Has it been a week already?
That’s right – last Tuesday our title, after 3 bullish days, was "S&P 1,200 or Bust (again)" and bust we did! At the time I said "It’s not that I’m flip-flopping – we’re simply playing the range and if the trip from the bottom to the top of the range is just 2 days – then flip-flop we must!" Our bearish hedge in that morning’s Alert to Members was 30 DXD Oct $18/20 bull call spread at .70 ($2,100) offset by the sale of 10 GE Jan $15 puts at $1.05 ($1,050). DXD is already at $21.34 and the bull call spread is $1.30 (30 = $3,900) while the 10 GE short puts are $1.75 ($1,750) for a net $2,150, up 105% in the first week – even if the short puts were not stopped out with a smaller loss.
We also ran our Long Put List that morning (see Weekend Reading for recap of that strategy and list of short trade ideas) and those, of course, are up huge across the board as things got so bad yesterday we even had to short IBM – our list’s last brave holdout. Another fun short we played that day was a ratio backspread on CMG.
Taking advantage of selling into the pre-earnings excitement, we were able to add the following trade to our virtual $25,000 Portfolio:
Earnings are on the 20th, the day before expirations so I like the volatility crush of selling 5 $340 calls for $9 ($4,500) and buying 3 Dec $350s for $15 ($4,500) for a free spread. No matter what CMG does, $4,500 of premium will be gone from the callers on Oct 21st, then the Nov whatevers can be sold, hopefully for another $4,500 in premium or perhaps we can just pull the trade so let’s do one set in the $25KP and see how it goes.
CMG took a nice dip since then (now $292) and the 5 Oct $340 calls fell to $2.20 ($1,100) but the 3 Dec $350s have held $8.60 ($2,580) for a net profit of $1,480 off a trade that cost no cash just 7 days ago. These are the kinds of trades we love around earnings season. We didn’t need to hold it for a month and now we can free up the margin (about $6,000) and move on to another trade (in fact we did one on GS yesterday). When you are working in a small portfolio, picking up $1,480 in a week on a single trade is a big deal!
Another hedge we added that afternoon to the $25KP (as the S&P was clearly failing) was 10 EDZ (our favorite overall hedge) Oct $28/34 bull call spreads at $1.10, selling FCX Oct $31 puts for .91 for net .19 ($190). FCX, unfortunately, has dropped like a rock and the Oct $31 puts are $1.85 ($1,850) but, fortunately, EDZ has gone up like a rocket to $35 (opposite of EEM on David Fry’s chart) and the spread is 100% in the money and currently priced at $3 ($3,000) for net $1,150 so up 505% despite our offsetting hedge behaving badly (and again assuming our naughty traders don’t stop out at the recommended 30% loss on the short put).
See – hedging is FUN! We can (and will) make trades like this every week on the way down and, of course, the real VALUE of that EDZ spread is $6 if the premiums all wash out in the money so another $3,000 to come if EDZ simply fails to bounce back. I’ve been emphasizing hedging and balancing these last couple of weeks as we move into a potential down cycle and there is no more important skill to master than learning how to make these relatively minor adjustments to be able to shift your portfolio from bullish to neutral to bearish at will.
Even as I write this, the EU is down ANOTHER 3.5%. Today’s worry du jour is the EU signaling to bondholders that they need to expect to take bigger losses on Greek debt in the second aid package. People who lent money to Greece this year at 20% and higher interest rates are SHOCKED that there’s a chance the debt may not be repaid in full. After all, aren’t the wealthy ENTITLED to get money from Governments? What next – will they be expected to pay the same tax rates as everyone else as well? MADNESS!
The EU Finance Ministers also pushed back a decision on the release of Greece’s next 8 billion-euro loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year. “The endgame for Greece has now begun,” Sony Kapoor, managing director of policy group Re-Define Europe, said in an e-mailed note. “It seems that the ground is being laid to revisit the private sector involvement agreement reached in July.”
Also spooking the Financials this morning is news that Dexia SA, BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently. While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, France’s two biggest lenders and Belgium’s largest cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default. The three firms would have about 3 billion euros ($4 billion) of additional losses if they took writedowns of 50 percent, according to data compiled by Bloomberg.
