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5 Trade Ideas that can Make 500% in an Up Market

.SPX WEEKLYAre we having a correction or a pause for the next leg up?

As noted by Dave Fry on his weekly SPX chart, the data isn't taking us down yet and, if earnings doesn't do the trick for the bears – then maybe GS has a point with their just-released 1,900 prediction for the S&P 500.  Given the fact that the Fed is inflating our money supply by about 10% a year and the BOJ is running their money supply up 20% a year – maybe it's not so outrageous to imagine our stock indexes will adjust accordingly.  

What's really been disturbing us is that our Materials indexes aren't following though.  Not just oil and gold – those are silly things anyway – but copper and iron and corn and wheat and rice and rebar – things that are, traditionally, consumed in a healthy economy.

But this is not an article about whether or not the S&P will be at 1,900 over the next couple of years or whether it SHOULD be at 1,600 now – this is an article about hedging for the upside – especially if you are in danger of being a bit too bearish now.  

Often we find that taking aggressive long-term spreads with offsetting puts can give us very nice returns.  For instance, in Friday's post, I suggested a bullish play on DBA, which has very much been lagging the current rally and my trade idea on that index (tracking corn, wheat, soy beans and sugar) was:

The DBA Jan $23/26 bull call spread is $2 and you can sell the 2015 $25 puts for $1.55 for net .45 on the $3 spread that's $2.78 in the money to start with a potential 566% return on cash if DBA makes $26 into January expirations. 

Although the trade idea can make 566% on cash, it's not a very aggressive play as it's already in the money.  The downside is owning DBA at net $25.45 (now $25.95) if it's put to you in January, 2015 and the 2009 spike low on DBA was $22 but it never stayed much lower than $24 for more than a week or two at any point and hasn't been below $25 since July 2010, when the S&P was at 1,050.  

So, even in a bearish market – it's not going to be a bad position to work into and, in a bullish market – you would think it's a no-brainer.  Keep in mind you can always sell a few short calls against the position for income – the May $26 calls, for example are .35, 77% of the cash you are laying out for the spread and not a bad 33-day dividend

Those are the kind of trades we're looking for, ones where it would defy logic to have a growing global economy and not see at least some long-term improvement in a stock or ETF.  Our second pick is one we would think is "too big to fail" – X is the biggest US play on steel, which is stuff the usually gets consumed in a bullish economy.  About 52% of the company's value is in it's Flat Rolled Steel Business and 39% us Tubular Steel with the rest revenues from Coke and Iron Ore.  The current price of $17.45 is still well-above the 2009 lows of $12 but, in 2009, X lost $1Bn on $16Bn in revenues while this year they are projected to make $122M on $19Bn in sales and next year, they are expected to make $288M on $20Bn in sales.  Meanwhile, at $17.45, the whole company is valued at just $2.5Bn.

Selling the X 2015 $13 puts for $2 puts us in at net $11, that's $1 lower than the 2009 lows during an economic melt-down.  We can pair that with the purchase of the $15/22 bull call spread at $2.80 and now we have a lovely net 0.80 spread that's $2.45 in the money and can make up to $6.20 (775%) if X crawls back to $22 by Jan 2015.  

The risk becomes owning X at net $13.80 and let's say X is down to $8 by then so we double down and then we're in 2x at an average of $10.90 and, in theory, we could then sell the 2017 $10 puts and calls for at least $3 and that would put us in a $7.90/8.95 buy-write with a risk of a 4x assignment.  So I ask you, with X at $17.45 – how much are you willing to own in 2017 for net $8.95?  In our $500,000 Income Portfolio – let's say we don't mind owning 4,000 shares at that price for $35,800, which would hit us for about $17,900 in margin and that would be 4x so our 1x allocation is 1,000 shares which means there's no reason at all for us not to risk 10 of the above spreads in our Income Portfolio, where we lay out net $800 in cash and take on about $3,300 in margin for a potential $6,200 upside on the play.

Think of $6,200 as our consolation prize for NOT being able to buy 4,000 shares of X at $8.95 if this runaway market continues unabated.  

If we like steel, we should certainly like iron and CLF has been a nightmare for us before and may be again but the premise remains that, if this massive equity rally is to be believed – as some point along the line, America's largest producer of Iron Ore Pellets should benefit.  Like X, CLF is trading back around its 2009 lows ($15.43) but, also like X, that price did not last long and CLF rocketed up to $100 again in 2011.  That makes $19.20 a pretty attractive entry right now – especially if we can hedge it too.  

CLF 2015 $15 puts fetch a whopping $3.10 for a net $11.90 entry (38% below the current $19.20 price) so those are nice shorts by themselves with a $1.60 net margin, but "only" 150% return on margin there and we're greedier than that, right?  Adding the $18/28 bull call spread for $3.20 brings our cash contribution up to .10 but our upside is $9.90 for 9,900% on cash there and THAT's the kind of upside we like to see!

On margin, we move up to $4.50 so it's about 200% return on margin – still very efficient if CLF manages to recover some of it's former glory but, as with X, the key is that we're only making a 1x commitment on the short side so, even if CLF falls all the way to $10 (50% down) and we net in for $15.50, we could double down and have 2x at an average of $12.75.  We already have 10 short 2015 $18 puts AND 10 short January $23 puts in our Income Portfolio, which we collected $7,600 for so let's add 10 of the bull call spreads at $3.20 ($3,200) to give ourselves another nice block of upside if things go well.  

Keep in mind that we're already well-hedged to the downside with 100 DIA June $144 puts in our Income Portfolio as well as 30 TZA May $38/44 bull call spreads so we're going to be disappointed if CLF, X, etc. just go straight up from here but we can console ourselves with our massive long-term gains, I suppose….

So that's 3 trade ideas that are based on the basics of an economic recovery, Food, Iron and Steel.  We could go for copper, FCX is very attractive at $31.92 but our Income Portfolio already sold the 2015 $25 puts for $3.60 back in February and those are $3.20 now so just on track.  Though FCX is about 25% gold, I think we're better off here with a pure gold play as gold could do well in a collapse, as well as a rally.  ABX has been "killing" us lately and we took a 2015 spread where we sold the 2015 $25 puts for $3.30 on March 18th and now, with ABX at $22.62, those puts are $6.50.  Of course our net on 15 short puts is $21.70 so the "loss" is a bit of an illusion unless we get out of the position and make it real(ized).  

