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Falling Thursday – WMT Gives the Market a Cold Slap in the Face

SPY 5 MINUTEWheeeeee again!  

I know I'm doing my job correctly when we have down days and nobody is panicking.  Frankly, the only panic we have this week is from people who got nervous and covered AAPL too soon.  In fact, we just cashed out most of our AAPL long posiiton in our Long-Term Portfolio and flipped it to a higher-leverage, smaller and more speculative play in yesterday's morning Alert to Members (also tweeted).  

Learning to take profits off the table is the 3rd hardest trading lesson we try to teach our Members.  The first two are PATIENCE and learning not to chase.  This AAPL trade is a great example of all 3 as we PATIENTLY scaled into a very large position as AAPL went down from our initial entry and now, still almost 20% below our initial entry ($585), we're taking profits off the table.  

At the same time, I have to keep telling people who weren't in AAPL or are already in AAPL and didn't double down at $400 or simply aren't satisfied with their current AAPL gains – to NOT chase the stock when it's testing $500 at the top (maybe) of a 100-point run (25%) since early July.  25% is a lot.  

I know it may not seem like it in this insane market that's literally drowning in liquidity, which is pumped in daily by the Fed at a rate of $85Bn PER MONTH, but it's still a lot – especially when it represents $100Bn of market cap.  $100,000,000,000 is, I'm sad to say, still a lot of money.  I know it doesn't seem like it when Japan's debt is now 1,000,000,000,000,000 but those are Yen, not Dollars and it took Japan a century to make that move, not 45 days.  

We're also having a blast with our oil trades, with another good entry this morning at $107.50, that's already up .50 at $107 for a $500 per contract gain and, if it bounces back to $107.50 at the 9am NYMEX open – we'll short it again!!  They punched oil all the way up to $107.90 overnight on news of riots in Egypt but the cold reality is that they still have 148M barrels on fake order for September and they have to either cancel or roll them by Tuesday or all those barrels will actually be delivered to Cushing, OK next month, where they would increase our oil inventories by millions of barrels each week and crash the oil market. 

We discussed long-term shorting of oil (with December 2015 hedges) in Friday's post, don't confuse that with our short-term shorting of the oil Futures (/CL), where it's more of a hit and run game.  As is proven from our fantastic winning streak playing for breaks below the 0.50 lines most of this month – the pressure is certainly down and we're fairly confident it's only a matter of time before we get a nice, 5% breakdown as trades begin to panic out of their FAKE positions before they have to accept delivery of REAL barrels:

Click for
Current Session Prior Day Opt's
Open High Low Last Time Set Chg Vol Set Op Int
Sep'13 106.98 107.87 106.92 107.36 08:30
Aug 15




0.51 33542 106.85 148898 Call Put
Oct'13 106.71 107.52 106.65 107.04 08:30
Aug 15




0.48 19930 106.56 301828 Call Put
Nov'13 105.51 106.34 105.51 105.89 08:30
Aug 15




0.48 6583 105.41 163928 Call Put
Dec'13 104.10 104.85 104.00 104.45 08:30
Aug 15




0.48 10361 103.97 222802 Call Put

Aside from the MASSIVE build-up of fake orders in the front 4 months (836,000 1,000 barrel contracts currently open!), which become the front 3 months on Tuesay, we have evidence from WMT and other retailers that the US consumer is already at their breaking point with oil over $105, let alone $107.  US sales for WMT fell 0.3% in Q2 and WMT has dropped guidance by 2.5% for Q3 on – the weak consumer.  

Debt LoadNot only are US consumers cutting back their discretionary spending, but they are plowing back into debt with Credit Card debt up 1.2% in Q2 vs Q1 and Auto Loans up 2.5% and not only are Student Loans up 0.8% for the quarter but now 11% of them have become delinquent – that's 11% of over $1Tn!  

You can only fake a market rally for so long before someone actually has to buy all these pumped-up goods and services to justify the runaway valuations – especially the forward multiples, that are now based on some best-case, fantasy scenario that simply is not playing out on a global, or even a local scale.  So, if the consumers (70% of the US Economy) aren't opening up thier wallets and the Government (Sequestration, Debt Cieling) isn't spending more to fill in the Gap and Big Business isn't hiring and expanding – WHAT THE HELL ARE PEOPLE SO BULLISH ABOUT???

This stuff isn't complicated – mostly common sense…


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  1. Phil – AAPL question: last week I sold weekly $455 calls on half of my AAPL position.  Obviously this is in need of a roll at this point (expiring tomorrow) – how about selling next week $500 calls? 

  2. Good Morning—Phil sent you an e-mail

  3. Oil Lines

    R3 – 109.48
    R2 – 108.40
    R1 – 107.75
    PP – 106.67
    S1 – 106.01
    S2 – 104.94
    S3 – 104.28

    Yesterday's high and low – 107.33 / 105.6

  4. This is where we stand with the LTP now after we trimmed the AAPL position and transferred the SHLD short puts from the STP:

    Obviously a big improvement with the AAPL move. GOOG also moving our way at least with the short calls! CLF and BTU – much better! Actually, the LTP positions for BTU and CLF have wiped out the losses from the STP for these 2 positions and are actually showing a $500 profit overall. 

  5. Here is a recap of the Strangles portfolio where Peter just added some trades on Tuesday:

  6. How are those SPY Sept 165 Ps doing fer everyone?  Holy schmoly……now the action starts…1660 (tad below Phil)… the bounce point, otherwise 1620…..

  7. What a crock! Egypt and Suez Canal would only add another .80 per barrel on transportation costs but it has oil up 6$+ a barrel!?! These people are evil. 

  8. Good morning!

    We had some good, general investing commentary in early morning chat, I suggest you read that.  

    Oil back over $107.50 today so we'll play for the cross or the $108 line, if we get that (/CL).  /CLU3 is the current contract, be careful as TOS may start treading /CLV3 (October) as current very soon.  If you intend to hold something past tonight (always dangerous) you want to be in /CLV3, not September as YOU don't want to be stuck dealing with 1,000x your contract price in either accepting or delivering oil in Sept, right?  

    Europe is down about 1% but Spain is still up and I think that's because GS or someone put out a buy note on them – not because of anything great happening in Spain.  

    On the whole, this is, so far, the healthy correction we need before we can get over 1,700 on the S&P but the data is getting worse so the breakdown can get worse if people start to pay actual attention to data, for a change.  

    Here's some of it:

    At the open:Dow -0.86% to 15205. S&P -0.81% to 1672. Nasdaq -1.24% to 3623.

    Treasurys: 30-year -0.78%. 10-yr -0.45%. 5-yr -0.26%.

    Commodities: Crude +0.64% to $107.53. Gold -0.66% to $1324.6.

    Currencies: Euro -0.17% vs. dollar. Yen +0.23%. Pound -0.34%.

    Market preview
    • U.S. stock futures join in with the general global weakness, pulled down by disappointing earnings guidance from Wal-Mart (-2.5%) and Cisco (-7.8%), as well as uncertainty about when the Fed might taper.
    • Already in the red, futures dropped further after weekly jobless claims again hit new multi-year lows, while inflation edged up to the Fed's inflation goal of 2%.
    • The S&P Mini is -0.6%.
    • Thin summer volumes are exacerbating the effects of any news, says market strategist Joseph Quinlan.
    • Later: Bloomberg Consumer Comfort Index, NAHB Housing Market Index, E-Commerce Retail Sales, Philly Fed Business Outlook

    July Industrial Production: +0.0% vs. +0.3% expected, +0.3% prior.

    July Consumer Price Index: +0.2% vs. +0.2% expected, +0.5% prior. Core CPI +0.2% vs. +0.2% expected, +0.2% prior

    Initial Jobless Claims: -15K to 320K vs. 330K consensus, 335K prior (revised from 333K).

    August Empire State Survey+8.2 vs. +10 expected, +9.5 prior.