That’s helping to push MS and GS credit default swaps to their highest level since 2008 as concerns intensified that Europe’s debt crisis will infect the global banking system. Contracts on Morgan Stanley, the New York-based owner of the world’s largest retail brokerage, soared 92 basis points to a mid-price of 583 basis points as of 4:30 p.m. in New York, the highest since October 2008
Goldman was no help for their own cause as they just issued a statement raising the odds of a US Recession to 40% and declaring it more or less a done deal for France and Germany. Oddly enough, GS still maintains a 1,200 price target on the S&P for 2011 and a 1,300 target for the end of 2013, with steady progress throughout they year. Trying to reconcile that with the text of their report reminds me of the great Yogi, who said: "You can’t get there from here."
Of course, talking out both sides of their mouth is a GS specialty and we are loving all this bad news as it (hopefully) shows us where the real support is. As in this title, we’re expecting to see it at 1,072 as that’s our 2.5% overshoot of the 10% drop on the S&P and then we bounce back to test 1,011 and we’ll see what happens there but it’s going to be fun, Fun, FUN this week as we continue Thursday’s search for bottom.
Our favorite long play is a speculative bet on the Russell with the TNA Oct $28/33 bull call spread at $2.25, selling the Oct $23 puts for $2.10 for net .15 on the $5 spread. TNA is currently $28 so a $5 drop is about 20% and that would be a 7% drop on the Russell to 558 before this trade is in serious trouble while our goal would be an 18% gain, which would require a 6% move up on the Russell, back to about 640 on October 21st.
We already played the Russell Futures (/YM) bullish off the 600 line this morning in Member Chat but, keep in mind – we are playing both sides of the fence so we are grabbing bullish plays to protect our winning bearish plays and then grabbing bearish plays to protect our bullish winners as we move the other way. For the most part – CASH remains king but we will be looking for the Dollar to be rejected at our 80 target today and retrace back to 78.50 for it’s first major test – despite all the nonsense in the EU.
We also did our usual TLT short play as it hit $123 yesterday (so far, so wrong at $124) and this morning we will likely play our VXX short spread – probably selling the weekly $55 calls for $3.50 and buying the weekly $56 puts for $2.50 for a net $1 credit on the puts.
Why so bullish? Because we are already up 505% on hedges like our EDZ spread and all it has to do is not go down (Global markets up) and we make another 1,600% as the premium wears off the bull call spread so anything down is a huge win on our leveraged protection and we need to begin protecting those gains with some leveraged bullishness. BALANCE – it’s all about balance….
Ben speaks to Congress today and there’s a Beatles song to cover that.
Let’s hope we get that bounce because it’s not a pretty picture at all if we break down here!
I wouldn’t sell RIMM puts if you paid me. Until they re-invent themselves (like apple did) I can’t imagine them coming back.
I don’t know much, but I know that’s a stock I DON’T want to own……
AAPL/iPod touch
A friend bought one yesterday, the 8gb model for $176 in Office Depot. Nice little device. I was able to read Philstockworld on it. I would think a better buy than the Kindle Fire for a reader. Although the screen is small, the definition is terrific and you can use it with a magnifier. If the screen was double the size it would be the perfect device. It is almost too small for the hand too. It needs to be a bit chunkier. Probably you can buy an aftermarket holder.
The new iPhone sounds awesome. Imagine the market reaction if they had just called it the iPhone 5…
School books/Celest – I think if budgets weren’t so tight, things would already be in motion. AMZN or BKS is in better positions with publishers than AAPL to make this happen and they should take the lead before that whole business goes away from them.
11:09 a.m. Next, video recording. It can take 1080p HD video with real-time video image stabilization. There’s also temporal noise reduction, which helps in low light scenarios. Now we’re going to see a sample video of the kind of quality you can expect from the camera. The colors are bright, vivid. It’s a video of three ladies and going hot air ballooning.
11:11 a.m. Now, AirPlay. You can stream photos and videos straight to your Apple TV setup. It also has AirPlay mirroring. If you don’t have an Apple TV, you can plug in an HDMI cable and do wired mirroring.
11:13 a.m. “What we really want to do is talk to our device, and get a response. We don’t want to be told how to talk to it, we want to talk to it however we like,” Phil says. This feature that does this is called Siri, your intelligent assistant. It helps you get things done, just by asking.
11:16 a.m. You can also ask the question a different way to get the same result. You can also ask something conceptual like, “Do I need a raincoat today?” Siri responds: “It sure looks like rain today.” The audience laughs and applauds.
11:16 a.m. Now, a question about the clock. “What time is it in Paris?” Response: “The time in Paris, France is 8:16 PM.” What about the alarm? “Wake me up tomorrow at 6am?” “OK I set it for 6am” Siri says. Impressive.
