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GDPhriday – Will a Downward Revision Take Down the Market?

SPX DAILYWheeeeee – what fun!  

The markets have flown higher on fairly light volume but who cares as we are making HUGE amounts of money on our bullish bets.  We are exactly on the path we expected for the week with just a few more data points to go but I did already tell you on Wednesday:

Hopefully tomorrow, improving sales of Durable Goods, which were down 1% (ex Aircraft) in the last reading.  We'll get an update on Personal Income and Spending on Friday, which should be improving (rising wages) but also a revised Q4 GDP report, which will likely be a bit lower in light of recent data.  

We're hoping the indexes hold up at S&P (/ES) 1,900 and Russell (/TF) 1,000, where we're playing the Futures long for a bounce with tight stops below.  DAX 9,200 needs to hold up in Germany and we're already surprised that 15,700 isn't bouncing on the Nikkei (/NKD) as people have panicked into the Dollar, driving it back to test 98 this morning.  The Nikkei loves a weak Yen.

The S&P hit 1,960 this morning (up $3,000 per contract), the Russell hit 1,040 (up $4,000 per contract) and the Nikkei hit 16,300 (up $3,000 per contract) so you are very welcome.  We even had a live Futures Trading Demonstration on Wednesday in our webinar where similar picks made $320 in the 30 minutes we were going through the trading examples (replay available here), in case you are wondering if you are capable of learning how to make money trading the Futures too.  

We took the money and ran, of course, as we're expecting a disappointing GDP number and then we'll play it by ear.  For those of you who are futures-challenged, we still have our ultra-long Russell (TNA) trade idea from last Thursday's post (again, you are welcome), which was:

Buy 10 TNA March $41 calls for $3 ($3,000)

Sell 10 TNA March $44 calls for $1 ($1,000)

Sell 1 BA 2018 $80 put for $7 ($700)

TNA is already over $47 this morning and BA has popped back to $116 so that net $1,300 spread is right on track for the full $3,000 payoff (up 130% or $17,000 in less than 30 days).  The $3,000 will drop in your pocket on March 18th (if TNA holds $44) but it will be a long time before the BA puts expire worthless so you still carry that obligation (to buy BA for $36 (31%) below the current price).  As we like to say, that's an obligation we can certainly live with and we'll be more disappointed if we DON'T get to buy it and only get to keep the $700 on the short puts.

Now, here's how hedging works:  UNLESS the Russell is lower than it is now, we DEFINITELY have $3,000 coming to us from the TNA spread plus we gained a lot of money on our long positions (we flipped very bullish last week on the dip) and we want to lock that in so now we can pick up an ultra-SHORT hedge on the Russell (TZA) that will pay us if the Russell fails to hold 1,040.  Something like this:

  • Buy 10 TZA April $52 calls for $7 ($7,000) 
  • Sell 10 TZA April $57 calls for $5.50 ($5,500) 
  • Sell 5 FCX 2018 $5 puts for $2.10 ($1,050)

As you can see, TZA is a very violent mover and will be well over $57 if the Russell even twitches down on us.  Now we're spending net $450 cash on $10,000 worth of protection, using just 1/4 of the profit from our TNA trade.  This is how we set ourselves up to profit in either direction in volatile market conditions and we'll follow up on this pair of trades next week.  

To summarize, we have an obligation to buy 500 shares of Freeport McMoran (FCX) (now $7.40 – a trade idea I featured at this week's Trader's Expo – see Monday's post) for $5, which is 32% off the current price and $2,500 total outlay, worst case.  Our best case is netting $10,000 back on a $450 cash outlay for a $9,550 profit (2,122%) if the Russell doesn't hold our gains.  We've gained a lot more than $10,000, of course, we just want to mitigate some of the potential losses if the market doesn't hold up over the weekend.  

Remember, we still have our TNA play, which pays +$1,700 if the Russell merely holds 1,040 and ANYTHING lower than this will pay us $6,000 or more on TZA, because the trade is already in the money, so it's possible to win on both ends and, if we lose, the profits from either side of the trade should nicely offset the losses on the other (barring a black swan event – these are not magic beans, you know).  

8:30 Update:  Q4 GDPs second estimate came in way better than expected, up 1% revised from up 0.7% in the initial reading.  I'm liking this report because the big positive changes were bigger contributions from Personal Consumption Expenditures (PCE), Residential Fixed Investment, and Federal Government Spending and the biggest negative was a downward revision in inventories but, as I often say, that's a false indicator because of course inventories go down when people surprisingly buy more stuff – duh!  

Now, the real question is, is good news good news or bad news?  We have had a lot of signs that the Fed was right on the money with their rate hike (market taper-tantrum aside) and this data puts another Fed hike back on the table and, generally, the markets don't like that.  To complicate things today, we have Fed Governors Powell, Williams and Brainard speaking spinning during the day and they can send the markets up or down with a word.

On the positive side (for FREE MONEY lovers), the Price Index slowed – up just 0.4% vs. 1.3% in Q3. Core prices gained 1% vs. 1.3% in Q3.  That keeps the Fed from hiking so this may be a "Goldilocks" report for the Bulls that shows an improving economy AND a Fed that's still on hold.  This won't change our plan of adding a hedge but it does make it a lot less likely that we'll be needing it. 

Now it's all up to the brain trust of our World Leaders at this weekend's G20 meeting.

Have a great weekend, 

- Phil


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  1. Phil are the three Fed governors speaking today hawks or doves? Do we have any clues as to how they will be spinning? Usually you are pretty good at predicting these.

  2. Good Morning!

  3. Good morning! 

    Here's a clip that summarizes last night's debate:

    Stooges made more sense!

    Fed Govs/Craigs – Sure, we have a chart for that but they've all been doveish lately. 

    Indexes holding up so far but off the highs.  Not much danger or 1,950 failing so we're probably good(ish) for the day.  

    Oil testing $35, very brave and a tempting short.  

  4. ?'staring at phones'  You won't find me in that room….Am I anti-social?…. ;)

  5. Phil, you deserve an 'Atta Boy' but I think we're just used to your great calls…. :)

  6. oil wtf???

  7. Maya Just look at RH just one day later up 1$

  8. Anti-Social/1020 – I know, it really drives me nuts when I take the kids to dinner with their friends and they all take out their phones.  What's the point – may as well just hook up tubes in the pods and leave them at home – that's probably what the Matrix kids' parents finally decided (would make a good prequel).

    That's what she said, 1020, but thanks!  cheeky

    Oil/Jabob – Er, short around $35.  Now, where have I heard that?

    NG wtf is more like it:

    Oh well, back to adding more I guess.  

  9. WHR worth selling an other Jan 18 130 put @ 17.20

  10. Dollar is killing the rally at the moment – not good if it's over 98. 

    You know, after a while, you realize Cramer's jibber jabber is totally misinformed BS.  Well, not misinformed, he's just pimping whatever he's told to by his hedge fund buddies and then he just spouts random BS to justify the call.  You can tell when his heart's not in it because he's not even trying to make sense this morning…

    WHR/Yodi – Durable goods report was encouraging.  

