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PhilStockWorld September Trade Review – The Wild Ride Continues (Part 1)

What a wild month!  

Things went so crazy at the end of September that it's already October 13th and I'm just getting to the September review.  Our August Review (Part 2) was done on 9/22 but part one but Part 1 of August was completed on September 1st, when the market was at the low of this cycle.  We called the August action almost perfectly and, out of 106 trade ideas for the month, 86 (81%) were winners – an incredible percentage I don't expect we repeated in crazy September.  

We don't track our virtual portfolio trades in these reviews – this is for all the trades we don't track – which is most of them – as it simply wouldn't be practical to track every trade idea (which are highlighted daily in our Member Chat Room) we have for you at PSW!  Of coruse, this is an arbitrary point in time and some trades could have had better (or worse) exits in between – we're not doing this to keep score, just to get an idea of what worked and what didn't in the past month so, hopefully, we can make better decisions this month.   

We left off on Friday, August 23rd and we were still bearish.  It's a good thing, too as it turns out we dropped like a rock the next week!  My note in the Friday morning post oulined our attitude into the weekend as I said: "If the news-flow changes (and it hasn't as of our morning review), we'll be thrilled to get more bullish but, at the moment – I'm sorry to have to keep being negative."  We were looking to complete our 5% Rule™ pullbacks before there was a turn and we'd already begun to do a little bottom-fishing – but let's not get ahead of ourselves! 

Aug 26:  Monday Market Momentum – Still Down 

The Dow couldn't even put a good day together on Friday and finished off it's third down week in a row failing to take back the 200 dma at 15,100 while the S&P tested theirs at 1,635 with AAPL and MSFT giving the S&P and Nasdaq most of their lift as well as TLSA, which flew up to the $160 level, putting the short-sellers into a bunker mentality

Durable Goods this morning is likely to put the longs into a bunker as they should be trending much lower – based on the indications we've gotten from earnings reports this quarter.  It's just part of some very negative news-flow I've been warning you about and our weekend reading did not do anything to make us more bullish, unfortunately.  

  • Russell (/TF) Futures short at 1,040, out at 1,020 – up $2,000 per contract
  • TSLA Sept $165 calls at $9.50, finished at $18.39 – up 93%
  • Oil (/CL) Futures short at $106 – out at $106.10 – down $100 per contract

Aug 27:  Testy Tuesday – Back to those 5% Lines 

Will Smith and his family were clearly shocked at the drop in the markets that morning as Miley Cyrus's MTV appearence distracted most people from the true porn of the GOP's public self-graification displays, but we noticed it in the morning post, saying:  

Of course the real fear-mongering is coming from within as the GOP gears up for yet another debt-ceiling battle and, as much as they try to spin this market pullback as being about Syria (a country that is surrounded by our allies and bases), what's really spooking the markets is the very real fear of another massive collapse – like we had in August 2011, when the S&P fell almost 20% while the Republicans held the nation hostage.  

It seems so obvious now but, at the time, people were saying I was being an alarmist and unfairly blaming the GOP for simply playing a little hard-ball with the debt cieling.  Oh well, I can only tell you what's going to happen in the future – whether you choose to use the information or not is up to you!  We knew it wasn't going to have an immediate impact, so I continued in the morning post:

Yesterday was a "watch and wait" day for us, as we weren't buying the low-volume rally (see yesterday's post) so we're also not going to get too excited about a low-volume sell-off, especially if the 5% lines hold up.  Those levels are (5% from the recent non-spike highs:  Dow 14,800 (should be on the button at the open), S&P 1,620, Nas 3,550 and Russell 1,010.

  • Oil (/CL) Futures short at $108.50 – out at $108.60 – down $100 per contract
  • Oil (/CL) Futures short at $109 – out at $109.10 – down $100 per contract
  • Oil (/CL) Futures short at $110, out at $109 – up $1,000 per contract
  • DIA Sept $150 calls at $1.05, closed at $4.30 – up 309%
  • Dow Futures (/YM) long at 14,800, closed Sept at 15,450 - up $4,250 per contract

Syria/Jrom – Yes, very ridiculous.  The guys on the news were talking about it with such conviction I had to recheck the map to see if I was crazy!  Still, panic spikes are just an opportunity for us – if we keep level heads.  Yes, we'll get burned for .10 at several lines on the way up but already oil just dropped .30 off $110 (and, had we been awake for $112 – we'd already have a $2,000 gain as it went straight down from there).  It's like fishing – you're going to lose a few worms (.10 stop-outs) before you catch a big one…

Aug 28:  Wednessday Worries – Syria has SocGen Calling for $150 Oil!  

