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GDPhursday – Death by a Thousand Cuts?

"Death by a Thousand Cuts!"

That's the word this morning from Societe Generale, who titled their Global Earnings Estimates Analysis: "Death by a thousand cuts; double digit downgrades for Eurozone and Japan" and included this spiffy graph to make the point that we are now about to cross back into the negative earnings zone that has, in the past, been a great indicator that we were about to have a HORRIFIC market correction.  

Per Barry Ritholtz, the "highlights" of the report were:  

• Recent earnings forecasts cut by 4.9% and 6.9% for 2011 and 2012, respectively.
• Severe downgrading of both 2011 and 2012 consensus forecasts, with Japan and the Eurozone seeing double-digit percentage cuts to next year’s earnings;
• US stands out with only minor cuts to 2012 forecasts.
Note that on an ex-financial basis, US 2012 forecasts have seen just a 2% cut, which SocGen describes as “hardly consistent with a recessionary or low growth outlook.”  So either we will miss a recession in the US, or analysts are too optimistic.  We have our own Q3 GDP report at 8:30 and that will help give us a clue but I stand by my assertion that, without QE3 – we simply do not have the gas to break away from this downward trend.  On the other hand, my bullish premise (and we're still long-term bullish) is that this is both obvious and inevitable as the alternative is simply unacceptable.

Of course, the EU has just given us a fabulous road map for the next round of QE and they have flooded the World with enough freshly printed Euros that it would hardly make a ripple now if the Fed drops a Trillion here or there in 2012.  Not to be outdone, the Swiss have been considering PAYING Banksters to borrow money and the Government actually voted yesterday (defeated so far) on creating a legal framework for negative interest rates.  

THAT's how crazy things are getting and THAT's what happens when Banksters run a country – a fate the United States is itself in the early stages of.  When the primary purpose of the Government (and that's YOUR elected officials spending YOUR money) becomes finding bigger and better ways to give money (that they don't have) to Banks – THE SYSTEM IS BROKEN!  Really, what does it take to wake you people up???

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies." – Thomas Jefferson

8:30 Update:  The 3rd estimate of the Q3 GDP dropped 10% to 1.8% from 2%.  If not for the Core PCE rising 5% to 2.1% – it would have been worse.  Personal Consumption fell from 2.3% to 1.7% but hey, what's a 26% downward adjustment between friends, right?  As noted by SocGen above, Corporate Profits were revised down 25%, from 1.6% to 1.2% so, overall, an anemic report.  Fortunately, we were on top of it as I put up a note to Members in the early morning Chat with an idea to short oil ahead of the GDP ($99 on /CL), saying:

My logic on oil this morning is A) A 10Mb draw and $99 is all they can do?  B) If our GDP is bad, demand is bad and oil goes down  C) If our GDP is good, the Dollar is strong and QE3 less likely and oil goes down.  So, on the whole, I think it’s safer to short oil than short the indexes ahead of the GDP but, just like yesterday – the smartest play is actually cash!  

Oil actually topped out at $99.30 just ahead of the GDP (someone must have felt the opposite of what I did) but has plunged back below $99 already so the egg McMuffins are safely paid for with a stop at $99 (now $98.90) that can trail by .10 to capture more gains.  Oops, even as I write this we're crossing $98.80.  At $10 per penny per contract – this is good money!

The Dollar is popping to 80.45 and that's an odd reaction, probably because the upward revision of Core PCE plus the "good" jobs number ("only" 364,000 people lost their jobs last week) pushes QE3 a bit further off the table for the moment.  Although the Chicago Fed fell to -0.37 from -0.11 in October, it also showed positive movement in the employment, unemployment, and hours categories.


Speaking of oil – We had an exciting decrease of 10.6 Million barrels of oil in yesterday's inventory report and oil shot up from about $97 to $99 on that news.  It was, of course, a crock!  Looking at the full report (released at 1pm) we can see that imports were down 741,000 barrels PER DAY – so there's 5.2M of our missing barrels right there (2 tankers diverted for a day takes care of that to goose prices into the holiday weekend).  Also, we EXPORTED 390,000 barrels of product PER DAY – another 2.7Mb out the door for the week.  390,000 barrels of exports per day ranks us ahead of Sudan as a global oil provider!  

Even more fun – the refineries produced just 18.5Mbd of product, which may sound like a lot but last year at this time, that number was 19.65Mbd – so the US Energy Cartel has cut production by 8.5 Million barrels per week and THAT is why US Consumers are paying 10% more than we did last year even though we have cut our consumption by 10%.  I said to Members this morning:  

Oil started the year at $92.50 and demand now is lower than it was then but it too will likely flatline between $97.50 and $100 so not much of a pull on the market either way.  Gold is bravely holding $1,600, which is up $200 for the year but they forgot to manipulate Silver, which is down 5% from $31.50 or Platinum, which is rarer than gold but down 22% from $1,800 to $1,400.  It’s very historically rare for gold to be higher than platinum (and makes no logical sense) so 22% is the idiot factor in gold, at least.  

If you want a reality check – look at copper, which fell from $4.50 in Jan to $3.25 yesterday (down 27%) – that’s the reality of the Global economy!  

This whole market may be heading towards a reality check in January but, for now, it's almost Christmas and oil is back over $99 and we're not going to re-short unless the Dollar pops 80.50, which is doubtful as that's below $1.30 on the Euro and the Swiss are willing to pay their Bankers to make sure that doesn't happen!  

Let's be careful out there – tempting though it may be to short this nonsense – cash is king!  


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  1. @Felipe

    There are a great many in this tug-o-war between the shorts and longs that would welcome a 2,000 point correction in the dow.

    It would indicate that the market is somewhat of a barometer of the actuality, the realiity that there is some decrease in the amount of manipulation by the FED, IMF, BIS, and other central financial authorities like Goldman Sucks, BOA, and JP Morgan.

    By “Waking up” what do you mean? We are all wide awake here on this board. What would you have us do that proves it?

    Our vote is useless, (see George Carlin for further elucidation on that score). Aside from vigilante justice (the harbinger being that guy who attempted to assault and batter that reptile, Gingrich, yesterday)?

  2.  Phil
    I hold EDZ jan 15/20 bought for around $1.30 (I sold a put that I bought back since) as a hedge.
    Any way to take some money of the table?

  3. Oil lines

    R3 – 102.09
    R2 – 100.67
    R1 – 99.64
    PP – 98.22
    S1 – 97.19
    S2 – 95.77
    S3 – 94.76

    Yesterday’s high and low – 99.25 / 96.8

    Breakout lines – 103.21 / 90.38 

  4. Altria’s valuation taking off:

    We’ve mentioned it many times before, but the Fed’s ZIRP (zero interest rate policy) has consequences, one of which might be the artificial increase in high-dividend paying stocks like Altria Group. 

  5. Phil,
    What does it take to wake up people? 
    That’s easy a total meltdown, complete collapse, a catastrophic event, a unprecedented disaster…a nuclear attack on a populated city….or……a non-delivery of a Social security check, or welfare check, or paycheck…..or perhaps a run on the banks….a defaulted money market account….a banks failure to cover withdraws.
    One thing that won’t wake people up is a lot of talk about what could happen.  It has to happen.

  6. Phil
    Thanks for the oil analysis.
    …, are we prepared to short USO again? Or should we wait?

  7. Phil—-have the TZA Jan 30/39 bcs at(4.25/2.08) net dr 2.17—offset by short  10 VLO March 19 puts 1.60—thinking of buying back the 39 caller  and adjusting the spread any ideas?

  8. Some food for the Phil/Pharm debate: 

    In one respect, the Fed was desperately trying to raise rates — while Asian asset purchases were continually undermining those attempts. The Fed had control over the front end of the yield curve, but China (and other Treasury-consuming nations) were increasingly dictating the yields at the back of the curve.

    Coupled with demand from western pension funds and asset managers, there was simply not enough safe US Treasury assets to go round. The more the Fed tried to raise rates, the more the yield curve inverted. The Treasury, meanwhile, was presented with extremely favourable rates to issue more long-term debt (a natural reaction to the overwhelming demand for its product).[...]

    The takeaway being: it was the shortage of Treasuries which created the impetus for increased Treasury issuance — to keep rates in check with policy decisions — not the ‘debt-binge’ mentality of ordinary Americans, i.e. it was China’s fault. Not vice versa.

    Given that, should we be surprised that Treasuries are correlating ever more with Chinese markets rather than US ones? Does China now have the ultimate say over global rates?

  9. PP for today:

  10. The FAS options are now 99% of the profits in this trade. The BCS will be the cherry on top if XLF cooperates… 


  12. Phil:
    You answered my question on USO. Report is nonsense as usual, but who cares about details these days! In addition, there is too much activity going on in the middle east and as you mentioned the risk of the dollar dropping to support oil prices in the near term.
    The article below states that there was an overstatement of inventories on the previous report. Did you know about that?
    "But the sharp drop in U.S. crude stocks could be partly due to a downward adjustment after an overstatement of inventories the previous week, BNP Paribas said in a research note."

  13. The TNA 46 Call is the only one worth watching. Still a month to go and all premium though… Plenty of options to roll anyway! 