    Let's officially add that hedge to the OOP (20/5 short puts) and the STP (50/20 short puts in the LTP) to lock in our ill-gotten gains for the month:

    • Buy 20 TZA April $52 calls for $7 ($7,000) 
    • Sell 20 TZA April $57 calls for $5.50 ($5,500) 
    • Sell 5 FCX 2018 $5 puts for $2.10 ($1,050)

    As you can see, TZA is a very violent mover and will be well over $57 if the Russell even twitches down on us.  Now we're spending net $450 cash on $10,000 worth of protection, using just 1/4 of the profit from our TNA trade.  This is how we set ourselves up to profit in either direction in volatile market conditions and we'll follow up on this pair of trades next week. 

    LTP up over 51%!  

  11. Phil, The rule at our family gatherings, is no electronics/phones for kids or adults; recently there were 15 of us gathered and it was so nice to have discussions and visits. Aloha.

  12. Phil,

    on /NGK6 what entry point do you recommend, and would you recommend holding over the w/e? I'm looking to enter at the support line 1.825….your input will be helpful…thanks

  13. this definitely was NOT the week for UNG. 

    Next week I swear…. 

  14. I am awe-struck at how good of a call LNG was.

  15. LTP:


    That's $1,229,078.60 INCLUDING the crappy bid/ask estimates.  I would feel so much better cashing out here, I can't even tell you!  

    Even the Butterfly is up crazy at 111.7%, way too much gain for a month.  

    OOP is up 6.1%, much improved but still needs work.

  16. Phil / I hope you didn't play the debate drinking game. That would cost you 2800 shots and a new liver!

  17. I would be replacing my liver if I took a shot for every time Rubio smiled at the camera when landing a punch….

  18. Never expected the /ES to go down this morning specially the DAX is shining!

  19. well 1.825 on /NGK6 went by the wayside quick!

  20. Gatherings/Newt – I don't allow them at dinner or when it's just me and the kids but, when their friends are out with us, I don't want to be THAT kind of parent so they do what they (sadly) normally do when they are together, which is ignore each other and talk to people who aren't there.  Maddie, for some reason, isn't into that stuff and neither are her friends but Jackie's crew freak out if they lose their WiFi signal at any point during the day.  If you wanted to make a disaster movie for them, just have one where the Wifi and LTE signals go out and people have to use 4G for a day!  They'd run out of the theater screaming….

    /NG/Jasu – Well I'm in 10 long-term and I'm currently in 18 as I just added 6 this morning but I'll be getting out if we rally back and sticking it out either way on at least 10 because I'm pretty darned sure we'll be back at $2.50 by April. At this moment, the Dollar spiked up over 98 and that's driving /NG down (oil and gold too) so that's no reason for me to doubt my premise.

    Yesterday we bottomed out about 10:30 without a strong Dollar and then popped back 5 cents – I'll be thrilled with 0.02 ($1.84) on my new 6.  

    LNG/BDC – Well that seemed obvious as they were able to buy all that /NG for under $2 and their ships were finally coming in.  

    Debate drinking/BDC – Like Bill Maher, I was ready to shoot myself after the first half hour.  

    Honestly, the elevator door opens and these five guys are in it – do you get on? OK, I'm reaching for the gun, so I'm gonna say gnite!

    Europe losing a little luster with an hour to go but still up a lot:

    /ES testing 1,950 – uh oh!  

    Oil almost back to $33.  

    /NG/Jasu – Hard to tell when these spikes bottom out but that's their purpose, to stop people out before they go higher.  

  21. Yodi/SPY

    It is the Bonds auction that is pulling SPY down. Maybe after 1:00 we will zoom up.


  22. 10 contracts UNG March 18th 6.50 calls for $0.19. I have some Mar & Apr now's, just time to see if a bottom can form. The last 13 business days it's been straight down, just wow.

  23. Pat its going up already they must have heard us

  24. Sabine Pass LNG TerminalEIA update:

    Cheniere’s Sabine Pass ships first LNG cargo from the U.S. Lower 48

    Sabine Pass, the first liquefied natural gas (LNG) export terminal to be constructed in the Lower 48 states, shipped its first cargo of domestically sourced natural gas on Wednesday. The LNG is being carried aboard the LNG tanker Asia Vision to Brazil's TRBA (Bahia) offshore terminal. Sabine Pass is expected to load several commissioning cargos as part of its start-up process, after which it will need the approval from the Federal Energy Regulatory Commission to operate commercially. Previously, the United States has only been exporting LNG from Alaska and occasionally re-exporting LNG from the import terminals in the Lower 48 states.

    Sabine Pass, located in Cameron Parish, Louisiana, has completed construction of the first two of its six liquefaction trains, each with a capacity to liquefy 0.55 billion cubic feet per day (Bcf/d) of natural gas. Commissioning of the first liquefaction train began in the fall of 2015, but several mechanical issues delayed the start-up. Three other trains at Sabine Pass are currently under construction and are scheduled to come online in 2017-19, while the sixth train is waiting for a final investment decision.

    Six other liquefaction projects are scheduled to come online this year in Australia, Malaysia, and Indonesia. They will add approximately 8% to the total global liquefaction capacity, while the two trains at Sabine Pass will add 2% to the total.

    The five LNG export facilities currently under constructionin the United States, including Sabine Pass, will have a total liquefaction capacity of 9.2 Bcf/d, which is equivalent to 13% of current domestic natural gas production. Nearly all of this capacity has been fully or partially contracted and is scheduled to be in service by 2019. Once all facilities under construction become operational, the United States will become the third-largest liquefaction capacity holder in the world after Australia and Qatar.

    EIA has projected that the United States will become a net exporter of LNG in 2016 and a net exporter of all natural gas by 2017. LNG remains a small portion of U.S. gas trade, with most gas flowing by pipeline as imports from Canada and exports to Mexico.

    So, between now and April, we'll be seeing about 1Bcf/day moving out (assuming just Sabine is on-line) and that's only 7Bcf/week, not a huge effect so we will be selling on a nice pop to $2.20 or better and we're banking on a shift in sentiment based on exports starting up.  


  25. FCX/Phil – I can't use this security as part of the hedge trade. What can I substitute it with?

  26. Covered 1/2 SCO March 250 call at 3.00 sold for 10.45

  27. MNST having a bad day today had there earnings .14 centsw below estimate. It is a great option player

    I added some more stock in the downdraft today wait for recovery and sell ITM option Last I sold Feb 26 call 130 for 5.60 closing possible worthless today. just bought stock for 128.20 for starters.

  28. The Ongoing, Fraudulent Assault on Seattle’s Min Wage

    AA introduces a class BELOW Economy — Travellers are willing to suffer all sorts of discomforts for the sake of a lower fare

    Core PCE climbed 1.7 percent year-over-year in January, the most since Nov. 2012

    Vicente Fox wasn't kidding about "not paying for that F—ing wall." Maria is still a complete idiot.

