $15000 in the account what then? I plan to add but not sure I legally I’ll be able to get it to $15k by then. Do I just buy it back at some point to avoid that situation. Sorry if that’s an obvious question.

  49. I don’t think you can sell puts in your IRA as most places don’t allow margin in an IRA

  50. Phil Nice explaination on CSCO My question is what do you do with Jan 13 20 Putters sold for 3.56 now 5.90 and Jan 12 20 puts sold for 2.50 now 5.30. Agree there is still premium left but the Jan 13 you run out of rolling. These were recommendation when CSCO was high Now one neads to love CSCO at 20 ??? Strangely most stocks are up but this one sucks. Any further thoughts?

  51. By the way I moved the USO 39C stop to 1.25 any better thoughts ?

  52. phil,
    are we still in USO july calls?

  53. My TS on USO is now .10 from 1.38

  54. Deforester
    I had an acc with Scottrade that I closed last fall. They do allow you to sell naked puts if you have the correct level of paperwork submitted. Remember that in an IRA acc they hold the entire margin. If you sell 10 $15 puts they will hold the entire $15k in margin.

  55. CSCO calls – yeah i’m feeling like that sucker you are talking about, Phil. keep wanting to cover them, but it just keeps going down and can’t bring myself to sell a call here.

  56. TOS also allows naked put sales with the full margin FWIW.

  57. CSCO/Lincoln – That’s good, I was worried there.   Fine to be naked from time to time when you expect a bottom as long as you control your long position.  

    Oil/Tusca – Ah, that’s a trick question, right?  We short oil again when we identify the top of the new channel!   They are still stuck with 189Mb with just a week to go so I dont’ think they can get back to $101.60 but maybe $100.60 if they get a good reason to pop tomorrow.  That would be a tempting short but very dangerous when you come into the last week of contracts because that’s when they pull out the very big manipulative guns so they can jack up the front month and do cheap rolls (less than .50). 

    Click for chart
    Session   Pr.Day   Options
    Open High Low Last Time Sett Chg Vol   Sett OpInt  
    Jul 11
    99.01 * Jun 13, 20:08
    214191   97.30 189858   Call Put 
    Aug 11
    100.86 * Jun 13, 20:08
    75672   97.84 230489   Call Put 
    Sep 11
    100.14 * Jun 13, 20:08
    24456   98.36 153730   Call Put 
    Oct 11
    96.89 * Jun 13, 20:08
    14980   98.82 60102   Call Put 
    Nov 11
    78.01 * Jun 13, 20:08
    8322   99.24 56775   Call Put

    Note there are more than 600,000 contracts in the front 4 months – that’s never good for the NYMEX crew….

    Never/Rustle – I wish I had a staff like Jon Stewart who could pull tapes of all the people on CNBC in 2008 who said we’d never see oil below $100 again…

    Shnorrer/1020 – You think I’m flying coach? 8-)

    Good call on 98.89 StJ but it’s looking more like short-term resistance than a place to short.  

    Scotttrade/Dforster – I would call them and ask.  Possibly you don’t have clearance for that level of options and need to fill out a form or something.   If you get assigned the stock and you don’t have the money?  Again I would check with the broker and check the agreement you signed but I think you can do a keyword search for "your ass" and "first born" to get to the appropriate section.  It is NEVER a good idea to sell any put on anything you are not ready, willing AND ABLE to own at the net strike for the very long-term (think BP spill, MSFT dividend dive, PFE Tylenol thing) – even the best companies can drop 30% while you sleep…  Yes, you can of course buy back the put for a loss and I think I went over on the weekend post how naked put selling often causes LESS loss than owning the naked stock but don’t get the illusion of safetly, you are offering to buy the stock for discount – that’s all it is.

    CSCO/Yodi – You wait for the 2014 puts to be published and then you will know what you can roll to.  On 2013 $20 puts you sold for $3.56, you bought CSCO for net $16.44 and now it’s at $15 so you are down $1.44 regardless of what your account says at the moment.  If you are uncomfortable with that you can sell the 2013 $15 calls for $2.15 and that drops your basis to net $14.29 with a call away at $15, which makes your break-even $15.71 unless CSCO is over $20, in which case you go back to making .71 as you have no other obligation.  If you want to de-complicate it, you can roll the $20 puts (and the 2012 puts to) to whatever number of $15 puts (now $2.38) makes it even (maybe 2.2x) and then sell the $12.50 calls for $3.55 and that drops your net to ROUGHLY $9 with a $3.50 profit if called away at $12.50 AND CSCO over $15 (wiping out the short puts).  In between, you simply make less than $3.50 and you can improve that by going long on CSCO over $15 or $15.50 or $16 to cover the longs.  Always much easier to fix things, even 25% drops, when you start off selling premium.  

    USO/Yodi – Those things are a rip-off is my thoughts.  USO is up .75 today and the July $39s are only $1.35 (up .25).  With the Dollar so low it’s a big risk holding these overnight but it’s only 10 in the $25KP so I’m inclined to go for it unless we do stop out and $1.25 would suck but that is a good stop.  

    Hey – WFR up 5% on a GS upgrade finally. 

  58. Phil Some thoughts on AGNC stk trading at 30.37 I bought the stock at 28.70 sold the 30 Jan12 call for .70 now .65 some one will call for the stock at 30 to get the 1.40 div. I look at it this way not taking the gain on the stock I will loose .70 on the div  and loose the stock at 30 The week after div 30th Jun they will drop to 28 again so buy back the stock at 28. By the way sold the Jun 11 30 p aswell for 2.10 now .05. Question is this the right way of looking at it?

  59. 11:21 AM The Fed’s purchase of $3.2B in short-term Treasurys - of $28.386B offered by dealers – isn’t doing much for bond prices, as yields have soared along with equities today. The 30-year yield +0.09 to 4.29%; 10-year +0.095 to 3.08%; five-year +0.09 to 1.67%; two-year +0.04 to 0.44%.

    12:00 PM On the hour: Dow +1.11%. 10-yr -0.54%. Euro +0.41% vs. dollar. Crude +1.41% to $98.67. Gold +0.21% to $1518.80.

    Confidence among America’s big-company CEOs dipped in the second quarter, Business Roundtable reports, but it’s still upbeat overall – with revenues, hiring and capital expenditures all expected to increase in the next six months. The economic outlook index slipped to 109.9 (>50 = expansion) from Q1′s 113, the highest in data going back to 2002.

    David Rosenberg disappoints a bit in his new note, where he’s99% sure of a U.S. recession by 2012′s end. Aw, not 100%? He says the S&P 500 could test the 1,000 mark, and ends with eight points of strategy advice, including: long oil, gold, raw food; short the euro; focus on quality and liquidity. 

    A report from the CGA shows consumer debt levels continuing to rise in Canada, with more than 50% of households borrowing to meet daily expensesLike the U.S., could Canada have an economy a bit too dependent on ever-increasing levels of debt to stay afloat?

    Dan O’Brien argues current Greek travails are nothing new for a country that has been in default almost 1 out of every 2 years since its founding. The only difference now is its membership in the EU, allowing SOP in Greece to negatively affect the other 16 member states and possibly bring down the single currency. 

    Greece’s ruling PASOK party loses 2 from its 6 vote majority as one MP leaves the party and another says he will vote against new austerity measures. "We failed and now we are trying to hide the truth from the people," says now former PASOK MP Giorgos Lianis.

    A hint that the Japanese recovery could go slower than expected: Safe maker Eiko notes sales jumped 40% after the earthquake and tsunami, suggesting that consumers there may stick to centuries-old "tansu yokin" – mattress money – and keep even more cash at home instead of spending. Hundreds of safes recovered in the devastation contained about ¥1M ($12,418) each.

    "Running out of steam," is how George Soros describes China’s particular form of state-controlled capitalism. The beginnings of a wage-price spiral means its leaders have missed their chance to cool the economy without causing a hard landing. 

    The FDIC approves subjecting big banks to the same minimum capital standards as community banks, doing away with big banks’ ability to substitute "internal management assumptions" about how much capital they need around. It won’t require new capital, Sheila Bair says, but will act as insurance "when the crisis is forgotten" that levels will be safe.

    Restructuring and job cuts are “inevitable” for second-tier global investment banks such as UBSCS and MS, which JPMorgan identifies as losers of the revenue scale. As a result, this second-tier "is likely to need to cut staff materially, rather than just adjust bonuses, which is clearly not an intended consequence of increased regulation."

