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Whipsaw Wednesday – Don’t Get Excited


Baby listen without thinking you better be without demands
Now don’t get edgy and don’t start blinking and don’t start making any plans
You try to reach a vital part of me My interest level’s dropping rapidly
It’s all excuses baby all a stall We just don’t get excited
Don’t get excited No don’t get excited Don’t get excited 

Wheeeeeeee – this is fun!  

It was "1,072 or Bounce" yesterday and the S&P fell all the way to 1,074.77 at 10am before heading higher but, as you can see from David Fry’s chart, we got a second chance to jump on the bull train as we lost almost all of the day’s gains into the afternoon stick.  

In our morning Alert to Members (as noted in the morning post), we played the Russell Futures bullish off the 600 line and, as of 7:30 this morning, they are at 646 – up $4,600 per contract but that’s chicken feed compared to our trade idea from the morning post on TNA, where the Oct $28/33 bull call spread offset with the sale of the $23 puts came out to net .15 and this morning, after a $6 move (5% on the RUT) in yesterday’s action, that spread is already net $1.90 – up 1,167% in a day!

The best possible outcome on that trade is netting $4.85 profit, which is a whopping 3,233% gain on cash but, when you make over 1/3 of your projected 3-week gains in the first day – it’s a good idea to take a little profit off the table!  So, UNLESS we get a better than 1.5% gain today, we’re going to go back to Cashy and Cautious after a whole 24 hours on the bull side.  Don’t blame the player – it’s just that kind of market….

As you can see from the Big Chart – there is NOTHING to get excited about as we bounce off our EXPECTED channel bottoms.  We’re now firmly in downtrending channels on all of our indexes and we’re dangerously close to having to drop our ranges – which is a decision we take VERY seriously before acting.  If we are forced to do that, the odds of a near-term recovery drop significantly.  

So of course we’re thrilled with yesterday’s gains but it’s a move we’ve been anticipating for days and yesterday we finally got an excuse to take the markets higher.  That doesn’t mean it’s a new trend.  We still need to break over those circled levels at Dow 11,000, S&P 1,150, Nas 2,475, NYSE 7,000 and Russell 675 before we even begin to commit our sideline cash to more bullish positions.  

As it stands now, we ended up 15/10 to 20/15 bullish (out of a 100 allocation) – just sticking with the plan of cashing out our bearish bets at the bottom of the range and adding more bullish plays but, when we can add bullish plays that make 1,167% in a day – we don’t need to go too crazy, do we?  Also in the morning post, I mentioned our very aggressive VXX spread where the weekly $55 were shortable at $5 in the morning and the weekly $56 puts opened at just $1.20 – much better than we anticipated for a net $3.80 credit on the spread.  

All we are doing is following PSW Rule #1, which is: "ALWAYS sell into the initial excitement."  By selling as much premium as possible at our predicted top of the range, we give ourselves a nice buffer and those weekly calls can pull back fast.  Already the $55 calls are down to $1.20 and should expire worthless on Friday while the $56 puts are $4.05, which is net $2.85 plus the initial $3.80 credit that’s already in our pocket is a $665 per contract gain in a day.  

Another trade idea from the morning post was our usual TLT short play at $123.  We had a little scare at the open as TLT topped out at $125  but we’re back to $121.75 this morning, a nice 2.5% drop on the day (notice how those 5% rule lines come up a lot!) and thank goodness as our play on TLT was from Monday, where we sold 5 weekly $122 calls for $1.65 in our $25,000 Portfolio and used that cash to fund the purchase of 5 weekly $124/121 bear put spreads at $1.70 for net .05.  At the moment, that trade is flat so still playable this morning but if we don’t make our 1.5% gains today (and TLT should get below $120) then it’s too risky into the end of the week.  

Trading is like fishing – we cast our nets and see what we catch.  Yesterday we fished for TLT, TNA, VXX and USO and we had huge wins on 3 of 4 and that makes TLT the little one we throw back – there’s no need to stick with trades that aren’t performing as well as we like, is there?   

Europe is still completely up in the air and China has been closed all week – so who knows what they’re going to do when they come back from vacation.  Moody’s cut Italy’s rating yesterday, as did the S&P.  Greece is on strike but Dexia was, in fact "rescued" yesterday (is that good or bad?) and the "Occupy Wall Street" movement is spreading to Main Streets around the country with demonstrators planning to storm the Goldman Sachs building in Jersey City on Thursday.   

Participants range from college students worried about job prospects to middle-age workers who have been recently laid off. The protests have been loosely organized around the concept, as Eric Sundman says, that "money shouldn’t influence politics, people should influence politics."

"I’m glad that everyone is getting active, and the fact that this is not partisan," said Sundman, who graduated recently with a culinary arts degree and has been unable to find steady work. "It’s not left, it’s not right; we’re all in this together. That’s what democracy is, and that’s what we’re trying to spread."


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  1. Thanks Phil!  Great stuff as usual.
    October 4th, 2011 at 10:02 pm | PermalinkIgnore this user
    SPX/Robert – From me, you are asking the wrong question. The SPX options are essentially a bet on the exact finish of the S&P on a certain date. As I’m sure you can tell from my regular comments, I don’t care if my Dec 2012 $200 put is at $50 or $100 or (currently) $204 because I have no intention of selling it now and the same goes for the calls (now $95). The bottom line is 1,200 is around my target (not my actual target) and all I care about, if I paid $200 for the 2 positions, is whether or not I will be able to sell more than $200 worth of puts and calls against them by Dec 2012. Since I can sell the Oct $1,110 puts for $33 and the $1,180 calls for $11.50, collecting $44.50 for 3 weeks – the answer is yes on the collecting. So my next real question is – how much do I expect to be able to sell (conservatively 10 x $40 = $400) and how much profit would that be if the puts and calls expire worthless ($200) and comfortable am I selling that spread (not very as the S&P was at 1,200 last week. So, on that basis, I would have no interest in playing SPX right now as I’m not being compensated well enough for the risk I take that the S&P could go up or down 120 points in less than a month.

  2. PP

  3. What happened to the futures?  They were up and now they’re dropping.

  4. gonifs jcaesar!
    FU gonifs!

  5. DXY too.
    FU DXY!!!

  6. Don’t know what "gonifs" are but whatever they are we seem to be getting over them!

  7. Oil Lines

    R3 – 82.76
    R2 – 80.61
    R1 – 79.25
    PP – 77.10
    S1 – 75.74
    S2 – 73.59
    S3 – 72.23

    Yesterday’s high and low – 78.46 / 74.95

    Breakout Lines – 84.13 / 65.76

    Today is inventory day – 10:30 AM! 

  8. Also, I posted a new entry on my blog on market timing with 2 other methods including one that I adapted since the original was not practical. Would need validation, but works on scaling in and out based on the market:

  9. Gonif / Jabo – What is this, Yiddish word of the day? LOL 

  10. ;-)

  11. Gonifs – Found out what they are.  I’ll keep my eye out for them in the future.

  12. Very inspirational video this morning Phil.  Do you advocate revolution as our only solution?

  13. FWIW:

  14.  TZA — Phil, if we rally and fail to meet that 1.5%, I’d love to hear your recommendations for a TZA or other 3x short.

  15. Les Miserables
    "Do you advocate revolution as our only solution?"  Tom  Jefferson asked Sally Hemmings. "George Washington seems to think it is the only way out."
    "Nah, we slaves are too happy with the status quo. It will never happen. Go back to sleep. Long live the King."

  16. FAS Money Recap

    Long Strangle –Jan 12 Calls (2.71 now 2.03) and April 11 Puts (3.30 now 4.25).

    Weekly – Full Cover October 13 Puts (1.98 average now 3.20)
    Monthly –  Full Cover October 13 Puts (1.98 average now 3.20)


  17. Phil
    I also am glad people are finally protesting.  I have been thinking that what we need is to focus on one structural change for an issue this election.  I think it should be term limits.  Term limits should make other changes easier.  Your opinion?

  18. Good morning!  

    Europe still at day’s highs:  FTSE up 2.3%, DAX up 3.44%, CAC up 2.88% so happy happy joy joy in Euroland.  

    We’re just looking to see if we can hold our gains (0.5% pullback is normal retrace of 2.5% gain) and then move up to another 1.5% today (holding 1.5%, at least as 1.25% indicates momentum fading out quickly).  

    Oil inventories should be bullish and oil (/CL) is right on that $77.50 line we like to go long off (tight stops).  So far, $78 has given us trouble but that’s because the Dollar refuses to go back below 79.50 so we need to watch both of those closely today for signals.  

    If it’s a real rally, we will look for bad news to be shaken off.   News like this:  

    September Challenger Job-Cut Report: 115,730, far higher than 51,114 last week. It’s the highest level of job cuts since April 2009. John Challenger notes 80K cuts came from just the U.S. Army and Bank of America (BAC). "Neither of these cuts is directly related to recent softness in the economy." Huh?

    MBA Mortgage Applications: -4.3% vs. +9.3% last week.

    Costco (COST): FQ4 EPS of $1.08 misses by $0.02. Revenue of $27.6B (+16.8% Y/Y) misses by $180M. (PR

    Eurozone private-sector growth contracts for the first time in two years, suggesting the broader economy could recess in Q4. Markit’s Services PMI fell to 48.8 from 51.5 in Aug. – while new business dove to 46.5 from 49.8, and expectations – which measures business optimism – shrank more than three points. (Markit

    Moody’s warns more euro-zone nations could face downgrade action, a day after slashing Italy three levels to A2. "All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings."