11:17 a.m. You can ask Siri about stocks. Siri says “NASDAQ Composite is down right now.” Siri is also partnered with Yelp, so you can ask something like “Find me a great Greek restaurant in Palo Alto.” Siri responds “I’ve found 14 Greek restaurants, 5 of them are in Palo Alto. I’ve sorted them by rating.” The ranked listing follows below.
11:18 a.m. You can also ask Siri Maps related questions, and it will show you the directions. Siri has a robotic female voice in this demonstration.
11:19 a.m. If you get a message, and your phone is in your pocket, you can ask Siri to read it to you, hands free. You just have to say “Read my message.” Siri reads the message, and asks if you want to “Reply” or “read it again”. You can also ask it questions about your calendar. Scott checks he’s open on Friday, then tells Siri to reply “I can do Friday.”
jmm double the size…its called the IPad 😉
Boy I cant imagine what these moves are doing to the psychology of traders. Looks like they are trying really hard to crush the little guys.
Heard the IPhone 6 replaces wife/girlfriend.
Touch/JMM – You mean something between the IPhone and the IPad? I would like that. Something the size of a paperback book would be nice. Meanwhile, Tina (an Apple hater) broke down and bought the IPad yesterday. She was over in BBY and couldn’t resist a white one with a pink cover and now she keeps running in to show me all the cool features – to which I say "Duh!" She was the last holdout in our house – the kids have touches and my old IPad and I have my new IPad, my IPhone plus my big IMac and we can all face-time and share apps and music and pictures so I guess Tina felt kind of silly with her Kindle and her droid phone…
IPhone 5/Dr C – I think they don’t want to piss of the people who bought IPhone 4s a year after the IPhone 3s came out and also, clearly they have no need to create demand in the marketplace. They did just what I wanted, which was improve the camera and the web speed but if they are doing all of this as an mid-cycle upgrade – imagine what the actual IPhone 5 will do!
11:22 a.m. Web search is also integrated with Siri. So if you’re looking up info on the space program, you can tell Siri to “Search Wikipedia for Neil Armstrong.” The relevant Wikipedia page comes up in Safari almost instantly. Siri is also partnered with Wolfram Alpha (awesome!).
11:24 a.m. If you’re counting down to a special event, you can ask Siri. How many days until Christmas? 82 days (or 2 months, 21 days, 11 weeks 5 days, 58 weekdays, .22 years). Pretty precise there, Siri.
11:24 a.m. Siri can also play any song you want, if it’s in iCloud or on the device, you can use it to make calls, send messages, set up meetings, set reminders, get directions, dictate and send emails, find out the weather, get information about stocks, set alarms, find a contact’s address, write notes, perform web searches, and answer any questions you’d normally ask Wolfram Alpha.
11:26 a.m. What is Siri, exactly? “I am a humble personal assistant,” Siri replies. Much laughter and applause.
11:27 a.m. With Siri you can use natural language. It’s conversational, contextual, personal. It works with built-in apps, adds dictation anywhere there’s a keyboard. It works across Wi-Fi or 3G. It’ll be built-in to the iPHone 4S and support English, French and German. It will be beta to start: more languages and services will be added over time.
11:28 a.m. Now we know all the features that are added in the iPhone 4S. To be clear, Siri is iPhone 4S specific.
Those bastards!!!
Chart from Rustle:
People are nuts, so they introduced the IPhone 4s and not an IPhone 5…you say potato i say potato
So what’s the "one more thing" going to be??
Is the stick dead???
FU broken stick!!!
11:33 a.m. The iPhone 4S will be avilable in black and white. 16 GB for $199, 32 GB for $300, $64 GB for $400, with a two year contract. The 3GS will now be available for free, and an 8 GB iPhone 4 will now be available for $99.
11:35 a.m. Pre-orders tart on Friday October 7th, and the iPhone 4S will be vailable October 14th in Uthe US, Canada, Asutraklia, the UK, France Germany and Japan.
11:36 a.m. On October 28th, it’ll hit a bunch more ountries, and by December, over 70 countries, over 100 carriers. This is the fastest roll out ever for an iPhone.
Look at that….Cramer was pumping Ford this morning and it’s up in the face of disaster.
There was no "one more thing" – that’s silly of them. I guess they think that’s Steve’s deal but I think people would want to see that tradition kept up.
DECK making a comeback after a LOVELY drop (on our Long Put list).
CMG clawing back. PCLN – not so much…
WFR up 2.5% today (but under $5).
FCX holding $30. Things seem about right to me – low but right…
Portfolio Balance:
Phil, I have a small portfolio. I would like to see if you have time to comment on how I can be more balanced.
