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TGIF – Saved by the Bell or on a Highway to Hell?

UUP WEEKLYWheeeeeeeee, what a ride this week!

Since we went bearish on Tuesday afternoon, the Dow has dropped 450 points.  That pushed our White Christmas Portfolio over the top (as we flipped bearish, of course) with a virtual balance of $26,075 including $2,565 of unrealized gains on our still-open (and still bearish) positions.  That’s up $11,075 (73.7%) from our $15,000 start on October 24th and we’ll be getting back to cash and going for another $10,000 (our original goal) before Christmas.  

How did we do it?  We teach keeping trades short and simple in a choppy market as we stick to our trading range.  Trades in the WCP were very much like the trade ideas I published Wednesday morning, from our Tuesday Member Chat at 3:21.  As we had a little BS rally Wednesday afternoon, many of the trades were still makeable that day.  In fact, in Seeking Allpha, where the post didn’t even go up until later that morning, Jamesbwood was able to take advantage of the XOM $77.50 puts at .14 (less than our original entry) and took a double off the table at .28 – a 100% day trade!  

All of those trades ideas are great examples of the kind of trades we look for in our White Christmas Portfolio (our current, virtual, short-term portfolio) – ones we can get quickly in and out of with nice gains.  We were quite satisfied with our oil shorts and cashed those out yesterday and, had President Obama followed my advice and sold those 140M barrels for $100 (could have gotten $102), he could have bought them back yesterday at $98.50 for a quick $210M profit – enough to pay for at least an hour’s worth of the deficit!  Percentage-wise, he would have been better off subscribing and taking those trade ideas from our Member Chat.  Those Wednesday morning trade ideas were:  

  • GOOG $625/620 bear put spread at $3.10 is a nice downside play – figure risking $1 to make $1.90.
  • GOOG is at $600 and this spread will likely expire at $5 today – up 61.3%

  • MMM $82.50 puts are $1, also a good trade for a crash tomorrow.
  • MMM finished the day at $80.43 and the $82.50 puts were $2.35 – up 135%

  • WYNN $130/125 bear put spread at $1.90.
    • WYNN finished the day at $120.78 and this spread will likely expire worthless today at $5, up 163%
  • XOM $77.50 puts at .21 are a fun play too.

  • XOM finished the day at $77.86 and the puts were .43, up 105% 

That’s how you put together a 66% gain in a month – a few winners like that and intelligently manage your losses on the losing trades (yes, we have those too) and you can come out nicely ahead.  Our final trade idea in that set was shorting oil futures (/CL) at $99.90.  After a rough ride (see yesterday’s post), as I mentioned for the President, we were able to exit at $98.50 for a gain of $1,400 per contract, not including any rolling or other option moves we advocated as the price (and certainly not the value) of oil went flying.

I’ve been talking about the scam they run over at the NYMEX and we’ve been tracking those open contracts to illustrate what a con job oil trading is (as if the fact that we can make 100% in 2 days doesn’t prove it already!) and, as I predicted on Wednesday, they have already cancelled 100M barrels worth of contracts scheduled for December delivery.  This is essentially taking America’s oil supply and dumping it into the ocean for the sole purpose of creating an artificial shortage of December stockpiles in order to drive up the price you pay at the pump – as well as to heat your home, etc.  

Click for
Chart
Current Session Prior Day Opt’s
Open High Low Last Time Set Chg Vol Set Op Int
Dec’11 98.61 99.82 98.01 99.82 07:24
Nov 18
-
1.00 6525 98.82 41461 Call Put
Jan’12 98.65 99.97 98.06 99.97 07:24
Nov 18
-
1.04 36520 98.93 337987 Call Put
Feb’12 98.64 99.94 98.00 99.94 07:24
Nov 18
-
1.04 6877 98.90 81870 Call Put
Mar’12 98.59 99.92 98.31 99.92 07:24
Nov 18
-
1.03 4508 98.89 95868 Call Put

Notice not only are there just 41,461, 1,000-barrel contracts left in December on the last day of trading (and even 10-20,000 of those will be cancelled today by the crooks at the NYMEX) but now they are FAKING demand for another 337 Million barrels in January.  Let’s keep things in perspective.  The US only imports 8M barrels of oil per day so these evil, disgusting, THIEVES at the NYMEX are SCAMMING the United States and it’s citizens by ordering 42 days worth of imports for the month of January, OVER 90% OF WHICH THEY WILL CANCEL SO THEY CAN RUN THE SCAM AGAIN IN FEBRUARY.  

As noted yesterday, this little con job is costing US Consumers $25 for each barrel of oil we consume with a burdened cost after refining and moving through the system of approximately $60 per barrel as it increases the price of food, materials and electricity as well.  A $60 per barrel crime that’s committed 20M times a day is $1.2Bn or $438Bn per year in EXCESS charges over and above the $1Tn we pay for oil in the first place!

$438,000,000,000 is a theft of almost $1,500 from every man, woman and child in this country and it’s not only costing us millions of jobs but half of that money is sent overseas and some of that excess money (and it doesn’t take much, does it?), which is stolen from our pockets, finds its way into the hands of terrorists and goes towards funding the very armies our own military is fighting overseas.  That’s right – thanks to the criminals at the NYMEX, we’re funding both sides of these wars!  

USO WEEKLYMy comments to Members in yesterday’s Chat sum it up nicely for oil:  

Meanwhile, think about what BS the entire crude market is. Wednesday, they HAD to have crude at $101, $102 and $103 but today they can’t find buyers at $99? How obviously fake does a market have to be? Meanwhile, Dec 2013 contacts were actively traded at $92.80 today, which is why you could short with great confidence at $102 – because you know you can buy a barrel to cover for $92 next year! If you don’t mind waiting until Dec 2015, a barrel of oil can be had for $89.62.

Think about it. Imagine if the 2014 AAPL $350 calls were $7 instead of $107 – wouldn’t you think there was something seriously wrong with AAPL’s current $377 price? That’s all these oil futures are, options contracts. It’s just that they don’t bother to manipulate the long months because the public doesn’t pay attention, the Media only reports what their sponsors want them to report and the Government is paid not to notice.  

It’s a sickening situation yet how many of you have been reading my posts this week and watching every single thing I predicted come true and paid your extra $25 for a tank of gas and yet not even taken the time to send an Email off to your Congressperson demanding that something be done?  You can break up a con game by simply letting the crooks know you are watching them – the NYMEX, as I mentioned yesterday, is nothing more than a 3-card Monty game, a group of criminals who team up with Banksters  and their paid media hounds to con the American people out of hundreds of Billions of Dollars – THEY MUST BE STOPPED!  

You are free to send these articles on the oil scam (Wednesday, Thursday and today) to as many people as possible (and if you have a blog, you have my permission to use them too) and encourage people to send them to as many other people as possible because we NEED a National discussion on this issue – we NEED to let Lloyd Blankfein and Jamie Dimon and the Criminal Narrators Boosting Crude know that we are not the complacent idiots they think we are and we’re not ready to go another year having our pockets picked to fatten their wallets.  I don’t care if you are in the bottom 99% or at the top of the top 1% – why should you be a victim?  Why should WE, the people, be victimized by these crooks?  

In other manipulation news, the Dollar was jammed down to 77.80 from 78.55 at yesterday’s close (down 1%) and that picked the futures off the floor but, as I warned Members in Chat at 7:03, don’t be fooled when the devaluation of the Dollar drives up the PRICE of the stocks those Dollars are exchanged for.  The Dollar has become subject to wild swings this year and, if anything, the lack of a major market rally off a 1% drop in the Dollar this morning is a sign of weakness, not strength.    

Our short-term goal is to get back to cash into the long Holiday weekend next week.  There’s only 3 days left to trade before Thanksgiving and the markets have a short day on Black Friday to make sure every one of us has time to perform our patriotic duty and head off to the Malls.  Should Black Friday be a bust next week – we’ll have a much blacker Monday in the Markets so, even in our long-term portfolios, our goal will be to cover up tightly – just in case.  

AAA released its annual report on Thanksgiving travel plans today, and it looks like a mixed bag.  The automobile association predicts a 4% rise in the number of Americans traveling over the holiday. That means 12M more people will be traveling at least 50 miles to visit family and friends than was the case a year ago. Now the bad news: Due to the high price of food, gas and lodging, they’ll likely be spending less. Less on airline tickets, rental cars and lodging.  See how that works? 

Have a great weekend, 

- Phil

 


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  1. Oil Scam Lines 

    R3 – 107.35
    R2 – 105.36
    R1 – 102
    PP – 100
    S1 – 96.75
    S2 – 94.75
    S3 – 91.42

    Yesterday’s high and low – 103.37 / 98.06

    Breakout lines – 112 / 84.15


  2. can anyone verify this article from Zerohedge?
    http://www.zerohedge.com/news/entire-system-has-been-utterly-destroyed-mf-global-collapse-presenting-first-mf-global-casualty
    There is indeed an announcement on BCM(Barnhardt Capital Management) website.
    http://barnhardt.biz/index.cfm


  3. @ smarturn – What do you want verified?  See my comment from yesterday.  BTW, that woman is nuts.  http://www.philstockworld.com/2011/11/17/trill-ride-thursday-here-we-go-again/#comment-1486481


  4. @Jcaesar,
    Thanks, I missed that part.


  5. Zero Hedge / Smarturn – JC and Phil discussed this article yesterday. Not a very reliable source this woman! 


  6. http://barnhardt.biz
    no serious financial business hosts site on .biz only


  7. PP for today:


  8. Krugman trying to make sense of non-sense:

    http://www.nytimes.com/2011/11/18/opinion/krugman-failure-is-good.html

    In Democrat-world, up is up and down is down. Raising taxes increases revenue, and cutting spending while the economy is still depressed reduces employment. But in Republican-world, down is up. The way to increase revenue is to cut taxes on corporations and the wealthy, and slashing government spending is a job-creation strategy. Try getting a leading Republican to admit that the Bush tax cuts increased the deficit or that sharp cuts in government spending (except on the military) would hurt the economic recovery.

    How do people keep on believing that stuff from a fantasy world – tax cuts have never, ever paid for themselves (even people like Laffer admit that much) and spending cuts have never promoted growth. But yet, here they are …


  9. Vertical Spreads – Thanks, PD. And help me, man! You know how I could have made money this week – even if I couldn’t keep up with recos during day? By just NOT losing money on short week bull call spreads. Vertical spreads are not momo plays. Vertical spreads are not momo plays. Vertical spreads are not momo plays. Vertical spreads are not momo plays. Vertical spreads are not momo plays. Corollary: And I am not focused or smart enough for momo plays anyway. Cash. Cash. Cash. Wait. Wait. Wait. Run a PD reco here or there. Make a little money. Repeat. Often.


  10. Phil/members- first Phil, great call on oil…it’s a shame it’s such a sham. Second, to you and all the TA/trend followers (jrw, etc)…is the triangle thingy broken by virtue that we breached 1215, or did a close above that keep it intact? Just trying to get a sense for where the charts suggest we’re headed
    Thanks


  11. sns – breaking through and holding is key.  Just breaking and jumping back up thru the hoop is noise.  So JRWs is still stuggests a move up.


  12. NF**X
    It does take that at times…..doesn’t it!? Keep repeating until the various principles become second nature. I have very much the same problem. Hedges are hedges, hedges are hedges, hedges are hedges…….if you are conservative you are an idiot, if you are conservative you are an idiot, if you are conservative you are an idiot…..just kidding about the last part. :) Thank you Phil for reminding me, over and over, not to revert to bad habits of the past.
    Phil:
    Are there any readings you could recommend to learn more about how trading works on the NYMEX? I want to get better at recognizing trading opportunities in oil. Thanks.


  13. smarturn,

    Thank you for that link. But I think that is the woman who burns Korans in her "other job". I think she lost a lot of money and is frustrated. I don’t what MF Global has to do with Obama?
    I do have a frozen account at MF Global so I should be suceptible to all sorts of conspiracy theories. But that is just way too much…


  14. AA Money Recap
     
    Long strangle:
    Jan 13 12.5 calls – $1.27 now $1.10
    Jan 13  7.5 puts – $1.04 now $1.06
     
    Short:
    November 10 calls – $0.56 now $0.04
    December 11 puts – $1.20 now $1.37 

    Phil recommended shorting a set of December 10 Calls in the afternoon in addition to the November set. Some might have traded that. However, some of us are also trading it in an IRA account and can’t short options without adding the corresponding longs. So in my case I stuck with the November 10 shorts only which will probably expire worthless today. Not ideal given the plunge in AA in the afternoon.


  15. Good morning!  

    Congrats to all of our White Christmas Portfolio players but, more importantly, congratulations to the Banksters:  

    Investment banking revenue hits $60B for the year, taking 307 days to reach the landmark figure – 21 days faster than last year, and 40 days quicker than in 2009.

    Isn’t that just great!  And they took every single penny of it from people like us.  Meanwhile, 

    Our infrastructure is in crisis, and the federal government has to step up and do something to fix it, says former Pennsylvania governor Ed Rendell. Many of the problems aren’t local, but regional in nature and need a federal approach. His big government fix? Create a National Infrastructure Bank and pass a transportation bill that will pump around $200B a year into the bank over the next 6 years to fund improvements.

    Maybe we can ask the Banksters to kick in a few bucks?  ROFL!  

    Finally, someone who knows how to interpret data properly!  Some better-than-expected economic reports (I, II, III) have encouraged a notion that the U.S. is relatively insulated from Europe’s problems, but these data are coincident, or lagging, MKM Partners warns: "U.S. short-term funding indicators suggest corporate quality spreads could rise by more than 40%, a move that would likely spark at least a 10%-15% decline in the S&P 500." 