We REALLY wanted to own ABX for net $21.70 in 2015 and it remains to be seen if we REALLY end up being able to but, for now, the fact of the matter is that the 2015 $20 puts can be sold for $3.30 for a net $16.70 entry, 26% off the current price.  The net margin on the put sale is $2 so very margin-efficient by itself and ABX bottomed out at $20 in October of 2008, but only very briefly and this is it's first time below $25 since December, 2008, when gold was $950 an ounce (now $1,482).  Very, very silly pricing on ABX but, YAY!, more for us!  If we pair that sale with the purchase of the 2015 $20/30 bull call spreads at net $2.95, we STILL net a .30 credit on the overall spread (so the worst case is you end up owning ABX for net $19.70, another 10% off the current price) but now we have a spread that's $2.62 in the money to start with a $10.30 upside at $30 for a 3,090% potential upside to our cash credit.  That should keep you hedged against anything but Zimbabwe-style inflation!  

That's the point of these upside hedges.  You don't have to believe we'll have runaway inflation but if you are willing to risk owning $19,700 worth of ABX (1,000 shares) then you can risk taking a $300 cash credit today and, if inflation pushes gold back up and ABX recovers just a little of what it's lost over the next 20 months, then you put $10,000 in your pocket in January of 2015.  As I often say, a good hedge is one where you make (in this case) 3,090% on cash but you're still pissed off that it didn't go the other way and give you the cheap entry.  

Finally, for hedge #5, let's stick to the basics and pick an index, any index.  Well, not just any index, how about the index that's lagging the others by more than 5% and is still almost 40% off it's all-time highs.  That's right, the Nasdaq.  The best thing about being bullish on the Nasdaq is that it's a proxy for being bullish on AAPL, only without the constant ulcer.  In fact, back when AAPL was crashing, our $25,000 portfolio was down about $50,000 due to a heavy AAPL commitment and we split it into 2 portfolios, one "Aggressive" that's still going for the big win on AAPL and one that was "Margin Sensitive" for people who wanted to be more Conservative in trying to recoup those AAPL losses

By switching to the more conservative strategy in the Fall and concentrating on a long QQQ position while selling the front-month QQQ calls for income – we have been able to shave the loss on the $25KPM down to $2,588 – almost a full recovery in less than 6 months while the $25KPA is still down $43,006 BUT, as I noted, sitting aggressively on 10 AAPL Jan $425 longs that gain $43,000 if AAPL can climb back to $500 by the end of the year, with anything else being a lovely bonus.  

So where were we?  Oh yes, going long on the Nasdaq!  Well, that's easy as our $25KPA has the QQQ Jan $65 calls, which we bought for $5.99 on 10/24 and are now $6.74 – not too exciting for a 10% move up in the Nasdaq since then BUT the point is how well it works when we can sell calls against the position.  With the QQQs at $69.94, the January $65 calls can be bought and covered with the sale of the $70 calls for $3.50 for net $3.24 on the $5 spread.  While that doesn't sound sexy by itself, did you know you can sell the AAPL Jan 2015 $300 puts for $22.50?  We could sell one AAPL 2015 $300 put to pay for 7 of the bull spreads on the Qs and that's $3,500 worth of upside on those against the downside of owning AAPL for 30% off it's current price in Jan 2015.

The true net cash commitment for this trade is $180 to make up to $3,320 (1,844%) if the Qs move up 6 cents and hold that (or over) through January of this year.  It's also very important to note that the margin for selling 1 AAPL 2015 $300 put is $52, so this is our least margin-efficient trade but, if you like AAPL and don't mind owning 100 shares for net $300 ($30,000) then this trade can give you nice $3,500 bonus while you wait if things go well.  You could substitute a short put on any stock you don't mind buying if the Nasdaq drops 30% instead of rising 0.1% (0.06 on the Qs) and I'm not even going to mention that AAPL would almost have more cash than the stock price at $300 in 2015 – I think I've made my bullish case on AAPL often enough to leave it at that.  

So lots of fun ways to participate in the next mega-rally.  We don't need S&P 1,900 – just holding 1,600 would do us quite well and I cannot emphasize enough that these are HEDGES to our current BEARISH stance – just in case we're wrong and a correction never comes and the markets go up and up forever and all of our bearish positions expire worthless – you know – what Cramer is promising…

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  1. Good morning!

    Whle we're here, it's a good time to go over the Income Portfolio as well.  

    These are Wednesday afternoon's figures but close enough for discussion:  

  2. hey boss, in st maarten here and on plane started thinking about couple things…
    1-at what point should we think about a fire sale shopping list, what we would like to own when we some daaaaay get a correction in general markets?  how do we actually filter our searches?
    2-because commodites weakest sector my portfolio too lopsided on commodites. i did lighten up earlier in week but abx and uso prices fri could not resist…how can I hedge downside? oerhaps a general commodity index hedge?  i am also thinking when market sells off correlations will hit in high digits so even taking commods down further…also margin calls mon due to old collapse may cause more pain…

  3. gold collapse…also god help us if they raise margin percentage required like they did last year…or was it 2011?
    dont mean to be too bearish but when this sucker goes it will go fast and hard

  4. Dawn – There is no way that gold can collapse with the easy money that is being created.  In my mind, it is in a corrective phase, and 1400 is a true bottom, if it gets there.  Then… is off to the moon.