    Trump: Planned Parenthood helps millions of women and I would defund it

    FCX/Raviis – That's interesting.  Anything you REALLY want to own if it's cheaper is a good substitute.  How about selling 5 RRD Sept $14 puts for $1.30 ($650)?  Owning RRD for net $12.70 when they pay a $1.04 dividend would not be a bad outcome.  

    SCO/Jomp – Great play.  

    MNST/Yodi – Fad that's now out of favor and everyone has energy drinks now so nothing special about them.   

    MNST/Yodi – Must be a different MNST than the one we have in the US, which makes energy drinks, not beer.  Water, sugar and caffeine not as exciting to me as barley, malt and hops. 

  29. Jomptien – Well done.  We must be reading the same trading plan.  I'm still short a SCO 2018 360 call.  Currently ahead by 40+ points.  As I said before, I think it goes to zero.

    Also, take a look at DWTI.  I caught an 18 point gain on a day trade as oil started fading back from the strong open.

  30. MNST might be but the plays are great. sold yesterday on gut feelings the Mar2 131 call for 6.10 can buy it back today for 2.50 and counting. Even the Mar 120 c you can sell today for a net premium of 1.32 and a down site protection to +- 110.00 meaning even hear you make more tha 1% in 21 days but obviously I wait till the dust sattles.

  31. Phil – GDP – "The government's initial figure showed growth of 0.7%, but that will likely be adjusted down to a 0.4% annual rate"  Slapping lipstick on the pig they delivered +1%, a big MSM hooray!!! I concur with your view, translation in Fed speak, room to raise.

    Durable Goods – Hailed as as rebound in manufacturing, MSM New orders seasonally adjusted MoM – +4.9%; Yoy +1.8%; hooray!!! Under the sheets – mui cocka – unadjusted Mom -13.6%; Yoy -2.5%.  Ex transport and ex defense orders and shipments are just as bad.  

    How bad was it? New orders Jan 2016 is -1.2% below Jan 2007; A decade and trillion dollars of stimulus paid for that economic account of which nothing good can be said period. Pouring salt in the wound, a longer horizon indicator 180 day MA for capital goods shipments a new low -2.1% = Dec 2008 and April 2001..Click here for all the gory details.  And the contraction continues, but again based on the MSM narrative, all is well and room to raise. Beware the Ides of March.  Out.

  32. Yodi- for after hours- are you still wandering around Europe? If you have been keeping up with the news, would be curious about the European take on US presidential election battles. 

  33. /DX- The dollar really seems to be moving a lot today. Mostly up for the first time since Feb3 we are over 98. Is this because they are expecting a rate hike now? I think I finally have that right, higher rates equal a stronger dollar, right? It is keeping a lid on things it seems. All I read is how bad the economy is and how we should all be preparing for doom, yet they are still talking rate hikes. Maybe some day I will understand all of this, but the more I read and try to learn the more confused I get. Today is a particularly confusing day as I see things moving all over the place with no reall explanation for the moves that I can see.

  34. Phil/UNG,

    the July 7/8 BCS is around .22 now from .16. still good? that is like more than 40%…way away from your 5% tolerance.


  35. Phil,

      You might want to check out qello concerts streaming on Amazon. They seem to have an impressive library of rock concerts available to streaming. Ought to pair well with your big screen HDTV. Eight bucks a month after free trial. I'm a little disappointed it wasn't another freebie with Prime.

  36. WTW – The Oprah magic has faded.

  37. Pstas As much as you guys are full of elections here the debates are just mentioned nothing more than what is going on in the US.

    It looks that Clinton will win and on the Republican site Trump is trump, but will not win against Clinton.

    The news here is full of Fluechtlinge. The German Gov. is sitting with Merkel in a great heep of shit. The woman is nuts and I hope she will lose her ass soon.

    95% are against her politics if she would finance the millions out of her own pocket she would be thinking different, but that is general with all political. They only know how to spend the money from the man in the street. But here they are fat up and she stands alone.

  38. oil and mkt weakening.. dangit!

    good call Phil

  39. Pstas If you would as me to trade for you and gamble with your money I would 100% decline, but politicians do not worry of what they spend of your funds!!!!

  40. Albo – UIVXY, I had 4 of those and sold 2 at 10.80, keeping 2 (basis 14.96) and looking to and on a spike. Been selling and buying back along the way. Same with SCO around 30.

  41. Yesterday and today sure look and feel like end of month window dressing. many inexplicable boosts in many usually dull positions. Did FOMO hire the recently fired Chinese market guy?

  42. Jomptien – Did you mean to say you sold the calls and bought them back at $10.80 ?

  43. Got our little pop on /NG but it faded fast.  Happy to reload again at $1.81 on /NGK6.  Making 0.02 5 times is as good as making a dime once!  

    As long as you keep your expectations realistic, you can do very well on small moves (see Wednesday's Webinar if you missed it).  

    MSNT/Yodi – Well as long as you're not "investing" in it. 

    GDP/Naybob – Yeah, lots of "adjustments" in GDP and Goods reports but it is what it is.  I am seeing generally improving numbers in all the places you expect them to be to indicate rising consumer spending in the US and that's rally fuel so don't look too closely under the hood or the car might run you over! 

    Dollar/Craigs – Strong GDP means Fed is on the table for hiking while the remaining G19 are still in easing mode (except maybe Carney, who just said ZIRP does not work).  A weaker Dollar requires stronger rates to interest people in bonds and a strong dollar means you can sell bonds that are priced in Dollars for less as they carry an added security function (the Dollar vs your local currency) – hence so many foreign buyers of our debt, no matter how crazy low we price it.   Anyway, lots of speculation ahead of the G20 and I will watch and wait (with my hedges) rather than try to guess outcomes.  

    UNG/Pat – I'd make lower offers on each side and see if they fill.  /NG is jerking all around so you might get better fills on both sides.

    Qello/Kevin – Thanks, I'll check it out.  I get really pissed that AMZN still charges me for video with my Prime Membership.  

    Hey, I just got Blues Brothers Tix – Dan Aykroyd and Jim Belushi, that should be fun!  

    WTW/Albo – Like a yo-yo diet.

    Thanks Jabob, it seemed a bit much.  

    Window dressing/Scott – Monday is still Feb.  

