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Which Way Wednesday – Probably Both Ways, Again

SPY 5 MINUTE What was that mess yesterday?

As you can see from David Fry's SPY chart, we went up and finished down but the volume was a bit lower to the upside than the sell-off into the close.  MSFT and INTC led us to the downside – no surprise really as we discussed both this weekend as Dow components to avoid in the current cycle.

There was no significant economic data, just the usual nonsense about Greece and, of course, the drumbeat of fear regarding the US fiscal cliff that the MSM is banging 24/7.  "What's up with that fiscal cliff" is now how 90% of my conversations begin with anyone who knows what I do for a living.  

I now find that it's easier to say "Oh, we're all totally doomed" than to explain why we're not because when, for example, I say this to one of my Mother's friends – they nod wisely and agree with me while, if I try to explain why they shouldn't worry so much – they get all confused and then say to my Mom – "I thought he was supposed to understand the stock market." 

I guess I should have tried this with my children.  Rather than sitting up for 15 minutes or so explaining why there are not monsters under their bed – I could have just agreed with them and said "Yep, big hungry ones!"  Maybe they'd never sleep again but at least I'd sound knowledgeable about monsters and the imminent dangers they posed to sleeping children.  

Stocks are now at 3-month lows and it's been a month since we strung together 2 up days in a row (Oct 15-17) with the S&P falling from 1,470 on Oct 5th to yesterday's low of 1,371 fir a 99-point drop in 25 trading sessions (6.8%) – losing an average of 4 S&P points a day with 1,360 being our Must Hold line on the Big Chart.  The S&P and the NYSE are both, so far, holding their lines (NYSE is 8,000) and they are our broadest indexes but we're pretty close to having to layer our disaster hedges as we cross those -7.5% lines.

The S&P was at 1,440 when we put up our latest round of disaster hedges on the 20th of October.  Before that, we had just been using TZA as our primary hedge – all the way from $13.50 – now  $17.38 and up 28.7% without even leveraging it with options.  The new play on TZA was the April $14/22 bull call spread at $2, selling the April $13 puts for $1.35 for net .65 on the $8 spread and that combo is already net $1.84 and up 183% so we can take those profits and establish a news spread with the April $17/24 bull call spread at $1.40, selling the $14 puts for $1.05 for net .35 and then we have taken $1.44 off the table, locked in a 121% profit and we're left with a free $7 spread that's currently .40 in the money.  

If you want to be more aggressive, you can add the new spread and stop out the old spread with a 100% profit but we still feel this is a pretty good bottom and it is time to take some profits off the table on our profitable spreads.  

The DXD Jan $49/55 bull call spread at net .85 already shot up to $2.05 for a 141% gain while the SDS Jan $56/62 bull call spread at $1.65, offset by the sale of HPQ Jan $14 puts at .87 for net .88 is only up to $1.02 (up 16%) because HPQ is doing so poorly but, as we discussed this weekend in Vegas – I still like HPQ at this price and the Jan $14 puts, now $1.43, can be rolled out to the 2015 $10 puts at $1.85 to net into HPQ at $8.71 and, of course, if you don't REALLY want to own HPQ for net $8.71 – why on earth would you have sold the $14 puts in the first place?

Our 4th disaster hedge was the EDZ Jan $12/16 bull call spread at .60, selling the Jan $9 puts for .35 for a net .25 entry and, although EDZ has only moved from $11.52 to $11.98, the spread is already .60 as we took those puts nicely out of the money and they are down to .15 already.  Up 140% is not bad on a less than 4% move in the underlying.  That's because we followed the theme of our PSW Conference and we SOLD premium to suckers who think they can predict the moves in the market – we didn't really predict anything other than $16 seemed too high and $9 seemed too low for a 3-month move in EDZ off $11.52!

And, finally, we had our V spread, which a pessimist would say is not working but an optimist would say is still giving us a great entry point.  V was at $140 and is now $142.12 but the Nov $135/130 bear put spread died with a 50% loss on earnings (.42) and the AXP April $45 puts sold for .66 are not helping so far as they are up at .83 so our total loss on the net .23 spread is, so far, .60 but, if the AXP short puts do finally expire worthless, there's still a chance to make .24 – over 100% even on a trade that went badly against us.  

I still like V for a short play if we fail to hold our levels as it's hard to imagine the economy falling apart without the CC companies taking a hit.  We were aggressive with V into earnings and their earnings were good and their early earnings reporting means we can play the Jan $145/135 bear put spread for $4 and I still prefer owning AXP long-term and you can sell the 2014 $40 puts, which are $14.50 (26.6%) out of the money for $3.40 for net .60 on the $10 spread that's $2.88 in the money to start.  

As always – keep in mind these are insurance plays that we hope we'll LOSE – as they are there to protect our bullish portfolios.  When you use hedges that make 100-200% in such a short amount of time on such a minor (6.8%) drop in the indices – you don't need to put much money into the hedge to offset potential losses.  As a rule of thumb, we look to mitigate about 1/2 the damage that we believe a 10% or higher drop could do to our portfolio.  

All of our disaster hedges had, and still have, the potential for at least 500% gains but, when you make 100-200% this quickly – it's a good time to take some bearish profits off the table and re-position into something that won't give it all back up if we finally do turn the other way.  

October Retail Sales are spooking the market this morning as they are down 0.3% but that's with the hurricane shutting down the East Coast in the last week of the month.  Similarly, the October PPI fell 0.2% and even core PPI was down 0.2% and that's recessionary if it's a trend but, more likely, it's just a blip.  Finished Goods are actually up 2.3% for the year with Intermediate Goods down 0.1%.  

We remain overall bullish until and unless we fail to hold our Must Hold lines on the S&P and the NYSE – it only takes one major index to draw a line in the sand to encourage the rest.  Also, Dow transports are still at 5,054 – why are we holding 5,000 if things are so terrible?  Maybe they're not?  

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  1. Good Morning!

  2. Oil Lines

    R3 – 87.46
    R2 – 86.70
    R1 – 86.07
    PP – 85.32
    S1 – 84.70
    S2 – 83.94
    S3 – 83.31

    Yesterday's high and low – 85.95 / 84.57

    Keep in mind that due to the holiday on Monday, crude oil inventories are tomorrow at 11:00 AM

  3. Income Portfolio news:

    CSCO – Beat on revenues and earnings. Guided inline. Was upgraded to Outperform by Pacific Crest.
    SBUX – Opened its first drive through only store!
    HPQ – Hit a 52-week low.

    We changed our CSCO position in the Income Portfolio – see Phil's comments yesterday here and here.

  4. Good Morning Phil,
    Any thoughts on the evening's DMND restatements?

  5. Phil I think you mean to sell the 2015 AXP 40p for 3.40 why not sell the 45p instead?
    I still prefer owning AXP long-term and you can sell the 2014 $40 puts, which are $14.50 (26.6%) out of the money for $3.40 for net .60 on the $10 spread that's $2.88 in the money to start. 

  6. Phil, 
    Any ideas for playing the month's Oil inventories?


  7. The 700 calls were gone at $60 on Monday!

  8. Fiscal cliff on Marketwatch – Right next to the article entitled Stop Calling it the Fiscal Cliff"  they have the fiscal cliff countdown clock!  LOL

  9. Rev – What ever sells airtime and print I'd guess – Moving from one "crisis" to another…… :(

  10. Good morning!  Great meeting everyone in Vegas.  Thanks to all the presenters and hosts as well!

  11. Mid-week update for the strangle portfolio

    Steady she goes…. Looks like all the November options will expire worthless.

  12. Phil – will you check the logic / math on this trade -
    Let's say I am slightly bullish but think we could have another 5% drop. I want to eventually be long IWM.
    I sell the IWM Dec. 77 call for 1.45
    I then buy the dec. tza 16 – 20 bull call spread for $1.37  - it's currently 100 % in the money.
    Let's call this trade even with trading costs. 
    So if TZA goes to 20 – 5% move in IWM – I get paid $4 and I have to buy IWM at 77 – 4 = $73 – it's probably trading around 75 if it's off 5%
    This is much better than just selling the naked put – am I missing something here? I guess it's not a free trade bc I have the chance of getting the stock put to me.

  13. Phil/CSCO
    Thanks for the set-up over the weekend! Looks like it is going to pay for the Vegas trip.  Great way to start a 2 year plan to sell premium.

  14. Good morning! 

    Ah it's good to be back home with all my screens – and electricity too!  

    We're still up a bit in the Futures but not very exciting.  Europe is down a bit except Spain and Italy, who are up slightly but not much going on there either.  

    Dollar 81.11, Euro $1.274, Pound $1.58, 80.28 Yen to the Dollar with the Nikkei at 8,765.  