  14. Subject to review by lflan…


  15.   F12f1e900e38012f2fc600163e41dd5b?width=650

  16.  Phil / others long AAPL 
    I want to go long apple using bull call  spread on the leaps. Has been working well for all of us I hope.
    Question -
    How is some kind of special dividend likely to impact options? It depends on how it is structured, right?
    What are your thoughts on the possible risks? THanks

  17. That’s also a tough chart:


    Although I understand the situation is not as critical in the Hamptons… 

  18. GDP sucks….no one cares.  More people drop off the hunt for jobs, no one cares.  More redemptions out of mutual funds and PIMCO, no one cares.  Housing is all rentals – not buyers, yeah, you get the point.

  19. stjeanluc / chart — I’d like to see the same chart for earning a median house payment.

  20. Good morning! 

    Expanding (or not declining as fast) payrolls demanding more Dollars last week trumps GDP lack of demand for Dollars in Q3 so the Dollar is back over 80.40 and the markets are holding up pretty well but over 80.50 is going to be a problem. 

    Congrats to the oil shorters but now back at $98.23 I’m not as enthusiastic as I was before UNTIL the 10:30 nat gas inventory.  For some strange reason, they tend to support oil until that report and then the traders finally give it all up BUT – it’s right before a big driving holiday and gasoline is only up to $2.62 and they probably want to hit $2.65 by Friday so I wouldn’t put anything past the NYMEX pump crew today.   Congrats to the (/RB) traders too – up $4,800 a contract from our standard $2.50 entry!  

    Overall, we are expecting the markets to go higher – not for any good reason but just to hit that 1,250 target to close the year.  Jack nailed the bottom yesterday so we need to heed his call for 1,260 on this bounce and 1,243 is the neckline the S&P needs to pop (and hold) to get back to that 1,250-1,260 zone that we boxed into earlier this month.  

    Don’t go looking for reasons – it doesn’t matter when Santa Comes to town and hundreds of Billions of Dollars of bonus money are riding on the markets going higher.  We cashed out yesterday as we were worried we might collapse but, since we’re not collapsing – then there’s no reason not to jack things up to paint a pretty picture at the end of 2011. 

    2,603 is the Must Hold line on the Nasdaq and we need that to confirm a rally.  The Dow is already kissing it’s +5% line but, like Tuesday, we need the NYSE to make 7,473 or it’s too much of a drag on the other indexes for them to pop.  So those are our major watch areas this morning that will set direction but the big move up in the Dollar was contrary to the GDP report and that means "THEY" may have been priming the pump for a later take-down of the Dollar to goose the markets back up.

    Overall Corporate profits were up in Q3 - that’s a market plus:

    Profits from current production (corporate profits with inventory valuation and capital
    consumption adjustments) increased $32.5 billion in the third quarter, compared with an increase of
    $61.2 billion in the second quarter.  Current-production cash flow (net cash flow with inventory
    valuation adjustment) -- the internal funds available to corporations for investment -- increased $35.8
    billion in the third quarter, compared with an increase of $86.2 billion in the second.
    Taxes on corporate income decreased $9.1 billion in the third quarter, compared with a decrease
    of $1.8 billion in the second. 

    Don’t you just love it.  They make more money and pay less taxes – as usual! 

    Anyway, the power move this morning will be looking to short oil ahead of the 10:30 gas report or maybe just after, we’ll have to play it by ear.  If we’re very lucky, they will run it back to $100 for a lovely line to short off.

    XLF is testing $13 – that’s a big deal if they break over and congrats to all those players from our $12.50 entries – but don’t be greedy if we fail here – CASH is still king! 

    Thursday’s economic calendar:

    8:30 GDP Q3

    8:30 Initial Jobless Claims

    8:30 Chicago Fed National Activity Index

    8:30 Corporate Profits

    9:55 Reuters/UofM Consumer Sentiment

    10:00 FHFA Housing Price Index

    10:00 Leading Indicators

    10:30 EIA Natural Gas Inventory

    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet

    At the open: Dow +0.15% to 12126. S&P +0.16% to 1246. Nasdaq +0.05% to 2250.
    Treasurys: 30-year +0.35%. 10-yr +0.15%. 5-yr +0.04%.
    Commodities: Crude +0.57% to $99.23. Gold -0.41% to $1607.05.
    Currencies: Euro -0.13% vs. dollar. Yen +0.17%. Pound +0.05%.

    Market preview: EU shares and U.S. stock futures give up some of their gains after the data dump earlier (IIIIII), with S&P+0.4%Oil is higher following violence in Iraq and Iranian naval maneuvers. Bed Bath -4.1% and looking dirty following earnings.Later: consumer sentiment, FHFA housing price index, leading indicators. 

    Hope springs eternal:  December Reuters/UofM Consumer Sentiment: 69.9 vs. 68.0 expected and 67.7 in mid-December. Current conditions 77.9 vs. 77.6 preliminary and 76.6 in November.

    A Zillow (Z) analysis expects U.S. homes to lose $681B or 5.1% of their value in 2011 vs. a $1.1T loss in 2010. While the pace of loss has and should continue to slow, Zillow does not see appreciation ahead for 2012. Of the 20 largest markets tracked, Atlanta is the worst performer, off 14.7%. The best: D.C., down just 1.9%. Washington is a company town and the company is going gangbusters.

    "Growth is falling, inflation is stubborn, and rupee is weakening," says RBI Governor Subbarao delivering a triple-dose of disappointing news. The rupee has fallen 20% since the summer, the worst performance of any currency of note. Punters continue to hope the RBI will shift its focus from inflation-fighting to bolstering growth in 2012. 

    Fitch Ratings sees the U.S. high yield default rate moving up in 2012 to 2.5%-3%, up from last month’s pace of 1.4% and a mark of 1.3% in 2010. "This group remains at risk in the soft growth environment projected for 2012."

    Italy’s Senate is due to soon vote on Mario Monti’s €33B ($43B) austerity budget, which is designed to revive investor confidence in the country. The lower house authorized the package last week. Once the budget is passed, Monti will have to work out how to soothe the unions and revive growth.

    Saving oil at 8:47 (they couldn’t have timed it better):  Heightened disruptions in Iraq and Iran push oil prices higher, as Brent crude futures push back over $108 and WTI crude captures the $99 mark. Big Oil premarket: BP +1.6%XOM +0.7%,CX +0.5%

    Dow Jones reports that Barclays (BCSplans to reshuffle its metals trading team after taking huge losses on bets that went south. The losses – estimated as high as $500M – reportedly won’t impact EPS and will be represented as a "one-time item."

    China jumps on the bandwagon of nations protesting thedecision by Europe’s highest court to allow airlines to be included in a carbon cap on the continent. State-run Xinhau sounds suspiciously capitalistic in its commentary: "This is a trade barrier in the name of environmental protection and will strike a wide blow to passenger benefits and the international airline industry."

    The dark shadow cast on the electric car industry by the misadventures with Chevrolet Volt batteries following crashes gets a bit of a lift out of Japan with word that tsunami-ravanged Nissan (NSANY.PK) Leafs showed no post-trauma battery problems. "Considering how they were tossed around and crushed, we think that is a very good indication of the safety performance of that vehicle," notes a Nissan exec.

    Vivus (VVUS -14.6%) adds to the losses it saw yesterday afternoon following the release of troubling safety data related to its Qnexa drug. Not helping is a downgrade to Market Perform from Leerink Swann; the firm thinks investors should be careful, given a lack of information on the FDA’s standards for acceptable birth defect risk, and believes "there are more downside risks than upside potentials" over the next several quarters.

    Apple’s (APPL) iPhone has won market share in the U.S. and U.K., but it’s been losing out in other parts of Europe due to the weak economy and the falling price of rival devices, new data shows. Apple holds 36% in the U.S. and 31% in the U.K., but just 20% in France and 22% in Germany. Android holds 46%-61% in all markets.

  21. Significant computer issues for me this a.m.   :  AAPL port:   I’ve closed out the Jan 390/385 bull put spread for a profit, sold the QQQ s bought yesterday and bought back the Dec 23   395 covers.  

  22. i don,t know Pharm… maybe it is time to stop fighting and just become one of us???

  23. Your daily Apple (AAPLpatent suit update: In a preliminary assessment, a German court shot down Apple’s claim that aredesigned version of Samsung’s Galaxy Tab 10.1 still looks just like the iPad. A prior ruling that the original version imitated the iPad’s design (not exactly a complex one) had led to a ban. Apple can take solace in the fact that sales of high-end Android tablets have thus far been dismal.

    Could be the perfect solution for the Build a Berkshire Workshop Project:  If recent efforts to change a rule requiring the publishing of financial from private companies with 500+ shareholders bear fruit, expect private exchanges such as SecondMarket to see a surge in trading. Such a surge could dramatically boost the liquidity of private exchanges, and thereby give high-flying startups one more reason todelay going public. A Congressional vote on the matter is expected in early 2012. 


  24. FAS Strangle Experiment – The low VIX will make it hard to pick up another $0.50 this week without taking too much risk… I am going with a 62/67 strangle. Worst case, I’ll roll one the side to next week! 

    Also, Kallen – I checked for next week, and getting additional protection for the long weekend is not rewarded well in this environment. I’ll check tomorrow, but I would not be crazy leaving anything open for the weekend as low volume might lead to crazy volatility. 

  25. the 1200 level looked ot have been a great short term indicators are in neutral - supportsf higher prices.  They should be overbought after tuesday’s rally – but they’re not…  there’s still room to run…i still think 1270 is likely by year end…

  26. jabo – in the darkest hour….not gonna happen.  Like Phil, I am a fundamentalist…and there is nothing good in this.  Nothing.

