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Which Way Wednesday – Fed Edition

Click to ViewStrap in folks, it's going to be another wild ride!  

As you can see from Doug Short's S&P chart,we are about to slam right into that collapsing 50-day moving average, now at 1,223.40 – right about where the S&P topped out on yesterday's morning spike.  Unfortunately, the Nasdaq topped out and headed down before the other indexes got a chance to complete their up cycle and the Dollar rose back over the 77.50 line and tanked the market – exactly as we predicted it would at the bottom of yesterday morning's post

Of course, I can't MAKE these things happen – I can only tell you what's going to happen and give you trade ideas to help you profit from it.  I mentioned that we had picked up 10 DIA 9/30 $115.75 calls in our virtual $25,000 Portfolio at $1.05 on Monday and they topped out at $1.75 (up 66%) but we took a non-greedy exit at $1.45 in the morning spike (up 33%) and we switched to 20 QQQ 9/30 $57 calls at .45 in the afternoon sell-off.  So, we made $350 off a $1,050 investment and then we spend $900 but now we have 20 contracts instead of 10 but we also have $450 in cash so now risking just $600 of our original investment on the much more volatile Fed day.  

Another trade idea we like ahead of the Fed that's still playable is 20 FAS weekly $13/14 bull call spreads at .38 ($760), selling 10 JPM Oct $28 put for .55 ($550) for net $210 invested on the 20 $1 spreads.  The worst-case on this spread is owning JPM for net $28.10, which is 13% off the current price and the best case is a $1,790 profit (852%) in a week.  That sounds like a lot but options let you do funny things like at 11:30 in Member Chat, we saw PCLN making new highs against news that we thought was not actually that good for them on closer examination.  Our trade idea to take advantage of that was:  

If you want to play PCLN bearish – it’s very risky but the weekly $565/555 bear put spread is $6 and you can sell the $565 calls for $4.70 for net $1.30 on the $10 spread.   Oct $620s are $4.10 so your bet is that they don’t go higher than that (and again, if you take a 50% loss on the bear put spread, that’s $3 so your net on the short puts is $1.70 credit if it moves against you).   

The $565/555 bear put spread finished the day at $8 and the $565 calls finished at $1.40 for net $6.60, up $530 per contract or 407% in 4.5 hours but we took an exit in Member Chat at 3:36 for a 515% gain – catching the bottom right on the nose.  Also right on the nose was my note to Members in that same 11:30 comment warning: "S&P needs to get over 1,220 but, if not, SDS is going to be our friend again."  That led, 20 minutes later (as the S&P failed to hold 1,220) to 3 short trade ideas in Member Chat at 11:50, using SDS (bullish), LVS (bearish) and GLD (bearish) – as we followed through on our plan to flip more bearish on weakness.  

As we got our sell-off later in the day, we did a little bottom-fishing with AAPL, ORCL, CLF, IWM (twice), ANR and NKE so it's not that we are bearish, per se – simply protecting ourselves into the uncertainty that surrounds today's Fed decision.  If some of the trades do well and give us a quick pay-off – of course we'll take them off the table and get back to lovely, LOVELY cash because, as I often say to Members – I am not a day trader, but I am not adverse to taking profits that are made in a single day.  

Today is all about the Fed and we are, of course, leaning bullish on expectations that the Fed's move this afternoon (2:15) will favor the stock market a little more than expected by the Punditocracy.  This morning, the Dollar is driving back to 78 as the Euro once again drops to $1.36 on news that the Greek "fix" will take another week to finalize so we have that rally to look forward to next week now.  

Last week, we played a similar move with an FXE spread that returned 900% on Friday but, unfortunately, FXE does not have weekly options and a lot of things can happen between now and October expirations (21st).  Still, the FXE Oct $135/136 bull call spread is .60 and those can be paid for by the sale of the $129 puts at .58 for net .02 on the $1 spread with 4,800% upside if FXE holds $136 ($1.36 on the Euro) for 30 days.  The downside to this play is ending up long on the Euro at net $1.2902, and it was that low in January (very briefly) and between May and July of 2010 so not impossible – just unlikely.  

Will the Fed continue to debase the Dollar (see Ron Paul on the subject) or will there be some brand new scheme that somehow puts money into the economy without inflating the supply of dollars?  Yeah, thought so.  That's why we like to play the Dollar to get weaker and the Euro to get stronger and stocks (which are priced in Dollars) to get more expensive.  Heck, we even took bullish plays on oil and we HATE oil but we did hedge with a bearish trade on Gold because, if the Fed fails to devalue the Dollar, gold will dive but even if the Fed deflates the Dollar further – it should remove enough fear from the market that gold dives anyway.  

Last night, Republican "leadership" sent a letter to Ben Bernanke – not in private, of course but in a farcical game of political showmanship – telling the Chairman of the FOMC to "resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.”

The letter was signed by enemies of the state: House Speaker John Boehner (R., Ohio), Majority Leader Eric Cantor (R., Va.), and Senate Minority Leader Mitch McConnell (R., Ky.) and Jon Kyl (R., Ariz.). It was exclusively "obtained" by Uncle Rupert's Dow Jones Newswires Tuesday afternoon and subsequently broadcast globally.   As Robert Reich commented on our site early this morning:

 

To say it’s unusual for a political party to try to influence the Fed is an understatement.  When I was Secretary of Labor in the Clinton Administration, it was considered a serious breach of etiquette — not to say potentially economically disastrous — even to comment publicly about the Fed. Everyone understood how important it is to shield the nation’s central bank from politics.

If global investors suspect the Fed is responding to political pressure of any kind, investors will lose confidence in the independence of the Fed and its monetary policies. Even if the pressure is to tighten the money supply and keep interest rates high, it’s still politics. And once politics intrudes, lenders of all stripes worry that it will continue to intrude in all sorts of ways. Lending to the United States becomes a tad riskier. As a result, lenders charge us more.

The Republican letter puts Bernanke and his colleagues in a bind. If they decide against another round of so-called “quantitative easing” to lower long-term rates and boost the economy, they may look like they’re caving to congressional Republicans. If they decide to go ahead notwithstanding, they’re bucking the Republicans and siding with Democrats. Either way, they’re open to the charge they’re playing politics.

Congressional Republicans evidently don’t care. They want Obama out, whatever the cost. Besides, they’ve never met a government institution they don’t mind trashing.

 

Top Republicans believe they can block all or most of Obama’s jobs bill. That leaves only the Fed as the last potential player to boost the economy. So the GOP will do what it can to stop the Fed.

After all, as Republican Senate head Mitch McConnell stated, their “number one” goal is to get Obama out of the White House. And that’s more likely to happen if the economy sucks on Election Day.

 

We discussed the Republican brand of Conservative Cancer that is destroying the US economy in yesterday's Member Chat with some notes on why austerity is the worst possible "solution" to what ails us.  It's one thing to play political brinksmanship inside of Washington, turning our elegantly designed political system that is based on compromise into a winner take all death match but to enforce one side's UNTESTED, UNPROVEN and very likely UNWISE economic will on a nation that cannot afford a political experiment is a right no single party should be given – or even rationally want.  

Hopefully the Fed can ignore all this nonsense and do what is right despite Perry and the Republican's threat to "treat Bernanke pretty ugly" if he should have the nerve to show his face in Texas and now, apparently, Ohio, Virgina, Arizona and Nevada as well.  

Good luck to all of us if Ben Bernanke isn't able to stand up to the schoolyard bullies…  

 


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  1. Phil……You say  " I am not a day trader, but I am not adverse to taking profits that are made in a single day."   People ask me the same question, "Are you a day trader?"   It has come to have bad connotations.  I say,  "No, I’m a swing trader."  " I hold stocks or options for anywhere from a few minutes to a few months, closing the trade when it swings into profitability or when it demonstrates to me that it isn’t working."   


  2.  Warren Mosler always has an interesting take:
     

    Fed unchanged because the economy isn’t bad enough for an ease: helps stocks and hurts bonds.
    Fed does something shows the economy is bad enough to need help: hurts stocks and helps bonds.
    And either outcome is quickly forgotten after initial market reactions.
     


  3. Oil Lines
    R3 – 89.88
    R2 – 88.78
    R1 – 87.79
    PP – 86.69
    S1 – 85.70
    S2 – 84.60
    S3 – 83.61
    Yesterday’s high and low – 87.68 / 85.59
    Breakout lines – 91.06 / 80.11 


  4. lfantheman / day trader — my standard response is "it depends on what you mean by a day trader".  The clarifications are always an interesting take on how "day traders" are perceived/defined.


  5. What’s really nice is our Government labeling you a "day trader" if you make 5 or more day trades over a 5 day period! I have made this mistake a few times. It wouldn’t be a problem normally, but I currently am underfunded (according to them-although I don’t use margin) and it is really annoying when it happens under those circumstances. Thank you Government for saving me from myself!


  6. Hey chaps,
    The updated TOS version seems to give me more margin than previously.  May be they have fixed the PM margin calculation!


  7. FAS Money Recap 
     
    Long Strangle –Jan 12 Puts (3.01 average now 2.55) and 15 Calls (2.75 average cost now 2.17). 
     
    Weekly – Full Cover October 13 Puts (1.98 average now 1.65 – 17%)
    Monthly – Full Cover October 13 Puts (1.98 average now 1.65 – 17%)   


  8.  Phil / SPWRA
    I have short 10x Jan.15s puts, how you recommend to adjust them? May be roll them to 15x Jan13 10s and buy shares with short calls?


  9. Phil, NRN reports that ShopHouse, Chipotles new concept got rave reviews from analysts. Sounds like it will compete with Pei Wei, which we have here locally and is excellent and always packed.


  10. BTU down a lot lately.  In comparison, EXC near the top of range (about $40-$45).  I have both in my portfolio.  I wonder what happens to BTU?


  11. GS about to go under 100???


  12. That is amazing, jabobeast.


  13. Phil/ANR
     
    Prescient comments from you yesterday. This morning they issued downwards guidance and the stock opened 10% off in the early running, though seems to be recovering a bit.  Probably worth watching and waiting as they will issue revised guidance for 2012. There is a pony somewhere in there.


  14. Peter D/TOS margin:
     
    Hi Peter. I’m not seeing it. If I look at the loss at +8% ("white line" on Analyze/Risk Profile) and adjust the white line so that the white line crosses the zero access ATM, I still see them requiring much more margin than you get from the Analyze/Risk Profile exercise.
     
    They told me the Analyze/Risk Profile number was in line with what the TD clearing firm is using.


  15. "zero access" should be "zero axis."


  16. Good morning!  

    Dollar was pumped up to 78 pre-market and that sank the futures and now we’re back to the real zone of 77.50-77.75 to see which way things break.  Hopefully everyone is pretty well balanced into the Fed.  Officially, we’re 20-25/15 bullish with at least 60% cash on the sides so we’re happy to see a massive sell-off so we can finally put some cash to work but, on the other hand, if QE3 is taken well, we simply lighten up on the shorts, pick up some stragglers and enjoy the ride up.  

    It’s very much a watch and wait kind of day until the Fed at 2:15.  We’re still low enough that our bottom fishing trade ideas from yesterday afternoon’s Member Chat are still in play and TLT is still up at $114.60 but, if they are going to pop to $120 – today is the day! 

    XLF is at $12.50 and FAS is at $13 and I mentioned that spread in the post above so very boring otherwise as we probably flatline into the Fed.  Of course yesterday’s market flatline saw the Dow go up 200, down 150, up 175 and then down 125 to finish up 7 points at the end of the "flat" day – so it’s all a matter of perspective!  

    QQQ is at $56.62 and we have the Friday $57 calls at .45 in the $25KP (20 of them) but, if you want to play the volatility, you can buy those AND the $56 puts (now .40) and take off whichever one gets to .80 first for a free ride on one side although, obviously, we’re willing to risk the bull only side based on my expectations of the Fed’s move this afternoon being bullish for the markets.  

    Wednesday’s economic calendar:
    7:00 MBA Mortgage Applications
    10:00 Existing Home Sales
    10:30
     EIA Petroleum Inventories
    2:15 PM FOMC Announcement

    Notable earnings after Wednesday’s close: BBBYRHT,SCS 

    At the open: Dow +0.03% to 11412. S&P +0.01% to 1202. Nasdaq +0.63% to 2310.
    Treasurys: 30-year -0.13%. 10-yr -0.02%. 5-yr -0.02%.
    Commodities: Crude -0.66% to $86.34. Gold -0.56% to $1796.85.
    Currencies: Euro -0.18% vs. dollar. Yen -0.15%. Pound +0.78%.

    Market preview: Stock futures drift (S&P -0.1%) ahead of the Fed’s 2:15 decision; when it comes out, investors may need some time to parse, meaning the initial market reaction could be a head-fake. ADBE and ORCL are higher after both tech firms beat expectations. Coal companies ANR and WLT slide after disappointing projections. Later: existing home sales.

    OMC members may differ over policy, but the gang willalways agree its mission should be free of political interference, notes JPM’s Mike Ferroli. For this reason, the GOP letter last night, may lead to a circling of the wagons, i.e. the removal of the 3 dissents and possibly even easier policy than anticipated.

    A report that net speculative long positions in Treasuries has fallen off a cliff draws wonder from David Adler, given the Fed is likely to announce today an operation to lower long term rates. However, with the 10 year falling 125 basis points over the last 3 months, it’s likely traders have had their fill of frontrunning the Bank of Bernanke.

    Credit Suisse thinks markets have mispriced Twist, and expect a heavier focus on the long-end than will ultimately be realized. Firm believes only 15% of the Fed’s purchases will beyond the 10-year point – up from 10% in QE2, but in-line with QE1, and accordingly suggests 10s vs. 5s and 30s going into today’s FOMC statement.

    MBA Mortgage Applications: +0.6% vs. +6.3% last week. Thirty-year fixed mortgage rate with conforming loan balances ($417,500 or less) remain unchanged at 4.29%. 

    Economists, builders and mortgage analysts predict years of depressed housing prices and restrained consumer spending, according to a gloomy new survey. The housing market needs the economy to add jobs, but the economy isn’t able to rely on the job boost housing normally provides in a recovery. Amid such a vicious cycle, Bernanke has few tools to fix the economy

    I guess those economists missed this report:  Aug. Existing Home Sales: +7.7% to 5.03M vs. 4.7M expected, 4.67M prior. Inventory of unsold homes -3% to 3.58M; months supply 8.5. Median sales price -5.1% Y/Y to $168,300. Some of the gain "may result from sales that were delayed in preceding months, but favorable affordability conditions and rising rents are underlying motivations,” NAR’s Lawrence Yun says.

    And this one:  A positive data point: After 4 months of declines, the AIA’sArchitecture Billings Index turns positive in August, jumping to 51.4 from 45.1. "This turnaround in demand for design services is a surprise," says the group’s Chief Economist. "It’s possible we’ve reached the bottom of the down cycle."

