That's all we have lately. Greece's silly $171Bn loan is meant to distract us from Europe's $17Tn debt hole and the US continues to borrow $171Bn PER MONTH to cover it's deficit and we don't even talk about Japan as the debt climbs over 220% of their rapidly declining GDP and who knows what's going on in China but, generally, when you have double-digit declines in home prices on a monthly basis – there's going to be a problem down the road.
This may be my last bearish post before drinking the technical Kool-Aid this weekend and we've already selected 5 trades for our Members that will make 200-500% if the market keeps moving forward and there are still plenty of stocks we can make a lovely Buy List out of if this rally has legs – especially the way we like to bet, since our hedges allow us to make very nice returns, as long as we simply hold our current levels.
There's the rub though – are the current levels sustainable? The nice thing about consolidations like the one we've been having this year is that they firm up a floor and give us a very obvious exit point on the way down so we can move some of that sideline cash into play – as long as we hold 12,500 on the Dow and 1,300 on the S&P and 2,800 on the Nasdaq – pretty simple strategy, right?
Notice the 2nd row has our major indices priced in Euros and our third priced in Yen. My main issue has been that we've been much weaker than it seemed as the Dollar's relentless decline masked a downturn in the inflation-adjusted price of our stocks (and the weak Dollar also serves to inflate revenues reported by multinational companies) but, at the moment, we're at our breakout levels by any measure so we may as well go with the flow until we see a proper reversal.
First we need to get past our NFP report at 8:30 of course. I'm expecting a miss but will the market even care or will that just mean Uncle Ben has an excuse to pump up the QE according to their new "formula"?
Keep in mind that what Bernanke said last week regarding the Fed's system for determining policy boils down to – As long as US corporations don't hire American workers, he will continue to give them money at historically low rates. I don't know about you but if I'm GE and I'm thinking about hiring 10,000 workers but I'm also looking to borrow $100Bn – I think I'd put off the hiring until after I get my loans lined up in the very least.
8:30 Update – Well, I'm wrong (or so it seems from the headline number) – 243,000 jobs were added, almost double the 125,000 officially expected and unemployment dropped to 8.3%. Hours worked up is up as well so this is a strong report. Private-sector employment grew by 257,000, with the largest employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment down slightly for the month. Manufacturing added 50,000 jobs, mainly in the Durable Goods space – another positive. Even Construction added 21,000 jobs.
On top of all this good news, they bumped November up from 100,000 to 157,000. While it's horrible to think that the figure we have today could swing 57% one way or the other, the trend does look good with the initial adjustment to December going from 200,000 to 203,000. I guess the Conservatives will have to start calling Obama the Great Job Creator now…
NOW we get to see how much gas the market has left in its tank as there is no possible excuse not to bust out to new highs on this one. The big drag I see is that more people working means more demand for Dollars to pay them and less QE per the Fed's formula (especially if prices also kick up) and that is, of course, Dollar bullish which is oil bearish (not that oil should need any help with Shell saying oil may fall to $70) and other commodity bearish and makes for a tough dollar-adjusted gain in our indexes the same way that a week Dollar gave us an artificial boost before.
So let's keep an eye on that Dollar as it can really hold back the rally and this would also be a great time for the BOJ to run a Yentervention as they've been waiting for a chance to goose the Dollar into clear market strength and we're not likely to get a stronger number than this and we have TBills to sell next week so this should be the spot to run the Yen back to 77 at least.
As I mentioned, we had our 5 bullish trades in yesterday's post and it looks like we can look at 5 more already. Our plan was to add one a day, beginning yesterday, to layer up for an extended rally. Of course we've been doing this every week with FAS, BAC, TNA, etc. as we're never all bear or all bull (70/30 is EXTREME in our balance).