  27. Pharm--you may be right but if there is nothing good, than maybe Phil’s QE3 will come true and then there will be a good reason for the market to move on up, right?

  28.  Phil
    Do u think the Feb TNA 46/51 BCS, at 2.4, selling the $30 put is still a viable play?

  29. Iflan, when things get back to normal, let me know the prices for the transactions. Thanks. 

  30. Phil/Ilene – Can Springheel Jack get his own color box?

  31. Boehner is such a tool!  "I used to run a small business and this bill…"  As if guys running a small business sit around all day reading paragraph 7 on page 118 of his bill to decide whether or not they will hire someone next week.  MORONS!!! 

    Has ANYONE in our widely experienced audience ever, in a company with less than 50 employees (95% of US companies employing 80% of the workers), EVER made hiring decisions based on the payroll tax deduction?   Anyone??  Ever???

    Waking up/Flips – Keep in mind I’m writing to a wider audience in the morning post but the fact that no one has handed Bernanke and his Bankster buddies over to Rick Perry by now means not enough of us are awake enough to do anything yet.  Our vote isn’t useless – it’s only useless when we choose to waste it on people who are simply "not the other guy" or, even worse, when we vote by party without any regard to who’s actually running.  

    EDZ/Yshen – The spread is $2.80 now with EDZ at $19.50 and you can roll the $15s ($4.50) out to the April $19s about even and that will protect you from most of the time decay and still keep you in a good position to roll the caller if EDZ heads higher.  If you have the margin to have a naked caller, you can sell the April $22s for $3.50 and spend $1 of that to roll down to the $16s so you pocket $2.50 (most of what you get from cashing the spread) and you end up in the April $16/22 bull calls spread and you would be $6 in the money before you owe your caller $2. 

    $99.50 is looking rough for oil.  Dollar at the 80.40 line so they both need to break one way or the other.  

    USO Next week $38 puts at .48 – 20 in the WCP.  

  32. The ECB balance sheet is getting as bloated (or even bigger depending on the exchange rate) as the Fed…


  33. Rising support from the last low in the 1236 ES area. Leaning long here for 1250-55 ES but if that level breaks I’d look again.

  34. Rainman / Chart – Probably not a pretty picture either! 

  35.  Phil,
    Any thoughts on the DIA Jan 118 puts?  I went in at $1.81.

  36. Phil I trust you are selling these puts? USO Next week $38 puts at .48 – 20 in the WCP.

  37. Bought 1/3 position in SCO and no longer in UCO.

  38. Phil / Legging into a Income trade?
    Ok, let me say this might be a dumb idea to start… But since there are a few high quality companies that I would like to get in my portfolio next year by selling puts to finance a bull call spread, just a idea.  Since the VIX is very low, what about buying the call portion of the BCS, and then waiting until a higher VIX to sell the puts and the other half of the BSC calls?  
    The underlying obviously could move around until the VIX pops.  Just a thought…..

  39. Pharm- are you selling any of your CRIS here? Dec has been pretty good…

  40. Happenings/Exec – I’d say let’s hope it doesn’t have to come to that but it probably will…

    USO/DC – We got close enough to $100 where a DD or roll was reasonable so I pulled the trigger above but, as you can see from the strike selection – it’s a bit tentative of a commitment as we don’t know what will happen after the gas report – which is coming right up.  

  41. yodi—buying I think

  42. 100Bcf drawdown in gas was light and, in the Northeast, it’s 60 degrees today so not looking good for energy prices but the Dollar is below 80.40 and oil is holding onto $99.60 at the moment.  I certainly like shorting (/CL) below the $99.50 line but I’m kind of hoping they spike higher first.  

  43. Phil – I bought the HL March $6/$8 BCS and sold March $6 Put. I am down net 80 cents. Any thoughts on getting to break even on the trade and getting out. Next earnings report is 2/23. Thanks 

  44. 1250 is not going to be easy to break.  Started going a bit bearish.

  45. Savi Thanks you right he thinks oil is going down

  46. By the way, if you are working into a 10-contract position, there’s nothing wrong with shorting 1 at $98.60 with one more at $98.80 and 1 more at $100 (3, average $98.80) and then you can add 3 more at $100.20 for a $100 average and take the loss at $100.25 ($1,500) and wait for the next cycle.  Obviously, if at any point it heads lower, you are in good shape. 

    If oil heads down from a $98.60 entry, you can add one at the $98.50 cross and you have 2 at $98.55 and you stop one out even and you are still better off than your original $98.60 entry.  If it then goes to $98.45, you can sell another and drop the stop .05 and keep doing that on the way down until you are full of 10.  Entries and exits do not have to be all or nothing things.  

  47. HL/crussell – Hecla is a good company. Owning them in March at $6 (minus whatever premium you got) is nothing tragic. People all over the world still buying gold and silver.  Euro, dollar, yen, pound, yuan, and swiss franc still printing…  I’m actually liking the look of those March $6 puts right now at $1.01!

  48. Good morning, nothing new:


    IWM  71.87,  72.15,  72.56,  72.98,  73.24,  73.61,  74.02,  74.66,  75.06  and  75.57

    Key support at IWM 74.02 as I have been saying; good hunting !!

  49.  JRW, is that 74.02 after the dividend? Dividend was .36 today.

  50. WOWEEWOWOW Look at that jump in DMND

  51. Phil
    I am one of those small business owners that you describe. I have owned a small business in Michigan since 1992. We have employed anywhere from 14-30 full time employees during that period. I can tell you that rarely did I ever pay any attention to anything our government did with respect to hiring. Hiring is done based on specific needs (demand for services) or strategic interests.
    Cutting a tax or taxes just helps improve my profits.  I set a payroll budget every year that is driven by sales. Demand for services is what drives my payroll to go higher. We usually can handle a 10% increase in sales without adding any payroll. On the other hand, a 5% drop in sales may cause a forced reduction in payroll. I guess a tax decrease in a decreasing sales environment may delay forced reductions in payroll for a small business that is at its highest level of efficiency. Core staff is much more difficult to let go. In other words, I might be willing to hold on to key staff members regardless of sales if their is potential for recovery in the near term. My pay is sacrificed during these times. But the way I look at is that I have had many years where my pay was substantially higher (17 out of 20 years). Sacrificing a couple years of excess pay is the price I pay to re-tool and adjust my business for the next push upward.

  52. TZA/Savi – You have a net .57 spread that’s $4 (13%) out of the money and your adjustment is to spend .57 (100%) to buy out a caller who is 50% out of the money?  REALLY?  VLO seems nicely safe(ish) and if you want to spend $570 on something besides a bottle of Lafite, why not roll your $1.53 call to a Feb $26/38 bull call spread at $2 so you make about $11 ($11,000) before you owe the naked caller a penny (on a more than 15% drop in the RUT by Jan 19th).   If the caller expires worthless and VLO expires worthless, then all you need to do is cash in for $1 or more and your insurance was free. 

    China/StJ – All these people have a serious lack of perspective.  China’s economy is mainly an internal one and their currency holdings, even at $3Tn, are only 50% more what JPM, C and BAC EACH individually have in the vaults.  You would be better off worrying about what kind of commute Vikram Pandit had today than how many TBills China is likely to buy.  

    FAS Money/StJ – Despite my general bullishness, it would be irresponsible not to sell a call at XLF $13.  The next week $66 calls are $1.80 so let’s sell one of those and put a stop on the Jan $68 at $4.10.  That would give us a $1.63 loss on the $68 but it’s covered by the sale of premium on the shorter-term $66s and, of course, the expiring puts.  Meanwhile, 10 of our XLFs go further in the money and all is well.  

    Dollar just smacked down to 80.20 – oil at $99.80 and NOW (/CL) is a really fun short.  Watch the $80.20 line on the Dollar for a sign to get out if they can’t hold it but it held at 7:30 and oil was just $99.40 then so we can look for $99.60 at least if the Dollar bounces.  

  53. Any reason for that $ clubbing?

  54. Taxes / Dclark – I am with you. Changes in taxes, payroll in particular, have no impact on my hiring plans. Demand is the key factor. I think that most of the time, the GOP hides behind the small business owners to pass their top 1% friendly plans as if many small business owners were in that group. It’s pathetic!

  55. Seem like anticipation of EU news conference.  Word is, they are "fixed" again!  

  56. Phil – sorry for the 101 question  but I am looking for guidance on how to know when best to take profits on BCS’s. Never quite sure. If you have covered this in training, feel free to reference me to that area of site. Thanks a lot

  57. got OIL short at $99.75 with other sell orders at 100.25

  58.  does anyone have the link to Phil’s 5% rule piece he did outlining it?

  59. – Sold next week’s FAS 66 Calls for $1.80. Put a stop on the FAS Jan 68 at $4.10.

  60. CRIS – no, I am staying with it.  I sold some at $4, but the rest is holding.  I would sell a 1/2 sale of the March $5s to reduce basis or let them go.