    Europe’s debt crisis is a "more serious" situation than the housing bubble three years ago, General Motors (GM) CEO Dan Akerson tells the Detroit Economic Club. "The ’08 recession, which was a credit bubble that manifested itself through primarily the real estate market, that was a serious stress… This is much more serious." 

    If (a big If) the Germans allow the ECB to hoover up all the EU sovereign debt no one else will have, just use the moonshot rally to reload your shorts, says Nomura’s professional bear Bob Janjuah. Insolvency remains, but now with the destruction of the ECB balance sheet thrown in. "At that point, I think Germany and its northern partners would walk away." 

    "Our investment advice is to dig a hole in the ground and hide," says Deutsche Bank’s Jim Reid if Angela Merkel doesn’t reverse course and give the green light for the ECB take DB’s (and others’) problems off of their hands. The squeeze is on – the ECB is under complete bombardment to crank up the presses, a move opposed now by no more than a handful of people, it seems.

    "2012 will be the year of shock," says a Portuguese asset manager, as austerity begins to filter through the economy. Having seen the fates of his counterparts in Greece and Italy, PM Coelho is feverishly working to stay in Brussels’ good graces by rushing through required reforms. Bond markets are listening, with Portuguese debt outperforming Italy as of late.

    "The idea that Europe, where the average per capita income is about $40K/year, should be going to China, where the average is about $4K/year, with a begging bowl," doesn’t make sense, says World Bank chief Bob Zoellick. Domestic Chinese politics would never allow it anyway, he adds. 

    Italian September industrial orders slump, reversing the rise of the previous two months. Orders -8.3% M/M and -3.6% Y/Y. The fall was led by a drop in domestic demand, with Italian orders -10.1% M/M and those from abroad -5.5%.

    Meanwhile, your Republican Congress takes action:  Congress yesterday passed a bill that enables various government departments to keep running when funding expires tomorrow. Notable elements include raising the size of mortgages that the FHA can insure despite its dwindling reserves, and denying a White House request for a boost to the CFTC budget.

    Just in case anyone is still wondering – yes, I am still bearish!  

    Oil (/CL) gave us a nice re-short at $100 but make sure you are trading the Jan contracts!  

    In general, cashing out short-term trades because we could go 5% up or down on Monday with all this EU nonsense so why mess around.  Whichever way we do go is likely to be an overreaction and then we can deploy our cash much more effectively so rest up kiddies, it’s going to be a wild 3 days next week!  

    In the Income Portfolio, I want to spend $2.30 ($11,500) to roll the SDS Jan $24 calls ($1.50) to the March $19 calls ($3.80).  If we don’t crash, we’ll roll the cover (Jan $30 short calls) to something for $2 more to pay for it so not too risky.  

    At the moment, the Dollar is right on that 77.80 line but now that they’ve messed around so much in the futures, anything over that is going to hurt the indexes and anything over 78 is going to crack yesterday’s floor.  Unless someone says something very soothing between now and the Europe close, those guys will be running for the Dollar into their close (11:30) so that might be our low for the day – let’s just be careful because the rumors are flying and the best thing to do is just get to cash to stay as flexible as possible.  

    Friday’s economic calendar:
    10:00 Leading Indicators

    At the open: Dow +0.3% to 11807. S&P +0.37% to 1221. Nasdaq -0.2% to 2268.
    Treasurys: 30-year -0.15%. 10-yr -0.15%. 5-yr +0.77%.
    Commodities: Crude +0.45% to $99.38. Gold -0.03% to $1719.65.
    Currencies: Euro +0.77% vs. dollar. Yen -0.31%. Pound -0.37%

    Market preview: A risk-on day at last? Italian and Spanish bonds rose as the ECB bought the securities to stem the debt crisis, amid chatter that the ECB may lend money to the IMF to provide bailout funding. S&P futures +0.8%, setting the stage for a rebound off a one-month low. Blue Coat +18% after its strong beat, but Salesforce -6% on disappointing billings. Later: leading indicators.

    The world is running out of balance sheet warns Pimco manager (Citywire) see also Signs of Stress on the Rise Across Europe (WSJ)

    NY Fed chief Dudley tells a crowd at the University of Albany the risks of a double dip recession have dropped significantly (because we never left?), but that growth remains too slow to put a dent in unemployment. He believes the current run of positive economic data is more than likely a bounce from transitory factors. (Dudley yesterday)

    World Bank President Robert Zoellick tells Bloomberg TV that the IMF – backed by support from China and the U.S. – can help "backstop" the European system if an acceptable solution is hashed out to the debt crisis. He notes the U.S. can be supportive through liquidity mechanisms at the fund without directly putting money in.  

    Those waiting for "the next great trade" – picking up assets shed by troubled EU banks at fire-sale prices – continue to wait. Thus far, banks are only offering at close to face value, which, combined with tough financing, has meant little action. "We’ve been lying in wait … since 2008," says Blackrock’s (BX) Europe chief, "but it will come piecemeal."

    Canaccord’s Mike Walkley is slashing his estimates for Research in Motion (RIMM), after his checks indicate "slowing sell-through trends" for its latest phones. Perhaps more troubling, given RIM’s relatively strong international position, are his remarks about international checks indicating slower sales of low-end BlackBerrys, thanks to competition from Nokia’s (NOK) Asha phones and low-end Android devices (GOOG). 


  16. FAS Money Recap

    Long
    10x 2013 XLF 11/15 BCS –  $2.06 now 1.89

    Short
    1x Nov FAS 61 Put – $2.05 now 2.94
    2x Nov FAS 68 Call – $1.94 now 0.02
     
    This trade is amazing that even with FAS below the put strike, we still show a 15% return on margin. We’ll to roll the puts sometimes today.

  17. dclark – lol. The other truism for me is that my profits are inversely related to the number of political rants I engage in here each day. Shut up and learn!


  18. @felipe
    Many muchos for the FAS trade.  Looked iffy yesterday with FAS nearly wiping the call gains, which I captured earlier but this A.M. managed to but the put back for a small loss.  Overall the trade worked very nicesy.


  19. IWM Money Recap

    Long
    6x 2013 70/77 BCS – $3.64 now $3.48
     
    Short
    1x Dec TNA 48 Call – $4.40 now  $3.05

  20. Thanks for your comments, Pentaxon.
    I am not so familiar with her and her fund, and find her newsletter kinda extreme. That’s why I had some doubts about it.
     


  21. stjean – Rookie question again: when you post those positions (FAS-XLF) – are they already in play? Or are these entry points/ recos? Thx.


  22. Trades / NF – It’s a recap of the current position.

    On the other hand, the XLF-FAS position will change today as the FAS options expire so you could in theory jump in today when we roll the puts and sell new calls. You even get a better price on the XLF BCS. 


  23. @smartun – No harm asking, and maybe she has some valid points about the market in that article.  She just has credibility problems as we’ve noted.  We’ll just keep our eyes peeled for other sources.


  24. Any news we can credit for the drop since 9:00AM or so?


  25. Phil – Back after a long hiatus,* and just in time to join the fun in the WCP. The SCO bcs could be intere$ting to watch today. Wanted to report that TDAmeritrade has cancelled PSW’s preferential pricing for TOS. Found this out because I had to open a new account in connection with settling my wife’s estate and am now on the TOS "Legacy" price plan. The customer service guy said that whatever contract we had with TOS is no longer in effect – "cancelled" was the exact term. I said you’d likely be in touch.

    TOS Legacy pricing:  Stk = $9.95 flat or $0.015/sh $5 min your choice; Opt = up to 6 contracts for $2.95 per, 7 or more for $9.95 + $1.50 per; Fut = $3.50 per.

    New TOS accounts:  Stk = $9.99; Opt = $9.99 + $0.75 per; Fut = $3.50.

    *Sold my house in Seattle and moved to Jacksonville FL where mom and brother now live. Took the very long, very scenic drive here.


  26. Should have said SCO calls as we sold the short leg two days ago!


  27. stj – Thanks. So you post at time of new trades or rolls too? Sorry to be redundant and thanks.


  28. Phil
     
    RE: this AM’s e-mail are you out of the GNW trade or do you plan on exiting today? If so, Seems this would go against the beleif of collecting the premium and trusting that GNW is in fine shape, and would be worth the risk if we were to be assigned the stock at $6


  29. VIX and TLT are falling….so watch these carefully with the dollar, will signal some direction today.  Being OPEX, I think they squeeze the bejeezers out of the shorts IMHO.


  30. I have updated my tracking spreadsheet to include FAS Money and IWM Money. There are now 3 tabs, one for each of the ongoing trades:

    https://docs.google.com/spreadsheet/ccc?key=0Asgfso25VaEPdGgtbnVFeWl1aGdoTVVmQ3Y0U0wzelE

    Let me know if you need additional information. I will try to modify them so that I can post the current status in the morning from the spreadsheet instead of my recap. 


  31. I am nibbling on a few AAPL Dec 385/390 spreads now .  Very small position, as I think it could pull back further.


  32. Trades / NF – I usually post a recap when we have the rolls or new trades. I didn’t yesterday, because of the small misunderstanding on AA Money. But watch today as we make changes to FAS Money. 


  33. stj – Once again – thanks. Is it your reco that we play both the long and short? That’s my final dumb question – until 10:10 or so.


  34. Fantasy/StJ – We are truly living in an Orwellian society where the top 1% essentially brain-wash the masses to maintain power.  Most people don’t read blogs and certainly not ones they disagree with.  Most people just watch TV and the most popular shows listed by TV guide tell you what the problem is:  

    RankTV ShowNext OnNetwork1Dancing with the StarsSun, Nov 20 05:00 PM ETABC2Modern FamilyWed, Nov 23 09:00 PM ETABC3X FactorTue, Nov 22 08:00 PM ETFOX4Grey’s AnatomyFri, Nov 18 02:00 PM ETLIFE5New GirlSun, Nov 20 12:00 AM ETFOX6Two and a Half MenFri, Nov 18 05:00 PM ETFX7Criminal MindsFri, Nov 18 12:00 PM ETA&E8Breaking BadNot airing in the next 14 days 9True BloodSat, Nov 19 10:00 PM ETHBO2e10Big BrotherNot airing in the next 14 days 

    No fact (unless you count reality shows), just fiction and I’ve noticed a lot of fantasy is creeping into the schedule.  That’s interesting because horror films and fantasy were very popular in the Depression and now we have True Blood (my favorite) in the Top 10 and the Walking Dead (cool show) also and two networks have shows that are about storybooks coming to life or something (both seemed lame).  People DON’T WANT reality and that’s the same thing Peter Finch said in Network in 1976, which I quoted the other day – it hasn’t changed – it’s just gotten worse.  

    We raise a nation of non-critical thinkers to live for the sole purpose of escaping reality.  My kids can’t wait to come home from school and "play" with their friends in virtual worlds.  Sometimes kids come to our house because we have lots of computers but they actually sit in different rooms playing in the same house!  We are just a step or two away from the Matrix – as I said yesterday, if they can teach computers to shop, they won’t need us at all!  

    78.20!  

    Good plan, NF.  Only play when you’re sure and then assume you’re probably wrong.  

    Triangle thingy/SNS – That close above was nothing but last minute forced nonsense!  As I said yesterday, those of us in the Church of the 5% Rule could care less about 1,215 as 1,235 failed (Must Hold) and that gives the S&P a clear shot to 1,173.  What’s useful about Art Cashin and the TA crowd following their silly squiggly lines is that it gives us a chance to test weak resistance along the way down.  The next serious support is the -2.5% line at 1,204 and, for the moment, we watch the silly TA people attempt to bottom feed off their "support."  

    Cutting the S&P to a finer line of -1.25% (and we can with a major index), we can watch the action at 1,220 – if that gives them trouble on a bounce, then it’s bad news for the bulls because they have no technical reason to stop there but it would confirm that selling is being driven by the bots at that line, who are following the 5% Rule.  

    Don’t get me wrong – we could go either way as our Must Hold lines are still roughly the "right" price for the market so it will only take a nudge of stimulus to lift us back up but, for now, the tide of the news flow is negative and dragging us to the lower end of the range.  As long as the Dow holds 11,590, there is still hope – all it takes is one index to anchor the rest and stop the bleeding but then we’re back (as we did last week, when we decided things were toppy) to looking at each Dow component and deciding whether they are at the top or bottom of their own ranges.  

    Leading Economic Indicators came in better than expected.  Not exactly causing a big pop though

    Oct. Leading Indicators: Leading Index +0.9% vs. +0.6% expected, +0.2% prior. Coincident Index +0.2% vs. +0.1% prior. Lagging Index +0.6% vs. +0.2% prior.

    Apparently taking the legs out of the latest rumor-induced European rally is a line off the Bloomberg saying the German Finance Ministry is considering more "orderly defaults" in the eurozone. Stoxx 50 drops 1%, now -0.6% for the day.

    Irish finmin Noonan tells his citizens what the Germans already know – the government plans a 2% bump in the VAT to 23% and a cash call of €100 from every household for next year. He calls the release of the budget to German lawmakers before Irish parliament could have a look, "disappointing."

    In his first public speech as ECB chief, Mario Draghi – under enormous pressure to unleash a wave of euros over the continent – tells the EU to get busy, noting it’s been 18 months since the summit that created the EFSF, four months after it was expanded, and four weeks after leverage was introduced (remember those rallies?), and the thing still isn’t ready to go. "Where is the implementation of these longstanding decisions?" 


  35. Trades/StJ — what’s the likely target for the short Nov FAS 61 Put today as I’ll be away towards the close and might have problems executing? Thanks


  36. Got out of most bearish position near low of market now just sitting in cash and waiting to see some options expire worthless.  Will make this a tranquil Friday.