Since we are going to be popping into the open, let's concentrate on some longer-term trade ideas that will be less affected by the morning move. Keep in mind, as long as the net of the trade is the same, it doesn't matter what each leg trades for:
- BA ($75.22) is still very cheap at $75. If the World economy isn't going to collapse, then BA has over 3,000 planes to deliver against a current capacity of under 500 planes a year so a 6-year backlog and last year they grossed $65Bn with a $3Bn profit delivering older and less profitable planes as just ONE 787 was delivered in 2011. Although they pay a 2.5% dividend, I think it's unnecessary to own the stock as the 2014 $60/80 bull call spread is just $11 and you can sell the $65 puts for $8, which TOS says has an ordinary net margin of $6.50 so net $3 of cash to make $20 (566%) if BA gains $5 into Jan 2014 is better than holding and covering the stock for the $1.76 dividend. Don't forget, when you have those calls, you CAN exercise them and become an owner – if they raise dividends, for example (doubtful with their current cash-flow profile as they ramp up).
- F ($12.26) is still down in the dumps and their volatility makes them a fun stock to sell calls against. As I said, the way we hedge, we don't need the markets to go up, they can just stay flat and with F, you can pick up the 2014 $8/12 bull call spread for $2.40 and sell the $10 puts for $1.50 for net .90 on the $4 spread that's 100% in the money to start. TOS only wants $96.50 per contract of ordinary margin on this trade that makes $310 if F flatlines or better for 2 years. Meanwhile, SINCE you have a 300% upside, you can buy 10 of the long spreads (net $900 cash, $3,100 potential) and sell 2 March $12 calls for .65 ($130). If you get away with a $130 sale every couple of months, you have a free trade by the end of the year and you're giving yourself a very nice 15% bi-monthly dividend while you wait for your 300% pay-off!
- GS ($115.45) may be the devil but don't you think they know how to profit from a market that NEVER goes down? Let them worry about day-trading while you pick up the 2014 $80/110 bull call spread for $20 and offset that with the $90 puts at $12.50 for net $7.50 on the $30 spread that's $35.45 in the money to start. Your worst case is you end up owning GS long-term for net $97.50, which is 15% below the current price. TOS says net ordinary margin for shorting the $90 puts is just $9 – not bad..
Oops, out of time, I'll have a few more in Member Chat, of course – looks like we'll be closing this week off with a bang!
Have a great weekend,
There's no way there will be a QE3 unless Europe gets extremely messy. I don't think they'll even be able to keep interest rates low till 2014. If you look at the yields in bonds today, they are anticipating late 2013 for interest rates to rise now.
Maya1…You dont sell it for 23 right now. I just decided I want 23.75 for the spread and I put in the good till cancelled order for 23.75. As the spread gets more valuable (as time passes, as AAPL goes up in price, or both) it will eventually become worth 23.75 and the sale will be automatic. I do that to decide what I want for the spread now, put in the bid, then just forget about it. That's something I'm trying to teach the younger investors. You decide what you want to be paid for your position, or what you want to pay. Don't let them decide.
Phil/Unicorns I think I saw a smile….. 🙂
Maya……Note that we already own this spread in the AAPL portfolio, 10 of them.
Pharm – Wine is a wonderful prelude to body surfing – Today's waves are breaking BIG….. 😉
Hi asked you yesterday three times what was your impression about Belize thanks
There are some huge TZA orders going through
Not necessarily. Those BCSs and Hedges were put on six weeks ago. For the first week, the BCSs were losing money and the Hedges were performing as they should. Then the financials took off and kept on going. That's when I sold the Long calls on the hedges. It was a weird feeling. In the past I had always kept Hedges until the bitter end, and somhow felt proud that they lost money, especially when the longs they were protecting were making money. It does not have to be necessarily all or nothing.
To your specific point, I would not make any change based on a one day 'spike'. But the advantage of these 2X and 3X hedges is the decay. The trick is being flexible enough to go back in when risk exposure dictates, i.e. buy long calls to cover the naked calls if the sector collapses.
Oh! got it.
NOW it makes sense. Thanks.
Sorry, was not quite following the 'portfolio'
Those were the QQQ puts that expire in 45 minutes, of course.
Oil/Roro – I can see the upside case but, in the end, the demand isn't there so hard to play it up when the Fundies don't support it. Better to let others bid it up and then we can enjoy shorting them. You know me, I'll go long for a quick ride but certainly not as a longer bet.
