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Will We Hold It Wednesday – Russell 700 Watch

700 has been a tough nut to crack in our small-cap index.  

Dollar weakness has hurt the companies that do most of their business in the US, collecting crappy dollars for their goods and services and having to pay through the nose for high-priced commodities and imported goods.  Small caps don't have the muscle to hold down wages in overseas factories while they boost productivity to the point of suicide like our beloved Apple can.  No, while our small caps may have a plentiful supply of US workers willing to work "cheap" – we're still not at the point where our Government forces students to work in the factories as "interns."  

So, while we wait for those IPhone 5's to roll off the assembly line, we'll be keeping an eye on the Russell, which should benefit from the recent strength in the Dollar, which is is up over 5% in September – although probably topping out at 78 – which is good, as it will give the markets a nice boost on the way back down.  

Dow futures are already up over 200 points since 3am (when they were down 100) and, when our 3am trade is working, the bots are usually taking the markets higher.  Nothing has changed in the news – Moody's went ahead and downgraded Credit Agricole and Societe General but maintained an Aa2 rating on BNP – the source of yesterday's big drop in France on the silly rumor that I told you in yesterday's post was nothing but blatant market manipulation by our favorite media mogul.  

Don't worry, no one will be arresting Rupert Murdoch because – well, he's rich.  Rich fixes everything, doesn't it?  Rupert's pal, Chinese Premier Wen Jiabao (What?  You didn't think he only buys Western politicians, did you?), says no one should rely on China to bail out the world economy. "Countries must first put their own houses in order," Wen said today. Asian stocks dropped following his comments, but European markets and futures have shaken the news off after the bank downgrades in a classic example of selling the rumor and buying the news.  

Today the big rumor is bullish on news that Geithner is going to Europe to spread the religion of Easy Money in what will be the first time a US Treasury Secretary has been invited to attend a Eurozone FM meeting.  Word is also out that Treasury will be supporting the Fed's "Operation Twist," which means both the supply of and demand for US TBills will be tightly controlled for the foreseeable future.  

As I said to Members this morning, There’s still plenty of bad news out there so we remain skeptically bullish. Don’t forget, our pattern has been 500-600 points on a bull run and then a pullback and Russell 700 has been a brick wall to get through so we’ll watch that carefully for a sign that the markets are really ready to head higher. We bottomed out at 10,800 on Monday so 11,340 is our goal (5%) in the short-term on the Dow but we won’t get there without the Russell cooperating.  

In Monday morning's post, we flipped bullish (20-25/15) after having a great ride down on our bearish trade ideas from the morning post (which you can have in your mailbox every morning pre-market) were:

  • FXE at $136, now $136.75 (we already had a spread from Friday that makes 1,100% at $137).
  • XLF Oct $12/13 bull call spread at .50, selling $11 puts for .48 for net .02, still .02
  • FAS Oct $8 puts sold for $1 (alternate to above sale of XLF puts), now .50 – up 50%
  • VXX Sept $49/46 bear put spread at $2, selling $51 calls for $1 for net $1, now $1.56 – up 56%
  • TNA Sept $40/43 bull call spread at $1.30, selling RUT Sept $610 puts for $1.22 for net .08, now $1.25 – up 1,462%

Actually the TNA trade was from the bottom of yesterday's post as we were still bullish in the morning and, as I said to Members during Chat, it's a very tough market to call so  we need to have a hypothesis and set levels that test our hypothesis and stick with it until/unless it is PROVEN wrong – now is not a good time to go with "feelings".  Our theory was we would pop back to Russell 700 but now we DO NOT KNOW what will happen next so it's time to be cautious again and put some of those upside profits into some downside hedges.  Zacks put out a good note on market uncertainty this morning saying:  

"So what we have is a game of Russian Roulette. But instead of the usual rules where you have only 1 bullet and 5 empty chambers. I would say it's more like 3 bullets and 3 empty chambers. That leaves 50% chance for survival and healthier stock outcomes. And 50% chance odds of an economic "shot to the head" with resulting recession and ferocious bear market."

That quote is from an article I wrote Monday and pretty much sums up where we stand now. The best thing going for the market right now is that corporations have strong balance sheets and can generate decent profits with only modest demand. So with cash and bonds paying next to nothing, it makes stocks attractive by comparison.

The worst thing going for the market is what is happening in Europe. The more I read the more I think it ends poorly for them… and for the global economy.  Which argument is stronger? You can spin the gun barrel to find out your fate. Or take a balanced approach that allows you to more nimbly shift your strategy as the outlook becomes clearer. 

That's why I've already selected some bearish bets on the Futures in Member chat, shorting Oil (/CL), as usual at $90 along with the Dow (/YM) at 11,100 and the Russell (/TF) on a rejection at 697, which is 700 on the market index.  All with very tight stops, of course.  The reason is, as I mentioned above, that the Russell has a huge problem with that 700 line AND the Dollar has huge support at 77.50.  Until those two break – we're simply locked in the same up and down trading range we've been in for ages.

Hopefully we'll get stopped out of the Futures on encouraging words from Geithner, who is being interviewed by Jim Cramer at CNBC's Delivering Alpha Conference this morning but, since we had a strong run into the event already – we're still a bit skeptical.  Our last trade idea in Member Chat was a protective Sept DXD $20/21 bull call spread at .25, offset with a short JPM Oct $28 put at .95 in a 4:1 ratio – risking net .05 to make $4 (7,900%) if the Dow drops.  If we hold up today, we can take 2 of the spreads off the table and that turns it into a bullish play without sacrificing all of the 2-day remaining hedge.  

The idea is not to flip bearish but to move back from 25/15 bullish to 25/20 and, if we begin to fail our levels, back to 20/20 as we stop out those winning short-term bullish trades.  That's the game we have to play while we are trapped in this trading range but hopefully we won't need to as Cramer steers Geithner to say all the magic words that can encourage the EU this morning (up about 1.5% at 9am) ahead of the Secretary's trip because attitude is everything in this market.  


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  1. For those who can, Dow futures (/YM) can be shorted below the 11,100 line and, of course, the RUT (/TF) futures off a rejection at 697, which just happened.   Hopefully it’s a minor pullback but still an hour to open so be careful.  

  2.  AUS Hosing Crisis
    I keep on reading more and more about how the bubble has popped in the AUS housing market.  Any good ideas on how to capitalize on that fact?  Seems like people are still in disbelief right now, so maybe a good time to take a longer term position on banks?  
    Here is the latest read:

  3. Phil/Midas touch
    Day-umn. I just did the BP Amoco buy/write/sell put LEAPS trade yesterday as we had discussed, actually making it my single largest portfolio position, and the stock is already up over 4% today in European trading on a report that BP is unlikely to face gross negligence charges over the Macondo disaster. Potentially this save the co. many billions in fines, but also means it is likely to be able to get the other companies like Halliburton, Transocean to chip in with compensation expenses as Mitsui has already agreed to do.

  4. You da man, Phil!  Caught that futures move, thank already.  Was Geithner a disappointment?

  5.  Phil: GMCR
    Yesterday I made comment that I was in GMCR short calls but wasn’t clear that I started when GMCR was $60. I have been scaling and rolling so now in Oct 92.50′s,( selling some puts also).  Which I think they could hit on a little bad news prior to earnings. Should I be looking at rolling out longer ( Mar 12′)now or use that as my escape plan in case of another run-up after earnings?  I’m now in what I would consider a full allocation on the short calls.  TIA

  6. From SHJ: I think a big move is coming and the current move looks corrective. While the main declining channel is unbroken I’m expecting that big move to be downwards. My main target at 1000-1020 is now in range within that declining channel. It might yet go the other way though, I’m surprised to see serious signs of weakness in precious metals and there are still definite signs of negative divergence on bonds, though with bonds particularly they tend to peak and trough before equities, so a high on bonds here wouldn’t preclude a new low on equities.

    From Cobra:

    PP for today:

  7. in case this doesn’t paste well, it’s from Andrew Wilkinson re JPM:
    JPM - JPMorgan Chase & Co. – Shares in JPMorgan may be on the rise today, but put activity on the stock suggests the price of the underlying may hit fresh multi-year lows in the weeks ahead. It looks like one or more options traders selling puts in the front month and buying debit put spreads in the October contract see little danger of a sharp correction in the stock through the end of this week. The five weeks remaining to October expiration, however, could see JPM’s shares drop to their lowest since March 2009. JPMorgan is scheduled to report third-quarter earnings on October 13 ahead of the opening bell. Shares in the banking institution rose 0.90% to $32.71 by 12:35 pm ET, somewhat lessening the stock’s total 2011 declines to a still dismal 32.4%. The sale of at least 9,000 puts at the September $32.5 strike for an average premium of $0.64 apiece this morning suggests, perhaps, that investors expect JPM’s shares to exceed that price level through expiration on Friday. Traders short the puts keep the $0.64 in premium as long as the options expire worthless at the end of the week.
    Put selling in the front month may have been initiated to partially finance the purchase of the October $25/$30 put spread for a net premium of $0.91. Premium received on the sale of the near-term puts could reduce the net cost of the bear put spread down to an average premium of $0.27 per contract. The Oct. $25/$30 put spread positions the investor or investors responsible for the bearish strategy to accrue maximum potential profits of as much as $4.73 per contract in the event that JPM’s shares plunge 23.5% from the current price of $32.71 to trade below $25.00 at expiration next month. Put players may be expecting shares to fall after JPM’s third-quarter earnings report on October 13. The company’s investment banking chief, James Staley, said JPMorgan’s trading revenue may fall 30% in the third quarter from the previous quarter, and the private-equity unit may report a “modest loss”, as well. (Staley’s comments at the Barclays Global Financial Services Conference in New York today were highlighted in a note by Bloomberg reporter, Dawn Kopecki.)

  8. Phil/JNJ
    I’m thinking about adding some JNJ to my long term portfolio.  What’s your take on the company.

  9. Oil Lines
    R3 – 93.06
    R2 – 91.79
    R1 – 90.35
    PP – 89.08
    S1 – 87.64
    S2 – 86.37
    S3 – 84.93
    Yesterday’s high and low – 90.52 / 87.81
    Breakout lines – 94.90 / 80.71 

  10. FAS Money Recap 
    Long Strangle –Jan 12 Puts (3.01 average now 2.98) and 15 Calls (2.75 average cost now 2.59). 
    Weekly – 1/2 September 13 Puts (1.03 now 0.62 – 40%) and 1/2 October 13 Puts (2.30 now 2.03 – 12%)
    Monthly – 1/2 September 13 Puts (1.03 now 0.62 – 40%) and 1/2 October 13 Puts (2.30 now 2.03 – 12%)
    Looks like we getting back on track with the puts! For now….   

  11. DXD offsets/Phil – what about something like LDK Oct $5 puts at .95 (well, where they were yesterday) contrasted to the JPM. are you looking for that offset to be 20% or more down and is that a priority to use when considering what offset?

  12.  Re:JPM
    I read that this morning as well, and just started to price out the trade.  Any comments from other traders?  I bearish on them as well.