    Not helping so much this morning:  Bullard redux: Data doesn't yet call for QE taper
    • The St. Louis Fed's (and FOMC voter) Jim Bullard repeats yesterday's comments - he thinks the Fed needs to see more data before commencing with the QE taper.
    • Employment data is decidedly mixed, the Fed's optimistic GDP forecast have consistently been proven wrong, and inflation remains below the 2% target.
    9:24 – Trying harder now:  Bullard: Growth, not bubbles behind taper debate
    • That the Fed should end QE because it's fueling bubbles is not winning any arguments on the FOMC, says St. Louis Fed chief Jim Bullard in remarks following a talk in Kentucky in which he reiterated his inclination not to being tapering QE yet.
    • Are his comments a direct rebuttal to Bill Gross who yesterday tweeted the Fed will taper not because of a strong economy, but because of worry about asset bubbles?
    Stocks and bonds fall further after jobless claims
    • S&P 500 (SPY) futures -0.8% and bond prices tumble further as initial jobless claims are within shouting distance of soon having a "2" handle, falling to 320K last week. The four-week moving average fell 4K to 332K.
    • TLT -1.1% and the 10-year Treasury yield is up to a new 2013 high of 2.78%.
    • The 10-year Treasury yield has carved out a new YTD high, up 3 bps to 2.75%. The 5-year is up 3 bps to 1.5%, still below its high of 1.61%.
    • Earlier: Shaky numbers from Wal-Mart fail to stop yields from going higher
    Buffett boosts stake in GM, Chicago Bridge, dumps Gannett, Mondelez, Kraft

    Federal judge chides the Fed over debit fees

    • U.S. District Court Judge Richard Leon gives the Federal Reserve one week to decide how much time it will need to rewrite rules on how much merchants can charge retailers for swipe fees on debit cards.
    • The judge didn't show a lot of deference to the central bank, telling officials to cut their vacation short to make it happen.
    • "We're not putting a man on the moon here," notes Leon.
    • An ultimate decision in the case could be appealed, but will have big implications at some point for banks and payments companies (VMA) – as well as swipe-heavy retailers (SBUXTGTBBY).
    Sunny weather boosts U.K. retails sales
    • U.K retail sales +1.1% on month in July vs +0.2% in June and vs consensus of +0.6%.
    • On year, sales +3% vs +1.9% and 2.5%.
    • Excluding fuel, sales +1.1% on month vs +0.3% and +0.6%.
    • On year, sales ex fuel +3.1% vs +2.1% and +2.7%.
    • "Feedback from supermarkets suggested that the sunny weather boosted sales across a range of products, including food, alcohol, clothing and outdoor items," says the Office for National Statistics.
    • The pound zips up vs the dollar and is +0.5% at $1.15572, although the FTSE (-0.35%) shrugs and stays well into the red.

    Bank Indonesia refrains from rate hike, raises secondary reserve ratio

    • Bank Indonesia decided against another rate hike Thursday, helping stocks in Jakarta (EIDOIDX) cut losses to close down only 0.3%. The central bank did boost the secondary reserve ratio to 4% from 2.5% (the primary reserve ratio is 8%). Seeprevious coverage for more on Bank Indonesia, rate hikes, and inflation.
    • Elsewhere, Philippine (EPHE) and Thai (THD) stocks fell 1.14% and 0.5%respectively, while the Straits Times (EWSEWSS) lost 0.85%.
    • Vietnamese shares (VNM) were higher by nearly 1%

    Paulson slices GLD holdings by more than half

    • The largest investor in the SPDR Gold Trust (GLD), Paulson & Co. cut its holdings by more than half to 10.2M shares in the quarter ended June 30. It's the first cut since 2011 and came "due to a reduced need for hedging," says the firm in an emailed response to questions.
    • Funds run for George Soros and Daniel Loeb sold their entire GLD stakes in Q2.
    • As for gold miners (GDX), Paulson sold its call options on Barrick Gold (ABX), but maintained stakes in Agnico Eagle (AEM), Allied Nevada (ANV), and Iamgold (IAG). Holdings in Freeport-McMoRan (FCX) were boosted to 15.5M shares from 9M.
    • Sources: 13F, Previous 13F

    Airbus beats out Boeing for major IAG order

    • International Consolidated Airlines Group (IAG), the owner of British Airways and Iberia, has ordered up to 220 Airbus (EADSF.PK) A320 jets in a deal worth $20B at list prices. The booking includes firm orders and options for further purchases.
    • The order is the latest between Airbus and IAG rather than with British Airways' traditional supplier, Boeing (BA). The U.K. carrier has been running down its fleet of 737 planes for a long while, and IAG now only operates 18 of the aircraft vs 231 A320s.


    Ford exec: Pricing pressure in Europe to continue
    • A top exec with Ford Europe (Fpredicts the intense pricing pressure on the continent will continue with sales volumes still soft.
    • Though Ford has made significant progress in Europe, an atmosphere of discounting and incentives for consumers keeps margins relatively tight.
    MSCI World Index add Tesla Motors and Michael Kors
    • MSCI says it will add Tesla Motors (TSLA) and Michael Kors (KORS) to the MSCI World Index as of August 30.
    • Both stocks have ripped impressive gains for the year at levels that factor in significant future sales growth.
    Soros, Icahn increased Herbalife stakes in Q2
    • George Soros and Carl Icahn purchased a combined 5.65M shares in Herbalife (HLF) in Q2 as they continued to battle Bill Ackman over the validity of the company's business model.
    • Soros acquired a 4.9% holding that was valued at $227.5M at the end of Q2.
    • Icahn bought 611,354 shares to bring his total to 17M, with his 16.5% stake worth $765.9M. He is Herbalife's largest individual shareholder.
    • Herbalife's shares have soared 77% since March 31 and more than doubled in 2013. That's putting a serious squeeze on Ackman's short of 20M shares.
    Tier 1 firms out to defend Cisco
    • BAML pronounces the quarter just fine, but says expectations were too high. The long-term investment case remains intact. Buy and $30 price target.
    • JPMorgan believes the stock will recover and trade better late this year as enterprises and carrier spending trend upward
    • Deutsche maintains its positive outlook and views the stock as even more of a buy on this near-term weakness.
    • No downgrades as of yet.
    • Earnings/guidance last night.
    • CSCO -8.3% premarket.

    China Mobile Chairman upbeat about possible Apple deal

    • China Mobile's (CHL) negotiations with Apple (AAPL) over a deal for the Chinese company to sell iPhones and iPads have been progressing well and both companies are optimistic about coming to an agreement, China Mobile Chairman Xi Guohua has said.
    • "Both sides sounded keen," Xi said after the company unveiled H1 results. China Mobile is the only operator in the country that doesn't have a deal with Apple to sell its devices.
    • With Apple's sales in Greater China slumping 43% in FQ3, pressure growing about the lack of innovation, and Carl Icahn agitating for an immediate stock buyback, a deal with China Mobile would probably provide a welcome boost to Apple.

  9. Phil--what do you think about buying NLY and selling the 2015 $10 calls and puts?

  10. Might want to cash 1/2 the MA puts with a 44% gain and put a stop on the rest!

  11. Expiring tomorrow are the following short positions:

    GM 36 Calls – Good
    CMG 400 Calls – Looking good – can't believe they still have that much premium
    TM 130 Calls – Good
    GMCR 80 Calls – Good (we have a stop at $0.65)
    DIS 65 Calls – Good (that actually went down too quick – the calendar is showing a loss). Need to sell more.

  12. The CMG calls are now $2.28 for a 50% win so we need to watch that!

  13. If you really want to look at the positive side of things:

    Even on a non-seasonally adjusted (NSA) basis, jobless claims dropped to a multi-year low.  At a level of 280.5K, NSA claims were at their lowest level since September 2007.  No matter how you slice this week's data, jobless claims were positive.

    You can of course question the quality of the jobs being created!

  14. St Jean Luc,

    I'm looking at what you posted for Peter's strangle portfolio.  You noted Aug5 options, do you mean Sept?

    Also, you have it showing he sold the 1570 puts and buying the 1575 puts, is it suppose to say buy 1565 puts?

    I can't find his post on Tuesday?


  15. G7 countries market are doing well this year (Japan of course boosted by a dive in the yen) but BRIC, not so much:

  16. Strangles / Gingbaum – Sorry, my bad, it was Monday:

    And it was the Aug5 options. I believe I have the correct trade though – he sell 2x the puts that he buys.

  17. Investing/ Phil: The other day there was a comment regarding rolling, DD, entry- Maybe 8800 asked about going over this in LV— I would like to get in on Buffets Adds in CBI, GM and new positions in DISH.  What is the best way to start- Buy/writes, Artificials… just sell a put?

  18. Econoday homes report summary:

    The housing market index rose another 3 points to 59 for its highest reading since the really big bubble days of 2005. Strength is centered in the 6-month outlook which, at 68, points to increasing confidence among builders and what is likely to translate into increasing strains on the construction supply chain.

    But current sales are also extremely strong, at 62, which points to another month of strength for new home sales. Traffic continues to lag, at 45, which may suggest that buyers are tending to be high powered, relying on cash and less on debt for new purchases.

    Regional data shows the Midwest now out in front at 64 with the West now trailing at 59. The South, which is the largest new home market, is at 56 with the Northeast, which is the smallest market, trailing badly at 40.

  19. CSCO nice and cheap.  2015 $25 puts can be sold for $3.60.  We already have 1,000 shares in the Income Portfolio from $20.80 so not worth adding but the net on the $25 puts is now not too far from that entry we've been very happy with if you're coming in fresh!  

    Looks like we'll get 20M on the Dow in first 15 mins and it's all downhill, so far.  

    TSLA trying to bounce off a crap open. 

    AAPL trying to chip in and save the market.  

    Oil (/CLU3) just hit $107 again but bouncing again and now $107.15 – you have to move fast to play this one but after nat gas at 10:30, we should get a proper move down.  

    Thanks Savi. 

    LTP much improved and, don't forget, those short GOOD Jan $835s can be rolled up to 2015 $930s (now $68.50) so what LOOKS like a poorly performing calendar spread is actually a well-protected $120 vertical that we only paid net $58 for.  As I keep saying, once we see GOOG FIRMLY holding $900, then we'll be inclined to roll (and sell puts) but, for the moment, GOOG is at $862 so those short $835s are $40 x 1,700 ($68,000) in premium.  That's why you have to take these portfolio balances with a grain of salt if you are a long-term options player – spreadsheets don't understand long-term strategies.  