  37. LOL DC – that was very funny!  I wish I could recommend books exposing the NYMEX but they don’t exist.  In fact, that guy started doing a film project and interviewed me last summer and was all gung-ho to go after them until they papered him with legal threats to the point where he’d have to triple his budget just to cover legal expenses so he gave up.  That’s how they operate – in America, big Corporations can destroy their enemies with lawsuits, where you are guilty until proven innocent and failure to answer a complaint (which costs thousands of Dollars by itself) "proves" your guilt.   It’s a really, really sick system that is abused constantly as a way for the top 1% to screw over the bottom 99% and some of you know what I’m talking about and for those of you who have no idea – you can thank God you’re not in that World!  

    AA Money/StJ – Calls should expire worthless and now we may as well risk naked and see what happens over weekend if you didn’t sell the short calls yesterday but, if you can’t sell naked calls – there’s a whole different decision process on rolls, etc. during the month.  Also, if you can’t sell naked calls in your IRA, certainly you can sell them in another account?  

    FAS Money/StJ – I’m bullish on XLF off $12.50, looks like FAS $58.50 at the moment.  Obviously, the $68 caller is toast and the $61 putter ($2.75 at the moment) can be rolled to the Next Week $55 put (now $2.25) for a net sale of $1.55 and I think it would be prudent to sell the Next Week $65 calls for $1, just in case I’m wrong and things get worse.  

    Thanks Flips!  I love trading FAS, it’s like a roller coaster with all the twists and turns.  

    IWM Money/StJ – On track.  Crazy how well those premiums hold up on TNA.  

    News/JC – They pushed the Dollar down to a ridiculous level that was unsustainable once the markets opened.  That’s all.  


  38. I’m looking at possible AAPL daytrades.   Pin most likely 380 or 375.  That makes selling the 380s  and using the money to buy 375  puts attractive.  I’ve not pulled the trigger.  Watching.


  39. Good morning,

    As I said yesterday:

    stjeanluc / Tomorrow

    Yes, we go back down to the lows first, but I believe we have a green day, fwiw !!

    I’m NOT saying the low is in, just a green day (maybe after we get rid of these pesky Europeans)

    IWM   71.02,  71.33,  71.87,  72.15,  72.56,  72.98,  73.24,  73.51,  74.14,  74.61,  and  74.86 

    And the DAX doesn’t look good; we’ll see !!


  40.  Hell, I’ll produce a documentary on the NYMEX scam..!
    Anybody up for a road trip to Cushing, OK?


  41. Maybe a good time to repost my crystall sphere chart: ;-)
    http://www.pentaxon.com/psw/viyindicator.html
    The predicted downturn since end of October has been relatively muted so far. Perhaps some retailers wanted to get rid of their cash still, but maybe we are catching up now…


  42. …how about a movie that is tongue in cheek "fictional" account of NYMEX, perhaps called CITY SLICKERS


  43. JRW:
    You had mentioned a statistic couple of weeks back about what happens when VIX suddenly drops by 20% or more. Would you be kind enough to post it again? It will be useful after the market bounces ( as most likely it would next week).


  44. Welcome back Pak!  We don’t have much leverage with TDA, they are a bunch of pricks and far too big to care about us unless we seriously pooled our accounts and presented some sort of credible threat of pulling our business (a major undertaking).  

    GNW/WCP, Sage – I still like them and don’t think we need to kill it until we see real damage done next week.  The problem is the WCP is a short-term portfolio and we don’t REALLY want to own GNW in Jan – in fact, we plan on being in all cash the last week of December and starting a new $25,000 Portfolio in Jan.  

    Spreadsheet/StJ – Very nice, thanks!  

    Oil below $98.50, we might get our $95 target after all.  Stil, $100 Futures shorters should have a .25 trailing stop – we can always reenter on the next cross.  Dollar 78.23.  

    HPQ flying on upgrade.  

    AAPL/Iflan – How about selling the 5 $375 puts for $1.05 ($525) and buying 3 next week $354 puts for $2.25 ($675).  The theta should make that a winning day trade. 

    Documentary/Peedle – Someone should call Michael Moore – it’s right up his alley.  Sage has a good title!  

    Chart’s working great Pentax.  


  45. FAS Money – Rolling the 61 Put (3.15 now) to next week’s 55 Put (2.35 now). Selling next week’s 65 Calls for $0.97 now. 


  46. Phil, I put in place your idea on Nov 14, and placed a Jan2012  BCS on FAS 65/80 and sold the 50 put. I am quite out of the money on this trade – just wondering if we are just holding to expiry, or if we should roll to stop some of the pain.  Appreciate your thoughts and comments.
    Thanks


  47. FAS Money Recap

    Long
    10x 2013 XLF 11/15 BCS –  $2.06 now 1.88

    Short
    1x Nov4 FAS 55 Put – $2.23
    2x Nov FAS 68 Call – $1.94 now 0.02 (these will expire worthless)
    2x Nov4 FAS 65 Call – $1.05

  48. Phil….?typo?….there aren’t  puts.


  49. there aren’t 354 puts I meant to say.  Typo?


  50. 10:00 AM On the hour: Dow +0.45%. 10-yr -0.27%. Euro +0.58% vs. dollar. Crude +0.27% to $99.19. Gold +0.03% to $1720.65. 

    A translation of the German paper stringing markets along this morning. Instead of allowing the ECB to print, Germany instead looks to be considering allowing insolvent countries to default, with temporary loans provided by the EU to stem any resultant financial collapse. [

    The U.S. housing industry scored a victory with yesterday’s House and Senate votes to raise the size of FHA-backed mortgages to $729,750, up from $625,500. Lawmakers backing the higher limit said withdrawing federal support could further undermine the housing market; opponents cited the FHA’s potential need for a taxpayer bailout.

    Chinese official statistics catch up with anecdotal reports as October data show a 0.13% drop in new home prices in 70 measured cities – it’s the first monthly decline in years. The biggest slide was in coastal Wenzhou – a wild west of credit activity, -4.6%. 

    Shares of Dole Foods (DOLE -7.8%) turn lower after recording a wider Q3 loss than expected on higher costs and a slumping fruit market in Europe. The firm’s 5% Y/Y gain in revenue wasn’t nearly enough to offset its rising expenses.

    Small/Big (IWM/SPY) Price Ratio

    Europe/U.S. (VEA/SPY) Price Ratio

    Emerging/U.S. (EEM/SPY) Price Ratio

    >~~~

     

     

    Sirius XM (SIRI +4.3%) gets a lift from Lazard’s Barton Crockett, who’s upgrading shares to Buy and setting a $2.25 PT. Crockett calls Sirius "an unusually resilient growth story," and expects an upcoming rate hike and cost cuts to boost profits. He also thinks stock buybacks could produce further upside. (previously


  51. In TNA


  52. IWM Money / Phil – Man, you are spoiled… It does decay very slowly (with 28 days to go) but we are still showing gains of 16% over committed margin in one week on the TNA calls! That’s 832% on a yearly basis. I know, barely enough to keep up with inflation, but still! 


  53.  Dear Phil,  I saw your comments on VOD.  I own shares of Telefonica.  It is a 5% position of my long term dividend portfolio.  My cost basis is $21.  Do you have an opinion on Telefonica?  What option trade would you recommend to hedge some downside risk?   Or does the general Eurozone risk, plus Telefonica’s high debt load, make Telefonica just too questionable to keep?  Thank you!


  54. etradingsignals,
     

    Here you go !!


  55. So far this (mini) bounce is just a reaction to the dollar decline.
    http://www.pentaxon.com/psw/spy_worldcurrency.html


  56. Thanks JRW!


  57. Hey, hey…. JRW, I predicted an up day today just last night! Plenty of time to prove me wrong though! 


  58. Phil,
    SDS – Mar 19c $3.80 – is this a long call or part of an earlier spread?
    TLT – we may get a trade on this next week, but does a bear put spread on TLT essentially have the same result as a bull call spread on TBT, except that TBT is 2x?  If so, wouldn’t the offset on TBT (naked put) take up way less margin than the offset (naked call) on TLT?


  59. Phil -

    Wouldn’t you want to be long oil into Thanksgiving weekend next week?


  60. Phil, did you answer question of where open interest oil futures chart can be found ?


  61. Phil—-how about going long /RB into thanksgiving?
    Thanks


  62. FAS/Gingbaum – From the morning post?  Keep in mind we don’t track every trade idea, just the ones that go into one of our virtual portfolios.  If you have questions, I’m usually happy to help (sometimes grumpy).   That was a net .15 spread and your worst case is being assigned FAS at net $55.15.  FAS is now $58.95 after a horrific sell-off so a bit early to worry about it after 4 days.  If you don’t REALLY want to own FAS at net $55.15 – then you should not be in this trade in the first place because we NEVER sell short puts in stocks we don’t want to establish long-term positions in!  As I said at the time, this was a bullish, speculative "poke" at XLF gaining 10% – it’s not a good idea to pour more money into it as that changes the nature of the risk (.15) to something more substantial and then no longer a "poke", is it?  

    If you want to take advantage of the drop on Monday morning’s XLF spread and adjust the bull spread – you can drop the $65s ($8.10) to the $56s ($12.10) for + $4 and drop the $80s ($3.50) to the $66s ($7.60) for + $4.10 and that puts .10 back in your pocket, narrows the spread to $10 (still a nice upside) and puts you $3.56 in the money.  That’s not a bad adjustment…

    AAPL/Iflan – Sorry, that was $365 puts (now $1.65).  I think my finger was shifted one key too far to the left.  So that trade was selling 5 $375 puts for $1.05 and buying 3 next week $365 puts for $2.25 and already the $375 puts are .35 ($175) and the $365 puts are $1.65 ($495) for net $320 off the original $150 so a quick 100% gain in an hour – those are the kind of trades you want to look for on an expiration day but, as you can see – they move so fast I don’t usually call them.  

    IWM Money/StJ – Yeah I am going to be hating it if the market ever goes back to normal…

    TEF/Ron – I don’t know why anyone would own stocks without selling options.  It’s like buying a vacation home you use once a year and not renting it out.  Of course there’s risk, there’s always risk and ignoring that fact already cost you a couple of bucks you could have sold calls for.  TEF was $14 in the crash so it could go there again.  If you are not scaling in and you are not covering – then you are taking a massive risk.  With a cost basis of $21, you are already down 20% but they do pay a lovely 9% dividend so I’d sell the June $17.50 puts and calls for $4.75 and that drops your net to $16.25/16.88 so your worst case is you end up with 2x at $16.88 but, of course, by June you can roll some more.  When you buy a $20 stock that pays a $1.70 dividend, it’s already got a 10% handicap of money that will come out of cash flow (and decrease the remaining value of the company).   Dividends are an EXPENSE and when you buy high-dividend stocks, you should not be playing them to go up in price as well – that’s both greedy and foolish.  

    VIX/JRW – Nice! 

    Dollar/Pentax – It’s ALL about the Dollar (or the Euro’s effect on the Dollar).

    Up day/StJ, JRW – Good luck with that!  

    Oil $98!  Dollar 78.24.  Gold $1,724.  

    SDS/Canuck – That’s an adjustment to our hedge in the Income Portfolio.  We’re hedging $250,000 worth of generally bullish positions there, make sure you actually need it.  On TLT, shorting TLT is the same as going long on TBT except TLT does not suffer position decay as TBT is prone to do.  Of course, since you are short, you would like it to suffer but it doesn’t so deal with it.  The bottom line is it’s a better bet but also one you can get badly burned with as we have regular panics into US Treasuries.  That’s why we like the bear put spreads, it limits the risk so we can roll or reload at higher strikes, rather than rising out a loss on naked short calls or eating premium on puts.  I don’t mind selling TBT puts for entries below $18 but, again, you can (and often do) get burned so make sure you are well prepared to ride out the consequences. 

    Oil/David – I would have until this manipulation nonsense started.  Now I’m not into it but maybe next week if we get a nice crash.  Best play is gasoline (/RB) Futures, now $2.49 and that’s why we waited until today but now I’ve lost faith in the whole energy complex so I’m not even excited about gasoline longs on a Friday – and that’s usually a no-brainer.  Still, playing that line is a good play with very tight stops for a day trade.  


  63. 21 Sad Facts About The Deindustrialization Of Britain

    Read more: http://www.businessinsider.com/uk-factory-job-loss-oil-2011-11#ixzz1e4jYkQQy


  64. Oil open interest/B1 – Sure, here.  They don’t update live so always assume it’s the end of the previous session until you see the change for the day has clearly been done (by comparing to other day – I always keep last lookup in a different window).  

    (/RB)/Savi – Good call but I’d take money and run into close.  In fact, it already fell below the $2.49 line so hopefully a chance to play at $2.475 but, if that line goes, hopeless.  


  65. As I said earlier – hopefully this will mark the day’s lows as EU funds flood to Dollars into their close.  Watch the $78.25 line on the Dollar – over that is bad and we’re not bullish until we fail to hold 78.20 again but I’m ready to close out our WCP bearish bets if we do.  


  66. I’m holding the SCO Dec 11 36 calls and watching the charts of /DX and /CL futures side by side and, don’t be shocked, it’s really really sexy.


  67. FAS/stjean/Phil – I (paper) shorted a strangle on FAS yesterday at the open, sold 1 59 put and 1 61 call on the weekly, and I meant to close it out at the end yesterday but forgot to. It was showing $50 profit yesterday. It’s showing a profit of $225 today. Not much of a sample, but amazing that it was still profitable even with a pretty significant drop. I’m starting to like FAS again!


  68. For those interested:
     
    he Investment Strategy Group invites Goldman Sachs clients to a call discussing:
     
    US “Super Committee” Preview: Mission Accomplished?
     
