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Saturday, September 24, 2022


Free-Fall Friday – Are There Any Dips Left to Buy?


No one told us markets could go down?  This is an outrage, I demand an investigation – TURN THOSE MACHINES BACK ON!!!   

Has it already been a week since I said "Stop the Rally, We Want to Get Off"?  As I noted in that post, we began our list of 12 Long Put Plays for Members on Thursday of last week (near the end of what I called "A Weak Week of Denial") and some have already doubled while others, like PCLN, have gotten even cheaper, which only makes us love them more…

I concluded that this rally was fake, Fake, FAKE and gave my reasons on Friday so no point in going over them again – now we're just watching and waiting to see what sticks as we haven't actually done a lot of technical damage (see Dave Fry's chart) – Yet! 

Although we were TRYING to get bullish on Monday, we did so only after setting more aggressive targets in our Weekend Review of the 5% Rule (see post for details and levels) and by 10:09 on Monday, our first trade idea in chat was the very bearish TZA spread that I featured again in Tuesday's post, which was the April $17/18 bull call spread at .42, selling the April $17 puts for $1 for a .58 credit.  TZA finished at $18.39 yesterday and the spread is now .54 but the short puts are down to .65 for a net gain of .47, which is 81% in 3 days and a good way to offset the 2.3% drop in the Russell – isn't leverage fun?

What was not fun is what happened to people who trusted Credit Suisse to run an honest game with their TVIX instrument.  As noted by ETF Digest's David Gillie, an ETN is an unsecured, unsubordinated debt security with significant basis on the credit rating of the issuer. Although ETNs may be named to indicate tracking certain futures markets or indices, due to the fact that their holdings are credit notes rather than tangible assets, such as ETFs, their price becomes largely supply and demand based rather than based on underlying holdings.  As Kid Dynamite points out – it does say right in the TVIX prospectus:

The long term expected value of your ETNs is zero. If you hold your ETNs as a long term investment, it is likely that you will lose all or a substantial portion of your investment.

Oh Please!  Like we're going to read the prospectus before we buy a financial instrument?  We don't have time for that – we're savvy investors – now where are those Credit Default Swaps that will protect me from bond defaults?  

We did have a bullish play in Member Chat on Tuesday but it was TLT, as that ETF (not ETN!) touched $110 again and my 1:35 comment to Members was:  

TLT coming back to a defendable $110 line.  April $108/110 bull call spread is $1.15 and you can sell the $108 puts for $1.30 for net .15 credit on $2 spread with 900% potential profit in 31 days.

CAT WEEKLYTLT got back to $112 yesterday and the $108/110 bull call spread is already $1.50 and the $108 puts fell to .70 (thanks, in part to that collapsing VIX) and that's net .80 already, up from a .15 credit in 2 days and that's up 533% already – LEVERAGE!  We also had a longer-term EDZ hedge and I reiterated 9 of our Long Put Trade Ideas just ahead of the close as the market ship did seem to be taking on water – even if it wasn't sinking yet.  Ironically, on Tuesday, we were discussing VXX and how dangerous that was to play (we do) because of the way that ETN imperfectly tracks the VIX.  Frankly, it didn't even occur to me that people were long on TVIX – we were shorting it in October because it sucked

CAT was one of our Long Puts and it didn't take very long for the May $95 puts to jump from .95 to $1.90 – a nice double with LEVERAGE!  The point of "LEVERAGE" is to use it to your advantage because, if you are going to be able to make a 100% gain on a relatively small drop in the Dow (2% this week), then you have 50:1 LEVERAGE on the short side.  That means, if you have, for example $100,000 invested and you fear losing $10,000 on a 10% drop in the market, you only need to put about $2,000 into leveraged protection and you're going to be well covered.  Of course, if your $100,000 isn't going to MAKE at least $2,000 if the market doesn't fall – then you're just wasting money and should probably go to cash – hedging is tricky that way – you have to have an actual plan!  