  5. pharma…I was referring to the gold activity friday as 'collapse' not that there will be one…gold is at good value NOW and 1400 I agree should find buyers at 1400.  Remember too that Friday was option day so all the 1500 strikes were hit incl China which loves to buy on the 00's and 50`s…I read in lat couple months they have pending orders at these levels sitting there in market.  We may see more selling as asia joins the party tonight but 1400 is a good stopping point.
    separately tonight China issues their gdp figures for some volatility monday…

  6. my post earlier was not clear…I also meant when the general indices/market 'goes' it will go fast and furious…not the metals

  7. Phil--are you concerned about any precedent being made if gold reserves are used to cover losses by these clowns in Europe? GDX dropping from 55 to 32 and ABX almost getting cut in half in the last 6-7 months is kind of scary. It seems like a great opportunity but I am wondering what the downside is to ABX and GDX? Gold could obviously drop more and I am wondering what the correlation is to the miners? If it continues like it has it would appear like $1200 gold would knock ABX almost down to the single digits and GDX down to $20-$24? Am I way off? I know there is a huge difference in value and price and these could be great opportunities in the miners. I guess it is always scarier when you catching the falling knives…

  8. Big Charts / Phil – Considering a pull back, are you looking at a 20-40% pull back of the latest 7.5% run (1485-1600 (SPX)) or 20-40% pull back on the 20% run from (1343- 1600)?  A 40% pull back on the latter just brings us to the latest support of 1550.  I would read that as BTFD if it held and broke back through 1560.  Am I about right reading this?

  9. OK, let's take a look at our Income Portfolio Trades:

    TASR – $8.09 right on track

    CZR – $14.90 miles over the line no compelling reason to exit early. 

    RRD – $12.11 well over target, mothing better to do with the margin. 

    FCX – $31.92 way over target, tons of time.

    CLF – $19.20 adjustments noted above.  Actually we're getting more aggressive but, down the road, the short Jan $23 puts ($6.30) can be rolled to 2x the 2015 $15 puts ($3.10) so kind of hard to get too worked up about it now.  This goes for the existing 2018 $15 puts ($4.50) as well.  At some point, we may want to sell a few calls but those May $20s fetch $1.05 on this super-volatilie stock so tempting.  

    HOV – $5.33 very nice spread, no worries. 

    AA – $8.22 dividend of .03 x 2,000 expected 5/6.  5 short April $8 calls (now .25) will be rolled to 10 May 8 calls, now .35 for a little extra cash

    CSCO – $21.54 paid .17 x 1,000 ($170) on 4/4, more expected 7/4.  All good otherwise.  Earnings not until 5/15 so let's sell 5 (1/2) May $21 calls for $1.02.  

    AGNC – $32.65 is one of those ones we wish would have gotten cheaper.  Nothing to do but collect our slow gains.  

    AAP – $429.80 should have had some calls sold against it but we missed this one.  No biggie as we're pretty well in the money on our 2015 $450 tarket which would make this currently net $9.16 x 500 ($4,580) worth $100 x 500 ($50,000).  That's the fun of selling premium but it's tedious as we're 80% in the money but showing none of the profit potential in the net (of course that means it's still a great time to buy!). 

    EWZ – $54.98 was saved by skepticsm.  5 short April $56 calls should expire worthless and let's sell 5 May $55s for $1.25 to collect another $625 against our long position.   

    TSLA – $43.75 flew up on us.  We have a pretty wide spread that caps out at $45 so let's just roll the 8 short April $36 calls ($7.80) to 10 May $37 calls ($7.05) for about even.  If TSLA has good earnings, then we buy more longs.  If not, then good thing we didn't wimp out on the short calls (again).  Car companies should not have 30 p/e's.  

    BRK/B – $107.04 is over target and we sold the April $100 calls for $2.64 (now $7.10).  As I noted Friday, Berkshire is a bit ahead of itself unless earnings season is tremendous so a striaght roll out to the May $100s ($7.50) is all we need for now until we get a better feel for the markets.  

    DIA – $148.42 has to fall to $142 (4.3%) for us to be in the money but that's not the point of this June hedge ($20,000) – the point is to protect us from far worse and a 10% drop in the Dow, to $133 on DIA, would put is $90,000 in the money and a 20% drop, to $118, would put us $300,000 in the money and that would be lovely, but don't expect it.  In reality, this is heavy-duty insurance we EXPECT TO LOSE and, if May earnings go well, we may take a $5-10,000 loss and be done with it or we may spend $5-10,000 to roll out to September – so we're covered for next earning.  It's this insurance – taken in early March – that covered our aggressive buying for the past month – even after we thought the market was getting toppy.  

    PGH – $5.01 with 0.04 x 5,000 ($200) coming to us every month in dividends.  No worries on this one at all.  

    OIH – $42.41 is 10% over target so very boring as we wait.  I think we wanted to sell calls but never got a good run up to sell into.  

    UNH – $63.03 looks like we won't be getting the stock for net $41.23 so we'll have to console ourselves with the cash over time. 

    GLW – $13.30 with 0.09 dividend x 2,000 ($180) expected 5/26.  Right on target 

    CIM – $3.30 and .09 x 5,000 paid 3/27 ($450 – I hope we account for this!) and expected again 7/27.  Right on target.  

    HMY – $5.50 with a 0.056 x 2,000 dividend expected 6/6.  Foolishly mines gold so not looking good at all but brilliantly we only sold 10 2014 $8 puts (now $2.70) so plenty of room to roll when they print months longer than January.  

    BRCM – $33.87 is way in the money but, as with all these long positions with low VIX, it's just not exciting yet.  These long-term portfolios require patience.  This is like planting a garden and then a week later screaming "hurry" at the seeds. 

    CZR – $14.90 was so good we did it twice.  New spread right on target.  

    ABX – $22.62 is just too new to worry about.  If they go lower, my first move would be to roll the 2015 $25 long calls ($3.20) down to the $20s ($5.05).  Actually, come to think of it, no reason not to do that now and, in fact, another $1 buys us the $18 calls ($6.15) so let's spend $3 and turn it into a $18/33 bulll call spread with the $25 short puts for net $3.07 – I think we can work with that for the next 20 months.  

    GTAT – $3.64 is well above our $2.50 target so, yawn. 

    NLY – $15.90 and an interesting experiment just selling calls each month, I'm interested to see how it performs.  

    CMI – $117.11 miles over target. 

    CLF – Boy do we love those guys (see above).

    TZA – $37.60 is at the bottom of our $38/44 range and we have until May but, as with the DIAs – it's insurance and we'll pay to roll if we have to.

    WIN – $8.87 with .25 x 2,000 ($500) expected 6/26.  Brand new and looking comfortable.  

    Well, for a portfolio that's down $21,33o it's pretty damned well on target.  Let me know if I missed anything but I think we're good through earnings now.  