$150?!?  That's a lot of money for oil.  That would put gasoline up around $5 per gallon so the easy trade here is to grab some /RB Futures contracts ($3.07) and, at $420 per penny, per contract, a single contract would pay us $81,060 if gasoline hits $5 – that's enough money to buy a Tesla, and then we never have to buy gas again!  

So, for anyone who believes the idiocy being spun by Societe Generale or their other Bankster buddies as they bang the fear drum, accompanied by their MSM puppets – just buy a single, long gasoline Futures contract and you'll find yourself rooting for death and destruction in the middle east.  

As you can see from the chart of oil Futures above – there's still plenty of money to be made on the short side as we only play the crosses BELOW the .50 lines and, even though oil went over $110 and fooled us once for a quick stop – it went all the way up to $112 without a retrace, then fell all the way to $111 for a $1,000 per contract gain and then fell through $111 to $110 for another $1,000 gain and then through $110 to $109.50, for another $500 gain. 

  • (worth noting that Gasoline Futures are now $2.66 ($17,220 per contract) – but we didn't officially short those!)
  • Oil (/CL) Futures short at $110.50, now $101.75 – up $8,750 per contract 
  • Gasoline (/RB) Futures long at $3.07 (as a hedge to long-term oil short), out at $3.09 - up $840 per contract
  • Oil (/CLX3, /LOX3) Futures Nov $110/105 bear put spread at $2.20 (x 1,000), now $4.80 – up $2,600 per contract (should be off the table) 
  • UGA 5 Oct $66/70 bull call spread at .50 (as a hedge to the Nov oil short), now .10 – down $200 per contract (also off the table with oil) 
  • TSLA long at $170, out at $195 – up 9%
  • TSLA Oct $185 calls at $10, out at $14 – up 40%

That post is a great one to review if you want to get an idea of all of our oil trading logic in a nutshell.  As we often do, we wait and wait and wait for silly spike in the market that isn't justified with the underlying fundamentals and then we place heavy bets BUT we also use hedges – just in case we are wrong.  I put those trade ideas right in the morning post, along with this prescient note on Gasoline:

UGA is the ETF for gasoline and, as you can see, it looks stretched but you can also say it's poised for a breakout to new highs.  That's all well and good from a TA perspective but ask yourself if you and your neighbors and your co-workers are ready to pay $4 a gallon or more for gasoline for any extended period of time?  If not – then it's not sustainable – that's Econ 101.

Don't be so scared to apply Economic Fundamentals to investing.  You'll find they are not really as incompatible as Cramer and Company would have you believe!  

Aug 29:  GDPhursday – Is Good News Bad News?

Corporate Profits were up $78.3Bn in Q2 (first estimate today) and, of course, taxes on those profits only went up $10.5Bn (13.4%) – not shocking as that's pretty much exactly the percentage of taxes that Corporate Citizens actually pay.  Dividends (also taxed at 15% for the top 1%) went UP a whopping $273.8Bn and "Undistributed Profits" still managed to rise $205.9Bn.

$78.3Bn is enough money to hire 6,264,000 $50,000 per year workers!  Unfortunately, 331,000 people LOST their jobs last week and Continuing Claims rose by 9,500 to 2.99M mid-term unemployed (the longer-term unemployed are dropped from the count!).  We will NOT have an economic recovery if it's based on sucking all the wealth and income away from the bottom 80% – as we discussed in our Member Chat this morning – that's what did in the Roman Empire. 

  • Dow (/YM) Futures short at 14,850, out at 14,800 – up $250 per contract.  
  • Oil (/CL) Futures short at $110 per contract, out at $108.50 – up $1,500 per contract
  • Dow (/YM) Futures short at 14,850, out at 14,750 – up $500 per contract
  • CMG Sept $380 puts at $1.50, out at $1 – down 33% 
  • SCTY Oct $40 calls at .75 (hedging TSLA shorts), now $7 – up 833%
  • NFLX Oct $300 calls short at $12.50, now $8.50 – up 32%
  • NFLX Oct $290/280 bear put spread at $5.50 – out at $6.50 – up 18%
  • DDM Sept $90/94 bull call spread at $2.40, expired at $4 – up 66%
  • GMCR Jan $90 calls short at $11, now $2.30 – up 79%
  • Oil (/CL) Futures short at $108.75, out at $107 - up $1,750 per contract
  • Gasoline (/RB) Futures long at $2.95, out at $2.94 – down $420 per contract 

There's still hope that this is all just a bullish consolidation – we'll look for bullish signs over the weekend.  