    Speaking of which, NFLX is at $259 but the 30 short Jan $265s are still being charged as $28.32 against us – there's another $84,960 that pays off with patience and it's covered by a $75 spread that's $60 in the money but is only netting $32.65 at the moment so another $85,000+ to be gained there – even if we have to buy back the short calls with less than an $85,000 gain to go with it.  

    I explained all this a month ago, when the portfolio was "down $286K".  Other than yesteray's big AAPL adjustment, these are essentially the same positions – all we have to do is learn to be paitent and let the strategy play out.  As I often say to Members – the BEST time to join these portfolio trades is AFTER they go against us and we decide to roll or DD but the real key here is what I always tell you – BE THE HOUSE, not the gambler – over time, even when some postions move very much against us, the premium we sold begins to erode and finds it's way back to the balance sheet – and into our pockets!    

    You can see all of our moves summarized on StJ's Google Doc Spreadsheet – the whole point of these virtual portfolios is to LEARN how to trade these strategies so shame on you if you don't take the time to study them and, of course, ask questions on any strategies you are following.  

    Remember, the purpose of the LTP is to dump stuff that doesn't work in the STP, which we're willing to keep working on over time.  If we make money in the STP – great – we take the short-term profits and move on.  If, on the other hand, we have a loser in the STP but we think it's still a bargain but, in a longer time-frame, we simply push the trade into the LTP where, by definition, every trade starts out  a loser.  

    The same goes for our Income Portfolio (mostly hit by TSLA).  Last year's Income Portfolio was down $80,000 at some point but then it was up $100,000 before the year was over so we closed it down.  We didn't need to close it when it was down $80K because we really are long-term investors, not traders.  We CHOSE to close it down up $100K because we're long-term investors, and making 20% in a year is just silly – so we cashed out and started a new one from scratch.  

    The point isn't to make or lose $100K, just to keep selling premium and collecting dividends so that our $500K retirement account keeps dishing out $4,000 a month for us to live on.  The paper balance will come and go but, as long as we keep selling premium – chances are we'll do well over time. 

    On the hour
    • Dow -1.18%.
    • 10-yr -0.54%.
    • Euro -0.32% vs. dollar.
    • Crude +0.37% to $107.25.
    • Gold -0.45% to $1327.4.

    August Philly Fed Business Outlook: +9.3 vs. +15.0 expected, +19.8 previous.

    NAHB Housing Market Index: 59 , vs. consensus of 56; 57 in July.

    Consumer Comfort Index slips from multi-year peak
    • The Bloomberg Consumer Comfort Index slips to -26.6 from last week's five and a half year high of -23.5.
    • The Personal Finances subindex at +3.2 remains in the black for the 4th straight month, while the Buying Climate subindex is a far weaker -35.8 and the Economy subindex is at -47.2.
    • The CCI has averaged -28.5 since mid-April and -31.1 YTD, the best yearly average since 2007, but well below pre-crisis norms of -10.5.


    • The Bloomberg Consumer Comfort Index slips to -26.6 from last week's five and a half year high of -23.5.
    • The Personal Finances subindex at +3.2 remains in the black for the 4th straight month, while the Buying Climate subindex is a far weaker -35.8 and the Economy subindex is at -47.2.
    • The CCI has averaged -28.5 since mid-April and -31.1 YTD, the best yearly average since 2007, but well below pre-crisis norms of -10.5.


    Dan Loeb takes a bet on Disney, Elan, CF Industries
    Green Mountain Coffee Roaster lower on K-Cup worries
    • Green Mountain Coffee Roasters (GMCR -1.9%) trades lower as Goldman Sachs is out with a negative call on the company's K-cup market share.
    • In the company's defense, the overall K-Cup market has been growing fast enough that slips in GMCR's market share have been offset, but Goldman sees rivals becoming even more aggressive on pricing.


    A roundup of tech analyst ratings changes
    • Cisco (CSCO -6.6%) has been upgraded to Neutral by Sterne Agee and ISI, even as shares sell off in response to the company's FQ4 results and FQ1 guidance.
    • Intel (INTC -1.4%) and Micron (MU -3%) have been cut to Neutral by Baird.
    • Renren (RENN -9.3%) has been cut to Underperform by Jefferies following its Q2 revenue miss and soft Q3 guidance.
    • NetApp (NTAP -2%) has been cut to Hold by Lake Street Capital following its mixed FQ4 results and ho-hum FQ1 guidance.
    • Bazaarvoice (BV +3.8%) has been started at Buy by B. Riley
    Facebook working on PayPal rival; eBay shares slide
    • Facebook (FB +0.4%) confirms to AllThingsD it's testing an online payments product. A launch is expected in the next month or so.
    • Sources state the product, set to compete against 800-lb. gorilla PayPal (EBAY-2.4%),  will "allow online shoppers to make purchases on mobile apps using their Facebook login information," and (like PayPal) will allow them to avoid having to constantly re-enter their billing info.
    • However, for now, the test is focused on simply "creating a better mobile checkout experience," and doesn't tie in payment-processing (as PayPal does).
    • Facebook already handles payments for in-app game purchases and its Gifts product (among other things), and the enormous reach of its social sharing tools could allow it to quickly reel in many 3rd-party apps and (if it chooses to expand further) Web sites.
    • But PayPal has stared down competition from Internet giants before, and the network effects stemming from its 132M active users and many thousands of merchant partners make it a tough company to seriously disrupt. PayPal expects to handle $20B in mobile transactions this year, up from $14B last year.

  20. HI Phil   CLF down 5%    Any suggestions to re-enter trade after necessary correction?

  21. Stjeanluc,

    Correct me if I am missing something but if he put on an Aug5 option, would they not be expired since it is Aug15 today?  What week expiration is he going for?


  22. There goes $107 on oil – wheeeeeeee!  

    Strangles/Peter – Fantastic job!  Like our butterflied – a nice, steady way to make money without all the gut-wrenching ups and downs of our flashier option trades.  

    SPY/Pharm – Wheeeee! on those too, nice call.  

    Egypt/Jrom – Be careful, too much knowledge can make it hard to be thankful for these little gains. 

    NLY/Jabob – Next week maybe.  

    STP – CMG $399 – be still my heart!  NFLX getting real as well.  It will be interesting to see how tomorrow ends up – lots of adjustments tomorrow as we have 5 contracts expiring but, for today, we can just enjoy the show.  As to MA, I'm kind of shooting for $600 before playing for a bounce.  If we call $650 the top then $585 is down 10% and they are only testing 5% at $617.50 but it's only just this morning that people are waking up to the pain consumers are in.  We've just been talking about it for so long, we feel like it should already be baked in…

    Poor CREE still falling ($56.60)

    Thanks for summary, StJ.  


    Jobless claims/StJ – Yes, but that means the Fed may stop easing so good news is bad there.  

    Indexes bouncing off those 1.5% lines.  If we get back over -1%, it's a good idea to at least cover shorts.  If we fail to take back -1.25%, then a very weak sign but, of course, the fact that we already blew past it indicates we're already super-weak.  

    LOL – how is Italy a top performing country this quarter?   MADNESS!  

  23. Pharm, thanks for the SPY Sep put idea. Nice profit for my small position! :)

  24. Expirations / Ginbaum – Aug5 is the 5th August week, not August 5. They expire August 30. That's the terminology used by most brokers.

  25. Tomorrow / Phil – I'll be travelling tomorrow so won't be on board much of the day. I'll update the STP tonight after hours and recap what expires tomorrow again. I won't be able to post any update tomorrow.

  26. Dow volume 37M on the turn at 10:30. 

    Investing/Newt – While following Buffett is usually a good thing, chasing him isn't.  The way you get into positions like this is first, look at the quarter Buffett is reporting on (Q2) an dlook a the average price.  With CBI, that's about $55 but they bottomed at $50.37 so I would bet that's where Buffet drew his line.  

    Now, you have to consider that BRK buying CBI shares wasn't that big of a secret and you can see the stock moved from $50.37 to $64.85 and now it's back at $59.76 so the best thing you can do is add it to a watch list and WAIT, PATIENTLY for it to go back on sale.   Buffett didn't buy more in March, when it was $62.68 – hes started buying in April, when it fell 20%.  If you REALLY want to follow Buffett – follow his example, not his trades….

    Housing/Deano – I've been discounting that data in my head lately as it's really being driven by speculators, like Blakcrock, who are floating these investing vehicles right and left and attracting 10s of Billions of Dollars because rich people (including Corporate people) can borrow money at super-low rates so they don't CARE if the housing market actually comes back this year or next year or 2010 – they are the patient money and they are in the process of buying low.  These are generally 20-year cycles – we just haven't had an up in in so long – people don't recognize it.  