  10. CLF- just to clarify- the Jan 15 18/28 bull call spread is $3..09 ; not 3.20? Am I looking at the same play? 

  11. ABX – Not trying to read anything into this stock (I have a 2/3rds position) but…  Currently in a 60% drop from the 56 high of 9/2010 to Friday's low of 22.60.  A weak retrace (20%) brings us to 29 and a strong one to 36.  29 is the 50% retrace Fib line.  I draw my fib's as extensions as the stock goes lower.  ABX is currently closing on the -68% of this extension.  So a "V" retrace would most likely see the 40% retrace.  Time will tell.

  12. ABX / Phil – as a new entry for a BCS, would you suggest the JAN15 20/25 for 1.93?  or do you like the 18/33 mentioned above as a new entry for 4.65?  The 18/33 is double the profit potential at more than double the cost.  Thoughts?

  13. Phil,
    In light of you ABX adjustment, what do you think of adjusting the GDX Jan15 $35/45 bcs @ $5.30 with $35 puts @ $3.80? I have looked over the trade, but do not see any adjustment that looks too favorable.
    I also have the NUAN Jan15 $18/25 bcs with the short $18 puts, but I sold the $19 April calls for $0.82. The stock had been looking weak, bouncing between $18 and $19, so I sold the calls at a 2 per 5 spreads @ $19 on a bounce. The stock recovered to $20 where I was watching  with a plan to buy another spread if $20 holds. Icahn's interest spiked the stock from the $20 line. It fell back to nearly $20 (where I should have adjusted), but I thought the move overdone and have been expecting a market pullback, so didn't adjust and of course the stock moved back to where it is now. I can roll to the May $19's for $0.35 credit or to the July $20's even. I plan to wait until later in the week to roll, but does the roll to May make more sense since i think the move overdone or should I respect the move and roll to July?

  14. ABX BCS,,,  See above, "If we pair that sale with the purchase of the 2015 $20/30 bull call spreads at net $2.95"…..

  15. Phil (or anyone else)
    In your opinion what is the best way to utilize the income portfolio? Take money from sold put credit now if one needed current income and assume stock may be put to you down the road? Or wait for closer to expiration and either close for a true profit(maybe 60-80% of credit received) or let the option expire worthless and collect full amount? Obviously on stocks like ABX and CLF it could be awhile before any paper profits materialize….if at all….. And I have no problem taking ownership of any of the stocks if put to me in 1-2 years..

  16. Phil / JCP – whats your fav long put idea on this one?  i think its going much lower.  

  17. Hi Phil, Pharm, Stj…I am back :) Hope all is well!

  18. Futers – WOW Wheeeee on oil and holy crap on gold!  Looks like ABX will be even more attractive.

  19. FU GOLD MINERS AND GOLD!!!!!!!!!!!!!!!

  20. Lol, I bet gold hits 1390 tomorrow

  21. Jabo:  You Rock!!  Keep those FU's coming in!!  

  22. At what silver price do we short puts on SLV?

  23. Good morning!

    China GDP missed so Futures heading south.  

    Dollar 82.14, oil touched $88.50 but now $89.16 but I sure wouldn't play it up. Gold $1,439, silver $24.38, copper $3.30, nat gas $4.27 makes a good short (/NG) and gasoline $2.77.

    Nikkei 13,385 could go much lower (/NKD) and worth a short with a stop at 13,405 ($100 loss!) with Yen 98.13 (lower (stronger) Yen is still bearish on Nikkei).  Euro $1.307, Pound $1.53.  

    Our Futures are off 0.4% and likely to get worse so wheeeeeee!  for our bearish positions. 


    China GDP Growth Slows to 7.7%

    China's economic growth slowed unexpectedly in the first quarter, raising concerns that a recovery that started in the second half of last year is already losing steam.

  24. St Maarten/Dawn – What's the matter, don't like the French side?  I love St Martin and Maarten – could almost live there – have a great time.  Shopping list is above (Income Portfolio), there's nothing on that list we wouldn't buy more of if it gets cheaper and, for the most part, they are a bit cheaper than our entries as the VIX has dropped considerably and damaged our nets.  Not sure what you mean by filters – I look for stocks in a sector that are too high or too low and then go over the Fundies to see if it's justified.  I also, of course, keep up with the new so I have a pretty good idea which sectors I like and don't and whick stocks I like and don't.  When a stock's position does not seem justified given it's peers and the news that surrounds it and them – then I have a trade!  Of course I also look to see if the options give us favorable risk/rewards – a lot of times a stock is just in a bad position in regards to the available strikes, so it's a "no-play" and then, the LAST thing I do is look at the 50 and 200 dmas – to see if there's any logical support or resistance to look out for.  That's my "filter."  

    As to commodities, it's normal to be overweight in an underperforming sector if you scale into things but also dangerous if you don't have plenty of buying power left.  You can hedge the downside for gold with puts on GLD or long on GLL, which is already at $77.80 and the July $80/90 bull call spread, for example, is $2.60 so can pay 4:1 if gold falls to about $1,400 but I prefer to just be long and roll back in time on gold as I simply can't see how all this money printing can lead to a collapse in gold over the long-term.  In the short-term, anything can happen but I think it's insane to play metals for the short-term other thand momentum trades anyway.  

    Markets bouncing already – someome might have said something somewhere or it's just the usual pre-market manipulation trying to put on a brave face.  As I've been saying – I doubt any kind of volume selling can be fought off but no volume to the Futures so we won't get reality (or what passes for it) until the market opens. 

    Nikkei stopped at 13,350 – not bad for a quick profit.  Nat gas $4.255 – also good, quick money – don't be greedy, as we dip below 13,350 – that becomes a stop and we can always get back in at 13,345 if it crosses back down (now 13,340 so looking good).  

  25. Margin percent/Dawn – Hmm, maybe GLL not such a bad idea…  Hard to buy GLL at $78 – last time we played them bullish was October at $14!  I guess they did a 1:4 at some point because now it shows the October low as $55.  GLL can really fly if gold begins moving down – watch that $1,425 line – big problems (like $1,350) if they can't hold that.  

    No way/Pharm – Never say never in this market.  I like that chart but no support until $1,400 and then we're still miles above the 200 dma at $680.  If people panic into the Dollar and it shoots higher – who knows.  Maybe Bitcoin made gold traders realize what nonsense all these "alternate currencies" are?  

