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Thursday, December 1, 2022

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Whipin’ It Wednesday – 3 Trade Ideas that Make 300% if the Market Falls

INDU WEEKLYIf the market falls? 

How can we be negative at a time like this?  The markets are back to record high territory and Cramer says to BUYBUYBUY and keep buying because the Fed is going to print free money forever and gold is no longer worth anything and oil worth $105 a barrel and TSLA is a $125 company, etc, etc….  What's not to love?  

Nothing based on the technicals and THAT is why we're going to have to get more bullish (even if we have to hold our noses while we buy to fight of the stink of the BS) but, step on in our buying process is taking some downside hedges so – at these "breakout" levels, we like to hedge first and THEN buy the breakout.  

If this seems crazy to you, I will point out that you have a very short memory because we last did a "Hedging for Disaster" post on June 3rd, when the S&P was at 1,650 and we caught that ride down to 1,560 for HUGE profits on our hedges.  Now the S&P is back at 1,650 so, guess what, it's time to do it again!  This is not complicated stuff folks – we buy at the bottoms (see "5 Trade Ideas that Made 1,816% in 21 Days") and sell at the top.  

USO WEEKLYBy the way, before we get started, I sent out an alert to short oil this morning at $105 (USO $37 on Dave Fry chart) and they're currently (7:47)  over the line at $105.29 but we're going to keep on that line as a shorting spot (with very tight stops over $105) unless we get a big pop to $106 or $105.50 at the 9am NYMEX open – then we'll probably move up to the higher lines.  We are CERTAINLY going to follow through with our plan to roll up and double down our August shorts on oil in our Short-Term Portfolio.  

Now, on to the hedges!  

TZA is our favorite hedge and you can pick up the Oct $28/35 bull call spread for $1.25 and you can sell the Oct $23 puts for .95 for net .30 on the $7 spread, giving you 2,233% of upside potential and, best of all, with TZA at $27.81, you are starting out just  .19 out of the money!  TZA drops $4.81 (17%), to $23 if the Russell goes up 5.7% plus these ultra-ETFs tend to decay over time but owning TZA for net $23.30 is not a bad portfolio hedge and the Russell would have to be net up 5.7% to 1,072 in October for this to happen and, if so, your longs should be doing well.  

RUT WEEKLY

DXD Aug $33 calls at $1.20, selling Aug $35 calls for .60.  This is a net .60 entry on a $2 spread so your upside is 233% at $35 (DXD is now $33.46).  If the Dow ends up holding 15,300 and moves back up, there’s a good chance you can kill this cover with a small loss as a $2 move on DXD is about 6% and that would be about a 3% move up in the Dow to new highs at 16,218 before the spread, with a net .26 delta loses its value.  

You need $33.60 (+.1%) to get your money back and that's any drop below 15,300 in the Dow, which makes this fantastic protection for any longs you may enter here.   Using a short put to make an entry in a stock you REALLY want to buy at the net strike is a great way to offset this trade so let's say, for example, you are willing to own AA (just had OK earnings) for net $7 (now $7.91) in January.  You can sell the Jan $7 puts for .28 and that drops the net of the DIA spread to .32 and now your upside, at $35 is $1.68 for a 525% gain.  Or, perhaps you REALLY want to own 100 shares of AAPL for $350 (now $422) in January.  You can sell those Jan $350 puts for $9 (which can be rolled to the 2015 $270 puts, now $10) and that pays for 15 of the long spreads with a $3,000 upside potential.  That's all it takes.  

SDS is the S&P's utlra-short ETF and you can see how we were willing to cover on June 6th when it was still above it's May lows.  Now we're right back to the May lows so we're going to have a BETTER entry at $38.50 and we can pick up the Aug $37 calls are only $2.05, which is just .50 in premium.  Selling the $40 calls for .85 knocks the net down to $1.20 with a $1.80 upside but, in our virtual Income Portfolio, I want to sell 5 ISRG Aug $400 puts for $9 ($4,500) and buy 50 of the SDS spreads for $6,000 so we net $1,500 (.30 per spread) and we have a break-even at $37.50 on SDS ($1 lower than it is now) and we have, at $40, $13.500 worth of downside protection.

We're committing to buying 500 shares of ISRG for $400 but, as with AAPL, the Jan $300 puts are $5.50 and the 2015 $250 puts (they don't go lower) are $9 so that's our real commitment, to buy 500 shares of ISRG in 2015 for $250 or less – that's something we'll almost be disappointed if we DON'T get assigned to us!  