    Oil jumped back to $86 ahead of what should be a better inventory (but not until tomorrow), gold is $1,728, silver $32.50, which is where it was when gold was $50 higher, copper $3.47 can't get back to $3.50 and nat gas still doing well at $3.75 with gasoline giving people a break at $2.67 but not in my area, where it's still $3.80 a gallon at the pump – nice mark-up… 

    ANF jumping that much on earnings (30%) shows that sentiment is way too negative.  

    At the open: Dow +0.22% to 12785. S&P +0.3% to 1379. Nasdaq +0.47% to 2897.

    Treasurys: 30-year -0.39%. 10-yr -0.17%. 5-yr -0.06%.

    Commodities: Crude +0.08% to $85.91. Gold +0.17% to $1727.75.

    Currencies: Euro +0.33% vs. dollar. Yen +1.16%. Pound +0.02%.

    Market preview: Cisco's (+6.8%) positive results are helping to push stock futures higher and diverge from mostly falling EU shares, with the S&P benchmark +0.4%. Janet Yellen's call for a change in the Fed's communications policy is also apparently adding to the positive sentiment. Abercrombie & Fitch surges 30% following its earnings, while Staples is +4.4%Later: Business Inventories, FOMC minutes

    President Obama will go into budget negotiations with Congressional leaders on Friday calling for a $1.6T increase in tax revenues over 10 years, double the $800B discussed during debt-ceiling talks in 2011. The sides are sticking to their guns over tax hikes for the rich, while the GOP also want entitlement changes. Obama is due to today meet a who's who of top CEOs, including those of Wal-Mart, IBM and Ford.

    The Republicans Will Fold If Obama Drives The Country Off The Fiscal Cliff.  No. Obama shouldn't gamble with the economy: The left is pushing Obama to "adopt a strategy of confrontation and conquest," but that would be the height of irresponsibility, says David Brooks at The New York Times. "It's reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results." While it would help Obama ram through tax hikes on the wealthy, it would hurt his second-term agenda, sowing "such bitterness that it would be the last thing he'd pass for the rest of his term." Resolving the fiscal cliff will "take a dealmaker, not a warrior."

    The Pentagon yesterday launched its "Better Buying Power 2.0" initiative, which is intended to "wring every possible cent of value" from the falling defense budget. The first version of the scheme saved $2B of the projected cost of replacing the navy's aging Ohio-class submarines. LMTBANOCGD and RTN are among those likely to be watching closely, especially with the fiscal cliff coming up.

    Frank Kendall, undersecretary of defense for acquisition, yesterday warned Lockheed Martin (LMT) that when it comes to the Pentagon with "an initiative or proposed solution to a problem" with the F-35 program, it shouldn't be "focused on a short-term business goal they are trying to accomplish." Kendall wants more of a concentration on the "execution of the program and successful delivery of the product."

    "Interest income is in a full-fledged bear market and dividend income is in a massive bull market," says David Rosenberg, turning bullish on stocks at the expense of Treasurys for the first time in forever. The S&P yield hasn't had this great of a spread over the 5-year Treasury since the late 1950s. 

    While concerns about the fiscal cliff grow, so does the budget deficit, jumping 22% Y/Y in October to $120B and above forecasts of $114B. Expenditure increased 16% to $304B while receipts climbed 13% to $184B. 

    October Retail Sales: -0.3% vs. -0.1% expected, +1.3% prior (revised from +1.1). Ex-autos -0.3% vs. +0.2% expected, +1.0% prior (revised).

    Oct Producer Price Index: -0.2% vs. 0.1% expected and +0.6% prior. Core PPI -0.2% vs. +0.2% expected and +0.1% prior.

    The number of homes for sale in October fell 17% Y/Y, according to, another confirmation of shrinking inventory. Median list prices, however, were flat, a bit of disappointment to company chief Steven Berkowitz, who – what the heck, everyone else is doing it – suggests the election and fiscal cliff as weighing on things.

    MBA Mortgage Applications: +12.6% vs. -5.0% last week. Thirty-year fixed mortgage rate with conforming loan balances ($417,500 or less) decreased to 3.52% from 3.61%.

    Commercial Property Faces Risk on Yields, Executives SayRising risks, including an eventual increase in interest rates, are leading commercial-property investors to borrow less and expect lower returns, said real estate executives including Rob Speyer and Richard J. Mack. AREA Property Partners LP isn’t building U.S. offices without signed tenants, even as commercial values increase, Mack, chief executive officer for North America, said at the Bloomberg Commercial Real Estate Conference today in New York. Tishman Speyer Properties LP has used “average leverage” of less than 50 percent in deals since 2010, said Speyer, the New York-based office developer’s co-chief executive officer.

    With the world focused on the maybe irrelevant fiscal cliff, Kevin Ferry notes a ratcheting up in the currency wars. After nearly 2 decades, the BOJ seems to be getting serious with its QE efforts, and the BOE just became even more of an arm of fiscal policy. If the Fed had tried this, the howls would be deafening. The dollar +1% vs. the yen, buying ¥80.13.

     "The Committee has not lost faith in asset purchases as a policy instrument," says BOE Governor King, warning the U.K. economy better get moving or it will be the subject of another round of QE. Much ado about nothing, says King, over the kerfuffle about the bank transferring interest payments it receives on its Gilt stash to the Treasury.

    The SNB has to do something with those euros it's sweeping up. Investors pay for the privilege of lending to Germany, the countryselling €4.323B in 2-year Schatz priced to yield -0.02%. It's the first negative yield at an auction since Mario Draghi's late-July "whatever it takes" comments put a temporary halt to the debt crisis. 

    Asset markets stir across the pond as the EC's Olli Rehn schedules a briefing on Spain at 10:15 ET. Has the country finally submitted to a bailout? Would Rehn be announcing such and not Spanish PM Rajoy? The IBEX 35 moves to green, +0.5%.

    Millions of workers in Europe are on strike to protest austerity as part of a "European Day of Action and Solidarity." Spanish and Portuguese unions are carrying out their first coordinated general strike, while organizations in Greece, Italy, France and Belgium also planned stoppages or demonstrations. The question is whether the protests will have any significant effect on economic policy – so far, they haven't. 

    Mexico's Senate yesterday passed a major labor-market reform bill that makes it easier to hire and fire staff, and shorten labor disputes. The government hopes the measures will create up to 400,000 jobs a year and cut the number of workers in the black market, which is estimated to cost Mexico as much as $15B in lost taxes each year. Major U.S.-listed firms that could be affected include American Movil (AMX) and Cemex (CX).

    As scripted, China's 18th Communist Party Congress closes with President-To-Be Xi Jinping and Premier-To-Be Li Keqiang elected to the party's Central Committee. Causing consternation is the appointment of former banker Wang Qishan to the Communist's top discipline post. The move might be good for fighting corruption, but could hamper efforts to overhaul China's economy.

    The yen is -0.6% vs the dollar after Japanese PM Yoshihiko Noda says he'll dissolve parliament on Friday and hold early elections next month if the opposition agrees to pass a bill that will allow the government to issue debt – and thereby avoid running out of money – and back electoral reform. With Noda's Democratic Party slumping in the polls, it's expected to lose any election.

    Indian inflation unexpectedly slowed to +7.45% Y/Y in October from +7.8% in September and vs consensus of +7.9%, with the improved figure helped by an easing of food prices. The wholesale price index rose 0.2% M/M to 168.7. The print could help persuade the RBI to start cutting rates early next year, if not next month.

    Interesting, more assets, less trading:  Schwab (SCHW) reports October statistics: Daily average revenue trades (DARTS) of 439.7K, flat from September, -14% Y/Y (no activity on Oct. 29 and 30 due to Sandy). Total client assets of $1.9T, +13% Y/Y. (PR) (12 months of data) 

    In addition to lowering its forecast for world oil demand, the IEA warned its projections could fall even further - a "big admission" for a group typically comfortable with erring on the high side, says VTB Capital. Monthly data also provide bearish numbers, with inventories rising in October (they typically fall) to 59.6 days of demand coverage. How is Brent holding above $100/barrel?

    Warning from OPEC Over US Oil Production. The head of Opec warned yesterday that if predictions that the United States will surpass Saudi Arabia as the world's biggest oil producer continue, the result will be a reduction in investment by his members that will hit oil consumers. "If this message keeps coming, there will be no investment" from Opec members, said Abdalla El Badri, Opec's secretary general, adding that "consumers will lose". Mr El Badri's rebuke came less than 24 hours after a prediction by the International Energy Agency (IEA), the industrialised nations' adviser on energy policy, that US oil production will exceed that of Saudi Arabia within five years.