    Intraday Market Rescue Team Most Active Since 2011

    3 Things: Earnings Lies, Profits Slide, EBITDA Is Bulls**t



  44. Phil MNST As i stands today I trade you CLF or RIG against it any day

  45. I was wrong this morning, there was a huge revision to inventories

    "Businesses accumulated US$81.7 billion worth of inventory in the fourth quarter rather than the US$68.6 billion reported last month. The largest contributors to the upward revision to inventory investment were retail trade and mining, utilities and construction."
    So that added to GDP (+0.31% effect from the revision), not subtracted and I don't like that.  Helps explain the weakness we're seeing after the initial rally.  
    MNST/Yodi – OK, I'll take 70 CLF to your 1 MNST and may the better man win!  cheeky

  46. Phil – a sick society –  "$1.2M is the take-home pay of the MEDIAN family income in this country over 40 years.  We pay half of our families less than that!  To me, that's the mark of a sick society, where we have a perverse anti-lottery that damns those who get cancer or heart attacks or diabetes and aren't lucky enough to have a quick, cheap death.  So, who disagrees?"

    I agree, its sad and apathetic. Who disagrees? Only those in control. and who is in control? Capital for the last 40 years, not labor. This is why all retirement and health risk has been passed down to the individual level. Humans are a fungible resource aka Coppertop.  Until that revolution we chatted about here comes… its business as usual or move to Finland?

    Remember, remember the fifth of November,
    The gunpowder treason and plot,
    I know of no reason
    Why the gunpowder treason
    Should ever be forgot

    Guy Fawkes was the only man EVER to enter Parliament with honest intentions. Smiley Emoticon. Out.

  47. Albo, yes I had 4 and bought 2 back at 10.80, still  holding 2. bought them back a little early this time

  48. April TZA spread – I worked the 51/56 spread for 1.90. Paid a little more than the 52/57  but its 2.80 in the money. 

  49. I give you 67 CLF and I let you know what I make on the 1 (100 stk) MNST in the next 6 month and you let me know what you make on you 66 CLF in the next 6 month.

  50. Phil- yes lots of confusing action today, so I agree with watch and wait strategy. I am sure you get this all the time, but I have a dear friend who just came into money for the first time inn their life and have asked me for help, so I ask you my advisor to help me answer. Perhaps this would make an interesting thing for everyone to chime in as well. They received $125,000 and would like to use it for retirement in 20 years. They can cover day to day with incomes as they always have. I think it is great that they are not rushing to blow the money with "luxuries" right away and would really like to give them good specific advice on a     portfolio and help manage it with them for the next 20 years. So, is there some portions of the LTP and STP  I could use or can you help me pick a few starting investments, or anything at all to help? Thanks in advance to all and of course Phil. I have not done well enough on my own since I have joined to confident

  51. That should have said I have not done well enough to confidently do this on my own and they distrust any and all financial advisors to pick one to help them. I do their taxes and have helped save them a lot of money with my advice is why they trust me as well as a 30 year friendship.

  52. Incomes/Naybob – The only thing that's kept the people from revolting so far is that, since the 70s, women have been expected to work and supplement the family income so the men can be paid less and less and the only thing we lose is the Family Values that were supposed to be so important:

    Like frogs in boiling water, the middle class doesn't even know it's being killed – it will just suddenly happen and they'll wonder how they didn't see it coming.  Now it's just math, Employee compensation is down near 60% of income (and that includes the top 10% so imagine how low it is for the rest!) and the rest is investment income of some sort for the top 1% so, if the top 1% want to make 5% more – where's it going to come from?  Materials are already at lows so, unless I missed an econ class – they have to take another 3% out of labor's hide.  

    It's fascinating to me to see how much people are willing to put up with.  I'm not the type to put up with it and I used to think no one would but it turns out the average person is a sheep and made even more so by being dumbed down by poor schooling and media that discourages critical or individual thought so we have a nice, docile workforce they can crack the whip on.

    And, of course, the next step:

    6 months/Yodi – Ouch, that's a tight time-frame for CLF but I'll take it. 

    $125,000/Craigs – If they have 20 years, I'd go with a simple Butterfly Portfolio strategy.  That's generally good for 20-40% a year and 20% turns $125,000 into 6.6M in 20 years so why be greedy?  The thing is the risk in non-hedged (or less-hedged) strategies of having a big loss in the first few years is not worth it if it's going to be just a steady $125,000 without more money coming in.  

    The way to go is to just add one $25,000 allocation per Q (as there should be $250,000 in buying power) and, once the new one is on it's feet, add the next.  That's what we did starting in July of 2013 and now, 30 months later, we're up over 100% having gone through some pretty major market swings.  

    And, for what it's worth, Rustle is a great financial advisor who I trust (and we are probably going to start a hedge fund in a year or so) and would be able to execute that strategy if it's not something you would be comfortable with.

  53. Craigs Give me your expected income requirement per month.

  54. Hi Phil.  Have you a rec on KMI?  Re Craig's note, how would you start a new butterfly portfolio today?  Can you give me Rustle's contact info?  Thanks.

  55. $125k – obviously the advice above is the best. I'm only answering this because this is what I would do right now if handed $125k post tax.

    $20,000 – $10k each in XOP/XLE. Energy is WAY underpriced so this is high growth. Reinvest divs.

    $20,000 – $10k each in XLU and XLB (reinvest divs)

    $20,000 – $10k each in TAN & FAN. These funds cover a lot of companies. Get on the renewable train baby! Reinvest divs. If this fund needs to be more conservative this can be low yield bonds AGG, TLT, or cash.

    $20,000 – muni bonds, MQY etc (pick a few from this list). If non-taxable account then BBN, etc. If cash account then take the ~$150/mo and pay yourself! Nice little income while the portfolio builds

    $20,000 in VEU. World fund ex-US, so 1/6th of the portfolio is outside the USD

    $20,000 – open to picking individual stocks. Make this a +100% / -50% portfolio. Sell half if you make the 2X. If you get hit -50% get out completely.

    Take $5k and pay yourself! Do something useful like mortgage or other debt paydown, re-model, fix something in the house, etc.

    I left off high yield (PHB HYT JNK) but personally I would have a few k in each and re-invest divs they can do very well over 20 years IMO. And there's also our high-yield mortgage and REIT favorites like NLY but that can come out of the "individual picks" part of the funds.

    Fun times, Wish I had that same problem right now! 

  56. If market stays up today, will be the highest reading of McClellan Oscillator in over a year for market being overbought.

  57. Christie just endorsed Trump.  Vying for VP slot?

  58. Craigs – FWIW I really like that debt paydown item BDC mentioned. That is a real gift. I'd go with up to 25K if they have it on anything other than a primary mortgage that is under 4.5%. And even that would be good to clear/reduce even with mortgage tax credit. What they save on mortgage they can then contribute that much more to IRA or other savings, every month.

  59. Thank you all! Great start to think on. Phil can you or Rustle share his contact info? That might be best if I can convince.

  60. SGYP- taking a bit of a hit on earnings. Pharm is this still in play or would you bail?

  61. And what taihuichi asked, how to start a new butterfly?

  62. Rustle a) what is your contact info? b)what level constitutes market staying up today? 

  63. b) above, is it just remaining green?

  64. LOL – Trump gives a press conference to say Rubio is not Presidential material and they cover it!  He's super-pissed that Rubio claimed he inherited $200M (he didn't).  