    EU Rumor du Jour:  The large French banks have moved from down sharply to green in the past 30 minutes. Rumors are making the rounds that the government may force a merger or recapitalization of the lenders. The CAC 40 has moved to nearly flat, from -1.7%

    "Italy’s chief problem is its own government," writes a German newspaper of that country’s debt issue and recent downgrade. That sentiment is mirrored on all sides of the German political spectrum. "Italian politicians are not up to the Herculean task (of reforms) as the Greeks have done." The Greeks?

    Lloyd’s of London is pulling bank deposits out of the countries of the EU periphery. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them,” says the insurance firm’s finance director. (previous)

    BOE came close to voting for more bond purchases at its September meeting (minutes), with economic growth seen "materially weaker" than as recently as August. The minutes "strongly suggest that QE2 is set to be launched in the very near future," one economist said. 

    The IMF estimates European banks could get walloped for $410B from the debt crisis engulfing the EU-periphery. While it is clear banks must bolster capital (perhaps $200B, perhaps more), some may not be in position to do so, raising the need for government support as necessary, says the agency.

    That was easy:  The ECB announces new collateral rules, removing the need for any instruments placed as security for borrowing to be traded on a regulated market. This might be a cynical interpretation, but it sounds like the ECB is becoming a pawn shop, fronting cash for anything brought to its window.

    The cost of insuring European government and corporate debt fell this morning ahead of an expected announcement from Greece on its latest austerity measures and the outcome of today’s FOMC meeting. 

    Standard Chartered’s Stephen Green reports local governments in China are under enormous strain as the majority of their financing vehicles cannot make loan payments. While Green thinks the precent of defaulters could be as high as 80%, he believes China’s strength elsewhere will prevent a crisis similar to U.S. subprime.

    Early holiday retail forecasts point to soft gains. ShopperTrak sees national retail sales up just 3%, vs. last year’s gain of 4.1% – essentially an inflation peg. And in a recent survey, 41% of consumers said they expect to spend less this year. 

    Freeport McMoran (FCX -2.8%) says an ongoing labor dispute at an Indonesian mine will cut into this quarter’s sales numbers, as it approximates 3M-5M pounds of copper and 5K ounces of gold production per day will be lost. - Notice that’s $10M PER DAY of gold from a single mine ($3.6Bn a year).  Doesn’t that seem a little wrong to you in the grand scheme of things?  

    Even cheaper today:  Shares of Alpha Natural (ANRfall 6.6% premarket after the firm lowers its estimate for 2011 coal production to 102.5M tons from 109.5M, and says it will "refine" its 2012 outlook when it reports Q3 results. 

    Go OREX!  While Orexigen (OREX +68%) has reason to feel good aboutrestarting development of its rejected obesity drug Contrave, the path to approval remains pockmarked with risk and expense. With the FDA asking for an almost unprecedented 10K-patient safety study, Adam Feurstein says 2015-2016 (vs. OREX’s 2014) is a more realistic timeline. 

    Go away NFLX!  Netflix (NFLX) has issued $200M in bonds, paying 8.5% interest, to buy back shares and boost its tumbling stock price. The company now has less than half the cash it held five years ago, and subscriber defections are likely to accelerate, as it faces costly expansion and $2.4B in future commitments to license content for its streaming service

    Though their voice-related profits are under pressure, text messaging is still a major cash cow for carriers such as VZT, andS. A Pew Internet survey estimates U.S. adults sent an average of 41.5 texts/day as of this spring, up 2.4 from the year-ago period. 18-24 year olds were by far the most prolific users, averaging 109.5 texts/day. (.pdf

    Not even the global economic malaise can stop Apple’s (AAPL +1.3%) momentum, Goldman Sachs says in raising its target price on the shares to $520 from $480. iPhone unit estimates for this quarter remain at 16.92M, but iPad unit estimates are raised to 13.05M from a prior 12.7M; next-quarter iPhone estimates are upped to 26.8M from a prior 26.3M. (


  17. New Apple (AAPL) CEO Tim Cook will introduce the iPhone 5 on October 4, according to All Things D. The phone has been rumored to be thinner and lighter than the iPhone 4, and to feature alarger display, 8-megapixel camera, and elongated home button.



  18. Anyone know what the FTR sell off is about?


  19. FTR/rj – goldman reduced outlook today following FTR guideance yesterday: 
    4:04 (Dow Jones) Frontier Communications (FTR) dips 3.1% to $6.78 as telecom company lowers its 2011 free cash flow guidance to $1.075B-$1.125B, from $1.15B- $1.2B. At investor conference, CEO

    Mary Wilderotter cites three factors: Revenue ramp FTR expected in 3Q hasn’t met expectations through Aug. FTR faces incremental expenses in Pa and NY from Hurricane Irene and Tropical Storm Lee. And overall sales may be hurt from planned system conversions in 4Q. Mizuho analyst

    Michael Nelson unsure if sell-off is justified as FTR has a high dividend, which is unlikely to change. Dividend yield at nearly 11%.


  20.  FCX….ouch.


  21. Swing Trader/Iflan – If you try to advertise that on the web you get a lot of racy Email. 

    Quickly forgotten/Peedle – I guess it depends how you define quickly.  QE1 lasted about 10 months and QE2 about 8 so maybe 4-6 months here or 3 months but surely you can’t think it’s less than one or two and, if so, then isn’t that bullish TODAY?  

    Day trading/DC – Isn’t that sick?   I’ll bet almost everyone here has been stuck in bad trades at some point in their career because some rule prevented them from doing the right thing on a trade.  Who does that protect?  

    TOS/Peter – I’m still having an issue with naked shorts. 

    SPWRA/Tcha – I’d go 2x the Jan $12.50 puts at $3.80, which is $1.60 in your pocket (or you can reduce the number of contracts to make an even swap) and then you are shoving the putters into $3.10 of premium out of $7.60.  

    Gold flying back down to $1,780 AGAIN!  Who forgot to remind me to play that range?  (/YG) is a good play off that $1,780 line until it fails.  

    Oil is being silly at $87 into inventories (/CL) is a good short off that line.  USO Oct $32 puts at $1 are a good entry – 10 in the $25KP


  22. Scottmi/FTR
    Thanks!


  23. Rumors / Angel – Where’s angel when you need to an explanation for the latest market move?  Geez, the service here.  ;-)


  24. Phil:
    Do you have an inventory update on oil. I would be curious to see how many barrels they dumped on the last price drop. Don’t you think we may get even a better price if the FED news is positive? Thanks.


  25. Obama. "Freedom from want is a basic human right"…. Pretty much says it all


  26. Phil – Is the FCX selloff getting overdone now?  The yield is nearing 3% at this point.


  27. CMG/Rpme – Thanks.  I guess we’ll have to stay way from that very tempting short then.  

    BTU/Cwan – Coal demand way off.  China demand myth exploding and oil cheaper and nat gas much cheaper.  

    ANR/JMM – They are great long-term, just going through a rough patch and bad timing on the acquisition.  Good time to sell the 2013 $25 puts, now $7.20.  

    FTR/RJ, Scott – With a 10% dividend that is "unlikely to change", it’s a good time to buy FTR on weakness.  Stock at $6.45 can be paired with sale of 2013 $7.50 puts and calls at $2.70 for net $3.75/5.63 for a 100% profit if called away at $7.50 and a 12.7% discount if put to you but  collecting Dec, March, June, Sept and Dec dividends of .188 is another .94 (25% of net purchase), which drops the net to $2.81/5.16 – a very nice entry point!  

    Damn, oil flew the other way.  Out of the futures of course and let’s take the dime loss and move on in the $25KP rather than mess around.  

     EIA Petroleum Inventories: Crude -7.3M vs. consensus of -1.7M. Gasoline +3.3M vs. consensus of +0.8M. Distillates +0.9Mvs. consensus of +1M. Futures -0.2% to $86.72.


  28. Hi Phil. FTR getting beat up with a downgrade from Goldman, and heavy shorting. Down 9% in the last two trading sessions. We bought back our short short calls in the income portfolio late July/ early August. So… we currently have stock at about 7.96, and Jan 13 short puts sold for 1.3. The original short puts were sold for .85, and bought back for .60.
    My main concern at this point is that the dividend yield is about 11.5%, in a company that is forecasting declining revenue… and that usually means a dividend cut and further declines in the stock price. Furthermore, the Jan 13 7.5 puts can only be resold for about .40. Don’t mind owning this long term or I wouldn’t have bought it; but hate long bleeds.
    Your thoughts would be appreciated.


  29. @ Phil, do you still like FTR long term? Also a question regarding downgrades/catalysts, when the downgrade police attacks a certain company or a bad news event, normally there is a high volume spike down that day, if you like that company do you buy some stock or sell puts that day, or wait a little longer to watch if the stock goes a little lower? Thanks.


  30. Phil, 
    From the hedge discussed last week (Oct SQQQ 25/30 net $3) I am now only left with 60 (from 80) the long 25′s and I have 20 short Oct 31 and 80 short Oct 34′s (Which I thought were silly at 0.50 last friday)… 
    Aside from this I only have 1500 TZA (net 43.30 and 15 short 42 Oct calls for $6).
    Portfolio moves about 7K per 100 Pts on Dow… Trying to figure out how to best position to 25/15 bullish as you prescribe…
    Thanks


  31. Someone at JPM Morgan thinks that the GOP letter to the Fed makes it more likely that we get some stimulus from them:
    http://www.zerohedge.com/news/did-republican-letter-bernanke-seal-deal-even-more-qe-jp-morgans-take

    Another question is how the political pressure will affect potential dissenters. In the absence of this letter we would expect up to three hawkish dissents once again — provided the Fed takes some action — and possibly one dovish dissent from Evans. However, the letter from the Congressional leaders cited in support of its view "significant concern expressed by Federal Reserve Board Members," among others. (Presumably the letter meant FOMC members, as Federal Reserve Board members have been generally supportive of Bernanke’s policy). There is a chance that Committee members who have some reservations about Fed policy may now be less likely to dissent, to avoid validating the views expressed in the Congressional letter, as surely all on the FOMC — hawk or dove — would find this political meddling repugnant. It’s probably still the case that we get another handful of hawkish dissents, though there is now a chance the Committee circles the wagons in response to the political pressure and we get fewer than three dissents.

     These guys should stick to trying to manage the coat room in the Congress building!


  32. And why don’t they just default and be done with it:
    http://www.zerohedge.com/news/art-cashin-greek-tragedy-playing-out-french-farce

    The troika is demanding that Greece privatize large sections of the government and fire up to 100,000 government workers. Greece has already laid off 20,000 but hired 7,000 back, which is also in violation of the agreements not to hire more than one person for every ten fired. Another problem is the termination rules. Greece may be laying off workers but thanks to the Greek civil service plan they continue to pay them at 60% of the salary even though they are not working.

     More than 250,000 private jobs have disappeared in Greece over the last year out of a population of 11.2 million and labor force of 4.9 million. If the government cuts another 100,000 as the troika wants and halts payments to terminated workers the unemployment rate will rise to nearly 20% on an official basis and even higher unofficially. Currently 42% of those under 24 are unemployed and 22.6% of those from 24-35 are out of work. Now you know where all the protestors come from when they televise the riots.


  33. Phil, 
    On the bullish side I had setup a Close to the Money. 47/51 TNA Play with 1/2 puts 40 Puts for net .20… but unless we are off to the races big time looks like it will be a tough one to make $ on… What do you think


  34. This is starting to look like the Fed’s balance sheet in 2008:
    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/09/Spiegel%20evolution%20eurocrisis.jpg
    That’s one heck of a steep rise there… And they are not done. They are now accepting bonds issued by Mussolini in Italy I think! 


  35. And finally some more thought on China from my friend Jim Chanos:
    http://www.zerohedge.com/news/jim-chanos-debunks-myth-china-worlds-white-knight
    Really scary…

    "The Chinese government’s balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse."

    I have been saying for a long time – it’s not going to end well. I guess we are done taking lesson from anyone on our debt level. It will look very reasonable to be only at 100% of GDP soon! The new normal!


  36. stjean / GOP letter -  Isn’t that one of the first things they tell you in a political science or economics course when they talk about the Fed – they’re independent!   I know knowledge, learning, facts, and science (the Western intellectual tradition basically) are out of fashion with today’s GOP, but this is getting even more ridiculous.


  37. And a few quick thoughts from Cashin on the Twist:

     
     

     
     

    Waiting For The Twist. Will We Get The Hokey Pokey? - This afternoon at 2:15, we will get a chance to gauge the language skills of the FOMC staff and Chairman Bernanke. Expectations are high since the chance of fiscal stimulus is just about zero in today’s political environment, so pressure on monetary policy may be enormous. That having been said, the toolbox is nearly empty and internal dissent at the Fed is growing. That raises the chance of the Fed kicking the can down the road. A mild proposal today and a program review in thirty days.
     
    Put your right hand in. Take your right had out. Put your balance sheet in and shake it all about.

    Lastly, Cashin’s brainteaser du jour: “What is the only known common food that never spoils – ever.”


  38.  Fed independence… Ha!
     
     The fed and the congress both work for the banksters… 2 subsidiaries of the same company.


  39. Cashin – Twinkies!


  40. HPQ taking off


  41. Cashin – salt!  Or does that count?


  42. honey is my answer.


  43. Cashin – Fruit Cakes, or Spam!


  44. Cashin – Honey


  45. Cashin / Food – Phil has to know the answer to this one.  It’s amazing what he can fit in to that noggin of his.  I guess it’s part and parcel of being awake 20+ hours a day.


  46. Spam taste like its already spoiled!


  47.  beans?


  48. If we eat honey, spam, and twinkies every day does that mean we won’t spoil?


  49. Hewlett-Packard Bd Said To Consider Meg Whitman As CEO-Bloomberg


  50. OIH?


  51. Phil- I have some X Nov $27 calls that are down 25% (now $2) Would you suggest DD or exiting the position? Thx in advance.


  52. go HPQ


  53. GLW – did some dip buying here at 13.11…


  54. Food / Jabobeast – It is honey for sure. They found some in the pyramids that is still eatable (supposedly). They used it as part of the mummifying process. And it’s has some medicinal values as well. 