    We invite you to join us for a call Tuesday, November 22, 2011 at 3:30 pm EST.   Sharmin Mossavar-Rahmani will host the call, and she will be joined by Senator John Breaux, Senator Trent Lott, and Alec Phillips.
     

    Senator John Breaux was elected to the House of Representatives in 1972, and represented the 7th District of Louisiana for 14 years before being elected to fill Senator Russell Long’s seat in 1986. In 1993 Senator Breaux was appointed by his Democratic colleagues to the post of Chief Deputy Whip, a position he held until his retirement. A senior member of the Finance Committee, Senator Breaux served as the Chairman of the Subcommittee on Social Security and Family Policy. In 1998 he was selected by the White House and House and Senate leaders to chair the National Bipartisan Commission on the Future of Medicare. Also in 1998, Senator Breaux co-chaired the National Commission on Retirement Policy, which produced legislation to help reform Social Security. In 2005, President George W. Bush appointed Senator Breaux as the Co-Chair of the President’s Advisory Panel on Federal Tax Reform. 

     

    Senator Trent Lott joined the House in 1973, representing Mississippi’s Fifth Congressional District. From 1981 to 1989 he served as House Minority Whip before being elected to the Senate in 1988. He became the Senate’s 16th Majority Leader in 1996 and Republican Whip in 2006. In 1997, Senator Lott worked closely with House Speaker Newt Gingrich and congressional Budget Committee chairmen John Kasich and Pete Domenici to produce a budget and tax cut agreement that limited some federal spending while stimulating economic growth to bring the federal budget into balance for the first time since 1968.

     

    Alec Phillips is a Vice President in the Economic Research Group, based in Washington. He joined Goldman‘s Equity Research group in 2000, and in 2003 moved to the economics group to provide insight for the firm’s institutional and corporate clients on fiscal policy, housing and mortgage issues, financial regulation, trade, healthcare, and energy policy. Prior to joining Goldman Sachs, Alec served on the staff of the Senate Finance Committee under Chairman Bill Roth. He has a B.A. in Political Science from Colgate University.

     
     
     
     
    Tuesday, November 22, 2011
     
    At 3:30 pm EST
     
    Webcast: http://www.visualwebcaster.com/event.asp?id=83861
     
    Dial-In Details:
    Toll-Free: 866-706-1344
    Local: 973-797-8815
    Passcode: 847544
     
    Replay Details (available for two weeks)
    Toll-Free: 800-332-6854
    Local: 973-528-0005
    Passcode: 847544


  69. Thanks Phil—-already out of one trade—will watch the 2.475 level
    On aapl need to roll the following nov puts
    Aapl nov 395 sold put
    Aapl nov 390 sold put
    Any suggestions?
    Thanks


  70. FAS Strangle / Kurtww – Thanks for the information. As you can tell from the FAS Money trade, even with FAS dropping more than 10% since we started on Monday, we still show over 15% profit on margin. Not too shabby for a week. And losing sides can easily be rolled.

    I have gone over the FAS charts over the last 6 months and the only problem I see with that strategy is that FAS had some brutal days back in August where we lost sometimes 20% in one day (these was bad FAS Money weeks). FAS was cut in half in the first week of August. In that case, buying a straddle every day (not selling it) would have made tons of money. But weeklies decay so fast that you really need some huge moves to kill your short position like that August week. Still need to be careful…


  71. Up day / Phil – I don’t like them negative waves…

    http://www.youtube.com/watch?v=KuStsFW4EmQ 


  72. oil is getting hit pretty well, maybe $95 today!


  73. Dollar went over!  Oil down to $97.70!  Is this fun or what?  

    SCO/Pak – Very nice, I’m proud of that adjustment.  

    FAS/Kurt – If anything, it’s better as the premiums are completely ridiculous now.  As long as we’re selling, that’s fine with us. 

    Strategy call/Rustle – Sounds interesting.  Please remind us on Tuesday.  

    AAPL/Savi – Waited a bit long on that one, didn’t you?  Looks like about $14 average and I guess you lost about $9 so I’d just roll the loss out to the Dec $365 puts for $8.50 at whatever number covers it and be happy to get even.  The market is too weak to take bullish chances so you just want to keep selling premium and hope AAPL can hold the next 5% but $360 is my buy line anyway.  


  74. Phil / TNA & TZA – I have been in and out selling either side of the both options ( Nov expiration). Thanks for the warning regarding deep in the money strikes.


  75. Question about rolling vs DD.
    How do I determine if it is better to roll vs to DD?  Sorry if that has already been discussed to death.  A simple link to the info would suffice.  Thanks!


  76. Oh man oil below $97, thank you OIL GODS!


  77. Phil—on AAPL. You know HOPE and all that interfered with clear thinking— :-)


  78. nice got out of those uso dec 38 puts after rolling from nov and alas… a winner!


  79. Phil/SCO – You should be. That was hot. It’s my first trade back and after closing the short 43′s and rolling to the 36′s within a day I was even and now it’s flying.


  80.  Phil,
    Broken Record Department: what do you think about the SCO Nov $42 sold Puts, wait a little longer? SCO has certainly made a big move in the last couple of days.


  81. From Tyler:

    In case anyone was still wondering what happens in a world in which every financial asset is someone else’s liability, and that same liability is a third bank’s asset (and so on), and where the amounts involved are in the tens of trillions, and when even the smallest debt haircut starts an avalanche of remarking to market, here is the explanation. Oh, and whatever you do, don’t click on the US. Because the "US is fine."

    Full interactive chart after the jump

     

    Another version:


  82. Phil -

    Think we’re headed up next week?


  83. Good chart JRW and it’s interesting to see that the article also points out the foreign debt / GDP ratio. France banks hold debt to over 200% of GDP of the country. Who is going to bail them out if something goes really bad?

    BTW, it’s interesting that most of the countries have foreign debt/GDP over 100%… Someone somewhere is not holding that much debt. Like Phil says, we should all cancel each other debts and be done with it! 


  84. Yup, let’s cut taxes and government spending. That should help that statistic:

    distribution.tiff

    25% of kids born in poverty in 10 southern states. Unreal…. 


  85. TEF/  Thank you!  I am trying to appreciate our strategies here.  When I bought the TEF shares at $21 I sold Mar 2012 $25 calls and I sold  Mar 2012 $15 puts.   (i was afraid to sell near-the-money puts.)  And for many years I did have a vacation property I saw once a year and never rented out!  lol


  86. 78.30! Oil $97.  Gold $1,715.  

    You’re welcome Ocscarz! 

    Roll or DD/Drop – To some extent it’s the net delta.  For example, we sold the SCO Nov $42 puts for $1.90 and we may have to roll them (now $1.25) to Dec if they don’t expire worthless.  Since we can roll them to Dec $37 puts ($1.50) and we don’t think SCO will go down to $37 (oil around $105-110) we just roll.  Had we sold the $45 puts, now $4 then the roll to the Dec $42 puts may not give us comfort and we’d rather do a 2x roll to the $39 puts.  It’s the same if you are behind – the key is to treat it like a new trade and get to where you really expect to target, not just to make a move because you are "stuck" with the previous position.   As with many things, you learn by experience.  Gladwell says you should be an expert after 10,000 hours of practice.  

    Hope/Savi – Never a valid investing strategy.  8)  

    SCP/Pak – Be careful, greed is kicking in at this point.  Still watching that 78.20 line to signal the probable end of the sell-off.  Don’t forget, NYMEX boys only had about 20M barrels to dump (the rest they can take delivery of) and once those are done, they are Back in Business!  

    SCO/WCP, Kevin – Still hoping for $95 but, as above, greedy.  The reason I don’t care is we’re only going to roll loss to Dec anyway but if we can get out for .50 and be done with it, that would make me happy too.  

    Cool chart, JRW.  How to we rate least risky?  Do these people not watch CSPAN?  

    Next week/David – Depends on Europe.  Lots of political BS this weekend and we could crash.  Even if we went up next week, there’s no way I’d risk it into Thankgiving.  All they need is a slow Black Friday and they won’t have doors wide enough to accommodate the people fleeing the markets.  

    Poverty/StJ – I believe Bush and Perry call that the "Texas Miracle".  


  87. Phil, would you play AA for a bounce at this level? Could you tell me a couple of bull spread, one a bit agressive than the other for education?thanks


  88. U.S. Corporate taxes paid as a percentage of pre-tax earnings:


  89. Phil:
    Nice call on 97 oil. Great job!


  90. Phil,
    in the Dec SCO 37/43 bcs for net $2 — sold the weekly SCO 39p for 0.46 as an offset – suggest a Dec 38p at $1.60 to offset further?


  91.  JRW, that stat on VIX – is that if VIX is up 38% in 2 days, buy at the close of that 2nd day (when it is up 38% or more) and sell the next? Or is it buy at close of following day and then sell the next day after that?


  92. JRW,
    how do you employ your pivot points in IWM when a point is breached you reached or along with other indicators that being just one of them to take action?


  93. Yes Virginia, there still a Santa Claus…he doesn’t live in Europe.   Sold Nov 25 AAPL 370 Puts for 3.  If a DD or roll is needed, I will go to dec/jan at 360 or below and will be happy to take the assignment if it happens.


  94. sagemm1 / Confluence
     

    It’s all right here; the easiest but less profable system (my confirmation system) is all the way at the bottom !!


  95.  Phil,
    With the roll done in dec oil contracts, does it make sense to sell the SCO dec 40 call anticipating oil will climb again. Also, buy some Puts Dec 38′s trying to play oil back up again
    Thanks


  96.  PHIL, STJ, KURT, and all FAS lovers
    Now that we’re back in FAS, I’ll share some of my rough analysis of the original FAS money trades.  Having jumped into the FAS trade approximately one week before the August meltdown, my results pretty much sucked, but it still seemed like there was a good income strategy in there somewhere.  So, before the FAS reset,  I had done an Excel analysis at the end of October on the FAS weekly open/high/low/close prices from the beginning of the year, to try and determine if there was a workable strategy there.  Please note that none of these numbers mean anything anymore due to the reset.  I plan on reworking them, but I wanted to get input from you guys first.  (Also, if anyone knows a way to download the weekly price open/high/low/close information from either Schwab or TOS please let me know as I hand-entered it, and that seemed kind of stone-age.)
    Interestingly, even though the FAS index value dropped significantly throughout the year, especially in August, the VIX went up, so the prices for the options and the weekly price changes tended to stay the same, which made this initial analysis a little easier.
    The weekly range between high and low was about $3.00 ($2.96), the overall average price change for the year through October was ($0.37)/wk, but interestingly, we don’t care about that with the strangle strategy; we care about the absolute difference (plus or minus) in closing price from the prior week.  That average turned out to be about $1.53/wk, meaning that FAS tended to close up or down about $1.53 from the prior week, even though the price bounced around about $3 during the week.  Therefore any strategy which achieves more than $1.53 in credit per week plus the amortization of the long calls should be successful.
    I then ran through a scenario which simply assumed a purchase of the short strangle closest to the ending price + and – $1, i.e., if FAS was at $15 selling the$ 16 puts and the $14 calls.  Based on my notes, I assumed that a $1.00 strangle sold for $2.25 ($1.25 in premium) and a $2.00 strangle sold for $3.00.  There was no rolling or thinking involved.  You simply resold the strangle each week surrounding the closing price.  The thing I liked about this strategy is that it is pretty low-touch (trade once a week) and indifferent to my thoughts on which way the market is going.
    The strategy appears to be very successful, but only if large moves like the August drops can be avoided.  The trick is not to get stopped out during the normal weekly volatility that is responsible for creating all that lovely premium.  Setting a stop at a $2.50 change in either direction worked well as it is outside the average true range of about $3.00 ($2.50 vs $1.50 in either direction) This also assumes that large price movements which would stop us out don’t occur after hours, which is obviously a big if.
    StJ, you documented the FAS money trades.  Does my analysis seem to match what you saw?  Obviously the strategy’s success is highly dependent on the accuracy of my input assumptions.


  97. kallenjr / VIX
     

    You had it right the first time !!  8-)


  98. They are trying to jam down the Dollar to stop the bleeding, testing 78.20 and very bad if they can’t get below it.  Oil holding $97 and $97.50 is going to be time to give up on SCO and other oil shorts, I think.  

    TEF/Ron – No problem, you learn by doing over time.  Go watch "The Man Who Planted Trees" (see education section).  What is your investing goal – to have a long-term portfolio full of cheap stocks that pay you nice dividends (or through option sales) that you don’t have to worry about (trees that bear fruit).  So we buy stocks and give ourselves discounts by selling puts and calls so the only stocks we are "stuck with" are the ones we bought 2x for at a steep discount.  The others get called away and we have 10-20% more cash than we started with – wah, wah.  The problem people have with this strategy is really only impatience.  

    Take TEF, for example, if I have a $100,000 portfolio and want to possibly make TEF a $10,000 allocation then I’ll buy 300 shares for $18.78 ($5,634) and sell the June $15 calls for $4.50 and the June $17.50 puts for $2 for a net entry of $12.28/14.89.  So chances are I’ll be called away at $15 (not counting rolling moves down the road) but so what, that’s a profit of $2.72 (22%) in 8 months plus a couple of .45 dividends is another 7.3% for a grand total of $1,086 back on the net $3,684 you laid out.  Keep in mind that $1,086 is still over 10% of your full $10,000 allocation – in 8 months – and you’re not using 66% of the money (freeing margin up for other trades). 

    If things go poorly, then you are "stuck with" 600 shares at net $14.89 ($8,934) again assuming you don’t roll or anything else.  Meanwhile, the dividend is $1.70 so you’ll collect 11.4% dividend, even if you do nothing else but you can sell the 2013 $15 calls for about $2 and drop your basis another 13% and you STILL get your dividend so, at the end of 2012, unless they mess with the dividend, you can have a basis of $11.19.  