    European August retail sales fall 0.3% from July and 1% Y/Y against forecasts for a 0.2% monthly decline and a 0.7% annual drop. (pdf)

    SocGen puts a number on China’s shadow banking system, estimating it at around $2T, with underground banking (loansharking) around $600B. "The fact that SME’s are willing to borrow money at 20-180% interest rates reflects they are either desperate for cash (or speculating), as no real business can generate that high a return." Rescues from Beijing will be forthcoming.

    If we can ignore all that and move higher – then we’re back to "ignore and soar" mode but I don’t think we’re there yet.  What we more likely have is the EU catching up to our bounce off the -10% lines and it’s not at all impressive until we’re past those -5% lines as the channels are clearly trending down and will continue to do so until we get a proper reason to rally that’s strong enough to turn the trend.  

    Wednesday’s economic calendar:
    7:00 MBA Mortgage Applications
    7:30 Challenger Job-Cut Report
    8:15 ADP Jobs Report
    10:00 ISM Non-Manufacturing Index
    10:30 EIA Petroleum Inventories

    Notable earnings after Wednesday’s close: MAR

    At the open: Dow -0.28% to 10778. S&P -0.07% to 1123. Nasdaq -0.44% to 2120.
    Treasurys: 30-year -0.19%. 10-yr -0.09%. 5-yr -0.03%.
    Commodities: Crude +2.43% to $77.5. Gold +0.46% to $1623.45.
    Currencies: Euro -0.23% vs. dollar. Yen -0.02%. Pound +0.14%.

    Market preview: Stock futures tick higher (S&P +0.3%) after higher-than-expected ADP jobs numbers kicked off a three-session onslaught of unemployment data. But earlier, Challenger Gray said planned layoffs rose to a 30-month high. Europe is mostly higher as talk of coordinated action to recapitalize its banksoutweighs Italy’s downgradeLater: ISM services. 

    September ADP Jobs Report: +91K vs. +73K expected and +89K prior (revised down from +91K)

    Brazil services PMI drops to 50.5 from 52.2 in August, the lowest print in more than 2 years. This follows Monday’s news of the 4th consecutive month of contraction in the manufacturing sector, that PMI dropping to 45.5 in September.

    "The prices assume financial Armageddon," says Bill Ackman (a sizable owner of C) of banking shares. Burned in 2009 when investors clamored for their money back, Ackman is planning to sell shares in one of his funds in 2012 in order to secure more permanent capital.

    "Farewell, you certainly won’t be missed!" So begins a full page ad taken out in several newspapers by fund manager Edouard Carmignac in honor of ECB president Trichet’s final policy meeting (tomorrow). Carmignac calls on Trichet to slash interest rates to 0 and "purchase unlimited amounts of … sovereign debt." Mr Carmignac’s holdings are not listed. 

    Antonio Borges, head of the IMF’s Europe program, says the IMF is ready to invest alongside the EFSF when it buys bonds from Italy and Spain. Borges also says European banks need fresh capital "not because they are too weak, but because this would help restore investor confidence."

    An OIG-HUD audit finds Bank of America (BAC) should face fraud charges related to the sloppy handling and servicing by its Countrywide unit on loans for federally insured mortgages. Of the loans audited, BofA batted .500 in showing "material underwriting deficiencies."

    Japan’s push to restart nuclear reactors hits a snag after Kyushu Electric’s Genkai plant automatically shuts down because of a problem with its cooling system. PM Noda and business leaders are pushing for a quick restart to avoid steep economic losses from nuclear power running at less than full capacity.

    People are catching on:  Roth’s Richard Ingrassia is adding IMAX to the firm’s Focus List. With shares down over 60% from their June peak, Ingrassia thinks IMAX’s valuation has become "unreasonably low." Moreover, in spite of a difficult 2011, he expects the company’s 2012 revenue and EPS to top 2010 levels.

    Monsanto (MON): FQ4 EPS of -$0.22 beats by $0.05. Revenue of $2.25B (+15.1% Y/Y) beats by $360M. (PR)

    More on Monsanto’s (MONFQ4 report: Sees FY12 mid-teens earnings growth to a range of $3.34-$3.44 EPS, boosted by above normal business in Latin America for Q1. The Seeds and Genomics segment is expected to kick in single-digit unit growth to derive gross profit in a range of $5.7B-$5.85B for the year. Shares+2.2% premarket. (PR

    Shares of American Airlines (AMRgain 5.4% premarket, continuing to recover from Monday’s steep selloff as negotiations with its pilots union progresses. As for AMR restructuring, insiders agree it looks to be off the table: "They don’t even speak the B-word." 

    Research In Motion (RIMM+2.2% premarket on continued M&A speculation after an article suggests Vodafone (VOD) may be interested in the company. RIM shares rode a roller coaster yesterday, spiking on takeover rumors, then tumbling during Apple’s (AAPL) iPhone event, then rebounding to end +2.4%.

    Though Apple (AAPL) fell yesterday on iPhone 4Sdisappointment, many analysts are coming to its defense. Needhamtouts the device’s Siri voice assistant software; Piper still sees plenty of pent-up demand; and Jefferies expects the low-cost 3GS to produce high margins, while reiterating its belief 

  19. The whole thing would be fixed in the US if they had campaign finance reform. No more campaign contributions. Obama was right, terrible Supreme Court decision.

  20. What are we doing with the AAPL Friday calls?

  21. Someone from this site posted this guy a few days ago…good charts

  22. It’s just tit for tat now:

    This patent war is just getting crazy! 

  23. You’re welcome Robert! 

    Futures/JC – You can’t believe anything that happens in the Futures.  As I will demonstrate on Sunday in Vegas – anyone can make the futures move if they want to – it’s completely meaningless until volume trading starts again but, sometimes, they get a good initial print that trips some Buy Programs but usually they need a BIG move (more than 0.5%) before that’s going to happen because Bot Programmers aren’t idiots and know to ignore early data.  

    Nifs/Jobob – I agree Go Nifs!  

    Revolution/Chaser – I’ve been discussing the possibility for years.  It was the theme of my 2010 Outlook and last summer I did a photo essay because I don’t know how to make a Power Point set to music.  Once the actual riots began in the Middle East and Asia I thought my point was self-evident so I kind of lost interest and moved on but yes, revolution is pretty much inevitable as there is no compromise from the top 1% who are, if anything, tightening the screws in an attempt to push back the gathering mob.  Historically, these things do not end well.  

    Easy go/Pharm – Very good point – that stick came way too easy and can be given back just as quickly.  AAPL leading the Nasdaq down at the moment and Barry had a good chart on that:  

    Barry’s conclusion:  

    So there you have it, folks.    The key metrics on the downside are now S&P500 1075 and Apple’s 200-day moving average.  All else is noise, in our book.

  24. BIDU, GOOG and AAPL….not liking today. 

    On China buying US T.  Phil pointed out last night that someone needed to.  Well, in doing more research, I think China is trying to peg to the yuan to make it appear like they are not pegging, but if the EU goes down (and many believe they are), then they need to hedge against what they have, and buying US T is the way to do that.  In addition, it puts a floor under their currency IF things start to deteriorate there, as their real estate is in its own dire straights. 


    Wow, did they rattle RIMM investors. Up 15% from yesterday’s low.

  25. GO RIMM! Back up over yesterday’s highs

  26. Phil, what do you think of RCL which is trading at a very low p/e and should benefit greatly from oil costs coming down?

  27. ANR up over 8% this a.m. at one point. Coal is king today.

  28. Jomptien
    Campaign finance reforms and term limits were my top two choices.  since we already have a campaign finance reform law  McCain/Feingold which doesn’t seem to work.  I choose term limits as a more likely start to political reforms

  29. Risk on weakens the $, nothing I see in our data should weaken the $ fundamentally.

  30.  Some of the MoMos PCLN, GOOG, CMG, DECK, NFLX all down big so far today.

  31. Phil
    I have SDS 27/30 (1.95/1.1)BCS as a downside hedge. I still like my chances getting the long side in the money by expiration( a 5% drop in the S&P puts SDS at $28), but am worried about decay. I need the hedge. Would you roll the longs to November or just stay put? Thank you.

  32. FWIW, I was informed as early as 1970 that the Revolution will definitely not be televised….

  33. Phil, have we discussed CRM as a short (a candidate for buying long puts)?  They are down a lot already but probably more room to fall…

  34. TZA/Itrade – That’s what bullish offsets are for!  The TZA Oct $52/59 bull call spread is $2 and you can put a stop on it at $1 and then just sell $1 puts on something you REALLY want to own if we head lower.  If the thing you sell is something like the VLO Nov $17 puts at $1.25, what’s the worst thing that can happen?  Let’s say you lose $1 on TZA AND VLO falls below $17.  Your net entry is still $16.75 (stock currently $18.11) and you can sell the 2013 $15 puts and calls for $9 to drop the net to $7.75/11.38.  Surely there must be some stock that you want to own for half the current price that you can make a put entry on.

    That’s the WORST case.  If VLO is put to you at net (of the put) $15.75 AND you collect a $5 profit on the spread – then you are in VLO for net $10.75.   Keep in mind that you should look at the trade this way compared to doing nothing – as nothing will give you neither VLO nor $7 on the spread!  Then there is the very, VERY wide sweet spot in between, where VLO expires your short puts worthless and you collect more than .75 back on the spread and that’s the way we can hedge – even if we don’t really think the market is likely to drop – just in case.  