    Gold to Advance to $2,000 on Money Printing, Deutsche Bank Says. Gold will probably rally to a record above $2,000 an ounce next year as central banks ramp up stimulus to sustain the recovery, according to Raymond Key, London-based global head of metals trading at Deutsche Bank AG. “We’ll take out $2,000, we’ll go higher,” Key said in an interview in Hong Kong, where he attended the London Bullion Market Association’s annual conference. “That’s on the view that they’ll continue to print money.” 

    Told you so!  Mosaic (MOS-5.2% premarket after cutting its forecast for phosphate and potash sales, citing uncertain supply contracts from China, which has been aggressively negotiating for lower potash prices. Canaccord Genuity lowers its rating to Hold from Buy, with a $55 price target cut from $65, in light of the outlook for potash. Also:POT -1.2%AGU -0.9%CF -1.5%. 

    The Agribusiness ETF (MOO -0.5%) is lower in opening trade after Mosaic slashed its forecast for potash and phosphate sales. Mosaic, -4.4%, is just 4.4% of MOO's holdings, but fertilizer firms together make up closer to 20% of AUM.

    Overseas Shipholding (OSGfiles for Chapter 11 bankruptcy protection. The world's no. 2 independent tanker operator has been struggling to plug a $300M shortfall in its $1.5B fully drawn revolving credit facility, and warned last month that it may have to seek bankruptcy protection. OSG -61% premarket; FRO +10.2%.

    Debt-Fueled U.S. Car Sales May Need Income Help: EconomyA rebound in U.S. auto sales has been buoyed by the return of easy lending, even to borrowers with flawed credit histories. Some economists question whether the gains can be sustained without a boost in hiring. Auto loans were up 5.5 percent in the second quarter from the same time last year, with riskier buyers accounting for 43.9 percent of the total, up from 42 percent in 2008, according to Experian Plc. By contrast, hourly wages for non-managers climbed 1.1 percent on average over the past 12 months, the least since records began in 1965, Labor Department figures show.

    More on Staples (SPLS) Q3: Results lower as products margins dropped and investments in the firm's online business picked up. North American Delivery up 1% Y/Y to $2.6B, while North American Retail was flat at $2.6B. Weakness in Europe and Australia contributed to a 12% falloff in International Operations revenue to $1.1B. Expects full-year EPS of $1.37. (PR) 

    Wal-Mart (WMTintroduces a food sample subscription service to deliver gift boxes with bite-size food samples to subscribers. The service will cost $7 a month.

    Abercrombie & Fitch's surprising earnings report and lift in guidance (III) is enough to push up a number of its retail brethren in premarket trading. Will ANF's improved margins and uptick in its European business carry over across the sector? Advancers: AEO+2.2%GPS +1.4%BKE +1.5%URBN +1.7%. 

    More on Abercrombie & Fitch's (ANF): The company's dramatic sequential trend improvement in its international business helped drive the dramatic earnings beat. On a Y/Y comparison things don't look as rosy, total comparable sales fell 3% with drops seen across all major brands. Total Company direct-to-consumer sales increased 20% to $158.3M during the quarter. Gross margin rose 240 bps to 62.5%. ANF +26.5% premarket. (PR) 

    Heard on Abercrombie & Fitch's (ANF) earnings call: 1) Chain store sales and direct-to-consumer sales helped pace the U.S. business growth, while the company is "lapping" macro trends in Europe. 2) Expects to improve gross margin in Q4 as compared to its YTD trend and sees positive comp trends in Asia contributing to results. 3) Full-year guidance for capital expenditures is set at $360M. 4) Sees Q4 comparable sales falling at a mid single digit rate. 5) Closing more U.S. stores is called a "strategic initiative" as it looks forward. ANF +32.1% to $41.25. (webcast)

  15. Retailer GameStop (
    GME) sells over 1M copies worldwide of Activision Blizzard's (ATVI) “Call of Duty: Black Ops II” on the video-game's first day of sales. "'Black Ops II' is shaping up to be our biggest game launch of all time," gushes GameStop President Tony Bartel. Piper Jaffray's Michael Olson reckons that, based on retailer checks, 'Black Ops II' will sell 6.5M-7.2M overall in the and U.S. and U.K.

    Shares of Sony (SNEfall off 2.9% premarket after the company's long-term debt rating was cut by Moody's by a notch to sit a solitary level above junk status. "Without robust restructuring in the coming 12-18 months, Sony's non-financial services businesses will at best achieve roughly break even, and are also at risk of remaining unprofitable."

    Facebook (FB) shares are -1.05% premarket ahead of today's expiry on a lock-up of another 800M shares, the third and biggest expiration since the social network's IPO. Analysts are dividedover the impact that the end of lock-up will have: the two previous expirations caused a sharp decline in Facebook's stock price, although sentiment on Wall Street has since improved following the company's Q3 earnings report. 

  16. David Brooks / Phil – What a frakin' idiot:

    "It's reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results." 

    But that debt ceiling debacle back then doesn't fall into that category because it was done by the GOP! And:

    Resolving the fiscal cliff will "take a dealmaker, not a warrior."

    So once again, give up on your ideas, adopt ours and we'll call that a deal! And how much more bitterness can he sow now. The guy has been called un-American, communist and more. What’s the next step – Anti-christ, oh wait!

  17. CSCO – Yesterday's CSCO trade, although fairly non-committal, worked just fine:

    CSCO/QC – Not very good weekly pricing to take advantage of.  Fear of poor earnings has April $16 puts at .95 so I like selling those but mainly I just like CSCO long-term, maybe something like selling 2015 $15 puts for $2.50 and buying the 2015 $15 calls for $3.50 so you're in the $16.93 stock for net $16 and you get all the upside from CSCO for only the cost of the margin on the short puts + $1 cash.  Also, since you don't have a cover on the long $15 calls and you are in the money, you can fearlessly sell short-term calls for income.  In fact, that's such a nice trade, let's add 10 of those to the Income Portfolio – we'll play for good earnings and do a sale after they pop and, if they don't pop, we're happy to DD at lower prices.

    The $15 puts dropped to $2.15 and the $15 calls are $4.20 for net $2.05 off the original $1 spread so up 100% even though we looked at the safe, "just in case" way to play earnings that gave us 2 years to recover if we were wrong.  You don't have to "go for it" to do very well – options provide tremendous leverage and it doesn't take much of a move to make big money when you get it right.  The more aggressive April $16 short puts are down to .60, so up a quick 36% but, of course, well on track for the full 100% gain.  

    DMND/Csl – I have long said that the earnings restatments will prove that the fears were unfounded but that was back when we liked them below $17 and we had sold Sept $19 puts and hit our target and walked away.  I wouldn't gamble on the actual release at $20.14 as the numbers will be argued every which way but I think, long-term, they creep back to the mid $20s, so plenty of time to get on board.  A not too aggressive way to play would be the June $19/25 bull call spread at $2 and if DMND dives on the release, THEN you can sell some puts for $2, like maybe the June $12 puts, which are currently $1.  

    Oil just shot up to $87 – you know that's a good line to short /CL!  

  18. Good Morning everyone
    Phil—I hope you are feeling better—--Thank you and all presenters for a great conference

  19. Right on schedule, War drums beating….. oil to $87, with 4 days to go the Dec rolls…..and 157MM barrels to roll…
    Phil, your thoughts…Thanks

  20. Phil – I had to smile when reading how you're handling the questions on "THE FISCAL CLIFF"  I'll say something similar to your answer when my answer to a serious question is not good enough….
    My wife just reminded me what we did when Jennifer had "monsters" in her room. She filled a small bottle with Fabreeze and then Jennifer would spray it under her bed and in the closet before bed. The monsters never saw it coming….. :)

  21. phil/glw
    You suggested awhile back to wait for the 2015 $10 puts to hit $2. We are getting close (glad I waited). Maybe the downward momentum will slow soon.

  22. Play on DMND holding the Nov12 20 CC sold for .45 now up 1.75. Stock trading at 20.20. 1.55 of extrinsic value in the Nov caller!! sold against the same stock the Dec12 20c for 2.25. Extreem high extrinsic value for Nov waiting for Friday to buy back the caller at present offering .30c
    Any thoughts on this one??

  23. Phil,
    Would you initiate a trade on a Sale of Dec 2012 FAS 97 Puts. I entered at 5.25 and was thinking of DD at $6.16. Thank you

  24. The oil lines I posted this morning were for the November contract. TOS has switched to the January 13 contract as their active month. The lines are:

    R3 – 87.86
    R2 – 87.15
    R1 – 86.52
    PP – 85.81
    S1 – 85.18
    S2 – 84.47
    S3 – 83.84

    I also have Fib lines at 87.26 and 86.80 on the upside (27.2% and 61.8% from yesterday) and 84.78 and 84.58 (23.6 and 38.2%) on the downside.

