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Monday Morning Meltdown – Hong Kong Drops 5%

China\\\What’s up with China?  

Well the mainland markets are actually closed, taking  a week’s well-deserved vacation after falling 19% in the past two months but Hong Kong’s Hang Seng index fell another 5% TODAY bringing that index down from 22,800 on August 1st to 16,822 today (down 26%) after skating along that 16,700 line into lunch.  

Much like their bullet train – the Chinese economy began to derail in late July as the accident was a metaphor that slammed home the concept that perhaps China was growing too big, too fast – to be able to sustain the pace.  That sent copper tumbling from it’s ridiculous $4.50 high on August 1st, down to $3 in last nights trading (33%) and that’s still about 20% higher than $2.50, which is where, fundamentally, copper should be trading.  

What’s 20% between friends though?  Copper is downright reasonable compared to gold (still double a more realistic $800 target) and silver ($15 would be a stretch under ordinary circumstances) and even oil is having a herd time justifying the $80s – especially in light of the 6 months it spent below 50 in our last market crash – at a time global consumption was 5% higher!  

China has been, up to now, the mythical engine of ever-expanding Global demand that justified overpaying for everything from shares of YUM to stockpiled copper to gasoline futures to Rembrandts – all on the premise that, no matter what price you were willing to pay for something – somewhere in China there would be a "greater fool" looking to take it off your hands for a nice profit.  

Keynes described the "Greater Fool Theory" as a beauty contest in which the viewer (market participant) gets a prize for picking the woman who will be voted most beautiful.  While many people would just pick their preference, a game-player would pick the woman who he thinks the other voters would vote to be most beautiful – regardless of her actual merits while the "expert" player would take even that into account and would bet according to what he thinks the other think that others are betting on.  

That’s the difference between Fundamental and Technical Analysis – A Fundamentalist takes home the girl of his choice, settles down, gets married and has children while the Technical people are still trying to figure out which girl he will pick.  Relationships may be rocky but only half end up in divorce so if you "marry" enough stocks – you are bound to find a few you’ll be able to stick with for the rest of your life.  

As a Fundamentalist, I actually read a lot of earnings reports and, for many years, I have warned Members of the pitfalls of investing in ADR’s – particularly Chinese ADRs, where the reporting criteria are nothing like those of US Corporations.  Without a clear, RELIABLE, report of a company’s operations – how can you possibly invest in it?  

Back in April I ran this picture of Copper plates being stockpiled in a Chinese warehouse as an example of how ridiculous it was to go by the purported demand numbers that were being bandied about by Cramer and other Crooked Newspeople Boosting Commodities.  My comment in the April 11th post was:  

Speaking of demand that fails to prove out.  Once again copper is rejected at the top of our range at $4.50 as imports to China are off 33% from last year.  That’s right, all those articles you read about copper demand during the month of March and about copper being used to back loans in China and copper being the new silver were all Bullshit – but you fell for it, didn’t you?

Chinese buyers are now facing the double whammy of higher copper prices and the government’s aggressive moves to tighten credit. Moreover, evidence has recently surfaced of previously unreported copper stockpiles, a sign that much of the purchased copper hasn’t been put to use. The stash is estimated by people in China and several Western banks to be around one million tons, or about 15% of the country’s annual consumption.  

FUNDAMENTALS!  They may not be as immediately rewarding as day-trading TA but, over the long haul – it’s where the real money gets made.  At $250 per penny per contract, the $1.50 drop in copper has been good for $37,500 on the futures (/HG).  In the same post, we discussed my reasons for also shorting oil (/CL) at $112.79 and, while oil "only" pays $10 per penny per contract, at $78 this morning, that’s 3,479 pennies for $34,790 per contract on that call.  Silver made it a triple play in that morning post – as I mentioned we shorted that metal at $42 (now $30) and those contracts are good for $100 per penny per contract.  

As I mentioned above, we’re happy with copper at $3 because we can hedge it down to $2.50 or lower (we began fishing on FCX last week as they fell below $35 with target entries around $27.50) and, ONE DAY, building will come back but not today and there is no rush.  To give you an idea though of how we make a fundamental investment in copper at $3 – we don’t buy the commodity but we buy FCX, which produces it and pays a 3.3% dividend while we wait for the pricing to improve.  

Using our buy/write strategy, we buy the stock for $30.45 and we sell the 2013 $25 puts and calls for $15.20.  That drops our net to $9.80 on our first round and, if FCX is below $25 in January of 2013, then another round will be assigned to us at $25 and that would put us in a 2x position at an average cost of $17.40 per share – just over half of the current price.  

Does our strategy guarantee FCX will not go down?  Of course not but it does give us a fair amount of breathing room on the stock and, don’t forget, if the whole market drops 50% and we simply get our money back – we’ll be sitting with 100% of our original cash while the whole market is on sale for half price.  Wouldn’t you have liked to be in that position in 2009?  

We can do this WITHOUT missing a move up.  If FCX, for example, manages to hold $25, we make the spread between our $9.80 entry and $25, which is $15.20.  $15.20 is a 50% return per current share of FCX and, even if you tie up your entire potential 2x assignment in cash and margin – it’s still 25% back on the total you put to work in 15 months.  If you have historically done better than 20%+ annual returns in the market – then by all means ignore what I’m saying because that’s all this offers you.  But it offers those returns even when the market drops 20% and, in this case, it preserves your initial capital even if the stock falls ANOTHER 50% from here.  That’s all I want to get across – you don’t have to invest in such a way where every market move is some sort of crisis – pairing this strategy with some sensible hedges can leave you with a fairly worry-free portfolio that generates a nice annual return without the need to stare at the markets every day!  

FCX CAN go lower.  It was $9 in 2009 and, in fact, it was one of the focus shorts on our Long Put List from 9/2, when the stock was at $45 but those $2.40 Jan $37.50 puts are now $9.10 (up 279%) and, if you are already in them, what better to do with the money than begin to hedge it back the other way by buying some FCX stock.  We don’t need to take the long put off the table yet but we can lock in some of the profits by selling the Jan $29 puts for $4.  That take $4 of our original $2.40 (166%) off the table and the worst thing that can happen is FCX is assigned to us at net $25 but, if assigned to us under $29, we also have at least another $8.50 from our Jan $37.50 puts (assuming we don’t stop them out with better).  

That then drops the net entry on 1x to $16.50 and we can still sell those 2013 $25 puts and calls for $15.20 but then we’re looking at a net $1.30/13.15 with a whopping $23.70 profit if simply called away at $25 in a year.  I don’t care how low the markets go – you’re not likely to net into FCX lower than that are you?  That’s how you have to look at these short put entries – as the first stage of a long-term strategy to establish ownership in a stock.  We discussed some more examples of this in the comments of our Weekend Reading post so I’ll leave it at that but we are heading into a period at which things are beginning to get compellingly cheap.  We still need to be VERY CAREFUL but, FUNDAMENTALLY – there are places we can take a small stand on the premise that this is not 2008 again.  

If it is – we have lots of fun ways to make money on a major crash and THEN we can go bottom-fishing through the wreckage.  For now, we need to mark off trade ideas like FCX and try to find the real bottoms (assuming there is one) and watch for some signs that we’re not simply going to crash through all of our support levels and head back to the panic lows of ’08-09.  

So, still hopelessly optimistic as long as we hold all 3 of our -10% lines at Dow 10,431, S&P 1,112 and Nas 2,343.  The Nas has the best chance of testing today as they have just 30 points to drop and we did hit 2,331.65 on August 9th (a spike, not a close) so certainly not out of the question but 4 days after that world ended, the Nas was at 2,555 on the 15th (up 9.6%) – which is why, Friday morning – we chose 2 leveraged UPSIDE trade ideas and we will do so again because it’s fun to catch those once in a while and, if not – well, that’s why we also had a more sensible downside hedge in the same Alert!  

It’s going to be an exciting week as we head off to Vegas – let’s be careful out there!  


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  1. PP for today.

  2. Oil Lines

    R3 – 79.67
    R2 – 79.30
    R1 – 78.64
    PP – 78.27
    S1 – 77.61
    S2 – 77.24
    S3 – 76.58

    Yesterday’s high and low – 78.93 / 77.90

    Breakout lines – 80.59 / 75.20 

  3. SPY 15 yr monthly chart:

    The most interesting result of our work this weekend was the result of the Fibonacci extension drawn from the high in October 2007 to the low of March 2009 and back up to the high of May 2011. Notice the 38.2% (102.91) level ties in with the lows of 2010 and that the 38.2% level and and 50.0% (92.20) frame the lower volume area of the volume profile for the markets 15 year range bound move.

    In coming months, price may find acceptance below the 15 year VPOC (red line), however if the broad market does move lower this month, we anticipate support coming into play around the 38.2% level (102.91) due to the support of prior lows and the lower volume rejection area beneath it.

  4. In view of the latest market action, I revisited a blog post I wrote earlier this year regarding a method to time the market. It was based on an Active Trader magazine article. The author claimed that using a simple moving average on a monthly chart of the S&P500, you could improve your returns. The original post is here;

    I have written a new post last night with some more information (in particular some equity curves to support the theory) and also updated my charts to see where we stand now. The article can be found here:

    Based on that theory, we should have gone to cash at the end of August as the monthly bar crossed below the moving average. And it would not been a a bad move unless you planned on shorting the market in September!

    I have another post waiting to be published on another market timing method. More later!

  5. Good timing Pharm, my blog post has almost the same chart!

  6. It was a bad quarter – ETF performance:

    Look at global ETFs – a bloodbath, Europe in particular. Not great in the US either except for the Nasdaq who lost less than 10%. No surprise, bond ETF are positive! 

  7. I think 102 holds StJ, for now.  I still like JRW’s chart that shows a retrace then a bouce up to the 1220-1250 area, and then next year we go BOOM.  It would be a nice little head and shoulders on the monthly SPY Chart.

  8. Pharm
    I like the new pivot point chart format. Much easier for an old man to read!

  9. FAS Money Recap

    Long Strangle –Jan 12 Calls (2.71 now 2.27) and April 11 Puts (3.30 now 4.07).

    Weekly – Full Cover October 13 Puts (1.98 average now 3.05)

    Monthly –  Full Cover October 13 Puts (1.98 average now 3.05)

  10. Kass Methodology
    My methodology, assumptions and probability distributions from a recently written column produce an S&P 500 target of about 1205, about 5% above current levels:
    Scenario No. 1 (probability 15%): The pace of U.S. economic recovery reaccelerates to above-consensus forecasts based on pro-growth fiscal policies geared toward generating job growth), still low inflation, subdued interest rates and the adoption of aggressive plans by the government to deplete the excess inventory of unsold homes. Corporate profits meet consensus for 2011, and 2012 earnings estimates are raised (modestly). Europe stabilizes, and China has a soft landing. Stocks have 25% to 30% upside over the next 12 months. S&P target is 1500.
    Scenario No. 2 (probability 15%): The U.S. enters a deep recession precipitated by a more pronounced negative feedback loop, a series of European bank failures and likely sovereign debt defaults in the eurozone. While 2011 corporate profits and margins disappoint somewhat (we are already well into full-year results), 2012 earnings estimates are materially slashed. China has a hard landing. Stocks have a 20% to 30% downside risk over the next 12 months. S&P target is 885.
    Scenario No. 3 (probability 30%): The U.S. and Europe economies experience a shallow recession. Earnings for 2011 are slightly below expectations, but 2012 corporate profits are cut back to slightly below this year’s levels. Stocks have 10% to 15% downside risk over the next 12 months. S&P target is 1030.
    Scenario No. 4 (probability 40%): The U.S. and European economies “muddle through” in a modest expansion mode (hat tip for the term to John Mauldin). Profits for 2011 meet consensus expectations, but slippage in margins brings down 2012 corporate profit growth projections somewhat. Stocks have 10% to 20% upside over the next 12 months. S&P target is 1355.
    Again, my exercise produces a mathematical solution, based on the above scenarios, of a (melded) S&P 500 price target of about 1205, about 5% above the current cash index.