    So even if the stock drops about 40% from here, you’re still not in terrible shape and year by year you whittle down that basis until the stock is free and you just collect those dividends and you don’t even have to sell calls anymore.   Then, perhaps 5 years from now, you’ll have freed up the entire $10,000 to buy another set of stocks and, 5 years later, you may have 1,200 shares of stocks that cost you no cash but are paying you $1.70 a share (trees bearing fruit for the rest of your life).  $1.70 x 1,200 is $2,040 per year.  Not a bad return off of rolling $10,000 over for 10 years.  Again, the problem is that it’s slow and boring to establish but people who do it for 20 years aren’t bored at all – they are flying first class to luxury hotels while their stocks send them checks every quarter…  

    AA/TraderM – We are playing them for a bounce in AA Money.  Hopefully they fix things this weekend but, if not, we’ll just have to cover more.  You can play AA by selling the 2013 $7.50 puts for $1.10 and buying the $7.50/12.50 bull call spread for $1.20 for net .20 on the $5 spread.  Worst case is you own 1x of AA for net $7.70 (20% off current price and, of course, you can roll it) and best case is you make $4.80 (50% of current price and 2,400% of cash committed) on a 30% bump in the stock.  Of course, since you are $2.15 in the money on the spread, you only don’t make money if AA goes down – not a bad deal.  

    Thanks DC! 

    SCO/Canuck – Sure, you can sell Dec $38 puts.  Today SCO went up $1.35 on a $2.50 drop in oil so, at $41, figure it would take a $10 rise in oil to $107 to knock them down to $37.  So that’s the bet you make, oil doesn’t hit $107 by Dec expirations.  Seems reasonable to me.  

    Oil/Jasu – What makes sense is just cashing out and leaving it alone.  We like to play the contract expiration because the move is fairly predictable.  A month before expiration into a holiday weekend you may as well go shoot craps with your money.  

    FAS/RDN – Thanks for analysis.  The key is to be able to afford two double downs.  It’s very hard to imagine a sustained move that will outlast two 2x rolls to higher strikes.  It can happen and it would suck if it does but, even so, I’m sure if you test it over years, it works out due to the high average return in calmer markets.  


  99. A tad early to start the push, but…………………..


  100. WCP Moves:

    • DXD $16 calls (.85) rolled to Dec $15 calls at $2 and paid for with sale of $17 calls for $1 (new net $1.45)
    • NFLX Nov $67.50 puts should expire worthless (stop at .25, now .01)
    • DECK $105 calls should expire worthless (stop at .25, now .10)
    • SCO Nov $45/48 spread will expire worthless (bad)
    • SCO Nov $42 puts now $1.20 need to be rolled to Dec $37 puts, now $1.50.
    • FAS Nov $11 puts should expire worthless.
    • SCO Dec $36 calls at $5.80 can be cashed out 
    • FAS Nov $66 calls should expire worthless. 

    That will leave us with just the GNW spread, the DXD bull spread and the short SCO puts.  

     

     


  101. Thanks JRW! by the way on that vix stat what are you buying at the close of the 2nd day VXX, SPY??


  102. FAS / rdn4ever – We are currently making the same assumption (going even to the daily level) that a short strangle will decay rapidly enough that even large moves will not impact profits. But it really needs to be backtested for a while to get a possible system out of that. I have all the trades that we made for FAS Money so I could go back to do some checking to start with. This week’s trade seems to confirm the assumption, but it’s one week!

    But the caveat is that we don’t see moves like that first week of August which basically would have killed any position. True, you can roll and be patient hoping that things get back to normal which we did by skipping weeks and rolling to the next month. In the long run you might have 48 weeks that work out OK and 4 where you get clobbered but you might still come out ahead especially if you can collect 15% a week. I am also betting that premium on FAS will go down eventually. Options are basically reflections of what happened in the past so large moves like the ones in August are still fresh and will inflate the premiums. Should be have a calmer period, this will likely deflate the premiums. 


  103. By the way, notice what we have in the WCP – BALANCE!  


  104. sagemm1

    SPY !!


  105. Thanks again!


  106. JRW, would that VIX stat cover 10/28 through 11/1? 10/28 VIX closed at 24.53. Two days later closed at 34.77 (41% increase). Next day VIX closed at 32.74.


  107.  JRW, never mind. Buy/sell SPY. Got it.
    -ken


  108. SCO/Phil – Ah the voice of reason…was hoping for one more bump before cashing out but decided to take full advantage of my subscription and heed your advice. Out at $5.80 – it’s good to be back.


  109. The Oxen Group is going long on American Tower (AMT). Stock looks strong, got a big GS upgrade, and could be priming for another move higher.


  110. PHIL//GANG: congratulations to all of you who are over 25k in the WCP!!…i have stocking envy!


  111. stjean/FAS – Thanks for the info, the new positions and the access to the spread sheet.  Wonderful stuff.  Question:  I know shorts are shorts – but anyway to capture some of that short call leg in a no-naked-call portfolio?  (IRA) I can trade in a diff port that allows same – just curious.


  112. Trades / NF – I think that what Phil was saying about AA Money, you could trade the long BCS in your IRA and sell the shorts in a margin account. It’s your money anyway! TOS will not allow me to short options in my IRA. I hope this answers your question!


  113. HOLY STICK Batman…..


  114. Thanks Stj but i’m italian and here in italy we have no ira, i’ve just a tos account.By the way, i can’t find theAA $7.50/12.50 bull call spread for $1.20 on Tos. which expiration month is it?thanks


  115. stjean – D’oh! Different pieces or legs in diff accounts? Perfect. Thanks for all the personal attention and patience today.


  116. Hope/Pak – Not a strategy. 8-)

    Lobbying/Rain – So sickening isn’t it?  I

    Thanks Angel!

    Well, if this is the rally, it’s pretty pathetic.  Oil still can’t get over $97.50 but I wasn’t going to take a chance as we lost 78.20 on the Dollar and had several moves to unwind in WCP.  

    Volume is so-so (119M on Dow at 2:13) but at least not going down on more than light volume is good.  

    Oops, there goes oil and XLF over $12.50 so maybe party time but it’s hard to get excited about an upside bet.  

    USO $38 calls for .04 are a fun craps roll – in case they jam it up into the close.  USO at $37.80 and down .43 so $40 can return about $200 if oil gets back to even for the day (1% up at $98.50).  


  117. AA/TraderM – That was Jan 2013 and my math was wrong, it’s $2.20, not $1.20!  


  118. Attention / NF – You’re welcome… Fun stuff for me! 


  119. Phil what do you think of XLF for next week?


  120. Thank you very much for the tutorial.  Have a great weekend!


  121. Phil / Lobbying — You bet it’s sickening. Nice to see Abramoff exposing it for what it is though! Guess his 3 years gave him the time to think about what he had done, not to mention he was living amongst a population that he likely hurt (indirectly).


  122. seems quiet for ops expiration day??


  123. Seems like we are down about 200 points….but we are really up.  CRIS, buying more in here for 3.52.


  124. 2:00 PM On the hour: Dow +0.48%. 10-yr -0.4%. Euro +0.54% vs. dollar. Crude -1.35% to $97.59. Gold +0.27% to $1724.85

    Europe closes mixed after a day of competing rumors, the 3rd consecutive session of nearly unheard of (for the last few months) narrow trading ranges. Stoxx 50 -0.1%, Germany -0.6%, France -0.3%, Italy +0.4%, Spain +0.8%, U.K. -0.9%. The euro +0.4% at $1.3509. For the week, Stoxx 50 -4.3%

    The Supercommittee Spectacle: A Short History of the Deficit Wars (The Atlantic)

    Grover and the Giant No-Taxes Pledge (Loyal Opposition)

    How the GOP Became the Party of the Rich (Rolling Stone)

    New ad shows cozy ties between super PACs and candidates (Washington Post)

    Staying in cash: Lipper’s latest report on money market fund flows shows a net inflow of $2.9B by investors – accounting for a healthy proportion of the total net intake of $10B that mutual funds realized during the weekly reporting period. Data company ICI confirms the trend, computing a $6.4B gain into money market mutual funds based on its wider net of calculated funds.

    Using a credit card induces euphoria, new research shows (MSNBC/Red Tape)

    Norris: Loans Lose All Value, and More (NYT)

    GE Filed 57,000-Page Tax Return, Paid No Taxes on $14 Billion in Profits (Weekly Standard)

    A port in the storm thus far, could German Bunds become a selling target? An auction of 2 year paper would have failed earlier this week had the Bundesbank not stepped in to take up a record amount. "We’re getting a silent run on (EU) sovereigns," says an economist, "some people think they are better off out of Europe." 

    Continuing declines in government bond prices suggest Italy’s banks need an additional €6.1B in capital beyond that estimated by the EBA just weeks ago. An example: Two year paper valued at €0.97 on the euro on September 30 is now worth just €0.927.

    Spanish banks – sitting on hoards of "literally worthless" real estate – brace for "clean-up and restructuring," a top priority of incoming PM Mariano Rajoy. "If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital," says an analyst. Most exposed is Banco Santander STD – can its overseas book cushion the blow?

    Spain’s putative incoming PM, Mariano Rajoy asks markets to allow "more than half an hour," for the new government to solve the issues it is facing. Spain, this week, has been shoved into the spotlight, its 10 year bond rate rising above that of Italy’s. The nation’s banks continue to sit on an ocean of punk real estate assets – their recapitalization will strain government finances even more.

    File under if only it were a joke: Matthew Yglesias gets infuriated with a monetary policy game on the ECB’s website that is more than a little telling. Armed only with the ability to control short-term interest rates in the simulation, the ECB awards Yglesias a better score for running the globe straight into a depression than a scenario where he tripped over the inflation target but keeps unemployment low

    IntercontinentalExchange (ICE -0.1%) is cut to Underperform at CLSA based on expectations for lower volumes given the collapse in the WTI/Brent spread due to the recent Seaway pipeline sale.

    Another oil-boosting event we could have easily predicted – our friends at Rent-A-Rebel strike on a Friday afternoon ahead of the NYMEX close:  Chevron (CVX -0.2%) says that one of its contracted ships was hijacked off the Nigerian coast, with three hostages taken. The attack is the second on a Chevron-contracted vessel this month.

    As Amazon (AMZN -2.9%) shares near three-month lows, one factor could involve some negative initial feedback from this week’s Kindle Fire launch. Tech Crunch reports some users are suffering WiFi reception problems, with others saying the device shuts off its wireless when the display is turned off. No official word yet from Amazon, and it’s not clear how many devices are actually affected. [

    Carnival (CCL +3.9%) and Royal Caribbean (RCL +2.7%) shares enjoy the ride after Jefferies initiates coverage with Buy ratings for each, citing "a combination of low capacity growth and hence lower capex, proven cost control and demographics/value for money [that] will push ROIC above WACC for both companies.. not reflected in current share prices." 

    Foot Locker (FL +2.6%) CEO Ken Hicks addresses the potential effect of the NBA lockout on the company’s prospects on an earnings CC by saying he sees "little impact" on sales of basketball shoes. He says basketball footware has a lifestyle appeal outside of the NBA, as customers buy for fashion appeal or their own playing needs without consideration if NBA games are on tap.

    Told you so!  A new iSuppli teardown shows the cost to make the Kindle Fire (AMZN -0.8%) is $201.70, while the device sells for $199, reinforcing assumptions that Amazon sells the product at or near a loss. Among component suppliers, iSuppli says the biggest winner is Texas Instruments (TXN +0.2%), with total components accounting for ~13% of the device’s total bill of materials. 

    Motorola Mobility (MMI), whose shareholders just signed off on the company’s merger with Google (GOOG), is "fairly likely" to obtain a patent injunction against Apple’s (AAPL) iCloud service by February, according to patent expert Florian Mueller. Mueller claims Apple "experienced a dreadful hearing" today, in which a German court rejected all of its defenses. (previously)  

    Apple (AAPL -0.3%) is now accepting payment in Chinese yuan for App Store downloads, its latest move in what has become a key growth market. The change makes it easier for Chinese users, who previously needed to pay for downloads with a dual-currency credit card, which prompted extensive use of hacking, false identities and fraudulent gift cards.

    Three lunchtime reads:
    1) Why not break up Citigroup?
    2) Why these seven dividend stocks are better than cash
    3) Equity-bond decoupling shows risks have changed

     

    From Barry:  

    I love this quote from Bill King of Ramsey Securities, channeling Bill Murray

    “An inordinate number of traders keep buying dips and playing for a rally. They apparently adhere to the view of Carl Spackler (Bill Murray) in Caddy Shack. “I’d keep playing. I don’t think the heavy stuff’s going to come down for quite a while.”

    As we have warned for months, the current environment is very similar to 2008. In August 2007 the global financial system collapsed and the global economy was in contraction. But stocks kept rallying because equities always get it last and are susceptible to hope & hype.

    As the financial crisis worsened, stocks kept trucking. The DJTA hit an all-time high in July 2008. At the time the US was at least a couple quarters into the worst economic decline since the Great Depression and the financial system was imploding. The main difference now is sovereign governments are in crisis for bailing out their banks and economies; and central banks are left with only one option – to go Weimar.”

    Bill (both of them) sure can turn a phrase . . .


  125. SGEN – mrm (recommended) and I have the March $20/15 put spread sold for $3.  Better price now @ 3.35.  I am doing a few more.  Most to lose is 1.65/contract.


  126. US Debt to GDP Hits 98.9% And Rising. (graphs)

    Tax Spat Stymies Debt Panel. Both Parties Dig In Over Bush-Era Cuts as Deadline Looms for Agreement.