  25. Morning all,
    The Meeting in LV was a blast, a big thanks to the presenters and organizers!  It was great to put faces to the names, looking forward to do this again next year!

  26. AXP/Yodi – Yes, thanks – that should be the 2015 puts, not the 2014.  Why the $40s?  Because the market sucks and we could drop 20% so it wouldn't be much of a hedge the short puts end up costing us more than we make on the bear spread.  If you REALLY want to initiate a position in AXP – then there's nothing wrong with selling the higher strikes.  

    Oil/BD555 – Well I like shorting the Futures as above but that's a day (today) trade off the big move up.  This should be the first draw on oil in 3 weeks and I wouldn't get in the way tomorrow – let's just see what the numbers are.  The contract strip is not terribly backed up as they've already rolled 300,000 contracts to January and have another week to kill the remaining 114,000 open in December (and they can leave about 30K):


    Click for
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    92.85 * 19:08
    Nov 13


    80925 85.38 114786 Call Put
    89.25 * 19:07
    Nov 13


    59801 85.84 295126 Call Put
    Nov 13


    22194 86.48 131120 Call Put
    87.64 * 19:07
    Nov 13


    12318 87.17 107767 Call Put

    Countdown clock/Rev – Perpetuating the myth that on 12/31 we hit some wall and explode.  

    Thanks Bert.  

    IWM/Samz – I'm confused right away because the Dec $77 call is $2.68.  I assume, from your trade structure, you mean the put, which is $1.63 at the moment.  So you sell the short put on the ETF, which is at $78.32 and you buy the TZA Dec $16/20 bull spread for $1.55 and you have a net .08 credit with TZA at $17.62.  You need a $2.50 out of $17.50 move in TZA (14%) to be 100% in the money (and there is some decay so leave room for error) and that's 5% on IWM, down to $74.40, at which point you owe the putter $2.60 but your max gain on the spread is $4 and you have no max loss on IWM so another 2.5% drop and you begin to be in trouble.  Since you have a credit, anything less than a 5% drop in the rut gets you between .08 and net $1.40 but what's exciting about this convoluted trade?  

    If you want to be "slightly bullish" on IWM long-term, then take a long-term position like TNA April 50/58 bull call spread for $4 and sell 1/2 the Dec $54 calls for $1.90 with a stop at $3 and then you're in the $8 spread for net $3.05 and $3.60 if you stop out the short calls but, of course, the only reason you'd stop out the short calls is if your spread were moving in the money (TNA now $50.13) and you have 3 more months to sell.  If all goes well, you make about $1 a month selling short calls and you have a free spread.   By the way, if TNA goes down and the Dec $54s drop below $1 (a $3 drop in TNA or 6% so a 2% drop in the RUT), then you can sell another 1/2 of whatever is $1 and put a tight stop on that, since you are already up $1.  

    You are very welcome Lance.  

    LOL StJ – Annoying, isn't it?

    Thanks Savi – a bit better but seeing Dr tonight. 

    Oil with a nice dip to $86 and stopped out, of course on the bounce (/CL).  

    Fabreeze/1020 – Good solution!  

    GLW/RJ – Patience is a good thing.

    780 is a good bull line in the RUT futures (/TF).  TNA Friday $50 calls at $1.05 are also fun to catch upward momentum but very tight stops if RUT can't hold 780.

  27. Opesbridge/Presentation – If anyone happens to have the audio/video archived from the Opesbridge presentation by Ron, please let us know. We would like to place it on the website for those who missed it. Thanks!

  28. Interesting tug of war being played with AAPL for the last three days. 543 seems to be the key level.  My guess is that it breaks to the upside unless the bottom on the whole market falls out.  

  29. Phil—I am glad you are seeing a Dr.--  you must have been in a great deal of pain at the conference--I don't know how you did it

  30. Phil – selling IWM puts with TZA bull spread.
    Thanks – see you point. 

  31. Watching the E.U. flag being torched in protests. I love the smell of burning polyester in the morning….. ;)

  32. DMND/Yodi – Dangerous calls to short as they are priced like earnings.  What if they pop 20%+ tonight?  

    FAS/Jasu – I certainly wouldn't DD at $6.16 to average in at $5.71, just 10% more than you sold the first batch for.  What if XLF drops $1 (6.5%) and FAS drops 20% to $79?  Do you like your DD then or is THAT maybe the time you'll want to roll and DD.  You have to be happy to make $525 if you are right.  The Dec $97 puts (still a month to go wrong on you) can be rolled to 2x the April $65 puts ($3.20) about even and that allows XLF to fall 10% to below $14.  That's fairly comfortable but if you start doubling down now, on a little move like that – you're just backing yourself into a corner if things really do go wrong. 

    TOS/StJ – That seems a bit early for a contract rollover.  No wonder it shot up to $87 – not the same contract.

    Thanks Wappler – glad you had fun.  

    Israel/Savi – Thanks.  Didn't know Hamas had any oil but any port in a storm for the oil bulls….  As to how I did it, good pain killers the first day but 2nd day I just gutted it out so my head was clearer for live trading day.  Very bad timing for kidney stones.  

    You're welcome Samz.  

  33. Phil / The Dec TNA BCS. How do you play this type of strategy? The sold calls are up 35% while the naked calls are down 30%. Do you take profit on the winning side and roll the losing side? Maybe sell the winning side and sell more Dec calls? TIA.

  34. It smells like victory 1020….

  35. Phil and all the other presenters – Thanks for a great seminar.
    Phil – thanks for the fine tuning on the buy/writes – am starting up an income portfolio based on selling premium on LT underlyings

  36. Phil / AAPL Spread adjustment
    I put on the Jan13 550/600 bull call spread at $33 net.  The spread value is now at $16.50 net or down 50%.  My premise has changed and I'm not sure that AAPL will be over 585 in Jan13 so I could get out even.  Therefore I'd like your opinion on how to adjust.  
    I was going to cash in the short 600 call for $8.82 and roll it down to the 560, but there isn't enough juice it seems.  
    Here's my math:
    paid $92 for 550, sold $59 for 600, = $33.16 original spread
    pay $8.90 to close the 600, sell the 560 for 21.20
    Total spread cost : 21.70, but max value is $10….so this seems wrong.  

  37. CLNE having a nice couple of days…..

  38. Phil/ANF,
    My ANF 25/35 earnings strangle got blown out of the water – I consider rolling it out to a FEB 33/40 strangle.  Any thoughts on the adjustment?

  39. Fast Money boys complaining the bankers and brokers don't have a seat at the table when the POTUS meets with CEO's.
    Phil, Why, at this point, do those people need a spot at the table?…..

  40. …Seriously, wall street spent a boatload of cash to defeat him….

  41. opened NFLX Mar13 115 calls @ 2.
    PCLN LT chart … bearish?

  42. A Technical Analyst and a Fundamental Analyst are chatting about the markets in the kitchen.
    Accidentally one of them knocks a kitchen knife off the table landing right in the fundamental analyst’s foot!
    The fundamental analyst yells at the technician, asking him why he didn’t catch the knife?
    “You know Technicians don’t catch falling knives!” , the technician responded.
    He in turn asks the fundamental analyst why he didn’t move his foot out of the way?
    The Fundamental analyst responds, “ I didn’t think it could go that low”.

    Posted by JC Parets

  43. 1020—-agree with you —where was bi-partisanship before the election—why beat the drum now after Obama won decisively—cnbc just annoys me so much

  44. I am thinking about adding a VPN for added security when traveling.
    Any suggestions / comments / recommendations

  45. 1020
    Bankers and brokers bought a place at a table, let them sit alone at that table.

  46. Phil, Savi, 1020,
    Maybe it's time to start another, more balanced business network

  47. Savi – I want bi-partisanship sooner than later…..
    …but in the meantime, I'm good with saying "SCOREBOARD FELLAS"!!!   :)

  48. Talk about lemmings going over the cliff … this dividend tax reaction is so over-baked it's sick! NDRO pays 10% yield people!
    Here's a 15 second retirement portfolio:
    XLB (materials)
    XLU (utilities)
    XLE (energy)
    XLV (health care)
    BRKB (insurance/consumer diversified)

  49. rj-jarboe – For now, anyways….

  50. Sorry rj, I mean't _ not -……  :)

  51. TNA/Amalfi – You mean the trade idea from this morning?  Well, we didn't really expect it to move like that in one day but sure, you can buy back the calls and roll back the calls you do own and play for a bounce but certainly you'd want to stop out of sell more short calls before you blow those gains completely.  