I currently have:
2 – FXE Oct 129 Short Puts. Sold at 0.62 Now 1.075
2 – IBM Jan 105 Long Puts purchased at 1.04 Now 1.055
5- INTC Jan 19 Short Puts. Sold at 0.65 Now 1.19
As I mentioned, I don’t have any stock and I have small portfolio. The shorts were sold to fund bullish plays that did nto pan out with the Fed announcement. If we drop, I need to kick the short puts down the road, but hopefully I will make some money on the IBM and I can roll the puts. If we climb, then I have more breathing room on the puts, but I don’t really have any other longs. Any feedback would be appreciated.
Dan
Phil,
Is that a stick or a trick?
hi Phil — add more hedge at this point if I only 1/2 hedge now. thx
Overall, gold (now $1,599) is trashing the miners and oil’s huge rejection at 78 (now $75.44) is crushing energy and banks continue to suck so how can we rally? XOM is off 1.67% and CVX off 2.75% so no go on the Dow. AAPL down 4% now – disaster for the Nas too.
Dow volume a healthy 156M coming up on 3pm – so so…
Balance/Dano – That’s very small! You can’t really afford to buy premium in a small portfolio. If you go back to early last year on our Portfolio Tab, you can find where the $10,000 portfolio started and I’m sure some of the positions and commentary there can be helpful. IBM is insurance you expect to lose but can you afford to lose $210 against $200 of FXE short puts and $600 of INTC short puts? Also, is IBM a proper offset to INTC + currency and why the hell are you trading currencies with such a small portfolio?
You don’t hedge your trade, you hedge your anticipated losses but IBM doesn’t correlate well INTC and neither have anything to do with FXE (see chart). I like the FXE short put as a trade but what is your trading goal here? The margin on the short FXE puts is about $4,500 and I like the INTC short puts as that’s just $1,300 margin but still, do you even have the money to own 500 shares of INTC at net $18.35 ($9,175). I guess you do because you are tossing it around in margin but this is a very dangerous environment to be taking open risks in a small portfolio.
If you want to make $325 being long on INTC, why not BUY 6 Jan $17.50/19 bull call spread for $1.10 ($660)? That pays $900 at $19 (up $270) and it’s a lot easier to ride out than the short puts with no margin requirement.
On FXE, you can be long on them to make $125 with 4 $129/130 bull call spreads at .70 ($280), which pay $400 (up $120) if FXE holds $130.
Now you have 2 trades using no margin that can lose not one penny more than $940 and you can assume you will pull them with a 50% loss at $470 and then you can look to hedge 1/2 of that loss on a market downturn and if you wanted to do that with IBM, you could pick up just one Nov $160/155 bear put spread for $1.10 ($110) that pays $500 on a big drop.
Given those two positions, what would really be bad for you is the Dollar going up so you could, instead, buy 4 UUP Jan $22/23 bull call spreads for .41 ($164) and that pays $236 if the Dollar keeps going higher.
If you only have $10,000 – then always keep in mind that pulling out just $100 in profit once a week is a 50% gain for the year so you need to trade with the mindset that EVERY gain is precious and you should not try to go for big wins – as soon as you make $100 – take the money and run. As soon as you lose $100 – get out – as it’s a lot of money!
Of course, that means you NEVER buy premium – by the time you buy premium, you are probably down $100 as soon as the order fills…
If they can get /DX < 80, it’ll be a stick.
AAPL coming to the 200d MA. That is not good…..
Stick or Trick,
I’ve noticed a pattern. Stick one day…..Anti stick the next. Not perfect but somewhat consistent. Yesterday was anti. FWIW
SPY 107 P calendars for 1.94. Sell Weekly, buy Oct Months.
Stick or trick/L4 – Is that a trick question? Sticks are tricks, aren’t they? I think that down move may have been a trick – this is just more silliness near the bottom of our range – we should be used to this by now. That’s why we’re pretty much ignoring it today and just waiting to see if we pass or fail on the S&P.
Hedge/Gucci – I wouldn’t add more unless we fail on the S&P. As usual, I prefer to be 15/10 or 20/15 bullish when we’re testing our bottoms as there’s a good enough probability that we bounce that it’s worth taking the chance and we certainly have plenty of bearish profits to cash out and bullish bets to press as well.
Dollar right on that 80 line.
How high would the Nasdaq be right now if AAPL was flat?
Phil/Pass
What is the pass figure you’re using.
Could be a nice short squeeze tomorrow.
Good one Phil!