IWM Money – Keep in mind that the goal of this trade is to simply pay off the cost of the long spread ($1,104) and get a free and bullish ride on the RUT to 770 (now well past) so we make a clean $5,400 if the spread expires above $77. So these sales are just gravy and very well protected as we can't lose on the short calls without the currently $2,800 net spread going deeper and deeper in the money.
And what Lflan said re. AAPL…
Unicorns/1020 – Like the Neanderthals, you're not going to survive if you can't tell a grimace from a smile… 😉
exec…..I've thought that a small amount of TZA held over the weekend might be a good idea. Perhaps I'm not the only one thinking same.
FAS Strangle – Not much hope for a broken stick today now… I'll close the position and we'll restart fresh Monday. I'll have some notes this weekend on how I might change entries and exits based on this week's action. We obviously can't take another 10% week either way especially since the premium will not reflect that volatility!
And FU CMG!!!
Fas Strangle I am looking of rolling 1x to FEB2 85c and 1x to Feb 85c what can go up by 5$ can go down by 5% cost +- 520.00
IWM is holding the 200 minute SMA and JRW's resistance. I can't spell manipulation but I can see it.
Fas Strangle still waiting for the market to drop sorry it is 5$ not 5%
Thanks for the data!
As far as FAS Strangles, I bought back my FAS 84 calls. But instead of waiting until next week, I sold 1 contract next week 94/84 strangle. Just ONE contract.
FAS / Yodi – It could, but it could also go up another $5 next week on any news from Europe this weekend. A roll is basically buying back your position and selling another one. Nobody said it had to be done at the same time so I'll wait and see what happens. The market will be open on Monday and I am sure we will be able to sell premium again… But good luck… and have a good weekend!
Fas Strangle I have the 83's I Think I'll roll to feb 85 for even and see. This low vix is really hurting our premiums!
So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.
11 year high in the NAZ!! High water mark?
FAS / Cwan – I don't see a 94 strike next week. Do you mean the Feb options? As I said to Yodi, I am taking the weekend off and see what happens next week….
Jabob – I think that was the first "FU CMG" of the day. Thank you.
AAPL portfolio: I have sold 5 of the 10 April 425 calls for 40.90. Note that this is the same as my shorting AAPL, because it leaves 5 of the 450s without long support. AAPL could not reach 460 today and I don't see it surging upward on Monday. We will see.
Be careful! You don't know how liquid those calls will be in the last few minutes!
Large hedge trades on EEM
FAS Premium / Joemayo – My point exactly on the premium – it doesn't pay us for the risk mostly up but down as well. And if we are going to have a correction next week, we might be able to get better prices on the premium we sell so no need to rush to complete the roll… This week is a setback but they sell premium 5 days a week and I am guessing we'll make more in the weeks to come!
Sorray, it's 93 call next week (not 94). Just a small position; can't resist. Will follow you next Monday for more positions.
Oh and FU FAS….
i did mention this before, and although i am pretty fluent with the futures/cfd/currencies i am also very elementary when it comes to the options so here is the question;
since i was looking for short opportunities back in dec and jan i probably could have hedged against a run up with some simple and maybe inexpensive out of money call options using applicable EFTS and/or futures contracts?
i know it is pretty beginner but have to start to get a handle on options trading too. thanks
That's all for me this week… It has been "interesting"!
Have a good weekend all!
1:18 PM European shares close the week with gains, getting their big boost at 8:30 ET when the payroll report hit. Stoxx 50 +1.5%, Germany+1.6%, France +1.3%, Italy +1.5%, Spain +1.1%, U.K. +1.8%. Euro flat at $1.3140. Stoxx 50 +3.2% for the week, +9.3% YTD. Stolid Germany is up a cool 14.7% YTD.
Three lunchtime reads:
1) Ford CEO Alan Mulally's exclusive interview with Seeking Alpha
2) In rise of gold bugs, history repeats itself
3) Greece's hazardous road to restructuring
Sold a bunch of TLT 119/120 put spreads for .90 today and picked up a few 122 calls for .05 (All are next week expiry). Will wait to sell the TLT 120 calls for hopefully around .4 next week to complete the whole trade. Essentially, hope to end up with the short 3X short 120/119 put spread for .90 and short 1X the 120/122 call spread for .35.