  61. stjeanluc
    I always laugh when the Feds talk about how they are going to help us. The fact of the matter is there is very little they can do to help me as a small business owner in services business. Unless of course they would like to buy my services for a year or two and allow me to overcharge them like most of the defense contractors do. Or they could give me .0001% money (like the Bankers)that I could loan to my friends for 3%. …..Or, even better, loan me the .0001% money so I can participate in your XLF/FAS trades! :)

  62.  5% rule link

  63. Goal already – $98.60!  All gravy below here.  Gotta love those futures…  

    AA Money/StJ – On target.  Don’t forget, even if we end up at $8.50, we still make $825 which is more than 2x the next of the next Jan spread.  You wanted boring…  

    IWM Money/StJ – Looks fine to me as I’m still more worried about the short puts on a drop than I am about the caller.  

    Overstatement/DC – I don’t know what that’s about but all these numbers are manipulated – you just have to look at the longer-term trends, like all year they have been short-shipping us 5-10M a week in imports but STILL our inventories are only down 70M and 30M of that is from the SPR release.  That means there’s a demand gap of about 300Mb from last year or over a whole month’s worth of imports since last year as well as 17 days of total production.  That means, in the very least – the fear factor over supply disruptions should be cut back considerably instead of spiking oil 2.5% because some Iranian official says something silly.  It’s a total farce!  

    Chart/Jack – So, at the moment, we have the same "Must Hold" line at 1,235 and it’s interesting because, for that line to move to 1,245 on our big chart, the Dollar would have to fall 1%, which is very likely.  We don’t actually move our 5% lines around every time the Dollar wiggles but, if you take it into account – then we are in perfect agreement that the Dollar may get weaker next week but the bar the S&P has to hold will keep getting raised as well until we hit serious resistance on the Dollar at 78.50, which is down 2.5% from here and 2.5% up from 1,250 on the S&P is 1,281, which is about the top of your range while 2.5% over our 1,235 must hold should then line up with the bottom of your range and it is –  1,265.  So, depending on the Dollar going down (which means we need Euro $1.35) – I think the 5% Rule completely agrees with your chart. 

    Now the question is – does the Euro deserve $1.35?  

    LOL StJ!  

    AAPL/Samz – The simplest premise on AAPL is that it is worth $300 a share.  So no reason not to collect $37.50 for selling the 2014 $300 puts, is there?  TOS says that’s $30 in net margin.  AAPL is at $400 so we can bet it goes up by simply buying the 2013 $350s for $85 and selling the $450s for $35 and that’s a grand total of net $12.50 in the $100 spread that’s $47 in the money to start and your worst downside case is owning AAPL at net $312.50.  If you pull the spread before it goes under $20 (assuming a nasty drop), then your net is back below $300, worst case.  

    TM 2013 $67.50 puts can be sold for $9.50 and that pays for the $57.50 calls at $10.70 for net $1.20 on a call that’s $7 in the money to start.  The puts are also in the money so this is an aggressive bottom call on TM but they were $20 higher than this in 2009 and they will sell 10% more cars next year than they did in ’09 and hopefully they won’t have another quake but, if so, owing 1x of TM for net $68.70 is not a terrible thing.  

  64. Rate outlooks, safety bid push German yields under U.S.

    “We’re getting sense that the U.S. economy continued to forge ahead, and it’s showing very few signs of collateral damage from the euro zone,” Wilkinson said.  “The Fed is on hold and unlikely to do anything further, so it’s hard to see U.S. rates going much lower in an environment of gradually improving economic data.”

    But the story is vastly different for the euro zone.

    “Apart from Germany, most of the euro zone is likely to contract, so it’s highly possible that the ECB will reduce its benchmark rates. So the Germany 2-year yield could slump relative to U.S. yields.”

    “Whether U.S. yields rise is dependent on whether we see collateral damage from Europe, but for now the signs point to no,” Wilkinson said.

  65. Phil,
    I bought some tomorrow qqq 36calls at .45, would you roll to next weeks for net .15 debit?

  66. Phil--  Lafite--no no no-- oh mon dieu— am trying for the ’56 La Tache or the Le Romanee -Conti—-:-)
    Thanks for the adjustment

  67. I figured it out!! I suffer from tourette syndrome but the symptoms only surface when I’m short in an up market. FOOK SHIT!!

  68. Special dividends/Samz – Yes, very much depends on the structure so not worth worrying about.  

    $99.34 – Yeah baby!!! 

    I love this commercial with Gordon Ramsey they keep showing on CNBC.  This one from the UK is much funnier though.  

    Toil Index/StJ – OUCH!  

    Sucking/Pharm – Didn’t someone warn us about a giant sucking sound 20 years ago?  

    Hacking/Angel – My Dad used to be able to crack anything open, even MSFT code.  We’d be doing jobs at major banks and he’d have their stuff open in minutes because it was faster for him to hack the code than ask and wait for 5 layers of management to approve him looking at something in the program.  Nothing is safe from people who know their way around systems – just use the "View Code" function on your own browser – it’s scary how much stuff you are able to see – especially in systems like Drones (or web pages), which have to function through 2-way communications, it’s like a wide open door a hacker can drive a truck through.  

    Nice view of the recently adjusted housing numbers.  

    Very good point by Taibbi, Angel (all should read):

    The President is confusing "legal" with "difficult to prosecute successfully."

  69. TNA/L4 – Sure, that’s still good.  33% down for TNA is an 11% drop in the RUT before you’re in danger and that’s back to our 666 line, which has held up well in the past.  The bull call spread is on the money so won’t take a big move up to make a little money.  

    Jack/Diamond – Someone is working on that.  

    Wheee, what a ride on oil – back to $100 now.  Tempting to play it both ways but TOO CRAZY!  Back to watching for Dollar bounce off 80.20 to take it down but a fun short just below the line with tight stops (/CL).  

  70.   From Nicholas Nickleby: "A mania prevailed, a bubble burst…four hundred nobodies were ruined."

  71. Interesting chart from the BBC:

    Too big to post, sorry!

  72. JRW, anything special about next R’s 74.66, 75.06 that require particular attention?

  73.  IDA/CJJI – $1.81?  That’s a lot.  See the move below for the WCP, that’s the best save assuming you want to short over the long weekend.  If wrong – it’s going to be a big loss! 

    That reminds me, we had 10 DIA 12/31 $118 puts at .60 in the WCP and they are now  .30 and can be rolled up to the $120 puts (now .70) for .40 and doubled down for 20 DIA 12/31 $120 puts at net .85.

    USO/WCP, Yodi –  They topped out at .52, not too sexy.  I think we can do better.  

    Buying calls/Burr – That’s good logic but the VIX ain’t that low yet.  Sure, if you like a stock, you can buy a long call as an initial entry if the premium isn’t too high and then, if it goes higher, you can sell a call to cover and, if it goes lower, you can get a good price for selling a put.  Very nice way to play if you are genuinely patient BUT – once you cover one side or another – you can no longer afford to mess around very much or you risk the spread getting out of control on you.  

    99.80 – At some point, you have to start feeling bad for the counter-parties on this one…

  74. chasw,

    74.66 is BOTH level AND trend line resistance !!  But we could be at 76 by EOY !!

  75. Poor poor VVUS.  Phooey…told ya so.  How could one NOT know that it wasn’t teratogenic.  Morons.

  76. HL/Crussell – I hope that wasn’t one of mine!  They are not a bad company but junior miners are always a crap shoot.  They had some kind of trouble up in Idaho in Dec with injuries but no deaths, I think so recoverable but an impact on current ops – as is the dive in silver pricing.  So, in short, I’d buy time and roll the March $6 puts (.95) to 2x the 2013 $4 puts at .65 ($1.30) and you get .45 back there.  Then you can take your Mar $6 calls (.45) and roll them down to the Jan $5 calls ($1.55) for .90 so for net .45 out of pocket you are committing to owning 2x the stock for $8 rather than 1x at $6 and you’ve dropped your strike into the money and bought yourself a year plus another $1 of position below your caller.  

    1,250/Rustle – Hmm, didn’t someone say that yesterday?  ;)  

    DMND/Kinki – Gotta love these story stocks!  Congrats to all the players on this one. 

    Business/DC – Yep, I agree with that attitude 100%.  This is one of the problems with big business – there is no shared sacrifice as management would rather gut the company than take a pay cut – this is why we get our asses kicked by overseas competitors.  

    Reason/Rainman – "And he can see no reasons,  ’Cos there are no reasons – What reason do you need to be show-ow-ow-ow-own?"

    Obama really, really pissed of at this point.  Good!  

  77. Hey Guys—my daughter is covering the Obama Press Conf going on right now  for the Center for American Progress --she is at the White House--Only in this country anything is possible-- an immigrants daughter is at the WH --even only to cover something—what a great country

  78. Congrats Savi…  

  79. 1250/Phil
    I’m obviously listening :-)

  80. Gloom and doom for the UK in coming years:

    Yup, austerity at work… 

  81. These are scary numbers…


    Not much better in the US wher 

  82. Are we there yet (from TK @ Slope)?

  83. Oops, too quick on the keyboard – US numbers:


  84. Anyone know what happens to EXPE January calls given the split into EXPE/TRIP?
    I can’t find info anywhere…

  85. Phil, Pharmboy
    Do you have a play on VVUS to take advantage of the price drop
    I am thinking about a 13/14 BCS for Mar @ 20c
    The last time that there was potential good news on the horizon this went up to $14.

  86.  LOL @ kustomz
    me too…. (*twitch*  *cough*)

  87. How about I sell you those Oncmed?  As a matter of fact, I will sell you all my shares I don’t own!  This company is more of a joke than Medivation…and that says something.