  11.  PGH
    Phil, I was trying to create a good dividend earning portfolio (have the cash to payoff a loan, but the dividend of PGH monthly is enough to pay the monthly payments on a 2.1% interest rate).
    So I over the last 2 month began selling puts for PGH. I liked them at $10 and started selling up around $11. I find myself now with the following position:
    +4000 shares PGH
    - 15 contracts Oct $9 Put
    - 15 contracts Oct $10 Put 
     I find myself looking at the stock at $8.85 this morning, thinking I don’t know if I want to buy more at $9 for fear of seeing $7 soon. This gives me the very sense that I should sell another round of puts (if we continue to push down this week that could fill).
    - 10 contracts Oct $8 Put – for $0.25  (mark is $.15)
    - 10 contracts Jan $7 Put – for $0.50  (mark is $.30)
    - 10 contracts Jan $8 Put – for $1  (mark is $.55)
    My goal allocation for the PGH position is 10,000 shares… I was trying to write puts to accumulate the stock then do a income portfolio style play on the stock… unfortunately I haven’t sold any calls during this time as I was expecting another rebound. 
    Any suggestions to this plan for PGH?
    What downside hedge would you use for this portfolio?

  12. Dear Phil,
    Is there a particular reason you prefer FCX over SCCO, or would an analogous strategy apply to SCCO?

  13. Following up on weekend results:
    my indicator is still falling of a cliff and predicting a sell-off starting soon:

    on the world-currency chart the SPY went back into what Phil called the "triangle-thingy":

  14. "A Fundamentalist takes home the girl of his choice, settles down, gets married and has children"
    Very funny this morning Phil, as I’ve never married I guess that makes me a T&A guy! A whole new sideline, stock picks and relationship advice, watch out EHarmony!

  15. Phil / ECRI – Do you think they’re wrong this time?   If I remember correctly, they haven’t been wrong in the past.

  16. Good morning!

    Dollar below 79.50 is key to keep us going up (relative to down 1% Futures lows).   $1.33 should be a floor for the Euro and $1.55 is holding for the Pound.

    Oil (/CL) is a good bullish play off the $77.50 line with VERY tight stops.  USO Oct $28 puts can be sold for .75 and that pays for most of the Oct $29/31 bull call spread ($1.08) for net .33 on the $2 spread as a bet oil gets back over $80 by expiration day (19th).  Let’s do 10 in the $25KP.  

    On the whole, we now need to break out of the downtrending range I drew on Friday’s Big Chart and those are NOT ambitious targets.  I didn’t talk about Europe or Asia in the morning post (but we did earlier in the morning at the end of weekend chat) as it doesn’t matter.  

    As I said last week – the EU has a process to go through and that process is slow and will generate a lot of soundbytes that can be spun this way and that so we will learn nothing by following them.  All we care about is – will our 10% lines hold on the Dow, S&P and Nasdaq and, if not – then we have to follow our TA buddies off the cliff.  

    We get earnings this week from YUM (Weds), COST, MON, MAR and RT (Thurs) and STZ, HELE and ISCA on Friday.  We’ll be live from Vegas on Monday and earnings officially kick off next Tuesday with AA but the week isn’t that exciting with PEP, PGR, CBSH, JPM, WGO and MAT the only really interesting ones there.  

    Data, however, is a little more promising with ISM, Auto Sales, NFP and Consumer Credit so let’s strap in for another wild one!  


    Week of October 03 – October 07





    Actual Forecast Consensus


    Revised From

    Oct 03


    ISM Index







    Oct 03


    Construction Spending







    Oct 03


    Auto Sales







    Oct 03


    Truck Sales







    Oct 04


    Factory Orders







    Oct 05


    MBA Mortgage Index







    Oct 05


    Challenger Job Cuts







    Oct 05


    ADP Employment Change







    Oct 05


    ISM Services







    Oct 05


    Crude Inventories







    Oct 06


    Initial Claims







    Oct 06


    Continuing Claims







    Oct 07


    Nonfarm Payrolls







    Oct 07


    Nonfarm Private Payrolls







    Oct 07


    Unemployment Rate







    Oct 07


    Hourly Earnings







    Oct 07


    Average Workweek







    Oct 07


    Wholesale Inventories







    Oct 07


    Consumer Credit






    The Nas is still our high flyer and the SQQQ Oct $28/32 bull call spread is $1.20 and you don’t really NEED an offset when your base hedge pays 233% if your index falls 5% (2,267) but you can sell QQQ Oct $48 puts for .90 and those break-even at $47.10, which is a 9.25% drop in the Nas so you WILL have $4 before you have to give back one penny over what you collect on these short puts and that drops the net on this hedge to .30 on a $4 spread and, of course, the short puts can always be rolled or stopped out before $2 to keep the spread under $2 with 100% upside anyway.  

    I’m not gung-ho to hedge more unless you feel underprotected as I still think we’re oversold but it’s a panic market and you never know.  Fundamentally – I do KNOW that there are lots of stocks that are worth their price!  

    Monday’s economic calendar:
    Auto sales
    10:00 ISM Manufacturing Index
    10:00 Construction Spending
    6:00 PM Fed’s Lacker: ‘Economics After the Crisis

    At the open: Dow -0.54% to 10854. S&P -0.48% to 1126. Nasdaq -0.67% to 2125.
    Treasurys: 30-year +0.62%. 10-yr +0.22%. 5-yr +0.09%.
    Commodities: Crude -2.19% to $77.47. Gold +2.22% to $1658.35.
    Currencies: Euro -0.46% vs. dollar. Yen -0.35%. Pound +0.56%.

    Market preview: U.S. stocks look to follow European and Asian markets lower after Greece misses its deficit targets, revising fears that the country won’t get more bailout loans. S&P -0.6%. The euro falls to an eight-month low vs. the dollar, Treasury prices rise, oilextends its slumpStill ahead: ISM manufacturing, construction spending, Sept. auto sales.

    Aug. Construction Spending: +1.4% to $799.2B/year vs. consensus -0.3%, -1.4% (revised) in July.

    Chrysler (FIATY.PK) Sept. U.S. sales: +27% to 127,334 vehicles, an 18th straight month of Y/Y gains. Total cars up 12%; trucks up 33% to 94,117. Ram pickup up 45% to 24,522. Jeep Wrangler up 47% to 11,388. (PR)

  17. The future of business:,0,5755568.story

    That’s what happens when you kill the competition… Fortunately, they have not yet!

    Cheryl Holt of Burbank said she received one of the Citibank letters this week saying her old account with the bank, a so-called Easy Checking Package that had always been free, was being replaced in December with a new account package with a $15 monthly fee or $6,000 deposit minimum.

    That’s not the typical bank account of a bottom 50% 

  18. Buffett tells it like it is:

    QUESTIONER: Are you happy seeing your suggestion, this new Buffett Rule, becoming more of a basis of a political battle that really has turned into class warfare?

    BUFFETT: Actually, there’s been class warfare going on for the last 20 years, and my class has won. We’re the ones that have gotten our tax rates reduced dramatically.

    If you look at the 400 highest taxpayers in the United States in 1992, the first year for figures, they averaged about $40 million of [income] per person. In the most recent year, they were $227 million per person — five for one. During that period, their taxes went down from 29 percent to 21 percent of income. So, if there’s class warfare, the rich class has won.

  19. Phil / Anyone – It looks like the rest of the world is blinking recession, but despite the call from ECRI, our data isn’t saying so.  Not sure what to make of all this.


    In the old days, I think markets, here and abroad would have rallied, due to the fact that the US economy could and would move the rest of the world out of recession.  But those days are past.  Perhaps the rest of the world is sinking into recession and the market is saying "US, your time is coming."  Again, not sure.

  20. stjean / buffet – The obvious answer is that Buffet isn’t as rich as he says he is.  Come on Warren, show us those tax returns!  You’re getting the Birther treatment buddy!

  21. These ETF based on dividend paying companies don’t always pan out as planned:

    As usual, invest with caution! 

  22. Can we stop blaming regulations for bad job creation:

    Poor sales seem to be the main concern for small businesses (I can attest to that) and actually regulation complaints are where they were under Reagan and only a couple points above Bush. And probably would not be there if it was not for the constant media hammering!

    Private jobs are actually on par with the 91 recovery (slow as well) but better than the 2001 recovery. The difference this time is that public jobs are being slashed!

    Oh well… never let facts get in the way of campaign lies… 

  23. Cant see risk coming on heavy with the Euro remaining so weak and the Greek finmin calling the new budget ambitious. 1120 S&P critical..

  24. Phil/ Hong Kong   Been here 10 days on a major M&A assignment, probably here through year end.  There is no sign of any recession here.  Stores are full, everything is full price (and twice US prices).  Chinese contacts say slowing from 10% growth to 8 or 9%, that’s it.  Gov’t will hit the liquidity pedal rather than risk slowdown which is socially destabilizing.  I’m leaning towards the muddle through scenario rather than crash, which implies stocks are undervalued.  But, emotion is emotion and stocks always go too high and too low, so I’ll just follow the maestro!  BTW the fireworks were great on ‘National Day’ in HK Harbour and the 4 Seasons is at full capacity at $700 per night!

  25. Junker says no decision on Greek tranche today.

  26. Phil,
    In a paper trading account I have PWER at 8.60 selling the Jan 7.5 P for 1.15 and C for 1.05 leaving me with a buy write at 6.40/ 6.95. Glad this is a practice account as the puts are now 3.50. I’m using this account to practice for this type of situation and I don’t want to turn a paper loss into a realized loss so do I wait until closer to expiration to adjust? Or do I adjust by buying the puts back and selling 3X the April 5 puts for around 1.35 for 0.55 credit? Or do you have a better way?

  27. Hong Kong markets are at a 28 month low tusca..

  28. Nothing like a 30 point swing in the S&P futures to start the quarter… Untradable! 

  29. Thanks StJ – Great idea for a post!  

    Kass/Rustle – I agree with the scenarios and even the probabilities but I disagree with his final target as I think a lot of those negatives are already priced in and he doesn’t take into account the market’s ability to snap back once we decide the negatives aren’t going to happen.  Still, at least 5% oversold is a good start and I don’t see 900 failing and that’s less than 20% down from here so the conclusion, regardless of actual target is BUYBUYBUY/WRITE!  

    PGH/ITrade – Ah, you discovered the flaw in that ingenious system, didn’t you.  You have to remember that, even in a good market, the company is constantly throwing away all their earnings as dividend payments so ANY bad news leaves them in a relatively precarious cash position and the declining oil prices and lower demand have been very bad news for them.   Also, any changes in the tax laws tend to spook investors out of trusts until things settle down.  LONG-TERM, PGH is a nice hold but, as you say, you don’t want to go too crazy so why do anything other than roll your short puts?  The 30 contracts you sold are about .75 average and 30 Jan $9 puts are $1.05 so another $900 in your pocket to roll them down there – what are you whining about???  As to the shares – shame on you for not selling calls in the first place.   You only get paid .82 a year and don’t you think you could have sold .82 worth of calls in 12 months?  Hell, you can sell the April $9 calls for .90 and that’s just 7 months so man up and do the right thing and roll the puts and sell the calls to lower your net basis on 10,000 shares (7,000 actually).  It’s fine to play with the stock and try to time things but, when you blow it – you need to cover your ass and lower your basis as best you can.  