    You're welcome Partha, great seeing you too.  

    AAPL/Burr – Ah but the Jan $550 calls are $25, not $16.50 so the trick is to take advantage of that, right?  I like April better than March (or Jan) because there will be the lingering perception that AAPL has earnings ahead of expiration that will keep the price inflated (overly) and you can spend $17 more to roll your Jan $550s to the April $550s and the Jan $600 caller is $8.50 and you put a stop on them at $12.50 (the price of the $585s so around AAPL $555) and either sell the April $600s for $28 (current price of the April $585s) or maybe something else if you are able to hit momentum – maybe even a higher Jan caller but you can see how you'll get back $15.50 of the $17 you spend in a fairly conservative roll and, if the Jan $600s end up expiring worthless, you can sell April something elses for just $8 and you will be back to net $42 on your Aprils – at the moment you can sell $680s for $8 so not a bad plan if things do go your way….

    ANF/Wappler – You sold $25 puts and $35 calls?  Not so awful – these things do happen when you strangle sometimes.  Often, in fact when you strangle earnings.  The key to short strangles is to KEEP selling premium – not to get all screwed up over one bad trade – which is bound to happen as you are taking 2x risk every single month for 12 months a year so 24x that your risk a "rare" event – makes it almost certain to happen – as if you bet 32 in roulette 24 times in a row – you might be lucky or you might not but there's now a 66% chance you'll hit your 1/36 bet, right?  So when you sell short strangles 24x a year, you'd better be prepared for whatever the worst move of the last 3 years was because there's only a 1/3 chance it WON'T happen to you.  As ANF had moved more than $10 in a month a dozen times in 3 years – you're simply lucky if you get away with this at all.  This is why Peter short strangles indexes – not stocks – short strangling stocks is crazy.  So, that being said, the idea of a short strangle is to sell premium and if you are stuck with $5 short puts you have to buy back, you can sell the Jan $38 puts for $2.20 and the $41 calls for $2.35 and just be happy if you get one to expire worthless while the other one doesn't hurt you too much.   Past Jan, you risk earnings again and that would be very, very foolish.  

    Banksters/1020 – I don't know why they would need a spot at the table when they control most of the people there anyway…  This is about putting people to work more than anything – nothing the Banksters want to help with..

    PCLN/BDC – They did have nice earnings but Europe getting worse and worse and hurricane hit flights hard.  Watch the 50 dma, already in death cross below the 200, at $613 – could get interesting if that breaks.  

    LOL Neet. 

    Better Business Network/Chas – I'd be happy to do a show.  

    Good list BDC.  

  52. qcmike/vpn –  I use Private Internet Access, no complaints. Reasonably priced but internet speed suffers considerably when at home because my broadband is significantly higher than can squeeze through the portal. So I have my laptop set up to go through the secure pipe and my desktop is connected as normal. Anything that I would want privacy I go through my laptop. Plus, I would obviously be using my laptop when traveling.

  53. Phil – When you see your doctor this afternoon, would you ask him if he knows of any cure for YMItis?  ;)
    I hope you'll be feeling better!

  54. 1020 – Hopefully it has the case of ARIAitis….a delayed case.

  55. Phil – if you bet 24 consecutive times in roulette on a single number there is a 57.27% chance you will hit your number at least once.
    I wanted to get to that before Craigzooka beat me to it…. 8)

  56. fat fingered the number: 47.27% — sorry!

  57. Seat at the table / 1020 – As Dick Cheney used to say "Elections have consequences"… Apparently forgotten today because the shoe is on the other foot as usual.

  58. 1020,
    You mean, "YMI in this position?"? ;-)

  59. Nate Silver doesn't just pick elections.  He does the math on long-term value stocks in the SP 500.  His conclusion – low PE stocks are a little better than random over a one year period, but much more probable as a good investment with a 5 or 10 year horizon.  

  60. aaronc – tried to find an article about the time echo research we discussed.. can you point me to something about it?  thx!

  61. Phil / Was referring to the TNA BCS in the 25KP we initiated on Nov. 9.

  62. wappler – That too!  :)

  63. Nate Silver / Rev – The sweet spot seems to be around 10 or so it seems!

  64. Cure/1020 – I'll add it to my list of complaints.  

    Roulette/BDC – Don't confuse me with facts, I was just looking at 24/36, not running statistical analysis, which I would have to question if it's telling me that if I try 36 numbers 24 times there's only a 47% chance I get any single number but I guess repeats enter into it.  

    10:00 AM On the hour: Dow -0.02%. 10-yr -0.14%. Euro +0.29% vs. dollar. Crude -0.16% to $85.7. Gold +0.08% to $1726.15.

    11:00 AM On the hour: Dow -0.6%. 10-yr -0.04%. Euro +0.19% vs. dollar. Crude +0.31% to $86.11. Gold -0.03% to $1724.35.

    It used to be Europe leading to the downside, but lately it seems markets are hunky-dory until 9:30 ET each day. Another sign it's us, not them – red days no longer always hit the periphery hardest. The Stoxx 50 closes -0.9%, led by the U.K. -1.1% and Germany -1%.

    12:00 PM On the hour: Dow -0.42%. 10-yr -0.08%. Euro +0.28% vs. dollar. Crude +1.15% to $86.83. Gold +0.4% to $1731.65.

    1:00 PM On the hour: Dow -0.7%. 10-yr +0.01%. Euro +0.31% vs. dollar. Crude +0.98% to $86.68. Gold +0.25% to $1729.15.

    Sep Business Inventories: +0.7% to $1,612.9B vs. +0.4% expected and +0.6% prior. Sales +1.4% to $1,263.9B. Inventory/sales ratio was 1.28

    Moving mostly in line with the S&P in the selloff since the Fed's mid-September QE∞ announcement, the Russell 2000 (IWM) begins to more sharply underperform over the past session and a half. The Russell's relative strength 2 months ago may have signalled a top. Could its weakness now be the start of a bottom forming?

    The Death of Equities Has Been Greatly Exaggerated (NYT)

    The warning Ireland could make like Greece and inflict losses on holders of its debt is lifted by Moody's as the country nears returning to the public bond markets. The removal of this warning is likely a precursor to the agency raising Ireland's debt rating out of junk status, says Davy strategist Donal O'Mahony.

    Acapulco requests a bailout from Mexico City, the once-great resort sagging under a staggering debt which exceeds the city's annual budget . "We are in a state of technical bankruptcy," says the Mayor.

    Whitney Tilson significantly boosted his stake in Netflix (NFLX) in Q3, adding ~56K shares and over 102K call options. Those purchases probably weren't faring well at the end of September (the listing date for the positions disclosed in Tilson's 13F), but look better after Carl Icahn came to the rescue. Tilson also increased his stake in Apple (AAPL) and bought Toll Brothers (TOL) puts.

    The monthly report from the National Retail Federation shows only a 0.1% M/M seasonally-adjusted slip in monthly sales for clothing sellers despite Hurricane Sandy impacting results in the Northeast. A 4.2% Y/Y gain tells the larger story that retailers in the sector have picked up gains through online channels (except J.C. Penney) and by taking a slightly-less promotional stance than last year. 

    The gift that keeps on giving (to retailers): The National Retail Federation reports the holiday season's hottest item this year is gift cards with an estimated $28.79B set to be spent on the category. While recipients typically like the freedom of choosing their own products with the cards, it's the retailers that get the best deal of all. Emboldened by the concept of "free money" on the cards, consumers spend an average of 1.4X the value of the card per redemption visit. Lost and unused cards are also in the mix, with companies treating the accounting for the easy profits in a myriad of ways. 

    Obamacare is set to "take a toll" on medical-equipment companies due to a "stealth tax" on medical devices, says Tom Lydon of ETF Trends. A number of companies in the sector are planning pre-emptive layoffs in anticipation of the tax, including Medtronic (MDT) and St. Jude (STJ). Other companies in the sector inlcude [[J&J]],ISRG and BSX. ETFs worth watching include IYHXLVIHI and XHE.

    North American gas producers are killing their commodity’s big rally by opening more wells, putting the U.S. on track toward record gas supplies this year, according to a Bloomberg analysis. The 44% price rise in natural gas between Sept. 10 and Oct. 30 stalled as Chesapeake (CHK) and others added output in areas such as the Marcellus shale; COP and ECA brought back curtailed output.