    “My point wasn’t that we shouldn’t regulate,” Jamie Dimon says on his challenge to Bernanke. “But we should think twice about how exactly we’re doing it and the cumulative impact of the changes if the main goal is to help create jobs.” Dimon’s suggestion that policy makers can’t predict the full impact of coming regulation should be taken seriously, Andrew Ross Sorkin writes.

    The PBOC pulls no punches in its annual financial stability report, saying the EU has done a good job stabilizing financial markets, but little to address the cause of the debt crisis. The bank also warns of the risk of a hard landing in emerging economies (its own included?) should inflation and asset bubbles not begin to cool soon.

    Shares in computer disk-drive makers are on the move as supplier Hutchinson Technology (HTCH +17.9%) expects to ship 10% more of its suspension assemblies in Q3, up from an earlier flat forecast. Bouncing on the positive surprise: Seagate Technology (STX +3.1%), Western Digital (WDC +4.4%). 

    Will this wake EGLE up?  Following Goldman last week, Wells Fargo upgrades DryShips (DRYS +3.75%), calling the shares, -31% YTD, "considerably oversold," and seeing the potential summer listing of its Ocean Rig subsidiary as a catalyst for a move higher.

    BP always manages to cause a shortage at key times:  Gasoline futures jump on a combination of higher crude and news BP (BP +1.76%) has shut down another unit at a key Texas refinery. This is the second shutdown in two weeks for the facility. UGA+1.5%USO +1.0%

    Also boosting commodities today:  The CFTC has proposed delaying new Dodd-Frank rules on swaps trading up to year’s end from mid-July, as the agency scrambles to write dozens of regulations. "Some might ask: Why six months?" says CFTC head Gary Gensler – and indeed critics and dissenting voters worry about market confusion and legal certainty for contracts. 

    Three lunchtime reads:
    1) What QE3 could look like
    2) Core inflation cuts both ways
    3) The effect of gold on a diversified portfolio 

  60. End Of POMO Countdown: $8 Billion Down, $51 Billion To Go
    $8 billion down, and just $51 billion to go. There are now just 11 POMO days, and 12 total POMO operations, including the double POMO on June 20.

  61. Phil, 
    Thanks for your response to my questions last night, I appreciate your patience.
    On the GLW recommendation to sell Nov 19 Calls (BTW they are only 1.20 (up .23) not 1.40, so not sure if you meant last night the Jans?). I am just concerned about a gap up, and then I’d be screwed on the short calls…(how do you control for that? Especially around earnings?)
    What would you think of an alternative of selling the 2013 25 calls for around .95 and rolling the long 2013 25 calls to the 20′s  for 1.35 (so net 1.90 on the BCS) minus the 2.30 collected on the short 17.50 puts would make it a net credit of .40 (or I can add 5 additional long 20 calls for a total cost of $350…

  62. Phil, any suggestions for a good hedge on CCJ? I like it and am in for the long term.

  63. Oil should hold up – the sell-off from $39.15 on USO ($99.25) at 1pm looks like it was a single fund doing a controlled sell-off.  They may do it again if we hit the same strike if they are not done but, on the whole, I don’t think oil is done going up.

    USO/Lunar – Yes with a stop at $1.25.

    CSCO/Scott – Well, if you are in the 2013 $17.50s for example ($1.25) and you sell the Oct $15s for $1 and you spend .90 to roll down to the 2013 $15s – then you are investing wisely rather than gambling CSCO will head higher.  You can put a stop on 1/2 the calls at $1.25 and then the roll cost you .05 and you are 1/2 covered with calls that are $2.50 higher than you with 15 months left to roll.  Isn’t that better than sitting there naked like a chump?  

    AGNC/Yodi – Yes, you miss the dividend but also the dip and then if you buy back at $28 and wait a bit, maybe get another sell at .70 for the $30s and you really don’t mind getting called away.  

    POMO/Kramer – OHNO!  

    Gap up/Amatta – Sometimes you will miss a gap up and sometimes you will miss a gap down.  When in doubt, do half!  That adjustment is OK if you don’t want to mess around with the stock.  

    CCJ/RPME – I think if you own the stock, you can buy the Jan $29/24 bear put spread for $2.30 and sell the 2013 $30 calls for $3 and then you make $5.70 below $24 and net .70 on the call if called away at $30 or higher (but, of course, you can sell more puts and roll).

  64.  TBT rising from the dead.

  65.  Seems to be substantial interest in shorting MS.

  66. Phil/Coach
    Nothing but The Best Phil….Nothing but The Best……


  67. MS/ZZ – Everyone arbing the new regulations.  Notice I am staying away from specific financials EXCEPT:

    HCBK!  We discussed them last night and gosh darn it, I love these guys.  Buying the stock at $8.23, selling the Jan $7.50 calls for $1.15 and the $9 puts for $1.30 is net $5.78/7.39, which I think is cheap enough for a 2x entry as you can then sell 2013 $7.50 puts and calls for another $2+ and then you are at $5.39/6.45 so if you look at is as committing to buy say, 400 shares for $6.45 ($2,580) then it makes perfect sense to buy 100 for net $5.78 ($578) with a $172 profit (29%) if HCBK is over $9 in Jan and, otherwise – it’s time for rollin’, rollin’, rollin’….  Let’s call this 1,000 shares in the Income Portfolio for net $5,780 and we’re setting aside $25,800 for a full allocation.  

    $25KP – Let’s take the money and run on the USO July $39s at $1.35 – looking too weak at $99 ($39 USO).  Certainly we can just go back in later.  


  68. What a sloppy rally. Im not inspired at all.

  69. Looking weak for the PM. Took DIA 120 this week puts for $0.47, stop at $0.40. Thoughts?

  70. Pharmboy - VIAP finally showing me some respect. Started buying at .40 and did a DD every five or ten cents on the way down, last traunch at .04, so hopefully this is the start of something good.  You still have some?

  71. Airlines/1020 – Yep.  Did you see that news item about them making $5Bn this year charging for bags.  Shameful stuff…  I remember when even coach got you an nice lunch – now you are lucky to get a snack in first class!  One of my great meal memories of all time was flying British Airways back when I was a kid and for some reason we got bumped to first class and they served us rack of lamb, roasted potatoes and had a sundae bar for dessert.  I heard Singapore Airlines is still like that but I never had a chance to fly them.  

    01:00 PM On the hour: Dow +1.18%. 10-yr -0.53%. Euro +0.4% vs. dollar. Crude +1.59% to $98.85. Gold +0.37% to $1521.20.

    Spinning to boost oil:  Saudi Arabia, the go-to country anytime the world needs a bump in oil production, may have far less excess capacity than commonly thought. With levels so thin, expect "substantial spikes in the oil price from time to time," says a fund manager, noting the "inherent bias" towards overstating spare capacity. 

    Google (GOOG +1.4%) announces enhancements to search, including voice search on the desktop and image identification, but many investors’ eyes are on mobile enhancements with a local focus. Mobile traffic is peaking on weekends and the company says it’s critical to get mobile results right the first time. (Q&A live now)

    Studios’ arm’s-length relationship with Netflix (NFLX +0.5%) is on display at the NCTA Cable Show: Viacom (VIA) chief Philippe Dauman is "comfortable" with NFLX because its back-catalog focus means extra revenue for dormant product, while Time Warner’s (TWX) Jeff Bewkes says cable needs to become the primary on-demand content source to protect revenue streams like DVDs and syndicated TV. 

     Despite trading at just 8x consensus EPS, RBC says the damage isn’t over yet to Cisco (CSCO -0.2%) shares. In downgrading the stock, RBC thinks Cisco may be so busy with restructuring that it’s too distracted to focus on recouping market share and improving products. Yet today’s strength among other large-cap techs helps push the Nasdaq ahead of its counterparts.

  72. Then this is for you Kust.  Look at the volume vs. price action

  73. Hello all,
    Pharmboy, I have my pharma question of the day.  What chances do you give FCSC of getting approval on LaViV this time around?
    Scott Brown

  74. Ok thanks for the input on naked puts. I guess it makes sense an Ira would require full margin due to funding rules, etc. So then it probably doesn’t make sense to sell puts in an IRA? In 18 months my return would be about 8%. And since I don’t have a long term account other than two IRA and a 401k I guess selling naked puts is off for now. But I did like the suggestions!