    If you can lower your basis 10% a year as a goal on all your stocks, that means in 10 years your entire portfolio will be free and that plus whatever you have invested over the 10 years then becomes your much larger portfolio and then, 10 years later – you have another round of free stocks from the 2nd decade plus whatever you added (see "The Man Who Planted Trees").  Or, you can gamble…

    FCX/Ron – Well they are about 3x bigger and also they are 25% gold and, notwhithstanding my  recent (justified) bearishness on gold – I still like it long-term.  FCX’s p/e ratio is about 1/2 of SCCO and FCX’s price to book is about 1/3 of SCCO and price to sales is about half as well – these are always things you should be looking for when comparing 2 possible investments.   Also, especially when you get into a potentially poor financial environment – it’s important to pick companies with the most cash on hand (and positive cash flow, of course) – again FCX is the clear winner there.  It is, in fact, stupidly cheap at $30.

    I often mention how I like actual miners much better than commodities.  FCX, for example, has 102Bn pounds of PROVEN copper reserves ($324Bn) along with 40M ounces of gold ($66Bn), 266M ounces of silver ($8Bn) and 2.5Bn pounds of moly as well ($37Bn).  These are diversified holdings on 4 continents so a strike or social unrest doesn’t cripple the company (like having your money put away in various banks around the World).  

    The company is valued at just $30Bn despite the fact that they sold $18Bn worth of metals last year at a net $4Bn profit and have already made over $2.7Bn in the first two quarters of this year on $11.5Bn in sales.  Yes, copper, gold, sliver and moly may all come down in prices and then FCX will cut staff and sell less and wait, WITH THEIR $435Bn worth of reserves – for a better time to sell.  Maybe they’ll even buy out some competitors cheaply and add to their reserves while they wait.  Would you rather have your money there or in a bank?  

    Thanks Pentax.  VIY catching up very fast.  Don’t know if that’s good or bad but probably good.  SPY looking very good, breaking up out of triangle-thingy is a very good sign if they hold the top of the wedge.   

  30. Euro getting hammered, dollar spiking.  Seems to be dampening any potential rally.

  31. Phil, TLT at 122+ again. Should we try a weekly play (Sell 124 call, buy 122/119 put spread)?

  32. Kustomz / HK  Risk capital leaving emerging markets, margin calls etc.  Real estate / Banks is the key driver in HK, less in China.  The PRC Gov is withdrawing liquidity to cool inflation (intelligently).  Small cos cannot access bank loans (I’m hearing small cos are resorting to lending pools charging 20%).  It’s working, the economy is slowing as is inflation.  But, my Chinese associates say the Gov’t can turn on a dime when things slow down, which is their goal, and then turn on the liquidity spigot again.  It’s all about balancing inflation with growth.  Inflation has been the recent prime concern.  The lower oil prices are about to feed through.  $115 Brent has been killing margins in the PRC.   Oil prices are absolutely critical to margins for many PRC companies, just think what high oil does to input costs to such huge industries as textile eg PET chip sourcing costs are halving the margins of textile cos.  Forget labor costs, oil input costs are the drivers of PRC co profitability.  Bad short term as  oil price decreases take up to 6 months to feed through.  If Phil is right about $60 / 70 oil, that is very positive for PRC company profitability in 2012.  stock mkts are quite poor at predicting the economy, witness 2009 in China.

  33. stjeanluc/Future of business
    Just as we were discussing the other day, the woman in the article moved her account to a credit union. Of course even the credit unions may have to start introducing similar fees, but at least you have the small consolation of knowing that you own the institution. My credit union even has its own used car lot, so that members can get the maximum benefit from sale of repos, or indeed purchase one themselves.

  34. Phil -

    What do you think of Apple (AAPL) this week?

  35. Looks like some traders are trying to get ahead of the 11:30 pop, I dont see any news or rumor that would move the Euro higher…an oversold pop is more likely but, we need something positive to make it stick. Spain says no need to leverage ESFS and Finland says no deal today likely. Still all about Europe, everything else is just noise. Copper oil and $ moving higher…things that make you go hmmmm

  36. Fees / jmm – I agree, credit unions seem like the way to go. I don’t think that they will need to raise fees as they keep on making money the old fashioned way – they lend it to good borrowers! And they don’t have lavish offices and highly paid CEO who take risk with other people’s money! They run banks the way banks should be run – no exotic instruments, no 40x leverage, etc… Probably some bad apples in the basket, but it’s everywhere!

  37. Phil/FCX
    good morning.
    A fundamental question on your long term strategy.
    If you are buying FCX at current price, and doing a buy/write, the assumption is that it is a good value/cheap, though it could ‘get cheaper’.
    That being the case, why sell the calls now? Why not wait until the stock is more expensive? You would get a higher price!
    Selling or not selling the call does not affect margin anyway.
    Your thoughts?
    Thanks and keep up the good work…

  38. Tusca real estate and banks…those words together make me shake in my boots. I’d trade a lot less if I could lend at 20%! Good info tusca.

  39. picked up some UCO earlier today on your call Phil, thanks.  Up a point on it already.

  40. Credit Union – here is an interesting story. A friend of mine bought a minivan in 2009 for $16k. He walked into the credit union looking to refinance. His car was appraised at $25k and they let him borrow $32k on the car at 2.75%.
    I and another friend went to the same credit union and were told that we could borrow from 110% to 150% of the value of our cars depending on how old the cars are.

    Now, I know used car prices have gone up but this ridiculous. As I recall banks were doing this with homes not too long ago.

  41. nicha/Credit Union
    Yes, mine does that too. I asked about that and said that it sounded like predatory lending. They said not really because people need their cars too much, and if they are in steady employment they are unlikely to file for bankruptcy and or disappear overseas. You still have to have an acceptable credit score, even with the vehicle as security, as obviously they don’t really want to take ownership of your stinky vehicle.

  42. EHarmony/Doro – Been there and done that business.  

    Dollar 79.75 so of course we’re down.  

    ECRI/JC – I don’t think they are wrong.  I think calling the end of a recession was wrong but we’re not in negative growth, just slow growth – VERY BIG DIFFERENCE (just ask the Chinese Population Control Board).  Stimulating the economy to give ECRI false bullish readings and having ECRI treat it like the economic movement was real was ridiculous and so is now calling the unstimulated economy a recession.  It’s like putting 50,000 volts in a patient to restart their heart and they leap off the table and then, when things calm down and their measurements get back to normal the doctor comes in and says – well, compared to when they got the 50,000 volts, this patient is dead!  

    Flaw number one in all economic modeling is that you MUST grow.  People stop growing at 18 and we have about 40 pretty good years left before things start falling apart, most things that mature slow their growth considerably at some point but Capitalism calls that failure and all growth must continue until it is unsustainable and collapses the host.  This became obvious to most of the World at the end of the 18th century but the Elite classes in the US and Europe went to war over it and after the War they turned around and used the same propaganda techniques they had used on their enemies to convince their people that economic might does indeed make right and that to say otherwise is essentially treasonous – even though it’s an economic system we’re questioning and not our Government (now no longer indistinguishable).   If you have time (4 hours) here is the full documentary on how Big Business manipulates the masses.  

    Back to ECRI – I don’t really care if they are wrong or right.  In a recession, I want to own IBM.  In a flat economy – I want to own IBM.  In an up economy – I want to own IBM.  The trick is – when can I buy it cheaply?  If the only time I get to buy IBM (or MCD, KO, VLO, XOM, X, AA, FCX, GE…) cheaply is during a recession – then bring it on!  

    Thanks for the report Tusca – Next time bring me with you!  

    PWER/Enni – The Jan $7.50 puts are $3.30 at the moment and the April $7 puts are $3 so no point in that roll.  Then it depends on where in the scale you are.  if that was a first round entry with 25% committed at $6,400 (1,000 shares and 10 short contracts) then you are on the hook now for $13,900 on 2,000 shares.  The loss would then be near $5,200 out of a $25,000 allocation so 20% and this is the point where you need to decide if you are willing to keep going or cut the losses.   PWER is down with the solar and SOX sectors but there’s no indication they’ll turn around soon so, if you do not fully intend to stick with it for the long-haul – you just take the loss and move to something you do believe in.  Hopefully you already made that decision somewhere along the way down from $8.60 to $4.36 as it did take the entire month of December to fall this far.  

    If you are going to end up pushing the position, the logical move is to roll the Jan $7.50 puts down to 2x the April $5 puts (now $1.40) for net .50 added to your 1x base and then to buy back the $7.50 caller (now .10) and sell the April $5 calls for .75.  That flips your net from $6.40/6.95 with a 2x assignment at $13,900 to $6.25/5.42 with a 3x assignment at $16,260.  Obviously, the goal is to roll the $5 caller to a higher call down the road but this would put you back on a reasonable track and even if PWER drops to $3, just $9,000 more will put you at a full $25K allocation on 6,000 shares for net $4.17 a share, which is less than we’re at now.  Having a clear "worst-case" path you can accept moving forward allows you to make proper decisions at these inflection points.  There’s no need to rush to put more money in, if you can avoid it as, if things get better – then you are back on track and don’t need to put in the cash – and if things get worse – you can sell puts for more money and buy stock cheaper.  

    TLT/Mampcs – Yes, thanks for pointing that out! Weekly $122 calls can be sold for $1.65 and that pays for the $124/121 bear put spread at $1.70 for net .05 on the $3 spread.  5 in the $25KP!  

    $70 oil/Tusca – That’s WTIC.  Brent will probably carry a 20% premium – figure $90-95 range.  

    Europe closing better than it opened.  FTSE down 1%, DAX down 2.4% and CAC down 2%.  

  43.  Did one of you guys just ask a question live on tasty trade?  Cause someone called in and asked an opinion on a trade I saw here.

  44. craigzooka – Not I, but what was the trade?

  45. Any pediatric ortho on this board?

  46. Pharm, ARIA stock is being punished for what appeared to be solid trial results, any thoughts?  I have a lot and it seems unable to maintain upward momentum for very long lately…

  47.  Pentax, Thanks for the chart update.  At least they’re not going straight down anymore!  A question for you, since you’re the most familiar with your own indicator, how do you use it over the short and medium term to plan your trades?

  48. Phil, 
    Still traveling and have very limited access to trading. What I thought was going to provide good protection in case of a drop like the one we have had (the recommended OCT 26/31 SQQQ hedge) for net 1.40 didn’t provide me with any protection (made some adjustments but nonetheless it wouldn’t have made difference if I would have just left it alone). While my porftolio has dropped $60K with the 5% move down)… I had originally 80 of the spread, now after several not very productive adjustments I am left with 60 long 25 Calls (net $3.00) against 20 OCT 31′s (net  .15--as I sold the long 26′s for a loss hoping to get out even on the spread by having the short ones expire worthless), and 80 short OCT 34′s sold for $.50 (feeling a move from 22 at the time on SQQQ to 34 in 25 days was highly improbable barring a major crash) to minimize cost of long 25′s to $2.50. 
    So I am essentially in a 2/3 ratio spread for net $2.50…
    What would you recommend doing at this point? 

  49. Phil / AMR
    what do you think about them at $2.5, I open B/W when it was at $8 (Sabrient recommended them as strong buy at that level) total disaster . what is chances they go to bankropcy ?

  50. Nicha – I do non-surgical.  You have my email.

  51. jcaesar/Buffett. There was a Charlie Rose interview recently in which Buffett did show us his tax return (or at least had it in his hand and showed Rose).   62 million in adjusted gross income! At 31:10 in the clip.

  52. Jbur / Buffet – I think that was his "short form" tax return.  Gotta see the real one with my own eyes fella!


    Kidding aside, thanks for the link.