  55. TOT/phil – good or bad? at 3 year lows and 7.33% yield..


  56. TLT…


  57. Inventories/DC – I put the weekly inventory above and we’ll have to wait for 1pm to get the detailed report.  Very surprising draw but who knows how it got there?   As far as the NYMEX goes, I missed the final barrel count for Oct contracts (yesterday) and they are off the board now but well over 600,000 contracts jammed into the front 3 months now:

    Click for
    Chart
    Current Session Prior Day Opt’s
    Open High Low Last Time Set Chg Vol Set Op Int
    Nov’11 86.51 87.26 85.80 86.98 10:43
    Sep 21
    -
    0.06 94202 86.92 322165 Call Put
    Dec’11 86.72 87.53 86.07 87.23 10:43
    Sep 21
    -
    0.06 28511 87.17 192214 Call Put
    Jan’12 87.14 87.82 86.36 87.51 10:43
    Sep 21
    -
    0.08 9921 87.43 100638 Call Put
    Feb’12 87.40 88.05 86.64 87.72 10:43
    Sep 21
    -
    0.04 6357 87.68 34578 Call 

    Freedom from want/Gmarts – That’s what the Republicans are saying – they don’t WANT to help anyone!  8)  

    MS very weak – Pharmboy called that one.  

    FCX/Chuck – They are slammed on copper but they are 25% gold so, if that goes – look out below.  LONG-long-term, I like them but they were on our long-put list with the Jan $35.75 puts at $1.56 (now $3) for a reason.  As a new entry, the Jan $27.50 puts are fetching a whopping $1.53 for a net $25.97 entry – that’s a price I think is very good for the long haul.  

    FTR/JBur – See above.  We will certainly be rolling to a DD in the Income Portfolio on that dividend.  Declining revenues for a utility is a relative concept.  The come and they go over time.  I will get to the Income Portfolio after the Fed so we can make adjustments where needed but, see above, FTR is a great company to play not to go BK (and of course they may get bought out, especially if T can’t have TMobile! 

    Downgrades/Asaenz – ALWAYS SELL into the initial excitement.  So, if there is a downgrade of something you own, you look for a way to sell premium to your advantage.  In this case, with FTR above, we’re selling those $7.50 puts because we don’t give a crap what PRICE the stock is at as long as we get .65 a year back on our net $5.25 entry (selling those puts for $2.25).  That’s 12.3% and, while it would be nice to have some principal left after 20 years – you will have collected $13 in dividends and that’s a 147% PROFIT over 20 years, even if the equity is worth zero.  So the only way this is a bad trade is if you think the Dividend can’t be paid or will be reduced.  That 10% reduction in FCF is AFTER dividends and a lot of one-time storm issues are impacting margins.  

    No one is going to give you a 10% dividend on a stock that is considered "very safe" – obviously the market prices in risk.  Your job as an investor is to decide which stocks have an acceptable risk and, of course, not to put all your eggs (or even 10% of your eggs) in one basket!  If you want to be a long-term fundamental investors, you have to learn to buy stocks when they are cheap and those are usually going to be the times when the majority of the people do NOT like the stock you want to buy.  It’s very hard to go against the crowd – that’s why there are millions of Cramericans and just one Warren Buffet.    

    TLT back to $115 as the EU is down around 2% into their close.  

    25/15/RMM – Well if your portfolio is moving $7,000 per 100 Dow points then you must  have about $1,000,000 bullish and $400,000 bearish that should mean a 10% move up in the Dow should gain you $100,000 on the bull side and cost you $40,000 on the bear side while a 10% move down should cost you $100,000 on the bull side and gain you $40,000 on the bull side.  That’s net $60,000 either way, representing what’s at risk on a 10% move.  Of course that’s what an unhedged portfolio would be so either you have hedges and millions in play or you have no hedges or, possibly, you have less money in play but are using extreme leverage – which makes the whole thing very hard to predict.  

    Your TZA position is not a hedge – it was a bad position you sold calls against to hopefully get called away even (see, I remember that one) that is on target at the moment.  If you sold more SQQQ short calls than you have long calls, that’s not much of a hedge either and why on earth didn’t you buy back some of the callers as SQQQ made a low (and we went long) yesterday?   Or at least add more longs?  Or roll?  Something…..

    At the moment, the $31s are .70 and the $34s are .50 but $25 is 15% higher on the SQQQ so you don’t get a penny off that spread until the Nas drops 5% and you are down $35,000.  This is not complicated math.  if you spent $3 on the spread, then you don’t get even until SQQQ is at $28, which is up 27% or down 9% on the Nas or down $63,000 on your positions so what exactly is the point of this hedge.  I’m remember you took it about 10% down from here on the Nas as a vacation hedge that was supposed to keep you neutral and it should have as a 10% move up should have made you $70,0000 on your portfolio against an 80x $2 loss (so far) on the puts or just $16,000 so it seems to have worked perfectly.   If that’s the case, then you can simply re-invest in a roll to put the 80 $1.40 $25 calls into a more productive range and the $20s are $3 so $1.60 ($12,800)  puts the calls $1.72 in the money and then you make every penny of a move in SQQQ going up through $31, for a potential of $72,000 worth of protection on a 40% move up, which would be a 13% drop in the Nas, costing you, in theory $91,000 on the bull side.  Just make sure your gains on a move up are worth what you are spending to protect them!  

    Fed letter/StJ – I don’t think the Fed cares what those guys say (or the Dems).  They will do what’s best for the Banks and the Banksters want MORE FREE MONEY!!!

    TNA/Amatta – You have a lot of targeted trades that expire worthless if wrong.  That is gambling, not investing.  You can’t protect gambling with more gambling – it’s a recipe for disaster.  Disaster hedges are meant to protect REAL, long-term positions, not short-term gambles.  The idea is that you are avoiding a catastrophe and your long-term positions will appreciate over time and the losses you take on the hedges are part of your overall investment in building a long-term portfolio.  If you spend money insuring short-term gambles, then you are just betting against yourself and building nothing of substance – all it then takes is a little bad luck and you end up with nothing at all!  

    ECB/StJ – Yes but have a sense of proportion!  Their balance sheet is not even $200Bn, our Fed’s is $3Tn – it would take them two years of MASSIVE stimulus just to catch up to what our Fed has done.  And, also to keep things in perspective – Greece needs $11Bn.  

    China/StJ – While also a concern, China has over $3Tn in CASH.  They can also paper over a lot of problems if they decide to.  I think China is a lot scarier than Europe because you just can’t trust the numbers but they are a lot further from blowing up than the EU so I imagine the EU will be "solved" just in time for China to be a huge issue – maybe next year.  

    Food that never spoils/Jabob – Honey!   Used for thousands of years for that purpose.

    Fruit cake/Rain – Good answer but how can you tell if it spoiled?  

    X/GS – Only $1 off the money is not really a reason to worry with 50% of the PRICE of the puts being premium.  I’d just sit tight and see what the Fed does.  If we go lower, the put goes further in the money and loses premium while the puts you want to roll to go up on the higher VIX.  If we go higher – you make money on the original play.  

    HPQ going up on rumors they are changing CEOs.  That’s gotta make Leo feel good…

    GLW/Scott – Nice call.  

    Still edible/StJ – Maybe but I wouldn’t want to try it!  


  58.  By the way guys, if you use Think or Swim, I really think you should check this out. TASTYTRADE.  The short version is, it costs 45$ a year for a membership.  This membership allows you to purchase a voucher for up to $350.  This voucher is good for 2x your cost in commisions at TOS.  
     
    For example, I just bought a voucher for $350 and hooked it up to my TOS account.  This gives me a credit for $700 worth of commisions in my TOS account.
     
    Short version, HALF PRICE commissions.  The thing is run by Tom Sosnoff, one of the founders of TOS.  By the way, if you do decide to sign up can you let me know?  If I can get enough referrals Tom will personally take me out to dinner.  
     
    Phil, you stand a chance at getting the 5000 referalls which entitles you to an all expenses paid trip to Las Vegas with Tom, founder of TOS.  I was thinking if you could manage that, sound like a good PSW VEGAS meetup 2.0 some time in the distant future.


  59. scottmi – What’s your buying premise on GLW here?  They’re well below their downtrend line still.  Thanks.


  60. Phil,
    GE buy/write/hedge:
     
    GE at $15.94, sell Dec c and p for net $2.27 plus 0.15 dividend, (14.79/15.40) and  hedge with Dec SDS 23/28 net 1.27,  for a net on the trade of $1.15 for a 7.2% return to Dec.  If the hedge if fully in the money at expiry the $5 reduces avg cost to 12.90.


  61. Phil – I own Nov $27 calls (not puts) on X and they’re 100% premium…hence the question/concern.


  62. craig – tastytrade looks good.


  63. Pharm - look at that chart on OPTR, isn’t that beautiful?


  64. Phil & all,    
    New here, so very ignorant and ready to change that…. (read: learn). I have an IRA brokerage account (small = $100k+) with Fidelity. So far only traded stocks and ETF’s. I would like to know if it would be smarter to move the whole thing to TOS so I can trade options on it. thoughts?


  65. Cashin
     
    Honey, yes, and other products that share the same characteristics of almost pure sugar, such as jam, syrups. Pickled items. Chunks of the  brain of Charles Guiteau who shot President Garfield are still available for viewing. Distilled alcoholic beverages like liqueurs in sealed containers. Pringles. My dog also has some opinions on the matter, but is a very unreliable judge of edibility, so US mail and fossil fuels should be excluded.


  66. Dollar bouncing off 77.50 again – not good for market movement.  Oil seems done at $87.50 not in the mood to mess with them with the Fed in 2 hours.  

    TOT/Scott – Very good long-term company but no Fed niceness and it will be MUCH cheaper very soon.  I would hold off on those until we see a good reaction from QE3 that does get us over those rising green lines I drew on the Big Chart yesterday.  

    TastyTrade/Craig – I really can’t go soliciting for a broker.  Not ethical.  Also, I already know Tom!  Haven’t looked at Tastytrade yet but maybe we should offer a coupon for Stock World Weekly?  (Ilene are you listening?).  

    12:00 PM On the hour: Dow -0.32%. 10-yr +0.15%. Euro +0.16%vs. dollar. Crude +0.78% to $87.59. Gold -0.22% to $1802.85.

    Two percent is the new flat in Europe, where the indices have another in a string of big moves, today being down. Stoxx 50 -2.1%, Germany -2.5%, Italy -1.6%, France -1.7%, Spain -2%, U.K. -1.7%. The euro bounces off a big early decline, now +0.2% at $1.3729.

    Irish home sales in Q2 jump 14%, though from very low levels in the previous quarter. As in the States, high supply and unemployment levels along with difficulty obtaining financing remain the key challenges.

    "Ben Bernanke has shown repeatedly that he is willing to take risks and be very aggressive" makes #2 on Rosie’s 10 reasons not be short in front of the Fed decision. Among the others: the Chairman likes higher stock prices and the move from the Aug. 9 meeting put a floor under the market, but as of yet, has failed to ignite a rally.

    The banking sector (XLF -0.6%) is retesting its lows in often-scary fashion, but Erik Swarts believes banks will lead the market higher. After a five-year drag, he sees a changing dynamic coming from cheap capital provided to corporations from the Fed. "The prospect of an M&A boom in light of very cheap capital and relatively cheap valuations seems highly likely in the coming years." – Didn’t I just say that? 

    As bullish as Howard Lindzon is on the best U.S. companies, he has "never struggled so much to be optimistic" in "the strangest and hardest market" ever for buying stocks. But why are the strong - AAPLAMZN, et. al. – getting stronger in a volatile market? It’s "underperforming hedge funds speculating on the flow of money into stocks from Treasuries when things calm down." 

    Wow, what an overreaction:  Coal companies (KOL -3.1%) are getting clobbered after Alpha Natural Resources (ANR -7.6%) and Walter Energy (WLT -10.3%warn that output for steelmaking coal will fall short of expectations. Rivals are down: PCX -9.2%ACI -7.5%BTU -4.7%,CNX -2.8%. The warning also is whacking railroad stocksNSC -6.9%CSX -6.8%UNP -3%

    Companies related to manufacturing parts for the auto industry are taking it on the chin today, as the outlook for strong sales weakens. Copart’s Q4 report pointing to slimmer margins may have kickstarted the negative sentiment on the sector. Can BWA -3.8%LEA -3.6%CPRT -3.2%MTOR -2.5% and DAN -3.1% surviveslumping auto sales?

    Deutsche Bank starts coverage on Las Vegas Sands (LVS+1.9%), MGM (MGM +1.4%), and Wynn Resorts (WYNN -1.2%) with Buy ratings (IIIIII). It expects both a recovery in Las Vegas demand and Macau-related growth to propel casino stocks higher, and thinks macro concerns are overdone. (yesterday)

    BlackRock (BLK) is jumping into junk, "a great long-term investment at this point and these spread levels." The extra yield investors demand to hold junk-rated debt has jumped to 7.61 points, even as default rates remain well below normal. The firm is targeting spec-grade companies in energy, mining, oil, natural gas, cable and wireless operations.

    Breaking up is all the rage in today’s corporate world – thinkTYCSLEKFT - and the buzz is that Pepsico (PEP +1.7%could join the gang. Edward Jones says PEP’s combined value post-split could be $90/share, 49% above yesterday’s close. The stock has trailed competitors by a large margin in the past year, and the firm is losing share to Coca-Cola (KO).

    IHS cuts its 2011 semiconductor revenue growth forecast, citing increasing economic concerns and a negative consumer outlook. The company now expects semiconductor revenue to rise 2.9% to $313.3B, down from its prior estimate of 4.6% growth

    Citi survey finds 26% of Chinese consumers "very likely" to buy a tablet in the next 12 months, compared with 12% in the U.S. and U.K., and that Chinese respondents are more likely to see tablets as PC replacements. 77% of respondents considering a tablet showed a preference for Apple (AAPL), which has seen iPad forecasts steadily move higher.

    Hewlett Packard (HPQ +5%) shooting higher on chatter the board is considering ousting CEO Leo Apotheker who has been on the job only since November 2010. A source says board member and former eBay chief Meg Whitman could be the replacement. The board has plans to meet this afternoon.

    Boeing (BA) has high hopes for the Chinese market, as evidenced by a forecast for 5K Chinese commercial plane orders over the next 20 years. The company also warns  China’s state-owned COMAC, whose C919 jet has won some deals with domestic airlines, will face a tough learning curve as it tries to take on Boeing and Airbus. 

    While investors looking to profit from the adoption of single-serve coffee products have focused on Green Mountain Coffee (GMCR), Piper thinks Starbucks (SBUX) represents a "stealth" way to play the trend, given its pending introduction of Green Mountain’s K-Cups, and the company’s home-grown products such as 


  67. Phil, would you recommend playing the volatility and quick swings we might have buy buying sep 115 calls and buying sep 110.75 puts (roughly both are same price) to play the whipsaw we usually have after a fed statement?


  68. Oops, Dollar broke below 77.50 finally.  That was a quick turn!  


  69. doulos
     
    You can trade options in a brokerage with any broker after completing the application form. I use TradeKing, which is excellent for the purpose (and cheap).
     