  88. JRW, thanks

  89. When/Crussell – I’m sure somewhere there’s a lecture on it but the short story is that if you enter a $5 June spread for $1.50 then you expect to make $3.50 between now and June or .50 per month.  As a very quick rule of thumb – if you are 2 months ahead of schedule ($1) or two months behind ($1), you need to consider making an adjustment.  That’s outside of something Fundamental happening to change your June target, of course.  

    Why does Obama break it down to $40?  It’s $1,000 per working American – it’s more than the Bush Stimulus bill was and asking middle class Americans to fork over $140Bn because John Boener’s on a power trip is just sick and the man has to be stopped – very simple!  

    Wilkinson/JRW – Wow, look how important he is in his new job!  He’s got a good perspective as he’s a Brit so he’s well aware of what’s going on on both sides of the pond.  

    QQQQ/Sage – So you chewed up all your premium chasing this rally and now you want to do it again?  No thanks – can’t enable that trade…  SELL PREMIUM – don’t buy it!!!  You want to bet the Qs go up, what’s wrong with selling next week $55 puts and let the other guy get ground down on a flat move.  Or you can buy the $55/56 bull call spread at .55 and "only" make 80% max on a move up but, meanwhile, with the Qs at $55.55 – you pay NO PREMIUM – get it?  

    La Tache/Savi – Nice but I was bought up on Cabernet so I only drink the Pinot’s occasionally.  If I’m going to stray, I generally head south for Chiantis.  

    Market Tourettes/Kustomz – A rampant affliction.  

    Seriously they are offering to buy oil for $99.95 again?  This is just too funny.  At this point – we can well afford to drop the nickel!  

  90. Anyone knows the exact div date of NLY I want to roll my Jan13 17.5 calls to Jan14 15c but at this stage we still show .09 cents premium trading at 2.05 At this price and at this time one could be called possible Phil has some good idea thanks 

  91. ROFL – CNBC reports that Iran military exercises MAY take place over the next 10 days (over the holidays) and that MAY impact shipping at the Straight of Hormuz.  Now, tell me that the President shouldn’t be empowered to send people over to the studio and just cart Sharon and whoever talks in her ear off to a detention center as enemies of the people for pushing this BS on the investing public…  

    And look – her report sends oil to $100 where I say SELLSELLSELL!!!!  

  92. Phil/QQQ…in the time being I thought that one out a bit more and took my 50% gainer off the table…still learning

  93. Seriously, how many times can people fall for the same BS?  

    BBC chart/StJ – Excellent

  94. Speaking of giant charts – Barry is still on his correlation/causation kick and this one is very funny:  

    Blame Twitter (infographic)

  95. $99.80!  This time I smell $99.40.  Why won’t Obama give me the keys to the SPR?  I could have this whole country out of debt in a quarter!

  96. From Nicholas Nickleby: "A mania prevailed, a bubble burst…four hundred nobodies were ruined.
    Yes, Dickens got stung when he invested in some real estate at Cairo at the junction of the Mississippi and Ohio rivers, by buying bonds in the Cairo City and Canal Company in 1837, a  massive scam of the time (and wrote about it in his American Notes (1842)). Nicholas Nickelby was written in 1939, around the time the Cairo bubble burst.
    It was never a good idea to cross Dickens. At the age of 12 he was sent to work in a factory while his father was in debtor’s prison, and ever since he wrote about it, it has been almost impossible for a child to get a decent job in a factory to support his or her family.

  97. Twitter causation…so funny!   And I thought I was the only one who didn’t understand or participate in this twitter thing.

  98.  Wheee!!! Finally took the plunge and make my first trade in futures today. Sold /CL at 100 and bought it back at 99.8. Wasn’t as scary as i thought it would be :-)

  99. I did a quick search of todays posts and no one mentioned MU (Micron) why is this stock up 17%?

  100. Ready to take profits (IWM 74.66) unless we keep going of coarse !!

  101. I do have a question in regards to selling premium vs. buying it…it certainly is not a hard fast rule, as the trade in the next week uso 38 puts for the WCP are just that buying, but my question is this just the result of intimately knowing that underlying so as to identify when the risk premium is out of whack and therefore…worth the risk?
    BTW those puts are hanging in quite well considering the prices we have been trading IMHO

  102. Morons/Pharm – I, for one, don’t even know what teratogenic means – which is why I don’t invest in those things unless you bless them!  Thanks for another great call.  

    Congrats Savi – that’s very cool.  Just that whole experience is such a privilege for anyone.  

    $99.85 – looks like $99.40 will have to wait a bit.  Dollar is flatlining at 80.27 with the Euro at $1.30483 (also stuck in the middle there) and the Pound at $1.5668.  78.14 Yen to the buck is keeping the Nikkei happy for the moment and the Swiss have the Franc at (drum roll please) – you guessed it:  1.2224!  

    Silver made a super-neat descending thingy pattern today and is flattening out at $29 so (/SI) is not a bad futures play at $29.11, getting right the hell out if they can’t hold $29 and just looking for a little move back to $29.20.  

    EU Youth/StJ – WOW, that’s an explosive situation in Greece and Portugal and we’re not all that far behind.  Don’t forget we have a ton of troops coming home and joining the unemployment line next year.  

    EXPE/BDC – Best to call your broker’s specialists – they usually have all the paperwork.  Anyway, good to make them do SOMETHING for the commissions, right?  

    VVUS/Oncmed – Wouldn’t touch them at the moment. Not sure what else they have if this drug’s a bust for them.  


  103. Phil – The Euro deserves to hit the dustbin of history here IMO, but that’s a longer term view. Short term the Euro is really struggling but if it can just get over declining resistance in the 1.32 area, it has a shot at 1.343 or possibly 1.355. We’ll see. 

    Short term there’s now a clear three-touch support trendline for this sideways/bounce move. As long as that holds it is at least consolidating and equities should hold up. If it breaks then I think it will be testing the lows again, and if those break then it might find support in the 1.275 – 1.28 area, though I have a possible breakdown target in the 1.20 area if it doesn’t hold there. 

    Overall I’m a bit doubtful about a strong bounce here on EURUSD. Here’s the current position as I see it

  104. $99.60:

    Oooh – we’re half way there

    Take my hand and we’ll make it – I swear

    Livin’ on a prayer

    (yes, it’s one of those days)


  105. Thanks for the RIMM answer, went back and did some more reading and think  the Jan13 5/13 BuCaS is indeed a good option.  We’ll see where that will take me.

  106. White House / Savi – BTW, if your daughter is there, make sure she passes along Phil’s picture to the Secret Service. Would not want eco-terrorists to have access to the Oval Office! 

  107. SJ – welcome to the PSW board!  I have been following you and Cobra for some time now and always enjoy the charts.

    As for FXE, you are using the 60 min, but using the daily, it looks to me like a bear flag, if one ignores the noise from that massive push up on an announcement that means nothing IMHO.  Thus to me, the breakdown is underway.

  108.  hemas03 – I was reading some research yesterday suggesting that RIMM was worth $20 on breakup value. Looked credible I thought. 

  109. USO Puts – sure are stubborn today…

  110. i owuldnt be shorting this market iwth the powers ast be wanting clearly to bolster CONfidence and of course fund managers et al have a massive vested interest in a higher mark at year end…. we may well have the (second) short of a life time sonn nothing has been truly fixed but  that is a worldwide means we are at square one rising and falling on the same sea of bs as everyone else ..the us remains the cleanest shirt in the laundry…sp loooking pretty stupid these days with that downgrade

  111. Pharmboy – Good to be here :-)

    Agree, it might well be a bear flag. The breakdown only starts when the flag breaks down though and that lower trendline is still holding at the moment. If it holds long enough declining resistance will break. 3 or 4 days max I think before it breaks one way or the other. 

  112. Hi, Any Market Historians on this board?
    Historically, when does the Santa Rally fade?  Before or after New Year?
    Another question: ARE we in a Santa Rally or NOT??

  113. There was a story in the French news today about the fact that there are 35% more rich French people moving either themselves or just their money to Switzerland for 2 reasons:

    1. They are afraid that Socialists will win the next presidential elections and raise taxes
    2. They want security and are scared that the euro will implode. It’s legal to open an account if you declare it in France and pay taxes. But it’s invested in Swiss Francs!

    Apparently, there are more and more people from Southern Europe moving to Switzerland for that reason!

  114. Phil,
    Are next week USO 38 Puts still a good buy? Oil might stay up till Friday to get the high prices over the holiday weekend. Next week is also a long weekend. do you think that will also try to keep the oil up.

  115.  Phil: handling short shares GE
    GE up 7.5% since Friday close caught me off guard and short 2,000 shares at 16.  I had 20 of the Jan 16 P/C naked and missed the ex div date today so the calls were exercised before I could roll them out and up.  I want to eventually own more GE so I could sell 40 Mar puts but not sure if there is a good way to prevent more damage to the upside. It’s no excuse for missing the roll while I was travelling but I didn’t see any big news to cause such a sudden move up and I should have keyed on the ex div date. suggestions?

  116. lflan,
    Have you settled on this week’s AAPL pinning price?