  13. Tell me that this is not going to end badly, no matter how much they throw at it:

    With the increasing concern of European sovereigns and banking system, banks are finding it harder and hard to fund.  US money market funds are cutting exposure to French banks, for instance, and one executive said (WSJ)

  14.  Phil,
    CMG seems to oscillating more than PCLN in the last 10 days. PCLN has had better earnings, is there anything else that is making the stock less volatile.

  15. OK, full cover on USO.  Other 1/2 Sept 35 Cs.

  16. lol, Cramer like Tech. now, was he hate tech LAST WEEK??

  17. I guess if you can’t win elections, just tip the scales:

    Under the Republican plan—which has been endorsed by top Republicans in both houses of the state’s legislature, as well as the governor, Tom Corbett—Pennsylvania would change from this system to one where each congressional district gets its own electoral vote….Under the Republican plan, if the GOP presidential nominee carries the GOP-leaning districts but Obama carries the state, the GOP nominee would get 12 electoral votes out of Pennsylvania, but Obama would only get eight—six for winning the blue districts, and two (representing the state’s two senators) for carrying the state. This would have an effect equivalent to flipping a small winner-take-all state—say, Nevada, which has six electoral votes—from blue to red. And Republicans wouldn’t even have to do any extra campaigning or spend any extra advertising dollars to do it. 

    Let me get this straight, you win the state, but you get fewer electoral votes than the loser… Democracy at work I guess!

  18. Good morning! 

    We had a nice little dip in those futures and a recovery already but those are the lines we’ll continue to play for re-entries.  Don’t forget oil inventories are 10:30 and tomorrow is a huge data day so we’re loving the DXD hedge still, maybe we can pick up the $21/22 spread instead (see post above).  On the bull side, the Oct XLF spread hasn’t moved yet and that one has great leverage.  

    Be very careful here – like last week, we are in that unpredictable middle of the range where things could go either way.  The Dollar at the 77.50 line is key but, as I said earlier – when the 3am trade is working it usually means the bots are aiming higher for the day.  It’s also been a long time since we had a good stick – if they are going to pop the markets, today would be a good day for it so we’ll be looking for more upside trades if the RUT can get over the magic mark.  

    Even the slow-poke NYSE has made the -10% line so very lame if the Russell brings us down at this point.  We have a 30-year auction at 1pm but just $13Bn, which Ben can buy up with what they find under the sofa at the Fed. 

    News is not very positive, just the attitudes that are improving but this is a very low-volume run-up so far so we’re still going to have to watch and wait for clarity and make sure we are ready for a sell-off!  Remember – it’s not a profit (on the bull plays) until you take it off the table….

    Wednesday’s economic calendar:
    7:00 MBA Mortgage Applications
    8:30 Producer Price Index
    8:30 Retail Sales
    10:00 Business Inventories
    10:30 EIA Petroleum Inventories
    1:00 PM Results of $13B, 30-Year Note Auction

    At the open: Dow +0.39% to 11149. S&P +0.48% to 1179. Nasdaq +0.61% to 2234.
    Treasurys: 30-year -0.05%. 10-yr +0.02%. 5-yr +0.09%.
    Commodities: Crude -0.73% to $89.56. Gold -0.08% to $1825.95.
    Currencies: Euro +0.31% vs. dollar. Yen -0.37%. Pound -0.14%.

    Market preview: S&P futures +0.5% on hopes that the European Commission would soon present options for the introduction of joint eurozone bonds, shaking off Moody’s expecteddowngrade of two French banks. Investors largely ignore weak retail sales data. Crude oil futures are off nearly 1%. Later: business inventories. 

    August Retail Sales: 0% vs. +0.3% expected, +0.3% (revised) prior. Ex-auto +0.1% vs. +0.3% expected, +0.5% prior.

    August Producer Price Index: 0% vs. -0.1% expected and +0.2% prior. Core PPI +0.1% vs. +0.2% expected and +0.4% prior. - At least the Fed has an excuse to print money

    MBA Mortgage Applications: +6.3% vs. -4.9% last week. Thirty-year fixed mortgage rate decreased to 4.17% from 4.23%.

    Only 20% of Americans believe the country is on the right economic course, and just 9% are confident we won’t slide back into recession, a new poll finds. Most think it will take 6+ years for home prices to recover to pre-recession levels.

    Sources say the Treasury will cooperate if the Fed decides to launch "Operation Twist" – buying longer-term Treasurys to cap long-term interest rates by depleting supply. If the Treasury were were to sell into the Fed’s buying, the effect on interest rates would be minimized. 

    Chinese Premier Wen Jiabao says no one should rely on China to bail out the world economy. "Countries must first put their own houses in order," Wen said today. Asian stocks dropped following his comments, but European markets and futures have shaken the news off.

    U.K. unemployment rises to 7.9% at the end of July, up from 7.6% at the end of April. Of particular interest is the public sector, where employment fell by 111K jobs for the quarter – the largest decline since records began being kept in 1999 – as fiscal reform kicks in.

    While Moody’s and S&P say U.K. banking reform proposed in the Vickers report will not result in any immediate ratings action, analysts say a downgrade is only a matter of time as the idea TBTF slowly becomes a thing of the past in that country.

    European shares give up a portion of their sharp gains on the Fitch downgrade of Spain’s states. Stocks in Madrid +1.8% after being up nearly 3% earlier. The euro is back to near flat vs. the dollar at $1.37.

    The EC reduces the interest rate and extends the maturities of Ireland’s and Portugal’s bailout loans. With the EC cutting the margin over cost of funds to 0, Ireland receives a reduction of 292.5 bps and Portugal a cut of 215 bps. Any yet-to-be-released tranches of the rescue funds will have maturities bumped from 15 to 30 years. 

    European Commission president Jose Manuel Barroso says the EC will soon present options for the introduction of euro-area bonds, but warns the move won’t put an end to the crisis. Barroso told the European Parliament that the region faces its most serious challenge in a generation – "a fight for the economic and political future of Europe."

    Fitch downgrades 5 Spanish regions and puts them on negative outlook, saying the move reflects "the sharp fiscal deterioration seen in recent years which has led to sharp increases in debt levels." Five other regions rated by Fitch are not downgraded, but are put on negative outlook. 

    German Transport Minister Peter Ramsauer breaks with the Merkel party line, saying it would "not be the end of the world" were Greece to exit the eurozone. Ramsauer is the leader of Merkel’s coalition partner the FDP, which may vote against extending the EU rescue fund, and collapse Merkel’s government.

    Now THAT is spinning:  Bank of France Gov. Noyer calls today’s rating downgradesof French banks "good news" because they were not as steep asexpected. He calls talk about nationalization "surreal," saying it would make "no sense."

    To no one’s surprise, Berlusconi’s government wins a confidence vote for its austerity plan in Italy’s Lower House, clearing the way for a vote on the bill and passage later today.

    Greek bond yields continue to sky higher – the 1 year +858 bps to 143%, the 2 year +260 bps to 79%, and the 10 year +100b bps to 25.5%. A conference call between Papandreou, Merkel, and Sarkozy is scheduled for noon ET, with the French at least publicly vowing to play hardball before allowing further bailouts. 

    Credit Suisse’s Jinsong Du recommends unloadingChinese property developer shares as recent data shows  a disconnect between residential investment and property completions. Du posits this flags that developers are running short of cash with which to pay construction contractors. "A credit crunch is coming," he writes.

    Avis (CAR +2.4%) says it is dropping its year-long bid to acquire Dollar Thrifty (DTG -0.7%) "in light of current market conditions," leaving Hertz (HTZ +7.7%) as the sole bidder for Dollar Thrifty. Since Avis’ June deal to acquire Avis Europe for ~$1B, financing has become more expensive amid market volatility, partly leading Avis to drop its bid. 

    Bank of America (BAC) is leading a new ramp up in foreclosures sending out 200% more notices of default in August than the norm in previous months. The numbers suggest a new rush of foreclosed properties coming to market and a reversal of recent marginally positive house price data.

    BP shares surge in the wake of a WSJ article that suggests blame for last year’s Gulf of Mexico spill could be apportioned more widely than initially thought. Any indication that BP wouldn’t be held solely responsible for the accident reduces the chances of it being found grossly negligent. BP +4.1%RIG +0.8%,HAL +0.9% premarket. (also

    Philip Morris (PMincreased its dividend by 20% to $3.08 per common share – a striking yield of 4.7% at yesterday’s closing price. Tobacco stocks are starting to fall back in favor with analysts, as underlying fundamentals begin to outweigh legal risks.

    Alcoa (AA) signs a letter of intent to form a joint venture with state-owned China Power Investment Corp. that will focus on producing high-end fabricated aluminum products in China. Earlier this year, the two companies signed a memorandum of understanding to cooperate in ~$7.5B of potential investment on projects during coming years. AA +1.9% premarket.

    A day after Brean Murray upgraded MGMJefferies is reiterating a Buy and $19 PT, following a meeting with management. Jeffries believes fundamentals at MGM’s Las Vegas and Macau properties are improving in spite of macro troubles, and thinks concerns about sales from major shareholders are overdone. MGM+2.1% premarket.

  19. Hi Phil — your previous bear put spread on VXX for sept 45/40 with sale short call 45, would you do the same trade for ocotober mos, or too risky..thx

  20. DUK has 2014 Options out now.  Talk about being prepared….whoa.

  21. Phil/Magic
    Are you considering RUT 697 the magic mark?

  22. Pharmboy:
    Depo getting lots of love lately.

  23. Pharmboy -

    Do you know much about PCYC?

  24. Wheee!

  25. Aus Housing/Burrb – They only have about 7M houses in the whole country!  I guess you could short Aussie banks but I’m not sure what the Government there does to support them in this situation.  You can’t count on it being like the US because they have lots of money and strong exports and there are dozens of tools they can use to proactively control a $1Tn housing market (mortgaged) in a $1Tn economy.  That would be like the US having a $30Tn GDP with the same debt but, even more so as Australia’s total national debt is just $70Bn – but they still have a debt clock (it’s such a cute little thing)!  

    BP/JMM – Good call, hopefully that’s the end of their fear cycle.  Still a good buy at $38 for people who aren’t in them (and we did TOT in last night’s chat as well).  BP can be bought at $38 and the 2014 $35 calls can be sold for $8.20 along with the $30 puts at $6 for net $23.80/26.90, which is 29% off if put to you and 45% if called away with a $1.68 dividend while you wait, which is 7% of $23.80 – not a bad place to park money for a couple of years!  

    Thanks Chaser!  Geithner didn’t say anything particularly positive so nothing to support the move up and certainly not enough to push us over RUT 700 – especially when the IBanks are working so hard to shove the markets down.  There’s a meeting on Greek debt this afternoon, about 1pm and we have the 30-year auction so maybe in the afternoon we pop (or maybe we double top).  Either way, 700/11,100 is a good spot to get a little more short until we break over!  