    CLF/Arivera – I think I said (I hope I said) the other day that I was done with them at $25.  Sure, back at $20, if they hold it, then I'm gung-ho bullish again.  I like them as a long-term hold at net $20 but, if you are trading it, this isn't much of a pullback yet.  

    Thanks StJ – That would be great, I'll just go over them in detail in the morning and point out any major changes.  

  27.   seeing lots of chinese officials brag about power consumption data, which means that number is no longer unmanipulated.

  28. Phil: Thanks. When I was looking at the channels and the chains there just wasn't a strategy  that looked like the risk/reward profile was worth it.

  29. CL/ Phil

    The price for Oct contracts is 30c lower, wouldn't that mean that the roll is relatively easy to do this month?

  30. Phil

    What do you think is a good price to consider F again. Looks like they could dbe heading to ~15.50.

  31. Gingbaum,

    Aug5 expires in 15 days!!!!

  32. CLF – Phil/- Thanks.  Waiting for 21 or so to re-enter.

  33. GMCR/StP – We're going to take our 10 long Oct $80 calls off the table ($3.40) and leave the short calls to die.  $3.40 is more than we paid for the spreads plus we have a big winner on the short Aug calls.   This is the kind of move you can make when you now (after palying for a month) think there is no way they're getting to $87.50 so why should we let our $80s expire and why buy back the short Oct $87.50 puts.  Worst case is we add a Jan bull call spread to cover if GMCR gets back over $80.  

    China/Angel – Brag about it going up or down?  

    You're welcome Newt – it's always very exciting to "discover" something like that but then you have to step way back and get realistic about YOUR potential entry, not the guy's you are following. 

    Roll/Checho – Yes, that's why they've been able to roll over 30Mbd this week.   Oil back at $108 now and they are milking it into Obmam's speech on Egypt (planned) but just another chance to short for us.  It's not he first 250,000 barrels they roll that are difficult, it's that final 100,000….

    F/DC – $15 was my target so 20% below is $12 and selling puts that give you net $10 then would be the way to go. As it stands now, the 2015 $12 puts are .72 so, at $2, I'd like them for a short sale.  

    CLF/Arivera – It's always good to have a watch list of 20-30 stocks and the price you'd like to buy them for.  Over the course of an average year, you'll usually get 5 or 6 entry opportuntiies at some point with 120 earnings reports like little spins of the pricing wheel….

  34. Phil // MI

    in Michigan forest trading in the daylight. Love it. Few questions from this morning.  

    DIS / calendar spread/ whe you mention buy more, their no liquid and they're .01 – because they dropped so quickly are you saying roll them into Sept and DD ?

    OPEN / really same question – you mentioned a few days ago DD on the Sept $65 puts – following. 

    USO / SCO / you mentioned in the post this morning our Dec oil shorts – everything I have from our actions items are October. Did I miss ?

    Greetings from deep fry county. 

  35. Dollar Hedging Primer - very brief intro to reducing USD exposure through hedging with /DX.  Phil, can you share your thoughts on USD 'exposure' when (if) one achieves the kind of balanced portfolio we try to construct here..and can 'tilt' from short to long?

  36. Out of SPY 165 Sept Ps

  37. IRBT – entering bid (at ask) to sell a Mar14 $25 put to dip toe in water..

  38. Womb

    Are you in Michigan?

  39. Scottmi / read my mind. Cashed out before the dip. Want to get back in. 

    Phil / any thoughts on re entry on TASR ?

  40. DC / Lake Michigan West coast near Muskegon. Family get together thingy. 

  41. Womb

    Well welcome to MI !  Hope you are having great weather on the west side. It is beautiful in Ann Arbor, where I am.

  42. wombat 

     I have a home near Muskegon, I will be back there next week .

  43. Wombat:   lol… Just cause the sun sets over the water doesn't mean you are on the west coast of Lake Michigan.   :-)

  44. RIG/Phil – right on pretty long weekly trendline support. Icahn in them, probably will starting to tweet on them too.

  45. DC / that's hilarious – my whole family is in Plymouth. 

  46. Wombat – envious – my family used to have a cottage on the Old Mission peninsula….gorgeous place.

  47. Phil – I've been sitting on an ABX buy write waiting for things to settle.  I'm long 500 ABX @ 28.76, -5 Jan15 P28 @ 5.08 and -5 Jan15 C38 @ 2.29.

    Now that ABX has eliminated their dividend and a base seems to be forming, I'm thinking about the following changes…rolling the -5 Jan15 P28 to -10 Jan15 P23 @ 5.90, selling the 500 ABX and replacing with 10 ABX Jan15 C15 @ 5.90, and rolling the -5 Jan15 C38 to -10 Jan15 C28. 

    Is this a reasonably good strategy or shall I patiently wait a little more….   

  48. Phil:  I don't recall you mentioning Google in awhile.  Android is clearly outpacing iOS, although with a substantial margin disadvantage — for now.  This news was widely circulated recently, not that it's done much for Google's stock.  Yet.  Any thoughts?


    "Everyone knows Google is big. But the truth is that it’s huge. On an average day, Google accounts for about 25 percent of all consumer internet traffic running through North American ISPs.

    That’s a far larger slice of than previously thought, and it means that with so many consumer devices connecting to Google each day, it’s bigger than Facebook, Netflix, and Instagram combined. It also explains why Google is building data centers as fast as it possibly can. Three years ago, the company’s services accounted for about 6 percent of the internet’s traffic."

  49. Phil / CL – you mentioned above "If you intend to hold something past tonight (always dangerous)", can you clarify why today is dangerous?  When I look at the CME trading calendar, the "CL Last Trade Day – Sep ‘13" is next Tuesday.  Can you help me understand why we stop trading September contracts three days before expriration, is it just caution?

  50. So, overall it looks like we only got our weak bounce to those -1% levels and now out of gas

    DIS/STP, Wombat – I didn't say anything about buying more, that was StJ.  They dropped much more than we thought but we'll just wait and see what settles and, worst come to worst, we lose .25 but not worth spending money just trying not to lose .25 when we don't have any particular plan.  

    OPEN/STP, Wombat – We did DD on the Sept $65 puts, that why there's two of them.  So far, not a big drop but the puts already hit $1.70 so we should sell 1/2 of them (5) for a .10 profit and that leaves us with 5 a net .85 we can let play out a bit.  

    USO/STP, Wombat – The Oct $37 puts are .92, not worth a DD off a $1.10 entry.  

    SCO/STP, Wombat – It's at $28.87 with oil at $107.50 and we sold Sept $30 puts for $1.56, so net $28.44 and we have the $29/31 bull call spread at $1.  We REALLY don't think they hold $105 so the best thing to do is invest another $1 to roll our $29 calls ($1.40) down to the $27 calls ($2.40) as that pays 2:1 back if SCO pops back up and worst-case, we will spend money to roll those to an Oct spread and roll the short puts lower but, for now, let's just widen our spread and put our calls $1.50 in the money for $1. 

    Dollar exposure/Scott – It's not something I generally worry about becuase I keep long-term inflation hedges like gold, ABX, FCX, DBA…  The Dollar is the World's strongest currency (and we've been having this discussion for years) and it's ARTIFICIALLY low due to our current insane money-printing programs.  While I'm no longer bullish on the buck (we used to buy UUP in the 70s), at 85 it's just right and, unless you have $100M+ and a need to be seriously diversified internationally – a few simple inflation hedegs will protect you just fine – especially at these low commodity prices.  

    Speaking of gold – $1,343!

    IRBT/Scottt – I'm hoping that the new debt cieling battle and more sequestration spooks people into giving us an entry between $27.50 (200 dma) and $32 (5% Rule S/R line).  At the moment, they're testing $32 so watch out if it fails but excellent long-term hold regardless of current price (my stock of the century).  

    TASR (stock of the decade)/Wombat – I still like them but $10 is a little much to chase at the moment.  If they prove it as a new base – then great but it's just a lot of excitement over AXON potentially doubling their sales and, if it does – then who cares if you miss $10 and get in at $11 on the way to $20?  You can sell March $10 puts for $1.35 if you REALLY want to start scaling in and then, if the stock drops back to $7.50, you buy the stock, sell $7.50 calls for $1.50 (guessing) and they you have a 2x buy/write at net $4.65/7.33 so, if you REALLY would like to own 2x of TASR at net $7.33 as a downside, then there's no reason not to sell the March $10 puts for $1.35 now but, as with all bull plays today – I'd wait until next week to see how the market plays out. 

    RIG/Scott – I'd really like them except I think oil will collapse and, for good or bad reasons, that will hit RIG and the rest of OIH very hard, so I'd rather wait and, if not, there's always going to be another platform that catches fire or falls into the ocean or whatever to give you a discount, no matter how many tweets Icahn puts out.  

  51. Quote of the day:

    Howard Lindzon, “You can’t buy Apple just because Carl Icahn said so…It’s your money you need to be responsible with it.”

