15.8 C
New York
Sunday, October 2, 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


Notify of
Inline Feedbacks
View all comments

JRW 82.94, thinking too far ahead

kustomz / IWM 83.74

Upside target is 83.01; downside is 82.11

Hunger Games – i love it when dystopian flicks push a BUY for a whole sector! LOL!

alik – gonna have to look into the drugs.  Zinc finger inhibitors have been looked at in the past, so I am not sure how theirs differentiates itself.  I also still have HEB on my list for mrm.  Will do this weekend.

JRW – I am leaning up, as this is consolidation here, and unlike yesterday, going into Q end, I see them holding their gains….Time will tell I guess.

The powers!
Before the open lots of selling, started again 15 minutes ago, then the 105,000 share buy, and selling goes on. I'm waiting for the ticker to show kitchen sink at ask!

Now the 100 share low ball, then up again. Total BOT market for the Friday night evening news!

Phil–the FAS march 103's have to be rolled no?

400,000 shares at bid this early, beware of holding longs over the weekend!

Did you mention this before??…..Very cool, all enclosed iphone using gorilla glass 2.  WOW.

VXX / Phil – You got me all wrong.  This is what i said initially: bleeding from the position but at least plenty of time for volatility to come back.  Any bullish trade for next week  ? 🙂

russellb73….that is soooo cool!   I would have to have one of those immediately, along with several million others.

Action today has over and over and over again we are on the eve of distruction! Who wrote that song?

Come on PLX….make my year.  or should I say make UP my year.

Pharm – ARNA!!!!!!!!!!!!!!!!!!!!

jro – SeekingAlpha strikes again…..someone just tweet that PFE is looking at buying PLX…then you will see movement

Thanks Phil!
I really needed to revisit that song.

Bloomberg..  hackers may have caused the erroneous trades in BATS today.

FAS Money Update – Rolling this week FAS 103 calls (last at $4.85) to next week 104 Calls (last at 5.25)

Phil – On Friday I list the positions to be rolled under the positions in the morning.

HAHAHAA trust me I know how elmo feels, Lloyd sticks it up my butt almost everyday..

Sorry corrected position!

AAPL – today's p bar only now goes down to 590.  On my 3 min day chart, it has always been there.  On my 1 yr daily, it went down to 542.  SEC is worthless in any of this.

BATS withdrawing IPO now.

Charles H. Smith….I read him every day.

Good for TA though Pharm, AAPL is going to close 10% over it LOD! Pretty good signal!

That's one giant hammer….

Not really, b'c I show the LOD of 594.401 in TOS numbers,  on the chart the P bar goes to 590 on the 3 min, and earlier on the 1 day it went to 542…..that is total crap. 


Also, I have noted with TOS that they are front running some of my trades, as they do not show up on the buy/sell of my option trades in the Last X trade.  Next time I will take a picture of it and send it to them for free trades.  Anyone else notice this?

It's funny because that 542 low shows up in the TOS charts. And it's in all my RT charts as well in my charting software.

At least in the intraday charts in TOS! 

Maybe this will get your motor running this weekend. I have been tweeking my car all winter, yesterday it was 60 degrees with a friend to moitor, a sloppy 0 to 60 in 3.9 and 20 to 100 in 8.0. This at only 18 psi boost, leaned out and had to let off. Computer still not right and launch control = out of control. I remember you saying you made some ECU changes last year for more performance. I have a cobb access port to monitor and reflash it should do a 1/4 in the 11s if I can dial all in.

Not in mine.

Phil – it is not a reporting delay at all.  They are sometimes holding my trades on their books.

Not a green day for VXX though… down another 7%.

On that positive note, have a good weekend all!

Cartoon of the day:

Mike Thompson

Big selling after close!

Shadow, your going to run a bit lean in colder weather. Here's a clip of my SL55 running 11's at Palm Beach raceway..My car is quiet, the noise you hear is from the BMW..

Enjoy the weekend folks..

Stay Connected


Latest Articles

Would love your thoughts, please comment.x