    GMCR/Lincoln – So you owe the Oct $92.50 caller $19 with GMCR at $108 (congrats to those who shorted yesterday!).  With earnings, I think it’s a terrible  shame not to roll up to the $105s at $10.50 because, even if they go higher, at least you capture some premium.  What if you sell 2x the $105 puts for net $21 (+$2) and spend $2.70 on the $125 calls to cover 1/2.   If GMCR hits $125, you would have been out $32.50 on the $92.50s anyway and, with the $105 shorts, you’d be out $40 so $8 worse if that happens and, above that, it would be the same 1x loss.  On the other hand, all GMCR has to do is fail to hold $105 and you get $17.30 back and you are better off on any finish under $120.  Also, keep in mind the Oct $105 calls can be rolled to the Dec $120s (now $9.75) and that’s $27.50 better off than you are now.  

    S&P/Pharm – That makes sense as 1,200 is our next level of stock market Kryptonite.  

    JPM/Morx – Hard to say if it’s really bearish betting or just longs who are using puts to ride out possible bad news.  

    JNJ/Exec – They just have too many medical device recalls and I’m of the opinion that they have a poor culture in that division at this point.  If they spun off devices, I would love the consumer products company but you have a potential disaster every day with those guys.  Also, retail sales today indicate consumer is choking – not so good for JNJ at early stages of a decline.  Eventually, they become a buy as they sell a lot of necessities but not at the beginning of a drop.  That’s why they were on our Long Put list.  

    Speaking of the Long Put List – we just went over it in the weekend Range Trading post (under Friday).  Those are all great protection while the VIX is down a bit and the market is up. 

    Dollar zooming up to 77.77.  XLF cliff diving back to $12.34.  Oil $88.85 ahead of inventory.  

    LDK/Scott – Anything you REALLY want to buy at the net strike of the short put is a good offset.  I just list whatever I see that looks particularly attractive at the moment.  

    Ending badly/Pharm – Can’t see it.  

  26. what happened?? dxy?

  27. Jim Chanos is always the one of the best guest on CNBC:
    Chanos on China: We’re Long Corruption, Short Property

  28. That’s a lot of money in these loopholes:
    The biggest one being the deductibility of healthcare premiums will cost the government about $650 billion over five years.

    This is something that proponents of private health insurance don’t often grok: that it’s heavily subsidized by the federal government already, due to its tax-exempt status. And it stands to reason that if the government is going to spend hundreds of billions of dollars a year subsidizing private health insurance, then it ought at the very least to get some kind of control over the healthcare industry in return. If you want to keep the system fully private, then fine, but don’t ask the government for massive subsidies at the same time.

  29. Short interest/StJ – That much short interest is usually wrong.  

    PCLN/Rehat – Less dependent on the Dollar.  PCLN is totally different than CMG as they make fees while CMG has to produce a profit in a thin market environment.  CMG has massive fixed costs while PCLN is a web company.  You can’t just classify them both as MoMos and assume they will track each other.  Also, PCLN is not on my MoMo list, they are a very solid company with expanding revenues and, even more important, they have Captain Kirk as a spokesperson.  

    This feels flushy to me folks.  Be very careful not to fall in love with the bear side!  

    Electoral votes/StJ – Amazing isn’t it.  Defenders of the constitution perverting it at will.  

    VXX/Gucci – The key to playing the VIX/VXX is ONLY to play it short when it’s in the 40s.  While still high at 37, 47 is not at all out of the question so I don’t even look at playing it unless it’s over 40.   

    Big crude draw of 6.7Mb but offset a bit by 2Mb build in gasoline and Distillates up 1.7Mb.  Considering production and deliveries were shut down from the storm last week – this is a bearish report.  We’ll get more details at 1pm but expect the usual fake rally off the headline draw and then the actual sell-off with 161M open barrels so 130M to roll out in the next 5 days (including today) is quite a job when the next 3 months already have over 550Mb.  

    Click for
    Current Session Prior Day Opt’s
    Open High Low Last Time Set Chg Vol Set Op Int
    Oct’11 89.88 90.25 88.53 88.92 10:21
    Sep 14
    -1.29 72965 90.21 161642 Call Put
    Nov’11 89.99 90.31 88.60 89.04 10:21
    Sep 14
    -1.24 23462 90.28 259664 Call Put
    Dec’11 90.09 90.41 88.75 89.18 10:21
    Sep 14
    -1.21 14933 90.39 201095 Call Put
    Jan’12 90.16 90.53 88.98 89.36 10:21
    Sep 14
    -1.16 7495 90.52 97137 Call Put

  30. another child killing axe wielder in china

  31. In talking with my bond junkie, it was noted that even though China bought Italian bonds yesterday, they most likely hedged with a country that is worse off than Italy.  So, in essence, if they win on Italy, they make a bundle, if they lose on Italy, they make a bundle on the hedge of another EU country…..


    PCYC/David – yes, we played them last year and made a little, but got out.  Their HDAC ihhibitor is ok, but there is so much competition in the area, that I am not inclined to buy until one is claimed the best in class.  Their compound has not been anointed that as of yet.

  32. Does anyone know when JR will be back?

  33. Business Booms in September’s Third Session at Keeneland’s Yearling Sale…………just an observation sales of high priced race horses dropped prior to the last economic downturn…..slowly working higher again…..

  34. things are bad here but those brutes make us look like the poster child for utopia…and that is a stretch

  35. hey whos hair is better ricks or mitts?..(phil i am not including mishy here!)

  36. 697/Exec – Well rounding it up to 700 yes but just making it is not enough, they have to hold it.  

    Dollar topped out at 77.82 on that run, now back to 77.66 again.  TLT popped $1 and maybe they are looking for a good 30-year note sale before letting things switch back to equities.  

    Oil couldn’t get anything going – perhaps NYMEX overhang was too much for them.  Let’s watch $87.50 as a possible place to stop out 1/2 the Oct $34 puts in the $25KP.  

    Chanos/StJ – That’s a good one.  Health care subsidies are just ridiculous  - buy the best plan, get the most aid.  

    China/Angel – And those are only children!  

    JRW/Exec – Maybe the fish caught him!  

    Dow volume 40M at 10:45 – about average (the new, slow average). 

    SODA back at $42.75, GMCR failed $109, NFLX hanging on with CMG but not a good day for the MoMos so far. 

  37. If they push the dollar down won’t that hold oil up even though they have to roll all the barrels?

  38. emember all the whining by the fast money guys that aapl was done earlier in the year…its up 45% last 12 months…s&p +6.5%…asshats..i mean SOPHOMORIC TWITS  bloomy saying now – china willing to buy bonds from sovereign debt crisis nations…"willing"

  39. ASSTERITY/TAXES everything i hear is blah blah blah about whether or not europe saves greece….the problem is much bigger than that….the SOLUTIONS they are implementing across europe are pushing their economies into recession…just imagine if we started massively hiking taxes here which would crush conservatives confidence and massively cutting spending which would crush liberals confidence….THAT IS WHAT THEY ARE DOING.


  41. IF you have not covered DEPO, I would here with the Oct 7s……I really think this baby is going down.  I am DD on my SPY 111 and 110 puts. No covers.

  42. Pharmboy:
    DEPO? Why "…….think this baby is going down"?

  43. If you did not buy back the 117 SPY C calendars, now is the time or by EOD at the latest!  118s should be bought back by EOD or early tomorrow.  We are up on those by about 5-10c/contract..but as the grid goes on, we should see it widen.


    As a housekeeping note, I will be out Friday – Wednesday.  Will try to check in AH, but during the day, I will be unavailable.  I will set up a SPY calendar on Thursday evening for over the weekend.

  44. DEPO – sorry, not this stock (well, it will move with the market which is why I would cover)….I think the market in general is going down, hence my DD on SPY 110/111 puts.

  45. One of the things that worried me this morning was CNBC kept playing the segment of the Cramer interview with Geihtner where the Treasury Secretary said there was "absolutely zero chance" Europe would let their banks fall like Lehman did.
    Of ccourse the futures markets rallied on that comment.
    Maybe CNBC should have gone into their archives and found the clip of Geihtner saying there was "absolutely zero chance" of US Treasury securities losing their AAA rating. 


  46. Pharmboy:
    That’s what I thought you meant. Still covered regardless. Thanks for clarification.

  47. Closing the sold SLW calls here from yesterday’s close with a 50% gain, man I love playing that baby.  Craig, maybe you could send me your code and I could refine the Craigbot into the SLWBot and automate trading the swings on this baby…

  48. i am thinking of buying microsoft i only have a few equities…who likes they have a little cash

  49.  FXE / Phil,
    Thoughts please on your recommendation from Friday… "FXE great idea by Pharm!  $136.70 is CRAZY LOW and the Sept $136/137 bull call spread at .60 can be fully funded by the sale of the $135 puts at .72 or you can give yourself more cushion selling the $134 puts for .47 – those can roll to the Oct $125 puts, now .54 so we’re talking about almost a 10% drop before that trade gets ugly!".
    I have the Sep 136/137 bcs funded by 134 puts. Hold or fold? While this was under the water for the most part, there’s a small profit now. Thanks.

  50.  MSFT is a bedrock position in my portfolio.  Have a buy/write position on them that has cycled twice now.  They trade in a steady range from 24-28…mid-range now, but I just sold the Jan 12 24 Puts for $1.19, which made sense for my play.  Windows 8 due next year….very interesting stuff.  They are ground up creating an OS for touch screens.  Our desktops will be touch screen capable with it.  They are also re-formatting the screens and going away from the desktop/icon model to reduce clutter and make it more intuitive.  With the success of Windows 7(ok the migration was a bitch, but the OS is MUCH better than XP or Vista), Windows 8 could be a winner as it is much of the same design/engineering group.  They are also porting it to pads and Android.
    Additionally, Xbox is becoming dominate in the game console space, and kinect(konnect) is throwing off good revenue.
    If Ballmer resigns, there’s a free 10% pop.  Plus they have a rather large cash position, which they could do something with, although their acquisition track record is not that great.  However, they have a history of special dividends to reduce cash, so who knows.  I like them and will continue to maintain them as a core position and attempt to add below $24 and trim above $27.50.

  51. angel
    Microsoft? I think your early but long term Apple must change or they will only have the lowest powers in computing. People have Macs, business esp. big have PCs for a reason. Now all the apple pies jump on me, I do know a PT clinic with 3 employees that uses IMacs and the Apple store. Only my oppinion!

  52. dax finishes up 3.3%

  53. hoss
    Good points!

  54. Phil:
    Still like EDZ here? I am holding naked sold Sept $29 calls (from previous BCS trade). I am hoping they expire Friday and then I want to initiate another on EDZ. Looking at OCT 24/30 for $1.55 selling puts on VLO or something else.

  55. thank you so much for the msft feedback!

  56. Phil – have a question about the recent action on YRCW when you have an opportunity.
    The upcoming stockholder vote and stock dilution is hardly new news.  Taking less than 10 seconds I found the latest article on Yahoo Finance dated Aug 18 conveying the date of the stockholder vote (which is 9/16).  The stock price then stayed in a range of .60-.80 for a period of three weeks until Labor Day where it closed at .74.  Since then it been smashed down to .34.  What are the factors that would hold the price up until the action date is close?  Why is the selloff confined to a time period so close to the actual occurrence of the event?