  52. Dollar moves today are ridiculous.

  53. DIS / Wombat – Actually, I was talking about selling more, not buying more. If you have a long term long and the short options are expiring worthless like they are now, your cost basis for the long is that much lower. In this case, our cost basis for the Oct 70 is now $0.28. Theoratically, you could still sell some September and October options against that. You just have to balance it with where you would be called away or the cost of the rolls. But you don't cover when they are that low…

  54. Phil / OPEN – I don't believe our Sep $65 puts have been over $1 since we doubled down. OPEN has been drifting around $75 range. Maybe those are the $67.5's that traded $1.7?

  55. Pharm – I'm in AGN calls from your early July reco, did you give up on these, or roll them down or out?  TIA.

  56. Talk about manipulating the market:

    Billionaire hedge fund manager John Paulson, who told investors as recently as last month that they should own gold, cut his holdings in the metal by more than half as prices plunged into a bear market.

    Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, pared its stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, according to a government filing yesterday. The New York-based firm, which manages $18 billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” according to an e-mailed response to questions. It also sold options to buy shares in Barrick Gold Corp. in the future, filings show.

    So gold tanks so you show a loss on paper but you go around saying that gold is a good investment and a month later you sell 1/2 your position when prices have recovered. Good plan I guess!

  57. 1pm already – exciting day. 65M on the Dow means this will be the most volume in a while (over $100M) and that's going to put a negative spin on the daily chart until we form one of those reversing candle thingies.  

    We're about 3-3.5% off the 8/5 top so the 2.5% line fell early this morning and now it's a lot more likely we get to -5% levels than bolt back over the 2.5% line - I'll put up those number in a while.

    ABX/Eric – Why on earth would you have left the short 2015 $38 calls open?  Those are .80 now but they were .40 or .25 at the lows.  What point did it serve to leave them on.  Also, why on earth would you own a stock at $28.76 and watch it drop all the way to $13.43 and not double down?  

    If you're not 100% POSITIVE that you will HAPPILY double down on a stock when it's down 50%, then you should ABSOLUTELY be stopping out of it when it drops 20%.  You can't make a move without having a plan for your next move! 

    At this point, Eric, I'd cash the stock ($19.36 = $9,680) and take the 500 x $9.40 ($4,700) loss there.  Then I'd buy back the 5 2015 $38 calls, sadly at .80 ($400) and you've still got the $2,540 you sold the 2015 $28 puts for so I'd roll those out ($10.50) to 3x the $20 puts ($4.60) and that puts $1,650 back in your pocket and the worst thing that can happen to you now is you end up owning 1,500 shares of ABX at net $20.60 per share, which just so happens to be barely off the money.  Then, if you want to be aggressive and try to win your net $910 back with something simple, like 5 of the $18/25 bull call spreads at $2.35 ($1,175) and those pay you back $3,500 on a good run up.  When 2016 comes around, you can consolidate the 15 short 2015 $20s to 10 2016 $20s at the same price, most likely.  

    GOOG/ZZ – As noted earlier, we're still playing them for about $850.  Nothing against them – I'll be a big fan on a correction – just that they will get dragged down with the market as they just missed earnings by 11% and everyone gave them a mulligan but, as the market tone changes – people are going to be very worried about them into Q3, where they are still expected to earn 13% more than last year ($10.37), even though they only hit $9.56 on the last report and there's no real reason to think things are picking up.  

    As to traffic – my Mom has an IPhone because my Dad liked IPhones and now she has two since he died and she's hooked because of face-time with the grand-kids but most of her friend have droids because they can read the bigger screens.  Like all her friends, my mom barely uses the thing for anything but a phone EXCEPT they play various little games constantly – Crystal something being the most popular.  

    They play them for hours and they buy NOTHING on the phone – but it does generate a ton of traffic.  Also, almost 100% of the American public have a smart phone (60% of the global population at this point) and that includes 240M people in the bottom 80%, who can't afford to go to WMT anymore – partly BECAUSE they have these stupid data contracts sucking them dry.  Like old people in Florida, the bottom 80% generate plenty of traffic but no money.  

    This is nothing against GOOG, they'll get their share and they are doing all the right things on the data side and they deserve a p/e of 20, despite their $250Bn market cap but, unfortunately, their p/e is 25 and they are making $11Bn a year and their Market Cap is $286Bn so it takes people believing in all these exciting things (and not doing the actual math) just to keep them over $800 – it's certainly not a reason to overpay now.  They'd BETTER catch up to AAPL – AAPL's p/e is still 12 – even at $500 and that doesn't take their $150Bn (out of $450Bn cap) in cash into account.  Deduct that and you have a $300Bn company making $45Bn a year for a p/e of 6.66 – Satinic but attractive!  

    Oil/MrM – Because it's the last few days of trading and often they push the current contract high on thin trading and then, if they get their rolling done, there's no correction until the new contract trades in earnest (next week or week after).  With this many open barrels, that would be unusual, but still possible and most people don't like riding out $3,000 losses per contract on the Futures.  So yes, it's "just" caution because the trading gets thinner and thinner and stranger and stranger as the contracts wind down (as you can see from today's 4 $1 swings so far).  

    Dollar smacked down from 81.995 this morning to 81.35 now, so down almost 1% in an attempt to support oil and the markets – take that into account when looking at those charts!  

    Ridiculous/Scott – You said it.  

    DIS/StJ – Makes sense but we have time to see them turn around.  They reported much better earnings than SEAS although this Planes movie of theirs will probably bomb and that makes 2 this summer (along with racing snails).  

    OPEN/STP, Eric – My bad, I thought we were in October $65 puts.  The Sept $65 puts are still .80 so we'll just stick with them for the moment.  

    Paulson/StJ – That's what I said was happening when gold was tanking.  You could see GLD getting dumped and, when the fund got low enough, we drew a line in the sand and started buying under $1,200 based on FUNDAMENTALS that are only now being revealed after the fact.  Remember all the BS speculation as to gold going to $800 and whatever – this is the kind of noise we need to teach people to turn off and focus on what's real and measurable.  

  58. NUGT – what fun this one has been the last two weeks!  Am sad to let it go but I'm closing all positions here; FYI it splits 1 for 10 on Tuesday so if you don't want messy fractional options in your account, get out by then.

  59. Gold $1,364!  Crazy…

    NUGT/MrM – Congrats on that one.  

    TSLA not able to hold $140. 

    Things in general not looking so hot into the close.  

  60. ABX closing on $20… 

  61. XLF right on that $20 line – not good if it fails there (except for our short FAS). 

    Lows are breaking now, 5% down lines are roughly Dow 14,870, S&P 1,624, Nas 3,515, NYSE 9,215 and RUT 1,007 – so a bit more to fall before we test those critical pullbacks.

    ABX/StJ – I'd say $20s a lock with gold back over our $1,350 target.  

  62. And $107 on oil yet again!  I love that we're making it more and more expensive for them to play this game.  

  63.  gld block buys relief paulson finally got blown out of a bunch..ha

    uh oh….one of three people that determine what everyone else thinks placed big bearish bet

  64. Thanks, Phil, very clear on Google.

  65. Go GDX!!!  Go ABX!!!

    Reminds me of the glory days of the silver bubble (BUT this one has merit since sector > 20% undervalues).

  66. Phil/stjean

    Not sure how we got off track with the SCO trade, but if you look back on 7/31/13 when the trade was initiated:

    Phil: OK, here's a plan:  For the STP, we'll take 10 SCO Sept $26/31 bull spreads at $2.60 and, if oil goes lower, we don't need to do anything and we're good for 100% below $103.50.  If oil pops up, we can sell puts and roll our calls lower.  


    Phil: Now we can sell the SCO Sept $30 puts for $1.60 in the STP and that drops the net on our $26/31 bull call spread to $1 with SCO at $30.80 and our break-even is $28.50 or about $115 oil.   Also liking 10 USO Oct $35.50 puts (buying) at 0.95 to open a longer-term short bet on oil in the STP.  Definitely happy to roll up and DD on that one.


    Did spread change from Sept. 26/31 for $2.60 to Sept. 29/31 for just under a $1?

  67. Oil – the last day is Tuesady.

    Judging from previous observations, they are going to trade pretty active tomorrow and may be even Monday.

    However most of the brockers automatically close your front month contract tomorrow

  68. Dollar 81.20 turns us back up a bit and drive gold to $1,370.  This is exciting. 

    WH popped to $2.50, now $2.41,that's a nice little gain.   

    You're welcome ZZ.  

    SCO/DC – That is strange.  I like the $26/31 spread a lot better. Maybe a mistake was made but, re the above adjustment, we're practically in the same position after the roll – a bit worse off on the net.  STJ will have to let us know if it was just an error or there may have been some reason for the adjustment.  

    Dow volume 86M at 3 so heavy day and pretty much all down.  If they stick it into the close, may be a little bit encouraging but we have to break over that bounce high for anyone to really believe it.  

  69. Speaking of Silver: AGQ = liftoff!

  70. stj

    do you have any qcom strangles on or sht calls…

    your thoughts on the sept 67.5/62.5 …….@1.60….tks

  71. WH/STP -  back at $2.50 so let's call it a day on that one – it isn't that we love them or anything – just that they went down because some idiot on SA started a rumor and we took advantage of a chance to buy them.  Now we are up 38% in 7 days and it's mission accomplished.  

