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Saturday, December 3, 2022

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Friday Fake Out – The Bear Trap is Sprung!

Oh you people are such suckers!

You panic out of positions at rock bottom prices and you'll sit there like a deer in the headlights when we bounce back until we're already too high again and then you'll chase the top – only becoming fully invested after we've already exited.  Don't blame me – I try to warn you, but no one listens to me.  

This morning the markets are in full panic more and that's fine with us as not only are we still "Cashy and Cautious" but what did we tell you Wednesday morning?  "TZA July $19/25 bull call spread at $1.50, selling $18 puts for $1.05 for net .45" along with EDZ at $17.23 and SQQQ at $51.80.  SQQQ is at $53.79 (up 3.8%) and EDZ is $17.90 (up 3.9% and the TZA hedge is already at net .80, which is up 77% in just two days (so far) – now that's a hedge!   When you have your hedges in place, THEN you can bottom fish with impunity and boy is the fishing good out there!  

Today we get our Non-Farm Payroll numbers and there's a rumor out there that it's a big miss at 120,000 or lower.  CNBC has been pretty much reporting it as a fact all morning and Europe is freaking out for that and many other reasons so I had occasion to look back at last month's NFP report, where we predicted it would be a miss with the the title:  "The Blow Jobs Deal to the Market Could be Huge."  That was 10% ago on our indexes are back to testing last week's lows, where we began to get bullish with our Twice in a Lifetime List of stocks that are back at their 2009 panic lows which we still like enough to sell puts in (giving us an additional 15-20% discount on initial entry).  

That post capped off a week of bearish picks as we followed through with our plan to cash out into the April rally – it's those bearish profits we're now GAMBLING with as we bottom fish but, as noted above – we're hedging our bullish bets because there's no limit to how badly investors can freak out in the stock market – CASH remains KING!

A quick review of the week leading up to the last NFP report is a nice view of how we played the Euphoria at S&P 1,415 (trade ideas pulled from Member Chat):

(4/30) April 30th and All is Well – ROFL!

  • PCLN July $620 puts at $11.45, now $33.50 – up 192%
  • EDZ June $14 calls for $1.22, now $4.58 – up 275%

(5/1) Technical Tuesday – Holding the Line on Light Volume

  • 3 CHK 2014 $25/35 bull call spreads at $1.85, selling 1 $18 put for $4 for net $1.55, now -$1.20 – down 177% (I like it better for a net $1.20 credit!)
  • SQQQ June $11 calls at .75, now $2.25 – up 200%
  • SCO June $30 calls at $4, now $19.50 – up 387%
  • DIA July $122 puts at $1.14, now $1.35 – up 18%
  • USO June $39 puts at .85, now $6.40 – up 652%
  • SCO June $30/33 bull call spread at $1.80, selling May $34 puts for $1.65 (expired worthless) for net .15, now $2.95 – up 1,866%
  • SCO June $33/36 bull call spread at $1, now $2.85 – up 185%
  • VXX June $15/18 bull call spread at $1, selling June $18 puts for $3.20 for net $2.20 credit, now $2.20 – up 200%

(5/2) Will We Hold It Wednesday – NOW It's May

  • CHK Jan $12.50/17.50 bull call spread at $3, selling $17.50 puts for $3.20 for net .20 credit, now $1.20 credit – down 500% (I still like it!)
  • CHK June $15 calls at $2.75, now 2.35 – down 15%

(5/3) Thursday Follies – Europe "Fixed" Again

  • LNKD June $90 puts at $3.30, now $2.45 – down 26%
  • 4 LNKD July $120 calls at $6.30 ($2,520), selling 5 May $110 calls for $6.20 ($3,100) for a net $580 credit, now $560 – up 196%
  • LNKD June $110/100 bear put spread at $5.60, now $7.70 – up 37%
  • LNKD July $120/95 bear put spread at $12.50, now $17.10 – up 37%
  • GMCR 2014 $25/35 bull call spread at $2.70, now $3.05 – up 13%
  • GMCR 2014 $25 puts sold for $8, now $9 – down 13%
  • ABX 2014 $30/45 bull call spread at $6.60, selling 2014 $30 puts for $3.40 for net $3.20, now $3.40 – up 6% (still a nice play) 
  • USO June $39 puts at $1.40, now $6.40 – up 357%

(5/4) Friday – The Blow Jobs Deal to the Market Could be Huge

  • EDZ June $12/15 bull call spread at $1.10, selling $13 puts for $1 for net .10, now $3.10 – up 3,000%
  • EDZ July $13/17 bull call spread at $1, selling $12 puts for $1.10 for net .10 credit, now $2.30 – up 2,400%

Of course we took a few bullish pokes along the way but that's what you are SUPPOSED to do with bearish profits.  Mostly, as we are doing again this week, they were LONG-TERM entries by selling puts that are far out of the money.  Our biggest mistake so far was not staying bearish through the bounce, but this very poor NFP report (+69,000 AND last report revised down to 79,000) bookends the month quite nicely.  