8-2-2013 5-33-28 PM BEARSAug 30:  Final Friday in August – Dressing Those Windows

Keep in mind – I can only tell you what's going to happen and suggest a few trade ideas - that's the limit of my powers...

That's especially true with the Oil Futures lately where, only yesterday, I sent out an alert to our Members and even Tweeted and even reiterated in the morning post that we were shorting Oil Futures (/CL) at $110 and the Dow Futures (/YM) at 14,850.  We caught a 100-point drop on the Dow that was good for $500 ($5 per point) per contract but oil was the biggie, paying $10 per penny, per contract for a nice $3,000 per contract gain as it fell to $107 (2 legs).

We're done with the Futures due to the end of month, holiday weekend nonsense but we've still got our USO puts (Oct $39s, now $1.68) in anticipation of a bigger drop as all this nonsense about Syria washes out.  

  • Gasoline (/RB) Futures long at $2.895, out at $2.90 - up $210 per contract
  • SPLK Feb $55/60 bull call spread at $2.20, selling $42.50 puts for $1.40 for net .80, now net $1.70 - up 112%

Well, you can really see why we don't track every trade idea – there's a hell of a lot of them!  I know it seems very random, when we have a lot and a little but we simply wait until we are fairly sure about a trade – we don't try to force them.  That's the key to our success.  Also, when the bulk of our picks do well, our Short-Term Porfolio does poorly because we are using short-term bets to OFFSET the possibility that the 100 other trades we pick that month may have been wrong and, if so, it would generate some cash to help fix our longer-term ideas.  

We have had 3 straight months of excellent picks so, of course, our Short-Term Porfolio is currently sucking (down $31,000)!  Of course, if you follow our Rules on Smart Portfolio Management (Parts (1), (2) and (3)), then the STP is only a small portion of the overall portfolio.  A lot of people forget that and focuse way too much on short-term trading, which is why our new STP trades are leaning towards lower risk ideas – simply because people don't utilize it properly.  

Wages-as-a-of-GDP_chartbuilderSept 3:  Takeover Tuesday – Microsoft Bags Nokia Mobile Unit

We're in wait and see mode as we're having our requisite weak bounce today (1% of the 5% drop) with the Dow, for example, falling 800 points from 15,600 to 14,800 so 160-points is the weak bounce to 14,960 on the Dow so that's our goal for the day if we're to be at all impressed.  

Oil is barely holding $107 this morning and makes a nice short under that line (/CL) but very tight stops over and not a good day to play it as we have a squeezed week and, as StJ notes, still a holiday week and Rosh Hashanah (Jewish New Year) Wednesday night is a big one.  Silver (/SI) hit $24.50 and that's a bit much at this point but I wouldn't short it.  Gold is back over $1,400 but I see no compelling reason to play it either way with the Dollar drifting at 82.36.

  • MSFT 2015 $30 puts sold for $3.50, now $2.40 – up 31%
  • Oil (/CL) Futures short at $108.50, out at $107.50 – up $1,000 per contract

Sept 4:  Will We Hold It Wednesday – Dow 14,800 Edition

While others were panicking out of position on June 26th, I wrote "Wall of Worry Wednesday – Time to Climb Again?" and we took up the conrary position – especially on gold, which had fallen to $1,222.90 at the time and we decided we were ready to catch that falling knife.  We were off the low by $50 but we've already exceeded our recovery goal of $1,350 and, of course, all of our miner plays are golden!

We're finished with Silver for now ($24.50) and that means we're also done with AGQ, which was $15.55 back on June 26th and now $25.50 for a very nice 64% gain in 3 months - who says I don't make straight stock picks?  

Of course, the option trade idea was a bit more profitable as we went with shorting the 2015 $10 puts for $2 (now $1) top pay for the Jan $19 calls at $1.70 for a net .30 cash credit.  The Jan $19 calls are now $7.70 and that puts the trade up an even $8 total of 2,667% on cash in 90 days.  As I had noted in our August Trade Review – I rarely play silver, as it's so volatile – but that's no reason to not play it when it makes a clear bottom or top.