    4 cents back on /NGK, now $1.84:

    New Butterfly/Taihu – Any of the positions from last week that still have short puts and calls in the zone are still good and, otherwise, when we add or move (monthly), then you can pick one and add another.  I know it's frustrating but the best way to do this with a conservative account (one you don't want to take a loss on) is one position per quarter and only add a new one once the first one has a comfortable cash cushion (so break-even is probably the worst case).  Already, just 10 quarters in and we're making huge amounts of monthly income – there's no need to rush the process.  

    KMI/Taihu – It's too volatile for a butterfly but you can sell 2018 $12.50 puts for $2.20 and net in for $10.30, which is a $6.65 (37%) discount.  That can be considered free money and the 2018 $15 calls are $6 and the short $20s are $3.85 and that's net $2.15 so a nickle credit on the $5 spread (and about $1.30 in margin) is a nice way to play for a $5 return in just two years.  

    Debt paydown/Scott, Craigs – I disagree.  Taking 10% of the $6M future money to pay down $12,500 in debt today is NOT really a beneficial move.  Debts should be paid down by cutting back expenses, not at the expense of savings unless the debt is CC debt, in which case it should be paid off rather than costing you 18% (but then you can't go out and get more or no point).  As I point out in this video, a $5 cup of coffee today is $240 out of your retirement in 20 years.   Mortgage debt (assuming 6%) is manageable and is, essentially, forced savings though I STRONGLY advocate getting on a 2-week payment plan to cut 1/3 of the interest (see "Interest Scams and How to Avoid Them").   

    Shared contact Craig & Taihu. 

  65. Craigs / here's what the allocation of 8 of those funds I mentioned looks like using their top 10 holdings from Yahoo Finance. 

  66. /si below 15 with the /dx popping

  67. Phil/Debt Paydown,

    Can you please elaborate "~~Debts should be paid down by cutting back expenses, not at the expense of savings unless the debt is CC debt"

    won;t cutting back expenses lead to savings which you use to pay debt. Sorry if I am not getting this?


  68. Tesla’s just-released annual 10-K for 2015 acknowledges that sales in China tanked by 33 percent, and the market value for environmental credits has plunged by 49 percent, since last year.

    and stock keeps on climbing.

  69. Craig- my two cents- risk is a subject not much discussed here but everyone's individual tolerance is different. Risk is relative, of course. What Phil or you or I consider average risk may prove unbearable to your friends. They should think about what a 20% drawdown would do for their psychological well being. 

    Knowledge and experience usually increases one's risk tolerance but that comes in time and only if they are willing to put in the work. I sell short index strangles monthly for income and have done very well. Can be an invitation to disaster, however if not done properly. 10 years ago I would not have even thought about it. 

    I used to dismiss formal financial planning. At my wife's insistence, we had one done a few years ago and I learned a lot from the process and gained considerable insight. Most importantly, it took some of the burden off me as I handled all such matters in the past and it gives her an outlet should I leave the sceen unexpectedly. . Having a plan; updating as circumstances change provides a level of comfort (or indigestion as the case may be) for living one's life in financial reality. . 

    Finally, as I tell anyone who asks me about what to invest in, include BRK/B on any weakness. I have been a buyer since the early 80's and my only regret is not having sufficient courage of my conviction to have backed up the truck much earlier. Even when Warren is gone, this will be a great company. 

  70. Can you assemble butterfly's in a retirement portfolio. I've never tried. If not, despite calculating 22% returns consistently for 20 years (which you may get, but I certainly never have), you would need to factor taxes on gains before coming up with a $125k -> $6600k in 20 years number. I usually factor a cup of coffee ($5) is worth $20-$30 in future dollars.

    Paying down debt is guaranteed – paying down a 6% mortgage (this seems high?) pays you 6% guaranteed. 

  71. Phil, I have been traveling but caught a glimpse of a recent rec on F as an income play.  Can't find it, would you please repeat it.  Thanks.

  72. Trump lol:

    Trump claimed Diana had sent him the “most beautiful, warm letter” after he did her a personal favour and sent her some flowers. 

    “Why do people think it’s egotistical of you to say you could’ve gotten with Lady Di?” Stern asked Trump. “You could’ve gotten her, right? You could’ve nailed her.”

    Trump replied: “I think I could have.“

  73. not too honk my own horn but I did recommend this one (twice) below 56 recently:

    Next up, I think CF is a buy down here

  74. FU oil!!!!

  75. /SI/Burr – What a long, strange trip. Too early to jump back in.

    Wow, Trump just did a speech where he badmouthed everyone who ever looked at him funny and the crowd is loving it.

    Drilling/Sibe – A total disaster at these prices (under $50).

    Debt/Pat – In that case, given the choice between putting money to work making money or paying down low-interest savings that are currently being serviced (and presumably paid down too), then it's better to put the money to work rather than not and waiting to hopefully, some day, getting around to saving more money that you can then, finally put to work.

    Again though, that's to go into a very conservative investing strategy – not gambling!  

    TSLA/Rustle – That's because Musk was tweeting this week.

    Unbelievable – CNBC still on Trump.  If it was Obama, they would have cut away after 5 mins.

    Global economy of $100T is overwhelmingly fossil fuel based, so IMF estimate of $5T or 5% for carbon subsidy is def right order of magnitude

    Wow, you guys have to watch this Trump thing.  Now he's turned on the media!  He's going to crack down on them and open up liable laws so they can be sued out of existence — {thunderous applause} — seriously???

    Retirement/BDC – Yes but you don't have the flexibility to pull a very profitable call or put and leave short calls or puts naked, which boosts our returns once in a while.  Actually, I'm not sure what TOS let's you do (they are very liberal) but I do know most brokers won't let you have naked short puts or calls.  I much prefer the ability to deconstruct a trade without worrying about whether or not my broker will approve so I'd rather pay the taxes than accept the limitations.  Anyway, if you have enough money, you set up a nice family trust and incorporate your expenses and all you'll ever pay is capital gains anyway.  

    F/Taihu – See, that's why I don't like playing it!  Can't find the damned thing.  This was from Wednesday:

    There you go, we made $320 in /YM and /NKD in the Webinar so people certainly didn't waster their time attending!  

    I really love that F (FORD) trade we talked about at these prices, let's add it to the LTP:

    • Buy 2,000 shares of F at $12 ($24,000) 
    • Sell 20 2018 $11.75 calls for $1.70 ($3,400) 
    • Sell 20 2018 $11.75 puts for $2.35 ($4,700) 

    ?That's net $7.95 ($15,900) and our worst case is we're assigned 2,000 more at $11.75 ($23,500) for 4,000 at $9.85 ($39,400) but we'll collect $1.05 in dividends (7 x 0.15) ($2,100) while we wait.  So our worst case is net $9.325 on 4,000 shares ($37,300) and our best case is we've laid out net $15,900 and we sell for $11.75 + $1.05 = $12.80 = $25,600, which is a $9,700 return on our $15,900 outlay (61%) in two years. 