    What you really have to worry about is outflows from GLD that then cause that fund to dump gold on the open market – that can get ugly.  

    Wow, CNBC says Psy has a new video!  Breaking news like this is why I tune to them in the mornings…  Actually it's not bad – especially as he had a real challenge following up on Gangnam Style.  It's not at all a clone of the first.  They should force Fox viewers to watch this so maybe they could understand that Koreans are just people and not some kind of monsters massing an army to destroy Democracy.  I know it's South, not North but really – do you think the average Fox viewer makes a distinction?  

    Here's a NoKo version of Gangnam Style.  

    Damn, now they've got me talking about it! 

    By the way, unlike oil, gold actually is MORE expensive in the longer contracts:


    Dec'15 1450.0 1450.0 1450.0 1450.0 05:03
    Apr 15


    -76.4 2 1526.4 11606 Call Put

    Reserves/Jabob – As above, LONG-TERM, who cares?  You can flood the market with gold from day to day but you're not changing the SUPPLY of gold because there's only so much in the World and they can't make more.  So a vault may be opened somewhere and gold that's been stagnant floods the open market and depresses prices but, once the panic is over – now it's sitting in another vault and no new gold has been created.  Notice no one is selling gold on TV?  Usually there are tons of commercials telling you to buy gold coins to protect your wealth but now lately – that's a sign that people aren't willing to accept these prices for gold.  Of course, there are no commercials to buy gold either so we may not have a bottom yet but those are both good channel indicators. 

    The real downside to ABX (more so than GDX, which is an index) is that the price of gold less their extraction costs (usually $600-$800 an ounce) cause the mining to become quickly less profitable and, like CHK, they are forced to dump assets to service their debts ($14Bn).  They've got $2Bn in cash and $2Bn in inventory so not a likely quick thing and they pay out $750M in dividends, which could be cut (but then that freaks investors out too) so those are the real dangers and are the same for all miners and that's WHY I like ABX – I trust their management to steer through this better than most.  

    It goes back to the same thing though – when CHK was $16, I was pounding the table for them in Las Vegas and the rest of the Winter as I did in 2009, when they tested $10 – there are certain VALUES to what CHK owns as there are certain VALUES to what ABX owns.  Forget gas or gold, what if ABX owned a 4 bedroom, 4 bathroom home with a 3-car garage in Hoboken, NJ?  Let's say that's $800,000.  If the housing market collapses and the home drops to $400,000 – maybe they can't sell it right now but, unless they are FORCED to sell it – so what?  Does the house have no value?  Do you extrapolate it going to zero and staying there forever and invalidate the whole concept of owning a house?  No, that's silly.  It's just as silly to imagine that gold will no longer be mined in the future or that supply will continue to come on the market at a loss, which is probably under $1,100 as there are shipping, handling and trading issues after the extraction costs.

    That's why I like ABX.  Smaller miners may go bust and then ABX comes in and buys them up and adds them to their 140M ounces of reserves.  This is what they've done for the past 30 years in every down cycle and that's how they became the biggest miner on Earth – taking advantage of panics to improve their own position.  

    This is the same reason I like XOM in a crisis or FCX or CHK or Berkshire – some companies not only know how to deal with a crash in their markets but it is, in fact, their business plan!  

    Pullback/Jfaw – I hope not 20-40%.  No, the Fed isn't going away and neither is the BOJ – ESPECIALLY if we have a crash.  I just thing the rally is ahead of itself and we're due for a pullback to a more realistic level.  I'd call 1,350 a pre-QE3 base on the S&P and QE3 is good for 20% and that's 1,620 and a 20% retrace from that is 1,566 and a 40% retrace is 1,512 so those are our test lines on a pullback.  If we hold a weak retrace (1,566) then we're still bullish and good for another 10% over 1,620 (to 1,782), which is essentially what Goldman is projecting and that makes sense with the BOJ added to the mix – just not in a straight line.  

    CLF/Pstas – Sounds close enough.  

    ABX/Jfaw – As a new entry I'd sell the 2015 $20 puts for $3.35 (more this morning) and buy the 2015 $25/35 bull call spread for $2.50 for a net .85 credit and, if ABX goes lower, you can put that .85 to work to roll down to the $20s (currently +$1.80) and then, if it goes lower, you can roll the $35s down and use that money for a roll to the $15s (currently +$3 from the $20s).  Even if ABX does end up at $15 (33% lower), you're only -$2 on the original short $25 puts and you'd still be in the $15/25 (guessing) spread for maybe net $8 and you'd need to get back to $23 (current price) by 2015 to get even (not counting put profits, which lower b/e to $20) – without even doubling down on anything.  

    GDX/RJ – Exactly, no adjustment is very favorable so leaving it alone for now is best.  We're talking two years and GDX has been below $35 for 2 days.  Maybe it's a blip or maybe it's the start of a horrific trend – don't you think it might be nice to get a couple of other data points before throwing more money at it?  

    NUAN/RJ – Your biggest mistake there is where you say "where I should have adjusted."  Why?  Did you know the 50 dma was going to hold and the stock would rocket back up over the next 3 days?  Did you also know the stock would again be rejected at the 200 dma at $22.12 and pull back to $21.12 and split the difference to close at $21.61?  No, you did not.  Your job is to SELL PREMIUM, not to day-trade your short sales.  You have an $18/25 spread (5) and short $18 puts (5) against which you sold 2 $19 calls for .82.  What do you care if you end up paying them $3?  It means your longs are up 2.5 x $3.  Earnings are 5/7 and, if you think the move is overdone, then I'd take the credit and roll straight across as earnings trump Icahn (have you ever contemplated how many companies he's "interested" in – do you have that kind of time in your day?).  As you say, you only sold 2/5 and you're willing to buy another long spread so this is a non-issue.  Earnings provide clarity – give them a chance to tell you something.  If NUAN breaks over the 200 dma at $22.12 – then you might want to do that July rolll and add a new long spread but, otherwise, patience.  

    Income Portfolio/Sundev – I prefer to look at is as we have about $1M in buying power (on $500K of cash) and we PLAN to take small positions in a diversified group of companies and, generally, we will buy more of the ones that get cheaper (unless the fundies change) and collect the profits from the ones that go our way right off the bad.  