  53. In the pictures of Opt’s world….

  54. POKER:
    I called I think the Golden Nugget or one of the older casinos a few weeks back.  They told me to have someone call Saturday afternoon and they would put something together.  They said that if we could fill the tables the we need, that is preferred.  If not, they did not expect that to be a busy day and said they could likely take care of  us.

  55. GE – this is looking pretty tasty at 15.04…

  56. danosu – I will talk to you in Vegas. Thanks.

  57. Does anybody know the dress code for Nobu?

  58. S&P down but VIX not impressed.

  59. @jceasar, it was a play on TBT selling a put and buying a cull call spread.

  60. FCX/Maya – That goes back to GREED!  We don’t KNOW that FCX will go up and we make PLENTY of money by keeping it well-covered so why risk disaster?  The idea is to put money CONSERVATIVELY to use – not to take risks (or no more than we have to).  Our goal is to try to make 20% a year.  Since making 20% on $100,000 for 30 years is $23.7M and not all that many people are millionaires – I’d say that making 20% would put you nicely into the top 1% over the long haul.   While it’s more satisfying to make a big hit – the losses tend to wipe out the gains over time and greed strategies end up losing out to steady conservative ones time and again.   Doesn’t anyone read the tortoise and the hare anymore?  

    And what Kustomz said – If we could lend at 20%, we could all take a vacation!  

    UCO/Rustle – Nice play, congrats!  

    Credit unions/Nicha – No one is buying houses and they NEED to lend money out to survive.  A lot of Credit Unions can’t make business loans so they are being creative.  

    $79.50 was a pretty harsh rejection on oil but not bad for a day’s work (up $2,000 per contract).  

    SQQQ/Amatta – October isn’t over yet!  I don’t understand your position anymore because last time we talked, you were going to roll the callers down to the $21s on 9/16.  At the time, the Oct $21/24 bull call spread was $1 and that is now $6.20 in the money and we had even discussed rolling the calls lower.  Not doing that  left you massively out of position, of course.  Either way, the Oct $26 calls are $3.50 at the moment so why don’t you just cash them and put a stop on the $31s (now $1.90) at $2.50 and hopefully they expire worthless and you keep $3.50 out of a max $5 spread anyway?  You originally said you needed to protect $7,000 per 1% and now you say you lost $60K on a 5% move down in the market – that is one dangerously volatile portfolio unless it’s a few million Dollars.    There’s no magic ways to fix these spreads weeks after the fact – the idea was to protect against a violent sell-off while you were away.  5% is NOT a violent sell-off and it’s not the hedge that needs to be fixed but the portfolio – although, if you follow our general guidlines and SELL premium, then I imagine most of the losses are merely paper losses due to the rising VIX that will wear down over time anyway.  As you can see, this morning, we’re still using SQQQ as a primary hedge so I wouldn’t be too quick to give up on the short side if we don’t hold our -10% lines. 

    AMR/Tcha – I don’t think BK but the industry is currently out of favor.  This is another one of those times when 20% stops would be helpful.  Or 30% stops.   Or 40% stops.  Or 50% stops… 60%?  70%???  At this point, you can just play the $2.50/3 bull call spread at .25 and sell the $1.50 puts for .25 so, if you have 1,000 shares of stock at $2.50, you can cash it and sell 20 puts and buy 20 spreads and, if AMR gets back to just $3, you make $2,000 and if AMR heads below $1.50 – you are reassigned 2,000 shares for $3,000, which is a total loss of $500 despite the $1,000 drop in the price of the stock.  So by NOT owning the stock – you risk $500 to make $2,000.  If you keep the stock, you would have to stop out at $2 to only lose $500 and you wouldn’t make $2,000 unless the stock jumped 80% to $4.50.  

    Thanks Dan!  

    Dress code/Nicha – I’ll be in shorts and a polo shirt (probably will be at the Pool in the afternoon) – I haven’t been thrown out of Vegas yet!  

  61. Pharm, I stopped out of ARRY at 2, are you buying more down here or waiting for a lower bottom?  When should I re-enter?

  62. GE – failing 15. oh noooo!   LOTS of volume on Oct 12 and Nov 14 puts…

  63. hi,
    I am selling TVIX at the current level, with the hope that the bottom of the equity is near by. What do you think, guys?

  64. Phil,
    BMY remains strong.  Been waiting for a pullback to short but it won’t budge.
    Time to buy or is that chasing?

  65. nasdaq has been getting hit hard the last few days.  I’m sure AAPL coming down 45 points didn’t help it.  As soon as CNBC started hyping it, boom.

  66. I know it is quite dangerous because this one moves very fast, up or down, but I was thinking to put some real aggressive plays here. 

  67. The kind of trading I fear most today…slow train wreck. Dexia rumor from FT they may break up the bank.

  68. ARRY/mrm – will let you know.  I am still in them and will by more at 1.50 or better.  I sold some calls against them. And will again if they go out further.  They have a ton of trials going on right now, and good science. 

  69. The Fast Money lunch time was showing Cramer adamantly pushing MS… Reminded me of another time when he was pushing other iBanks saying that they were absolutely fine. Can’t remember the names though, something with Brothers or Stearns (or both) ;-)

    Maybe now is the time to short MS… 

  70. Phil.
    Thanks for the CL call.  I hold approx 1700 units of SRS @ 15.4.  Any ideas how I could use an option strategy to make premium on the side?

  71. CAT is 5% away from my target. 

  72. I said back in August, the banks stunk worse than a homeless guys Arse, for everyones sake I hope they move quickly to stem the bleeding…MS BAC melting down..European leaders not on the same page =  disaster

    Bernanke on capitol hill tomorrow in front of Ron Paul..should be good times.

  73. Phil, rdn4evr,
    I don’t know if you look at the same chart, but I don’t see anything positive there. The latest update is the most right data points of the blue lines and these continue to fall like crazy. I would say that the indicator picture is similar to Dec 08. The prediction would be a sharpe sell off starting somewhere between now or in two weeks and lasting until November. I use the indicator for hedging a stock portfolio but it is just a piece of the whole picture – however up to now an important one, we’ll see how it works out this time.

  74. Gee, looks like another down day.  ;-)

  75. CAT / Pharm – I have a 50% retracement anchored in March 2009 and April 2011 at around $69.75. To me, the strongest line is at $58.5 which would be the 61.8% retracement and looking over the last 2 years a better S/R line. But any place in between these 2 lines well hedged should make a nice entry as long as we don’t have a hard landing in China!

  76. Pentaxon – Thanks.  I thought Phil had misread your chart, but it is yours, so I thought it was best for you to say that. 

  77. The carnage so far:

    FAS – Under $10… Not good for FAS Money, hopefully better news soon!
    BAC – Under $6. Can’t say we didn’t plan on this! How is that working for Buffett?
    TBT – Under $19

  78. What’s the opposite of BTFD?

  79. Oh, I see it’s STFR.

  80. Strange we’re not seeing more movement with the Euro and Dollar.

  81. I see you guys are focused on CAT levels, if we are concerned with a potential global slowdown then the levels mentioned would probably work, a global financial meltdown is a different matter altogether. Seems the latter is more of a concern.

    Im very suspicious when the Euro pops to support the markets.

  82.  Pentax, Yes, I was being facetious when I said at least it wasn’t going down in a straight line anymore, more like almost a straight line.  Again, thanks for updating us. I think you may have something pretty important there.

  83. CAT / Kustomz – True, which was my point about China! But opening a hedged 1/4 position now could be managed on the way down or scaled in on the way up! 

  84. Anyone have an idea what is happening with NLY?  Does not usually vary so far outside the index movement.

  85. Wow, things turned ugly fast.  AMR especially!  

    Volume on Dow just 93M, noeed a lot more than that for capitulation but everything is being sold now – even VNO, BTU, SKX, CAT, AKAM, DO, HOT, SPWRA, GS, BBY, BID, X….  

    BMY/Exec – Not time to buy anything from the looks of things!  At this point we need to see those -10% lines hold up and, if not, we have to be bearish for the duration. 

    TVIX/Ganyant – VERY RISKY!  Not a good time to go ultra-short on volatility (tempting though it may be).  

    XLF down to $11.50!  

    MS/StJ – Yes, that was a great call by Pharm ages ago that they were in trouble. 

    SRS/Checho – You are welcome! I would take the $3.80 being offered for the Jan $18s as that’s about 20% more right there.   So a nice 20% gain and downside protection locked in is a great way to play it and, if they head lower, you can always stop out of the stock, sell puts and buy calls and put yourself into bullish vertical with a lot of sold premium. 

    VIY/Pentax – There was a huge gap between retail and institutional sales last time, wasn’t there?  Now they are in line which means to me that we’re maxing out on panic.  I know you see it as a leading indicator but I’m thinking it’s pretty accurately reflecting current sentiment and that we are simply retesting the Aug lows but we’ll have to see what holds up.  I would be much happier if there were volume to this sell-off.  

    NLY/Rpme – All the CRE stocks are dropping hard.  Very 2008 at the moment.  

  86. Good Afternoon from Edmonton, Alberta
    Phil-missed the /cl trade at 77.50--is it still good-- oil below 77.50 now?

  87. Hi Phil : I bought 10 GE $17.50 C,2013 at $ $2.27 and sold ten 2013 $17.50 p at $1.57 AND SOLD 10 MAR $17 c AT $.82
    Any suggestions?

  88. Phil,
    Good advice.

  89. @JRW
    Your last few posts have made me go shorter, so thank you very much.
    Beauty is in the eye of the beholder……
    TZA, VXX, and SKF are making for Flipster an early Christmas…..
    I love the smell of napalm in the afternoon.

  90. Wow, look at that BAC dive since 1:30PM!

  91. nly-- the sec is investigating their use of leverage— to "protect" us, of course

  92.  FAS Money – How crazy am I to want to get out of the FAS position entirely, and sell enough January 2012 $30 puts in JPM to get me even? They are going for $4.30 right now.  Obviously this puts all my eggs in one basket, but it is basically all premium (contrary to my current FAS position), and they seem to be in much better shape than BAC, C, etc.  

  93. Just be careful getting too short.  They may squeeze into the jobs by weeks end, then the wheels fall off. 

  94. GS to $80 FWIW.

  95.  Phil, what do you think of ANR. Down to the 2008 lows at the moment.

  96.  Phil.
    Fridays TNA Oct 34/38 bcs with sale of 26 puts…..Any better positions you would suggest/recommend?

  97. Its the Mark Twain effect!
      "October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

  98. Financials are really being taken to the woodshed today!

    XLF has not retraced over 50% of the move made between March 2009 and March this year! All in the last 6 months!

  99. 0.33


    FYI— BMY doesn’t go ex-div till Oct 11, of record.   I wouldn’t expect it to drop much before it trades ex. You could sell  28 puts out into Dec or Jan if you really want to own it, as Felipe has recommended before.

  100. ANR / Augsurot – Met coal is out of favor now… they got hammered last week when production of met coal was revised lower. ACI and WLT have also been hit!  ACI is also in 2009 territory. But the could go lower if we get more bad news on the growth front!  

  101. PLX/Pharm – i don’t seen any news on them today. temp weakness with the market?

  102. Ooo….That smell….

  103. Feels like towel is being thrown in today with AMR, downgrades of every bank, notes on unemployment rising to 12% etc.  Reading the news, it’s armegeddon day.

  104. PLX/scott – biotechs are holding up pretty well.  Shows that they are closely held, and the ones that are selling off are the ones that retail is scared to hold.  I will go down in infamy if PLX and/or CRIS implode. 

  105. Sure would be nice to have JR around with his Ouija board to determine if we have another leg down today.

  106. Yeah, where is JRW?  He’s made himself scarce lately.

  107. Just follow the PP and JRWs rules.  Right now the trend is down and Aug lows have not been met.  That is going to be tough resistance.