  • SQQQ $23/24 bull call spread at .40, expired worthless – down 100% 
  • TZA Oct $23/26 bull call spread at $1, now .25 – down 75%
  • AAPL 2015 $400 puts, sold short at $32.40, now $29 – up 10% (pair trade with above hedges)
  • Oil (/CL) Futures short at $108, out at $107 – up $1,000 per contract
  • Oil (/CLZ5) Futures long at $87.22 (Dec 2015 as an upside hedge to long-term oil shorts), now $87.70 – up $480 per contract  
  • Oil (/CLV3) Futures short at $107 (Oct contracts pair trade), expired at $104 – up $3,000 per contract

How to play oil long-term and hedged (from our Chat Room):  Oil/Sundev – Try this chart and click on any contract for specifics but I'd stick to Dec contacts as they are move liquid.  Dec 2015 is /CLZ5 but check with your broker, of course.  Oil there is currently $87.22 so you are contracting to BUY oil at $87.22 per barrel in Dec 2015.  At the same time, you are offering (by shorting front-months) to SELL oil at $107 in October of 2013.  Should you fail to do so (because oil goes higher and you can't buy Oct barrels cheaper to cancel), you can roll your obligation to Nov, Dec, Jan 2014, etc. until you arrive at Dec 2015 (assuming oil never goes down), at which point you have an $87.22/whatever bull call spread on oil.  That's the logic but the execution is a bitch and a half and requires a good deal of monthly trading and a substantial tie-up of cash and margin should the trade go against you for 2 years.  Dec 2014 is $93.83 so also useable and more likely to spike up with current contracts than the 2015s and still 16 months away.  

See, this is not rocket science folks.  This is why I URGE you to come to our seminar in Las Vegas on Nov 10th and 11th or, if you can't make that, to plan on attending our Atlantic City Conference in April.  Why would you NOT want to have this tool in your trading toolbelt?  Like any education, you have to take the time and make the effort to LEARN the concepts and, once you understand them properly, the trading will come much easier to you.  Malcolm Gladwell says it takes 10,000 hours of practice to become an expert at something – Yodi can attest to that!  Meanwhile, we have plenty of students who have made great, great strides in far less time – but it all starts with putting in those first 100 hours...

Notice that we practice those "7 Steps to Cheat the Rule" at PhilStockWorld:  1) We coach 2) We surround ourselves with like-minded individuals 3) We build expert habits 4) We don't waste time on the small stuff 5) We deliberately practice 6) We teach others and 7) We find someone to kick your butt if you fall off track.  See, I don't like being the butt-kicker, but it's my job!  

Note on our hedges from that post:  Again, this is INSURANCE and we have 60 of those spreads (now $6,480 after the roll) which pay up to $30,000 if the Russell drops far enough to trigger a $6 move in TZA, probably about a 7% dip to 944.  If it doesn't happen, our longs are safe for two more months and we collect far more than $6,000 in short premium we've already sold.  At this point, in fact, we're very tempted to double down again to drop our basis and rasie our protection level but, as I said, we're not that nervous – yet.  

Sept 5:  Thursday Thrills – Marching off to War Again

WAR!  What is it good for?

About $3Tn for the last one since that day in 2003, when Donald Rumsfeld told the American people that the "limited" action we would be taking in Iraq would cost no more than $60Bn.  Funny how quickly things can get out of hand – isn't it?  Also funny how quickly we forget the mistakes of the recent past.

Economically (for us), war is stimulus and despite the sequestration, companies like NOCLMTRTNGD, etc. have been flying up ALL YEAR LONG – almost as if they knew we'd find some reason to go to war long before Syria became the primary target.  Any war is a good war for our Defense Industry, as long as we begin firing off $1.4M Tomahwak Missiles at SOMEONE!  On March 19th of 2011 – just that ONE day, we tossed 124 of them at Libya.  That's $173.6M on just the consumables!  I'll bet the local Tomahawk salesman got a fat bonus that quarter…

  • Oil (/CL) Futures short at $108 (it never gets old!), out at $107 - up $1,000 per contract 
  • Gasoline (/RB) Futures long at $2.82, out at $2.86 - up $1,680 per contract 
  • PLUG at .60, selling March $2.50 calls for .15 for net .45, now .68 – up 13%
  • T 2015 $30 puts sold for $2.25, now $1.93 – up 14%
  • TSLA Jan $190/170 bear put spread at $12.20, now $11 – down 10%
  • F 2015 $15/17 bull call spread at $1.06, selling $15 puts for $1.52 for net .46 credit, now 0.30 credit - up 33%

Sept 6:  Non-Farm Friday – It's Next Week That Matters 

169,000 jobs were added and that's in-line but July was revised DOWN by a whopping 58,000 jobs to just 104,000.  Amazingly, the market is interpreting this as a positive (as it keeps the Fed on the table) and we're up about half a point now but this is nothing to get excioted about and I'm going to like shorting the Dow Futures at the 15,000 line (/YM) with tight stops as this is just silly. 

Lack of jobs and low pay for jobs means lack of demand for Dollars and that's spiked both gold and oil up about 1% this morning while sending the Dollar as low at 81.93 on the report but now it's stabilizing back at 82.35, still 0.4% lower than yesterday and accounting for almost 100% of the index gains in the futures.  This is certainly not a rally we should be buying into.