    Status quo/JMM – One thing that is different these days is our fat and lazy Western society.  As they say in the song "The blood of the martyrs will water the meadows of France" and that’s supposed to be a good thing but good luck finding Americans to sign up for martyrdom.  In fact, doesn’t our MSM vilify martyrs these days?  Don’t we consider people who are willing to die for their cause "evil-doers" who can’t possibly have a reason for feeling that their lives are so desperate that they would rather kill themselves in the hopes that it will make the lot of their people a little bit better because, without taking action – they are convinced that they are condemned to living in a World of not hope.  As a student of the media, I find it fascinating how quickly a country that was founded on revolution and individual sacrifice has come to revile those acts in others.  There’s a reason Rupert Murdoch has dedicated his life to getting more and more people to watch TV – the experiment has worked so well in the US that the people behind the curtains want to make sure the rest of the World average 28 hours a week.  That’s 56 hours of sleep, 40 hours of work and 28 hours of TV leaving just 44 hours for reality…

    TV viewing times by country

    IQ rankings by country

  35. First timer here. I find the site and comments very helpful.
    Phil, how do you decide when to close a position at a profit? ex: the TLT weekly trade you put on that is in the money now mainly because of the sold call. Is it usually recommended to hold these types of leg (collecting premium) until they expire? Thank you.

  36. It’s getting out of hand now:

    You can buy software to monitor HFT! 

  37. Term limits/Willie – While it sounds good, you end up giving more power to the lobbyists because they are forever and, if all the Congresspeople are there only for a few years, many will rely on the lobbyists (or their party leaders) to tell them what to do and, of course, some will just grab whatever they can while they can as they have only so much time at the dance.  I think we should stop having so many elections as they accomplish little.  If we only elected Congressmen every 6 years (2 term limit) and Senators once every 10 years (one term limit) then perhaps people would put a little more thought into their choices.  Very few states have less than two Congressmen and all have at least 4 in the two house so that means that even the smallest states would hold an election every two years at least if they stagger the terms and that way, we could focus on the candidates and the people would steer the government over time in the right direction (hopefully).  

    That plus real finance reform would be a huge change in the process.  I think money should only be raised at the local level and once someone qualifies for the primaries – they have to return all unused funds or put them in a general pool and, from that point forward, each candidate gets an exact amount of money from the Government based on what they are running for and where (size and population would matter to determine funding) and, at each level of the campaign they advance, they get the next round of funding.  No gifts, no freebies – nothing else.  Shouldn’t the people who are best able to budget and run a campaign like that be the ones we elect anyway?  

    We got our drawdown in oil inventories and, as expected, oil is taking off – now $78.25.  Don’t forget to set reasonable stops and congrats to all the players!  This should cheer up XOM, CVX and the Dow as well.  

    EIA Petroleum Inventories: Crude -4.7M vs. consensus of +1M. Gasoline -1.1M vs. consensus of +1.1M. Distillates -0.7M vs. consensus of -0.3M. Futures spike up, +3.15% to $78.08.

  38. In the latest poll in Germany, 54% of Germans want to go back to the Deutsche Mark! 

  39. Phil/Martyrdom
    "…good luck finding Americans to sign up for martyrdom…"
    No, I became very aware of this in the 80′s. In the 1930′s many intellectuals and true believers like George Orwell and Laurie Lee volunteered to go and fight against fascism in Spain. Many died, and Orwell himself miraculously survived a bullet when serving in the trenches on the Aragon front, which went through his throat and missed everything important, though leaving him permanently with a whispery voice. This experience tranformed his writing and contributed to the ideas found in Animal Farm and Nineteen-Eighty Four.
    In the 1980′s Reagan was defending his support of the Contras in Nicaragua as "freedom fighters" but it was noticeable that there was no exodus of idealistic young right-wing intellectuals leaving their families to serve with the Contras. When I mentioned the idea at the time, people just kind of said "Huh?". (I was living in Bermuda at the time and remember having a discussion about this at a party with a woman who worked at the Consulate who was a former aide to Strom Thurmond.)

  40. Martyrs / Jmm – Go back to the Vietnam era – Bush, Cheney, etc… Liked the idea of the war, but lacked the courage to actually participate. Nothing new! 

  41. stjeanluc/martyrs
    Whereas John Kerry, who actually did serve and then later came back and told the truth about the war was vilified.

  42. Pharm Hi what is your position on the SPY Oct calendar spread thanks

  43. Finally have a stronger $ and markets holding gains..good sign but, will it last…

  44. Those villainous dollar manipulators ("gonifs" if you will) are pushing it higher. 

  45. Phil/ Spiggot   It’s looking like China will soon forget ebbing inflation and turn on the spiggot.  Euro land is finally understanding that austerity is stupid, witness Greece GNP.  Even the idiots in the Tea Party will soon start listening to their constituents telling them that 22% real unemployment and jobs are more imortant that the short term deficit.  Generally, I’m becoming more optimistic that the world is about to embrace inflation and jobs over Depression, probably led by Ben.  Japan making the same noise.  Might be dangerous to bet against 4 newly motivated Feds?  Ben we know is committed, but we still have to overcome an moronic anti-employment GOP Congress, if Europe makes the U-turn and hits the print button (which even a child economist can see is the only solution) I don’t think you want to  be caught short the market?
    terrapinzz post your e-mail and I’ll send my phone in HK

  46. Martyrs / Jmm – How about booeing a gay soldier or what they did to Max Cleland… These guys have no shame! 

  47. Phil, still holding some USO weekly calls from yesterday, what would be our upside target today (I know, I"m a greedy bastard, I got in at .51)

  48. Thought this Jon Stewart clip was great showing the incredible hypocrisy of Fox News and the moronic people at ESPN.

  49. Interesting.  Market is bucking the dollar.

  50. That dollar move doesn’t seem to have much impact on anything – market, oil! 

  51. Could just be "them" continuing the squeeze.

  52. Euro Tarp/StJ – That’s what I said they would end up doing. 

    China/StJ – When a driver who’s been going to fast steps on the brakes when the road begins to get a little bumpy – why is that a bad thing?  

    AAPL/Ron – We took out the caller yesterday and if you didn’t take advantage of the rally yesterday to get out of that side of the trade then you need to strongly consider it today as the clock is ticking and our premise (that AAPL would go up on the IPhone rollout – is very blown.  PLEASE do not expect me to call out entries and exits on every position – that is not going to happen.  We have rules (see strategy section) for entering and exiting positions and, if you have to ask the question – these weekly plays are not for you anyway as you need to make split-second decisions when the market shifts.  

    RIMM/Pharm – LOL.  Funny how a rumor cycle can work.  

    HPQ bouncing nicely too.  

    RCL/Rustle – Doesn’t matter how cheap oil gets if they can’t fill the ship.  The cruise lines are nowhere near as low as they could be – as they were in 2008 and 2009, when oil was under $50!  If we break over the downtrend – then I like them but not while we’re in it.  

    1.5% is goal on the Nas at 2,450 (2,150 in futures (/NQ)). 

    SOX up 2.5% at 350 so let’s watch that line as a bullish indicator or bearish rejection.  Tranports (Dow) up 2% at 4,300 so another good line to watch to see if we have the legs to get over 1.5% on our indexes – otherwise – BE VERY CAREFUL!  

    Dollar at 79.69 – still need to see it fall with 30 mins to EU close.  On the whole – looking good…


  53. stjean / Max Cleland – Yeah that was a classic treatment he received.  Loses three limbs in Vietnam, but he was with the terrorists (at least that’s what the GOP implied).  Bill Maher interviewed him one time and famously said "I guess three limbs wasn’t enough." 

  54. rustle / Hank Williams Jr. – I think the most amazing thing about that segment is that he knows who Netanyahu is (and can pronounce the name)!  

  55.  Phil – any suggestions on closing out an Oct SQQQ 22/25 spread? I’ve been trying to close it out since yesterday but it hasn’t filled at anything reasonable, and now ToS is showing a mark of $1.52, and IB has a bid/ask spread to close it of .50/2.55. Bite the bullet and hope it stays in the money (not a valid strategy)? 

  56. 5% Rule Note:  Since we have now had a 4% run-up without a proper pullback, that 4% line (up 1.5% today) is likely to reject us as it’s also the expected pullback line off a 5% run-up (20% of the gains).  So, now we look for a 0.8% pullback from 4% which is back to 0.7% for today (I know, harsh but that’s the price we pay for not consolidating).  Until we break below that, we’re still pretty bullish and, of course, if we get over 1.5% without pulling back at all – that’s very bullish and we can then expect a 2.5% up day today at least.  

    That makes sense as Europe is now up another 1% with the FTSE up 3.33%, DAX up 4.6% and CAC up 3.78% – all pushing their day’s highs.  

  57. rustle123
    Thanks great clip

  58. @jcaesar
    So funny, I thought the exact same thing.

  59. @rustle – Given his interest in Israeli politics, I think we should ask ol’ Hank Williams Jr. his opinion of David Ben-Gurion and other early secular Zionists.  I’m sure he’s well versed. 


    Oh wait, maybe Glenn Beck hasn’t covered that topic yet!

  60. @jcaesar
    I still want the song back.  He made a dopey reference but the guy was just trying to say they were total opposites and enemies in which they were.  What really got him in trouble is when you found out Obama was Hitler in his scenario.  Which is far from the first time I’ve heard that or seen bumper stickers actually saying that.  Amazing how little people know about history or current politics.
    I’m sure Glenn Beck has that bumper sticker.