    HOWEVER your option trading in an IRA is somewhat restricted as all short puts must be cash secured OR in a spread, and you cannot sell naked calls. You can do pretty much any kind of options combo, but the amount of the spread will always have to be fully cash secured, as no margin is allowed in IRAs.


  70. Phil,
    For a downside hedge against an uncooperative Fed, do you favor DXD (19/21) over SDS (23/25) or even the unleveraged but tighter spread IWM?
    Thanks


  71. Rough day to day trade.  Swings aren’t long enough to hang on to.  Wonder what JRW would have done?


  72. if you count dirt as a mineral/food source, it should last ’till the end of the age!


  73. jmm1951 thanks. Surely that will be better than holding long any/everything. I’ll look for the application.


  74. doulos
     
    However, it is possible to figure out a number of ways of getting more leverage in an IRA account, for example LEAP buy writes with put sales. It is easier to sell naked puts in stocks with low prices like NOK, BCS. For something like AAPL you will have to use bull put spreads. Using iron condors may have a place as only one side of the trade is cash secured since one side will always win. Calendar spreads can cut down on cash requirement too.


  75. @Phil, I didn’t mean you should solicit for a particular broker,  Although from my comment I could see how it could be taken that way.  I meant something more along the lines of "If you happen to already have an account with OptionsHouse, optionsXpress, TD Ameritrade, TOS, TradeKing, tradeMonster, or TradingBlock and you spend over $100 a year in commisions, then here is a service that will save you money" :)  
     
    Does that sound a little better, Ethics wise? 


  76.  What was that? Any news? ES just took a dive.


  77. Hey all,

    One of our positions today is a move on earnings for BBBY. We are bullish on BBBY going into tomorrow’s earnings. We have picked up a 40% position in the stock and complemented that with some sold puts at the $50 line.


  78. drcraig / ES – Where’s our fount of rumors (aka angelcur) when you need him?


  79. craigzooka
    / Tasty

    Thanks for the link, I am grabbing one of those!


  80. jmm1951
    I’m a long way (via paper trading) from most of your suggestions… I understand selling calls on my long positions, but the rest is still too new for me. (In fact, I probably need a ‘baby sitter!!’) but thanks just the same.


  81.  Just heard something about a downgrade on BAC.


  82. BAC @ 6.66 . . . Moody’s Downgrades Bank Of America From A2 To Baa1


  83. doulos
     
    I made my first options trade in 2011. You are probably about a week away from the things I mentioned.
    See here for clear explanations of some basic concepts: http://www.optionsplaybook.com/rookies-corner/learn-options-trading/


  84. financials looking ugly
    FU FAZ!!!


  85.  For people trading in an IRA, I also trade my IRA and do what I refer to as the Craigs Modified Buy Write.  For example I executed this trade yesterday in my IRA,
    +300 AFL @35.15  ($10545)
    - 3 FEB 35 PUT , +3 FEB 30 PUT +$600
    -3 FEB 36 CALL +$1500
     
    If I get called away in 149 days this results in 20.2% profit.  If you could do this twice a year that would be 44.7% profit per year.  Which means that with 13k in your account,  in 12 years your $13k would be $1.09 Million and in 20 years you would $21 Million.  Sounds like a good Idea to me :)


  86.  Woppsy, the previous Craigs Modified Buy Write only requires $9945 in buying power in your account, not 13000.  So the numbers from the previous post get much better.


  87. craig/tasty trade,
    Good deal.  However, there is a catch for me.  The deal for TOS says "Free trades will be valid for online equity, ETF, and options orders only. Option contract fees will still apply."  I don’t have a ticket fee for options trades, so this voucher doesn’t really apply in my case.


  88. Peter D
    Tasty   I also have no ticket fee so I believe we would only pay the per option fee. You agree?


  89. @Peter D, I am a little confused,  what is your commision structure with TOS.  Mine commission is simple, $1.25 per contract.  I checked with my TOS representative and they said the voucher would cover all of my commisions.  However, it does not apply to IRA’s or other tax exempt accounts.  


  90. dave & craig,
    My commission is per contract also, and reading the Tastytrade statement, it can be interpreted as we still need to pay the per contract fee.  The voucher would only cover the ticket fee.  Craig, if the TOS representative is correct, then it’s a good deal.  Let’s get confirmation from Tom himself (that the voucher covers the per contract fee), just to make sure.


  91. jmm1951,
    thanks for the link… I’m all there, (after I write this!)
    craigzooka,
    that is pretty much what my initial goal is, only different "abc’s", thanks.


  92. Damn and there goes oil!  

    Moody’s bank downgrades seem to have been anticipated as people are buying the dips.  They probably picked today to do it as the Fed save is baked in and this minimizes overall damage.  

    XLF Jan $10 puts can be sold for .50 (20% down from here) and the FAS Jan $10/12 bull call spread is $1 for net .50 on the $2 spread that’s currently $2.45 in the money.  

    GE/Canuck – Interesting way to play.  I take it you are selling Dec $16 puts and calls.  I’ll be curious to see how that works out but, on the whole, I’d rather if we went lower and got the 2x at $12.90!  

    X/GS – Ah, my mistake.   On the Nov $27 calls, you bought premium instead of selling it so you are bleeding like a stuck pig – which is what happens to people who buy premium instead of selling it.  The $27s are now $2.03 and you can sell them to some other sucker and spend $2.27 to roll down to the $23s and then you have a $4 spread for about $2.80 if I guess your entry correctly.  You can offset that with the sale of the $23 puts for $1.40 if you feel brave about X holding $23 and suddenly you are the genius who sold $3.40 worth of premium instead of the sucker who bought $2.50 of it.  

    Welcome Doulos!  My understanding it TOS has the most liberal rules for IRA trading but it’s something you need to check out carefully as well as consult with a professional adviser (not me!) on possible tax consequences if you are moving out of the IRA entirely.  

    Volatility/Rustle – On what stock?  DIA?  I guess but I’m just looking for a move up and I’ll be surprised, disappointed and VERY WORRIED if we sell off on a lame statement from the Fed.  

    Downside hedge/8800 – It’s always best to short the high-flyer, which is the RUT at the moment.  They are 10% over the NYSE and RUT so, if we crash, they are most likely to take a hard fall.  At the moment, the SQQQ Oct $20/23 bull call spread is $1.10 and you can offset that with a Nas stock you REALLY want to own 20% below the current price like RIMM Oct $21 puts, which can be sold for $1 or the NFLX Oct $85 puts at $1.25 or FCX Jan $26 puts at $1.20….

    ROFL – Look at TLT turn around!  Shows you how unrealistic $115 is for them. 

    Coupons/Craig – That does sound better.  Maybe we could look into that but I want a way better prize for 5,000 referrals than $1 each.  

    Dollar pounded down to 77.30.  Market just an illusion produced by Dollar movements…

    AFL/Craig – That is excellent!  

    Those QQQ calls are leaving the station at .50 – hoping for a nice move on those….


  93. Dropping dollar isn’t helping markets like it should. Sumpin’s gotta break.


  94. Phil & Others / Banksters – I know there’s a meme on this site regarding the Fed and it’s collusion with the bad old banks.  I also understand that in practice the Fed’s actions have helped banks versus other groups and entities in our society.  But wouldn’t we expect a central bank to act through the country’s major financial institutions?  Are they entitled to go out and provide fiscal stimulus directly to other businesses?  Are they able to wipe away the debt overhang for individuals, or help underwater home owners? I think these latter two items can only be accomplished by executive and congressional action, but I could be wrong.
     
    What would you have the Fed do differently so that it wouldn’t be such a popular target of slings and arrows?


  95. Denninger’s thoughts on GOP note to Fed:  

    Here is the reality this nation must face:

    We must have an open and public conversation in this nation on exactly what services we all wish our government to provide.  For each of those services we must fund them with current taxes – not borrowing.  For any such service that the American people collectively refuse to fund with current taxes, the government must withdraw the desired service.

    Since both political parties assert that we must also honor our actual debts we must first dedicate the interest and a modest amount of principal paydown from the Federal Budget that "comes first."  I suggest all interest plus $200 billion in principal per year.  Given current tax receipts this leaves us with approximately $1.7 trillion to spend on all functions of Government, or about half of what the Federal government does now.

    This is a difficult set of choices, but it must be undertaken and it must happen now.  Not in three years, not in five, not in ten.  Right here, right now, today.  You blew it with the "debt ceiling" debate and your proposals thus far, given these facts, are a joke, but this is no laughing matter.

    Quit ****ing around, gentlemen, lest we wind up like Greece.

     


  96. jcaeser/Fed: Not take toxic crap onto their balance sheet. And not opening Fed funding to investment banks.
     
    Rather, let failure of banks pave the way for commercial banking being more like a regulated utility and investment banking being funded strictly with private capital – the way it was since the 30s.
     
    Bernanke and Geithner (with his engineered saving of Bear Stearns and TALF while head of NY Fed) are the epitome of the Dukes of Moral Hazard. Private gains and socialized losses.


  97. jcaeser/Fed: IMO the role of the Fed should be to provide liquidity to the commercial banks and to manage reserves. End of story.
     
    Since Greenspan, the Fed has been on a power trip to keep markets afloat. They seem to think it’s their role to prevent the creative destruction component of capitalism.
     
    The way the whole world is waiting to here what the Fed has to say in the next hour is symptomatic of the problem.


  98. Phil,
    Buy/write/hedge — it gets more interesting.  I’m learning a lot here about scaling in over time, hedgeing, balancing…  Thanks again.
    Combine the earlier GE idea with your September’s dozen, as I plan to scale into some of those over the next year or so.. 
    so do a buy/write/hedge with an initial 25% of the position I wish to have in 1+ years, and do one or two positions each month.  For example,initiate positions today  T and sell Oct puts and calls, VLO to expire in Nov, GE in Dec, PFE  in Jan …  each month I will have a hedge expiring worthless and it was paid for from the buy/write or the stock gets put to me  and I  end up 2x at great prices.  (or roll down, adjust,…)
    Your thoughts?


  99. Chaps – Good ideas, but don’t you think part of the reason the Fed took extraordinary action was that we were in extraordinary circumstances.  Also, QE would have been much less necessary had the rest of the government responded appropriately to the crisis (with a much larger stimulus).  In a rotten environment (politically and economically) I’m not surprised the Fed makes decisions which can so easily be second-guessed. . 


  100. Phil / Denninger – You don’t seriously advocate balancing the budget in the middle of our current economic mess?  I’m totally for tax hikes, some spending cuts and budget balancing when times are good, but now? 


  101. Dollar/Rain – Good point, it’s down about 0.4% from yesterday’s close (ignore the pre-market BS) and gold and oil responded normally but not the indexes – or maybe they did respond and would have been much worse with the EU down 2%.  

    Fed/JC – No the Central Bank of most countries is part of the Government, which keeps a tight reign on the Banks.  Our country has a totally out of control system where the BANKS have the authority to supply money independent of any Government controls.  Our Fed is not interested in the good of the people, they are interested in the good of the banks – end of story.  Fortunately, to some extent, the Banks do care about the good of the country because they once made the mistake of lending the American people money – but don’t look for them to do that again!  The Fed would have a tough time justifying direct loans to businesses but they could lend money to banks contingent on whatever they want.  They can give GE Capital $2Tn at 0.25% and tell them to refinance every commercial loan in America at 2% and they can do the same to FRE and FNM and any other bank that wants to participate.  

    An average American who owes $200,000 on a $250,000 home at 6% pays $1,199.10 a month and will spend $432,000 over 30 years.   Changing that rate to 4% drops the payments to $954.83 and drops the total paid to $344,000.  This is what people should be able to do now but no one "qualifies" to pay less money on the mortgage they already have!  At 2% though, we are talking real money as the mortgage drops to $739.24 (38% off), saving 70M families $459.86 per month or $5,518.32 per year.  That’s on a typical $250,000 home for a typical family that earns less than $50K so 10% more cash to spend for 70M people is a $386Bn ANNUAL stimulus (2% of GDP) and it not only doesn’t cost the government a penny but it eliminates hundreds of Billions in mortgage tax reductions. 

    Now that $200,000 mortgage only costs the family $266,000 over 30 years.  That’s $166,000 of interest saved over 30 years and, if someone were to put that money into a retirement account that paid 3% (long-term TBills), they would have $268,000 saved for retirement.  THAT’s how easy it is to fix the economy, allow millions of people to keep their homes, put money back to work in the system and provide an annual economic stimulus the size of Greece’s entire GDP – all for NO COST over what the Fed is already lending money at and the banks STILL make a 1.75% profit ($17.5Bn per Trillion) on the loans.  

    If there were any will  to "fix" this mess, it would have been done 3 years ago.  No one in this process wants to actually help the American people, this is nothing more than a money grab by the Banks as they push the American people further into debt while they rake in the profits.  


  102. any way to listen live on the internet? i searched but came up with nothin


  103. Had to make a bowl of popcorn, did I miss anything? :)


  104. Poor NFLX – still flying down.  $126!  

    PREVIOUS FED STATEMENT:

    Release Date: August 9, 2011

    For immediate release

    Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected.  Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up.  Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed.  However, business investment in equipment and software continues to expand.  Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity.  Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions.  More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks.  Longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.  Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further.  However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

    To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

    The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability.  It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

    Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.


  105. jcaeser/Fed:
     
    Yes, extraordinary circumstances. But the moves by Paulson/Bernanke/Geithner really did nothing to fix a rotten and corrupt banking system. I wouldn’t have saved insolvent banks. Risky? Perhaps. But not all banks were bad. JP Morgan, BAC (before Countrywide and Merrill Lynch), Wells Fargo, US Bancorp, BBT, and others would’ve survived. I would’ve preferred some additional federal support for new commercial banking charters, rather than what happened.
     
    All of the investment banks would’ve failed. Lehman was allowed to fail, and we survived.
     
    QE: I tend to sympathasize with the MMT school of economic thought. As such, I view QE as a non-event, except that speculators use it as an excuse to create asset bubbles, which Bernanke directly supports. The problem with the economy is broken balance sheets. Monetary policy won’t (and clearly hasn’t) addressed that. As economist Randall Wray says, "QE is a slogan."


  106. Wow, last year they did not actually announce QE2 in the September statement.  It came in November:  

    To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

    If we don’t get a SPECIFIC statement like that in THIS report – we may be in trouble


  107. BIG BEN????


  108. Selling TLT calls on a pop is going to be fun.  The puts are way too expensive at the moment. 


  109. Chaps
    I agree with you totally.


  110. i am in the TLT 118 calls and looking for more…


  111. 400b too small!!