    Tidbits from Ford's (F -1.5%) presentation at the Barclays Global Automotive Conference: 1) By moving to five global platforms the automaker expects to increase production and lower costs. 2) On margins, even at a record high 12% the company expects to see more operating leverage as volumes increase. 3) Expects the industry to see a 14.7M unit selling pace for the year. 4) Added shifts and increased line rates should filter to Ford's bottom line in Q4. 5) Market response for new Escape model is "very encouraging" as the refreshed model moves off lots at an average of $4.2K more than the previous version. (webcast)

    Diamond Foods (DMND -1.1%) cools off after surging close to 15% yesterday on news it will finally restate financials for 2010 to 2012 later today. The common theme on the company is that the numbers won't look pretty, but by falling back into compliance Diamond will remain listed on the Nasdaq and could pick up a buyer.

    Best Buy's (BBY -2.2%) Analyst and Investor Day came and went without any major fireworks getting lit off. Though the company set an aggressive goal of tripling its operating margin over time, the how and when of the proposition was left murky. Echoing the thoughts of incoming CFO Sharon McCollam, execs at the event highlighted that online conversion rates need to be raised dramatically. The quote of the day came from CEO Hubert Joly: "I am already sick and tired of negative comps." (webcastslides)

    Of course, this could never happen with HPQ:  Dell (DELL +2.2%) is seeing a much-needed rally after Pac Crest argues the company's enterprise hardware/software/services ops, which now make up over half of gross profit, will offset PC weakness, and that downside is limited. Dell only trades around 4x EPS after backing out net cash, but revenue is steadily declining and earnings are being propped up by huge buybacks. FQ3 results arrive tomorrow. 

    Pac Crest's Brent Bracelin has upgraded Cisco (CSCO+6.4%) to Buy in response to its solid FQ1 results and FQ2 guidance. Cisco "could grow in 2013 and have stable to improving gross margin for the first time in two years," thinks Bracelin. Piper likes Cisco's sales execution and cost controls, and FBN notes shares trade at 5x EPS exc. cash. Europe is still a concern for many. FFIV +4%JDSU+2.7%XLNX +2.8%BRCM +1.8%CAVM +6.9%FTNT +3.3%.ARUN +4.6%.  (CC comments: III) (transcript)

    Baidu (BIDU -5.1%) has tumbled to new 52-week lows today, as worries persist about Qihoo's search engine, mobile search share and monetization, and China's growth slowdown – shares have now tread water over the last 2 years, during which time Baidu's multiples have fallen sharply. SA's Efficient Alpha recently observed many of Baidu's multiples and financial metrics now compare favorably with Google's. (yesterday)

    Are we seeing a repeat of Yelp's lockup expiration? Facebook (FB +9.7%) has shot higher even though 773M shares and 31M restricted stock units are eligible for sale for the first time. Short-covering is undoubtedly a factor, but Pivotal Research claims many institutions were waiting for the expiration to arrive to jump in. One potential risk: unlike Yelp, Facebook's expiration isn't centered around just a handful of insiders owning large stakes, but is spread out over many employees and investors.

    Facebook (FB +8.9%) uses its lockup expiration day to announce a long-rumored jobs app that allows recruiters to share listings. 1.7M listings are currently provided, and initial partners include Monster (MWW) and BranchOut. LinkedIn (LNKD -1.4%), which received 55% of its Q3 revenue from job listing services, has spiked lower on the news. The general preference among LinkedIn users to keep their personal and professional social media identities separate could insulate the company. (previous) 

    Samsung (SSNLF.PKhas no intention of negotiating a patent settlement with Apple (AAPL) following the HTC deal, says CEO Shin Jong-Kyun. Jong-Kyun suggests HTC agreed to pay 300B won ($276M) as part of the settlement, but it isn't clear if he's talking about an up-front fee or future royalties - Sterne Agee claimed Apple will get a royalty of $6-$8/phone from HTC. 

    Three lunchtime reads:
    1) Amazon faces new obstacles in fight for holiday dollars
    2) Dividend payers in the S&P 500 may become more scarce in 2013

  65. If Entitlement Programs Are Your Top Priority, the Fiscal Cliff Is Your Friend (Baseline Scenario)

  66. Notice how screwed the Republicans are – if they do nothing, it's $4 in taxes for each $1 in agreed spending cuts.  How did they do this to themselves?  

  67. CSCO / Phil,
    Thoughts on your recommendation about "Also, since you don't have a cover on the long $15 calls and you are in the money, you can fearlessly sell short-term calls for income.  In fact, that's such a nice trade, let's add 10 of those to the Income Portfolio – we'll play for good earnings and do a sale after they pop"?
    Any sale of short-term calls you'd consider today?

  68. Whitney Tilson buying puts on TOL?
    That should make Pharm happy….. :)

  69. Phil/How  I dunno….Greed and Arrogance?…..

  70. CLSN – Still strong.


  72. Calling social security and medicare "entitlements" is Republican new-speak.  They are insurance policies and pension policies from the government.   You've paid taxes to them all your life. You've earned them. You've paid for them.
    But the Republicans want to change the name to 'entitlements', and and – presto ! – they take your pension and turn it into a tax cut for their donors.
    But its before 4 pm.

  73. POTUS – "I do think he did a good job running the olympics"… LMFAO!!!

  74. Phil Thanks for your comment on DNMD and in general can only agree with you however the stock having run up 15% yesterday I felt like selling in to the excitment especially with still a very high premium showing on the Nov Call only two days to go.
    Further I thank you for your comments given on BIDU a while back. I closed the play the same day with some what a profit of 350$. You really had a nose for that one!!!!

  75. FU Obama!!!
    every time he talks the market drops..
    if Romney would have won the Dow would be at 15k, Nasdaq 4k, and S&P 1750 by now ;-)

  76. FOMC minutes show Fed members expect more unsterilized monetization after Twist Ends.

  77. That's one thing I can say about President Obama. Though a politician, he does well at keeping "it" real…. and I respect that….

  78. NYSE and RUT not looking good technically today… RUT is below the Down 2.5% line and NYSE below the Must Hold and 200 DMA lines.

  79. 1,360 on the S&P is our last hold-out.

    TNA/$25KP, Amalfi – Well why didn't you say so?  That one is targeted for Dec and, with the whole position down 8%, it's a bit premature to start messing around with it.  The $47s are $2.44 in the money and the net on the spread was $3.20 so we're .80 below target which is 1,6% of TNA, which is a 0.55% move on the RUT – I don't want to sound over-confident but I do think it's possible we meet or exceed that target in the next 37 days.  

    CSCO/Income Portfolio, Sank – Oh, thanks for reminding me.  Of course we wanted to sell calls into the pop.  We can get .83 for the Jan $17.50s so let's sell 6/10 of those to start.  Shame because they were $1.10 this morning…

    Interesting tweet Angel.  

    Entitlements/Rexx – They are very good at the Newspeak, aren't they.  

    Don't you see that the whole aim of Newspeak is to narrow the range of thought? - Orwell

    By 2050, earlier, probably – all real knowledge of Oldspeak will have disappeared. The whole literature of the past will have been destroyed. Chaucer, Shakespeare, Milton, Byron – they'll exist only in Newspeak versions, not merely changed into something different, but actually changed into something contradictory of what they used to be. Even the literature of the Party will change. Even the slogans will change. How could you have a slogan like ‘freedom is slavery’ when the concept of freedom has been abolished? The whole climate of thought will be different. In fact there will be no thought, as we understand it now. Orthodoxy means not thinking – not needing to think. Orthodoxy is unconsciousness. - Orwell

    BIDU/Yodi – Dodged a bullet there….

    Romney/Jabob – Yep another run of free money for the top and the fiscal cliff would be the least of our problems. 

    FOMC – Nothing new here and the markets didn't like it.  Fed feels they are already spurring housing and auto buying through bond buying but are not sure they need to continue it next year – that spooked the markets on the release.  

    Looking ahead, a number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program in order to achieve a substantial improvement in the labor market," the minutes stated. A Fed program named "Operation Twist," in which the Fed has been buying about $45 billion of long-term Treasury securities using the proceeds of selling short-term Treasurys, is due to expire in December. Fed Chairman Ben Bernanke has said the central bank would review all of its asset purchases at its final policy meeting of the year on Dec. 11-12.

  80. Dr. Ron Paul giving part 1 of his farewell speech on CSPAN.  I know there are many that don't agree with him but I think he was a voice of reason and I believe he truly cares/d about the fate of our country. 

  81. Phil
    Would you layer another disaster hedge here?

  82. gaza rocket hits shopping center in major southern israeli city

  83. Anyone heard from lflantheman lately…is he OK?

  84. 25KPA – The short QID 32 calls are gone. We had a stop at $2.50.

  85. Ron Paul/Ink – He has a lot of wacky views but he knows how to hold people's feet to the fire and that's going to be missed for sure.  

    Australia/Angel – I hope they don't get that bad.  Israel total disaster.  