  72. Uso is approaching previous high (doji). Hope it will drop. Otherwise, well the Egypt news….

  73. Oil

    If I have to bet (I'm not going to) based on chart (forgetting fundamentals), I'd give more chances that they will push us to  $110-$112 area next week

  74. AGN/mrm – we sold those on the small profit….I would have to go back and look.

  75. Oil is going up.  I noted the wedg(ie)e formed and if it did not break, it was going for 110.

  76. SCO / Phil and Dc – I add a link next to the trade if you need to go back to the original comment and here is for the SCO trade:

    STP adjustment:  Since people don't seem to be able to fill the $26/31 bull call spread, let's change it to 10 $29($2.75)/$31($1.75) bull call spread at $1, still selling the $30 puts for $1.60 (now) and that's a net credit of 0.60 so it makes $2,600 at $31 (oil under $103) vs $4,000 in the original idea but we have $600 in pocket instead of $1,000 in the play and we can use that $1,600 difference to adjust if needed.   Plus, now we have the USOs too.  

  77. PHil – question that you missed from earlier – not knowing Icahn was going to open his mouth, I sold $455 AAPL weeklies on half of my position last week…obviously need to roll that by tomorrow, I was thinking of selling next week $500 as it seems $500 is presenting strong resistance – does this make sense?

  78. QCOM / Mill – I am still long the Jan 15 50 but sold the Oct 65 against it. Was a bit early with that but last time they tanked shortly after earnings so I wanted to be sure to cover.

    Are you looking at a strangle – as I said before I really don't care much about strangles on individual stocks. Way too risky right now.

  79. Thanks for all the great calls, Phil.  I never enjoyed a crash so much!  

  80. Phil – do you have a couple fun expiration hedges/plays for tomorrow?

  81. stjean

    Thanks for clarifying.  I have been in and out lately and missed that post.

  82. USO/Invest – Strangely enough, they are benefitting from the positive contract rollover as the Sept contracts are more than the Oct contracts ($107.33/107.19 at the close) and that's a very unusual positive gain for USO as they roll out of their Sept positions.  Usually they lose about .15-30.  

    Wall Street wisens up to discretionary spending slowdown
    • Merrill Lynch analyst Savita Subramanian cut consumer discretionary stocks to Underperform on her view the sector is greatly overvalued. Margins are stretched to the limit and rising interest rates are creating some savers out of spenders, she notes.
    • Warnings signs of a cautious stance by U.S. consumers have been popping over the last weeks from teenage retailers to restaurants, but the unexpected strength in the automobile market has largely muted the argument. It took Wal-Mart dipping into negative comp sales growth to swing the pendulum on Wall Street in force.
    • Related discretionary stocks: HDLOWJCICMCSAMCDPCLNTJXVFC.
    • Related ETFs: XLYVCRPEZ.
    Mortgage rates hold steady, 30-year fixed remains at 4.4%
    • Mortgage rates held steady in the latest weekly Freddie Mac survey.
    • The average rate for the 30-year fixed-rate mortgage remained unchanged at 4.40%, while the 15-year fixed-rate average ticked up one basis point to 3.44%; a year ago, the respective rates were 3.62% and 2.88%.
    • Rates for the 30-year fixed are 1.1 percentage points above their all-time low set last November, which translates into $125/month more in mortgage payments on a $200K loan.
    Einhorn exits Microsoft, Seagate positions in Q2
    • Greenlight Capital's latest 13F indicates David Einhorn dumped his 6.1M-share Microsoft (MSFT -1.8%) stake, and his 5.4M-share Seagate (STX -3.4%) stake, in Q2.
    • Einhorn also took some profits in Marvell (MRVL -1.3%), paring his position to 44.3M shares from 51.8M shares at the end of Q1. But that still leaves him with a ~9% stake in the chipmaker, which has been on a tear this year.
    • Einhorn still has sizable positions in Apple (AAPL -0.4%), Vodafone (VOD -1.1%), and Computer Sciences (CSC -1.6%).
    Higher rates of no benefit today to insurers and regional banks
    • Is it something more than interest rates at work? Selloffs earlier this summer were notable for exempting certain sectors set to benefit from higher rates – insurance (KIE-1.4%) and regional banks (KRE -1.1%) – but not today.
    • Leading the insurance sector lower are AIG (AIG -2.3%), Aflac (AFL -2%), Cincinnati Financial (CINF -2.3%), Old Republic (ORI -1.3%), and Prudential (PRU -1.6%).
    • In regional banks it's Huntington (HBAN -1.5%), SunTrust (STI -1.5%), First Niagara (FNFG -1.6%), Synovus (SNV -1%), and KeyCorp (KEY -1.5%), and Flagstar (FBC-4%).
    Income stocks hit hard by rising yields
    • Anything paying income is again being particularly hard hit by the rise in Treasury yields (the 10-year now at a 2-year high of 2.8%).
    • Selections in mREITs (REM -2.1%), (MORT -1.9%) include RAIT Financial Trust (RAS -4.1%) – whose IRT had an ill-timed IPO yesterday and Ellington Residential (EARN -4.8%) – the market not caring about reasonable Q2 performance, a hefty discount to book, and the launch of a repurchase program. Other mREITs: CYS Investments (CYS -3.6%), Apollo (AMTG -3%), Newcastle (NCT -5%), Invesco (IVR-2.7%), Arlington Asset (AI -1.2%). A leveraged ETF play: MORL.
    • Hanging in there relatively well are the BDCs: Fifth Street (FSC -1.3%), Triangle (TCAP -1%), MCG (MCGC -1.2%), Hercules (HTGC -1.2%), Ares (ARCC -0.3%).
    • In emerging markets fixed income, a trader takes note of EDD,  a closed-end fund now trading at more than a 15% discount to NAV.
    Homebuilders bounce as builder sentiment nears 8-year high
    • The NAHB builder sentiment index rises to nearly an 8-year high of 59 in August – the last time it was higher was 61 in November 2005. The move comes with the pace of new home sales nearing 500K annually, 38% higher than a year ago, but off from the 700K consistent with a healthy market.
    • The HomeBuilders ETF (XHB -0.4%) continues its summer decline, though it has bounced significantly since the NAHB print hit the tape.
    • Other ETFs: XHBITBPKB.
    • A few stocks: Toll Brothers (TOL +2%), M/I Homes (MHO +3%), Hovnanian (HOV+1.7%), Pulte (PHM +2.2%), Lennar (LEN +3.1%), Ryland (RYL +1.3%), Beazer (BZH +2.9%).

    Helping oil prices:  Evacuations begin at some Gulf of Mexico oil platforms as storm threatens

    • Marathon Oil (MRO) and BP begin to evacuate some workers from the Gulf of Mexico as a storm makes its way from the Caribbean.
    • MRO is removing workers not essential to production from its Ewing Bank platform, which can produce up to 9,700 bbl/day of oil and 8.2M cf/day of natural gas.
    • BP begins evacuating workers from its Thunder Horse and three other deepwater production platforms in the Gulf, though they are continuing to pump oil and gas.
    Buffett's new Suncor stake could be the start of something bigger

    Precious metals and their miners fly higher

    Goldman: Deere cost cuts can't overcome cyclical headwinds
    • Deere (DE -0.3%) loses its Buy rating at Argus Research which downgrades to Hold after yesterday's earnings and cautious guidance.
    • Goldman maintains its Sell rating with Jerry Revich giving a nod to management for execution with regards to cost control, but believing it's not enough to overcome cyclical headwinds. His team sees a 12% decline in farm revenues in 2014 and a 29% dive in farm income thanks to lower prices and reduced insurance proceeds. Assuming reasonable weather, commodity oversupply could continue into 2015. "Following four consecutive years of record farm equipment demand, we expect meaningful capex cuts in response."

    Theme parks see steady attendance and higher guest spending

    • Orlando marketing firm Visit Orlando lifts its projection for visitors to Orlando up to a 2%-3% range from 1.5% after accounting for a recent rush. July and early August bookings are up 6.3% Y/Y.
    • A curiosity in the industry was witnessed during the most recent quarter when Disney (DIS -2.5%) and Comcast's (CMCSA -2.5%) Universal reported strong traffic trends for Orlando parks during their most recent quarter while neighbor SeaWorld (SEAS-4.1%) blamed weather for a drop in attendance.
    • The big picture: Capital spending is paying off for operators as demand stays steady. Theme Park Insider forecasts the current traffic trends in California and Florida will hold up until the end of the season.
    Red Robin jumps as comps guidance is raised
    • Red Robin Gourmet Burgers (RRGB +8%) is sizzling following its Q2 top line beat.
    • Despite missing consensus estimates, revenues rose 6.5% Y/Y.
    • Company-owned comps growth came in at 4.3%.
    • Likely behind the stock's strong performance is management's projection for FY13 comparable restaurant sales growth of 3%. This is an improvement from previous guidance of 2.5-3%. Additionally, the company upped its guidance for restaurant-level operating margins from 20.9% to 21.3%. (PR)

    Taser rallies again, shares up sharply this week

    • Shares of Taser (TASR +7.5%) rally hard for the second straight session, bringing gains to 16% since Monday's close.
    • Volume is already nearly 5 times the 10-day average.
    • The company had good things to say yesterday about the adoption of its on-officer cameras and related services.