  61. The morning beginning to look like it was just a continuation of the short squeeze that started yest. afternoon. Big boys fading the rally..AAPL breaking right through 370 and financials lagged the whole morning. Could just be Europe taking profits..we’ll know soon enough.

  62. SDS/DC – Well keep an eye on the levels but if those are October, it’s a very risky play unless we reverse.  It’s not good to buy a lot of short-term insurance because those are really bets, not hedges.  You paid net .85 and the $27s are still $1.05 so it’s not a loss if you roll them, is it?  You can INVEST $1.45 in 2 more months of protection and roll them to the Dec $28s ($2.50) and then you are in the $2 spread for net $1.45 waiting for the $30 caller to expire and, of course, your goal is to sell the Nov whatevers for at least $1.45 to put you back to .85 on the spread (at the moment, the Nov $30s are $1.45).   With SDS at $25, however, I’d be more inclined to take the $1.05 off the table and pick up the Jan $24/32 bull call spread at $1.50 and wait for the $30 caller to expire worthless (or we’re at least $6 in the money if he doesn’t).  Even if you stop the caller out at $1, you’d only be doing so if SDS moved up about $2-3 more and then you have your spread going well in the money. 

    Revolution/Gmarts – Great video.  I wish he was right but think how much more TV is in our lives now than it was then.  

    CRM/Jerconn – They could collapse but I find them very hard to bet on in either direction as they jerk up and down like a yo-yo for no particular reason.  If $110 fails to hold this time, then they could be a good momentum short but I think they bounce back to test the declining 50 dma at $135 and THEN they become an exciting short again.  

    Taking a profit/Winning – Welcome!  Take profits early and often is my best summary.  See our Strategy Section at the top of this page.  There is an article it links to on salvaging positions and, in the comments under that article, there are many, many good strategic discussions about scaling in and out of positions, setting stops etc.  After your read all that, then you can ask a question to which I will likely reply "it depends" because it always does.  It depends on the movement, it depends on the fundamentals, it depends on the VIX, it depends on the overall risk/reward of the position and what the position is trying to accomplish (long-term investment, short-term bet, insurance, hedge, offset, balance…) and THEN we can discuss what to do with a specific position.  In the case of TLT – I have a strong fundamental belief that it can’t sustain $123 so I consider that particular spread to be a "free" trade as we’re risking $25 in cash to make up to $1,500 and I don’t fear having the short stock put to us at $123 as we can roll it out and wait for sanity to return.  Ideally, we WANT to sell premium and then let it grind down but we always need to be realistic about our expectations.  

    HFTs/StJ – I love it.  It’s not like they don’t already have them at all the brokers but having mainsteam apps that do it is going to cause a little mayhem!  

    Wow, Europe plowing higher into the close – up well over 4% on DAX and CAC.  

  63. Markets not impacted by Europe close - bots appear to be offline.

  64. The Frankfurt Stock Exchange Is Being Evacuated After A Bomb Threat

    Read more:

  65. Phil,
    Is that the Jan 24 / 30 BCS you are referring to? The 24 / 32 is closer to $2.00.

  66. Is TOS down? My iPhone app can’t connect to the server again like the other day.

  67.  iTrade – Tos is working fine from my end

  68. Can anyone on TOS get the minute candles for /NG? I can get them for /NGX1 but not /NG. I can get the YTD candles though.

  69.  Phil, any bullish play on TNA?

  70. rainman/TOS /NG – for how long a period?

  71. Good morning,

    Today we are between two descending trend lines, one at  IWM 62.80ish and one at 65.60ish.

    Trading lines are IWM  62.70,  63.04,  63.67,  64.25,  64.50,  64.78,  65.07,  65.31,  65.56  and 66.33

  72.  Has anyone tried the HFT detection software mentioned by stjeanluc above??
    There is a video describing the program …..

  73. /NG it’s the paper account that can’t see the intraday data, the live account works fine.

  74. Merkel says EFSF can recapitalize banks TOO! Starting to sound like a fairy tail. XLF not playing along and it looks like all Europe did was play catchup since our market run. Closing flatish today would be a positive..

  75. edro00 / HFT - I haven’t but something tells me that anyone using it would be too slow off the dime.  I think those guys have amazing access to the markets (as in instantaneous) and computing power that most mortals can’t replicate.  I could be wrong but that’s my take.

  76. jcaesar / HFT — you are quite right if only for co-location.

  77. Morning JRW.  Thanks for the lines.

  78. jcaesar – if nothing else their internet connection is faster than the average mortal’s would be (and they could be in and out of a trade before your machine could even blink).

  79. Martyrs/JMM – It’s all in the labels.  Patriots of the 1770s become "Radicals" in the 1970s.  As Orwell said:

    The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc, but to make all other modes of thought impossible.

    She had not a thought in her head that was not a slogan, and there was no imbecility, absolutely none, that she was not capable of swallowing if the Party handed it out to her

    A nation of warriors and fanatics, marching forward in perfect unity, all thinking the same thoughts and shouting the same slogans, perpetually working, fighting, triumphing, persecuting - three hundred million people all with the same face.

    Until they become conscious they will never rebel, and until after they have rebelled they cannot become conscious

    Also good lyrics on the subject (obscure Roger Daltrey solo song):  

    Now I'm tempted by the game,
    I'm thrown into the ring
    And if I turn out like they did I must do everything
    Cause I must stop myself from turning into someone I don't know
    Sitting in some hotel room with fire down below
    I'm taking, my fight there, I see them screaming
    I'm waking, from nightmares, I can't help dreaming
    Of those
    Martyrs and madmen
    They where rebels in their day
    And the world made them sad men
    Because it wouldn't go away.

    Inflation/Tusca – I don’t see any other viable solution other than letting it all burn to the ground and starting from scratch and you’d think the people in power would at least attempt to avoid that outcome.  

    USO/Jerconn – I thought we’d cross $79.25 oil with a $79.25 Dollar and we’re on track but if the Dollar doesn’t fall below $79.50 then oil probably won’t go over $79 so watch this area carefully.  

    That goes for all bullish plays – including naked ones in the Income Portfolio or $25KP.  I’m leaving this afternoon and will be in Vegas tomorrow through Monday so I won’t have all my screens and will certainly not be able to watch everything so PLEASE – BE SENSIBLE (and not too greedy)!  

    SQQQ/Kurt – Yes, next time try to do each leg separately!  It’s very hard to get fills on spreads when the market is moving fast.  If you can’t leave naked legs on exits, these spreads are not the best choice for protection as you can’t really adjust them at will.  The $22 calls are currently $4.10/5 and the $25 calls are $2.45/2.95 so $1.65 would be the very least that should fill but you can take $4.70 off the table (last sale) and just let the short calls die with a plan to roll them to the Nov $31s (now $2.55/4.90) if you have to or you can set a stop on 1/2 at $3.50, which is net $1.75 off the $4.70 so you put $2.95 in your pocket and then you can roll the $25 callers up to 1x (from 1/2 x) the Oct $30 calls (now $1.40) and you have 20% more leeway if you need it.  Or, you can cash the $4.70 and and buy Dec $30s ($2.50/4.90) for about $4 and that puts a little in your pocket and now you don’t have a big margin issue while you wait for the callers to expire.  If those ideas seem scary to you – then you are still very bearish and should hold onto the spread, right?  

    Daily show/Rustle – Doing their best to unwash people’s brains.  

    SDS/Button – The Jan $24 calls are now $4.35 and the $32 calls are $2.45 for net  $1.90 now.  I don’t know what it was then as it’s a moving target but if you want to spend less you can just move the band up a dollar or two or narrow the range until you get to a comfortable amount.  

    TOS/Itrade – Fine for me today (NJ). 

    Minutes/Rain – I never look that closely.  

    TNA/Mampcs – No because now it’s chasing.   I like to make a call when we are at the top or the bottom of a range – not right in the middle – it’s much harder to be right when you do that you know…

    HFT/Edro – I would love to play with it but who has time?  Also, for those of you into cons – it sounds a little like "the wire" where they fool the investors into thinking they have a line on some inside information that will give them the edge and they even let you win a few small bets but, the minute you place a big bet – the thing goes totally against you and wipes you out.  

  80. SPY calendar plays are 107 Ps, 112 or 113 Calls, I have both.  1 set of 113 calls are against our 117s from a week ago.  112 Cs will have to wait a bit longer, as a pullback will crush them.  113s are pretty close to closing out.  107s are fine.

  81. Jcaesar/Kwan/HFT’s
    This is their speed (from Wikiinvest):
    In very broad terms, high-frequency trading (also known as HFT) refers to the buying and selling of stocks at extremely fast speeds with the help of powerful computers. Using complex algorithms, these computers can scan dozens of public and private marketplaces simultaneously, execute millions of orders a second, and alter strategies in a matter of milliseconds.[1] In the U.S., high-frequency trading firms represent 2.0% of the approximately 20,000 firms operating today, but account for 73.0% of all equity trading volume

  82. Senate to vote on currency bill tomara..

  83. WTF is going on with the financials???

  84. In India there is a $60 tablet now available for education purposes. It was supposed to cost only $35 and has (only) a three hour battery life, running Froyo. I can’t decide if that will gain traction or not, in particular because of the battery severely limiting any real world use. (And you know the battery won’t last even three hours.)