  57.  conf call in 20 minutes between Germany, France and Greece

  58. exec
    Have you noticed JRW knows when not to trade? He even knows when to vacation! For that is what I call an indicator!

  59.  Italy is prepared to give up "all sovereignties necessary" to allow the creation of a European central government," citing Foreign Minister Franco Frattini. The European Union’s existing contracts should be extended or changed if necessary to incorporate a "stabilizing finance mechanism," according to the report. The ECB should gain a "political role," while remaining an independent institution, Frattini said
     or maybe their problems are that bad that they think they have no choice…either way its bad

  60.  Phil
    I am in a AAPL 300/360 OCT bull call spread, having sold 300 puts to finance (your suggestion from a while back, thank you). Looks like its completely on track and I have bought out the 300 puts. Would you suggest splitting the 300 to 2x 350′s and rolling the 360 up to 380 or 390? Thanks!

  61. See, I told you not to fall in love with bear bets!   Now don’t fall in love with your bullish ones and you’ll be fine…

    Oil bounce off $88 as the Dollar got slammed back to 77.50 – what a joke!  

    Dollar/Joe – Usually but, at this point in the contract cycle, without something firmly bullish for oil price, the people who are holding October barrels have to think long and hard about about whether they want to pay $1,000 per contract to roll them forward into what could be an even worse month in November.  Also, a lot of traders have tax considerations so rolling to Jan is not an option so it’s very possible we get a nice, juicy sell-off – regardless of the Dollar (within a normal range). 

    China/Angel – So the Premier of China lied this morning or Bloomie is lying now?  

    Austerity/Angel – You can’t save your way out of a recession.  It’s lunacy!  

    Geithner/Angel – Or the clips of him saying there was no chance LEH or BSC would fail

    FXE/Sank – It’s a net .13 trade and FXE is currently $136.53 so you get .53 if they finish here.  Downside risk doesn’t seem too severe so you are risking .13 to make up to .87 still but, of course, the bull spread is currently .57 and the short puts are .18 for net .39, which is up over 100% but really that’s "on target" since it’s a 400% trade over 5 days so we should be up 100% by now.  If it makes you nervous – of course take the profit because it’s a coin flip whether it pays or not.  The idea of the trade was to risk .18 to make up to .82.  Now you are risking .39 to make up to .61 more so getting to about the correct odds.  What we did was take advantage of better odds and that part of the trade worked – the rest is up to your risk tolerance.  This is why Rule #2 is "When in doubt, sell half."  

    MSFT/Hoss – Good analysis.  I like them better at $24, of course but you can get that by selling the Jan $24 puts for $1.19, which is an excellent stand-alone play or a great offset for a bearish bet.  

    Computing power/Shadow – I think computers are kind of in overkill at the moment.  Until they make apps that need more processor power and power processors that aren’t power hungry – I think AAPL is pursuing the right strategy in portable computing.  

    EDZ/DC – $25 is usually where they top out.  I’d be pretty confident with Friday’s short $29s.  Europe finished well and if we do too then EEM bounces and EDZ falls so a good time to book those profits.  

    European shares close another volatile news and rumor-filled day sharply higher. Stoxx 50 +2.3%, Germany +3.4%, France+1.8%, Italy +2.5%, Spain +2.7%, U.K. +1.3%. The euro is marginally higher vs. the dollar at $1.3704. Still to come is the Greco-Franco-German conference call, now slated for around 1 PM ET.

  62. shadow / JRW — that’s because he IS the market ;)

  63. we all know how well th elast tiem italy aligned as a jr partner with germany worked out

  64. $ – 77.50

  65. Phil/TGT:
    People are insane for Target. My wife just said they are completely sold out of cloths; in store and on line. Actually, she called to tell me how excited she was she found the last XL child sweater and IT FIT HER! And then someone stopped her on the way to the cash register to ask where she got it becuase they wanted one too.
    Anyway, I just traded a Jan 50/52.50 BCS for net $1375 that’s $1500 ITM. So, Phil, I must be missing something as this seems too good to be true. Heck, I may go back and sell puts now.

  66. i swear if merkel comes to the next g7 meeting in a uniform……

  67. Thanks Phil/EDZ. I will sit tight and quit looking for reasons to trade! Sheez, I am like a junkie sometimes, but way better than I was!

  68. YRCW/Chuck – The simple answer is because investors are idiots.  Pros use options and we were able to sell 2013  $1 puts for .90 and .95 all along – that’s what the stock was worth.  That doesn’t stop very insane people from buying it though.  The difference between you and the average retail investor is you took 10 seconds to look at an article rather than hearing Jim Cramer hit the BUY button in a lightning round and running straight to your computer to order 1,000 shares.  To some extent, there was probably some arbing that they would get bought first or that the company would form a new plan and now, as time is ticking down to the meeting – those possibilities are diminishing and the stock is heading down to it’s more likely price of about .10.  My premise is .10 is a fair price anyway and that YRCW diluted with no debt may be worth more than 10x what YRCW was worth undiluted with lots of debt.   It’s totally a gamble and they still may go BK but, as I said at the time, if you can afford to lose $1,000 in Vegas then selling 100 puts for $9,000 and possibly losing $1,000 in 2013 isn’t a bad gamble comparatively.  

    CC/Angel – I thought 1pm? Interesting on Italy, are there links to the full statements or is that off the news feed?  

    JRW/Shadow – The hardest thing a trader has to learn is when not to trade.

    AAPL/Deano – Good job locking in the short money.  Not sure why you want to mess around with it into earnings.  Are you looking to be safer?  I super-doubt AAPL misses but your $300s are $90.50 so you can take 50% off the table by rolling them to the April $385s at $44.70.  That leaves you with the April $385/Oct $360 spread, which is bearish but those $360 callers are $36.30 so $7.30 of premium to burn off anyway.  If you want to be more bullish, you can roll 1/2 of them up to the $380s at $22 so you net about $34 off the table and end up with the April $385s, half covered with Oct $360s and one half with $380s so a bit bearish into earnings but you can always sell some $370 puts for $9.50 to help fund the roll if they go higher and, if they don’t, you can roll the short puts along after your callers are wiped out.  

    Looking a little double toppy intra-day now but take it with a grain of salt with the EU meeting coming up.   Good time to get those DXDs if you felt like an idiot when we dropped before!  DXD Friday $20/21 spread now $20 and you can sell those MSFT Jan $24 puts for $1.20 and buy 5 of them and still net $23.80 for MSFT or you can sell VLO Oct $20 puts for .87 and buy 4 and worst case is owning VLO at net $19.93.  

  69. YRCW – for those who use IB as broker.
    If you are having simple margin account – the way they calculate margin has an big issue. When you have that much premium margin on short puts becomes greater then strike price.
    Currently selling Oct 0.5 put would cost you 0.58 in margin. It obviously doesn’t make any sense.
    I’m arguing with their support for a week now, without much success.

  70. new feed…yah think about it..the  italians would do anything to get the money you think th eitlains will change much…fuhgeabboutit!

  71.  Phil,
    YRCW/ I see that OCT $1 puts are .92 bid and .93 ask. Is there a reason to sell 2013 rather than Oct?

  72. wow the world waits and listens for th eslightest nuance form th esubtle franch germans and greeks

  73. Phil
    I did mean Apple in portable market and for personal use, we have more computing power than needed, Last night I turned my processor’s clock to the lowest speed and I still only use 10%. It does use all the RAM and it is maxed out with every slot filled and running at the fastest speed. If you put that in an IMac it would melt. The biggest gain would involve brand new "efficient" operating systems. What we have now are more or less RAM pigs, too much buffering to hard drives and slow internet speeds, 30 meg to 3 gig, the center of an hour glass.

  74. TGT/Dshear – Good day for it as sector volatility is high.  They are a great retailer for the long haul and what I see there is that middle class parents don’t have the stigma shopping at TGT that they do at WMT but the clothes at TGT are so cheap, that the people who are going there for the first time back to school and are used to mall prices are loading up the carts like it was Costco.  That’s just what I observed at our North Jersey store as I took the kids there and felt the same way.  My daughter’s are used to strict limits on clothes at the mall but, at TGT, I said "get whatever you like." 

    Sitting tight/DC – Good plan.  Look at this nonsense today… 

    12:00 PM On the hour: Dow +0.46%. 10-yr -0.04%. Euro +0.29%vs. dollar. Crude -1.05% to $89.27. Gold -0.23% to $1823.35.

    July Business Inventories: +0.4% to $1,526.2B vs. +0.5% expected and +0.3% last month. Sales +0.7% to $1,197.7B. Inventory/sales ratio falls slightly to 1.27 from 1.28 last month, and vs. 1.29 a year ago.

    Far from being a port in the storm, Canada may beat out the U.S. and the EU core to become the 1st to re-enter recession, says Scotiabank. The unexpected contraction in Q2 GDP may not be a one-off deal, as hiring has yet to bounce back in the first months of Q3.

    Treasury Sec. Tim Geithner asserts Europe has the "economic and financial capacity" to deal with its troubles on its own, even as he bemoans the "terribly damaging political dysfunction" he sees on both sides of the pond. Geithner also expresses skepticism about a Republican proposal for repatrating offshore profits.

    As NYSE short interest soars to its highest since July 2009 – 14.9B shares, a 484M-share increase from the prior week, Josh Brown thinks the recent stock bounceback could set up a short-selling panic: "All we need is bailout talk from the ministers across the water… would be like striking a match in the gunpowder room."

    Already purchasing $20B/month of government debt with the proceeds of maturing bonds, the Fed next week will likely just announce an increase in its targeted duration, says Antulio Bomfim of Macroeconomic Advisers. One current meme - that of the Fed cutting interest paid on reserves – "could backfire," he contends. 

    Rates are WAY too cheap:  Intel (INTCannounces it will offer 5, 10, and 30-year notes, with each set of notes having a value of at least $500M. In spite of possessing over $13.4B in cash and investments as of July 2, Intel will primarily use the proceeds to pay for stock repurchases – a sign that, like many other tech names, most of Intel’s cash resides offshore.

    Opinion may be divided whether it’s frontrunning of Operation Twist or old-fashioned fear of European banks leading the drive into Treasurys, but nearly all predictions for the 10-year don’t stray far above 2%. Even Morgan Stanley – known for being on the high end of forecasts – looks to be falling in line with its hiring of well-known low-growth forecaster Vincent Reinhart as its new chief economist.

    An "insane" datapoint from Barry Ritholtz: Bank of America (BAC) is getting rid of more employees than the total number of employees at most of its largest U.S. competitors. Even more insane: The employees are not the source of BofA’s distress. Ritholtz says it’s an example of the evils of the bank bailouts, which "created a huge, unmanageable, anti-competitive bank."