  108. TNA Oct $25 puts are a fun sale at $2.50, the $28/33 bull call spread is $2.20 so a net .30 credit on the $5 spread.  

  109.  Pharm – are you uncovering your SPY puts at all? 

  110. Phil,
    There might be a point in your theory about the gap, we’ll see. My guess is that we need a sort of V shape sell-off on the chart that people start buying again, but I also think that it will not be that deep because of the reasons you gave. Nobody will be that surprised, so the panic will be limitied but the chart technicals have to be satisfied ;-)   -  that is just a personal guess and has nothing to do with the VIY indicator. However – maybe the indicator is telling the same because the selloff in Feb/Mar 09 was comparably mild to the sell-off in 08, and the picture was similar there.  Another view of it is, that if you consider inflation and the balance sheet of the FED a lot of good stocks are cheap now, and if you hold them for a few years it doesn’t matter a lot if they go down another 15 or 20% temporarily. Buy I know you guys like to grap every single percent ;-)

  111. AMR coming back! 

    USO weekly $30 calls at .90 – 10 in the $25KP.  

  112. I meant "grab" of course.

  113. Of course you really don’t need a Ouija board.  At this point in the day all you need to figure out is where will they push the dollar.
    Friday they went up.  Probably push it down today for crash control.

  114. GS – Nov $80 P, sell Weekly 80s for net 4.50 debit. 

  115. Kurt, no I expect a short squeeze this week starting tomorrow or Wed.  I bought more Nov 105s, covered with 1/2 weekly 110s

  116. Euro shorts not showing much fear….Decent US data supporting the $. Thursday ECB front and center.

  117. GS / Pharm – This how crazy this has been so far. You can sell the GS weeklies 80 Put for $0.75 to make about 8% on commited margin in 4 days! And these can be rolled all the way to what looks like the 40′s in December (there is not strike below 50 now and these are $1.75! Is that 2008 again? 

  118. Pharmboy : Aug lows? 2009 or 2010?

  119. 117 SPY W Calls should be rolled down to 115.

  120. 110ish – Aug 9, 2010.

  121. Banks are NOT healthy, StJ…..even with all the ‘free money’ that has been pumped into them.  Levering 100:1 on the EU debt ain’t helping. 

  122. I wonder why the CEO of MS hasnt made a statement as to the health of the company. Or has he?

  123. I am ready to stop going down…Can we go up some please?  Mr. Stick?

  124. Just like Bear Stearns CEO did on the golf coursse, kust?

  125. flip,

    You are most welcome !!   8-)



    I think this (IWM 61.66) is it for today, so I’m closing my TZA  !!

    Remember, we’re going UP before we really go DOWN , imho !!

  126.  Pharm,
    That’s the roll for the SPY calender?  And the banks are no healthier despite all of our tax dollars than a flat tire with a sidewall leak being injected with 120 psi of air!  Time for a new tire!

  127. Oil/Savi – As above, still bullish off that line.  

    GE/Dflam – I’d spend $2.40 to roll down $5 in 2013.  It’s a long way away so I wouldn’t worry about the short puts and the short calls are what they are but you can bump them up $1 rolling  them to the $15s if you don’t want to lay out so much for the roll.  That’s all you do on a sell-off if you want to stick with it – just look for little ways to improve your position.  

    NLY/Sparky –  Thanks.  I’m sure they can do that to all the REITs. 

    FAS/Palotay – It’s way more volatile than we would have liked so not crazy at all.  It’s a good exit plan, sticking with one of the best in show while dumping the broader sector (because BAC is in it!).  

    ANR/Aug – Seems overdone to me but there’s no logic to these prices.  Coal went insanely cheap in the last crash and it came out the other side as a top performer but coal is all about China and China is suddenly a bad word!  You would think cutting back on nukes and the elimination of most climate change legislation would have rocketed coal but we’re back to 2008 lows now so you have to be willing to ride it out and, of course, look for Steel to turn around first so no hurry.  ANR stayed around $15 for about 7 months at the last crash but then went to $55 so what’s it "worth"?  Probably $55 is as silly as $15 but $35 is right in between them so a nice long-term target but that’s LONG-term.  

    TNA/Jasu – Good call, see above.  

    Gotta squeeze those extra pennies Pentax.  

    Don’t forget we expected the Dollar to test 80 along with the bottom test at 10% so this is the test – now it’s pass/fail!  

    MS/Kustomz – Mack has made many statements but how often can you deny something without giving it more attention?  Just last week they held a special analyst meeting that supposedly went well but it didn’t matter in the last crisis and it won’t matter in this one if the big boys are moving to take them down.

    Well so much for bottom fishing.  CNBC has a guy saying S&P 700 now.  

    I would be ready to get back to all cash on another 1,200 rejection JRW!  

  128. Yes on SPY calendar, L.

  129. I am hoping, by the lack of requests – that everyone is nicely hedged.  

    S&P is down 10% now and Dow is not and Nas is not by a long shot so we still like SQQQ and we still like DXD – Oct $20/22 bull call spread is .90 for 110% gain as a straight play if the Dow just nudges down.  

    Long Put candidate IBM still hasn’t moved today (Jan $110 puts are still $1.10 but our other "fresh horses" from the weekend post:  ISRG, KO and GOOG, all fell a nice 3%+ today.  Obvioulsly, if IBM falls – this market is going down and nothing is going to stop it!  As it is – seeing ISRG and KO join the lemming stocks off the cliff is NOT a good thing!  


    127M on the Dow at 2:45 – speed is picking up….

    Dollar must fail 80 or DOOOOOOOOOOOOOOOOOOM!!!  

  130. Classic rant appropriate for the Occupy Wall St’ers: George Carlin on the American Dream (with transcript)

  131. Phil,
    On GS: What about the October 95/90 Bear Put spread for 2.30.  Off set by selling the November 70 puts at 3.50 or December 60′s at 3.00?
    Any thoughts? You still make a small profit if they jump on earnings, but better money on the short term spread with a position that can be rolled if they continue for a significant decline.

  132. Guess that whole Charles Payne "big up day next Monday" thing isn’t working out for his subscribers…

  133. LOL mrm – we were – for a few seconds there!

  134. Brazil FinMin says crisis coming.

    1.32 broke on the Euro..good golly miss molly wonder if China’s done propping up the Euro

  135. rainman – Thanks for the Carlin bit – he was the best.  Sorry he’s not with us anymore.

  136.  JRW,
    Did you enter TZA around the IWM 64.06 failure? Thanks

  137. Pharm / Mrm – I’m sure he meant to say "it’s going to be a big day, one way or another." 

  138. Currencies / Kustomz – Look at the Swiss franc – down from 1.41 to 1.09 since August. I guess the Swiss CB has done its job! And it’s getting cheap to shop in Canada again with the Canadian $ at 0.95! 

  139. JR
    I agree.

  140. l4real / 64.06

    No, that’s not one of my lines; I enered on the failure of IWM 64.74 at 10:15 !!

  141. Stj..  not many choices when its risk off, commodity related currencies have taken a beating and rightfully so.

  142. jcaesar / Payne – Not sure what he "meant", but what he said was: "I think the market is going to be up huge on Monday".

  143. Phil leverage- NLY- they are looking into all of them.

  144.  Wow JRW!
    That is impressive!  I saw the pivot at that point on the one minute chart, but no crossover until IWM 64.46.
    On the 3 min chart, it was just showing the trend starting to change to bearish. Any suggestions on how I can improve on seeing what you see? Thanks!

  145. WFR at 52 wk low of $4.81

  146. mrmocha – Sorry, meant to put a jokey face at the end. Seems like he made a bad call, unless we have a big turnaround in the last 45 minutes.

  147. I have been playing SPX weekly strangles. I am in the 1025/1210 strangle expiring friday. Today, I added the 1005 puts for $2. These are very rollable, besides.

  148.  JRW, Glad you are back, Any new lines for us? Am totally committed to your style of trading, that is all I do

  149.  JRW, I also forgot to mention that RSI, MOM, and Fast Stochastics were all pointing down at the 64.74 line and  prior to the crossover at 64.46. 

  150. GS/Dan – It makes sense if you are that bearish but I’m not and, in a real collpase, you run the risk of triggering the 70s.  I’d sell 5 Oct $90 pust for $6.25 ($3,125) and buy 4 Jan $80 puts for $8.30 ($3,320) for net $195 on the spread.   If GS goes up, whatever the longs are worth above $195 is profit and, if GS goes down, lots of time to roll. 

    WFR/Rain – That’s just sad.  All the solars getting crushed by decline in oil and general lack of money for Government projects.  

    CSTR may have found a bottom at $40.  

    RIMM actually up on th eday.  NFLX flat, MON hodling on with WMT.  HPQ holding up – someone is shopping!  

  151. jrw,
    your future lines on your 2:28 post appear to be the ABC and then 1-5 Elliot wave lines….is that correct? I could never figure out what they were……

  152. BAC down over 9% today. Another 10% and they will be below $5 which will unleash a lot of shares from fund who have specific rules about not holding stocks below $5 -although I am guessing many have bailed already. Time for Buffett to step in again?

    I worry that these guys are going to get desperate soon and do something that will be bad long term for shareholders (except for Preferred shares like Buffett!) – getting rid of "good" assets for raise cash, diluting shares when they finally raise capital. They are cutting 30,000 employees when the people that should be fired are the top executives and the board. But I am sure they have ironclad severance contracts! And taxpayers might have to pick up that tab again like for AIG – a contract is a contract after all except when it’s a union contract like at GM where it is always renegotiable – anything under $1 million always is!

  153. Looks like Josh agrees with Pharm and not with Cramer:

    I would have a tendency to believe him a bit more! 

  154. loopster,

    IWM    60.68,  61.21,  61.66,  61.89,  62.34,  62.70,  63.04,  63.67,  64.25,  64.50,  64.74,  65.07,  65.31,  and  65.56

  155. Not good if we end at or near LOD.

  156. This is failure on the S&P 10% line – that puts us bearish until they get over it.  

  157. Quant factor performance year to date:

    Looks like risk off, value on – especially dividend value!

    My favorite – low price/sales is about even for the year! I’ll take that… 

  158.  JRW, Thanks

  159. The latest on AMR: 

    Pilot retirements from American have totaled at least 10 times the monthly average in September and October as employees sought to protect their pensions from a possible bankruptcy filing and declines in the broader stock market.

    That can’t be good….

  160. That BBC trader is a happy man today ("dancing a jig" as Phil would say).  Here’s an interesting story about follow up to that interview.


  161.  Phil,
    Any suggestion of a *boatload* of short  AA 12.5 Jan 2012 puts?  

  162. ocelli7

    Yes, here is the bigger picture:

  163. LOL

  164. Phil, Are u bearish even with the dollar @ 79.458? Thanks!
    JRW, Thanks for the lines. very helpful!

  165. jrw, excellent, thanks.

  166. JRW – Do you really think we go all the way down to point #20 there?

  167. AA/Haschade – AA was $4.87 in March of 2009 so I would look forward to being assigned and doubling down at $5 for an average of $8.75 less whatever you sold the puts for.  Failing to get that low, it won’t be much fun because AA was at $12.50 we weeks ago and could get back there in 3 months.  If not, the Jan $12.50 puts (now $3.80) have little premium but can be rolled to 2014 $10 puts even or 2x the 2013 $7.50 puts at $1.55 (cost .80 per long) so keep an eye on those rolls unless you have lost interest in being long on AA. 