Now, on to what I DON'T like about the markets.  This will be the last time if the NYSE holds 9,300 today as we have to switch off our brains and get technically bullish but, if you'll indulge me, we can summarize GaveKal's commentary from Louis and Charles Gave (a fantastic read) as:

  • A first bad omen: fewer markets rising
  • Another bad omen: collapsing silver prices
  • Falling inflation expectations
  • China, the single biggest contributor to global growth over the past decade, slowing markedly.
  • World trade now flirting with recession.
  • OECD industrial production in negative territory YoY.
  • Southern Europe showing renewed signs of political tensions (i.e.: Portugal, Greece, Italy…) as unemployment continues its relentless march higher and tax receipts continue to collapse.
  • Short-term interest rates almost everywhere around the world that are unable to go any lower.
  • Valuations on most equity markets that are nowhere near distressed (except perhaps for the BRICS?).
  • A World MSCI that has now just dipped below its six month moving average.
  • A diffusion index of global equity markets that is flashing dark amber.
  • Margins in the US at record highs and likely to come under pressure, if only because of the rising dollar (most of the US margin expansion of the past decade has occurred thanks to foreign earnings—earnings that may now be challenging to sustain in the face of a weaker global trade growth and a stronger dollar).

The Gave brothers note that  the world has experienced a series of deflationary shocks, each of which has been met by more activism from the Fed and other central banks: i.e.: lower rates and higher monetary base growth. And each time, the excess money allowed for the rise in a few asset classes (TMT in the late 1990s, housing and financial intermediaries in the mid 2000s, commodities, fixed income instruments and emerging markets in the late 2000s…).

Each time, the asset price rise was followed by an equity market bust; begging the question of whether the bust that seems to be unfolding in emerging markets is now the third iteration of a movie every investor has seen before (and which few have enjoyed)? Or whether the recent correlation between bonds and equities indicates that the repeated deflationary shocks are a thing of the past and nominal GDP growth will accelerate from now on?

They also note that more markets have fallen then risen in the previous six months. The red line on the above chart  is the performance of the S&P 500. Since 1992, we have had 14 occurrences in which more stock markets were falling than rising. In 10 of these 14 occurrences, the S&P500 fell by at least –10%. In the other 4, the S&P 500’s performance hovered between 0% and –10%. As things stand, the S&P 500 has recorded a double digit rise in the past six months, a major divergence.

We have Fed minutes at 2pm and Bernanke speaks at 2:30 and either of those events can violently move the markets up or down and, this morning, we'll prepare for down but we'll also be lookng for upside plays – should we finally break up and over our May highs.  

So, for the last day before switch of our brains and join the herd:  Let's be careful out there!

 

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What time does the Bernanke talk?

Phil – can we get a repost of that comic explanation of QE from a couple of years ago – made me laugh my you know what off – 

Phil // Follow-up
""or 15 AAPL 2015 $360/400 bull call spreads for $20 and no margin?  You can sell AAPL $300 puts for $16.20 to pay for most of that position if you want to throw some margin around but the simple spread pays 100% at AAPL $400."

I'm getting a TOS Margin of 13K on these spreads ( with -10 of the $300 short puts add +20K )

Am i not seeing something ?

 

 

Phil, thanks for the input (and lesson) on LINE.  Slowwwwly learning.  On AAPL, 2000 shares.

Phil

Excellent commentary on FED. Thank you!

Shadowfax – Oil

Now we have the railroads storing oil also:

U.S. oil inventories have tumbled over the past two weeks, sending Nymex crude to fresh 14-month highs. One big reason: railroad shipments of crude have soared, allowing surging domestic production to get from storage tanks to refineries that need it. U.S. Energy Department, citing American Association of Railroads data, says that rail shipments of oil and fuel products in the first six months of 2013 were up 48% from 2012, which translates to about 1.4-million- barrels a day of crude moving by rail around the U.S.

PSW //
In the recent newsletter there was talkk of infrastructure plays – specifically FLR ( Fluor Corp )
Any follow up thoughts ?

edro00

Thanks again, forgot how oil gets out of Wyoming. Those tank cars are like oil tankers at sea only smaller but stoage either way. What we need is the government to expose the rape.

That $5K portfolio…a perfect play is ISCO.  for 1000 shares, $240.  and wait.  get out at 12c.  Hold and sell 1/2 at 48c for a free ride.  Very simple.

Phil

Not only the buck dropped but this is 12 days up, not often past 10 and way less 15 days. This week should end it or the very rare 20 day run! Monday or Monday?

Phil // AAPL
On PM it shows 2K per contract on the $300 short puts. My question was more around your comments on 'no margin' on the 360/400 Bull Call spread //
I've been in and out of AAPL short puts all year – the premium just isnt there anymore.