Our plan on Wednesday was to watch and wait but, since our bullish hedges were on their way to big gains, it was prudent to hedge the hedges and we discussed an aggressive long on DDM, using the May $70/75 bull call spread at $2.10 IF (and only IF for you programmers) the Dow got back over 13,200.  Sadly it didn't but the DDM spread is still $1.75 – down just 12% – even if we had triggered it, it would be a small price to pay against the 81% gain on TZA, the 533% gain in TLT or the double on CAT.  It's very simple, when we make a good gain, we either take the money and run or we lock in the gain by taking a trade in the other direction – that helps set us up for the next turn (very good when we're trading in a channel – which we have not been lately).  

Wednesday was oil inventory day and we got the gift of $107.50 oil to short and we hit our $105 goal yesterday for another fun week of poking the speculators.  At 12:12, I thought the "rally" was looking a bit forced and I added 2 more disaster hedges for a slightly longer time-frame than our TZA play:  


  • SQQQ June $10 puts can be sold for .60 and the June $10/14 bull cal spread is $1.05 for net .45 on the $4 spread.  
  • DXD May $12 calls are $1.20 and those can be offset with one of this morning's bullish short puts.  

The SQQQ June $10 puts are still .55 and the $10/14 spread is $1.11 so up "just" .24 so far but what we like to call "on track" for the potential 788% gain with SQQQ at $11.  The DXD May $12s are only $1.25 and also still playable if the Dow remains below 13,100.  That's another key to hedging – you have to keep tightening those stops to protect the wins – once we have cash, we can always find more trade ideas to hedge with!

Yesterday, as we like to do when we're winning on the bear side, we looked at a speculative upside play on DIA, using LEVERAGE to potentially turn $8,700 into $400,000 if the Dow makes it to 20,000 (up 50%) by Jan 2014.  We're up 8% in 3 months and up over 25% since October so, if you think this rally will never end – it's a perfect trade!  Of course you can turn $870 into $40,000 or $87 into $4,000 – going for the big bucks was just an example and again, if you have $100,000 CONSERVATIVELY invested and you're worried you might miss something – then $870 tossed at that can goose your returns 40% – even if you do miss an epic rally. 

During the day, as I'm sure you can guess, we added bullish trade ideas to the mix.  Long-term, of course, as we are long-term bullish – we're just looking for a short-term correction as the market has certainly gotten ahead of itself.  Most likely we'll flatline into the weekend and next week marks the end of the Quarter so anything other than a move up will make us VERY bearish.  Cashy and cautious is still our overall stance – when we're flexible, we can make plays like the ones above on Monday, Tuesday and Wednesday and be back to cash on Friday and sleep very well over the weekend – looking forward to the next opportunity in either direction next week.  

We already made our Egg McMuffin money in the Futures this morning as my 4:49 am comment to Members in Chat related to taking advantage of a sharp Dollar drop that popped the Futures:

Meanwhile, Dollar all the way down to 79.57 with Euro at $1.327 and Pound at $1.587 so not likely they'll go up more than 0.024 and 0.013 respectively and that means 79.50 should hold and that means we can poke at Futures shorts again at Dow (YM) 13,030, S&P (/ES) 1,395, Nas (/NQ) 2,750 and RUT (/TF) 825.  

By 8am, the Dow had fallen to 12,962, 1,385 on the S&P, 2,730 on the Nasdaq and 816 on the Russell.  The RUT pays $100 per point per contract so $900 on that move alone so don't expect us do do much today other than sit back with our Egg McMuffins and watch the fun – there will be plenty of opportunities to jump back in next week for another round of fun!  

Have a great weekend, 

– Phil


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WMT spread
Interesting effects of volatility. Having bought the WMT 2013 $45/$57.50 bull call spread just  a couple weeks  ago, I was able to sell both legs  at a profit yesterday for a gain of more than 15% in less than a month.  As this was the largest  position in my portfolio,  a  huge win.

Happy Friday….GLTA

Nothing like a falling VIX to help kill premium Jmm….

From the "buy puts" list from Mar 14, 2012, Looking at the price of the puts and comparing them to this morning, I gather from your early AM comments that if the put prices are cheaper than when recommended, you want us to get in and initiate positions. from my review AXP, GOOG, HD, KO, fit the bill.
From the Momo stocks…PCLN,CMG, LVS fit the bill.
I prefer the axp/hd/ko/goog list. Your recommendations, as always, very much appreciated. Thanks 

Oil Lines

R3 – 109.02
R2 – 107.90
R1 – 106.75
PP – 105.62
S1 – 104.48
S2 – 103.35
S3 – 102.21

Yesterday's high and low – 106.77 / 104.5

Heavy selling of IWM pre market

All the 'beats' are due to this…..$239M worth of shares were repurchased.  Here is a list of such a repurchase program, which has helped EPS.  Biderman's take:

Credit Suisse announced last night after the close they would start issuing new shares of TVIX- I guess people will get in line to buy- lol! For what it is worth- NAV is claimed to be $8.27 minus 6% premium- down from 83% yesterday morning.