    How Congress Occupied Wall Street. Politicians who arrive in Washington as men and women of modest means leave as millionaires. Why?

    Iowa: Gingrich 32%, Romney 19%, Cain 13%.

    Tighter Credit Sending Warning Signals. (graph) The US market has been buoyed by a string of better-than-expected economic reports that have helped encourage the belief that the US is a relatively safe haven, insulated from the problems of Europe. But these data are coincident, or lagging, data at best, warns Mike Darda of MKM Partners. Leading indicators are found in the credit markets and are pointing to tighter financial conditions — and lower stock prices — in the future.

    Banks Bracing for 2012 Euro Financial Apocalypse. As the European debt crisis threatens to spiral out of control, banks are scrambling behind the scenes to protect their balance sheets and hedge their exposure to ride-out an increasingly scary 2012.

    UK Banks Sharply Cut Lending to Periphery Eurozone – FT. Britain’s banks have shrunk their lending exposure to peripheral euro zone counterparts by a quarter in just three months, the Financial Times reported on Friday. According to data compiled by the newspaper, used as the source for the article, the big four UK banks cut interbank loan volumes by more than 24 percent to 10.5 billion pounds ($16.6 billion) in the three months to end-September, as Europe’s debt crisis worsened. UK’s Big Four of HSBC, Lloyds, RBS and Barclays reduced sharply their volume of loans to Greek and Spanish banks, continuing an earlier pattern, but the Italian loan slump was new.

    Angela Merkel Says UK Must Work With The Eurozone Or Risk Being ‘Left Behind’. Angela Merkel has charged Britain to “work with us on the euro” or risk being “left behind” ahead of a testy summit with David Cameron in Berlin on Friday. The German Chancellor will demand British support for treaty changes to allow greater intervention in national economies – powers she says are vital to stem the crisis engulfing Europe’s core.

    Prime-Mortgage Standards Tighter Than Pre-Boom Levels. Lending standards for prime mortgages are tighter now than they were even prior to the housing boom. A chart accompanying the Capital column on mortgages this week showed graphically how lenders raised the bar on making loans after the housing bust — and still haven’t returned it to anything resembling what once was normal.

    Playing Chicken With The ECB: The Market Has Issued A Boycott On Draghi Until He Prints

    Why The ECB Is NOT Going To Be A Lender Of Last Resort.

    European Firms Face Lending Woes. Companies Struggle as Banks Lend Less, at Higher Rates, Forcing Businesses Into Public Markets With Selective Investors. Euro-zone countries aren’t the only borrowers whose financing costs are rising: European companies are facing higher capital costs as the debt crisis curtails bank lending and keeps wary investors on the sidelines. The amount of European corporate debt in need of refinancing is set to jump in 2012. But banks are lending less and at higher rates, forcing companies into public markets, where investors are becoming increasingly selective. Less corporate borrowing leads to less corporate investment—another drag on already sickly economies.

    Asian Powers Spurn German Debt On EMU Chaos. Asian investors and central banks have begun to sell German bonds and pull out of the eurozone altogether for the first time since the debt crisis began, deeming EU leaders incapable of agreeing on any coherent policy.

    European Banks Face $270 Billion Goodwill Hangover for Past Acquisitions. European banks may have to write down some of the $270 billion of goodwill from their purchases in the run up to the financial crisis before they can sell assets, or new stock, to bolster capital.

    EU Rules May Soak Up $93 Billion of Utility Cash: Energy Markets. Companies from RWE AG to Vattenfall AB may have to find an extra 69 billion euros ($93 billion) to meet unprecedented European Union regulations designed to crack down on speculation in the region’s energy markets. 

    Copper Traders Most Bearish in Two Months on European Crisis: Commodities. Copper traders and analysts are the most bearish in almost two months because of mounting concern that Europe’s debt crisis will curb demand in the region that accounts for about 19 percent of global consumption. Eleven of 23 surveyed by Bloomberg expect the metal to decline, the second consecutive week that their outlook worsened and the highest proportion since Sept. 23. The last time so many were bearish, prices dropped 4.6 percent the following week.

    China’s New Banking Regulator Said to Warn on Government Loans. China’s new banking regulator warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said.

    China plans to allow local government financing vehicles to securitize assets under a trial program in Guangdong, Jiangsu and Zhejiang provinces and in Beijing city, citing National Assoc. of Financial Market Institutional Investors. Airports, toll roads and sewage treatment projects will be among assets that can be securitized.

    China Home Prices Fall in 33 of 70 Cities. China’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs and scrapped the reporting of its national average housing data this year.

    China Power Firm Margins Worst Since 2006 as Coal Rises. Chinese power plants face the smallest profit margins in at least five years as government- mandated caps on electricity prices prevent utilities from passing along coal-price increases.

    Chinese exports next year will be "very grim," citing He Fan, deputy director of the Chinese Academy of Social Science’s institute of world economics and politics. The euro zone may have another crisis early next year, He says.

    Nope, still not finding reasons to get bullish – and I am trying!  


  127. Motorola-Apple / Phil – This patent war is really getting out of hand… And now we have some real heavyweights on each side as Motorola’s lawyers are being bankrolled by Google! Looks like Google is getting into the online music business (free storage for 20,000 songs BTW that you can stream on any platform as it’s browser based – I tried it and it really easy to setup) and just in time, Moto files an injunction against Apple on iCloud. Coincidence? 


  128. XLF/GBor – I like XLF at this level but they could go lower and next week is a total crap shoot so I like cash better. 

    Abramoff/Rain – As I said above re. lawsuits, etc.  Once they ruin someone’s life, they are free to speak the truth.  That’s why, unfortunately, we only hear these things from "criminals" – those with inside knowledge and something left to lose know they’d better keep their mouths shut.   Unfortunately, Abramoff is easily brushed off by Conservative Pundits as a criminal no one should listen to – that’s how the game is played…

    78.26 on the Dollar, oil at $97.67 and not looking like it’s going to pop now.  Gold $1,725 and indexes weak-looking. 


  129. Sadly, there are no coincidences, StJ.  Don’t forget one of AAPL’s key potential witnesses just died so many patent projects now have to be argued with hearsay evidence, a huge disadvantage!  


  130. UNG – can’t quite figure this one out. sure, global stocks keep getting "found" and increasing (macro downward pressure?) but every analyst seems to think it should be going up..  Here is an informative report from, of all places, the Office of the People’s Council – Wash DC (also showing and supporting rising prices).


  131. Gingrich / Phil – The same guy who went after Clinton for his affair while cheating on 2 wives (that we know of), who railed against the GSE while collecting millions from them, who was sanctioned by Congress for lying is getting 32% from the supposedly family values oriented GOP voters in Iowa. Like you said, what do these guys have to do to lose credibility? Obama would only look funny at an intern or bounce a check and they would impeach him!


  132. Patents / Phil – Apple is not clean in that fight either as they have been going after Samsung hard just as Sammy is starting to make a dent in the smartphone market. The only winners in that fight are the lawyers as far as I can tell. 


  133. Got to go for this afternoon…

    Have a good weekend everybody! 


  134.  Funny Phil! I hear you on the bullish premise!


  135. Gee Phil, thanks for all those cheery news articles about Europe.  ;-)

    I guess we should be short Euro, long Dollar?  I mean if the ECB can’t or won’t be the lender of last resort, I see no way this ends happily.  Rather it ends in crisis and chaos. 

    But what do I know.


  136. Phil, on Yentervention, do you think given next weekend being a 3and half day one provides an opportunity to BOJ to have another go?


  137.  Phil—those cheery news articles suck!
     
    FU news!!!!


  138. "In a 3-year study, EU concluded there is no evidence that drinking water can cure dehydration and has banned bottles from stating that claim. Previously, EU officials banned the selling of overly bent bananas and curved cucumbers but backed off after international ridicule."

    And yes, I am bored !!

     


  139. The only bullish premise I see is that one can reasonably expect the unknown unknowns to skew towards the unexpected upside suprise, since the pendulum of sentiment has swung so far negative.  I know, not much to go on but the known issues which are mostly negative should already be priced in.


  140. They are trying hard to pin AAPL at 375.  Sold some of same calls for a buck.


  141. UNG/Scott – Like oil, there is more supply than demand but, unlike oil, it’s very hard to hide nat gas.  We are literally bursting at the seams with the stuff.  In fact, in Europe last summer, the gas companies PAID large businesses who were able to use and locally store gas because they literally could not fit another cubic foot in the system.  This is why they want LNG so badly, by cooling and compressing the gas, they can stick it in the ground and hide it on ships and fake demand – just like oil!  

    Gingrich/StJ – It is truly amazing to me that he’s even taken seriously.  Trump would be President if he ran for sure…

    Patents/StJ – It’s not a matter of who is clean – I’m just saying AAPL has a big disadvantage now.  The whole thing is idiotic – the pace of human innovation has been halted by the courts.  Intellectual property is another stealth issue creeping up on us – already I have people contacting me offering to prosecute anyone who uses my words without authorization – it’s just silly at a certain point.    Have a good weekend.  

    Short Euro/JC – Not really because the whole thing can be fixed tomorrow.  The US has a debt problem, we owe 100% of our GDP already and we’re going another 10% in debt next year.  What’s the solution?  Print 10% more money and use it to pay the bills.  Does it devalue the currency – yes, but so does taking it from taxpayers and paying bills in misguided austerity measures.  Printing money allows the economy to recover without putting undue additional stress on the economy by cutting back existing programs and jobs.  It’s not a complex issue.  That’s all the EU has to do as well, print up about $1.5Tn to get them through 2012 – after that, if the Global economy hasn’t picked up, then they can do it again.  Meanwhile, a little cut here a little tax there – nothing too drastic and all would be well.  

    Countries are just businesses.  They have clients (population) and service providers and their goal is to take in more than they make.  Sometimes, business conditions are good and sometimes they are rough.  When your business is going through a rough time you can cut staff but countries can’t really do that because the people would still be in the country.  It’s like laying off 10,000 people and they still come to work every day and take up space and do nothing.  What’s the point?  On the other hand, if you can get a loan and refinance your debt and come up with some new ideas to put those people to work and make money – wouldn’t you rather do that?  That’s why austerity is idiotic.  

    Yentervention/Checho – I think each new Japanese Government tries it once and then is shocked by the backlash.  These guys had their swing and I don’t think they are anxious for another.  

    LOL Jabob!  

    Time to start the weekend, JRW.  

    Unknowns/LV – There are known knowns; there are things we know we know.  We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.

    That, by the way was the premise Donald Rumsfeld used for invading Iraq!  


  142.  AMZN: Kindle
    My $.02, I was reluctant to go to Kindle earlier this year. Now it is an essential as I read and listen to my Audible audiobooks on it and buy way more stuff on AMZN.  Just got the Fire and oddly I prefer the original for reading.  I like the typeface, the weight and the battery life (3weeks) better.  Same preference would be relevant over the IPAD as e reader. The Fire is nice for video and in particular browsing while not at my desk or when I don’t need my netbook so for the price still a pretty good device for me and and killer sales generator for AMZN. I’m not long either AMZN or AAPL since I’ve learned the hard way just because I like a product it is not necessarily a good reason to own the stock. 


  143. Anyone else’s TOS partially delayed this afternoon?


  144. I am gone next week for a little RnR.  Have a great holiday all! 


  145.  Kindle/Lincoln – I agree.  Tina has a basic Kindle and it’s an ideal book reader.  Sometimes a specialty tool is better than a Swiss Army knife.  I tried to get a company I consulted for to make a laptop with a B&W kindle screen years ago but they insisted that people wouldn’t buy a machine that was lighter with 10 times the battery life because it was black and white so I do have skin in the game as I want to be right and I’m very disappointed by how quickly AMZN went the other way and added color and other BS that a serious reader doesn’t need.  

    TOS/Doro – You have to call them and fill out some forms.  More changeover BS. 

    Have a good vacation Pharm!  

    Have a great weekend everyone who’s leaving early (and everyone who isn’t, for that matter).


  146. Phil / Europe – My point was that in this article (Why The ECB Is NOT Going To Be A Lender Of Last Resort) the author explained why the ECB can’t or won’t just print money (to monetize Euro country debts).  It IS a complex issue.  I’m not saying I believe her thesis entirely, though it is important to understand it.  In the end I think the pressures to do the responsible thing for their constituents (like you suggest) might override the obstacles she cites.  How that happens, however, I’m not sure. 


  147. zzzzzzzz… what a day. 
    I think Phil is right and we are setting up for an interesting day on Monday, I mean after all, what could happen over a weekend?  Have a great one all!!


  148. SPX June BPS 1200-1000 is 5800.  I am buying 1 for some protection……Pays 14K…for a JUNE expiration…


  149. Pharm / Next week

    Are you off to the mid-west ? We’re going to be close to you, 90210 !!


  150. SPY for the same 120/100 is 5.85, so 10 of those do the same thing.


  151. Cabo San Lucas….OH MY!


  152. what coincidence and precision
    SPY just under 122
    VXX just under 47
    Dancing around and closing exactly on target!!!
    Good job!!!!


  153. Back Thursday, so if you are around on the weekend, drop me a line!


  154. Pharm,

    Leaving 11/26; so I could meet you at say the Four Seasons on the 25th !!


  155. ECB/JC – The major flaw in everyone’s talking about what the ECB can and can’t do is that the EU constitution can, and likely will, be changed to allow them to do whatever it is they eventually decide needs to be done.  Our constitution gets changed all the time – why do people think the EU can’t change theirs?  Never waste a good crisis, you know…  

    Well that was a non-event for the day.  Certainly not a show of strength. 