Clearly if we have no stimulus over the weekend, we'll be shifting much more bearish but we have our hedges and we have our cash and this is HOPEFULLY the bottom of that emotional chart where we have Capitulation, Despondency and Depression or, what we at PSW like to call – "a fantastic entry opportunity" in exactly the same way that Excitement, Thrills and Euphoria were our signal to head for the exits and flip short.  

Again, I can only warn you about what's going to happen and suggest some trade ideas that might benefit.  This is the blow-off bottom we've been waiting for and we'll see how much damage is done on this "terrible" news, which is exactly the kind of news that DOES put the Fed back in play.  I don't like that our bullish investing premise is based on anticipation of Government interference but we have to play the cards we're dealt and, if this NFP report doesn't put the Fed and the other Central Banksters into action – then we'll be shorting this market down another 10% next week but, for now – it's time to fish!  

I went over some bullish Dow components that I liked in Member Chat earlier this morning and I'm sure we'll have plenty of nice trade ideas once the market opens.   Oil touched our long-term target of $82.50 (/CL) after the NFP report and of course that's a bouncy spot to go long and XLF may hit our $13.50 bottom target and, best of all, TLT could be up in the $130s, where it makes an excellent short – yes, it's going to be a fun day today and, if we head lower and Monday sucks – please note those two EDZ hedges from the 4th were our best gainers and that was AFTER the Dow already dropped 200 for the week – we know how to layer our hedges – that's not a problem (see yesterday's morning Alert to Members for our 2 recent aggressive short plays) – I just don't think we're going to need to.

Have a great weekend,

– Phil

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Thanks pharm. I feel like an idiot for not seeing that

Cash / Yodi – This was a bit of a comedic point… Obviously I didn't advocate you closing all your positions ahead of the weekend! But this market does scare me a lot as I pointed out in the comments.

Like I said, what makes sense to me is some investment in the TWIL list (but even that, I am careful in sizing) that don't really need hedging and day trades.

Pharm – Around? Thinking about adding to my ARNA position – with some 2014 4 leaps & Oct 12 6 calls. The trade should have great cover, and give plenty of time to roll if it spikes – what do you think?

Here is a shopping list of buy/writes I am considering:
XOM
$77.92; Jan 14 77.50's P/C for $ 22.05; Net 57.87/67.68
Return- 33% plus 2.9% div. ; Annualized return – 25%
 
INTC
$25.14; Jan 14 25's P/C for $ $7.67; Net 17.47/21.23
Return 44% plus div 3.3%; Annualized return – 34.5%
 
MCD
$86.71; Jan 14 85's P/C for $ 20.00; Net $66.71/75
Return 27% plus div 3.2%; Annualized return 21.2%
 
PM
$82.79 Jan 14 80's P/C for $ $20.88; Net $61.91/71.00
Retrun 29% plust div 3.7%; Annualized return 23%
 
AFL
$38.65; Jan 14 P/C for $ 15.25; Net $23.40/30.70
Return- 67% plus div 3.4%; Annualized return 45%
 
JNJ
$61.78; Jan 14 60 P/C for $12.35; Net $49.43/55
Return 21% plus 4%div; Annualized return 18%
 
PG
$ $61.55; Jan 14 60's P/C for $ 12.40; Net $49.15/54.57
Retrun; 22% Plus 3.6% div; Annualized return 18.3%
 
HERO
$ 3.03; Jan 14 3's P/C for $ 1.56; Net $1.56/2.25
Return 92%; No div; Annualized return 61%
 
Note: These are nominal returns as additional margin requirements were not included. Actual would be lower depending on the type of account.

Correction on HERO- that is Jan 13 P/C; so 6 mos. play returns 92%; annualized 184%.

All of these could go a lot lower. I think the "safest" at this point are JNJ and PG; riskiest is HERE and AFL a bit less so.

stjeanluc/Bespoke,
Regarding Bespoke, do you use their paid service as well and if so, can you recommend it?

ARNA/deano – depends upon risk tolerance.  I think they get approval, although I thought that last time.  I am not as confident on this, so I would rather play a short term pop than a longer term play.  That's just me.  I am not in them any more, as I have enough of a risk playing PLX, SGEN, YMI and CRIS.  I have many others, but these are my largest positions. 

Pharm,
I have 1000 shares of PLX at $5 and change, and have been following your suggestions on selling puts and calls, which has worked out really well, so again a big "thank you". Of SGEN, YMI or CHRIS which would you add next?  