  117. kustomz – RE: MU (Micron) …
    From 10:24 A.M. Market Currents at Seeking Alpha:
    "Though it just issued another weak earnings report, Micron (MU +14.4%) is rallying today, as investors decide the bad news is baked in. Earnings call comments about strong NAND flash demand might be helping, and so could an upgrade to Outperform from Wedbush, which thinks Micron’s beleaguered DRAM business will hit bottom this quarter, and return to profitability in FQ3. Sandisk (SNDK +2.8%) is up in sympathy."

  118.  cwan120 – some great Xmas trading stats here:

  119. NLY/Yodi – I don’t see an announcement yet.  In the income portfolio, I just add 3 months to the last one (9/28) so I know around when to keep my eyes on them.  The dividend is .60 so strong likelihood of being called but so what?  You just buy the stock back on the dip with the strike cash plus what you got paid for the call and no harm, no foul.  There’s really nothing you can do with NLY because, now that the VIX is down, the premiums are total crap to sell so you’re just picking up protection on the stock and making the real money on the put side and those times you don’t get called away – which should be most – it’s not like it happens every time.  

    Qs/Sage – Good man!  

    Dickens/JMM – LOL, nice take on child labor!  My Grandfather left me some canal stock certificates when he died and he wrote on the back "Never forget".  

    Damn, stopped out of oil as Dollar failed to hold 80.30.  Oh well, now we have 25 mins to NYMEX close so hopefully a nice, BS pump-job into that and we can reload again.  

    Twitter/LV – I have no interest.  What could be more torturous for me than asking me to limit my statements to 140 characters?  And don’t even get me started on the percentage of total waste to something worth reading – hundreds to one is my best guess…  If you want to waste an hour – look for 10 seconds of good reading on Twitter!  

    Congrats Mampcs!   It’s not scary as long as you go in with the attitude that you are risking $50 and that’s that and you follow through by taking those quick losses off the table.  If you are right half the time and wrong half the time – then the occasional times when you catch a big move more than make up for your losses.  

    MU/Kustomz – I think their outlook was better than rumored and the sector on the whole is expecting a rebound.  Because of AAPL’s intense dominance on pretty much all devices this year – there have been big winners and big losers in the SOX with some shortages (stuff AAPL wants) and some oversupply (stuff RIMM thought they could sell).  Is MU a bad company?  No, but most investors aren’t in for the long haul so they oversell on the short-term and MU was getting a bit silly at $5, which dropped their cap to $5Bn with $9Bn in sales and only $200M in profits this year but they were at $2Bn last year so you have to assume that somewhere between $200M and $2Bn is reality for them and that makes $5Bn dirt cheap for the stock.  Just another example of a company priced for BK for no good reason.  

    Buying premium/Sage – Well the USO $38 puts are more limiting risk than buying premium.  They are far out of the money and have a low delta so we can ride out a move against us but, if oil drops back to $97, they should show us a good gain.  It is, on the whole, less risky than spending $1,000 on a tight USO put or locking ourselves into a spread when we have a simple premise (that oil won’t crack $100) and want to be able to exit quickly.  

    Euro/Jack – So if you don’t believe in the Euro, then the Dollar must go up and if the Dollar must go up then the market must go down.  Not to bust your chops but how do you reconcile that when you are charting?  As a Fundamentalist – that’s one of the things that bothers me about TA, that you can say the Euro is going down but the S&P is going up at the same time when, in fact, I see them as mutually exclusive events.  

    You’re welcome Hemas!  

    USO/Scott – Needs a much bigger move than this before they pay off.  You guys are spoiled by the Futures – playing the options takes more patience.  

    Shorting/Angel – That’s why I like cash at the moment.  Once the Fed chips in, then I can be gung-ho bullish again. 

    Santa Rally/Cwan – If this is one it’s a pretty poor one so far.  Usually it’s from Thanksgiving to New Years – note we didn’t get one in 2010 but, in 2009, we ran up about 400 points into New Year but gave it all back by the 2nd week of Jan (and then much worse).  On the whole, I’d say the Santa Rally this year is not falling back to 11,500 – be happy with that!  

    Switzerland/StJ – If Europe implodes why on Earth do these people think Swiss Banks are safe? 

    NYMEX closed right about $99.50 so it’s all up to the Dollar (80.27) now.  VIX down to 21.10 so no one seems to be worried.  

    USO/Pat – I like them for the weekend.  New Years is not a travel weekend and XMas is not a huge one like Memorial Day so, by Tuesday, I expect low demand whisper numbers to scare off some oil traders but it’s a risky bet as being wrong gives us no time to recover.  

    GE/Lincoln – They are essentially a Financial and they pop with free money just like the banks.  If you are short 2,000 at $16 (you were short naked calls?) I’m sure your basis is at least $17 so down about $1 and the short puts are looking good and you can sell the 2014 $17 puts for $3, which raises your short net to $20ish and you can buy the 2013 $17.50 calls for $2.20 and sell the 2014 $20s for $1.85 so now you are net short at about net $19.65 but you make another $2.50 over $20 and you are pretty well covered in either direction with net $4.85 of premium to collect if we flatline.  The only worry is a big move up but you can stop out at $19 and that leaves you nice and bullish with the 2013/2014 $2.50 spread and the short 2014 puts.  

    Cool stats Jack!  

  120. MJN (Mead-Johnson) down around 20% at one point today, but off the lows and at -12% now.
    Apparently a 10-month old baby died from allegedly from drinking Enfamil formula tainted with a rare bacteria.  Kind of scary considering I was feeding my baby the newborn formula just a few months ago.  
    Mead Johnson Drops as Wal-Mart Pulls Formula After Death

  121. On MU thanks guys..Im just too bearish for my own good..Im down 15k on TZA (not a big deal, I’ve been down twice that this year) and yet Im still scanning the markets looking for a good short..WTF is wrong with me!!

    And on your ? to SHJ, i was wondering the same thing..

  122. Goaaaaaaaaal on oil!  We’re into a bonus drop now.  

  123. Phil & SJack / Santa Rally: Thanks for the history.  Made me believe Santa again!

  124. Phil
    What is your best hedge for the duration of the holidays or beyond? I am a little thin right now. Thank you.

  125. Amazing calls on oil today Phil, keep them coming please!   Is silver an overnight hold at $29.08?  

  126. As age progresses… I believe in Santa Claus…. I don’t believe in Santa Claus….  I AM Santa Claus!

  127. Phil – I am bullish on USD for 2012, and I am thinking that equities are probably going to have a tough year. From a chart perspective I generally only look a few days ahead, so any seeming dichotomy is mainly a timescales thing. 

    I would add though that the strong inverse correlation between USD and equities in the last few years has been strongly helped along by QE1 & QE2 effectively devaluing USD against everything else. So far there is no QE3 in the US and it looks as though they may be gearing up to print trillions in the Euro zone. In that environment the correlation between USD and equities might weaken or even reverse, as it has done for multi-year periods in the past. It may not play out that way, but it’s worth bearing in mind. 

  128. kallen – LMAO.  My house is now a big Lego factory….

  129.   Looks like we’ll need more write-up from Pharm soon…

  130. FAS Strangle – Unless we have a strong move in the next 1/2 hour I will keep my current strangle open overnight! Risky, but I don’t see getting a much better setup tomorrow with the VIX down. Worst case scenario, I roll to next week. 

  131. MJN/Kinki – I think there was more than one so I’d be careful about both using the stuff and the stock until they have an answer. 

    Too bearish/Kustomz – Maybe just too early?  A lot of money plowed into the Global Economy and this is all they can do so far – not impressive.  

    Holiday hedge/DC – Well I’m certainly not going to stop loving EDZ!   The Feb $18/25 bull call spread is $1.90 with $5 potential upside on a $7 hedge that’s $1.25 in the money now.  You can offset that by selling the $17 puts for $1.55 for net .35 on a $7 spread with 2,000% upside potential or you can offset with a bullish short put on something you really want to own if the market falls 10% like TM Feb $60 puts for .95 or VLO Feb $20 puts for $1.10 or JPM Feb $30 puts for .97.  That keeps your insurance cost down and, of course, the short puts are rollable to lower strikes and, on the way down, you can always layer your hedges.  

    Silver/Bruce – I was liking it more when we still have the offsetting short oil position.  In this case, Europe finished up about 1% and we’re up about 1% so Asia should be playing catch-up and they love shiny bits of metal and I bet they’ll like the Euro at $1.30 (and everyone is full of Dollars) so yes, I do still like them but I don’t like the word overnight as it implies you would go to sleep with that position open and that’s VERY DANGEROUS on the futures!  I like them well enough to set a stop at $28.98 that I can hear from wherever I am in the house while hoping for a nice move up to get out on – how’s that?  

    Dollar/Jack – Thanks.  I look forward to seeing how it works out with you.  

    Health care/StJ – Wow.  Of course, demographically, it was kind of inevitable.  Maybe a good time to look back at our ideas from our 2010 outlook, when we predicted Pharma would be the best place to make bets!  

  132. Phil,
    To bet on platinum, which one is better? PPLT, PLG, PLTM, or PTP.

  133. S&P cut GS A+ from AA- 


  134. AAPL tomorrow $395 puts at .38 are a fun bearish gamble overnight.   Very likely they pin $395 and, if lucky, they pull a dip early on and jack up the price.  

  135. Me 2 !! (on dclark’s call for hedges at 3:08pm)

  136. stjeanluc
    FAS strangle for what price did you sell this morning ?