    Generally, we're value hunting, so we pick entries on stocks that are down for some reason we disagree with.  Anyway, so we don't count sold put money as money for another trade – that's silly.  We generally are able to allocate $25,000 to 40 positions and we expect no more than 1/2 of them to fill so essentially we're looking to end up with $50,000 allocations of 20 stocks that got cheaper for us and we will work with those over time.  

    Underneath all that, our goal is to produce an income, through dividends and/or option sales, of $4,000 a month and, hopefully, as the portfolio matures, it should start spitting that out automatically against a pretty steady group of stocks.  That takes about 6 months of work but maybe more if we get a big dip this early on in the set-up.  So far, with our last 3 Income Portfolios – it's been so boringly predictable after the first year that we've scrapped them and started again but that's the whole point of the execise – learing how to work into positions over time and turn them into income-producing assets, whether they are dividend stocks or not.  

    JCP/Terra – My long idea on JCP is $0.  I don't see any way out for them but they're also a dangerous short as there could be rumors of an offer that shoot them up 20% at any moment.  If they tested $20 (200 dma) and failed, I might want to go short but now it's just a crap shoot and I'd rather short PCLN or AMZN if I'm going to buy naked puts on something.  

    Wheeee on /NKD – All crashed right through 13,300 (new stop).  

  26. Welcome back Nicha!  

    Gold failing $1,400! 

    Good bet Jrom. 

    Platinum getting interesting as it's used in auto emissions systems so a constant demand and $1,400 for them should be a more solid floor than gold.  

  27. DISH buying S!  

    DISH Network's (DISH) $25.5B bid ($4.76 in cash and about $2.24 in Dish stock) for Sprint Nextel (S) is "an effort to derail the No. 3 U.S. wireless carrier's acquisition by Softbank (SBTBF.PK, SBTBY.PK). "We think we've made an offer that's much more compelling than the Softbank transaction," Dish chairman Charles Ergen says. Combining Dish with Sprint would allow Dish to serve up its own nationwide triple-play – video, high-speed internet and voice service – in one package. Premarket S +9.8% to $6.83. 

    That timing should boost the markets.  Interesting. 

  28. Nailed the turn on /NKD!  Now watch out for Nat Gas as it tests $4.25 (/NG).

    Monday's economic calendar:

    8:30 Empire State Mfg Survey

    9:00 Treasury International Capital

    10:00 NAHB Housing Market Index

    Notable earnings before Monday’s open: CMTB

    Notable earnings after Monday ’s close: PBY

    4:49 AM China's GDP miss and disappointing industrial production data are sending global equity markets lower, as well as copper and oil, which is also suffering from the IEA slightly cutting its demand outlook last week. Japan -1.6%, Hong Kong -1.4%, China -1.1%, India+0.6%. EU Stoxx 50 -0.2%, London -1%, Paris -0.8%, Frankfurt-0.8%, Milan -0.2%, Madrid -0.4%. Oil -2.4%, copper -1.5%.

    6:00 AM Overseas: Japan -1.55%. Hong Kong -1.43%. China-1.13%. India +0.50%. London -1.05%. Paris -0.90%. Frankfurt-1.01%.

    6:57 AM S&P 500 (SPY) futures -0.5%, Nasdaq 100 (QQQ) -0.4% as the liquidation in precious metals continues. Other sensitive commodities: WTI crude (USO-2.5% to $88.76, and copper (JJC)-3.4% to $3.23.

    7:00 AM On the hour: S&P -0.54%. 10-yr +0.07%. Euro -0.25% vs. dollar. Crude -2.63% to $89.2. Gold -6.12% to $1409.55.

    Chinese Q1 GDP growth disappoints, rising 7.7% Y/Y vs. 8% expected, and slowing from 7.9% in Q4. March industrial production misses expectations of 10% growth, rising just 8.9%. Retail sales, however, beats forecasts, rising 12.6% vs. 12.3% expected. Asia's taking a bit of a tumble, Shanghai -0.6%, and the Hang Seng -1.6%. The aussie (FXAslides 0.6% to $1.0463.

    China retail sales rose 12.6% Y/Y in Q1 to 5.5451T yuan ($887.22B), according to government data. The pace of growth was a slight improvement over last month's mark but is still a disappointment to economists. A crackdown on corruption appears to be having an impact on luxury spending and could impact companies in the sector. On watch: ELRLCOHKORSWRCLVMHF.PKGUCG.PK.

    China’s Soybean Imports Seen Declining on Bird Flu, Dead Hogs

    Rebar Drops as China Economic Growth Signals Recovery Faltering

    Rubber Slumps Most in 8 Months on Yen, Bridgestone Consumption

    China Said to Invite Four Flu Experts as Disease Outbreak Widens. Four international flu experts will arrive in China within days to help authorities respond to the country’s widening bird-flu emergency, according to two people familiar with the matter. Shanghai’s government said yesterday that the virus killed two more people, taking the country’s death toll to 13.

    The New Bird Flu In China Is Creating A SARS-Like Scare.

    World Bank cuts China, Indonesia growth estimate; warns of asset bubblesThe World Bank on Monday scaled back slightly its 2013 growth forecasts for developing East Asia and warned about possible over-heating in the region's larger economies that could stoke inflation and asset bubbles.  

    Singapore Sees 'Bubble-Like' Property Prices on ImbalanceNational Development Minister Khaw Boon Wan said a temporary imbalance in supply and demand has pushed up property prices to bubble-like level and that the government is pulling out all stops to deflate the bubble without causing it to suddenly burst.

    Is Asia Heading for a Debt Crisis? In some countries, debt is rising at a disturbing rate. According to data from Standard & Poor’s, lending from financial institutions to the corporate and household sector as a percentage of GDP in Hong Kong jumped from 143% in 2005 to an estimated 202 per cent in 2012. In South Korea, the same ratio surged from 132 per cent to 166 per cent over that same time period; in Singapore, 91 per cent to 117 per cent; and in China from 112 per cent to 130 per cent. Vietnam’s ratio nearly doubled from 66 per cent to 113%. The culprits differ from economy to economy. In Vietnam, state-owned enterprises are to blame. In South Korea, it’s households.