    Himax falls on revenue miss, mixed guidance

    • Himax (HIMX -9%) expects Q3 revenue to fall 5%-12% Q/Q from Q2's $207M. That puts guidance easily below a $223.8M consensus. However, the company expects Q3 EPS of $0.102-$.117, above a $0.10 consensus.
    • Q3 large-panel driver sales are expected to be "sluggish" due to soft TV/laptop sales and the end of China's TV subsidy program.
    • Himax is also seeing small/medium-panel driver sales (growing quickly lately) soften due to inventory corrections and model transitions. Moreover, while the popularity of high-res displays is boosting Himax's high-end smartphone margins, the company is "seeing intense price competition" on the low-end.
    • Q2 gross margin was 24.6%, flat Q/Q and +150 bps Y/Y. GM is expected to rise slightly Q/Q in Q3 (a reason for the healthy EPS guidance).
    • Sales of display drivers for large-sized panels +7% Q/Q but -19% Y/Y to $64.3M. Driver sales for small/medium-sized panels +22% Q/Q and +32% Y/Y to $110.9M (strong smartphone, tablet, and auto demand).
    • Non-driver product sales (inc. image sensors, power management ICs, and the LCOS microdisplays Google is interested in) +30% Q/Q and +22% Y/Y to $31.8M. Himax says image sensor demand is growing.
    • Q2 resultsPR


    Putting a number to ESPN's value
    • The value of Disney's (DIS -2.1%) ESPN could be even higher than where some projections land, according to The Atlantic.
    • A pencil-on-napkin estimate on ESPN's +$5/month fee per cable subscriber , the pay-TV base, and advertising revenue levels leads to a $40B to $60B valuation to dwarf old media companies such as The New York Times or CBS.
    • While much has been made on new rivals, including Fox Sports 1 (FOXA -1.2%), the power of the ESPN brand is such that sports viewers still flock to it before and after major events (NCAA basketball tournament, Super Bowl, World Series).
    • "ESPN has a 30-year head start and an astronomical revenue stream," admits Fox Sports exec Randy Freer.
    Mintel: Amazon on pace to dominate in Europe
    • Online sales in Europe are forecast by research firm Mintel to double to €188B in five years, a forecast that bodes well for Amazon (AMZN -1.9%).
    • Mintel says Amazon has grew its online market share by 60 bps in 2012 to 9.8% and should see more gains despite negative publicity in the U.K. and Germany.
    • If current e-commerce trends were to hold, in 8 years Amazon will overtake German firm Schwarz to be the biggest retailer on the continent.
    Apple continues to outperform; RBC hikes PT
    • Apple (AAPL +0.4%) is trading slightly higher on an ugly day for tech. Shares rallied to $500 earlier in the week, thanks in large part to Carl Icahn.
    • RBC's Amit Daryanani has hiked his PT to $525 from $475, and (unlike UBS) is on board with Icahn's call for an even bigger buyback. He thinks raising another $55B in debt for buybacks could boost FY14 EPS by $4, and that increasing leverage to a large-cap norm of 1.8x would allow Apple to repurchase 18% of its float.
    • Earlier: China Mobile chairman optimistic about iPhone deal

  83. USO rollover was Aug 6 – Aug 9

    Next rollover Sep 6 – Sep 11

  84. SCO/StJ – Thanks for clearing that up.  Looks like the whole thing ended up as planned and we only spent $1,000 of our $1,600 to roll – could have spent that .60 and actually ended up in $26/31 after all! 

    AAPL/Jerconn – I would just roll the 1/2 x Aug $455s ($43) to 1x the Sept $490s ($21.30) and put a stop on 1/2 at $25.  The delta is .58 so around $505 is the stop and then you'll be in a realistic position to roll the others up normally (BEFORE they run out of premium!). 

    There's the bell (already?).  No stick save and looks like 125M on the Dow.  Dollar 81.14 – things will not be pretty if Europe and Asia turn down and people panic into the Dollar. 

    Crash/Imho – Hardly a "crash" so far but I'm glad you're having fun!  

    Expiration/Deano – Remind me in the morning.  I just looked at QQQ $75.50 calls, in case we get a morning pop but, at .30 – it's way too much premium.  

    USO/Lol – Interesting.  USO dropped over $1 those days, then bounced back – maybe we can time these to our advantage.  Please remind us in Sept if you remember.  

    Tomorrow is expiration day, so anything can happen.  An exciting end to a fun week.  

  85. Thanks for clearing all that up Phil. 

  86. Phil / ABX – I have a small position in which i did a buy write on the stock.  I recently bought the puts back and i am covered with Jan 14 $19 calls.  Looking at the roll from the $19 calls to the 15 $23's is about a $0.30 credit.  What adjustments would you make at this time, if any?  I was thinking of rolling the 19's up and out to the 23's at least, but was unsure if I should wait till the new 2016 contracts are out (or just wait but don't let the roll get away).  I am also not sure if this would be a good time to resell the puts, was thinking the 2015 20's.  Your input, as always, is greatly appreciated :) .


    thanks scot.  

  87. That 50 DMA held for about 10 minutes on the Dow today! Now it's in play for the S&P and the Russell. I have the strange feeling that we might actually punch through them for the correction that we have been looking for. 

  88. I think we were the only thing keeping WH down today with our sells at $2.50!  10x normal volume.  

  89. Good day for the Butterfly Portfolio – I was thinking it must have taken a hit but, no, profits doubled!  This is why you have to hold that short premium right up until the last day (and it helps to have good targets too):

  90. I guess we had a bearish portfolio – getting about $24K in 10 days while the market is tanking is a good indication.

    Phil - I highlighted in pink the positions that expire tomorrow. Unless we have a 5% bounce (it's expiration Friday though) the only one that might need rolling is CMG. Also, the SCO 27 call includes the cost of the roll from today to keep the spread calculations intact. 

  91. Not a bad earnings season so far but not much to show for:

    Earnings season is coming to an end with a thud today on weaker than expected reports from Wal-Mart (WMT) and Cisco (CSCO).  That being said, overall it was a relatively good season.  As shown below, the final earnings beat rate (% of companies reporting better than expected earnings) came in at 62.2%, which was the highest reading since Q3 2011.  The final revenue beat rate came in at 56.6%.  While top line numbers weren't as strong as bottom line numbers, the revenue beat rate this quarter was still stronger than 3 of the past 4 earnings seasons.

  92. Thanks StJ!  

  93. It shouldn't be too hard to beat any estimate when they are lowered every day leading up to the report day.

  94. Anyone looking for income might consider DX in lieu of, or in addition to, NLY or AGNC.


  95. PHIL – Can you (or anyone else) suggest a good explanation of the /CL futures strategy with insructions on entries and sales.  I was watching last night at 11:30 and saw /CL go from 107.17 to 107.08 and then 107.33.  How does one know when to enter and then sell without giving up the possibility of a large gain.  Obviously, we take the nickels and dimes where we can get them, but I'd hate to give up a quarter (or dollar!) because the price retraced by .02 or .03.

    Thanks as always for sharing your knowledge.

  96. Pharm, thanks for sharing your insights for oil.

  97. Phil/USO~Thanks fro sharing your knowledge. Regaring your comment did you mean USO price normally will fall if the current month /CL contract price is lower at the close after rolling over overflow contracts?

  98. Good morning!

    Things are pretty flat but the Shanghai had a funny session:

    That's a broken market folks – how can investors stay in something that whips back and forth 5% in a single session?  Look at that insane morning spike too!  Margin calls on both ends in the same day.  Also, don't forget there are limit up and down breakers at 10% so, to get to 5% on the index, there had to be many stocks that were halted in both directions.  

    Hang Seng only went up and down 1% and fininshed flat and the Nikkei was down about 0.75% and India flopped 3.5%, giving up 19,000 in the morning and then just going down and down and down until it was saved by the bell at 18,697, down 675 for the day with the Rupee hitting an all-time low.  Unlike most countries, that like a weak currency, India is not much of an exporter and it just makes everything expensive for them:

    Rupee Takes Another Tumble

    The rupee was on the slide again Friday, trading at 61.85 against the U.S. dollar, an all-time low. Use our tracker tool to follow the fall of the rupee in recent weeks and months.


    Oh, and if you think our healthcare system is messed up – check this out:

    Doctors, considered civil servants in China, are paid low wages that amount to no more than the salary of a waiter—about 3,000 yuan ($490) a month. In a 2011 survey of 6,000 doctors by the Chinese Medical Doctor Association, 95% said they were underpaid and 78% said they wouldn’t want their children to study medicine.

    The result has been a doctor shortage, with only 1.4 physicians per 1,000 Chinese citizens in 2010, compared with 2.4 per 1,000 that year in the U.S., according to World Bank data. And with it has come a greater workload that doctors say is minimizing the time doctors can spend with each patient, undermining doctor-patient trust and creating a perpetuating cycle of problems.