I'm still upset about my last TLT play. Had shorted 100 of the 118/117 weekly call spreads for .95 that i had to close out on Wed because the 117 calls got exercised and IB has this stupid rule where the trade has to adjusted to get within margin (although the risk here was limited due to the long 118 calls). Ended up leaving 10K on the table this week. Time to take a cold shower now.
Thanks all and have a nice weekend closed FAS Feb1
STJ I know I've narrowed the stangle to collect premium and it's back to bite me this week. Last Thursday I considered a 10% on either side selling 89 calls but didn't open them. I certainly didn't think those would be itm today
Options/Roro – Sure, especially on the Ultras. I believe, when we began the FAS money trade, that IWM spread (not an ultra) was only on the money, so pretty bullish bet but now it's on track to make $9 out of $2, even without the offsetting short sales. That's a really simple trade and they are slow to lose money (and slow to make it) but you are clearly either on or off track with no particular pressure to make quick adjustments.
TLT/Mampcs – But next week is the week we do think they go for the $120s
Shanghai Copper Inventories are up +471.0% ytd to the highest level since March of last year and approaching their April 2010 record.
TLT/Phil, yes, i'm hoping they are going to be taking it to 120 next week. That's why i sold the 120/119 put spread for .90 today and picked up the 122 calls for .05. I need the short 120 calls to essentially pay for the .10 that i'm liable for on the 120/119 spread. The long 122 calls are just to limit the margin on the short 120 calls.
To clarify on the TLT play, i hope to end up with the following:
3X TLT Short 120/119 put spread at .90
1X TLT Short 120/122 call spread at hopefully around .50 to .60.
Net out of pocket = 0 (after commissions).
Makes 6K if TLT finishes next week at 120. Makes 4K at 121. And makes 2K above 121.
Off course, this is contingent on being able to sell the 120 calls next week for around .50.
Oops, that should read 4K if X=20 (i.e .60 of the put spreads and 20 of the call spreads).
Copper/Angel – That's what's keeping me out of FCX. Last March copper wass $4.50, now under $4 but we fell all the way to $3 last year, which is probably about the right price.
TLT/Mampcs – Ah yes, I never do those spreads so I keep thinking of them as bearish. TLT already made a nice bounce off $116 today.
Oh NOW the Nas drops – thanks a lot – FU TradeBots!
Lotsa BOT bashing here and rightfully so. Also lotsa techies in PSW world. Potential early endeavor for "Build A Berkshire"….. design and build PSW BOTs. Or, anti-BOTs if you will.
I was expecting a thousan FUs today, only saw 7. Probably we are in much better shape than i thought 😉
Have a nice weekend everyone
Pharm – when you get back from body surfing, do you follow this company? THER
AAPL portfolio: So I bought sole the April 425 calls, then had second thoughts about leaving AAPL short calls uncovered over the weekend, so…………..just before close I converted the April positions to the following: 5 April 425/450 s converted to 5 April 400/450s. Why would I do that? Here's the math: Say AAPL goes to 470 within 10 days, by 2/13…..here the 425/450 spread makes $900 but the 400/450 would make $1,700….due to differences in delta. If AAPL were to go to 450 in 10- days the 425/450 loses $1,005, and the 400/450 would lose $1,310. So the advantage is, a loss of 10 points is -$305 for the new spread (not much difference), but a potential gain of + $800 for the new spread. So not much downside, but some upside advantage with the new spread. What I really want AAPL to do is pull back, so I can unload these short calls and wait for the inevitable later upturn. But , geez, everything seems to be pushing upward. So, we'll see. Stj……here are the numbers for AAPL trades today: STC 5 Aprl 425 calls for 40.90 BTO 5 April 400 calls for 62.65.
typo….above should read ….So I sold the April 425 calls………
Going skiing for the weekend, then stuporbowl on Sunday. See you all Monday. Have a great weekend.
Re your post today at 11:02 am
I live in Venice and all I see are new restaurants opening up all the time on Abbot Kinney — and, to may amazement, they all seem to be doing well. Seems like you're seeing a very different picture in LA. Seems to me that most people are oblivious to it. Must be the climate.