  137. S & P did NOT cut GS        ( ROFL)

  138. slient…maybe its a boo boo by bloomberg?

  139. Platinum/Neet – You can go (/PL) in the futures.  I don’t know enough about the ETFs to say if they are good or bad but most commodity ETFs suck and Platinum is thinly traded so very likely those suck more than most.  Based on improved auto and truck sales next year – I would tend to look for an opportunity to play platinum up, not down.  If you want to play Plat bullish, I think maybe SWC, who mine a lot of it and are not a bad little company at $11.  They were $25 earlier in the year and in the teens last year with $7.30 being the year’s low.  As they are so volatile, you can just sell the 2013 $7.50 puts for $1.50 for a net $6 entry and a nice profit if they don’t fall $3.50.  If you want to be aggressive, you can add the July $9/14 bull call spread for $2 and you have a $5 spread for net .50 that’s $2 in the money to start you off.  

  140. kustomz   – fat finger?

  141. $29.13 on silver – See, it all works out!  8-)

  142. Phil/ STJ—Thanks—-stj will pass on Phils bio maybe he can get the little budget thing solved for Obama  :-)

  143. Trying to make sure I understand this suggestion in an earlier post today, have some questions which are in brackets
     ”EDZ/Yshen – The spread is $2.80 now with EDZ at $19.50 and you can roll the $15s ($4.50) out to the April $19s about even and that will protect you from most of the time decay and still keep you in a good position to roll the caller [this the May $20 short call?] if EDZ heads higher.  If you have the margin to have a naked caller, you can sell the April $22s for $3.50 and spend $1 of that to roll down [when would you do this? If now, why not sell the $16 directly?] to the $16s so you pocket $2.50 (most of what you get from cashing the spread) and you end up in the April $16/22 bull calls spread and you would be $6 in the money before you owe your caller $2.” [thus holding on to the Jan12 $20 short call?]
    Could you please clarify? Thank you!

  144. silent…Bloomberg blames S&P website..damn hackers ;-)

  145. FAS / Yodi – Sold it for $0.57.  I was looking for $0.50… The strikes are a bit close for me, but the VIX is so low now! We’ll see. I am sticking with it now.

  146. Phil/others- I know I’ve read a lot of articles mentioning going long platinum and short gold recently wondering what you guys thought?

  147. Well, I gave you guys the exact top and bottom today; I hope you played it better than I, but I still made close to 5% !!



    Welcome to the board !!

  148. stjeanluc
    Thanks you got me there I sold DEC5 for 2.66 so we see how it goes. The DEC4 is still 50cents

  149. kustomz – Maybe S&P did not really downgrade the US? ;-)

  150. XLF – in for a net 0.10 yesterday, out for a net 0.20 today – gotta like those returns for a day — I am restraining myself from annualizing them.  Thanks Phil!!

  151.  Thanks JRW – Good to be here :-)

  152. JRW
    You sure did call the top and bottom, I did not trade at all again, maybe the doc has a help with problems on the 29th, still can’t sit long enough.

  153. Budget/Savi – I just need about $10Bn of seed money and control of the SPR for 3 months and I can give him back a Trillion!  

    EDZ/Hemas – It’s very hard to go over a position that isn’t yours and explain to you what can be done with it.  Yshen has the Jan $15/20 bull call spread at $1.30 and wanted to take some off the table so that was my idea to execute it.  The caller is the Jan $20 caller. As to when on the roll down, it would be when he decides he doesn’t mind having a naked caller.  No one is selling $16s, those are the calls he would be buying in the April $16/22 spread that I like as the best way to cover the naked Jan $20 caller.  

    Gold pair/Jrom – I like it.  As I mentioned this morning, gold is 22% over plat for no good reason so it’s reasonable to assume the relationship will tighten and that’s what a pair trade is all about.  

    Nice job JRW – I think we all had a very nice day!  

    I kind of like being in cash and messing around with the futures – very relaxing overall.  

    You’re welcome Canuck – Good non-greedy exit!  

  154. S&P: "The downgrade was not meant to be a factual statement!" :-)

  155. JRW     I made around  4%     ( I have promoted myself to sophomore at JRWU    -JRW University)

  156. FAS / Yodi – Just trying to squeeze a little more out of this week’s options! 

    As for next week, look at it this way, there will be a winning side at least and with some luck both! And the other side can be rolled!

  157. silentstorm44 / 4%

    Nice work !!   School smileys and other fun downloads - only at

  158. Portfolios are all up to date except for the AAPL 50k as I need some information from lflan who had computer issues earlier. 

  159. stjeanluc
    Thanks will see what happens until tomorrow bye

  160. Phil,
    For IRA A/C, REIT: AGNC and NLY are good choices?

  161. and another. Sorry, visiting fam and not much happening this afternoon.

  162. Hey at least someone got cut, Slovenia A1 form AA3 outlook negative…Moody blues

  163. JRW,
    When you say ‘made close to 5%’, what is the denominator? Portfolio? Funds invested?

  164.  UN general assembly just had moment of silence in remembrance of kim jong il…wow…pathetic.

  165. JRW is running a billion..thats a thousand million..he made 50 large today..i wanna be his cabana boy

  166. kallenjr / denominator

    I had +/- 900 invested today.

  167. JRW,

  168.  kallenjr, 900k :-)

  169. JRW,
    Very nice. :-)

  170. Phil, thanks for the effort.  I guess I should have mentioned that I have the same hedge but now it is perfectly clear and I know a different way to cover a spread.

  171. Phil: Am I right in thinking you believe there’s a U.S. QE3 in the offing?  Logically, having the ECB and the Fed dropping their currencies in unison would let the boat sink from both ends, rather than bow or stern first.
    Kustomz:  Sorry, missed your Euro question yesterday.  I’ve gone between 1X and 15X on my FXE short, usually between 5X-9X pm the position.  I took it down to 1X on the night I posted the GS/ECB pseudo-QE piece, which was provident.  I boosted it to 3X now [but still low in my six month range], thinking that avoiding bank meltdowns without attempting a structural solution to the non-competitive-GIIPS-in-the-Eurozone problem is just another can kick.
     But the U.S. also booting away on its end, and may use the Eurozone bank recap as a nice excuse to QE3 the MBS issue or some other maneuver.  So, EUR/USD may be temporarily in the doldrums, hence I’m concentrating on equities that will benefit from either Euro or U.S. QE-like rescue ops, knowing, as we all do, that if something triggers monetary velocity [by accident], the oligopolies in energy, tech, and materials will be off to the races.  For the moment,  I am overwhelmingly in cash, with some Apple, Amazon [sigh] and Banco Popular, which I picked up at $1.10 this week, now $1.30, along with some Cameco [different dynamic].  With governments in full cry, fundamentals [which I don't know how to analyze anyway] don’t mean much, so more sniper than gunner right now.

  172. Phil--if only we can find a way to get O’s attention--

  173. Phil
    Your 11.36 am response on AAPL:
    AAPL/Samz – The simplest premise on AAPL is that it is worth $300 a share.  So no reason not to collect $37.50 for selling the 2014 $300 puts, is there?  TOS says that’s $30 in net margin.  AAPL is at $400 so we can bet it goes up by simply buying the 2013 $350s for $85 and selling the $450s for $35 and that’s a grand total of net $12.50 in the $100 spread that’s $47 in the money to start and your worst downside case is owning AAPL at net $312.50.  If you pull the spread before it goes under $20 (assuming a nasty drop), then your net is back below $300, worst case.  

    What do you mean by ” if you pull the spread before It goes under $20″
    Do you mean the BCS? Or are you including the sold puts in that ?

  174. Phil,
    Trying to wrap my head around this lesson.

    GE/Lincoln – They are essentially a Financial and they pop with free money just like the banks.  If you are short 2,000 at $16 (you were short naked calls?) I’m sure your basis is at least $17 so down about $1 and the short puts are looking good and you can sell the 2014 $17 puts for $3, which raises your short net to $20ish and you can buy the 2013 $17.50 calls for $2.20 and sell the 2014 $20s for $1.85 so now you are net short at about net $19.65 but you make another $2.50 over $20 and you are pretty well covered in either direction with net $4.85 of premium to collect if we flatline.  The only worry is a big move up but you can stop out at $19 and that leaves you nice and bullish with the 2013/2014 $2.50 spread and the short 2014 puts.  

    How do you make another $2.50 over $20 ( line 5)


  175.  Hey phil, been a general member for a couple years now taking advantage of referral discounts to be able to afford staying with you. I have turned multiple friends on to your site with a number of reading your daily articles and a few even joining the site fully. 
    I almost feel bad asking this as a favor after all of the flyers you have been putting up about helping to donate to the NY’s less fortunate, but if it is ok with you may i post a link sometime on tomorrows post for donations i am collecting to help pay my final semester in business school. I know there are people out there that are way less fortunate than I am, but am hoping that some can find the benefits in investing in an ambitious students education. Thanks for all you do!
    Email me if necessary: 

  176.  Phil:  Six cities in ten days kind of knocked the stuffing out of me recently, but staring out airplane windows away from the noise of the markets can also be useful.  I decided that 2012 might see a declining Yen and a concomitant recovery of some beaten-down Japanese exporters, and would be interested in some 9-12 month bull spread setups on, say, Nissan, Honda or any other U.S.-quoted Japanese stocks you might suggest.