    Charlie Sizemore says no, Europe is not another Lehman, but he’s not too convinced that he’s right. A Greek default shouldn’t mean Spain and Italy will tumble too: Spain has modest debt, and its deficit is being pared; Italy actually is running a surplus. "Yet none of this matters if investors panic and dump the bonds en masse, sending interest rates soaring to the point that a collapse is all but unavoidable."

    Speaking in Rome, German economy minister Roesler – while praising Italy for showing budget discipline – says his government "expressly opposes" eurobonds, and the recent High Court ruling forbids them anyway. Merkel was quick to shoot down Roesler earlier this week for his musings about Greek default. 

    The coming collapse in the euro is going to offer the buying opportunity of a lifetime in "dirt cheap" European shares, writes Matthew Lynn. "Countries bounce back fast once they are liberated from dysfunctional monetary systems – and equity prices bounce back even faster."  - Only if you have the cash to deploy! 

    Workers of the World uniting:  Thousands of workers at Freeport-McMoRan’s (FCX -1.9%) massive Grasberg mine in Indonesia will begin striking Thursday, as negotiations for higher pay break down. This will be the mine’s second strike in three months, and follows recent strikes at the company’s other mines in Peru and Chile. 

    "For the first time in three and a half years… you can begin to invest fundamentally and make money," Meredith Whitney says, but focus should rest on U.S. states heavy in agriculture, and away from places where recovery from the housing crisis remains elusive. "Housing is not coming back," she says. "Let’s power the drivers that are highlights of the U.S. economy and focus on that."

    Gina Smith’s observations at Microsoft’s (MSFTdeveloper conference make her think the company has been scared by setbacks into acting like a startup. Smith sees a Microsoft moving aggressively to deal with the threat and opportunity presented by tablets, and one more willing to share information and deliver early product releases.

    Pickins Plan, stage 1: General Electric (GE +1%) takes down a cool $1B in orders for gas turbines in North America this year already, highlighting the push to use cleaner-burning natural gas for power generation. The drive by utilities to convert away from coal power plants could help lift shares of GE, say analysts.

    Hot on the heals of the Solyndra fiasco, the DOE finalizesa $1.2B loan guarantee for Abengoa Solar (ABGOY.PK) to develop a 250-megawatt solar panel project in the Mojave Desert. The facility will be supported by a 25 year power-purchase agreement with PG&E (PCG). 

    Another Cramer pick bites the dust:  Origin Agritech (SEED -22%) shares get hit after the crop-seed company misses on its FQ3, cuts its FY11 forecast and says its CEO has resigned.

    While some analysts have turned bullish on Research In Motion (RIMM) heading into Thursday’s earnings, Wedge Partners’ Brian Blair remains markedly downbeat. Blair thinks sales data for RIM’s latest phones is "mixed," and that its PlayBook tablet has been a "disaster," with end-user purchases strongly trailing distributor shipments.

    Research In Motion (RIMM -3.1%), which reports earnings tomorrow, is poised to miss estimates for PlayBooks sold during the tablet’s first full quarter and for expected full-year PlayBook shipments. “RIM overplayed the PlayBook in terms of its sales and prospects,” one analyst says, which will create pressure for big results from new BlackBerrys.

    Is the iPhone (AAPL) losing its groove? Among interesting tidbits from a Pew survey, young adults age 18-24 own more than twice as many Android (GOOG) phones as iPhones. Paul Ausicksuggests Apple introduce a price-competitive phone with all the features available on a similarly priced Android phone, and loosen its grip on the iPhone ecosystem.

  75. ram pigs now thats a pig i want to meet!! (SOPHOMORIC)


  77. Seems yesterday was the perfect entry for the suggested Dax/SP500 (+1AX/-3ES) spread. Dax goes wild today (;range=1d;compare=esz11.cme ;)
    or: all smart-moeny investors are PSW members ?? ;-)

  78. Another system point
    The big routers are designed for average volume. They have problems every time volume rises above average. Then there is our pathetic infistructure that we should have people working on. Jobs and competition are at stake in the present time. Real HD streaming is a joke, hang on Redbox, streaming is still a dream without these upgrades.


  80. What’s up (down) with TBT?

  81. Phil: I’m currently betting against the SNB (swiss national bank). I think they will fail to hold 1.2 EUR/CHF as soon as Soros and Paulson or another one of the big guys will have coffee together. What do you think? I think the downside risk is very limited. It looks like the SNB is trying some stupid buy at 1.20+ strategy instead of really burning the leveraged trades with some hefty spikes.

  82. you still looking for 87.50 on oil? Playing hard to get.

  83. Look at that spike in TLT!  Now we know the target…..

  84. angel
    Faster internet speeds like a gig!
    Second way more routing power. Things like those neat graphs we use lock up when the going gets tough. I doubt I will ever fund my schwab account, powerful software that fails every day, like 10 minutes ago for a half hour. My system can run 4 screens on etrade pro, 5 on SSedge 2 on SSpro, PSW, Algo systems, dollar and oil futures, 2 screens of etrade web site for research, my custom screen, and check email without a sputter. All the failures are who I have running overloaded. And I never have to restart my system just wait for the rest of the world to catch up. I sure can’t watch it all but it’s all runing all the time, almost the same things on etrade pro and ssedge, edge bogs go to pro.

  85. angel. LOL.
    Well, whatever they drink…

  86. THE SHADOW KNOWS/ tell me what your trading set up is if you would shadow

  87. the drink our blood

  88. Import/Export into LA area (40% of US traffic)….that is not a good sign when it is pointing down.

  89.  FXE / Phil,

  90. that was a key article Phil pointed out.

  91.  If the euro is destined for failure, don’t the Jan13-110 puts at a couple of bucks seem ridiculously cheap?

  92. Very depressing to read….but worth it.

  93. YRCW/Ober – Yes because the idea is to pocket the money and give YRCW a year or so to gain value, not to bet on the outcome of the new valuation.  

    New OS/Shadow – Well there you go.  You could be the next Billy Gates if you can come up with that one.  It would be nice and, frankly, I think they should go back to DOS for phones and they could just store friggin’ phone numbers and dial and the battery would last a month!  

    Now the RUT can’t even test 700?  

    DAX/Pentax – Yes, nice move back on EWG too.  

    TBT/Rain – The 30-year auction went really well.  Just $13Bn, I don’t see what all the fuss is about.  TLT getting back over $113 where we like to short them – hopefully they get to $114 again. 

    SNB/Pentax – They can print as much money as they want and any deal out of the EU will send the Euro shorts covering in a squeeze so I’d be very careful going long SNB when their own Central Bank wants you to fail. 

    LOL Angel!  

    Exports look pretty good on trend, Pharm.  I guess that weak Dollar policy does work over time. 

    OK, now we are breaking higher – just waiting for the RUT to confirm but Dollar failed 77.50 finally

    01:00 PM On the hour: Dow +0.82%. 10-yr -0.12%. Euro +0.34%vs. dollar. Crude -1.81% to $88.58. Gold -0.45% to $1819.35.

    01:08 PM The Treasury sells $13B in reopened 30-year bonds at 3.31% (.pdf). Bid-to-cover ratio of 2.85, vs. a recent average of 2.82; indirect bidders take 39.4%, vs. a recent 41%. Direct bidders take 17.3%, vs. a recent 12.1%.

    Thirty-year Treasurys get a boost after the long-bond sale: The 30-year yield swings -0.01 to 3.31%; the 10-year pares losses, yield +0.01 to 2%. Unlike the other auctions this week, this one didn’t come at a record low yield – that would be about 2.57% from late 2008.

    "Taxpayers are smart and know that any fiscal bone thrown at them today will most likely be snatched back in the future," say analysts from RBS, explaining the shortcomings of fiscal stimulus. "Operation Twist?" Sure the Fed can do it, but don’t look for the economy to benefit. Instead, get on board and buy long-dated Treasuries.

    Bill Gross & Pimco going long…again (Market Watch)

    With deposits continuing to flow out of the Greek banking system, state-controlled ATEbank applies to tap the Bank of Greece’s emergency liquidity assistance (ELA) program. "Greek savers can bring the crisis to a head, with or without Merkel," writes the BBC’s Stephanie Flanders.

    Fortress Investment Group (FIG) President Mike Novogratz thinks that while political dysfunction, fiscal problems, a weak economy, and Fed policy are all hurting the dollar, the greenback will still move higher simply because it’s in better shape than the euro.Novogratz expects EUR/USD to decline to the $1.25-$1.30 range by year’s end.

    What recession?  CRT Capital’s Michael Derchin moves bullish on the airliner sector, saying strong business travel demand creates an "unusual buying opportunity..for significant upside returns." Shares of Delta (DAL +4.6%) and Alaska Air (ALK +5.1%) post strong gains after landing on the analyst’s favorite buy rated ideas list.

    What recession?  IDC is lifting its 2011 tablet forecast to 62.5M units from a prior 53.5M, putting it ahead of forecasts of 60M from IHS iSuppli andUBS. The firm believes the iPad’s (AAPL) share of the market rose 2.6% in Q2 to 68.3%, though it thinks the arrival of new Android (GOOG) tablets will eventually bring the iPad’s share "closer to 50%."

    What recession? More from IDC: The firm is also lifting its e-reader forecast for 2011 to 27M units from a prior 16.2M, and expects the Q4 arrival of sub-$100 models from leading vendors to boost demand. In a sharp reversal from Q1, IDC estimates Amazon (AMZN) led the market in Q2 with a 51.7% share, while Barnes & Noble (BKS) came in second with 21.2%. (previously)

    Bank of America (BAC) replaces its usually bullish chief market strategist David Bianco just one day after his call for S&P 1450 over the next 12 months. Could it be another sign of how cheap stocks are? Uber-bulls don’t lose their jobs at market tops, you know.

    Are We Poor? (New Yorker)

    Running your home on sunshine is cheaper (Market Watch)

    Elizabeth Warren to challenge Scott Brown in Massachusetts Senate race (Washington Post)

    Three lunchtime reads:
    1) Buckle up for the market’s most vulnerable period
    2) Time to reconsider global dividend payers
    3) Biggest brokers consider banning market orders 

  94. Pharm, I pointed out that IMF report yesterday. The funny thing is that they report that austerity has a high correlation with lower income and higher unemployment, yet as soon as the IMF gets in a country like Greece, they start pushing austerity plans. Insane…. 

  95. Pulling out all the stops and still can’t break 700?

  96. Hopefully we catch a break on the FAS Money puts this week… But Fridays have been bad so far! 

  97. Dollar just got smacked down to 77.30 – looks like they are pulling out the stops now to pop the RUT.  IWM Sept $70/71 bull call spread is .60 and the $70 puts can be sold for $1, which is an aggressive way to play the breakout. 

    TNA Sept $42/45 bull call spread is $1.45 and you can sell RIMM Sept $27.50 calls for $1 or HPQ Oct $22 puts for $1.05.  

    Both trades conditional on holding 700 this afternoon.  