Phaarm,
I don't know who CHRIS is, but he must have been on my mind. CRIS, of course.

sparky – YMI.  Cheap, and can be averaged into.  SGEN is high, but I love them for a takeout, so they are #2 – how about the Sept $22.5/25 BCS selling the Sept $17.5 Ps for $1.25 CREDIT.  This is buying some premium on the call side, but still gives an attractive entry at $16.25……SGEN is my largest holding as I have been in them a while. 

Thanks, Pharm, I'll look at both of those.

Bespoke / Wappler – No, I just browse their blog. It does look interesting, but the good stuff (database) is really expensive!

Pharm – List of stocks?
Do you happen to have, or could just list the top 5 biotech's/pharma stocks you'd put on your watchlist to sell puts against?  I have no exposure to the space and I'd like to put 5 on my research list?  
 
Thank you very much!

S&P futures are lower by another 9 points compared to Friday's close.

What do you think about shorting some /ES and /NQ here, just in case we get a huge leg down tomorrow?  I'm feeling a little too bullish, and the only way to play the leg down is short futures with tight stops.
Thoughts?

Pharm – thanks for the TA book! From time to time I go back to refresh myself and I always learn something new.

CNBS is trying to scare the [bleep] out of everyone!
 
Are Stocks About to Repeat Their Summer Horror Show?
Tune in to CNBC TV at 9pm ET Sunday for a special report, "Markets in Turmoil."

The Art of Euphemism" — "American International Group Inc. (AIG) Chief Executive Officer Robert Benmosche said Europe’s debt crisis shows governments worldwide must accept that people will have to work more years as life expectancies increase. “Retirement ages will have to move to 70, 80 years old,” Benmosche, who turned 68 last week, said during a weekend interview at his seaside villa in Dubrovnik, Croatia."  H'm.  Since U.S. life expectancy is 78.5  at present, that's one way of putting it!!

I'm watching this CNBC program here on the west coast, and now that they've trotted Prechter out, I'm starting to feel pretty sure there's going to be a big flush followed by a big pop this week!  They weren't doing these specials back in 08.

I'm getting a New "New Deal" vibe.    Lowering rates further appears to have zero marginal value.  It's an election year. Yeah, I know the Right want to cut taxes, and the Dems seem to want to "hold the course", which ain't working, hence the Obama fade.   But a ramped-up national infrastructure replacement program would cut unemployment directly, give jobs to returning soldiers and possible draw a line under declining American GDP.
 
 Here's the argument, from FT:  "the US government is essentially being offered free money to invest in America’s future productive capacity. Indeed, as Brad DeLong and Lawrence Summers have recently argued, whatever is invested at these rates is likely to pay for itself in higher growth and revenues. The size and nature of the market for US sovereign debt means that bond buyers are no flight risk, unlike in many smaller economies. The US can and should, therefore, choose a more expansive fiscal policy. Budgets should ideally balance over the cycle. But they should also be counter-cyclical."
    http://www.ft.com/intl/cms/s/0/aa106d22-ac12-11e1-923a-00144feabdc0.html#axzz1wmi9MjLj

Syriza just came out with its new plan for Greece. They propose to raise the minimum wage, freeze wage and pension cuts, increase unemployment benefits, and reduce taxes. They left out the part about all of it being paid in Drachmas.

Phil:

The job of the President is to instill trust and confidence and faith in his leadership. In turn, consensus towards a plan will be achieved and progress made. The fact that this president has not and can not produce consensus on any plans is a failure of his leadership. You can defend him all you want, but the fact is he has been ineffective. Leadership extends beyond party lines and great leaders are able to overcome stubborn resistance. Regardless of who holds the office next they will have to exhibit leadership skills. Otherwise, they will fail just as this President is failing.
 
PHIL: That's some interesting logic DC.  So that means if one party – let's call it the GOP, is willing to destroy the country to gain a political advantage, then they can fail to form a consensus with a Democratic leader and that will "prove" he's unfit to lead.  When the GOP gets their guy in, they can cooperate with him, "proving" he's a great leader.  That leaves the Democratic party with the choice of acting just as juvenile as the GOP and working to destroy the country when a GOP member sits in the White House or "proving" the GOP has better leaders by cooperating in the best interest of the country.   It's true, the GOP has stumbled across a winning formula – by not caring whether or not their actions damage this country – they get to take control of it from the people who do care – BRILLIANT!  
 