    HCN/BDC – Good call:

    I like HCN down here, as a long term retirement hold. I also like a health care REIT that, in chemistry, reads as hydrogen cyanide.

    $1.87 on /NGK6 – See why I like the conviction trades?  My basis is now under $1.88 and I can go back to 10 long!  I started the week with 6 at $1.95.

    Trump still on (I think we're near an hour).  No saying he will allow Christians to lobby and stay tax-exempt – essentially destroying the separation of Church and State {thunderous applause}  

    Sorry, but that's exactly what it reminds me of…

    Oil/Jabob – Hmm, let me guess?  $32.50???  

  76. FU Phil!!!!

  77. ;-)

  78. IRS says hundreds of thousands more accounts hacked.  They should have stored them on IPhones!  blush

  79. Thanks for F info.  I am LOL over your IRS note.

  80. The other day I gave a explaination on buying stocks and selling calls against the stock.

    Yesterday Phil recommended a Play on RRD

    I entered a bit different I bought 300 stock paid 13.63 and sold 3 Mar 16 14 calls for .65 cents

    Just today the stock I can sell for 14.73 and buy back the call for .90 cents.

    My cost was 4089.00  my potenial income today would be stk 4419.00 plus options 195.00 equals 4614.00 less stck cost 4089.00 repurchase of call 270.00 equals 4359.00 net credit 255.00

    Obviously as Phil said yesterday it is just a bit more work, as well the potential gains are caped at 14.65. Not bad 6% in a day. Reget not every stock goes only up Like RH yesterday but I did have aconsiderable downsite protection and we noticed even one day after the initial exitement the stock is up 3.3%

  81. Meanwhile, news is ignoring Kansas shooting yesterday and Washington shooting today (4 injured, no fatalities so doesn't count).  Actually, things are much better this year with only 31 mass shootings so far and Feb is almost over.  Last year we were about 1 per day. 

    You're welcome, Taihu. 

    6% per day/Yodi – Not bad, keeps you ahead of inflation…

  82. Phil good Tweet re-post

    F-ing Aye MUSK! !!!!!!!

    I've been saying this for a couple of years now. Carbon at $0.01 per kg, a price they use to trade carbon credits in CA, puts a global price of $350B for all CO2 emissions (35 Gigatonnes/year). This is wayyyy underpriced and needs it needs to be 10 cents at least. Musk says 15 cents via the IMF (to get the $5T #). GreenCoin trades about 16 cents per kg CO2 currently. Go figure.

  83. Poor old Trump You guys will get great autobahnen and a new pollution free Volkswagen

  84. UNG Mar play already up 26% intraday. Of course, I would never take a +26% daily gain and run …. VIVA UNG LONGS!1! 

  85. Phil  6% you better get moving on your CLF MNST is already up 2.07 since I bought it this morning at 128.59 my starting price of the chalenge and I have not even sold a call obviously I will not sell puts

  86. The most secure place to put data is on blockchains. This is the "real value" of upstarts based on the Bitcoin software protocol.

  87. SGYP….holding and waiting.  Not changes and we have the 6P and 7C STO.  Let's roll the Apr 6P to the Oct 6P for 35c. 

  88. This is what I am programming into GreenCoin; the carbon sequestration/credit information goes directly onto the blockchain making it immutable, verifiable, and forever, plus everyone has access, no secrets. 

    You might as well think about all of your data on servers as being public. In the future it will be on blockchains (everyone has access) along with private keys (your access) and this will be how information systems' databases work. IMHO 

  89. Sorry this camp wifi gives me really a hard time today, challenge is the word.

  90. BOFI/Phil – know anything about these guys? This is an interesting comment:

  91. BID reported today with a marginal beat.  Stock is down 6%.  

  92. BID vs SPY….not something that says buy….

  93. BID, great, only my Mar 25 caller looks good on them today.

  94. Proposed changes would bring bitcoin, dogecoin and other cryptocurrencies under definition of currency.

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  102. BOFI – and comment stream I should add. like a penny-stock crowd.

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  122. Trump/Yodi – It's no joke now, that guy is scary.

    CLF/Yodi – So what, that's $2.07 and we just need 0.03 to tie.  Lost one today though, so make it 0.04.  sad

    Greencoin/BDC – I think we can get Japan to make them official currency. 

    BOFI/Scott – There's a lot of these virtual banks opening up and it's kind of the wild west with rules and regs so I'm just observing and learning for now (that will be 6 months to a year).

    BID/Palotay – Would have been a profit without one-time write-off.  People are wimps! 

    Kind of a relief as we sold 15 March $22 calls in the OOP. 

    GWPH/Pharm – Good point. 

    Sadly back to 10 long /NGK6 as it's good discipline over the weekend.  Effectively went long on 10 more and made 0.05 so that dropped the basis on the 10 I had down 0.05 and I'll be thrilled to do it again next week but I'm worried that's it and I'll wish I kept the 20 longs. 

  123. Phil,

      I have several really bad positions. One of them is -4 2017 RIG $25 puts. Would switching horses to the FCX 2018 $5 puts be a good move, or swapping one commodity problem for another?

  124. RIG/Kevin – I like FCX but the RIG Jan $25 puts are $16.45 so $6,580 and that's a lot of FCX.  How about BHI 2018 $45 puts at $10?  You could do 6 of those and, if BHI does their deal over $45, you get expired early.  

    Well, not the best finish with a down day but we're at 1,950 on the S&P and that was our goal (strong bounce) for the week.  Still glad we added the TZAs though, just in case.  

    Have a great weekend, 

    - Phil

  125. Phil / Butterfly Entries -

    "The way to go is to just add one $25,000 allocation per Q".  How is that $25k allocation calculated?  Based on the potential loss in one of the spreads?  Would you do a 1/2 allocation to start or whole $25k since there is a solid hedge component to these trades?  Thanks

  126. Phil – Incomes – compliant sheeple indeed.  Your advice on the Craigs 125K is sound, with this comment being sage capital preservation: "Debts should be paid down by cutting back expenses, not at the expense of savings unless the debt is CC debt, in which case it should be paid off "

    Wondering how many people are following that MO, I charted Yoy quarterly growth in personal consumption expenditures vs personal saving vs total revolving credit Jan 2014 through Jan 2016.

    Since Q3 2014 nominal PCE growth has declined five consecutive quarters from 4.65 down to 3%.  Coincidentally, over that same period, Yoy savings growth has jumped from -4% to +13% while CC debt growth has jumped from 1% to 5%.  Spending less, while saving and borrowing more on CC. 

    The drop in spending correlates with a contraction in federal tax withholding growth. Since Nov there has been an uptick in holiday spending reflected in monthly seasonally adjusted figures. Out.

  127. /NGK6 / Phil – Well, you've worked yours down much better than I have (but I'm new to this, so still learning). I started at 2.17, now at 1.99 after working it down a bit today by doing the day trade from 1.815 to 1.855 (although on only 1 contract). I will do this again next week if we get the chance. If not, is my basis going to be low enough to get back even? I have 6 and will take half off the table at that point.