  75. Uncle Ben is speaking soon but check this out as a warm up:

  76. Scott – I think it is a roll of the dice.  Nothing new here except 6 mo vs 3 mo data and the CRO believes that they have ‘met the FDAs reqirements.’  Trying to get rid of wrinkles with your own fibroblasts?  Come on….that is crazy talk.  Fibroblasts are involved in scaring and wound healing, and putting these back into my face for reducing wrinkles is astounding that they would even think of doing it.  That last bit is my personal opinion. 

  77. Thanks Pharmboy.  I prefer the personal opinion over anything the company says any time :) .

  78. Phil, on CCJ, to get the $2.30 spread it has to be the Jan $28/24 BPS. I bought the stock at $30 so the $4.70 does not get me back to even. Just trying to figure out my best options holding long term but anticipating a pull back through the summer.

  79. Phil/Singapore   I’ve flown coach with them to Frankfurt, no big deal. First class looked nice though.$$$
    I would fly Jet Blue anywhere and Southwest, once their Wi-Fi is fleet wide….
    We’re taking Southwest to Seattle (cruise time!) this weekend.  On time and clean with nice people. No $ for ticket changes or baggage….
    Take those Davis Girls on a nice trip!  You know, life CAN be too short….

  80.  So what does the red highlight mean? Do you agree that CSCO is in trouble?
    Despite trading at just 8x consensus EPS, RBC says the damage isn’t over yet to Cisco (CSCO -0.2%) shares.

  81. Phil/singapore – I love them! We get over to Korea once a year or so, and Singapore out of San Francisco is the way to go. No charge for anything in the cabin, good food, free booze, comfortable seating. And they’re usually the cheapest fare. Korean Air and Asiana are a close second in comfort & price, although Asiana is or was owned by one of Korea’s very nasty former dictators, I think Chun Doohwan.

  82. It would appear to me that there is some bottom fishing going on today. Many issues up 3.5%+ seeem to be the ones that have been beaten down the most in recent months.

  83. Phil Would it be a good idea to sell some USO JUN 39 c .40 premium ?

  84. PM/Dr C – I would be very careful because all it takes is a word about more QE from Ben and we could take of like a rocket again.  On the other hand, no word about QE 3 and we could drop today’s gains in an hour so lots of fun ahead!  

    Damn, we quit those USOs a bit early!  

    CCJ/Rp – I see last of $5 on the $29s and $2.50 on the $24s so $2.50 on that spread but it’s changing as CCJ heads up.  Or you can go 2013 $30/25 bear call spread and that is clearly $3 with $1 higher position so not too bead.  In fact, the Jan $30/25 spread is $3.30 so also not bad.  If you lost money you can’t expect to get it all back on one trade, make the sensible play and, down the road, you can roll and adjust but you can’t say that going up 20% from here is no good for you because you lose 30% and therefore you’d rather continue to foolishly risk the other 70% waiting for a miracle than proactively giving yourself a good chance of getting 20% back.

    Trip/1020 – We like to hang at the Davis Oasis during the Summer, most of our family trips involve skiing or Mickey Mouse. 

    Red/JVest – I agree that’s a negative but it’s really a positive to me in that it explains today’s action.  After a while, they run out of people to talk bad about it.  

    What a BS speech by Bernanke – He said nothing.  

    Zero Dollar movement off that (74.68) and oil finished the session at $99.25 but if they thought there was going to be a reason to stick with it, that wasn’t it.  

    Still, oil and the markets look like they are pinned to the highs of the day – they got their 2% move and they are damned if they are going to give it back.  

    Bottom fishing/Rain – Well that’s what we did with the short puts on the Dow – was logical at this level.  

    USO/Yodi – I would not short oil at the moment.   Lots of shenanigans into contract rollovers.  

  85. Phil,
      Since you still like HCBK a lot, what would you suggest for a buy/write I did in January: buying at $11.00, selling the Jan 2012 $12.50 Puts and $10 Calls for $3.71 for a net of $7.29/9.89? As I’m sure you’re aware, there are no 2013 options at present.

  86. Thanks Pharm, weak bounce on no volume means they cant sustain the move.

  87. Phil, what kind of run on the market do you think we’ll have if they announce that they have reached a negotiation to raise the debt ceiling?

  88. A note on shorting oil for all:  I have done a lot of oil plays the past couple of weeks because we formed a very strong channel and the circumstances lined up (dollar too low, oil high, demand low, markets overpriced in general) that it was fairly easy to say it was unsustainable.  I was not gung-ho playing the oil markets for the previous 6 months (and you can go back on the $25KP to see how few times we made an oil bet before we made 5 in one week 2 weeks ago).  

    The key to playing the market – whether it is futures or options or stocks is PATIENCE!  Wait and wait and wait and WAIT for something that is VERY obvious to trade – something you will be willing to stick with if your timing is off (assuming the reasons don’t change).  There are obvious things that happen all the time but they will pass you by if you are fixated on the last thing you made money on.  

    Oops, here comes the Dollar – no QE3 and they won’t be able to hold down the Dollar so time to get a little short with  DIA July $117 puts at .99 that were $1.66 yesterday.  

  89. Phil, what is your opinion of the following 2 BCS with a short put.  One is set up for a net credit and the other a debit spread.  In your experience, which do you like better and why.  TZA $39.46.  Debit spread: TZA July 38 / 40 call and 34 short put = .15 debit  or  credit spread:  TZA July 42 / 44 and 34 short put = .14 credit.
    38/40 is $1.50 in the money.  616% return      max profit is $1.85
    42/44 is $2.50 out of money.  credit spread.     max profit is $2.14
    Please help me understand which is "better" in your opinion.  How does your rule of "adjust your long when you loose half your value" apply.  TIA.

  90. Phill
    All I see are July 119 puts for 1.48 on Ameritrade.

  91. This could be the final exhaustion push needed to move things up to the 1290/5 level and hold those.  If SPX makes it through there, then 1310 is a no brainer.

  92. Phil
    I did not give up on the USO calls early, up 20%, my play of the day, and out.

  93. Oil – Funny how they pushed it to yesterday’s high at 99.21!

  94. Ok I found the 117 puts for .98. I am a long only investor trying to learn to hedge. Could you explain this hedge like you  would to an idiot?

  95. Phil, if they can’t hold onto the dollar, shouldn’t we start going short oil also?

  96. rustle123
    Phil is the oil crystal ball but my stupid technical level was short at 39.26 and it didn’t happen.

  97. Here it is…..judgement time.

  98.  Phil/TBT    I am short some TBT 34 puts that expire this week.  I sold them for .57   Should I cover now and get out pretty much even or hold them longer hoping that TBT stays above $34 by expiration?

  99. hopefully this rally can last till the end of the month, and takes oil back over $100, so then we can short the markets and oil again…

  100. perfect timing Phil on the DIA, hoping for at least another 50 on the downside before the close.

  101. Here comes the volume push down.  Nice.

  102. Geezus Pharm I need a hit of acid to correctly read that chart

  103.  HCBK/Kevin – The $10 calls are down to .18 so what’s the point of them.  If you buy them out your basis goes up to $7.47/$9.97…  I’d do that and roll the $12.50 puts ($4.30) to 2x the $10 puts ($2.20) so your new basis (calling the roll even) is $7.47 + $10 + $10/3 = $7.47/9.16 with the stock at $8.15 and then you can keep your eye on the Jan $7.50 calls (now $1.05) and sell them if the bank can’t hold $8 and that would drop your net to (if you sell them for $1) 6.47/8.82.  So, in short, this strategy nets you a $1 improvement in your low basis and drops your put-to price another $1 in exchange for potentially moving to 3x at $8.82 ($2,646 per 100) vs 2x at $9.89 ($1,978) – seems like it’s worth committing $668 since your 2x at $1,978 is down $348 anyway.  

    Debt ceiling/Rustle – That’s a hard one as there are so many ways they could reach an agreement.  If there are harsh cutbacks along with it, I doubt we’ll pop at all but if it’s the usual raising the ceiling with token cuts, I think we could be good for another 2.5% pop.  

    TZA/Robert – Don’t let the math go to your head.  It’s a difference of .29 cents to put you $1.46 in the money.  Now, what do you think the rationale is?  As to the "rule" for adjusting the long – when you are down half, you should either get out or roll but once you get below half, it becomes difficult to do either as the caller will retain more value than your lower calls.  