  112. Market just when cuckoo crazy!


  113. ho hum


  114.  Welcome angel. Some of us were missing you.


  115. By the way, in case anyone missed the point earlier.  The reason they system is designed NOT to give homeowners good rates is because, if you let a person pay off a $250,000 home in 30 years while saving $268,000 off a $1,200 monthly payment.  Then they have at least $500,000 in assets and they move up in class and their children will not need as many loans from the banks due to their inherited wealth.  Why would the banks want that?  

    New statement is a disappointment!  Very small, limited program along the "Operation Twist" lines expected.  

    To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

    Killing short-term bullish plays including buying back DIA short puts in Income Portfolio!  


  116. angel / ho hum – What, because one of your sources told you what was in the speech ahead of time?  ;-)


  117.  Game on for SQQQ plays and on any hedge with a bullish offset – stopping out the offset until we settle down is a good plan!  


  118. rpme/TLT 118 Calls….viry nice call. 


  119. i read it yesterday


  120. FU Ben!!!


  121. Markets moving up at the moment though…


  122. got rid of puts on the straddle for slight profit.  Would love to see us go positive now.  Almost exactly like last time.


  123. I guess the market is trying to decide if $400 billion is a lot of money.


  124. lots of volitilty no real movement


  125.   Phil – any suggestions on TLT? Specifically the 117/115 spread and the sold puts? It’s a small position, but still not pretty. Wait a little longer to double down? Or sell some higher calls? 


  126. QE3???


  127. I expect a $ rally, no cut in IOER and the markets expected at least 400b which isnt enough and NO QE3!!


  128. That ship already sailed, Jabo, with no one aboard.  We’re on our own.  Best thing that could happen. 


  129. aapl the worlds largest co is trading like a yoyo


  130. Full FOMC Statement:

    Release Date: September 21, 2011

    For immediate release

    Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

    To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

    The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

    The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

    This is not terrible if seen as a first step but it’s a disappointment and now we will face the wrath of the markets.  If you don’t have enough hedges then perhaps (in addition to our long-put list) and today and yesterday’s hedges:  

    • DIA Oct $108 puts at $2.20.  
    • DXD Oct $18/21 bull call spread at $1.05 
    • SQQQ Oct $22/25 bull call spread at $1, selling $20 puts for $1.20.  

  131. Phil – are the sept dozen spreads + short puts considered short-term?  Both spreads i have (HPQ and AA) are both OCT expiration.  I already took 1/3 of the HPQ’s off for a small gain.
     
    thanks scot.


  132. Building into positions/Canuck – That’s about right.  You should go back to the Income Portfolio from the first post and follow it along.  That’s exactly what we’ve been doing there.  

    So far, this sell-off is not that bad and not much volume.  I’m wondering if this was known by the big boys already.  VIX at 35 and TLT at $118 – that’s what we expected on the QE3 announcement so there are certainly people who do believe that this is going to be adequate to accomplish the Fed’s first goal of keeping long-term rates down.  TLT weekly puts can be rolled up $2 in strike for $1 – a good investment if you are in a spread, as is buying out the $115 (.45) or lower putter!  


  133.  TLT weekly $116 puts are .70 – 20 in $25KP with stop at .49.  


  134. Balance/JC – No, that’s Deninger’s psycho Conservatism but I do like the guy – even though I very often disagree with him.  

    Gotta go back to 1/2 sale of Oct DIA $111 puts at $3.10 in Income Portfolio – happy to roll those out but don’t want to turn down the cash.  

    11,250 seems to be holding and S&P 1,178 and RUT 666 – all our old favorites!  I wouldn’t count on it but we could get a bounce here at least.  


  135. Phil—are you now bearish on the market?


  136.  Disagree on wrath of markets.  Believe Bernanke was disrupting markets, and now pricing can take place without investors looking over their shoulders at policy disruption.  Equity pricing back in the hands of buyers and sellers.  Bullish.


  137. BAC Oct $7 calls at .43, selling Oct $6 puts for .30 for net .13 – 10 in the $25KP.  


  138. Jabobeast
    FU- everybody!
    LOL! (sorry I could not resist that after seeing this ‘FU" every day for so long)


  139. 20 FAS Oct $10 puts sold for .82 in the Income Portfolio and 10 in the $25KP.  


  140. TLT 116 weeklys are .49??


  141. Maya ;-)


  142. I know we lost interest (no pun intended) but TBT just took a big dump from 22 to 20.63 in about 30 minutes! 


  143. In general, good to take advantage of high VIX and re-sell offsetting puts as this is not much of a sell-off.  In general, back to a more neutral stance and we’ll have to see how tomorrow looks.  

    USO FRIDAY $32/33 bull call spread at $.68, selling Oct $30 puts for .65 is net .03 on the $1 spread – betting oil will hold $85 into the weekend.  


  144. Phil / Anyone – I’m wondering if this Fed statement will have much of an effect on foreign markets.  In the current environment (especially in Europe) they may think they have more impending problems than a somewhat inadequate US Fed position. 


  145.  Phil/TLT spread — I’m showing around $1.50 to roll up the 115 calls to 117. Does it make sense to roll from 3 sold 115s to 9 sold 118s? Or is that too risky? 


  146. I guess it partly depends on how the day closes.


  147. Stick?


  148. NFLX - whoa!


  149. That letter from the GOP worked like magic… Free money forevah! Banksters are probably sending thank you notes and contributions asking them to write more letters! Although it could have been the plan from day one but I doubt it – might be the sort of 3 dimensional chess games that these guys can’t comprehend. And the banksters aren’t worried about the markets, they’ll manipulate currencies to bring it back. No worries mate!


  150. Markets stabilizing…


  151. Somebody stop the ride, I want to get off!


  152. Dollar stopping at 78 again.  

    TLT/Kurt – Yes, see above.  The $117 puts are .91 and can be rolled to the $119 puts for $1 and the $115 puts can be bought out for .32 so spending $1.32 to improve position by $2 and then hope TLT calms down overnight and, if not, then you sell weeklies to some other sucker and roll the $119 puts to an Oct spread.  

    Sept Dozen/Scott – They are pretty aggressive spreads but they are spreads and, as long as we hold up around here (-5% lines) then we’re still in good shape.  

    Bearish/Jabob – No, just more cautious now.  I want to stay neutral until we see the global reaction tomorrow but there’s certainly no need for wholesale dumping of longer-term positions.  

    TLT going up and up.  Don’t forget, we don’t stop out on a spike – there has to be a good 20 minutes over a stop before we dump a trade (unless it loses another 20%, of course).  

    TBT/StJ – Yes, below $20 is crazy.  What’s happening is dollar is going up AND long rates are coming down despite Fed money-printing because $400Bn isn’t considered a big deal and the Fed is selling what they buy (so they say) so it’s Dollar bullish and dollar bullish is bullish for TLT as well so this is a double whammy at the moment.  

    Foreign markets/JC – Even if US investors don’t think so, $400Bn is a lot of money and I’m sure it will be looked at as a positive move Internationally.  Also, I think this will be spun as a first step.  

    FXI FRIDAY $34 calls at .75 are a fun overnight gamble (worked last week).  10 in the $25KP.  


  153. TLT/Kurt – Is that Oct or weeklies?  I would not do it for $1.50, now worth it, if you have the $115 calls, now $1.90, I’d rather DD but you still may have to roll up to $117 for $1 if they get to $120.  30 days is way longer than I think TLT can sustain this move.  I would not sell anything against them at the moment for the same reason but keep in mind they could rise another 5% ($122) overnight so it’s a painful ride.  

    NOW TLT is done in $25KP at .40 – that sucked.  


  154. Phil/TLT — OK, thanks, I was confused about the bought puts vs. the sold calls. Do you recommend holding the sold 115 calls overnight to see how it looks tomorrow? 


  155. Phil / $400Bn — I agree with the first step spin, especially in light of the negative outlook. They knew about twisting before the meeting, why  would they then hold a 2 day meeting to look at options? I’m guessing the twist was the only thing they could get enough agreement on and future weakness will bring to light additional options (and more agreement).


  156. Phil— any change of opinion on the financials?
    Ugly ugly again this week ;-(


  157. 142M on the DJI at 12:25 doesn’t convince me the bears are in control yet.


  158.  Sorry Phil, I’m having trouble following. I would appreciate a specific suggestion on what to do with my TLT position. At this point I have sold 3 weekly 115 calls (sold for 1.11, now 3.38), and I own 4 weekly 117 puts (bought for 3.29, now .67). I bought back the sold puts for around $.35 (sold at 1.86). Thanks.


  159. So we dropped $600 on TLT out of a $1,400 allocation but the point is we still have $800 to go back at the same play.  Day trading is like Futures trading in that the key is to keep your loss manageable and just get out and look for a better entry.  As I said above, we’ll take a crack at the next weeklies tomorrow so now we root for them to go higher to give us a better entry.  We’ll allocate another $1,500 most likely and we’ll need to get $2,100 to get even (40%) which is certainly not unrealistic.  

    Good time to look at $25KP adjustments:  

    • We gave up quickly on the QQQ calls and that let us get out even.  
    • Sadly, we let ourselves get spooked out of the USO puts. 
    • TLT went badly – down $600
    • We went bullish on BAC (seems crazy enough to work) and FAS (same craziness) and FXI

    That leaves us needing a bearish play so how about 10 AMZN weekly $235/230 bear put spreads at $1.45 – that’s $1,450 and we’ll probably lose half on a move up but a very nice $3,550 worth of protection if the markets collapse.  


  160. Phil / Twist — Is this a setup for low rate refinancing?


  161. Hi from Calgary Alberta—-
    Phil-would you go long gold at 1780?
    will update Vegas this weekend —sorry have been on the move recently and will be thru Oct 5th


  162. Wheeee!


  163. TLT/Kurt – No I think with that kind of drop it’s worth taking them off the table and you can re-sell a cover tomorrow.  

    Big sellers coming in now – we’ll see what holds up.  Watching 11,200, 1,178, 2,550, 7,000 and 670 – if they hold, it’s kind of bullish(ish)


  164. SVU was one of Sept Dozen published 8/27/11 by Phil
    SVU was also one of top picks by Motley Fools this month as most undervalued stock ( Of course they also both picked NFLX as a core holding and defended it on recent pullback)
    Phil’s play on SVU
     
    SVU ($7) is one we’ve played before with great success.  They were doing well in the Spring but they turned very negative in their outlook and cut their dividends as margins thinned out but things are improving and even the cut dividend (0.35) is 5% at this price so the fallback of ending up owning the stock long-term is not so terrible.  The key to this trade is simply deciding how much SVU you want to buy as a long-term holding and then seeing if we can possibly give ourselves a bonus discount.  This is a great trick for entering long-term positions.

    Jan $4/6 bull call spread is $1.40 and the 2013 $5 puts can be sold for $1.10 for net .30 on the $2 spread that is 150% in the money at the moment.  If the spread comes in, the trade can be cashed for a quick profit or it can be held to the end for either a net 566% gain or a net entry of $3.30 (52% off the current price).  

    Worst case is you end up owning the stock at net $5.30 (24% off the current price) in 2013 (and if the stock falls below $6, you can sell $5 calls to cover (now $2.80) and then buy the stock if it crosses back


  165. Here they come, that was 10M shares on the DJI in 15min.


  166. Phil:
    I still hold the Oct 12/14 FAS spread. I dumped the sold $11 puts earlier (even). Could you suggest a roll? Thank you.


  167. AMZN/Phil: You mean bear PUT spreads right?


  168.  TLT – Sorry, just to be clear, are you suggesting I buy back the sold call and sell the puts? When you say re-sell a cover, that sounds like I keep the main position (the sold calls). If so, I leave them as 115 and don’t roll them yet? Or did I misunderstand and I buy those back? Thanks. 


  169.  FEDWOOD…another minimalist "do something" move, with three dissents — against "significant" risks


  170. Financials/Jabob – Not until we actually see poor earnings.  So far, it’s all sentiment.  

    TLT/Kurt – Ah, short calls!  The weekly $115 calls can be rolled out to the Oct $117 calls even or 5 Oct $119 calls at $2.65 and the weekly $117 puts are down to .53 and can be rolled up to the $119 puts at $1.38 for .85.  Then we have to wait for a pullback or, if it doesn’t look like it, the $119s can be sold to someone else and you can roll out to Oct $118 puts ($3) and set up a new spread once the weeklies expire.  

    Twist/Rain – That’s the idea but letting the "free market" dictate the refis is just a cop out.  It’s really free long-term money for Banks so they can lend it to the people who foreclose on homes so they get the homes off their books AND make a nice profit on the loans.  Also good for IBanks doing M&A deals as it encourages activity.  

    Gold/Savi – $1,780 has been the magic number for going long on the futures (/YG) but just for the ride back to $1,815 and then wait for the cycle to wash, rinse, repeat.  

    SVU/Ban – $6.90 now!  

    Dow volume 149M with 10 mins to close. 

    FAS/DC – Not to blow it off but I think waiting for tomorrow is prudent.  The $12s are still $1.55 and can be rolled out to Nov $13s for .10 so not a panic yet. 

    AMZN/KIinki – Yes PUTS!  Thanks. 


  171. Ive been posting charts using DOW NAZ S&P TLT, my fear was markets would crash without QE3. This can get ugly fast and think we are a European headline away from a serious sell off. Banks leading the way down is ominous!!


  172. Pharm, if you are around, i would like some advice on adjusting one of your calendars (i did SPX).  This is the first time i am testing these (paper of course) and i have the 1180 Sep4 / SepQtr and the 1190 Sep4 / SepQtr.  they are both in profit so would you just cash out, or roll the Sep4 to SepQtr and if so what strike.  You could roll the 1190 Sep4 even to SepQtr 1165 but that doesnt seem to be the way to go.  You could roll tighter to 1185 SepQtr and collect another $800 in premium on the $5 spread that is 100% in the money. 
     
    Phil, when you have a second, could you comment on the roll.  My thoughts are if you expect the market to continue down you roll to even (wider strike) but if you are looking for a move up you would select a closer strike yielding a tighter cover.   Thanks for the guidance.


  173. I guess you can fight the fed.


  174. Phil / DJI — I think your DJI volume is 10 minutes delayed or so, I had 1.52 @ 12:40.


  175. Wow, XLF $12!  This is getting nasty.  S&P blew levels.  Back to 15/15 at this point or 20/20 if stuck with longs. 

    That SQQQ is quite the mover once it gets going!  

    Europe/Kustomz – That’s true.  In this environment it is possible that our sell-off will spark a collapse in Europe so we do need to be careful.   

    BIDU Oct $110 puts at $1.25 are a nice overnight/weekend hedge against a major melt-down in Asia.  


  176. Will RUT 666 hold?  Traders hold their breath.


  177. Well, the markets are simply disgusted, any buyers  are long gone, and the bots scamper out to pick the cadavers clean…
     
    Big vote of No Confidence.