    Later all – both my kids made honor roll so I’ll be doing whatever they want this weekend!  


  156.  Congrats Phil to your kids making the honor roll!  Catch u on the rebound!


  157. JRW – Done. B in touch.


  158. Never waste a crisis/Phil  I agree.  In fact, I do believe ECB is controlling yields selectively to manipulate the political landscape in each country to its own liking as an interim step, gaining the concessions and forcing the reconstruction of the social contract that has held in euroland for decades.  It’s on purpose, I think.  The endgame will only take place after the sovereigns capitulate to the ECB’s vision of restructuring of fiscal policies – Before any restimulation will take place.  Things are NOT as random as they seem, and I strongly believe that the ECB will ultimately starting printing, perhaps even without german democratic approval.


  159. UNG – and more interesting info here (Nat Gas Supply Assoc)  for anyone interested.


  160. Wow, what a week! Great job, Phil. The feeling is totally different when having you back. As a newcomer and having a daytime job, I try my best and still feel difficult to follow all the day trading ideas sometimes. I need to have sometime to digest all this week’s posts and comments on the weekend.
    Have a nice weekend, guys.



  161. http://reasonableviews.com/2011/10/31/four-ways-to-close-the-income-inequality-gap/
     
     
    Education has seen the least innovation of any industry you can think of.  In many ways, we’re using the same techniques that were used 100 years ago. The Internet has brought new ways to cheat on papers and tests and new ways to catch cheaters, but little innovation in terms of education itself.  Education is a major industry employing millions of people with spectacular amounts of spending. Why so little innovation?  How does it compare to say, the transportation industry over the last 100 years?
    Transportation went from coal burning trains to diesel trains, internal combustion autos, airplanes, transoceanic freighters, transcontinental pipelines, computerized distribution systems that can route millions of packages around the world overnight through Memphis, individual package tracking, etc. Teachers are still teaching groups of 30 students by standing up in front of them for six hours a day and sending them home with a textbook to do homework.


  162. At the close: Dow +0.22% to 11796. S&P -0.04% to 1215. Nasdaq -0.59% to 2572.
    Treasurys: 30-year -0.37%. 10-yr -0.38%. 5-yr -0.04%.
    Commodities: Crude -1.43% to $97.41. Gold +0.24% to $1724.40.

    Currencies: Euro +0.45% vs. dollar. Yen -0.04%. Pound +0.26%

    Market recap: Stocks ended mixed in another thin, choppy session, despite the expiration of monthly options, concluding the worst weekly decline for each of the three major indexes since September. As political uncertainty reigns in Europe and the U.S., investors showed little interest in taking a strong stand ahead of the weekend. Advancers and decliners finished nearly even on the NYSE.

    With just a few days to go before the deadline, the congressional supercommitee appears headed for failure- further proof the U.S. government just can’t function, and another blow for business confidence. Gallup’s Frank Newport: "I think the reaction of the public… will be even more negative, not just about the government but their confidence in the economy in general.” 

    The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
    Superbad
    http://www.thedailyshow.com
    Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

    The House rejects a Republican-led balanced budget amendment, falling short of the two-thirds majority needed to forward it on to the Senate. The House agreed to conduct a vote on the amendment as part of the deal Congress approved in August to raise the government’s debt limit and form the supercommittee.

    Congressional leaders begin informal talks on a smaller deficit cutting deal as the supercommittee strugglesto achieve anything close to its $1.2T mandate. A fallback plan would preempt automatic cuts that would go into effect in 2013 should the supercommittee not reach agreement by Thanksgiving.

    S&P 500 firms have mostly beaten analysts’ Q3 earnings expectations, but their projections for Q4 haven’t been as impressive, according to FactSet. Of companies providing Q4 guidance, 74% have fallen short of expectations; after both Q1 and Q2, 64% of companies issued lower than expected guidance.

    QE3 is on its way, says Nomura, predicting the Fed will announce new measures to boost the size of its balance sheet in 1H 2012, after Operation Twist winds down. However, it expects the next round of monetary easing to be relatively modest, with the Fed’s balance sheet "merely" rising from $2.64T to $3T in 2012. (Dudley comments- That won’t be enough to help.

    From the no inflation here department: UPS announces a 4.9% rate increase for both ground and air shipments, effective at the start of 2012. Next day air and 2nd day air packages will see a 5.9% bump. (PR- That’s a big cost increase for thousands of businesses.   

    Ruh-oh Shaggy!  Evolution Securities mines some interesting data: During the summer, German bond yields moved in the opposite direction of Italy’s on 86% of the days, as one might expect given its safe haven status. Since then, only on 69% of the days. Combined with a nearly failed bond auction this week, it suggests contagion is moving ever so slightly into the EU’s true core.

    It may be the only way out of Europe’s quagmire: Bill Gross thinks the ECB "must write checks – trillion-dollar ones." Jim Reid says if it doesn’t, his best advice is to "dig a hole in the ground and hide." Laurence Fink blasts Germany for "playing a dangerous game," and Dylan Grice evokes visions of Nazism. But Bob Janjuah doesn’t think ECB will come in as lender of last resort and wouldn’t be effective if it did.  - Gee Mr. Gross. if the ECB prints Trillion-Dollar Checks – won’t that make bond prices soar?  Ohhhhhhhhhhhhhhh…..  For God’s sake, doesn’t anyone who DOESN’T have an agenda ever have an idea???

    "You better have a plan, but we have not heard it yet," concludes an open letter to ECB member Jens Weidmann from professor Charles Wyplosz. The professor is miffed Weidmann is relying on trite things like the law, central bank independence, and moral hazard as reasons for not printing Europe out of its troubles. No printing is necessary, argues Wyplosz – a guarantee setting a floor under bond prices will do the trick.

    The EU’s October deal with international banks to take a 50% haircut off the value of their Greek bonds – without any corresponding CDS payout – is likely what’s behind the selloff in European sovereign debt, says Artio’s Don Quigley. The very structure of the agreement begs the question as to whether the CDS market is a reliable hedge for European sovereign credit risk. Consequently, if everyone that thought they were hedged with CDS now thinks they’re worth nothing – "They have to sell.” 

    Don’t expect China to ride to the world’s economic rescue, and don’t expect its booming growth to continue, Gordon Chang warns in predicting a "hard landing" coming for China. Bubbles created by excessive government stimulus have not been addressed, and transitions inside the political system are making it less likely they will be before market forces intervene. 

    Again???  I’d be buying bank stocks "hand over fist," says banking analyst Dick Bove. "On a fundamental basis, it’s almost impossible to believe that these stocks are not dramatically underpriced." As he sees it, investors should be taking advantage of the turmoil in Europe to buy, not sell every time the market "freaks out" over fears of the sovereign debt crisis spreading. His picks: Bank of America (BAC), Morgan Stanley (MS), State Street (STT) and US Bancorp (USB). - This guy is the Abby Joseph Cohen of the Banking sector!  

    "The consumer is simply an income stream and exploiting that is the purpose of the banking organization," says David Mooney, formerly of JPMorgan, now the "socialist" CEO of a credit union. Debit card fees, shoddy mortgage practices, and robo-signing shouldn’t surprise anybody. It’s all part of the game- I like this guy!  

    S&P will update the credit ratings on the world’s 30 largest banks before Christmas as the agency tries to apply updated methodologies. Watch out for downside surprises, but one analyst sees the move as maybe signalling a bottom in the sector – ratings agencies tend to alter their process after the market has already made its move down, says Ryan Brist.

    Dividend stocks are the market’s least ugly dogs now, and the higher the yield, the less ugly, Bespoke writes. With the S&P down 6.4% since Oct. 28, the two deciles with the highest yielding stocks have averaged declines of 4.7% and 4.3%. “During times of market turmoil, high dividend payers typically outperform, and that has certainly been the case during the current pullback." 

    Several cloud software names moved lower today in the wake of industry leader’s Salesforce.com (CRM -10%) FQ3 report. CTCT -6.3%TNGO -4.2%N -3.7%SFSF -4.4%TLEO -2.5%. (more on CRM

    Though many analysts are defending Salesforce.com (CRM -10.9%) following yesterday’s FQ3 report (III),JPMorgan’s John DiFucci isn’t one of them, lowering his PT to $115 in a report titled "Slowing Business Momentum." DiFucci, who asked a pointed question during Salesforce’s earnings call, is concerned about the fact new subscription billings growth dropped to just 12% Y/Y, well below a 34% consensus. 

    Veteran fund manager David Winters of Wintergreen Advisers likes to keep a concentrated list of 15 stocks in his value-oriented Wintergreen Fund – tending to hold names for 4-6 years. He stays underweighted in the tech and communications sector, scared off by the "constant change and immense competition." Winters’ high conviction buys: PMRAIKOMACNQ

    Blackstone (BX) keeps snapping up commercial real estate, set to buy $800M more in the guise of a distressed portfolio of 16 office buildings. After its deals with Extended Stay Inc. and General Growth Properties, the firm is adding ever more to its (still risky) bet on CRE. 

    Cooper Industries (CBEwill replace Janus Capital Group (JNS) in the S&P 500 index after the close of trading next Tuesday. CBE +7.40%JNS +0.50% AH.

    An analysis from Bloomberg finds Wal-Mart (WMT) widening its pricing advantage for toys over Target (TGT) and Amazon (AMZN) as the holiday season approaches. Has it already been 4 months since Morgan Stanley declared Wal-Mart to be losing its pricing edge? 

    The Financial Times says it now has 1M registered users for a mobile app leveraging HTML5 technology, which allows it to sidestep Apple’s 30% cut on content purchases involving iOS apps. Facebook and Amazon (AMZN) are also embracing HTML5; the bigger concern for Apple (AAPL) isn’t losing the 30% cut, but thelong-term potential for HTML5 to act as an alternative to writing native iOS (and for that matter, Android) apps. 

    Another week, another set of rumors about future Apple (AAPL) hardware. The latest comes from iLounge, whose source claims: a) the iPad 3 will be marginally thicker than the iPad 2 (0.7 mm), to accommodate itshigh-res display, b) the iPhone 5 will have a 4-inch display and arrive in the summer, c) the MacBook Pro will undergo a redesign featuring a thinner form factor. (also


  163. Barry’s succinct summation of week’s events:

    Positives:

    1) Oct Retail Sales surprise to upside even after taking out gasoline sales
    2) 6 month outlook in both NY and Philly mfr’g indexes point to optimism
    3) NY mfr’g current outlook a touch better then est
    4) Initial Jobless Claims fall to 388k, 7k less than expected and the 4 week avg drops to lowest since Apr
    5) Multi family construction permits rises to most since Oct ’08 in response to growing landlord pricing power
    6) NAHB home builder index rises 3 pts to 20, 2 pts better than forecast and the best since May ’10
    7) CPI recedes to 3.5% y/o/y from 3.9% but oil now $10 above Oct avg and rents moving higher
    8) Japan’s Q3 GDP rebounds 6% after 3 Q’s in a row of contraction


    Negatives:

    1) Yields jump in Spain, Italy, France, Belgium, Finland and the Netherlands
    2) Euro zone Q3 GDP up just .6% annualized but in line
    3) German ZEW 6 month outlook falls to lowest since Oct ’08
    4) Euro basis swap jumps 20 bps to highest since Dec ’08, US$ 3 mo LIBOR approaching most expensive since July ’09 and swap spreads rise to levels last seen in May ’10
    5) Even with mortgage rates just a few bps from multi decade lows, refi’s fall 12.2% to 4 week low and purchases fall 2.3% but have no fear, Evans and Dudley of the Fed said lower rates from here will help
    6) Not So Super Committee charade toying around over $1.2T of deficit reduction OVER 10 yrs in the context of a $15T economy and $60T of unfunded liabilities today
    7) UK unemployment rate rises to 8.3%, the most since 1996

    8) I saw Guns n Roses last night, Axl went on at 11pm, I got 3 1/2 hrs of sleep, I’m tired. 


  164. Going Rogue – excellent video from australian journalist re rogue traders, banking.


  165. Phil- my broker just pitched me on a structured note….wanted to get your thoughts…3yr note indexed off EEM that pays the holder 17% per year and provides 30%downside protection under certain condition…at each 1yr period there is a “look”… if EEM is flat to up, it pays you 17% and trade is over, if down less than 30% it rolls for another year, at year 2, if index is flat to up, it pays 34% (ie, 2yrs at 17) and trade is over, and same scenario for yr 3 (plus another 17 assuming it rolls from year 2)…if at any look period it is down more than 30%, you own it. At end of 3yrs if index is less than flat but greater than -30, you get your principal back only. Would you take this or would you structure something on your own? If the latter, how? Thanks


  166. FAS / rdn4ever – I just ran a weekly volatility analysis on FAS for the last 2 years and here is what I get:

    Over 5 weeks – 9.88%
    Over 10 weeks – 11.23%
    Over 50 weeks – 7.35%
    Over 100 weeks – 7.17%

    That means that for example, in the last 5 weeks FAS could have been up or down 9.88% during the week. This would certainly explain the fat premium as this is pretty high volatility! As you can see, volatility has also gone up in the 10 weeks as compare to the past. As an aside, daily volatility is around 3% now which is pretty impressive as well.

    But my guess would be that selling a strangle with 10% protection on the upside and downside would have a good chance of making you some money each week. For example, next week 53/65 strangle can be sold for around $1.80 against $6.21 of margin. Ideally, I would rather have a 52/65 but they don’t sell the 52 strikes. In any case, it’s close to 30% of margin for a strangle that has a better than average statistical chance of expiring worthless. Those are crazy premiums. And it will decay pretty fast anyway. As an example, on Monday we sold the 61/65 strangle in the FAS Money trade. FAS was trading at 64 at the time so it was aggressive. The 10% strangle would have been a 58/70 strangle that you could have sold for $2.39 (based on TOS Thinkback) and guess what, it expired worthless on Friday! It was already up 10% of committed margin by Tuesday. You could close then and beat the average yearly return of a mutual fund in one day!