    July mystery puts/Sparky – ????

    Nice job Shadow – you are becoming quite the day trader!  

    Oil/StJ – Probably ran into the same big seller.  

    Explaining the hedge to an idiot/Sparky – Well Sparky, you want to offset the possible drop in the value of your longs with something that will gain value while they lose it.  Now, would you like some gum? 8-)  

    Oil shorts/Rustle – You sure can but I’m not trusting it overnight into oil inventories as an official trade.  Just use the $99.25 line as your on/off and then you are in business.  Keep in mind that the Futures close at 5:15 and re-open at 6 so there are sometimes big gaps there.  USO, of course, can have much worse gaps and USUALLY oil goes up into inventories so the idea of establishing a short on oil at 3:30 and not being able to trade it until 9:30 the next day, on an inventory day, is just so awful that I wouldn’t even know what to begin to tell you to stop you from doing that…

    TBT/Kyw – If you don’t want to roll them out a month you should cover as you are damned lucky we’re not still at $32.50, right?  If you are going to be happy to roll them to July if things don’t work out, then you’re on track so why pay a premium?  

    Rally/Asaenz – I think Bernanke was a bit of a rally killer.  CNBC is trying to spin it positive but clearly the markets are not buying it – other than oil, which is in it’s own special world this afternoon.  

    DIA/Rustle – I HOPE we don’t get that big of a move back down in the next 30 minutes – that would suck for the market.  

  104. Kust – all the squiggly lines….just look at the last few.  THAT light purple line needs to be taken OUT.

  105. kustomz / acid — acid will allow you to understand the rest of the markets too :)

  106. Well i see 12,070/85 as support on the Dow anything below and I get even more bearish.

  107. 74.75!  

    03:00 PM On the hour: Dow +1.38%. 10-yr -0.65%. Euro +0.38% vs. dollar. Crude +1.98% to $99.23. Gold +0.69% to $1526.10. 

    Bernanke again warns about the dangers of using the debt ceiling as a bargaining chip in negotiations over spending cuts: "I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job."

    The White House again floats the idea of extending a payroll tax holiday for employees while starting a payroll tax cut for employers. The existing break cuts Social Security taxes for employees from 6.2% to 4.2%. 

    Warning rising raw material prices present a challenge to growth, French President Sarkozy presses his call for tighter regulation of commodity markets. "It’s necessary to limit the leverage effect by imposing a minimum cash deposit for each transaction." Haven’t margin requirements been around forever?

    As recently as two weeks ago, corporate insiders looked to be not just maintaining the pace of their selling but actually increasing it. But last week, insiders took a decidedly bullish turn, and the ratio of weekly insider sales to purchases is now at its best level since the first week of last September.

    U.S. employers remain optimistic about their hiring plans, marking the seventh straight quarter of positive outlooks from employers surveyed by Manpower. Optimism was highest in leisure and hospitality; employers in both government and health and education services see modest decreases in staffing levels. The report stands in contrast to the sinking outlook among small businesses.

    In an effort to trim costs and stay ahead of government cutbacks, Lockheed Martin (LMT +1.5%) announces plans to layoff 1,200 workers from its space systems division by year-end. The unit currently employs around 16K workers over 12 states.

    A report from Deloitte & Touche quantifies the staggering growth – up 286% Y/Y – in China’s investments in Latin America – mostly to get a stake in its abundant natural resources. Also of note, is Chinese investment branching out into manufacturing, infrastructure, and finance.

    After months of negative press about its foreclosure practices, JPMorgan Chase (JPM +0.6%parts ways with former home-lending chief David Lowman. Foreclosures employees didn’t read, thuggery over late payments, foreclosing on homes of soldiers… the list of embarrassmentswas getting long. The last straw: JPM’s mortgage unit lost $3.3B in Q1.

    Strength in tobacco stocks is attributed to reports that an FDA committee will discuss at its July meeting "proposed changes" and "adopt amendments" to its report on menthol cigarettes, which had concluded that the product’s removal would benefit U.S. public health. LO +9.7%,PM +2.4%RAI +2.2%MO +1.8%.

    Embattled Chinese tree-plantation company Sino-Forest (SNOFF.PK -19.3%) says its largest shareholder, Paulson & Co. is "very supportive," offering suggestions on how it might handle its situation. Owning 14% of the company, what else could Paulson be?

  108. Phil, thanks.  that is what i thought.  A no brainer for $0.29 to put you $1.50 in the money.  Sometimes the math does go to the head!  :)     

  109. @ Phil, what levels should we hold so that this rally might still have legs? thanks…

  110. Wheeeeee! 

  111. Sell the rallies….sell the rallies…sell the rallies.  Same game as the Nov – April when we BTFD.  Now it is STFR….!!! Remember who coined it first! :)

  112. Level/Asaenz – Oh we’re fine – anything over 1.25% gains is a bonus for the day.  I would not be too bullish though until we see how they digest the Bernanke news .  


    STFR/Pharm – Yep.  I was hoping we’d get a much better rally to sell into though…  

    Speaking of acid and the markets – here’s a tutorial for those of you who haven’t been here that long

  113. Sold those Dia Puts for a quick 11% gain (feeling neutral and waiting for a more obvious move either up or down) thanks Phil!

  114. I think they will defend it into close and work hard to get tomorrow gap up.

  115. Phil…back in town.  An excellent article/overview for most major ports in the US as of April/May.  Good after hours read. West coast still busy but increases have leveled off.  Single digit growth projected for second half.  Significantly though no projected slow down from Seattle to Los Angeles second half 2011.

  116. With my 5000 long HCBK at 11.24 and short 50 contracts Jan12 12.5 puts, I really don’t want to hear anymore jack about the stock.

  117. Out of my USO puts at 1.40.  Good job boys, 28% isn’t bad.  We’ll see what the late night futures market brings.

  118.  Buying EDZ at the close, huge short volume in VWO

  119. Sold my dia puts for a nice 20% gain.

  120. Phil,
    So what do you think – was that a gap fill on XLF or do we go lower??

  121. DIA/Asaenz – Quick 11% is always nice, adds up to 2,000% a year if you do it every day.  



    Thanks Living – Welcome back!  

    HCBK/Jbur – Check out the above adjustment.  May be worth it to up your commitment by 33% more cash to double up at a lower price.  

    Congrats DDay! 

    EDZ/ZZ – Nice idea given the weak close.  

    Perfect Dr C!  

    Maybe tipping where the true power in the country lies, the Senate easily votes against a measure that would eliminate a tax break and tariff supporting domestic ethanol production. "No other product I know of has the triple crown of government support that corn ethanol has in this country," says Senator Feinstein.

    In a letter to President Obama, House Speaker Boehnerdemands an explanation of the legal grounds for military action in Libya, saying as of June 19, the operation will be in violation of the War Powers Act. 

    Tucked into Best Buy’s strong report: consumer PC demand may have bottomed and is now picking up. Stifel Nicolaus notes that while Best Buy’s computing and mobile growth was mostly driven by tablets, results reflected “solid” improvements in notebook PCs.

    Auto makers can cut vehicle emissions by 40% by 2020 through simply tweaking the internal combustion engine and making other modest improvements rather than rolling out a fleet of electric cars, according to a new study. From the standpoint of hitting emissions standards, the need for car makers to pursue electric vehicles is "minimal," the study says. 

  122. Well that was a fun and exciting day – I do so love it when a plan comes together!  

    XLF/Button – I think they pin $15 to expirations and that’s right about $24 on FAS although I did get a little nervous today as they hit $15.15.  Still no QE3, hard for the Financials to be happy about that.  

    Dollar back to 74.74.  Dow volume lame at 159M for the day.  

    Yen fell back to 80.43 and they won’t like that in Japan so expect them to pump up the Dollar a bit into the Nikkei open (9pm).  Euro at $1.445, Pound at $1.637.  Gold $1,526, silver $35.50, copper rockin’ at $4.15, gasoline also happy at $3.06 and Nat gas at $4.58.   

  123. Nice work Phil….

  124. Well, I see my IWM 79.65 line held; if "they" can’t break through 79.75 tomorrow, I may have to buy some more puts !!