  • Oil (/CL) Futures short at $109.50, out at $109.60 – down $100 per contract
  • Oil (/CL) Futures short at $110, out at $108 – up $2,000 per contract.  
  • SCO Oct $28 puts sold for $2.60, now .10 – up 96%
  • SCO Sept $27 calls at $1, closed at $1.84 – up 84%
  • TSLA Jan $130/160 bull call spread (hedge against shorts) at $18, now $21.50 – up 19%

Well, you can see why we need two parts for these things!  That was only the first two weeks and we already had 46 trade ideas (not even including our virtual portfolio positions) and, as of Friday's close, 36 of them were winners.  That's just 78%, not as good as our last few reviews but, as I said, we just so happened to nail it a few times over the summer – it's not a streak that was likely to continue.  

That's why good cash management is always key when trading.  Look at our oil Futures trades:  If you keep tight stops and you lose $100 when it moves against you but make $500 or more when it goes your way – then you can lose 4 out of 5 times and still come out ahead!  If, on the other hand, you over-bet on our SQQQ heade on the 4th and you didn't stop it out – the entire thing was wiped out in two weeks.  

See our Education Archives for several articles on Portfolio Management as well as Trading Psychology.  


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  1. Phil…thoughts on a buy/write with NTE? Trading close to book value with $5 per share in cash, 7.5% yield, revenue growth last qtr was 64%. No Debt. 

    Second question…in terms of calculating portfolio hedge needs I look at naked puts I've sold on stocks I want to own and just assume I need protection for the full value of the future purchase if it happens…eg IRBT NOV 30 Put sold short, I add in $3000 to the overall amount I want hedged in my portfolio. Do you have different ways of doing it? 

  2. Columbia business professor teaches ‘shady’ China deal | New York Post

  3. Sarah Palin and Ted Cruz lead shutdown protest at war memorial

  4. Still No Better That 50% That Debt Ceiling Is Raised By 10/17…And A Few Other Things

  5. ‘Inequality is bad for everyone’: Robert Reich fights against economic imbalance

  6. Wall Street’s Brightest Minds Reveal THE MOST IMPORTANT CHARTS IN THE WORLD

  7. IMF chief warns a US default could spark recession

  8. Phil/CZR~ Did you mean we need to buy back all our CZR naked puts (those short puts on Dec13 & Jan 15) based on your comment on 10-09?? Please clarify it. I missed to read this comment throughly. Below is the original comment.

    CZR/Hummer – I don't think the stock will change.  So far, there's no mention:

    Caesars Entertainment Corporation ("Caesars") (CZR) announced today that it has set the close of business on October 17, 2013 as the record date (the "Record Date") for the distribution of subscription rights for common stock of Caesars Acquisition Company ("CAC"), as previously announced in its Current Report on Form 8-K filed on April 23, 2013.  Each stockholder of Caesars as of the close of business on the Record Date will be issued, at no charge, one non-transferable subscription right for each whole share of Caesars common stock owned by that stockholder as of the close of business on the Record Date.  The subscription rights may not be sold, transferred or assigned and will not be quoted on any stock exchange or market.

    Each subscription right will entitle the stockholder to purchase from CAC one share of CAC's Class A common stock.  CAC is a newly formed company created to facilitate the previously announced strategic transaction pursuant to which Caesars will form a new growth-oriented entity, Caesars Growth Partners, LLC ("Growth Partners"), to be owned by Caesars and CAC.  The closing of the strategic transaction is subject to certain conditions, including entry into definitive documentation and the receipt of required regulatory approvals and lenders' approvals, and there can be no assurance that such conditions will be satisfied.

    On the whole, they are issuing free warrants to current shareholders.  The warrants are for the purchase of the spin-off which, arguably, leaves the current CZR effectively bankrupt so a person who owns CZR would be crazy not to trigger them for $9.43 as the new entity should be worth more while CZR will almost certainly be worth less.  

    For our purposes, as long as you have the short call position (or the stock assigned short) then a drop is not a problem.  It's almost tempting to buy back the short puts because it seems almost impossible that CZR will do anything but go down after this spinoff but, on the other hand, it's not clear when the spin-off will actually occur – this is just a cut-off date to send out invitations for shareholders to buy into the spin-off.  

    For people who have naked short puts on CZR (and if we have any in our Portfolios) – this is a good time to get out – just in case.  

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  10. As Goldman Slashes 0.5% From Q4 Growth, How Much More GDP “Government Shutdown” Pain Is There?