    Railcar Loadings Drop Most Year-To-Date Since Crisis. (graphs) 

    Austerity for EVERYONE!  G20 financial leaders will reportedly consider a proposal toreduce public debt to below 90% of GDP when they meet in Washington this week. The EU, whose average debt is already at 90% – notwithstanding the crisis in the periphery – wants the G20 to cut even further, and has a target of 60% for its members. A major problem with any these aims is Japan's ratio of over 200%

    MAULDIN: There's A Huge Problem With Our Deficit Forecasts — They Assume A Perfect World.

    Global Defense Spending Falls as U.S. Cuts Outpace China GrowthGlobal defense spending contracted for the first time in 15 years last year as U.S. and European cuts exceeded rising outlays in China and Russia, the Stockholm International Peace Research Institute saidIn the first decline since 1998, states spent $1.75 trillion on defense last year, or 0.5 percent less in real terms than in 2011, the research group said in a report today.

    Global economy stuck in a rut. The global economy is stuck in a rut, unable to sustain a decent recovery and susceptible to a sudden stall, according to the latest Brookings Institution-Financial Times tracking index of recovery.

    EU Affirms Debt-Cut Strategy in Face of ‘Fragile’ Outlook. The European Union will tell its counterparts in the Group of 20 nations that a shaky economic recovery requires renewed commitment to budget cuts and other structural reforms. “The situation remains fragile” in the euro area, the EU said in a planning document prepared for next week’s G-20 meeting in Washington and obtained by Bloomberg News

    Schaeuble Favors ‘Liability Hierarchy’ in European Bank Bailouts

    Germany Has Picked Its Next Two Targets After CyprusAfter squashing Cyprus, gutting its offshore financial and money laundering center, and destroying its main resource, the EU has now trained its big guns on Austria and Luxembourg.

    German 'Wise Men' push for wealth seizure to fund EMU bail-outsTwo top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.

    The eurozone swings to a trade surplus €10.4B in February from a deficit of €4.7B in January and comes in well above consensus of €3B. The move to a surplus was due to falling demand for imports rather than because of export growth. The deficit for energy narrowed on an annual basis, while the surplus for manufactured goods increased. (PR)

    U.K. Faces ‘Sluggish’ Economic Growth on Weak European Demand. Britain’s economy will grow less than previously forecast this year and further bond purchases by the Bank of England may do little to stimulate the recovery, according to the Ernst & Young Item Club. Gross domestic product will rise 0.6 percent, compared with a January forecast of 0.9 percent, the London-based group said in a report today. Growth will accelerate to 1.9 percent next year and 2.5 percent in 2015, in line with previous estimates.

    Italy union warns subsidies for idled factory workers running out.

    Greece looks poised to receive the next €2.8B tranche of its rescue after the Troika said in a review that the country is on track to meet its bailout targets, with the recapitalization of the banks nearly complete. The Troika also said that it could provide more help to Greece once it reaches a primary surplus, which the government hopes to achieve this year.

    "I'm very confident about the medium- and longer-term prospects of the Cypriot economy," says Harris Georgiades, Cyprus' new finance minister, who adds that the country has "some traditional industries, tourism and shipping amongst them." Despite downbeat commentary from the likes of Pimco's Mohamed El-Erian and harsh words from Mario Draghi regarding the country's gold sales, Georgiades says Cyprus "will remain a member of the eurozone. "That is our destiny," he says.

    Japan has revised its industrial output for February to +0.6% on month vs an initial estimate of -0.1% and +0.3% in January. On year, production -10.5% vs -5.8% in January. The new monthly reading suggests that the weakening of the yen has benefited companies. The capacity utilization index increased 0.7% to 86.6.

    The Bank of Japan is reportedly considering increasing its FY 2014 outlook for CPI, excluding fresh food, to at least 1.5% from a previous forecast of 0.9%. The idea is to signal confidence that the BOJ can meet its 2% inflation goal in two years. While this "will be challenging," says JPMorgan economist Masamichi Adachi, it won't be impossible. "It's a mind game to some degree, based on raising inflation expectations."

    Japan Getting Calls From U.S. to Europe Not to Drive Down Yen. Japan will be reminded of its pledge not to drive down the yen when Group of 20 finance chiefs meet this week for the first time since the world’s third- largest economy intensified its campaign to defeat deflation.

    BOJ’s Bet on Easing Will Backfire:  The Bank of Japan (8301)’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros. “By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose.

    N. Korea Attack Would Disrupt U.S. Companies: BGOV.  A North Korean military attack would pose a risk to sales and investment in South Korea by U.S. companies, including those in the automotive and semiconductor industries, according to a Bloomberg Government study.

    "While shareholders can be disciplinarians who right the wrongs of abusive directors," writes Jill Priluck on Reuters, "many boardroom activists advance some of the most destructive short-term thinking in business today," with companies "at the mercy of a small group of highly engaged investors who want quick results."

    While Jill Priluck decries "the dark side of shareholder activism" on Reuters, the NYT's James Stewart highlights the "sham" shareholder democracy that has seen directors at dozens of publicly traded companies retaining their positions despite losing elections. The firms include Cablevision Systems (CVC), Vornado Realty Trust (VNO) and medical diagnostics Iris International, where shareholders rejected all nine directors in May 2011. They resigned but then voted to reject their own resignations.

    Peak Oil Demand Is Already A Huge Problem. (graphs)

    Iran's OPEC Governor: Consumers, Producers Satisfied with $100 Price.

    Investment in North Sea energy is forecast to rise to a record £13B this year from £11.4B in 2012 as 14 new oilfields start production. Around 470M barrels of oil and gas is expected to come on stream – five times the average of the past three years, while Output is expected to rise to 2M barrels of oil equivalent a day by 2017 from 1.5M boe/d. The boost in a once-moribund area comes amid technological advances and government investment incentives.

    Venezuela looks set for a recount after Hugo Chavez's handpicked heir apparent, Nicolas Maduro, won a majority of just 50.6% in the nation's presidential election against opposition challenger Henrique Capriles. That could extend the uncertainty not just for Venezuelans, but for the oil sector and companies with major operations in the country, such as Harvest Natural Resources (HNR).