By the way , thanks Phil/JRW III for follow up and the IWM lines yesterday! They worked out okay!
exec/Pass – I believe it’s 1072 on the S&P.
And the squeeze begins.
According to Zero Hedge, this is why we’re going up, and they’re not impressed.
http://www.zerohedge.com/news/non-news-dexia-bad-bank-sends-market-soaring
Phil – Do you think today is dead cat bounce?
Dead cat bounce SellP – no, this is stick is trying to get retail in…..that is all. They are tired of selling to themselves, so the only way to make money is to squeeze the shorts. I don’t by it, and am still net short.
There is one thing that I don’t understand – why Apple doesn’t release a 4G iPhone. My kid now has a 4G Android phone and the speed difference is amazing. When you have 4G coverage, it’s as fast you home connection – up to 20 Mbps download and sometimes more. She can tether her laptop wherever she is and run Skype video without a hitch! Just like being home on a Wifi network! I know 4G is battery intensive and that might be the reason for Apple, but Verizon and all are all rolling out 4G networks everywhere for a reason! Hopefully the iPhone 5 will have that.
Now that’s an impressive stick. 4% on the rut.
Phil
Should we short this rocket up? As far as I know the world is not now fixed? Or what am I missing??
Dollar has bounced off the 79.75 line last time! This has held since the run up yesterday afternoon!
SPY 112 Calls. Sell the weekly, buy the Month. I am still in the 117s as well, sold the 113s (rolled down).
3:00 PM On the hour: Dow -1.68%. 10-yr -0.17%. Euro +0.49% vs. dollar. Crude -2.68% to $75.53. Gold -3.38% to $1601.75.
Holy cow… I’m away from my desk for 10 minutes and we get a mini mega-stick! Glad I had the guts to buy those TNA calls first thing this AM!
is that a stick you think? 🙂
imagine going for a dump with a short position?
I guess everything’s better now!
Thanks Pharm.
Btw, I’ve gotten killed in my AMRN call position the last couple of days. Do you see them getting back to $10-11 anytime soon?
Ok, make that 6.9% on the RUT! Impressive with that break of 79.75
AAPL/Rustle – It’s about 10% so add .1% at the moment (nice bounce back by them and THAT is why we buy back the caller on those moves!).
Pass/Exec – See headline on today’s post.
Dead cat/SellP – No I think it’s the bottom of our range and we should at least move back to the middle of the declining range like we have 6 other times in the last 2 months. If we only make that 50% line, then it’s a dead cat bounce but if we clear to the top – then we’re just trading the range – which you should be learning to love as we have many, many opportunities to flip at almost the exact right times.
4G/StJ – I think it is mainly batteries at this point. Also, T just can’t handle it and I’m sure AAPL protects them somewhat.
Short/Russell – Only if you are too bullish. This is the move we’ve been patiently waiting for.
Wow, what a stick that was! Haven’t had one of those in a long time….
Dollar at 79.59 and still falling. Oil back to $77.50 and gold bounced off $1,600 back to $1,623 with silver back to $30 and copper $3.12.
What a fun day!
Damn, so much for buying more ARIA on the dip, missed that window…
Now there’s a nice 33% return on those USO Calls. Bought 200 at 0.45. Sold 200 at 0.60.
That pay’s for the Vegas trip. Thanks Phil!
AMRN – why did you buy that? I don’t like them, even though they had good data and approval for their ‘fish oil’, GSK has a similar product, and who is going to pay for that? Insurance will not!
That stick was quite incredible, and I was afraid of that today and some follow through tomorrow, but watch out by weeks end….
mrm, there will be another time. Orchastrated to take out the shorts and day traders. You could buy tomorrow for a move to 9.50-10.
Wow, FAS over 10 again! Impressive…
Thanks Phil!
I do have more funds, but I am still trying to figure things out, so I trade in small amounts. Stock ownership would take up a lot of space in my portfolio. INTC and FXE were offsets to other bull call spreads. When I had to kill the spread, the short puts were not in trouble, so I left them on. I did not know that FXE was "bad" for me to be in. We used that to fund a bullish play before the Fed that I pulled. I guess the struggle for me, is trying to figure out how to use the plays that you post on here each day. How do I water them down for my portfolio? As far as going back to the $10k I thought that was a really risky portfolio? (or are you referring to the articles on the small, medium and large portfolios that you and OptionSage did?)
I appreciate the feedback and I will study it intently before our weekend in Vegas! http://www.youtube.com/watch?v=Ow7YCgkdN3Y&feature=related