Here it is folks – the long awaited report on manipulation in the oil and gas industries titled

 

REPORT OF THE FEDERAL

TRADE COMMISSION ON

ACTIVITIES IN THE OIL AND NATURAL GAS INDUSTRIES

REPORTING PERIOD JANUARY-JUNE 2013

 

http://www.ftc.gov/os/2013/06/130628semiannualenergyreport.pdf

Pharm/ 5K play~ that sounds quite fun. I like most of yr picks as they don’t cost too much (of course position size control is the key) with limited risk. The charts make sense. I assume they have good fundamentals as I don’t quite understand the medical jargons. Keep it up!

And here is what the FTC did to prevent manipulation

 

Petroleum Market Manipulation Rule

As mentioned in previous reports, the Commission established a process in November
2009 to monitor compliance with the Petroleum Market Manipulation Rule,10 which prohibits fraud or deception aimed at manipulating wholesale markets for crude oil, gasoline, or petroleum
distillates.  Since January 1, 2013, the FTC’s Bureau of Competition has received two communications from members of the public under the Rule.  Neither of those communications
contained information suggesting a violation of the Rule.  In addition, the Commission’s close cooperation with other agencies included review of information received from another agency that pertained to the Rule. The Commission remains ready to examine closely any complaints or other communications that it receives regarding the Rule, and to take action as appropriate.

The Petroleum Market Manipulation Rule

Specifically, the Final Rule prohibits any person, directly or indirectly, in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale, from a) knowingly engaging in any act, practice, or course of business – including making any untrue statement of material fact – that operates or would operate as a fraud or deceit upon any person; or b) intentionally failing to state a material fact that under the circumstances renders a statement made by such person misleading, provided that such omission distorts or is likely to distort market conditions for any such product.

Phil…agreed….like you mentioned about poker…in the process of learning you take your lumps….expensive lumps to be sure….having said that…in your opinion, would it be best to capitulate and fight another day or hang on for a bit(including rolling the contract) to see what happens between now and the next few weeks…I figure I could wait out another few dollars before coming completely unglued! I am short at $99..

Pharm:  Great AGN call, I became overexcited and cashed out the calls  – Phil has trained me to take 20%+ off the table if earned in 24 hours, but they closed a bit lower and if they dip along with the rest of the market I'll reestablish.  Fortunately, I bought a fistful, also the source of my overexcitement.

Bernanke used the word luck while answering a question about the economy and inflation, hmmm luck ryhmes with? Bernanke highly dovish this evening.

And the markets like his dovish calls.  UP 1% in AH.  Rubbish.

Phil / TSLA – Thanks Phil.  I sold (rolled to) the Jul12 (weekly) TSLA 110/115 bear call spread for a $0.93 credit.  I originally had two different positions that I bought back for an average $2.65 debit (including the credit from whatever I originally sold them for) and then sold the 110/115 for $3.58.

ABX, SLV and GLD up after hours, $ – not so much! Bernank is such a @$$$

Seminars / Phil – If you recall, the Vegas seminar last year where futures were concerned was on the holiday, Veteran day.  So, notmuch happening so we went over the DOW components instead.  Maybe this year TOS can be fired up and replay a Futures session in the simulation tab for discussion purposes since futures discussions will be on Veterans Day again.  Just a thought.

Does anyone but me think that there is something wrong when the price of trillions of $ worth of equities are moved up and down by the chatter surrounding governments giving or failing to give more free money? How is an INVESTOR supposed to value any company in this environment? Obviously the fed sent up a trial ballon recently and did not at all like what happened to interest rates. It appears that everyone is being told that the only safe haven is in Stocks. I have so much faith in this safe haven that I will sit all alone on the sideline with my 90% cash waiting on the correction that most think will never come.

It is interesting to me that much of the run up in prices over the last couple of years was due to our savior China. China may be falling apart, Emerging markets are a mess and we know most of Europe is in recession, but somehow the all important Global Economy no longer matters. I guess time will tell, but small hit and runs or one of Phil's upside hedges with the possibility of large returns on small amounts of capital seem the way to go for anyone wanting to be a Bull.

Another possiblity for the 5K portfolio is NNVC.  I would be interested in Pharm's opinion on this one.  I have been playing a couple of trips on the recent range.

Phil, I contacted our 3 local representatives in Florida, referencing your Thursday article.  I did at least get a response (not the most encouraging one, but still):

Please do not reply to this e-mail.  If you need to send another message to Senator Nelson, please use the form on his Web site:  http://billnelson.senate.gov/contact/index.cfm#email

 

Dear Mr. Braze:

 

     Thank you for contacting me about the price of gasoline.  The price run-ups we have seen lately are inexcusable.  