    Good night 8-)

  125.  Bottom fishing – I’ve been sticking to my self-discipline of only entering trades where I plan to keep them at least a month.  
    (See this from the NY TImes:  The Guilt of Trading Too Much)
    I currently have just a few longs with one hedge against them and about 80 percent cash.  I am getting closer to doing some serious bottom fishing, but still staying patient.  I would welcome comments on my watch list of my 10 most beat up S&P 500 stocks that I think may do well in an upturn:
    AKAM, SPLS, JNPR, WFR, MU, MWW, NWL, LXK, TLAB, FSLR (yes, I know its a ridiculous company, but I think people will go for it on a rebound.  I may explore other solar options, but I am putting it on my list for now.)
    I already own CSCO, MSFT so they did not make the list.


  126. The vehicle emissions study Phil cites dovetails with my review of the cost and performance of electric vehicles.  They don’t have much future without major breakthroughs in battery technologies, which are not forthcoming.
    Electric cars have a large feelgood aspect but make no sense, based on their cost & range.  Hybrids make sense only to the extent they are using gasoline or diesel as fuel.
     Natural gas-powered vehicles are also superior to hybrids or electrics.  They achieve the same benefits directly as electric cars do indirectly — i.e., natural gas-to-electrical generation-to-car charging, without heavy, short-lived, short range batteries.  But the charging station infrastructure that a general use of electric cars would require is, IMO, well beyond the economic capabilities of the U.S., that can barely maintain its essential infrastructure — highways, bridges, etc. — in their present form.
    Honda’s nat.gas powered Civic GX gets 28 mpg at 25% less cost per mile than gasoline. But there are very few nat.gas filling stations.  Turbodiesels have fewer moving parts and the cars last longer — I have a Toyota Landcruiser, it’s fast and maintenance-free.  The Volkswagen Golf TDI [turbodiesel] gets 34 mpg and is quicker than a hybrid.  Plus hybrids are 1/ hybrid, i.e., use gas, and 2/ cost more than gasoline-powered cars.
     Pure electrics? The U.S. govt. offers a $7,500 rebate on the Nissan Leaf and the Chevy Volt — bringing the Volt down to "only" $34,000 with a 1.4 liter engine.  It goes 50 miles on its electric charge, at which point you have a gasoline-powered car that does 0-60 in @ 9.2 seconds.  
    The immense number of SUVs  and pickup trucks cruising America’s highways makes me question whether all the whining about gasoline prices is not just fashion.  Nothing is less aerodynamic than an SUV — a block-shaped air dam being pushed through the air with a huge turbulence zone underneath from being kicked up off the ground.  Any marketing guy can tell you that what people say they want, and what they actually buy, bear little relationship to one another.  Plus ca change….

  127. revtodd – I would also add to it BMY or MRK for a Pharma flavor.  Dividend is good for both, and pipelines are robust.

  128. Your making nervous now, you never mention AZN! Any reason?

  129. ^Pharm

  130. Today’s Levels.

  131. Phil,
    I am testy today, but it’s not nice to make fun of people when they try to follow you. I need to put in a disaster hedge, but unfortunately my time machine is broken, so I can’t go back to last April or last year when I wasn’t a member and put in the ones you suggested then. I have a long only portfolio, I have done very well in the markets, thank you, but I would like to learn how to hedge. I am an old dog, and I need to learn a few new tricks. Now, I as I understand it you bought DIA puts at .99, because they will go up as the DOW goes down. I should have bought one contract to see how they work, but I didn’t. The DOW went down 50 points and it looks like the last trade on those .99 DIA puts was for 1.08. If the option went up .09 on a 50 point drop, is it logical to assume that it would go up 24 times that on a 1200 point (roughly 10%) drop from here (1200/50=24) ?  If so then each contract should be worth  $2.16 more(.09X24=2.16).To completely hedge a $500,000 portfolio for a 10% drop you would have to buy 23,000 of them- unless they go up exponentially??? How many did you buy to hedge what size long?  If you could explain this, I would appreciate it. Thanks for the offer of gum, but I’ll pass.

  132.  Drudge cites CNBC on report that a physical gold shortage will develop.

  133.  Hi Pharm,
    With your BMY and MRK big-Pharma picks, what’s your view on LLY?  Thanks.

  134. AZN/kust – bang for buck, MRK and BMY are better from a Div Yield perspective.  AZN is ok, but NVS is better for an EU flavor!

    LLY/jb – LLY has a patent cliff from hell coming, not interested in playing.  Like FRX, something needs to be done.  Either they buy someone, or get bought.  I see those two hooking up.  And IRWD then becoming a player by both.  CNS and diabetes is LLY’s game, FRX is CNS, and IRWD is IBS.  DEPO is also CNS, and has a great technology for ‘drugs’ that suffer from poor dosing schedules.  Use DEPO and XPRT for watching actions, as DEPO is best in dosing class for the SAME DRUG.


    I am really trying to be objective here with some of our picks, and I hate seeing them being crushed, but if there is a mAb that works in clinic, is close to commericalization and has applications for other diseases…then sign me up, IMGN, MITI, SGEN.


    Those noted above along with DEPO and PLX are all candidates for takeout. 


    Buying more PDLI tomorrow if possible.  They closed near the HOD.

  135.  Thanks, Pharm!  You rock!

  136. Pharm, do you like Bsdm here? I know amatta recently asked about them…. I was just curious if you’d recommend an entry at today’s price(2.90ish)? What happens august 1st?

  137. Phil, on what basis do you like HCBK?     I am interesting in your fundamental analysis of this company.

  138. Google is investing 280M in North America rooftop solar panels produced by SolarCity. Other recent smart grid investments in the Google Ventures portfolio include Silver Spring Networks and Transphorm.
    Apparently the idea is as more electricity is demanded by customers, the utility companies will have to ask the data centers to process and distribute electricity back to the grid to meet demand. 

  139. Phil,
    It looks like most people made the DIA move as a directional day trade not a hedge. Perhaps that was my mistake. I don’t want to day trade options. If you did hold that position, and you do consider it a hedge, I would like to have an idea of the proportion of the options to the portfolio you were trying to protect.

  140. leonf675
    Phil wrote this yesterday. It may help.
    HCBK/Amatta – Oh wait, of course you are not done…  HCBK is not a primary broker, they don’t get POMO.  They are a good bank though who, like any bank, have delinquent loans.  Apparently about $800M worth of their loans are past due but that doesn’t mean foreclosure and it doesn’t mean they will lose $800M, of course.  The bank earns about $500M a year and currently has a $4Bn market cap (p/e and, if they had to write off $400M (very doubtful) and skip a whole years earnings – that would leave them with ZERO bad loans and back to earning $500M a year going forward.  The bank cut their dividend to shore up capital due to the change in regs, not due to a shortfall in their books, which have $21Bn in cash, $50Bn in investments and $22Bn in short-term debt and $25Bn in current liabilities with a solid NTA of $4.5Bn.  Usually, they pay out about $300M in dividends (7.5% of current price) so cutting them to 3.9% makes sense rather than going out and borrowing money.

    Bottom line is the bank is under attack by hyenas, who are spinning everything they do as a negative in order to drive down the stock price so they can jump in and buy a stock that usually pays a .60 dividend for $8.  I love HCBK at this price ($8.23) and you can buy the stock and sell the Jan $7.50 puts and calls for $1.75 for a net $6.48/6.99 entry. 

  141. Pandora prices its IPO at $16/share = 2.6 billion valuation, expected to raise 235 million under the symbol ‘P’ which begins trading tomorrow.

  142. Article in the Guardian regarding funding for Brain Disorders (depression, schizophrenia, etc)…..the brain and cancer are two of the Last Frontiers for us to figure out in the body (yes there are others), but these are the big ones.

    European experts are sounding an alarm about the recent pullout of GlaxoSmithKline and AstraZeneca from the brain disorder arena. David Nutt, a professor Imperial College London, and Oxford’s Guy Goodwin are calling for a rapid response to what they term a collapse in R&D spending in the field.

  143. BSDM/jrm – damn better price than my entry.  I would scale in very conservatively, as I cannot figure out what they are doing with the stock.  Insiders owned a bunch of the shares, and they dumped some, but they are still big owners (29
    % of float) and believers in the technology.  The technology is not going to move heaven and earth, but it is a good way to treat breast cancer and possibly other forms.  Valuation is silly cheap.  They have 19M in cash, and are burning about 1.25M/q, so plenty left.  Warrants are out there on the stock I think at 3.50, so plenty of time for them to get things going.  Aug is when the Ps sold come due.  I would sell the Nov 2.5 C/P with the stock.  The Nov 2.5 Cs were moving at a 4:1 ratio of bought vs OI, so so someone is expecting it to move by then.

