What a fun market to play!
Yesterday, in our Live Member Chat Room (you can subscribe here), at 11:13, in anticipation of a wierd day, I put up a bullish and a bearish trade idea for our Members. The cool thing is, both sides won! Our two trade ideas (which we went over in our Live Webcast at 1pm) were:
If you want to play for an AAPL pop this afternoon, the QQQ weekly $100 calls are just .40 and QQQ topped out at $100.33 yesterday. Figure AAPL pops 2.5% and that pops the Nas and QQQ 0.5% so $100.50 + premium could be good for 50% if AAPL gets a good reaction – if not, it's probably going to lose less than a direct play on AAPL would.
TZA/Sn0 – Well TZA is only at $14.50 so the spread is half in the money at net $1.25 so it still has good upside if you add to it but I'd rather get the Jan $15/20 bull call spread at $1 as that gives you more time and more upside – if your TZA hedge goes in the money. That way, you can take $2 off the table on the Oct spread and know you still have plenty of upside if TZA keeps going up on you and also less downside exposure if it flips the other way.
When our 1pm Webinar started (at the same time Apple's conference started), the QQQ calls were just 0.42 and still playable and, as you can see on the chart, we even had a dip down to 0.30 briefly but that line held and we then jumped 100% back to 0.60 and then on to 0.72 before dropping back to 0.60, where we took our expected 50% gains and ran.
If you missed our Webcast yesterday, you should check out the replay because we discussed WHY we made that particular pick and HOW we selected it – very educational! That's because, at Philstockworld, our goal is to TEACH you to be a great trader – not just give you great trades.
As to TZA, the Russell plunged from 1,175 to 1,155 – good for $2,000 per contract on the Futures shorts (/TF) and TZA shot up to $14.74 and the spread is up to $1.08 – up 8% on a 1.7% dip in the Russell – that's 4:1 leverage on your portfolio protection – good stuff! Of course we like to pair our hedges with short put sales on stocks we REALLY want to own if they get cheaper and today that's going to be:
GTAT, who took a dive on a huge disappointment that their Sapphire Glass was NOT being used in the new iPhones. While it is on the iWatch, the surface area of the watches are less than 20% of the Phones, so relatively small chance of big sales for GTAT. Still, it's a nice little company with a good product and, at about $14 this morning, we should be able to sell the 2016 $10 puts for $2.25 for a net $7.75 entry and that, then pays for 2x the TZA spreads.
CCJ is down with the Materials sector but Japan is beginning to restart their nuclear reactors (shut down since Fukushima, 3 years ago) and that should kick-start demand for Uranium again. CCJ has been making money (p/e 20) even at these low prices and a boost in demand and a rise in Uranium Prices will be all profits for CCJ. So I really like selling the 2016 $17 puts for $1.90 for a net $15.10 entry and, like GTAT, that pays for a couple of hedges. As a trade on CCJ, though, you can add the 2016 $17/22 bull call spread at $2.10 for a net 0.20 entry on the $5 spread that's $1.69 (745%) in the money to start.
We already had some fun this morning going long on the Futuers in our Live Member Chat Room, choosing /YM (Dow Futures) at 17,000 and /TF (Russell Futures) at 1,155 but we took the money and ran at 17,050 (up $250 per contract) and 1,159 (up $400 per contract) and flipped short on /NKD (Nikkei Futures) at 15,820 as we thought the run-up was a bit fake looking and, more importantly, because Treasury has $21Bn worth of 10-year notes to sell today (1pm) and $13Bn worth of 30-year notes to sell tomorrow.
A little market fear really helps to drive retailers back to cash and help move those bonds and the Fed still wants to keep those long-term rates as low as possible so, when long bonds go on sale, you'll often see a market pullback ahead of the auctions. Manipulated? Of course it is (see Monday's post). And they'd better manipulate things because Mortgage Applications plunged 7.2% this week to the lowest level since December of 2000.
Lack of a true housing recovery has long been one of my main reasons for remaining skeptical of this rally – these numbers are as low as they were when the market was crashing in 2000 – the year the Nasdaq fell from 5,000 in late March to 2,500 that December (-50%) and on to 1,200 in Oct of 2002 – THAT'S the level of mortgage applications we have now along with our once-again overpriced Nasdaq.
Maybe this time will be different – MAYBE.
But, if not – try the hedges!