 

     To stabilize gas prices, we must rein in unbridled and unregulated speculators.  Gas prices fluctuate wildly because speculators, who behave like condo-flippers, are allowed to buy and resell oil contracts.  Until we stop that, we'll continue to be gouged at the pump.

 

     Most importantly, we need to break our addiction to foreign oil and switch to alternative fuels.  Thirty years ago, in the wake of gas shortages and long lines at the pump, the President declared the need for the U.S. to become energy independent.  Unfortunately, little has been done since.  And having only three percent of the world's oil reserves while we consume 33% of the world's oil production means America cannot drill its way out of this crisis.  

 

     We must develop alternative fuels–like biofuel–and make them from things we don't eat.  In the meantime, we need to conserve as much oil as possible by raising fuel-efficiency standards for all vehicles and further increasing the production of hybrid cars.

 

     I appreciate your thoughts on this issue.  And I will continue to support measures that provide our nation with real alternatives to our reliance on oil.

 

                                   Sincerely,

                                   Bill Nelson

 

P.S. From time to time, I compile electronic news briefs highlighting key issues and hot topics of particular importance to Floridians.  If you'd like to receive these e-briefs, visit my Web site and sign up for them at http://billnelson.senate.gov/news/ebriefs.cfm 

rj
it stopped making sense quite a while ago. i think with all the new cash floating around we don't suck as much as everyone else. they're calling folks out of bonds all over the world.
if i could have my way – one more 1.5% drop and then bulls away.
when i make my marker back – i'm leavin the casino for the night.

scotbraze – Thanks for actually taking the time to contact your reps, it is absolutely stunning/sad how few people ever voice their opinion to elected officials.  As someone that used to read and respond to constituent letters, I encourage you to push them on this generic form response and also try to get other friends from your district/state forwarding on the article as well.  I suppose its true with many things in life, but the people who are persistent or have an overwhelming voice (ie the office suddenly gets flooded with articles from some Phil Davis guy) will get more traction.  It's the staff writers job to pump out as many responses as possible, but its also their job to find issues that are credible/interesting and gaining popularity amongst constituents and bring that information to the boss.  They also probably contribute to speeches or other materials, and are probably looking for some new material; its only a few small steps from one of Phil's articles turning into talking points coming out of a rep's mouth (if that hasn't happened already).

So thats my advice if you genuinely care about this issue and are willing to put a few more hours into it, a letter isn't going to bring down the oil cabal, but pushing back and spreading the information is at least an attempt to do something positive.

Thanks mb22, I'll give it a shot, I had an email at work ready to forward on to friends (similar to the one I sent referencing Phil's article), just need to coerce those folks to get involved, and see what else I can do, I'll certainly try and be more of a squeeky wheel!

S&P -> 1700 tomorrow!

scottbraze: Thanks for posting the reply from Sen. Nelson – a breath of (semi) fresh air in a political world where fresh air is hard to find. Inspiration to write our elected officials on this subject again, and again. Would be very interesting to have replies posted (after hours of course). Thanks to Phil et al for keeping this ball in the air.

Futures gone wild….

I don't get it. According to Saturday's WSJ "A separate survey of households released Friday showed the number of people with jobs is up by 753,000 since the beginning of the year. Most of them – 589,000- were part-timers."  How is this an indication of a strength ing economy. Add to this the fact that 51,000 jobs in June were added in the Labor Department's food services sand drinking places category. Payroll at restaurants and bars typically show solid growth as an economic recovery progresses. But the down side is that average weekly earnings for the leisure and hospitality industry are about $351, less than half the figure for private industries.

The post was a little short and sweet, mostly 'efficient' reuse of your words Phil.  It really was all your effort Phil (thanks for constantly banging the drum).  I just referenced your link and gave my friends the link you had with a FL ZIP code pre-populated (adjust accordingly for your zip or just hit the website).  I will defineitely follow up with all your suggestions, thanks! 

This was sent:

 

http://www.contactingthecongress.org/cgi-bin/newseek.cgi?site=ctc2011&zipcode=33428&Submit=Submit+It

Please help stop this theft! –

http://www.philstockworld.com/2013/07/04/thursday-theft-this-1-2bn-crime-affects-you/

Thursday Theft – This $1.2Bn Crime Affects YOU!
$1.2 BILLION DOLLARS.

“That's how much was stolen from US consumers this week by the crooks who run their usual scam at the New York Mercantile Exchange (NYMEX) – the traders who set the price of our nation's oil and gasoline.” 

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