  178. Phil:
    No panic, but these financials have been difficult to win on. How low can they go? Even though its only 400 billion it’s still going to the same group of banksters………right? Can I feel safe selling another round of puts once they settle down?


  179. RUT 666


  180. Fighting the Fed/Rustle – They didn’t even come to fight.  That was, literally, the LEAST they could do.  

    TZA is another one that can really fly when it gets going.  Oct $50/54 bull call spread at $1.30, selling $37 puts for $1.30 is a good hedge.  


  181. that anti-stick really sucked at very end of day. and what’s with the pop in the dollar?
    FU Market Manipulators!


  182.  
     three dissents from FOMC members who "did not support additional policy accommodation at this time" — the same three who dissented at the previous meeting  — it’s not implausible to guess that this was all that bernanke could get done….that said.. i didn’t even think he wanted to do  the twist..so someone better get a hint or the resulitng mess is going to be catastrophic…more reserves for the bankies!


  183. will this help or hurt the president?


  184. Roll/Robert – I would just cash out.  Those are the kind of trades you make when you feel volatility is stable.  Right now we could literally drop 10% overnight and then where would you be?  The reason I don’t like those trades is not because they are bad ideas but because people play them so badly!  You are playing against volatility so, when the VIX goes over 35, you should be getting out no matter what you think you know.  

    Volume/Rain – Well now it’s 221M so hard to say.  

    RUT blew 666 – what a crime!  S&P 1,166.66 – Lloyd still flashing signs to his minions.  8)  

    Transports down 5.26% on the Day.  Very poor showing all around.  Europe knew – they sold off ahead of the Fed, we should have listened.  

    Financials/DC – If we survive the weekend, I think it’s good but if this move from us leads to EU panic tomorrow and then we sell off tomorrow and they crash into the weekend – UGLY!  

    Dollar 78.25.  TLT $118.50.  

    IYR doing a great job of covering the Income Portfolio with a massive drop today!  That’s one to keep an eye on because, if that sector loses it (commercial realty) then this economy is screwed.  

    Obama/Angel – Would have helped more if the Fed had done nothing and he could have clearly pointed to Rep interference but maybe they’ll do that anyway.  

    Steve Leasman making a good point – Why are stocks less valuable with a 3% yield on the 10-year?  Hopeuflly it’s just an over-reaction to disappointment that we aren’t getting MORE FREE MONEY (more than $400Bn) but this is no time to be heroic.  Back to Cashy and Cautious after our brief and foolish attempt to get bullish!  


  185. Thanks for the good advice Phil.  That is what i did - take the money and run.  (isn’t that a rule….  )


  186. SSHHHAAAAAAZZZAAMMM!  3.4% Baby!


  187. Good day,

    Here are the levels I posted a couple of weeks ago:

    IWM    65.56,  65.93,  66.33,  66.56,  67.04,  67.47,  68.10,   68.69  and  69.53

    Worked out fairly well, I’d say !!  And I believe I included a visual yesterday :

    And here’s another :

    I hope all profited as much as I did !!


  188. Phil, is it really a net positive of $400B?  Or aren’t they just selling short term bonds to buy longer term bonds?  And all maturing coupons are being reinvested… as they have been.  It’s a twist baby not a net!  C’mon now and twist baby twist!
     
    That being said, of course the market is selling off.  It’s inflated with free money and hot air.  The risk off trade is back on again.  Where are the growth prospects?  We’re heading into another recession for peter’s sake.  That’s not even to speak of what was soon to be the former European Union..


  189. Holy crap I thought I was going to have a heart attack when I got that alert this afternoon.  Thanks for the cover plays, Phil, they are all looking good and making money faster than my longs are losing it.  How did you send that out so fast? 


  190. Whoa! Look at that AH IWM candle! 500k shares @ 69.10 @ 13:17:12!


  191. Can’t believe that this will help the Prez. at all. They (if you believe there is a they) are taking away anything and everything positive left in our economy. But as Phil says it probably isn’t as bad as they project. However, they are putting this President in a box without many tools to get out. Good or bad, I think he is done. The question now is who will be the next victim. Its very unfortunate to watch our country risk our economic well-being just so the "other guys" can win. Geez, what do you think will happen if they get elected? Maybe things do have to get really bad to find real leadership to pull us out of the abyss.


  192. @JRWIII
    Don’t know if I did as well as you but it was a very very good day indeed to have several K of TZA, SKF, and VXX.  The last 15 minutes were almost as good as getting a Lap Dance by Sofia Vergara.


  193. Another 500k @ 69.10! WTF?


  194. Who might the prez have authority over to force the offering of cheap re-fi’s for homeowners? That would get things turned around and get the Prez reelected.


  195. Phil,
    I bought a jan 40 / 50 TZA spred for 1.70(10.10/ 8.40) it is now at 2.10  with tza at 50 is that due to it being a Jan spread versus a oct spred ? thought I was hedged but this didn’t work real good today
     
    Bert



  196.  I own my house outright because no one would loan me money… Even though I have a high net worth.  I would LOVE to borrow against my house.  


  197. Good job Robert!  There’s always plenty of things to trade the next day when you have cash.  

    Chart/JRW – Yeah, we dropped like a rock when we failed 1,188.  Now we have to hold that consolidation area from week 2 of the month.  

    Net positive/Matt – Well it is as compared to not rolling them over (and reducing the balance sheet as originally planned) and the longer-term notes mean the money stays there and doesn’t roll uncertainly every 6 months so somewhat provides stability but, as I said, it’s the LEAST the Fed can could do.  

    Heart attack/Bruce – That’s why we like to use ultra hedges for disaster hedges – They don’t make a lot at first but, if the market stays low, they grow into full value as the premium goes away.  If we bounce back, they don’t get wiped out so quickly.  Keep that in mind as the naked DIA puts are meant to come off the table once we find a floor while the other hedges can be held until we’re sure things are coming back.  As to speed, the Fed statement came out about 25 after, not 30 after so not all that fast but at least my first quick impression was right.  

    IWM/Rain – Lots of silly spikes (5% ones at that).  

    What if/DC – Well let’s see:  Tax breaks for corporations and private "job creators" including the "repatriation" of offshore profits tax-free, deregulation of industry to allow the private sector to solve our problems.  Gutting of the social safety net, defunding of non-essential (ie. non-military) Government programs, merger-mania without all that silly oversight and, of course, DRILL BABY DRILL!  


  198. Phil/ What if
    As great as all that sounds :) , those idiots won’t have any greater chance of getting any of that drabble than the first idiots had. Constant stalemate until something “we can all believe in” appears. At this point, I could care less about which party they come from; just give me someone with half a brain and the sense and strength to tell the fringe of our country to go jump in the lake while theoutdo the things necessary to put our country back on track.


  199. Authority/Rain – At the moment, the FHA could go direct but HUD, FRE and FNM have been vilified and it would be a political nightmare trying to get anything accomplished when the Reps have subpoena power in the House.  

    TZA/Bert – Yes, the spread doesn’t really pay unless we STAY down until much closer to expiration.  The idea of using longer spreads to cover longer positions is simply not to get forced out of the long-term positions on that basis (if we don’t bounce – you get paid).  That’s why it’s very important to match up the bulk of your hedges with the time-frames of the upside plays but also good to have some short, some long and some medium to take advantage of quick moves as well as longer-term trends.  

    Also, while your net spread may be $2.10 on your broker screen, your Jan $40s are $14.25/17.70 and the $50s are $10.80/$14.45 so call the middle on both is $15.98/12.63 so more like $3.30.  You could, of course, pick up the 2013 $30/80 bull call spread for $10 and sell the $40s for $16 so you net $6 out and then hopefully the $50s expire worthless and whatever is left on the longer spread you keep too.  Since you make $40 at $80 on the 2013 spread and you can roll the Jan $50s to the 2013 $85s (now $15/17.15) for another few bucks, this trade really doesn’t have a downside until TZA is over $100, which is up 100% or a 33% drop in the RUT to 444.  There may be margin issues if you don’t have pm but, if you are impatient, you can get most of your expected $10 off the table and leave yourself a nice upside bonus potential.  

    Big Chart showing clear breakdown on NYSE and RUT and clearly the Nas is the one to short still if they fail to hold 2525.  

    House/Peedle – The banks are insane now with their qualifications.  That’s a broken system and no one is doing anything to address it!  

    Good luck with that DC!  


  200. @ Phil, currently i am 60% cash. Would you recommend taking off the table some of my long positions that are invested at the moment, and try to rebuy them at a better price? Or should we just stay alert and watch the markets action on the next couple of days, and let our disaster hedges control the damage? I have no idea how "operation twist" will affect the markets, but if the dollar keeps going up, we are likely headed into a heavy sell-off. What will you be watching for us to get bullish again on the next couple of days? Thanks.


  201. From Mark Thoma’s blog:
    1. This shifts the duration of the balance sheet, but it does not change its size. I would have preferred balance sheet expansion, i.e. QE3, as that would have a much better chance of helping the economy. But the inflation hawks on the committee will not tolerate further expansion in the balance sheet due to worries about inflation.
    2. It’s not big enough.
    3. Even if it causes rates to fall, will consumers and businesses respond?
    That is, this might help some, but not enough to solve our employment crisis — not by any means. Thus, this does not alleviate the need for Congress to implement serious job creation programs as soon as possible.
    The unemployment crisis needs to be attacked vigorously, and we need aggressive action from both monetary and fiscal policymakers. But neither the Fed nor Congress has the will to do more than half-hearted measures at this point, and even that might be too much for Congress.
     
    Link: http://economistsview.typepad.com/economistsview/2011/09/fomc-decides-to-implement-operation-twist.html


  202. @ Phil, forgot to ask you about copper, what are your expectations for the rest of the year? FCX really attractive at these levels. Thanks again.


  203. Phil – I’m looking for a non-ultra Oct spread trade that can make some $$$ by expiring worthless at Oct expiration.  Can you please let me know what you think of the following four and whether you have any better suggestions for spreads that have a high probability of ideally making $3 on a $10 spread [or $1.50 on a $5 spread] by October expiration?
     
    -Selling GMCR Oct $115 calls, buying OCT $125 calls for a $3.30 credit.  If they both expire worthless, I get to keep the $3.30.  If GMCR moves up (unlikely IMHO), I can always roll to the next month at higher strikes.
    -Selling CMG Oct $340 calls, buying OCT $350 calls for a $4 credit.  Same as above.
    -Selling AAPL Oct $400 PUTS, buying OCT $390 puts for a $3.10 credit on the bet that Apple doesn’t fall below $400 in the next three weeks.
    -Selling AMZN Oct $220 puts, buying OCT $215 for a $1.70 credit on the $5 spread.  Same theory as with AAPL.
     
     
     

     


  204. At the close: Dow -2.74% to 11096. S&P -3.16% to 1164. Nasdaq -1.71% to 2257.
    Treasurys: 30-year +1.12%. 10-yr +0.13%. 5-yr -0.81%.
    Commodities: Crude -2.19% to $85.02. Gold -1.31% to $1783.25.
    Currencies: Euro -0.81% vs. dollar. Yen +0.26%. Pound +1.38%.

    Market recap: Operation Twist worked in pushing downlong-term yields in the wake of the FOMC announcement, but stocks nosedived and the dollar soared as investors apparently wanted more. Banks, already skidding after debt downgrades of BACC and WFC(IIIIII), fell further. Europe was quiet, for a change. NYSE decliners overwhelmed advancers five to one.

    Even with the Fed extending the duration of its portfolio, which was widely expected, nothing in today’s announcement has sparked any real confidence. Equities aren’t responding well. What the markets appear to be saying is that something must really be concerning the Fed for them to do something they haven’t done since the 1960s.

    The NY Fed breaks down the $400B maturity extension program by maturity range: 32% @ 6-yrs to 8-yrs, 32% @ 8-yrs to 10-yrs (including the on-the-run 10-yr note), 4% @ 10-yrs to 20-yrs, 29% @ 20 yrs to 30-yrs, 3% in TIPS. 

    The key take from the Fed today is its decision to reinvest the proceeds from maturing MBS into more MBS instead of Treasuries, writes Bruce Krasting. He believes this is step 1 in a plan to offer mass low-interest refis to homeowners. The only thing keeping Treasury from announcing such a move today is to avoid the appearance of collusion between the Fed and the WH

    "Ben just disappointed the market for the first time," writes Peter Tchir, who believes – up until today – the Chairman had been doing an outstanding job of managing expectations as a policy tool. Instead all the market got was an operation of dubious utility and 3 dissents.

    The Treasury curve definitely shows a twist at the end of the day, with short rates up a few basis points, while yields at the long end plummet. The 30 year falls 19 basis points to 3.01%. Of interest is the Fed’s decision to have 29% of its purchases in the 20/30 year maturities, a higher ratio than expected.

    Killing the Financials:  Operation Twist may threaten the earnings of some of the largest U.S. insurers for years, analysts say. Insurers had been purchasing long-term bonds with the premiums they collected to balance their long-term obligations, but if the Fed’s plan is successful, long-term rates would drop and perhaps force insurers to retrench on product sales. MET -6.3%PRU -6.5%

    A worse performer in the financials than Bank of America (BAC) and Citigroup (C) since markets began falling in late July? Morgan Stanley (MS), which fell 8.6% today to a new 52-week low. Its decline over the last 7 weeks comes to 42%.

    Possibly not among the discussion topics at the Fed meeting was the money supply, but M2 has skied more than 27% over the past 3 months. Capital Economics’ Paul Ashworth doesn’t see the jump as inflationary, saying it’s just European money crossing the pond. "The surge … is very similar to the one seen after the collapse of Lehman Brothers 3 years ago."

    Brace yourselves for more official statements and communiques regarding Greece; the IMF annual meeting is to begintomorrow in D.C. "There’s no doubt in anybody’s mind – anybody who is intellectually honest – that Greece will never be able to pay back its debt," says Georgetown’s Sandeep Dahiya. Since when has "intellectual honesty" had anything to do with it?

    Gallup’s latest polling finds Americans in a grumpy mood. They’re more skeptical than ever of the federal government’s spending habits, convinced it squanders more than half of each dollar it uses, and six in 10 don’t think the economy will improve any time soon, a sharp increase in pessimism from two years ago. 

    SRS anyone?  The two-year rebound in commercial real estate appears to be losing momentum. Across the U.S., companies that were looking for large chunks of office space have delayed those plans as uncertainty has risen, and building purchases are falling apart because of financing snags. Some real estate experts worry that vacant space might climb while rental rates slip.

    A study from Pando Networks estimates the average Internet user worldwide has a download speed of 580 KB/s; the average U.S. user comes in at 616 KB/s. The fact that most emerging markets have average speeds below 250 KB/s presents both an opportunity for Internet infrastructure providers, and a challenge for online video providers.