    I am certainly not advocating that you go ahead and sell that strangle Monday, I am just spinning a theory based on stats now, but it might be fun to paper trade that for a while. Also keep in mind that 10% would have meant disaster in August so you got to be ready to roll as needed! Kurtww and I talked about selling a strangle everyday and it seems that a 5% strangle could also make sense based on the daily volatility. Too many possibilities, too little time!


  167. And by the way, volatility is very similar on TZA and it has weeklies as well. You can get around 30% of committed margin for a 10% up/down protection strangle as well… Last week was nuts and it would have worked like a charm! But once again, very risky and you have to be ready to roll! My crystal ball is telling me that there will be some stomach churning weeks ahead!


  168. stjean/FAS – If you have time, talk more about the weekly plays – esp managing the position well. I’d like to do some weekly cash, but since moving away from simple short puts on a couple stocks I am or was comfortable with (AMZN, AAPL and NFLX,) I’ve been beat up and impatient with weekly Bull CSs. And frankly, I’d rather be selling legs anyway. Tho naked calls scare me more than anything – but, again, probably a question of managing a short strangle well. Can we set stops to protect ourselves too? And-or is there a cheap and longer OTM that can be added 1:1 or in ratio to provide some cover for the short calls and still leave us profitable? And with more margin room?


  169. stj – do you have the link to the original post for the most recent FAS money trade? I was trying to find it but I can’t for some reason. I have your spreadsheet, that’s very helpful. I understand the XLF spread is to provide some upside cushion in case we go much higher, is the rationale that we are already very cheap hence no downside spread is needed? Would it make sense to have 10 XLF Jan 13 9 or 10 puts as a disaster hedge? That would be pretty cheap insurance. 


  170. GNR – Nice. So how was Axl? Always struck me as a David Lee Roth type – in a good damaged way. GNR without Axl (despite he phobias)? Mere cast fodder for Dr. Drew. VH without David Lee Roth? VH WITH Sam Hagar. Which resulted in three things (tho many fanatics still traipsed along loyally): A massive drop in collective band IQ, pre-school lyrics and zzzzzzzzzzzz. (Tho Sammy will always deserve props for Montrose back in the day – after that, pure dolt.) No doubt – on different scales – Eddie and Slash made their bands massive, but without their original frontmen, who woulda cared?


  171. Axl is to my ears, like nails on a chalk board….sorry….


  172. 1020/Axl – lol. It certainly only works for me in a specific context. I don’t want to hear him solo or singing ballads. Any more than anyone wanted Roth to be singing California Girls. Frankly, Abbey Lincoln is my favorite real singer. And from the pop-rock world, Aimee Mann is a goddess.


  173. FAS / NF – I don’t know how much I can tell you about managing the positions. On these trades, Phil usually advises on the changes needed – I only make suggestions. We all have our trading styles and left alone I would probably trade differently. Phil is more aggressive for example and it has worked out. He usually likes to squeeze as much premium as he can from the position. In my FAS example yesterday, I pointed out that you could have collected 10% of committed margin after one day – for me, that would be enough for the week and I would close the trade. Some might push to try to collect the full 30%.  As far as stops are concerned, on the old FAS Money we rarely set stops (only twice I think and once was a mistake as we recovered) relying on the fact that we could usually roll out of trouble. It got dicey though! But it’s really up to you and your adversity to risk.

    Regarding the OTM longs, this is how the AA Money is setup and how we had the old FAS Money. The long options do reduce the margin needed for the trade and do provide cover for violent moves. With the longs, you can actually trade these strangles in an IRA for example. But I went back to the original FAS Money trade to see what happened with the longs as FAS crashed 50% and we did make a profit on the long puts on the way down, but we used that profit to roll down the long strangle not the short options. So it seems that the long strangle only help reduce the margin requirements. I can see some cases where you don’t need to roll one of the long legs and use the proceed to roll short options though – it almost happened with AA Money the first week. But it has not happened yet. We ended up breaking even on the long strangle so it had no impact on the trade results. At least, it’s my read of what happened. 


  174. FAS Money / Kurtww – The trade was setup by Phil in this post:

    http://www.philstockworld.com/2011/11/14/monday-morning-musings-2/#comment-1475481

    Basically, Phil is betting that XLF will be over 13 in January 2013 (breakeven of the BCS). And we finance that BCS by selling a weekly FAS strangle. Keep in mind that the BCS will gain/decay slowly so even though the trades are related financially, I don’t think that you can count of the BCS to bail you if FAS takes off with XLF. Also, given the premiums in FAS, if you wanted some downside cover for the strangle it might make more sense to buy OTM FAS puts instead just like we did in the old FAS Money. But see my comments to NF above regarding the value of that cover. The BCS could be adjusted in the meantime if needed. Just my $0.02 though!

    Phil was making the comment earlier this week that if you don’t overcommit yourself, we are probably only 2 2x rolls from cover in most cases. For example, the 55 Puts that we have sold this week roll even to the December 41 Puts or 2x to the December 35 (roughly as there are other factors to consider). There might be a 2x trade to next week to begin with. You could roll even in January below 30 so even if FAS is cut in half like in August, you can still roll out of trouble. It would not be fun, but neither is losing money! And you could always stop out… And the calls that you sell cushion the blow. At one point this week, we were down close to 15% for the week and we were still even on the trade!


  175. retailers with sales already?

    just got a mailer from REI – already have a sale on for winter clothes .

    25 % off.

    dont think its a great sign.

    anyone else noticing sales?


  176. REI – Haven’t noticed big sales yet. But I see a piece in Post or Times this weekend re REI expanding number of store substantially – esp east. Maybe tied to that too.


  177. Samz/sales,
     
    just got a sales event notice from eddie bauer.


  178.  


  179. Good afternoon! 

    Rogues/Scott – They are just scapegoats.  Nothing happens at an IBank that someone else doesn’t know about unless the CEO is the one making trades (and even then the CFO would know).  Just when the trades go badly, they find some guy to blame.  You never see them arresting someone for making a Billion Dollars but they’d be taking the same risk – THAT guy isn’t called a Rogue, he’s called the new Senior VP.  

    Structured notes/SNS – Ah my favorite scam!  First of all, EDZ is our primary hedge for a reason!  Second of all, you get zero if EDZ is down a penny?  That’s a crappy deal – the still have your money, don’t they?  Let’s see, you give me $100,000 and I offer to give you 17% return only if EEM holds $38.50 for a year and I guarantee your money back down to 30% but below 30% you take the loss, right?  30% down from $38.50 is $26.95.  The first thing I see is that I can sell 30 2013 $35 puts for $5 and that nets $15,000 if EEM is over $30 (and you don’t get paid unless they are over $38.50) and ties up just $12,000 in margin on TOS (for the bank, probably $12) and then they get to play with your $100,000 all year long and their worst case is they owe you another $2,000 for your $100,000.  See how that works, the bank can leverage that money 10x and buy $1M worth of 10-year notes at 3% and pick up $30,000 and what are their two outcomes?

    Either EEM is below $35 and they keep the $15,000 and are committed to buying 3,000 shares for $105,000 so net $90,000 so they make $10,000 and losses are your problem.  If EEM is over $38.50, you get $17,000 (which the bank already collected $15,000 of on the short puts).  Of course the Bank can do a 3-year sale at one time to satisfy the loan.  

    Now you can’t lever your money 10x like a bank but you can collect the same $15,000 for risking owning 3,000 EEM at net $90,000 (another 15% discount for you) and that’s $15,000 on $85,000, which is 17.6% so you can get fancy and sell 33 puts to get your full 17% with a $99,000 commitment.  That pays you the same(ish) $16,500 and protects EEM down to $30 (the puts are rollable, of course) but leaves you with $80,000 in margin.  You can also turn around and use the $16,500 in cash to buy 30 2014 $30/40 bull call spreads for $5.40 ($16,200) if you want to be gung-ho bullish and then you pick up another $13,800 if EEM is over $40 for 2 years in addition to the 17% but, of course, if EEM is down, you give up 1/2 of your first 34% but still better than the note, which pays you nothing (and a stop at $8,000 would be clever on the bull call spread). 

    Also, keep in mind you can just buy EEM for $38.50 and sell the 2014 $34 calls for $9.85.  What’s the deal there?  Net $28.65 is not far over $26.50 and you can buy 3,500 shares and sell 35 calls for net $100,275 and, if called away at $35, you get $122,500 – not as good as 17% but you get paid something all the way down to $28.65, which is 26% below the current price.  If EEM paid a dividend, I might like this but the other way leaves you with much more free margin and pays better.

    So yes, you can construct better plays on your own.  Assuming you have use for the spare margin, it’s a much better play – it simply requires a little work on your part.  


  180. FAS Money – I found the neutral play to be annoying last time so we went with a more bullish variation.  Owning 10 long bull-call spreads for $2,060 gives us $2,940 of upside "protection" and then selling 2 $68 calls means we don’t get particularly burned until FAS moves up more than $15 (22%) off of this particular month.  Now the real trick is that we collected $398 for selling those 2 calls in our first week and that’s 19% of our long position.  The point is to JUST KEEP SELLING!  

    Collecting 20% for just 26 weeks is 520% – that’s a pretty good cushion ($10,712)!  For good measure, we added 1 short put to give us a little firepower for rolling – it doesn’t matter that we lost money there, as we simply have an unrealized loss (but still have most of the cash the putter paid us) that we keep rolling while the 2x calls keep giving us cash.  If we NEVER catch a break on the puts, that means we will collect 52 weeks of 2x call sales and it IMPROVES our returns – and having another $10,712 would certainly soften the blow of eventually owning 100 shares of FAS.  

    Again, this is a bullish position on FAS/XLF because neutral positions are NOT safer because the wild swings made by the ETF means you just open yourself up to damage on both sides (as we did last time).  This spread SHOULD be easier to control and our only worry is the passage of QE3 shooting FAS to the moon but, since we know that, we just need to be ready to stop out or cover.  

    OWS/Bert – Yes, they are really ramming up the PR machine to fight this into the elections.  Amazingly the well-timed national blitz to oust the demonstrators barely drew a mention from the MSM – as if it’s perfectly normal for massive, coordinated Government crackdowns on citizens to occur.  They are, on the other hand, very quick to denounce the same behavior when carried out by Middle Eastern dictators.  

    GNR/NF – That was Barry’s note, not mine.  I don’t go to a lot of concerts these days as it’s friggin’ depressing to see 60 year-old guys trying to rock (and, of course, since I’m old, I think new music mostly sucks).  

    Retail sales/Samz – Pretty normal, I think.  Isn’t Friday the biggest sale day of the year?  


  181. NF**X – Very nice. 
     
    Dionne Warwick
    http://www.youtube.com/watch?v=AO073fekFfA
     
     
    Lacey Sturm
    http://www.youtube.com/watch?v=-d3RYW0YoEk&ob=av2e
     
     
    :)



  182. Two soundtracks I’ve enjoyed the last six months – Great during the trading day….
     
    Hans Zimmer
    http://www.youtube.com/watch?v=h2SXKI3m14s&feature=related
     
     
    Trent Reznor
    http://www.youtube.com/watch?v=Yczul_609Gg
     
     
    Enjoy!  :)


  183. My feelings on the market….
     
    http://www.youtube.com/watch?v=iWIADZKU9dw&feature=relmfu
     
     
    Thanks Lacey!  :)


  184. Futures opened lower tonight… The center-right party won an absolute majority in the Spain parliament today. Not sure it’s going to matter that much in the long run! 


  185. Watching Grover Norquist on 60 Minutes.  This guy is totally insane.  He is a power hungry little dictator wannabe.  He would fit well in North Korea.  It’s amazing how Republicans let this terrorist bully them.  I’m nauseous from him.


  186. DSW clearance sale today at Union Square in NYC.  The line was super long so I left. 


  187. Stjean / Spain – I’m not a follower of Spanish politics, but I saw one of the headlines say that the new government promised even more pain / austerity ahead.  Don’t see how that sends good signals regarding the future of the Spanish economy.  Also, amazing that a new government would get elected on that platform.


  188. 1020 – Good stuff. I was gonna pun you on Axl-nails-on-chalkboard with a NIN reference and, lo and behold, you throw Trent out there.


  189. Old Guys and Concerts – Ah, okay. Seemed weird for an “I’m tired cuz I saw GNR” note from you, PD. I don’t know. Too much music out there – new and otherwise – to know if it’s generally good or bad. Can’t keep up. I let Pandora decide for me.


  190. 1020 – I saw a review last week of a weird looking young blue-eyed soul show in NYT last week. Tho I kinda like Robin Thicke, Timberlake, et al in small doses, this guy on some good rap on the proliferation of skinny tie and nerd glasses soul singers popping up. Today, tho, I previewed him on ITunes and quickly bought two underpriced albums.

    Check out Allan Stone: http://www.nytimes.com/2011/11/11/arts/music/allen-stone-at-sobs-review.html


  191. China vice premier warns on global economy

     

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    By Chris Oliver

    HONG KONG (MarketWatch) — Chinese Vice Premier Wang Qishan, who is widely expected to be named as premier next year, said Monday he was concerned about the outlook for the global economy and urged priority be given to ensuring recovery, according to the state-run Xinhua News Agency. "An unbalanced recovery is better than a balanced decline," he was quoted as saying. Wang also repeated calls for the U.S. to ease restrictions on exports of advanced technologies to China, and that China be grated market-economy status


  192. FU GROVER!  :)