    Bearish/L4 – We have to be technically bearish with the S&P under 1,112 – that’s a big deal line to blow but maybe they save it into the close.  Of course I THINK the Dollar gets rejected at 80 and we move back to 77.50 and the markets pop 2.5% on some excuse or the other but it’s not something I’d like to bet heavily on at the moment – just that it would not be surprising.  

  168. American Airlines needs to go bankrupt, they are terrible. The worst is United, by far the most complaints over the last several years…they both need to go the way of Piedmont and Eastern. This is what I love about Capitalism, too bad it doesnt apply to Banks.

  169.  GOT $0.40 on the FILL
    TNA Oct $25 puts are a fun sale at $2.50, the $28/33 bull call spread is $2.20 so a net .30 credit on the $5 spread. 

  170. stjean / AMR pensions – This is not in my lane, but unless they’re geting lump-sum payouts, I’m wondering why they think they’re pensions would be guaranteed (in case of bankruptcy).  Maybe they just think they’d be in a better position than pilots who haven’t retired yet.

  171. Pensions / JC – They might get lump sums. I knew of a USAir captain who retired before they went BK and he told me that they had the option of a lump sum (discounted of course) or monthly payments. He took the lump sum wisely… Not sure what the options are at AMR! 

  172. At least the volume is decent but not enough to call this a capitulation bottom – more like an orderly and accelerating sell-off.  

    TNA/ITrade – You not a bad entry but a little scary with the S&P not holding up so don’t go crazy.  Remember, on a trade like that, if the bull call spread drops 50%, you want to salvage that half ($1.10) and use it to roll the short puts down if you have to and then it becomes all about getting the short puts to expire worthless.  

    Dollar finished just over the 80 line – not at all good if it pops over.  Not a lot of resistance between here and 88 if the Global markets start to run to Dollar safety. 

  173. TLT 123.81. Is that an all-time high?

  174. jcaesar / #20

    We hit the first #20 at SPX 666 in March of ’09. !!

  175. ‘Orderly and accelerating sell" off is right – funds are now getting out because retail has had enough.

  176. JRW / #20 – Well that would be something!

  177. Even RIMM cannot hold the line, as they were up 1% until the close.  Pounding sand after hours.  Look at her go.

  178. Well, it looks like they’ve shut the place down — Bank of America’s home page shows only: "Home Page Temporarily Unavailable. We’re sorry, but some of our pages are temporarily unavailable. Thanks for your patience." !!!

  179. TLT / Barf – We hit 124.33 intraday on 9/23 but this would be the highest close! And we closed on a high!

  180. Bank of America – For a good part of the day I couldn’t view my account details (I eventually gave up).  That’s not good!

  181.  3AM Trade
    I think I just might wake up tonight to see if it’s a go today.  Maybe a flight back to the dollar?  Anyone else?

  182. It will be interesting to see where they take the dollar on the Asia open… And that 3:00 AM trade should get interesting as Europe won’t like the "unhappy ending" here!

  183. JRW,
    Are we at about #12 in your chart posted at 3:37pm?

  184. Sorry, JRW…. what level is the future #12 at. I can’t read the scale.

  185. fyi
    Re f/u   Charles Payne

    latest from the Bronx wonder.
    No mention of last Friday’s call, but hey nobody’s perfect and I do like this guy.
    I’m not a member but a peeper ( much like you can do on PSW) so his comments come 3-4 hrs after being  released  to members

    10/3/2011 1:52:21 PM Eastern Time

    Under normal circumstances, investors would arrive on the doorstep of a non-farm payrolls report with an idea on how to get positioned. These times are far from normal, and in all actuality the jobs report is so far away as to not truly be on the minds of investors this early in the week. Between now and Friday, any number of EU developments could wallop or bear hug the markets, causing a need to get positioned in a different manner ahead of the jobs report. Following me? We are in a tick by tick market, where price action and news flow dictate investment decisions more so than the seemingly attractive nature of the S&P 500′s forward P/E multiple of 11.8x. Thinking about it further, how enticing is that multiple if it’s based on earnings estimates that as we sit here today look very inflated?

  186.  I made a mistake by doing naked SPY 113 Oct call option. Any advice on how to redeem this trade?

  187.  SPY 113 Oct call @ 3.12. 

  188. barfinger – Just do a "ctrl +" and it will magnify the screen.  Looks like 1100 to me.

  189. cwan120 / #12

    Yes !!

    barfinger / #12

    SPX 1090.1 !!

  190.  Phil,
    I held on to the Oct TNA 38/43 BCS  selling the $30 put at $2.15. I bought 2 ea. I know I broke the 50% rule and I’m approx RUT 2% away from being assigned. I am totally accountable for this screw up. I dont’ believe rolling is an option at this point. If assigned, I may be inclined to ditch it based on the technicals!  What are your thoughts? 

  191. jc/stjeanluc/pensions
    Don’t know about AMR, but I worked for the state of Florida, which had two pensions plans, the old defined benefit type that paid you are proportion of salary based on years of service plus a 3% annual COLA, or you could be in the state’s investment plan which gives you a number of funds that your money can go in, but there is no defined benefit and no COLA.
    If you have the money in an investment plan, then three months after you separate from the state of Florida, you are allowed to roll that over into an IRA and you have full control over the money. If you are in the defined benefit plan, then no, except that you can switch from defined benefit to investment plan one time only any time you are still employed. That is what I did two days before I quit the job.
    Although I did not think the state of Florida was about to go bankrupt or renege on pension commitments, they were making some changes to the pension plan, such as no more 3% cola for earning after July 1st this year, and career service employers having 5% of salary deducted for pension contributions from that time, i.e. a unilateral 5% pay cut.
    It may be that pilots in defined benefit plans want to covert to a lump sum benefit and then move it into an IRA before the company goes broke or that pilots in an investment plan want to make sure they can roll into an IRA before the company raids the pension funds. Or maybe they believe the pension plans are underfunded and want out before it is too late.

  192. JRWlll
    Thanks for being there
    Thanks for the "ctrl +" suggestion

  193. jmm / pensions – Thanks for the info.  In any event, their max exodus is not a good sign!

  194. Pensions / jmm – Thanks for the explanation. I would think that converting to a lump sum would make sense now! 

  195. yes, i second those emotions :)

  196. Obama soaking the rich:

    It’s going to rough having to make it on 3% less (and still more than under Clinton) especially when we are asking public employees to take 10% pay cuts. Them breaks! 

  197. dmoroz/SPY
    I am no Phil, but I would sell the $114s for 2.06 and hope for a bounce. If it expires at $114 or above, you would break even (almost). If it goes the other way, you could then roll the spread to next month.

  198. dmoroz: I assumed you SOLD the SPY calls (the term "naked" implied that), which of course doesnt look like a mistake. If you did BUY them, what were you trying to do, if you don’t mind saying?

  199. Phil, bought the TNA 38/43 bull spread and sold the TNA 30 puts for net 0 a week ago (15 contracts). That’s down quite badly now.
    All is really not bad because i have the TZA 46/50, 48/55 and 51/59 bull call spreads (5 of each) also. But it’s probably at a point where any more further drop in TNA will result in this getting out of hand. I do have some short VLO puts (18 and 19) as well, but those i’m not really worried about because i don’t mind getting those put to me.
    Any suggestions on how to adjust the TNA/TZA spreads? Although all the TZA spreads are fully in the money, they are currently worth less than half the spread, whereas the TNA short puts are getting out of hand. Not sure if this is confusing. Here’s my actual positions (All are Oct expiry):
    +10 TNA 36/41 call, +10 TNA 38/43 call, -15 TNA 30 puts. Net 0 cost.
    +5 TZA 46/50 call, +5 TZA 48/55 call, +5 TZA 51/59 call, -10 VLO 19 puts, -10 VLO 18 puts. Net cost 0.
    Any suggestions on adjustments? I saw you comment above about salvaging the rest of the TNA spreads and trying to adjust the puts to expire worthless.  I would really prefer not to own TNA really since it’s a 3X, but would not mind switching the the puts to something else.

  200. barfinger: My terminology is wrong. I purchased (BUY to OPEN) the SPY calls. I am still learning the terminology as well as the actual game (the hard way). I was thinking there may be some sort of bounce today so I picked up some calls thinking they would appreciate. My crystal ball seems to be broken as the market went the wrong direction. Now, I am trying to figure out if there is something I can do other than just accepting the loss. 

  201. Other people do other things, but when I want to bet on a daily move up, I sell the SPX weekly puts (SPY would do as well). I just guess I’m excessively reluctant to buy options. Others again may differ, but I think of a roll as a close of one thing and an open of another (since my orders to "roll" often don’t get execution, thats what i wind up doing). Jmm1951 has a reasonable suggestion, and maybe Phil can weigh in as well.
    Do you still want to bet on an up move?
    I almost always "strangle", that is, sell a put and a call, since my instinct on market direction is terrible.

  202. dmoroz/SPY
    If you sell an equal number of the $114 calls, you will immediately get back almost 2/3 of your loss and you will create a bull call spread that has a chance of getting you back the other 1/3.

  203.  leave the country for a week and come back to this???
    Phil was bullish before I left? Looks like he is bearish now?
    FU market!!!!!

  204.  That Fing idiot Bernank should have done QE3!
    FU Bernank!!!

  205. dmoroz – Look at mampcsA above and his more complex trade.  This is what Phil usually recommends.  Make a trade where you’re net on the selling side.  In other words, sell premium.    People who routinely buy or sell calls (without a selling offset) are considered suckers, because they rarely win.   I know, harsh.

    Really the only time he recommends (only) buying puts or calls (no selling offset) are with timeframes of minutes or hours.  He’ll also tell you it’s more or less gambling.  That said he’s very good on his oil market calls. 

    As to what you should do, well, I would dump it tomorrow if the market looks like it’s going to continue to tank.  I don’t think you have enough experience yet to try any fancy moves.  If it’s not a lot of money to you and you just want to gamble, then go ahead and hold on to them, but that’s just my two cents.

  206. dmoro – IF you have margin, I would sell the 112 weekly SPY weekly calls against your position 3/4 cover or 8/10 (personally I would do a 100% over, but it is a matter of confidence).  If things start to move up, you should be able to recover, meanwhile, the decay will eat into their position.  Make sure you keep the delta about even with yours until Thursday, where decisions will have to be made on how confident you are on the next move in the market.  Use JRW and my PP lines for guidance.  I think there is more down ahead unless they do a quick rebound, and then would sell into the excitement.


    IF there is a gap down tomorrow, find the one where you can sell it for $1, and roll yours down for that amount to get the deltas about even.  So right now, if today was the gap down and I was in the 115 Oct Calls, I would roll those to 113 Oct and sell the 112 weekly SPY Calls. 


    SPY 106 Calendar Puts will be the ones tomorrow if we have a gap down.  They look good for a play for continued downward pressure and the longs should benefit.

  207. jabobeast – Good to see you back.  Miss those FU comments!

  208. jabo – I’m wondering if Phil will prove to be a contrary market indicator – he better not!

  209.  By the way, the above positions show a current loss of 8K, but after excluding the premiums, it’s actually a profit of 1K. That’s why i haven’t tried to adjust it before. But i think it does need adjusting now since TNA puts are now in the money and they are the most risky. I forgot to mention that i do have +10 TNA 21 puts that i had bought as well (in order to reduce the margin requirements, so my max loss on the TNA part of the trade would really be 13500, whereas the TZA spreads would then be worth 9500. So max loss from both the TNA and TZA spread is 4K (not counting the loss on VLO off course).