    Ford (F -4.3%), which hasn’t paid a dividend in five years, expects to resume paying one in the “relatively near future," and is no longer tying such a move to achieving an investment-grade debt rating. CFO Lewis Booth had said only two weeks ago that Ford wouldn’t resume paying a dividend until after regaining an investment-grade rating. 

    FedEx (FDX -2.2%) falls after getting triple-teamed by analysts. Morgan Keegan and Sterne Agee both cut their price targeton shares to $115, while UBS weighed in even lower with a $106 PT on concern about the slowing global economy.

    New York Times (NYT -3.6%) expects ad revenue to fall asteeper-than-expected 8% in Q3, with as much as a 3% decline in digital-ad sales. "Economic conditions have been getting more difficult since the second quarter," CEO Janet Robinson tells analysts. "The advertising market certainly is under pressure."

    Bed Bath & Beyond (BBBY): Q2 EPS of $0.93 beats by $0.09. Revenue of $2.3B (+8% Y/Y) in-line. Shares +0.7% AH. (PR)

    Red Hat (RHT): Q2 EPS of $0.28 beats by $0.03. Revenue of $281M (+28% Y/Y) beats by $10M. Shares +5.5% AH. (PR)

    Bill Gates (MSFT) tops Forbes‘ list of the 400 richest Americans for the 18th year in a row, adding another $5B to his fortune to amass $59B. Warren Buffett (BRK.A) places second with $39B after shedding $6B. Biggest gainers: Mark Zuckerberg, +$10.6B to $17.5B; George Soros, +$7.8B to $22B; Sheldon Adelson (LVS), +$7B; Jeff Bezos (AMZN), +$6.5B; Larry Ellison (ORCL), +$6B.


  205. MCP was sort of the canary in the coal mine yesterday before this rout. JPM wanted to lighten up. (MCP now $39.85)


  206. Actually,  I don’t mind even it it is an Ultra ETF so let’s remove that condition from my above post.  Thanks in advance.


  207. Does anyone think the markets are going to continue this current  up/down up/down channel?   We may get a bounce soon for end of Q window dressing. 


  208.  joe mayo…
     
    I’ve been thinking the same thing all evening.  XLF may be putting in a double bottom here… I may buy some tomorrow.


  209. Disaster hedge for real disaster
     
    Something very strange happened today.  At 4:00 p.m. I reviewed my transactions and found that at 11:49 a.m. I had apparently bought to close  20 SPY October $112 puts and sold to open 20 SPY Sept 23rd $120 puts for a little over $3000. The transaction was for a $700 credit, but appeared to make no sense at all in view of what was going on this morning or in terms of hedging against disaster, which was what the puts were part of a spread or spreads for. The bear spreads had now been turned into bull spreads with disastrous results.
    Switching to forensic mode I checked to see if I had left some mysterious conditional order that I had forgotten about (being somewhat absent minded), but there was absolutely nothing at that time that could possibly have triggered a forgotten order.
    I wondered if someone else had been messing with my computer as I had walked to the Post Office and mailed a certified letter at 11:12 a.m. and then poked around a charity shop, but I was probably back home at 11:49.
    Maybe it was an absent minded error intended to create a calendar spread. Using the TradeKing options trading software the Sept 23rd $120 put would have been the default option at the time, which has to be changed from a drop down menu.
    Anyhow, by the time I spotted this the transaction was already about $5,000 in the hole due to the late mini-crash and the market was closed. I guess what I will do is roll them out to the October $113 put  for a debit, but where they are covered against further losses by the October $114 puts. Since they are in an IRA account I cannot roll them unless I have somewhere to roll them to as part of a spread, otherwise need $240,000 cash to secure the puts. Of course if SPY bounces in the a.m. I can get rid of them for a smaller loss, but I need to get them sorted out in case SPY tanks badly and doubles the losses.
     
    Let this be a warning to anyone who reads this, that the unexpected may happen in more ways than one. Go carefully!


  210. Phil
    How do I get the oil report you frequently use to show the open interest on NYMEX?  If you get the chance can you provide an update from the complete inventory report?
    I assume the price of oil will continue to hinge on demand (or lack thereof), and the monthly barrel counts now that we know that the FED will only provide minor stimulus and no QE3.  Do you think the price of oil will remain range-bound between the high 70′s and high 80′s, or do you think it’s possible that we see a bias towards lower prices (lower than 75) with the dollar strengthening further?


  211. Interesting view from Lee Adler:
    http://www.philstockworld.com/2011/09/21/lee-adlers-market-thoughts/
     
    "If Bernanke surprises the market with an increase in direct purchases of securities from Primary Dealers, it could set off a scalded dog rally. My take on that would be that he doesn’t and it won’t, simply because they fear, probably correctly, that the commodities would rally first and most, and I suspect that that is something that Ben would like to avoid even more than he’d like stocks to rally.
    As often occurs at FOMC days, the market has worked itself to an inflection point. The first move is often a fakeout. I’m looking for a more reliable signal on Thursday."
    TIME WILL TELL.


  212. …..Lee Adler update:
     
    "Ilene: What are you looking for next/tomorrow?
    Lee: The plop heard round the world. Normally the first reaction is the fakeout, but a decline of this magnitude has to do some damage. There’s a support line convergence at SPX 1148. Let’s see. It should bounce from around that area either overnight in the futures, or tomorrow in the cash. A weak bounce could be the kiss of death. A strong rebound would suggest more of these wild gyrations probably into mid-late October."


  213. jmm1951:
    I have done that before on a much smaller scale. Sorry for your bad luck! I hope you get some type of rebound tomorrow to get out of that mess.


  214.  I’ll admit,
    I’m confused.  I just couldn’t follow all the trades today after reading through the comments around 4 or 5.  It seems like we broke some of the lower levels, but what is "our" bias now?  Bull, Bear, or still watch and wait?  
     
    I’ve been jonesing to open up some of the income port trades for a while but the VIX was too low.  Maybe tomorrow is a good day?  Or is there room to fall until we put in a bottom?
     
    I know it’s impossible to predict the future, I was just confused about the PSW community bias….
     
    Thanks! Burr


  215. dclark41
     
    Thanks. Of course I have worked out the worst case scenario and it isn’t very pretty, but it won’t be fatal and I have plenty of other short positions that will help if the worst case occurs. Lesson learned.


  216. dclark – if that day trading 3 times in 5 days happens again, you can petition to have it waived once every three months. they usually just give you a slap on the wrist and let you go on your way the next day. i had that happen a few years back.
    Phil, after vegas lets talk more about this app. I promised you it would be ready in one year and the cookies are now coming out the oven. Now they just need to be put in front of the kids, with a glass of milk.
    Matt – I’m slightly jealous you have your automated system in place! It’s inspired me to tinkle with a little system of my own.


  217. Craig — you mentioned talking about your system in Vegas. Did you set up a time for that? I’d love to be involved. I gather Matt won’t be there, too bad. Kwan, are you coming? I would love to get further with the automated system myself. 


  218.  looks like the futures are weakening…
    hope they are better when i wake up ;-(


  219. Kwan:
    Just read your post. Thank you. I did not know that you could petition for your release! I will try that if I find myself there again. It just bothers me that big brother needs to protect me from myself. I don’t even use there margin. All short positions and option trades are covered by cash in the account. Like Phil said: "Sometimes you have to adjust and make a day trade or two." Does that make you a day trader? Should be a better definition.


  220. Kwan / Kurtww:   I’ve had to scrap my original algorithm.  It was losing regularly.  After winning 12 days in a row it lost amost 5 days in a row.  It just wasn’t reliable enough.  I want something that is > 90% certain to pull out 1% a day.  I’m on my 5th iteration of the algo now.  It’s not live… but getting promising.  The bottom line?  It’s a lot harder then it looks.  So far.  But I think there is a eureka moment out there…  famous last words? 


  221. fwiw, I think we will take out support this time.  We should have already but were completely oversold.  They took us as high as they could in anticipation of a positive suprise from yesterday’s meeting.  Since it didn’t happen, I think we’ll resume our post QEII deflation.


  222. Kwan / KurtWW/ CraigZook:  What happened yesterday is a perfect example of why the ema crossover system is not a good one to follow.  Looking at the daily charts for the Naz, DJI and SP with ema8 and ema20 overlayed, you can see that a crossover to the upside just occured.  Yet by the end of yesterday, we were set up to crossover once again to the downside.  Now, if you are buying or selling based on these last two crossovers.. you would be buying hi and selling low for a loss.  Playing it intra day is the same deal.  These kind of bogus crossovers happen all the time and quicklly add up in the loss column. 
     
    What  a perfect setup they pulled off.  They couldn’t quite pull it off in the RUT.  I dont know about the NYSE..  I bet they ddn’t get it there either.  But like JRW said a while back, if it walks, talks and quacks like a bull flag.. IT IS!! Beep, Beep, Beep.. .that’s the sound of me loading up on more shorts!


  223. Good morning!

    Asia markets down hard with Hang Seng off 4.35%, Shanghai down 2.8%, Nikkei down 2.1% and BSE down 2.6%.  Europe opening down 2.5-3% so very globally ugly at the moment.   There are two major issues killing global confidence:  Last night, Congress decided it was a good time to shut the Government down again and China’s PMI numbers actually came in with a contraction:

    Politico is reporting the vote on a continuing resolution to keep the government operating past September 30 has just failed in the House. 

    Caught off-guard, Speaker John Boehner (R-Ohio) desperately sought to crack the whip in his own party but clearly continues to face an uphill battle with a bloc of conservatives still upset about spending levels he helped negotiate with President Barack Obama.

    The HSBC "flash" September PMI for China falls to 49.4 from August’s 49.9. Even with a manufacturing sector in slight contraction, China is still on track for 8.5-9% GDP growth in coming quarters, according to the bank. Shanghai -1.7%. – Keep in mind China has been TRYING to slow their economy down.  This is not really a bad thing unless you are a commodity bull. 

    Our futures are not so bad, down less than 1% at the moment with the Dollar up 1% so really no relative change from yesterday.  Oil ($83.90) and gold ($1,773) are not taking it well at all with gasoline down to $2.61, nat gas $3.72, copper $3.62 and silver $39.36.

    The Euro is down at $1.355, Pound $1.547, 76.5 Yen to the Dollar and EUR/CHF is at $1,227 so the Swiss are getting what they want (weaker CHF) despite all the other nonsense around them.   

    Thursday’s economic calendar:
    8:30 Initial Jobless Claims
    10:00 FHFA Housing Price Index
    10:00 Leading Indicators
    10:30 EIA Natural Gas Inventory
    4:30 PM Money Supply
    4:30 PM Fed Balance Sheet

    Notable earnings before Thursday’s open: KMXDFSFDX

    Notable earnings after Thursday’s close: CTASNKETIBX

    Taking the worst of it thus far in Thursday trade is Hong Kong, -4.1%. The index has lost 21% of its value in the last 7 weeks and sits at a 15 month low. Worst hit today are property developers: China Overseas Land CAOVY.PK -7.3%, Agile Holdings AGPYF.PK-14.3%.

    Yields at the long end of the U.S. Treasury curve continue to sink. The 10 year is off another 5.5 basis points since the NY close to 1.80%. The 30 year drops another 7 bps to 2.93%. While the 10 year is in uncharted territory to all but The Greatest Generation, the 30 year got as low as 2.5% in late 2008. 

    Jitters in financial markets briefly send the Australian dollar below parity with the greenback. Also boding ill for the aussie is the continuing plunge in copper, and news of soft Asian demand for coal. The aussie is currently buying $1.00 vs. $1.03 about 24 hours ago. Australian shares -2.6%.

    Brazil Will Fight Back Against the Currency Manipulators. Economies that issue reserve currencies are managing international liquidity without a sense of the collective good. They are resorting to undervalued exchange rates to ensure their share of global markets. This wave of unilateral, competitive devaluations creates a vicious cycle that leads to trade and exchange rate protectionism. This has devastating effects for all but especially for developing countries.

    Uh-Oh!  Default Swaps Hit Record With Bonds at Year Low: Japan Credit. The cost of insuring Japan’s debt against default has risen to a record amid concern that Europe’s debt crisis will spread beyond the region. Credit-default swaps tied to the nation’s bonds for five years surged 12 basis points to 136 basis points as of 10:53 a.m. in Tokyo, according to Citigroup Inc. prices. That’s on course for its highest on record in CMA data going back to October 2004. 

    Fed watchers are pointing to specific comments in today’s statement noting ”strains in global financial markets” as a potential “downside risk” for the U.S. economy, as though this were some new catalyst for concern. It seems apparent that when the Fed declares itself lender of last resort "to the world" – as it did just last week - it may have already been aware of the problem.

    Europe’s Financial Risk Watchdog Urges Fast Action to Combat Crisis. The European Systemic Risk Board urged swift action from policy makers to tackle threats to the financial system that have increased “considerably” as the region’s sovereign debt crisis pressures banks. “Key risks stem from potential further adverse feedback effects between sovereign risks, funding vulnerabilities within the European Union banking sector, and a weakening of growth outlooks both at global and EU levels,” the ESRB, Europe’s risk watchdog, said in a statement late yesterday. “Decisive and swift action is required from all authorities.”

    Don’t worry about the initial selloff in stocks following the Fed statement, Deutsche Bank’s Alan Ruskin writes, suspecting the reaction is short-term. "The foreign exchange market has a choice of which asset market to believe. That the Fed leapfrogged expectations should be a solid risk positive regardless of the fact that the Fed’s actions reflect fears of growth downside risks.

    George Soros: The Double Dip Is Already Here. (video)

    China Should Keep Out of Europe, Warns Top Economist. China should refrain from buying European government bonds and cut dollar holdings in its foreign exchange reserves, Yu Yongding, a former adviser to China’s central bank, said yesterday. "We should not buy European bonds and there should be conditions for us to buy."

    Greece Could Trigger Global Banking Crisis – Canada. A global banking crisis will erupt unless Europe properly deals with Greece’s debt problems, Canadian Finance Minister Jim Flaherty said on Wednesday. "Europe has to pick a lane here. They’ve got to deal with that issue respecting Greece. Otherwise the markets will get ahead, we will have some sort of a crisis, it will become a banking crisis, it will affect banks all around the world," he told the Canadian Broadcasting Corp.

    Greece Accelerates Cuts to Wages, Pensions to Ensure Next Bailout Payment. Greek Prime Minister George Papandreou’s government said it will accelerate budget cuts, targeting civil servants’ wages and pensioners to keep emergency loans flowing and avoid default.

    Europe’s Forced Retirees Not Going to Go Gently.

    Seasonal patterns point to a stock market recovery in the making, says Oppenheimer’s Brian Belski. Looking at the data, he notes that every fourth quarter since 1970 has been positive for stocks when preceded by double-digit negative returns in the months prior, which is exactly what we’re seeing now. (Video).