  11. Tea Party radicalism is misunderstood: Meet the “Newest Right”

  12. ‘Inequality is bad for everyone’: Robert Reich fights against economic imbalance

    As conservative as I am, I still couldn't agree with this more.

    A first step would be a significant increase in the minimum wage and an increase in taxes on the wealthy.

    I don't believe the argument that increasing taxes on the wealthy would penalize small business owners( who have very high incomes), and would result in their cutting jobs, or not hiring workers.  I've never met a business owner who wouldn't hire new workers if demand for his products increased.

    Reich has a good point about there not being enough skilled workers.  I believe that this training should be provided by the private sector, and that the incentive for corporations to provide this training should come from allowing them to bring back all the billions of cash held overseas in return for providing it.

    Just my 2 cents.

  13. 14 American Housing Markets Drowning In Foreclosures

  14. Phil/CZR~ I re-post my comment as my previous one is awaiting moderation. On your comment on 10-09, did you suggest us to close all our CZR naked puts? I have some naked puts on Dec-13 & Jan-15. Thanks!

  15. Obscuring the Details: A Panoramic Look at America’s Case Against Syria

  16. This One Line From A Goldman Report Shows How Little Investors Are Paying Attention To The Debt Ceiling

  17. Columbus: The Far Left is Dead Right, Bryan Caplan | EconLog | Library of Economics and Liberty

  18. The Fed now holds more securities than all US banks combined – Sober Look

  19. Fund Managers Still See December As Most Likely Timing For Fed Tapering Despite Crisis In Washington

  20. It's about to get worse,  since it didn't get better over the weekend.   A market tank this week might spur the Congress to greater efforts..

  21. Good morning!

    Dow Futures down about 100 points, which is off the lows but nothing exciting.  

    Game on for oil shorts at $102.50, nothing for them to get excited about and Dollar bouncing (80.43) but very tight stops over the line.  

  22. The Hang Seng and the Nikkei are having some sort of of holiday.  Shanghai was up 0.4%, Singapore Dow 0.4% so India breaks the tie and they were up 0.35% as cyclone was not a huge catastrophe - which is why we don't bet on the weather.  Inflation in India, though, is still out of control:

    • Food, Fuel Drive India Inflation

      India's wholesale price inflation accelerated to a seven-month high, pressured by high food and fuel prices, increasing the chance that the central bank may raise interest rates later this month.

    Weak Exports Show Limits of China's Growth Model

    An unexpected fall in China's exports in September, after a string of modest monthly gains, signals renewed weakness in the emerging markets that have become important trading partners for China, and indicates the limits of relying on further export growth to power the economy.

    Data released on Monday showed that the mainland's consumer-price index rose 3.1% on the year in September, more than the 2.9% forecast by economists. Meanwhile, producer prices fell 1.3%, slightly less than expected.


    New Chinese Economic Data Suggest Global Demand Is CrumblingChina's export growth fizzled in September to post a surprise fall as sales to Southeast Asia tumbled, data showed, a disappointing break to a recent run of indicators that had signaled its economy gaining strength. China's exports dropped 0.3 percent in September from a year earlier, the Customs Administration said on Saturday, sharply confounding market expectations for a rise of 6 percent, and marking the worst performance in three months.

    China Calls for De-Americanized World. (video?

    Happy Health and Sports Day

    Monday is a national holiday in Japan designed to promote health and sports to keep the aging population active.


    Emerging Market Macro Misery Back At Post-Crisis Highs.

    Europe is only down a tiny bit so mostly it's us giving up some of Friday's silly run-up but nothing like panic.  

    Wheeee on oil already!  $101.50!  That's what we call a wake and break (down).  

    [image]At home, it's the same old, same old (as you can see from the WSJ headlines, the MSM has already lost interest in the ongoing shutdown as 2 weeks is beyond the attention span of most Americans) with no data but lots of earnings, starring:  KMG, STLY/T: KO, JNJ, CSX, IBKR, YHOO, PNFP/W: BLK, KEY, USB, WABC, CLB, CCK, URI/Th: BGG, FITB, BTU, PENN, MBFI, WDFC/F: BHI, FHN, FNFG, GE, MS.

    Why this could be an awful week for earnings. (video) A huge week for earning is coming up, with companies as diverse as Coca-Cola, Bank of America, Google and GE revealing how much they earned in the third quarter. And some traders worry that the results won't be good.

     New Front in 

    Budget Battle

    Senate leaders attempting to avoid a U.S. debt default remained at loggerheads Sunday and escalated the standoff by reopening the contentious issue of automatic spending cuts.

    GOP Warns "Definitely A Chance We're Going To Go Past The Deadline". "It's very clear to us he does not now, and never had, any intentions of negotiating," and warned, there was "definitely a chance that we're going to go past the deadline."