    I don't know what you would consider the drop to be, from 2.25-ish, or 2.35-ish, or 2.55-ish down to 1.85-ish? And does the 5% rule still generally apply to futures, so we could expect weak and strong bounces to 1.93 and 2.01 (assuming down from 2.25-ish to 1.85-ish) assuming 1.85-ish is the bottom (sure seems to be the sort of price action you would see at the bottom but…).

    Your thoughts would be appreciated. Thanks!

  128. Phil when will they make announcements out of the G20 meetings? Will it be at a time when we can use it for futures plays Sun/Mon?

  129. Pharm thanks for the answer on SGYP. I seem to recall that they have two drugs in phase 3 trials and one with a new drug application submitted. Do they have anything on the market already that disappointed? Trying to understand why they are being punished for earnings when it seems this is a future earnings play?curious to know if you have more insight on how patient we need to be here? 

  130. SGYP…nothing on the market.  They have an IBS drug that is more potent than IRWD, and a better safety profile, so…..we are waiting for the NDA to get through the process.  If it hits, and it should IMHO, the stock will rocket up to the $8 – 10 area.  That is what we are playing.

    Earnings…who cares.  They make no money.  They have 61M in cash.  They should be fine.

  131. Maya 

    RH you asked me what to do on RH and I said to you buy more stock.

    Here the result of my operation 

    Originally I bought 200 stk @ 50.50 = 10100.00 By mistake I did sell 3x Mar. 50 opt for 3.54 credit 1062.00 I expect they will be worthless.

    I bought 200 more stock @ 38.70 = 7740.00 today's value @ 40.43 capital gain 346.00 

    so up to now my credit is 1408.00

    If I would now sell an other 4 x Apr 45 c @ 1.55 = 620.00 and possible the stock will not be up 5$ by Apr my potential credit would be 2028.00. This will wipe out the complete loss by the above taken action.

    Here again I am not including any potential capital gains from 40.43 to 45.00.

    AS you can see by having sold the original caller with a good down site protection, saved the day. I still have the stock and and will carry on selling future calls against it. By looking only to make 2% per month most of my Stock B/R should make a profitable 24% per year. But set backs like this can make a bit of a dent in ones calculation. 

    Did you actually enter the original play and doubled your stock holding as I suggested.???

    Hope you read this message. 

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  163. Hi Yodi

    Thanks for the explanation- 

    However, I did not get into the trade- I read a lot on this site, but make very few trades.

    I enjoy the process, but am conservatively invested.

  164. Phil – could you share rustle contact info?


  165. Allocations/EmailMike – That's a good question.  It's pretty arbitrary, on the whole, but the point is to have a goal.  So, if you have $125,000 cash, then you have $250,000 in buying power and that means the blocks you want to end up owning (assuming the puts get assigned) don't go over $25,000.  That's the rule of thumb to keep you safe, however, that's not what I practice in the Butterfly Portfolio as I tend to make my own evaluations on what's "safe" – even though we're working with a $100,000 base (now $200,000).  I did, however, start out small and, as we became successful, I added risk I never would have taken in early stages.  

    For example, we now have 20 DIS 2018 $90 puts.   We have them because DIS went heavily against us and we had to DD and clearly we don't REALLY want to own $180,000 worth of Disney ($90,000 in margin) but the margin on the trade is "only" $27,528 and we do have a lot of confidence that $90 is a bottom for DIS and we stand to make $20,600 if we're right.  We also have a 20-unit bull call spread to match.  

    The key is, if push comes to shove and we need margin, we could take a $5,000 loss on DIS (less cash) and get back $27,528 in margin.  At the moment, we don't have the need and hopefully never will but, obviously, this is not a typical Butterfly play anymore – just one that turned into a long-term bullish position as it played out. 

    With AAPL we have 5 short puts so that's a $25K allocation if assigned.   10 WMT $55 puts would be about $25K margin if assigned as would TXN (10 $52.50s), PG (10 $75s), and UNG ($45 $12s).  VLO is a bit over with 13 $60 puts but that too was circumstances that led us to get aggressive (hard to argue when they are up 30%) and LNC has 20 $45 puts for a double allocation but again, we were in trouble but still believe.  As they stand, the LNC puts are down $4,250 but, between now and July, we'll likely release that $15,000 margin requirement as well.  

    If we weren't up $100K, we'd be playing it more conservatively or if we thought the markets hadn't bottomed at 1,850 but, so far, all signs say they have (though we'll see next week after the so far, ineffective G20 meeting).  

    So, rules are meant to be broken but first you should follow them, get your 10,000 hours and then consider breaking a couple and seeing how that goes for you.  I was just having that conversation with Maddie about driving as she's now learning and is horrified at how many rules I routinely break when I drive (speed limit, rolling stops when no one is around, passing on the right, speeding up for yellow lights, failure to indicate, hands not in 10 to 2 position…).  I slowed down to 25 (our town limit) to drive home and we quickly had a dozen cars behind us getting very annoyed.  I did the same on the highway and we almost got killed going 55.  Yes, you MUST learn the rules but experience will tell you which ones you can break (driving 65 in Jersey is still the slow lane) and which ones you need to follow (red lights spring to mind).  

    There's also the risk tolerance factor.  I have a clean driving record with no points and can afford a good lawyer so I'm more comfortable breaking the rules than she should be with a permit that will be confiscated if she gets a ticket.  That's no different in a trading account – can you afford the risk you are taking?  You have to be able to make a realistic assessment of  both the risk and your ability to recover should a worst-case occur.  THEN the amount of your allocations will seem obvious to you.

    Also, with the Butterfly, keep in mind that our normal set-ups have low risk but, unfortunately, we no longer have normal set-ups because we went very bullish at the bottom last month. Well, TXN is normal, so let's talk about that.  We have the long 2018 $55/65 bull call spread and the long Jan $43 puts against which we only sold the April $52.50 puts (because we got bullish and bought the calls back).  So what's our risk?  It's not being assigned TXN at $52.50 ($52,500 on 10 contracts) because we own the long puts so the risk is only the $9,500 spread – at worst.  Even better, as the $52.50 puts go in the money (now $53.30 so on track) the $43 puts would gain too so the net $9,500 is very unlikely to happen – it's just the worst case if we woke up tomorrow and TXN was BK (happened to GTAT, so don't laugh) with no warning.  

    There's another good point, for additional safety, stick to blue chips!  Anyway, so what's my total risk on TXN?  Just $9,500, not $52,500 – again, you have to understand what you are trading and why and how the options work to properly understand risk.  So, for me, TXN is filed away as no allocation risk (won't go near my $40K on $200,000), which is why I'm comfortable allocating $50K of "risk" to one of my other blocks.  