  85. Don’t get me wrong, I think the idea is brilliant but the implementation may have fallen a bit short…

  86. Phil / Vegas — I’m heading out tomorrow as well. Glad it’s not today with a wind alert in effect. MIght be get some thunderstorms though. I don’t care to fly when I’m not piloting the plane – and I don’t even know HOW to pilot a plane :)

  87. FU financials!

  88. Thanks JRW III for the IWM lines! 

  89.  Great article on HFT Alert STJ and Phil !

  90. DD on Jan 11 GE puts.  48c.  Were 68 or so when I got in.

  91. 113s SPY C calendars can be bought back.

  92. Looks like SA will join in the festivities..pile this on top of Europe and we’re going to need a bigger IMF fund.
    IMF ‘Severe’ Downside Risk to Latam Econs Amid Global Strains

  93. Good quote from Josh:

    In the wild, perception is reality and in the markets, if a bank isn’t a fortress then it’s barely a pillow fort in the eye of the beholder. 

  94. Flying/Rain – That’s how I got over my fear of flying many years ago, I took lessons.  Worked great, I sleep like a baby on planes now – used to have to have a few drinks before even I got on….

    Silver coming back fast ($30.32), gold not so much ($1,637).  

    12:00 PM On the hour: Dow +0.46%. 10-yr -0.28%. Euro -0.18% vs. dollar. Crude +3.87% to $78.59. Gold +0.67% to $1626.75.

    September ISM Non-Manufacturing Index: 53 vs. 52.8 expected and 53.3 prior (>50 denotes expansion). Prices index declined to 61.9 from 64.2. Employment fell to 48.7 from 51.6. New orders rose to 56.5 from 52.8. Business activity rose to 57.1 from 55.6.

    Rumors of the setup of bad banks and €TARPs collide with deeply oversold conditions to send European shares screaming higher all the way into the close. Stoxx 50 +4.2%, Germany +4.9%, France +4.4%, Italy +3.8%, Spain +3%, U.K. +3.3%. The euro buys $1.33, falling a bit after a big bounce yesterday afternoon.

    The IMF’s Antonio Borges retracts his statement from just a few hours ago when he said the Fund was ready to buy Spanish and Italian bonds along with the EFSF. "The fund can only lend resources to countries, and cannot use these resources to intervene in bond markets directly." 

    More on Borges: His earlier comments turned a moderate European rally into a face-ripper and sent the euro higher by 100 pips. The retraction looks to have taken some air out of the U.S. rally and knocked the euro down a notch. In reality, the original statement and the retraction mean little when the rules are made up as the game is being played.

    The details of the U.K. services PMI beat (52.9 vs 50.8) arenot quite as positive as the headline. New orders rose, but respondents noted they were just replacing larger orders that had recently been cancelled. "Business confidence … is running at a level only ever seen before in periods of crisis," says Markit’s chief economist.

    Canadian small business confidence regains its footing in September after a sharp fall in August, the CFIB indicator rising to 62.7 from 61.7. The biggest concerns are energy and regulatory costs, with the level of the loonie barely registering.

    Knocking down the rally:  Kyle Bass tells CNBC the collapse in Europe is coming, with the only question being whether Germany goes "all-in" and delays it for awhile. Bass unveils the latest edge-maker for hedge funds, saying polling he has commissioned tells him the Germans are not about to do that. 

    And: Ned Davis pulls some interesting stats on bear markets: The average bear since 1900 has lasted 410 days and seen a decline in the major averages of 31.5%. So far, the 2011 version has lasted 158 days and the decline just under 20%. To reach the average, the DJIA would have to fall to 8.775.

    Wow, this is almost rational:  Large banks need to enhance their compensation arrangements to directly link employees’ pay to risk-taking, according to a report from the Fed (.pdf). The conclusion – which dovetails nicely with a OIG report faulting BofA (BAC -3.6%) for rampant deficiencies in its old mortgage policies – urges banks to stop paying bonuses based on achieving a desired level of market share at the expense of decisions that "undermine the desired incentive effects of risk adjustments." 

    Real estate firms are routed, reflecting concerns that Europe’s mounting debt crisis could filter down to hurt U.S. credit markets. "The direct impact is minimal, but indirectly, what we’re worried about is the impact on the U.S. banks and how that impacts the availability and cost of capital for real-estate borrowers," Green Street Advisers says. AVB -4.4%EQR -5.1%KIM -4.2%.

    U.S. Q3 office rents climb to $22.39/sq. ft,  the highest level since late 2009, according to REIS. The vacancy rate fell to 17.4% from 17.6% one year ago. Leading the way is the tech-heavy town of San Francisco, with rents up 7.8% Y/Y. NYC is next, higher by 4.9%

    Networking stocks are outperforming strongly today, as investors brush off Acme Packet’s (APKT -11.9%Q3 warning, and instead focus on beaten-down valuations. CSCO +4.2%JNPR+8.5%RVBD +5.1%BCSI +6.2%CIEN +3.3%BRCD +3.5%.

    It’s a bit of a strong bounce for coal stocks after an extended meltdown in shares (IIIIII) now looks overdone to investors – for today at least. While spot coal prices have remained stable, it’songoing concern over the global economy and demand that has hit coal companies in the gut over the last month. Gainers: ACI +8.4%,PCX +9.9%ANR +9.8%JRCC +14%

    RIMM shares keep surging on the latest takeover rumor, now +14%, even though one analyst is already calling any such a deal a pipe dream. Bernstein’s Pierre Ferragu says any takeover is “unlikely,” given the lack of potential buyers with enough cash. With handset gross margin “collapsing” and sales unit growth coming at the expense of average selling price, the go-it-alone outlook also isn’t bright.

    Google (GOOG -0.5%) Earth records its one billionth download – according to a Google blog post - a staggering number anyway you slice it. Next question: Can GOOG monetize its largely revenue-untapped eye in the sky?

    Verizon (VZ) and Microsoft (MSFT) make it official, inking a deal to bring live TV to the Xbox 360 without the need for additional hardware. Only a selection of channels will be available, but Kinect users will be able to 86 their remotes and change channels with a wave of the finger. (previous)

     Three lunchtime reads:
    1) With high-speed trading, the market cannot hold
    2) Looking for more fertilizer exposure without betting the farm
    3) Collateral damage in the muni market

  95. You wonder why he wants to be president: 

    Calculating the Romneys’ exact tax burden is not possible from the public records because of a number of factors, like the amount of money that Romney deducted from his taxes and the length of time that he owned investments, are unknown. But ballpark estimates are possible. Assuming that Romney declared roughly the same number of deductions as others in his income level and that his dividend and capital gains income qualified for the 15% bracket, Romney would have paid roughly 14% of his gross income in taxes to the federal government in 2010 according to Bob McIntyre, who crafts tax policy at the left-leaning Citizens for Tax Justice.

    He doesn’t want to get hit by the Buffett rule! He is already paying his fair share! And he is a job creator!

  96. JRW – thank you for the lines. I am still only observing, but paying closer attention recently.  With your ”descending trend lines" are you in and out with both TZA and TNA today, or do you just stay to one side (like TZA) if the trend is down…? 

  97. Phil- was curious your thoughts on SQNS?

  98. Very good piece by Krugman on independent currencies, Italian vs. UK borrowing costs and their economies more generally since the beginning of the Great Recession:



    You could of course extrapolate Italy to other European economies in trouble.

  99. scottmi,

    I was in TNA from 10:00 to 11:00 (off the trend lines) and then in TZA until 12:45 (when IWM 64.50 held); now I’m in TNA from the 64.78 line, looking for 65.38 (the trend line) or better !!

  100. 79.20 was our goal on oil (now you are being greedy) but the Dollar still hasn’t failed $79.50 so we could pop $80 if the Dollar decides to take a dive. 

    SQNS/Jrom – I don’t think much about a small French telco.  I stay away from these as they could be good, they could be bad but who can tell with the sparse information available?  What’s so special about them? 

    Good note from Barry:  

    I find the relentless double dip drumbeat to be wrong, only in that the next recession is far enough away from the prior one as to be considered its own, stand alone contraction.

    click for larger graphic

    Source: Jim Stack, Investech Research via Welling @ Weeden

    Also worth reading:

     Recession, Restructuring, and the Ring Fence (Hussman Funds)

    2012 elections portend even greater turmoil and instability (

    Money and politics: Ask what your country can do for you (The Economist)

    Why the US (like China) Must Commercialize Energy Technologies (NYT)

    A Waste Of Energy? (New Yorker)

    Todd Harrison: Profitable Opinion Is Rarely Popular (MarketWatch)

    The Case for Using Predator Drone Strikes Against Wall Street Executives (Rude Pundit)

    On Wall Street, a Protest Matures (Deal Book)

    Top athletes and singers have coaches. Should you? (New Yorker)

    Apple’s Next iPhone Poised to Usher In ‘Star Trek’-Style Voice Recognition   (Bloomberg)

  101.  Down goes 79.50, down goes 79.50!!!  

  102. Phil/Orwell
    Yes, Orwell was appointed to a nice well-paid job doing propaganda for the BBC during World War II. As you passage shows, he didn’t like it much, and soon quit for the joys of freelancing again, plus working on his books. By this time he probably knew that he was dying of TB and didn’t have a lot of time left.
    Interesting to hear the other day Michelle Bachman accusing Perry of forcing young girls to have injections--an obviously emotional kind of imagery designed to invoke shock and horror, when the reality is that no child in the US or any other developed country is allowed to go to school without certain innoculations and tests in regard to infectious diseases. If Orwell had been born 10 years later, he probably would not have died of TB in 1950. The first trial of streptomycin for pulmonary TB was carried out in 1946-47 and it was found to be effective. Orwell had some supplies imported from the US for him by a wealthy admirer, but it was too little too late  and he had severe and painful allergic reactions to it anyway.
    As you say, it is all in the labels.