    Military Waste and Fraud Are the Main Cause of Our Problems

    • Decaying Roads Detour Recovery

      America's road to recovery faces a costly detour due to congestion in key shipping roads and a fraying transportation network that is expected to raise annual costs by $430 billion by 2020.


    Senate Democrats Press New Front in Budget BattleRepublicans Oppose Move to Reopen Sequester Cuts. Senate leaders attempting to avoid a U.S. debt default remained at loggerheads Sunday and escalated the standoff by reopening the contentious issue of automatic spending cuts, damping hopes that some of Congress's most canny negotiators would break the impasse. As the search for a way to end the partial federal shutdown and avoid a debt crisis shifted to the Senate, Democrats made plain that one of their top priorities was to diminish the next round of across-the-board spending cuts, known as the sequester, due to take effect early next year.


    Fiscal deals now focus on sequester, amid little Capitol Hill optimism about quick fix. The gray clouds looming over Washington this holiday weekend appear to be thickening on Capitol Hill, as lawmakers express little optimism about reaching a deal before Monday night to fix the country’s fiscal crisis. The Senate will return to the Hill on Columbus Day after participating in essentially a pro forma session Sunday in which they made floor speeches but took no votes, with House members expected to stay home until Tuesday, the conclusion of a weekend of failed negotiations. “We will see our way through this, but the last 24 hours have not been good,” Tennessee Sen. Bob Corker told “Fox News Sunday.” “It’s not clear how this will end.”

    Copper Supply Glut Seen Tripling as Prices Sink 10%: Commodities. The worldwide glut of copper supply is poised to almost triple in 2014, driving prices to the lowest in at least three years at a time when the International Monetary Fund says economic growth will be weaker than forecastThe surplus will reach a 13-year high of 272,000 metric tons, according to data from Barclays Plc and the International Copper Study Group in Lisbon

    Monday's economic calendar

  23. $101.25!  Nice call Phil.  I slept too late, unfortunately.  

    What do you think is causing the drop?  

  24. NTE/Bdon – I'm very leary of all those Chinese companies.  If you are going to play them, I'd treat them like a Biotech play – very hit or miss.  You say "close to book value" but did you read the article below your comment?  Lots of bad information on Chinese companies and NTE is not a large-cap. You can sell March $7.50 puts for $1.10 for a net $6.40 entry, which is 20% off but do you REALLY want to own them for $6.40 if the drop to $6.40?  That's the question.

    As to hedging, if you hedge the entirety of your Portfolio against a drop the only thing you'll end up insuring is that you will never make money under any circumstances.  Hedges are INSURANCE, not a cure-all.  They are meant to MITIGATE damages – not to make sure you never have any.  Think about it, you have a deductible for a reason on insurance policies – there are levels of losses you should be prepared to accept as a normal part of owning stocks.  The cost of guaranteeing you have NO losses would be ridiculous.  

    What you generally want to hedge is what you expect to lose in a correction.  Of course, keep in mind that you can always add more hedges and, unlike life or heath insurance, you CAN vary your level of insurance depending on how risky your activities are going to be during the covered period.  So, with NTE for example, if it were a blue-chip, I wouldn't be worried it would underperform the indexes so, the fact that I'm covered for a 20% drop and the fact that I REALLY want to own them for $6.40 or less and the fact that this is a 1x entry (of 4x or more) – means I have NO need to insure that trade (if it were a blue-chip that I liked). 

    If I bought TSLA at $35 and now it's $175, then do I really need to spend money insuring it or should I just stop being a greedy bastard and lighten up?  If I have a buy/write that's 10% in the money and is 15% protected below – I don't need much coverage.  

    You have to cover what you are worried you will lose, generally about half and generally what would happen if the market drops up to 20% but it's silly to cover more as somewhere between 0 and 20%, you can always add some more hedges.  

    So, with IRBT Nov $30 puts at .80.  IRBT is $35.38 so you already have 20% downside protection but it's not an index, it's a stock.  If you REALLY want to own IRBT at net $29.20, then there's no issue and, if you don't, then this is a trade, not an investment and you should set a stop at about $1 (IRBT failing $35) rather than spending .20 or more on a hedge that you will lose even if your IRBT bet works out. 

    Think about what you are saying, you made a bet IRBT would be over $30 in November.  You collect $80 for 1 contract and you obligate yourself to own net $2,920 or IRBT stock.  If you hedge the whole $3,000  - you would have to spend $300+ for the hedge.  That's a "no win" situation.  If you don't have the confidence in the position or if you can't accept the loss, then collecting $80 against a $3,000 risk is NOT a trade you should be making. 