    • AAPL, though it is 5 naked $85 2018 puts I don't consider a risk because I'd be shocked beyond belief if AAPL were below $75 and we sold the puts for $11.60 so again, no risk on that trade – half a block to be conservative.    
    • DIS has a risk but not 100% down as it's a true Blue Chip that bottomed out at 50% below it's all-time high in 2009 and now the high is $120 so say $60 or even say $50 and that's -$45 x 20 contracts is $90,000 is $45,000 (one allocation block) max loss which I very much doubt would happen.  
    • So, in my mind for DIS, that's a full allocation block used.  
    • GLD I'm also not worried but call it half a block.
    • LNC – full block.
    • OIH – Half block (ETFs don't go BK) 
    • PG – Blue chip, half block.
    • UNG – Inexplicably bad performance so full block
    • VLO – Full block (conservative) 
    • WMT – Half block.

    So, when I look at the portfolio, I figure we're using 6.5 of our 10 allocation blocks which means we COULD add 3 more positions but I won't when we're skewed this bullish.  As with driving, you always have to make adjustments but the more you drive, the better you know the roads and the easier the trip gets!  

    PCE/Naybob – Huge rise in auto loans and student loans is keeping loans up but that is why I was not bullish on the markets at 2,100 – you can't get blood from a stone and, until wages rise further, the consumers are stretched to the max already, sacrificing consumption to pay for the bigger things as best they can.  Keep in mind, the average age of the US auto fleet hit 11.5 years – not many people WANT a car that's 11 years old – it just worked out that way as people skipped a whole new car cycle between 2008 and 2010.  I'm contributing to the problem with my '68 Mustang too.  cheeky

    So it's not because people are particularly confident that they are taking out new car loans, it's just that the old cars were getting so old they cost more to fix than payments on a new one and people finally reach the breaking point and capitulate and take on another debt.  Anyway, that all goes towards why I feel the S&P has a hard ceiling at 2,100 until wages increase substantially in the US and I don't mean CEO salaries and Wall Street bonuses!  

    /NGK6/Cordoor – Well I went from 10 to 20 on the way down yesterday and all under $1.825 and had $1.80 not held I would have been looking at losing $2,000 per penny so not for the feint of heart!  $2.17 to $1.99 is doing a fantastic job.  If you have 6, that's $600 per penny and you have to consider the risk if $1.80 doesn't hold as there's no real support below that until maybe $1.65 ($9,000).  So, below $1.80 you may want to lighten up (I would) and see how far down it goes.  That was my logic adding 10 near the $1.80 line – I wasn't going to take an additional $15,000 loss going to $1.65 but, rather, I was thinking the most I would lose (extra) is about $2,500 if we fell from $1.85 to $1.80 with 10 more contracts before I stopped out of at least the 10 new ones.  Since the potential reward (as we discussed earlier in the day) was 0.02 – 0.05, the rewards outweighed the risk AND I felt that the chance of reward was more than a coin flip so basically a no-brainer to add more shares given the possible outcomes (game theory is very important in trading!) 

    Meanwhile, I'm not happy with the /NG action and the revised numbers for exports push back the time-frame in which we'll see any serious effect in inventories out to Sept or later so now I'm only counting on the story of the exports adding interest to the /NG contracts in the next 30 days and my exit target is now down to $2.20 from $2.50 as we're just not going to have any cold weather or any drop in record-high inventories to justify a better run.  

    You can't use the 5% Rule on /NG because you are unable to justify that $2.50 (the midway point) is the "right" price for /NG.  The 5% Rule (remember my Levis example?) depends very much on first identifying the VALUE of the thing you are looking at.  In absense of you having an idea of value, the 5% Rule will tell you if the value is there so, for /NG we have:

    If $3.50 were the "right" price, we would have expected the run to $1.80 (-$1.70) to have 0.35 (rounding up) and 0.70 (strong) bounces THAT HOLD and that did not happen.  We failed at $2.50 and that indicates $3.50 was too high for the top of the new range.  The weak bounce line was $2.15 and that held for another bounce that failed to make $2.50 and then it failed on the next test and now we're back to $1.80 and that MUST HOLD or we're forced to assume that we'll see a 10% ($1.65) or 20% ($1.50) correction and, possibly, $1.80 is now the CORRECT price for /NG.  That would really suck for our longs so we hope (not a valid strategy) that doesn't happen.

    We haven't yet gotten a 2nd bounce from $1.80 but notice $1.75 is 1/2 of $3.50 so that BETTER be bouncy and the same 0.35 from there is $2.10 but now we have to watch to see if the 5% lines around $1.75 act as resistance ($1.84 and $1.93) because, if they do, then we'll be lucky to see $2.15 again.   

    As you can see, $1.84 was a point of contention from 2/19 – 2/24 and, if we have trouble getting back over it, this trade may be dead (and, of course, these numbers are for /NG's front-month, the K6 contract is 0.08 higher). 

    That's the biggest mistake chart people make, they don't let go of the highs or the lows but sometimes fundamentals change along the way and, when they do, then the old charts are pointless.  It's like clocking your car's top speed and fuel consumption on tracks with a 4-cylinder engine and then putting in a V8 and expecting the same results – that's clearly idiotic – yet that's what chart people do every day when they ignore changing fundamentals.  

    As I've often noted about the Dow, they are not even the same components and the Nasdaq has completely changed their formula yet people look at 5 and 10-year charts as if they mean something and analysts are always saying "we're back at the 2007 highs" when half of the Fincancials from 2007 don't even exist anymore.  How can you possibly compare them?  

    G20/Craigs – Little things drip out all weekend (see news under new post) but there's an official communique probably released tonight but already it seems they are saying no new QE stimulus and they are begging the Governments to do some infrastructure spending to boost the economies (sure, NOW they listen to me!). 

    SGYP/Pharm, Craigs – They have 3 quarters worth of money at the current burn rate ($22M) so it's all about the timing.  In any given quarter, if no positive guidance or end dates are given, people get nervous as they have, at most, 6 months before they have to give out more shares (dilution) to raise more cash.  Without an approval, they'll be raising cash at $3 or less.  With an approval, they may be raising cash at $6+ and then you don't mind new shareholders coming in.  

    The good news is they have 2018 options and you can pick up the $2 calls for $2.20 and sell the $4 calls for $1.40 and that's net 0.80 on a $2 spread with no margin.  That's how I like to gamble on these.  If they do have another raise and they drop down AND you still like the prospects, THEN you can sell the $2 puts (now 0.65) for $1+ but, with a 150% upside on the spread if they even twitch higher from here ($3.40) - I don't see the point in being greedy.  

    Rustle/Bulls – Sent. 

  166. Phil- Thank you for the detailed explanation.  A big key for me was the emphasis on personal risk tolerance.  That was very helpful in visualizing how I would set up one of these positions in my portfolio.  

    Btw good luck with the driving lessons.  Looking back I'm not sure how I didn't give my Dad a heart attack when I was learning lol!

  167. You're welcome Mike.