  103. Can we just finally put to rest the myth that regulation cause unemployment:

    Once again, the fact get in the way of a good narrative and we would not want that!

    In my opinion, regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out. In other words, it is a simple case of political opportunism, not a serious effort to deal with high unemployment. 

  104. Let’s go back to the 18th century, shall we: 

    KING: As I roll this thing back and I think of American history, there was a time in American history when you had to be a male property owner in order to vote. The reason for that was, because they wanted the people who voted — that set the public policy, that decided on the taxes and the spending — to have some skin in the game.

  105. Classic fight clip! 

  106. stjean / regulation myth – You can hope they’ll change their mind with your evidence, but it ain’t gonna happen.  Their belief is detached from empirical evidence, and was never meant to conform to the "facts" or "reality."  It is ideology pure and simple.  The flat-earthers in this country are in the drivers seat unfortunately.

  107. JR,
    How are you positioned?

  108. Some temporary decoupling of the dollar from equity moves it seems. 

  109. Phil / Flying — Ever see "Flying Cheap"?

  110. Look at the vol on APKT.  Unreal.  1/5 the float has traded today.

  111. Where’s the obligatory "Wheeeee!!!"

  112. Phil, 
    SQQQ, I pulled the 60 long 25′s yesterday as per our discussion but was immediately hit with a margin call as was left with the naked 100 (31′s and 34′s). So I had to repurchase them (at least I got them back for .70 less (sold at 5.20 bought at 4.50) but they are now at around 2.75). What do you suggest to cash out whats left of the the longs? Or do you think its premature now as that is my only protection for the portfolio? 

  113. And a wheee back up.  Seems like the rumors are working double time today.  All financials based.

  114. Flat Earthers/JC – But haven’t they always been in charge?  We had a brief period in this country where progressives were empowered but now we’re back to collectively dragging our knuckles.  That’s why human civilization moves in fits and starts – it takes a certain kind of dynamic leadership at the top who are not threatened by change and have a vision of the Future to make progress IN SPITE OF the generally conservative majority.   What we are suffering now is an active Conservative movement since Kennedy that has worked very hard to make sure people like that don’t come to power or, if they do – they are torn down as quickly as possible to protect the status quo.  

    Flying cheap/Rain – No thank you!  Blissful ignorance is my travel strategy…

    Meanwhile, Dollar bouncy off 79.30, now 79.40 and bad if they get back up (but look how many time Frazier got up before he stayed down).  I won’t be here at the close but it’s critical we hold 1.5% gains on the majors otherwise it would be prudent to hedge a bit more, back to neutral, until we see which way things break on jobs tomorrow and NFP on Friday.

    SDS play above is good and, under 650 on the RUT, the TZA $50/57 bull call spread is $2 and the $66 calls can be sold for $2.10 for a net .10 credit on the $7 spread.  Obviously, you are $7 in the money long before the caller gets his $2 back but a stop on 1/2 at $3 keeps your net cost down to .80 on the $7 spread and, in theory, that would take a $5 move up in TZA to $54.50, less whatever decay kicks in over time.  $66 is over 30% up on TZA so a 10% drop in the RUT to about 585 is what we’re betting WON’T happen but a drop in the RUT back to 620 (yesterday’s pre-spike high) or lower should give a full payoff. 

    2:00 PM On the hour: Dow +0.78%. 10-yr -0.36%. Euro +0.12% vs. dollar. Crude +4.79% to $79.3. Gold +1.6% to $1641.85

    Who recapitalizes the recapitalizers? Stabilizing European banks in the face of haircuts on sovereign debt through a facility like the EFSF risks a spiral that will make the bailouts more difficult to fund, Capital Economics’ John Higgins writes. Once Greece gets a bigger haircut, other borrowers will want one, too – "with the result that its own cost of borrowing could keep on rising."

    The world faces a "bigger problem" now than in 2008 because the U.S. and other countries have larger sovereign debt loads, Nassim Taleb says. Growth fueled by government debt isn’t really growth, he adds, criticizing Pres. Obama for “loading the U.S. with debt that our children will have to pay… It is a mistake to transform private problems into public debt." 

    Filed under inflation isn’t dead everywhere: Savers who gripe about near-0% interest rates should remember that real interest rates (accounting for CPI) in the U.S. aren’t nearly as bad as some parts of the world. Case in point: The Central Bank of Kenya upped its benchmark rate from 7% to 11% (.pdf), while the Bank of Uganda hiked rates to 20% from 16% (.pdf)  – both due to a runaway inflation.

    Bank of America (BAC -2.3%) has by far the most exposureto bad mortgages sold during the housing boom, Bernstein writes: $1.1T to private investors and another $1.1T to GSEs, it calculates. On the flip side, investors may be overestimating Citigroup’s (C -1.1%) mortgage exposure, which makes the shares look more attractive, Bernstein argues.

    Bank of New York (BK -4.1%) sells off after both New York’s AG and the Justice Department sue the company for allegedly defrauding clients in forex transactions. The former suit is seekingnearly $2B in damages, and leverages a New York state law that doesn’t require prosecutors to prove an intent to defraud. 

    Media shares are higher today, boosted by valuation upgrades of CBS (CBS +3.5%) and Walt Disney (DIS +2.8%) by Citigroup (III), and Roth’s adding of Imax (IMAX +8%) to its focus list: AOL (AOL +5%), Time Warner (TWX +0.6%).

    As the S&P 500 sinks to its lowest multiple since March 2009, Birinyi’s Jeff Rubin likes eight undervalued stocks with dividends higher than their P/E ratios: LINCUSMOPSECAINV,RRDUNTDDLXPBI.

    Several energy stocks rank among the day’s top gainers, as crude oil prices spike following weekly inventory data showing a draw of 4.7M barrels vs. consensus expectations for a build of 1.1M. Among S&P leaders: TSO +9.6%ANR +9%MPC +8.4%VLO+7%MRO +6%. Missing the rally: Lufkin Industries (LUFK -12%), after cutting its Q3 outlook.

    Solar stocks rally hard for the second straight day. In addition to short-covering, shares could be getting a lift from an IHS report predicting German solar demand will rebound in October and November, ahead of a January subsidy cut. STP +15.1%YGE+12.5%JASO +8.2%LDK +6.1%FSLR +5.5%TSL +6.6%. (yesterday)

    GE has high hopes for a cutting-edge offshore wind turbine it says will produce 15MW of power – well above the 5-8MW to be offered by rival solutions, never mind the 1.79MW estimated to be the average for installed U.S. turbines. Wind turbines have become ahuge business for GE, which has a dominant position in the onshore U.S. turbine market.

    Notice how relentless downgrades by the Banksters have now given way to relentless upgrades?  If they couldn’t get the move they wanted off the Fed, they just manufacture a rally anyway.   

  115. Notice the decent volume yet we cant hold any gains so far. Dollar longs got scalped, EUR, AUD (commodity based currencies) etc shorts got clobbered.

    The opportunity has been seized shorts got their ass handed to them.

  116. stick or no stick??

  117. CSCO/MSFT – what just happened to these? both dove in last few minutes…

  118. MSFT – oh, rumors on yahoo bid.

  119. "We can’t solve problems by using the same kind of thinking we used when we created them." — Albert Einstein
    Whoa, that’s radical … ;-)

  120. Phil / Flat Earthers – No, we haven’t always been this way, nor should you conflate the US with other civilizations (at least Western ones). 

    A couple of books:

    Anti-Intellectualism in American Life, by Richard Hofstadter.  It won the Pullitzer Prize for History in 1963.  I recommend the first two chapters.  Very, very good.  The non-historian would probably get bored with the rest.

    Idiot America: How Stupidity Became a Virtue in the Land of the Free, by Charles Pierce.  This book is a bit scattershot, but is especially good at explaining how nutjobs (like Glenn Beck) were treated in the 19th century, versus how they’re treated today.

    Also, our enlightened political leadership can shout, dance around and be as dynamic as much as they want, but as long as right-wing media and money is pushing an agenda, they can sew confusion and get the results they’re looking for among the population and ultimately at the voting booth. 

  121. Pharmboy,
    I have short SPY 114 weekly calls against long SPY 117 Oct monthly calls.  The 114 weekly shorts were rolled down from 117 weeklys.  My cost basis is about $1.1 after taking account of the rolls.
    What do you suggest?

  122. They stuck it yesterday… would be just like them to mix it up and go two days in a row.

  123. Pharmboy,
    As far as SPY calendar on the put side?  What do you recommend if I’d like to open some new positions?

  124. exec / stuck — be careful of the Observer Effect :)

  125.  Good one Phil/ Jcaesar! 
    You forgot to mention the 1987 season one debut of The Simsons as one of the most powerful catalyst to the flat-earthers movement! Ha!

  126. it’s a stick!

