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Tuesday, February 7, 2023


Testy Tuesday – 1,072 or Bounce!

SPY DAILYHas 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. 

EEM WEEKLYCMG 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.  

VIXEven 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.  

IWM WEEKLYOur 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!  



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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…

jmm double the size…its called the IPad šŸ˜‰

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.

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!!!

Look at that….Cramer was pumping Ford this morning and it’s up in the face of disaster.

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.

Is that a stick or a trick?

hi Phil — add more hedge at this point if I only 1/2 hedge now. thx

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.

How high would the Nasdaq be right now if AAPL was flat?

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.


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.

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).

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