    Nearly 40% of medical personnel surveyed at 316 hospitals nationwide from December 2012 to July 2013 said they plan to give up their profession due to increased violence in hospitals, the Xinhua report said. It did not specify a timeframe for planned departure.

    Europe is only down about 0.3 but they have been going straight down sinde the open but I think it's calming down at the moment – it's option expirations there too so the tendency is to flatline on the day.  

    Oil crooks rolled a lot of barrels yesterday and no there's only 104,000 contracts left – they can certainly get rid of those so we're not going to get our mega-dip in this cycle it seems.  Of course, now they've stuffed 700,000 barrels into the front 3 months plus they still have another 104,000 to roll (maybe 20K will stick in Sept for the people who actually do want oil) but we knew this was a possibility and that's why we played USO in Oct and we'll simply have to roll our in-the-money Sept SCO call out a month but not until next week – when we still may get a dip as the new contract starts trading solo.

    Don't forget, Labor Day is the last big driving weekend of the Summer, after that, demand drops off fast.

    Click for
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    Sep'13 107.18 107.57 107.06 107.07 04:46
    Aug 16


    -0.26 13118 107.33 104612 Call Put
    Oct'13 107.01 107.37 106.82 106.85 04:46
    Aug 16


    -0.34 6045 107.19 321396 Call Put
    Nov'13 105.98 106.25 105.75 105.75 04:46
    Aug 16


    -0.34 754 106.09 162081 Call Put
    Dec'13 104.57 104.86 104.32 104.34 04:46
    Aug 16


    -0.30 820 104.64 224496 Call Put

    The best sign for the NYMEX boyz is that they dropped 44,000 contracts off Sept but only added 20K to Oct and none to Nov, Dec – we weren't looking at every month after but it means they got 24K off the books and that takes a bit of pressure off them heading into the end of the year.

    Still, we just tagged $107 off yet another $107.50 entry and now we're bouncing back to $107.50 again and it is getting tempting to play this channel both ways.  

    Our Futures are up just a little bit with Bullard still trying to talk us up:

    • Fed May Hedge End of Bond Buys

      The Federal Reserve could hedge its bets by making small moves rather than large, aggressive ones when it starts pulling back on its $85 billion-a-month bond-buying program, said James Bullard, president of the Federal Reserve Bank of St. Louis.

    • Blue Chips Shed 225 Points

      Stocks fell the most in a day in eight weeks as bond prices tumbled after stronger-than-expected economic data raised investor anxiety about a pullback next month in central-bank support for financial markets.

    • Inflation Closer to Fed Target
    • Retailers Post Weak Results

    It's options expiration day so, anything can happen. 

  99. If that is true, if you really believe anything can happen….. Then perhaps the best course is to tread lightly. Lol, even marketwatch is stealin' breaking bad lines! 

  100. ABX/Scott – Jan $19s are $2.85, so $1.85 of premium and you are protected from a 10% drop.  Rolling to the 2013 $23s gives you $4 more upside but weaker downside protection.  If, on the other hand, you were to sell the 2015 $20 calls for $4.20, you put $1.35 in your pocket now and raise your call-away by $1 to $20 and now you have BETTER downside protection so you can sell $18 puts for $3.35 and now you've put $4.70 in your pocket, which is 25% of the stock's price (and more than you make by selling the higher calls, in their best-case) and you really don't care whether ABX goes up or down 20% – isn't that more relaxing?   If you think you're going to miss out on a big payday – take $1.50 of your brand new $4.70 (and still pocket $3.20) and pick up the 2015 $20/25 bull call spread but don't gamble with your main position!

    Big Chart – NYSE promising with the bounce off the -5% line but the Dow needs to get it back quickly (2 day rule) and we REALLY can't blow the 50 dma on the SPY – that would be BAD.  

    DX/Albo – They're a good-looking one, mostly invested in MBS so subject to panic in a downturn.  Still, you can buy them for $8.32 and sell the March $7.50 calls for $1.15 and the $7.50 puts for .40 for net $6.77/7.14, that makes the $1.16 dividend 17% while you wait!

    Oil Futures/Ldm – I spend a couple of hours in Vegas with multiple screeens and live platforms, etc showing people the basics of Futures but sure, I'll sum it up for you in 30 seconds:  

    Assuming we're FUNDAMENTALLY comfortable that one direction is better than another, we find a zone that oil trades in and then, if we're short, we use support/resistance lines (usually $1 or .50 lines) as a BACKSTOP for our entry.  The next trick is – NOT LOSING MONEY – if your backstop is violated, GET OUT!  

    There are LOTS of factors in play at any given time:  The overall direction of the markets, the movement of the Dollar, other commodities, inventory reports, global news (Egypt at the moment) and, of course, the barrel count at the NYMEX.  Even the time of day is a factor as oil tends to trade up into the 9am NYMEX open and the 2:35 close and the 10:30 inventory reports on Weds and Thurs and, of course, into Friday's close, as that sets the prices consumers pay over the weekend.  Sometimes things are in our favor and sometimes they are not – when they are not – DON'T TRADE!  When the lines aren't holding – DON'T TRADE!  

    Next, don't even THINK about playing the futures unless you are willing to lose $1,000 in 30 seconds.  Don't play the futures if you have a weak bladder, as you can lose $3,000 going to the bathroom.  Don't play the Futures if you get a lot of phone calls or have other distractions.  Don't play the futures unless you are a disciplined trader who knows how to take a quick loss.  

    So, looking at the above chart, our primary shorting line earlier this week was $106.50, that's the first line where we thought it was more likely oil would go down than up.  On Tuesday, you can see us pop over $106.50 early and it maxes out at $106.65 so you look to play a cross back below $106.50 with a .15 ($150 loss) stop out or you can take a tight stop (.05) on the $106.50 line 3 times before giving up.  

    It's all about managing your losses and then, as you can see, we were rewarded with a nice drop to $105.55 and, on the way down, we set our bounce stops at .25 lines, so that was a good one as it didn't trigger and, oh by the way, you are a total dumb-ass if you don't take a $1,000 gain and RUN!!!  

    You can see how the $105.50 line held so it was game over or, we could have gone long there but, as I said yesterday, I prefer to just play short most of the time.  We got a nice run back to $106.50 but we went up through it so no play there and then we got a perfect short at $107, which we called out in chat and then we got a nice $500 dip to $106.50 and, again, WTF is your problem if you can't be happy with that?  

    Back to $106 on Weds AM and clearly we held that line so bullish indicator and then there was the silly spike into inventories, which we caught for a short and then the equally silly drop to $105.60, where we took the money and ran at $105.75.  See, nothing mysterious here, we just stick to our discipline.

    Slow grind back to $106 and I believe we had a failed short at $106.50 and again at $107 but yesterday we caught $107.50 for a drop to $107.25, then again for $106.75 and again for $107.  This morning we hit $107.50 again and it barely went .05 over the line and we already had a nice dip to $107 and now it's $107.50 again, so we short it again with a stop at $107.60 ($100 loss).  

    That's the simple overview – there's scaling strategies on top of that and, of course you have to manage your losses, which means – if you lose $100, your focus should be on simply making $100 back – not "going for it".  As you can see, there are TONS of entry opportunties – not every one has to be a big winner.  We just like to tread water and stay about even on most of our entries and, once in a while, we get a nice $250 or $500 or $1,000 wheeeeee!  and we're happy.  

    USO/Invest – Yes, the nature of the fund is they are constantly buying NYMEX futures (part of that fake demand) that they never intend to have delivered and so, every month, they have to roll over the next month (they have a 3-month roll cycle) and create more fake demand going forward.  So the fund loses, NORMALLY, the .15-30 friction cost.  

    At the NYMEX, you don't have to SELL your contract, you are allowed to adjust it by simply paying the difference between the two months as a rolling fee.  So, when the Sept contact is cheaper than the Oct contract (this rarely happens), as it was yesterday, the traders (and USO) actually COLLECT money for pushing their call contracts forward another month.  Yes, it's completely ridiculous, but it's true…

    The reason it happens is that the fear of Egypt now drives people to speculate something will blow up over the weekend and prices of Sept contracts will spike.  Into October, there is less urgency and, in longer months, Egypt is factored out and prices get even cheaper.  That's why Dec 2015 oil is $88 and Sept 2013 is $107.33 and, as I noted last week, you can play the same game and buy those Dec contracts and short front-months with impunity because, ultimately, you get to buy Dec 2015 barrels for $88 to cover the eventual pay-off of the short calls you have to roll (assuming oil kept going up and never down).  

    Treading lightly/Jrom – Always on an expiration day! 

  101. I love trading the oil pit.  As Phil says, it's very dangerous and I've had my share of losses but playing Phil's lines along with the strategies he's teaching has turned my trading around completely.  When I first got here, he said "practice, practice, practice" and that was the key to my success using his techniques until it was almost automatic for me.

    Learning not to overplay is another very valuable lesson Phil taught me.  

  102. Phil/ABX – Much more relaxing.  Thanks for the thoughtful response.  It seems so obvious when you describe things :) .