    Disaster hedges/DC – Oh sure, that was the point of putting them up this morning.  We're below 8,000 on the NYSE too.

    No particular Dow component in the sell-off – just a general march out of equities….'  Only CSCO and MCD green out of 30.

    1:00 PM On the hour: Dow -0.7%. 10-yr +0.01%. Euro +0.31% vs. dollar. Crude +0.98% to $86.68. Gold +0.25% to $1729.15.

    2:21 PM After a brief bounce on news out of the FOMC of more QEonce The Twist ends (not unexpected), stocks take out new session lows. The DJIA -1%, the S&P 500 -0.7%. The 10-year Treasury is little changed, yielding 1.59%.

    FOMC Minutes: A number on the Committee favored additional QE after Operation Twist ends in December. As hinted byYellen yesterday, the debate grows over what triggers to use for tightening monetary policy.

    More FOMC Minutes: The committee takes note of a contrast between more favorable indicators on the consumer side and weaker activity in the business sector. The committee's business community contacts indicated an "uncertain outlook" for government spending, taxes, and regulation. Richmond Fed President Jeff Lacker again dissents – both with QE in general and MBS purchases, which "inappropriately" target a particular sector of the economy.

    Deutsche's Alan Ruskin has a different take on additional QE (hard to believe we're talking about this 2 months after the Fed announced QE without end), saying the Fed minutes show it's anything but a done deal. "There seems to be a more active debate … than I would have expected." Of course there's debate, but the doves run the FOMC show. If Bernanke and Yellen et al. want more QE, it's coming.

    Is the investor love-affair with high-yield ending, or taking a late-year break? The beneficiary of massive inflows for over a year,HYG has seen $458.7M in outflows in November, bringing the total asset loss to $1.97B (about 11% of AUM) since the QE announcement. The fund itself has lost about 3% of its value since then.

    A double-take is necessary to believe some of the handles in the mREIT sector, undergoing another savage selloff as the Fed hints at even more QE. The pure-agency REITs – in direct competition with the Fed for paper – are hit hardest. AGNC -3.4%ARR -8.1%,CMO -4.9%WMC -7.1%, to name a few. 

    Late-stage credit card delinquencies rose 2 bps in Octoberto 1.71%, according to Fitch, the first increase in a year. Other reads were more favorable, with early-stage delinquencies flat at 2.21%, and the charge-off index falling 13 bps to 4.16% – the lowest in nearly 6 years. Don't count credit card companies in with those hurt by low rates – their interest margin is near a record-high 11.2%. 

    With its giant Starbucks deal having recently gone live, Square boasts it's now handling transactions at a $10B/year run rate, up from $8B/year in September and $6B/year in June. Everyone from PayPal to Groupon to Bank of America (there has to be a joke in there somewhere) is now taking aim at Square, but the startup's mindshare, unmatched cash turnaround time, and value-added services such asSquare RegisterSquare Wallet, and Pay With Square make it tough to dethrone. 

    In keeping with the terms of the national mortgage servicing settlement, Bank of America (BAC) says it has completed or approved of $15.8B in mortgage relief for 164K customers, including principal reductions totaling $4.75B for 30K loans. Updates from Wells Fargo and JPMorgan are expected today as well. (PR

    Starbucks (SBUX -1.8%confirms it will buy Teavana (TEA) for $15.50 a share. The company expects the deal to be accretive to 2013 earnings by a penny a share. An interesting side note is that Teavana was taken public just 16 months ago by Goldman Sachs and Bank of America at $17 bucks a share.

    More on the Starbucks (SBUX) – Teavana (TEAdeal: The company says it will add a high-profile neighborhood concept to the Teavana brand's footprint in U.S. malls coast to coast. With the Tazo business already under its corporate umbrella, Starbucks says a two-two-tiered market position will be created. But is tea really the new coffee in the U.S. or is this an international play by Starbucks? Post-deal: SBUX -2.3%, TEA +52.2%.

    More on the Starbucks (SBUX) – Teavana (TEAdeal: The company says it will add a high-profile neighborhood concept to the Teavana brand's footprint in U.S. malls coast to coast. With the Tazo business already under its corporate umbrella, Starbucks says a two-two-tiered market position will be created. But is tea really the new coffee in the U.S. or is this an international play by Starbucks? Post-deal: SBUX -2.3%, TEA +52.2%.

    PepsiCo (PEP -0.2%launches Pepsi Special in Japan with the distinctive claim the soda can stop the body from absorbing fat and help lower cholesterol levels. The company was able to pull off the achievement after Japan's government gave the product a FOSHU label - indicating it's a food/drink containing ingredients with functions for health improvement and can have positive physiological effects on the human body. A U.S. launch is rated as extremely unlikely with scientists stateside dubious and the FDA yet to weigh in.

    Best Buy (BBY -1.3%) CEO Hubert Joly tells Bloomberg the company is considering buying powerful consumer electronics brandsas a way to boost sales. Hitachi and JVC are two well-known brands mentioned by the exec. 

    Samsung (SSNLF.PKpromises its flexible OLED displays, which can enable bendable gadgets, will enter production in 1H13. However, there's no still no date set for when the first products featuring flexible OLEDs will arrive. They can't come soon enough for OLED tech provider Universal Display (PANL), clobbered last week due to Samsung's decision to hold off on ramping the use of green host materials. Corning (GLW), whose Willow Glass supports flexible displays, could also benefit.

    Apple (AAPL -0.2%) roundup: 1) An unnamed Samsung official has denied a report claiming his company has hiked the priceit charges for producing Apple's app processors by ~20%. 2) Gene Munster estimates the iPhone 5 and iPad Mini currently sport component margins of 69% and 43%. Apple's soft FQ1 margin guidance last month raised eyebrows. 3) Cowen survey of U.S. adults found 12% claiming they plan to buy an iPad Mini; 52% of those respondents said they've never owned a tablet before. 

  86. QID/$25K, StJ – Thank goodness for stops!  

  87. Right now the 25KPA is entirely unhedged and we have only the QID spread in the 25KPM. The cover in AAPL Money is gone so it's not happy this afternoon. And FAS is now below 96.

    We are in a need of a stick now or a bounce before Friday!

  88. israeli ambassador, staff leave egypt-al jazeera

  89. Unhedged/$25KP, StJ – That's bad as we're officially bearish overall now with the NYSE and the S&P failing our must hold lines.   Hopefully we get a bounce tomorrow and we're not chasing a big move down – should have officially put some of the new disaster hedges in the portfolio but I think of it separately from overall hedges (that protect all your portfolios).  

  90. no white christmas port this year fellows?

  91. S&P 500 1,353.34 -21.19 (-1.54%)

  92. stjeanluc,
    1350 pivots s3, 1345 61.8%, 1337.89 7/26 Gap, 1305 DT Target, 1285.5 6/6 Gap.

  93. Nasdaq and Dow both at a 26 RSI and McClellan should be around -250.  We are oversold.  If we get a negative open tomorrow, it will be very deeply oversold.

  94. Good point on AAPL from Seeking Alpha:


    Q1 Guidance – Growth numbers:

    Take a look at the following table, showing guidance for what appears to be two different quarters. Which quarter would you rather have?

    You would rather have Quarter B, right? Well, what if I told you that both Quarter A and Quarter B are the same quarter? You would tell me that's impossible. It's not, and the numbers above are for Apple's current Q1, and the guidance given during it's fourth quarter results.

    So how are they the same? Well, Quarter A is the projected revenue and earnings growth (or decline) numbers compared to the first quarter from the prior year. Apple guided to $52 billion in revenues and diluted earnings per share of about $11.75, compared to $46.33 billion in revenues and $13.87 in the year ago period. So that's Quarter A.

    But there is a very important fact here that many don't realize. Apple's first quarter last year was 14 weeks long, not the traditional 13. So when Apple reported a huge number last year, you have to realize that the quarter had an extra week. If you were to take last year's revenues and earnings, averaged over 14 weeks, and subtract out a week, you get a comparable 13 week period. Quarter B above does that.

    Investors that are scared about Apple's slowing growth shouldn't be that afraid. The numbers don't look that good to begin with, but there is a clear reason why. It has to do with the calendar and simple math.


    Quick summary on margin decline:

    1. U.S. dollar strength has hurt.
    2. iPad mini margins are below the corporate average.
    3. New products, especially the iPhone 5, are more expensive.
    4. Product launch quarters see lower margins.
    5. They is the biggest product launch cycle in company history.