  98. angelcur / MSFT — Tepper and Einhorn like msft: David Tepper And David Einhorn’s 5 Favorite Stocks In Q2

  99.  Hi Phil, et al.
    Quick question on your opinion of JBL roll.
    Background is bought in Jan at $20.56 with June Buy/Write.  Netted $2.60 and rolled to Sept.  Stock is $17.25 so call will bring cost basis down $1.35.  Sept $20 put was sold for $2.15.  Cost basis without put is down to $16.61 minus some dividends captured.  I am thinking of rolling to Jan $20 call/put…….could roll down to $17.5 with dividend and premiums already recognized.  I like the stock a lot so just looking for ye old expert opinion on the roll :) .

  100. Euro/BDC – I don’t see things going that bad.  I don’t know if you saw yesterday but I had a chart for Greece’s economy and outstanding loans and you can see that this is much ado about nothing. Unless Italy and Spain go – there’s just not enough bad debt to damage Germany and France.  

    Austerity/Pharm – All need to understand this:  

    And an IMF report that analyzes austerity program, from the WaPo: IMF: Austerity boosts unemployment, lowers paychecks 

    In a new paper for the International Monetary Fund, Laurence Ball, Daniel Leigh and Prakash Loungani look at 173 episodes of fiscal austerity over the past 30 years—with the average deficit cut amounting to 1 percent of GDP. Their verdict? Austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

    More specifically, an austerity program that curbs the deficit by 1 percent of GDP reduces real incomes by about 0.6 percent and raises unemployment by almost 0.5 percentage points. What’s more, the IMF notes, the losses are twice as big when the central bank can’t cut rates (a good description of the present.) Typically, income and employment don’t fully recover even five years after the austerity program is put in place … if multiple countries are all carrying out austerity at the same time, the overall pain is likely to be greater.

    Under an austerity program, high income earners usually do better than lower income earners, and profits tend to bounce back faster than wages. Sounds like the current situation.

    Damn, nothing concrete coming out of EU – just more generally supportive comments.  May not be enough to give us a breakout but nothing to panic about either.  

  101. Insane/StJ – No different than the US Government having a bi-partisan commission do a year-long study which clearly indicates that taxes must be raised to balance the budget and then they go ahead and cut taxes further.  

    All stops/Rain – But at least they are trying.  Very nice of them. 

    Other indexes moving up fast, RUT may pop hard when it gets going.   Game on for bullish plays.  

    TLT Friday $113 calls can be sold for .90, $114/112 bear put spread is $1.12 for net .22 on the $2 spread.  

  102. What do you think about LRN?

  103. sbrownA / JBL — I have a bullish position on them as well. The 20′s will give you $5.25 an an entry of $14.75 or a 15% discount from here (today’s price). If you get called, you profit 52% for the year (not bad!) of course, you can always roll.

  104. Phil – Assuming the RUT holds 700 this afternoon, can the IWM Sept 70/71 bull call spread be held overnight? Or will we plan to close before the day is out seeing they expire Friday.

  105.  JBL/SBrown – So you are in for net $17.96/18.98 originally and then Sept roll dropped you to net $16.61/18.31 with the stock currently at $17.32.  That’s all that matters, the rest is just noise.  If you roll the put call combo to $17.50 even, then you are still at $16.61 but you drop the put-to price from $18.31 to $17.05 so the real question is has your target changed to the point where you should be giving up a possible $3.39 in upside (20%) to save less than 10% on a potential assignment?  Given the fact that you can always roll out to March whatever puts and calls (now about $5.50), I don’t think it’s worth retreating unless your target price has actually changed.  You could roll the Sept $20 puts, now $3 to the Jan $19 calls at $1.65 and the Jan $17.50 puts at $2.55 so you put yet another 10% in your pocket AND lower the put-to strike.  

    LRN/Lol – I like the idea of them but I don’t follow the company.  They do seem to be catching on with steady growth and their debt seems manageable but this is no hidden gem as they are priced for perfection with a 62 p/e.  Options are too thinly traded to be taken seriously but you can sell the March $25 puts for $3 and that’s how I’d initiate them for a cheaper entry.  

    We have liftoff!  Now let’s see if the RUT can hold up.  Oil is holding up at $88.50 but can’t get back over $89.  Gold $1,823, Dollar 77.27 so we’d better be moving up.  Euro $1.377 so go FXE!  

  106.  Thanks Phil.  My price target hasn’t changed so will stay with the $20 strikes.  Appreciated as always.

  107. buying SPY 120 calendar.  Sell weekly, buy Quarterly.  1.74.

  108. Check out the sector chart below (bottom of this page) – best possible rally with Basic Materials going down while companies that actually make stuff going up.  

    Dollar bouncing off 77.25 so be careful.  If they don’t go back over 75.50 this time, it will be a good sign that it’s flipped under the line but there is little conviction to the buying at the moment.  

  109. Pharm – close out the 118s or hold on? They seem to be going the wrong way now… 

  110. 118s, hold.

  111. FCX
    "Thousands of workers at Freeport-McMoRan’s (FCX -1.9%) massive Grasberg mine in Indonesia will begin striking Thursday, as negotiations for higher pay break down. This will be the mine’s second strike in three months."
    Thousands of armed Tea Party organizers are being airlifted to Indonesia to teach these workers not to be so damn selfish and try to think about the needs of the shareholders. So what if the price of rice is going up? Just eat cornflakes instead of rice crispies.

  112. IWM/Manimal – If they hold 700 then we have to assume the Bots will keep at it overnight and we’re trending up.  We may not go up fast enough to put that trade in the money though so it’s risky but as long as you REALLY like your offset, it’s worth sticking with as long as the RUT holds the 700 line.  

    You’re welcome Scott! 

    WFR is one I haven’t mentioned in a while.  At $6.88, you can buy the stock and sell the 2013 $5 calls for $2.70 and the $7.50 puts for $2.10 for net $2.08/4.79 with a very nice 140% gain if called away at $5 and not a bad 2x entry at $4.79 (30% off).  

    SPWRA is $12.30 and the 2013 $10 puts and calls can be sold for $7 for net $5.30/7.65, also a very nice entry to establish if not called away with a double.  

  113.  Closing spreads on tos / lflan, anyone,
    I found lflan’s comment from yesterday interesting – "If a stock is above the price of the spread at expiration then the spread gets closed out automatically (at least at TOS) and you will get credited the exact amount of the spread".
    I wasn’t aware that tos would do this for you, and on all occasions when I’m significantly in the money on a spread, I would close it out at about 90c on a $1 spread, and about $1.85 on a $2 spread on the Friday morning. For example, in cases where I’ve entered the spread at about 50c on a $1 spread, the additional 10c counts for about 25%, getting a profit of 50c instead of 40c. I have a couple of questions on this.
    1. Do you have to call tos to let them know that you won’t be closing out the spread, because they email you and call you if you haven’t closed out ITM positions by about 2:30 pm Eastern time?
    2. Do after-hours trades on the underlying on Friday impact the prices of options? And in such cases, would it be more prudent to just close out the spreads?
    3. Have you had actual experience with tos closing out the spread for you automatically and crediting you the entire spread amount?

  114. Phil
    Your my man, I learned to program in DOS 198? It isn’t used as it was and you have to play by the company rules which is you can’t get very far in, command promps, and play with their closed off crap. My problem with my main custom screen, can’t figure out how to do it. Boy do I know, Billy Gates wanted to hire me but at the time all I saw was playing games and dreaming! Remember the 8080 processor?

  115. I think Phil’s lobbying campaign is working.  The market has finally decided to be bullish – at least for today.

  116.  Phil,
    On the IWM Sept $70/71 BCS, selling the sept 70 put against the spread come out now as -12 when you sell the put. Is that correct? Thanks

  117. if spu gets above 1204 series of lower highs is off the charts

  118. angel
    I use JRW’s system with a few differences, Wm%R, Money flow, SRSI, 20, 50, and 200 SMA. I do projections on my main screen that I can’t run like JRW in real time "yet". I run pivot points and MOM at different periods plus all that is mentioned in his notes. You have to adjust those timeing factors from his based on what you run and screen size. Now SSedge has stopped the second time today, SSpro workes but very limited so back to etrade pro and all the rest. Confuence lines take my personal progrections, in progress and a calculator. That is why I mostly use his lines, it takes a lot of time. Wasn’t able to trade today for when day trading don’t even go to the bathroom.

  119. angel
    F in spelling      Projections!!!

  120. i go to the loo but i have a special evacuation unit i stand in like a sorry one eyed bandit freak…now what about your hardware shadow computer specs screens etc..? thank you so much

  121. i get an EF in all forms of typing..i am sorry …

  122. and spelling!!

  123. "Companies that actually make stuff going up" = not US companies.  We sell ideas and services! 
    That stings even writing it just as a joke.

  124.  pharmboy
    you buy put or call calendar?

  125.  LOL, CNBC just ran a bite from the Cramer interview where the Treas. Sec. say "Were follow your advice". Prepare yourselves. We will never see the end of that on CNBC.

  126. TOS/Sank – They do do it for you but it’s not a written policy so it’s hard to count on with large amounts at stake.  I have never had them NOT do it for me so obviously worth it to pick up the extra cash if you don’t mind dealing with the unwind on Monday if not.  I believe the answer is yes on after-hours action but you need to call a rep as there is no actual policy for it. 

    8080/Shadow – My Dad was a systems analyst and we had a computer the size of a refrigerator in his office that you could fry an egg on and it had a little green screen and he would use the modem (sound coupled) to call NASA and we’d play pong and lunar lander off their mainframe so, to me, the 8080 was AMAZING!  Back in the late 90′s, all I cared about was tech stocks (fortunate timing!) – seemed kind of obvious that was going to be the future although huge failure like LU made for rough waters there as well. 

    Lobbying/JC – Now I’m uncomfortable again.  I hate it when everyone starts to agree with me – I’m a lot more comfortable being the lone voice of reason in the wilderness.  

    IWM/L4 – What?  The $70/71 spread is still .60 and if you sell the $70 puts now for .65 it’s a net .05 credit but it changes every minute.  The idea of the trade was the .40 credit originally had a great chance of paying off, now it’s a .35 profit already, which is 1/3 of max so the move (if you bought earlier) would be to take the money and run on the short puts for a .40 profit and leave the net .25 spread with a stop at .50 and hopefully they end up at $1 for a .75 gain on the whole thing.  

    709 on the RUT – that thing’s a mover once it breaks out.  JRW missing the fun today with a 25 point gain on the RUT since the morning dip.  

    Stings/Chuck – Yes it does, doesn’t it?  

    Damn, Dow up 250!  What a sneaky run this was today.  Big squeeze in Asia overnight is possible so how about 20 FXI $36 calls for .52 in the $25KP. 

  127. tcha – both.  Massive short squeeze, and a $4 move in SPY.  Total joke.  P/C ratio is 1.5.  Waiting for the star to fall.