  127. Going for 666!

  128. SQQQ/Amatta – Did you HAVE to fill the margin call right away?  That’s a ton of money to throw out the window and there’s no magic way to ave it now.  If you are hitting margin issues you have WAY too much money invested in this crazy, choppy market so I don’t even know what to say to you when your entire portfolio is overinvested in one of the most dangerous markets in history.  As you can see, allowing yourself to be forced to buy positions that are clearly dead wrong for the market direction is a very expensive problem, you at least could have bought back cheaper calls with less delta or even turned it into a bear call spread – anything but what you did.  If that’s your only protection on an overinvested portfolio with no room to adjust then you’re kind of trapped but you really need to consider cutting down to a more managable level of positions because – if you can’t make proper adjustments when necessary, you are just an accident waiting to happen.  

    CSCO/Scott – Maybe this:  

    Eric Savitz thinks Microsoft’s (MSFT +1.4%) deal to bring live TV to the Xbox 360 will inflict the cable set-top box business with a "terminal disease." Consumers will warm to the idea that they can reduce the stack of boxes sitting near their TVs, he says, setting the stage for the eventual elimination of Motorola (GOOG +0.4%) and Cisco (CSCO +4.9%) cable boxes. 

    And MSFT wasting more money to try to look relevant:  Yahoo (YHOO +8.8%) surges on a rumor Microsoft (MSFT) is considering a bid for the company.  (more)

    Radical/Scott – One of my favorite quotes. 

    Other civilizations/JC – I think Galileo may disagree with you as well as Columbus, or the scholars who were buried during the Qin Dynasty.  Even Michaelangelo ran afoul of the Church on occasion but yes, America has taken it to an art form.  This is the actual symbol for Comstock’s 1873 movement to destroy any art or literature deemed "lewd" – Congress, of course, passed it into law:

    Nice stick coming into the close!  

    OK – I’m off to Vegas – looking forward to seeing you guys on Saturday.  



    3:00 PM On the hour: Dow +0.78%. 10-yr +0.08%. Euro +0.23% vs. dollar. Crude +5.09% to $79.52. Gold +1.21% to $1635.50.

    Angela Merkel says she can get behind a plan to recapitalize the EU banking sector. "We’re under pressure of time and I think we need to take a decision quickly," she says. Her government is considering the controversial move of reactivating the Soffin bank-rescue fund, used in the 2008 bailouts.

    EU officials request banking regulators to update this summer’s stress tests - this time assuming a large writedown of Greek debt. Sources say the EBA is being instructed to provide a country-by-country breakdown of how much new capital would be necessary when the haircut comes.

  129. Cwan – waiting until tomorrow.  The 114 call side is fine for now, as we have 2 days and they have a ton of premium.  I am still in the 113s!  I am expecting a pull back tomorrow or Friday.  The short squeeze is on, so just have to be patient.  Hard, and my heart is pounding….but I believe my convictions….I just have to stay with it.

  130. Just closed the weekly TLT 124/121 bear put spread, offset by the 124 call.  Net entry was $0.15 debit and net gain on close was $3.00 – not worth risking the $3 to make the potential $4.30 by Friday.
    Thanks Phil!!

  131. Remember, drive the VIX down, buy puts, sell like crazy.  Rinse, wash and repeat.

  132. Very curious Euro, equity action. Markets say risk on in a big way but, the Euro not so much. Just pointing out the obvious.

  133. VIX holding 5d MA.

  134. AUD action more correlated to the markets than the Euro

  135. You got helluva big chart there Pharm

  136. Phil / Pharm-  Looks like SPX will hold 1141 (R1 in Pharm’s pivot table) by close today.  How does that affect the top end of our range? 
    If I understand it correctly, the range on SPX had been ~1120 to ~1200 since the August lows but got knocked down on Monday.  In your opinion what is the current trading range?  Thanks in advance.

  137. Pharm,
    Have you seen this today

    In last nights report u said if big up today then tomorrow all will be erased…..still true ?

    I don’t know. I just told you the statistics. The interesting thing I found is: whenever I believed those statistics, they didn’t work at all

  138. Safe trip Phil

  139. Pharm/Vic – who is cobra?

  140. Cobra is a trader with very good analisys of the markets

  141. Wow….those Oct $110 puts Pharm recommended are already up 5+%.  I had an order in for $1.82 (ask was $1.83 around closing) and now the bid is $1.93.  Needless to say order never got filled.

  142. vic – thanks.

  143. Let’s try that again….

    From Cobra: SPX up 1%+ but TICK closed below zero, as I’ve mentioned in 09/26 Market Outlook, tomorrow, the day after tomorrow, the day after the day after tomorrow and two weeks later WERE not pleasant. Let’s play a different test today: short at today’s close, hold (turn the computer off, or shall I see, turn your ipad off?) until the very first SPX red day, the winning rate WAS 100%, average holding period 1.3 trading days and 2.35% gains, not bad ha. In another word, if up huge again tomorrow, then chances are it would be completely erased the day after tomorrow. By the way, I’ve collected all the past similar cases from chart 8.3.8a SPX Up 1% while TICK Closed Red – 2004 to 8.3.8c SPX Up 1% while TICK Closed Red – 2010, take a look if interested, as more often than not you’d miss lots of valuable info if you merely read the numbers instead of looking at the chart directly.

  144.  Very interesting chart and strategy Pharm!  

  145. SellP – I think they can take us to the 115 tomorrow, or maybe 116 on the SPY.  That is the 20d MA. There is lots’o'resistance at 1150 SPX, so I can see 115 SPY.  But, I still think they are setting up for a big fall, and I did a lot of uncovering today.  I am down quite a bit on my puts, but they are in Dec.  One blink of an eye and the EU goes boom.  Misses are coming into the mix on the earnings (AKPT, COST), and the steroids are removed.  I just don’t see it holding. 


    I think Wall Street refers to the next shoe as ‘this is going to be a real shit-show‘, so I tread lightly and will hold my puts naked now until the low the other day is taken out.  The EU has promised nothing, and WS is grasping at straws.  I don’t think anyone wants to hold the shortest.

  146. Rookie question – "SPX up 1%+ but TICK closed below zero".
    What does TICK below zero mean and how can I see it?

  147. Apparently a lot of Bullish call activity in TBT today:
    $TBT traded 211,816 calls today, 4X average and most in at least 2 years.

  148. nicha – TICK is in TOS and is a rate of change on the price of a security (spread). 

  149. Talk about whipsaw…

    Just a bunch of wheeeeeeee days! 

  150. Phil, 
    Re SQQQ, well yes that is what HAS happened already… I left on my extended overseas trip with a 500K account on Sept 14th and bought the SQQQ hedge (80 26/31 for net $1.45 to protect a 7% move down and not have to worry, however due to precisely what you mention, the choppy nature of the market, these option hedges on illiquid ultras are obviously the worst possible hedge as both the decay on the underlying and the huge spreads make the spreads unworkable and so I have been having a terrible vacation and looking at the portfolio every day at whichever moment I can…
    The market fell more than 9% yet because it had swung wildly for a week and a half, the hedge was, at it’s best  worth only perhaps .25 more than what I paid for it, while my porftolio had lost $90,000 (It had been moving $8K on 1% moves but I was hammered on a couple of positions such as SPWRA and that caused an extra $18K loss)!!!… so then I HAD to start looking for ways to adjust the hedge to make sure I wasn’t going to end up losing there too. These hedges look great on paper but I have yet to have made money on them, UNLESS you take additional risks like leaving uncovered the shorts risking potential catastrophe were the market crash, and even it it "only" gaps down a few hundred points as its the norm these last 2 months, you’d be looking at massive losses.
    In any case what would you it you suggest doing with it now?  what bear call spread do you suggest if appropriate (as like you say tomorrow we can gap down 300 points no problem AND then I would be even more bullish than I am now… 
    Now my net cost is $1.80 for the 60 calls and I have the 20 short 31 calls and 80 short 34′s… 

  151. Pharm,
    Follow up ques to SPX chart:
    1.What is 8.3.8a/cSPX?
    2. Is Cobra a source for trading pattern insights (such as SPX up 1% and neg TICK portends selloff) and if so how does one contact them or are they primarily a charting svc?
    Thanks in advance

  152. nicha – Go to; click on "Free Charts" at top of page; in the box that says "Create a SharpChart:" type: $TICK; below the chart (under "Chart Attributes"), change "TYPE" to: HLC Bars or a line chart or any other chart type you want.

  153. Phil 
    BTW when you say "deadly wrong for the market direction" I am also not sure I follow as there is really no direction to speak of but down so far with intermittent runups to lower highs (which is what kills these damned "disaster hedges"… In fact your Post title says it clearly!… 

  154. 8800 – 8.3.8a/c are the title names of Cobra’s charts, so you can ignore the name.

  155. FAS reverse stock split 1 for 5 on Nov. 9th  

  156. Amatta – I feel for you, I have also not had much luck with the hedges. The only way they work out for me is to hold them till expiration, but then they are subject to crazy gyrations, and I can’t count on them to pay out. SQQQ is the worst, I had a 3 pt spread that was fully in the money by 2 pts, but if we keep rallying it might not be in 16 days. I ended up closing it out for about 1.70 because I legged out and had to chase the higher call. That was about $.50 profit when I was counting on 1.75. I don’t recall the offset, but with these wild swings it got stopped out for a loss a while back. Is anyone else having better luck with these? What are you doing differently?

  157. nicha/TICK
    This may be of interest:

  158. News Flash--Champagne sector stocks spiked in after hours trading after Sarah Palin announced that she will not be running for President in 2012. 