    After trimming its 2014 hard coking coal forecasts, Citi downgrades Alpha Natural Resources (ANR) and Arch Coal (ACI) to Neutral from Buy "because the valuation looks less attractive under our new forecasts… with utility stockpiles still elevated, coal shipments may not improve until summer and at the same time, we need to see a significant rise in pricing to drive a 2014 earnings improvement."

  29. Notwithstanding Friday's implosion, Barron's Randall Forsyth says gold looks undervalued, and pitches the precious metal as the anti-bitcoin: "It is incongruous that gold – money that can't be printed, just minted – would enter a bear market Friday." Calafia Beach Pundit disagrees. His next target for gold: $1,000.

    number of reasons have been given for gold's (GLD) sudden free-fall, chief among them the ECB's pressurization of Cyprus' central bank to sell its gold reserves to help pay for the country's bailout. That has raised expectations that other distressed eurozone members might be forced to sell gold as well. Other factors include bearish forecasts such as from Goldman Sachs, the slow improvement in the U.S. economy, and the perception that gold is no longer needed as a safe haven. Gold -4.1% and silver -7.4%.

    Paulson Loses More Than $300 Million as Gold DeclinesBillionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years. Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent yesterday, shaving about $328 million from his net worth on this bet alone.

    Mining stocks are taking a bit of a hiding following China'sslowing GDP growth and the sell-off in precious metals. Rio Tinto (RIO-4.5% premarket, BHP Billiton (BHP-3.6%, Barrick Gold (ABX)-3.6%, AngloGold (AU-5.2%, IAMGold (IAG-1.2%, Gold Fields (GFI-5%, Goldcorp (GG-3.9%, Kinross (KGC-5.1%, Seabridge Gold (SA-2.8%, Newmont Mining (NEM-3.4%, Freeport-McMoRan Copper & Gold (FCX-2.85% and Anglo American (AAUKF.PK)-3.9% in London. NovaGold (NGfell 13% on Friday.

    General Motors (GM) and Ford (F) have joined together to develop nine- and 10-speed automatic transmissions as part of an effort to make their cars more efficient. The move represents the third time the car giants have team up in the last ten years to produce new transmissions. Ford and GM have their eyes on a 2025 deadline to develop cars with a fuel economy of 39 miles per gallon, or two thirds above the average for 2012 vehicles. 

    The FAA orders more than a thousand Boeing (BA) jets to be examined for potential problems with the tail plane fixing pins. The agency says the cost could be up to $10.1M across the fleet.

    Las Vegas Sands (LVS) CEO Sheldon Adelson draws criticism from gaming executives after his stirring testimony during a Las Vegas trial on the partnership of a rival with Chinese triads reverberates all the way to Macau. The worry from the industry is that Adelson's expressive descriptions of the business dealings of Galaxy Entertainment (GXYEF.PK) could hurt tourism. "Why is he killing the goose that gave him the gold?" asks one casino exec.

    The Supreme Court is due to hear arguments today on whether it's possible to patent isolated human genes in a debate that encompasses the concept that IP can't cover "laws of nature." The case involves Myriad Genetics (MYGN), which holds two patents that allow it to genetically screen those at risk of breast or ovarian cancer. The impact of any ruling on the human-gene field will probably be limited, although it could have ramifications for the wider pharmaceuticals sector, agriculture, industrial microbiology and alternative fuels.

    JPMorgan downgrades Open Table (OPEN) to Neutral from Overweight with a price target of $62. The firm thinks shares currently reflect the upside from Open Table's entry into the U.K. and conversions while also noting that industry trends remain weak in Q1.

    The EU has approved Liberty Global's (LBTYA) $15.8B acquisition of Virgin Media (VMED), saying it doesn't have any competition concerns as the companies operate pay-TV networks in different European countries. The deal will pit Liberty against News Corp (NWS) satellite-TV affiliate BSkyB (BSYBY.PK), or John Malone against Rupert Murdoch. (PR)

    Priceline (PCLN) gets the Barron's treatment with a cover story arguing a profit squeeze is set to hit the highflier and its online travel site competitors, Expedia (EXPE) and Orbitz (OWW). One new source of competition is Google (GOOG), where search results now showcase prices, destination details, and even a "booking button."

    Google (GOOG) looks like it will avoid heavy penalties after it offered a package of proposals to settle an EU antitrust investigation into the company's search business. Google's offer reportedly includes making "users clearly aware" when it promotes its own specialized sites in search results, and allowing Internet publishers to opt out of "vertical" sites such as Google News and Google+. The company's proposals will be legally binding for five years.

    Foxconn indicates it started a hiring blitz of assembly workers in China in the latest indication that Apple (AAPL)  is gearing up for production of a new iPhone. The company says 10K assembly-line workers have been added per week in Zhengzhou since the end of March and that hiring will continue to meet seasonal demand.

    The reconstitution of the Russell indexes coming up in June, Credit Suisse aims to anticipate who's in and who's out. The rules-based approach of the Russell 2000 has allowed arbitragers to profit each summer by front-running the moves, making the Russell 2000 ETF (IWM) a poorer play for small cap fans than IJR . Expected among the top 25 adds are ARCPSRPT, PBYI, ACAD, and WSTC. Among the top 25 deletes: CPSTFCELCHKEOMER, and EML.

    The rest of the top 25 June additions to the Russell 2000 expected by Credit Suisse: GNMKAVIVFBCTTSUNXLGARS,REMYBNCNCBKVRNGLFVN

    GTNNLSENTAMRIPOWR,DCOINSMCUTRPPBI. "Very few of the bigger adds are owned by actively managed small cap funds," notes CS.

    The rest of the top 25 June deletions from the Russell 2000 expected by Credit Suisse: QUIKIVACTINYDSCORLOGRMTI,AGENMSPDDRLAXTIELONGYROCDZIIQNT, BSCT, UAMY,MTSNAUMNURZINOD. ''IQNT is one of the more well-owned deletes among small cap funds," says CS.

  30. Nikkei back below 13,300 and Yen below $98 – good combination for another leg down (very tight stops at 13,300, of course.  

    Nat gas did bounce back over $4.25 so done with that one.  

    Futures holding up very well so far, cosidering all the  bad news.