I wanted to respond, but not during Friday’s market. Then I got caught up with other things. Anyway my response:
 
 
Please stop defending your ideology. My comment was not aimed at one party or the other rather it was criticizing President Obama’s leadership skills.  What do you see in this President (again not his ideas!) that gives you confidence the next four years will be any different than his first?  If he can’t find a way to get the other side to cooperate than he’s just a guy with great ideas.  The President is supposed to provide leadership and confidence not wait for it to come from some outside force. 
 
If you were President would you do anything different in a similar environment or would you too whine and complain because your partners would not cooperate with you?  Knowing the little I do about you, I bet, in fact I know, you would come up with various strategies to attack the problem and move the ball forward regardless of the environment.
 
Every candidate for President knows the rules coming in.  It should be no surprise when the other party tries to challenge and resist.  They think their plans are better!  So, we have two forces and a third (Senate) that all have great opposing or similar ideas. Who will bring them all together and sort which ideas get implemented?   That task falls on the President, and if he provides a semblance of leadership and confidence he gets re-elected.  If he doesn’t or resorts to whining and complaining without results he doesn’t deserve a second chance.  Bring on the next LOSER!  http://www.youtube.com/watch?v=Dp0T0H9vD4c&feature=related

 
Every once and a while we get great leaders.  Two Presidents that faced similar circumstances as Obama were Bill Clinton, and Ronald Reagan.  According to your answer a President is basically useless unless the Congress decides to cooperate with him. Really!  I think each of the Presidents mentioned above faced equally as difficult environments as Obama. And they had big ideas coming in. Whether you like their policies or not, it would be really hard to convince anyone that they weren’t great leaders who exhibited great leadership skills regardless of the circumstances.  And they got the job done.  I would take either one of them over someone who attempts to blame others because they can’t get any cooperation.

Burr – biotechs or pharma?

YMI – Oct $2.5
SGEN – Sept $17.5s
IMGN – Oct 12 or 13s
PLX – Nov $6s
CRIS – Dec $5s
Pharma
MRK – Jan 2013 $32s
BMY – Jan $28s
GSK – Jan $38s

dclark41 – I would agree that Obama has not been much of a leader. I would have preferred a challenge to his re-election from within his own party because of his performance. That's not going to happen.
 
I am a Democrat, and I what the best person for the job to represent us in the general. The greatest concern I have, is what a far right majority of Republicans could do with an obviously confused and confusing Mitt Romney.  🙂
 
This is about so much more, than one persons ability to lead……
 
 
So, I am not sure how you think any one person, in today's political theatre, can accomplish anything with so many others having no desire to cooperate for common good.

I want – I what(?)
 
Good Night…..

I'm all for planting trees, real and figurative, but it's a comfort to know that down the road it won't make much difference who did and who didn't; takes some the pressure off my nominal trading skills.  http://www.sciencenews.org/view/generic/id/341187/title/Milky_Way_will_be_hit_head-on

ZZ only 4 billion years left? That used to seem like a big number, but now I'm not so sure.

1020
Yes, a change even within his own party would be better than what we have now; maybe even better than Romney (I am not sold on him either). I want a strong leader who will transcend above all this left/right nonsense and who is capable of convincing others to do so as well. The problems we face are enormous and have moved beyond all the party rhetoric. If not the President than who? Let's buckle down and solve the real problems first. We can put the philosophical crap on the back burner until later.
If you are hopeful for "so much more" (ie., philosophical crap) that will be very difficult without having all three houses under one party control. It simply isn't going to happen (my strong opinion). Hence, the best we can hope for is enough cooperation to implement some practical solutions for the very real problems we face. And hopefully this can happen before we self-destruct with the rest of the world.
But I do appreciate your comments.

pstas –
So to be clear, those are
BUY the stock
Write the put
Write the call
CORRECT?

Haschade- yes, buy/writes are buy the stock; sell both puts & calls (i.e., straddle)

 benmosche has a seaside villa in croatia…how are there tax laws!!??

Pharm –  Thanks.  Either is fine, just looking for the top few stocks you like so I can put them on my watchlist to buy when/if we hit a bottom.  I have 0 exposure to that space. Thanks for the list!

well its been over a year the site has been expecting QE after disagreeing (when do they ever do it when its truly going to impact?!) i now think its getting close..but the gop will never let it happen if they have a voice in the feds meddling..the president has little chance of re election without a massive save but of course.. romney is the christopher lee of candidates so stay tuned..they both are truly dreadful..one a dreadful manager the other a dreadful campaigner

 @Felipe
 
"…we're all supposed to be moving away from each other (away from the center). So, unless I'm missing something – these guys are claiming that the Big Bang Theory is invalid?"
 
Think of all the traffic moving out of Manhattan at 6 pm.  While they are all moving away from the center, the number of collisions between the vehicles is likely in the hundreds—some of them fatal— for the drivers and passengers.

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