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Sunday, January 29, 2023

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Try it Again Tuesday – What Will it Take to Move the Markets Higher?

If it's Tuesday, we must be at the week's highs.  

Obviously, we're still bearish and the news we've been discussing this morning in Member Chat certainly hasn't changed my opinion on that.  Back on August 7th (first Tuesday of last month), I said we were about $700Bn in stimulus short of what we need to support S&P 1,400 and we knew we would have to wait a month to see how much we got from Draghi and Bernanke but, so far, and with Ben already out of the way, we have zero.  

At $10Bn per S&P point that puts our fair value all the way down to 1,330 but keep in mind that the $500Bn we did get only lasts for 6 months so more like 1,310 at this point without a proper commitment by the ECB or Fed this week.  Even 1,310 would be up 50 from the June lows and it would represent a neat 2/3 retracement of the rally since then.  Our $25,000 Portfolio has, if anything, gotten more bearish as we dragged along the top but another thing we've done each Tuesday has been to take aggressive bullish positions to cover ourselves IN CASE someone actually does put up the cash needed to goose the markets over our breakout levels (see Friday's post for current positions in the virtual Portfolio and our levels).  

On Tuesday, August 14th, our trade ideas were as follows:  

  • 2 FAS Oct $105/115 bull call spread at $2, selling 1 BBY 2014 $18 puts for $3.25 for net .75, now $1.80 – up 140% (trade stopped at 150%) –
  • 2014 SHLD $32.50 puts sold for $7.50, now $6 – up 20% 
  • 6 EWJ Jan $9 calls at .53, selling 1 BBY 2014 $18 put at $3.25 for a net .07 credit, still net $2.60 credit – down 3,800% (trade stopped at up 1,000%)  
  • TNA Oct $55/61 bull call spread at $2.50, selling Oct $42 puts for $1.90 for net .60, now $1.80 – up 200% (stopped at 200%)

While we do go into these trades looking for about 300% (not the short put, of course), when we make a quick 100-150%, we take it off the table and move on to what we call "fresh horses."  It should be noted, however, that despite the now highly negative result on the EWJ trade, it now makes a terrific new entry as you can buy those 6 Jan $9s for .44 ($2.64) and sell the BBY 2014 $18 puts, which had dropped below $3, for $4 for a net credit of $1.36 and it could give you a tremendous early pay-off if BBY does get bought out.  The EWJs topped out at .63 the same day the short puts bottomed out at $2.90 for net .88 so keep those expectations realistic and you'll do fine on trades like this.  

The following Tuesday, the 21st, our new trade ideas were

  • 2 FAS Oct $107/117 bull call spreads at $2.05, selling 1 BBY 2014 $15 puts for $3.75 for net .35 is now net $1.30 – up 271% (stopped at up 334%)
  • AGQ Oct $38/45 bull call spread at $3.10, selling BTU 2014 $20 puts for $3.60 for net .50 credit, now .75 – up 50% (stopped up 236%)
  • 3 DIA Oct $135 calls at $4.05, selling 1 HPQ 2014 $20 put for $3.80 for net .25, now -$2.90 – down 1,260%

As I mentioned last Tuesday, when you live by the leverage, you die by the leverage but we took the money and ran on the first two trades, which more than paid for the losses on the third (even assuming you didn't stop out at some point more sensible than down 1,200%) and decided that, since that trade was so "off" that it would be the best one to use for our upside trade last week but we dropped to:

  • 2 DIA Oct $135 calls at $1.23, selling 1 HPQ 2014 $15 put for $2.30 for net .16, now -.80 – down 600%

Clearly the Dow is not being very kind to the bulls and clearly, if you are a QE believer, this is still a fun way to play the upside – especially if you REALLY want to own 100 shares of HPQ for net $14.20, which is a 16% discount off the current price.  So your worst case is owning HPQ for a 16% discount and your best case includes pocketing $1,000 at Dow 14,000 on some happy economic news between now and mid-October.  And, of course, if you make that $1,000, then your net cost on 100 shares of HPQ is down to $420!

You can see from the Big Chart why we were not too keen on adding more upside hedges in the past two weeks as that top is looking more and more solid every day and it's only been the fear (for the bears) of massive Central Bank intervention that kept us from being much more bearish in our main portfolios.  Even our Income Portfolio (Members Only), which is long-term bullish, was augmented with a TZA spread to provide us with an additional $35,000 in downside protection on a 10% drop in the Russell (back to 735).  

Yesterday, we were discussing strategies for setting up a hedge fund and we were forced to conclude that the best thing to do with cash is – STAY IN CASH!  This is certainly not a good week to deploy capital in any kind of quantity and, for small positions, the downside is much more attractive than the upside to this market at the moment.  Should there be an actual infusion of QE/Stimulus into the Global Economy, then we have plenty of time to BUYBUYBUY but, until then – we remain extremely skeptical.  

On the whole, we'll be watching and mostly waiting this week to see how it all plays out.  

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Oil Lines

R3 – 98.85
R2 – 98.07
R1 – 97.62
PP – 96.84
S1 – 96.39
S2 – 95.61
S3 – 95.16

Holy shmoly….MRX was bought…..Wow…whoa….yipee!

Congrats on MRX folks!

Thx Phil.  As I have been noting, <$10B is that sweet spot right now in Pharma/Biotech.  M&A with big boyz will be few and far between, but those in that range are fair game for cash rich companies. 