Phil – i should have waited a little longer but needed some upside protection so i followed this post on Wed:
"Meanwhile, Dollar failed to hold 80 so not the best time to add shorts.  Watch that S&P 1,405 to confirm a bullish recovery as well as 835 on the RUT.  
At the moment, the DDM play above is a better way to go as we had a nice sell-off on the Dow. "  I didn't sell a put thinking we still might have a pull back
Any thoughts on how should react today if we continue dropping? Cash for the weekend, maybe?

Good morning,


IWM     79.10,  79.29,  79.56,  79.82,  80.17,  80.46,  81.04,  81.41,  81.65,  81.94,  82.12,  82.34,  82.67,  82.94,  83.18,  83.33,  83.55  and  83.74

After reading a lot of the articles concerning TVIX and seeing the price action over the last 2 days, makes you wonder what is the purpose of this thing and how can it be so poorly structured.

Of course, knowing that it was priced 80% over NAV, should give you pause, or a reason to short.

AMZN making me proud! Again many thanks to Pharm for his call the other day. Now only if AAPL gets going..

JRW: I do not understand at all what those bunch of numbers are. they do not mean anything to me.

The Mar4 103 calls need to be rolled today.

dpast….AMZN has been a beast.  I only did a few to goose my upside potential JIC.  Oh well, but I am glad it worked out.

We rolled yesterday so nothing expiring today!

Good improvement on this one. Got to protect the TLT profits!

wow lookit oil!!

Phil, looking at doing a bull call spread on IMAX for the June 26/31 while writing a 24 put for a cost of .20, would you do that or write a Sept 22 put on that which would give you net cost of 0 or possibly net .10?  Think the stock will continue to run up into Batman/Avengers/Spiderman movies

Trendline support 81.20 ish.

StJ – Wasn't there a DMND addition to the 5K yesterday?

Phil / $5kp – for those of us that never uncovered the TLT spread, how should we be looking to adjust today?  I am not sure if i should do the roll early, wait for a pullback, or, if it really matters, as I am just looking to capture the next weeks premium.
thanks in advance, scot.

TVIX – If anyone looks at the volume, it appears that someone got wind and unloaded right before it dropped.  Now, anyone that was holding it should've know the inherent risks associated with the product.  We just can't deny that as has happened time and time again, someone probably got tipped off and got out before it tanked.   

Correct Enni… I'll update the spreadsheet.

Updated 5KP:

What the f&cking just happened with oil? These pricks should be hung for treason… They are literally destroying America….

Oil – just read some message about Israel possibly mobilizing

What a crock of sh!t! Israel mobilizing… How convenient to have this story released on a Friday morning…

Oil – I didn't say it was true, just said that is what I read which was at about the same oil spiked up.

so where was the oil event du jour?

Inkarri- I know, I’m just fed up with rumors like this being put out to support oil prices which have no business being this high.

ganyant / #'s

Please read this !!

Fading dollar the only way Dow still only down 20ish?

USO 25KP / Phil – If we DD at 10:00 AM when you posted, the USO puts closed at $1.30 so that should be the official position.

Freefall Friday or flatline Friday?

oh those weeklies are so tempting….

BTFD – Buy The Friday Dip

JRWi…thanks for the link on your notes, but I think it is broken?

TOL – 5K of the 23 Apr Puts have moved…only 500 in OI.  Selling the 20 Puts……very conservative.

even AAPL goes down every once in a blue moon!
Is it up because Cramer said he likes it?
Maybe that will have Phil change his mind about them 😉

EUR and AUD stronger than yest. the markets usually follow their strength. Although markets are lagging the mentioned currencies. The move seems extreme if the $ perks up we may continue to sell off later on. Unless the markets are rigged 😉

Stardawg…try this for JRW.

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