    That's why I prefer longer put sales.  IRBT only goes to March but at least I can sell March $25 puts for $1.05.  That's another 20% cushion and I REALLY would LOVE to own IRBT at $25 or less and I'm collect $105 while setting aside $2,395 to buy the stock or $1,200 in margin (or less, of course with ordinary margin accounts) to make $105 in 158 days so 8.75% is 17% a year in a far less risky trade.  

    What's the point of being greedier than that if you then become so worried that you feel the need to protect your aggressive positions from themselves?  

    CZR/Invest – I was talking about killing short, naked puts, not the ones that are part of spread trades.  I know we've made a lot of CZR picks and I don't recall them all but it's simply prudent, prior to the event, to take off the risk and then, after the event, we can put them right back on (assuming things go back to "normal").  

    Inequality/Albo – It amazes me that people just don't understand this concept.  When Henry Ford realized that, if he paid his workers more, they would buy more cars – it was a revolutionary concept.  We had an age of prosperity ushered in by workers rights.  Since Reagan began demolishing unions in the 70s, we've been in constant middle-class decline – why can't people connect the dots?  

    One of the functions of 70% and even 90% top tax rates (and only about 100 people in the country ever paid rates that high) is that it discourages greed by the top 1%.  At a certain point (say earning over $1Bn in a single year) a person simply doesn't NEED any more money.  They may want it, they may even "deserve" it, but certainly they don't NEED it but 1M other people could sure use $1,000 and that's what a tax rate is meant to address.  

    Maybe a guy (or Corporate Citizen) would say "Gee, I have to pay 90% tax anyway, so maybe I'll just pay my workers more instead."  Maybe they'll decide they don't need to make as much money per item sold, maybe they give more to charity, maybe they defer their earnings over time.  No matter what they CHOOSE to do to avoid paying 90% taxes – the net result is is puts more money into circulation and improves the economy.  That's how you "trickle down".  

    And then Conservatives moan over the breakdown of "family values" but they are the ones destroying families by not paying people enough so that one of the partners can stay home and raise the children:



    When you take out the top 1%, the differences are astounding but also,when you break out the top 5% and 10% (as very few charts do) you can really see how screwed the entire bottom 90% has been for the past 50 years. Had it not been for the Clinton years, when employment and wages shot up - things would be a lot, lot worse (although that's hard to imagine). 

    CZR/Invest – Yes, if you have a naked short put in CZR that is not a part of a spread, I suggest you close it this week and, after the adjustment, THEN we can consider getting back in. 

    Greater efforts/ZZ – ROFL!  Congress and "great" in the same sentence with "effort" too!  Priceless…

    Oil/Bruce – I doubt we fail $101 without a major market tanking.  It was a nice dip but now we're back to being driven by the pump crowd and there's no EIA this week so they are probably gaming API to give them a good count but AFTER that, I'll be into shorting on another run up.  

    You can play the nickels and dimes game at $101.50 (but super-careful there), $102 and $102.50 but it would be better to wait and see how well the $101.50 line performs.  

  25. Phil, thanks! I never attempt to hedge a whole portfolio, but I calculate a total net exposure figure as a starting point. 

  26. What you really need to get a handle on is how much you expect to lose if the market plunges 10% overnight.  Ideally, you should be hedged against 50% of that drop and that hedge, preferably, will last you through a 20% drop (paying 10%) at which point you can simply layer the hedge.  

    Here's the logic. 

    You have 100% the should make 20% (from sale of premium) over the course of a year if all goes well.  So that's about 1.5% per month.  You find a hedge that uses 3% ($3,000) that gives you at least $10,000 worth of protection for 3 months like the TZA Jan $22/27 bull call spread at $1.25.

    Since those make $3.75 on a 20% pop in TZA (a 7% drop in the RUT) you can buy $2,500 worth (20) and be very well protected, probably over-protected for 95 days as that spread pays $10,000 on a 10% drop in the RUT and, if your portfolio positions are hedges, you shouldn't be losing $10K on a 10% drop. 

    Of course, once you get close to expiration, you don't take a total loss - you roll.  For instance, the Nov $22/27 bull call spread has 32 days left and is .90 so the loss is only .45 over 2 months (with the RUT not up too much) and the Nov $22 calls are still $1.30 and they can be rolled to the Jan $22 calls for $1 so another 2 months of insurance is $1 but you'll get some of it back when the Nov short calls expire and you sell the Jan whatevers (the $28s are currently $1.10).  

    So, once you establish a hedge, if you maintain it properly, it shouldn't cost much at all to maintain.

  27. Test