    US Closes 2010-2011 Fiscal Year With $14,790,340,328,557.15 In Debt, $95 Billion Jump On The Day, $1.2 Trillion Increase In One Year

    America has now officially closed the books on the 2010-2011 fiscal year. It is only fitting that the last day of the year saw the settlement of all outstanding and recently auctioned off debt. The result: a surge of $95 billion in total government debt overnight, and a fiscal year closing with the absolutely unprecedented $14,790,340,328,557.15 in debt. Net net, in the past fiscal year, the US has issued a total of $1.228 trillion in new debt and has accelerated over time. At a rate of $125 billion per month, total US debt to GDP will pass 100% in just over a month. Incidentally, one may inquire about the benefits of centrally planned fiscal stimulus (cough Solyndra cough): the US economy added over 3$ trillion in debt in the past two years and the stock market is almost back to where it was back then. Perhaps it is about time someone demanded that all those lunatics who say that issuing debt for the sake of growth (and pushing the S&P higher of course) be finally locked away in perpetuity, and the key dropped into the deepest volcano in Mordor.

  211. Latest from TOS re: fixing the futures trading issue: 
    we are currently testing and as a tester I can tell you that it is working really well on the front end but there are still some issues on the back end.  I am hopeful that we will have everything is proper working order no later than next weekend but am not ruling out this weekend as a possible release date.

  212.   Thanks for the advice guys.
    jcaesar- you are correct in you assessment of my experience. This is why I joined this group so that I can get some ideas from more experienced traders.
    barfinger – Do I still want to bet on an up move? I want to say yes becuase we dropped so much but I have a feeling its just going to prompt more sell off. With nothing fixed in the world, I am not sure why anybody would want to go long with stocks. The reason I went long is becuase I thought there would be a bounce as we usually had around this area. Also, a few experienced traders were betting that as well.
    jmm – thanks for suggestion. I will look at what the calls are selling for in the morning. I am assuming I will use this if i continue to belive in a rally?
    pharmboy – I will admit your suggestions are a bit over my skill level. I am still trying to digest. 
    I realize everything you guys have told me make up the basis of the strategies used here. I am not that comfortable with these strategies even though I read about them. Having said that I am willing to play so thanks for the help.

  213. To all / Speculation
    I know we all like to "sell" premium here to "bet with the house".  But on a move like this where I would "bet" that there is more downside, and I’m willing to take the risk on a small amount of capital, what do you think is the best BangForYourBuck playing the downside.  
    SQQQ?  FAZ?  TZA?
    Or just short the future?  I’d like to try to "shoot the moon" just for fun with some play money.

  214. dmoroz/SPY
    My sugggestion is a very simple and basic one. You have already bought the calls, and they are out of the money, but given the volatility in the market you can at the very least sell the MONTHLY calls that are even further out and get about 2/3 of your cash back. Probably you would lose the other 1/3, but if the market bounces back up to $114, then you will get another dollar back, With this trade there is absolutely no further risk other than what is stated.
    Pharmboy thinks the market is headed further down, which is a pretty reasonable assumption and suggests that you sell the $113 WEEKLY calls, which will earn you some premium if SPY continues down, and also give you the opportunity to sell calls for 2 more weeks before your long calls expire, or to roll your position down each week with the hope that you will eventually get back the premium you have spent by the end of the month. This is a more ambitious play than what I suggested, but if it backfires and SPY goes back UP, you might lose more money.
    Both of us are suggesting you now sell calls to reduce your loss--creating a spread. I am suggesting a bull call spread and he is suggesting a bear call spread. Both are much better than doing nothing. Neither will necessarily turn a losing trade into a profit. Pharmboy’s has more chance of turning a profit than mine.
    If I knew for sure if SPY is going up or down this week, you probably would not see me here any more. I think down, but Harold Wilson, Prime Minister of the UK in the 1960′s had a famous aphorism; "A week is a long time in politics" and the same can be said of the stock market.

  215. Phil:
    I hold SQQQ $31 Oct calls short (sold for 2.45/now 2.18/from previous trade-was banking on them expiring worthless to break even on the trade).  My thinking is that we will still see pretty good 3rd quarter earnings reports from tech and that might hold the NAS, or keep it from going that much lower in the short term (positive earnings reports offsetting very negative sentiment). On the other hand, if the dollar keeps going up (and you said yourself that if it tops $80 you saw little resistance up to $88) 10% further downside risk is not out of the question. Do you think I have any chance in hell getting these to expire worthless or are the negative winds just too strong to risk leaving these naked. Is there a long I can buy to cover these that makes sense or should I just be happy to get out even. By the way the spreads suck on SQQQ!

  216.  Phil
    In the XLF trade you called to pay for our membership guarantee back in January. Long the Jan 12′s show the 13′s and the 11puts. Would you roll it down at this point? Just the longs? BTW – do you have the link for that (I tried searching the archive but just not an expert archive user.) Thx

  217.  Phil / Pharmboy.- A last minute window of opportunity arouse and I will be joining you guys in Vegas Sunday and Monday. What are the instructions to enroll?

  218.  burrben – I’m with you, I have a bunch of hedges that are all well in the money, and now I just have to wait for them to expire to get the full value out of them (EDZ 20/24 for example). I like how consistent they are, and they have a high percentage of working out. But they aren’t exciting when the brown stuff hits the ventilator. I do have some long exposure (short puts at least), so I felt OK buying something that will really pop if we drop. I just bought some futures options, Oct. 14 expiring /ES 1050 put. Just one at $1050. We’ll see if it works out. I know it’s a gamble, but what the hell. I’m actually working on taking more risks, I keep kicking myself for feeling like I know what I want to do, but then I have trouble pulling the trigger. A day or a week later I realize I should have done it. 

  219.  Out of curiosity, anybody here read Gary Savage’s commentary? Not really an appropriate venue for the discussion; if you do, I’d be curious to hear from you… kurtww at gmail dot com. 

  220. Pharm – what do you think of MYGN, YMI, and XOMA at these prices?

  221. The big chart has an error I think – the 10% level on the dow should be green and not red.

  222. Jabobeast-love the comments also. I feel the same way!

  223.  Thanks for the explanation jmm. I will see how the picture looks tomorrow morning.

  224. stjeanluc – I was just about to share that same bit of into!

  225. Reminder – Apple’s "Let’s talk iPhone" event is tomorrow (Oct 4th)

  226. Savi has the info, but $150 to him by Paypal.  He will post.  At this point, I would walk into a hotel an make an offer.  I don’t think they are over booked by any means. 


    MYGN – not interested right now. 
    YMI – Still have them in my portfolio and like them for a longer term play, just scale.
    XOMA – yuck.

    I have really not posted lately on biotechs b’c of the volatility and those that are under $10 are held by retail.  IMGN and SGEN are ones I am focused on, with CRIS, DEPO, PLX, etc being a mainstay of my biotech holdings.  I have plenty of others, but just not interested in leading you all on into companies that I don’t know what is going to happen.  ARNA is still in my radar, and I would start accumulating in small batches, no more than 1-2K shares total.  I think eventually they get an approval.  VVUS and OREX, yuck.  ARIA, for $8, I think they are undervalued, but the charts say $5-6…so selling 1/4 round of Jan $6 puts may be worth it…..actually, I like that a ton….tomorrow…..The drug works, MRK likes them, and if they can set the standard with their mTOR, then I think the marketing groups are going to run with it.


    There are tons of others, but until things get worked out, I would rather have cash to deploy.  IMGN play from last week is a good one, buying in here and selling the Jan 12/11 strangle for $3.


    I really want to put up a bunch of plays, but I just don’t like this market right now, and want to see 10K on the DOW and 1K on the S&P, then things will start to get more interesting. Sorry, just don’t want to have the repeat of late July where I went away and lost my shirt without the proper hedges…..I am slowly making it back up with the volatility….good riddance, and good night.

  227. If AAPL cannot hold the $370 area, SQQQ or QQQ puts would be my choice for shorting.  QQQ are far behind the rest of the market so that is how I would hedge.

  228. Izega—send $150 non refundable deposit to my pay pal acct—all you need is my e-mail

  229.  Phil/Anyone
    Thoughts on this occupywallstreet protest? Sounds like it might get substantially larger on Wed…

  230. Wall Street Protest/all – Aye, enni, I’l try posting this again (my previous attempt got swallowed, perhaps because in my amazement I used an expletive) – it’s not just the transit union, it’s the marines (vets):

  231. Wall Street Protests/all – Aye, enni – I messed up posting this earlier, but it’s not just the transit union, it’s some marine vets as well:

  232. Good morning!

    Looks like we hit our high for the Dollar at $80.20 but a nice pullback since 1am, if we cross below 80, we can get a little reversal going but, so far, Asia is not giving us reasons to be cheerful, with another 1.5% drop but, hopefully, that’s just their reaction to our 3% drop.  

    Oil (/CL) giving us another poke at a bullish play off the $76.50 line (tight stops below). 

    SPY/Dmoroz – You may end up happy you have it tomorrow but, if not, remind me in the morning and you can turn it into a bearish vertical.  

    TNA/L4 – If rolling is not an option then you absolutely have to use stops – capiche?  If the RUT fails to hold 600, then things are bad but, if they do, then those $30 puts are 1/2 premium and rollable (the Nov $26 puts are $5 for another 13%), even if you don’t want to DD.  Meanwhile, you can still pull the $38s for $1.05 if you can leave the naked caller and that cuts your net by about $1 on the short puts (assuming TNA doesn’t fly back over $38 so stops on the $43 calls, now .45).  Alternatively, if you want to press this bullish, the $29/32 bull call spread is $1.20 so net .60 to roll to that $3 spread and, with a little bit of luck, the puts expire worthless and you end up with $3, which is better than nothing. 

  233. Pensions/JMM – Thanks, good info. 

    Obama tax hikes/StJ – OH THE HORROR!  

  234.  WOW… Zero Hedge

    Oct 3, 2008: SPX=1099.23; VIX=45.14 is to Oct 3, 2011: SPX=1099.23; VIX=45.45

    Oct. 10, 2008: SPX=899.22VIX = 69.95 is to Oct. 10, 2011: SPX=799.25VIX = 70.95 
    Shit might hit the fan if we repeat history….

  235. Pharm- quality is better than quantity! Thx for your answers!

  236. Thanks again Phil!
    Brilliant strategy! And I definitely get the "Capiche" Ha! Ha!
    Looking forward to meeting you and everyone in vegas!

  237. Big chart turning ugly now – we’re going to need a bigger chart and that up 10% line will become a distant memory and the must hold line will become our breakout line (10% up) and you know that sucks.  Bottom line – we are braking down out of our range into UNCHARTED territory – not a good thing at all…

    Today I found a message floating 
    In the sea from you to me 
    It said that when you could see it 
    You cried with fear, the Point was near 
    Was it you that said, "How long, how long 
    To the Point of Know Return?

    TNA/Mampcs – For TNA, see above.  TZA is at $61 and I would stop out the $51 calls (if you can leave the $59 caller naked) at $14 and just put a stop on the $59 callers at $11 (now $10) and then do the same on the lower sets if they begin to look like trouble.  Excellent job layering your spreads on the way down – you can help teach that to people!  The trick is to be very strict off a line like RUT 600 and the minute it doesn’t hold, you flip back to being more bearish but, on the assumption it does hold, you want to play for the reversal and the certain decay of outstanding premium.  We still have 2 weeks and a 5% bounce in the RUT can take TNA back to $32 so that’s very reasonable to expect but higher than that, while possible, is certainly not something you can plan for.  A 10% up move on the RUT is TNA $36, which is why I was saying those $43 short calls can be left naked with stops – it’s kind of a stretch for them to get there in 2 weeks without some sort of major stimulus announcement.   The VLO puts are, of course, great sales but that’s no reason not to take advantage of the high VIX and roll the short puts (about $2 avg) out to the Jan $16 puts (now $1.90) or $17.50 puts for $2.65 as, even if you REALLY want to own VLO, now $17.17, picking up another .60 by Jan is 3.5% in 3 months – not a bad return.  