  128. This is getting a bit silly.

  129. i banks worked very hard to hurt us today this is a bullish sign

  130. Nkahn / cramer — I thought that’s what I heard! I hope that was creative editing and they drop it.

  131. Phil:
    Are there any "all is fixed, but really it’s not" short hedges you like here?

  132. Phil- Question about USO puts. I got 10 yesterday at about 6::55 am (Pacific) @ 1.00 as per you recommendation which was great and I’m happy.USO was then about 34.70.  But, now the puts are about .90 and USO is at 34.45 or so. Since these are OCT.’s, I didn’t think time decay would account for anything much less such a discrepancy in pricing given that the market is actually .25-.30 lower. Is this just an example of how f—ked up the Oil  market is or is there a legitimate technical reason. Thanks.

  133. Now we just want to close above that 11,340 line on the Dow we were looking for  and 1,200 on the S&P and 710 on the RUT and we’re set up to gap over 2,600 on the Nas tomorrow (or maybe today’s close) along with 7,300 in the NYSE and it will be PARTY TIME (like it’s 1999)!  

  134. Hedges/Dog – TZA is always good for medium and long-term.  Oct $40/44 bull call spread is $1 so you can just buy those with a stop at .50 and find a cheap offset that you REALLY want to buy if a stock drops 10-15% by Oct like RIMM Oct $26 puts at $1.30.  You can buy 2 TZAs for $2 and hedge with the one short put and, if you stop TZA at .50, then you still net $25.70 as an entry on RIMM, which is 15% down from here.  That’s a hedge!  

    SDS is also good on the rejection at 1,200.  The Friday $22/23 bull call spread is .70 and you can offset that with SPY 9/30 $109 puts at .70 for a free spread and only in trouble if SPY drops 10% in 2 weeks.  

    UUP is sort of a hedge against an EU collapse.  Oct $22s are just .28 and you can sell EWG $15 puts for .35 to cover those.  That’s another 20% drop in Germany in 37 days and they’re already down 30% so you have to figure 50% will hold at least for a bounce. 

  135. Some party!

  136. dreadful close thus far..all hft

  137. CNBC — I like when I hear that – two guys on the floor with opposite opinions. Puts me at ease.

  138. big volume eod crap!

  139. Keep in mind on the above plays, I’m not bearish but a neutral spread like that (if the market goes up) is a good way to lightly lock in some profits on the way up rather than dump out of bullish spreads that you’d rather wait for expiration or other bullish trades you think have some legs.  

    USO/Dog – Are you still in the $32 puts?  We rolled up to the $34 puts for .55 but same overall  Yes, there’s plenty of time and we still expect a nice sell-off in oil at some point – hopefully tomorrow but we’ll be thrilled to get half out at $34, which should be $87.50 oil.  That’s only going to be about $1.75 on the $34 puts and maybe $1.10 at best on the $32 puts so you have to be realistic in your expectations.  The VIX is dropping and that’s squashing the premium, which is why our goal was to roll up into bullishness.    

    Bad close but doesn’t matter when you have a net 1.5% day.  S&P NOT being rejected at 1,200 on the first try would have been the surprise but RUT holding 700 is what it’s all about.  

  140. little volume all day crap….

  141. Pharmboy, I am think about to sell MDVN Oct, 23 naked call for $3.50($3.35/$3.80), very good premium.  What is your take on this?  Thanks.

  142. Very weak finish?

  143. Thanks Phil-I didn’t understand the reason for the roll up to 34′s yesterday. Now I do.

  144. MDVN/bobhu – the hedgies love them and data are due out anytime.  I don’t like them at all, and I think their platform is crap, but what do I know.  Just be ready to roll!

  145. spikey eod thos into the selling bots had to unload

  146.  And THAT is why you NEVER chase…

  147. Keep in mind that 11,340 was our 5% rule so we expect a 20% of the 540-point run pullback of 128, back to 11,192 – that’s just the 5% rule at work – of course there are people taking profits on a 5% run, right?  

    Very lame volume finish, just 185M on the Dow but late settlements still hitting.  Now it’s up to the foreign markets and our beloved trade bots to keep this thing going. 

    That was another very exciting day – I’m loving this week so far!  

    Roll-up/Dog – That’s the idea of scaling in, especially with put plays as they do better when the market drops and the VIX goes up and the rolls get cheaper when the market goes up and the VIX crushes the higher strikes (that have more premium) fist.  That’s why, in the $25KP, we often start with a light, out-of-money entry and, if we make a quick profits – then find but, if not – then we roll and DD and take a proper stand.  

    Good point Manimal!  

  148. @Felipe
    "I hate it when everyone starts to agree with me.."

  149. This is the first day I can remember when GMCR was weaker than the market. I couldn’t find any news on it. Is it the beginning of the reality trip for that stock?

  150. Phil,
    I’ve got a sizable sum of money that I want to invest in a conservative portfolio (blue chip, dividend paying).  What would you suggest as the best method of position entry: (1) short puts, (2) buy/write, or (3) a combination of both depending on stock price, etc.  I’m looking to put in $5-10k per position as a starting point, hedged with a SPX put calendar spread (unless you have a better suggestion).  Thanks!

  151. My cousin’s show (he wrote it), Bonnie and Clyde, opens Dec 1st on Broadway!  

  152. "I hate it when everyone starts to agree with me.."
    Once he has converted all the world into wards of the state, he will turn to the true nature of things- Conservative. :)

  153. Phil, don’t worry. I don’t agree with you.

  154. Today’s levels.

  155. puerile

  156. I prefer callow.

  157. Phil
    Early 70s was working on IPARS then owned by Amereican Airlines. The computer center had a raised floor for cables and air conditioning feed up through all those big boxes, the terminals were IBM selectric typwriters, before video. The cool air was life or death so when it failed they broke a huge window to allow time to shut it down. I even remember replaceing a transistor on a nan gate card one bit. I loved fixing memory problems, like an easter egg hunt, iven around I had 4K memory chips, we changed them, fun tracking down. Another cool tool was a data scope, watch cobol on line. YOUR DAD WOULD REMEMBER!

  158. shadowfax? i remember shit like that. And it was easy to fix mainframes. just keep swapping components till it booted. Even finance types (like me) knew how to do it. Now those were the days.

  159. Actually, those days were wonderful because I wasn’t trained to do any of it, but yet, I was the only one who understood scientific method, which is how I became an "expert" and got a better job, and then, since nobody else seemed to want to, I started a business, got a book and learned how to write code, and since nobody else could, I sold service to a lot of people and made a fine living.
    Those days are over. And I am sorry about it.

  160. Welcome to the world of "education" and "credentials"

  161. FWIW:

  162. barfinger
    I didn’t just swap boards, another for me fun tool was a CE panel to actually load registers with 1s and 0s for a cold boot start, then next load a paper tape. I was too young for the card readers. When I wasn’t on the program side I was expected to find and label the actual component even if I didn’t replace it, the technicians soldered, I mostly changed memory chips that plugged in. That stuff was fun, I couldn’t believe how much they paid me to do it.

  163. IBM memories are special!!  In the early 70′s while a college student I had the best part-time gig ever at IBM as a "Supplemental Computer Operator."  Worked from 5 pm to 1 am two days a week and switched off Friday nights either 5-9 or 9 to 1. Was paid the princely sum of $2.75/hour to turn on the computer for the occasional after-hours renter of mainframe time. If something went wrong, I rebooted. If that didn’t work I called an IBM computer engineer. Mostly I got paid to study. Those were the days…

  164.  Pharm – what system is that?

  165. Shadowfax:
    I knew guys who did the 1s and 0s. It isn’t possible to transmit the excitement (or reproduce it) we all felt at the cutting edge of something but we didn’t know what.
    When something big is happening, anyone who can contribute was welcome and  often, well paid. What is that environment today, and how do regular folks get to experience it? If I get pessimistic, I suppose this is why. I believe it might be that we over-institutionalize things, as in, turn it all into a machine of sorts. This is not a political statement (Phil) but more regulation means less excitement for our young people.

  166. champ
    I was the computer engineer IBM 360 and 370 systems The sate of California’s system was about Walmart sized. Once working for raytheon I was adding what today is called a server connected to the main bus. The operator had to shut down and said 30 seconds by the time you get there it will be off. It wasn’t it crashed hard and took 3 days to get back up, never saw that guy again. Only bad thing, too many plane trips, rooms and crap meals.

  167. I quit when they took that away along with fix this, one page of code, no clue what was before or what it was supposed to do. Just before I quit I said whoever decided the problem is hear should fix it, I see nothing wrong.

  168. kurtww  - It’s Cobra’s Market

  169. Shadow
    The only downside to my IBM job was that I had to wear a coat & tie and keep my hair shorter than the average SMU student.

  170. champ
    That tie, remember well, was a killer, near 1980 I was allowed to take it off anywhere near drum printers. Hey all thanks for returning to very good times for me!

  171. GMCR/Barf – Not much of a trend but as least it looks like a top people can agree on. 

    Entries/Wassel – It depends.  If the stock pays a dividend, then it’s good to own.  You should always compare the value of short put vs. a buy/write vs. an artificial buy/write and they all have their trade-offs.  Part of it depends on how SURE you are that you want to buy 2x at the next level and, if so, then HOW do you want to be in 2x?  In other words, you say $5-10K on each position so I assume $25,000 allocations as part of a $500,000 portfolio – which is essentially what the Income Portfolio is modeled on so you would do well to read that back from the beginning and follow the logic there.  Notice we have a mix but what we select depends on many factors, including the VIX, the overall position of the market in the trading range, the position of the stock in the trading range, the cost of the stock, our exposure to the sector, our ability to cover it, what we expect our ROI to be, etc. So, like I said, it depends.  

    I think if I had to answer with the single best method of position entry the answer would be SLOWLY, PATIENTLY and OVER A LONG PERIOD OF TIME.  If you intend to build a portfolio for the next decade, then taking a year or two to fill it out makes perfect sense.  It’s like saying you have $10M to invest in real estate as your new profession and you go out one weekend and buy $50M worth of homes that were the best deals you found that weekend.  How do you think that would go for you?  

    We put up good value plays almost every day, you need to just find the ones that give you balance and that you feel good about owning for the long haul.  Aside from our Portfolio Tab’s many, many picks from this year, just today we had TOT, BP, WFR, SPWRA and MSFT.  All of them are cheap enough to fit in a $5-10K initial allocation and we have 2 energies, 2 solars and MSFT.  The trick is to get the first 5 things you really like and then take a step back, see how they are doing and see if you are diversified enough.  Then you make some adjustments and see what you need to find balance – over time….

    Big Chart – Notice Nas got harshly rejected at the must hold line.  It is, of course a 10% run from the bottom and a 5% run off the low of the 12th so they can be forgiven once but twice would be bearish so gotta watch them this week.  On the other hand, lines are looking nice and supportive for our other indexes.  

    70s/Shadow – That was back when Burroughs mattered.  Honeywell too.  You used to be able to kick those things when they gave you trouble and sometimes it would help!  Funny that mainframes were about $3M at the time (and that was money back then!) but they don’t have 1/1,000th the computing power of an IPhone.  I remember when I got out of college in 1985 that the 3090s could be upgraded to 128 Meg of storage for $5M and it was like – WOW!  