  144. Thanks 1020!  

    Puts/JRW – Would be a shame to waste all this bullish effort today, especially within striking distance of 12,200 on the Dow and 1,300 on the S&P – can’t see them not going for it, pretty much no matter what, into expirations. 

    Good discipline Rev!  We love WFR and AKAM is a good one and SPLS for very long term but I would not touch FSLR with a 10-foot pole.  

    Nat gas/ZZ – Where there is a will, there is a way.  Las Vegas’s entire bus and taxi fleet run on nat gas.  If you can do one city, you can do all cities and if you can do the cities, you can do the suburbs at least.   So many things COULD be done in this country but NOTHING gets done due to the ridiculous politics of everything.   This is one of the reasons China is able to kick our asses that no one talks about.  They see a need, they have a one-hour meeting and the next day they have a budget and people begin building whatever by Monday.  Of course you can say empty cities, airports, whatever but this is a nation of 1.3Bn people modernizing at hyperspeed and we are a nation of 300M people who haven’t really accomplished anything since Al Gore invented the Internet.  

    Looks like our levels are still being obeyed.  Keep in mind that failing to take 3 of 5 must holds this week is going to be a failure for the bulls.

    Niceness/Sparky – I’m sorry, I thought you were kidding so I responded in kind.  This is why we have a New Member’s guide, to catch people up but the original article on the Dow hedge is actually not a Disaster Hedge, those have a different function.  The key long-term short we use is a DIA spread called a Mattress Play.   Here’s the original post and here’s another post on it – it’s been a very long time since anyone even asked about those so I’d be happy to go into detail on the weekend.  I imagine under the post about scaling in in the Strategy Section, in the comments there should be stuff about it too.  

    Keep in mind that DIA represents the Dow pretty well so when you take a $117 put, it doesn’t really pay off until the Dow is below 11,700 at expiration.  In between, you will make money only insofar as the option rises in PRICE (not value) while it’s out of the money.  Should the Dow drop 1,200 points, the Dow would be at 10, 900 and that put would be worth $8. So, the lesson there is that the delta increases as the option gets closer to the money but there is also time decay (Theta) that goes down as we get closer to expiration.  So to hedge $50,000 against a 10% drop in the Dow on a put that will go up 700% if the Dow drops 10% would require about $7,200 worth of puts BUT (and it’s a BIG BUT) you are WASTING $7,200 if you don’t get a down move by July expirations (30 days).  That is not really a good way to hedge a portfolio because, if you do it every month in a flat market, you will spend $96,000 on the hedge.  

    Hence, the mattress play.  Read over the posts, save questions for the weekend unless it’s an emergency but, at this particular moment in time – the July puts are not a bad way to protect yourself as long as you make sure you set a realistic stop loss for short-term protection (which you are really going to want over the holiday weekend but we’ll have you straightened out by then).  

    Gold/ZZ – Now I KNOW it’s time to short gold!  

    Thanks DC!  

    GOOG/Kwan – Their electric bill is huge with all those server farms.  This is a good move by them as it also gets the good PR.  

    DIA/Sparky – Yes, that was a day trade, hedges should be much longer-term.  It’s a shame, we just closed our DIA hedge in the $25KP but you can trace it back to the earlier portfolios and see the moves we made (Portfolio Tab).  

  145. ARRY update….

    Boulder, CO-based Array BioPharma is taking the budget axe out to take a chop down its discovery expenses. In a release the biotech said that it is laying off 70 workers--or 20 percent of its workforce, most of whom are involved in discovery and support work--as it balances expenses between the R and D sides of the business.

    The focus at Array, says CEO Robert Conway, is on partnered programs with Amgen, Celgene and Genentech along with ongoing efforts to advance a select set of new drug programs that have partnership potential. The aim now, adds the biotech, is to reduce its net cash burn rate for fiscal 2012 by $20 million.

    "It is extremely difficult to release these outstanding people who have contributed substantially to the Company over the years, but these actions are necessary given our need to focus resources on our key clinical development programs," said CEO Robert Conway. "We look forward to a number of potential value-creating events during the second half of 2011 including Phase 2 combination data on selumetinib in patients with melanoma or non-small cell lung cancer; Phase 2 data on ARRY-520 in multiple myeloma patients and Phase 1 data on ARRY-614 in MDS patients."

    This restructuring comes two-and-a-half years after Array laid out plans to lay off 10 percent of its workers at the beginning of 2009.

  146.  Phil, a tidbit on a trend we are already well aware of:

    Workers’ share of national income plummets to record low

  147. EUR/USD

    Thar she blows!

  148. Phil Just read up on the Kevin HCBK sugestion I as well hold the Jan 12.5 short put sold for 2.08 now 4.50. I only sold 2 nothing else. so I am down some 484.00 The DD to 10 makes sense. I never seen this stk blooming. Following your write up of yesterday and adding the stock as well to the 500k portfolio I am looking on a PE from TOS at -24. It looks very negative to me. My question is do we ever see the stock come out of the woods besides you painting total rosa???

  149. Phil P.S. OK BAC down 1.5% C down 1% JPM down .16% and WFC up .12% Now this little Kritter HCBH as well down .97 % to 8.15 ????

  150.  Phil
    What do you think of the August SPY 140/141 bull call spread at .04?

  151. Phil looking at the chart from Jan to today HCBK looks like a Japanese kamikasi pilot.

  152.  sparky: feelings FWIW
    don’t feel bad if you think Phil: is making fun of you, it did seem like you were kidding and you have to keep in mind Phil is in New Jersey.  I grew up there and there is a very distinct vibe in communicating that isn’t meant to be mean spirited.  On the other hand if you do ask dumb questions that should have been thought through better then he will make fun of you.  Then if you do that enough and he starts thinking you’re a knucklehead you do what I did, and change your screen name and pretend to be a newbie again :)
     (AMATTA if you see this you may also want to change your handle)

  153. Phil Looking at a bank stock BUSE 5.03 paying a div of 3.18 with aPE of 15.72 and a chart which points up. Your thought pls.

  154.  Lincoln, you are so right.  No place for think skin here!!  That said everyone wants to help, so all in all a very enjoyable learning experience.  Its like being at football camp.  The first time you say "I can’t" will be your last!

  155. First feeler—Is anyone interested in meeting  in  Vegas for a weekend? Oct would be one suggestion—

  156. phil,still have the rimm sold 4250/4000 puts sold for .60 also  rimm 3750/3500 sold for .22 expiration june. my thoughts let them expire and take the loss or roll to future month,probably jan 12, hoping rimm comes good,your input is much appreciated .also have taken note of your past comment regarding this type of trade,will not be doing it again.

  157. Looking for feedback. 
    Setting up a "Sleep at Night with No Worries" dividend income portfolio for my dad (83yrs old). 
    Target portfolio dividend yield is 6% (note:  Canadian government gives a tax advantage to taxpayers who invest in Cdn co’s — as a result, a 6% dividend yield is equivalent to an 8% interest bearing equivalent investment on a pre-tax basis). 
    Investment Objective:  1) Dividend income; 2) Capital Preservation. 
    option 1)  collar trade – sell an slightly OTM call and use proceeds to buy an OTM put (one or two strikes below share price)
    option 2)  sell slightly OTM calls and use proceeds to set up "disaster hedges(bull call spreads on leveraged contra US  ETF’s) " that cover the sectors involved in the Cdn long stock positions.
    Note:  I searched stocks trading on the TSX that trade options, and have average daily volumes of 300,000 shares or more – 30 names came up on the search.  Some of these companies also trade on NYSE and Nasdaq, which could add a currency hedge to the trade.
    Looking forward to your feedback.