  159. ETF Sponsor Direxion Shares Announces Reverse Share Split Of Six ETFs 
    Direxion Daily Real Estate Bear 3x Shares (DRV)
    Direxion Daily Emerging Markets Bull 3x Shares (EDC)
    Direxion Daily Financial Bull 3x Shares (FAS)
    Direxion Daily Latin America Bull 3x Shares (LBJ)
    Direxion Daily Russia Bull 3x Shares (RUSL)
    Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV)
    IMHO: It may be best to close options in these ETF’s prior to the split. After the split they will still be tradable through your broker, but new (post split) options will also be listed and those options then become the most favorably traded. The old pre-split options become somewhat orphaned and very lightly traded or become "closing" trades only. The CUSIP is also changed AFTER the split which ALWAYS becomes fun at tax time! :-)

  160. Amatta,
    what is the expiry month of your hedge?

  161.  Diamond – Reverse ETF splits – I had a very bad experience with just that. I had a good profit and could not close out the position. I suggest anyone who has such an occurancy immediately convert to the new or risk loss on closing position.

  162. Pharm, jmm, diamond/TICK – thank you.

  163. ETF / Stockbern-Diamond-Txchili – That was something I mentioned to Phil with FAS. At these levels I would think that they would reset it. We’ll need to adjust our FAS Money position pronto because these "old" options will be untradable very quickly!

  164. RIP and Godspeed Steve Jobs!

  165. AP just tweeted that Apple announced that Steve Jobs has died – if this is true, a sad day! 

  166. BBC has the story on breaking news ticker. Sad day indeed.

  167. Interesting site about HFT and Algo’s gone wild

  168. Phil, I like Todd Harrison’s commentary, seems a lot like you. He keeps talking about these mysterious Hedge Fund blow ups and how they might affect the market. I would appreciate your thoughts.

  169. You CHANGED the world and will be greatly missed … RIP Steve Jobs!
    On a very personal note, he definitely changed my life …

  170. Detailed, but not always flattering, obituary here.

  171. Steve Jobs
    A visionary….and what a gift of a brain as far as creativity goes!
    His soul, though has to move on…

  172.  RIP Steve Jobs….Heaven just got a little more sleek, well-designed and profitable.

  173. I have a feeling Jobs envisioned the ipad decades ago when the technology just wasn’t there. I’m glad he lived long enough to see that the world pretty much agreed it was a great idea and that personal computing was indeed ready for it’s next fork in the road. 
    Farewell, Steve. We’ll miss you!

  174. There are two people I will always wonder what amazing things would’ve been created if they lived longer and what influence they would have as the times changed.  john Lennon and now Steve Jobs.

  175. I saw some TV special on Apple where John Scully (while still with Pepsi) talked about being recruited by Steve in the 80′s. Scully said  something to this effect: 
        "Steve was seated in front of me, pausing with his face in his hands. Then he simply looked up and said  "So do you       want to sell sugar water for the rest of your life, or do you want to change the world…"
    I love that line. Even if taken out of context, I think it captures a lot of what I like to think Steve was about. 
    He was brash, to the point, defiantly self-confident, and a visionary, be it right or wrong. 
    It just so happens that since the late 90′s, he almost always got it incredibly right. 

  176. Pharm,
    Thanks for the insight

    October 5th, 2011 at 6:01 pm | PermalinkIgnore this user
    8800 – 8.3.8a/c are the title names of Cobra’s charts, so you can ignore the name.

  177. Game on for Poker.  We can play this way, that way and upside down if we want.  Many thanks to lvmoda and his buddy for setting this up.

  178. For poker, no limit, $5, $100, whatever we want.  Also, for those who would like to partake in an adult beverage b’f dinner, let me know.  I think BDC and several are staying at the Vdara, so that is where we (I) will be.  Will post more on Friday on our Vegas board.

  179. Rest In Peace Steve Jobs. Inspirational visionary genius who lit a fire under the asses of the mundane masses!

  180. Well that totally sucks about Steve Jobs – he was our Willie Wonka of gadgets. Hard to imagine who will fill his shoes – not at Apple, but as the driving force in consumer innovation. Imagine if from now on we have to wait for Steve Ballmer’s next idea… Now I bet you’re crying!

    Looks like they’re trading AAPL down about 3% in Europe pre-market.

    11:15 here so I guess 2:15 – Hopefully I adjust quickly. I used to be able to flip time zones like a champ but I’m old now…

    Europe must be fixed because gold is falling again. Asia is up nicely and our futures are up half a point. My goal is to get a little sleep and catch up later.

  181. Its strange but, I feel differently towards Apple …. lost a bit of enthusiasm.

    Phil, just remember the hot blond at the end of the bar checkin you out is most likely a hooker, Have fun. :-)

  182. Canuk, 
    Sorry I am not on the site continusly as I am traveling… If you still see this they are Octobers…

  183. Phil, Infl, Pharm, etc/AAPL,
    I sold Oct 345 puts and Nov 350 puts and am up around 40% on each, looking for the last 2 week premium crush in Oct. What would you do with these now – roll to lower, keep, or bail? Thanks

  184. Good morning!
    I’m just getting up (4am) but feel pretty well adjusted – I’ve still got it.
    That’s a good thing because I have a series of meetings later.
    AAPL still the story of the morning but stock down very little – Jobs’ death priced in as we expected.  This reaffirms my view that AAPL is  a $500 stock that has a 30% discount because Steve Jobs was dying.  I don’t think there will be a sudden "relief rally" but I do think we’ll see AAPL gather steam now although you still have to be careful on earnings as they get so much from overseas that revenues may suffer on a strong Dollar (but because they are bastard outsourcers, costs may come down as well).
    I don’t have time for chat so please re-ask anything under the new post but I do have to address Amatta’s comment.
    Amatta – I have told you many times before that you should not be trading.  You do the same thing over and over again and it’s both sad and frustrating for me.  I  had suggested the "DXD Oct $18/21 bull call spread at $1.35" on the 9th, when you asked about vacation hedging:

    Chasing Amatta – You have got to learn to hedge WHEN YOU ARE WINNING – not when you begin to lose.  It’s like life insurance – it’s a lot cheaper when you are healthy.  I guess I would take it $8,000 at a time.  You don’t want to lose $8,000 on a drop to 10,900 so how about something like the DXD Oct $18/21 bull call spread at $1.35?  That gains $1.65 (122%) at $21 and DXD is now $20.51 so the Dow has to go UP 5% (500 points) for DXD to drop 10% and cost you that money.  Since you make $40,000 on a 500 point rise in the Dow, you can take 1/3 of that money ($13,500) and buy the DXD spread, which would give you back $30,000 if the Dow falls even a little (and stays there, of course).  That would mitigate $16,500 of your potential $40,000 loss if the Dow falls 5% and, presumably, by the time the Dow crosses 10,700 (2.5% down from here) you would spend more money layering in protection.  That’s a good way to put the brakes on a loss.  You risk missing 1/3 of a recovery for the first 5% (if you let it expire worthless) but you can bottom fish with an offsetting short put along the way as well.  

    Then you said you were going away for 3 weeks and wanted to cover a drop of $8,000 per 1%, to which I responded:

    3 weeks/Amatta – You can’t have it both ways.  Either you are going to go away neutral or not.  There’s no magic formula that will make you money if the markets go down but not lose any if they go up.  You have to be willing to take a stand like let’s say you have $50K of IBM and $50K of AAPL and $50K of CSCO and INTC and $50K of misc consumer companies.  That’s $200K and hopefully they are buy/writes and have some hedging and figure in 3 weeks the markets can drop 20% so you have $40K at risk at most (hopefully).  
    So you need to cover $20K of a loss and you just pick a normal offset like the Nas if you are tech heavy and the SQQQ Oct $26/31 bull call spread is $1.35 and 40 of those pays $20,000 so you can just risk the $5,400 on the cover or pick whichever one of those positions you REALLY want to add to if they get 20% cheaper and sell $5,400 worth of puts on that.  IBM Jan $115 puts are 28% down from here at $2 so selling 25 of those raises $5,000.  
    The logic is very simple, if the market falls 20%, you collect $20,000 and we assume IBM won’t fall faster than the market.  At 30% down, IBM would be at $112 and you’d owe $7,500 on the puts (you could put a stop on half at $4) but you’d have the $20K from the spread (MOST likely) so still $12,500 offset.  Only when IBM drops below $107 does the overall trade turn negative but if you think IBM is going to $107 while you are away then you are insane for not cashing out now anyway.  
    It doesn’t have to be IBM and it doesn’t have to be one stock, the idea is that IF the market falls 20%, THEN you make your $20K and the whole point of making protection money is to DCA into your existing long positions anyway.  Of course, if the market doesn’t drop 20%, you owe the putter nothing and your protection is free (or nearly so) and you had a nice vacation without worrying.  

    The SQQQ Oct $31 calls are now $1.90 and the $31 calls are $1.02 and that’s net .88 or a loss of .47 on 40 shares would be $3,520 lost assuming you didn’t take the IBM offset, which are now $1.05, up .95 and fully offsetting the insurance.  The Dow was at 11,000 that day and the Dow is at 11,000 today – of course the hedge didn’t make money but if you lost that much money in a flat market – it’s not the hedge that is the problem.  I would say until you see that you will never improve as a trader but you NEVER see it and I will tell you again that you should never trade without professional financial advice.  Not everyone is cut out for trading – it’s nothing to be ashamed of – get help, please….

  185. Odd…..futures bucking the dollar again.