    Those were the days, we used to employ about 10 people to take care of the average mainframe – talk about a works program!  Maybe that’s what we need to do in America – come up with a brand new massively expensive but necessary dohicky that is essential for corporations to compete that requires armies of humans to fuss over it.  Instant full employment! 

    Good point Barf – you didn’t need a degree to fix or work on computers.  You could either do it or you couldn’t.  PWC, Coopers and Arthur Andersen took all the fun out of that game with their BS certifications so they could sell their own consulting services.  Bunch of accountants telling companies how to computerize – that was a bad idea from the start!  

    Good old days/Champ – Case in point, you had to babysit the hardware..

  172. Shadow- I like to brag that I took every computer course that my little college offered in 1970- one non-credit course! (Our one terminal logged on to the mainframe at Univ. of Pennsylvania. We took turns using it.)  We had one  math professor that saw the big picture and realized where this was going. Everyone else did not have a clue.

  173. Thanks, Phil!

  174. INTC’s  PC Client Group VP Mooly Eden announced earlier today the company has hit a milestone and sold 75 million of its second-generation Core CPUs (codename Sandy Bridge), making it the fastest selling platform for the company ever. . They’ve estimated they’re selling 1 million per DAY, which includes emerging markets.
    That’s a lot of silicon.

  175. Lot’s of computer talk today.. here’s some more!  I am SOOOO sick of using QQQ as my indicator for trading QLD/QID.  What was Algorasm’s net today you ask?  Ok.  You didn’t.  But in case you did I would tell you $1!  But what if Algorasm was using IWM as its indicator?  The net WOULD HAVE been $2100.  What’s the difference?  A volume spike in QQQ at 11:57am.  It blew me out of my long trade and the algo sat on its hands the rest of the day.  WTF was that?  And that was after eclipsing another ridiculous spike at 10:03 by a mere 50k shares.  But all it takes is 1 more.  FFFFFFUU QQQ!

  176. Treasuries as the new gold?
    I smell a bubble brewing! 

  177. And back in 1984:

    Greece theatened on Tuesday to veto longstanding plans to admit Spain and Portugal as members of the European Economic Community unless the organization agrees to pay poor South European farmers up to $5 billion in aid.

    Times, they are a’changin’ 

  178. France, more risky than California:
    At least as far as CDS as concerned!  

  179. Times are truly changing:

     As of today, 233 (46%) of the stocks in the index have a higher yield than the 10-year, and more than sixty pay out a yield of more than twice the 10-year.  


  180. Not trying to start something here (really!), but a primer in internet trolling is perhaps in order for some on this site…

  181. All / Taxes
    I was just going through some tax information, now that I am going to be trading full time, and also moving to Nicaragua.  I used to trade in a LLC, but closed that after a divorce.  I’ve been thinking about setting up a S corp and a LLC to trade through to lower my tax rates.  From my limited understanding, I can trade through the S corp, and somehow my cap gains will be taxed at max 15%, if I pay myself through the LLC.   Although I think once you setup as a company, a broker has to classify you as a "professional" trader.  Although I’m not quite sure.  I’ve also looked at using Traders Accounting ( a company to help you setup trading compaines).  Some of my information may be incorrect, as I just started my research.  
    Anyway, my REAL question is, what do others do?  Any advice if others have gone through the same thing?  

    Fitch downgrades Catalunya, Andalucia, Valencia, Murcia and the Canarias. It said they would downgrade five more Autonomous Communities.  Catalunya is the richest Community [GDP] in Spain, for one, Andalucia the largest — no little guys here.  When the central government initiated austerity measures, I heard anecdotally that the AC’s just ramped up their borrowing to compensate.
    Bottom line, Spanish fiscal pressure, in the aggregate, is probably increasing, given the high and persistent levels of unemployment. Spain’s misfortune was to suffer a Peseta-to-Euro-driven real estate boom beginning in 2000 that caused massive overbuilding relative to any likely projection of future demand.  The banks have inventoried most of it, and offer very attractive lending terms rather than reduce prices and trigger a giant markdown.  No predictions, but the elephant is still in the room.

  183. Spain / Zero – My sister who has her own consulting business (she actually helps other businesses get European grants and helps municipalities meet European energy savings goals – another story when you talk about European funding) in Barcelona is telling me that things are really bad now! Communities have no money, banks don’t lend to small businesses. Fortunately, she has clients in France to where money is not as tight yet! It’s tough to plan your finances when you get paid 12 months out if ever! Catalunya was so vibrant a couple of years back, but they have been hit really hard. On the other hand, I am not sure that the region has been best managed, but you would know better, I rarely talk politics with my sister. I have enough here! 

  184. Shadow
    Was in the Airforce in the late 70s early 80s and worked on aircraft simulators. The first one I worked on we programmed cards in assembly langue  then loaded onto a tape drive (three diffrnt copies kept in the safe) then ran the tape onto the drum. The facility was as big as a Walmart all on a 2ft raised floor, the system to simulate radar was almost half the size of a football field. The second simulator I worked on was even older row and rows of servo’s that we had to calibrate every morning. The last one I worked on was for the F-16 went all the way down to 1 row of Deck servers and actually had a 10 platter hard drive. The platters were bigger round than record albums.
    Been doing the same job for the last 29 years the changes in tech in the instruments I work on is simply crazy

  185. Phil
    Now that all my hedges expire on Friday was wondering how far out I should make my next set  should I be looking at January , March or further out ?  Was looking to go with Jan SPY 119/115 put for about 1.50 a set  for starters.
    Also enter the WFR, DF,TOT trades but those are for all purposes self hedged trades, the way you set the trades up?

  186. Good morning.

    Nothing very exciting going on other than Dollar rejected at 77.50 so a good sign for the bulls.  

    QQQ/Matt – That’s the problem with the live trading these days, they actively try to spike you out of the market prior to moves.  Keep in mind that 80% of the trades you see are bots so that means you are not being paranoid, they have plenty of milliseconds to zoom down to your level and identify your little pattern and try to take advantage of it.  Keep in mind, it’s not just the big boys doing this to you – people like you are doing it to each other.  ConvergEx is one company that sells algos to small investors that specifically look for tick-level trading patterns to bet against or with.  You should see if you can get a trial of something like that so you can get an idea of what’s out there.  

    The UK did a nice study of interactions between human and algorithmic traders which footnotes many other good papers on the subject.  A good thing to read if you are trying to design a trading system!  A key point they make is:  

    Humans are generally inclined to post orders on the book and wait for a match, whereas agents are more  likely to send an aggressive market order soon after receiving an assignment. While this strategy favours agents in faster markets, it falters under the experimental conditions chosen here. We flag this as a warning to carefully frame results in the context of the experimental conditions in which they are generated.  

    In other words – PATIENCE!!!  That’s one of our key advantages over bots is our ability to NOT chase trades and NOT overpay just because some silly signal went off.  As I’ve said in the past, if you generally trade $1 contracts and you only take your trades when you get a fill that’s .05 in your favor – then you will outperform someone else doing the same exact thing by 10%.  If you are a frequent trader – those 10%’s really add up fast!  

    Treasuries/StJ – I think they are past bubble but if they pop, we’re in big trouble.  If the markets ever begin to look stable, dividend-paying blue chips are just way too attractive vs. TBills for the TBills to attract institutional money.  If people begin allocating away from bonds – I’m not sure the Fed will really be able to control rates the way they are now without flooding us with new money.  

    Trolling/JC – While it’s nice to know they toss a few idiots in jail, it is a bit disturbing to see the Government deciding where to draw the line.  

    LLC/Burr – Well if you are moving to Nicaragua, you have to find out the rules there.  Why not the Caymans?  Then you can set up a Corporation that pays no taxes at all.  Keep in mind the rules keep changing and Obama’s threatening to take away the 15% rate that hedge fund managers pay on their earnings but I doubt Da Boyz will pass the increase because hedge fund managers know how to show a Congressman a good time!  The most important investment you will need to make is getting yourself a good tax attorney who works with a good tax accountant as a team – don’t just get two guys as this is really complicated stuff to set up properly.

    Speaking of tax dodges, in the UK, they have Spread Betting, which is a nifty way for people who live, say, in Jersey to make tax-free leveraged bets on all sorts of financial instruments.  

    Spain/ZZ – Not bothering the EU much, they are up another 2% this morning. 

    Hedges/Bert – It’s good to spread hedges over time.  If you have buy/writes that are 2013, then about half your protection should be in 2013 and 1/4 in something more medium-term like Jan, although with the possibility of a Santa Clause rally – March is safer.  Then you need some front-month hedges unless you have no interest in making profits on short-term drops – which is fine if you are a long-term investor with long-term hedges but if you are trading front-months, it is good to have some front-month protection as well.  Note in the Income Portfolio, we have had Jan IYR hedges and March DIA hedges since the beginning and we barely tough those but we do sell some front-month puts against them as a Mattress Strategy. 

    As far as the buy/writes – that’s correct, they are self-hedged against 20% or greater drops so always keep in mind that you don’t NEED the protection unless the market is dropping more than 20%.  Again, going back to the Income Portfolio, we have just $17,000 worth of IYR and $20,000 worth of DIA, both themselves hedged, protecting about $200,000 worth of positions because the positions are themselves hedged.  Over-insuring is a major mistake traders make as you end up betting against yourself and getting nowhere.  

    The SPY Jan $119/115 put costs $1.50 and pays $4 (up 166%) IF the S&P drops 20%.  If not, it’s $1.50 down the tubes.  That’s fine if you have buy/writes that make MUCH more than your $1.50 loss if the S&P flatlines from here through Jan but, if not – then what are you doing?  Let’s say you have $50,000 worth of buy/writes that you paid net $40,000 for and you expect to be called away at S&P 1,200 for a 25% gain in Jan ($10,000) if the market holds up.  So, what are you worried about?  You have $10,000 of built-in protection as in, if the market drops 20%, you still get your $40,000 back and getting your cash back when the market is down 20% is, in itself, a nice win – people just don’t seem to get that concept.  

    So what you really want to insure against is the market dropping 40% and costing you 20% of your $40,000 net investment ($8,000) but do you need to insure the entire $8,000?  If I have $40,000 cash to buy stock with the S&P at 1,200 and you tell me that I can have $35,0000 cash at S&P 746 – I believe I would take that deal!  $40K buys 33.3 units while $35K buys 46.9 units so I can buy 35% more stock for my less money on a crash.  Even if I took the loss to $32K, I can still buy 42.8 units so, assuming my initial 20% hedge holds up – I don’t really need insurance at all if I’m a real long-term investor and, if I’m scaling into the positions with cash on the sidelines – it’s even less important to cover as I fully intend to double down anyway.  

    All that needs to be taken into account when setting your hedge but let’s say you want to mitigate 1/2 of your anticipated $8,000 loss so you need $4,000 worth of coverage and, since the pay-off is $2.50 at 20% down, you could call it $5K and pick up $3,000 worth of protection, which is 30% of your expected gains paid in insurance – kind of expensive though, isn’t it?