  158. Phil, my kid got a free sub to Fortune in college and they have an article on long term picks based on current trends:
    1. Population Boom
    XTA (Xstrata – trades in London so no can do here)
    2. Emerging Market Middle Class
    LVMUY (Louis Vuitton)
    NSRGY (Nestle)
    3. Cloud computing
    4. Inflation Proof
    5. Dividends
    NVS (Pharm?)
    Some of these guys would make sense in the Income Portfolio. Others, I am not sure.
    Here are some thoughts on the first group:
    AMAT – They benefit from clients like Intel and others and also solar. They have been brutalized from $16 to $12.60 in a month. They trade at a P/E of 10.5 close to their low of 9.5 in the last 5 years. Price to sales (my favorite ratio) is a very good 1.5. They are expected to grow earnings at 9.5% so reasonable and they pay 2.56% dividend as of today. With growth and that dividend, I could see them trade at 12x times earnings. They expect 1.45 per share next year so a target could be $17.4. For a very mellow entry, you could sell the 2013 10 P for $1.00. That would bring you $1000 for $1015 of margin – somewhat ahead of inflation and a nice entry a $9.00 if put to you with over 20% of cushion. If you are afraid of missing out on the upside, you could use that $1 to pay for Jan 2013 12.5/15 C vertical for $0.93. Basically a free vertical. Your put to price is now $10, still a good cushion and you stand to make $2500 if AMAT is over 15 in Jan 2013.
    DE (Deere) – Same thing. They went from $95 to 80 in a month. They have a P/E of 13.8 and very good 1.16 price to sales ratio. They are expected to grow at 11% for the next 5 years and they pay a 2.04% dividend. with growth and dividend, no reason not to expect at least 13x earnings. They expect to earn $7.47 next year so a nice target would be $97 by 2013. The 2013 70 P are at $8.25 so $7100 of margin gives you $8250 if DE is above $70 with a great entry at $61 and change. You could use this to finance a 2013 70/90 C vertical which will cost you $1.35 after the put sale. That brings your put to price at $71.33 but you stand to make $18650 with $16700 of margin (for 10 contracts) if DE is above 90. 
    ECA – I would not touch these guys – too expensive relative to the industry. I believe you like CHK better in that field.
    SLB (Schlumberger) – They have held OK despite oil losing 12%. They have a P/E of 21.8 and a high 3.51 price to sales ratio. They expect to grow 22% over the next 5 years. They pay a 1.21% dividend so I could see them a 23x earnings – close to where they are now. They expect to earn $5.13 next year so a target price would be $118 (wow, that’s a big target). A very conservative entry would be to sell the 2013 70 P for $7.75 for $7150 of margin. That gives you an entry point around $62.50 so plenty of room for an oil crash! You could use that $7.75 to buy the same 2013 70/90 C vertical but it’s more expensive than DE. It will cost you an additional $2.55 above the put sale. You stand to make $17450 for $17450 of margin (isn’t that special, 100% on margin) as long as SLB is above $90.
    I would not advocate the vertical in an income portfolio, but that’s me only and I like to sleep soundly at night. The put sales give you in most cases around 20% of cushion which is nice and mellow.
    Maybe more on the others tomorrow night!

  159. Got a kick out of this link on to a 10-year-old Business Week article: Why Apple Stores Won’t Work .  This must have been written back when financial media articles weren’t as predictively accurate as they are today …

  160. Phil
    Here is an Idea for the people with smaller accounts
    I like DRWI they make scalable micro wave radio’s for cell phone/wifi backhaul (bandwidth)The microwave setup replaces fiber from towers to network hubs and lower telco costs.They are software scalable so as network traffic increases the sell software key to enable more bandwidth REMOTELY on radios.(recurring revenue) They did 95% of Clearwire network and received great reviews from sprint and clearwire. Clearwire was there biggest customer but having funding problems to finish network. Hence 5.00 stock price)Have signed up mobile telco from around the world and has been rumored to be getting work from VZ.
    They are still going to make .64 eps this year for a P/E of about 8 and they should see a big pick up in buisness as smart phone usage starts effecting cell phone networks.
    Looking a buying stock at 5.15 and selling Dec 5.00 puts for .80   Also the Dec 5-7.5 call spead is .80  which the put sale can be use to pay for (options only go to Dec for this stock)

  161.  Now if I could just learn how not to get my head handed to me, the next few years might be an epic trading environment!

    "The world faces years of “growth scares” as a weak recovery grinds on with little to cushion against periodic shocks, Morgan Stanley’s Stephen Roach said.
    “We had a growth scare last year about this time, we’re having another growth scare this year, and I think we will have growth scares for several years to come,” said Roach, non- executive chairman of Morgan Stanley Asia Ltd. He spoke in an interview inShanghai today with Bloomberg Television."

  162. Vegas/Savi — late last year, around November I think, we tried to organize a Vegas trip for mid-January.  I called some hotels, and so did Deano….by the way, is Deano still here?  Anyway, it didn’t come together, because enough people just didn’t want to commit to a trip, when the time came.  I would be happy to help organize again, and it isn’t that difficult to book a conference room for a Saturday, provided we can all agree on a hotel (and there was a lot of debate over that, and Phil has his favorites, as well).  It would be great to get together. 

  163. Good morning!

    Greece is NOT fixed!  Turns out the EU is just as incompetent as our own Congress and can’t agree on whether or not it’s dark out and they actually broke up their meeting without an agreement.  That tanked the Euro, popped the Dollar (75.12) and, of course, knocked down the futures and commodities. 

    Euro is way down at $1.436, Pound $1.635 and 80.55 Yen to the Dollar.  

    Oil is back at our $98.50 mark (funny how that works out somehow) and makes a good long off that line in the futures.  Gasoline is down to $3.046  and is turning out to be an excellent hedge against oil longs (down from 3.064), Nat gas is $4.51, near the lows.  Gold is $1,522, silver $35.21 and copper $4.13 – which is holding up pretty well considering.  

    Of course a good Dollar pop on Euro panic sets us up for a nice reversal back below 75 that will pop us into the open but oil looks like the most fun thing to play in the futures unless, of course, silver gives us a test at $35, which is also a great line to play off to the upside (with very tight stops, of course).  

    An EC briefing paper warns a German plan to lengthen maturities on some Greek debt may force EU governments to come up with €20B to prevent a meltdown of the banking system. Additionally, if the ECB keeps its vow not to accept Greek paper as collateral, €70B in liquidity to Greek banks may have to be replaced.

    The euro gives up the day’s sharp gains as Luxembourg finance minister Luc Freiden suggests a 2nd Greek bailout package could be delayed until July and that private sector involvement is "likely." Euro now at $1.4444, up just a hair for the day.

    Treasury chief Osborne is set to announce U.K lenders will be required to "ring-fence" retail operations from their investment banking business. The details of implementing this will be left to scores of bureaucrats and lawyers. Bankers argue the new law will be expensive and ineffective at reducing systemic risk.

    With all the chatter about further tightening and vigilance towards inflation coming out of officialdom in China, it’s easy to forget the PBOC hasn’t raised rates in 10 weeks (though reserve requirements were hiked last night). With inflation expected to hit 6% and the economy still zooming, how much longer will China hold off? 

    While most analysts focus on gold demand, Standard Chartered says it’s actually a lack of supply that’s going to push the price above $5,000/oz. Even if demand stabilizes, fewer mines coming on line over the next five years means "a gold market in deficit." 

    In a nod to conspiracy theorists, Rep. Ron Paul calls for an official audit to confirm the purity of the gold in Fort Knox. Paul, a supporter of returning to the gold standard, wants to determine if the government has secretly sold off the stockpile and replaced it with gold-painted metal bars.

    Wednesday’s economic calendar:
    7:00 MBA Mortgage Applications
    8:30 Consumer Price Index
    8:30 Empire State Mfg Survey
    8:30 Real Earnings
    9:00 International Capital Flow
    9:15 Industrial Production
    10:00 NAHB Housing Market Index
    10:30 EIA Petroleum Inventories

  164. Santelli smackdown on debt ceiling:
    I agree, ‘hold the line.’ 

  165. Incomes/BDC – I think it’s amazing that you can watch CNBC for an entire month and not one "analyst" ever considers the fact that lack of income may be a problem in our economy.  They talk about unemployment but not the fact that the people who are employed have no disposable income left….

    HCBK/Yodi – Yes, but if you are looking for an immediate fix, you may as well get out.  It will take several quarters for people to recognize value in the stock.  There is a real sickness among "investors", where they can’t stand for a company to have a single negative quarter or to realistically lower guidance because the economic outlook is poor but then they go and abandon an honest company like CSCO or HCBK, who make a realistic assessment of the economy, and pile into idiotic stocks like GMCR, who forecast infinite growth even while the Global economy is obviously collapsing around them.  What am I going to do – sit here every day and hold everyone’s hand on HCBK?  