    Let’s keep in mind folks that, Kansas notwithstanding, this is the expected bottom of our range and the top of our range on the Dollar and, so far, it’s only been one hour below our 10% lines on the 3 majors so it’s simply too early to give up on our bounce premise – although it does look very, very bad at the moment.  With Mampcs’ TZA plays above – they are brilliant but pointless if he doesn’t find a way to take the money and run at what may be the max drop for the RUT.  We cash out or winners and switch to fresh horses – especially at major points of resistance.  

    Up move/Barf – See above.  Yes, it is prudent to bet on an up move at major resistance.  THIS particular time is the one I have the least confidence in but it’s our 4th visit to the bottom of our range since early AUG.  The difference is the channel has turned down now so now we have strong downward momentum.  That mostly means though, that we still expect a bounce but now to a lower high and, if the lower high is confirmed, then a lower low becomes our next expectation.  Never underestimate the power of the major support lines (10%, 20%) – it’s a very big deal to go through those.  

    Welcome back Jabob!  Yep, it’s the bulls last stand at 1,100 with very little support back to 1,000 if we blow it here and, below that – nothing but air down to 900.  Still, 1,100 is a well-tested line and not too likely to give up without a fight.  That relentless selling into the close seemed designed to trigger TA SellBots on the 1,100 failure – maybe trying to force capitulation but no signs of a flash crash so far and I’m not sure there are enough retail traders left to get a good panic going.  

    Stimulus/ITrade – Your logic is based on the extremely flawed assumption that, had nothing been done, the market would have stayed where it was.  We could have been at S&P 400, with another $20Tn in market cap gone, 401Ks and IRAs wiped out and a whole generation of baby boomers moving into retirement without a penny.  Maybe 20-30% unemployment as a collapsed banking system is unable to lend for 2 years – how much would that cost, or were you planning to just let gangs run wild in the streets?  We collect $2.2Tn from our Citizens and Corporations in taxes and we spend $1Tn of it on the military and another $400Bn paying interest on existing debt.  Of course, $1Tn of that $2.2Tn collected is for SS and Medicare so if you cut that spending, why should the bottom 99% keep paying into the program?  Still, if you want to go to Conservative fantasy camp, you can cut SS and Medicare and that leaves us collecting $1.2Tn with a $1.4Tn expenditure of JUST the war and the interest on our debt after eliminating 100% of the Government.  

    You don’t cut your way to prosperity – you invest and grow.  This country is already suffering from a decades-long lack of investment that has strangled our growth and sent tens of millions of jobs overseas to countries that do spend on infrastructure and education to build modern workforces.  US Corporations are at a tremendous disadvantage because we don’t have Government health care and 15% of our GDP now goes to health care, which is a consumable – also leading to lack of long-term asset building.  

    When you are able to borrow money at 1% – it is STUPID not to do so and invest that money in growth.  What really scares me about Conservatives, especially the ones that are in office, is the fact that they either don’t understand this very basic business concept or, even worse, they pretend not to so they can prevent this country from getting back on it’s feet.  

    I’ve cited studies before and you can see it happening in Europe right now – austerity does not work.  It has never worked – EVER – ANYWHERE and it’s National suicide to go down that path.  That doesn’t mean irresponsible spending is the solution either but Governments finding ways to spend money to put people to work…  There are hundreds of examples of that working out just fine.  

    You want a stimulus program?  Have the Government borrow $20Tn at 2% and lend it back to homeowners at 2.5%.  That costs the Government nothing and cuts the average mortgage down by 3% so $600Bn a year of stimulus (4% of GDP) in the form of lower interest payments that go directly into American’s pockets EVERY YEAR and the Government MAKES $100Bn a year profit and the Banks get $20Tn in cash (paying back old mortgages) and all those home loans off their books.  Sure there may be defaults and such but no more so than current bank rates, which are now about 2% and defaults are not 100% loan losses and there should be a lot less of them at 2.5% interest.  Figure the government gets stuck with $400Bn worth of homes (2%) over 10 years – that’s still $600Bn less than their profit on the loans over that time.  

    3am and the Dollar is right at 80!  Oil $77.05 so let’s see which way things go.  Gold $1,676.  

    Europe looks like down 1.5% at the open.  Asia down 1%. 

  238. Speculation/Burr – The Nas is still 10% higher than the other indexes so figure they would catch up at some point and that makes SQQQ my favorite at the moment (see this morning’s trade idea).  

    SQQQ/DC – Ah, we were just talking about those!  Dollar is heading up right now and tanking the Futures.  Europe is just in total meltdown mode.  SQQQ is at $28.75 and you sold the $31 calls, which are 100% premium, of course, at the moment.  I don’t see the issue.  $31 is 10% more up on SQQQ and that’s another 3% drop in the Nas but more like 5% before you have to give the $2 back at $33.  Can the Nas drop 5% in two weeks – sure it can!  Meanwhile, the $31 calls can be rolled to the Dec $40 calls even or better and that’s a 15% Nas drop away and, if you are worried about that much of a drop, you can buy the Dec $31/36 bull call spread for $1 to mitigate some of the phantom damage.  That gives you another 20% protection (7% on the Nas) or, hopefully, you can pull the spread with a .50 loss if you end up not needing it.  Hopefully, that can give you the courage not to panic out of the short calls.  

    XLF/Deano – I called for those to be cashed out ages ago when they were over $1.  You do realize XLF went to $17 in February, right?  The Jan $11 puts bottomed out at .10 between May and July and now they are $1.20 – at some point you need to stop out!  

    At the same time, the Jan $12 calls were $4.50 and the $13s were $3.50 for net .90.  The trade from the Secret Santa Hedges was to buy the bull call spread at .80 and sell the puts for .40 for net .40 and we hit our goal at .90 and .10.  It was only possible to make .20 more waiting 6 more months – certainly not worth it and, as you can now see, absolutely not worth the risk.  

    As to what to do now that the calls have dropped 90% from the top – not much to do with XLF at $11.23 but hope it holds $11 and moves back up.  If you didn’t think it was worth cashing out when XLF was $17, I don’t see why you are going to worry at $11 – that’s a pretty drastic change of attitude over 6 months.  We have 3 more months to go and still 100% premium on the short puts – way too early to turn yourself into a sucker and pay premium out of fear.

  239. Phil,
    Thanks for the SRS play idea earlier.  I hold 600 SPXU @ 31 (now 22 ish), turned out a big sucker trade as I had bought them when the S&P was 1080-1100 in 2010 and now when we are nearly back at that range, the damn things are still 27% down.  I am thinking exiting them complely around 23.50 (6% higher than yesterday’s close) on the basis of a further 2% drop in the S&P.  In these situtations is there any way using an option strategy that you can make optimise your exit price? 

  240. 80.36 on the Dollar as the Hang Seng drops about 400 points int the close, down 2.64% for the day.  Nikkei is down 1%, BSE down 1.35% and failed to hold 16,000.  Europe down 2.5% at day’s lows.  

    Dow/Kwan – Maybe Elliott is making a prediction.

    Sprint/StJ – Forget them, did we just hear AAPL got a $20Bn order?  Their entire sales last year were $65Bn! 

    Occupy Wall Street/Enni – I love it.  We discussed it in the weekend chat.  This movement looks like it has legs.  

  241. I see the XLF charts did not come over correctly, I’ll try again:  


  243. Dollar 80.36, oil back to $76.15 but a little scary to play up again with the Dollar so crazy strong.  RUT (/TF) holding 600 makes for a very tempting bullish play off that line but watch Nas (/NQ) 2,050 to hold or very bearish indeed.  

    SPXU/Checho – I hope you know what you are doing because these are very risky positions!  Ultra ETFs tend to decay over time so you lose money even though, as you see, the underlying stays flat to where you bought in.  The more swings in daily pricing, the worse the decay gets.  I don’t think the options here pay enough to cover the risks involved.  SPXU jumped 10% today so how would you cover that with options that only pay 10%?  You are simply not being paid enough to cover the volatility.  If you want to get out, you can salvage $14,000 and take a $4K loss(ish) and then the question is, how do you make $4K being short the S&P?  

    SDS is a 2x ultra-short on the S&P and, if you need insurance, you can sell 10 March $20 puts for $1.70 (25% out of the money) and buy the $20/26 bull call spread for $3 for net $1.30 on the $6 spread that’s $7 in the money to start.  This trade makes $4,700 if the S&P heads lower and risks $1,300 and the possibility of being assigned 1,000 shares of SDS at net $20 in March.  As a hedge, it’s a great trade but as a gamble – it’s still risky.  

  244. Phil / FTR,
    I did a B/W at 7.95, selling the 2013 puts and calls. along the way I also sold the Jan 6 puts and May 7 puts. the 2014′s are not out yet to roll but may be too early in any case. As you can tell I am down a massive amount. Any suggestions for a fix? Thanks

  245. Phil, Also, is it possible FTR will reduce their dividend? Thanks

  246. FTR/Jomp – They just, yesterday, reaffirmed their dividend (they went ex-dividend Friday, which a lot of people were holding out for before selling) – which is .75 per share you paid about net $6 for so that’s 12% a year back on your investment and that can only be screwed up by your uninvesting in them.  They missed their last earnings by a penny but they had an acquisition so hard to do comps.  I like them the same way I liked VZ years ago – they are investing in infrastructure and people hate companies that invest in the future but I like it because the future is when I’ll be owning them too!    Jan $6 puts are .60 and can be rolled to 2013 $5 puts (now $1.05) if you have to so hardly a worry there.  The 2013 $7.50 puts are $2.95 and, when 2014 comes along, you can roll them too.  

    “We remain committed to the return of capital to our shareholders at the dividend level announced in May 2009 and believe our ability to do so will be enhanced by delivering on the cost synergies of the Verizon property acquisition completed a little over a year ago,” said Maggie Wilderotter, Chairman and Chief Executive Officer. “In addition, our third-quarter 2011 broadband unit growth was stronger than the prior quarter. Our 2011 free cash flow guidance of $1.075 to $1.125 billion sufficiently covers an annual dividend of approximately $746 million, and we look to enhance this payout ratio through further synergy realization, the completion of our broadband network expansion, and our continued improvement in our sales and retention initiatives. Systems conversions are a primary driver of cost synergies and we are pleased to report that we began conversion of the next four states on October 1, 2011 and expect to finish the remaining nine states in the first half of 2012.”

    FTR is a fabulous new entry at $5.66, you can sell the 2013 $5 calls for $1.05 and the $5 puts for another $1.05 and your net drops to $3.56/4.28 and that makes the .75 annual dividend 21% back on your initial entry.  

  247. Phil, 
    Re my question on SQQQ from yesterday. Luckily I didn’t sell the long 25′s before the plunge or I’d be in very deep trouble now. But still have a potential big problem if we continue down and the OCT 34′s go in the money as I would have 40 34′s uncovered. 
    Again the position is 60 long Oct 25′s (net 2.35) against 20 short Oct 31′s and 80 short Oct 34′s. 

  248. good morning Phil
    I have 500 JNPR @ $24.90 (now $17.08) and sold 20 JNPR Jan12 $19.00 P @ $2.00 (now 3.55)
    Although I think $17.00 is a good entry for the stock in Jan. the  puts are down 75%.
    How can I best reposition these potential loses.
     generally very tough to kill my optimism but the constant negatives and needed readjustments are doing a good job of removing all enjoyment from of the investment challenge.

  249.  Looks like today is going to be capitulation day for the markets. Could get very ugly.

  250. I have sold several batches of Oct and Nov calls on TQQQ, which I think is a good way to bet on a downdraft. I tried to buy puts as well, but it ran away from me.