  95. FU HAMAS!!!!

  96. Laddoo   Flan's MoMo is in a 50,000.0 drawdown. Lol

  97. White Christmas/Angel – Not looking very merry at the moment.  Obama putting tax bills in rich people's stockings.  

    Deeply oversold/Rustle – Doesn't mean we can't get deeper.  Anyone who earns over $250K and wasn't sure if they were getting a tax increase is pretty sure now.  Miles to go before we're long-term oversold, maybe down to the zero line today:  


  98. I love Hummus!!

  99. Well, that sucked.  Time to go to the doctor – hopefully not to the hospital…

  100. Neet – What numbers are these?

  101. Phil Roulette –  yes, the probability of zero wins in 24 spins is the probability of losing once (37/38) multiplied 24 times:
    (37/38)^24 = 0.5273
    So the probability of winning at least once is 1 – [the probability of losing] = 1 – 0.5273 = 0.4727 (or 47.27%)
    For reference if you bet 38 times, it would seem logical that someone would "win at least once" since there are 38 spots on the wheel, but the actual probability of at least one win is only 63.7%. A 100 spins would be 93.5%.

  102. stjeanluc,
    SPX Levels.

  103. US says palestinian attacks on israelis "counterproductive"..hahahahaha

  104. angel – I'll take the other side of that trade. Partially.
    Tax rate goes up to previous high and a ramp for cap gains and divy….. :)

  105. Roulette/Bdc – At what point does the law of averages kick in?  If I make 1M spins on 40 numbers, shouldn't the average of any individual number be 25,000?  So how can there be a straight calculation that shows only a 50% chance of hitting an individual number?  What would the probability be, over 1M spins, of any individual number deviating from 25,000 by 50%?   

    maybe that's a flaw in my poker play as I assume, with 6 people playing poker, that one of them is likely to have every card.  Obviously, that's not true but perhaps I am being too conservative as I imagine your calculation would show the chance of any 12 of 52 cards mathing 3 other cards from the set being far lower than 80%, which is what I tend to assume.  

  106. Take care of yourself Phil, feel better.

  107. There is no way to make these charts look good. Obviously going below the 200 DMA was a bad signal and it has been confirmed. Volume has been increasing every day as we have gone lower. For some of these indices, we have to look at the lows of June for the next line of support. For example, the NASDAQ line of 2457 looks like the next area of support. The Russell is looking at support around the July lows so about 765. Same thing for the Dow around 12,500 although Fibs would be around 12,420. S&P and NYSE are looking somewhat better with a Fib line around 1350 for the S&P. The NYSE is only looking at a 50% retracement at 7865 – much better than all the other indices.

    Relatively speaking, financials have done well compare to the rest of the market. XLF is only showing a 38.2% retracement based on the June lows. There is a zone of support between 15.17 and 14.81 with 15 being the obvious target. But the Dow Transportation got hammered today – down 2.5% and below 5000 now. 4900 looks like the next target with June lows only 50 points lower at 4846. It is now negative for the year. But the divergence between the Dow and the Transport has been closing over the last couple of months. Here is a comparative chart since the lows of June:

    Not a healthy trend for either index!

  108. Bets / Angel – Hope you are making money on the market to pay off your bets!

  109. I guess we should be able to leave the Middle East soon:


  110. Roulette –  well, we were originally discussing the probability around at least one win (one win, or multiple wins), given a fixed number of spins (e.g., 24), not the average number of wins. So the law of averages doesn't apply.  The MOST LIKELY number of exact wins is of course equal on the individual outcomes (that is, 38 in roulette), divided into the sample size. It is the variance around this number that you are referring to, for a very small set of spins, (e.g. less than 10x the spots on the wheel), the variance is quite high. If your sample size is smaller than the outcome set then the variance is more important than the average. As I said before a gambler spinning 38 times in roulette (equal to the 38 spots on the wheel) will win at least once only 63.7% of the time.
    The gambler plays for the variance and the house plays for the law of averages over large sample sets (as you indicated) Without that short term variance that randomly favors the player (even with a 5.26% house edge!), no one would play, obviously. I'm not sure how to calculate the standard deviation over 1,000,000 spins for any one number to be off by >50% but it would be an exponential function and over that many spins would be infinitesimal.
    In poker, do you mean one person having a card you hold, or one person matching the flop with at least one card? Not sure what you were saying there but let's establish a probability based on some on the latter and these assumptions:
    You hold two unmatched cards (e.g. AQ offsuit)
    You are playing against 6 other players (7 total)
    The flop is 9,7,3
    What is the probability that at least one player's card matches the flop, given each player has unmatched hole cards (i.e., no one has a pair):
    Probability of player 1 NOT matching the flop (given you did not match the flop) = 38/47 * 37/46 = 65.03%
    Probability of player 2 NOT matching the flop (given you did not match the flop) = 36/45 * 35/44 = 63.63%
    Probability of player 3 NOT matching the flop (given you did not match the flop) = 34/43 * 33/42 = 62.13%
    Probability of player 4 NOT matching the flop (given you did not match the flop) = 32/41 * 31/40 = 60.49%
    Probability of player 5 NOT matching the flop (given you did not match the flop) = 30/39 * 29/38 = 58.70%
    Probability of player 6 NOT matching the flop (given you did not match the flop) = 28/37 * 27/36 = 56.76%
    So the probability that no one matches for a pair is: Product[Player 1 through Player 6] = 5.18%, giving a probability that someone hit for a pair = 1 – [nobody hit anything] = 94.82%, which is actually far higher than 80%, as you had assumed. 
    This is actually an important example of why it is imperative to raise AQ. You are giving every one else a chance to beat you if you call a bunch of player limping in at the big blind bet size. If you raise and all but 2 players fold, you reduce the probability of the above probability to 58.6% so you have a much better chance of holding up with your ace high in this case, obviously.
    (note that probabilities shift slightly but not all that much if there are some pairs or matches, for example, if you have A3 instead of AQ the probability above that some one also matches at least one hole card to the flop drops to 92.52%. Also note that when compared to the roulette calculations, these are a little different because every card dealt changes the deck, but the roulette wheel never changes.)

  111. Just in from the dark, cold streets of London again, long walk down Oxford and Regent, Xmas lights very nice, actual made me feel semi-cheerful, although the Apple store was notably empty.  I saw noise-cancelling Bose headphones for sale there that I bought in the U.S. four year ago for $125 — I dunno, Apple looks cheap, but I sure like my Samsung….  
      Didn't log in until after the market closed, but I followed up on the Starbux drop with some puts, and racked up a 68% gain, my kinda Xmas cheer.  I realize Palestine doesn't have any oil, but Angel's right to send in updates, it's really rocking and rolling over there right now, this won't be over quickly or easily.  
    And for those of you struggling with less than a 50/50 chance to win at roulette, how sharp are your eyes?  If you watch where a particular croupier, who probably spins the wheel within a reasonably small range of force, drops the ball, you have a decent chance of cracking the 50/50 barrier [at the least] and impressing your date with your James Bond-like savoir faire:  

  112. Omitted:  Bose London price, $485!!!

  113. Ready to scoop some oversold stocks?

    As badly as HPQ is trading, it's only one notch down from AAPL. Ouch!

  114. Well, it turns out my kidneys are not stable enough to get a CAT scan since the dye they use is bad for your kidneys.   So now I have to wait while they mess around with other stuff until they decide it's safe to dye my kidneys – Fun!

    Doesnt look like this will be a quick fix but at least I'm home with all my little comforts.    

    Also, we have the nice, long weekend next week so at least it's well-timed…. 

  115. Get Well Phil!

  116. Phil--I hope you feel better immediately!

  117. Phil/ kidney stones
    Holy cow!
    those things are painful!
    and I thought all you had was a cough/cold?
    wishing you a speedy recovery!

  118. Phil – hope you are better soon!

  119. That's rough Phil, prayers are heading in your direction for comfort and healing.

  120. Phil, You are a trooper-hope you feel better soon.

  121. PHil – what do you think about playing for a bounce with tomorrow TNA $49.50 or $50 calls? 

  122. Tax cuts-I remember GWB saying when he inherited Clinton's surplus saying: "Now is the time for a tax cut to give some $ back to the people." AND: ":You can't raise taxes during a recession." I guess never a time for taxes.
    2 great Quotes I remember:
    "Republicans love America but hate 1/2 the people living in it."
    "Republicans always say government dosen't work then get elected and prove it."

  123. Get well soon Phil! 

  124. Phil/AAPL
    I am in the Oct 550/625 BCS Bought 550 @ 64, sold 625 @ 40. I've been selling front month calls – now in Dec 580's @ 8.70, now 6.10-should I roll to 570's? Or do you have another suggestion like rolling BCS out to 2014's?

  125. Good morning and thanks for good wishes.

    I get kidney stones almost every year – just never had 2 at the same time – that's what's messing me up.

    Please re-ask anything in new post as I'm a little behind today.