    You were here wen we bought C at $4 and $3 and $2 and $1 for an average of about $2 and then we sold at $5.  Did that happen in a week?  A month?   It was a sell-off that went from October to March and turned around by August so a full-year cycle.  BAC was similar, XLF was similar, UYG was similar.  I see HCBK as another nice opportunity to buy when others are selling but it’s a LONG-TERM play and you have to plan on accumulating shares on the way down.  If you don’t see yourself sticking with it – get out now because I have no idea WHEN it will turn around nor can I guarantee IF it will turn around but I have seen that when we do go for these "banks in trouble" that enough of them double up to offset the occasional loss (we bought LEH at the bottom too!).  

    SPY/Strether – I think we’re heading into a crash after July 4th so I’m not into the bullish SPY play.  If you sold an IWM July $67 put for .45 against it to make it a .05 spread, I’d like it better as I don’t think we fall quite that far and, even if we do, it’s rollable and you can stop out at .65 on the IWM and .20 on the SPY and be even overall.  

    Changing names/Lincoln – Ha, I knew it!  LOL, that is not a good thing to tell people.  It’s better if I get to know people and what they know and don’t know and what they like to trade over time.  As to being from Jersey, I think it’s more of a New York thing where wise-cracks are a primary form of communication.  Jersey people just tend to grab their balls, gesticulate and, occasionally, throw feces….

    BUSE/Yodi – 15 is a high p/e for a bank.  Also, analyzing a bank’s assets and determining their true worth is VERY difficult and time consuming – that’s why you will rarely see me picking new banks.  I prefer to get to know some and, when they go on sale, I’ll buy those.  BUSE lost $327M in 2009 and made $18M last year so one bad year erases about 20 years of profits.  HCBK, on the other hand, NEVER LOST MONEY!  Do you see the subtle difference?  HCBK has $80Bn in Cash and Assets, BUSE has $4Bn so just a few bad deals can tank them.  Also, they sold $250M worth of stock in the past two years on a $435M market cap so, if you like to be diluted – this may be the ideal stock for you!  

    When buying a stock, you should think in terms of buying the whole company.  Is this a company you want to own?  In the above example, HCBK makes a steady $500M a year on a market cap of $4.6Bn and pays a 3.9% dividend.  Perhaps they have some bad loans, as all banks do – this does not mean they are bankrupt and management has already cut the dividend in half (yes, 3.9% is half of normal) to short up some cash reserves – the kind of thing responsible business owners do when times are tough.  BUSE, on the other hand, has a $435M market cap, trades 222,000 shares a day – so is essentially a penny stock – and they lost $37M in 2008, lost $327M in 2009 and made $18M last year and made $7M in Q1 but on lower revenues ($50.4M, down from $54M in prior quarters).  The only reason their cash-flow isn’t negative is because they borrowed $200M over the past two years and sold $250M worth of stock (57% of the market cap) and kept paying $4M in quarterly dividends as if everything is fine.  Which business would you want to own?

    A KIA is cheaper than a Range Rover but that doesn’t mean you should buy the KIA, does it?  Why do people look at companies like price is the only thing that matters?  People literally spend more time deciding which microwave oven to buy than they do deciding which stocks they are going to invest in and then they are surprised when the stock doesn’t perform like they expect….. 

    As to Vegas – it seems to me that asking 20 people what they want to do and when they want to do it is exactly what ruined the last trip.  Columbus Day is a semi holiday in October so that would be the weekend that makes the most sense.  Then you need to pick a hotel, pick a price to charge people that pays for whatever stuff you need to get and then say if you have X amount committed by July 31st the trip is on – otherwise not.  I think there were 25 people who wanted to go to Vegas last year but then people started arguing about what hotel, what venue for a room, this weekend wasn’t good for one guy or the other and everyone lost interest – including me!  

    Personally, I usually stay at Caesar’s (for free!) when I go or sometimes the Hard Rock but that’s way off the strip.  I love the pools at both and the Hard Rock has Nobu so If we’re just going for a quick trip, we do that but, for more than 2 days, we like Caesar’s because it’s central and the poker room is great.  I would love to check out the Mandarin at  MGM City Center and I keep meaning to try WYNN but it’s way up the strip and that’s exactly why I don’t like the Hilton.  So that’s my .02 on Vegas – as long as I get good sushi, a chance to swim and there’s poker, I’m going to be happy.

  166. RIMM/Jash – Are you leaving out decimals?  I’m assuming so but I’m not sure what you have.  I’d do the roll as I think RIMM is bottoming but earnings are (I think) tomorrow so, if you are worried, you’d better roll before because, if they miss, you are screwed.  

    Now the Pound is selling off on terrible unemployment numbers in the UK that are sending the Pound lower.  Dollar 75.16 is new high for the morning so far.  Oil back to $98.66 from $98.90 so stop triggered at $98.75 – maybe get a reload at $98.50.    

  167. Dividends/Canuck – That’s what our Income Portfolio is all about (under Portfolio Tab).  The key is to follow the style, you can plug in whatever Canadian stocks work for you.  I’m not a big fan of collars as you are betting against yourself too directly.  Go back over that portfolio from the beginning and then remind me Saturday morning, when there’s time, and we can discuss a few possibilities for a Canadian version.  

     Picks/StJ – Very nice list but also something I’d rather tackle on the weekend (so remind me).  I’m still not convinced now is the ideal time to be rushing into stocks, no matter how much Fortune likes them.  

    LOL RDN – won’t be the last time they miss the mark.  AAPL should have a side business teaching other companies how to do retail…

    DRWI/Bert – Interesting but I avoid penny stocks like the plague.   These guys don’t even make a profit from what I see – I don’t know where you are getting .64 as they lost .16 per share in Q1 and it seems like Q2 is expected to lose another .18 so unless they EXPLODE in the 2nd half – they are more likely to LOSE .64 than make it.  

    Roach/ZZ – Hey, didn’t they send him to Asia?  That’s not good if he’s now seeing growth scares.  

    75.21 – Killing the futures

    75.24…   Oil holding up pretty well so far at 98.60.  

    Those DIA puts are looking very good now…

  168. $98.50 on oil again but dollar over 75.25 (75.27) means it’s more likely to go down than up at the moment – still worth a toss as the Euro us down to $1.433 and the Pound is $1.629 with the Yen the only one happy to be down at 80.75  but that’s a lot of fuel to shove the dollar down again and give us an upside pre-market push into the open.  

  169. Morning Phil,
    SPY crash. So you think they will try to save this quarter still? I have just updated my VIX/SPY volume indicator. The last couple of days seem to confirm your "crash theroy". The "firm trades only" indicator switched side after beeing bullish for 8 months. However since it’s expiration time for both contracts I still want to wait for next week until I start waving the yellow flag.
    Here’s the link:

  170. fwiw i own a ton of hcbk it might be the best bank of its type in th eus..hermanance is a fantastic steward..and they will evenually get swallowed up but ive been thinkng thqat for years…great company

  171. Wa-hooo!  Oil at $99 again!  Good enough for a morning’s work.  We do have inventories at 10:30 so could go much higher but Dollar way up at 75.42 now so dangerous for oil still and .50 is a lot.  Really, it is – we’re just spoiled!  What you can do, is get out at $99 – get back in at $99.05 with a stop at $99.  At $9.15 you can buy one more so you avg $99.075 with a stop at $99.10.  Over $99.15 you can add another and you have 3 at $99.10(ish) with a .05 trailing stop — that’s how you can build a position back up when it’s dangerously past a line you are worried about…

  172. and of course its not going up if the rest of the market is going down….

  173. Don’t worry Angel – Dollar at 75.39 is like cranking up the big weight on the Grandfather Clock – just storing up potential energy to drive the market counter-weight higher when it falls later.  

    By the way guys, Barry is having a conference October 11th in NYC and he’s charging $595!  That’s just for one day – this is a scam we have got to get into… 

  174.  Phil/Vegas — Yes, that’s pretty much what happened.  This time, we should just pick a date and pick a place and that’s that.  Friday 10/7 to Monday 10/10 (Columbus Day) at Caesar’s. Can I see a show of hands?  
    And where is Deano?  Is he still a member?

  175. Vegas for Columbus day! Sweet!
    I agree: Poker, sushi, and well, more poker.
    Who coordinated before, Deano, he/she may not want that task again…

  176. Phil,  do you have any problem with having an offsite blog around a vegas trip. Something like, etc?