  177. P.S. Yen/Japanese equities:  A quick look turned up HMC and TM as likely candidates, given the lengthened average age of U.S. automobiles, a possible stabilizing of U.S. unemployment, and a Yen that may have turned the corner to the downside.

  178. Good morning!  

    Oil (/CL) back at $100 and the Dollar at 80.10 so game on again for the shorts but have to be prepared to test $100.25 and Dollar 80, either of which line failing would be a stop out.  

    Silver (SI) hit $29.41 – not bad at $50 per penny per contract!  

  179. Looks like the Obama campaign got some new material to work with from John Boehner.

    What a tool! From his speech last night:

    You know, sometimes, it’s hard to do the right thing. And sometimes it’s politically difficult to do the right thing. But, you know, when everybody called for a one year extension of the payroll tax deduction, when everybody wanted a full year of extended unemployment benefits we were here fighting for the right things. May not have been the politically the smartest thing in the world, but let me tell you what. I think our members waged a good fight. [...]

    If you can get this fixed, why not uh, why not do the right thing for the American people – even though it’s not exactly what we want?

    Such candor! The commercials almost write themselves!

  180. "Why not do the right thing for the American people, even though it’s not exactly what we want." – That does sum up the Republican Platform pretty well – almost as well as this:  

  181. Right thing / Phil – It’s a wonder more people don’t see through the cynicism of these guys and keep on voting them in office! There is plenty to complain about Dems, but given the other side, the choice is quite easy!

  182. NLY and AGNC/Neet – Yep, they are in our Income Portfolio as they seemed to be the most stable of the group but it’s very difficult to hedge big dividend-payers when the VIX is low so, at this time, I think I prefer simply selling puts as an initial entry.  On NLY, you can sell the 2013 $17.50 puts for $3.40, which is a net entry of $14.10 (16.5% off) and, if NLY holds $17.50, it’s a lot more than the $2.40 dividend and TOS says it only ties up $3.30 in margin so a 100% return on margin in a year is a nice way to enter a stock.  

    AGNC’s 20% dividend is hard to match but, at $28, you can sell the 2013 $30 puts for $7 and that’s net $23, which is 18.4% off and, again, way less cash committed but here it could be argued that you might be better off buying the stock for $28.25 and selling the 2014 $27 calls for $1.80 and the 2014 $25 puts for $7.70 for net $18.75/21.88, which is a nice healthy discount on 2x – especially if you also get that $5.60 a year in dividends as that would effectively lower your net to $7.55/16.28 BUT – keep in mind that the main reason this trade would collapse would be BECAUSE they cut the dividend and then the whole plan RAPIDLY falls apart – so never get carried away with REITS or other big dividend payers – there are risks….

    $99.60!!!  Looks like we can afford a croissant today!  

    Moment of silence/Angel – Well, it’s hard to say no when a country requests it but it was held in an empty chamber as the western delegates refused to attend.  

    Big Chart – I always find it very impressive when 3 of our 5 lines are hit almost to the penny.  Still gotta get that NYSE over the line – it’s only the -5% line – it shouldn’t be this much trouble.  That’s just a bad sign when a weak line offers resistance.  
    Also – it’s very important to keep in mind that the reason the NYSE and the RUT underperform is because they are the broadest indexes and that makes them the hardest to pump up by targeting a few select stocks so, on the whole, they are the more honest reflection of where we should be and it’s very disturbing that they are 10% under the headline indexes.  

    No problem Hemas.  

    QE3/ZZ – I think without QE3 the economy collapses.  I think the Fed doesn’t want the economy to collapse.   I think QE3 is a tool the Fed has at its disposal to prevent a collapse.  I think the banks, who the Fed works for, love FREE MONEY.  So, my conclusion is that QE3 is coming unless we clearly don’t need it next Q.  

    Also, there’s the overriding fact that a $15Tn economy will NEVER pay off $15Tn in debt – even if we balanced our budget, SS and Medicade are going to be out of control.  If you screw all those people over then we end up paying for our parents care and feeding instead of the Government and that means less money for us (and our kids when we start needing diapers again) and that’s a drag on the economy too.  So failure to FIX safety net programs will lead to a collapse in consumer spending and the economy declines over time and we can’t pay our debts.  Fixing the safety net without raising taxes considerably will put us deeper in debt and we’re back to $15Tn in debt will never be repaid. 

    At this moment, we are enjoying the ability to borrow $15Tn at historically low rates.  It’s a game of Russian Roulette every year we float the debt forward as any time we have to pay 4% average ($600Bn) instead of 2% average ($300Bn) on our debt – it then adds even more debt that we have to pay interest on and that will destabilize things VERY fast.  

    So inflation is the ONLY exit to this problem.  We have a $15Tn GDP with $15Tn in debt and we collect $2Tn in taxes (13% of GDP – ridiculously low).  The solution is to collect 20% of GDP ($3Tn) while boosting GDP 33% to $20Tn over 5 years (5-6% inflation) and keeping spending at no more than the rate of inflation (with some screwing of benefit recipients necessary).  That balances the budget in year one and by year 5 we’ve got a $20Tn GDP and $15Tn in debt and we’re collecting $4Tn and using $1Tn to pay down debt while the People (and we are a Government by the People and for the People, are we not) have $16Tn left to spend vs. the current $13Tn left to spend after taxes and $13Tn + 33% is  $17.29Tn so everyone is about 10% worse off in buying power until we pay off our debts but then, it’s back to boom times when the next joker decides we can lower taxes to make this country prosperous.  

    Since that solution may seem unpalatable as it requires raising taxes and flattening spending, it’s more likely we have 8-10% annual inflation because, if combined with keeping spending in line, that gets you to the same place without raising taxes.  The effect on buying power is the same but clearly from the way people don’t react to the Dollar declining 10% – you can slip that right past the people without a peep – especially if they get 5% raises to cover the 10% inflation!  

    AAPL/Maya – Not the puts, just closing the Bull call spread if it drops over 50%.  Don’t forget it’s a $50 spread and you are applying $37.50 to it from the puts.  If you shut the spread down at net $20, then you have just the puts for the $20 you took off the table less the $12.50 cash you put into the trade so net $7.50 in your pocket and an obligation to buy AAPL for $300 a share.  If you don’t REALLY want to own AAPL for $292.50 per share – this trade is a terrible idea because you will panic out on a dip and just have a big loss.  Selling any puts is a bad idea if you aren’t ready, WILLING and able to buy that stock.

    GE/Spare – You have the 2013 $17.50 calls and sold the 2014 $20 calls so a $2.50 spread.  The 2014s will have some premium but you can, of course, roll the shorter calls.  The current Jan $15s (as we’re assuming in the money) are $3.10 and the 2013 $17.50s are $2.20 so .90 is the spread at the moment but you can exercise the stock at $17.50 and you are in for net $17.85 on the stock (because the net of the spread was .35 + your $17.50 exercise price) with the short 2014 $20 caller and, of course, if this is your "problem", then clearly the puts are expiring worthless and you pocket that money too.   Let’s not forget that very nice .68 dividend on GE too!  

    Link/CC – I guess that’s OK but I’m not too keen on turning space over to everyone who wants to ask people for money but a short statement with a link for interested parties to click on is fine.  I would suggest that you might get a better response by listing some marketable skills as there are many "job creators" here on the site who could use a part-time person with good skills.  

    Japan/ZZ – I love TM at the moment.  Nissan probably has a big hit with the leaf – electricity much easier and cheaper to get than gasoline in many parts of the World and I don’t see people taking that into account.   A $15,000 electric car is down the road and that will be a game changer because Tata can build a $2,500 car but it still costs $3,750 to drive it 15,000 miles a year at $5 a gallon.  A $15,000 electric car financed over 7 years is less than $300 a month with maybe $50 more in fuel costs.  

    Also in Japan – MTU is almost as low as it was in early 2009 so I like them at $4.16 and/or you can sell the Aug $5 puts for $1 to drop the net to $3.16/4.08 (that’s why and/or).  At $5 I’d sell the $5 calls to cover – it’s a good general way to play a Japan recovery and they pay a .14 dividend, which doesn’t sound like a lot but it’s 3.5% and you’re getting a bank with $40Bn in revenues and $5Bn in profits ($4.5Bn in cash flow) for $5Bn.   Last Q, they made 61 cents a share!  

    Choice/StJ – As Barry Ritholtz likes to say:  "I am not a Democrat, because I have no idea what their economic policies are; And I am not a Republican, because I know PRECISELY what their economic policies are."  

    When the alternative is clearly a disaster, you have to go the other way.  

  183. DECK is clearly broken technically. May have much more to go down.
    Is worth while buying put spreads or selling call spreads or as VIX is down not much premium

  184. Phil,
    Do the NLY puts usually go up in price when the price dips ex div, or will that depend more on where the vix is? Thanks

  185. the UN is just actiing as a proctologist to the us at this point..liberals and conservatives both wonder what we are doing there…i think its like the otv series carnivale..or fellini..i doubt there will be qe3 as i have said many times BEFORE an actual collapse..remember the fed measures our health on the vitals they observe from xlf constituents and corp profits not whether 24 million are below the poverty line..think france pre wasn’t the poor it was when the aristocracy started screwing with the middle class that all hell borke loose..china will soon be in much worse shape than we again we are the cleanest shirt in the laundry..

  186. the choices in this years election are dreadful i am wrting in ken burns or chuck dickens