    Sometimes, all I need is the air that I breathe:  White House Opposes House Bill to Delay EPA Rules. The White House Wednesday said it strongly opposes a House bill that would delay several Environmental Protection Agency rules on air pollution, setting up another showdown over Republican-led efforts to postpone the agency’s agenda.

    United Technologies’ (UTX) reported $16.4B cash offer for Goodrich (GR) is UTX’s biggest deal in a decade and comes at $127.50/share, a 16% premium to today’s closing price and 47% higher than last week when the deal started to leak. And it’s a heavy move into commercial aviation, and to get bigger – the opposite of peers like Tyco (TYC), planning to split into three.

    Hey, rich asses need seats!  Herman Miller’s (MLHRFQ1 earnings easily beat estimates as profits soar 53% on solid revenue growth. Margins improved significantly, primarily due to price increases instituted in May and higher production output. Shares +11% AH.

    Things Apple (AAPL) is now worth more than: all the gold being held at the New York Federal Reserve vault, the total estimated U.S. corporate income tax in 2011, all the bricks in the Great Wall of China.

    Blasphemy!  "Apple just isn’t that big," says Pimco’s Rob Arnott, questioning why the company should have the world’s greatestmarket cap. His favorite pairs trade (careful, he might be joking): Long Bank of America (BAC)/Short Apple (AAPL). With one, the worst case scenario is being priced in. With the other, the opposite

    Nanny State update:  Conservative Moms Are Now Calling For A Boycott of Ben & Jerry’s Ice Cream. "Ben & Jerry’s announced their newest ice cream flavor which sounds anything but appealing. Schweddy Balls is the best they could come up with. The vulgar new flavor has turned something as innocent as ice cream into something repulsive. Not exactly what you want a child asking for at the supermarket."


  224. phil,
    my portfolio is itty-bitty. So if I lose everything in a single trade, I lose almost $2k. WOW. I know generally it’s not recommended to trade on borrowed $, however… since I can’t day trade with the current restrictions on me (same as another blogger, I noticed) in this highly volatile market, I thought I could move some equity ($40k) from my home equity line to "short" with the rest of the world, and get caught up. Is my opportunity going to be around in a week?
    current problems: greed, impatience, guessing tops and bottoms, etc. and still don’t quite have even the ‘spreads’ figured out.
    help?
    holding: +3 vix oct 40 calls @$3.10, +100 spxu @$19.38, and +2 F oct puts @$0.67


  225. Amazingly Euro is holding on very well all considering.  There were a few rally attempts killed off by the equity futures going the other way.   Smells a little like hammer the equities to panic the retail.  Thinking that there is a second leg from fed/WH in a few days.  Kind of like jackson hole outcome with a 3 day lag.  If europe recovers into NY open a bit it could be BTFD again.  If NY manages positive close – we are not told the whole story.  Euro wants higher, somebody is BTFD there.


  226. Thinking about the macro view and these clowns on top, just unbelievable how corrupt they are.  Economic crisis part 2:
    Greece is bankrupt, hence banks are bankrupt, unemployment and any idiotic attempt to improve the situation spins out inflation.  Solution: ECB/FED write a cheque to the banks for Greek paper at 10-15% discount, force austerity/asset sale there, put a floor in the stock market like Japan does, get an job-creating federal projects (solar, high-speed rail, roads etc). Cut the spending – mainly military.  Problems solved.
    What do they do instead?  Other than feed their bosses and worsen the situation?  not much…..  Kind of like pre-Hitler Germany.  Steal as much as you can, kill 50 million as the eventual result.


  227. Cash/Asaenz – If you are 60% cash and 15/15 invested then it’s fine to stay invested if you intend to scale into the bullish side (which is the side that’s in trouble at the moment).  We liked SPWRA at $12 the other day and now they are $9.50 (down 20%) but if my short side is up 20% then that’s FREE MONEY to scale into SWPRA with.  As a long-term investor, the goal of your hedges should be to fund your accumulation of more stock because your long-term goal is to own a lot of stock, right?  Take this example:  

    • You bought 1,000 shares of DIA Monday at $112.50 (simplification to represent all longs) and you hedged it with 2013 $110 calls at $12.50 and the $110 puts at $13.90.  That puts you in the buy/write at $86.1/98.05 – so you have 12.8% of built-in protection on your net $86,100 investment with a goal of making $24,000 at $110 in 15 months.  
    • You bought Monday’s 20 QID Oct $44/47 bear put spread at $1.45, selling 20 RIMM Oct $22 puts for $1.10.  That gives you about $6,000 of additional protection IF THE MARKET DOESN’T GO UP (QID was already at $47).  

    Since then, the Dow has dropped 200 points and DIA is now $109 and the VIX is up so the puts and calls are now $26, dropping your net to $83 – a $3,100 "loss" on paper.  The Oct QID spread, meanwhile, is $2.30 but the RIMM puts jumped to $1.76 so net .54 is only up $380 so far.  That means your net loss on paper is $2,720 (3.2%) – pretty much keeping pace with the actual drop in the Dow.  

    So, is this underhedged?  No, not really because you have to be smarter than your broker and realize that $1.26 of the $1.76 of RIMM is premium ($2,520) and that the QID spread is fully in the money and will pay another $1,400 if we finish at this level in October so your protection, on a flat-line from here pays you $3,920 and you have no loss outside of current premium.  Of course, if DIA finishes at $109, the premium from the putter and caller disappear too and that trade is up $22,900.

    This trade is far from "in trouble" as it’s on target for a $23,000 gain but your broker is telling you to PANIC with your $2,720 loss.  That is why I stress LEARNING about options and not just making trades.  You have to learn to be smarter than the reports you are being given and not panic in and out of option positions as the VIX and sentiment send things flying violently up and down.  

    If we are nervous that we do need more protection, what do we do?  First of all, we should set a limit at which we consider ourselves off track.  Let’s say if 11,000 fails to hold.  What is our major fear?  The Dow failing to hold 9,800 in 2013 (our net 2x $98.05 on DIA).  We already have insurance against a quick drop (which happened) and now we need to think about longer-term protection.  

    9,800 is 12% down in the Dow and that would be 24% up in DXD and DXD is at $19.83 so figure $24.  The April $20/25 bull call spread is $1.10 and pays almost 5:1 on a drop below 9,800 so now the question is – how much protection do you REALLY need?  

    For one thing – keep in mind that you are BREAK-EVEN at $98.  That means that you still have the same $196,000 commitment you started with EVEN THOUGH the Dow fell 14% since you bought it.   That means, in 2013, you will NOT HAVE LOST money while the market got cheaper.  You don’t need to protect yourself from that, do you?  

    So the only real worry is the Dow dropping lower than 9,800, at which point you are assigned another 1,000 shares of DIA at $110 for a $98.05 average entry and now you lose $2,000 for every 100 points the Dow falls from there.  So, let’s say you need another 10% protection = $20,000.  That’s almost entirely covered by investing just $4,000 in the DXD spread.  

    What is the net effect of this insurance?  Well, you have a short-term payoff of $6,000 if the Dow stays low through October expiration and that then pays for your $4,000 longer-term insurance.   If the Dow recovers, we assume RIMM will too and the October hedge only cost you net $600 and you can try again in Nov/Dec time-frames for short-term protection.  

    Notice we’re risking $600 to make $6,000 so the market only has to fail once in 10 tries for us to break even on these offset hedges.  If it never fails, we don’t have to keep buying them 10 times over because, after 3 or 4 times in a row that the market doesn’t fall, then the rise in the market itself becomes a hedge as we only needed it to flatline to make our planned $24,000.   

    If we put $4,000 into the DXD hedge (20% of our anticipated gains), that is going to be dead money if our DIA spread works out.  That’s fine because now we are break-even all the way down to at least Dow 9,000.  If you are not comfortable with Dow 9,000 as your downside protection from your entry at Dow 11,250 then there is a simple solution for you – BONDS!  

    Any time you feel the urge to hedge more than a 20% drop in your stock – GO TO CASH!  Why on earth would you tie your money up in anything that you think has more than a tiny chance of dropping more than 20%?  That just makes no sense.

    Now, IF the Dow fails our 11,000 mark and then fails 10,500 – we can simply add DXD $25-30 spreads for another $4,000 and now we bought ANOTHER 10% downside protection and we’re good to Dow 8,000.  At that point, we would set a stop on the first DXD spread (now it’s like a Mattress Play without the offsetting put), which should be doing well and we’re good to go.

    You have to PRACTICE these trades over time and you have to internalize how they work.  The best thing to do is to set up a paper-trading account using spreads like this and just LEAVE THEM ALONE.  You will be very surprised to find that, over time, they tend to outperform your "active trading" because, over time, the market does tend to pretty much flatline despite the 20% up and down moves and if you just plant your tree, water it occasionally and give it time – eventually it will bear fruit and you will eat for the rest of your life.  


  228. haha spoke too soon on EUR….


  229. Good point JC – This is what we feared, that the Fed would not do enough (and we already know Congress will be no help) and the economy will now resume it’s downward spiral as EVERYBODY gives up hope.  Also, what is the Fed doing – they are putting a theoretical floor on Bonds – now the only "safe" place for money to go.  Soon US corporations may follow EU corporations and look to deposit money directly with the Central Banks because they can’t even trust the Commercial Banks to hang on to their capital and then we are all doomed.  

    I’m sorry I tried to get bullish but it just did not occur to me that EVERY branch of Government and the Fed could possibly be this incompetent in a crisis.  All it would have taken is for the President OR Congress OR the Fed to do ONE THING that really made some progress (or at least showed they cared) and we would have had a different outcome but this is just one incompetent mess.  

    Copper/Asaenz – There’s a reason FCX was on our long Put list – Copper, in an economic collapse, should be below $3, gold is also ridiculously overpriced and that’s 25% of FCX so no, I don’t like them while things are falling apart.  

    Spreads/GS – I do not like negative risk/reward spreads in the first place.  Unlike just selling a short call, you are trapped in the trade when it moves against you.  If you are selling bull call spreads because you can’t afford to be naked short – then maybe you should consider that you cannot afford to take gambles like this in the first place.  If you sell GMCR $115 calls for $5.40, you are safe to $120 and the callers can be rolled to the Jan $140s (now $5.90) even so you really have until $145.  Why spend $2.10 to turn it into a $3.30 credit spread with much less flexibility that you won’t even be able to cash out on a good dip?  You are buying more premium than you are selling (taking into account how far out of the money you are) – that’s the exact opposite of what you should be doing over time. 

    On AMZN, we took a BEAR put spread in the afternoon for the $25KP.  The weekly $235/230 for $1.45.  AMZN was at $237 at the time but that was an intelligent play based on their recent run-up and the market weakness we saw.  I looked at a few hundred stocks and decided that one had the best chance of success as a cover and I choose a bet that risks $145 to make $355 – not one that makes $330 but risks $670.  Assuming you and I are both right half the time – who will end up better off? 

    Now, any of these bearish plays are chasing and you are giving the stocks a month to recover (not to mention earnings).  With AAPL – you have a 50/50 chance of losing twice as much as you’re betting as any bad news on earnings will send them well below $400.  My favorite way to play earnings is with a ratio backspread because you have time to adjust if you are wrong and, if you are right – you make money very quickly. 

    GMCR would be my favorite bear play and we already did a short play on them this week but let’s say you sell 5 Oct $115 calls for $5.40 ($2,200) and buy 3 Jan $130s at $8.75 ($2,625).  If GMCR fails to go up $5 in 30 days, you keep the $2,200 plus whatever value remains on the longer calls.  If GMCR goes up, the $115 calls are an even roll to the Nov $125 calls ($5.95) and those are an even roll to the Dec $135s ($5.40) so all you have to do is make sure those rolls don’t get away from you and the next roll would be to the Jan $140s ($6) and then you would be in a spread of 3 $130s and 5 $140s for net $425 ($1.42 per long).  That means, along the way, you can spend even $15 (2x) for 2 more of the $130s and your net on 5 $10 spreads would be $6.28 and, of course, you wouldn’t end up in those spreads unless they were deep in the money and GMCR had been going up on a tear for 3 straight months.  Flexibility and control – those are the things you give up the second you enter a vertical – especially one where you are the sucker paying the premiums.  

    End of Q/Joe – We need something but the global markets are melting down today and if they are melting down tomorrow as well, into the weekend, we could be heading into a Black Monday event so I’ll be wanting to see some very strong support on our Big Chart before I want to go chasing rainbows.  

    On the whole, we’re selling off for dumb reasons.  The China PMI is the result of China spending all year trying dozens of ways to slow their economy and it finally worked.  The EU is freaking out about the LANGUAGE of the Fed statement that says the economy sucks.  We know it sucks – the Beige Book was very clear on that matter and nothing changed in the 10 days between the book and the meeting – this is not a reason to panic.  So possibly and overreaction Globally but we need our markets to prove it by taking a stand today.

    SPY/JMM – That really sucks.  Did you call the broker to find out when the order was placed?  I don’t see it likely that you would sell $123 puts for any reason.  You should make them prove to you that you did that as it’s serious money. 

    NYMEX/DC – Right here. I’m so pissed that we took off those shorts now I can’t even look at oil ($82.21).  I think the low $70s is the "right" price for oil but once panic starts, they can go much lower.  This is certainly not a predictable zone for them and sub $70 oil will collapse Saudi Arabia, Iran, Venezuela, Mexico and Canada if it persists but, of course, as each one collapses it puts in a short-term floor that holds the line but, if the World is going to unwind – we’ll see those dominoes start to fall. 

    Then Lee Adler makes the point of why it’s too dangerous to bet that commodities will fall – Bernanke can still make one statement and there could be one mother of a short squeeze.  Note we’ve already blown Lee’s 1,148 support – there was no bounce at all – we consolidated overnight and failed at 3am.  

    Bias/Bur – Neutral.  Hopefully, this sell-off is overdone but better to be back to cashy and cautious than making bets.  Europe is down 5% at the moment – that’s not a knife you want to catch!  

    App/Kwan – Can’t wait!  

    Home equity/Doulos – You REALLY need to sit down with your accountant and decide if that’s a good idea (it’s usually not!).  Stocks are always a gamble, don’t let anyone tell you different.   Do I think there is a good buying opportunity?  Absolutely! Would I bet my house on it?  Not if I only had one house!  

    Dollar at 79! 

    Time to go to work.


  230. Phil
    With the likelihood of a spike down this morning, any thoughts on ditching or adjusting yesterday’s bullish BAC trade: long OCT 7 Calls, short Oct 6 puts. Thanks


  231. Phil:
    I share your pain. Two trades this week we exited early on USO. That last one would have been fantastic had we held.  Oh well, you can’t win them all and we didn’t lose and there’s always tomorrow or something else.