MoMo trade:  Bought the AMZN September 7 250 puts back for 3.34  (sold Friday for 4.50).  Alternatively, you could just put a stop loss on these if you like, but I choose just to take the 20%+ this morning and leave the trade. 

Notes:
SQQQ – DD at $1.50
SCO – DD at $2.50
PCLN – Net is $5.00

Same notes as above.

Pharm: Hi- What are your thoughts on LLY?  I have Sept 41 P's. TIA

LLY/newt – most likely, those are dead.  I have them as well in one account.  Just holding on.  IF we get a sell off, those should move and we can exit.

Last week's AAPL and AMZN puts expired worthless. I closed this week AMZN short put.

Pharmboy
STEM jump up. Good deal?

Pharm- thanks- i was stewing on rolling, letting them burn in a of hope of recovery…..

GTHP – DD on my stock for 70c.

STEM/neet – that is a shooting star forming and those are signs that it will backfill the gap. Then maybe jump in.  Not really interested.  They are a stem cell company, and while there are some interesting and very good science going on, it is too early for me to jump into that sector.  The spinal chord injury is a very early trial, so there are many things in play.  Wait and put on a watch list for a pull back.

Phil – what's your target on /RB.  Do you set trailing stops on /RB or just mental stops?  I seem to find my stops always get triggered in random spikes before crashing.

Pharmboy
What's good on GTHP? Thanks.

/Oil's bouncing at S2

Pharm, would you mind sharing your opinion on CERS?  I've held some shares for over a year and made a nice profit.  Thanks in advance.

GTHP/neet – not sure what you mean.  GTHP has a non-invasive detection med. device for cervical cancer.  Instead of a pap smear, women can have this test.  Read about it here.

Pharm – posted this at 0500ish on the previous page.
"Pharm – just looking at the MRX pick… THANK YOU! You and Phil are GOLDEN GODS! hahahaha. It has been an awful week for me in Afghanistan but this just turned it all around! WOOOOOOOOOOOOHOOOOOOOOOO! Give me your paypal, I got 100$ on your bar tab in Vegas since I wont be able to come in Nov…"

jro….UR very welcome.  Good to know that a few of these are working for us.  Appriciated, and not necessary though.  You can email me at pharmboy123 gmail.

Futures – Thanks for the strategy.  I tend to follow your entry strategy, but I always fall into the greedy bastard camp and mess up the exit – I try to set trailing stops to force myself out with a profit.  Will there be any sort of live meeting broadcast for those unable to make Vegas?

Pharm – sent you an email from my mil account. Let me know if you get it. Thx again!

MoMo trade:  Bought to open  LULU   5  Sept  22  65 calls for 4.50.   

Phil: I sold BBY 2014 $13P for $1.61 for net of $11.39. Do u think it's a good move to buy them back at $2.15 and sell 2014 $15 p for $2.77 for new net of $10.77?

RCL/Phil
 
RCL is still not close to lows.  Low is 18.70.

lflan
what is the reasoning behind the LULU calls? Are you planning to hold it through earnings on 9/6? 
TIA,
gandhjo

LULU trades is a simple momentum play.  Probably out Thursday or before.   My source says earnings Sept 7 at 9 a.m. 

Phil / V – Sept 120 puts down about 50% with 2 weeks to go.  roll?

It seems the only one who stands up to Joe Kernen is their political correspondent, John Harwood.  A couple weeks ago, Joe said "Isn't hard for Romney to win if it's 99% vs 1%
John said "then Obama would have 99% of the vote right now"

Joe responded "well you have 8% unemployment"
John responded "then he'd have 92%"
 
And today Joe was talking about how we're not better off than 4 years ago and unemployment is higher than we Obama got into office.  John responded that when Obama got into office we were losing hundreds of thousands of jobs per month and we had 29 months straight of job growth.  Even though it's not as robust as he'd like, it's still much better.  Of course when confronted with facts, Joe Kernen didn't say much after.

Pharm/
Could you take a look at ACAD for me?
I am looking at selling 2.5 Puts and buying Mar 2013 and 2.5/5 Mar call spreads
Thanks

Oil testing S3 again

AMZN / Phil – You really wonder how they can keep making these deals for content on the Prime Instant Video. I see that they now have a deal with Epix. They have to ve spending some money for these deals – at least as much as NFLX or even more to lock up exclusivity. For $79 you get free shipping and unlimited streaming of video. At least NFLX charges for the video streaming – with AMZN it's basically free once you go over the $79 of shipping… And the free books every month, etc… It's really a logical short if logic had any value in this market!

Phil/GLD – Phil, what's the hope with the GLD Sept weekly puts? I'm surprised we held these over the weekend with the expected premium decay. 

AMZN/stjeanluc
 
Amazon has hinted it is changing it's prime membership either making it more expensive soon or having a tier feature in it.

AMZN / Rustle – That would make a lot of sense. Watch the stock take off when they raise the price by $10!

MoMo  :  I just bought 5 more of the LULU    Sept 22 65 calls for 4.70.  We have now a total of 10 at ave. 4.60.

AMZN/stjean
 
Remember though, this is a company that doesn't care if they make a profit.  That's why the scare competitors so much.  And it doesn't seem to hurt their stock price as idiots think revenues and profits are the same thing just like people thought FB users and profits were also the same thing.  Didn't work out well for FB so far after the IPO.

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